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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
1000 Ashland Drive
Russell, Kentucky 41169
Telephone Number: (606) 329-3333
Securities Registered Pursuant to Section 12(b):
Name of each exchange
Title of each class on which registered
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Common Stock, par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
Rights to Purchase Cumulative Preferred Stock, New York Stock Exchange
Series of 1987 and Chicago Stock Exchange
$3.125 Cumulative Convertible Preferred Stock New York Stock Exchange
6 3/4% Convertible Subordinated Debentures, New York Stock Exchange
due 2014
Securities Registered Pursuant to Section 12(g): 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 ]
At October 31, 1995, based on the New York Stock Exchange closing
price, the aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $1,618,029,653. In determining this
amount, Ashland Inc. has assumed that directors, certain of its executive
officers, and persons known to it to be the beneficial owners of more than
five percent of its common stock are affiliates. Such assumption shall not
be deemed conclusive for any other purpose.
At October 31, 1995, there were 63,741,478 shares of Registrant's
common stock outstanding.
Documents Incorporated by Reference
Portions of Registrant's Annual Report to Shareholders for the fiscal
year ended September 30, 1995 are incorporated by reference into Parts I
and II.
Portions of Registrant's definitive Proxy Statement for its January
25, 1996 Annual Meeting of Shareholders are incorporated by reference into
Part III.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business .................................................... 1
Corporate Developments.............................. 1
Petroleum........................................... 2
SuperAmerica........................................ 4
Valvoline........................................... 5
Chemical............................................ 6
APAC................................................ 7
Coal................................................ 8
Exploration......................................... 10
Other Business...................................... 13
Miscellaneous....................................... 13
Item 2. Properties................................................... 16
Item 3. Legal Proceedings............................................ 16
Item 4. Submission of Matters to a
Vote of Security Holders................................... 16
Item X. Executive Officers of Ashland................................ 17
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters.................................... 18
Item 6. Selected Financial Data...................................... 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 18
Item 8. Financial Statements and Supplementary Data.................. 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant........... 18
Item 11. Executive Compensation....................................... 18
Item 12. Security Ownership of Certain Beneficial
Owners and Management...................................... 19
Item 13. Certain Relationships and Related Transactions............... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................ 19
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22, 1936,
with its principal executive offices located at 1000 Ashland Drive,
Russell, Kentucky 41169 (Mailing Address: P.O. Box 391, Ashland, Kentucky
41114) (Telephone: (606) 329-3333). The terms "Ashland" and the "Company"
as used herein include Ashland Inc. and its consolidated subsidiaries,
except where the context indicates otherwise.
Ashland's businesses are grouped into seven industry segments:
Petroleum, SuperAmerica, Valvoline, Chemical, APAC, Coal and Exploration.
Financial information about these segments for the five fiscal years ended
September 30, 1995 is set forth on Pages 58 and 59 of Ashland's Annual
Report to Shareholders for the fiscal year ended September 30, 1995
("Annual Report").
Ashland Petroleum is one of the nation's largest independent petroleum
refiners and a leading supplier of petroleum products to the transportation
and commercial fleet industries, other industrial customers and independent
marketers, and to SuperAmerica for retail distribution. In addition,
Ashland Petroleum gathers and transports crude oil and petroleum products
and distributes petroleum products under the Ashland(R) brand name.
SuperAmerica operates combination gasoline and merchandise stores under the
SuperAmerica(R) and Rich(R) brand names. Valvoline is a marketer of
branded, packaged motor oil and automotive chemicals, antifreeze, filters,
rust preventives and coolants. In addition, Valvoline is engaged in the
"fast oil change" business through outlets operating under the Valvoline
Instant Oil Change(R) and Valvoline Rapid Oil Change(R) names.
Ashland Chemical distributes industrial chemicals, solvents,
thermoplastics and resins, and fiberglass materials, and manufactures a
wide variety of specialty chemicals and certain petrochemicals. APAC
performs contract construction work including highway paving and repair,
excavation and grading, and bridge and sewer construction, and produces
asphaltic and ready-mix concrete, crushed stone and other aggregate,
concrete block and certain specialized construction materials in the
southern United States.
Ashland's coal operations are conducted by 54% owned, publicly traded
Ashland Coal, Inc. ("Ashland Coal"), a producer of low-sulfur, bituminous
coal in central Appalachia for sale to domestic and foreign electric
utility and industrial customers. Ashland also holds a 50% interest in Arch
Mineral Corporation ("Arch"), a producer of low sulfur coal and steam and
metallurgical coal in Illinois, Kentucky, West Virginia and Wyoming.
Ashland Exploration explores for, develops, produces and sells crude oil
and natural gas principally in the eastern and Gulf Coast areas of the
United States, explores for and produces crude oil in Nigeria for export
and explores for oil and gas in other international areas.
At September 30, 1995, Ashland and its consolidated subsidiaries had
approximately 32,800 employees (excluding contract employees).
CORPORATE DEVELOPMENTS
During fiscal 1995, Ashland filed a universal shelf registration
statement with the Securities and Exchange Commission to allow for
offerings from time to time of up to $600 million in debt and/or equity
securities. Ashland has filed amendments to this shelf registration
statement to allow for offerings from time to time of up to $200 million in
medium-term notes and $100 million in shares of Ashland Common Stock. As of
September 30, 1995, $46 million of the medium-term notes and $51.3 million
of Ashland Common Stock (1,428,600 shares) had been issued.
Columbia Gas Transmission and Columbia Gas Systems (collectively
"Columbia"), as part of their reorganization plans filed with the U.S.
Bankruptcy Court in Delaware, included a proposed settlement agreement with
certain gas producers, including Ashland, which resolved claims between
Ashland and Columbia. The settlement agreement provided that Columbia would
pay Ashland $78.5 million, of which 5% would be withheld to potentially
satisfy claims of other non-settling gas producers. Ashland received its
payment of $74,575,000 in November, 1995.
Effective September 30, 1995, Ashland adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
result, Ashland recorded an after tax charge of $54 million to write down
certain assets to their fair value. In addition, after tax charges of $25
million related to early retirement and restructuring programs were
incurred, reflecting efforts by Ashland Petroleum and other divisions to
reduce their costs and improve their competitive positions.
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PETROLEUM
Ashland Petroleum, a division of Ashland, has responsibility for
obtaining Ashland's crude oil requirements, operating Ashland's refineries
and marketing the refined petroleum products, and transporting and storing
crude oil and refined products.
CRUDE OIL SUPPLY
The crude oil processed in Ashland Petroleum's refineries is obtained
from negotiated lease, contract and spot purchases or exchanges. During
fiscal 1995, Ashland Petroleum's negotiated lease, contract and spot
purchases of United States crude oil for refinery input averaged 110,185
barrels per day (1 barrel = 42 United States gallons), including 94,476
barrels per day which were acquired through Ashland's Scurlock Permian
subsidiary. Purchases from Canada averaged 87,327 barrels per day during
fiscal 1995, including 68,303 barrels per day acquired through Scurlock
Permian's Canadian subsidiary. The balance of Ashland Petroleum's crude oil
requirements during fiscal 1995 were met largely through purchases from
various foreign national oil companies and producing companies. Purchases
of foreign crude oil (including Canada) represented 68% of Ashland
Petroleum's crude oil requirements during fiscal 1995 compared to 65%
during fiscal 1994.
Ashland Petroleum's crude oil requirements in fiscal 1996 are expected
to be met through contract and spot purchases from United States
independent producers and from various foreign national oil companies and
traders as worldwide availability and prices dictate. Ashland's share of
Nigerian production will either be sold, traded or used to help satisfy
part of Ashland Petroleum's fiscal 1996 crude oil requirements, depending
upon world crude oil prices and other economic factors. For further
information concerning Nigerian production, see "Exploration-International
Operations."
In addition to providing crude oil for Ashland Petroleum's refineries,
Scurlock Permian is actively engaged in purchasing, selling and trading
crude oil, principally at Midland, Texas; Cushing, Oklahoma; and St. James,
Louisiana, three of the major distribution points for United States crude
oil.
REFINING AND MARKETING
Ashland Petroleum owns and operates three refineries located in its
key markets with an aggregate refining capacity of 354,200 barrels of crude
oil per day. The Catlettsburg, Kentucky refinery has a refining capacity of
219,300 barrels per day and the St. Paul Park, Minnesota and Canton, Ohio
refineries have refining capacities of 69,000 barrels and 65,900 barrels
per day, respectively. Ashland Petroleum's refineries are complex and
include crude oil atmospheric and vacuum distillation, fluid catalytic
cracking, catalytic reforming, desulfurization and sulfur recovery units.
Each has the capability to process a wide variety of crude oils and to
produce normal refinery products, including reformulated gasoline. In
addition, the Catlettsburg refinery is equipped to manufacture lubricating
oils and a wide range of petrochemicals.
Ashland Petroleum's principal marketing area for gasoline and fuel
oils includes the Ohio River Valley, the upper Midwest, the upper Great
Plains and the southeastern United States. In addition to gasoline and fuel
oils, Ashland also manufactures and markets liquified petroleum gas,
asphalt and asphaltic products, pitch, base lube stocks, kerosene,
petrochemicals, jet fuels, and residual fuels.
Ashland Petroleum's production of gasoline, kerosene, and light fuel
oils is sold in 21 states through wholesale channels of distribution
(including company owned and exchange terminals and Ashland Branded bulk
plants) and at retail through Ashland's retail outlets and Ashland(R) brand
locations. Gasoline is sold at wholesale primarily to independent
marketers, jobbers, and chain retailers who resell through several thousand
retail outlets primarily under their own names, and also under the
Ashland(R) brand name. Gasoline, kerosene, distillates, and aviation
products are also sold to utilities, railroads, river towing companies,
commercial fleet operators, aviation and airline companies, governmental
agencies and other end users.
Ashland Petroleum also markets petroleum products under the Ashland(R)
brand name through a network of 83 (72 owned and 11 leased) bulk plants
located in 5 states. These plants maintain inventories of gasoline,
distillate, kerosene, motor oils, greases and other related products.
Ashland supplies 71 (60 owned and 11 leased) Ashland(R) brand
lessee-dealers and 336 reseller outlets. In 1994, Ashland Petroleum
announced a new program to modernize and upgrade Ashland Branded retail
marketing. This program focuses on expanding the Ashland(R) brand through
an independent jobber network. Several jobbers have committed to the new
program, and Ashland Petroleum has sold or transferred company owned or
leased bulk plants and stations to some of these jobbers. Retail outlets
will be reimaged, including the use of the new Ashland(R) brand logo to
improve customer recognition and use of Ashland(R) brand locations. Ashland
Petroleum currently plans to continue expanding the Ashland(R) brand
through jobbers, and company owned or leased bulk plants will be sold to
jobbers in the process. It also plans to have approximately 225 units
reimaged by calendar year-end 1995.
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Sales of gasoline (excluding excise taxes) represented approximately
17%, 18% and 20% of Ashland's consolidated sales and operating revenues
(excluding excise taxes) in fiscal years 1995, 1994 and 1993, respectively.
Sales of crude oil represented approximately 7%, 8% and 10% of Ashland's
consolidated sales and operating revenues (excluding excise taxes) in
fiscal years 1995, 1994 and 1993, respectively.
Ashland Petroleum also produces and markets asphalt cements,
polymerized asphalt, asphalt emulsions, and industrial asphalts in the
United States. Ashland Petroleum markets asphalt products in 21 states.
Additionally, Ashland Petroleum manufactures petroleum pitch, primarily
used in the graphite electrode, clay target and refractory industries.
Ashland Petroleum produces residual fuels at its three refineries and
markets and sells these products in nine states, primarily to industrial
customers as boiler fuel.
The table below shows Ashland's refining operations for the last three
fiscal years:
Years Ended September 30
------------------------------------
1995 1994 1993
----- ----- -----
Refinery Input (In thousands of barrels per day) 353.8 341.8 339.7
------------------------------------------------
Refinery Production (In thousands of barrels per day)
-----------------------------------------------------
Gasoline 176.8 168.0 166.8
Distillates and Kerosene 92.5 90.6 88.6
Asphalt 31.5 29.3 27.4
Jet and Turbine Fuel 11.1 10.9 12.2
Heavy Fuel Oils 6.7 7.7 9.0
Lubricants 7.7 7.6 7.6
Other 16.8 16.8 17.0
The table below shows the average daily consolidated sales of
petroleum products and crude oil by Ashland Petroleum, SuperAmerica,
Valvoline and Exploration (excluding intercompany sales) for the last three
fiscal years:
Years Ended September 30
------------------------------------
1995 1994 1993
----- ----- -----
Consolidated Product Sales (In thousands of barrels per day)
------------------------------------------------------------
Gasoline 193.7 181.9 182.1
Crude Oil 131.8 142.1 150.3
Distillates and Kerosene 102.8 97.0 93.0
Asphalt 36.8 34.3 31.4
Jet and Turbine Fuel 9.6 10.9 11.2
Heavy Fuel Oils 7.1 8.4 9.7
Lubricants 15.0 14.7 15.6
Other 28.3 23.3 21.3
TRANSPORTATION AND STORAGE
Ashland owns, leases, or has an ownership interest in 5,790 miles of
pipeline in 13 states. This network transports crude oil and refined
products to and from terminals, refineries and other pipelines. This
includes 2,287 miles of crude oil gathering lines, 2,987 miles of crude oil
trunk lines, 475 miles of refined product lines and 41 miles of natural gas
liquid lines.
Ashland has an 18.6% ownership interest in LOOP INC. ("LOOP"), the
only U.S. deep water port facility capable of receiving crude oil from very
large crude carriers and which has a capacity to off-load 1,000,000 to
1,200,000 barrels per day. Ashland also has a 21.4% ownership interest in
LOCAP INC. ("LOCAP") which has a capacity of 1,200,000 barrels per day and
a 21.6% undivided ownership interest in the Capline Pipeline System which
has a nominal capacity of 1,175,000 barrels per day. LOCAP owns a pipeline
connecting LOOP and the Capline System that originates at St. James,
Louisiana. These port and pipeline systems provide Ashland Petroleum with
access to common carrier transportation from the Louisiana Gulf Coast to
Patoka, Illinois. At Patoka, the Capline System connects with other common
carrier pipelines owned or leased by Ashland which
3
provide transportation to Ashland Petroleum's refineries in Kentucky and
Ohio. For summarized financial statements and information with respect to
advances and transportation payments made by Ashland to LOOP and LOCAP, see
Notes D and G of Notes to Consolidated Financial Statements in Ashland's
Annual Report.
In addition, Ashland owns a 33% stock interest in the Minnesota Pipe
Line Company, which owns a crude oil pipeline in Minnesota. Minnesota Pipe
Line Company provides Ashland Petroleum with access to 270,000 barrels per
day of crude oil common carrier transportation from Clearbrook, Minnesota
to Cottage Grove, Minnesota, which is in the vicinity of Ashland
Petroleum's St. Paul Park, Minnesota refinery.
Ashland Petroleum's river transportation operations include 8 towboats
(6 owned, 2 leased) and 165 barges that transport crude oil and refined
products on the Ohio, Mississippi and Illinois rivers, their tributaries,
and the Intracoastal Waterway. In 1995, Ashland entered into an agreement
with Jeffboat, a division of American Commercial Marine Service Company, to
construct 42 new double-skin inland river tank barges. These barges will
replace current single-skin barges owned and operated by Ashland in order
to comply with requirements of the Oil Pollution Act of 1990. See also
"Miscellaneous-Governmental Regulation and Action-Environmental
Protection."
Ashland Petroleum leases on a long-term basis two 80,000 ton
deadweight tankers which are normally used for third party delivery of
foreign crude oil to the United States. Additional requirements are met by
chartering tankers for individual voyages.
Ashland Petroleum leases rail cars in various sizes and capacities for
movement of petroleum products and chemicals. Ashland Petroleum also owns a
large number of tractor-trailers, additional trailers, and a large fleet of
tank trucks and general service trucks.
Ashland Petroleum owns or has an interest in 35 terminal facilities
from which it sells a wide range of petroleum products. These facilities
are supplied by a combination of river barge, pipeline, truck and rail.
Ashland Petroleum also owns or operates a number of other terminals that
are used in connection with the transportation of petroleum products or
crude oil.
OTHER MATTERS
For information on federal, state and local statutes and regulations
relating to releases into the environment or protection of the environment,
see "Miscellaneous-Governmental Regulation and Action-Environmental
Protection." For information relating to certain environmental litigation,
see "Legal Proceedings-Environmental Proceedings."
There are traditional seasonal variations in Ashland Petroleum's sales
and operating results. The seasonality that Ashland Petroleum experiences
is due primarily to increased demand for gasoline during the summer driving
season, higher demand for distillate during the winter heating season, and
increased demand for asphalt from the road paving industry during the last
six months of Ashland's fiscal year. The refining industry experiences a
similar seasonality. For Ashland's fiscal years 1993 to 1995, refining
margins for Ashland Petroleum have averaged $3.79 per barrel for the
six-month periods ended March 31 and $4.53 per barrel for the six-month
periods ended September 30.
SUPERAMERICA
SuperAmerica Group, a division of Ashland, conducts retail petroleum
marketing operations under the SuperAmerica(R) and Rich(R) names. See also
"Petroleum-Refining and Marketing."
SuperAmerica(R) Stores - SuperAmerica operates 609 (507 owned and 102
leased) combination gasoline and merchandise stores in 11 states in the
Ohio Valley and Upper Midwest under the SuperAmerica(R) name. These stores
are designed for high volume sales. SuperAmerica stores offer consumers
gasoline, diesel fuel at selected locations and a broad mix of other goods
and services such as fresh-baked goods, automated teller machines, video
rentals, automotive accessories and a line of private-label items.
SuperAmerica is also adding to its one-stop shopping concept by partnering
with fast food chains including Taco Bell, Subway, TCBY, Arby's and
Blimpies. During fiscal 1995, 40% of the revenues of the SuperAmerica
stores were derived from the sale of merchandise and 60% of such revenues
were derived from the sale of gasoline and diesel fuel.
SuperAmerica operates warehouse distribution centers in Bloomington,
Minnesota, and Ashland, Kentucky, that distribute certain merchandise to
stores. SuperAmerica also operates a commissary in Russell, Kentucky, that
produces fresh sandwiches, salads and other food products for distribution
to stores in the Ohio Valley. A
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wholly-owned subsidiary of Ashland also operates a large bakery and
commissary in St. Paul Park, Minnesota, under the name SuperMom's(R) Inc.
In addition to the 609 SuperAmerica stores, SuperAmerica has 28
jobber/franchisees who operate 40 stores in 3 states in the upper Midwest.
Rich(R) Oil - SuperAmerica also operates 95 (76 owned and 19 leased)
retail gasoline outlets in Kentucky, Ohio and West Virginia under the
Rich(R) Oil name. These outlets generate lower gasoline volumes than the
average SuperAmerica store, primarily because the outlets are generally
smaller and located in less-densely-populated areas.
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of
automotive and industrial oils, automotive chemicals, and automotive and
environmental services, with sales in more than 140 countries. The
Valvoline(R) trademark was federally registered in 1873 and is the oldest
trademark for a lubricating oil in the United States. See also
"Petroleum-Refining and Marketing." Valvoline has diversified its
operations in recent years and is comprised of the following business
units:
Valvoline U.S.A. - In 1995, Valvoline combined its Branded Sales and
Car Care Products Groups to form Valvoline U.S.A. Prior to the change,
Branded Sales was Valvoline's largest business unit, marketing Valvoline(R)
brand lubricants to the U.S. consumer and commercial fleet markets. The Car
Care Products Group was responsible for marketing the company's growing
portfolio of automotive chemical products including Zerex(R) antifreeze,
Pyroil(R) automotive refrigerants, and Pyroil(R) and private label
automotive chemicals. The two groups were combined to improve sales,
marketing, and production efficiencies as well as to better serve the
company's network of U.S. distributors, retailers, and direct market
customers.
During fiscal 1995, marketshare for Valvoline(R) brand motor oil
increased; a new engine treatment product, TM8, was introduced; and
advertising and marketing for Zerex(R) brand antifreeze, which was
purchased from the BASF Corp. in 1994, was revamped. Although refrigerants
containing chlorofluorocarbons are now phased out of production, Pyroil
will continue to be a leading supplier of R-12 for air conditioning systems
for older cars until its inventory of R-12 is depleted. At the same time,
Pyroil is actively supporting an industry-wide transition to ozone-safe
refrigerants.
Valvoline International - Valvoline through wholly-owned subsidiaries,
markets Valvoline(R) branded products and TECTYL(R) rust preventives
worldwide and operates company-owned affiliates in Australia, Canada,
Denmark, Great Britain, the Netherlands, Sweden, Germany, Switzerland,
Austria, France, Italy and Belgium. Licensees and distributors market
products in other parts of Europe, Central and South America, the Far East,
the Middle East and certain African countries. Packaging and blending
plants and distribution centers in Australia, Canada, Denmark, Sweden,
Great Britain, the Netherlands and the United States supply international
customers. Through a joint venture with Western India Petroleum Ltd.,
Valvoline has announced plans to construct a blending and packaging plant
in India before the end of the decade.
Valvoline Instant Oil Change(R) ("VIOC") - VIOC is one of the largest
competitors in the expanding U.S. "fast oil change" service business,
providing Valvoline with a significant share of the installed segment of
the passenger car and light truck motor oil market. Incorporation of the
Valvoline name and trademark in VIOC's name, store signage and advertising
provides an ongoing Valvoline presence in the communities in which VIOC
stores are located. As of September 30, 1995, 365 company-owned and 90
franchise service centers were operating in 14 and 18 states, respectively.
In 1995, VIOC introduced the "MVP" (maximum vehicle performance)
program to maintain industry leadership in customer-service innovation. MVP
is a computer-based program that maintains service records on all customer
vehicles, system-wide. MVP also contains a database on all car makes and
models which allows service recommendations based strictly on vehicle
owner's manual recommendations.
Ecogard, Inc. - As of September 30, 1995, Ecogard, Inc., through its
First Recovery division, was collecting used motor oil at an annual rate of
43 million gallons from a network of automotive aftermarket retailers and
service businesses in 42 states. Completing Valvoline's "total fluid
management" approach to customer service, First Recovery provides an
environmental service to Valvoline U.S.A. customers, collecting used
antifreeze and oil filters as well.
5
Lube Refinery Sales - Valvoline's Lube Refinery Sales division sells
excess base stock production from the Catlettsburg, Kentucky lube refinery
to other U.S. motor oil and industrial oil marketers as well as to fuel and
lube additive companies in the United States. It also markets slack wax, a
lube byproduct, through a network of resellers and to other refiners for
further processing. The division is also engaged in private label blending
and packaging for other North American refiners. See also
"Petroleum-Refining and Marketing."
CHEMICAL
Ashland Chemical Company, a division of Ashland, is engaged in the
manufacture, distribution and sale of a wide variety of chemical and
plastic products. Ashland Chemical owns or leases 45 manufacturing
facilities in 11 states and 16 foreign countries and owns or leases 94
distribution facilities in 33 states and 11 foreign countries. Ashland
Chemical is comprised of the following operations:
DISTRIBUTION
Industrial Chemicals & Solvents Division ("IC&S") - IC&S markets
chemical products and solvents to industrial chemical users in major
markets through distribution centers in the United States, Canada and
Puerto Rico. It distributes approximately 3,500 chemical products made by
many of the nation's leading chemical manufacturers, a growing number of
off-shore producers, plus petrochemicals from Ashland's refineries. It
specializes in supplying mixed truckloads and less-than-truckload
quantities to many industries including the paint and coatings, inks,
adhesives, industrial and institutional compounding, automotive, appliance
and paper industries. In addition, IC&S distributes cosmetic and
pharmaceutical specialty chemicals and food-grade additives and
ingredients. It also offers customers environmental services, working in
cooperation with major chemical waste disposal, recycling and recovery
companies.
FRP Supply Division - This division markets to customers in the
reinforced plastics and cultured marble industries mixed truckload and
less-than-truckload quantities of polyester resins, fiberglass and other
specialty reinforcements, catalysts and allied products from more than 50
distribution locations throughout North America.
General Polymers Division - This division markets a broad range of
thermoplastic injection molding and extrusion materials to processors in
the plastics industry through distribution locations in the United States,
Canada, Mexico and Puerto Rico. It also provides plastic material transfer
and packaging services and less-than-truckload quantities of packaged
thermoplastics. The basic resins business unit markets bulk thermoplastic
resins to a variety of proprietary processors in North America.
Ashland Plastics Division - This division markets a broad range of
thermoplastics to processors outside North America. Ashland Plastics has
distribution centers located in Australia, Belgium, France, Italy, the
Netherlands, Ireland, New Zealand, and the United Kingdom and exports to
Latin America from the United States.
SPECIALTY CHEMICALS
Composite Polymers Division - This division manufactures and sells a
broad range of chemical-resistant, fire-retardant and general-purpose
grades of unsaturated polyester and vinyl ester resins for the reinforced
plastics industry. Key markets include the automotive, construction and
marine industries. It has manufacturing plants in Colton and Los Angeles,
California; Bartow, Florida; Ashtabula, Ohio; Philadelphia and Neville
Island, Pennsylvania and Jacksonville, Arkansas.
Specialty Polymers & Adhesives Division - This division manufactures
and sells specialty phenolic resins for paper impregnation and friction
material bonding; acrylic polymers for pressure sensitive adhesives;
emulsion polymer isocyanate adhesives for structural wood bonding;
polyurethane and epoxy structural adhesives for bonding fiberglass
reinforced plastics, composites, thermoplastics and metals in automotive,
recreational, and industrial applications; induction bonding systems for
thermoplastic materials; elastomeric polymer adhesives and butyl rubber
roofing tapes for commercial roofing applications; and vapor curing,
high-performance urethane coatings systems. It has manufacturing plants in
Calumet City, Illinois; Norwood, New Jersey; and Ashland, Ohio.
Drew Ameroid Marine Division - This division supplies specialty
chemicals for water and fuel treatment and general maintenance as well as
refrigeration services, sealing products, welding and refrigerant products
and fire fighting and safety services to the world's merchant marine fleet.
Drew Ameroid Marine currently provides shipboard technical service for more
than 15,000 vessels from 140 locations serving 800 ports throughout the
world.
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Electronic Chemicals Division - This division manufactures and sells a
variety of ultra high-purity chemicals for the worldwide semiconductor
manufacturing industry through various manufacturing locations and also
custom blends and packages high-purity liquid chemicals to customer
specifications. It has manufacturing plants in Newark, California; Milan,
Italy; Easton, Pennsylvania; and Dallas, Texas. In addition, it also enters
into long-term agreements to provide complete chemical management services,
including purchasing, warehousing and delivering chemicals for in-plant
use, for major facilities of large consumers of high-purity chemicals.
Foundry Products Division - This division manufactures and sells
foundry chemicals worldwide, including a complete line of foundry binders,
core and mold coatings, sand additives, mold releases, core pastes, die
lubes and other specialties. It has two domestic manufacturing plants
located in Cleveland, Ohio and 18 foreign subsidiaries and affiliates
manufacturing and/or marketing foundry and other chemicals. It also has a
metals applications laboratory as part of the company's technical center,
which is used for test castings and mold and core material testing.
Drew Industrial Division - This division supplies specialized
chemicals and consulting services for the treatment of boiler water,
cooling water, steam, fuel and waste streams. It also supplies process
chemicals and technical services to the pulp and paper and mining
industries and also supplies additives used in manufacturing latex and
paints. It conducts operations throughout North America, Europe and the Far
East through subsidiaries, joint venture companies and distributors. The
division has manufacturing plants in Kansas City, Kansas; Kearny, New
Jersey; Houston, Texas; Ajax, Ontario, Canada; and Singapore.
PETROCHEMICALS
This division markets aromatic hydrocarbons, principally cumene,
toluene, xylene, and aromatic and aliphatic solvents and propylene
manufactured at facilities located at the Catlettsburg, Kentucky refinery.
It manufactures maleic anhydride at Neal, West Virginia and Neville Island,
Pennsylvania and methanol near Plaquemine, Louisiana.
OTHER MATTERS
Melamine Chemicals, Inc. ("MCI") - Ashland owns 23% of the outstanding
common stock of MCI, a public company (NASDAQ:MTWO). MCI produces melamine
at its Donaldsonville, Louisiana plant and sells it to customers throughout
the world. Melamine is a specialty chemical having numerous industrial and
commercial applications.
For information relating to the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") and the Superfund Amendment and
Reauthorization Act of 1986 ("SARA") (CERCLA and SARA hereinafter sometimes
referred to collectively as "Superfund"), and the Resource Conservation and
Recovery Act ("RCRA"), see "Miscellaneous-Governmental Regulation and
Action-Environmental Protection."
APAC
The APAC group of companies, which are located in 13 southern states,
perform construction work such as paving, repair and resurfacing highways,
streets, airports, residential and commercial developments, sidewalks, and
driveways; grading and base work; and excavation and related activities in
the construction of bridges and structures, sanitary sewers, drainage
facilities and underground utilities. APAC also produces and sells
construction materials such as asphaltic and ready-mix concrete, crushed
stone and other aggregate, and in certain markets, concrete block and
specialized construction materials, such as architectural block.
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
14 permanent operating quarry locations, 29 other aggregate production
facilities, 30 ready-mix concrete plants, 143 hot-mix asphalt plants, and a
fleet of over 8,500 mobile equipment units, including heavy construction
equipment and transportation-related equipment.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 28% of the raw aggregate produced by APAC is used in
the performance of APAC's own contract construction work and the production
of various processed construction materials. The remainder is sold to third
parties. APAC also purchases substantial quantities of raw aggregate from
other producers whose proximity to the job site render it economically
feasible. Most other raw materials, such as liquid asphalt, portland cement
and reinforcing steel, are purchased from others. APAC is not dependent
upon any one supplier or customer.
Approximately 60% of APAC's revenues are derived from highway and
other public sector sources. The other 40% is derived from industrial and
commercial customers and other private developers and contractors.
7
Climate and weather significantly affect revenues in the construction
business. Due to its location, APAC tends to enjoy a relatively long
construction season. Most of APAC's operating income is generated during
the construction period of May to October.
Total backlog at September 30, 1995 was $672 million, compared to $554
million at September 30, 1994. The backlog orders at September 30, 1995 are
considered firm, and a major portion is expected to be filled during fiscal
1996.
COAL
Ashland Coal, Inc. ("Ashland Coal") - Ashland owns approximately 54%
of Ashland Coal, a public company (NYSE:ACI) which is engaged in the
production, transportation, processing and marketing of bituminous coal
produced in eastern Kentucky and southern West Virginia. Carboex
International Ltd., a subsidiary of Sociedad Espanola De Carbon Exterior,
S.A., a coal supply firm controlled by entities of the Government of Spain,
owns approximately a 10% interest in Ashland Coal. The remaining 36% of
Ashland Coal is owned by the public. The primary emphasis and direction of
Ashland Coal is on the acquisition and development of low-sulfur steam coal
reserves.
For its fiscal year ended December 31, 1994, Ashland Coal and its
independent operating subsidiaries sold 20.2 million tons of coal, as
compared to 16.0 and 19.1 million tons sold in 1993 and 1992, respectively.
Of the total number of tons sold during fiscal 1994, approximately 62% was
under long-term contracts, as compared to 57% for 1993 and 66% for 1992,
with the balance being sold on the spot market. In fiscal 1994, Ashland
Coal and its independent operating subsidiaries sold 1.7 million tons of
coal in the export market, compared to 2.1 million tons in 1993 and 3.9
million tons in 1992. Approximately 54%, 61%, and 71% of total revenues for
1994, 1993, and 1992, respectively, were derived from long-term contracts.
For the year ended December 31, 1994, Ashland Coal's independent operating
subsidiaries produced approximately 19.2 million tons of coal, as compared
to 14.2 and 16.7 million tons for 1993 and 1992, respectively. In addition,
Ashland Coal purchased for resale approximately 1.3 million tons of coal
during 1994 and approximately 1.6 and 2.0 million tons of coal during 1993
and 1992.
Ashland Coal's consolidated results for 1993 were significantly
affected by a selective strike by the United Mine Workers of America
("UMWA") from May to December 1993 against the operations of two
subsidiaries of Ashland Coal's Dal-Tex Coal Corporation subsidiary
("Dal-Tex") and the operations of Ashland Coal's Hobet Mining, Inc.
subsidiary ("Hobet"). On December 14, 1993, UMWA members ratified the
National Bituminous Coal Wage Agreement of 1993, and thereafter the UMWA
miners returned to work at the Dal-Tex and Hobet operations.
For the nine months ended September 30, 1995, Ashland Coal and its
independent operating subsidiaries sold 16.5 million tons of coal. Of the
total number of tons sold during the nine months ended September 30, 1995,
61.2% was under long-term contracts. These sales accounted for
approximately 63.2% of Ashland Coal's total revenues for the nine-month
period. Of the 16.5 million tons sold during the nine-month period, 2.1
million tons were sold in the export market. For the nine months, Ashland
Coal's independent operating subsidiaries produced approximately 15.7
million tons of coal and purchased approximately 1.0 million tons for
resale.
Ashland Coal has announced that it anticipates 1996 earnings will be
significantly adversely affected by the expiration at the end of 1995 of
favorable sales contracts with Cincinnati Gas & Electric Company and by
price reopeners under other supply contracts. In addition, Ashland Coal has
announced that its Board of Directors has authorized the repurchase, from
time to time, of up to one million shares of Ashland Coal's Common Stock.
The labor forces at Ashland Coal's Mingo Logan Coal Company subsidiary
("Mingo Logan") and Mingo Logan's Mountaineer Mining Company and Bearco
divisions are not currently unionized. However, in a National Labor
Relations Board ("NLRB") proceeding, Mingo Logan and certain other
employers with whom Mingo Logan contracts for construction and mining
services were determined to be joint employers by the Acting Regional
Director for NLRB Region 9. As a consequence of this ruling, the bargaining
unit at Mingo Logan's Mountaineer Mine for purposes of collective
bargaining has been determined to be comprised of employees of Mingo Logan
and its contractors, and these employees voted together on January 19,
1995, on the question of whether or not to be represented by the United
Mine Workers of America. The result of this vote, which was required by the
NLRB decision, is not yet known as the ballots have been sealed pending
appeal of the initial determination concerning the appropriate bargaining
unit. Mingo Logan has appealed the Acting Regional Director's decision to
the NLRB and expects to prevail in its appeal. If Mingo Logan does prevail
on appeal, the January 19, 1995 representation election results will be
invalidated.
8
Substantially all of Ashland Coal's coal properties are in eastern
Kentucky and southern West Virginia and are controlled by lease. Most of
these leases run until the exhaustion of minable and merchantable coal. The
remaining leases have primary terms ranging from one to 40 years, with many
containing options to renew. Royalties paid to lessors are either on a
fixed price per ton basis or on a percentage of the gross sales price
basis.
As of December 31, 1994, Ashland Coal estimates that its subsidiaries
controlled approximately 688 million tons of recoverable reserves in the
proven and probable categories. Based upon limited information obtained
from preliminary prospecting, drilling and coal seam analysis, Ashland Coal
estimates that a substantial percentage of this coal has a sulfur content
of 1% or less. Ashland has not made an independent verification of this
information. The extent to which reserves will eventually be mined depends
upon a variety of variables, including future economic conditions and
governmental actions affecting both the mining and marketability of
low-sulfur steam coal.
Arch Mineral Corporation ("Arch") - Ashland currently owns 50% of Arch
and has the right to acquire an additional 1.25% of Arch pursuant to a Put
and Call Agreement with an Arch shareholder. Through its wholly owned
subsidiaries, Arch mines, processes, markets, and transports bituminous
coal in the domestic and export steam and metallurgical markets and owns,
controls and manages mineral-bearing properties throughout the United
States. Arch has mines located in the Appalachian, Midwestern, and Western
coal fields with access to rail, inland waterway and truck transportation
networks, including several of its own transloading facilities. Arch also
controls undeveloped reserves in the San Juan Basin of New Mexico, the
Green River area in southwest Wyoming, southern Illinois, Indiana,
southeast Kentucky, western Virginia and southern West Virginia.
For its fiscal year ended December 31, 1994, Arch sold 27.9 million
tons of coal compared to sales of 17.6 million tons and 20.9 million tons
in 1993 and 1992, respectively. In 1994, 73% of Arch's sales were from the
production of its wholly owned independent operating subsidiaries, compared
to 79% and 82% in 1993 and 1992, respectively. The remainder of the coal
sold in each of these periods came from brokerage activities or from
independent contractors operating on property controlled by Arch. Surface
mines accounted for 52% of the production in 1994, as compared to 69% and
62% in 1993 and 1992, respectively. In each of these periods, the remainder
of Arch's production came from its underground and auger mines. Sales under
contracts with a duration of more than one year accounted for 69% of Arch's
sales in 1994, compared with 78% and 86% in 1993 and 1992, respectively.
As of September 30, 1995, Arch had 28 coal supply contracts of one
year or longer duration. In the nine-months ended September 30, 1995, Arch
sold 19.8 million tons of coal, 74% of which was sold under contracts with
a duration of more than one year. During this period, 77% of Arch's total
sales came from the production of its subsidiaries, while the remaining
coal sold came from brokerage activities or independent contractors
operating on properties controlled by Arch. During this nine-month period,
58% of Arch's production was from its surface mines and the remainder was
from its underground and auger mines.
As of December 31, 1994, Arch owned or controlled estimated
recoverable coal reserves in the proven and probable categories of
approximately 1.6 billion tons, based on an estimate prepared by Arch. A
majority of these reserves have a sulfur content of less than 1.6 pounds of
sulfur dioxide per million Btu and a substantial portion have a sulfur
content of less than 1.2 pounds of sulfur dioxide per million Btu. Ashland
has not made an independent verification of this information.
Apogee Coal Company ("Apogee"), an independent operating subsidiary of
Arch, is a member of the Bituminous Coal Operators Association ("BCOA") and
a signatory to a five year collective bargaining agreement with the UMWA
that expires on August 1, 1998. This contract was ratified on December 14,
1993, after a 219-day strike against certain BCOA members, including
Apogee. This strike significantly affected Apogee's performance in 1993. In
the nine months ended September 30, 1995, Apogee's production represented
approximately 50% of Arch's total sales. Two other independent subsidiaries
of Arch are signatories to collective bargaining agreements with
independent employees associations. Employees of the remainder of Arch's
operating subsidiaries are not represented by labor unions.
During 1995, Arch sold substantially all of the assets associated with
its mining supply business and its timber rights on certain of its
Appalachian properties, and acquired 32.7 million tons of additional
reserves.
Other Matters - Ashland Coal and Arch are subject to environmental
regulations, including the Surface Mining Control and Reclamation Act of
1977, the Clean Water Act, RCRA and the Clean Air Act, as well as related
federal environmental regulations and similar state enactments. In
addition, the Federal Mine Safety and Health Act of 1977 ("MSHA") imposes
health and safety standards on all mining operations. Regulations under
MSHA are comprehensive and affect numerous aspects of mining operations,
including the training of mine
9
personnel, mining procedures, blasting and the equipment used in mining
operations. These laws, regulations and requirements are not expected to
have a material adverse impact on Ashland Coal's or Arch's competitive
position.
Ashland Coal and Arch are subject to the provisions of the Coal
Industry Retiree Health Benefit Act of 1992. This legislation provides for
the funding of medical and death benefits for certain retired members of
the UMWA through premiums to be paid by assigned operators, transfers from
an overfunded pension trust established for the benefit of retired UMWA
members, and transfers from the Abandoned Mine Lands Fund, which is funded
by a federal tax on coal production.
For information relating to acid rain legislation, see
"Miscellaneous-Governmental Regulation and Action-Environmental
Protection."
EXPLORATION
Ashland's oil and gas exploration and production activities are
conducted through wholly owned subsidiaries of Ashland (collectively
referred to as "Ashland Exploration"). Ashland Exploration is currently
engaged in the exploration for and production of crude oil and natural gas
in the United States and in the exploration for and production of crude oil
in Nigeria. Exploration activity is also ongoing in Australia.
For information regarding Ashland Exploration's estimated oil and gas
reserves and other financial data, see Supplemental Oil and Gas Information
on Pages 60 and 61 in Ashland's Annual Report. Since October 1, 1994, no
estimates of Ashland Exploration's total proved net oil or gas reserves
have been filed or included in reports to any federal authority or agency
other than the SEC.
DOMESTIC OPERATIONS
Ashland Exploration has concentrated its domestic drilling and
production efforts in two core areas: the Appalachian Basin and the Gulf
Coast. In addition, minor royalty interests are located primarily in the
Southwest and Midcontinent regions of the United States.
In the Appalachian Basin, Ashland Exploration's activities consist
primarily of shallow gas development drilling on leaseholds totaling
approximately 917,000 acres in eastern Kentucky, Virginia and West
Virginia. In fiscal 1995, it completed 86 net gas wells, excluding 5 net
wells which were being drilled at year-end.
Ashland Exploration's exploratory efforts are concentrated along the
Gulf Coast. In fiscal 1995, Ashland Exploration participated in drilling 16
gross exploratory prospects. Ashland Exploration's exploratory leasehold
position in the Gulf of Mexico has risen to 164,000 net acres.
During fiscal 1995, Ashland Exploration's domestic production averaged
609 net barrels of oil per day and 103 million net cubic feet of natural
gas per day. The average price received during fiscal 1995 was $15.96 per
barrel of oil and $1.89 per thousand cubic feet (MCF) of gas.
Ashland Exploration owned a working interest in 4,269 gross (3,870
net) domestic producing wells at September 30, 1995.
INTERNATIONAL OPERATIONS
Ashland Exploration's oil production in Nigeria during fiscal 1995 was
18,800 barrels per day from 103,000 acres onshore ("OPL 118") and 74,000
acres offshore ("OPL 98") held under a production-sharing contract ("PSC")
with the Nigerian National Petroleum Corporation ("NNPC"), the Nigerian
state-owned petroleum company. Ashland Exploration has satisfied the
financial commitment required in the revised PSC by the drilling of three
exploratory wells during fiscal 1995. The first exploratory well came on
production in June 1995 at a rate of 2,000 barrels of oil per day. The
second well tested 2,500 barrels of oil per day and is currently being
evaluated. The third well was economically unsuccessful. Ashland
Exploration plans to drill two additional appraisal wells on OPL 98 during
fiscal 1996.
Other exploratory efforts in Nigeria will be carried out on two
additional offshore blocks ("OPL's 90/225") comprising a contract area of
approximately 580,000 gross acres under another production-sharing contract
with NNPC. Ashland Exploration holds a 50% interest in these blocks. The
first exploratory well drilled in 1994 was successful. A second exploratory
well drilled in fiscal 1995 was economically unsuccessful. Data from a 1995
seismic program is being evaluated currently. Ashland Exploration plans to
drill an appraisal well to the 1994 discovery and another exploratory well
on OPL's 90/225 in fiscal 1996.
10
In Australia, Ashland Exploration owns a 50% interest in one
exploration permit consisting of 335,000 gross acres and a 25% interest in
another exploration permit consisting of 590,000 gross acres, both of which
are located offshore western Australia. One unsuccessful exploratory well
was drilled in Australia in fiscal 1995.
Ashland Exploration's international operations are necessarily subject
to factors beyond its control. Foreign operations may also be affected by
laws and policies of the United States relating to foreign trade,
investment, and taxation.
OPERATING STATISTICS
ACREAGE AND WELLS
The following table sets forth the gross and net productive wells and
acreage at September 30, 1995:
Productive wells - Gas Gross Net
----- -----
United States ....................................... 4,269 3,870
Productive wells - Oil
United States........................................ 49 29
Nigeria ............................................. 36 36
----- -----
Total*.......................................... 4,354 3,935
===== =====
Developed Undeveloped
Acreage Acreage
------- -------
Acreage (in thousands) Gross Net Gross Net
----- --- ----- ---
United States........................................ 1,287 954 751 422
Nigeria ............................................. 177 177 580 290
Australia............................................ 925 315
----- ----- ----- -----
Total........................................... 1,464 1,131 2,256 1,027
===== ===== ===== =====
-----------------
* These wells include 342 gross wells (330 domestic and 12 international) and 293 net wells (281 domestic
and 12 international) which have multiple completions.
11
The following table summarizes the exploration and production activities
for the last three fiscal years:
Years Ended September 30
--------------------------------------------------
1995 1994 1993
---- ---- ----
Net Natural Gas Production (MMCF per day)
United States........................................ 102.9 94.3 99.3
Net Crude Oil Production (average barrels per day)
United States........................................ 609 822 1,001
Nigeria (1) ......................................... 18,791 18,707 21,660
------ ------ ------
Total........................................... 19,400 19,529 22,661
====== ====== ======
Average Sales Prices - Natural Gas (per MCF)
United States........................................ $ 1.89 $2.42 $2.45
Average Sales Prices - Crude Oil (per barrel)
United States........................................ $15.96 $14.29 $17.54
Nigeria ............................................. 16.17 15.01 17.77
Average Production Product Cost (per equivalent barrel) (2)
United States........................................ $4.09 $3.87 $3.84
Nigeria ............................................. 9.17 7.69 7.27
Net Exploratory Wells Drilled - United States
Net Productive Wells................................. 2 2 1
Net Dry Wells ....................................... 5 4 2
-- -- --
Total.......................................... 7 6 3
== == ==
Net Exploratory Wells Drilled - International
Net Productive Wells................................. 1 1 0
Net Dry Wells ....................................... 2 1 0
-- -- --
Total.......................................... 3 2 0
== == ==
Net Development Wells Drilled
Net Productive Wells
United States........................................ 88 59 84
International ....................................... 0 0 0
-- -- --
Total........................................... 88 59 84
== == ==
Net Dry Wells
United States........................................ 0 1 1
International ....................................... 0 0 0
-- -- --
Total........................................... 0 1 1
== == ==
[FN]
-----------------
(1)Net production for Nigeria is before royalty.
(2)Equivalent barrels computed on a six MCF to one barrel ratio.
12
OTHER BUSINESS
AECOM Technology Corporation ("AECOM"), which is 19% owned by Ashland,
provides a wide array of design, engineering, architectural, planning,
operations and maintenance, construction and construction management,
development, environmental and other technical and professional services to
industrial, commercial and government clients. AECOM is headquartered in
Los Angeles, California, and performs services through offices located
throughout the world. Under an agreement between AECOM and Ashland, AECOM
will be repurchasing all of Ashland's equity interest in AECOM with the
repurchase scheduled to be completed in stages through 1998.
Ashland, through a special purpose subsidiary, Ashland Ethanol, Inc.
("AEI"), has a 50% interest in a partnership that owns an ethanol plant
located in South Point, Ohio. The partnership is comprised of AEI and
subsidiaries of Ohio Farm Bureau Federation, Inc., Publicker Industries
Inc. and UGI Corporation. The plant began operation in September 1982 but
discontinued operations due to low margins in August 1995. Because of
concerns about the venture's long-term viability, Ashland wrote off its
investment in AEI in fiscal 1986. The partnership is in default under a
loan with the Farmers Home Administration with a balance due of
approximately $14.7 million plus interest and has an unpaid balance of
$24.5 million under a Department of Energy cooperative agreement.
MISCELLANEOUS
GOVERNMENTAL REGULATION AND ACTION
Ashland's operations are affected by political developments and laws
and regulations, such as restrictions on production, restrictions on
imports and exports, the maintenance of specified reserves, price controls,
tax increases and retroactive tax claims, expropriation of property,
cancellation of contract rights, environmental protection controls and laws
pertaining to workers' health and safety. As discussed in part below, a
number of bills have been enacted or proposed by the United States Congress
and various state governments which have or could have a significant impact
on Ashland.
General - As a refiner, Ashland is substantially affected by changes
in world crude oil prices. Many world and regional events can have
substantial effects on world crude oil prices and can increase volatility
in world markets. Ashland expects to be able to acquire adequate supplies
of crude oil at competitive prices. However, Ashland cannot predict whether
foreign and United States petroleum product price levels will permit its
refineries to operate on a profitable basis. Neither can it predict the
effect on its operations and financial condition from possible changes in
the Organization of Petroleum Exporting Countries ("OPEC") policies or in
actions by the President of the United States and the Congress, from
changes in taxes and federal regulation of the oil and gas business in the
United States, or from other developments that cannot be foreseen.
The stability of Ashland's crude oil supply from foreign sources is
subject to factors beyond its control, such as military conflict between
oil-producing countries, the possibility of nationalization of assets,
embargoes of the type imposed by OPEC in 1973, internal instability in one
or more oil-producing countries, and rapid increases in crude oil prices.
Although Ashland will continue, for economic reasons, to rely upon foreign
crude oil sources for a substantial portion of its crude oil supply, the
extent of operation in the domestic crude oil market afforded by Scurlock
Permian Corporation assists in offsetting the adverse effects frequently
associated with market volatility. See "Petroleum-Crude Oil Supply" for
Ashland's crude oil processing requirements.
Imported crude oil is subject at present to payment of duty, which is
10.5(cent) per barrel for crudes over 25(degree) API gravity (2.1(cent) per
barrel for Canadian imports) and 5.25(cent) per barrel for crudes below
25(degree) API gravity (1.05(cent) per barrel for Canadian imports).
Imported crude oil is also subject to a customs users fee of .17% of the
value of the crude oil. For information with respect to tax assessments on
crude oil, see also "Environmental Protection."
Retail marketing "divorcement" legislation and wholesale and retail
pricing regulations have been adopted in some states. They are proposed
from time to time in other states and at the federal level. If such
legislation were adopted at the federal level or in the states where
SuperAmerica sells petroleum products, it could have a substantial adverse
impact.
13
Environmental Protection - Federal, state and local statutes and
regulations relating to the protection of the environment have a
significant impact on the conduct of Ashland's businesses. Ashland's
capital and operating expenditures for air, water and solid waste control
facilities are summarized below.
Years Ended September 30
-----------------------------------------------
(In millions) 1995 1994 1993
- ---------------------- ------ ------ ------
Capital expenditures $ 44 $ 63 $137
Operating expenditures 151 140 148
At September 30, 1995, Ashland's reserves for environmental
assessments and remediation efforts were $174 million, reflecting Ashland's
most likely estimates of the costs which will be incurred over an extended
period to remediate identified environmental conditions for which costs are
reasonably estimable.
Based on current environmental regulations, Ashland estimates capital
expenditures for air, water and solid waste control facilities to be $50
million in 1996. Expenditures for investigatory and remedial efforts in
future years are subject to the uncertainties associated with environmental
exposures, including identification of new environmental sites and changes
in laws and regulations and their application. Such expenditures, however,
are not expected to have a material adverse effect on Ashland's
consolidated financial position, cash flow or liquidity, but could have a
material adverse effect on results of operations in a particular quarter or
fiscal year. Ashland does not believe the nature and significance of its
costs will vary significantly from those of its competitors in the
petroleum, chemical and mining industries.
The United States Environmental Protection Agency ("USEPA") and the
states have adopted regulations and laws concerning underground storage
tanks covering, among other things, registration of tanks, release
detection, corrosion protection, response to releases, closure of, and
financial responsibility for, underground storage tank systems.
Superfund provides for the establishment of a fund to be used for a
waste clean-up program administered by the USEPA. The law provides for five
separate taxes: (i) a petroleum tax on domestic crude oil and on imported
crude oil equalized at 9.7(cent) per barrel plus a 5(cent) per barrel oil
spill tax, as more fully described below, (ii) a chemical feedstock tax,
(iii) a tax on imported chemical derivatives, and (iv) an "environmental
tax" based on corporate alternative minimum taxable income. Ashland paid
approximately $19 million in Superfund taxes during fiscal 1995. Superfund,
which provides for cleanup of certain hazardous waste sites, is undergoing
consideration for significant amendments, including a reevaluation of the
liability allocation provisions and improved cleanup remedy selection, both
of which should make Superfund more cost effective. However, it is
uncertain at this time exactly what the revisions will be, or if they will
in fact be adopted.
Effective October 1, 1993, the USEPA reduced by 90 percent, from 0.5
to 0.05 percent by weight, the allowable sulfur level in diesel fuel used
on highways. The USEPA's action was designed to provide cleaner fuel that
will permit reduced particulate emissions from truck engines. Ashland is
currently producing ultra-low-sulfur diesel fuel for on-highway use.
The Oil Pollution Act of 1990 ("OPA 90") established a $1 billion
trust fund to cover cleanup-related costs of oil spills after the
responsible party's liability limits have been reached, or where the
responsible party is otherwise unidentifiable or unable to pay. The trust
fund is financed, when depleted below specified levels, through an excise
tax of 5(cent) per barrel on domestic crude oil and imported petroleum oil
products (pursuant to Superfund). OPA 90 subjects spillers to strict
liability for removal costs and damages (including natural resource
damages) resulting from oil spills, and requires the preparation and
implementation of spill-response plans at designated vessels and
facilities. Additionally, OPA 90 requires that new tank vessels entering or
operating in domestic waters be equipped with double hulls, and that
existing tank vessels without double hulls be retrofitted or removed from
domestic service according to a phase-out schedule.
On July 1, 1994, the United States Coast Guard issued interim final
regulations dealing with financial responsibility for water pollution under
OPA 90 and CERCLA. The regulations require self-propelled tank vessel
owners and operators to maintain evidence of financial responsibility,
effective December 28, 1994, sufficient to meet their potential liability
defined under OPA 90 and CERCLA for spills of oil or hazardous substances.
The Director, Coast Guard National Pollution Funds Center has granted
permission to Ashland to self-insure the financial responsibility amount
for liability purposes for Ashland's ocean tankers as provided in OPA 90.
14
The Federal Clean Air Act required the refining industry to market
cleaner-burning, reformulated gasoline ("RFG") beginning January 1, 1995,
in nine specified metropolitan areas across the country. Ashland does not
directly supply gasoline in any of the nine metropolitan areas. However,
several urban locations within Ashland's marketing area have opted into the
RFG program and Ashland has been able to meet expected demand for RFG in
its marketing area. The Clean Air Act also required the refining industry
to supply 39 carbon monoxide (CO) non-attainment areas with gasoline
containing 2.7 weight percent oxygen for four winter months each year. Upon
being re-designated CO attainment, several of these areas are seeking to
opt-out of the oxygenated gasoline requirements. Ashland believes it will
have a continuing need to directly supply this fuel only at St. Paul Park,
Minnesota, whose primary market is a CO non-attainment area.
The Clean Air Act also contains acid rain provisions which require
substantial reductions in sulfur dioxide emissions by power plants in the
United States. Both Ashland Coal and Arch have significant low-sulfur coal
reserves.
RCRA, which requires "cradle to grave" management of hazardous waste,
is slated to be reauthorized by Congress, although timing of such
reauthorization is uncertain. Reauthorization issues may include an
expansion of hazardous waste program coverage, recycling, used oil, and
solid waste management. These same issues may be addressed in additional
USEPA rulemakings unrelated to reauthorization efforts. It is anticipated
that both the reauthorization and other future rulemakings will result in
increased environmental compliance costs, but the amount of such increase
is uncertain at this time.
RESEARCH
Ashland conducts a program of research and development directed toward
the invention and improvement of products and processes and also toward the
improvement of environmental controls for its existing facilities. It
maintains its primary research facilities in Catlettsburg, Kentucky, and
Dublin, Ohio. Research and development costs are expensed as incurred ($24
million in 1995, $23 million in 1994 and $21 million in 1993).
COMPETITION
In all of its operations, Ashland is subject to intense competition
both from companies in the respective industries in which it operates and
from products of companies in other industries. In all of these segments,
competition is based primarily on price, with factors such as reliability
of supply, service and quality being considered. Ashland Petroleum competes
primarily with other domestic refiners and, to a lesser extent, with
imported products. However, Ashland Petroleum typically enjoys a geographic
advantage for products in its primary marketing areas. While some
integrated competitors have sources of controlled crude production, few
competitors in Ashland Petroleum's market areas are significantly crude
self-sufficient. SuperAmerica competes with major oil companies,
independent oil companies and independent marketers. Virtually all of
SuperAmerica's refined products are supplied by Ashland Petroleum.
SuperAmerica strives to maintain one of the lowest net operating cost
structures in the industry and enjoys gasoline and merchandise sales per
store exceeding the convenience store industry average based on the 1995
National Association of Convenience Store State of the Industry Survey.
Valvoline competes primarily with domestic oil companies and, to a
lesser extent, with international oil companies on a worldwide basis.
Valvoline's brand recognition and increasing market share in the "fast oil
change" market are important competitive factors. Ashland Chemical competes
in a number of chemical distribution, specialty chemical and petrochemical
markets. Its chemicals and solvents distribution businesses compete with
national, regional and local companies throughout North America. Its
plastics distribution businesses compete worldwide. Ashland Chemical's
specialty chemicals businesses compete globally in selected niche markets
and compete largely on the basis of technology and service while holding
proprietary technology in virtually all their specialty chemicals
businesses. Petrochemicals are largely commodities, with pricing and
quality being the most important factors. The majority of the business for
which APAC competes is obtained by competitive bidding. An important
competitive factor in Ashland Exploration's domestic production activity is
the ability of its exploration staff to identify potential natural gas
prospects, obtain exploration rights and formulate and complete plans for
the development of properties. Similarly, competitive factors that are
important for Ashland Exploration's international production include its
experience in identifying prospects and developing and operating
properties. The coal industry is highly competitive, and Ashland Coal and
Arch compete (principally in price, location and quality of coal) with a
large number of other coal producers, some of
15
which are substantially larger and have greater financial resources and
larger reserve bases than Ashland Coal and Arch.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, and the principal
offices of Ashland Petroleum, which are owned, are located in Russell,
Kentucky. Principal offices of other segments are located in Lexington,
Kentucky (SuperAmerica and Valvoline); Dublin, Ohio (Chemical); Atlanta,
Georgia (APAC); Huntington, West Virginia (Ashland Coal) and Houston,
Texas (Exploration), all of which are leased. Ashland's principal
manufacturing, marketing and other materially important physical properties
are described under the appropriate segment under Item 1. See also the
statistical data included under "Exploration" and "Coal" in Item 1 and
Supplemental Oil and Gas Information on Pages 60 and 61 in Ashland's Annual
Report. Additional information concerning certain leases may be found in
Note G of Notes to Consolidated Financial Statements in Ashland's Annual
Report. Such information is incorporated in this Item by reference.
ITEM 3. LEGAL PROCEEDINGS
Environmental Proceedings -(1) As of September 30, 1995, Ashland was
subject to 85 notices received from the USEPA identifying Ashland as a
"potentially responsible party" ("PRP") under Superfund for potential joint
and several liability for cleanup costs in connection with alleged releases
of hazardous substances from various waste treatment or disposal sites.
These sites are currently subject to ongoing investigation and remedial
activities, overseen by the USEPA in accordance with procedures established
under Superfund regulations, in which Ashland may be participating as a
member of various PRP groups. Generally, the type of relief sought by the
USEPA includes remediation of contaminated soil and/or groundwater,
reimbursement for the costs of site cleanup or oversight expended by the
USEPA, and/or long-term monitoring of environmental conditions at the
sites. Ashland also receives notices from state environmental agencies
pursuant to similar state legislation. Ashland carefully monitors the
investigatory and remedial activity at many of these sites. Based on its
experience with site remediation, its familiarity with current
environmental laws and regulations, its analysis of the specific hazardous
substances at issue, the existence of other financially viable PRPs and its
current estimates of investigatory, clean-up and monitoring costs at each
site, Ashland believes that its liability at these sites, either
individually or in the aggregate, after taking into account established
reserves, will not have a material adverse effect on Ashland's consolidated
financial position, cash flow or liquidity but could have a material
adverse effect on results of operations in a particular quarter or fiscal
year. Estimated costs for these matters are recognized in accordance with
generally accepted accounting principles governing probability and the
ability to reasonably estimate future costs. For additional information
regarding Superfund, see "Miscellaneous-Governmental Regulation and
Action-Environmental Protection."
(2) In connection with a demand for penalties, Ashland has received a
draft Stipulation Agreement from the Minnesota Pollution Control Agency
relating to various alleged environmental regulatory violations regarding
hazardous waste and water quality and spill matters at Ashland's St. Paul
Park refinery. Ashland is having discussions with the Minnesota Pollution
Control Agency toward finalization of the Stipulation Agreement.
(3) On or about April 21, 1995, Ashland received an Administrative
Complaint and a Notice of Proposed Assessment of Administrative Civil
Penalty from the USEPA - Region IV. The Complaint alleges that Ashland
missed its April 1, 1994 interim construction deadline and maintained
insufficient records regarding construction of a waste sewer system at its
Catlettsburg, Kentucky refinery. The USEPA is seeking an administrative
civil penalty of $162,500 for these alleged violations. Ashland filed an
Answer and has requested an administrative hearing on the merits of the
complaint.
(4) Ashland has brought an administrative proceeding against the
Kentucky Division of Air Quality ("KDAQ") challenging the denial by KDAQ of
certain regulatory relief from emission standards for seven malfunctions at
its Catlettsburg, Kentucky refinery. In the proceeding, KDAQ has asserted a
counterclaim for penalties for the malfunctions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise, during the quarter ended September
30, 1995.
16
ITEM X. EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically as to Senior Vice Presidents who are members of Ashland's
core management group, other Senior Vice Presidents, Administrative Vice
Presidents and other executive officers.)
John R. Hall (age 63) is Chairman of the Board of Directors, Chief
Executive Officer and Director of Ashland and has served in such capacities
since 1981, 1981 and 1968, respectively.
Paul W. Chellgren (age 52) is President and Chief Operating Officer
and Director of Ashland and has served in such capacities since 1992.
During the past five years, he has also served as Senior Vice President and
Chief Financial Officer of Ashland.
James R. Boyd (age 49) is Senior Vice President of Ashland and Group
Operating Officer - Ashland Exploration, Inc., Arch Mineral Corporation,
Ashland Services Company and APAC, Inc. Mr. Boyd has served as Senior Vice
President since 1989 and as Group Operating Officer for the above companies
since 1990, with the exception of APAC for which he assumed responsibility
as of October 1, 1993.
John A. Brothers (age 55) is Senior Vice President of Ashland and
Group Operating Officer - Ashland Chemical Company, SuperAmerica Group and
The Valvoline Company and has served in such capacities since 1984 and
1988, respectively.
Thomas L. Feazell (age 58) is Senior Vice President, General Counsel
and Secretary of Ashland and has served in such capacities since 1992, 1981
and 1992, respectively. During the past five years he has also served as
Administrative Vice President of Ashland.
J. Marvin Quin (age 48) is Senior Vice President and Chief Financial
Officer of Ashland and has served in such capacities since 1992. During the
past five years, he has also served as Administrative Vice President and
Treasurer of Ashland.
Robert E. Yancey, Jr. (age 50) is Senior Vice President of Ashland,
President of Ashland Petroleum Company and Group Operating Officer -
Ashland Petroleum Company and has served in such capacities since 1986,
1986, and 1988, respectively. During the past five years, he also served as
Group Operating Officer of APAC, Inc.
Harry M. Zachem (age 51) is Senior Vice President - Public Affairs and
has served in such capacity since 1988.
David J. D'Antoni (age 50) is Senior Vice President of Ashland and
President of Ashland Chemical Company and has served in such capacities
since 1988.
John F. Pettus (age 52) is Senior Vice President of Ashland and
President of SuperAmerica Group and has served in such capacities since
1989 and 1988, respectively.
Charles F. Potts (age 51) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
During the past five years he has also served as Senior Vice President and
Chief Operating Officer and Regional Vice President of APAC.
G. Thomas Wilkinson (age 57) is Senior Vice President of Ashland and
President of Ashland Exploration, Inc. and has served in such capacities
since 1992 and 1990, respectively. During the past five years he has also
served as Vice President of Ashland.
Kenneth L. Aulen (age 46) is Administrative Vice President and
Controller of Ashland and has served in such capacity since 1992. During
the past five years he has also served as Auditor and Assistant Controller
of Ashland.
Philip W. Block (age 48) is Administrative Vice President - Human
Resources of Ashland and has served in such capacity since 1992. During the
past five years he has also served as Vice President - Corporate Human
Resources.
John W. Dansby (age 50) is Administrative Vice President and Treasurer
of Ashland and has served in such capacities since 1992. During the past
five years he has also served as Ashland's Vice President of Planning.
17
William R. Sawran (age 50) is Vice President and Chief Information
Officer of Ashland, and President of Ashland Services Company and has
served in such capacities since 1984, with the exception of Chief
Information Officer which he assumed in 1994.
James J. O'Brien (age 41) is Vice President of Ashland and President
of The Valvoline Company and has served in such capacities since October
1995. During the past five years he has also served as Vice President of
Ashland Petroleum Company, Executive Assistant to the Chief Executive
Officer and Regional Manager of Ashland Chemical's General Polymers
division.
Fred E. Lutzeier (age 43) is Auditor of Ashland and has served in such
capacity since December 1992. During the past five years he has also served
as Vice President and Controller of Arch Mineral Corporation.
Each executive officer (other than Vice Presidents who are appointed
by Ashland's management) is elected by the Board of Directors to a term of
one year, or until the successor is duly elected, at the annual meeting of
the Board of Directors, except in those instances where the officer is
elected at other than an annual meeting of the Board of Directors, in which
case the tenure will expire at the next annual meeting of the Board of
Directors unless the officer is re-elected.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is hereby incorporated by reference the information appearing
under the caption "Management's Discussion and Analysis-Quarterly Financial
Information" on Page 40 in Ashland's Annual Report.
At September 30, 1995, there were approximately 24,600 holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and Chicago stock exchanges (ticker symbol ASH) and has trading
privileges on the Boston, Cincinnati, Pacific, Philadelphia and Amsterdam
stock exchanges.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing
under the caption "Five Year Selected Financial Information" on Page 57 in
Ashland's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing
under the caption "Management's Discussion and Analysis" on Pages 34 to 40
in Ashland's Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the consolidated financial
statements appearing on Pages 41 through 55, the supplemental information
appearing on Pages 58 through 61, and the information appearing under the
caption "Management's Discussion and Analysis-Quarterly Financial
Information" on Page 40 in Ashland's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear
under the caption "Election of Directors" in Ashland's definitive Proxy
Statement for its January 25, 1996 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 1995 ("Proxy
Statement"). See also the list of Ashland's executive officers and related
information under "Executive Officers of Ashland" in Item X herein.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation" and "Compensation of Directors"
in Ashland's Proxy Statement.
18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear
under the caption "Election of Directors" and the information regarding the
ownership of securities of Ashland in Ashland's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear
under the caption "Compensation Committee Interlocks and Insider
Participation" in Ashland's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
(1) and (2) Financial Statements and Financial Schedule
The consolidated financial statements and financial schedule of
Ashland presented or incorporated by reference in this report are listed in
the index on Page 23.
(3) Exhibits
3.1 - Second Restated Articles of Incorporation of Ashland,
as amended to January 27, 1995 (filed as Exhibit 3.1 to
Ashland's Form 10-Q for the quarter ended December 31,
1994, and incorporated herein by reference).
3.2 - Bylaws of Ashland, as amended to January 27, 1995
(filed as Exhibit 3.2 to Ashland's Form 10-Q for the
quarter ended December 31, 1994, and incorporated
herein by reference).
4.1 - Ashland agrees to provide the SEC, upon request,
copies of instruments defining the rights of holders of
long-term debt of Ashland, and all of its subsidiaries
for which consolidated or unconsolidated financial
statements are required to be filed with the SEC.
4.2 - Indenture, dated as of August 15, 1989, as amended
and restated as of August 15, 1990, between Ashland and
Citibank, N.A., as Trustee (filed as Exhibit 4(a) to
Ashland's Form 10-K for the fiscal year ended September
30, 1991, and incorporated herein by reference).
The following Exhibits 10.1 through 10.20 are compensatory plans
or arrangements or management contracts required to be filed as
exhibits pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
10.1 - Amended Stock Incentive Plan for Key Employees of
Ashland Inc. and its Subsidiaries (filed as Exhibit
10(c).1 to Ashland's Form 10-K for the fiscal year
ended December 30, 1994, and incorporated herein by
reference).
10.2 - Ashland Inc. Deferred Compensation and Stock
Incentive Plan for Non-Employee Directors (filed as
Exhibit 10(c).18 to Ashland's Form 10-Q for the quarter
ended December 31, 1993, and incorporated herein by
reference).
10.3 - Ashland Inc. Director Retirement Plan (filed as
Exhibit 10(c).3 to Ashland's Form 10-K for the fiscal
year ended September 30, 1988, and incorporated herein
by reference).
10.4 - Eighth Amended and Restated Ashland Inc. Supplemental
Early Retirement Plan for Certain Key Executive
Employees (filed as Exhibit 10(c).4 to Ashland's Form
10-K for the fiscal year ended September 30, 1992, and
incorporated herein by reference).
10.5 - Ashland Inc. Amended Performance Unit Plan (filed as
Exhibit 10(c).5 to Ashland's Form 10-K for the fiscal
year ended September 30, 1994, and incorporated herein
by reference).
10.6 - Ashland Inc. Incentive Compensation Plan (filed as
Exhibit 10(c).6 to Ashland's Form 10-K for the fiscal
year ended September 30, 1993, and incorporated herein
by reference).
10.7 - Ashland Inc. Director Death Benefit Program (filed as
Exhibit 10(c).10 to Ashland's Form 10-K for the fiscal
year ended September 30, 1990, and incorporated herein
by reference).
10.8 - Ashland Inc. Salary Continuation Plan (filed as
Exhibit 10(c).11 to Ashland's Form 10-K for the fiscal
year ended September 30, 1988, and incorporated herein
by reference).
10.9 - Forms of Ashland Inc. Executive Employment Contract
between Ashland Inc. and certain executive officers of
Ashland (filed as Exhibit 10(c).12 to Ashland's Form
10-K for the fiscal year ended September 30, 1989, and
incorporated herein by reference).
19
10.10 - Form of Indemnification Agreement between Ashland
Inc. and each member of its Board of Directors (filed
as Exhibit 10(c).13 to Ashland's Form 10-K for the
fiscal year ended September 30, 1990, and incorporated
herein by reference).
10.11 - Ashland Inc. Nonqualified Excess Benefit Pension Plan
(filed as Exhibit 10(c).14 to Ashland's Form 10-K for
the fiscal year ended September 30, 1988, and
incorporated herein by reference).
10.12 - Ashland Inc. Long-Term Incentive Plan (filed as
Exhibit 10(c).15 to Ashland's Form 10-K for the fiscal
year ended September 30, 1994, and incorporated herein
by reference).
10.13 - Ashland Inc. Directors' Charitable Award Program
(filed as Exhibit 10(c).16 to Ashland's Form 10-K for
the fiscal year ended September 30, 1991, and
incorporated herein by reference).
10.14 - Ashland Inc. 1993 Stock Incentive Plan (filed as
Exhibit 10(c).17 to Ashland's Form 10-K for the fiscal
year ended September 30, 1994, and incorporated herein
by reference).
10.15 - Ashland Inc. 1995 Performance Unit Plan (filed as
Exhibit 10(c).18 to Ashland's Form 10-Q for the quarter
ended December 31, 1994, and incorporated herein by
reference).
10.16 - Ashland Inc. Incentive Compensation Plan for Key
Executives (filed as Exhibit 10(c).19 to Ashland's Form
10-Q for the quarter ended December 31, 1994, and
incorporated herein by reference).
10.17 - Ashland Inc. Deferred Compensation Plan (filed as
Exhibit 10(c).20 to Ashland's Form 10-Q for the quarter
ended December 31, 1994, and incorporated herein by
reference).
11 - Computation of Earnings Per Share (appearing on Page
26 of Ashland's Form 10-K for the fiscal year ended
September 30, 1995).
13 - Portions of Ashland's Annual Report to Shareholders,
incorporated by reference herein, for the fiscal year
ended September 30, 1995.
21 - List of Subsidiaries.
23 - Consent of Ernst & Young LLP, independent auditors.
24 - Power of Attorney, including resolutions of the Board
of Directors.
27 - Financial Data Schedule.
Upon written or oral request, a copy of the above exhibits will be
furnished at cost.
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated September 15, 1995 was filed by Ashland to
disclose that it adopted a new accounting standard, Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which would
result in an unusual pre-tax charge against earnings of approximately $90
million in the September quarter. Ashland also announced it would take a
pre-tax charge against earnings of approximately $40 million in the
September quarter for Ashland Petroleum Company's early retirement program
and unrelated reorganization costs for Valvoline and Arch Mineral.
20
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.
ASHLAND INC.
(Registrant)
By: /s/ Kenneth L. Aulen
-----------------------------------
(Kenneth L. Aulen, Administrative
Vice President and Controller)
Date: November 29, 1995
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, IN THE CAPACITIES INDICATED, ON NOVEMBER 29, 1995.
Signatures Capacity
---------- --------
/s/ John R. Hall Chairman of the Board of Directors, Chief
- ---------------------- Executive Officer and Director
JOHN R. HALL
/s/ J. Marvin Quin Senior Vice President and Chief
- ---------------------- Financial Officer
J. MARVIN QUIN
/s/ Kenneth L. Aulen Administrative Vice President,
- ---------------------- Controller and Principal Accounting Officer
KENNETH L. AULEN
* Director
- ----------------------
Jack S. Blanton
* Director
- ----------------------
Thomas E. Bolger
* Director
- ----------------------
Samuel C. Butler
* Director
- ----------------------
Frank C. Carlucci
* Director
- ----------------------
Paul W. Chellgren
* Director
- ----------------------
James B. Farley
* Director
- ----------------------
Ralph E. Gomory
* Director
- ----------------------
Mannie L. Jackson
21
* Director
- ----------------------
Patrick F. Noonan
* Director
- ----------------------
Jane C. Pfeiffer
* Director
- ----------------------
James R. Rinehart
* Director
- ----------------------
Michael D. Rose
* Director
- ----------------------
William L. Rouse , Jr.
* Director
- ----------------------
Robert B. Stobaugh
* By: /s/ Thomas L. Feazell
--------------------------
Thomas L. Feazell
Attorney-in-Fact
Date: November 29, 1995
22
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
Page
Consolidated financial statements and supplemental information:
Statements of consolidated income *
Consolidated balance sheets *
Statements of consolidated common stockholders' equity *
Statements of consolidated cash flows *
Notes to consolidated financial statements *
Five year information by industry segment *
Supplemental oil and gas information *
Management's discussion and analysis-Quarterly financial information *
Consolidated financial schedule:
II - Valuation and qualifying accounts 25
- -----------
*The consolidated financial statements appearing on Pages 41 through
55, the supplemental information appearing on Pages 58 through 61 and the
information appearing under the caption "Management's Discussion and
Analysis-Quarterly Financial Information" on Page 40 in Ashland's Annual
Report are incorporated by reference in this Annual Report on Form 10-K.
Schedules other than that listed above have been omitted because of
the absence of the conditions under which they are required or because the
information required is shown in the consolidated financial statements or
the notes thereto. Separate financial statements of unconsolidated
affiliates are omitted because each company does not constitute a
significant subsidiary using the 20% tests when considered individually.
Summarized financial information for such affiliates is disclosed in Note D
of Notes to Consolidated Financial Statements in Ashland's Annual Report.
23
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements and schedule of
Ashland Inc. and subsidiaries listed in the accompanying index to financial
statements and financial schedules (Item 14(a)). These financial statements
and schedule are the responsibility of Ashland's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Ashland Inc. and
subsidiaries at September 30, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note A to the consolidated financial statements, in
fiscal 1995 Ashland changed its method of accounting relative to
impairments of long-lived assets.
Ernst & Young LLP
Louisville, Kentucky
November 1, 1995
24
- --------------------------------------------------------------------------------------------------------------------------------
Ashland Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
=================================================================================================================================
(In millions) Balance at Provisions Balance
beginning charged to Reserves Other at end
Description of year earnings utilized changes of year
=================================================================================================================================
YEAR ENDED SEPTEMBER 30, 1995
Reserves deducted from asset accounts
Accounts receivable $23 $ 9 $(7) (1) $ - $25
Inventories 6 3 (3) - 6
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
Reserves deducted from asset accounts
Accounts receivable $20 $11 $(8) (1) $ - $23
Inventories 5 3 (2) - 6
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1993
Reserves deducted from asset accounts
Accounts receivable $18 $13 $(9) (1) $(2) $20
Inventories 9 2 (6) - 5
=================================================================================================================================
(1) Uncollected amounts written off, net of recoveries of $1 million in 1995, $2 million in 1994 and $3 million in 1993.
25
- -----------------------------------------------------------------------------------------------------------------------------------
Ashland Inc. and Subsidiaries
Exhibit 11 - Computation of Earnings Per Share
Years Ended September 30
====================================================================================================================================
(In millions except per share data) 1995 1994 1993
====================================================================================================================================
PRIMARY EARNINGS PER SHARE
Income available to common shares
Net income $ 24 $ 197 $ 142
Ashland Coal, Inc. (ACI) equity income and Ashland's share of
ACI's cumulative effect of accounting changes (net of income
taxes) - - (25)
Ashland's share of ACI primary earnings
per share (net of income taxes) - - 23
Dividends on convertible preferred stock (19) (19) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5 $ 178 $ 134
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 62 60 60
Common shares issuable upon exercise of stock options - 1 -
Share adjustment for prepaid contribution to leveraged
employee stock ownership plan (LESOP) - - (1)
- ------------------------------------------------------------------------------------------------------------------------------------
62 61 59
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $.08 $2.94 $2.26
====================================================================================================================================
EARNINGS PER SHARE ASSUMING FULL DILUTION
Income available to common shares
Net income $ 24 $ 197 $ 142
ACI equity income and Ashland's share of ACI's cumulative
effect of accounting changes (net of income taxes) - - (25)
Ashland's share of ACI earnings per share assuming
full dilution (net of income taxes) - - 21
Interest on convertible debentures (net of income taxes) - 5 6
Dividends on convertible preferred stock (19) - -
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5 $ 202 $ 144
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 62 60 60
Common shares issuable upon
Exercise of stock options 1 1 1
Conversion of debentures - 2 3
Conversion of preferred stock - 9 3
Share adjustment for prepaid contribution to LESOP - - (1)
- ------------------------------------------------------------------------------------------------------------------------------------
63 72 66
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $.08 $2.79 $2.20
====================================================================================================================================
26
Ashland Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended September 30
(In millions) 1995 1994 1993
===========================================================================================================================
SALES AND OPERATING REVENUES
Petroleum $ 5,050 $ 4,666 $ 4,752
SuperAmerica 1,788 1,706 1,785
Valvoline 1,113 1,000 938
Chemical 3,551 2,885 2,586
APAC 1,123 1,101 1,116
Coal(1) 610 - -
Exploration 198 199 247
Intersegment sales (1,266) (1,223) (1,225)
- ---------------------------------------------------------------------------------------------------------------------------
$12,167 $ 10,334 $ 10,199
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Petroleum $ (54) $ 113 $ 56
SuperAmerica 53 59 65
Valvoline (4) 52 56
- ---------------------------------------------------------------------------------------------------------------------------
Total Refining and Marketing Group (5) 224 177
Chemical 159 125 108
APAC 75 70 53
Coal(1) 66 - -
Exploration (6) 28 36
General corporate expenses (91) (80) (77)
- ---------------------------------------------------------------------------------------------------------------------------
$ 198 $ 367 $ 297
- ---------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME
Ashland Coal, Inc.(1) $ - $ 6 $ 27
Arch Mineral Corporation (4) 7 (10)
Other 11 9 9
- ---------------------------------------------------------------------------------------------------------------------------
$ 7 $ 22 $ 26
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
Petroleum
Product sales (thousand barrels per day)(2) 377.2 357.7 350.3
Refining inputs (thousand barrels per day)(3) 349.5 338.4 335.9
Value of products manufactured per barrel $ 22.41 $ 21.49 $ 23.00
Input cost per barrel 18.55 16.76 19.06
- ---------------------------------------------------------------------------------------------------------------------------
Refining margin per barrel $ 3.86 $ 4.73 $ 3.94
SuperAmerica
Product sales (thousand barrels per day) 71.5 70.2 73.8
Merchandise sales (millions) $ 547 $ 519 $ 549
Valvoline lubricant sales (thousand barrels per day)(2) 19.1 17.9 16.3
APAC construction backlog at September 30 (millions) $ 672 $ 554 $ 495
Ashland Coal, Inc.(4)
Tons sold (millions) 22.0 18.2 18.0
Sales price per ton $ 27.80 $ 29.85 $ 29.77
Arch Mineral Corporation(4)
Tons sold (millions) 27.2 24.3 19.2
Sales price per ton $ 26.23 $ 26.35 $ 25.26
Exploration
Net daily production
Natural gas (million cubic feet)(2) 102.9 94.3 99.3
Nigerian crude oil (thousand barrels) 18.8 18.7 21.7
Sales price
Natural gas (per thousand cubic feet) $ 1.89 $ 2.42 $ 2.45
Nigerian crude oil (per barrel) $ 16.17 $ 15.01 $ 17.77
- ---------------------------------------------------------------------------------------------------------------------------
(1) Ashland Coal was consolidated in 1995 and accounted for on the equity method in 1994 and 1993 (see Note B to
the financial statements).
(2) Includes intersegment sales.
(3) Includes crude oil and other purchased feedstocks.
(4) Ashland's ownership interest is 54% in Ashland Coal (39% prior to 1995) and 50% in Arch Mineral.
34
RESULTS OF OPERATIONS
Ashland's net income amounted to $24 million in 1995, $197 million in 1994
and $142 million in 1993. However, comparisons of these results are
affected by various unusual items. The following table shows the effects of
unusual items on operating and net income for the three years ended
September 30, 1995.
Operating income Net income
---------------------------- -----------------------------
(In millions) 1995 1994 1993 1995 1994 1993
=================================================================================================================
Income before unusual items $318 $356 $282 $103 $190 $115
Asset impairment write-downs (83) - - (54) - -
Early retirement and restructuring programs (37) - - (25) - -
Litigation matters - 11 - - 7 -
Ashland Coal unusual items - - - - - 18
Gain on sale of Petroleum operation - - 15 - - 9
- -----------------------------------------------------------------------------------------------------------------
Income as reported $198 $367 $297 $ 24 $197 $142
- -----------------------------------------------------------------------------------------------------------------
Effective September 30, 1995, Ashland adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
result, Ashland recorded charges of $83 million to write down certain
assets to their fair values, including an idle unit at Ashland Petroleum's
Catlettsburg, Kentucky refinery, certain unused crude oil gathering
pipelines of Scurlock Permian, various petroleum product marketing
properties to be sold or shutdown, and various other assets. Fair values
were based upon appraisals or estimates of discounted future cash flows, as
appropriate. In addition, charges of $37 million related to early
retirement and restructuring programs were incurred, reflecting efforts by
Ashland Petroleum and several other divisions to reduce their costs and
improve their competitive positions.
Excluding unusual items, net income amounted to $103 million in 1995,
compared to $190 million in 1994. Results were mixed, as record results
from Ashland Chemical, APAC and Ashland Coal were more than offset by
reduced earnings from Ashland Petroleum, Valvoline and Ashland Exploration,
as well as higher interest costs. Net income before unusual items amounted
to $190 million in 1994, compared to $115 million in 1993. Operating income
from Ashland Petroleum was significantly higher, and record results were
achieved by Ashland Chemical and APAC. In addition, equity income from Arch
Mineral improved considerably after the prolonged strike by the United Mine
Workers (UMW) was settled in December 1993.
The following table compares operating income before unusual items by
segment for the three years ended September 30, 1995. Due to Ashland's
purchase of an additional 15% interest in Ashland Coal during 1995, the
results of Ashland Coal are consolidated and shown as a new segment for
1995.
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
Operating income (loss)
Petroleum $ 48 $113 $ 41
SuperAmerica 53 59 65
Valvoline 1 52 56
Chemical 164 125 108
APAC 75 70 53
Coal 66 - -
Exploration (2) 28 36
General corporate expenses (87) (91) (77)
- --------------------------------------------------------------------------------------------------------------
$318 $356 $282
- --------------------------------------------------------------------------------------------------------------
PETROLEUM
Operating income of Ashland Petroleum declined from $113 million in 1994 to
$48 million in 1995 before unusual items. Refining margins in 1995 were
adversely affected by the market confusion surrounding the introduction of
reformulated gasoline and by excess industry production of gasoline in the
March quarter when refiners switched production from distillate to gasoline
in response to one of the warmest winters of this century. While refining
margins recovered and averaged $4.66 a barrel during the last half of 1995,
overall refining margins for the year declined from $4.73 a barrel in 1994
to $3.86 a barrel in 1995. Refining expenses per barrel also declined
somewhat from 1994 as the refineries operated at near capacity levels
during the last half of 1995 and cost savings from Ashland Petroleum's
restructuring programs began to be realized. Earnings from pipelines and
Scurlock Permian were up $19 million, reflecting a combination of tariff
increases, higher throughput and reduced expenses.
Operating income of Ashland Petroleum amounted to $113 million in 1994,
compared to 1993 when operating income amounted to $41 million, excluding a
gain of $15 million on the sale of its TPT inland waterways barge
operation. Ashland Petroleum's strong performance was due to higher margins
in its Midwest markets, as well as actions to improve crude oil selection
and other profit enhancement efforts. Margins were very strong in the first
half of 1994, reflecting favorable distillate prices concurrent with the
implementation of low-sulfur diesel requirements in
35
Ashland Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
the December quarter and reduced crude oil costs in the March quarter. The
last half of 1994 was adversely affected by increasing crude oil costs,
with wholesale product prices not keeping pace. Crude oil throughput was up
slightly in 1994 despite major turnarounds at two of Ashland Petroleum's
refineries. Although refining margins were volatile for most of the year,
such margins did increase from $3.94 a barrel in 1993 to $4.73 a barrel in
1994. This improvement was partially offset, however, by higher turnaround
and depreciation costs. Earnings from Scurlock Permian improved
considerably, as crude oil gathering and handling margins increased from
their depressed levels in 1993.
SUPERAMERICA
Earnings from SuperAmerica declined from $59 million in 1994 to $53 million
in 1995. Gasoline volumes were up slightly reflecting a higher number of
stores and merchandise sales volumes were up on a per store basis. However,
the effects were more than offset by higher labor and training costs,
reflecting the increased number of stores, the tight labor market, and
costs associated with the continuing rollout of the co-branding partnership
program with popular fast-food chains. At September 30, 1995, 609
SuperAmerica stores were operating, compared to 598 stores in 1994 and 588
stores in 1993. Of these stores, 66 included fast-food operations at the
end of 1995, compared to only 10 at the end of 1994.
Operating income of $59 million for SuperAmerica in 1994 was second only to
its record earnings of $65 million achieved in 1993. Gasoline and
merchandise margins were up considerably and largely offset the volume
reductions associated with the sale of 80 SuperAmerica stores in 1993. Such
stores were located in Florida and other non-strategic areas outside
markets directly supplied by Ashland Petroleum. While the number of stores
was up at the end of 1994 compared to 1993, the average number of stores in
operation in 1994 was actually down 4%, and operations of the newly-opened
stores had not yet fully matured.
VALVOLINE
Valvoline had an extremely difficult year in 1995, operating just above
break-even levels before unusual items, compared to 1994 when earnings of
$52 million were achieved. Domestic motor oil earnings were down
considerably, reflecting reductions in branded sales volumes, cost
increases for additives and packaging materials, higher advertising and
promotional expenses, and a continuing shift from packaged products to
lower margin bulk sales. Due to competitive pressures, the higher costs
could not be fully passed through in higher sales prices, particularly with
respect to private label sales. Results from car care products (including
Zerex antifreeze) were adversely affected by illegal imports of
refrigerants, escalating costs for ethylene glycol and weak demand
reflecting the unusually warm winter weather. Operating income from
international operations was also down due to higher distribution costs,
and aggressive advertising and promotional expenses to expand the European
distributorships acquired in 1994. Although average car counts and ticket
prices continued to improve, results from Valvoline Instant Oil Change
(VIOC) were down due to increased labor and material costs. At September
30, 1995, VIOC operated 365 company-owned outlets, compared to 347 in 1994
and 341 in 1993. In addition, the VIOC franchising program continued to
expand with 90 outlets open in 1995, compared to 75 in 1994 and 66 in 1993.
Valvoline had its second best year ever in 1994, with operating income of
$52 million, compared to a record $56 million in 1993. The major factor in
the decline was reduced margins on automotive refrigerants resulting from
built-up customer inventories. Earnings from Valvoline's branded motor oil
business were relatively unchanged as the effects of volume increases were
largely offset by reduced margins associated with a continuing shift from
packaged products to lower margin bulk sales, and by significant increases
in raw material costs during the last half of 1994. International
operations were up considerably, spurred in part by the acquisition of
Valvoline distributorships in six European countries during 1994. Valvoline
Instant Oil Change (VIOC) achieved higher earnings for the second straight
year with continued improvements in average car counts and ticket prices.
CHEMICAL
For the fourth consecutive year, Ashland Chemical was the leading earnings
contributor to Ashland's results. Operating income of $164 million before
unusual items was up over 30% from 1994 results of $125 million and
represented a third straight record year for Ashland Chemical. A strong
performance from the petrochemical businesses was a key factor in the
improvement. Exceptionally strong prices for methanol during the first half
of the year, and higher sales volumes and margins for cumene were
responsible for most of the petrochemical improvement. Operating income
from methanol returned to more normal levels during the last half of 1995,
declining $22 million from the earnings achieved during the first half of
the fiscal year. Results from the distribution businesses were up nearly
25%, reflecting higher sales volumes. However, operating income from the
specialty chemicals businesses was down 10% due to reduced margins for
water treatment chemicals and foundry products.
Operating income from Ashland Chemical increased from $108 million in 1993
to $125 million in 1994, despite incurring increased environmental
remediation costs. Earnings from the distribution businesses were up 22%,
principally due to higher sales volumes for thermoplastics. Operating
income from the specialty chemicals group increased 25%, with foundry
products and water treatment chemicals leading an across the board
improvement.
36
Results from petrochemicals were up 15%, with improvements in methanol
margins more than offsetting the effects of production and weather-related
problems on cumene results early in 1994.
APAC
Despite the sale of its Arizona operations in 1994, APAC construction
companies achieved their second straight year of record results in 1995.
Operating income amounted to $75 million in 1995, compared to $70 million
in 1994, which included income of $9 million related to the Arizona
operations. A strong backlog which enhanced revenues and margins from
construction jobs, and close attention to costs and safety were primary
factors in APAC's improvement.
APAC achieved earnings of $70 million in 1994, compared to $53 million in
1993. Each of its continuing operating regions achieved improvements on the
strength of a higher quality backlog, better margins on construction
materials and more favorable weather conditions. In addition, APAC's
Arizona operations contributed operating income (including a gain on the
sale of those operations) of $9 million, which was up from $6 million in
1993.
COAL
As a result of Ashland's acquisition of an additional 15% interest, Ashland
Coal was consolidated in 1995. Prior to 1995, Ashland accounted for its
investment in Ashland Coal on the equity method of accounting. On a
comparable basis, operating income from Ashland Coal increased from $35
million in 1994 to $66 million in 1995. The improvement reflects increased
productivity and cost reductions in 1995, combined with the adverse effects
of the UMW strike (including the related aftereffects) on 1994 results.
Such improvements more than offset the reduction in average sales prices
resulting from the expiration of a sales contract in the December 1994
quarter and other contract changes.
EXPLORATION
Ashland Exploration incurred an operating loss of $2 million in 1995 before
unusual items, compared to operating income of $28 million in 1994. Results
from domestic operations were down $14 million, reflecting depressed
natural gas prices. The effect of reduced prices was partially offset,
however, by a 9% increase in natural gas production, in part reflecting the
operations of Appalachian producing properties acquired in 1995. Foreign
earnings were down $16 million, reflecting a combination of reduced
profitability from the Nigerian operations, and increased exploration costs
associated with Nigerian offshore blocks acquired under a 1992 production
sharing agreement.
Ashland Exploration's operating income declined from $36 million in 1993 to
$28 million in 1994. Operating income from domestic operations was down $19
million, resulting from reduced production and prices for both natural gas
and crude oil, increased exploration expenses, and the favorable effect of
a contract settlement that was included in results for 1993. Operating
income from foreign operations improved by $11 million, reflecting lower
exploration costs and improved results from crude oil trading activities.
Such factors more than offset the effects of normal declines in Nigerian
crude oil production as developed reserves continue to be depleted.
During 1995, Ashland Exploration entered into a settlement agreement with
Columbia Gas Transmission to resolve claims involving natural gas sales
contracts which were abrogated by Columbia in 1991. Columbia and its
parent, Columbia Gas Systems, have filed reorganization plans including
this agreement with the U.S. Bankruptcy Court in Delaware. The Court has
approved the fairness of the settlement agreement and the disclosure
statements allowing the reorganization plans to be voted on by creditors.
Subject to the outcome of the voting process and various other approvals,
the settlement agreement would provide for a $78 million payment to Ashland
Exploration, of which 5% would be withheld by Columbia to be used to
potentially satisfy the claims of non-settling producers.
GENERAL CORPORATE EXPENSES
Excluding unusual items, general corporate expenses were $87 million in
1995, $91 million in 1994 and $77 million in 1993. Expenses for 1994
included consulting fees and other expenses related to a corporate-wide
cost control program and higher accruals for performance-based
compensation. In addition, expenses for both 1994 and 1993 were reduced by
income from the resolution of matters related to Ashland's former
engineering subsidiaries.
OTHER INCOME (EXPENSE)
Interest expense (net of interest income) amounted to $171 million in 1995,
$117 million in 1994 and $123 million in 1993. Adjusting for capitalized
interest on refinery projects of $9 million in 1993, interest costs
incurred amounted to $132 million that year. The changes in interest costs
incurred during the last three years resulted principally from fluctuations
in debt levels and, to a lesser extent, higher interest rates in 1995.
Results of Arch Mineral produced equity income of $2 million in 1995 before
unusual items, compared to $7 million in 1994 and an equity loss of $10
million in 1993. The major factor in the fluctuations was the prolonged
strike by the UMW which extended from April into December 1993 and had a
significant effect on the comparability of results for both fiscal 1993 and
1994. Results for 1995 were negatively affected by weak demand for Illinois
high-sulfur coal and by high mining costs resulting from unfavorable
overburden ratios and adverse geological conditions at certain Appalachian
operations.
As indicated previously, Ashland Coal was consolidated in 1995. Equity
income from Ashland Coal for 1993 included a net gain of $20 million
resulting from a favorable adjustment to income tax expense due to tax law
changes, partially offset by a charge to increase the valuation allowance
for certain prepaid royalties. Excluding this
37
Ashland Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
unusual gain, equity income from Ashland Coal amounted to $6 million in
1994, compared to $7 million in 1993. The UMW strike reduced Ashland Coal's
earnings in both years.
FINANCIAL POSITION
LIQUIDITY
Ashland's financial position has enabled it to obtain capital for its
financing needs and maintain investment grade ratings on its senior debt of
Baa1 from Moody's and BBB from Standard & Poor's. Ashland has revolving
credit agreements providing for up to $370 million in borrowings, none of
which were in use at September 30, 1995. In addition, Ashland Coal has
revolving credit agreements providing for up to $500 million in borrowings,
of which $40 million was in use at September 30, 1995. At that date,
Ashland could issue an additional $154 million in medium-term notes under a
shelf registration should future opportunities or needs arise. Ashland and
Ashland Coal also have access to various uncommitted lines of credit and
commercial paper markets, and had short-term notes and commercial paper of
$160 million outstanding at September 30, 1995. While certain debt
agreements contain covenants restricting the amount by which Ashland can
increase its indebtedness, such indebtedness could have been increased by
up to $1.07 billion at September 30, 1995.
Cash and cash equivalents at September 30, 1995, were $52 million, compared
to $40 million for 1994. Cash flows from operations, a major source of
Ashland's liquidity, amounted to $500 million in 1995 (including $130
million from Ashland Coal), $454 million in 1994 and $250 million in 1993.
Most of the unusual items which reduced earnings in 1995 were non-cash
charges and therefore did not adversely affect cash flow. Cash flows from
operations provided 85% of Ashland's capital requirements for net property
additions and dividends during the last three years. The remainder of its
capital requirements during this period, plus funds for acquisitions, have
come from borrowings, the issuance of stock, and sales of operations.
Property additions amounted to $1.25 billion during the last three years
and are summarized in the Information by Industry Segment on page 59.
Expenditures by Ashland Petroleum amounted to over 50% of the total for
1993, as the refineries were upgraded to produce cleaner-burning fuels and
to meet tougher environmental regulations. Accordingly, capital
expenditures by Ashland's related energy and chemical businesses were
curtailed during that year to meet the capital needs of the refineries.
With the completion of various refinery units in 1993, investments in the
energy and chemical businesses were accelerated, accounting for nearly 60%
of Ashland's capital expenditures in 1994 and nearly 70% in 1995.
Long-term borrowings provided funds of $748 million during the last three
years, including the issuance of $439 million of medium-term notes and $250
million of 8.80% senior debentures. The proceeds from long-term borrowings,
as well as $293 million from the issuance of convertible preferred stock in
1993, were used to retire $536 million of long-term debt (scheduled
maturities as well as refundings to reduce interest costs) and to partially
fund capital expenditures and acquisitions. Cash flows were supplemented as
necessary by the issuance of short-term notes and commercial paper.
Acquisitions (including operations acquired through the issuance of $41
million of Ashland common stock) amounted to $432 million since 1992,
including $156 million for certain operations of Aristech Chemical
Corporation and various other chemical companies, $110 million for an
additional 15% interest in Ashland Coal, $69 million for Zerex and
Valvoline's European distributorships, $68 million for Appalachian natural
gas producing properties, and $24 million for various construction
companies. Proceeds from the sale of operations generated $176 million
during the last three years, including divestitures of APAC's Arizona
operations, 80 SuperAmerica stores, various assets acquired in the 1991
acquisition of The Permian Corporation, and Ashland Petroleum's TPT inland
waterways barge operation.
Investment purchases, sales and maturities relate primarily to the turnover
in the debt securities held by Ashland's captive insurance companies. The
net cash outflow related to these transactions in the last three years
principally reflects the increase in the investment portfolios of these
companies.
Working capital at September 30, 1995, was $481 million and liquid assets
(cash, cash equivalents and accounts receivable) amounted to 78% of current
liabilities at that date. Ashland's working capital is significantly
affected by its use of the LIFO method of inventory valuation, which valued
such inventories at $400 million below their replacement costs at September
30, 1995.
CAPITAL RESOURCES
Ashland's capital employed at September 30, 1995, consisted of debt (53%),
deferred income taxes (1%), minority interest (5%), convertible preferred
stock (7%) and common stockholders' equity (34%). Debt as a percent of
capital employed increased from 48% at the end of 1994, reflecting the high
level of acquisitions during 1995, as well as the consolidation of Ashland
Coal's year-end debt of $228 million. Long-term debt for 1995 included $68
million of floating-rate debt and the interest rates on an additional $405
million of fixed-rate debt were converted to floating
38
rates through interest rate swap agreements. As a result, interest costs in
1996 will fluctuate based on short-term interest rates on $473 million of
Ashland's consolidated long-term debt, as well as on any short-term notes
and commercial paper.
During fiscal 1996, Ashland anticipates capital expenditures of
approximately $535 million. Ashland Petroleum's capital expenditures are
expected to amount to about $180 million, with the remaining capital
directed to growth opportunities in Ashland's related energy and chemical
businesses. Ashland anticipates meeting its 1996 capital requirements for
property additions and dividends from internally generated funds. Debt as a
percent of Ashland's capital employed is expected to decline to around 50%
during 1996.
At September 30, 1995, Ashland could issue up to an additional $49 million
in common stock under a shelf registration. During 1995, 1.4 million shares
were issued under this registration, generating net proceeds to Ashland of
$51 million.
ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations relating to the protection of
the environment have resulted in higher operating costs and capital
investments by the industries in which Ashland operates. Because of the
continuing trends toward greater environmental awareness and increasing
regulations, Ashland believes that expenditures for environmental
compliance will continue to have a significant effect on the conduct of its
businesses. Although it cannot accurately predict how these developments
will affect future operations and earnings, Ashland believes the nature and
significance of its costs will be comparable to those of its competitors in
the petroleum, chemical and extractive industries.
Capital expenditures for air, water and solid waste control facilities
amounted to $44 million in 1995, $63 million in 1994 and $137 million in
1993. Based on current environmental regulations, Ashland anticipates such
capital expenditures will amount to about $50 million in 1996. Ashland's
environmental remediation and compliance costs amounted to $151 million in
1995, $140 million in 1994 and $148 million in 1993, and are expected to be
in the range of $140 million in 1996. Such compliance costs do not include
expenditures for additives, such as MTBE and ethanol, required to meet the
reformulated gasoline and oxygenated fuel requirements.
Environmental reserves are subject to considerable uncertainties which
affect Ashland's ability to estimate its share of the ultimate costs of
required remediation efforts. Such uncertainties involve the nature and
extent of contamination at each site, the extent of required cleanup
efforts under existing environmental regulations, widely varying costs of
alternate cleanup methods, changes in environmental regulations, the
potential effect of continuing improvements in remediation technology, and
the number and financial strength of other potentially responsible parties
at multiparty sites. As a result, charges to income for environmental
liabilities could have a material effect on results of operations in a
particular quarter or fiscal year as assessments and remediation efforts
proceed or as new remediation sites are identified. However, such charges
are not expected to have a material adverse effect on Ashland's
consolidated financial position, cash flow or liquidity.
OUTLOOK
Although refining margins are expected to remain volatile, key external
factors look promising for the refining industry. The industry is currently
operating at a high rate of capacity, with gasoline and distillate
inventories down from last year's levels at this time. The economy is
reasonably strong, inflation appears to be under control and economic
growth continues at a modest pace. In addition, gasoline demand is up
nearly 3% for the year and is expected to continue increasing over 1%
annually for the rest of the decade, reflecting a leveling of fuel
efficiency in the passenger car fleet, increasing sales of light-truck and
sport-utility vehicles which average fewer miles per gallon than passenger
cars, and an increasing number of vehicle miles traveled. And finally, the
regulatory environment appears more relaxed with reforms remaining on the
Congressional agenda which would require new regulations to include
cost-benefit analyses.
During 1995, Ashland Petroleum was reorganized into four business units
around its three refineries and Scurlock Permian. Results from its steps to
improve profitability, including the reorganization to push decision-making
closer to the marketplace, the elimination of 321 jobs, increased refining
capacity resulting from prior investments and other efficiency measures are
beginning to be realized. In addition, an aggressive program was begun in
1995 to revitalize marketing efforts under the Ashland brand name, focusing
on jobber distribution. This program should result in a larger percentage
of Ashland Petroleum's gasoline being sold under company brands and reduce
its dependence on wholesale markets.
Since Ashland Petroleum's regulatory compliance expenditures have peaked
for now, Ashland's discretionary cash flow position has improved, allowing
it to accelerate its investment in related energy and chemical businesses.
SuperAmerica has renewed its expansion efforts, expecting to build about
270 new stores over the next five years and expand its partnership program
with fast-food chains. The new stores should increase SuperAmerica's share
in strategic markets where it is already a leader, enabling it to
distribute a growing percentage of Ashland Petroleum's gasoline production.
Ashland Chemical and APAC will continue to pursue growth through selective
acquisitions. Ashland Chemical will continue to emphasize integrated
marketing efforts targeting its North American customers and a growing
39
Ashland Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
international sales base. Ashland Chemical is expecting another good year
in 1996, despite methanol margins declining considerably from the
exceptionally high levels experienced during the first half of 1995.
Increased infrastructure spending and an expanding economy should continue
to benefit APAC's efforts to build market position in existing markets and
reduce costs. APAC's construction backlog is a record $672 million at
September 30, 1995, reflecting increases in both the public and private
sectors, and is expected to contain margins comparable to those included in
last year's backlog.
After several years of aggressive growth, Valvoline is shifting its focus
to reassessing its growth initiatives, reducing costs and rebuilding return
on investment. Valvoline moved aggressively in the September quarter to
reduce raw material and packaging costs and limit discretionary spending.
Ashland Exploration's earnings will continue to be depressed until natural
gas prices recover and its Nigerian reserves are replaced. In an effort to
optimize cash flow, Ashland Exploration's natural gas drilling program was
reduced during 1995. Exploratory work continues on two Nigerian blocks
acquired in 1992 with drilling of two wells planned in 1996. During 1996,
Ashland Exploration expects to resolve its claims against the Columbia Gas
companies, with most of the settlement proceeds recognized as income.
Ashland Coal's results in 1996 will be adversely affected by the expiration
of several high priced, high volume sales contracts and by price reopeners
under other contracts. Numerous steps have been taken at its mines to
control the effects of these price changes and increase profitability.
While such steps will have favorable effects on earnings in 1996 and 1997,
unfavorable market conditions are hindering Ashland Coal's efforts. As a
result, earnings from Ashland Coal in 1996 will likely be down
significantly from 1995. However, improved results are expected from Arch
Mineral, which undertook a restructuring of operations in 1995 (including a
staff reduction of about 120 positions), sold a group of small,
non-strategic mines and idled an Illinois mine due to reduced demand for
its high-sulfur coal. Arch will continue to have difficulty marketing its
high-sulfur Illinois coal, but is working to increase its low-sulfur coal
production and improve its market position.
EFFECTS OF INFLATION AND CHANGING PRICES
Ashland's financial statements are prepared on the historical cost method
of accounting and, as a result, do not reflect changes in the dollar's
purchasing power. Although annual inflation rates have been low in recent
years, Ashland's results are still affected by the cumulative inflationary
trend from prior years.
In the capital-intensive industries in which Ashland operates, replacement
costs for its properties would generally exceed their historical costs.
Accordingly, depreciation, depletion and amortization expense would be
greater if it were based on current replacement costs. However, since
replacement facilities would reflect technological improvements and changes
in business strategies, such facilities would be expected to be more
productive than existing facilities, mitigating somewhat the increased
depreciation expense.
Ashland uses the last-in, first-out (LIFO) method to value a substantial
portion of its inventories to provide a better matching of revenues with
current costs. However, LIFO values such inventories below their
replacement costs.
Monetary assets (such as cash, cash equivalents and accounts receivable)
lose purchasing power as a result of inflation, while monetary liabilities
(such as accounts payable and indebtedness) result in a gain because they
can be settled with dollars of diminished purchasing power. Ashland's
monetary liabilities exceed its monetary assets, which results in net
purchasing power gains and provides a hedge against the effects of future
inflation.
QUARTERLY FINANCIAL INFORMATION
The following table presents quarterly financial information and per share
data relative to Ashland's common stock.
Quarters ended December 31 March 31 June 30 September 30
- --------------------------------------------------------- --------------- -------------- ------------------
(In millions except per share data) 1994 1993 1995 1994 1995 1994 1995 1994
===========================================================================================================================
Sales and operating revenues $2,924 $2,572 $2,735 $2,207 $3,256 $2,703 $3,252 $2,853
Operating income (loss) 91 120 4 68 109 72 (7)(1) 107(2)
Net income (loss) 35 58 (29) 33 48 44 (30)(1) 61(2)
Primary earnings (loss) per share .50 .90 (.55) .47 .69 .65 (.55) .93
Common dividends per share .275 .25 .275 .25 .275 .25 .275 .25
Market price per common share
High 39-7/8 35-5/8 35-5/8 44-1/2 38-3/8 42-3/4 35-3/8 37-7/8
Low 31-1/4 31 31-5/8 34 33-1/2 33-1/2 32 33-1/4
===========================================================================================================================
(1) Charges for asset impairment write-downs under FAS 121 and early retirement and restructuring programs
reduced operating income by $120 million and net income by $79 million in the quarter ended September 30, 1995.
(2) A net gain related to litigation matters increased operating income by $11 million and net income by $7 million
in the quarter ended September 30, 1994.
40
Ashland Inc. and Subsidiaires
STATEMENTS OF CONSOLIDATED INCOME
Years Ended September 30
(In millions except per share data) 1995 1994 1993
===========================================================================================================================
REVENUES
Sales and operating revenues (including excise taxes) $12,167 $10,334 $10,199
Other 72 48 57
- ---------------------------------------------------------------------------------------------------------------------------
12,239 10,382 10,256
COSTS AND EXPENSES
Cost of sales and operating expenses 9,286 7,742 7,951
Excise taxes on products and merchandise 988 877 645
Selling, general and administrative expenses 1,205 1,021 993
Depreciation, depletion and amortization 471 295 293
General corporate expenses 91 80 77
- ---------------------------------------------------------------------------------------------------------------------------
12,041 10,015 9,959
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 198 367 297
OTHER INCOME (EXPENSE)
Interest expense (net of interest income) - Notes A and F (171) (117) (123)
Equity income - Note D 7 22 26
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 34 272 200
Income taxes - Note H 13 (75) (58)
Minority interest in earnings of subsidiaries (23) - -
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME 24 197 142
Dividends on convertible preferred stock (19) (19) (6)
Other deductions - net - - (2)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME AVAILABLE TO COMMON SHARES $ 5 $ 178 $ 134
===========================================================================================================================
EARNINGS PER SHARE - NOTE A
Primary $ .08 $ 2.94 $ 2.26
Assuming full dilution $ .08 $ 2.79 $ 2.20
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING
Primary 62 61 59
Assuming full dilution 63 72 66
===========================================================================================================================
See Notes to Consolidated Financial Statements.
41
Ashland Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30
(In millions) 1995 1994
===========================================================================================================================
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Note A $ 52 $ 40
Accounts receivable (less allowances for doubtful accounts of
$25 million in 1995 and $23 million in 1994) 1,575 1,323
Construction completed and in progress - at contract prices 42 55
Inventories - Note A 726 601
Deferred income taxes - Note H 90 71
Other current assets 90 81
- ---------------------------------------------------------------------------------------------------------------------------
2,575 2,171
INVESTMENTS AND OTHER ASSETS
Investments in and advances to unconsolidated affiliates - Note D 145 291
Investments of captive insurance companies - Note A 192 181
Cost in excess of net assets of companies acquired (less accumulated
amortization of $35 million in 1995 and $32 million in 1994) 107 80
Other noncurrent assets 403 276
- ---------------------------------------------------------------------------------------------------------------------------
847 828
PROPERTY, PLANT AND EQUIPMENT
Cost
Petroleum 2,860 2,911
SuperAmerica 488 459
Valvoline 294 273
Chemical 737 633
APAC 566 528
Coal 972 -
Exploration (successful efforts method) 1,011 943
Corporate 150 151
- --------------------------------------------------------------------------------------------------------------------------
7,078 5,898
Accumulated depreciation, depletion and amortization (3,508) (3,082)
- --------------------------------------------------------------------------------------------------------------------------
3,570 2,816
- --------------------------------------------------------------------------------------------------------------------------
$6,992 $5,815
==========================================================================================================================
See Notes to Consolidated Financial Statements.
42
(In millions) 1995 1994
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
Notes payable to banks $ 185 $ 57
Commercial paper 15 15
Current portion of long-term debt 72 61
Trade and other payables 1,778 1,520
Income taxes 44 35
- ---------------------------------------------------------------------------------------------------------------------------
2,094 1,688
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Notes E and F 1,828 1,391
Employee benefit obligations - Note K 613 531
Reserves of captive insurance companies 169 173
Deferred income taxes - Note H 49 30
Other long-term liabilities and deferred credits 405 407
Commitments and contingencies - Notes F, G and L
- ---------------------------------------------------------------------------------------------------------------------------
3,064 2,532
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 179 -
STOCKHOLDERS' EQUITY - Notes E, I and J
Preferred stock, no par value, 30 million shares authorized
Convertible preferred stock, 6 million shares issued, $300 million liquidation value 293 293
Common stockholders' equity
Common stock, par value $1.00 per share
Authorized - 150 million shares
Issued - 64 million shares in 1995 and 61 million shares in 1994 64 61
Paid-in capital 256 159
Retained earnings 1,063 1,126
Loan to leveraged employee stock ownership plan (LESOP) (11) (33)
Other (10) (11)
- ---------------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity 1,362 1,302
- ---------------------------------------------------------------------------------------------------------------------------
1,655 1,595
- ---------------------------------------------------------------------------------------------------------------------------
$6,992 $5,815
===========================================================================================================================
43
Ashland Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
Prepaid
Common Paid-in Retained Loan to contribution
(In millions) stock capital earnings LESOP to LESOP Other Total
===========================================================================================================================
BALANCE AT OCTOBER 1, 1992 $60 $146 $ 931 $(34) $(24) $ 7 $1,086
Net income 142 142
Dividends
Preferred stock (6) (6)
Common stock, $1.00 a share (59) (1) (60)
Decrease in equity due to
change in Ashland Coal
capital structure (6) (6)
Issued common stock under
stock incentive plans 2 2
Allocation of LESOP shares
to participants 19 19
Other changes 1 1 (17) (15)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1993 60 143 1,008 (33) (6) (10) 1,162
Net income 197 197
Dividends
Preferred stock (19) (19)
Common stock, $1.00 a share (60) (60)
Issued common stock under
stock incentive plans 1 16 17
Allocation of LESOP shares
to participants 6 6
Other changes (1) (1)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1994 61 159 1,126 (33) - (11) 1,302
Net income 24 24
Dividends
Preferred stock (19) (19)
Common stock, $1.10 a share (68) (68)
Issued common stock under
Share offering program 2 49 51
Acquisition of operations
of other companies 1 40 41
Stock incentive plans 7 7
LESOP loan repayments 22 22
Other changes 1 1 2
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 $64 $256 $1,063 $(11) $ - $(10) $1,362
===========================================================================================================================
See Notes to Consolidated Financial Statements.
44
Ashland Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended September 30
(In millions) 1995 1994 1993
===========================================================================================================================
CASH FLOWS FROM OPERATIONS
Net income $ 24 $ 197 $ 142
Expense (income) not affecting cash
Depreciation, depletion and amortization(1) 487 308 305
Deferred income taxes (73) 2 14
Other noncash items 33 22 (27)
Change in operating assets and liabilities(2) 29 (75) (184)
- ---------------------------------------------------------------------------------------------------------------------------
500 454 250
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 330 77 341
Proceeds from issuance of capital stock 55(3) 17 295
Loan repayment from leveraged employee stock ownership plan 22 - -
Repayment of long-term debt (60) (109) (367)
Increase (decrease) in short-term debt 38 (5) (159)
Dividends paid (92) (79) (66)
- ---------------------------------------------------------------------------------------------------------------------------
293 (99) 44
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (444) (376) (432)
Purchase of operations - net of cash acquired (327)(3) (62) (2)
Proceeds from sale of operations 10 59 107
Investment purchases(4) (725) (335) (451)
Investment sales and maturities(4) 704 335 440
Other - net 1 23 32
- ---------------------------------------------------------------------------------------------------------------------------
(781) (356) (306)
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12 (1) (12)
Cash and cash equivalents - beginning of year 40 41 53
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 52 $ 40 $ 41
===========================================================================================================================
DECREASE (INCREASE) IN OPERATING ASSETS(2)
Accounts receivable $ (112) $ (153) $ 26
Construction completed and in progress 13 (3) (13)
Inventories (63) (45) 67
Deferred income taxes (7) - 15
Other current assets 12 (7) (8)
Investments and other assets 31 15 2
INCREASE (DECREASE) IN OPERATING LIABILITIES(2)
Trade and other payables 169 95 (245)
Income taxes 4 (10) (20)
Noncurrent liabilities (18) 33 (8)
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES $ 29 $ (75) $ (184)
===========================================================================================================================
(1) Includes amounts charged to general corporate expenses.
(2) Excludes changes resulting from operations acquired or sold.
(3) Excludes $41 million of common stock issued in acquisitions.
(4) Represents primarily investment transactions of captive insurance companies.
See Notes to Consolidated Financial Statements.
45
Ashland Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The consolidated financial statements include the accounts of Ashland and
its majority-owned subsidiaries. Investments in joint ventures and 20% to
50% owned affiliates are accounted for on the equity method. Since Ashland
Coal, Inc. was consolidated in 1995 and accounted for on the equity method
in 1994 and 1993 (see Note B), the comparability of various amounts
included in Ashland's consolidated financial statements and the
accompanying notes are affected.
The preparation of Ashland's consolidated financial statements in
conformity with generally accepted accounting principles requires Ashland's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
INVENTORIES
(In millions) 1995 1994
===========================================================================================================================
Crude oil $285 $243
Petroleum products 284 286
Chemicals and other products 491 421
Materials and supplies 66 46
Excess of replacement costs over LIFO carrying values (400) (395)
- ---------------------------------------------------------------------------------------------------------------------------
$726 $601
===========================================================================================================================
Crude oil, petroleum products and chemicals with a replacement cost of
approximately $741 million at September 30, 1995, and $705 million at
September 30, 1994, are valued using the last-in, first-out (LIFO) method.
The remaining inventories are stated generally at the lower of cost (using
the first-in, first-out (FIFO) or average cost method) or market.
PROPERTY, PLANT AND EQUIPMENT
The cost of plant and equipment (other than capitalized lease acquisition,
exploration and development costs) is depreciated by the straight-line
method over the estimated useful lives of the assets. Oil and gas lease
acquisition, exploration and development costs are accounted for using the
successful efforts method. Coal lease acquisition and development costs
which are recoverable are capitalized. Coal exploration costs are expensed
as incurred. Capitalized costs are depleted by the units-of-production
method over the estimated recoverable reserves.
Estimated costs of major refinery turnarounds are accrued, while other
maintenance and repair costs are expensed as incurred. Maintenance and
repair expense amounted to $355 million in 1995, $279 million in 1994 and
$248 million in 1993.
ENVIRONMENTAL COSTS
Accruals for environmental costs are recognized when it is probable that a
liability has been incurred and the amount of that liability can be
reasonably estimated. Such costs are charged to expense if they relate to
the remediation of conditions caused by past operations or are not expected
to mitigate or prevent contamination from future operations. Accruals are
recorded at undiscounted amounts based on experience, assessments and
current technology without regard to any third-party recoveries, and are
regularly adjusted as environmental assessments and remediation efforts
proceed.
EARNINGS PER SHARE
Primary earnings per share is based on net income less preferred dividends
divided by the average number of common shares and equivalents outstanding
during the respective years. Shares of common stock issuable under stock
options are treated as common stock equivalents when dilutive.
Earnings per share assuming full dilution begins with the primary earnings
per share computation. Shares issuable upon conversion of the preferred
stock and 6.75% subordinated debentures are added to average common shares
and equivalents when dilutive. In such cases, net income is further
adjusted by adding back preferred dividends and interest expense (net of
tax) on these debentures.
DERIVATIVE INSTRUMENTS
Ashland uses commodity futures and option contracts to reduce its exposure
to fluctuations in prices for crude oil, petroleum products and natural
gas. Gains and losses on these contracts are deferred and accounted for as
part of the transactions or activities being hedged.
46
Ashland uses interest rate swap agreements to obtain greater access to the
lower borrowing costs normally available on floating-rate debt, while
minimizing refunding risk through the issuance of long-term, fixed-rate
debt. Periodic settlements under the swap agreements are recognized as
adjustments of interest expense for the related periods.
ACCOUNTING CHANGES
Effective September 30, 1995, Ashland adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
result, Ashland recorded charges of $83 million (included in depreciation,
depletion and amortization) to write down certain assets to their fair
value. These assets included an idle unit at Ashland Petroleum's
Catlettsburg, Kentucky refinery, certain unused crude oil gathering
pipelines of Scurlock Permian, various petroleum product marketing
properties to be sold or shutdown, and various other assets. Fair value was
based upon appraisals or estimates of discounted future cash flows, as
appropriate. Operating income was reduced for each of the affected segments
as follows: Petroleum ($68 million), Valvoline ($3 million), Chemical ($4
million), Exploration ($4 million) and general corporate expenses ($4
million). In addition, Arch Mineral adopted FAS 121 and recorded a charge
to write down certain idle facilities, decreasing Ashland's equity income
by $3 million. The adoption of FAS 121 reduced Ashland's net income by $54
million or $.86 per share.
OTHER
Cash equivalents include highly liquid investments maturing within three
months after purchase. Investments of captive insurance companies are
primarily foreign corporate and government debt obligations and are carried
at market value plus accrued interest, with foreign currency exposures
hedged through forward contracts.
Income related to construction contracts is generally recognized by the
units-of-production method, which is a variation of the
percentage-of-completion method. Any anticipated losses on such contracts
are charged against operations as soon as such losses are estimable.
Costs in excess of net assets of companies acquired are amortized by the
straight-line method over periods generally ranging from 10 to 40 years,
with an average remaining life of 15 years.
Research and development costs are expensed as incurred ($24 million in
1995, $23 million in 1994 and $21 million in 1993).
Interest is capitalized on projects where construction of an asset takes
considerable time and entails substantial expenditures. Capitalized
interest amounted to $9 million in 1993 and was not significant in 1995 and
1994.
Certain prior year amounts have been reclassified in the consolidated
financial statements to conform with 1995 classifications.
NOTE B - ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
In February 1995, Ashland purchased from Saarbergwerke AG all of Ashland
Coal's Class B Preferred Stock for $110 million. The purchase increased
Ashland's ownership of Ashland Coal from 39 percent to 54 percent. As a
result of this transaction, Ashland Coal has been consolidated into
Ashland's financial statements retroactive to October 1, 1994. Ashland's
investment in Ashland Coal previously had been accounted for on the equity
method.
Also during 1995, Ashland acquired the unsaturated polyester resins,
polyester distribution and maleic anhydride businesses of Aristech Chemical
Corporation, the Zerex(R) antifreeze product line, the northern West
Virginia assets of two natural gas producers, and various other chemical
and construction businesses. These acquisitions and several smaller
acquisitions completed in various segments during the last three years were
generally accounted for as purchases and did not have a significant effect
on Ashland's consolidated financial statements.
DIVESTITURES
In 1994, Ashland sold APAC's Arizona operations. In 1993, Ashland sold
various operations, including its TPT inland waterways barge operation, the
Thunderbird crude oil common carrier pipeline system in Montana and
Wyoming, and 80 SuperAmerica stores in Florida and other non-strategic
areas outside markets served by Ashland Petroleum's refineries. In
addition, several other smaller operations engaged in petroleum, chemical
and construction activities were sold. Except for a pretax gain of $15
million on the sale of TPT in 1993, the divestitures discussed above and
several smaller divestitures completed in various segments during the last
three years did not have a significant effect on Ashland's consolidated
financial statements.
47
NOTE C - INFORMATION BY INDUSTRY SEGMENT
Ashland's operations are conducted primarily in the United States and are
managed along industry segments, which include Petroleum, SuperAmerica,
Valvoline, Chemical, APAC, Coal and Exploration. Information by industry
segment is shown on pages 58 and 59.
Petroleum operations are conducted by Ashland Petroleum, one of the
nation's largest independent petroleum refiners. In addition to supplying
petroleum products to SuperAmerica, Valvoline, Ashland Chemical and APAC,
Ashland Petroleum is a leading supplier of petroleum products to the
transportation and commercial fleet industries, other industrial customers
and independent marketers (including dealers operating under the Ashland(R)
brand name). Principal products include gasoline, distillates and kerosene,
asphalt, jet and turbine fuel, lubricants, and heavy fuel oils. Ashland
Petroleum also gathers and transports crude oil and petroleum products in
connection with its refining and wholesale marketing operations and markets
crude oil through Scurlock Permian.
SuperAmerica includes Ashland's retail gasoline and merchandise marketing
operations, including the SuperAmerica(R) chain of high-volume retail
stores. Gasoline and merchandise are also sold from outlets operated by
SuperAmerica under the Rich(R) brand name. Operations are conducted
primarily in the Ohio Valley and Upper Midwest.
Valvoline is a marketer of automotive and industrial oils, automotive
chemicals, antifreeze, filters, rust preventives and coolants with sales in
more than 140 countries. In addition, Valvoline is engaged in the "fast oil
change" business through outlets operating under the Valvoline Instant Oil
Change(R) and Valvoline Rapid Oil Change(R) names, and provides
environmental services for the collection of used oil, antifreeze and
filters.
Chemical businesses are managed by Ashland Chemical, which distributes
industrial chemicals, solvents, thermoplastics and resins, and fiberglass
materials. Ashland Chemical also manufactures a wide variety of specialty
chemicals and certain petrochemicals. Major specialty chemicals include
foundry products, water treatment and marine service chemicals, specialty
polymers and adhesives, unsaturated polyester resins, and high-purity
electronic and laboratory chemicals. Principal petrochemicals include
cumene, toluene, xylene, aromatic and aliphatic solvents, propylene, maleic
anhydride and methanol.
APAC performs contract construction work including highway paving and
repair, excavation and grading, and bridge and sewer construction. APAC
also produces asphaltic and ready-mix concrete, crushed stone and other
aggregate, concrete block and certain specialized construction materials in
thirteen southern states.
Coal operations are conducted by 54% owned, publicly traded Ashland Coal,
Inc., which produces low-sulfur bituminous coal in central Appalachia for
sale to domestic and foreign electric utility and industrial markets.
Ashland also holds a 50% equity interest in Arch Mineral Corporation (see
Note D). Arch Mineral produces metallurgical and steam coal from surface
and deep mines in Illinois, Kentucky, West Virginia and Wyoming for sale to
utility and steel companies. Both Ashland Coal and Arch Mineral market coal
mined by independent producers.
Exploration operations are conducted by Ashland Exploration, which is
engaged in crude oil and natural gas production in the eastern and Gulf
Coast areas of the United States and crude oil production in Nigeria.
Certain information with respect to foreign operations follows.
Total assets Income before income taxes
------------------- ----------------------------------------------
(In millions) 1995 1994 1995 1994 1993
===========================================================================================================================
Foreign operations
Petroleum $ 30 $ - $ 4 $ 1 $ 2
Valvoline 124 106 3 10 6
Chemical 302 220 42 28 27
Exploration 36 46 9 22 14
- ---------------------------------------------------------------------------------------------------------------------------
$492 $372 $58 $61 $49
===========================================================================================================================
48
NOTE D - UNCONSOLIDATED AFFILIATES
Affiliated companies accounted for on the equity method include: Arch
Mineral Corporation (a 50% owned coal company); LOOP INC. and LOCAP INC.
(18.6% and 21.4% owned corporate joint ventures operating a deepwater
offshore port and related pipeline facilities in the Gulf of Mexico); and
various other companies. Prior to 1995, Ashland Coal, Inc. was less than
50% owned and accounted for on the equity method (see Note B). Summarized
financial information reported by these affiliates and a summary of the
amounts recorded in Ashland's consolidated financial statements follow.
Ashland Arch Mineral LOOP INC. and
(In millions) Coal, Inc. Corporation LOCAP INC. Other Total
===========================================================================================================================
SEPTEMBER 30, 1995
Financial position
Current assets $ 148 $ 27 $ 238
Current liabilities (134) (91) (130)
------------------------------------------------------------------
Working capital 14 (64) 108
Noncurrent assets 790 633 202
Noncurrent liabilities (693) (506) (101)
------------------------------------------------------------------
Stockholders' equity $ 111 $ 63 $ 209
==================================================================
Results of operations
Sales and operating revenues $ 714 $ 119 $ 775
Gross profit 50 36 193
Net income (loss) (8)(1) 4 29
Amounts recorded by Ashland
Investments and advances 63 12 70 $ 145
Equity income (loss) (4) 1 10 7
Dividends received 3 1 8 12
===========================================================================================================================
SEPTEMBER 30, 1994
Financial position
Current assets $ 119 $ 173 $ 36 $ 204
Current liabilities (110) (132) (86) (123)
----------------------------------------------------------------------------------------
Working capital 9 41 (50) 81
Noncurrent assets 721 797 638 203
Noncurrent liabilities (373) (713) (525) (96)
----------------------------------------------------------------------------------------
Stockholders' equity $ 357 $ 125 $ 63 $ 188
========================================================================================
Results of operations
Sales and operating revenues $ 561 $ 641 $ 149 $ 701
Gross profit 71 60 54 172
Net income 17 14 15 14
Amounts recorded by Ashland
Investments and advances 138 70 12 71 $ 291
Equity income 6 7 3 6 22
Dividends received 3 - - 5 8
===========================================================================================================================
SEPTEMBER 30, 1993
Results of operations
Sales and operating revenues $ 550 $ 485 $ 143 $ 654
Gross profit (loss) 58 (13) 49 154
Net income (loss) 41(2) (20) 9 17
Amounts recorded by Ashland
Equity income (loss) 27 (10) 2 7 $ 26
Dividends received 3 4 1 6 14
===========================================================================================================================
(1) Includes a charge of $12 million resulting from asset impairment write-downs under FAS 121 and provisions for
early retirement and restructuring programs.
(2) Includes a net gain of $44 million resulting from a favorable adjustment to income tax expense due to tax law
changes, partially offset by a charge to increase the valuation allowance for certain prepaid royalties. Also
includes a net charge of $19 million for the cumulative effect of the adoption of FAS 106 and FAS 109, which was
recorded by Ashland in 1992.
Ashland's retained earnings include $92 million of undistributed earnings
from unconsolidated affiliates accounted for on the equity method.
49
NOTE E - LONG-TERM DEBT
(In millions) 1995 1994
===========================================================================================================================
Senior debt of Ashland
Medium-term notes, due 1996-2025, interest at an average rate
of 8.5% at September 30, 1995 (5.8% to 10.4%) $ 895 $ 661
8.80% debentures, due 2012 250 250
11.125% sinking fund debentures, due 2017 200 200
Pollution control and industrial revenue bonds, due
1996 to 2022, interest at an average rate of 6.6%
at September 30, 1995 (4.2% to 8.1%) 217 162
Note payable to bank for financing of leveraged employee
stock ownership plan, due 1996, interest at a combination
of an adjusted certificate of deposit rate and 76% of
the prime rate (5.7% at September 30, 1995) 11 33
Other 23 22
- ---------------------------------------------------------------------------------------------------------------------------
1,596 1,328
6.75% convertible subordinated debentures, due 2014,
convertible into common stock at $51.34 per share 124 124
Debt of Ashland Coal, Inc. not guaranteed by Ashland
9.78% senior notes, due 1997-2000 101 -
9.66% senior notes, due 2001-2006 54 -
8.92% senior notes, due 1996 22 -
Other 3 -
- ---------------------------------------------------------------------------------------------------------------------------
1,900 1,452
Current portion of long-term debt (72) (61)
- ---------------------------------------------------------------------------------------------------------------------------
$1,828 $1,391
===========================================================================================================================
Aggregate maturities of long-term debt are $72 million in 1996, $104
million in 1997, $74 million in 1998, $73 million in 1999 and $66 million
in 2000. Excluded from such maturities are $38 million of floating rate
pollution control and industrial revenue bonds, due between 2003 and 2009.
These bonds are subject to early redemptions at the bondholders' option,
but generally not before 1997.
Ashland has various revolving credit agreements totaling $370 million under
which no borrowings were outstanding at September 30, 1995. The agreement
providing for $320 million in borrowings expires on February 9, 2000, while
the agreements providing for $50 million in borrowings expire on February
23, 1996. In addition, Ashland Coal has revolving credit agreements which
expire on November 15, 1999, providing for up to $500 million in
borrowings, of which $40 million was in use at September 30, 1995.
Certain debt agreements contain covenants restricting dividends, share
repurchases and other distributions with respect to Ashland's capital
stock, as well as covenants limiting new borrowings. At September 30, 1995,
distributions with respect to Ashland's capital stock were restricted to
$634 million and additional debt was limited to $1.07 billion.
Interest payments on all indebtedness amounted to $163 million in 1995,
$119 million in 1994 and $131 million in 1993. The weighted average
interest rate on short-term borrowings outstanding was 6.0% at September
30, 1995, and 5.1% at September 30, 1994.
NOTE F - FINANCIAL INSTRUMENTS
Ashland uses interest rate swap agreements to obtain greater access to the
lower borrowing costs normally available on floating-rate debt, while
minimizing refunding risk through the issuance of long-term, fixed-rate
debt. At September 30, 1995, Ashland had unleveraged swap agreements with a
notional principal amount of $405 million which were used to convert fixed
rates on certain debt, including the 8.80% debentures and various
medium-term notes, to variable rates. The variable rates are generally
adjusted quarterly or semiannually based on London Interbank Offered Rates
(LIBOR), but may be fixed for longer terms using forward rate agreements.
At September 30, 1995, Ashland was receiving a weighted-average fixed
interest rate of 5.4% and paying a weighted-average variable interest rate
of 6.0%, calculated on the notional amount. Notional amounts do not
quantify risk or represent assets or liabilities of Ashland, but are used
in the determination of cash settlements under the agreements. The terms
remaining on Ashland's swaps range from 13 to 60 months, with a
weighted-average remaining life of 33 months.
Interest expense was reduced by an insignificant amount in 1995, $9 million
in 1994 and $8 million in 1993 resulting from settlements under these
agreements. Ashland is exposed to credit losses from counterparty
nonperformance, but does not anticipate any losses from its agreements, all
of which are with major financial institutions. The estimated fair value of
Ashland's swaps amounted to a net liability of $5 million at September 30,
1995, compared to a net liability of $15 million at September 30, 1994.
This decline in the liability was more than offset by the increase in the
fair value of the related fixed-rate indebtedness. Under its current swap
agreements, Ashland's annual interest expense in 1996 will change by about
$4 million for each 1% change in LIBOR.
50
The carrying amounts and fair values of Ashland's significant financial
instruments at September 30, 1995 and 1994 are shown below. The fair values
of cash and cash equivalents, notes payable to banks and commercial paper
approximate their carrying amounts. The fair values of investments of
captive insurance companies are based on quoted market prices plus accrued
interest. The fair values of long-term debt are based on quoted market
prices or, if market prices are not available, the present values of the
underlying cash flows discounted at Ashland's incremental borrowing rates.
The fair values of interest rate swaps are based on quoted market prices,
which reflect the present values of the difference between estimated future
variable-rate payments and future fixed-rate receipts.
1995 1994
------------------------ --------------------
Carrying Fair Carrying Fair
(In millions) amount value amount value
===========================================================================================================================
Assets
Cash and cash equivalents $ 52 $ 52 $ 40 $ 40
Investments of captive insurance companies 192 192 181 181
Liabilities
Notes payable to banks and commercial paper 200 200 72 72
Long-term debt (including current portion) 1,900 2,090 1,452 1,517
Interest rate swaps - 5 - 15
===========================================================================================================================
NOTE G - LEASES AND OTHER COMMITMENTS
LEASES
Ashland and its subsidiaries are lessees in noncancelable leasing
agreements for office buildings, warehouses, pipelines, transportation and
marine equipment, storage facilities, retail outlets, manufacturing
facilities and other equipment and properties which expire at various
dates. Capitalized lease obligations are not significant and are included
in long-term debt. Future minimum rental payments at September 30, 1995,
and rental expense under operating leases follow.
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
Future minimum rental payments Rental expense 1995 1994 1993
================================================ =====================================================================
1996 $ 82
1997 76 Minimum rentals
1998 66 (including rentals under
1999 49 short-term leases) $142 $113 $111
2000 46 Contingent rentals 10 12 11
Later years 222 Sublease rental income (18) (12) (17)
- ------------------------------------------------ ---------------------------------------------------------------------
$541 $134 $113 $105
===========================================================================================================================
In addition, Ashland Coal has entered into various noncancelable royalty
lease agreements under which future minimum payments are approximately $23
million annually through 2000 and $212 million in the aggregate thereafter.
OTHER COMMITMENTS
Under agreements with LOOP and LOCAP (see Note D), Ashland is obligated,
based upon its equity ownership, to provide a portion of the total debt
service and defined operating and administrative costs of these joint
ventures. This annual obligation is reduced by transportation charges paid
by Ashland and by a pro rata portion of transportation charges paid by
third parties who are not equity participants. If, after each obligor's
requirements have been satisfied, the joint ventures are unable to meet
cash requirements, Ashland is obligated to advance its pro rata share of
the deficiency. All funds provided to these joint ventures are used as
advances against future transportation charges. At September 30, 1995, all
advances made to LOOP and LOCAP by Ashland had been applied against
transportation charges. Transportation charges incurred amounted to $21
million in 1995, $24 million in 1994 and $21 million in 1993. At September
30, 1995, Ashland's contingent liability for its share of the indebtedness
of LOOP and LOCAP secured by throughput and deficiency agreements amounted
to approximately $94 million.
Ashland Coal owns 17.5% of a joint venture operating a coal loading and
storage facility at Newport News, Virginia. Venture partners are required
to pay their share of the venture's costs in relation to their ownership
(for fixed operating costs and debt service) or facility usage (for
variable operating costs). Ashland Coal's share of such payments amounted
to $3 million annually in 1995, 1994 and 1993. Future payments for fixed
operating costs and debt service are estimated to approximate $3 million
annually through 2015 and $26 million in 2016. Additionally, Ashland is
contingently liable for a guarantee relating to the office building
currently occupied by Ashland Coal. At September 30, 1995, such obligation
has a present value of approximately $7 million.
Ashland is contingently liable for up to $16 million of borrowings under a
revolving credit agreement of AECOM Technology Corporation, an
unconsolidated affiliate. Ashland's guaranteed portion of outstanding
borrowings under this agreement amounted to $8 million at September 30,
1995.
51
NOTE H - INCOME TAXES
A summary of the provision for income taxes follows. The 1993 provision was
not significantly affected by tax legislation that, among other things,
increased the federal income tax rate 1%, effective January 1, 1993.
(In millions) 1995 1994 1993
===========================================================================================================================
Current(1)
Federal $ 38 $ 56 $ 24
State 11 8 13
Foreign 11 9 7
- ---------------------------------------------------------------------------------------------------------------------------
60 73 44
Deferred (73) 2 14
- ---------------------------------------------------------------------------------------------------------------------------
$(13) $ 75 $ 58
===========================================================================================================================
(1) Income tax payments amounted to $54 million in 1995, $71 million in 1994 and $42 million in 1993.
Deferred income taxes are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
Temporary differences which give rise to significant deferred tax assets
(liabilities) follow.
(In millions) 1995 1994
===========================================================================================================================
Employee benefit obligations $250 $205
Environmental, insurance and litigation reserves 126 116
Alternative minimum tax credit carryforwards 75 23
Uncollectible accounts receivable 18 17
Compensated absences 15 10
Other items 47 65
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 531 436
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (445) (372)
Undistributed equity income (17) (16)
Prepaid royalties (17) -
Coal supply agreements (11) -
Other items - (7)
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (490) (395)
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 41 $ 41
===========================================================================================================================
The U.S. and foreign components of income before income taxes and a
reconciliation of the normal statutory federal income tax with the
provision for income taxes follow.
(In millions) 1995 1994 1993
===========================================================================================================================
Income before income taxes and minority interest
United States $(24) $211 $151
Foreign 58 61 49
- ---------------------------------------------------------------------------------------------------------------------------
$ 34 $272 $200
===========================================================================================================================
Income taxes computed at U.S. statutory rates $ 12 $ 95 $ 70
Increase (decrease) in amount computed resulting from
Equity income (2) (7) (6)
State income taxes 5 6 9
Net impact of foreign results (5) (7) (7)
Non-conventional fuel credit (10) (10) (9)
Percentage depletion allowance (12) - -
Other items (1) (2) 1
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes $(13) $ 75 $ 58
===========================================================================================================================
The Internal Revenue Service (IRS) has examined Ashland's consolidated U.S.
income tax returns through 1991. As a result of its examinations, the IRS
has proposed adjustments, certain of which are being contested by Ashland.
Ashland believes it has adequately provided for any income taxes and
related interest which may ultimately be paid on contested issues.
52
NOTE I - CAPITAL STOCK
In May 1993, Ashland sold six million shares of cumulative convertible
preferred stock priced at $50 per share. Net proceeds, after fees and
expenses, totaled $293 million and were used to reduce debt. The shares
have no voting rights and are entitled to cumulative annual dividends of
$3.125 per share. They have liquidation preferences equal to $50 per share
plus accrued and unpaid dividends, and are convertible at any time at the
option of the holders into 1.546 shares of Ashland common stock. The
preferred shares are redeemable at the option of Ashland at $51.88 per
share beginning March 25, 1997, and declining gradually to $50 per share by
March 15, 2003, plus accrued and unpaid dividends to the redemption date.
Under Ashland's Shareholder Rights Plan, each common share is accompanied
by one-half of a Right to purchase one-tenth share of preferred stock for
$120 (the "Exercise Price"). Each one-tenth share of preferred stock will
be entitled to dividends and to vote on an equivalent basis with two common
shares. The Rights are not exercisable or detachable from the common shares
until 10 days after any party acquires 15% or more (or announces a tender
offer for 20% or more) of Ashland's common stock. If any party acquires 20%
or more of Ashland's common stock or acquires Ashland in a business
combination, each Right (other than those held by the acquiring party) will
entitle the holder to purchase stock of Ashland or the acquiring company
having a market value of two times the Exercise Price. The Rights expire on
May 15, 1996, and can be redeemed at any time prior to becoming
exercisable.
At September 30, 1995, 10 million shares of cumulative preferred stock are
reserved for potential issuance under the Shareholder Rights Plan. At
September 30, 1995, 17 million common shares are reserved for conversion of
debentures and preferred stock and for issuance under outstanding stock
options.
NOTE J - STOCK OWNERSHIP PLANS
LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN
During 1986, Ashland established a leveraged employee stock ownership plan
(LESOP) to cover the majority of its salaried employees. LESOP purchases of
Ashland common stock that year were generally funded through a loan from
Ashland, of which the remaining principal at September 30, 1986, amounted
to $246 million. In 1987, Ashland contributed excess assets recovered from
certain company pension plans to the LESOP and prepaid $212 million of the
remaining principal. Because one-half of employees' LESOP accounts serve to
fund future benefits paid by certain pension plans, one-half of the funds
used to prepay the LESOP debt was accounted for by Ashland as a prepaid
LESOP contribution.
Ashland common shares held by the LESOP related to the contribution of
excess pension assets were allocated to employees' accounts over an
eight-year period ending September 30, 1994. The remaining shares are being
allocated as the loan to the LESOP is repaid. The projected costs of the
LESOP (including the prepaid contribution, projected dividends on the
related unallocated shares and projected future contributions) are being
expensed on a pro rata basis as the original shares are allocated to
employees. This expense totaled $14 million in 1995 and $18 million
annually in 1994 and 1993. Additional contributions from Ashland were not
required through September 30, 1994, since dividends on unallocated shares
exceeded interest and administrative costs, with the excess used to prepay
portions of the remaining principal on the loan. Contributions from Ashland
in 1995 amounted to $22 million.
STOCK INCENTIVE PLANS
Ashland has stock incentive plans under which key employees or directors
can purchase shares of common stock under stock options or restricted stock
awards. Stock options are granted to employees at a price equal to the fair
market value of the stock on the date of grant and become exercisable over
periods of one to three years. Unexercised options lapse 10 years after the
date of grant. Restricted stock awards entitle employees or directors to
purchase shares at a nominal cost, to vote such shares and to receive any
dividends thereon. However, such shares are subject to forfeiture upon
termination of service before the restriction period ends.
1995 1994 1993
------------------------ ----------------------- -----------------------
Common Price range Common Price range Common Price range
(In thousands except per share data) shares per share shares per share shares per share
===========================================================================================================================
Options outstanding -
beginning of year(1) 4,697 $14-1/4 - 41 4,504 $13-3/8 - 41 3,918 $13-3/8 - 41
Options granted 839 33 - 33-7/8 860 35-7/8 - 37-1/2 934 24-5/8 - 33-1/8
Options exercised (164) 14-1/4 - 35-5/8 (639) 13-3/8 - 41 (81) 13-3/8 - 33-3/8
Options canceled (150) 23-7/8 - 41 (28) 23-7/8 - 41 (267) 23-7/8 - 41
- ---------------------------------------------------------------------------------------------------------------------------
Options outstanding -
end of year(1) 5,222 $23-7/8 - 41 4,697 $14-1/4 - 41 4,504 $13-3/8 - 41
===========================================================================================================================
Options exercisable -
end of year 3,777 $23-7/8 - 41 3,242 $14-1/4 - 41 3,080 $13-3/8 - 41
===========================================================================================================================
(1) Shares of common stock available for issuance under options or awards amounted to 4,236,000 at September 30, 1995, and
2,295,000 at October 1, 1994.
53
NOTE K - EMPLOYEE BENEFIT PLANS
PENSION PLANS
Ashland sponsors pension plans which cover substantially all employees,
other than union employees covered by multiemployer pension plans under
collective bargaining agreements. Benefits under Ashland's plans generally
are based on the employee's years of service and compensation during the
years immediately preceding retirement.For certain plans, such benefits are
expected to come in part from one-half of employees' leveraged employee
stock ownership (LESOP) accounts. Ashland determines the level of
contributions to its pension plans annually and contributes amounts within
allowable limitations imposed by Internal Revenue Service regulations.
Ashland contributed the maximum tax-deductible contributions to its pension
plans in 1995, 1994 and 1993. The following tables detail the funded status
of the plans and the components of pension expense. A discount rate of 7.5%
and an assumed rate of salary increases of 5% were used in determining the
actuarial present value of projected benefit obligations at September 30,
1995 (8% and 5% at September 30, 1994).
1995 1994
-------------------------------- ----------------------------------
Plans with Plans with Plans with Plans with
assets in excess ABO in excess assets in excess ABO in excess
(In millions) of ABO of assets of ABO of assets
===========================================================================================================================
Plan assets at fair value (primarily listed stocks and bonds) $ 14 $290 $ 36 $185
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations (ABO)
Vested 13 289 30 188
Nonvested 1 69 5 44
- ---------------------------------------------------------------------------------------------------------------------------
14 358 35 232
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets less than (in excess of) ABO - 68(1) (1) 47
Provision for future salary increases 1 162 12 131
Deferred pension costs (3) (63) (8) (40)
- ---------------------------------------------------------------------------------------------------------------------------
Net (prepaid) accrued pension costs(2) $ (2) $167 $ 3 $138
- ---------------------------------------------------------------------------------------------------------------------------
Components of deferred pension costs
Unrecognized transition gain $ - $ 9 $ 3 $ 10
Unrecognized net loss (2) (93) (10) (63)
Unrecognized prior service costs (1) (9) (1) (9)
Recognition of minimum liability - 30 - 22
- ---------------------------------------------------------------------------------------------------------------------------
$ (3) $(63) $ (8) $(40)
===========================================================================================================================
(In millions) 1995 1994 1993
===========================================================================================================================
Components of pension expense
Service cost $ 23 $ 24 $ 26
Interest cost 34 29 28
Actual investment (gain) loss on plan assets (51) 7 (24)
Deferred investment gain (loss)(3) 30 (27) 10
Other amortization and deferral 1 4 5
Enhanced retirement program pension cost 15 - -
- ---------------------------------------------------------------------------------------------------------------------------
$ 52 $ 37 $ 45
===========================================================================================================================
(1) Includes unfunded ABO of $62 million for non-qualified supplemental pension plans.
(2) Amounts are recorded in various asset and liability accounts on Ashland's consolidated balance sheets.
(3) The expected long-term rate of return on plan assets was 9%.
OTHER POSTRETIREMENT BENEFIT PLANS
Ashland sponsors several unfunded benefit plans which provide health care
and life insurance benefits for eligible employees who retire from active
service or are disabled. The health care plans are contributory, with
retiree contributions adjusted periodically, and contain other cost-sharing
features such as deductibles and coinsurance. The life insurance plans are
generally noncontributory. Ashland funds the costs of these plans on a
pay-as-you-go basis.
During 1993, Ashland amended nearly all of its retiree health care plans to
place a cap on the company's contributions and to adopt a cost-sharing
method based upon a retiree's years of service. The cap limits the
company's contribution to average retiree per capita health care costs for
1992 (net of direct retiree contributions), increasing thereafter by up to
4.5% per year. If per capita health care costs increase by more than 4.5%
per year, the additional costs will be paid by retirees through higher
contributions. As a result, the accumulated postretirement benefit
obligation (APBO) for retiree health care plans was reduced by $197 million
as of October 1, 1992.
The following tables detail the status of the plans and the components of
postretirement benefit expense. The APBO was determined using a discount
rate of 7.5% at September 30, 1995, and 8% at September 30, 1994. Under the
amended plan, the assumed annual rate of increase in the per capita cost is
4.5%.
54
1995 1994 1993
----------------- ---------------- -----------------
Health Life Health Life Health Life
(In millions) care insurance care insurance care insurance
===========================================================================================================================
Accumulated postretirement benefit obligations (APBO)
Retired or disabled employees $146 $26 $ 93 $19
Fully eligible active plan participants 33 4 38 5
Other active plan participants 123 5 86 5
- -------------------------------------------------------------------------------------------------
302 35 217 29
Unrecognized net loss (2) (4) (17) -
Unrecognized plan amendment credit 129 6 158 8
- -------------------------------------------------------------------------------------------------
Accrued other postretirement benefit costs $429 $37 $358 $37
===========================================================================================================================
Components of other postretirement benefit expense
Service cost $ 12 $ 1 $ 7 $ 1 $ 6 $ 1
Interest cost 20 2 16 2 16 2
Amortization and deferral
(principally plan amendment credit) (15) (1) (15) (1) (17) (1)
- ---------------------------------------------------------------------------------------------------------------------------
$ 17 $ 2 $ 8 $ 2 $ 5 $ 2
==========================================================================================================================
OTHER PLANS
Certain union employees are covered under multiemployer defined benefit
pension plans administered by unions. Amounts charged to pension expense
and contributed to the plans were $2 million in 1995 and $1 million
annually in 1994 and 1993.
Ashland sponsors various savings plans to assist eligible employees in
providing for retirement or other future needs. Ashland matches employee
contributions up to 6% of their qualified earnings at a rate of 70% (20%
for LESOP participants). Ashland's contributions amounted to $9 million in
1995 and $7 million annually in 1994 and 1993.
NOTE L - LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local environmental laws
and regulations which require remediation efforts at multiple locations,
including operating facilities, previously owned or operated facilities,
and Superfund or other waste sites. Consistent with its accounting policy
for environmental costs, Ashland's reserves for environmental assessments
and remediation efforts amounted to $174 million at September 30, 1995, and
$167 million at September 30, 1994. Such amounts reflect Ashland's most
likely estimates of the costs which will be incurred over an extended
period to remediate identified environmental conditions for which costs are
reasonably estimable.
Environmental reserves are subject to considerable uncertainties which
affect Ashland's ability to estimate its share of the ultimate costs of
required remediation efforts. Such uncertainties involve the nature and
extent of contamination at each site, the extent of required cleanup
efforts under existing environmental regulations, widely varying costs of
alternate cleanup methods, changes in environmental regulations, the
potential effect of continuing improvements in remediation technology, and
the number and financial strength of other potentially responsible parties
at multiparty sites. As a result, charges to income for environmental
liabilities could have a material effect on results of operations in a
particular quarter or fiscal year as assessments and remediation efforts
proceed or as new remediation sites are identified. However, such charges
are not expected to have a material adverse effect on Ashland's
consolidated financial position.
Ashland has numerous insurance policies that provide coverage at various
levels for environmental costs. Ashland is currently involved in
negotiations concerning the amount of insurance coverage for environmental
costs under some of these policies. In addition, various costs of
remediation efforts related to underground storage tanks are eligible for
reimbursement from state administered funds. Probable recoveries related to
certain costs incurred or expected to be incurred in future years are
included in other noncurrent assets.
In addition, Ashland and its subsidiaries are parties to numerous claims
and lawsuits (some of which are for substantial amounts). While these
actions are being contested, the outcome of individual matters is not
predictable with assurance. Although any actual liability is not
determinable as of September 30, 1995, Ashland believes that any liability
resulting from these matters, after taking into consideration Ashland's
insurance coverages and amounts provided for, should not have a material
adverse effect on Ashland's consolidated financial position.
During 1995, Ashland Exploration entered into a settlement agreement with
Columbia Gas Transmission to resolve claims involving natural gas sales
contracts which were abrogated by Columbia in 1991. Columbia and its
parent, Columbia Gas Systems, have filed reorganization plans including
this agreement with the U.S. Bankruptcy Court in Delaware. The Court has
approved the fairness of the settlement agreement and the disclosure
statements allowing the reorganization plans to be voted on by creditors.
Subject to the outcome of the voting process and various other approvals,
the settlement agreement would provide for a $78 million payment to Ashland
Exploration, of which 5% would be withheld by Columbia to be used to
potentially satisfy the claims of non-settling producers. Payment is
expected to be received in 1996, with most of the settlement proceeds
recognized as income.
55
Ashland Inc. and Subsidiaries
FIVE YEAR SELECTED FINANCIAL INFORMATION
Years Ended September 30
(In millions except per share data) 1995 1994 1993 1992 1991
================================================================================================================================
SUMMARY OF OPERATIONS
Revenues
Sales and operating revenues (including excise taxes) $12,167 $10,334 $10,199 $10,211 $9,867
Other 72 48 57 40 56
Costs and expenses
Cost of sales and operating expenses (9,286) (7,742) (7,951) (8,210) (7,725)
Excise taxes on products and merchandise (988) (877) (645) (659) (620)
Selling, general and administrative expenses (1,205) (1,021) (993) (1,023) (926)
Depreciation, depletion and amortization (471) (295) (293) (290) (265)
General corporate expenses (91) (80) (77) (132) (93)
- -------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 198 367 297 (63) 294
Other income (expense)
Interest expense (net of interest income) (171) (117) (123) (128) (115)
Equity income 7 22 26 33 14
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, minority interest and
the cumulative effect of accounting changes 34 272 200 (158) 193
Income taxes 13 (75) (58) 90 (48)
Minority interest in earnings of subsidiaries (23) - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before the cumulative effect
of accounting changes 24 197 142 (68) 145
Cumulative effect of accounting changes - - - (268) -
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 24 $ 197 $ 142 $ (336) $ 145
===============================================================================================================================
BALANCE SHEET INFORMATION
Working capital
Current assets $ 2,575 $ 2,171 $ 1,973 $ 2,110 $ 2,119
Current liabilities 2,094 1,688 1,619 2,046 1,823
- -------------------------------------------------------------------------------------------------------------------------------
$ 481 $ 483 $ 354 $ 64 $ 296
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 6,992 $ 5,815 $ 5,552 $ 5,668 $ 5,449
- -------------------------------------------------------------------------------------------------------------------------------
Capital employed
Debt due within one year $ 272 $ 133 $ 159 $ 306 $ 195
Long-term debt (less current portion) 1,828 1,391 1,399 1,444 1,337
Deferred income taxes 49 30 44 59 312
Minority interest in consolidated subsidiaries 179 - - - -
Convertible preferred stock 293 293 293 - -
Common stockholders' equity 1,362 1,302 1,162 1,086 1,444
- -------------------------------------------------------------------------------------------------------------------------------
$ 3,983 $ 3,149 $ 3,057 $ 2,895 $ 3,288
===============================================================================================================================
CASH FLOW INFORMATION
Cash flows from operations $ 500 $ 454 $ 250 $ 398 $ 473
Additions to property, plant and equipment 444 376 432 504 445
Dividends 92 79 66 60 58
===============================================================================================================================
COMMON STOCK INFORMATION
Primary earnings (loss) per share $ .08 $ 2.94 $ 2.26 $ (1.18)(1) $ 2.56
Dividends per share 1.10 1.00 1.00 1.00 1.00
==============================================================================================================================
(1) Excludes the cumulative effect of accounting changes of $(4.57) per share.
57
Ashland Inc. and Subsidiaries
FIVE YEAR INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
(In millions) 1995 1994 1993 1992 1991
==============================================================================================================================
SALES AND OPERATING REVENUES
Petroleum $ 5,050 $ 4,666 $ 4,752 $ 4,848 $ 4,877
SuperAmerica 1,788 1,706 1,785 1,888 1,948
Valvoline 1,113 1,000 938 900 793
Chemical 3,551 2,885 2,586 2,488 2,285
APAC 1,123 1,101 1,116 1,043 1,019
Coal(1) 610 - - - -
Exploration 198 199 247 262 323
Intersegment sales(2)
Petroleum (1,228) (1,193) (1,195) (1,182) (1,335)
Other (38) (30) (30) (36) (43)
- ------------------------------------------------------------------------------------------------------------------------------
$12,167 $10,334 $10,199 $10,211 $ 9,867
==============================================================================================================================
OPERATING INCOME (LOSS)
Petroleum $ (54) $ 113 $ 56(3) $ (125) $ 138
SuperAmerica 53 59 65 1 30
Valvoline (4) 52 56 50 39
-----------------------------------------------------------------------
Total Refining and Marketing Group (5) 224 177 (74) 207
Chemical 159 125 108 81 98
APAC 75 70 53 45 41
Coal(1) 66 - - - -
Exploration (6) 28 36 17 41
General corporate expenses (91) (80)(4) (77) (132) (93)
- ------------------------------------------------------------------------------------------------------------------------------
$ 198(5) $ 367 $ 297 $ (63)(6) $ 294
==============================================================================================================================
IDENTIFIABLE ASSETS
Petroleum $ 2,258 $ 2,259 $ 2,240 $ 2,296 $ 2,274
SuperAmerica 401 398 364 446 437
Valvoline 603 532 430 402 377
Chemical 1,372 1,122 958 999 834
APAC 433 404 440 437 434
Coal(1) 928 - - - -
Exploration 424 374 375 361 337
Corporate(7) 573 726 745 727 756
- ------------------------------------------------------------------------------------------------------------------------------
$ 6,992 $ 5,815 $ 5,552 $ 5,668 $ 5,449
==============================================================================================================================
58
(In millions) 1995 1994 1993 1992 1991
===============================================================================================================================
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Petroleum $136 $155 $230 $273 $249
SuperAmerica 47 39 25 37 37
Valvoline 25 25 21 19 14
Chemical 76 61 51 47 41
APAC 47 45 43 42 36
Coal(1) 58 - - - -
Exploration 45 41 42 67 60
Corporate 10 10 20 19 8
- -------------------------------------------------------------------------------------------------------------------------------
$444 $376 $432 $504 $445
===============================================================================================================================
DEPRECIATION, DEPLETION AND AMORTIZATION
Petroleum $204 $134 $127 $125 $103
SuperAmerica 29 27 28 31 31
Valvoline 24 19 18 17 16
Chemical 58 43 42 43 41
APAC 42 40 44 45 48
Coal(1) 72 - - - -
Exploration 41 33 34 28 26
Corporate 17 12 12 13 14
- -------------------------------------------------------------------------------------------------------------------------------
$487(8) $308 $305 $302 $279
===============================================================================================================================
(1) Amounts relate to Ashland Coal which was consolidated in 1995.
(2) Intersegment sales are accounted for at prices which approximate market value.
(3) Includes a gain of $15 million on the sale of TPT, an inland waterways barge operation.
(4) Includes a net gain of $11 million related to litigation matters.
(5) Includes charges for unusual items totaling $120 million, consisting of asset impairment write-downs of $83 million under FAS
121 and provisions of $37 million for early retirement and restructuring programs. The combined effect of these items reduced
operating income for each of the segments as follows: Petroleum ($102 million), Valvoline ($5 million), Chemical ($5
million), Exploration ($4 million) and general corporate expenses ($4 million).
(6) Includes charges for unusual items totaling $208 million consisting of provisions for a voluntary enhanced retirement program
($31 million); various asset write-downs including properties held for sale and assets of discontinued operations ($64
million); future environmental cleanup costs ($41 million); reserves for future costs associated with certain custom boilers
built by a former engineering subsidiary and other matters ($38 million); and the current year effect of the adoption of a
new accounting standard for postretirement benefits ($34 million). The combined effect of all of these items reduced
operating income for each of the segments as follows: Petroleum ($89 million), SuperAmerica ($28 million), Valvoline ($2
million), Chemical ($15 million), APAC ($9 million), Exploration ($16 million) and general corporate expenses ($49 million).
(7) Includes principally cash, cash equivalents, investments in and advances to unconsolidated affiliates and investments of
captive insurance companies.
(8) Includes charges of $83 million for asset impairment write-downs which increased depreciation, depletion and amortization for
each of the segments as follows: Petroleum ($68 million), Valvoline ($3 million), Chemical ($4 million), Exploration ($4
million) and Corporate ($4 million).
59
Ashland Inc. and Subsidiaries
SUPPLEMENTAL OIL AND GAS INFORMATION
OIL AND GAS RESERVES, REVENUES AND COSTS
The following tables summarize Ashland's (1) crude oil and natural gas
reserves, (2) results of operations from oil and gas producing and
marketing activities, (3) costs incurred, both capitalized and expensed, in
oil and gas producing activities, and (4) capitalized costs for oil and gas
producing activities, along with the related accumulated depreciation,
depletion and amortization. U.S. crude oil and natural gas reserves are
reported net of royalties and interests owned by others. Foreign crude oil
reserves relate to reserves available to Ashland, as producer, under a
long-term contract with the Nigerian National Petroleum Corporation.
Reserves reported in the table are estimated and are subject to future
revisions.
1995 1994 1993
---------------------- ----------------------- ---------------------
U. S. Foreign Total U. S. Foreign Total U. S. Foreign Total
===================================================================================================================================
CRUDE OIL RESERVES (millions of barrels)
Proved developed and undeveloped reserves
Beginning of year .9 7.6 8.5 1.4 7.7 9.1 1.6 13.3 14.9
Revisions of previous estimates .2 12.3 12.5 (.1) 6.7 6.6 .2 2.3 2.5
Extensions and discoveries - 1.4 1.4 - - - - - -
Purchases (net of sales) of reserves in place .4 - .4 (.1) - (.1) - - -
Production (.2) (6.9) (7.1) (.3) (6.8) (7.1) (.4) (7.9) (8.3)
- -----------------------------------------------------------------------------------------------------------------------------------
End of year 1.3 14.4 15.7 .9 7.6 8.5 1.4 7.7 9.1
- -----------------------------------------------------------------------------------------------------------------------------------
Proved developed reserves
Beginning of year .9 7.6 8.5 1.3 7.7 9.0 1.5 13.3 14.8
End of year 1.3 14.4 15.7 .9 7.6 8.5 1.3 7.7 9.0
===================================================================================================================================
NATURAL GAS RESERVES (billions of cubic feet)
Proved developed and undeveloped reserves
Beginning of year 349.2 455.5 463.9
Revisions of previous estimates 90.7 (98.2) 4.9
Extensions and discoveries 21.2 25.9 19.4
Purchases (net of sales) of reserves in place 83.8 .4 3.5
Production (37.5) (34.4) (36.2)
- -----------------------------------------------------------------------------------------------------------------------------------
End of year 507.4 349.2 455.5
- -----------------------------------------------------------------------------------------------------------------------------------
Proved developed reserves
Beginning of year 320.5 352.0 346.5
End of year 427.3 320.5 352.0
===================================================================================================================================
RESULTS OF OPERATIONS (in millions)
Revenues
Sales to third parties $ 86 $110 $196 $ 96 $ 99 $195 $106 $135 $241
Intersegment sales(1) 2 - 2 4 - 4 6 - 6
- -----------------------------------------------------------------------------------------------------------------------------------
88 110 198 100 99 199 112 135 247
Costs and expenses
Production (lifting) costs(2) (27) (49) (76) (24) (90) (114) (25) (60) (85)
Exploration expenses (11) (27) (38) (13) (1) (14) (8) (10) (18)
Depreciation, depletion, amortization
and valuation provisions (41) (1) (42) (34) (1) (35) (33) (3) (36)
Other costs(3) (24) (1) (25) (25) (2) (27) (23) (5) (28)
Income and foreign exploration taxes 16 (23) (7) 7 19 26 - (44) (44)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1 $ 9 $ 10 $ 11 $ 24 $ 35 $ 23 $ 13 $ 36
===================================================================================================================================
COSTS INCURRED (in millions)
Property acquisition costs
Proved properties $ 69 $ - $ 69 $ 1 $ - $ 1 $ 3 $ - $ 3
Unproved properties 2 - 2 2 - 2 2 - 2
Exploration costs 17 31 48 19 1 20 10 10 20
Development costs 30 10 40 32 2 34 35 2 37
===================================================================================================================================
CAPITALIZED COSTS (in millions)
Proved properties $584 $400 $984 $494 $392 $886
Unproved properties 11 1 12 45 1 46
- -----------------------------------------------------------------------------------------------------------------------------------
595 401 996 539 393 932
Accumulated depreciation,
depletion and amortization (226) (392) (618) (231) (392) (623)
- -----------------------------------------------------------------------------------------------------------------------------------
$369 $ 9 $378 $308 $ 1 $309
===================================================================================================================================
60
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO OIL AND
GAS RESERVES
The following tables summarize discounted future net cash flows and changes
in such flows in accordance with Financial Accounting Standards Board
Statement No. 69 (FAS 69), "Disclosures about Oil and Gas Producing
Activities." Under the guidelines of FAS 69, estimated future cash flows
are determined based on current prices for crude oil and natural gas,
estimated production of proved crude oil and natural gas reserves,
estimated future production and development costs of those reserves based
on current costs and economic conditions, and estimated future income and
foreign exploration taxes based on taxing arrangements in effect at
year-end. Such cash flows are then discounted using the prescribed 10%
rate.
Many other assumptions could have been made which may have resulted in
significantly different estimates. Ashland does not rely upon these
estimates in making investment and operating decisions. Furthermore,
Ashland does not represent that such estimates are indicative of its
expected future cash flows or the current value of its reserves. Since gas
prices utilized in deriving these estimates are based on conditions that
existed at September 30 and are usually different than prices that exist at
calendar year-end due to seasonal fluctuations in the natural gas market,
the estimates may not be comparable to those of other companies with
different fiscal year-ends. Prices can also vary significantly at the same
point in time from year to year due to a variety of factors. The average
gas price used in the discounted future net cash flow calculations was
based on $1.64 per million BTU at Henry Hub for 1995 and $1.48 for 1994.
Discounted future net cash flows (in millions) U. S. Foreign Total
===================================================================================================================================
SEPTEMBER 30, 1995
Future cash inflows $1,060 228 $1,288
Future production (lifting) costs (505) 59) (664)
Future development costs (58) 16) (74)
Future income and foreign exploration taxes (33) 33) (66)
- -----------------------------------------------------------------------------------------------------------------------------------
464 20 484
Annual 10% discount (212) (3) (215)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 252 $ 17 $ 269
===================================================================================================================================
SEPTEMBER 30, 1994
Future cash inflows $ 691 $ 124 $ 815
Future production (lifting) costs (315) (80) (395)
Future development costs (22) (9) (31)
Future income and foreign exploration taxes (17) (24) (41)
- -----------------------------------------------------------------------------------------------------------------------------------
337 11 348
Annual 10% discount (140) (1) (141)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 197 $ 10 $ 207
===================================================================================================================================
1995 1994 1993
Changes in discounted future ------------------------ ------------------------ --------------------------
net cash flows (in millions) U. S. Foreign Total U. S. Foreign Total U. S. Foreign Total
- -----------------------------------------------------------------------------------------------------------------------------------
Net change due to extensions and
discoveries $ 25 $ 6 $ 31 $ 21 $ - $ 21 $ 20 $ - $ 20
Sales of oil and gas produced - net of
production (lifting) costs (61) (61) (122) (76) (9) (85) (87) (75) (162)
Changes in prices 24 24 48 (186) (3) (189) (35) (25) (60)
Previously estimated development
costs incurred 7 35 42 24 2 26 38 2 40
Net change due to revisions of
previous estimates of reserves 7 46 53 (17) 34 17 3 7 10
Purchases (net of sales) of reserves in place 40 - 40 - - - 3 - 3
Accretion of 10% discount 20 1 21 31 1 32 33 2 35
Other - net(4) (9) (40) (49) 33 (11) 22 (16) 1 (15)
Net change in income and foreign
exploration taxes 2 (4) (2) 59 (13) 46 14 71 85
- -----------------------------------------------------------------------------------------------------------------------------------
55 7 62 (111) 1 (110) (27) (17) (44)
Discounted future net cash flows
Beginning of year 197 10 207 308 9 317 335 26 361
- -----------------------------------------------------------------------------------------------------------------------------------
End of year $252 $ 17 $269 $197 $ 10 $207 $ 308 $ 9 $ 317
===================================================================================================================================
(1) Intersegment sales are accounted for at prices which approximate market value.
(2) Includes only costs incurred to operate and maintain wells, related equipment and facilities.
(3) Includes results of crude oil trading.
(4) Includes changes in future production and development costs and changes in the timing of future production.
61
EXHIBIT 21
LIST OF SUBSIDIARIES
Subsidiaries of Ashland Inc. ("AI") at October 1, 1995 included the
companies listed below. Ashland has numerous unconsolidated affiliates,
which are primarily accounted for on the equity method, and majority-owned
consolidated subsidiaries in addition to the companies listed below. Such
affiliates and subsidiaries are not listed below since they would not
constitute a significant subsidiary considered in the aggregate as a single
entity.
Jurisdiction of Immediate
Company Incorporation Parent*
AECOM Technology Corporation......................................... Delaware ATEC 19%
APAC-Alabama, Inc.................................................... Delaware AHI
APAC-Arkansas, Inc................................................... Delaware AHI
APAC-Carolina, Inc................................................... Delaware AHI
APAC-Florida, Inc.................................................... Delaware AHI
APAC-Georgia, Inc.................................................... Georgia AHI
APAC Holdings, Inc. ("AHI").......................................... Delaware AI
APAC, Inc............................................................ Delaware AHI
APAC-Kansas, Inc..................................................... Delaware AHI
APAC-Mississippi, Inc................................................ Delaware AHI
APAC-Oklahoma, Inc................................................... Delaware AHI
APAC-Tennessee, Inc.................................................. Delaware AHI
APAC-Texas, Inc...................................................... Delaware AHI
APAC-Virginia, Inc................................................... Delaware AHI
Arch Mineral Corporation............................................. Delaware AI 50%
Ashland Chemical Canada Ltd.......................................... Alberta, Canada AI
Ashland Coal, Inc.................................................... Delaware AI 54%
Ashland Crude Marketing, Inc......................................... Delaware AII
Ashland Crude Trading, Inc........................................... Delaware AI
Ashland Exploration, Inc............................................. Delaware AI
Ashland Foundry International, Inc................................... Delaware AI
Ashland Nigerian Development Company ("ANDC")........................ Delaware AII
Ashland of Nigeria, Ltd. ("ANL")..................................... Delaware AII
Ashland Oil (Nigeria) Company Ultd................................... Nigeria ANL 50%-ANDC 50%
Ashland Overseas Investments, Inc. ("AII")........................... Delaware AI
Ashland Pipe Line Company ("APL").................................... Ohio AI
Ashland Plastics International, Inc.................................. Delaware AI
Ashland Scurlock Permian Canada, Ltd................................. Alberta, Canada SPC
Ash Property, Inc.................................................... Ohio AI
Ashmont Insurance Company, Inc. ("AIC").............................. Vermont AI
ATEC, Inc. ("ATEC").................................................. Delaware AI
Bluegrass Insurance Company Limited.................................. Bermuda AIC
Bluegrass International Insurance Limited............................ Bermuda AIC
Drew Chemical Corporation ("DCC").................................... Delaware AI
Iberia Ashland Chemical S.A.......................................... Spain AI 70%
Mid-Valley Supply Co................................................. Kentucky AI
Ohio River Pipe Line Company......................................... Delaware APL
Scurlock Permian Corporation ("SPC")................................. Kentucky AI
Valvoline (Australia) Pty. Ltd....................................... Australia VHI
Valvoline Canada Ltd................................................. Ontario, Canada VHI
Valvoline Holdings, Inc. ("VHI")..................................... Delaware AI
- ---------------
*100% of the voting securities are owned by the immediate parent except as otherwise indicated.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-52125) pertaining to the Ashland Inc. Deferred
Compensation and Stock Incentive Plan for Non-Employee Directors, in the
Registration Statement (Form S-8 No. 2-95022) pertaining to the Ashland
Inc. Amended Stock Incentive Plan for Key Employees, in the Registration
Statement (Form S-8 No. 33-7501) pertaining to the Ashland Inc. Employee
Savings Plan, in the Registration Statement (Form S-8 No. 33-26101)
pertaining to the Ashland Inc. Long-Term Incentive Plan, in the
Registration Statement (Form S-8 No. 33-55922) pertaining to the Ashland
Inc. 1993 Stock Incentive Plan, in the Registration Statement (Form S-8 No.
33-49907) pertaining to the Ashland Inc. Leveraged Employee Stock Ownership
Plan, in the Registration Statement (Form S-8 No. 33-62901) pertaining to
the Ashland Inc. Deferred Compensation Plan, and in the Registration
Statement (Form S-3 No. 33-57011) as amended by Post-Effective Amendment
No. 1, pertaining to the U.S. $200,000,000 Ashland Inc. Medium-Term Notes,
Series G, and 3,000,000 shares of Ashland Inc. common stock, and the
related Prospectus, of our report dated November 1, 1995, with respect to
the consolidated financial statements and schedule of Ashland Inc. and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
September 30, 1995.
Ernst & Young LLP
November 28, 1995
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and
Officers of ASHLAND INC., a Kentucky corporation, which is about to file an
Annual Report on Form 10-K with the Securities and Exchange Commission
under the provisions of the Securities Exchange Act of 1934, as amended,
hereby constitutes and appoints JOHN R. HALL, PAUL W. CHELLGREN, THOMAS L.
FEAZELL, JAMES G. STEPHENSON and DAVID L. HAUSRATH, and each of them, his
true and lawful attorneys-in-fact and agents, with full power to act
without the others to sign and file such Annual Report and the exhibits
thereto and any and all other documents in connection therewith with the
Securities and Exchange Commission, and to do and perform any and all acts
and things requisite and necessary to be done in connection with the
foregoing as fully as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, may lawfully do or cause to be done by virtue hereof.
Dated: November 2, 1995
/s/ John R. Hall /s/ Ralph E. Gomory
- --------------------------------------- -------------------------------------------
John R. Hall, Chairman of the Board of Ralph E. Gomory, Director
Directors, Chief Executive Officer and
Director
/s/ Paul W. Chellgren /s/ Mannie L. Jackson
- --------------------------------------- -------------------------------------------
Paul W. Chellgren, President, Mannie L. Jackson, Director
Chief Operating Officer and Director
/s/ J. Marvin Quin /s/ Patrick F. Noonan
- --------------------------------------- -------------------------------------------
J. Marvin Quin, Chief Financial Patrick F. Noonan, Director
Officer and Senior Vice President
/s/ Jack S. Blanton /s/ Jane C. Pfeiffer
- --------------------------------------- -------------------------------------------
Jack S. Blanton, Director Jane C. Pfeiffer, Director
/s/ Thomas E. Bolger /s/ James R. Rinehart
- --------------------------------------- -------------------------------------------
Thomas E. Bolger, Director James R. Rinehart, Director
/s/ Samuel C. Butler /s/ Michael D. Rose
- --------------------------------------- -------------------------------------------
Samuel C. Butler, Director Michael D. Rose, Director
/s/ Frank C. Carlucci /s/ William L. Rouse, Jr.
- --------------------------------------- -------------------------------------------
Frank C. Carlucci, Director William L. Rouse, Jr., Director
/s/ James B. Farley /s/ Robert B. Stobaugh
- --------------------------------------- -------------------------------------------
James B. Farley, Director Robert B. Stobaugh, Director
- --------------------------------------- -------------------------------------------
Edmund B. Fitzgerald, Director James W. Vandeveer, Director
EXCERPT FROM
MINUTES OF DIRECTORS' MEETING
ASHLAND INC.
November 2, 1995
RESOLVED, that the Corporation's Annual Report to the Securities and
Exchange Commission ("SEC") on Form 10-K (the "Form 10-K") in the form
previously circulated to the Board in preparation for the meeting be, and
it hereby is, approved with such changes as the Chairman of the Board, the
President, any Vice President, the Secretary and David L. Hausrath
("Authorized Persons") shall approve, the execution and filing of the Form
10-K with the SEC to be conclusive evidence of such approval; provided,
however, that without derogating from the binding effect of the above, it
is understood than an Authorized Person shall cause the distribution prior
to the filing with the SEC, of a copy of such Form 10-K to the directors in
substantially that form which is to be filed with the SEC and that each
director's oral concurrence with respect to such form shall be obtained
prior to the filing with the SEC;
FURTHER RESOLVED, that the Authorized Persons be, and each of them hereby
is, authorized to file with the SEC the Form 10-K and any amendments
thereto on Form 10-K/A and/or any other applicable form; and
FURTHER RESOLVED, that the Authorized Persons be, and each of them hereby
is, authorized and directed to take such other action as may be necessary
and proper to implement the foregoing resolutions.
5
