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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, 1996
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
$3.125 Cumulative Convertible Preferred Stock New York Stock Exchange
6 3/4% Convertible Subordinated Debentures, due 2014 New York 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) has
been subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
At October 31, 1996, 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 $2,595,905,440. 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, 1996, there were 64,599,228 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, 1996 are incorporated by reference into Parts I
and II.
Portions of Registrant's definitive Proxy Statement for its January
30, 1997 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
Recent Developments................................. 1
Petroleum........................................... 2
SuperAmerica........................................ 5
Valvoline........................................... 6
Chemical............................................ 7
APAC................................................ 8
Coal................................................ 9
Exploration......................................... 11
Other Business...................................... 15
Miscellaneous....................................... 15
Item 2. Properties.......................................... 18
Item 3. Legal Proceedings................................... 18
Item 4. Submission of Matters to a
Vote of Security Holders........................... 19
Item X. Executive Officers of Ashland....................... 19
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters............................ 20
Item 6. Selected Financial Data............................. 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 20
Item 8. Financial Statements and Supplementary Data......... 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............. 20
PART III
Item 10. Directors and Executive Officers of the Registrant.. 20
Item 11. Executive Compensation...............................20
Item 12. Security Ownership of Certain Beneficial
Owners and Management...............................21
Item 13. Certain Relationships and Related Transactions.......21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.........................................21
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22,
1936, with its principal executive offices located at 1000 Ashland
Drive, Russell, Kentucky 41169 (Mailing Address: P.O. Box 391, Ashland,
Kentucky 41114) (Telephone: (606) 329-3333). The terms "Ashland" and the
"Company" as used herein include Ashland Inc. and its consolidated
subsidiaries, except where the context indicates otherwise.
Ashland's businesses are grouped into seven industry segments:
Petroleum, SuperAmerica, Valvoline, Chemical, APAC, Coal and
Exploration. Financial information about these segments for the five
fiscal years ended September 30, 1996 is set forth on Pages 60 and 61 of
Ashland's Annual Report to Shareholders for the fiscal year ended
September 30, 1996 ("Annual Report").
Ashland Petroleum is one of the nation's largest independent petroleum
refiners and a leading supplier of petroleum products to the
transportation and commercial fleet industries, other industrial
customers and independent marketers, and to SuperAmerica for retail
distribution. In addition, Ashland Petroleum gathers and transports
crude oil and petroleum products and distributes petroleum products
under the Ashland(R) brand name. SuperAmerica operates combination
gasoline and merchandise stores under the SuperAmerica(R) and Rich(R)
brand names. Valvoline is a marketer of branded, packaged motor oil and
automotive chemicals, antifreeze, filters, rust preventives and
coolants. In addition, Valvoline is engaged in the "fast oil change"
business through outlets operating under the Valvoline Instant Oil
Change(R) and Valvoline Rapid Oil Change(R) names.
Ashland Chemical distributes industrial chemicals, solvents,
thermoplastics and resins, and fiberglass materials, and manufactures a
wide variety of specialty chemicals and certain petrochemicals. APAC
performs contract construction work including highway paving and repair,
excavation and grading, and bridge and sewer construction, and produces
asphaltic and ready-mix concrete, crushed stone and other aggregate,
concrete block and certain specialized construction materials in the
southern United States.
Ashland's coal operations are conducted by 56% owned, publicly traded
Ashland Coal, Inc. ("Ashland Coal"), a producer of low-sulfur,
bituminous coal in central Appalachia for sale to domestic and foreign
electric utility and industrial customers. Ashland also holds a 50%
interest in Arch Mineral Corporation ("Arch"), a producer of low sulfur
coal and steam and metallurgical coal in Illinois, Kentucky, Virginia,
West Virginia and Wyoming. Ashland Exploration explores for, develops,
produces and sells crude oil and natural gas principally in the
Appalachian Basin and Gulf Coast areas of the United States and also
crude oil in Nigeria for export.
At September 30, 1996, Ashland and its consolidated subsidiaries had
approximately 36,100 employees (excluding contract employees).
RECENT DEVELOPMENTS
In a press release issued on December 9, 1996, Ashland announced a
plan to improve profitability and shareholder returns. The following are
some of the key elements of the plan:
o Establish a Petroleum Group, consisting of Ashland Petroleum,
SuperAmerica and Valvoline. J. A. (Fred) Brothers has been named Group
Operating Officer for the new Petroleum Group and will be responsible
for these businesses.
o Reduce capital employed in refining. As part of this effort, 1997
capital expenditures for Ashland Petroleum are being reduced from $175
million to $150 million. Capital expenditures for refining will be
limited to $100 million, well below Ashland Petroleum's annual
depreciation of $122 million. The remaining $50 million in Ashland
Petroleum's 1997 capital budget will be earmarked for value-added
petrochemical and Ashland(R) branded marketing expansions. Future
capital spending for refining will remain materially less than Ashland
Petroleum's annual depreciation.
o Review options for strategic alliances. In view of recent
developments in the refining and marketing industry, Ashland will
continue to assess and actively explore strategic options regarding
alignments or partnering with others to enhance returns from this
business.
-1-
o Retain CS First Boston Corporation to evaluate strategic
alternatives including mergers and spin-offs, regarding Ashland
Exploration, Inc. The goal is to complete an evaluation and any
resulting business transaction before the end of calendar 1997, subject
to regulatory approvals, tax rulings and market conditions.
o Redirect capital freed as a result of reducing capital in the
refining and exploration segments to growth businesses, including
Ashland Chemical Company, the APAC highway construction group and
Valvoline.
o Terminate the shelf registration statement providing for the
offering from time to time of up to $100 million in Ashland common
stock. To date, approximately $50 million of common stock has been sold
under this program.
o Implement a common stock repurchase program. This program will
authorize the repurchase of up to 1 million shares of Ashland common
stock annually.
o Initiate a program to evaluate corporate general and administrative
expenses. Activities directly related to business unit support will be
allocated to those business units. Corporate G&A costs that are not
allocated to business units will be reassessed.
o Continue to encourage the ongoing discussions between Ashland Coal,
Inc. and Arch Mineral Corporation, in which Ashland has separate equity
ownership positions. The two coal companies previously announced they
are discussing a possible business combination.
PETROLEUM
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.
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 1996, Ashland Petroleum's negotiated lease, contract and spot
purchases of United States crude oil for refinery input averaged 114,062
barrels per day (1 barrel = 42 United States gallons), including 97,206
barrels per day acquired through Ashland's Scurlock Permian subsidiary.
During fiscal 1996, 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 85,989 barrels per day during fiscal 1996 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 1996 as well as in fiscal 1995.
Ashland Petroleum's crude oil requirements in fiscal 1997 are
expected to be met through lease, contract and spot purchases from
United States independent producers and from various foreign national
oil companies, producing companies and traders as worldwide availability
and prices dictate. Ashland Exploration's share of Nigerian production
will either be sold, traded or used to help satisfy part of Ashland
Petroleum's fiscal 1997 crude oil requirements, depending upon world
crude oil prices and other economic factors. For further information
concerning Nigerian production, see "Exploration-International
Operations."
In addition to providing crude oil for Ashland Petroleum's
refineries, Scurlock Permian 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 in
western Canada.
Refining and Marketing
Ashland Petroleum owns and operates three refineries located in its
key markets with an aggregate refining capacity of 354,200 barrels of
crude oil per calendar day. The Catlettsburg, Kentucky refinery has a
refining capacity of 219,300 barrels per day and the St. Paul Park,
Minnesota and Canton, Ohio refineries have refining capacities of 69,000
barrels and 65,900 barrels per day, respectively. Ashland Petroleum's
refineries are complex and include crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. Each has the capability to
process a wide variety of crude oils and to
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produce normal refinery products, including reformulated gasoline. In
addition, the Catlettsburg refinery is equipped to manufacture
lubricating oils and a wide range of petrochemicals.
Ashland Petroleum's principal marketing area for gasoline and fuel
oils includes the Ohio River Valley, the upper Midwest, the upper Great
Plains and the southeastern United States. In addition to gasoline and
fuel oils, Ashland also manufactures and markets liquified petroleum
gas, asphalt and asphaltic products, pitch, base lube stocks, kerosene,
petrochemicals, jet fuels and residual fuels.
Ashland Petroleum's production of gasoline, kerosene and light fuel
oils is sold in 21 states through wholesale channels of distribution
(including company owned and exchange terminals and Ashland brand bulk
plants) and at retail through Ashland(R) brand distributor locations and
SuperAmerica. Gasoline is sold at wholesale primarily to independent
marketers, jobbers, and chain retailers who resell through several
thousand retail outlets primarily under their own names, and also under
the Ashland(R) brand name. Gasoline, kerosene, distillates and aviation
products are also sold to utilities, railroads, river towing companies,
commercial fleet operators, aviation and airline companies, governmental
agencies and other end users.
Ashland Petroleum also markets petroleum products under the
Ashland(R) brand name through a network of 28 (26 owned and 2 leased)
bulk plants located in 5 states. These plants maintain inventories of
gasoline, distillate, kerosene, motor oils, greases and other related
products. During fiscal 1996, Ashland Petroleum continued the program
announced in 1994 to modernize and upgrade Ashland Brand retail
marketing primarily through an independent jobber network. As of
September 30, 1996, 36 jobbers with 631 retail outlets have committed to
the new program, and Ashland Petroleum has sold or transferred company
owned or leased bulk plants and stations to some of these jobbers.
Retail outlets are being reimaged, including the use of the new
Ashland(R) brand logo to improve customer recognition. Ashland Petroleum
currently plans to continue expanding the Ashland(R) brand through
jobbers, and company owned or leased bulk plants will continue to be
sold to jobbers in the process. It had 485 units reimaged by September
30, 1996. Ashland also supplies 23 (21 owned and 2 leased) Ashland(R)
brand lessee-dealers and 61 reseller outlets using the Ashland(R) brand
name.
Ashland Petroleum also produces and markets asphalt cements,
polymerized asphalt, asphalt emulsions and industrial asphalts in the
United States. Ashland Petroleum markets asphalt products in 19 states.
Additionally, Ashland Petroleum manufactures petroleum pitch, primarily
used in the graphite electrode, clay target and refractory industries.
Ashland Petroleum produces residual fuels at its three refineries and
markets and sells these products in nine states, primarily to industrial
customers as boiler fuel.
The table below shows Ashland's refining operations for the last
three fiscal years.
Years Ended September 30
-------------------------------------
1996 1995 1994
----- ----- -----
Refinery Input (In thousands of barrels per day) 372.3 353.8 341.8
------------------------------------------------
Refinery Production (In thousands of barrels per day)
-----------------------------------------------------
Gasoline 183.5 176.8 168.0
Distillates and Kerosene 102.1 92.5 90.6
Asphalt 30.4 31.5 29.3
Jet and Turbine Fuel 11.4 11.1 10.9
Heavy Fuel Oils 7.1 6.7 7.7
Lubricants 7.7 7.7 7.6
Other 20.0 16.8 16.8
3
The table below shows the average daily consolidated sales of
petroleum products and crude oil by Ashland Petroleum, SuperAmerica,
Valvoline and Exploration (excluding intercompany sales) for the last
three fiscal years. Sales of gasoline (excluding excise taxes)
represented approximately 17%, 17% and 18% of Ashland's consolidated
sales and operating revenues (excluding excise taxes) in fiscal years
1996, 1995 and 1994, respectively.
Years Ended September 30
-------------------------------------
1996 1995 1994
----- ----- -----
Consolidated Product Sales (In thousands of barrels per day)
------------------------------------------------------------
Gasoline 197.6 193.7 181.9
Crude Oil 134.4 131.8 142.1
Distillates and Kerosene 112.8 102.8 97.0
Asphalt 37.0 36.8 34.3
Jet and Turbine Fuel 9.6 9.6 10.9
Heavy Fuel Oils 7.0 7.1 8.4
Lubricants 14.8 15.0 14.7
Other 28.0 28.3 23.3
Transportation and Storage
Ashland owns, leases or has an ownership interest in 5,790 miles of
pipeline in 13 states. This network transports crude oil and refined
products to and from terminals, refineries and other pipelines. This
includes 2,287 miles of crude oil gathering lines, 2,987 miles of crude
oil trunk lines, 475 miles of refined product lines and 41 miles of
natural gas liquid lines.
Ashland has an 18.6% ownership interest in LOOP 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") 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 C and H of Notes to Consolidated Financial
Statements in Ashland's Annual Report.
In addition, Ashland owns a 33% stock interest in the Minnesota Pipe
Line Company, which owns a crude oil pipeline in Minnesota. Minnesota
Pipe Line Company provides Ashland Petroleum with access to 270,000
barrels per day of crude oil common carrier transportation from
Clearbrook, Minnesota to Cottage Grove, Minnesota, which is in the
vicinity of Ashland Petroleum's St. Paul Park, Minnesota refinery.
Ashland Petroleum's river transportation operations include 8 towboats
(6 owned, 2 leased) and 166 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, 1996, construction on 14 of the new
double-hulled units has been completed and these barges have been added
to Ashland's barge fleet. 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 normally used for third party delivery of
foreign crude oil to the United States. Additional requirements are met
by chartering tankers for individual voyages.
4
Ashland Petroleum leases rail cars in various sizes and capacities for
movement of petroleum products and chemicals. Ashland Petroleum also
owns a large number of tractor-trailers, additional trailers, and a
large fleet of tank trucks and general service trucks.
Ashland Petroleum owns or has an interest in 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
For information on federal, state and local statutes and regulations
relating to releases into the environment or protection of the
environment, see "Miscellaneous-Governmental Regulation and
Action-Environmental Protection." For information relating to certain
environmental litigation, see "Legal Proceedings-Environmental
Proceedings."
There are traditional seasonal variations in Ashland Petroleum's sales
and operating results. The seasonality that Ashland Petroleum
experiences is due primarily to increased demand for gasoline during the
summer driving season, higher demand for distillate during the winter
heating season, and increased demand for asphalt from the road paving
industry during the last six months of Ashland's fiscal year. The
refining industry experiences a similar seasonality. For Ashland's
fiscal years 1994 to 1996, refining margins for Ashland Petroleum have
averaged $4.12 per barrel for the six-month periods ended March 31 and
$4.74 per barrel for the six-month periods ended September 30.
SUPERAMERICA
SuperAmerica Group, a division of Ashland, conducts retail petroleum
marketing operations under the SuperAmerica(R) and Rich(R) names. See
also "Petroleum-Refining and Marketing."
SuperAmerica(R) Stores - SuperAmerica operates 624 (484 owned and
140 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
(exclusing excise taxes) offer consumers gasoline, diesel fuel at
selected locations and a broad mix of other goods and services such as
fresh-baked goods, automated teller machines, video rentals, automotive
accessories and a line of private-label items. SuperAmerica is also
adding to its one-stop shopping concept by partnering with fast food
chains including Taco Bell, Subway, TCBY, Arby's, Blimpies, Baskin
Robbins, A&W and Pizza Hut. During fiscal 1996, 40% of the revenues of
the SuperAmerica stores were derived from the sale of merchandise and
60% of such revenues were derived from the sale of gasoline and diesel
fuel.
SuperAmerica operates warehouse distribution centers in Bloomington,
Minnesota, and Ashland, Kentucky, that distribute certain merchandise to
stores. SuperAmerica also operates a commissary in Russell, Kentucky,
that produces fresh sandwiches, salads and other food products for
distribution to stores in the Ohio Valley. A wholly-owned subsidiary of
Ashland also operates a large bakery and commissary in St. Paul Park,
Minnesota, under the name SuperMom's(R) Inc.
In addition to the 624 SuperAmerica stores, SuperAmerica has 26
jobber/franchisees who operate 40 stores in 2 states in the upper
Midwest. During fiscal 1996, 44 new and rebuilt SuperAmerica retail
outlets were opened.
Rich(R) Oil - SuperAmerica also operates 118 (103 owned and 15
leased) retail gasoline outlets in Kentucky, Ohio and West Virginia
under the Rich(R) Oil name. These outlets generate lower gasoline
volumes than the average SuperAmerica store, primarily because the
outlets are generally smaller and located in less-densely-populated
areas. During fiscal 1996, 16 new and rebuilt Rich retail outlets were
opened.
5
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of
automotive and industrial oils, automotive chemicals, and automotive and
environmental services, with sales in more than 140 countries. The
Valvoline(R) trademark was federally registered in 1873 and is the
oldest trademark for a lubricating oil in the United States. See also
"Petroleum-Refining and Marketing." Valvoline has diversified its
operations in recent years and is comprised of the following business
units:
Valvoline Domestic - Valvoline's largest division, Valvoline
Domestic, markets automotive, commercial, and industrial lubricants and
automotive chemicals to a broad network of U.S. customers. Valvoline
branded motor oil is one of the top selling brands in the U.S. private
passenger car and light truck market. Valvoline DuraBlend(R) Motor Oil
was the leading semi-synthetic brand of motor oil for all of 1996.
Valvoline Domestic also markets Zerex(R) antifreeze and Pyroil(R)
automotive chemicals. Zerex(R) is the second-leading antifreeze brand in
the U.S. During 1996, Valvoline Domestic managed a dwindling inventory
of 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. It is anticipated that R-12 inventory is sufficient to
supply customers through 1997.
The domestic commercial/fleet group continued a strategic alliance
relationship with the Cummins Engine Company to distribute heavy-duty
lubricants to the commercial market.
Valvoline International - Valvoline International markets
Valvoline(R) branded products and TECTYL(R) rust preventives worldwide
through company-owned affiliates or divisions in Australia, Canada,
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.
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, 1996,
374 company-owned and 100 franchise service centers were operating in 12
and 18 states, respectively.
In 1996, 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, 1996, Ecogard, Inc., through
its First Recovery division, was collecting used motor oil at an annual
rate of 52 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 U.S.A. customers,
collecting used antifreeze and oil filters as well.
Lube Refinery Sales - Valvoline's Lube Refinery Sales division sells
excess base stock production from the Catlettsburg, Kentucky lube
refinery to other U.S. motor oil and industrial oil marketers, as well
as to fuel and lube additive companies in the United States. It also
markets slack wax, a lube byproduct, through a network of resellers and
to other refiners for further processing. The division is also engaged
in private label blending and packaging for other North American
refiners. See also "Petroleum-Refining and Marketing."
6
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 operates 48 manufacturing facilities,
most of which are owned, in 11 states and 15 foreign countries and owns
or leases approximately 100 distribution facilities in 33 states and 11
foreign countries. Ashland Chemical is comprised of the following
operations:
Distribution
Industrial Chemicals & Solvents Division ("IC&S") - IC&S markets
chemical products, 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, a growing number of off-shore producers, plus
petrochemicals from Ashland's refineries. It specializes in supplying
mixed truckloads and less-than-truckload quantities to many industries
including the paint and coatings, inks, adhesives, polymer, rubber,
industrial and institutional compounding, automotive, appliance and
paper industries. In addition, IC&S distributes cosmetic and
pharmaceutical specialty chemicals and foodgrade additives and
ingredients. It also offers customers chemical waste collection,
disposal and recycling services, working in cooperation with major
chemical waste services companies.
FRP Supply Division - This division markets to customers in the
reinforced plastics and cultured marble industries mixed truckload and
less-than-truckload quantities of polyester resins, fiberglass and other
specialty reinforcements, catalysts and allied products from more than
50 distribution locations throughout North America.
General Polymers Division - This division markets a broad range of
thermoplastic injection molding and extrusion materials to processors in
the plastics industry through distribution locations in the United
States, Canada, Mexico and Puerto Rico. It also provides plastic
material transfer and packaging services and less-than-truckload
quantities of packaged thermoplastics. The basic resins business unit
markets bulk thermoplastic resins to a variety of proprietary processors
in North America.
Ashland Plastics Division - This division markets a broad range of
thermoplastics to processors outside North America. Ashland Plastics has
distribution centers located in Australia, Belgium, France, Italy, the
Netherlands, Ireland, Spain, and the United Kingdom. It also exports to
Latin America from the United States. It also has a compounding
manufacturing plant located in Italy. In September 1996, Ashland
Plastics and Borealis, a joint venture between Statoil and Neste, signed
a Memorandum of Understanding, under which Ashland Plastics will become
the Pan-European distributor for all small-volume sales of
Borealis-produced polyolefins. In October 1996, Ashland Plastics
acquired Exter Plasticos, S.A., a Spanish thermoplastics distribution
business.
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.
In March 1996, Ashland Chemical acquired the shares of Sociedad
Italo-Espanola d Resinas, S.A., an unsaturated polyester resins
manufacturer located in Spain. It has a manufacturing facility in
Benicarlo, Spain.
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
7
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.
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. In July 1996,
Ashland Chemical signed a letter of intent with the Pueblo, Colorado,
Economic Development Corporation to purchase property to build a new,
ultra-high purity manufacturing and packaging facility in Pueblo,
Colorado.
Foundry Products Division - This division manufactures and sells
foundry chemicals worldwide, including a complete line of foundry
binders, core and mold coatings, sand additives, mold releases, core
pastes, die lubes and other specialties. It has two domestic
manufacturing plants located in Cleveland, Ohio and 18 foreign
subsidiaries and affiliates manufacturing and/or marketing foundry and
other chemicals. It also has a metals applications laboratory as part of
the company's technical center, which is used for test castings and mold
and core material testing.
Drew Industrial Division - This division supplies specialized
chemicals and consulting services for the treatment of boiler water,
cooling water, steam, fuel and waste streams. It also supplies process
chemicals and technical services to the pulp and paper and mining
industries and also supplies additives used in manufacturing latex and
paints. It conducts operations throughout North America, Europe and the
Far East through subsidiaries, joint venture companies and distributors.
The division has manufacturing plants in Kansas City, Kansas; Kearny,
New Jersey; Houston, Texas; Ajax, Ontario, Canada; Singapore; Sydney and
Perth, Australia; and Auckland, New Zealand.
Petrochemicals
This division markets aromatic hydrocarbons, principally cumene,
toluene, xylene, and aromatic and aliphatic solvents and propylene
manufactured at facilities located at the Catlettsburg, Kentucky
refinery. It manufactures maleic anhydride at Neal, West Virginia and
Neville Island, Pennsylvania and methanol near Plaquemine, Louisiana.
Other Matters
Melamine Chemicals, Inc. ("MCI") - Ashland owns 23% of the
outstanding common stock of MCI, a public company (NASDAQ:MTWO). MCI
produces melamine at its Donaldsonville, Louisiana plant and sells it to
customers throughout the world. Melamine is a specialty chemical having
numerous industrial and commercial applications.
For information relating to the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") and the Superfund Amendment
and Reauthorization Act of 1986 ("SARA") (CERCLA and SARA hereinafter
sometimes referred to collectively as "Superfund"), and the Resource
Conservation and Recovery Act ("RCRA"), see "Miscellaneous-Governmental
Regulation and Action-Environmental Protection."
APAC
The APAC group of companies, which are located in 13 southern
states, perform construction work such as paving, repair and resurfacing
highways, streets, airports, residential and commercial developments,
sidewalks, and driveways; grading and base work; and excavation and
related activities in the construction of bridges and structures,
sanitary sewers, drainage facilities and underground utilities. APAC
also produces and sells construction materials such as asphaltic and
ready-mix concrete, crushed stone and other aggregate, and in certain
markets, concrete block and specialized construction materials, such as
architectural block.
8
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently
has 17 permanent operating quarry locations, 32 other aggregate
production facilities, 33 ready-mix concrete plants, 141 hot-mix asphalt
plants, and a fleet of over 8,900 mobile equipment units, including
heavy construction equipment and transportation-related equipment.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 28% of the raw aggregate produced by APAC is used
in the performance of APAC's own contract construction work and the
production of various processed construction materials. The remainder is
sold to third parties. APAC also purchases substantial quantities of raw
aggregate from other producers whose proximity to the job site render it
economically feasible. Most other raw materials, such as liquid asphalt,
portland cement and reinforcing steel, are purchased from others. APAC
is not dependent upon any one supplier or customer.
Approximately 60% of APAC's revenues are derived from highway and
other public sector sources. The other 40% is derived from industrial
and commercial customers and other private developers and contractors.
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, 1996 was $647 million, compared to
$672 million at September 30, 1995. The backlog orders at September 30,
1996 are considered firm, and a major portion is expected to be filled
during fiscal 1997.
COAL
Ashland Coal, Inc. ("Ashland Coal") - Ashland owns approximately 56%
of Ashland Coal, a public company (NYSE:ACI) which is engaged in the
production, transportation, processing and marketing of bituminous coal
produced in eastern Kentucky and southern West Virginia. Carboex
International Ltd., a subsidiary of Sociedad Espanola De Carbon
Exterior, S.A., a coal supply firm controlled by entities of the
Government of Spain, owns approximately a 10% interest in Ashland Coal.
The remaining 34% of Ashland Coal is owned by the public. The primary
emphasis and direction of Ashland Coal is on the acquisition and
development of low-sulfur steam coal reserves for sale to electric
utility customers in the U.S. and abroad.
For its fiscal year ended December 31, 1995, Ashland Coal and its
independent operating subsidiaries sold 22.5 million tons of coal, as
compared to 20.2 and 16.0 million tons sold in 1994 and 1993,
respectively. Of the total number of tons sold during fiscal 1995,
approximately 60% was under long-term contracts, as compared to 62% for
1994 and 57% for 1993, with the balance being sold on the spot market.
In fiscal 1995, Ashland Coal and its independent operating subsidiaries
sold 3.3 million tons of coal in the export market, compared to 1.7
million tons in 1994 and 2.1 million tons in 1993. Approximately 62%,
54%, and 61% of total revenues for 1995, 1994, and 1993, respectively,
were derived from long-term contracts. For the year ended December 31,
1995, Ashland Coal's independent operating subsidiaries produced
approximately 20.9 million tons of coal, as compared to 19.2 and 14.2
million tons for 1994 and 1993, respectively. In addition, Ashland Coal
purchased for resale approximately 1.4 million tons of coal during 1995
and approximately 1.3 and 1.6 million tons of coal during 1994 and 1993.
Ashland Coal's consolidated results for 1993 were significantly
affected by a selective strike by the United Mine Workers of America
("UMWA") from May to December 1993 against the operations of two
subsidiaries of Ashland Coal's Dal-Tex Coal Corporation subsidiary
("Dal-Tex") and the operations of Ashland Coal's Hobet Mining, Inc.
subsidiary ("Hobet"). On December 14, 1993, UMWA members ratified the
National Bituminous Coal Wage Agreement of 1993, and thereafter the UMWA
miners returned to work at the Dal-Tex and Hobet operations. Dal-Tex's
subsidiaries were merged into Dal-Tex, and Dal-Tex was merged into
Hobet, in each case effective March 1, 1996.
For the nine months ended September 30, 1996, Ashland Coal and its
independent operating subsidiaries sold 16.0 million tons of coal. Of
the total number of tons sold during the nine months ended September 30,
1996, 63% was under long-term contracts. These sales accounted for
approximately 62% of Ashland Coal's total
9
revenues for the nine-month period. Of the 16.0 million tons sold during
the nine-month period, 1.7 million tons were sold in the export market.
For the nine months, Ashland Coal's independent operating subsidiaries
produced approximately 14.8 million tons of coal and purchased
approximately 1.3 million tons for resale.
Ashland Coal's 1996 earnings have been significantly adversely
affected by the expiration at the end of 1995 of favorable sales
contracts with Cincinnati Gas & Electric Company and by price reopeners
under other supply contracts. On October 27, 1995, Ashland Coal's Board
of Directors authorized the repurchase, from time to time, of up to one
million shares of Ashland Coal's Common Stock. As of September 30, 1996,
256,000 shares have been purchased.
Recently, the National Labor Relations Board ruled that ballots cast
in an election by employees at Mingo Logan Coal Company to determine
whether they would be represented by the UMWA should be destroyed and
following that ruling, the UMWA withdrew its petition for an election.
Substantially all of Ashland Coal's coal properties are in eastern
Kentucky and southern West Virginia and are controlled by lease.
Royalties paid to lessors 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 minable 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 Ashland Coal's current mining
plans are not scheduled to expire prior to expiration of those plans in
2003 ( at Ashland Coal's Coal Mac operations) and 2006 (at the balance
of Ashland Coal's operations). Mining plans are not necessarily
indicative of the life of the mine.
As of December 31, 1995, Ashland Coal estimates that its
subsidiaries controlled approximately 640 million tons of recoverable
reserves in the proven and probable categories. Based upon limited
information obtained from preliminary prospecting, drilling and coal
seam analysis, Ashland Coal estimates that a substantial percentage of
this coal has a sulfur content of 1% or less. Ashland has not made an
independent verification of this information. The extent to which
reserves will eventually be mined depends upon a variety of variables,
including future economic conditions and governmental actions affecting
both the mining and marketability of low-sulfur steam coal.
Arch Mineral Corporation ("Arch") - Ashland currently owns 50% of
Arch and has the right to acquire an additional 1.25% of Arch pursuant
to a Put and Call Agreement with an Arch shareholder. Through its wholly
owned subsidiaries, Arch mines, processes, markets, and transports
bituminous coal in the domestic steam market and owns, controls and
manages mineral-bearing properties throughout the United States. Arch
has mines located in the Appalachian, Midwestern, and Western coal
fields with access to rail, inland waterway and truck transportation
networks, including several of its own transloading facilities. Arch
also controls undeveloped coal reserves in the San Juan Basin of New
Mexico, the Green River area in southwest Wyoming, southern Illinois,
Indiana, southeast Kentucky, western Virginia and southern West
Virginia.
For its fiscal year ended December 31, 1995, Arch sold 26.7 million
tons of coal compared to sales of 27.9 million tons and 17.6 million
tons in 1994 and 1993, respectively. In 1995, 78% of Arch's sales were
from the production of its wholly-owned independent operating
subsidiaries, compared to 73% and 79% in 1994 and 1993, respectively.
The remainder of the coal sold in each of these periods came from
brokerage activities or from independent contractors operating on
property controlled by Arch. Surface mines accounted for 60% of the
production in 1995, as compared to 52% and 69% in 1994 and 1993,
respectively. In each of these periods, the remainder of Arch's
production came from its underground and auger mines. Sales under
contracts with a duration of more than one year accounted for 72% of
Arch's sales in 1995, compared with 69% and 78% in 1994 and 1993,
respectively.
As of September 30, 1996, Arch had 33 coal supply contracts of one
year or longer duration. In the nine-months ended September 30, 1996,
Arch sold 21.7 million tons of coal, 70% of which was sold under
contracts with a duration of more than one year. During this period, 81%
of Arch's total sales came from the production of its subsidiaries,
while the remaining coal sold came from brokerage activities or
independent contractors operating on properties controlled by Arch.
During this nine-month period, 67% of Arch's production was from its
surface mines and the remainder was from its underground and auger
mines.
10
As of December 31, 1995, Arch owned or controlled estimated
recoverable coal reserves in the proven and probable categories of
approximately 1.3 billion tons, based on an estimate prepared by Arch.
Arch estimates 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.
During 1996, Arch acquired roughly 58,000 acres in the Carbon Basin
Reserve area of Wyoming consisting of approximately 96 million tons of
reserves in the proven and probable categories having a sulfur content
of less than 1.2 pounds of sulfur dioxide per million Btu. Additionally,
during 1996, the reserves associated with the idled Pilot Butte mine in
Sweetwater County, Wyoming and the assets associated with the Corbin
Preparation Plant in Knox and Whitley Counties, Kentucky were sold in
unrelated transactions for cash consideration and the assumption of the
reclamation liabilities of these operations.
Apogee Coal Company ("Apogee"), an independent operating subsidiary of
Arch, is a member of the Bituminous Coal Operators Association ("BCOA")
and a signatory to a five year collective bargaining agreement with the
UMWA that expires on August 1, 1998. This contract was ratified on
December 14, 1993, after a 219-day strike against certain BCOA members,
including Apogee. This strike significantly affected Apogee's
performance in 1993. In August 1996, the UMWA exercised its right to
reopen the contract to discuss wages and pensions. The BCOA and the UMWA
reached an agreement on these reopener issues, including an agreement
that the UMWA would not exercise its reopener rights in 1997. In the
nine months ended September 30, 1996, Apogee's production represented
approximately 50% of Arch's total sales. Two other independent
subsidiaries of Arch are signatories to collective bargaining agreements
with independent employees associations. Employees of the remainder of
Arch's operating subsidiaries are not represented by labor unions.
Other Matters - Ashland Coal and Arch have resumed discussions of
options for combining their businesses and operations. However, there
can be no assurances that the discussions will result in progress toward
a combination of the companies.
Ashland Coal and Arch are subject to environmental regulations,
including the Surface Mining Control and Reclamation Act of 1977, the
Clean Water Act, RCRA and the Clean Air Act, as well as related federal
environmental regulations and similar state enactments. In addition, the
Federal Mine Safety and Health Act of 1977 ("MSHA") imposes health and
safety standards on all mining operations. Regulations under MSHA are
comprehensive and affect numerous aspects of mining operations,
including the training of mine personnel, mining procedures, blasting
and the equipment used in mining operations. These laws, regulations and
requirements are not expected to have a material adverse impact on
Ashland Coal's or Arch's competitive position.
Ashland Coal and Arch are subject to the provisions of the Coal
Industry Retiree Health Benefit Act of 1992. This legislation provides
for the funding of medical and death benefits for certain retired
members of the UMWA through premiums to be paid by assigned operators,
transfers from an overfunded pension trust established for the benefit
of retired UMWA members, and transfers from the Abandoned Mine Lands
Fund, which is funded by a federal tax on coal production.
The Clean Air Act contains acid rain provisions which require
substantial reductions in sulfur dioxide emissions by power plants in
the United States. Both Ashland Coal and Arch have significant
low-sulfur coal reserves.
EXPLORATION
Ashland's oil and gas exploration and production activities are
conducted through wholly-owned subsidiaries of Ashland (collectively
referred to as "Ashland Exploration"). Ashland Exploration is currently
engaged in the exploration for and production of crude oil and natural
gas in the United States and in the exploration for and production of
crude oil in Nigeria. Limited exploration activity continues in
Australia.
For information regarding Ashland Exploration's estimated oil and
gas reserves and other financial data, see Supplemental Oil and Gas
Information on Pages 62 and 63 in Ashland's Annual Report. Since October
1, 1995,
11
no estimates of Ashland Exploration's total proved net oil or gas
reserves have been filed or included in reports to any federal authority
or agency other than the SEC.
Domestic Operations
Ashland Exploration has concentrated its domestic drilling and
production efforts in two core areas: the Appalachian Basin and the Gulf
Coast. In addition, minor royalty interests are located primarily in the
Southwest and Midcontinent regions of the United States.
In the Appalachian Basin, Ashland Exploration's activities consist
primarily of shallow gas development drilling on leaseholds totaling
approximately 900,000 acres in eastern Kentucky, Virginia and West
Virginia. In fiscal 1996, it completed 79 net gas wells, excluding 13
net wells which were being drilled at year-end.
During fiscal 1996, Ashland Exploration's domestic production averaged
564 net barrels of oil per day and 108.4 million net cubic feet of
natural gas per day. The average price received during fiscal 1996 was
$18.22 per barrel of oil and $2.39 per thousand cubic feet (MCF) of gas.
Ashland Exploration's exploratory efforts are concentrated in the Gulf
of Mexico. In fiscal 1996, Ashland Exploration participated in drilling
7 gross exploratory prospects. Ashland Exploration's exploratory
leasehold position in the Gulf of Mexico was 155,000 net acres at
September 30, 1996.
Ashland Exploration owned a working interest in 4,247 gross (3,858
net) domestic producing wells at September 30, 1996.
International Operations
Ashland Exploration's oil production in Nigeria during fiscal 1996 was
17,520 barrels per day (before royalty obligations) from 103,000 acres
onshore ("OPL 118") and 74,000 acres offshore ("OPL 98") held under a
production-sharing contract ("PSC") with the Nigerian National Petroleum
Corporation ("NNPC"), the Nigerian state-owned petroleum company.
Ashland Exploration holds a 100% working interest in these blocks. Three
successful horizontal development wells were drilled on OPL 98. The Akam
#15 and Ebughu #5 wells are currently producing a combined 2,255 barrels
per day. The Adanga SW #1 well is currently waiting on pipeline hook-up
which is expected in early fiscal 1997. The appraisal well Adanga North
#2 was drilled in September 1996 on OPL 98. The well was tested at 661
barrels per day and has been suspended pending further evaluation.
Ashland Exploration plans to drill one additional horizontal development
well on OPL 98 during fiscal 1997.
Other exploratory efforts in Nigeria occurred on two additional
offshore blocks ("OPL's 90/225") comprising a contract area of
approximately 580,000 gross acres under another production-sharing
contract with NNPC. Ashland Exploration holds a 50% working interest and
is operator in these blocks. Two appraisal wells were successfully
drilled in fiscal 1996 as confirmation to a 1994 discovery. The Okwori
South #2 encountered 297 net feet of oil pay and is currently suspended.
The Okwori South #3 encountered 378 net feet of oil pay and is also
currently suspended. Ashland Exploration and its partner are currently
evaluating the commercial potential of the Okwori field.
In Australia, Ashland Exploration owns a 50% working interest in one
exploration permit consisting of 335,000 gross acres and a 25% interest
in another exploration permit consisting of 590,000 gross acres, both of
which are located offshore western Australia. Ashland Exploration
expects to fulfill its remaining seismic commitment in fiscal 1997.
Ashland Exploration's international operations are necessarily subject
to factors beyond its control. Foreign operations may also be affected
by laws and policies of the United States relating to foreign trade,
investment, and taxation.
12
Operating Statistics
Acreage and Wells
The following table sets forth the gross and net productive wells and
acreage at September 30, 1996:
Productive wells - Gas Gross Net
----- ---
United States* ...................................... 4,211 3,836
Productive wells - Oil
United States........................................ 36 22
Nigeria ............................................. 36 36
-- --
Total*.......................................... 72 58
== ==
Developed Undeveloped
Acreage Acreage
Acreage (in thousands) Gross Net Gross Net
----- --- ----- ---
United States........................................ 1,263 936 748 410
Nigeria ............................................. 177 177 580 290
Australia............................................ 925 315
--------- --------- ------ ------
Total........................................... 1,440 1,113 2,253 1,015
===== ===== ===== =====
-----------------
* These wells include 331 gross wells (317 domestic and 14 international) and 293 net wells (279 domestic
and 14 international) which have multiple completions.
13
The following table summarizes the exploration and production activities
for the last three fiscal years:
Years Ended September 30
---------------------------------------------
1996 1995 1994
---- ---- ----
Net Natural Gas Production (MMCF per day)
United States........................................ 108.4 102.9 94.3
Net Crude Oil Production (average barrels per day)
United States........................................ 564 609 822
Nigeria (1) ......................................... 17,520 18,791 18,707
------ ------ ------
Total........................................... 18,084 19,400 19,529
====== ====== ======
Average Sales Prices - Natural Gas (per MCF)
United States........................................ $2.39 $ 1.89 $2.42
Average Sales Prices - Crude Oil (per barrel)
United States........................................ $18.22 $15.96 $14.29
Nigeria ............................................. 18.46 16.17 15.01
Average Production Product Cost (per equivalent barrel) (2)
United States........................................ $4.37 $4.09 $3.87
Nigeria ............................................. 9.70 9.17 7.69
Net Exploratory Wells Drilled - United States
Net Productive Wells................................. 1 2 2
Net Dry Wells ....................................... 1 5 4
--- --- ---
Total.......................................... 2 7 6
=== === ===
Net Exploratory Wells Drilled - International
Net Productive Wells................................. 2 1 1
Net Dry Wells ....................................... 0 2 1
--- --- ---
Total.......................................... 2 3 2
=== === ===
Net Development Wells Drilled
Net Productive Wells
United States........................................ 79 88 59
International ....................................... 3 0 0
--- --- ---
Total........................................... 82 88 59
== == ==
Net Dry Wells
United States........................................ 0 0 1
International ....................................... 0 0 0
--- --- ---
Total........................................... 0 0 1
=== === ===
-----------------
(1)Net production for Nigeria is before royalty.
(2)Equivalent barrels computed on a six MCF to one barrel ratio.
14
OTHER BUSINESS
AECOM Technology Corporation ("AECOM"), which is 12% owned by
Ashland, provides a wide array of design, engineering, architectural,
planning, operations and maintenance, construction and construction
management, development, environmental and other technical and
professional services to industrial, commercial and government clients.
AECOM is headquartered in Los Angeles, California, and performs services
through offices located throughout the world. Under an agreement between
AECOM and Ashland, AECOM is obligated to repurchase all of Ashland's
equity interest in AECOM with the repurchase scheduled to be completed
in stages through 1998.
Ashland, through a special purpose subsidiary, Ashland Ethanol, Inc.
("AEI"), has a 50% interest in a partnership that owns an ethanol plant
located in South Point, Ohio. The partnership is comprised of AEI and
subsidiaries of Ohio Farm Bureau Federation, Inc., Publicker Industries
Inc. and UGI Corporation. The plant began operation in September 1982
but discontinued operations due to low margins in August 1995. Because
of concerns about the venture's long-term viability, Ashland wrote off
its investment in AEI in fiscal 1986. The partnership is in default
under a loan with the U.S. Department of Agriculture-Rural Economic and
Community Development Services (formerly known as the Farmers Home
Administration) with a balance due of approximately $14.7 million plus
interest and has an unpaid balance of $24.5 million plus interest under
a Department of Energy cooperative agreement. A liquidation auction of
the plant, property and assets is scheduled for December 1996.
MISCELLANEOUS
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 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 the Organization of Petroleum
Exporting Countries ("OPEC") or other developments involving or
effecting 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, natural gas,
coal 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, natural gas, heating oil and coal businesses.
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,
15
Ashland cannot predict whether foreign and United States petroleum
product price levels will permit its refineries to operate on a
profitable basis. Neither can it predict the effect on its operations
and financial condition from possible changes in the Organization of
Petroleum Exporting Countries ("OPEC") policies or in actions by the
President of the United States and the Congress, from changes in taxes
and federal regulation of the oil and gas business in the United States,
or from other developments that cannot be foreseen.
The stability of Ashland's crude oil supply from foreign sources is
subject to factors beyond its control, such as military conflict between
oil-producing countries, the possibility of nationalization of assets,
embargoes of the type imposed by OPEC in 1973, internal instability in
one or more oil-producing countries, and rapid increases in crude oil
prices. Although Ashland will continue, for economic reasons, to rely
upon foreign crude oil sources for a substantial portion of its crude
oil supply, the extent of operation in the domestic crude oil market
afforded by its Scurlock Permian subsidiary assists in offsetting the
adverse effects frequently associated with market volatility. See
"Petroleum-Crude Oil Supply" for Ashland's crude oil processing
requirements.
Imported crude oil is subject at present to payment of duty, which
is 10.5(cent) per barrel for crudes over 25(degree) API gravity
(2.1(cent) per barrel for Canadian imports) and 5.25(cent) per barrel
for crudes below 25(degree) API gravity (1.05(cent) per barrel for
Canadian imports). Imported crude oil is also subject to a customs users
fee of .17% of the value of the crude oil. For information with respect
to tax assessments on crude oil, see also "Environmental Protection."
Retail marketing "divorcement" legislation and wholesale and retail
pricing regulations have been adopted in some states. They are proposed
from time to time in other states and at the federal level. If such
legislation were adopted at the federal level or in the states where
SuperAmerica sells petroleum products, it could have a substantial
adverse impact.
Environmental Protection - Federal, state and local statutes and
regulations relating to the protection of the environment have a
significant impact on the conduct of Ashland's businesses. Ashland's
capital and operating expenditures for air, water and solid waste
control facilities are summarized below.
Years Ended September 30
-------------------------------------
(In millions) 1996 1995 1994
- --------------------------------- ----- ----- -----
Capital expenditures $ 40 $ 44 $ 63
Operating expenditures 158 151 140
At September 30, 1996, Ashland's reserves for environmental
assessments and remediation efforts were $173 million, reflecting
Ashland's most likely estimates of the costs which will be incurred over
an extended period to remediate identified environmental conditions for
which costs are reasonably estimable.
Based on current environmental regulations, Ashland estimates
capital expenditures for air, water and solid waste control facilities
to be $25 million in 1997. Expenditures for investigatory and remedial
efforts in future years are subject to the uncertainties associated with
environmental exposures, including identification of new environmental
sites and changes in laws and regulations and their application. Such
expenditures, however, are not expected to have a material adverse
effect on Ashland's consolidated financial position, cash flow or
liquidity, but could have a material adverse effect on results of
operations in a particular quarter or fiscal year. For information
regarding inspections being conducted by the United States Environmental
Protection Agency with respect to Ashland Petroleum's three refineries,
see Note K of Notes to Consolidated Financial Statements in Ashland's
Annual Report.
The United States Environmental Protection Agency ("USEPA") and the
states have adopted regulations and laws concerning underground storage
tanks covering, among other things, registration of tanks, release
detection, corrosion protection, response to releases, closure of, and
financial responsibility for, underground storage tank systems.
Superfund provided for the establishment of a fund to be used for a
waste clean-up program administered by the USEPA. The law previously
provided for the following separate taxes: (i) a petroleum tax on
domestic crude oil and on imported crude oil equalized at 9.7(cent) per
barrel plus a 5(cent) per barrel oil spill tax, as more fully described
below, (ii) a chemical feedstock tax, (iii) a tax on imported chemical
derivatives, (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 which resulted in Ashland paying approximately $5
million in Superfund taxes during fiscal 1996 as compared to $19 million
in fiscal 1995. Superfund, which provides for cleanup of certain
hazardous waste sites, is undergoing consideration
16
for significant amendments, including reauthorization of taxing
provisions as well as a reevaluation of the liability allocation
provisions and improved cleanup remedy selection. However, it is
uncertain at this time exactly what the revisions will be, or if they
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 the
responsible party's liability limits have been reached, or where the
responsible party is otherwise unidentifiable or unable to pay. The
trust fund is financed, when depleted below specified levels, through an
excise tax of 5(cent) per barrel on domestic crude oil and imported
petroleum oil products (pursuant to Superfund). OPA 90 subjects spillers
to strict liability for removal costs and damages (including natural
resource damages) resulting from oil spills, and requires the
preparation and implementation of spill-response plans at designated
vessels and facilities. Additionally, OPA 90 requires that new tank
vessels entering or operating in domestic waters be 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, in nine specified metropolitan areas across the country. Ashland
does not directly supply gasoline in any of the nine metropolitan areas.
However, several urban locations within Ashland's marketing area have
opted into the RFG program and Ashland has been able to meet expected
demand for RFG in its marketing area. The Clean Air Act also required
the refining industry to supply 39 carbon monoxide (CO) non-attainment
areas with gasoline containing 2.7 weight percent oxygen for four winter
months each year. Upon being re-designated CO attainment, several of
these areas are seeking to opt-out of the oxygenated gasoline
requirements. Ashland believes it will have a continuing need to
directly supply this fuel only at St. Paul Park, Minnesota, whose
primary market is a CO non-attainment area.
RCRA, which requires "cradle to grave" management of hazardous
waste, is slated to be reauthorized by Congress, although timing of such
reauthorization is uncertain. Reauthorization issues may include an
expansion of hazardous waste program coverage, recycling, used oil, and
solid waste management. These same issues may be addressed in additional
USEPA rulemakings unrelated to reauthorization efforts. It is
anticipated that both the reauthorization and other future rulemakings
will result in increased environmental compliance costs, but the amount
of such increase is uncertain at this time.
Research
Ashland conducts a program of research and development directed
toward the invention and improvement of products and processes and also
toward the improvement of environmental controls for its existing
facilities. It maintains its primary research facilities in
Catlettsburg, Kentucky, and Dublin, Ohio. Research and development costs
are expensed as incurred ($27 million in 1996, $24 million in 1995 and
$23 million in 1994).
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
Petroleum competes primarily with other domestic refiners and, to a
lesser extent, with imported products. However, Ashland Petroleum
typically enjoys a geographic advantage for products in its primary
marketing areas. While some integrated competitors have sources of
controlled crude production, few competitors in Ashland Petroleum's
market areas are significantly crude self-sufficient. SuperAmerica
competes with major oil companies, independent oil companies and
independent marketers. Virtually all of SuperAmerica's refined products
are supplied by Ashland Petroleum. SuperAmerica strives to provide high
quality and efficient service and enjoys gasoline and merchandise sales
per store exceeding the convenience store industry average based on the
1995 National Association of Convenience Store State of the Industry
Survey.
17
Valvoline competes primarily with domestic oil companies and, to a
lesser extent, with international oil companies on a worldwide basis.
Valvoline's brand recognition and increasing market share in the "fast
oil change" market are important competitive factors. Ashland Chemical
competes in a number of chemical distribution, specialty chemical and
petrochemical markets. Its chemicals and solvents distribution
businesses compete with national, regional and local companies
throughout North America. Its plastics distribution businesses compete
worldwide. Ashland Chemical's specialty chemicals businesses compete
globally in selected niche markets and compete largely on the basis of
technology and service while holding proprietary technology in virtually
all their specialty chemicals businesses. Petrochemicals are largely
commodities, with pricing and quality being the most important factors.
The majority of the business for which APAC competes is obtained by
competitive bidding. An important competitive factor in Ashland
Exploration's domestic production activity is the ability of its
exploration staff to identify potential natural gas prospects, obtain
exploration rights and formulate and complete plans for the development
of properties. Similarly, competitive factors that are important for
Ashland Exploration's international production include its experience in
identifying prospects and developing and operating properties. The coal
industry is highly competitive, and Ashland Coal and Arch compete
(principally in price, location and quality of coal) with a large number
of other coal producers, some of which are substantially larger and have
greater financial resources and larger reserve bases than Ashland Coal
and Arch.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, and the principal
offices of Ashland Petroleum, which are owned, are located in Russell,
Kentucky. Principal offices of other segments are located in Lexington,
Kentucky (SuperAmerica and Valvoline); Dublin, Ohio (Chemical); Atlanta,
Georgia (APAC); Huntington, West Virginia (Ashland Coal) and Houston,
Texas (Exploration), all of which are leased. Ashland's principal
manufacturing, marketing and other materially important physical
properties are described under the appropriate segment under Item 1. See
also the statistical data included under "Exploration" and "Coal" in
Item 1 and Supplemental Oil and Gas Information on Pages 62 and 63 in
Ashland's Annual Report. Additional information concerning certain
leases may be found in Note H of Notes to Consolidated Financial
Statements in Ashland's Annual Report.
ITEM 3. LEGAL PROCEEDINGS
EnvironmentalProceedings -(1) As of September 30, 1996, Ashland was
subject to 77 notices received from the USEPA and similar state agencies
identifying Ashland 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 from various 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 accordance with
procedures established under regulations, 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, but could have a material adverse
effect on results of operations in a particular quarter or fiscal year.
Estimated costs for these matters are recognized in accordance with
generally accepted accounting principles governing probability and the
ability to reasonably estimate future costs. For additional information
regarding Superfund, see "Miscellaneous Governmental Regulation and
Action-Environmental Protection."
(2) 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 regarding volatile
organic compounds at its Catlettsburg, Kentucky refinery, and referred
the matter to USEPA - Region IV for formal enforcement action. Ashland
filed a petition requesting a hearing before a Kentucky administrative
hearing officer on the merits of the matter, which has now been
rescheduled for July 1997. Separately, the USEPA issued a Notice of
Violation to Ashland regarding this matter.
18
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, 1996.
ITEM X. EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically as to Senior Vice Presidents who are members of Ashland's
core management group, other Senior Vice Presidents, Administrative Vice
Presidents and other executive officers.)
JOHN R. HALL (age 63) Effective October 1, 1996, Mr. Hall retired as
Chief Executive Officer of Ashland, a position he has held since 1981.
He will remain as Chairman and Director until Ashland's Annual Meeting
on January 30, 1997 and has served in such capacities since 1981 and
1968, respectively.
PAUL W. CHELLGREN (age 53) was elected as Chief Executive Officer
effective October 1, 1996 and is President and Director of Ashland,
having served in such capacities since 1992. He is expected to be
elected Chairman of the Board upon Mr. Hall's retirement from such
position on January 30, 1997. During the past five years, he has also
served as Chief Operating Officer, Senior Vice President and Chief
Financial Officer of Ashland.
JAMES R. BOYD (age 50) is Senior Vice President of Ashland and Group
Operating Officer - Ashland Exploration, Inc., Arch Mineral Corporation,
Ashland Services Company and APAC, Inc. Mr. Boyd has served as Senior
Vice President since 1989 and as Group Operating Officer for the above
companies since 1990, with the exception of APAC for which he assumed
responsibility as of October 1, 1993.
JOHN A. BROTHERS (age 56) is Senior Vice President of Ashland and
Group Operating Officer - Ashland Petroleum Company, SuperAmerica Group
and The Valvoline Company and has served in such capacities since 1984
and 1996, respectively. During the last five years, he was Group
Operating Officer - Ashland Chemical Company, SuperAmerica Group and The
Valvoline Company.
THOMAS L. FEAZELL (age 59) is Senior Vice President, General Counsel
and Secretary of Ashland and has served in such capacities since 1992,
1981 and 1992, respectively. During the past five years he has also
served as Administrative Vice President of Ashland.
J. MARVIN QUIN (age 49) is Senior Vice President and Chief Financial
Officer of Ashland and has served in such capacities since 1992. During
the past five years, he has also served as Administrative Vice President
and Treasurer of Ashland.
ROBERT E. YANCEY, JR. (age 51) is Senior Vice President of Ashland
and President of Ashland Petroleum Company and has served in such
capacities since 1986. During the past five years, he also served as
Group Operating Officer of APAC, Inc. and Ashland Petroleum.
HARRY M. ZACHEM (age 52) is Senior Vice President - Public Affairs
and has served in such capacity since 1988.
DAVID J. D'ANTONI (age 51) is Senior Vice President of Ashland and
President of Ashland Chemical Company and has served in such capacities
since 1988.
JOHN F. PETTUS (age 53) 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 52) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
During the past five years he has also served as Senior Vice President
and Chief Operating Officer of APAC.
G. THOMAS WILKINSON (age 58) is Senior Vice President of Ashland and
President of Ashland Exploration, Inc. and has served in such capacities
since 1992 and 1990, respectively. During the past five years he has
also served as Vice President of Ashland.
KENNETH L. AULEN (age 47) is Administrative Vice President and
Controller of Ashland and has served in such capacity since 1992. During
the past five years he has also served as Auditor of Ashland.
PHILIP W. BLOCK (age 49) is Administrative Vice President - Human
Resources of Ashland and has served in such capacity since 1992. During
the past five years he has also served as Vice President - Corporate
Human Resources.
19
JOHN W. DANSBY (age 51) is Administrative Vice President and
Treasurer of Ashland and has served in such capacities since 1992.
During the past five years he has also served as Ashland's Vice
President of Planning.
WILLIAM R. SAWRAN (age 51) is Vice President and Chief Information
Officer of Ashland, and President of Ashland Services Company and has
served in such capacities since 1984, with the exception of Chief
Information Officer which he assumed in 1994.
JAMES J. O'BRIEN (age 42) is Vice President of Ashland and President
of The Valvoline Company and has served in such capacities since October
1995. During the past five years he has also served as Vice President of
Ashland Petroleum Company, Executive Assistant to the Chief Executive
Officer and Regional Manager of Ashland Chemical's General Polymers
division.
FRED E. LUTZEIER (age 44) is Auditor of Ashland and has served in
such capacity since December 1992. During the past five years he has
also served as Vice President and Controller of Arch Mineral
Corporation.
Each executive officer (other than Vice Presidents who are appointed
by Ashland's management) is elected by the Board of Directors to a term
of one year, or until the successor is duly elected, at the annual
meeting of the Board of Directors, except in those instances where the
officer is elected at other than an annual meeting of the Board of
Directors, in which case the tenure will expire at the next annual
meeting of the Board of Directors unless the officer is re-elected.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is hereby incorporated by reference the information appearing
in Note G of Notes to Consolidated Financial Statements in Ashland's
Annual Report.
At September 30, 1996, there were approximately 23,100 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 64
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the consolidated financial
statements appearing on Pages 43 through 58 and the supplemental
information appearing on Pages 60 through 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 30, 1997 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 1996
("Proxy Statement"). See also the list of Ashland's executive officers
and related information under "Executive Officers of Ashland" in Item X
herein.
ITEM 11. Executive Compensation
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation" and "Compensation of
Directors" in Ashland's Proxy Statement.
20
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 25.
(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 September 19,
1996 (filed as Exhibit 3.2 to Ashland's Form 8-K
dated September 20, 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 Form10-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 Form8-A filed with the SEC on May 16,
1996, and incorporated herein by reference).
The following Exhibits 10.1 through 10.20 are compensatory
plans or arrangements or management contracts required to be
filed as exhibits pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K.
10.1 - Amended Stock Incentive Plan for Key Employees
of Ashland Inc. and its Subsidiaries.
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).
10.6 - Ashland Inc. Incentive Compensation Plan (filed
as Exhibit 10(c).6 to Ashland's Form10-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).
21
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.
10.13 - Ashland Inc. Directors' Charitable Award Program.
10.14 - Ashland Inc. 1993 Stock Incentive Plan.
10.15 - Ashland Inc. 1995 Performance Unit Plan.
10.16 - Ashland Inc. Incentive Compensation Plan for Key
Executives.
10.17 - Ashland Inc. Deferred Compensation Plan.
11 - Computation of Earnings Per Share (appearing on
Page 28 of Ashland's Form 10-K for the fiscal year
ended September 30, 1996).
12 - Computation of Ratios of Earnings to Fixed Charges
and Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
13 - Portions of Ashland's Annual Report to
Shareholders, incorporated by reference herein,
for the fiscal year ended September 30, 1996.
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
A report on Form 8-K was filed on September 20, 1996 to announce that
Paul W. Chellgren was formally elected by the Board of Directors as
Chief Executive Officer. The report also noted that Ashland's Board of
Directors had amended Ashland's Bylaws at its meeting on September 19,
1996.
A report on Form 8-K was filed on November 14, 1996 to announce that
Providence Capital, Inc., a New York-based financial firm and a
stockholder of record of 100 Ashland Inc. (NYSE:ASH) common shares, had
given formal notice to Ashland that it had nominated three
individuals for election to Ashland's board of directors at the 1997
annual shareholders' meeting, to be held on January 30, 1997.
A report on Form 8-K was filed on December 9, 1996 announcing several
steps to improve the Company's profitability and enhance returns to
Ashland's shareholders. Ashland also announced that Providence Capital,
which had proposed nominating three directors to Ashland's board at
Ashland's annual shareholders' meeting, has agreed to withdraw its
nominations.
22
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: December 10, 1996
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 December 10, 1996.
Signatures Capacity
/s/ Paul W. Chellgren Chief Executive Officer, President
------------------------- and Director
Paul W. Chellgren
/s/ J. Marvin Quin Senior Vice President and Chief
------------------------- Financial Officer
J. Marvin Quin
/s/ Kenneth L. Aulen Administrative Vice President,
------------------------- Controller and Principal
Kenneth L. Aulen Accounting Officer
* Director
-------------------------
Jack S. Blanton
* Director
-------------------------
Thomas E. Bolger
* Director
-------------------------
Samuel C. Butler
* Director
-------------------------
Frank C. Carlucci
* Director
-------------------------
James B. Farley
* Director
-------------------------
Ralph E. Gomory
*
------------------------- Chairman of the Board of Directors
John R. Hall and Director
23
*
------------------------- Director
Mannie L. Jackson
*
------------------------- Director
Patrick F. Noonan
* Director
-------------------------
Jane C. Pfeiffer
* Director
-------------------------
James R. Rinehart
* Director
-------------------------
Michael D. Rose
* Director
-------------------------
William L. Rouse , Jr.
* Director
-------------------------
Robert B. Stobaugh
* By: /s/ Thomas L. Feazell
------------------------
Thomas L. Feazell
Attorney-in-Fact
Date: December 10, 1996
24
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
Page
Consolidated financial statements and supplemental information:
Statements of consolidated income *
Consolidated balance sheets *
Statements of consolidated common stockholders' equity *
Statements of consolidated cash flows *
Notes to consolidated financial statements *
Five year information by industry segment *
Supplemental oil and gas information *
Consolidated financial schedule:
II - Valuation and qualifying accounts 27
-----------
*The consolidated financial statements appearing on Pages 43
through 58 and the supplemental information appearing on Pages 60
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 C of Notes to Consolidated Financial Statements in
Ashland's Annual Report.
25
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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, 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.
Louisville, Kentucky ERNST & YOUNG LLP
November 6, 1996
26
- -------------------------------------------------------------------------------------------------------------------------------
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, 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
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
Reserves deducted from asset accounts
Accounts receivable $20 $11 $(8) (1) $ - $23
Inventories 5 3 (2) - 6
================================================================================================================================
(1) Uncollected amounts written off, net of recoveries of $2 million in 1996, $1 million in 1995 and $2 million in 1994.
27
- ----------------------------------------------------------------------------------------------------------------------------------
Ashland Inc. and Subsidiaries
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
Years Ended September 30
- ----------------------------------------------------------------------------------------------------------------------------------
(In millions except per share data) 1996 1995 1994
===================================================================================================================================
PRIMARY EARNINGS PER SHARE
Income available to common shares
Net income $ 211 $ 24 $ 197
Dividends on convertible preferred stock (19) (19) (19)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 192 $ 5 $ 178
- -----------------------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 64 62 60
Common shares issuable upon exercise of stock options 1 - 1
- -----------------------------------------------------------------------------------------------------------------------------------
65 62 61
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share $2.97 $.08 $2.94
===================================================================================================================================
EARNINGS PER SHARE ASSUMING FULL DILUTION
Income available to common shares
Net income $ 211 $ 24 $ 197
Interest on convertible debentures (net of income taxes) 5 - 5
Dividends on convertible preferred stock - (19) -
- -----------------------------------------------------------------------------------------------------------------------------------
$ 216 $ 5 $ 202
- -----------------------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 64 62 60
Common shares issuable upon
Exercise of stock options 1 1 1
Conversion of debentures 3 - 2
Conversion of preferred stock 9 - 9
- -----------------------------------------------------------------------------------------------------------------------------------
77 63 72
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share $2.82 $.08 $2.79
===================================================================================================================================
28