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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, 1997

                       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
         -------------------                       -------------------
Common Stock, par value $1.00 per share          New York Stock Exchange
                                               and Chicago Stock Exchange
Rights to Purchase Series A Participating       New York Stock Exchange
  Cumulative Preferred Stock                   and Chicago Stock Exchange


           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) as
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. [ ]
     At October  31,  1997,  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  $3,174,811,812.  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,  1997,  there were  75,019,275  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, 1997 are  incorporated  by reference into Parts I
and II.
     Portions of  Registrant's  definitive  Proxy Statement for its January
29, 1998 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
                     Chemical                                       2
                     Valvoline                                      3
                     APAC                                           4
                     Refining and Marketing                         5
                       Petroleum                                    5
                       SuperAmerica                                 7
                     Coal                                           7
                     Miscellaneous                                  9
         Item 2.  Properties                                       12
         Item 3.  Legal Proceedings                                12
         Item 4.  Submission of Matters to a
                    Vote of Security Holders                       13
PART II
         Item 5.  Market for Registrant's Common Stock and 
                    Related Security Holder Matters                13
         Item 6.  Selected Financial Data            13
         Item 7.  Management's Discussion and Analysis of 
                    Financial Condition and Results of Operations  13
         Item 7A. Quantitative and Qualitative Disclosures 
                    About Market Risk                              13
         Item 8.  Financial Statements and Supplementary Data      13
         Item 9.  Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure         13
PART III
         Item 10. Directors and Executive Officers of the 
                    Registrant                                     13
         Item 11. Executive Compensation                           15
         Item 12. Security Ownership of Certain Beneficial
                    Owners and Management                          15
         Item 13. Certain Relationships and Related Transactions   15
PART IV
         Item 14. Exhibits, Financial Statement Schedules and 
                    Reports on Form 8-K                            15


                                   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  five  industry   segments:
Chemical,  Valvoline,  APAC,  Refining and  Marketing  and Coal.  Financial
information  about these segments for the five fiscal years ended September
30,  1997 is set  forth on Pages 62 and 63 of  Ashland's  Annual  Report to
Shareholders  for  the  fiscal  year  ended  September  30,  1997  ("Annual
Report").
     Ashland   Chemical   distributes   industrial   chemicals,   solvents,
thermoplastics and resins, and fiberglass  materials,  and manufactures and
sells a wide variety of  specialty  chemicals  and certain  petrochemicals.
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.
     APAC performs contract construction work, including highway paving and
repair,  excavation  and  grading,  and bridge  construction,  and produces
asphaltic  and  ready-mix  concrete,  crushed  stone and  other  aggregate,
concrete  block  and  certain  specialized  construction  materials  in the
southern and midwestern United States.
     Refining and Marketing  operations are conducted by Ashland  Petroleum
and SuperAmerica. Ashland Petroleum is an independent petroleum refiner and
a 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.
     Ashland's coal operations are conducted by Arch Coal,  Inc.,  which is
54% owned by Ashland and is publicly traded, and which produces and markets
bituminous  coal in Central  Appalachia,  the Illinois  Basin and the Hanna
Basin in Wyoming for sale to  domestic  and  foreign  electric  utility and
industrial customers.
     At September 30, 1997,  Ashland and its consolidated  subsidiaries had
approximately 37,200 employees (excluding contract employees).


                           CORPORATE DEVELOPMENTS


     In May 1997, USX  Corporation  and Ashland  announced the signing of a
letter  of  intent to pursue a  combination  of the major  elements  of the
petroleum  supply,  refining,  marketing and  transportation  operations of
USX's  Marathon  Group and  Ashland.  USX-Marathon  would own a 62  percent
ownership interest and Ashland would own a 38 percent ownership interest in
the joint venture to be known as Marathon Ashland  Petroleum LLC. The joint
venture is expected to be formed following regulatory reviews, execution of
definitive  agreements  and  approval  by the  Ashland  and USX  Boards  of
Directors.
     On July 1, 1997, Ashland sold the domestic  exploration and production
assets of Blazer Energy Corporation (formerly Ashland Exploration, Inc.) to
the Norwegian energy company,  Statoil,  through its U.S. energy management
subsidiary,  The Eastern Group, for $566 million.  Ashland has entered into
an agreement to sell its Nigerian  exploration  and production  operations,
which is subject  to the  approval  of the  Nigerian  government  and other
conditions.  For  further  information,  see  Note  B to  the  Consolidated
Financial Statements on Page 50 in Ashland's Annual Report.
     On July 1, 1997,  Ashland  Coal,  Inc.  and Arch  Mineral  Corporation
merged  into a new,  publicly  traded  corporation,  named Arch Coal,  Inc.
Ashland owns 54% of the new company.  The merger  created the sixth largest
coal company in the United  States by tons mined.  For further  information
relating to Arch Coal, see "Coal".


                                  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 and  operates 34  manufacturing
facilities and participates in 12 manufacturing joint ventures in 10 states
and 14 foreign  countries.  In addition,  Ashland  Chemical  owns or leases
approximately   100  distribution   facilities  in  North  America  and  25
distribution  facilities  in 17  foreign  countries.  Ashland  Chemical  is
comprised of the following operations: 

DISTRIBUTION

     INDUSTRIAL  CHEMICALS  & SOLVENTS  DIVISION  ("IC&S")  - IC&S  markets
chemical products, ingredients and solvents to industrial chemical users in
major markets through  distribution  centers in the United States,  Canada,
Mexico  and  Puerto  Rico.  It  distributes  approximately  3,500  chemical
products made by many of the nation's leading chemical  manufacturers and a
growing  number of  off-shore  producers,  as well as  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,  polymer,  rubber,  industrial and institutional
compounding,  automotive,  appliance and paper  industries.  It also offers
customers  chemical  waste  collection,  disposal and  recycling  services,
working in cooperation with major chemical waste services companies.
      FINE INGREDIENTS  DIVISION - This division (formerly part of the IC&S
division) distributes cosmetic and pharmaceutical  specialty chemicals, and
food-grade and nutritional additives and ingredients across North America.
      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 EUROPE - This division (formerly known as the Ashland
Plastics Division) markets a broad range of thermoplastics to processors in
Europe, including Finland, Norway, Sweden and Germany. Ashland Plastics has
distribution  centers located in Belgium,  France,  Italy, the Netherlands,
Ireland,  Spain,  and the United  Kingdom.  The  division  has  compounding
manufacturing facilities located in Italy and Spain. 

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 transportation, construction and
marine industries.  It has manufacturing plants in Jacksonville,  Arkansas;
Colton and Los  Angeles,  California;  Bartow,  Florida;  Ashtabula,  Ohio;
Philadelphia and Neville Island, Pennsylvania; and Benicarlo, Spain.
     In September  1997,  the company  reached an agreement in principle to
purchase  the  unsaturated  polyester  resins  business  of Buna Sow  Leuna
Olefinvergund  GmbH (BSL).  The  agreement is subject to the execution of a
definitive agreement and is expected to close by the first calendar quarter
of 1998. This  acquisition  will add a manufacturing  facility in Schkopau,
Germany.
     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  10,000  vessels  from  more  than  30  locations  serving  700  ports
throughout the world.


                                     2


     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;  Dallas, Texas, and Campbell,  California. 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.  Ashland Chemical is currently building
a new,  ultra-high purity  manufacturing and packaging  facility in Pueblo,
Colorado, targeted for completion in spring 1998.
     FOUNDRY  PRODUCTS  DIVISION  - This  division  manufactures  and sells
foundry  chemicals   worldwide,   including   sand-binding  resin  systems,
refractory  coatings,  release agents,  engineered  sand  additives,  riser
sleeves,  and die  lubricants.  The division  purchased  the  remaining 50%
ownership  interest in its Brazilian  affiliate,  Ashland Bentonit Resinas,
Ltda., from Bentonit Uniao Nordeste,  S.A. in September 1997. This division
serves the global metal casting industry from 22 locations in 18 countries.
     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 additives to manufacturers of 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;  Singapore;  Sydney and Perth, Australia; and
Auckland, New Zealand. 

PETROCHEMICALS
     This division markets aromatic and aliphatic solvents  manufactured at
facilities  located  at  the  Catlettsburg,   Kentucky  refinery.  It  also
manufactures  maleic anhydride at Neal, West Virginia,  and Neville Island,
Pennsylvania, and methanol near Plaquemine,  Louisiana. The division formed
an Energy  Services  business unit in July 1997 to provide  industrial  and
commercial   businesses  with  expert  management  of  their  total  energy
requirements.  The  new  business  will  source  and  supply  natural  gas,
electricity and natural gas liquids.

OTHER MATTERS
     MELAMINE  CHEMICALS,  INC.  ("MCI") - In October 1997,  MCI and Borden
Chemicals Inc.  ("Borden")  announced that a definitive  agreement had been
reached providing for Borden to tender for all of the outstanding shares of
MCI for $20.50 per share.  Ashland  tendered its 1,275,000 shares under the
terms of the offer and received $26,137,500 for such shares.
     DUBLIN,  OHIO  HEADQUARTERS   TECHNICAL  CENTER  EXPANSION  -  Ashland
Chemical  is  constructing  a  115,000-square-foot  facility  to expand its
Technical Center in Dublin, Ohio. The project is targeted for completion in
late calendar year 1998.
     For information relating to the Comprehensive  Environmental Response,
Compensation, and Liability Act ("CERCLA") and the Superfund Amendments 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."




                                 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 "Refining
and  Marketing."  Valvoline has  diversified its operations in recent years
and is comprised of the following business units:
     NORTH  AMERICAN  PRODUCTS  -  Valvoline's   largest  division,   North
American,  markets automotive,  commercial,  and industrial  lubricants and
automotive  chemicals  to a broad  network  of  North  American  customers.
Valvoline  branded  motor oil is one of the top selling  brands in the U.S.
private passenger car and light truck market.
     North American  markets Zerex(R)  antifreeze and Pyroil(R)  automotive
chemicals. Zerex(R) is the second-leading antifreeze brand in the U.S. This
division also markets R-12, an automotive  refrigerant  that was phased out
of  production  in  1995.   R-12  is  being   replaced  in  the  market  by
new-generation refrigerants.
     The domestic  commercial/fleet  group continued its strategic alliance
with the Cummins Engine Company to distribute  heavy-duty lubricants to the
commercial market.

                                     3



     VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline(R)
branded   products  and  TECTYL(R)  rust  preventives   worldwide   through
company-owned affiliates or divisions in Australia, Denmark, Great Britain,
the Netherlands,  Sweden,  Germany,  Switzerland,  Austria,  France, Italy,
Belgium and South Africa.  Licensees and  distributors  market  products in
other parts of Europe,  Central and South America, the Far East, the Middle
East and certain African countries. Joint ventures have been established in
Argentina,  Ecuador,  Thailand and India. Packaging and blending plants and
distribution centers in Australia,  Canada, Denmark, Sweden, Great Britain,
the Netherlands and the United States supply international customers.
     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, 1997,  382  company-owned  and 137
franchise service centers were operating in 15 and 27 states, respectively.
     In 1997, the "MVP" (Maximum  Vehicle  Performance)  program  continued
VIOC's  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 on vehicle  owner's
manual recommendations.
     FIRST RECOVERY - As of September 30, 1997, Ecogard,  Inc., through its
First Recovery division, was collecting used motor oil at an annual rate of
64 million gallons from a network of automotive  aftermarket  retailers and
service  businesses  in 48  states.  Completing  Valvoline's  "total  fluid
management"  approach  to  customer  service,  First  Recovery  provides an
environmental  service to Valvoline customers in the U.S.,  collecting used
antifreeze and oil filters as well.


                                    APAC

     The APAC group of  companies,  which are  located in 13  southern  and
midwestern  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,  drainage  facilities  and  underground  utilities.  APAC  also
produces  and sells  construction  materials,  such as hot-mix  asphalt 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
18 permanent  operating  quarry  locations,  32 other aggregate  production
facilities, 34 ready-mix concrete plants, 145 hot-mix asphalt plants, and a
fleet of over 9,000 mobile  equipment units,  including heavy  construction
equipment and transportation-related equipment.
     Raw aggregate generally consists of sand, gravel,  granite,  limestone
and sandstone.  About 26% of the raw aggregate  produced by APAC is used in
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 directly from highway
and other public sector sources.  The other 40% are derived from industrial
and  commercial  customers,   and  other  private  developers,   and  other
contractors to the public sector.
     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, 1997 was $693 million, compared to $647
million at September 30, 1996. The backlog orders at September 30, 1997 are
considered firm, and a major portion is expected to be filled during fiscal
1998.


                                     4


                           REFINING AND MARKETING

     Refining and Marketing  operations are conducted by Ashland  Petroleum
and  SuperAmerica.   Ashland   Petroleum,   a  division  of  Ashland,   has
responsibility  for obtaining  Ashland's crude oil requirements,  operating
Ashland's   refineries,   marketing  the  refined  petroleum  products  and
transporting  and  storing  crude oil and  refined  products.  SuperAmerica
Group,  a  division  of  Ashland,   conducts  retail  petroleum   marketing
operations  under the  SuperAmerica(R)  and Rich(R)  names.  See "Corporate
Developments"  for information  relating to the proposed joint venture with
USX-Marathon.

PETROLEUM
     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 1997,  Ashland  Petroleum's  negotiated lease,
contract and spot  purchases of United States crude oil for refinery  input
averaged  111,392 barrels per day (1 barrel = 42 U.S.  gallons),  including
93,122  barrels  per  day  acquired  through  Ashland's   Scurlock  Permian
subsidiary.  During  fiscal 1997,  Ashland  Petroleum's  foreign  crude oil
requirements  were met  largely  through  purchases  from  various  foreign
national  oil  companies,  producing  companies  and  traders,  as  well as
purchases of an average of 60,800  barrels per day during  fiscal 1997 from
Canada through Scurlock Permian's Canadian subsidiary. Purchases of foreign
crude oil (including Canada)  represented 68% of Ashland  Petroleum's crude
oil requirements during fiscal 1997 and in fiscal 1996.
     In addition to providing crude oil for Ashland Petroleum's refineries,
Scurlock  Permian  and its  Canadian  subsidiary  are  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, as well as major trading
and distribution hubs in western Canada.
     REFINING AND WHOLESALE MARKETING - Ashland Petroleum owns and operates
three  refineries,  located in its key  markets,  with an  aggregate  rated
refining  capacity of 360,000  barrels of crude oil per  calendar  day. The
Catlettsburg, Kentucky, refinery has a refining capacity of 220,000 barrels
per day, and the St. Paul Park,  Minnesota,  and Canton,  Ohio,  refineries
each have rated  refining  capacities  of 70,000  barrels per day.  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 manufactures lubricating oils and a wide range of petrochemicals.
     Ashland  Petroleum's  principal  marketing areas for gasoline and fuel
oils  include the Ohio River  Valley,  the upper  Midwest,  the upper Great
Plains and the southeastern United States.
     Ashland  Petroleum's  production of gasoline,  kerosene and light fuel
oils  is sold in 20  states  through  wholesale  channels  of  distribution
(including  company owned and exchange  terminals and 17 Ashland brand bulk
plants in 4 states)  and at retail  through  Ashland(R)  brand  distributor
locations,  SuperAmerica(R)  and  Rich(R).  Gasoline  is sold at  wholesale
primarily to independent marketers, jobbers, and chain retailers who resell
through several thousand retail outlets  principally under their own names,
and also under the  Ashland(R)  brand name.  As of September  30, 1997,  37
jobbers were  committed to Ashland's  jobber program and 601 units had been
reimaged.  Ashland also supplies 46 reseller  outlets using the  Ashland(R)
brand name. Gasoline, kerosene,  distillates and aviation products are also
sold to utilities,  railroads,  river towing  companies,  commercial  fleet
operators, airlines and governmental agencies.
     Ashland Petroleum also produces asphalt cements,  polymerized asphalt,
asphalt emulsions and industrial  asphalts and markets these products in 18
states.  Additionally,  Ashland  Petroleum  manufactures  petroleum  pitch,
primarily  used in the  graphite  electrode,  clay  target  and  refractory
industries.
     The table below shows Ashland's refining operations for the last three
fiscal years.
Years Ended September 30 ------------------------- 1997 1996 1995 ----- ----- ----- REFINERY INPUT (IN THOUSANDS OF BARRELS PER DAY) 362.6 372.3 353.8 ------------------------------------------------ REFINERY PRODUCTION (IN THOUSANDS OF BARRELS PER DAY) ----------------------------------------------------- Gasoline 178.3 183.5 176.8 Distillates and Kerosene 98.0 102.1 92.5 Asphalt 29.9 30.4 31.5 Jet and Turbine Fuel 11.6 11.4 11.1 Heavy Fuel Oils 7.9 7.1 6.7 Lubricants 7.1 7.7 7.7 Other 20.7 20.0 16.8
5 The table below shows the average daily consolidated sales (excluding intercompany sales) of petroleum products and crude oil by Ashland Petroleum, SuperAmerica and Valvoline for the last three fiscal years. Sales of gasoline (excluding excise taxes) represented approximately 17%, 18% and 17% of Ashland's consolidated sales and operating revenues (excluding excise taxes) in fiscal years 1997, 1996 and 1995, respectively.
Years Ended September 30 ------------------------- 1997 1996 1995 ----- ----- ----- CONSOLIDATED PRODUCT SALES (IN THOUSANDS OF BARRELS PER DAY) Gasoline 197.1 197.6 193.7 Crude Oil 108.6 116.3 112.5 Distillates and Kerosene 108.5 112.8 102.8 Asphalt 37.4 37.0 36.8 Jet and Turbine Fuel 12.4 9.6 9.6 Heavy Fuel Oils 7.5 7.0 7.1 Lubricants 13.8 14.8 15.0 Other 29.9 28.0 28.3
TRANSPORTATION AND STORAGE - Ashland owns, leases or has an ownership interest in 5,790 miles of active pipeline in 13 states. This network transports crude oil and refined products to and from terminals, refineries and other pipelines. This includes 2,545 miles of crude oil gathering lines, 2,729 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 LLC ("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"), a pipeline operation 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 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 I of Notes to Consolidated Financial Statements in Ashland's Annual Report. In addition, Ashland owns a 33% stock interest in 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 nominal capacity 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 170 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-hulled inland river tank barges. As of September 30, 1997, construction on 34 of the new double-hulled units has been completed. These barges will replace current single-hulled barges owned and operated by Ashland in order to comply with requirements of the Oil Pollution Act of 1990. Displaced single-hulled units will be divested or recycled into dock floats within Ashland's system. 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 primarily used for third party delivery of foreign crude oil to the United States. Ashland Petroleum's requirements for tankers 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. 6 Ashland Petroleum owns or has an interest in 34 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 - 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 1995 through 1997, refining margins for Ashland Petroleum have averaged $3.69 per barrel for the six-month periods ended March 31 and $5.19 per barrel for the six-month periods ended September 30. 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." SUPERAMERICA SUPERAMERICA(R) STORES - SuperAmerica operates 641 (497 owned and 144 leased) combination gasoline and merchandise stores in 10 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 has also added on-premise brand-name restaurants at some outlets to enhance overall profitability. At September 30, 1997, there were 81 SuperAmerica locations with branded food service. SuperAmerica operates warehouse distribution centers in Bloomington, Minnesota, and Ashland, Kentucky, that distribute certain merchandise to its stores. SuperAmerica also operates a commissary in Russell, Kentucky, that produces sandwiches, salads and other food products for distribution to stores in the Ohio Valley. A wholly owned subsidiary of Ashland also operates a large bakery and commissary in St. Paul Park, Minnesota, under the name SuperMom's(R) that supplies baked goods, sandwiches and salads. In addition to its product and service innovations, SuperAmerica has adopted a number of technological enhancements that improve efficiency and service. SuperAmerica has bar code scanning and home office to store satellite communication links. SuperAmerica is also one of the first in the industry to operate a data warehouse to collect and analyze data from its stores. In addition to the 641 company-owned and leased SuperAmerica stores, SuperAmerica has 27 jobber/franchisees who operate 43 stores in Minnesota and Wisconsin. During fiscal 1997, 33 new or rebuilt SuperAmerica retail outlets were opened. During fiscal 1997, 38% of the revenues of the SuperAmerica stores (excluding excise taxes) were derived from the sale of merchandise and 62% of such revenues were derived from the sale of gasoline and diesel fuel. RICH OIL - SuperAmerica also operates 125 (97 owned and 28 leased) retail gasoline outlets in Kentucky, Ohio and West Virginia under the Rich(R) name. These outlets are generally smaller, are located in less-densely-populated areas and generate lower gasoline volumes than the average SuperAmerica store. 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." COAL ARCH COAL, INC. ("ARCH COAL") - Ashland owns approximately 54% of Arch Coal, a publicly traded Delaware corporation (NYSE:ACI) resulting from the merger of Ashland Coal, Inc. and Arch Mineral Corporation. See "Corporate Developments" for a discussion of the July 1, 1997 merger transaction. The unaudited pro forma combined operating data below are not representative of the operating results which would have occurred had the merger occurred as of the beginning of the periods presented or dates indicated or of the operating results which may be achieved in the future. 7 Arch Coal is engaged in the production, transportation, processing and marketing of bituminous coal produced in Central Appalachia, the Illinois Basin and the Hanna Basin in Wyoming. Arch Coal concentrates primarily on acquiring and developing low-sulfur steam coal reserves for sale to electric utility customers in the United States and abroad. Arch Coal relies on third-party rail, barge and truck transportation to deliver coal to its domestic customers. A substantial portion of shipments to international customers are made primarily from the Dominion Terminal Associates terminal facility in Newport News, Virginia. Arch Coal subsidiaries are partners in the partnership that owns and operates this terminal. For its fiscal year ended December 31, 1996, on a pro forma combined basis, Arch Coal and its independent operating subsidiaries sold 51.3 million tons of coal, as compared to 49.2 and 48.1 million tons sold in 1995 and 1994, respectively. Of the total number of tons sold during fiscal 1996, approximately 68% were under long term contracts, as compared to 69% for 1995 and 67% for 1994, with the balance being sold on the spot market. In fiscal 1996, Arch Coal and its independent operating subsidiaries sold 2.4 million tons of coal in the export market, compared to 3.5 million tons in 1995 and 2.2 million tons in 1994. Sales of coal represented approximately 10%, 5% and 6% of Ashland's consolidated revenues in its fiscal years ended September 30, 1997, 1996 and 1995, respectively. For its fiscal year ended December 31, 1996, Arch Coal's independent operating subsidiaries produced approximately 47.4 million tons of coal, as compared to 46.5 and 46.6 million tons for 1995 and 1994, respectively. In addition, Arch Coal purchased for resale approximately 3.9 million tons of coal during 1996 and approximately 2.6 and 2.5 million tons of coal during 1995 and 1994. Approximately 66%, 70% and 68% of total revenues for fiscal years 1996, 1995 and 1994, respectively, were derived from long-term contracts. In the nine months ended September 30, 1997, on a pro forma combined basis, Arch Coal sold 40.1 million tons of coal, 69% of which was sold under contracts with a duration of more than one year. During this period, 94% of Arch Coal's total sales came from the production of its subsidiaries, while the remaining coal sold came from brokerage activities. During this nine-month period, 58% of Arch Coal's production was from its surface mines and the remainder was from its underground and auger mines. During its fiscal year ended December 31, 1996, Arch Coal's pro forma combined sales to affiliates of The Southern Company and affiliates of American Electric Power accounted for approximately 14.6% and 13.1%, respectively, of pro forma combined revenues from coal sales for such period. The loss of such customers would have a material adverse effect on Arch Coal. As of September 30, 1997, Arch Coal estimates it owned or controlled recoverable coal reserves in the proven and probable categories of approximately 2.1 billion tons. Arch Coal believes that 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. Arch Coal's coal properties are owned outright and controlled by lease. Royalties paid to lessors on leased properties are either on a fixed price per ton basis or on a percentage of the gross sales price basis. Most of these leases run until the exhaustion of mineable and merchantable coal. The remaining leases have primary terms ranging from one to 40 years from the date of their execution, with many containing options to renew. Those term leases covering principal reserves under Arch Coal's current mining plans are not scheduled to expire prior to expiration of those plans in 2003 (at Arch Coal's Coal Mac, Inc. operations) and 2006 (at the balance of Arch Coal's operations). Mining plans are not necessarily indicative of the life of the mine. The extent to which reserves will eventually be mined depends upon a variety of factors, including future economic conditions and governmental actions affecting both the mining and marketability of low-sulfur steam coal. Arch Coal's Apogee Coal Company ("Apogee") and Hobet Mining, Inc. ("Hobet") subsidiaries, are members of the Bituminous Coal Operators Association ("BCOA") and each is a signatory to a five year collective bargaining agreement with the United Mine Workers of America that expires on August 1, 1998. In the nine months ended September 30, 1997, Apogee's and Hobet's combined production represented approximately 55% of Arch Coal's total production on a pro forma combined basis. Two other Arch Coal subsidiaries are signatories to collective bargaining agreements with independent employee associations. Employees of the remainder of Arch Coal's operating subsidiaries are not represented by labor unions. Arch Coal is subject to extensive federal and state environmental laws and regulations, including the federal 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 8 training of mine personnel, mining procedures, blasting and the equipment used in mining operations. Although the cost of compliance with these laws, regulations and requirements is substantial, it is not expected to have a material adverse impact on Arch Coal's results of operations, financial condition or competitive position. The Clean Air Act contains acid rain provisions which require substantial reductions in sulfur dioxide emissions by power plants in the United States. Typically, power plants burn low-sulfur coal as a means of reducing sulfur dioxide emissions. Because Arch Coal has significant low-sulfur coal reserves, future sales should be positively affected by stringent enforcement of sulfur dioxide emission standards. 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 policies of the Organization of Petroleum Exporting Countries ("OPEC") 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 involving 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 its Scurlock Permian subsidiary assists in offsetting the adverse effects frequently associated with market volatility. See "Refining and Marketing - 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 "Miscellaneous Governmental Regulation and Action - 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 material adverse impact on Ashland's results of operations. 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 for continuing operations are summarized below.
Years Ended September 30 ----------------------------------------- (In millions) 1997 1996 1995 -------------------------------------- ------ ------ ----- Capital expenditures $ 26 $ 38 $ 42 Operating expenditures 155 153 148
At September 30, 1997, Ashland's reserves for environmental assessments and remediation efforts were $150 million, reflecting Ashland's estimates of the costs which are most likely to be incurred over an extended period to remediate identified environmental conditions for which costs are reasonably estimable. 9 Based on current environmental regulations, Ashland estimates capital expenditures for air, water and solid waste control facilities to be $30 million in 1998. 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. For information regarding the 1996 multimedia inspections which were conducted by the United States Environmental Protection Agency ("USEPA") at Ashland Petroleum's three refineries, see "Legal Proceedings". Federal, state and local environmental laws and regulations have had, and will continue to have, a significant impact on the manner in which Ashland conducts its business, manages its refining, storage, pipeline and retail facilities and selects its range of refined products. A summary of the effects of the most significant of these laws and regulations is set forth below. The USEPA and the states in which Ashland conducts petroleum marketing operations have adopted regulations and laws concerning underground storage tanks covering, among other things, registration of tanks, release detection, corrosion protection, response to releases, and closure of, and financial responsibility for, underground storage tank systems. Under RCRA, underground storage tanks used for retail distribution of petroleum products must be brought into compliance with the variety of engineering specifications and leak protection technologies by calendar year-end 1998. In anticipation of this compliance deadline, Ashland's retail petroleum marketing operations have upgraded the underground storage tanks at approximately 96% of the Company's existing marketing locations, and Ashland anticipates that the remaining locations will be brought into timely compliance. As originally enacted, Superfund provided for the establishment of a fund to be used for a hazardous substance clean-up program, administered by the USEPA and funded by: (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, (iv) an "environmental tax" based on corporate alternative minimum taxable income, and (v) the motor fuel tax to finance the new Underground Storage Tank Trust Fund. During 1996, the tax provisions of Superfund expired. As a result Ashland paid no Superfund taxes during fiscal 1997. Superfund is undergoing consideration for significant amendments, including reauthorization of the taxing provisions as well as a reevaluation of the cleanup liability allocation scheme and improved cleanup remedy selection. However, it is uncertain at this time what revisions will be formally considered by Congress, or if any such revisions will in fact be adopted. The Oil Pollution Act of 1990 ("OPA 90") established a $1 billion trust fund to cover cleanup-related costs of oil spills after statutory liability limits for a responsible party 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 responsible parties 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 for designated vessels and facilities. Additionally, OPA 90 requires that new tank vessels entering or operating in domestic waters be double-hulled, and that existing tank vessels that are not double-hulled 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. The Federal Clean Air Act required the refining industry to market cleaner-burning, reformulated gasoline ("RFG") beginning January 1, 1995, for use 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 supply oxygenated gasoline only at St. Paul Park, Minnesota, whose primary market is a CO non-attainment area. 10 RCRA, which requires management of hazardous waste, is scheduled 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 issues may be addressed in additional USEPA rulemakings unrelated to the statutory reauthorization efforts. It is anticipated that both the reauthorization and other future rulemakings will result in increased environmental compliance costs which cannot currently be estimated. RESEARCH Ashland conducts a program of research and development to invent and improve products and processes and to improve 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 ($29 million in 1997, $28 million in 1996 and $24 million in 1995). 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 most of these segments, competition is based primarily on price, with factors such as reliability of supply, service and quality being considered. 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, 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. 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. The majority of the business for which APAC competes is obtained by competitive bidding. Ashland Petroleum competes primarily with other domestic refiners and, to a lesser extent, with imported products. Ashland's refineries are located close to its market areas, giving the Company a geographic advantage in supplying these 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 provide high quality and efficient service and enjoys gasoline and merchandise sales per store exceeding the convenience store industry average, based on the 1997 National Association of Convenience Store State of the Industry Survey. The coal industry is highly competitive, and Arch Coal competes (principally in price, location and quality of coal) with a large number of other coal producers, some of which are substantially larger and have greater financial resources and larger reserve bases than Arch Coal. FORWARD LOOKING STATEMENTS This Form 10-K, and the documents incorporated by reference, contain forward-looking statements within the meaning of Section 27A of the Securities and Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including various information within the Capital Resources, Derivative Instruments and Outlook sections in Management's Discussion and Analysis in Ashland's Annual Report. Although Ashland believes that its expectations are based on reasonable assumptions, it cannot assure that the expectations contained in such statements will be achieved. Important factors which could cause actual results to differ materially from those contained in such statements are discussed immediately below, as well as in other portions of this Form 10-K and in Note A to the Consolidated Financial Statements under risks and uncertainties in Ashland's Annual Report. Ashland's operations are affected by domestic and international political, legislative, regulatory and legal actions. Such actions may include changes in the policies of OPEC or other developments involving or affecting oil-producing countries, including military conflict, embargoes, internal instability or actions or reactions of the government of the United States in anticipation of or in response to such developments. Domestic and international economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, as well as changes in the availability and market prices of crude oil and petroleum products, can also have a significant effect on Ashland's operations. While Ashland maintains reserves for anticipated liabilities and carries various levels of insurance, Ashland could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings. In addition, climate and weather can significantly affect Ashland in several of its operations such as its construction, heating oil and coal businesses. 11 ITEM 2. PROPERTIES Ashland's corporate headquarters, which is leased, and the principal location of Ashland Petroleum, which is owned, are located in Russell, Kentucky. Principal offices of other major operations are located in Lexington, Kentucky (SuperAmerica and Valvoline); Dublin, Ohio (Chemical); Atlanta, Georgia (APAC); and St. Louis, Missouri (Arch Coal), 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. Additional information concerning certain leases may be found in Note I of Notes to Consolidated Financial Statements in Ashland's Annual Report. ITEM 3. LEGAL PROCEEDINGS ENVIRONMENTAL PROCEEDINGS - (1) As of September 30, 1997, Ashland had been identified as a "potentially responsible party" ("PRP") under Superfund or similar state laws for potential joint and several liability for cleanup costs in connection with alleged releases of hazardous substances in connection with 78 waste treatment or disposal sites. These sites are currently subject to ongoing investigation and remedial activities, overseen by the USEPA or a state agency, in which Ashland may be participating as a member of various PRP groups. Generally, the type of relief sought includes remediation of contaminated soil and/or groundwater, reimbursement for the costs of site cleanup or oversight expended, and/or long-term monitoring of environmental conditions at the sites. 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. Estimated costs for these matters are recognized in accordance with generally accepted accounting principles governing the likelihood that costs will be incurred and Ashland's ability to reasonably estimate future costs. For additional information regarding Superfund, see "Miscellaneous - Governmental Regulation and Action-Environmental Protection". (2) On March 19, 1996, after consultation with the USEPA, the Kentucky Division for Air Quality issued a finding that Ashland had not demonstrated compliance with certain air regulations governing emissions of volatile organic compounds ("VOC") at its Catlettsburg, Kentucky refinery, and referred the matter to USEPA - Region IV for formal enforcement action. On May 27, 1997, Kentucky and Ashland entered into an Agreed Order resolving the issues in contention. Under the terms of the Agreed Order, Ashland agreed to pay a civil penalty and to design, construct and install additional VOC controls. Separately, the USEPA issued a Notice of Violation to Ashland regarding this matter. (3) In the fall of 1996, the USEPA conducted multimedia inspections of Ashland's three refineries. Over the past several months, the USEPA and Ashland have engaged in discussions to resolve the issues identified during these inspections. The parties have reached a tentative agreement and have begun the process of drafting a settlement document. Resolution is expected to involve both a penalty payment and environmental projects. Ashland expects to finalize the settlement agreement before the end of calendar year 1997 or early calendar 1998. (4) On October 24, 1996, the rock strata overlaying an abandoned underground mine adjacent to the coal-refuse impoundment used by an Arch Coal subsidiary's preparation plant failed, resulting in an accidental discharge of approximately 6.3 million gallons of water and fine coal slurry into a tributary of the Powell River in Lee County, Virginia. As a consequence, the Director of the State Water Control Board and the Department of Mines, Minerals and Energy of the Commonwealth of Virginia filed a suit in Lee County Virginia Circuit Court against the Arch Coal subsidiary, Lone Mountain Processing, Inc., alleging violations of effluent limitations and reporting violations under Lone Mountain's National Pollutant Discharge Elimination System permits under the Clean Water Act. The Commonwealth of Virginia agreed to vacate two notices of violation and a show cause order in exchange for Lone Mountain's payment to the Commonwealth of a fine of approximately $1.4 million. A final order effectuating the settlement was entered as a judgment by the court on October 29, 1997. At the request of the USEPA and the U.S. Fish & Wildlife Service, the United States Attorney for the Western District of Virginia also has opened a criminal investigation of the 1996 incident. Arch Coal is cooperating with the investigation, the results of which are not expected until sometime in calendar 1998. 12 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, 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS There is hereby incorporated by reference the information appearing in Note N of Notes to Consolidated Financial Statements in Ashland's Annual Report. At September 30, 1997, there were approximately 22,000 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 61 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 36 to 42 in Ashland's Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There is hereby incorporated by reference the information appearing under the caption "Derivative Instruments" on Page 41 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 43 through 59 and the supplemental information appearing on Pages 62 and 63 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 29, 1998 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after September 30, 1997 ("Proxy Statement"). The following is a list of Ashland's executive officers, their ages and their positions and offices during the last five years (listed alphabetically after the top two officers as to other Senior Vice Presidents, Administrative Vice Presidents and other executive officers.) PAUL W. CHELLGREN* (age 54) was elected as Chairman of the Board on January 30, 1997, and is Chief Executive Officer and Director of Ashland and a Director of Arch Coal, Inc. , having served in such capacities since 1996, 1992 and 1997 respectively. During the past five years, he has also served as President and Chief Operating Officer of Ashland. JOHN A. BROTHERS* (age 57) is Executive Vice President of Ashland and has served in such capacity since January 1997. During the last five years, he has also served as Senior Vice President and Group Operating Officer - SuperAmerica Group, The Valvoline Company and Ashland Chemical Company. - ----------------------- *Member of Ashland's Executive Committee 13 JAMES R. BOYD* (age 51) is Senior Vice President and Group Operating Officer of Ashland - Ashland Services Company, APAC, Inc. and a Director of Arch Coal, Inc., having served in such capacities since 1989, 1990, 1993 and 1997 respectively. DAVID J. D'ANTONI* (age 52) is Senior Vice President of Ashland and President of Ashland Chemical Company and has served in such capacities since 1988. THOMAS L. FEAZELL* (age 60) is Senior Vice President, General Counsel and Secretary of Ashland and a Director of Arch Coal, Inc. and has served in such capacities since 1992, 1981, 1992 and 1997, respectively. D. DUANE GILLIAM* (age 53) is Senior Vice President of Ashland and President of Ashland Petroleum Company and has served in such capacities since October 1997. During the past five years he has also served as Executive Vice President of Ashland Petroleum Company and Group Vice President for Ashland Petroleum's Scurlock Permian division. J. MARVIN QUIN* (age 50) is Senior Vice President and Chief Financial Officer of Ashland and a Director of Arch Coal, Inc. and has served in such capacities since 1992 and 1997, respectively. HARRY M. ZACHEM* (age 53) is Senior Vice President - Public Affairs and has served in such capacity since 1988. JAMES J. O'BRIEN (age 43) is Senior Vice President of Ashland and President of The Valvoline Company and has served in such capacities since January 1997 and October 1995, respectively. During the past five years he has also served as Vice President of Ashland, Vice President of Ashland Petroleum Company, Executive Assistant to the Chief Executive Officer and Regional Manager of Ashland Chemical's General Polymers division. JOHN F. PETTUS (age 54) 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 53) is Senior Vice President of Ashland and President of APAC, Inc. and has served in such capacities since 1992. KENNETH L. AULEN (age 48) is Administrative Vice President and Controller of Ashland and has served in such capacities since 1992. During the past five years he has also served as Auditor of Ashland. PHILIP W. BLOCK* (age 50) is Administrative Vice President - Human Resources of Ashland and has served in such capacity since 1992. JOHN W. DANSBY (age 52) is Administrative Vice President and Treasurer of Ashland and has served in such capacities since 1992. WILLIAM R. SAWRAN (age 52) 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. WILLIAM P. TIEFEL (age 48) is Vice President of Ashland and President of Ashland Exploration Holdings, Inc. and has served in such capacities since February 1997. FRED E. LUTZEIER (age 45) 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. - -------------------------- *Member of Ashland's Executive Committee 14 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. 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 19. (3) Exhibits 3.1 - Second Restated Articles of Incorporation of Ashland, as amended to May 16, 1996 (filed as Exhibit 3.1 to Ashland's Form 8-K dated May 16, 1996, and incorporated herein by reference). 3.2 - Bylaws of Ashland, as amended to January 30, 1997 (filed as Exhibit 3.2 to Ashland's Form 10-Q for the quarter ended December 31, 1996, 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). 4.3 - Rights Agreement, dated as of May 16, 1996, between Ashland Inc. and Harris Trust and Savings Bank, together with Form of Right Certificate (filed as Exhibits 4(a) and 4(c), respectively, to Ashland's Form 8-A filed with the SEC on May 16, 1996, and incorporated herein by reference). The following Exhibits 10.1 through 10.18 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 September 30, 1996, and incorporated herein by reference). 10.2 - Ashland Inc. Deferred Compensation and Stock Incentive Plan for Non-Employee Directors. 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 - Ninth Amended and Restated Ashland Inc. Supplemental Early Retirement Plan for Certain Key Executive Employees. 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). 15 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). 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. 10.12 - Ashland Inc. Long-Term Incentive Plan (filed as Exhibit 10(c).12 to Ashland's Form 10-K for the fiscal year ended September 30, 1996, and incorporated herein by reference). 10.13 - Ashland Inc. Directors' Charitable Award Program (filed as Exhibit 10(c).13 to Ashland's Form 10-K for the fiscal year ended September 30, 1996, and incorporated herein by reference). 10.14 - Ashland Inc. 1993 Stock Incentive Plan (filed as Exhibit 10(c).14 to Ashland's Form 10-K for the fiscal year ended September 30, 1996, and incorporated herein by reference). 10.15 - Ashland Inc. 1995 Performance Unit Plan (filed as Exhibit 10(c).15 to Ashland's Form 10-K for the fiscal year ended September 30, 1996, and incorporated herein by reference). 10.16 - Ashland Inc. Incentive Compensation Plan for Key Executives (filed as Exhibit 10(c).16 to Ashland's Form 10-K for the fiscal year ended September 30, 1996, and incorporated herein by reference). 10.17 - Ashland Inc. Deferred Compensation Plan. 10.18 - Ashland Inc. 1997 Stock Incentive Plan. 11 - Computation of Earnings Per Share (appearing on Page 22 of Ashland's Form 10-K for the fiscal year ended September 30, 1997). 13 - Portions of Ashland's Annual Report to Shareholders, incorporated by reference herein, for the fiscal year ended September 30, 1997. 21 - List of Subsidiaries. 23 - Consent of 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 None 16 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 25, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, in the capacities indicated, on November 25, 1997. Signatures Capacity /s/ PAUL W. CHELLGREN - -------------------- Chairman of the Board, Chief Executive Officer PAUL W. CHELLGREN and Director /s/ J. MARVIN QUIN - -------------------- Senior Vice President and Chief J. MARVIN QUIN Financial Officer /s/ KENNETH L. AULEN - -------------------- Administrative Vice President, KENNETH L. AULEN Controller and Principal Accounting Officer * Director - -------------------- JACK S. BLANTON * Director - -------------------- THOMAS E. BOLGER * Director - -------------------- SAMUEL C. BUTLER * Director - -------------------- FRANK C. CARLUCCI * Director - -------------------- RALPH E. GOMORY * Director - -------------------- MANNIE L. JACKSON * Director - -------------------- PATRICK F. NOONAN * Director - -------------------- JANE C. PFEIFFER 17 * 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 25, 1997 18 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES Page Consolidated financial statements and supplemental information: Statements of consolidated income................................ * Consolidated balance sheets...................................... * Statements of consolidated stockholders' equity.................. * Statements of consolidated cash flows............................ * Notes to consolidated financial statements....................... * Five-year information by industry segment........................ * Consolidated financial schedule: II - Valuation and qualifying accounts........................... 21 - ----------- *The consolidated financial statements appearing on Pages 43 through 59 and the supplemental information appearing on Pages 61 through 63 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. 19 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, 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 5, 1997 20
- -------------------------------------------------------------------------------------------------------------------------------- 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, 1997 Reserves deducted from asset accounts Accounts receivable $27 $ 8 $(10)(1) $ (1) $24 Inventories 10 2 (1) - 11 ================================================================================================================================= YEAR ENDED SEPTEMBER 30, 1996 Reserves deducted from asset accounts Accounts receivable $25 $10 $ (8)(1) $ - $27 Inventories 6 6 (2) - 10 ================================================================================================================================= YEAR ENDED SEPTEMBER 30, 1995 Reserves deducted from asset accounts Accounts receivable $23 $ 9 $ (7)(1) $ - $25 Inventories 6 3 (3) - 6 ================================================================================================================================= (1) Uncollected amounts written off, net of recoveries of $2 million in 1997, $2 million in 1996 and $1 million in 1995.
21 Ashland Inc. and Subsidiaries EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE Years Ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------ (In millions except per share data) 1997 1996 1995 ==================================================================================================================================== PRIMARY EARNINGS PER SHARE Income available to common shares Net income $ 279 $ 211 $ 24 Dividends on convertible preferred stock (9) (19) (19) - ------------------------------------------------------------------------------------------------------------------------------------ $ 270 $ 192 $ 5 - ------------------------------------------------------------------------------------------------------------------------------------ Average common shares and equivalents outstanding Average common shares outstanding 70 64 62 Common shares issuable upon exercise of stock options 1 1 - - ------------------------------------------------------------------------------------------------------------------------------------ 71 65 62 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share $3.80 $2.97 $ .08 ==================================================================================================================================== EARNINGS PER SHARE ASSUMING FULL DILUTION Income available to common shares Net income $ 279 $ 211 $ 24 Interest on convertible debentures (net of income taxes) - 5 - Dividends on convertible preferred stock - - (19) - ------------------------------------------------------------------------------------------------------------------------------------ $ 279 $ 216 $ 5 - ------------------------------------------------------------------------------------------------------------------------------------ Average common shares and equivalents outstanding Average common shares outstanding 70 64 62 Common shares issuable upon Exercise of stock options 2 1 1 Conversion of debentures - 3 - Conversion of preferred stock 4 9 - - ------------------------------------------------------------------------------------------------------------------------------------ 76 77 63 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share $3.67 $2.82 $ .08 ====================================================================================================================================
22



                                ASHLAND INC.
                         DEFERRED COMPENSATION AND
              STOCK INCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS
                     (Amended as of September 18, 1997)


ARTICLE I.  GENERAL PROVISIONS

1.       PURPOSE

         The purpose of this Ashland Inc.  Deferred  Compensation and Stock
Incentive Plan For  Non-Employee  Directors (the "Plan") is to provide each
Director with an opportunity to defer some or all of the Director's Fees as
a means of saving for retirement or other purposes.  In addition,  the Plan
provides Directors with the ability to increase their proprietary  interest
in the Company's long-term prospects by permitting Directors to receive all
or a portion of their Fees in Ashland  Common Stock and  providing  for the
grant of options to purchase Ashland Common Stock to Directors.

2.       DEFINITIONS

         The following definitions shall be applicable throughout the Plan:

         (a)   "Accounting   Date"  means  the  Business  Day  on  which  a
calculation  concerning a Participant's  Compensation Account is performed,
or as otherwise defined by the Committee.

         (b) "Act" means the  Securities  Act of 1933, as amended from time
to time.

         (c) "Agreement"  means a written agreement setting forth the terms
of an Option.

         (d) "Beneficiary" means the person(s)  designated by a Participant
in accordance with Article V, Section 1.

         (e) "Board"  means the Board of  Directors  of Ashland Inc. or its
designee.

         (f)  "Business  Day"  means  a day on  which  the New  York  Stock
Exchange is open for trading activity.

         (g)  "Change  in  Control"  shall be  deemed to occur (1) upon the
approval of the  shareholders  of the  Company (or if such  approval is not
required,  upon the  approval  of the  Board) of (A) any  consolidation  or
merger  of the  Company  in which  the  Company  is not the  continuing  or
surviving  corporation or pursuant to which shares of Common Stock would be
converted  into cash,  securities or other  property other than a merger in
which the holders of Common Stock immediately prior to the merger will have
the  same  proportionate   ownership  of  Common  Stock  of  the  surviving
corporation immediately after the merger, (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related  transactions) of
all or substantially all the assets of the Company,  or (C) adoption of any
plan or proposal for the  liquidation or  dissolution  of the Company,  (2)
when any "person"  (as defined in Section  3(a)(9) or 13(d) of the Exchange
Act),  other than the Company or any subsidiary or employee benefit plan or
trust  maintained by the Company,  shall become the "beneficial  owner" (as
defined in Rule 13d-3 under the Exchange Act),  directly or indirectly,  of
more than 15% of the Common  Stock  outstanding  at the time,  without  the
approval  of the  Board,  or (3) if at any  time  during  a  period  of two
consecutive  years,  individuals  who  at  the  beginning  of  such  period
constituted  the Board shall cease for any reason to  constitute at least a
majority thereof, unless the election or the nomination for election by the
Company's shareholders of each new director during such two-year period was
approved by a vote of at least  two-thirds of the  directors  then still in
office who were directors at the beginning of such two-year period.




         (h) "Code"  means the Internal  Revenue  Code of 1986,  as amended
from time to time.

         (i) "Committee" means the Personnel and Compensation  Committee of
the Board or its designee.

         (j) "Common  Stock" means the common  stock,  $1.00 par value,  of
Ashland Inc.

         (k) "Common Stock Fund" means that investment option,  approved by
the Committee, in which a Participant's Retirement Account may be deemed to
be  invested  and may earn income  based on a  hypothetical  investment  in
Common Stock.

         (l) "Company" means Ashland Inc., its divisions and subsidiaries.

         (m)  "Corporate   Human   Resources"  means  the  Corporate  Human
Resources Department of the Company.

         (n) "Credit Date" means the date on which any Fees would otherwise
have  been  paid to the  Participant  or in the  case of the  Participant's
designation of investment option changes,  within three Business Days after
the Participant's  designation is received by Corporate Human Resources, or
as otherwise designated by the Committee.

         (o)  "Deferral   Account"   means  the  account(s)  to  which  the
Participant's  Deferred  Fees are  credited  and from  which,  pursuant  to
Article III, Section 5, distributions are made.

         (p) "Deferred  Fees" means the Fees elected by the  Participant to
be deferred pursuant to the Plan.

         (q) "Director" means any non-employee director of the Company.

         (r) "Disability" means a Director's incapacity, due to physical or
mental  illness,  resulting  in an inability to attend to his or her duties
and responsibilities as a member of the Board.

         (s) "Election" means a Participant's  delivery of a written notice
of election to the  Secretary of the Company  electing to defer  payment of
his or her Fees or to receive such Fees in the form of Common Stock.

         (t) "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended.

         (u) "Exercise  Price" means,  with respect to each share of Common
Stock subject to an Option,  the price at which such share may be purchased
from the Company pursuant to the exercise of such Option.

         (v)  "Fair  Market  Value"  means  the  price of a share of Common
Stock, as reported on the Composite Tape for New York Stock Exchange issues
on the date and at the time designated by the Company.

         (w) "Fees" mean the annual  retainer and meeting  fees, as well as
any per diem compensation for special assignments, earned by a Director for
his or her  service  as a member of the  Board  during a  calendar  year or
portion thereof.

         (x) "Fiscal  Year" means that annual period  commencing  October 1
and ending the following September 30.

         (y)  "Nonqualified  Stock  Option"  means any Option that does not
comply with the provisions of Section 422 of the Code.




         (z) "Option" means the right to purchase  Common Stock as provided
in Article IV.

         (aa)  "Participant"  means a  Director  who has  elected  to defer
payment of all or a portion of his or her Fees  and/or to receive  all or a
specified portion of his or her Fees in shares of Common Stock.

         (bb)  "Payment  Commencement  Date"  means  the date  payments  of
amounts deferred begin pursuant to Article III, Section 6.

         (cc)  "Personal  Representative"  means the person or persons who,
upon the disability or incompetence  of a Director,  shall have acquired on
behalf of the Director,  by legal  proceeding  or  otherwise,  the right to
receive the benefits specified in this Plan.

         (dd) "Plan"  means this  Ashland Inc.  Deferred  Compensation  and
Stock Incentive Plan For Non-Employee Directors.

         (ee)  "Stock  Account"  means an account by that name  established
pursuant to Article III, Section 1.

         (ff) "Stock  Unit(s)"  means the share  equivalents  credited to a
Participant's Stock Account pursuant to Article III, Section 1.

         (gg) "Termination"  means retirement from the Board or termination
of service as a Director for any other reason.

3.       SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION

         (a) Shares  Authorized  for Issuance.  There shall be reserved for
issuance  under  the Plan  500,000  shares  of  Common  Stock,  subject  to
adjustment  pursuant to subsection (b) below;  provided,  however,  that of
such  shares,  only  150,000  shares  shall be  available  for  issuance in
connection  with the award of Options.  Such shares shall be authorized but
unissued  shares of Common Stock. If any Option shall expire without having
been exercised in full, the shares  subject to the  unexercised  portion of
such Option shall again be available for the purposes of the Plan.

         (b) Adjustments in Certain  Events.  In the event of any change in
the  outstanding  Common Stock of the Company by reason of any stock split,
stock dividend,  recapitalization,  merger, consolidation,  reorganization,
combination,  or  exchange  of  shares,  split-up,   split-off,   spin-off,
liquidation or other similar change in capitalization,  or any distribution
to common  shareholders  other than cash  dividends,  the number or kind of
shares that may be issued under the Plan shall be automatically adjusted so
that the  proportionate  interest of the  Directors  shall be maintained as
before the occurrence of such event.  Such  adjustment  shall be conclusive
and binding for all purposes of the Plan.

4.       ELIGIBILITY

         Any  non-employee  Director  of the  Company  shall be eligible to
participate in the Plan.

5.       ADMINISTRATION

         Full power and authority to construe, interpret and administer the
Plan shall be vested in the Company  and the  Committee.  Decisions  of the
Company and the Committee  shall be final,  conclusive and binding upon all
parties.  Day-to-day administration of the Plan shall be the responsibility
of Corporate Human  Resources.  This Department may authorize new or modify
existing  forms for use under this Plan so long as any such modified or new
forms are not inconsistent with the terms of the Plan.

ARTICLE II.  COMMON STOCK PROVISION

         Each  Director may elect to receive all or a portion of his or her
Fees in shares of Common  Stock by making an  Election  pursuant to Article
III,  Section 4. Shares  shall be issued to the Director at the end of each
quarter  beginning in the quarter the Election is effective.  The number of
shares of Common Stock so issued shall be equal to the amount of Fees which
otherwise  would have been  payable  to such  Director  during the  quarter
divided by the Fair  Market  Value.  Only whole  number of shares of Common
Stock will be issued, with any fractional shares to be paid in cash.




ARTICLE III.  DEFERRED COMPENSATION

1.       PARTICIPANT ACCOUNTS

         (a) Upon  election  to  participate  in the Plan,  there  shall be
established  a  Deferral  Account  to which  there  shall be  credited  any
Deferred  Fees as of each  Credit  Date.  The  Deferral  Account  shall  be
credited (or debited) on each  Accounting  Date with income (or loss) based
upon a hypothetical investment in any one or more of the investment options
available under the Plan, as prescribed by the Committee, which may include
a Common  Stock  Fund,  as  elected by the  Participant  under the terms of
Article III, Section 4.

         (b) The Stock Account of a  Participant  shall be credited on each
Accounting  Date with Stock  Units  equal to the number of shares of Common
Stock (including  fractions of a share) that could have been purchased with
the amount of such deferred Fees as to which a stock deferral  election has
been made at the Fair Market Value on the  Accounting  Date. As of the date
of any dividend  distribution  date for the Common Stock, the Participant's
Stock Account shall be credited  with  additional  Stock Units equal to the
number of shares of Common  Stock  (including  fractions  of a share)  that
could have been purchased,  at the Fair Market Value on such date, with the
amount  which  would have been paid as  dividends  on that number of shares
(including  fractions  of a share)  of Common  Stock  which is equal to the
number of Stock Units then credited to the Participant's Stock Account.

2.       FINANCIAL HARDSHIP

         Upon the  written  request  of a  Participant  or a  Participant's
Personal  Representative  and a finding that continued deferral will result
in an unforeseeable financial hardship to the Participant, the Committee or
the Company (each in its sole  discretion) may authorize (a) the payment of
all or a part of a Participant's  Deferral Account in a single  installment
prior to his or her ceasing to be a Director,  or (b) the  acceleration  of
payment  of any  multiple  installments  hereof.  It is  intended  that the
Committee's  determinations  as to whether the  Participant has suffered an
"unforeseeable  financial  emergency"  shall  be made  consistent  with the
requirements  under  Section  457(d) of the Internal  Revenue  Code. If the
Participant  requesting a payment  contemplated by subsection (a) or (b) of
this Article III, Section 2 is a member of the Committee,  such Participant
shall abstain from the Committee's determination as to whether such payment
shall be made.

3.       ACCELERATED DISTRIBUTION

         (a)   Availability  of  Withdrawal   Prior  to  Termination.   The
Participant or the Participant's  Beneficiary who is receiving  installment
payments under the Plan may elect, in writing, to withdraw all or a portion
of a  Participant's  Deferral  Account  at any time  prior to the time such
Deferral  Account  otherwise  becomes payable under the Plan,  provided the
conditions  specified in subsections  (c), (d) and (e) of this Article III,
Section 3 are satisfied.

         (b)  Acceleration  of  Periodic  Distributions.  Upon the  written
election  of  the  Participant  or  the  Participant's  Beneficiary  who is
receiving   installment   payments  under  the  Plan,  the  Participant  or
Participant's  Beneficiary  may  elect  to  have  all or a  portion  of the
remaining  installments  distributed in the form of an immediately  payable
lump sum,  provided the  conditions  specified in subsection (c) and (e) of
this Article III, Section 3 are satisfied.

         (c) Forfeiture  Penalty.  In the event of a withdrawal pursuant to
subsection  (a)  of  this  Article  III,   Section  3,  or  an  accelerated
distribution pursuant to subsection (b) of this Article III, Section 3, the
Participant shall forfeit from such Deferral Account an amount equal to 10%
of the amount of the  withdrawal or accelerated  distribution,  as the case
may be. The forfeited  amount shall be deducted  from the Deferral  Account
prior to giving effect to the requested withdrawal or acceleration. Neither
the Participant nor the  Participant's  Beneficiary shall have any right or
claim to the  forfeited  amount,  and the Company  shall have no obligation
whatsoever to the Participant,  the Participant's  Beneficiary or any other
person with regard to the forfeited amount.

         (d) Minimum Withdrawal.  In no event shall the amount withdrawn in
accordance with subsection (a) of this Article III,  Section 3 be less than
25%  of  the  amount  credited  to  such  Participant's   Deferral  Account
immediately prior to the withdrawal.



         (e)  Suspension  from  Deferrals.  In the  event  of a  withdrawal
pursuant  to  subsection  (a) or (b) of  this  Article  III,  Section  3, a
Participant who is otherwise  eligible to make deferrals of Fees under this
Plan shall be  prohibited  from making such  deferrals  with respect to the
remainder  of the  current  Fiscal  Year  and the  Fiscal  Year of the Plan
immediately  following  the  Fiscal  Year  of the  Plan  during  which  the
withdrawal was made, and any Election  previously  made by the  Participant
with respect to deferrals of Fees for such Fiscal Year of the Plan shall be
void and of no effect.

4.       MANNER OF ELECTION

         (a) General.  Any Director  wishing to participate in the Plan may
elect to do so by delivering to the Secretary of the Company an Election on
a form prescribed by Corporate  Human  Resources  designating the manner in
which such Deferred Fees are to be invested in accordance with Article III,
Section 1 and electing the timing and form of  distribution.  The timing of
the filing of the appropriate  form with Corporate Human Resources shall be
determined by the Company or the Committee.  An effective election to defer
Fees may not be revoked or modified  except as otherwise  determined by the
Company or the Committee or as stated herein.

         (b) Investment Alternatives - Existing Balances. A Participant may
elect to change an existing selection as to the investment  alternatives in
effect with respect to existing deferred Fees (in increments  prescribed by
the  Committee or the  Company) as often,  and with such  restrictions,  as
determined by the Committee or by the Company.

         (c) Change of Beneficiary.  A Participant  may, at any time, elect
to change the  designation of a Beneficiary  in accordance  with Article V,
Section 1 hereof.

         (d) Initial Election.  With respect to Directors' Fees payable for
all or any portion of a calendar year after such person's  initial Election
to the  office of  Director  of the  Company,  any such  person  wishing to
participate  in the Plan may file a proper  Election  within 30 days  after
such election to office.  Any such Election  shall be effective upon filing
or as soon as possible thereafter with respect to such Fees.

5.       DISTRIBUTION

         (a)  Deferral  Account.   In  accordance  with  the  Participant's
Election,  Deferred Fees credited to a Participant's Deferral Account shall
be  distributed  in cash or  shares of Common  Stock (or a  combination  of
both).  If no election is made by a Participant as to the  distribution  or
form of payment  of his or her  Deferral  Account,  upon  Termination  such
account shall be paid in cash in lump sum. The entire Deferral Account must
be paid out within  forty  years  following  the date of the  Participant's
Termination.

         (b) Change of Distribution of Deferral Account. A Participant will
be allowed to change the Election as to the  applicable  payment period for
all amounts deferred pursuant to such Election,  subject to approval by the
Company or the Committee. Such change must be made by the earlier of:

               (i) the date six months  prior to the first day of the month
         following the Participant's Termination; or

               (ii) the December 31 immediately  preceding the first day of
         the month following the Participant's Termination.

If the  Participant  making such change is a member of the Committee,  such
Participant  shall  abstain  from the  Committee's  decision  to approve or
disapprove such change.

6.       PAYMENT COMMENCEMENT DATE

         Payments of amounts  deferred  pursuant to a valid  Election shall
commence after a  Participant's  Termination in accordance  with his or her
Election.  If a  Participant  dies  prior  to the  first  deferred  payment
specified  in an Election,  payments  shall  commence to the  Participant's
Beneficiary on the first payment date so specified.



7.       CHANGE IN CONTROL

         Notwithstanding any provision of this Plan to the contrary, in the
event of a "Change in Control"  (as defined in Section  2(g) of Article I),
each  Participant  in the Plan  shall  receive an  automatic  lump sum cash
distribution of all amounts accrued in the Participant's  Cash and/or Stock
Account(s)  (including  interest at the Prime Rate of Interest  through the
business day immediately preceding the date of distribution) not later than
fifteen  (15) days  after the date of the  "Change  in  Control."  For this
purpose,   the  balance  in  the  Stock  Account  shall  be  determined  by
multiplying  the  number of Stock  Units by the  higher of (a) the  highest
closing  price of a share of Common Stock during the period  commencing  30
days prior to such Change in Control or (b) if the Change in Control of the
Company occurs as a result of a tender or exchange offer or consummation of
a corporate  transaction,  then the highest  price paid per share of Common
Stock pursuant thereto. Any consideration other than cash forming a part or
all of the  consideration  for  Common  Stock  to be paid  pursuant  to the
applicable  transaction  shall be valued  at the  valuation  price  thereon
determined by the Board.

         In addition,  the Company shall reimburse a Director for the legal
fees and expenses incurred if the Director is required to seek to obtain or
enforce any right to distribution.  In the event that it is determined that
such Director is properly entitled to a cash distribution  hereunder,  such
Director  shall also be entitled  to interest  thereon at the Prime Rate of
Interest quoted by Citibank,  N.A. as its prime commercial  lending rate on
the subject date from the date such  distribution  should have been made to
and  including the date it is made.  Notwithstanding  any provision of this
Plan to the contrary, Article I, Section 2(g) and Section 7 of this Article
may not be amended after a "Change in Control"  occurs  without the written
consent of a majority in number of Participants.

ARTICLE IV.  OPTIONS

1.       OPTION GRANT

         On the first  business day following the Company's  Annual Meeting
of Shareholders in 1994 and each year thereafter until 2004, or, if no such
meeting is held, on January 31 or the first  business day  thereafter,  and
each year thereafter  until 2004 (such day  hereinafter  referred to as the
"Effective  Date"),  each  person who is a Director  of the  Company on the
Effective Date shall be  automatically  granted an Option to purchase 1,000
shares of Common  Stock  if,  but only if,  the  return on  average  common
stockholders'  equity of the Company for the immediately  preceding  fiscal
year as set forth in the Company's  Annual Report to  Shareholders is equal
to or greater than 10%.

2.       OPTION TERMS

         Options  granted  under the Plan shall be subject to the following
terms and conditions:

         (a) Option Designation and Agreement. Any Option granted under the
Plan shall be granted as a Nonqualified Stock Option.  Each Option shall be
evidenced by an Agreement between the recipient and the Company  containing
the terms and conditions of the Option.

         (b)  Option  Price.  The  Exercise  Price of Common  Stock  issued
pursuant to each Option  shall be equal to Fair Market  Value of the Common
Stock on the Effective Date.

         (c) Term of Option.  No Option shall be exercisable  more than ten
years after the date the Option is granted.

         (d) Vesting.  Options granted under the Plan shall vest six months
after the date of grant.

         (e)  Exercise.  Options,  to the extent  they are  vested,  may be
exercised  in  whole  or in part at any  time  during  the  option  period;
provided,  however,  that an Option  may not be  exercised  at any time for
fewer than 50 shares (or the total  remaining  shares covered by the Option
if fewer  than 50  shares)  during the term of the  Option.  The  specified
number of shares will be issued  upon  receipt by the Company of (i) notice
from the optionee of exercise of an Option, and (ii) payment to the Company
(as provided in (f) below),  of the Exercise Price for the number of shares
with respect to which the Option is exercised. Each such notice and payment
shall be delivered or mailed by postpaid  mail,  addressed to the Treasurer
of the Company at,  Ashland Inc.,  1000 Ashland Drive,  Russell,  Kentucky,
41169, or such other place as the Company may designate from time to time.




         (f) Payment for Shares.  The  Exercise  Price for the Common Stock
shall be paid in full when the Option is exercised.  The Exercise Price may
be paid in whole or in part (i) in cash,  (ii) in whole  shares  of  Common
Stock  (which  shares of Common  Stock must have been owned by the Director
six months or longer, and not used to effect a stock option exercise within
the  preceding  six  months,  unless the  Committee  specifically  provides
otherwise) and evidenced by negotiable  certificates,  valued at their Fair
Market Value, (iii) Attestation or (iv) by a combination of such methods of
payment.  In  addition,  a Director  may exercise the Option by effecting a
"cashless exercise," with a broker, of the Option.  "Attestation" means the
delivery to the Company of a completed  Attestation  Form prescribed by the
Company  setting  forth the  whole  shares  of  Common  Stock  owned by the
Director which the Director wishes to utilize to pay the Option price.  The
Common  Stock  listed on the  Attestation  Form must have been owned by the
Director  six months or longer,  and not have been used to effect an Option
exercise within the preceding six months, unless the Committee specifically
provides otherwise.

         (g) Termination . If a Director's  service on the Board terminates
by reason of (i) normal retirement from the Board at age 70, (ii) the death
or Disability of such  Director,  (iii) a Change of Control of the Company,
or (iv)  voluntary  early  retirement  to take a position  in  governmental
service,  any Option held by such  Director may  thereafter be exercised by
the Director,  or in the event of death,  by his or her  Beneficiary to the
extent it was vested and exercisable at the time of Termination,  (i) for a
period  equal to the number of years of completed  Board  service as of the
date  of  Termination  of the  Director  on  whose  behalf  the  Option  is
exercised,  or (ii) until the expiration of the stated term of such Option,
whichever period is the shorter. In the event of Termination for any reason
other than those set forth  above,  any Option  held by such  Director  may
thereafter  be  exercised  by the  Director to the extent it was vested and
exercisable  at the time of  Termination  (i) for a period of one year from
the date of such  Termination  or (ii) until the  expiration  of the stated
term of such Option, whichever period is the shorter.

         (h) Term.  No Option  shall be granted  pursuant to the Plan on or
after the tenth anniversary of the date of shareholder approval, but Option
awards granted prior to such tenth  anniversary may extend beyond that date
until the expiration of their terms.

3.       TRANSFER OF OPTIONS

         Options  granted under the Plan shall be  transferable by will, by
the laws of descent and  distribution,  and,  subject to the discretion and
direction of the Committee, may be made transferable by the Director-holder
thereof during his or her lifetime.

ARTICLE V.  MISCELLANEOUS PROVISIONS

1.       BENEFICIARY DESIGNATION

         A Director may designate  one or more persons  (including a trust)
to whom or to which  payments  are to be made if the  Director  dies before
receiving   payment  of  all  amounts  due  hereunder.   A  designation  of
Beneficiary  will be effective only after the signed Election is filed with
the  Secretary  of the Company  while the Director is alive and will cancel
all designations of a Beneficiary signed and filed earlier. If the Director
fails  to  designate  a  Beneficiary  as  provided  above  or if  all  of a
Director's  Beneficiaries  predecease  him or her  and he or she  fails  to
designate a new Beneficiary,  remaining unpaid amounts shall be paid in one
lump  sum to the  estate  of such  Director.  If all  Beneficiaries  of the
Director die before the Director or before complete  payment of all amounts
due hereunder,  the remaining  unpaid amounts shall be paid in one lump sum
to the estate of the last to die of such Beneficiaries.

2.       INALIENABILITY OF BENEFITS

         The interests of the Directors and their  Beneficiaries  under the
Plan  may  not in any  way be  voluntarily  or  involuntarily  transferred,
alienated or assigned, nor be subject to attachment, execution, garnishment
or other such equitable or legal  process.  Subject to Section 3 of Article
IV of this  Plan,  any Option  shall be  exercisable,  during a  Director's
lifetime, only by him or her or his or her Personal Representative.

3.       GOVERNING LAW

         The provisions of this Plan shall be interpreted  and construed in
accordance with the laws of the Commonwealth of Kentucky.



4.       AMENDMENTS

         The Committee may amend,  alter or terminate this Plan at any time
without the prior approval of the Directors;  provided,  however,  that the
Committee may not, without approval by the shareholders:

         (a)  materially  increase  the  number of  securities  that may be
issued under the Plan (except as provided in Article I, Section 3),

         (b)  materially  modify the  requirements  as to  eligibility  for
participation in the Plan,

         (c)  otherwise   materially  increase  the  benefits  accruing  to
participants under the Plan, or

         (d) amend any provision relating to the amount,  price,  timing or
vesting of the  Options,  other than to comport with changes in the Code or
the rules and regulations promulgated thereunder.

5.       COMPLIANCE WITH RULE 16b-3

         It is the  intention  of the  Company  that the Plan comply in all
respects  with Rule 16b-3  promulgated  under Section 16(b) of the Exchange
Act and that Plan Participants remain non-employee directors ("Non-Employee
Directors") for purposes of  administering  other employee benefit plans of
the Company and having such other plans be exempt from Section 16(b) of the
Exchange  Act.  Therefore,  if any Plan  provision  is  found  not to be in
compliance with Rule 16b-3 or if any Plan provision  would  disqualify Plan
participants from remaining Non-Employee Directors, that provision shall be
deemed  amended so that the Plan does so comply  and the Plan  participants
remain  Non-Employee  Directors,  to the extent permitted by law and deemed
advisable by the  Committee,  and in all events the Plan shall be construed
in favor of its meeting the requirements of Rule 16b-3.

6.       EFFECTIVE DATE

         The  Plan was  approved  by the  shareholders  of the  Company  on
January27,  1994, and originally  became  effective as of November 9, 1993,
and has been restated in this document effective September 18, 1997.


                         NINTH AMENDED AND RESTATED
                                ASHLAND INC.
                     SUPPLEMENTAL EARLY RETIREMENT PLAN
                    FOR CERTAIN KEY EXECUTIVE EMPLOYEES
                              November 6, 1997

ARTICLE I.        PURPOSE AND EFFECTIVE DATE.
1.01     The purpose of the Plan is to allow  designated  senior  executive
         employees to retire prior to their sixty-fifth birthday without an
         immediate  substantial loss of income. This Plan is a supplemental
         retirement arrangement for a select group of management.
1.02     The Ninth  Amended and Restated  Ashland Inc.  Supplemental  Early
         Retirement  Plan for Certain  Key  Executive  Employees  is hereby
         amended  effective  November  6,  1997.  However,  the  rights and
         obligations  of  Employees  who  were  selected  by the  Board  or
         approved   for   participation   pursuant   to   the   eligibility
         requirements  of the Plan to receive a benefit  under the Plan, or
         who  were   receiving   benefits   prior  to   November  6,  1997,
         (irrespective  of  the  Effective   Retirement   Date(s)  of  such
         Employee(s)), shall be governed by the terms of the Plan in effect
         at the time of such retirement.
ARTICLE II.       DEFINITIONS.
         The following terms used herein shall have the following  meanings
         unless the context otherwise requires:
2.01     "Age"  -  means  the  age of an  Employee  as of  his or her  last
         birthday.
2.02     "Annual Retirement Income" - means the annual income payable under
         this Plan by Ashland for the lifetime of a Participant  commencing
         on such Participant's  Effective Retirement Date and ending on his
         or her date of death, subject to the provisions of Section 5.04.
2.03     "Ashland"  -  means   Ashland  Inc.  and  its  present  or  future
         subsidiary corporations.
2.04     "Board"  - means  the  Board of  Directors  of  Ashland  and their
         designees.


2.05     "Change  in  Control"  - shall be  deemed  to  occur  (1) upon the
         approval of the  shareholders  of Ashland (or if such  approval is
         not required,  the approval of the Board) of (A) any consolidation
         or merger of Ashland in which  Ashland  is not the  continuing  or
         surviving  corporation  or  pursuant  to which  shares of  Ashland
         common stock would be  converted  into cash,  securities  or other
         property  other  than a merger in which  the  holders  of  Ashland
         common  stock  immediately  prior to the merger will have the same
         proportionate   ownership  of  common   stock  of  the   surviving
         corporation  immediately  after the merger,  (B) any sale,  lease,
         exchange,  or other  transfer (in one  transaction  or a series of
         related  transactions) of all or  substantially  all the assets of
         Ashland,  or  (C)  adoption  of  any  plan  or  proposal  for  the
         liquidation or  dissolution of Ashland,  (2) when any "person" (as
         defined in Section 3(a)(9) or 13(d) of the Securities Exchange Act
         of 1934), other than Ashland or any subsidiary or employee benefit
         plan or trust  maintained  by Ashland or any of its  subsidiaries,
         shall  become the  "beneficial  owner"  (as  defined in Rule 13d-3
         under  the   Securities   Exchange  Act  of  1934),   directly  or
         indirectly,   of  more  than  15%  of  the  Ashland  common  stock
         outstanding at the time, without the approval of the Board, or (3)
         if  at  any  time  during  a  period  of  two  consecutive  years,
         individuals  who at the beginning of such period  constituted  the
         Board shall cease for any reason to constitute at least a majority
         thereof,  unless  the  election  or  nomination  for  election  by
         Ashland's  shareholders  of each new director during such two-year
         period  was  approved  by a vote  of at  least  two-thirds  of the
         directors then still in office who were directors at the beginning
         of such two-year period.
2.06     "Committee" - means the Personnel  and  Compensation  Committee of
         the Board and their designees.
2.07     "Effective  Retirement  Date"  -  means  the  date  upon  which  a
         Participant  retires  under this Plan which shall be the first day
         of the month  following  the  Participant's  62nd  birthday or, at
         Ashland's  discretion or as otherwise provided in Article V or VI,
         any earlier age.  Upon  approval as provided in 

                                     2

         Sections  3.01 and 3.02, the "Effective  Retirement  Date" of a 
         Participant may occur after the Employee reaches age 62.
2.08     "Employee" - means an executive  employee of Ashland who (i) is at
         least 55 years of age or such  earlier  age  pursuant  to  Section
         5.06(b); and (ii) is deemed on the Effective Retirement Date to be
         a Level V or above employee under the Incentive Compensation Plan.
2.09     "Employment  Contracts" - means those contractual  agreements,  in
         effect  from  time to time,  which are  approved  by the Board and
         which  provide an Employee  with a specified  period of employment
         and other benefits.
2.10     "Final Average Bonus" - means the Participant's average bonus paid
         under the Incentive  Compensation Plan (including amounts that may
         have been deferred) during the highest  thirty-six (36) months out
         of the final  sixty-month  (60) period.  For these  purposes,  the
         "bonus  paid" for a particular  month  within a particular  fiscal
         year  under  such plan  shall be equal to the amount of such bonus
         actually  paid  (regardless  of the date paid,  but  excluding any
         adjustment  for the deferral of such payment) to such  Participant
         on account  of such  fiscal  year  divided by the number of months
         contained in such fiscal year which were used in  determining  the
         amount of such bonus actually paid to such Participant.
2.11     "Final   Average   Compensation"   -  means  the   average   total
         compensation paid during the highest thirty-six months (36) out of
         the final  sixty-month  (60) period.  For these  purposes,  "total
         compensation  paid" is the sum of the "compensation  paid" and the
         "bonus paid" during a particular month.  "Compensation paid" shall
         be the base rate of compensation for such Participant in effect on
         the first day of such calendar month.  "Bonus paid" shall have the
         same meaning as set forth in Section 2.10.
2.12     "Incentive  Compensation  Plan" - means the Ashland Inc. Incentive
         Compensation Plan or the Ashland Inc. Incentive  Compensation Plan
         for Key Executives, as applicable.
                                     3

2.13     "Participant"  - means  an  Employee  who has  been  approved  for
         participation in the Plan pursuant to Article III or Section 5.06.
2.14     "Plan"  - means  the  Ninth  Amended  and  Restated  Ashland  Inc.
         Supplemental  Early  Retirement  Plan for  Certain  Key  Executive
         Employees as set forth herein.
2.15     "Service"  - means the  number of years  and  fractional  years of
         employment by Ashland of an Employee,  measured from the first day
         of the month coincident with or next succeeding his or her initial
         date of employment up to and including such  Employee's  Effective
         Retirement Date. For purposes of this Section 2.15,  Service shall
         include an Employee's employment with a subsidiary or an affiliate
         of Ashland  determined in accordance  with rules from time to time
         adopted or approved by the Board.
ARTICLE III.      PARTICIPATION IN PLAN.
         Eligibility for benefits shall be determined as follows:
3.01     Except as otherwise  provided in Section  3.03, an Employee who on
         the  Effective  Retirement  Date is  deemed  to be a Level I or II
         Participant  under the Incentive  Compensation  Plan shall require
         Board approval to participate in this Plan.
3.02     An Employee who on the Effective Retirement Date is deemed to be a
         Level III, IV, or V Participant  under the Incentive  Compensation
         Plan shall  require  the  approval of either (i)  Ashland's  Chief
         Executive Officer or (ii) Ashland's Administrative Vice President,
         Human  Resources  and either the Executive  Vice  President or the
         Chief Financial Officer to participate in this Plan.
3.03     Subject to the provisions of Article VI, in the event of a "Change
         in Control"  (as  defined in Section  2.05),  an  Employee  who is
         deemed  to be a  Level I or II  Participant  under  the  Incentive
         Compensation Plan shall  automatically be deemed to be approved by
         the Board for participation under this Plan.
3.04     The Board or Chief Executive  Officer or Chief Operating  Officer,
         as applicable,  may approve such key executives for  participation
         in the  Plan  as  they  deem to be  appropriate,  all in its  sole
         discretion.

                                     4

3.05     Ashland  reserves  the  right to  terminate  any  Participant  for
         "Cause"  prior to his or her  Effective  Retirement  Date,  with a
         resulting  forfeiture  of the payment of benefits  under the Plan.
         Ashland also  reserves the right to  terminate  any  Participant's
         participation  in the Plan for  "Cause"  subsequent  to his or her
         Effective  Retirement  Date.  For purposes of this  Section  3.05,
         "Cause"  shall  mean  the  willful  and  continuous  failure  of a
         Participant to substantially  perform his or her duties to Ashland
         (other than any such  failure  resulting  from  incapacity  due to
         physical  or  mental  illness),  or  the  willful  engaging  by  a
         Participant  in  gross  misconduct   materially  and  demonstrably
         injurious to Ashland, each to be determined by Ashland in its sole
         discretion.
ARTICLE IV.         INTERACTION WITH EMPLOYMENT CONTRACTS.
4.01     Notwithstanding  any  provision of this Plan to the  contrary,  an
         Employee who has entered into an Employment  Contract with Ashland
         and who is either terminated without "Cause" prior to a "change in
         control of Ashland" or is  terminated  without  "Cause" or resigns
         for "Good Reason" following a "change in control of Ashland" (each
         quoted  term as defined in the  applicable  employment  agreement)
         shall be entitled to receive the benefits as provided  pursuant to
         this Plan. Benefits payable hereunder in such a situation shall be
         calculated in accordance  with the payment option  selected by the
         Employee at such time.
4.02     Benefits Prior to "Change in Control."
         If the  Employee's  termination  is  without  "Cause"  prior  to a
         "change in control of Ashland,"  benefits payable  hereunder shall
         not include  those  benefits  which would have been payable to the
         Employee  during the first two (2) years of his or her  retirement
         under the Plan. The benefits  payable  hereunder shall commence no
         earlier than as of the first day of the calendar month  coincident
         with  or next  following  the  second  anniversary  following  the
         Employee's  "Date of  Termination"  (as defined in the  applicable
         employment agreement);  however, if the Employee elects to receive
         such  benefits in a 

                                     5
         lump sum as provided in Section  5.04(b)(1),  such benefits  shall
         commence and be payable as therein specified.
4.03     Benefits Subsequent to a "Change in Control."
         If the  Employee's  termination  is  without  "Cause" or he or she
         resigns  for "Good  Reason"  following  a "change  in  control  of
         Ashland,"  benefits  payable  hereunder  shall not  include  those
         benefits which would have been payable to the Employee  during the
         first three (3) years of his or her retirement under the Plan. The
         benefits  payable  hereunder  shall commence no earlier than as of
         the  first  day of the  calendar  month  coincident  with  or next
         following the third anniversary  following the Employee's "Date of
         Termination" (as defined in the applicable employment  agreement);
         however, if the Employee elects to receive such benefits in a lump
         sum  as  provided  in  Section  5.04(b)(1),  such  benefits  shall
         commence and be payable as therein specified.
4.04     If a  Participant  accepts,  during  a period  of five  (5)  years
         subsequent to his or her Effective Retirement Date, any consulting
         or  employment  activity  which  is in  direct  conflict  with the
         business  of Ashland at such time  (such  determination  regarding
         conflicting  activity  to be made in the  sole  discretion  of the
         Board),  he or she shall not be  entitled  to the  receipt  of any
         further  payments  of Annual  Retirement  Income  under this Plan;
         provided, however, he or she shall not be restricted in any manner
         with respect to any other non-conflicting  activity in which he or
         she is engaged.  

         If  a  Participant  wishes  to  accept  employment  or  consulting
         activity  which may be prohibited  under this Section  4.04,  such
         Participant  may  submit to  Ashland  written  notice  (Attention:
         Administrative Vice President, Human Resources) of his or her wish
         to accept such  employment or consulting  activity.  If within ten
         (10) business days  following  receipt of such notice Ashland does
         not notify the  Participant  in writing of Ashland's  objection to
         his or her accepting such employment or consulting activity,  then
         such  Participant  shall  be free to  accept  such  employment  or
         consulting  activity for the period of time and upon the basis set
         forth in his or her written request.

                                     6


ARTICLE V.        ANNUAL RETIREMENT INCOME AND OTHER BENEFITS.
5.01     LEVELS I AND II.
         The Annual  Retirement Income of a Participant who is deemed to be
         a Level I or II Participant under the Incentive  Compensation Plan
         shall be equal to:
         (a)      Pre-Age 62 Benefit
                  A  Participant  who retires under this Plan shall receive
                  an Annual  Retirement Income from and after the first day
                  of the calendar month next following his or her Effective
                  Retirement Date until the end of the month in which he or
                  she  attains  age 62  equal  to the  greater  of (1)  the
                  amounts provided in the following  schedule or (2) 50% of
                  Final Average Compensation.  Notwithstanding the previous
                  sentence, in the event such Participant retired with less
                  than 20 years of Service,  such Annual  Retirement Income
                  shall be  multiplied  by a fraction (A) the  numerator of
                  which is such Participant's years of and fractional years
                  of Service,  and (B) the  denominator  of which is twenty
                  (20).

                                                                  % of
                  Retirement                                  Compensation

                  1st    -   Year After Effective                      75%
                             Retirement Date
                  2nd    -          "                                  70%
                  3rd    -          "                                  65%
                  4th    -          "                                  60%
                  5th    -          "                                  55%
                  6th    -   Year and thereafter                       50%
                             to Age 62

                  For purposes of this Section 5.01(a), "% of Compensation"
                  shall mean the  annualized  average of the  Participant's
                  base  monthly  compensation  rates  (excluding  incentive
                  awards,  bonuses,  and any  other  form of  extraordinary
                  compensation)  in effect  with  respect to Ashland on the
                  first day of the  thirty-six  (36)  consecutive  calendar

                                     7
 

                  months  which will give the  highest  average  out of the
                  one-hundred  twenty  (120)  consecutive   calendar  month
                  period ending on the Participant's  Effective  Retirement
                  Date.
         (b)      Age 62 Benefit and Thereafter
                  From and after the first day of the  calendar  month next
                  following  his or her Effective  Retirement  Date, or the
                  attainment   of  age  62,   whichever   is   later,   the
                  Participant's  Annual Retirement Income shall be equal to
                  50% of Final  Average  Compensation;  provided,  however,
                  that in the event such Participant retired with less than
                  20 years of Service,  such Annual Retirement Income shall
                  be 50% of  Final  Average  Compensation  multiplied  by a
                  fraction (A) the numerator of which is such Participant's
                  years of and  fractional  years of  Service,  and (B) the
                  denominator of which is twenty (20).
         (c)      Benefit Reduction
                  The amount of benefit provided in paragraphs (a) and (b) of 
                  this Section 5.01 shall be reduced by the sum of the 
                  following:
                  (1)    the  Participant's  benefit under the Ashland Inc.
                         and Affiliates  Pension Plan (the "Pension  Plan")
                         (assuming 50% of such Participant's  account under
                         the  Ashland   Inc.   Leveraged   Employee   Stock
                         Ownership  Plan were  transferred  to the  Pension
                         Plan,  as  allowed  under the terms of each of the
                         said plans),  determined  on the basis of a single
                         life annuity form of benefit;
                  (2)    the Participant's  benefit under any other defined
                         benefit   pension  plan  qualified  under  Section
                         401(a) of the Internal  Revenue  Code of 1986,  as
                         amended which is maintained by Ashland, determined
                         on the  basis of a  single  life  annuity  form of
                         benefit (said plans referred to in  sub-paragraphs
                         (1) and (2) of this paragraph (c) are  hereinafter
                         referred to jointly and severally as the "Affected
                         Plans");

                                     8

                  (3)    the  Participant's  benefit under the Ashland Inc.
                         Nonqualified    Excess   Benefit   Pension   Plan,
                         determined  on the basis of a single life  annuity
                         form of benefit; and
                  (4)    the  Participant's  benefit under the Ashland Inc.
                         ERISA  Forfeiture  Plan  attributable  to  amounts
                         which  were  forfeited   under  the  Ashland  Inc.
                         Leveraged    Employee   Stock    Ownership   Plan,
                         multiplied by 50%, and  determined on the basis of
                         a single life annuity benefit.
                  In the event a Participant's benefit hereunder is paid as
                  a  lump  sum  pursuant  to  an  election   under  Section
                  5.04(b)(1),  the  reduction  to  such  benefit  shall  be
                  calculated  based  upon the lump  sum  actuarial  present
                  value  of  the  benefits  referred  to in  sub-paragraphs
                  (1)-(4) of this  paragraph  (c) to which the  Participant
                  would  be  entitled  at age 62,  regardless  of the  date
                  payments   actually   commence.    In   the   event   the
                  Participant's  benefit  hereunder  is paid in any form of
                  periodic  payments,  the  reduction  shall apply from and
                  after  the  date  the  Participant   actually   commences
                  payments under the plans referred to under sub-paragraphs
                  (1), (2) or (3) of this paragraph (c).
5.02     LEVELS III, IV AND V.
         The Annual  Retirement  Income of a Participant  who on his or her
         Effective  Retirement  Date was deemed to be a Level III, IV, or V
         Participant under the Incentive  Compensation Plan shall, from and
         after the first day of the calendar  month next  following  his or
         her 62nd birthday,  be equal to 50% of Participant's Final Average
         Bonus;  provided,  however,  that in the  event  such  Participant
         retired with less than 20 years of Service, such Annual Retirement
         Income after age 62 shall be 50% of Final Average Bonus multiplied
         by a fraction  (A) the  numerator  of which is such  Participant's
         years of and fractional years of Service,  and (B) the denominator
         of which is  twenty  (20).  Although  a  Participant  may elect to
         commence  benefits  under  this  Plan  upon  his or her  Effective
         Retirement   Date,   there  shall  be  an   

                                     9
 

         actuarial adjustment (consistent with that applied under Ashland's
         qualified  pension  plan,  as from  time to  time in  effect)  for
         Participants  receiving  benefits  under this  Section  5.02 whose
         Effective Retirement Date is prior to age 62.
5.03     Annual  Retirement Income benefits payable under Sections 5.01 and
         5.02 for a period of less than 12  months  due to a  Participant's
         attainment of age 62 or death will be payable on a pro-rata basis,
         with months taken as a fraction of a year.
5.04     Payment Options.
         (a)      Election.
                  A Participant  shall,  subject to Sections 5.05 and 5.06,
                  elect the form in which such  benefit  shall be paid from
                  among  those  identified  in this  Section  5.04 and such
                  election  shall  be made at the  time  and in the  manner
                  prescribed by Ashland,  from time to time,  provided that
                  the election is made before the  Participant's  Effective
                  Retirement Date. Such election, including the designation
                  of any contingent  annuitant or alternate recipient under
                  Sections  5.04(b)(4) or (5), shall be irrevocable  except
                  as otherwise set forth herein.  Notwithstanding  anything
                  in  the  foregoing  to  the  contrary,   any  Participant
                  approved  for  participation  in  the  Plan  pursuant  to
                  Sections 3.01,  3.02 and 3.04 who makes an election under
                  Section  5.04(b)(2) shall make such election by the later
                  of -  

                  (1)      the  60th  day  following   such   Participant's
                           approval to participate in this Plan; or
                  (2)      the earlier of -
                           (A)  the date six months prior to  Participant's
                                Effective Retirement Date; or
                           (B)  the December 31  immediately  preceding the
                                Participant's Effective Retirement Date.

                                    10



                           Such  deferral  election  shall  be  made in the
                           manner prescribed by Ashland, from time to time,
                           and shall be  irrevocable  as of the  applicable
                           time  identified  under  Sections  5.04(a)(1) or
                           (2).
                  Until the time at which an election becomes  irrevocable,
                  a Participant shall be able to change it.
         (b)      Optional Forms of Payment.
                  (1)      Lump Sum  Option.  A  Participant  may  elect to
                           receive  the benefit  under  Article V as a lump
                           sum  distribution,  subject to the discretion of
                           the  Committee  as described  below.  A lump sum
                           benefit  payable under the Plan to a Participant
                           shall   be   computed   on  the   basis  of  the
                           actuarially  equivalent  present  value  of such
                           Participant's benefit under Article V based upon
                           (1) the 1971 Group Annuity  Mortality  Table for
                           males,  regardless of whether the Participant is
                           male  or  female  and  (2)  the  average  of the
                           monthly   published   Pension  Benefit  Guaranty
                           Corporation  ("PBGC")  interest  rates  for  the
                           six-month  period which ends on the January 1 or
                           July 1, which  immediately  precedes the date as
                           of which this  calculation is made  (hereinafter
                           called  the   "Applicable   PBGC   Rate").   The
                           Applicable  PBGC  Rate is the one  used  for the
                           valuation  of benefits  paid as  annuities  from
                           terminating  single-employer plans for the first
                           20 years following the valuation date. Such lump
                           sum shall be  payable  within  thirty  (30) days
                           following   the   later  of  the   Participant's
                           Effective Retirement Date, or at such later date
                           as Ashland or its delegate may determine, in its
                           sole  discretion.  The Committee  shall have the
                           sole  discretion  to provide a lump sum  benefit
                           option  to a  class  of  retirees  for  a  given
                           calendar  year.  The  decision  as to whether to
                           provide  a  lump  sum   benefit   option   shall
                           generally  be made by the  Committee at the last
                           Committee  meeting  prior  thereto.  The  option
                           shall  be  made   


                                    11

                           available  to  a  Participant   contingent  upon
                           various  considerations,   including,   but  not
                           limited  to,  the  following:  The tax status of
                           Ashland,   including  without  limitation,   the
                           corporate   and   individual   tax   rate   then
                           applicable  and  whether or not  Ashland  has or
                           projects a net operating  loss;  the current and
                           projected  liquidity of Ashland,  including cash
                           flow,   capital   expenditures   and  dividends;
                           Ashland  `s  borrowing   requirements  and  debt
                           leverage;      applicable      book     charges;
                           organizational   issues,   including  succession
                           issues;  security of the  retirement  payment(s)
                           with   respect   to   the   retiree;   and   the
                           Participant's preference.
                  (2)      Lump Sum Deferral  Option.  A Participant who is
                           eligible  to  receive  a lump  sum  distribution
                           under 5.04(b)(1) shall be able to elect to defer
                           all or a portion of the  receipt of the  elected
                           lump sum (in  increments  of such  percentage or
                           such amount as may be  prescribed  by Ashland or
                           its delegatee, from time to time), by having the
                           obligation to distribute such amount transferred
                           to the Ashland Inc.  Deferred  Compensation Plan
                           to be held thereunder in a notional  account and
                           paid  pursuant to the  applicable  provisions of
                           such Plan,  as they may be amended  from time to
                           time;  provided,  however,  that the election to
                           defer  such  distribution  shall  be made at the
                           time and in the  manner  prescribed  in  Section
                           5.04(a)(1) and (2).
                  (3)      Single Life Annuity.  A Participant may elect to
                           have  such  benefit  paid in the  form of  equal
                           monthly    payments    for   and   during   such
                           Participant's life, with such payments ending at
                           such  Participant's  death.  Payments under this
                           option shall be  actuarially  equivalent  to the
                           benefit  provided  under  Section  5.01 or 5.02,
                           whichever is applicable, determined on the basis
                           of  the  

                                    12



                           applicable   actuarial   assumptions  and  other
                           relevant  provisions  used  for the  same in the
                           Pension Plan.
                  (4)      Joint and Survivor Income Option.  A Participant
                           may  elect to  receive  an  actuarially  reduced
                           benefit payable monthly during the Participant's
                           lifetime with payments to continue  after his or
                           her   death   to  the   person   he   designates
                           (hereinafter called "contingent annuitant"),  in
                           an amount equal to (1) 100% of such  actuarially
                           reduced benefit, (2) 66 2/3% of such actuarially
                           reduced benefit,  or (3) 50% of such actuarially
                           reduced  benefit.  Benefit  payments  under this
                           option shall  terminate with the monthly payment
                           for the  month  in  which  occurred  the date of
                           death of the later to die of the Participant and
                           his or her contingent  annuitant.  The following
                           additional  limitations and conditions  apply to
                           this option: 
                           (A)  The   contingent    annuitant    shall   be
                                designated by the Participant in writing in
                                such form and at such time as  Ashland  may
                                from  time to time  prescribe.  Before  the
                                Participant's  Effective  Retirement  Date,
                                the  Participant  may change the contingent
                                annuitant elected.
                           (B)  In the event of the death of the contingent
                                annuitant prior to the date as of which the
                                election is irrevocable,  the Participant's
                                selection  of this option shall be void and
                                the  Participant  may change the contingent
                                annuitant  or change  the  option  elected,
                                subject to the applicable  limitations  and
                                conditions  applied  to  elections  for the
                                options described under 5.04(a)(1) and (2).
                           (C)  Actuarial     equivalence     under    this
                                sub-paragraph  (4) shall be  determined  on
                                the  basis  of  the  applicable   actuarial
                                assumptions  and other relevant  provisions
                                used for the same in the Pension Plan.

                                    13

                  (5)      Period Certain Income Option.  A Participant may
                           elect to receive an actuarially  reduced benefit
                           payable  monthly  during his or her lifetime and
                           terminating  with the  monthly  payment  for the
                           month in which his or her death occurs, with the
                           provision  that  not  less  than a total  of 120
                           monthly  payments  shall be made in any event to
                           him or her and/or the person  designated  by him
                           or   her  to   receive   payments   under   this
                           sub-paragraph  (5)  in the  event  of his or her
                           death     (hereinafter     called     "alternate
                           recipient").  If a  Participant  and  his or her
                           alternate  recipient  die  after  the  Effective
                           Retirement  Date, but before the total specified
                           monthly   payments   have   been  made  to  such
                           Participant   and/or   his  or   her   alternate
                           recipient,  the commuted  value of the remaining
                           unpaid  payments  shall be paid in a lump sum to
                           the   estate   of  the   later  to  die  of  the
                           Participant  or his or her alternate  recipient.
                           The   following   additional   limitations   and
                           conditions  shall apply to this option:  
                           (A)  The alternate recipient shall be designated
                                in writing by the  Participant in such form
                                and at such time as  Ashland  may from time
                                to time  prescribe.  The  designation of an
                                alternate      recipient     under     this
                                sub-paragraph  (5) is irrevocable after the
                                Effective    Retirement   Date,   provided,
                                however,  a Participant may designate a new
                                alternate   recipient   if  the  one  first
                                designated  dies before the Participant and
                                after the Effective Retirement Date.
                           (B)  In the event of the death of the  alternate
                                recipient prior to the date as of which the
                                election is irrevocable,  the Participant's
                                selection  of this option shall be void and
                                the  Participant  may change the  alternate
                                recipient  or change  the  option  elected,
                                subject to the applicable  limitations  

                                    14


                                and conditions applied to elections for the
                                options described under 5.04(a)(1) and (2).
         (C)      Actuarial  equivalence under this sub-paragraph (5) shall
                  be  determined on the basis of the  applicable  actuarial
                  assumptions  and other relevant  provisions  used for the
                  same in the Pension Plan.
         5.05.    Payment of Small Amounts.
                  Unless  such  Participant  elects to  receive  his or her
                  benefit in a lump sum as provided in Section 5.04, in the
                  event a monthly  benefit  under  this  Plan,  payable  to
                  either  a  Participant   or  to  his  or  her  contingent
                  annuitant,  alternate  recipient or surviving  spouse, is
                  too small (in the sole  judgment  of  Ashland) to be paid
                  monthly,    such   benefit   may   be   paid   quarterly,
                  semi-annually,  or annually,  as determined by Ashland to
                  be administratively convenient.
         5.06.    Surviving Benefits.
                  (a)      Except as otherwise  provided in Section 5.04 of
                           this  Plan,  in the  event  that  a  Participant
                           receiving  Annual   Retirement  Income  benefits
                           shall die after his or her Effective  Retirement
                           Date, no additional benefits shall be payable by
                           Ashland   under  this  Plan  to  such   deceased
                           Participant's   beneficiaries,   survivors,   or
                           estate.
                  (b)      If an Employee dies while in active service with
                           Ashland
                           (1) prior to approval for  participation  in the
                           Plan  and  said  Employee  is a  Level  I or  II
                           participant  under  the  Incentive  Compensation
                           Plan; or
                           (2) after approval for participation in the Plan
                           but  prior to  making an  election  pursuant  to
                           Section  5.04(a) and said  Employee is a Level I
                           -V participant under the Incentive  Compensation
                           Plan; then such Employee shall be deemed:

                           (i) to be a  Participant  under  the Plan in the
                           case of Section 5.06 (b)(1);

                                    15

                           (ii) to have commenced participation one (1) day
                           prior to the date of the Employee's death; and
                           (iii)  to have  elected  to  receive  his or her
                           benefits  in  the  form  of  the  100%  Joint  &
                           Survivor  retirement  income  option and to have
                           designated his or her spouse as the  beneficiary
                           thereunder.
                  (c)      In  the  event  an  Employee  is  approved   for
                           participation  under  the Plan  and  dies  after
                           having made an election  under  Section  5.04(a)
                           but  prior  to his or her  Effective  Retirement
                           Date, then such Employee shall be deemed to have
                           commenced participation one (1) day prior to the
                           date of the  Employee's  death and payment shall
                           be made under this Plan in  accordance  with the
                           Employee's election.
5.07     After a Participant's  Effective  Retirement Date, he or she shall
         continue to participate in Ashland's Group Life Insurance, Medical
         and Dental  programs  in the same  manner and under the same terms
         and  conditions  as  provided  for  retirees  as a class under the
         provisions  of  such  programs,  as from  time to time in  effect.
         Except  as   otherwise   expressly   provided  in  this  Plan,   a
         Participant's   active   participation  in  all  employee  benefit
         programs  maintained by Ashland derived from his or her employment
         status with Ashland shall be discontinued.
ARTICLE VI.                CHANGE IN CONTROL.
         Notwithstanding any provision of this Plan to the contrary, in the
         event of a Change in Control,  an  Employee  who is deemed to be a
         Level I or II Participant under Ashland's  Incentive  Compensation
         Plan,  shall  automatically  be deemed to be approved by the Board
         for  participation  under  this  Plan and may,  in his or her sole
         discretion, elect to retire prior to the date the Employee reaches
         age 62. 

                                    16

         In addition,  Ashland  shall  reimburse an Employee for legal fees
         and  expenses  incurred by such  Employee if he or she is required
         to, and is successful  in,  seeking to obtain or enforce any right
         to  payment  pursuant  to the Plan.  In the event that it shall be
         determined that such Employee is properly  entitled to the payment
         of benefits  hereunder,  such  Employee  shall also be entitled to
         interest thereon payable in an amount equivalent to the prime rate
         of interest  (quoted by  Citibank,  N.A.  as its prime  commercial
         lending rate on the latest date  practicable  prior to the date of
         the actual commencement of payments) from the date such payment(s)
         should  have  been  made to and  including  the  date it is  made.
         Notwithstanding  any provision of this Plan to the  contrary,  the
         provisions  of this  Plan may not be  amended  after a  Change  in
         Control  occurs  without the written  consent of a majority of the
         Board who were directors prior to the Change in Control.
ARTICLE VII.      MISCELLANEOUS.
7.01     The obligations of Ashland hereunder constitute merely the promise
         of  Ashland to make the  payments  provided  for in this Plan.  No
         employee,  his or her spouse or the estate of either of them shall
         have, by reason of this Plan, any right,  title or interest of any
         kind  in  or to  any  property  of  Ashland.  To  the  extent  any
         Participant  has a right to receive  payments  from Ashland  under
         this Plan,  such right  shall be no greater  than the right of any
         unsecured general creditor of Ashland.
7.02     Full power and  authority to construe,  interpret  and  administer
         this Plan shall be vested in the Board or its delegate.  Decisions
         of the  Board or its  delegate  shall  be  final,  conclusive  and
         binding upon all parties.
7.03     This Plan shall be binding upon Ashland and any  successors to the
         business  of  Ashland  and  shall  inure  to  the  benefit  of the
         Participants  and their  beneficiaries,  if applicable.  Except as
         otherwise  provided in Article VI, the 


                                    17


         Board  or  its  delegate  may,  at  any  time,  amend  this  Plan,
         retroactively  or otherwise,  but no such  amendment may adversely
         affect the rights of any  Participant  who has been  approved  for
         participation in the Plan except to the extent that such action is
         required by law.
7.04     Except as otherwise provided in Section 5.04, no right or interest
         of the Participants  under this Plan shall be subject to voluntary
         or involuntary alienation, assignment or transfer of any kind.
7.05     This Plan shall be governed for all purposes by the laws of the 
         Commonwealth of Kentucky.



                                    18

                  Conformed copy including Amendment No. 1
                             as adopted 9/18/97

                  ASHLAND INC. NONQUALIFIED EXCESS BENEFIT
                      PENSION PLAN - 1996 RESTATEMENT
                      as adopted on September 19, 1996
- ------------------------------------------------------------------------------

         WHEREAS,  the  Employee  Retirement  Income  Security  Act of 1974
("ERISA") establishes maximum limitations on benefits and contributions for
retirement  plans  which meet the  requirements  of  Section  401(a) of the
Internal Revenue Code of 1986, as amended ("Code");
         WHEREAS,  Ashland  Inc.  ("Ashland"  or the  "Company")  maintains
certain  pension  plans which are subject to the aforesaid  limitations  on
benefits and contributions;
         WHEREAS,  Ashland  adopted  the  Ashland  Oil,  Inc.  Nonqualified
Pension Plan as of September 24, 1975 (which is now called the Ashland Inc.
Nonqualified  Excess  Benefit  Pension Plan,  otherwise  referred to as the
"Plan"),  for the purpose of providing  benefits  for certain  employees in
excess of the aforesaid limitations;
         WHEREAS,  the Plan was amended and completely  restated as of July
21, 1977;
         WHEREAS,  the Plan  was  amended  and  completely  restated  as of
October 1, 1982;
         WHEREAS,  the Plan  was  amended  and  completely  restated  as of
November 3, 1988;
         WHEREAS,  Ashland has  retained the  authority to make  additional
amendments to or terminate the Plan;
         WHEREAS,  Ashland  desires to further  amend and  restate the Plan
and, as so amended, to continue the Plan in full force and effect;
         NOW, THEREFORE,  effective September 19, 1996, Ashland does hereby
further amend and restate the Plan in accordance  with the following  terms
and conditions:
         1.  Designation  and Purpose of Plan.  The Plan is designated  the
"Ashland Inc.  Nonqualified  Excess  Benefit  Pension Plan"  ("Plan").  The
purpose of the Plan is to provide benefits for certain  employees in excess
of the limitations on contributions,  benefits, and compensation imposed by
Sections 415 and  401(a)(17) of the Code  (including  successor  provisions
thereto) on the plans to which  those  Sections  apply.  The portion of the
Plan  providing  benefits in excess of the Section 415 limits is an "excess
benefit  plan" as that term is  defined in  


   
Section  3(36) of ERISA.  It is intended  that the portion,  if any, of the
Plan which is not an excess benefit plan shall be maintained  primarily for
a select group of management or highly compensated employees.
         2.  Eligibility.  Subject to Section  11, the Plan shall  apply to
those  employees - 
(i) who have retired as an early,  normal, or deferred normal retiree under
the  provisions of the Ashland Inc. and  Affiliates  Pension Plan ("Ashland
Pension  Plan"),  as it may  be  amended,  from  time  to  time,  or  under
provisions of any other  retirement plan, as such other plan may be amended
from time to time, which, from time to time, is specifically  designated by
Ashland for purposes of  eligibility  and benefits under the Plan (all such
plans are  hereinafter  referred  to jointly  and  severally  as  "Affected
Plans"); and
(ii) who have been  approved for  participation  in this Plan by Ashland or
its delegate,  and such approval may, in the discretion of Ashland, be made
(A) before an employee's actual early,  normal or deferred  retirement;  or
(B)  posthumously  in the event of a benefit  potentially  available  under
Section 6 of the Plan.  

Notwithstanding anything to the contrary contained herein, any employee who
would be entitled to participate in this Plan, but who is not a member of a
select  group of  management  or a highly  compensated  employee,  shall be
entitled to a benefit  amount  payable  under the Plan based  solely on the
limitations on benefits imposed under Section 415 of the Code.
         3.       Benefit Amount.
(i)  Computation.  At any particular time, the benefit payable to a retiree
eligible to  participate in this Plan pursuant to the provisions in Section
2 shall be computed by subtracting from (A) the sum of (B) and (C) where -
                  (A)  shall  be the  single  life  annuity  that  would be
payable at age 62 to such retiree under the Affected Plans -
                       (1)  with  the   benefit   so   payable   thereunder
calculated by disregarding  any salary deferrals that may have been made by
such retiree under the Ashland Inc. Deferred  Compensation Plan and thereby
restoring  any  salary  that may have been so  deferred  to such  retiree's
compensation for purposes of the Affected Plans, and
                       (2)  prior to any  reductions  made  because  of the
limits imposed by Sections 415 and 401(a)(17) of the Code;
    



                                    2


provided  that the single life annuity  that would be so payable  under the
Ashland  Pension  Plan  shall  be  computed  without  applying  any  offset
attributable  to the Ashland Inc.  Leveraged  Employee Stock Ownership Plan
("LESOP"), and such single life annuity shall be actuarially adjusted to be
equivalent  to a  single  life  annuity  payable  at  the  particular  time
applicable  based  upon the  applicable  actuarial  assumptions  and  other
relevant provisions used for the same in the Affected Plans; [as amended by
Amendment No. 1 adopted 9/18/97]
                  (B)  shall  be the  single  life  annuity  that  would be
payable at age 62 to such retiree under the Affected  Plans after  reducing
the amount so payable for the limits imposed by Sections 415 and 401(a)(17)
of the Code,  provided  that such  single  life  annuity  that  would be so
payable  under the  Ashland  Pension  Plan shall be  computed  after  first
applying  the offset  attributable  to the Offset  Account (as that term is
defined  under the LESOP) in the LESOP,  and each such single life  annuity
shall be  actuarially  adjusted to be  equivalent  to a single life annuity
payable  at the  particular  time  applicable  based  upon  the  applicable
actuarial  assumptions  and other relevant  provisions used for the same in
the Affected Plans; and
                  (C)  shall  be the  single  life  annuity  that  would be
actuarially  equivalent  to such  retiree's  nonforfeitable  portion of the
Offset  Account  under  the  LESOP  as of  the  valuation  date  thereunder
coincident with or next preceding such retiree's  termination of employment
using the actuarial assumptions  prescribed for this purpose in the Ashland
Pension Plan. 
(ii)  Commencement.  Subject  to  Section  6, the  benefit  computed  under
paragraph  (i) of this  Section 3 shall  commence or  otherwise  be paid or
transferred  pursuant to the provisions in Sections 4 or 5, effective as of
the date as of which  payments to such retiree  commence under the Affected
Plans.
         4.       Payment Options.
(i)  Election.  A retiree  eligible  under  Section 2 for the benefit under
Section 3 shall,  subject to Sections 5 and 6, elect the form in which such
benefit  shall be paid from among those  identified  in this  Section 4 and
such  election  shall be made at the time and in the manner  prescribed  by
Ashland,  from time to time,  provided that the election is made before the
first  day  of  the  month  following  such  retiree's   termination   from
employment.  Such  election,  including the  designation  of any contingent
annuitant  or  alternate  recipient  under  sub-paragraphs  (D)  or  (E) of
paragraph (ii) of this Section 4, shall be irrevocable  except as otherwise
set  forth  herein.  

                                     3

Notwithstanding  anything in the foregoing to the contrary, any retiree who
makes an election under sub-paragraph (B) of paragraph (ii) of this Section
4 shall make such election by the later of -
                  (A) the 60th day  following  such  retiree's  approval to
participate in this Plan as provided under Section 2; or
                  (B)      by the earlier of -
                       (1) the date six  months  prior to the  first day of
the month following such retiree's termination from employment; or
                       (2) the December 31 immediately  preceding the first
day of the month following such retiree's termination from employment.

Such election under  sub-paragraph  (B) of paragraph (ii) of this Section 4
shall be made in the manner  prescribed by Ashland,  from time to time, and
shall be irrevocable as of the applicable time identified  under (A) or (B)
of this  paragraph  (i) of Section 4. Until the time at which such election
becomes  irrevocable,  an eligible retiree shall be able to change it. 

(ii)  Optional Forms of Payment.
                  (A) Lump Sum Option.  Notwithstanding  any  provisions of
Section 3 to the  contrary,  a retiree  in an  eligible  class may elect to
receive  all of the  benefit  under  Section 3 as a lump sum  distribution,
subject to the  discretion of the Committee as described  below. A lump sum
benefit  payable under the Plan to a retiree in an eligible  class shall be
computed on the basis of the actuarially  equivalent  present value of such
retiree's  benefit  under  Section 3 of the Plan payable at the  particular
time applicable  based upon (1) the 1971 Group Annuity  Mortality Table for
males,  regardless  of  whether  the  retiree is male or female and (2) the
average of the  monthly  published  Pension  Benefit  Guaranty  Corporation
("PBGC")  interest rates for the six-month period which ends on the January
1 or  July  1  which  immediately  precedes  the  date  as  of  which  this
calculation is made  (hereinafter  called the "Applicable PBGC Rate").  The
Applicable  PBGC Rate is the one used for the valuation of benefits paid as
annuities  from  terminating  single-employer  plans for the first 20 years
following the valuation  date. Such lump sum shall be payable within thirty
(30)  days of the  retiree's  retirement  date,  or at such  later  date as
Ashland  or its  delegate  may  determine,  in  its  sole  discretion.  The
Personnel and Compensation  Committee of Ashland's Board of Directors shall
have the sole discretion to provide a lump sum benefit 

                                     4


option to a class of retirees for a given calendar year. The decision as to
whether to provide a lump sum benefit option shall generally be made by the
Committee at the last committee meeting prior thereto.  The option shall be
made  available  to  a  retiree  contingent  upon  various  considerations,
including, but not limited to, the following:
         The tax status of the Company,  including without limitation,  the
         corporate and individual  tax rate then  applicable and whether or
         not the Company has or projects a net operating  loss; the current
         and  projected  liquidity  of the  Company,  including  cash flow,
         capital expenditures and dividends; Company borrowing requirements
         and debt leverage; applicable book charges; organizational issues,
         including succession issues; security of the retirement payment(s)
         with respect to the retiree; and the retiree's preference.
                  (B) Lump Sum Deferral  Option.  A retiree who is eligible
to  receive  a lump  sum  distribution  under  sub-paragraph  (A)  of  this
paragraph  (ii) of  Section  4 and  who  was  part  of a  select  group  of
management  or a  highly  compensated  employee,  shall be able to elect to
defer  all or a  portion  of  the  receipt  of the  elected  lump  sum  (in
increments  of such  percentage  or such  amount  as may be  prescribed  by
Ashland or its delegatee, from time to time),[as amended by Amendment No. 1
adopted  9/18/97]  by having  the  obligation  to  distribute  such  amount
transferred  to the  Ashland  Inc.  Deferred  Compensation  Plan to be held
thereunder  in a  notional  account  and paid  pursuant  to the  applicable
provisions  of such  Plan,  as  they  may be  amended  from  time to  time;
provided,  however,  that the election to defer such distribution  shall be
made at the time and in the  manner  prescribed  in  paragraph  (i) of this
Section 4. [The prior last  sentence was deleted by Amendment No. 1 adopted
9/18/97.]
                  (C) Single Life Annuity. A retiree eligible under Section
2 for the benefit  under  Section 3 may elect to have such  benefit paid in
the form of equal monthly payments for and during such retiree's life, with
such payments ending at such retiree's death.  Before such election becomes
irrevocable as provided  under  paragraph (i) of Section 4, the retiree may
change  the  option  elected,  subject to the  applicable  limitations  and
conditions   applied  to  elections   for  the  options   described   under
sub-paragraphs  (A) and (B) of this  paragraph  (ii) of Section 4. Payments
under this option shall be actuarially  equivalent to the benefit  provided


                                     5


under  Section  3,  determined  on the  basis of the  applicable  actuarial
assumptions and other relevant  provisions used for the same in the Ashland
Pension Plan.
                  (D) Joint and Survivor Income Option.  A retiree eligible
under  Section 2 for the  benefit  under  Section 3 may elect to receive an
actuarially  reduced benefit payable monthly during the retiree's  lifetime
with  payments  to  continue  after his death to the  person he  designates
(hereinafter called "contingent annuitant"), in an amount equal to (1) 100%
of such  actuarially  reduced  benefit,  (2) 66  2/3%  of such  actuarially
reduced benefit,  or (3) 50% of such actuarially  reduced benefit.  Benefit
payments under this option shall terminate with the monthly payment for the
month in  which  occurred  the  date of  death  of the  later to die of the
retiree and his contingent annuitant.  The following additional limitations
and conditions apply to this option:
                       (a) The contingent  annuitant shall be designated by
the  retiree in  writing in such form and at such time as Ashland  may from
time to time prescribe.
                       (b) In the event the contingent annuitant dies prior
to the  date  the  election  of  this  optional  form  of  benefit  becomes
irrevocable  as provided  under  paragraph  (i) of Section 4, the retiree's
selection  of this option  shall be void.  Before the date the  election of
this  optional  form of  benefit  becomes  irrevocable  as  provided  under
paragraph (i) of Section 4, the retiree may change the contingent annuitant
or change the option  elected,  subject to the applicable  limitations  and
conditions   applied  to  elections   for  the  options   described   under
sub-paragraphs (A) and (B) of this paragraph (ii) of Section 4.
                       (c) In the event of the death of the  retiree  prior
to the date the election is irrevocable as provided under  paragraph (i) of
Section 4, such retiree  shall be deemed to have  terminated  employment on
the day before his death (for reasons other than death) and survived  until
the day  after the date as of which  the  benefit  he  elected  under  this
sub-paragraph (D) would have commenced.
                       (d) Actuarial  equivalence under this  sub-paragraph
(D)  shall  be  determined  on  the  basis  of  the  applicable   actuarial
assumptions and other relevant  provisions used for the same in the Ashland
Pension Plan.
                  (E) Period  Certain  Income  Option.  A retiree  eligible
under  Section 2 for the  benefit  under  Section 3 may elect to receive an
actuarially  reduced  benefit  payable  monthly  during  his  lifetime  and
terminating  with the  monthly  payment  for the  month in which  his death

                                     6


occurs,  with  the  provision  that not  less  than a total of 120  monthly
payments shall be made in any event to him and/or the person  designated by
him to receive  payments under this  sub-paragraph  (E) in the event of his
death (hereinafter called "alternate recipient").  Such alternate recipient
shall be designated in writing by the retiree in such form and at such time
as Ashland may from time to time prescribe.  If a retiree and his alternate
recipient die after the date as of which payments have commenced but before
the total specified  monthly payments have been made to such retiree and/or
his  alternate  recipient,  the  commuted  value  of the  remaining  unpaid
payments  shall be paid in a lump sum to the  estate of the later to die of
the  retiree  or  his  alternate   recipient.   The  following   additional
limitations and conditions shall apply to this option:
                       (a)  A  retiree  may   designate  a  new   alternate
recipient if the one first designated dies before the retiree and after the
date the election of this optional form of benefit became irrevocable under
paragraph (i) of Section 4. In the event the alternate recipient dies prior
to the date the election  becomes  irrevocable as provided under  paragraph
(i) of Section 4, the  retiree's  selection  of this option  shall be void.
Before the date the  election  of this  optional  form of  benefit  becomes
irrevocable as provided  under  paragraph (i) of Section 4, the retiree may
change the alternate recipient or change the option elected, subject to the
applicable  limitations and conditions applied to elections for the options
described  under  sub-paragraphs  (A)  and (B) of  this  paragraph  (ii) of
Section 4.
                       (b) In the event of the death of the  retiree  prior
to the date the election is irrevocable as provided under  paragraph (i) of
Section 4, such retiree  shall be deemed to have  terminated  employment on
the day before his death (for reasons other than death) and survived  until
the day  after the date as of which  the  benefit  he  elected  under  this
sub-paragraph (E) would have commenced.
                       (c) Actuarial  equivalence under this  sub-paragraph
(E)  shall  be  determined  on  the  basis  of  the  applicable   actuarial
assumptions and other relevant  provisions used for the same in the Ashland
Pension Plan.
                  (F) Death  Before  Payment.  Subject to Section 6, in the
event a retiree  eligible  under  Section 2 for the benefit under Section 3
dies after  having made an election  of an optional  form of payment  under
this  paragraph  (ii) of  Section 4 before  the date such  election  became
irrevocable  as provided  under  paragraph  (i) of Section 4, such  retiree
shall be deemed to have  

                                     7


terminated  employment  on the day before his death (for reasons other than
death) and  survived  until the day after the date as of which the optional
form of payment he elected  would have  commenced and payment shall then be
made under the Plan in accordance with such retiree's election.
         5. Payment of Small Amounts. Unless such retiree elects to receive
his or her  benefit in a lump sum as  provided in Section 4, in the event a
monthly  benefit  under  this  Plan,  payable to either a retiree or to his
contingent annuitant, alternate recipient or surviving spouse, is too small
(in the sole judgment of Ashland) to be paid  monthly,  such benefit may be
paid quarterly,  semi-annually, or annually, as determined by Ashland to be
administratively convenient.
         6.  Surviving  Spouse  Benefit.  In the  event a  retiree  who was
eligible  under Section 2 for the benefit  under Section 3 dies,  leaving a
surviving  spouse,  before  electing  an  optional  form of  payment  under
paragraph (ii) of Section 4 and before the date such an election would have
become  irrevocable  under  paragraph  (i) of Section 4, then such  retiree
shall be deemed to have - 

(i) elected the joint and 100% survivor  income option under  sub-paragraph
(D) of paragraph (ii) of Section 4;

(ii) named his spouse as the 100% contingent annuitant;

(iii) terminated  employment on the day before his death (for reasons other
than death); and

(iv)  survived  until the day after the date as of which such benefit would
have commenced.

         7. Costs. In appropriate cases,  Ashland may cause an affiliate to
make the payment (or an allocable  portion  thereof) called for by the Plan
directly to the person eligible to receive such payments.
         8.  Confidentiality and No Competition. All benefits under the Plan
shall be  forfeited by anyone who  discloses  confidential  information  to
others outside of Ashland's  organization without the prior written consent
of Ashland or who accepts,  during a period of five (5) years following his
or her retirement, any employment or consulting activity which is in direct
conflict  with the  business  of Ashland at such time.  Such  determination
shall be made in the sole discretion of Ashland. A breach of this Section 8
shall result in an immediate  forfeiture of benefits payable to any retiree
under the Plan.

                                     8



         9.  Lost  Participant/Beneficiary.  In the  event  Ashland,  after
reasonable  effort,  is unable  to  locate a person  to whom a  benefit  is
payable under the Plan, such benefit shall be forfeited; provided, however,
that such benefit shall be reinstated  (in the same amount and form as that
of the benefit  forfeited without any obligation to pay amounts which would
otherwise have  previously  come due) upon proper claim made by such person
prior to termination  of the Plan.  

(i) The  obligations  of Ashland and any affiliate  thereof with respect to
benefits under this Plan constitute merely the unsecured promise of Ashland
and/or its  affiliates,  as the case may be, to make the payments  provided
for in this Plan. No property of Ashland or any  affiliate is or shall,  by
reason of the  Plan,  be held in trust or be deemed to be held in trust for
any person and any participant or beneficiary under the Plan, the estate of
either of them and any  person  claiming  under or  through  them shall not
have, by reason of the Plan, any right, title or interest of any kind in or
to any property of Ashland and its affiliates. To the extent any person has
a right to receive  payments under the Plan, such right shall be no greater
than  the  right of any  unsecured  general  creditor  of  Ashland/  or its
affiliates.

(ii) Ashland shall  administer the Plan.  Ashland shall have full power and
authority to amend, modify, or terminate the Plan and shall have all powers
and the  discretion  necessary and  convenient  to  administer  the Plan in
accordance  with its terms,  including,  but not limited to, all necessary,
appropriate, discretionary and convenient power and authority to interpret,
administer and apply the provisions of the Plan with respect to all persons
having  or  claiming  to  have  any  rights,   benefits,   entitlements  or
obligations under the Plan. This includes,  without limitation, the ability
to construe  and  interpret  provisions  of the Plan,  make  determinations
regarding law and fact, reconcile any inconsistencies between provisions in
the  Plan  or  between  provisions  of the  Plan  and any  other  statement
concerning the Plan,  whether oral or written,  supply any omissions to the
Plan or any document associated with the Plan, and to correct any defect in
the  Plan  or  in  any  document   associated   with  the  Plan.  All  such
interpretations  of the Plan  and  documents  associated  with the Plan and
questions  concerning its administration and application,  as determined by
Ashland, shall be binding on all persons having an interest under the Plan.
Ashland may delegate (and may give to its delegatee the power and authority
to redelegate) to

                                     9


any person or  persons  any  responsibility,  power or duty under the Plan.
Decisions  of  Ashland or its  delegatee  shall be final,  conclusive,  and
binding on all parties.

(iii) Except as expressly allowed pursuant to Sections 3 and 4 of this Plan
in regard to the form of benefit option, no right or interest of any person
entitled  to a benefit  under the Plan  shall be subject  to  voluntary  or
involuntary alienation,  assignment,  transfer,  hypothecation,  pledge, or
encumbrance of any kind;  provided,  however,  Ashland or any affiliate may
offset or cause an offset to be made  against  any payment to be made under
the Plan in regard to amounts  due and owing from such person to Ashland or
any affiliate.  Notwithstanding  anything to the contrary in this paragraph
(iii), legally required tax withholding on benefit payments,  the recovery,
by any means,  of previously  made  overpayments  of Plan benefits,  or the
direct  deposit of Plan  benefit  payments  in a bank or  similar  account,
provided  that  such  direct   deposits  are  allowed  by  Ashland  in  the
administration  of the Plan and  provided  that such direct  deposit is not
part of an arrangement constituting an assignment or alienation,  shall not
be considered to be prohibited under this paragraph (iii).

(iv) No amount  paid or payable  under the Plan  shall be deemed  salary or
other compensation to any employee for the purpose of computing benefits to
which such employee or any other person may be entitled  under any employee
benefit plan of Ashland or any affiliate.

(v) To the extent that state law shall not have been  preempted by ERISA or
any other law of the United States,  the Plan shall be governed by the laws
of the Commonwealth of Kentucky.

(vi) The Plan described  herein shall amend and supersede,  as of September
19, 1996, all provisions in the Ashland Oil, Inc. Nonqualified Pension Plan
as  Amended,  dated as of November 3, 1988,  except as  otherwise  provided
herein  and  further  excepting  that the  rights of former  employees  who
terminated employment,  retired, or became disabled prior to the day before
the effective  date hereof shall be governed by the terms of the Plan as in
effect  at the  time of such  termination  of  employment,  retirement,  or
disability, unless otherwise provided herein.
         11. Change in Control.  Notwithstanding any provision of this Plan
to  the  contrary,  in  the  event  of a  Change  in  Control  (as  defined
hereinafter  in this  Section  11), any employee who would or will meet the
requirements  of Section 2, except that such employee has not been approved
to  participate  as provided  under  paragraph  (ii) of Section 2, shall be
deemed to be approved for participation hereunder,  regardless of when such
employee actually retires and 

                                    10


commences  benefits  under an Affected Plan and such  entitlement  shall be
vested  from and after the time of such Change in  Control.  Ashland  shall
reimburse an employee for legal fees and expenses  incurred if he or she is
required to, and is successful  in,  seeking to obtain or enforce any right
to payment  pursuant  to the Plan after a Change in  Control.  In the event
that it shall be determined that such employee is properly  entitled to the
payment of  benefits  hereunder,  such  employee  shall also be entitled to
interest  thereon  payable  in an amount  equivalent  to the prime  rate of
interest (quoted by Citibank,  N.A. as its prime commercial lending rate on
the latest date practicable prior to the date of the actual commencement of
payments)  from the date  such  payment(s)  should  have  been  made to and
including the date it is made.  Notwithstanding  any provision of this Plan
to the  contrary,  the Plan may not be  amended  after a Change in  Control
without the  written  consent of a majority  of the Board of  Directors  of
Ashland  (hereinafter  "Board") who were  directors  prior to the Change in
Control.  For  purposes of this  Section  11, a Change of Control  shall be
deemed to occur (1) upon the approval of the shareholders of Ashland (or if
such  approval  is not  required,  upon  approval  of the Board) of (A) any
consolidation  or merger of Ashland in which Ashland is not the  continuing
or  surviving  corporation  or pursuant to which  shares of Ashland  common
stock would be converted into cash, securities or other property other than
a merger in which the holders of Ashland common stock  immediately prior to
the merger will have the same  proportionate  ownership  of common stock of
the  surviving  corporation  immediately  after the  merger,  (B) any sale,
lease,  exchange,  or other  transfer  (in one  transaction  or a series of
related transactions) of all or substantially all the assets of Ashland, or
(C) adoption of any plan or proposal for the  liquidation or dissolution of
Ashland,  (2) when any "person"  (as defined in Section  3(a)(9) or Section
13(d) of the  Securities  Exchange Act of 1934),  other than Ashland or any
subsidiary or employee  benefit plan or trust  maintained by Ashland or any
of its  subsidiaries,  shall become the  "beneficial  owner" (as defined in
Rule  13d-3  under  the  Securities  Exchange  Act of  1934),  directly  or
indirectly, of more than 15% of the Ashland common stock outstanding at the
time,  without the  approval  of the Board,  or (3) if at any time during a
period of two consecutive  years,  individuals who at the beginning of such
period  constituted  the Board shall cease for any reason to  constitute at
least a majority thereof, unless the election or nomination for election by
Ashland's shareholders of each new director during 

                                    11


such two-year  period was approved by a vote of at least  two-thirds of the
directors  then still in office who were directors at the beginning of such
two-year period.





                                ASHLAND INC.
                         DEFERRED COMPENSATION PLAN
              (Amended and Restated as of September 18, 1997)



1.       PURPOSE

         The purpose of this Ashland Inc.  Deferred  Compensation Plan (the
"Plan"),  is to provide  eligible  key  employees  of the  Company  with an
opportunity to defer  compensation to be earned by them from the Company as
a means of saving for retirement or other future purposes.

2.       DEFINITIONS

         The following definitions shall be applicable throughout the Plan:

         (a)   "Accounting   Date"  means  the  Business  Day  on  which  a
calculation  concerning a Participant's  Compensation Account is performed,
or as otherwise defined by the Committee.

         (b)   "Beneficiary"   means  the   person(s)   designated  by  the
Participant  in  accordance  with Section 12, or if no person(s)  is/are so
designated, the estate of a deceased Participant.

         (c) "Board"  means the Board of  Directors  of Ashland Inc. or its
designee.

         (d)  "Business  Day"  means  a day on  which  the New  York  Stock
Exchange is open for trading activity.

         (e)  "Change  in  Control"  shall be  deemed to occur (1) upon the
approval of the  shareholders  of the  Company (or if such  approval is not
required,  upon the  approval  of the  Board) of (A) any  consolidation  or
merger  of the  Company  in which  the  Company  is not the  continuing  or
surviving  corporation or pursuant to which shares of Common Stock would be
converted  into cash,  securities or other  property other than a merger in
which the holders of Common Stock immediately prior to the merger will have
the  same  proportionate   ownership  of  Common  Stock  of  the  surviving
corporation immediately after the merger, (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related  transactions) of
all or substantially all the assets of the Company,  or (C) adoption of any
plan or proposal for the  liquidation or  dissolution  of the Company,  (2)
when any "person"  (as defined in Section  3(a)(9) or 13(d) of the Exchange
Act), other than Ashland Inc. or any subsidiary or employee benefit plan or
trust maintained by Ashland Inc. or any of its  subsidiaries,  shall become
the  "beneficial  owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 15% of the Common Stock outstanding at
the time, without the approval of the Board, or (3) if at any time during a
period of two consecutive  years,  individuals who at the beginning of such
period  constituted  the Board shall cease for any reason to  constitute at
least a  majority  thereof,  unless  the  election  or the  nomination  for
election by the  Company's  shareholders  of each new director  during such
two-year  period  was  approved  by a vote of at  least  two-thirds  of the
directors  then still in office who were directors at the beginning of such
two-year period.

         (f) "Committee" means the Personnel and Compensation  Committee of
the Board or its designee.

         (g) "Common  Stock" means the common  stock,  $1.00 par value,  of
Ashland Inc.

         (h) "Common Stock Fund" means that investment option,  approved by
the Committee, in which a Participant's  Compensation Account may be deemed
to be invested and may earn income based on a  hypothetical  investment  in
Common Stock.

         (i) "Company" means Ashland Inc., its divisions,  subsidiaries and
affiliates.



         (j) "Compensation" means any employee  compensation  determined by
the Committee to be properly deferrable under the Plan.

         (k) "Compensation  Account(s)" means the Retirement Account and/or
the In-Service Account(s).

         (l)  "Corporate   Human   Resources"  means  the  Corporate  Human
Resources Department of the Company.

         (m)  "Credit  Date"  means  the date on which  Compensation  would
otherwise  have  been  paid  to  the  Participant  or in  the  case  of the
Participant's  designation  of  investment  option  changes,  within  three
Business Days after the Participant's  designation is received by Corporate
Human Resources, or as otherwise designated by the Committee.

         (n) "Deferred  Compensation" means the Compensation elected by the
Participant to be deferred pursuant to the Plan.

         (o) "Election" means a Participant's  delivery of a written notice
of election to Corporate Human  Resources  electing to defer payment of all
or  a  portion  of  his  or  her  Compensation   either  until  retirement,
Termination,  death or such other time as further provided by the Committee
or the Company.

         (p) "Employee" means a full-time, regular salaried employee (which
term shall be deemed to include  officers) of the Company,  its present and
future  subsidiary  corporations  as defined in Section 424 of the Internal
Revenue Code of 1986, as amended or its affiliates.

         (q)  "Excess  Payments"  means  payments  made  to  a  Participant
pursuant to the Plan and the Excess Plan.

         (r)  "Excess  Plan"  means the Ashland  Inc.  Nonqualified  Excess
Benefit Pension Plan, as it now exists or as it may hereafter be amended.

         (s) "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended.

         (t)  "Fair  Market  Value"  means  the  price of a share of Common
Stock, as reported on the Composite Tape for New York Stock Exchange issues
on the date and at the time designated by the Company.

         (u) "Fiscal  Year" means that annual period  commencing  October 1
and ending the following September 30.

         (v)  "In-Service  Account"  means  the  account(s)  to  which  the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.

         (w)  "Participant"  means an Employee selected by the Committee to
participate  in the Plan and who has  elected to defer  payment of all or a
portion of his or her Compensation under the Plan.

         (x) "Plan" means this Ashland Inc.  Deferred  Compensation Plan as
it now exists or as it may hereafter be amended.

         (y)  "Retirement  Account"  means  the  account(s)  to  which  the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.

         (z) "SERP"  means the Ninth  Amended  and  Restated  Ashland  Inc.
Supplemental Early Retirement Plan for Certain Key Executive Employees,  as
it now exists or as it may hereafter be amended.


                                     2

         (aa) "SERP Payments" means payments made to a Participant pursuant
to the Plan and the SERP.

         (bb) "Stock Unit(s)" means the share  equivalents  credited to the
Common  Stock Fund of a  Participant's  Compensation  Account  pursuant  to
Section 6.

         (cc)  "Termination"  means  termination of services as an Employee
for any reason other than retirement.

3.       SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION

         (a) Shares  Authorized  for Issuance.  There shall be reserved for
issuance  under  the Plan  500,000  shares  of  Common  Stock,  subject  to
adjustment pursuant to subsection (c) below.

         (b) Units Authorized for Credit. The maximum number of Stock Units
that may be credited to Participants'  Compensation Accounts under the Plan
is 1,500,000, subject to adjustment pursuant to subsection (c) below.

         (c) Adjustments in Certain  Events.  In the event of any change in
the  outstanding  Common Stock of the Company by reason of any stock split,
share dividend,  recapitalization,  merger, consolidation,  reorganization,
combination,   or  exchange  or  reclassification   of  shares,   split-up,
split-off, spin-off, liquidation or other similar change in capitalization,
or any distribution to common  shareholders other than cash dividends,  the
number  or kind of  shares or Stock  Units  that may be issued or  credited
under the Plan shall be  automatically  adjusted so that the  proportionate
interest of the  Participants  shall be maintained as before the occurrence
of such event.  Such  adjustment  shall be  conclusive  and binding for all
purposes of the Plan.

4.       ELIGIBILITY

         The Committee  shall have the authority to select from  management
and/or highly  compensated  Employees those Employees who shall be eligible
to  participate  in the Plan;  provided,  however,  that  employees  and/or
retirees  who have  elected to defer an amount into this Plan from  another
plan  sponsored or maintained  by Ashland Inc.,  the terms of which allowed
such  employee or retiree to make such a deferral  election into this Plan,
shall be considered to be eligible to participate in this Plan.

5.       ADMINISTRATION

         Full power and authority to construe, interpret and administer the
Plan  shall be vested in the  Company  and the  Committee.  This  power and
authority includes,  but is not limited to, selecting Compensation eligible
for  deferral,  establishing  deferral  terms and  conditions  and adopting
modifications,  amendments  and  procedures  as  may be  deemed  necessary,
appropriate  or convenient by the  Committee.  Decisions of the Company and
the  Committee  shall be final,  conclusive  and binding  upon all parties.
Day-to-day  administration  of the  Plan  shall  be the  responsibility  of
Corporate Human Resources.

6.       PARTICIPANT ACCOUNTS

         Upon  election  to  participate  in  the  Plan,   there  shall  be
established a Retirement Account and/or In-Service  Account,  as designated
by  the   Participant  to  which  there  shall  be  credited  any  Deferred
Compensation,  as of each Credit Date. Each such Compensation Account shall
be  credited  (or  debited) on each  Accounting  Date with income (or loss)
based upon a  hypothetical  investment in any one or more of the investment
options  available  under the Plan,  as prescribed by the Committee for the
particular compensation credited, which may include a Common Stock Fund, as
elected by the Participant under the terms of Section 9.


                                     3


7.       FINANCIAL HARDSHIP

         Upon the written request of a Participant or a Participant's legal
representative  and a finding  that  continued  deferral  will result in an
unforeseeable financial emergency to the Participant,  the Committee or the
Company (each in its sole  discretion) may authorize (a) the payment of all
or a part of a Participant's  Compensation  Account in a single installment
prior to his or her ceasing to be a Participant, or (b) the acceleration of
payment of any  multiple  installments  thereof.  It is  intended  that the
Committee's  determinations  as to whether the  Participant has suffered an
"unforeseeable  financial  emergency"  shall  be made  consistent  with the
requirements under Section 457(d) of the Internal Revenue Code.

8.       ACCELERATED DISTRIBUTION

         (a)   Availability   of  Withdrawal   Prior  to  Retirement.   The
Participant or the Participant's  Beneficiary who is receiving  installment
payments under the Plan may elect, in writing, to withdraw all or a portion
of a Participant's  Compensation Account at any time prior to the time such
Compensation Account otherwise becomes payable under the Plan, provided the
conditions specified in Sections 8(c), 8(d) and 8(e) hereof are satisfied.

         (b)  Acceleration  of  Periodic  Distributions.  Upon the  written
election  of  the  Participant  or  the  Participant's  Beneficiary  who is
receiving   installment   payments  under  the  Plan,  the  Participant  or
Participant's  Beneficiary  may  elect  to  have  all or a  portion  of the
remaining  installments  distributed in the form of an immediately  payable
lump sum, provided the conditions specified in Section 8(c) and 8(e) hereof
are satisfied.

         (c) Forfeiture  Penalty.  In the event of a withdrawal pursuant to
Section 8(a), or an accelerated  distribution pursuant to Section 8(b), the
Participant shall forfeit from such Compensation Account an amount equal to
10% of the amount of the  withdrawal or  accelerated  distribution,  as the
case may be. The forfeited  amount shall be deducted from the  Compensation
Account prior to giving effect to the requested withdrawal or acceleration.
Neither the Participant nor the  Participant's  Beneficiary  shall have any
right or claim to the  forfeited  amount,  and the  Company  shall  have no
obligation whatsoever to the Participant,  the Participant's Beneficiary or
any other person with regard to the forfeited amount.

         (d) Minimum Withdrawal.  In no event shall the amount withdrawn in
accordance  with  Section  8(a) be less than 25% of the amount  credited to
such   Participant's   Compensation   Account   immediately  prior  to  the
withdrawal.

         (e)  Suspension  from  Deferrals.  In the  event  of a  withdrawal
pursuant to Section 8(a) or 8(b), a Participant  who is otherwise  eligible
to make deferrals of Compensation  under this Plan shall be prohibited from
making such  deferrals  with respect to the remainder of the current Fiscal
Year and the Fiscal Year of the Plan immediately  following the Fiscal Year
of the  Plan  during  which  the  withdrawal  was  made,  and any  Election
previously   made  by  the   Participant   with  respect  to  deferrals  of
Compensation  for such  Fiscal  Years  of the Plan  shall be void and of no
effect.

9.       MANNER OF ELECTION

         (a) General. Any Employee selected by the Committee to participate
in the Plan may elect to do so by delivering to Corporate  Human  Resources
an Election on a form prescribed by Corporate Human Resources,  designating
the  Compensation  Account  to which  the  Deferred  Compensation  is to be
credited,  electing the timing and form of distribution,  and setting forth
the  manner  in which  such  Deferred  Compensation  shall be  invested  in
accordance  with  Section  6  hereof.  The  timing  of  the  filing  of the
appropriate  form with Corporate Human Resources shall be determined by the
Company or the Committee.  An effective  election to defer Compensation may
not be revoked or modified except as otherwise determined by the Company or
the Committee or as stated herein. In addition to the provisions  contained
in this Plan, any deferrals of SERP Payments or Excess  Payments must be in
accordance with the terms of the SERP or the Excess Plan.

                                     4


         (b) Investment  Alternatives -- Existing  Balances.  A Participant
may elect to change an existing selection as to the investment alternatives
in effect with respect to an existing  Compensation  Account (in increments
prescribed  by the  Committee  or the  Company)  as  often,  and with  such
restrictions, as determined by the Committee or by the Company.

         (c) Change of Beneficiary.  A Participant  may, at any time, elect
to change the  designation of a Beneficiary  in accordance  with Section 11
hereof.

10.      DISTRIBUTION

         (a)  Retirement  Account.  In  accordance  with the  Participant's
Election,  Deferred  Compensation  credited to a  Participant's  Retirement
Account  shall be  distributed  in cash or  shares  of  Common  Stock (or a
combination  of both).  If no Election is made by a  Participant  as to the
distribution or form of payment of his or her Retirement Account,  upon the
earlier of death or  retirement  such account shall be paid in cash in lump
sum.  The entire  Retirement  Account  must be paid out within  forty years
following the date of the earlier of the Participant's death or retirement.

         (b)  In-Service  Account.  In  accordance  with the  Participant's
Election  and within the  guidelines  established  by the  Committee or the
Company,  Deferred  Compensation  credited  to a  Participant's  In-Service
Account  shall be  distributed  in cash. A Participant  may make  different
Elections with respect to the applicable distribution periods for different
deferral cycles in the In-Service Accounts.

         (c) Termination.  Notwithstanding the foregoing, in the event of a
Participant's Termination, the Company reserves the right to distribute the
Participant's  Compensation  Account  at such  time and in such  manner  as
deemed appropriate.

         (d) Change of Distribution of Compensation  Account. A Participant
will be allowed to change the Election as to the  distribution  of Deferred
Compensation  of his or her Retirement  Account for all amounts  previously
deferred pursuant to such Election, subject to approval by the Committee or
the Company. Such change must be made by the earlier of:

                  (1) the date six  months  prior to the  first  day of the
         month following such Participant's retirement; or

                  (2) the December 31  immediately  preceding the first day
         of the month following such Participant's retirement.

         A Participant  may not change the Election as to the  distribution
of Deferred  Compensation  in his or her  In-Service  Account(s)  except as
otherwise set forth in Sections 7 and 8.

11.      BENEFICIARY DESIGNATION

         A  Participant  may  designate  one or more  persons  (including a
trust) to whom or to which payments are to be made if the Participant  dies
before receiving  distribution of all amounts due hereunder.  A designation
of Beneficiary  will be effective  only after the signed  Election is filed
with  Corporate  Human  Resources  while the  Participant is alive and will
cancel all  designations  of Beneficiary  signed and filed earlier.  If the
Participant fails to designate a Beneficiary as provided above or if all of
a Participant's  Beneficiaries predecease him or her and he or she fails to
designate a new Beneficiary,  the remaining unpaid amounts shall be paid in
one lump sum to the estate of such Participant. If all Beneficiaries of the
Participant die after the  Participant  but before complete  payment of all
amounts due  hereunder,  the remaining  unpaid amounts shall be paid in one
lump sum to the estate of the last to die of such Beneficiaries.


                                     5



12.      CHANGE IN CONTROL

         Notwithstanding any provision of this Plan to the contrary, in the
event of a Change in Control, each Participant in the Plan shall receive an
automatic  lump  sum  cash  distribution  of  all  amounts  accrued  in the
Participant's  Compensation  Account not later than fifteen (15) days after
the date of the Change in  Control.  For this  purpose,  the balance in the
portion of a  Participant's  Compensation  Account  invested  in the Common
Stock Fund shall be determined by multiplying  the number of Stock Units by
the higher of (a) the  highest  Fair  Market  Value on any date  within the
period  commencing  30 days prior to such Change in Control,  or (b) if the
Change in Control of the Company occurs as a result of a tender or exchange
offer or  consummation of a corporate  transaction,  then the highest price
paid per share of Common Stock pursuant thereto.  Any  consideration  other
than cash forming a part or all of the consideration for Common Stock to be
paid  pursuant  to  the  applicable  transaction  shall  be  valued  at the
valuation price thereon determined by the Board.

         In addition,  the Company shall  reimburse a  Participant  for the
legal fees and expenses  incurred if the Participant is required to seek to
obtain or  enforce  any  right to  distribution.  In the  event  that it is
determined   that  such   Participant  is  properly   entitled  to  a  cash
distribution hereunder, such Participant shall also be entitled to interest
thereon  payable  in an amount  equivalent  to the Prime  Rate of  Interest
quoted by  Citibank,  N.A.  as its  prime  commercial  lending  rate on the
subject date from the date such  distribution  should have been made to and
including the date it is made.  Notwithstanding  any provision of this Plan
to the  contrary,  this  Section  12 may not be  amended  after a Change in
Control  occurs  without  the  written  consent of a majority  in number of
Participants.

13.      INALIENABILITY OF BENEFITS

         The interests of the  Participants and their  Beneficiaries  under
the Plan may not in any way be  voluntarily or  involuntarily  transferred,
alienated or assigned, nor subject to attachment, execution, garnishment or
other such equitable or legal process.  A Participant or Beneficiary cannot
waive the provisions of this Section 13.

14.      GOVERNING LAW

         The provisions of this plan shall be interpreted  and construed in
accordance  with the laws of the  Commonwealth  of Kentucky,  except to the
extent preempted by Federal law.

15.      AMENDMENTS

         The Committee may amend,  alter or terminate this Plan at any time
without  the prior  approval  of the  Board;  provided,  however,  that the
Committee may not, without approval by the Board and the shareholders:

         (a) increase the number of securities that may be issued under the
Plan (except as provided in Section 3(c));

         (b)  materially  modify the  requirements  as to  eligibility  for
participation in the Plan; or

         (c)  otherwise   materially  increase  the  benefits  accruing  to
Participants under the Plan.

16.      EFFECTIVE DATE

         The  Plan was  approved  by the  shareholders  of the  Company  on
January 26, 1995, and originally became effective as of October1, 1994, and
has been restated in this document effective as of September 18, 1997.





                                     6




                                ASHLAND INC.
                         1997 STOCK INCENTIVE PLAN




SECTION 1. PURPOSE

      The  purpose of the  Ashland  Inc.  1997 Stock  Incentive  Plan is to
  promote the interests of Ashland Inc. and its  shareholders  by providing
  incentives to its  directors,  officers and employees.  Accordingly,  the
  Company may grant to  selected  officers  and  employees  Options,  Stock
  Appreciation Rights, Restricted Stock, Merit Awards and Performance Share
  Awards  in an effort  to  attract  and  retain  in its  employ  qualified
  individuals and to provide such  individuals  with incentives to continue
  service  with  Ashland,  devote  their best  efforts to the  Company  and
  improve Ashland's economic  performance,  thus enhancing the value of the
  Company  for the  benefit  of  shareholders.  The Plan also  provides  an
  incentive for qualified persons, who are not officers or employees of the
  Company,  to  serve on the  Board  of  Directors  of the  Company  and to
  continue to work for the best  interests of the Company by rewarding such
  persons  with  automatic  grants  of  Restricted  Stock  of the  Company.
  Options,  Stock Appreciation  Rights, Merit Awards and Performance Shares
  may not be granted to such Outside Directors under the Plan.





SECTION 2. DEFINITIONS

      (A)  "Agreement"  shall mean a written  agreement  setting  forth the
  terms of an Award, to be entered into at the Company's discretion.

      (B)  "Ashland"  shall  mean,  collectively,   Ashland  Inc.  and  its
  Subsidiaries.

      (C)  "Award"  shall mean an Option,  a Stock  Appreciation  Right,  a
  Restricted  Stock Award, a Merit Award, or a Performance  Share Award, in
  each case granted under this Plan.

      (D) "Ashland  Inc.  1993 Plan" shall mean the Ashland Inc. 1993 Stock
  Incentive Plan, as it now exists or as it may hereafter be amended.

      (E)  "Beneficiary"  shall mean the person,  persons,  trust or trusts
  designated by an Employee or Outside  Director or if no  designation  has
  been made, the person,  persons, trust, or trusts entitled by will or the
  laws of descent and distribution to receive the benefits  specified under
  this Plan in the event of an Employee's or Outside Director's death.

      (F) "Board" shall mean the Board of Directors of the Company.

      (G) "Change in Control" shall be deemed to occur (1) upon approval of
  the  shareholders  of Ashland (or if such approval is not required,  upon
  the approval of the Board) of (A) any  consolidation or merger of Ashland
  in which  Ashland  is not the  continuing  or  surviving  corporation  or
  pursuant to which shares of Common  Stock would be  converted  into cash,
  securities or other  property other than a merger in which the holders of
  Common  Stock  immediately  prior  to  the  merger  will  have  the  same
  proportionate  ownership  of Common  Stock of the  surviving  corporation
  immediately  after the merger,  (B) any sale, lease,  exchange,  or other
  transfer (in one transaction or a series of related  transactions) of all
  or substantially  all the assets of Ashland,  or (C) adoption of any plan
  or proposal for the  liquidation or dissolution of Ashland,  (2) when any
  "person" (as defined in Section  3(a)(9) or 13(d) of the  Exchange  Act),
  other than Ashland or any  Subsidiary  or employee  benefit plan or trust
  maintained by Ashland, shall become the "beneficial owner" (as defined in
  Rule 13d-3 under the Exchange Act), directly or indirectly,  of more than
  15% of  Ashland's  Common  Stock  outstanding  at the time,  without  the
  approval  of the  Board,  or  (3) at any  time  during  a  period  of two
  consecutive  years,  individuals  who at the  beginning  of  such  period
  constituted the Board shall cease for any reason to constitute at least a
  majority  thereof,  unless the election or the nomination for election by
  Ashland's  shareholders  of each new director during such two-year period
  was approved by a vote of at least two-thirds of the directors then still
  in office who were directors at the beginning of such two-year period.


      (H) "Code" shall mean the Internal  Revenue Code of 1986,  as amended
  from time to time.

      (I) "Committee"  shall mean the Personnel and Compensation  Committee
  of the  Board,  as  from  time  to  time  constituted,  or any  successor
  committee of the Board with  similar  functions,  which shall  consist of
  three or more members,  each of whom shall be a Non-Employee Director and
  an "outside  director" as defined in the regulations issued under Section
  162(m) of the Code.

      (J) "Common  Stock" shall mean the Common Stock of the Company ($1.00
  par value), subject to adjustment pursuant to Section 13.

      (K)  "Company"  shall  mean,  collectively,   Ashland  Inc.  and  its
  Subsidiaries.

      (L) "Employee" shall mean a regular,  full-time or part-time employee
  of Ashland as  selected  by the  Committee  to receive an award under the
  Plan.

      (M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
  amended.

      (N) "Exercise Price" shall mean, with respect to each share of Common
  Stock  subject to an Option,  the price fixed by the  Committee  at which
  such share may be purchased from the Company  pursuant to the exercise of
  such  Option,  which  price at no time may be less  than 100% of the Fair
  Market Value of the Common Stock on the date the Option is granted.

      (O) "Fair  Market  Value" shall mean the price of the Common Stock as
  reported on the Composite Tape of the New York Stock Exchange on the date
  and at the time  selected by the Company or as otherwise  provided in the
  Plan.

      (P)  "Incentive  Stock  Option" or "ISO" shall mean an Option that is
  intended by the Committee to meet the  requirements of Section 422 of the
  Code or any successor provision.

      (Q) "Merit Award" shall mean an award of Common Stock issued pursuant
  to Section 9 of the Plan.

      (R) "Non-Employee Director" shall mean a non-employee director within
  the  meaning  of  applicable  regulatory  requirements,  including  those
  promulgated under Section 16 of the Exchange Act.

      (S)  "Nonqualified  Stock  Option"  or  "NQSO"  shall  mean an Option
  granted  pursuant  to this Plan  which does not  qualify as an  Incentive
  Stock Option.

      (T) "Option" shall mean the right to purchase Common Stock at a price
  to be  specified  and upon terms to be  designated  by the  Committee  or
  otherwise determined pursuant to this Plan. An Option shall be designated
  by the  Committee as a  Nonqualified  Stock Option or an Incentive  Stock
  Option.

      (U)  "Outside  Director"  shall mean a director of the Company who is
  not also an Employee of the Company.

      (V) "Performance Goals" means performance goals as may be established
  in writing by the Committee which may be based on earnings,  stock price,
  return on equity,  return on  investment,  total return to  shareholders,
  economic  value  added,   debt  rating  or  achievement  of  business  or
  operational goals, such as drilling or exploration  targets or profit per
  barrel.  Such goals may be absolute in their terms or measured against or
  in relation to other  companies  comparably or otherwise  situated.  Such
  performance  goals may be  particular  to an  Employee  or the  division,
  department,  branch, line of business,  subsidiary or other unit in which
  the  Employee  works  and/or may be based on the  performance  of Ashland
  generally.

      (W)  "Performance  Period"  shall mean the period  designated  by the
  Committee during which the performance objectives shall be measured.

      (X) "Performance Share Award" shall mean an award of shares of Common
  Stock, the issuance of which is contingent upon attainment of performance
  objectives specified by the Committee.

      (Y)  "Performance  Shares"  shall mean those  shares of Common  Stock
  issuable pursuant to a Performance Share Award.


      (Z) "Personal  Representative"  shall mean the person or persons who,
  upon the disability or incompetence  of an Employee or Outside  Director,
  shall have  acquired  on behalf of the  Employee  or Outside  Director by
  legal proceeding or otherwise the right to receive the benefits specified
  in this Plan.

      (AA) "Plan" shall mean this Ashland Inc. 1997 Stock Incentive Plan.

      (BB)  "Restricted  Period"  shall mean the period  designated  by the
  Committee  during  which  Restricted  Stock  may not be  sold,  assigned,
  transferred,  pledged, or otherwise encumbered,  which period in the case
  of  Employees  shall  not be less  than one  year  from the date of grant
  (unless otherwise directed by the Committee),  and in the case of Outside
  Directors is the period set forth in subsection (B) of Section 8.

      (CC)  "Restricted  Stock"  shall  mean those  shares of Common  Stock
  issued  pursuant  to a  Restricted  Stock  Award which are subject to the
  restrictions,  terms, and conditions set forth in the related  Agreement,
  if any.

      (DD)  "Restricted  Stock  Award"  shall  mean an award of  Restricted
  Stock.

      (EE)  "Retained  Distributions"  shall mean any  securities  or other
  property (other than regular cash  dividends)  distributed by the Company
  in respect of Restricted Stock during any Restricted Period.

      (FF)  "Retirement"  shall mean  retirement  of an  Employee  from the
  employ of the Company at any time as  described  in the Ashland  Inc. and
  Affiliates Pension Plan or in any successor pension plan, as from time to
  time in effect.

      (GG)  "Section  16(b)  Optionee"  shall  mean an  Employee  or former
  Employee who is subject to Section 16(b) of the Exchange Act.

      (HH) "Stock  Appreciation Right" or "SAR" shall mean the right of the
  holder to elect to  surrender an Option or any portion  thereof  which is
  then exercisable and receive in exchange therefor shares of Common Stock,
  cash,  or a  combination  thereof,  as the case may be, with an aggregate
  value equal to the excess of the Fair Market Value of one share of Common
  Stock over the Exercise Price specified in such Option  multiplied by the
  number of  shares  of Common  Stock  covered  by such  Option or  portion
  thereof which is so surrendered.  An SAR may only be granted concurrently
  with the grant of the related  Option.  An SAR shall be exercisable  upon
  any additional terms and conditions (including,  without limitation,  the
  issuance of Restricted Stock and the imposition of restrictions  upon the
  timing of exercise) which may be determined as provided in the Plan.

      (II)  "Subsidiary"  shall  mean  any  present  or  future  subsidiary
  corporations, as defined in Section 424 of the Code, of Ashland.

      (JJ) "Tax Date" shall mean the date the  withholding  tax  obligation
  arises with respect to the exercise of an Award.





SECTION 3. STOCK SUBJECT TO THE PLAN

      There will be reserved for issuance under the Plan (upon the exercise
  of Options  and Stock  Appreciation  Rights,  upon  awards of  Restricted
  Stock,  Performance  Shares  and Merit  Awards  and for stock  bonuses on
  deferred awards of Restricted Stock and Performance Shares), an aggregate
  of 3,212,000  shares of Ashland Common Stock,  par value $1.00 per share;
  provided,  however,  that of such  shares,  only  500,000  shares  in the
  aggregate shall be available for issuance for Restricted Stock Awards and
  Merit  Awards.  Such shares shall be  authorized  but unissued  shares of
  Common Stock.  Except as provided in Sections 7 and 8, if any Award under
  the Plan shall expire or  terminate  for any reason  without  having been
  exercised in full, or if any Award shall be forfeited, the shares subject
  to the  unexercised  or  forfeited  portion of such Award  shall again be
  available  for the purposes of the Plan.  During the term of the Plan (as
  provided in Section 14 hereof),  no Employee shall be granted more than a
  total of 500,000 in Options or Stock Appreciation Rights.



SECTION 4. ADMINISTRATION

      The Plan shall be administered by the Committee.  The Committee shall
  have no authority  regarding the granting of Restricted  Stock to Outside
  Directors, as such grants are fixed pursuant to subsection (B) of Section
  8 of the Plan.

      In addition  to any  implied  powers and duties that may be needed to
  carry out the  provisions of the Plan,  the Committee  shall have all the
  powers  vested  in it by the  terms  of  the  Plan,  including  exclusive
  authority  (except as to Awards of  Restricted  Stock  granted to Outside
  Directors) to select the  Employees to be granted  Awards under the Plan,
  to  determine  the type,  size and terms of the Awards to be made to each
  Employee selected, to determine the time when Awards will be granted, and
  to prescribe the form of the Agreements  embodying  Awards made under the
  Plan. Subject to the provisions of the Plan specifically governing Awards
  of  Restricted  Stock  granted  or to be  granted  to  Outside  Directors
  pursuant to subsection  (B) of Section 8 herein,  the Committee  shall be
  authorized to interpret  the Plan and the Awards  granted under the Plan,
  to establish, amend and rescind any rules and regulations relating to the
  Plan,  to make any other  determinations  which it believes  necessary or
  advisable for the  administration  of the Plan, and to correct any defect
  or supply any omission or reconcile any  inconsistency  in the Plan or in
  any Award in the manner and to the extent the Committee  deems  desirable
  to  carry  it  into  effect.   Any  decision  of  the  Committee  in  the
  administration  of the  Plan,  as  described  herein,  shall be final and
  conclusive.

      The  Committee  may  act  only  by a  majority  of its  members.  Any
  determination  of the  Committee  may be  made,  without  notice,  by the
  written  consent of the  majority  of the  members of the  Committee.  In
  addition,  the Committee may authorize any one or more of their number or
  any officer of the Company to execute and deliver  documents on behalf of
  the Committee.  No member of the Committee shall be liable for any action
  taken or omitted to be taken by him or her or by any other  member of the
  Committee in connection with the Plan,  except for his or her own willful
  misconduct or as expressly provided by statute.

      The  provisions of this Section 4 with respect to decisions  made by,
  and  authority of, the  Committee  shall be subject to the  provisions of
  subsection (B) of Section 8 herein.





SECTION 5. ELIGIBILITY

      Awards may only be granted (i) to  individuals  who are  Employees of
  Ashland, and (ii) as expressly provided in subsection (B) of Section 8 of
  the Plan,  to  individuals  who are duly  elected  Outside  Directors  of
  Ashland.





SECTION 6. OPTIONS

  A. Designation and Price.

          (a) Any  Option  granted  under  the  Plan may be  granted  as an
      Incentive Stock Option or as a Nonqualified  Stock Option as shall be
      designated  by the Committee at the time of the grant of such Option.
      Each Option shall,  at the  discretion of the Company and as directed
      by the Committee,  be evidenced by an Agreement between the recipient
      and the Company, which Agreement shall specify the designation of the
      Option as an ISO or a NQSO,  as the case may be,  and  shall  contain
      such terms and conditions as the Committee,  in its sole  discretion,
      may determine in accordance with the Plan.

          (b)  Every  Incentive  Stock  Option  shall  provide  for a fixed
      expiration  date of not  later  than ten  years  from  the date  such
      Incentive Stock Option is granted.  Every  Nonqualified  Stock Option
      shall provide for a fixed expiration date of not later than ten years
      and one  month  from the  date  such  Nonqualified  Stock  Option  is
      granted.

          (c) The Exercise  Price of Common  Stock issued  pursuant to each
      Option shall be fixed by the Committee at the time of the granting of
      the Option;  provided,  however, that such Exercise Price shall in no
      event be less than 100% of the Fair Market  Value of the Common Stock
      on the date such Option is granted.


  B. Exercise.

          The Committee may, in its discretion, provide for Options granted
      under  the Plan to be  exercisable  in  whole  or in part;  provided,
      however,  that no  Option  shall be  exercisable  prior to the  first
      anniversary  of the date of its grant,  except as provided in Section
      11 or as the Committee  otherwise  determines in accordance  with the
      Plan, and in no case may an Option be exercised at any time for fewer
      than 50 shares (or the total  remaining  shares covered by the Option
      if fewer than 50 shares) during the term of the Option. The specified
      number of shares will be issued upon receipt by Ashland of (i) notice
      from the  holder  thereof  of the  exercise  of an  Option,  and (ii)
      payment to Ashland (as  provided in this  Section 6,  subsection  (C)
      below),  of the Exercise  Price for the number of shares with respect
      to which the Option is exercised.  Each such notice and payment shall
      be delivered or mailed by postpaid  mail,  addressed to the Treasurer
      of Ashland at Ashland Inc.,  1000 Ashland  Drive,  Russell,  Kentucky
      41169,  or such other place or person as Ashland may  designate  from
      time to time.

  C. Payment for Shares.

          Except as  otherwise  provided  in this  Section 6, the  Exercise
      Price for the Common  Stock  shall be paid in full when the Option is
      exercised.  Subject to such rules as the  Committee  may impose,  the
      Exercise  Price may be paid in whole or in part (i) in cash,  (ii) in
      whole shares of Common  Stock owned by the Employee and  evidenced by
      negotiable  certificates,  valued at their Fair Market  Value  (which
      shares of Common  Stock  must have  been  owned by the  Employee  six
      months or longer,  and not used to effect an Option  exercise  within
      the preceding six months, unless the Committee  specifically provides
      otherwise),  (iii)  by  Attestation,  (iv) by a  combination  of such
      methods  of  payment,  or (v) by such  other  consideration  as shall
      constitute lawful  consideration for the issuance of Common Stock and
      be  approved  by  the  Committee   (including,   without  limitation,
      effecting  a  "cashless  exercise,"  with a broker,  of the  Option).
      "Attestation"   means  the   delivery   to  Ashland  of  a  completed
      Attestation Form prescribed by Ashland setting forth the whole shares
      of Common  Stock owned by the Employee  which the Employee  wishes to
      utilize to pay the  Exercise  Price.  The Common  Stock listed on the
      Attestation  Form must have been owned by the  Employee six months or
      longer,  and not have been used to effect an Option  exercise  within
      the preceding six months, unless the Committee  specifically provides
      otherwise. A "cashless exercise" of an option is a procedure by which
      a broker  provides  the  funds to an  Employee  to  effect  an option
      exercise.  At the direction of the  Employee,  the broker will either
      (i) sell all of the shares  received when the option is exercised and
      pay the Employee the proceeds of the sale (minus the option  exercise
      price, withholding taxes and any fees due to the broker) or (ii) sell
      enough of the shares  received  upon  exercise of the option to cover
      the exercise price, withholding taxes and any fees due the broker and
      deliver to the  Employee  (either  directly or through the Company) a
      stock certificate for the remaining shares.  Dispositions to a broker
      effecting a cashless  exercise are not exempt under Section 16 of the
      Exchange Act.





SECTION 7. STOCK APPRECIATION RIGHTS

      The Committee  may grant Stock  Appreciation  Rights  pursuant to the
  provisions  of this Section 7 to any holder of any Option  granted  under
  the Plan with  respect to all or a portion  of the shares  subject to the
  related Option. An SAR may only be granted concurrently with the grant of
  the related  Option.  Subject to the terms and provisions of this Section
  7,  each SAR shall be  exercisable  only at the same time and to the same
  extent  the  related  Option  is  exercisable  and in no event  after the
  termination of the related Option.  An SAR shall be exercisable only when
  the Fair Market Value  (determined as of the date of exercise of the SAR)
  of each  share of Common  Stock  with  respect  to which the SAR is to be
  exercised  shall  exceed  the  Exercise  Price per share of Common  Stock
  subject to the related  Option.  An SAR  granted  under the Plan shall be
  exercisable  in whole or in part by notice to Ashland.  Such notice shall
  state  that the  holder  of the SAR  elects to  exercise  the SAR and the
  number of shares in respect of which the SAR is being exercised.

      Subject  to the  terms and  provisions  of this  Section  7, upon the
  exercise of an SAR, the holder  thereof shall be entitled to receive from
  Ashland  consideration (in the form hereinafter  provided) equal in value
  to the  excess of the Fair  Market  Value  (determined  as of the date of
  exercise of the SAR) of each share of Common  Stock with respect to which
  such SAR has been  exercised  over the Exercise Price per share of Common
  Stock subject to the related  Option.  The Committee may stipulate in the
  Agreement  the form of  consideration  which shall be  received  upon the
  exercise of an 



  SAR. If no  consideration is specified  therein,  upon the exercise of an
  SAR, the holder may specify the form of  consideration  to be received by
  such holder,  which shall be in shares of Common  Stock,  or in cash,  or
  partly in cash and  partly in shares  of  Common  Stock  (valued  at Fair
  Market  Value on the date of exercise  of the SAR) , as the holder  shall
  request;  provided,  however, that the Committee, in its sole discretion,
  may disapprove the form of consideration  requested and instead authorize
  the payment of such  consideration  in shares of Common Stock  (valued as
  aforesaid),  or in cash, or partly in cash and partly in shares of Common
  Stock.

      Upon the  exercise  of an SAR,  the  related  Option  shall be deemed
  exercised  to the  extent of the  number of shares of Common  Stock  with
  respect to which such SAR is exercised and to that extent a corresponding
  number of shares of Common  Stock  shall not again be  available  for the
  grant of Awards under the Plan.  Upon the exercise or  termination of the
  related Option,  the SAR with respect thereto shall be considered to have
  been  exercised  or  terminated  to the extent of the number of shares of
  Common Stock with respect to which the related Option was so exercised or
  terminated.





SECTION 8. RESTRICTED STOCK AWARDS

  A. Awards to Employees

      The  Committee  may  make an award of  Restricted  Stock to  selected
  Employees,  which may, at the Company's discretion and as directed by the
  Committee,  be evidenced by an Agreement  which shall  contain such terms
  and conditions as the Committee,  in its sole discretion,  may determine.
  The amount of each  Restricted  Stock Award and the respective  terms and
  conditions of each Award (which terms and conditions need not be the same
  in  each  case)  shall  be  determined  by  the  Committee  in  its  sole
  discretion.  As a condition to any Award  hereunder,  the  Committee  may
  require an Employee to pay to the Company a  non-refundable  amount equal
  to, or in excess  of,  the par value of the  shares of  Restricted  Stock
  awarded  to him or her.  Subject  to the  terms  and  conditions  of each
  Restricted  Stock Award,  the Employee,  as the owner of the Common Stock
  issued as  Restricted  Stock,  shall  have all  rights  of a  shareholder
  including,  but not limited to, voting rights as to such Common Stock and
  the right to receive dividends thereon when, as and if paid.

      In the  event  that a  Restricted  Stock  Award  has been  made to an
  Employee whose  employment or service is subsequently  terminated for any
  reason prior to the lapse of all  restrictions  thereon,  such Restricted
  Stock will be  forfeited  in its  entirety  by such  Employee;  provided,
  however,  that the  Committee  may,  in its sole  discretion,  limit such
  forfeiture.

      Employees  may be offered  the  opportunity  to defer the  receipt of
  payment of vested  shares of  Restricted  Stock,  and Common Stock may be
  granted as a bonus for deferral, under terms as may be established by the
  Committee from time to time;  however, in no event shall the Common Stock
  granted as a bonus for  deferral  exceed 20% of the  Restricted  Stock so
  deferred.

  B. Awards to Outside Directors

      During  the term of the  Plan,  (i)  each  Outside  Director  who was
  granted an award of  restricted  stock under the Ashland  Inc.  1993 Plan
  shall be granted an Award of 1,000  shares of  Restricted  Stock upon the
  fifth  anniversary  of his or her prior award under the Ashland Inc. 1993
  Plan;  and (ii) each person who is hereafter duly appointed or elected as
  an Outside  Director  and who does not receive an award under the Ashland
  Inc.  1993 Plan  shall be  granted,  effective  on the date of his or her
  appointment  or  election  to the  Board,  an Award of  1,000  shares  of
  Restricted  Stock;  provided,  however,  that no Outside  Director  shall
  receive an award of Restricted  Stock under this Plan if such award would
  be in  addition to a  simultaneous  award of 1,000  shares of  Restricted
  Stock under the Ashland Inc. 1993 Plan. All Awards under this  subsection
  (B) are subject to the limitation on the number of shares of Common Stock
  available pursuant to Section 3 and to the terms and conditions set forth
  in this subsection (B) and subsection (C) below.

      As a condition to any Award  hereunder,  the Outside  Director may be
  required to pay to the Company a  non-refundable  amount equal to the par
  value of the shares of  Restricted  Stock awarded to him or her. Upon the
  granting of the Restricted  Stock Award,  such Outside  Director shall be
  entitled  to all rights  incident  to  ownership  of Common  Stock of the
  Company with respect to his or her Restricted Stock,  including,  but not
  limited  to,  the right to vote such  


  shares of Restricted Stock and to receive  dividends thereon when, as and
  if paid; provided, however, that, subject to subsection (C) hereof, in no
  case may any shares of Restricted Stock granted to an Outside Director be
  sold, assigned, transferred,  pledged, or otherwise encumbered during the
  Restricted Period which shall not lapse until the earlier to occur of the
  following:  (i)  retirement  from the Board at age 70,  (ii) the death or
  disability of such Outside Director, (iii) a 50% change in the beneficial
  ownership of the Company as defined in Rule 13d-3 under the Exchange Act,
  or (iv)  voluntary  early  retirement to take a position in  governmental
  service.  Unless otherwise  determined and directed by the Committee,  in
  the case of voluntary  resignation or other  termination of service of an
  Outside  Director prior to the occurrence of any of the events  described
  in the preceding  sentence,  any grant of Restricted Stock made to him or
  her  pursuant to this  subsection  (B) will be  forfeited by such Outside
  Director.  As used herein, a director shall be deemed  "disabled" when he
  or she is unable to attend to his or her duties and responsibilities as a
  member of the Board  because  of  incapacity  due to  physical  or mental
  illness.

  C. Transferability

      Subject to subsection (B) of Section 15 hereof,  Restricted Stock may
  not be sold,  assigned,  transferred,  pledged,  or otherwise  encumbered
  during a Restricted  Period,  which,  in the case of Employees,  shall be
  determined  by the  Committee  and,  unless  otherwise  determined by the
  Committee,  shall not be less than one year from the date such Restricted
  Stock  was  awarded,  and,  in the case of  Outside  Directors,  shall be
  determined  in  accordance  with  subsection  (B) of this  Section 8. The
  Committee may, at any time,  reduce the Restricted Period with respect to
  any  outstanding  shares of  Restricted  Stock  awarded under the Plan to
  Employees,  but,  unless  otherwise  determined  by the  Committee,  such
  Restricted Period shall not be less than one year.

      During  the  Restricted   Period,   certificates   representing   the
  Restricted  Stock and any Retained  Distributions  shall be registered in
  the  recipient's  name and bear a  restrictive  legend to the effect that
  ownership of such Restricted Stock (and any such Retained Distributions),
  and the  enjoyment of all rights  appurtenant  thereto are subject to the
  restrictions,  terms,  and  conditions  provided  in  the  Plan  and  the
  applicable Agreement, if any. Such certificates shall be deposited by the
  recipient  with  the  Company,   together  with  stock  powers  or  other
  instruments  of  assignment,  each  endorsed in blank,  which will permit
  transfer to the Company of all or any portion of the Restricted Stock and
  any  securities   constituting  Retained  Distributions  which  shall  be
  forfeited in accordance  with the Plan and the applicable  Agreement,  if
  any.  Restricted Stock shall constitute issued and outstanding  shares of
  Common Stock for all  corporate  purposes.  The  recipient  will have the
  right to vote such  Restricted  Stock,  to receive and retain all regular
  cash dividends,  and to exercise all other rights, powers, and privileges
  of a holder of Common Stock with respect to such Restricted  Stock,  with
  the exception  that (i) the recipient will not be entitled to delivery of
  the stock certificate or certificates  representing such Restricted Stock
  until the restrictions  applicable  thereto shall have expired;  (ii) the
  Company  will  retain  custody  of all  Retained  Distributions  made  or
  declared  with  respect  to  the  Restricted  Stock  (and  such  Retained
  Distributions  will  be  subject  to the  same  restrictions,  terms  and
  conditions as are applicable to the Restricted Stock) until such time, if
  ever,  as the  Restricted  Stock  with  respect  to which  such  Retained
  Distributions  shall have been made,  paid, or declared shall have become
  vested,  and such  Retained  Distributions  shall not bear interest or be
  segregated  in separate  accounts;  (iii)  subject to  subsection  (B) of
  Section 15 hereof, the recipient may not sell, assign, transfer,  pledge,
  exchange,  encumber,  or dispose of the Restricted  Stock or any Retained
  Distributions  during  the  Restricted  Period;  and (iv) a breach of any
  restrictions, terms, or conditions provided in the Plan or established by
  the  Committee  with  respect  to  any   Restricted   Stock  or  Retained
  Distributions  will cause a forfeiture of such  Restricted  Stock and any
  Retained Distributions with respect thereto.




SECTION 9.  MERIT AWARDS

      The  Committee  may from time to time  make an award of Common  Stock
  under the Plan to selected Employees for such reasons and in such amounts
  as the Committee,  in its sole discretion,  may determine. As a condition
  to any such Merit Award,  the Committee may require an Employee to pay to
  the  Company  an amount  equal to, or in excess  of, the par value of the
  shares of Common Stock awarded to him or her.




SECTION 10. PERFORMANCE SHARES

      The  Committee  may make  awards of Common  Stock  which may,  in the
  Company's discretion and as directed by the Committee, be evidenced by an
  Agreement,  to selected Employees on the basis of the Company's financial
  performance  in any given period.  Subject to the provisions of the Plan,
  the  Committee  shall have sole and complete  authority to determine  the
  Employees who shall  receive such  Performance  Shares,  to determine the
  number of such shares to be granted for each Performance  Period,  and to
  determine the duration of each such Performance Period. There may be more
  than  one  Performance  Period  in  existence  at any one  time,  and the
  duration of Performance Periods may differ from each other.

      The Performance  Goals and Performance  Period applicable to an award
  of  Performance  Shares shall be set forth in writing by the Committee no
  later than 90 days after the  commencement of the Performance  Period and
  shall be  communicated  to the  Employee.  The  Committee  shall have the
  discretion to later revise the  Performance  Goals solely for the purpose
  of reducing or eliminating the amount of compensation  otherwise  payable
  upon attainment of the Performance  Goals;  provided that the Performance
  Goals and the amounts payable upon  attainment of the  Performance  Goals
  may be  adjusted  during any  Performance  Period to reflect  promotions,
  transfers or other  changes in an  Employee's  employment so long as such
  changes are consistent with the Performance  Goals  established for other
  Employees in the same or similar positions.

      In making a  Performance  Share award,  the  Committee  may take into
  account   an   Employee's   responsibility   level,   performance,   cash
  compensation  level,   incentive   compensation  awards  and  such  other
  considerations  as it deems  appropriate.  Each  Performance  Share award
  shall  be  established  in  shares  of  Common  Stock  and/or  shares  of
  Restricted  Stock in such  proportions as the Committee shall  determine.
  The  original  amount of any  Performance  Share  award  shall not exceed
  250,000 shares of Common Stock or Restricted Stock.

      The Committee shall determine, in its sole discretion,  the manner of
  payment,  which may include (i) cash,  (ii)  shares of Common  Stock,  or
  (iii) shares of  Restricted  Stock in such  proportions  as the Committee
  shall  determine.  Employees may be offered the  opportunity to defer the
  receipt of payment of earned Performance  Shares, and Common Stock may be
  granted as a bonus for deferral  under terms as may be established by the
  Committee from time to time;  however, in no event shall the Common Stock
  granted as a bonus for deferral exceed 20% of the  Performance  Shares so
  deferred.

      An  Employee  must  be  employed  by  the  Company  at  the  end of a
  Performance  Period in order to be  entitled  to payment  of  Performance
  Shares in respect of such period; provided, however, that in the event of
  an Employee's  cessation of employment  before the end of such period, or
  upon the occurrence of his or her death,  retirement,  or disability,  or
  other reason  approved by the  Committee,  the Committee may, in its sole
  discretion, limit such forfeiture.





SECTION 11. CONTINUED EMPLOYMENT, AGREEMENT TO SERVE AND EXERCISE PERIODS

      (A) Subject to the  provisions of subsection  (F) of this Section 11,
  every Option and SAR shall  provide that it may not be exercised in whole
  or in part  for a period  of one year  after  the date of  granting  such
  Option  (unless  otherwise  determined  by  the  Committee)  and  if  the
  employment of the Employee shall  terminate  prior to the end of such one
  year  period (or such other  period  determined  by the  Committee),  the
  Option granted to such Employee shall immediately terminate.

      (B) Every  Option shall  provide that in the event the Employee  dies
  (i) while  employed by Ashland,  (ii) during the periods in which Options
  may be exercised by an Employee  determined to be disabled as provided in
  subsection (C) of this Section 11 or (iii) after Retirement,  such Option
  shall  be  exercisable,  at any time or from  time to time,  prior to the
  fixed  termination date set forth in the Option,  by the Beneficiaries of
  the  decedent  for the  number of shares  which the  Employee  could have
  acquired under the Option immediately prior to the Employee's death.

      (C) Every Option shall  provide that in the event the  employment  of
  any Employee  shall cease by reason of  disability,  as determined by the
  Committee at any time during the term of the Option, such Option shall be
  exercisable,  at any  time  or  from  time to  time  prior  to the  fixed
  termination  date set forth in the Option by such Employee for the 


  number of shares which the Employee  could have acquired under the Option
  immediately  prior  to the  Employee's  disability.  As used  herein,  an
  Employee  will be  deemed  "disabled"  when he or she  becomes  unable to
  perform the functions  required by his or her regular job due to physical
  or mental illness and, in connection with the grant of an Incentive Stock
  Option  shall be disabled  if he or she falls  within the meaning of that
  term as provided in Section  22(e)(3) of the Code. The  determination  by
  the Committee of any question  involving  disability  shall be conclusive
  and binding.

      (D) Every Option shall  provide that in the event the  employment  of
  any  Employee  shall  cease by reason of  Retirement,  such Option may be
  exercised  at any  time  or  from  time  to  time,  prior  to  the  fixed
  termination  date set forth in the Option for the number of shares  which
  the Employee  could have acquired under the Option  immediately  prior to
  such Retirement.

      (E) Except as provided in subsections (A), (B), (C), (D), (F) and (G)
  of this Section 11, every Option shall provide that it shall terminate on
  the  earlier  to occur of the  fixed  termination  date set  forth in the
  Option or thirty (30) days after  cessation of the Employee's  employment
  for any cause only in respect of the number of shares  which the Employee
  could have acquired under the Option  immediately prior to such cessation
  of employment;  provided,  however, that no Option may be exercised after
  the fixed termination date set forth in the Option.

      (F) Notwithstanding any provision of this Section 11 to the contrary,
  any Award granted  pursuant to the Plan,  except a Restricted Stock Award
  to Outside  Directors,  which is governed by Section 8,  subsection  (B),
  may, in the  discretion  of the  Committee or as provided in the relevant
  Agreement (if any), become exercisable, at any time or from time to time,
  prior to the fixed  termination  date set forth in the Award for the full
  number of awarded  shares or any part  thereof,  less such numbers as may
  have  been  theretofore  acquired  under the Award (i) from and after the
  time the Employee  ceases to be an Employee of Ashland as a result of the
  sale or other  disposition  by Ashland of assets or  property  (including
  shares  of  any  Subsidiary)  in  respect  of  which  such  Employee  had
  theretofore  been  employed  or as a  result  of  which  such  Employee's
  continued employment with Ashland is no longer required,  and (ii) in the
  case of a Change in Control of  Ashland,  from and after the date of such
  Change in Control.

      (G) Notwithstanding any provision of this Section 11 to the contrary,
  in  the  event  the  Committee  determines,  in  its  sole  and  absolute
  discretion,  that the  employment  of any Employee has  terminated  for a
  reason or in a manner adversely affecting the Company (which may include,
  without  limitation,  taking other  employment  or  rendering  service to
  others without the consent of the Company), then the Committee may direct
  that  such  Employee  forfeit  any and all  Options  that he or she could
  otherwise have exercised pursuant to the terms of this Plan.

      (H) Each Employee granted an Award under this Plan shall agree by his
  or her acceptance of such Award to remain in the service of Ashland for a
  period of at least one year from the date of the Agreement respecting the
  Award  between  Ashland and the Employee  (or, if no Agreement is entered
  into, at least one year from the date of the Award).  Such service shall,
  subject to the terms of any contract  between  Ashland and such Employee,
  be at the pleasure of Ashland and at such  compensation  as Ashland shall
  reasonably  determine  from time to time.  Nothing in the Plan, or in any
  Award granted  pursuant to the Plan,  shall confer on any  individual any
  right to continue in the employment of or service to Ashland or interfere
  in any way  with  the  right  of  Ashland  to  terminate  the  Employee's
  employment at any time.

      (I) Subject to the  limitations set forth in Section 422 of the Code,
  the  Committee  may  adopt,  amend,  or  rescind  from  time to time such
  provisions as it deems  appropriate  with respect to the effect of leaves
  of absence  approved  by any duly  authorized  officer  of  Ashland  with
  respect to any Employee.





SECTION 12. WITHHOLDING TAXES

      Federal,  state or local law may  require  the  withholding  of taxes
  applicable  to gains  resulting  from the  exercise  of an Award.  Unless
  otherwise prohibited by the Committee, each Employee may satisfy any such
  tax  withholding  obligation  by  any  of the  following  means,  or by a
  combination of such means: (i) a cash payment,  (ii) authorizing  Ashland
  to withhold  from the shares of Common  Stock  otherwise  issuable to the
  Employee  pursuant  to the  exercise  or  vesting of an Award a number of
  shares having a Fair Market Value, as of the Tax Date, which will satisfy
  the amount 


  of the withholding  tax obligation,  or (iii) by delivery to Ashland of a
  number of shares of Common Stock having a Fair Market Value as of the Tax
  Date which will  satisfy  the amount of the  withholding  tax  obligation
  arising from an exercise or vesting of an Award.  An Employee's  election
  to pay the withholding tax obligation by (ii) or (iii) above must be made
  on or before the Tax Date,  is  irrevocable,  is subject to such rules as
  the Committee may adopt, and may be disapproved by the Committee.  If the
  amount  requested is not paid,  the  Committee may refuse to issue Common
  Stock under the Plan.





SECTION 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

      In the event of any  change in the  outstanding  Common  Stock of the
  Company by reason of any stock split,  stock dividend,  recapitalization,
  merger,  consolidation,   reorganization,  combination,  or  exchange  of
  shares,  split-up,  split-off,  spin-off,  liquidation  or other  similar
  change in  capitalization,  or any  distribution  to common  stockholders
  other  than cash  dividends,  the  number  or kind of shares  that may be
  issued  under the Plan  pursuant  to  Section 3 and the number or kind of
  shares  subject  to, or the price per share under any  outstanding  Award
  shall be automatically adjusted so that the proportionate interest of the
  Employee or Outside Director shall be maintained as before the occurrence
  of such event.  Such  adjustment  shall be conclusive and binding for all
  purposes of the Plan.





SECTION 14. AMENDMENTS AND TERMINATIONS

      Unless the Plan shall have been  earlier  terminated  as  hereinafter
  provided, no Awards shall be granted hereunder after January30, 2002. The
  Board or the  Committee  may at any time  terminate,  modify or amend the
  Plan in such respects as it shall deem advisable; provided, however, that
  the Board or the Committee may not,  without approval by the holders of a
  majority  of the  outstanding  shares of stock  present and voting at any
  annual or special meeting of shareholders of Ashland change the manner of
  determining the minimum  Exercise Price of Options,  other than to change
  the manner of  determining  the Fair Market  Value of the Common Stock as
  set forth in Section 2.





SECTION 15. MISCELLANEOUS PROVISIONS

      (A) Except as to Awards to Outside  Directors,  no  Employee or other
  person  shall have any claim or right to be  granted  an Award  under the
  Plan.

      (B) An Employee's or Outside Director's rights and interest under the
  Plan may not be  assigned  or  transferred  in  whole or in part,  either
  directly or by operation  of law or otherwise  (except in the event of an
  Employee's or Outside  Director's  death,  by will or the laws of descent
  and distribution),  including,  but not by way of limitation,  execution,
  levy, garnishment, attachment, pledge, bankruptcy or in any other manner,
  and no such right or interest of any Employee or Outside  Director in the
  Plan shall be subject to any obligation or liability of such  individual;
  provided,  however,  that an Employee's or Outside  Director's rights and
  interest  under the Plan may,  subject to the discretion and direction of
  the Committee,  be made transferable by such Employee or Outside Director
  during his or her lifetime.  Except as specified in Section 8, the holder
  of an Award  shall  have none of the  rights of a  shareholder  until the
  shares  subject  thereto  shall have been  registered  in the name of the
  person  receiving  or  person  or  persons  exercising  the  Award on the
  transfer books of the Company.

      (C) No Common Stock shall be issued  hereunder unless counsel for the
  Company shall be satisfied that such issuance will be in compliance  with
  applicable Federal, state, and other securities laws.

      (D) The expenses of the Plan shall be borne by the Company.

      (E) By accepting any Award under the Plan,  each Employee and Outside
  Director and each Personal  Representative or Beneficiary  claiming under
  or through him or her shall be conclusively  deemed to have indicated his
  or her acceptance and  ratification  of, and consent to, any action taken
  under the Plan by the Company, the Board or the Committee.

      (F) Awards granted under the Plan shall be binding upon Ashland,  its
  successors,  and  assigns.  


      (G) The  appropriate  officers of the Company shall cause to be filed
  any reports,  returns, or other information regarding Awards hereunder or
  any Common  Stock issued  pursuant  hereto as may be required by Sections
  13, 15(d) or 16(a) of the Exchange Act, or any other applicable  statute,
  rule, or regulation.

      (H)  Nothing  contained  in this  Plan  shall  prevent  the  Board of
  Directors  from adopting other or additional  compensation  arrangements,
  subject to shareholder approval if such approval is required.

      (I) Each  Employee  shall be deemed to have been granted any Award on
  the date the Committee  took action to grant such Award under the Plan or
  such later date as the Committee in its sole  discretion  shall determine
  at the time such grant is authorized.





SECTION 16. EFFECTIVENESS OF THE PLAN

      The Plan shall be  submitted to the  shareholders  of the Company for
  their  approval and adoption on January 30, 1997 or such other date fixed
  for the next meeting of  shareholders  or any adjournment or postponement
  thereof.  The Plan  shall  not be  effective  and no Award  shall be made
  hereunder unless and until the Plan has been so approved and adopted at a
  meeting of the Company's shareholders.





SECTION 17. GOVERNING LAW

      The  provisions  of this Plan shall be  interpreted  and construed in
  accordance with the laws of the Commonwealth of Kentucky.



Ashland Inc. and Subsidiaries Management's Discussion and Analysis Years Ended September 30 (In millions) 1997 1996 1995 ======================================================================================================================== SALES AND OPERATING REVENUES Refining and Marketing(1) $ 6,719 $ 6,485 $ 5,891 Valvoline 1,099 1,199 1,113 Chemical 4,047 3,695 3,551 APAC 1,257 1,235 1,123 Coal(2) 1,367 580 610 Intersegment sales (289) (302) (316) - ------------------------------------------------------------------------------------------------------------------------ $ 14,200 $12,892 $11,972 ======================================================================================================================== OPERATING INCOME Refining and Marketing(1) $ 189 $ 89 $ (1) Valvoline 67 82 (4) Chemical 144 169 159 APAC 82 83 75 Coal(2) 68 36 66 General corporate expenses (60) (97) (91) - ------------------------------------------------------------------------------------------------------------------------ $ 490 $ 362 $ 204 ======================================================================================================================== EQUITY INCOME Arch Mineral Corporation(2) $ - $ 13 $ (4) Other 15 11 11 - ----------------------------------------------------------------------------------------------------------------------- $ 15 $ 24 $ 7 ======================================================================================================================== Operating information Refining and Marketing(1) Refining inputs (thousand barrels per day)(3) 358.5 368.5 349.5 Value of products manufactured per barrel $ 26.43 $ 24.64 $ 22.49 Input cost per barrel 21.39 20.50 18.28 ------------------------------------------------------------ Refining margin per barrel $ 5.04 $ 4.14 $ 4.21 Refined product sales (thousand barrels per day) Wholesale sales to Ashland brand retail jobbers 23.0 17.6 1.0 Other wholesale customers(4) 295.3 303.5 309.4 SuperAmerica retail system 76.1 74.2 71.5 ------------------------------------------------------------ Total refined product sales 394.4 395.3 381.9 SuperAmerica merchandise sales (millions) $ 600 $ 583 $ 548 Valvoline lubricant sales (thousand barrels per day)(4) 19.1 19.5 19.1 APAC construction backlog at September 30 (millions) $ 693 $ 647 $ 672 Coal(5) Tons sold (millions) 53.7 50.6 49.2 Sales price per ton $ 25.46 $ 25.85 $ 26.93 Major revenue sources (percent of sales) Gasoline 17% 18% 17% Coal 10% 5% 6% ========================================================================================================================
(1) Segments formerly identified as Petroleum and SuperAmerica were combined effective October 1, 1996. Prior years amounts have been restated. (2) Ashland Coal and Arch Mineral merged effective July 1, 1997, into Arch Coal, Inc. Prior interim periods of fiscal 1997 were restated to consolidate Ashland's interest in Arch Mineral for the entire year. Prior years were not restated, reflecting Ashland's interest in Ashland Coal on a consolidated basis and Ashland's interest in Arch Mineral on the equity method of accounting. See Note C to the consolidated financial statements. (3) Includes crude oil and other purchased feedstocks. (4) Includes intersegment sales. (5) Amounts are reported on a 100% basis and prior amounts have been restated to show pro forma information for Arch Coal prior to the merger. RESULTS OF OPERATIONS Ashland's net income amounted to $279 million in 1997, $211 million in 1996 and $24 million in 1995. However, such earnings include the results of discontinued operations, as well as various unusual items which had a significant effect on the comparisons. The following table shows the effects of unusual items on operating income and income from continuing operations for the three years ended September 30, 1997.
Income from Operating income continuing operations ----------------------------- ---------------------------------- (In millions) 1997 1996 1995 1997 1996 1995 ============================================================================================================================== Income before unusual items $544 $362 $320 $220 $136 $91 Costs related to coal merger (39) - - (13) - - Asset impairment write-downs (26) - (79) (22) - (52) Early retirement and restructuring programs - - (37) - - (25) LIFO inventory liquidation gain 11 - - 7 - - - ------------------------------------------------------------------------------------------------------------------------------ Income as reported $490 $362 $204 $192 $136 $14 ==============================================================================================================================
During 1997, Ashland reached a decision to sell Blazer Energy, its exploration and production subsidiary. Ashland sold Blazer's domestic operations for $566 million during July 1997, resulting in an after tax gain of $71 million. In addition, Ashland has reached an agreement in principle to sell its Nigerian operations, subject to the approval of the Nigerian government and other conditions. As a result, Exploration was reclassified as a discontinued operation in Ashland's income statements and its investment in the Nigerian operations is carried on Ashland's consolidated balance sheet as net assets of discontinued operations held for sale at September 30, 1997. For comparison purposes, prior year income statements and balance sheets have been restated. Also during July 1997, Ashland Coal and Arch Mineral merged to form Arch Coal, Inc., in which Ashland has a 54% ownership interest. Previously, Ashland consolidated its investment in Ashland Coal (in which it owned 57%) and accounted for its investment in Arch Mineral (in which it owned 50%) on the equity method. Due to the merger, the results of Arch Mineral were consolidated in fiscal 1997, but its results for prior years remain on the equity method. Many synergistic opportunities are being pursued as a result of the merger, some of which led to the charge of $39 million to write-off duplicate facilities previously owned by Arch Mineral and to provide for severance and other costs related to the merger. Other unusual items in 1997 included goodwill write-downs of $26 million by Valvoline and Ashland Chemical and a gain of $11 million from the liquidation of certain inventories of Refining and Marketing. While Ashland remains committed to expanding Valvoline and Ashland Chemical on a global basis, results from certain of their European operations have been well below the levels which were expected when they were acquired, necessitating write-downs of the related goodwill. The inventory gain resulted from reductions in the crude oil and petroleum product inventories of Refining and Marketing that were accounted for on the last-in, first-out (LIFO) method. LIFO inventories are valued at their costs in the years acquired, and such costs were well below the current replacement costs of the liquidated inventories. 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 $79 million in 1995 to write down various assets to their fair values, including an idle unit at Ashland Petroleum's Catlettsburg refinery, certain unused crude oil gathering pipelines of Scurlock Permian and petroleum product marketing properties which were being sold or shut down. Fair values were based upon appraisals or estimates of discounted future cash flows. 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, income from continuing operations amounted to $220 million in 1997, compared to $136 million in 1996. Refining and Marketing results were up considerably, as were earnings from Ashland's coal investments. Results from Valvoline, Ashland Chemical and APAC would have exceeded their record levels achieved in 1996 if they had not incurred higher allocations of general corporate expenses. Ashland began allocating more of these expenses in 1997 to the segments to better reflect their costs of doing business. Income from continuing operations of $136 million for 1996 was up from $91 million in 1995 before unusual items. Record results were achieved in 1996 by Valvoline, Ashland Chemical and APAC, combined with increased earnings from Refining and Marketing and Arch Mineral. Such improvements more than offset the reduced earnings from Ashland Coal. The following table compares operating income before unusual items by segment for the three years ended September 30, 1997. The consolidation of Arch Mineral's results significantly affects the comparability of operating income from Coal for 1997. In addition, the increased allocations of general corporate expenses reduced the operating results of the segments on a comparative basis by $39 million, but did not have a significant impact on overall operating income.
Ashland Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS (In millions) 1997 1996 1995 ======================================================================================================= Operating income Refining and Marketing $178 $89 $101 Valvoline 77 82 1 Chemical 160 169 164 APAC 82 83 75 Coal 107 36 66 General corporate expenses (60) (97) (87) - ------------------------------------------------------------------------------------------------------- $544 $362 $320 =======================================================================================================
(Bar graph appears in the left margin comparing Ashland Inc. operating income for fiscal 1995, 1996 and 1997. The graph shows the breakdown between Ashland's Coal, Refining and Marketing, and growth businesses composed of Valvoline, Chemical and APAC.) REFINING AND MARKETING Operating income from Refining and Marketing before unusual items doubled from $89 million in 1996 to $178 million in 1997. Principal factors leading to the improved results included better refining margins, reduced refining expenses and increased retail margins for both gasoline and merchandise. However, these improvements were partially offset by lower earnings from Scurlock Permian and an additional $19 million allocation of general corporate expenses. During the first half of fiscal 1997, Refining operated at near break-even levels reflecting refining margins which averaged $3.89 a barrel. Crude oil costs increased rapidly in the December quarter and wholesale product prices were slow to respond. Although margins began improving during the March quarter as crude oil costs softened, heavy flooding in the Ohio Valley limited Ashland's ability to ship products on the river systems. Refining margins increased dramatically in the last half of the year, averaging $6.01 a barrel excluding LIFO inventory gains, reflecting strong gasoline and asphalt demand. In addition, refining expenses for 1997 were reduced by 25 cents a barrel, despite lower throughputs, reflecting continuing efforts by Ashland Petroleum to reduce its costs and improve its competitive position. (Bar graph appears in the left margin comparing operating income from Refining and Marketing for fiscal 1995, 1996 and 1997.) In other areas, results from Scurlock Permian were down $12 million due to lower margins on crude oil sales, reflecting increased competition for the declining production in many of its gathering areas. Earnings from SuperAmerica increased $10 million due to increased gasoline and merchandise margins. Sales volumes were also higher, reflecting an increased number of locations, but the effect was largely offset by increased operating and occupancy costs. At September 30, 1997, 766 retail locations were operating, compared to 742 locations in 1996 and 704 locations in 1995. Included in these totals are 641 SuperAmerica stores in 1997, 624 stores in 1996 and 609 stores in 1995, with the remainder being Rich Oil outlets. Operating income from Refining and Marketing amounted to $89 million in 1996, compared to $101 million in 1995 before unusual items. Although earnings from Refining increased, SuperAmerica's results were adversely affected by an extremely competitive environment. A $7 million improvement in earnings from Refining was achieved even though rapidly rising crude oil prices late in 1996 led to severe margin compression and a weak September 1996 quarter. Despite the modest improvement, results for 1996 were still disappointing given the progress Ashland Petroleum made in improving its competitive position. Refinery runs averaged 368,500 barrels a day, up 5% from 1995 and refining expenses (other than fuel consumed in the refining process) were reduced by 26 cents a barrel, due to the higher level of throughputs and ongoing efforts to reduce costs and increase efficiency. The effects of these improvements, however, were largely offset by higher average crude oil costs, which could not be fully passed through in product prices, and associated increases in fuel costs. For the year, input costs increased $2.22 a barrel, peaking in the September 1996 quarter with an increase of $4.58 a barrel compared to the September 1995 quarter. As a result, refining margins were compressed during what is normally the strong summer driving season. On the other hand, results from SuperAmerica declined $19 million compared to 1995. While gasoline and merchandise volumes were both up on a per store basis, the effect was more than offset by a decline in gasoline margins of 1.5 cents a gallon and increased operating costs. Higher labor and occupancy costs resulted from a continued tight labor market, the ongoing roll-out of the co-branding partnership program with fast-food chains, initial costs associated with the opening of new stores and rebuilds, and the ongoing operation of additional stores. VALVOLINE Excluding unusual items, Valvoline's operating income amounted to $77 million in 1997, compared to a record $82 million in 1996. Gross profits from Valvoline's core lubricant and antifreeze businesses combined were up nearly 20%, reflecting improved margins. However, this improvement was more than offset by an increase of $5 million in general corporate expense allocations and by a reduction in gross profits from R-12, an automotive refrigerant. Due to cool summer weather which shortened the peak season, sales volumes of R-12 were down significantly in 1997. In addition, the used oil collection business operated profitably, while earnings from Valvoline Instant Oil Change (VIOC) declined slightly due to higher operating expenses. At September 30, 1997, VIOC operated 382 company-owned outlets, compared to 374 outlets in 1996 and 365 outlets in 1995. In addition, the VIOC franchising program continued to expand with 137 outlets open in 1997, compared to 100 outlets in 1996 and 90 outlets in 1995. (Bar graph appears in the left margin comparing operating income from Valvoline for fiscal 1995, 1996 and 1997.) Operating income from Valvoline was $82 million in 1996, compared to near break-even results before unusual items for 1995. The record earnings reflected improved results from nearly all of Valvoline's business units, including a significant earnings boost from the sale of R-12. Prices for R-12 escalated rapidly during 1996, as shortages developed within the market. Due to its ozone-depleting characteristics, the U.S. Environmental Protection Agency banned the production of R-12 at the end of 1995, but sales of existing inventories of this refrigerant are still permitted. Even aside from R-12 earnings, however, Valvoline's results would still have been up significantly. Results from its lubricant business improved, reflecting increased volumes, higher margins on both branded and private label sales and reduced advertising and promotional costs. In addition, results from VIOC nearly doubled, while the used oil collection business continued to approach profitability. CHEMICAL Ashland Chemical's operating income before unusual items amounted to $160 million in 1997, compared to a record $169 million in 1996. Earnings from petrochemicals were up $13 million, reflecting increased cumene and methanol sales volumes and margins. Operating income from specialty chemicals improved $5 million on the strength of higher electronic chemical sales volumes and margins, but the effect was partially offset by lower marine chemical sales volumes. Results from the distribution businesses were down $3 million due to margin declines for industrial chemicals and solvents. Ashland Chemical also incurred an additional $11 million allocation of general corporate expenses, as well as charges of $8 million for environmental remediation and plant shutdown costs. (Bar graph appears in the right margin comparing operating income from Ashland Chemical for fiscal 1995, 1996 and 1997.) Operating income of Ashland Chemical increased from $164 million before unusual items in 1995 to $169 million in 1996 and represented Ashland Chemical's fourth straight year of record earnings. Outstanding results from specialty chemicals, a moderate increase from the distribution businesses and reduced environmental remediation costs more than offset a decline from petrochemicals. Results from the distribution businesses were up 5% on the strength of improved sales volumes, while earnings from specialty chemicals improved by 56%. The 1995 acquisition of Aristech's unsaturated polyester resin business was a major contributor to the improved specialty chemical results, along with higher sales volumes and margins for electronic chemicals. However, operating income from petrochemicals declined by $50 million, due largely to reduced prices for methanol, but also due to increased natural gas prices and higher feedstock costs for cumene and solvents. APAC Operating income from the APAC construction companies amounted to $82 million in 1997, compared to a record $83 million in 1996. Net revenue (total revenue less subcontract work) was up 4%, while production of hot mix asphalt and crushed aggregate reached record levels. The effects, however, were more than offset by an additional $4 million in general corporate expense allocations. (Bar graph appears in the right margin comparing operating income from APAC for fiscal 1995, 1996 and 1997.) APAC achieved its third straight year of record results in 1996 with operating income of $83 million, compared to $75 million in 1995. APAC's results reflected its ongoing efforts in cost control, safety and materials technology, allowing the highway construction group to take full advantage of a strong construction economy. Revenues rose 10%, reflecting a higher level of both public and private sector construction jobs, as well as increased sales of hot-mix asphalt, crushed aggregate and ready-mix concrete. COAL Operating income for Coal for 1997 reflects the consolidation of Arch Mineral results as of October 1, 1996, and includes charges of $39 million for costs related to the merger of Ashland Coal and Arch Mineral. Prior to 1997, Arch Mineral was accounted for on the equity method, creating comparability problems. If Arch Mineral had been consolidated in all three years, pro forma operating income from Ashland's coal investments before unusual items would have amounted to about $100 million for 1995 and $88 million for 1996, compared to $107 million for 1997. Ashland Coal's contributions to the 1997 results are up from 1996 despite the expiration of certain of its higher priced sales contracts and price reductions under certain other sales contracts around the end of December 1995. Ashland Coal subsequently reduced its average costs per ton to record levels, enabling it to more than offset the effects of reduced sales prices. Arch Mineral's contributions to these earnings are also up strongly from 1996, reflecting increased production and reduced administrative and interest costs. (Bar graph appears in the right margin comparing operating income from Coal for fiscal 1995, 1996 and 1997.) Operating income for 1996 and 1995 reflect only Ashland Coal's results. Ashland Coal had a difficult year in 1996 due largely to contract expirations and other price reductions in that year. As a result, operating income amounted to $36 million in 1996, compared to $66 million in 1995 reflecting the lower sales prices. Charges for asset impairment and restructuring costs reduced Ashland's equity earnings from Arch Mineral by $6 million in 1995. Adjusting for these unusual items, Arch Mineral generated equity income of $13 million in 1996 and $2 million in 1995. Arch's results for 1996 were favorably affected by increased sales volumes and lower mining costs, as well as the restructuring completed in 1995. GENERAL CORPORATE EXPENSES Excluding unusual items, general corporate expenses were $60 million in 1997, $97 million in 1996 and $87 million in 1995. The reduction in 1997 reflects the allocation of an additional $41 million in costs to the segments, including $2 million to the discontinued operations of Blazer Energy. The remaining changes over the three-year period result principally from fluctuations in incentive and deferred compensation costs. Ashland Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS DISCONTINUED OPERATIONS Net income from discontinued operations (excluding the after tax gain of $71 million on the sale of Blazer Energy's domestic operations in 1997) amounted to $25 million in 1997, $75 million in 1996 and $10 million in 1995. Results for 1996 included an after tax gain of $48 million from the settlement of claims against Columbia Gas Transmission involving natural gas contracts that were abrogated by Columbia in 1991. FINANCIAL POSITION LIQUIDITY Ashland's financial position has enabled it to obtain capital for its financing needs and to maintain investment grade ratings on its senior debt of Baa2 from Moody's and BBB from Standard & Poor's. Ashland has a revolving credit agreement providing for up to $320 million in borrowings, under which no borrowings were outstanding at September 30, 1997. At that date, Arch Coal also had revolving credit agreements providing for up to $500 million in borrowings, of which $240 million was in use. Under a shelf registration, Ashland can issue an additional $220 million in medium-term notes should future opportunities or needs arise. Ashland and Arch Coal also have access to various uncommitted lines of credit and commercial paper markets, under which Arch Coal had short-term notes of $35 million outstanding at September 30, 1997. While certain debt agreements contain covenants limiting new borrowings, Ashland could still have increased its indebtedness by up to $2.1 billion at September 30, 1997. Cash flows from continuing operations, a major source of Ashland's liquidity, amounted to $852 million in 1997, $651 million in 1996 and $442 million in 1995. The significant improvements in cash flows reflects a higher level of earnings, modest working capital growth and the consolidation of Arch Coal in 1997. Cash flows from operations exceeded Ashland's capital requirements for net property additions and dividends since 1994 by $470 million, providing additional funds for debt repayment and acquisitions. (Bar graph appears in the left margin comparing cash flows from continuing operations for fiscal 1995, 1996 and 1997.) Property additions amounted to $1.3 billion during the last three years and are summarized in the Information by Industry Segment on Page 63. While about 40% of Ashland's capital expenditures during this period were in Refining and Marketing, its percent of the total expenditures has declined in each of those three years. Capital expenditures by Valvoline, Ashland Chemical and APAC, Ashland's growth businesses, also accounted for 40% of the total expenditures since 1994, increasing from 37% in 1995 to 45% in 1997. (Bar graph appears in the left margin comparing Ashland Inc. property additions for fiscal 1995, 1996 and 1997.) Cash flows used for acquisitions amounted to $478 million during the last three years. Such acquisitions include $252 million for certain operations of Aristech Chemical Corporation and numerous smaller chemical companies, $124 million for additional interests in Ashland Coal, $47 million for Zerex and $36 million for various construction companies. Of the total capital invested in acquisitions since 1994, 70% was employed in Valvoline, Ashland Chemical and APAC. Long-term borrowings provided cash flows of $573 million during the last three years, including the issuance of $407 million of medium-term notes, $75 million of pollution-control bonds and $88 million of Arch Coal debt. The proceeds from these long-term borrowings were used in part to retire $778 million of long-term debt (scheduled maturities as well as refundings to reduce interest costs). Cash flows were supplemented as necessary by the issuance of short-term notes and commercial paper. Working capital at September 30, 1997, was $734 million, and liquid assets (cash, cash equivalents and accounts receivable) amounted to 88% 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 inventories $416 million below their replacement costs at September 30, 1997. CAPITAL RESOURCES Ashland's capital employed at September 30, 1997, consisted of debt (43%), minority interest (7%) and common stockholders' equity (50%). Debt as a percent of capital employed is down from 50% at the end of 1996, reflecting strong cash flows from operations during 1997, as well as the sale of the domestic operations of Blazer Energy. In addition, minority interest increased from 4% at September 30, 1996, reflecting the consolidation of Arch Mineral. Common stockholders' equity increased from 38% at the end of 1996, due to the conversion of $290 million of preferred stock into common, as well as the strong earnings during 1997. (Bar graph appears in the left margin comparing debt as a percent of capital employed for fiscal 1995, 1996 and 1997.) During fiscal 1998, Ashland anticipates capital expenditures of approximately $560 million. Capital expenditures in Refining and Marketing are expected to amount to about $170 million, including nearly $40 million for SuperAmerica. Capital expenditures of Valvoline, Ashland Chemical and APAC are projected at around $240 million, with most of the remainder invested by Arch Coal. Both Ashland and Arch Coal anticipate meeting their 1998 capital requirements for property additions and dividends from internally generated funds. 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 ever increasing regulations, Ashland believes that expenditures for environmental compliance will continue to have a significant effect on its businesses. Although it cannot accurately predict how such trends will affect future operations and earnings, Ashland believes the nature and significance of its ongoing compliance costs will be comparable to those of its competitors in the petroleum, chemical and mining industries. Capital expenditures for air, water and solid waste control facilities for continuing operations amounted to $26 million in 1997, $38 million in 1996 and $42 million in 1995. Based on current environmental regulations, Ashland anticipates such capital expenditures will amount to about $30 million in 1998. Environmental remediation and compliance expenditures amounted to $155 million in 1997, $153 million in 1996 and $148 million in 1995, and are expected to be in the range of $160 million in 1998. Such compliance expenditures do not include the costs of additives, such as MTBE and ethanol, used to meet reformulated gasoline and oxygenated fuel requirements. Environmental reserves are subject to considerable uncertainties that 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. During 1997, the U. S. Environmental Protection Agency (EPA) completed comprehensive inspections of compliance with federal environmental laws and regulations at Ashland's three refineries. Ashland continues to cooperate and hold discussions with the EPA concerning these inspections, as well as what additional remediation actions may be required or costs may be incurred. Ashland does not believe that any liability resulting from environmental matters, after taking into consideration its insurance coverages and amounts already provided for, will have a material adverse effect on its consolidated financial position, cash flows or liquidity. DERIVATIVE INSTRUMENTS Ashland is exposed to various market risks, including changes in certain commodity prices, foreign currency rates and interest rates. To manage the volatility relating to these natural business exposures, Ashland enters into various derivative transactions in accordance with its established policies. Ashland does not hold or issue derivative instruments for trading purposes. Ashland selectively uses commodity futures contracts to reduce its exposure to certain risks inherent within its refining business. Such contracts are used principally to hedge the value of intransit crude oil cargoes, hedge exposure under fixed-price petroleum product sales contracts, obtain higher prices for crude oil sales, protect against margin compression caused by increasing crude oil prices, take advantage of attractive refining margins and lock in costs on a portion of the natural gas fuel needs of the refineries. Ashland also uses forward exchange contracts to hedge certain foreign currency transaction exposures of its operations. The potential loss from a hypothetical 10% adverse change in commodity prices or foreign currency rates on Ashland's open commodity futures and foreign exchange contracts at September 30, 1997, would not materially affect Ashland's consolidated financial position, results of operations or cash flows. 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. Long-term debt at September 30, 1997, included about $280 million of floating-rate debt, and the interest rates on an additional $370 million of fixed-rate debt were converted to LIBOR floating rates through unleveraged interest rate swap agreements. As a result, Ashland's annual interest costs in 1998 will fluctuate based on short-term interest rates on about $650 million of Ashland's consolidated long-term debt outstanding at September 30, 1997, as well as on any short-term notes and commercial paper. OUTLOOK Ashland Chemical will continue to pursue growth through internal efforts and selective acquisitions. Ashland Chemical will emphasize integrated products and services, targeting its North American customers and a growing international sales base with existing offerings and extensions into untapped markets, such as its recent entry into the distribution market for nutritional products. With market globalization favoring producers that have a worldwide presence, investments in acquisitions will also continue as attractive opportunities to add volume, technologies or market coverage are identified. APAC will pursue growth through geographic expansion, enhanced materials production capabilities and product line extensions, such as concrete paving and greater site development services. Continued federal infrastructure funding 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 amounted to a record year end level of $693 million at September 30, 1997. Such backlog includes a modest increase in the public sector and a slight decrease in the private sector, and is expected to contain margins comparable to those included in last year's backlog. Valvoline will focus on extending and leveraging its brand franchise to related products, while pursuing international growth through aggressive marketing, joint ventures and application of domestic competencies. R-12 margins are expected to remain strong, although the level of annual demand is uncertain. Domestic sales volumes of higher-margin packaged lubricants serving Ashland Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS the "do-it-yourself" market are expected to continue to give ground to lower-margin bulk sales to the "do-it-for-me" market. However, sales of automotive chemicals and international sales of lubricants are expected to provide continued growth opportunities. Although margins are expected to remain volatile, key external factors look promising for the refining and marketing industry. The economy is reasonably strong, inflation appears to be under control, and economic growth continues at a modest pace. In addition, petroleum product demand is expected to continue increasing over 1% annually for the rest of the decade. Such increases reflect 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. Refinery utilization rates are strong, which should be beneficial for refining margins. Ashland Petroleum continues to strengthen its position in refining by enhancing its production of higher-value products, reducing its operating expenses and increasing its volumes sold under company brands. While SuperAmerica continues to expand its retail network, Ashland Petroleum is also increasing controlled gasoline sales through its branded jobber/distributor marketing program. Under that program, 601 retail locations were operating at September 30, 1997, compared to 485 locations at the end of 1996. Controlled sales volumes are up 21% since 1994, accounting for over 47% of refinery gasoline production in 1997, providing deeper market penetration in key Midwest markets, strengthening margins and reducing Ashland Petroleum's dependence on wholesale markets. During 1997, Ashland and Marathon Oil Company signed a letter of intent to combine the petroleum refining and marketing and most transportation assets of the two companies. Ashland and Marathon have resolved all material matters concerning valuation and due diligence, and anticipate signing definitive agreements in December 1997. Ashland would have a 38% ownership interest in the proposed joint venture. Ashland expects that the proposed venture will be able to achieve substantial synergies beginning in 1998 by pursuing operational efficiencies and integrating the strengths of the business processes, management systems and administrative support functions of the two companies. Arch Coal's results for 1998 are expected to benefit from numerous steps which have been taken or are underway to capture synergies resulting from the merger of Ashland Coal and Arch Mineral. Arch Coal's low debt and high cash flow provide the financial strength to support continued operational improvements, acquisitions and internal expansion. Ashland's debt at the end of 1997 was down by $255 million from the prior year, despite the addition of $236 million in debt resulting from the consolidation of Arch Coal as of October 1, 1996. As a result, net interest costs are expected to be significantly lower in 1998, given the reduction in Ashland's debt during 1997. Annualizing the interest cost on outstanding debt at September 30, 1997, would result in net interest expense of about $125 million during 1998, compared to $170 million in 1997. Such debt reduction also provides Ashland with greater financial flexibility to pursue its growth goals. 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 the increased 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. FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including various information within the Capital Resources, Derivative Instruments and Outlook sections. Although Ashland believes that its expectations are based on reasonable assumptions, it cannot assure that the expectations contained in such statements will be achieved. Important factors which could cause actual results to differ materially from those contained in such statements are discussed in Note A to the Consoldiated Financial Statements under risks and uncertainties. Other factors and risks affecting Ashland's revenues and operations are contained in Ashland's Form 10-K for the fiscal year ended September 30, 1997, which is on file with the Securities and Exchange Commission.
ASHLAND INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME YEARS ENDED SEPTEMBER 30 (In millions except per share data) 1997 1996 1995 =================================================================================================================================== REVENUES Sales and operating revenues (including excise taxes) $14,200 $12,892 $11,972 Other 119 76 66 - ----------------------------------------------------------------------------------------------------------------------------------- 14,319 12,968 12,038 COSTS AND EXPENSES Cost of sales and operating expenses 10,860 9,975 9,130 Excise taxes on products and merchandise 992 985 988 Selling, general and administrative expenses 1,405 1,275 1,269 Depreciation, depletion and amortization 572 371 447 - ----------------------------------------------------------------------------------------------------------------------------------- 13,829 12,606 11,834 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 490 362 204 OTHER INCOME (EXPENSE) Interest expense (net of interest income) (170) (169) (171) Equity income - Note D 15 24 7 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 335 217 40 Income taxes - Note E (119) (73) (3) Minority interest in earnings of subsidiaries (24) (8) (23) - ----------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 192 136 14 Income from discontinued operations (net of income taxes) - Note B 25 75 10 Gain on sale of discontinued operations (net of income taxes) - Note B 71 - - - ----------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE EXTRAORDINARY LOSS 288 211 24 Extraordinary loss on early retirement of debt (net of income taxes) - Note F (9) - - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME 279 211 24 Dividends on convertible preferred stock (9) (19) (19) - ----------------------------------------------------------------------------------------------------------------------------------- INCOME AVAILABLE TO COMMON SHARES $ 270 $ 192 $ 5 =================================================================================================================================== EARNINGS PER SHARE - Note A Primary Income (loss) from continuing operations $ 2.57 $ 1.81 $ (.08) Income from discontinued operations .36 1.16 .16 Gain on sale of discontinued operations 1.00 - - Extraordinary loss (.13) - - --------------------------------------------------- Net income $ 3.80 $ 2.97 $ .08 Assuming full dilution Income (loss) from continuing operations $ 2.52 $ 1.84 $ (.08) Income from discontinued operations .33 .98 .16 Gain on sale of discontinued operations .94 - - Extraordinary loss (.12) - - --------------------------------------------------- Net income $ 3.67 $ 2.82 $ .08 AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING Primary 71 65 62 Assuming full dilution 76 77 63 ===================================================================================================================================
See Notes to Consolidated Financial Statements.
ASHLAND INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30 (In millions) 1997 1996 =================================================================================================================== ASSETS CURRENT ASSETS Cash and cash equivalents $ 268 $ 77 Accounts receivable (less allowances for doubtful accounts of $24 million in 1997 and $27 million in 1996) 1,730 1,621 Inventories - Note A 729 708 Other current assets 268 259 - ------------------------------------------------------------------------------------------------------------------- 2,995 2,665 INVESTMENTS AND OTHER ASSETS Investments in and advances to unconsolidated affiliates - Note D 86 157 Investments of captive insurance companies 189 178 Cost in excess of net assets of companies acquired (less accumulated amortization of $70 million in 1997 and $43 million in 1996) 120 120 Coal supply agreements (less accumulated amortization of $53 million in 1997 and $44 million in 1996) 195 44 Net assets of discontinued operations held for sale - Note B 18 326 Other noncurrent assets 283 314 - ------------------------------------------------------------------------------------------------------------------- 891 1,139 PROPERTY, PLANT AND EQUIPMENT Cost Refining and Marketing 3,497 3,395 Valvoline 328 312 Chemical 904 818 APAC 671 626 Coal 1,904 980 Corporate 167 154 - ------------------------------------------------------------------------------------------------------------------- 7,471 6,285 Accumulated depreciation, depletion and amortization (3,580) (3,000) - ------------------------------------------------------------------------------------------------------------------- 3,891 3,285 - ------------------------------------------------------------------------------------------------------------------- $7,777 $7,089 ===================================================================================================================
See Notes to Consolidated Financial Statements.
(In millions) 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Debt due within one year Notes payable to financial institutions $ 35 $ 117 Current portion of long-term debt 58 86 Trade and other payables 2,045 1,973 Income taxes 123 22 - ---------------------------------------------------------------------------------------------------------------------- 2,261 2,198 NONCURRENT LIABILITIES Long-term debt (less current portion) - Notes F and G 1,639 1,784 Employee benefit obligations - Note M 854 613 Reserves of captive insurance companies 161 166 Other long-term liabilities and deferred credits 565 340 Commitments and contingencies - Notes G, I and L - ---------------------------------------------------------------------------------------------------------------------- 3,219 2,903 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 273 174 STOCKHOLDERS' EQUITY - Notes F, J and K Preferred stock, no par value, 30 million shares authorized Convertible preferred stock, 6 million shares issued in 1996, $300 million liquidation value - 293 Common stockholders' equity Common stock, par value $1.00 per share Authorized - 150 million shares Issued - 75 million shares in 1997 and 64 million shares in 1996 75 64 Paid-in capital 605 280 Retained earnings 1,379 1,185 Other (35) (8) - ---------------------------------------------------------------------------------------------------------------------- Total common stockholders' equity 2,024 1,521 - ---------------------------------------------------------------------------------------------------------------------- 2,024 1,814 - ---------------------------------------------------------------------------------------------------------------------- $7,777 $7,089 ======================================================================================================================
ASHLAND INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY Preferred Common Paid-in Retained Loan to (In millions) stock stock capital earnings LESOP Other Total - ------------------------------------------------------------------------------------------------------------------------------ BALANCE AT OCTOBER 1, 1994 $293 $61 $159 $1,126 $(33) $(11) $1,595 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 293 64 256 1,063 (11) (10) 1,655 Net income 211 211 Dividends Preferred stock (19) (19) Common stock, $1.10 a share (70) (70) Issued common stock under Stock incentive plans 18 18 Employee savings plan 6 6 LESOP loan repayments 11 11 Other changes 2 2 - ------------------------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1996 293 64 280 1,185 - (8) 1,814 Net income 279 279 Dividends Preferred stock (9) (9) Common stock, $1.10 a share (76) (76) Issued common stock under Preferred stock conversion (290) 9 281 - Stock incentive plans 2 44 46 Employee savings plan 1 1 Preferred stock redemption (3) (3) Other changes (1) (27) (28) - ------------------------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1997 $ - $75 $605 $1,379 $ - $(35) $2,024 - ------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
Ashland Inc. and Subsidiaries STATEMENTS OF CONSOLIDATED CASH FLOWS Years Ended September 30 (In millions) 1997 1996 1995 =============================================================================================================================== CASH FLOWS FROM CONTINUING OPERATIONS Income from continuing operations $192 $136 $ 14 Expense (income) not affecting cash Depreciation, depletion and amortization 572 371 447 Deferred income taxes 3 (11) (71) Other noncash items 45 1 43 Change in operating assets and liabilities(1) 40 154 9 - ------------------------------------------------------------------------------------------------------------------------------- 852 651 442 CASH FLOWS FROM FINANCING Proceeds from issuance of long-term debt 175 68 330 Proceeds from issuance of capital stock 35 16 55 Repayment of long-term debt (621) (97) (60) Increase (decrease) in short-term debt (57) (84) 38 Dividends paid (97) (93) (92) - ------------------------------------------------------------------------------------------------------------------------------- (565) (190) 271 CASH FLOWS FROM INVESTMENT Additions to property, plant and equipment (431) (430) (399) Purchase of operations - net of cash acquired (96) (83) (299) Investment purchases(2) (248) (455) (725) Investment sales and maturities(2) 216 491 704 Other - net - 6 32 - ------------------------------------------------------------------------------------------------------------------------------- (559) (471) (687) - ------------------------------------------------------------------------------------------------------------------------------- CASH PROVIDED (USED) BY CONTINUING OPERATIONS (272) (10) 26 Cash provided (used) by discontinued operations - Note B 436 35 (14) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 164 25 12 Cash and cash equivalents - beginning of year 104 (3) 52 40 - ------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS - END OF YEAR $268 $ 77 $ 52 =============================================================================================================================== DECREASE (INCREASE) IN OPERATING ASSETS(1) Accounts receivable $ 1 $ (52) $ (126) Inventories 17 2 (60) Other current assets (6) (6) 11 Investments and other assets (3) 10 31 INCREASE (DECREASE) IN OPERATING LIABILITIES(1) Trade and other payables (143) 216 176 Income taxes 80 (12) (2) Noncurrent liabilities 94 (4) (21) - ------------------------------------------------------------------------------------------------------------------------------- CHANGE IN OPERATING ASSETS AND LIABILITIES $ 40 $ 154 $ 9 ===============================================================================================================================
(1) Excludes changes resulting from operations acquired or sold. (2) Represents primarily investment transactions of captive insurance companies. (3) Includes $27 million of cash and cash equivalents of Arch Mineral Corporation that was presented on a consolidated basis effective October 1, 1996 (see Note A). See Notes to Consolidated Financial Statements. ASHLAND INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION 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. Ashland Coal, Inc. and Arch Mineral Corporation merged on July 1, 1997, into a new corporation known as Arch Coal, Inc., in which Ashland has a 54% ownership interest. Beginning in the September 1997 quarter, Arch Coal was consolidated in Ashland's financial statements. Prior interim quarters in 1997 were restated to reflect Arch Mineral on a consolidated basis for comparison purposes. Since Arch Mineral was previously accounted for on the equity method, the comparability of various amounts included in Ashland's consolidated financial statements and the accompanying notes are affected. RISKS AND UNCERTAINTIES 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 reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items subject to such estimates and assumptions include the carrying value of long-lived assets, environmental reserves, employee benefit obligations, income recognized under construction contracts, and the ultimate realization of deferred tax assets. Actual results could differ from the estimates and assumptions used. Ashland's operations are affected by domestic and international political, legislative, regulatory and legal actions. Such actions may include changes in the policies of the Organization of Petroleum Exporting Countries or other developments involving or affecting oil-producing countries, including military conflict, embargoes, internal instability or actions or reactions of the government of the United States in anticipation of, or in response to, such actions. Domestic and international economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, as well as changes in the availability or prices of crude oil and petroleum products, can have a significant effect on Ashland's operations. While Ashland maintains reserves for anticipated liabilities and carries various levels of insurance, Ashland could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to environmental or other matters. In addition, climate and weather can significantly affect Ashland in several of its operations, such as its construction, heating oil and coal businesses.
INVENTORIES (In millions) 1997 1996 ================================================================================================= Crude oil $277 $316 Petroleum products 289 323 Chemicals 341 342 Other products 174 146 Materials and supplies 64 55 Excess of replacement costs over LIFO carrying values (416) (474) - -------------------------------------------------------------------------------------------------- $729 $708 ==================================================================================================
Crude oil, petroleum products, chemicals and other products with a replacement cost of $751 million at September 30, 1997, and $834 million at September 30, 1996, 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. Ashland decreased certain LIFO inventories in 1997 for operating reasons. Cost of sales and operating expenses include costs for these inventories based on prior years' LIFO carrying values which were less than current replacement costs. As a result of LIFO inventory liquidations, net income was increased by $7 million ($.09 per share) in 1997. The effects of LIFO inventory liquidations during 1996 and 1995 were not significant. PROPERTY, PLANT AND EQUIPMENT The cost of plant and equipment (other than the costs of purchasing rights to coal reserves and mine development costs) is principally depreciated by the straight-line method over the estimated useful lives of the assets. Costs of purchasing rights to coal reserves and mine development costs are depleted by the units-of-production method over the estimated recoverable reserves. Coal exploration costs are expensed as incurred. Estimated costs of major refinery turnarounds are accrued, while other maintenance and repair costs are expensed as incurred. Maintenance and repair expense amounted to $463 million in 1997, $355 million in 1996 and $341 million in 1995. 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. Prior to 1997, shares issuable upon conversion of the preferred stock and 6.75% subordinated debentures were added to average common shares and equivalents when dilutive. In such cases, net income was further adjusted by adding back preferred dividends and interest expense (net of tax) on these debentures. In the computation of earnings per share assuming full dilution for 1997, the preferred shares which were converted in March 1997 (see Note J) were assumed to be converted to common shares as of the beginning of the year, in accordance with generally accepted accounting principles. If the shares had been assumed converted as of the beginning of the year for the primary computation, the resulting primary earnings per share would have amounted to $3.70. The 6.75% convertible subordinated debentures were retired in July 1997 (see Note F) and, therefore, were not assumed converted for the 1997 computation. DERIVATIVE INSTRUMENTS Ashland selectively uses commodity futures contracts to reduce its exposure to certain risks inherent within its refining business. Such contracts are used principally to hedge the value of intransit crude oil cargoes, hedge exposure under fixed-price sales contracts, obtain higher prices for crude oil sales, protect against margin compression caused by increasing crude oil prices, take advantage of attractive refining margins and lock in prices on a portion of the natural gas fuel needs of the refineries. Realized gains and losses on these contracts are included in cost of sales in the original contract month, with amounts paid or received on early terminations deferred on the balance sheet in other current assets or trade and other payables, as appropriate (the deferral method). In addition, commodity futures contracts are used as an alternate method of obtaining or selling crude oil and petroleum products to balance physical barrel activity. These contracts are marked-to-market each month and included in accounts receivable, with the offsetting unrealized gain or loss included in cost of sales (the fair value method). Ashland uses forward exchange contracts to hedge foreign currency transaction exposures of its operations. These contracts are marked-to-market each month and included in trade and other payables, with the offsetting gain or loss included in other revenues (the fair value method). 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. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement, without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual method). The related amount payable to or receivable from counterparties is included in trade and other payables. The fair values of the swap agreements are not recognized in the financial statements. Gains and losses on terminations of interest rate swap agreements are deferred on the balance sheet (in other long-term liabilities) and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. STOCK INCENTIVE PLANS Effective October 1, 1996, Ashland adopted the disclosure requirements of Financial Accounting Standards Board Statement No. 123 (FAS 123), "Accounting for Stock-Based Compensation." With respect to accounting for its stock options, as permitted under FAS 123, Ashland has retained the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related Interpretations (see Note K). 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 ($79 million included in depreciation, depletion and amortization and $4 million charged to discontinued operations) to write down certain assets to their estimated fair values. These assets included an idle unit at Ashland Petroleum's Catlettsburg refinery, certain unused crude oil gathering pipelines of Scurlock Permian, and petroleum product marketing properties which were being sold or shut down. Fair values were based upon appraisals or estimates of discounted future cash flows. Operating income was reduced for each of the affected segments as follows: Refining and Marketing ($68 million); Valvoline ($3 million); Chemical ($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 for 1995 by $54 million or $.86 per share. NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) OTHER Cash equivalents include highly liquid investments maturing within three months after purchase. Investments of captive insurance companies (primarily foreign corporate and government debt obligations) are carried at market value plus accrued interest. 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 13 years. Costs of acquired coal supply agreements are capitalized and amortized over the contract sales tonnage. Research and development costs are expensed as incurred ($29 million in 1997, $28 million in 1996 and $24 million in 1995). Certain prior year amounts have been reclassified in the consolidated financial statements and accompanying notes to conform with 1997 classifications. NOTE B - DISCONTINUED OPERATIONS On July 1, 1997, Ashland sold the domestic exploration and production operations of Blazer Energy Corporation, realizing cash proceeds of $566 million. The sale resulted in a pretax gain of $138 million which, net of $67 million of income taxes, produced a gain on sale of discontinued operations of $71 million. Ashland has reached an agreement in principle to sell its exploration and production operations in Nigeria, subject to the approval of the Nigerian government and other conditions. Accordingly, results from the Exploration segment are shown as discontinued operations with prior years restated. Components of amounts reflected in the income statements, balance sheets and cash flow statements are presented in the following table.
(In millions) 1997 1996 1995 ====================================================================================================================== INCOME STATEMENT DATA Revenues $240 $320(1) $204 Costs and expenses (215) (226) (210) - ---------------------------------------------------------------------------------------------------------------------- Operating income (loss) 25 94 (6) Income tax benefit (expense) - (19) 16 - ---------------------------------------------------------------------------------------------------------------------- Income from discontinued operations $ 25 $ 75(1) $ 10 ====================================================================================================================== BALANCE SHEET DATA Current assets $ 59 $ 76 Investments and other assets 1 1 Property, plant and equipment - net 57 430 Current liabilities (41) (81) Noncurrent liabilities (58) (100) - ---------------------------------------------------------------------------------------------------------------------- Net assets of discontinued operations held for sale $ 18 $326 ====================================================================================================================== CASH FLOW DATA Cash flows from operations $(90) $115 $ 58 Cash flows from investment (including sales proceeds) 526 (80) (72) - ---------------------------------------------------------------------------------------------------------------------- Cash provided (used) by discontinued operations $436 $ 35 $(14) ====================================================================================================================== (1) Includes a gain of $73 million ($48 million after income taxes) resulting from the settlement of claims in the bankruptcy reorganization of Columbia Gas Transmission and Columbia Gas Systems.
NOTE C - INFORMATION BY INDUSTRY SEGMENT Ashland's operations are conducted primarily in the United States and are managed along industry segments, which include Refining and Marketing, Valvoline, Chemical, APAC and Coal. Information by industry segment is shown on Pages 62 and 63. Refining and Marketing operations are conducted by Ashland Petroleum and SuperAmerica. Ashland Petroleum is a leading regional refiner and marketer in the Midwest. 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 marketers operating under the Ashland brand name). Ashland Petroleum also transports crude oil and petroleum products in connection with its refining and wholesale marketing operations and gathers and markets crude oil through Scurlock Permian. SuperAmerica includes Ashland's retail gasoline and merchandise marketing operations, including the SuperAmerica chain of high-volume retail stores. Gasoline and merchandise are also sold from outlets operated by SuperAmerica under the Rich brand name. Operations are conducted primarily in the Ohio Valley and Upper Midwest. During 1997, Ashland and Marathon Oil Company signed a letter of intent to combine the petroleum refining and marketing and most transportation assets of the two companies. Ashland would have a 38% ownership interest in the proposed joint venture. On October 30, 1997, Ashland and Marathon announced that the two firms had resolved all material matters concerning valuation and due diligence, and anticipate signing definitive agreements in December 1997. 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 and Valvoline Rapid Oil Change 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, fiberglass materials and fine ingredients. 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. Ashland Chemical's petrochemicals division manufactures and markets maleic anhydride and methanol, and markets cumene, aromatic and aliphatic solvents, and propylene manufactured by Ashland Petroleum. Marketing of the petrochemicals manufactured by Ashland Petroleum will be transferred to Refining and Marketing in fiscal 1998. The APAC group of companies, which are located in 13 southern and midwestern states, perform contract construction work including 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, 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. Coal operations are conducted by 54% owned, publicly traded Arch Coal, Inc., which was created on July 1, 1997, by the merger of Ashland Coal, Inc. and Arch Mineral Corporation. Beginning in the September 1997 quarter, Arch Coal was consolidated in Ashland's financial statements. Prior interim quarters in 1997 were restated to reflect Arch Mineral on a consolidated basis for comparison purposes. Arch Mineral was previously accounted for on the equity method. Arch Coal is the largest producer of bituminous, low-sulfur coal in the eastern United States. Arch markets coal to electric utilities and industrial customers throughout the United States, Europe and Japan. Coal is produced from surface and deep mines located in Illinois, Kentucky, Virginia, West Virginia and Wyoming. Arch also markets coal mined by independent producers. On July 1, 1997, Ashland sold the domestic exploration and production operations of Blazer Energy Corporation. Ashland has reached an agreement in principle to sell its exploration and production operations in Nigeria, subject to the approval of the Nigerian government and other conditions. Accordingly, results from the Exploration segment are shown as discontinued operations with prior years restated (see Note B). Certain information with respect to continuing foreign operations follows.
Income from continuing operations Total assets before income taxes ------------------------ ----------------------------------------------- (In millions) 1997 1996 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Foreign operations Refining and Marketing $ 63 $ 70 $ 2 $ 3 $ 4 Valvoline 103 127 (7)(1) 4 3 Chemical 363 327 26(1) 41 42 - --------------------------------------------------------------------------------------------------------------------------------- $529 $ 524 $21 $ 48 $49 =================================================================================================================================
(1) Includes charges of $10 million for Valvoline and $16 million for Chemical to write down goodwill related to certain European operations. NOTE D - UNCONSOLIDATED AFFILIATES Affiliated companies accounted for on the equity method include LOOP LLC 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 1997, Arch Mineral Corporation was 50% owned and accounted for on the equity method (see Notes A and C). Summarized financial information reported by these affiliates and a summary of the amounts recorded in Ashland's consolidated financial statements follow. At September 30, 1997, Ashland's retained earnings include $55 million of undistributed earnings from unconsolidated affiliates accounted for on the equity method.
Arch Mineral LOOP LLC and (In millions) Corporation LOCAP INC. Other Total ============================================================================================================================== SEPTEMBER 30, 1997 Financial position Current assets $ 30 $ 311 Current liabilities (81) (161) -------------------------------- Working capital (51) 150 Noncurrent assets 586 149 Noncurrent liabilities (438) (104) -------------------------------- Stockholders' equity $ 97 $ 195 ================================ Results of operations Sales and operating revenues $ 123 $ 994 Gross profit 40 238 Net income 27 38 Amounts recorded by Ashland Investments and advances 18 68 $ 86 Equity income 2 13 15 Dividends received - 9 9 ============================================================================================================================== SEPTEMBER 30, 1996 Financial position Current assets $ 165 $ 28 $ 265 Current liabilities (142) (82) (151) -------------------------------------------------------- Working capital 23 (54) 114 Noncurrent assets 752 613 225 Noncurrent liabilities (646) (489) (107) -------------------------------------------------------- Stockholders' equity $ 129 $ 70 $ 232 ======================================================== Results of operations Sales and operating revenues $ 727 $ 117 $ 846 Gross profit 98 38 214 Net income 27 8 28 Amounts recorded by Ashland Investments and advances 73 13 71 $ 157 Equity income 13 2 9 24 Dividends received - - 7 7 ============================================================================================================================== SEPTEMBER 30, 1995 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 Equity income (loss) (4) 1 10 $ 7 Dividends received 3 1 8 12 ==============================================================================================================================
(1) Includes a charge of $12 million resulting from asset impairment write-downs under FAS 121 and provisions for early retirement and restructuring programs.
NOTE E - INCOME TAXES A summary of the provision for income taxes related to continuing operations follows. (In millions) 1997 1996 1995 =================================================================================================================================== Current(1) Federal $ 92 $ 60 $ 52 State 7 7 10 Foreign 17 17 12 - ----------------------------------------------------------------------------------------------------------------------------------- 116 84 74 Deferred 3 (11) (71) - ----------------------------------------------------------------------------------------------------------------------------------- $119 $ 73 $ 3 ===================================================================================================================================
(1) Income tax payments amounted to $82 million in 1997, $110 million in 1996 and $54 million in 1995. 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. These amounts are recorded in various asset and liability accounts on Ashland's consolidated balance sheets.
(In millions) 1997 1996 =================================================================================================================================== Employee benefit obligations $365 $ 251 Environmental, insurance and litigation reserves 148 118 Alternative minimum tax credit carryforwards 76(1) 77 Uncollectible accounts receivable 18 19 Compensated absences 16 16 Other items 89 58 - ----------------------------------------------------------------------------------------------------------------------------------- Total deferred tax assets 712 539 - ----------------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment (523) (405) Coal supply agreements (38) (9) Undistributed equity income (19) (18) Prepaid royalties 2 (18) - ----------------------------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities (578) (450) - ----------------------------------------------------------------------------------------------------------------------------------- Net deferred tax asset $134 $ 89 ===================================================================================================================================
(1) Alternative minimum tax credit carryforwards at September 30, 1997, relate entirely to Arch Coal, Inc. The U.S. and foreign components of income from continuing operations before income taxes and a reconciliation of the normal statutory federal income tax with the provision for income taxes follow.
(In millions) 1997 1996 1995 =================================================================================================================================== Income from continuing operations before income taxes and minority interest United States $314 $169 $ (9) Foreign 21 48 49 - ----------------------------------------------------------------------------------------------------------------------------------- $335 $217 $ 40 =================================================================================================================================== Income taxes computed at U.S. statutory rates $117 $ 76 $ 14 Increase (decrease) in amount computed resulting from Equity income (4) (5) - State income taxes 7 4 5 Net impact of foreign results 10 - (4) Percentage depletion allowance (22) (6) (14) Other items 11 4 2 - ----------------------------------------------------------------------------------------------------------------------------------- Income taxes $119 $ 73 $ 3 ===================================================================================================================================
The Internal Revenue Service (IRS) has examined Ashland's consolidated U.S. income tax returns through 1993. 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.
NOTE F - LONG-TERM DEBT (In millions) 1997 1996 ================================================================================================================================ Senior debt of Ashland Medium-term notes, due 1998-2025, interest at an average rate of 8.3% at September 30, 1997 (5.8% to 10.4%) $ 936 $ 909 8.80% debentures, due 2012 250 250 11.125% sinking fund debentures, due 2017 - 200 Pollution control and industrial revenue bonds, due 1998-2022, interest at an average rate of 6.4% at September 30, 1997 (3.5% to 7.4%) 217 227 Other 2 3 - ------------------------------------------------------------------------------------------------------------------------------- 1,405 1,589 6.75% convertible subordinated debentures, due 2014, convertible into common stock at $51.34 per share - 124 Debt of Arch Coal, Inc. not guaranteed by Ashland 9.78% senior notes, due 1997-2000 - 101 9.66% senior notes, due 2001-2006 - 54 7.79% senior notes, due 1998-2003 43 - Revolving credit agreement, due 2002, variable interest rate based on LIBOR, interest rate of 5.9% at September 30, 1997 240 - Other 9 2 - ------------------------------------------------------------------------------------------------------------------------------- 1,697 1,870 Current portion of long-term debt (58) (86) - ------------------------------------------------------------------------------------------------------------------------------- $1,639 $1,784 ================================================================================================================================
Aggregate maturities of long-term debt are $58 million in 1998, $48 million in 1999, $41 million in 2000, $79 million in 2001 and $328 million in 2002. 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 October 1, 1998. Ashland has a revolving credit agreement which expires on February 9, 2000, providing for up to $320 million in borrowings, under which no borrowings were outstanding at September 30, 1997. In addition, Arch Coal has revolving credit agreements which expire on June 30, 2002, providing for up to $500 million in borrowings, of which $240 million was in use at September 30, 1997. 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, 1997, distributions with respect to Ashland's capital stock were restricted to $1 billion and additional debt was limited to $2.1 billion. Interest payments on all indebtedness amounted to $191 million in 1997, $175 million in 1996, and $163 million in 1995. The weighted average interest rate on short-term borrowings outstanding was 6.7% at September 30, 1997, and 5.9% at September 30, 1996. EXTRAORDINARY LOSS On June 3, 1997, Ashland called for redemption all of its outstanding 6.75% Convertible Subordinated Debentures. On July 3, 1997, $123 million of the Debentures were redeemed for 101.35% of the principal amount, plus accrued interest, thereby eliminating an associated 2.4 million shares of Ashland Common Stock that had been reserved for conversion. On September 3, 1997, Ashland announced its intention to redeem its 11.125% Sinking Fund Debentures on October 15, 1997. The principal amount outstanding of $200 million had a redemption price of 105.562%, plus accrued interest to the redemption date. On September 23, 1997, Ashland delivered to the trustee U.S. Treasury securities maturing on October 15, 1997, sufficient to cover the redemption price and accrued interest in accordance with the indenture agreement, thereby relieving Ashland of any further obligations under the Debentures. The redemption premium and writeoff of unamortized deferred debt issuance expenses related to these two transactions resulted in pretax charges totaling $15 million which, net of income tax benefits of $6 million, resulted in an extraordinary loss of $9 million on the early retirement of debt. NOTE G - FINANCIAL INSTRUMENTS COMMODITY AND FOREIGN CURRENCY HEDGES Ashland uses commodity futures contracts and forward exchange contracts to reduce its exposure to certain risks inherent within its businesses as described in Note A. The fair value of open commodity and foreign exchange contracts was not significant at September 30, 1997, and 1996. INTEREST RATE SWAPS 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, 1997, Ashland had unleveraged swap agreements with a notional principal amount of $370 million. These agreements 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. 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. 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. At September 30, 1997, Ashland was receiving a weighted-average fixed interest rate of 6.0% and paying a weighted-average variable interest rate of 5.9%, calculated on the notional amount. Interest expense was reduced by $2 million in 1997 and 1996 and an insignificant amount in 1995 resulting from settlements under these agreements. Under its current swap agreements, Ashland's annual interest expense in 1998 will change by about $4 million for each 1% change in LIBOR. The terms remaining on Ashland's swaps range from 4 to 80 months, with a weighted-average remaining life of 27 months. The carrying amounts and fair values of Ashland's significant financial instruments, including interest rate swaps, at September 30, 1997, and 1996, are shown below. The fair values of cash and cash equivalents and notes payable to financial institutions 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.
1997 1996 --------------------- -------------------------- Carrying Fair Carrying Fair (In millions) amount value amount value =================================================================================================================== Assets Cash and cash equivalents $ 268 $ 268 $ 77 $ 77 Investments of captive insurance companies 189 189 178 178 Interest rate swaps - 1 Liabilities Notes payable to financial institutions 35 35 117 117 Long-term debt (including current portion) 1,697 1,864 1,870 2,024 Interest rate swaps - 4 ===================================================================================================================
NOTE H - ACQUISITIONS AND DIVESTITURES ACQUISITIONS In February 1995, Ashland purchased all of Ashland Coal's Class B Preferred Stock for $110 million. The purchase increased Ashland's ownership of Ashland Coal from 39% to 54%. As a result of this transaction, Ashland Coal was consolidated into Ashland's financial statements retroactive to October 1, 1994. Ashland continued to reinvest dividends from Ashland Coal in additional shares of its common stock, increasing its ownership in Ashland Coal to 57% as of July 1, 1997, when Ashland Coal and Arch Mineral Corporation merged (see Notes A and C). Also during 1995, Ashland acquired the unsaturated polyester resins, polyester distribution and maleic anhydride businesses of Aristech Chemical Corporation, the Zerex antifreeze product line, the northern West Virginia assets of two natural gas producers, and various other chemical and construction businesses. These 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 Ashland completed several small divestitures in various segments during the last three years which did not have a significant effect on Ashland's consolidated financial statements. In 1997, Ashland completed the sale of the domestic operations of Blazer Energy Corporation. See Note B for a description of this transaction and its impact on Ashland's consolidated financial statements. NOTE I - 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, 1997, and rental expense under operating leases follow.
(In millions) - ----------------------------------------------------------------------------------------------------------------------------------- Future minimum rental payments Rental expense 1997 1996 1995 ========================================== ================================================================================== 1998 $ 84 1999 74 Minimum rentals 2000 66 (including rentals under 2001 52 short-term leases) $166 $146 $129 2002 36 Contingent rentals 13 14 11 Later years 174 Sublease rental income (13) (16) (18) - ------------------------------------------ ---------------------------------------------------------------------------------- $486 $166 $144 $122 ===================================================================================================================================
In addition, Arch Coal has entered into various noncancelable royalty lease agreements under which future minimum payments are approximately $31 million annually through 2002 and $253 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, 1997, substantially all advances made to LOOP and LOCAP by Ashland had been applied against transportation charges. Transportation charges incurred amounted to $16 million in 1997, $16 million in 1996 and $21 million in 1995. At September 30, 1997, Ashland's contingent liability for its share of the indebtedness of LOOP and LOCAP secured by throughput and deficiency agreements amounted to approximately $83 million. Arch Coal owns 17.5% of a joint venture operating a coal-loading and storage facility at Newport News, Va. 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). Arch Coal's share of such payments amounted to approximately $4 million annually in each of the last three years. 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 an office building partially occupied by Arch Coal. At September 30, 1997, such obligation has a present value of approximately $6 million. NOTE J - CAPITAL STOCK In March 1997, Ashland called for redemption the 6 million outstanding shares of its $3.125 Cumulative Convertible Preferred Stock. Each preferred share was convertible into 1.546 shares of Ashland common stock, plus cash for fractional shares. Almost 99% of the series was submitted for conversion to common stock by the March 31 deadline. The remaining preferred shares were redeemed at a price of $51.88 per share plus 19.1 cents per share of accrued and unpaid dividends. Under Ashland's Shareholder Rights Plan, each common share is accompanied by one right to purchase one-thousandth share of preferred stock for $140. Each one-thousandth share of preferred stock will be entitled to dividends and to vote on an equivalent basis with one common share. The rights are neither exercisable nor separately transferable from the common shares unless a party acquires or tenders for more than 15% of Ashland's common stock. If any party acquires more than 15% 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 preferred stock of Ashland or the acquiring company at a substantial discount. The rights expire on May 16, 2006, and can be redeemed at any time prior to becoming exercisable. At September 30, 1997, 500,000 shares of cumulative preferred stock are reserved for potential issuance under the Shareholder Rights Plan. At September 30, 1997, 5 million common shares are reserved for issuance under outstanding stock options. NOTE K - 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. Ashland accounts for its stock incentive plans in accordance with APB 25, as permitted by FAS 123. In accordance with APB 25, Ashland has not recognized compensation expense for stock options because the exercise price of the options equals the market price of the underlying stock on the date of grant, which is the measurement date. If the alternative method of accounting for stock incentive plans prescribed by FAS 123 had been followed, the impact on Ashland's net income and earnings per share for 1997 and 1996 would not have been material. A summary of stock options follows.
1997 1996 1995 -------------------------- ------------------------- ------------------------- Weighted average Weighted average Weighted average Common option price Common option price Common option price (In thousands except per share data) shares per share shares per share shares per share - --------------------------------------------------------------------------------------------------------------------------------- Outstanding - beginning of year(1) 5,247 $33.97 5,222 $32.72 4,697 $32.50 Granted 814 53.22 823 38.92 839 33.86 Exercised (1,271) 32.94 (747) 30.45 (164) 27.47 Canceled (72) 37.29 (51) 37.35 (150) 38.16 - --------------------------------------------------------------------------------------------------------------------------------- Outstanding - end of year(1) 4,718 $37.52 5,247 $33.97 5,222 $32.72 ================================================================================================================================= Exercisable - end of year 3,373 $33.78 3,820 $32.81 3,777 $32.17 =================================================================================================================================
(1) Shares of common stock available for future grants of options or awards amounted to 5,778,000 at September 30, 1997, and 3,403,000 at September 30, 1996. Exercise prices for options outstanding at September 30, 1997, ranged from $23.88 to $53.38 per share. The weighted average remaining contractual life of the options was 7 years. NOTE L - LITIGATION, CLAIMS AND CONTINGENCIES Ashland is subject to various federal, state and local environmental laws and regulations that 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 $150 million at September 30, 1997, and $173 million at September 30, 1996. 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 that 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. During 1997, the U. S. Environmental Protection Agency (EPA) completed comprehensive inspections of compliance with federal environmental laws and regulations at Ashland's three refineries. Ashland continues to cooperate and hold discussions with the EPA concerning these inspections, as well as what additional remediation actions may be required or costs may be incurred. In addition to environmental matters, 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. Ashland does not believe that any liability resulting from these matters, after taking into consideration its insurance coverages and amounts already provided for, will have a material adverse effect on its consolidated financial position. NOTE M - EMPLOYEE BENEFIT PLANS PENSION PLANS Ashland and its subsidiaries sponsor defined benefit pension plans that 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 employees' 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 plan (LESOP) accounts. Ashland determines the level of contributions to pension plans annually and contributes amounts within allowable limitations imposed by Internal Revenue Service regulations. The following tables detail the funded status of the plans and the components of pension expense. A discount rate of 7.25% and an assumed rate of salary increases of 5% were used in determining the actuarial present value of projected benefit obligations at September 30, 1997 (8% and 5% at September 30, 1996).
1997 1996 ----------------------------------- --------------------------------- 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) $433 $ 69 $360 $ - - ---------------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligations (ABO) Vested 317 99 284 29 Nonvested 45 49 35 36 - ---------------------------------------------------------------------------------------------------------------------------------- 362 148 319 65 - ---------------------------------------------------------------------------------------------------------------------------------- Plan assets less than (in excess of) ABO (71) 79(1) (41) 65(1) Provision for future salary increases 173 34 149 17 Deferred pension costs (5) (10) (10) (15) - ---------------------------------------------------------------------------------------------------------------------------------- Net accrued pension costs(2) $ 97 $103 $ 98 $ 67 ================================================================================================================================== Components of deferred pension costs Unrecognized transition gain (loss) $ 6 $ (2) $ 10 $ (4) Unrecognized net loss - (33) (9) (34) Unrecognized prior service costs (11) (2) (11) (1) Recognition of minimum liability - 27 - 24 - ---------------------------------------------------------------------------------------------------------------------------------- $ (5) $(10) $(10) $ (15) ================================================================================================================================== (In millions) 1997 1996 1995 ================================================================================================================================== Components of pension expense Service cost $ 39 $ 32 $ 23 Interest cost 48 40 34 Actual investment gain on plan assets (86) (34) (51) Deferred investment gain(3) 50 6 30 Other amortization and deferral 2 3 1 Enhanced retirement program pension cost - - 15 - ---------------------------------------------------------------------------------------------------------------------------------- $ 53 $ 47 $ 52 ==================================================================================================================================
(1) Includes unfunded ABO of $77 million in 1997 and $65 million in 1996 for nonqualified defined benefit 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 and its subsidiaries sponsor several unfunded benefit plans, as well as participate in multiemployer plans sponsored by the United Mine Workers of America (UMWA), 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 the exception of the UMWA plan. Retiree contributions to Ashland's health care plans are adjusted periodically and contain other cost-sharing features such as deductibles and coinsurance. Life insurance plans are generally noncontributory. Ashland currently funds the costs of benefits as they are paid. Effective October 1, 1992, 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 years of service. These amendments reduced the accumulated postretirement benefit obligation (APBO) for retiree health care plans at that date by $197 million, which is being amortized to income over approximately 12 years. The cap limits Ashland's contributions to a specific base year per capita health care cost, increasing thereafter by up to 4.5% per year. For those plans not capped, various health care cost trend rates are assumed. Increasing the assumed health care cost trend rates by one percentage point in each year for non-capped plans would increase the APBO as of September 30, 1997, by $49 million and the net periodic postretirement benefit cost for 1997 by $4 million. 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 7.25% at September 30, 1997, and 8% at September 30, 1996.
1997 1996 ----------------------------------- --------------------------------- Health care Health care -------------------- ------------------- Ashland UMWA Life Ashland UMWA Life (In millions) plans plan insurance plans plan insurance ================================================================================================================================ Accumulated postretirement benefit obligations (APBO) Retired or disabled employees $132 $124 $26 $113 $17 $25 Fully eligible active plan participants 44 74 5 29 4 5 Other active plan participants 141 59 7 107 20 5 - -------------------------------------------------------------------------------------------------------------------------------- 317 257 38 249 41 35 Unrecognized net gain (loss) (21) 1 (4) 4 24 (2) Unrecognized plan amendment credit 96 - 4 110 2 5 - -------------------------------------------------------------------------------------------------------------------------------- Accrued other postretirement benefit costs $392 $258 $38 $363 $67 $38 ================================================================================================================================ 1997 1996 1995 ------------------- -------------------- --------------------- Health Life Health Life Health Life (In millions) care insurance care insurance care Insurance ================================================================================================================================ Components of other postretirement benefit expense Service cost $ 14 $ 1 $12 $ 1 $12 $ 1 Interest cost 37 3 21 3 20 2 Amortization and deferral (principally plan amendment credit) (21) - (16) (1) (15) (1) - -------------------------------------------------------------------------------------------------------------------------------- $ 30 $ 4 $17 $ 3 $17 $ 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 $5 million in 1997 and $2 million in both 1996 and 1995. Ashland and its subsidiaries sponsor various savings plans to assist eligible employees in providing for retirement or other future needs. Under the principal plans, Ashland contributes up to 4.2% of a participating employee's earnings (1.2% for LESOP participants prior to March 31, 1996) and Arch Coal contributes up to 6%. Company contributions amounted to $27 million in 1997, $15 million in 1996 and $9 million in 1995. Note N - Quarterly Financial Information (Unaudited) The following table presents quarterly financial information and per share data relative to Ashland's common stock. Sales and operating revenues and operating income have been restated effective October 1, 1996, to reflect the merger of Ashland Coal and Arch Mineral (see Notes A and C) and for all prior periods to present Blazer Energy as discontinued operations (see Note B).
Quarters ended December 31 March 31 June 30 September 30 - ------------------------------------------------------------ -------------------- ---------------------- ---------------------- (In millions except per share data) 1996 1995(1) 1997 1996 1997 1996 1997(2) 1996 =================================================================================================================================== Sales and operating revenues $ 3,545 $3,024 $3,346 $3,006 $3,643 $3,429 $3,665 $3,433 Operating income 89 96 65 23 225 146 111 98 Income (loss) from continuing operations $ 24 $ 32 $ 2 $ (13) $ 119 $ 76 $ 48 $ 41 Income from discontinued operations 12 55 5 11 9 4 71 5 Extraordinary loss - - - - (2) - (8) - -------------------------------------------------------------------------------------------- Net income (loss) $ 36 $ 87 $ 7 $ (2) $ 126 $ 80 $ 111 $ 46 Primary earnings (loss) per share Continuing operations $ .30 $ .43 $ (.05) $ (.27) $ 1.57 $ 1.10 $ .62 $ .55 Discontinued operations .17 .86 .08 .16 .11 .06 .94 .09 Extraordinary loss - - - - (.02) - (.10) - -------------------------------------------------------------------------------------------- Net income (loss) $ .47 $ 1.29 $ .03 $ (.11) $ 1.66 $ 1.16 $ 1.46 $ .64 Common dividends per share .275 .275 .275 .275 .275 .275 .275 .275 Market price per common share High 48-7/8 36-1/2 45-1/8 39-1/2 48-1/4 44-1/8 54-15/16 40-1/4 Low 39-3/8 30-3/8 39-1/4 34-1/4 40-1/8 38-1/8 46-1/2 35 ===================================================================================================================================
(1) A gain resulting from the settlement of claims in the bankruptcy reorganization of Columbia Gas Transmission and Columbia Gas Systems increased income from discontinued operations by $48 million, or $.74 per share, in the quarter ended December 31, 1995. (2) In the quarter ended September 30, 1997, unusual items reduced income from continuing operations by $28 million, or $.38 per share. See Management's Discussion and Analysis and Information by Industry Segment for a discussion of these items. A gain on the sale of the domestic operations of Blazer Energy increased income from discontinued operations by $71 million, or $.94 per share (see Note B).
ASHLAND INC. AND SUBSIDIARIES FIVE-YEAR SELECTED FINANCIAL INFORMATION Years Ended September 30 (In millions except per share data) 1997 1996 1995 1994 1993 ================================================================================================================================= SUMMARY OF OPERATIONS Revenues Sales and operating revenues (including excise taxes) $14,200 $12,892 $11,972 $10,140 $ 9,958 Other 119 76 66 39 53 Costs and expenses Cost of sales and operating expenses (10,860) (9,975) (9,130) (7,614) (7,790) Excise taxes on products and merchandise (992) (985) (988) (877) (645) Selling, general and administrative expenses (1,405) (1,275) (1,269) (1,074) (1,044) Depreciation, depletion and amortization (572) (371) (447) (275) (271) - --------------------------------------------------------------------------------------------------------------------------------- Operating income 490 362 204 339 261 Other income (expense) Interest expense (net of interest income) (170) (169) (171) (116) (122) Equity income 15 24 7 22 26 - --------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes and minority interest 335 217 40 245 165 Income taxes (119) (73) (3) (82) (58) Minority interest in earnings of subsidiaries (24) (8) (23) - - - --------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 192 136 14 163 107 Income from discontinued operations 25 75 10 34 35 Gain on sale of discontinued operations 71 - - - - - --------------------------------------------------------------------------------------------------------------------------------- Income before extraordinary loss 288 211 24 197 142 Extraordinary loss on early retirement of debt (9) - - - - - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 279 $ 211 $ 24 $ 197 $ 142 ================================================================================================================================= BALANCE SHEET INFORMATION Working capital Current assets $ 2,995 $ 2,665 $ 2,535 $ 2,109 $ 1,914 Current liabilities 2,261 2,198 2,048 1,641 1,574 - --------------------------------------------------------------------------------------------------------------------------------- $ 734 $ 467 $ 487 $ 468 $ 340 - --------------------------------------------------------------------------------------------------------------------------------- Total assets $ 7,777 $ 7,089 $ 6,853 $ 5,662 $ 5,442 - --------------------------------------------------------------------------------------------------------------------------------- Capital employed Debt due within one year $ 93 $ 203 $ 272 $ 133 $ 159 Long-term debt (less current portion) 1,639 1,784 1,828 1,391 1,399 Minority interest in consolidated subsidiaries 273 174 179 - - Convertible preferred stock - 293 293 293 293 Common stockholders' equity 2,024 1,521 1,362 1,302 1,162 - --------------------------------------------------------------------------------------------------------------------------------- $ 4,029 $ 3,975 $ 3,934 $ 3,119 $ 3,013 ================================================================================================================================= CASH FLOW INFORMATION Cash flows from continuing operations $ 852 $ 651 $ 442 $ 345 $ 200 Additions to property, plant and equipment 431 430 399 335 390 Dividends 97 93 92 79 66 ================================================================================================================================= Common stock information Primary earnings per share Income (loss) from continuing operations $ 2.57 $ 1.81 $ (.08) $ 2.37 $ 1.66 Net income 3.80 2.97 .08 2.94 2.26 Dividends per share 1.10 1.10 1.10 1.00 1.00 =================================================================================================================================
ASHLAND INC. AND SUBSIDIARIES FIVE-YEAR INFORMATION BY INDUSTRY SEGMENT YEARS ENDED SEPTEMBER 30 (In millions) 1997 1996 1995 1994 1993 =================================================================================================================================== SALES AND OPERATING REVENUES Refining and Marketing(1) $ 6,719 $ 6,485 $ 5,891 $ 5,428 $5,594 Valvoline 1,099 1,199 1,113 1,001 938 Chemical 4,047 3,695 3,551 2,885 2,586 APAC 1,257 1,235 1,123 1,101 1,116 Coal(2) 1,367 580 610 - - Intersegment sales(3) Refining and Marketing(1) (263) (276) (280) (249) (251) Other (26) (26) (36) (26) (25) - ----------------------------------------------------------------------------------------------------------------------------------- $ 14,200 $ 12,892 $ 11,972 $ 10,140 $9,958 =================================================================================================================================== OPERATING INCOME Refining and Marketing(1) $ 189(4) $ 89 $ (1) $ 172 $ 121(5) Valvoline 67(6) 82 (4) 52 56 Chemical 144(6) 169 159 125 108 APAC 82 83 75 70 53 Coal(2) 68(7) 36 66 - - General corporate expenses (60) (97) (91) (80)(8) (77) - ----------------------------------------------------------------------------------------------------------------------------------- $ 490(9) $ 362 $ 204(10) $ 339 $ 261 =================================================================================================================================== IDENTIFIABLE ASSETS Refining and Marketing(1) $ 2,669 $ 2,780 $ 2,659 $ 2,657 $2,604 Valvoline 549 557 603 532 430 Chemical 1,558 1,458 1,372 1,122 958 APAC 531 489 433 404 440 Coal(2) 1,719 899 928 - - Discontinued operations 18 326 285 221 265 Corporate(11) 733 580 573 726 745 - ----------------------------------------------------------------------------------------------------------------------------------- $ 7,777 $ 7,089 $ 6,853 $ 5,662 $5,442 ===================================================================================================================================
(In millions) 1997 1996 1995 1994 1993 =================================================================================================================================== ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT Refining and Marketing(1) $150 $187 $183 $194 $255 Valvoline 29 19 25 25 21 Chemical 101 80 76 61 51 APAC 62 62 47 45 43 Coal(2) 74 58 58 - - Corporate 15 24 10 10 20 - ---------------------------------------------------------------------------------------------------------------------------------- $431 $430 $399 $335 $390 =================================================================================================================================== DEPRECIATION, DEPLETION AND AMORTIZATION Refining and Marketing(1) $160 $153 $234 $161 $155 Valvoline 32(6) 23 24 19 18 Chemical 94(6) 67 58 43 42 APAC 49 44 42 40 44 Coal(2) 223(12) 72 72 - - Corporate 14 12 17 12 12 - ---------------------------------------------------------------------------------------------------------------------------------- $572 $371 $447(13) $275 $271 ===================================================================================================================================
(1) Segments formerly identified as Petroleum and SuperAmerica were combined effective October 1, 1996. Prior year amounts have been restated. (2) Ashland Coal and Arch Mineral merged effective July 1, 1997, into Arch Coal, Inc. Prior interim periods of fiscal 1997 were restated to consolidate Ashland's interest in Arch Mineral for the entire year. Prior years were not restated, reflecting Ashland's interest in Ashland Coal on a consolidated basis (since 1995) and Ashland's interest in Arch Mineral on the equity method of accounting. Prior to 1995 Ashland Coal was accounted for on the equity method. See Note C to the financial statements. (3) Intersegment sales are accounted for at prices which approximate market value. (4) Includes a gain of $11 million resulting from LIFO inventory liquidations. (5) Includes a gain of $15 million on the sale of TPT, an inland waterways barge operation. (6) Includes charges of $10 million for Valvoline and $16 million for Chemical to write down goodwill related to certain European operations. (7) Includes charges of $39 million for duplicate facility write-offs, severance and other costs resulting from the merger of Ashland Coal and Arch Mineral into Arch Coal, Inc. (8) Includes a net gain of $11 million related to litigation matters. (9) Effective October 1, 1996, the methodology for allocating corporate general and administrative expenses was changed. For purposes of comparison to prior year results, segment operating income for the year ended September 30, 1997, excluding the increased allocations, amounted to: Refining and Marketing - $208 million; Valvoline - $72 million; Chemical - $155 million; APAC - $86 million; Coal - $68 million; and general corporate expenses - $(101) million. (10) Includes charges for unusual items totaling $116 million, consisting of asset impairment write-downs of $79 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: Refining and Marketing - $102 million; Valvoline - $5 million; Chemical - $5 million; and general corporate expenses - $4 million. (11) Includes principally cash, cash equivalents, investments in and advances to unconsolidated affiliates and investments of captive insurance companies. (12) Includes charges of $25 million for duplicate facility write-offs resulting from the merger of Ashland Coal and Arch Mineral into Arch Coal, Inc. (13) Includes charges of $79 million for asset impairment write-downs which increased depreciation, depletion and amortization for each of the segments as follows: Refining and Marketing - $68 million; Valvoline - $3 million; Chemical - $4 million; and Corporate - $4 million.
                                 EXHIBIT 21

LIST OF SUBSIDIARIES

     Subsidiaries  of Ashland Inc.  ("AI") at September 30, 1997,  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* 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 Coal, Inc....................................................... Delaware AI 54% Ashland Chemical Canada Ltd.......................................... Alberta, Canada AI Ashland Chemical Hispania, S.A....................................... Spain AI Ashland Crude Trading, Inc........................................... Delaware AI Ashland France S.A................................................... France AIHI Ashland International Holdings , Inc. ("AIHI")....................... Delaware AI Ashland Italia S.p.A................................................. Italy AIHI 82% - AI 18% Ashland Nederland B.V................................................ Netherlands AIHI Ashland Pipe Line, L.L.C. ("APL").................................... Kentucky AI 99% - SPC 1% Ashland Scurlock Permian Canada, Ltd................................. Alberta, Canada SPC Ashland UK Limited................................................... United Kingdom AIHI Ash Property, Inc.................................................... Ohio AI Ashmont Insurance Company, Inc. ("AIC").............................. Vermont AI Bluegrass Insurance Company Limited.................................. Bermuda AIC Iberia Ashland Chemical S.A.......................................... Spain AI 70% Mid-Valley Supply Co................................................. Kentucky AI Ohio River Pipe Line Company......................................... Delaware AI Scurlock Permian Corporation ("SPC")................................. Kentucky AI Scurlock Permian Pipe Line Corporation............................... Kentucky SPC Valvoline (Australia) Pty. Ltd....................................... Australia AIHI Valvoline Canada Ltd................................................. Ontario, Canada AIHI Vecom International B.V.............................................. Netherlands AIHI - ---------------
*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, in the Registration  Statement
(Form  S-8  No.  333-33617)  pertaining  to the  Ashland  Inc.  1997  Stock
Incentive Plan, in the  Registration  Statement (Form S-3 No.  33-57011) as
amended  by  Post-Effective   Amendment  No.  2,  pertaining  to  the  U.S.
$200,000,000  Ashland  Inc.  Medium-Term  Notes,  Series H, and the related
Prospectus,  of our report  dated  November  5, 1997,  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, 1997.



                                                    Ernst & Young LLP


November 24, 1997





                             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 PAUL W. CHELLGREN,  THOMASL.  FEAZELL 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 6, 1997

                                                        
/s/ Paul W. Chellgren                                      /s/ Ralph E. Gomory
- ------------------------------------------                 -----------------------------------------
Paul W. Chellgren, Chairman of the Board                   Ralph E. Gomory, Director
and Chief Executive Officer



/s/ J. Marvin Quin                                         /s/ Mannie L. Jackson
- ------------------------------------------                 -----------------------------------------
J. Marvin Quin, Senior Vice President                      Mannie L. Jackson, Director
and Chief Financial Officer



/s/ Jack S. Blanton                                        /s/ Patrick F. Noonan
- ------------------------------------------                 -----------------------------------------
 Jack S. Blanton, Director                                 Patrick F. Noonan, Director



/s/ Thomas E. Bolger                                       /s/ Jane C. Pfeiffer
- ------------------------------------------                 -----------------------------------------
Thomas E. Bolger, Director                                 Jane C. Pfeiffer, 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/ Robert B. Stobaugh
                                                           -----------------------------------------
                                                           Robert B. Stobaugh, Director

ASHLAND INC. Assistant Secretary's Certificate I, T. CODY WALES, an Assistant Secretary of Ashland Inc., a Commonwealth of Kentucky corporation (the "Corporation"), do hereby certify as follows: 1. Attached hereto as Exhibit A is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation at a meeting duly called and held on November 6, 1997; at such meeting a quorum was present and acting throughout; and such resolutions have not been amended or rescinded and are in full force and effect on the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Corporation on this 10th day of November, 1997. /s/ T. C. Wales ------------------------ T. C. Wales Assistant Secretary [S E A L] EXHIBIT A Board Resolutions Related to Annual Report on Form 10-K The Chairman called attention to the Corporation's Annual Report on Form 10-K, a draft of which was previously circulated to the Board. After discussion, upon motion duly made and seconded, the following resolutions were unanimously adopted: 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, any Vice President, the Secretary or 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 that 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 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ASHLAND INC.'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT. 1,000,000 YEAR SEP-30-1997 SEP-30-1997 268 0 1,754 24 729 2,995 7,471 3,580 7,777 2,261 1,639 75 0 0 1,949 7,777 14,200 14,319 12,424 12,424 0 8 170 320 119 192 96 (9) 0 279 3.80 3.67