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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, 1999
Commission file number
1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Telephone Number: (606) 815-3333
Securities Registered Pursuant to Section 12(b):
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock and Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g): None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) 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 November 30, 1999, 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 $2,394,294,188. In determining this
amount, the Registrant has assumed that its directors and executive
officers are affiliates. Such assumption shall not be deemed conclusive for
any other purpose.
At November 30, 1999, there were 71,290,693 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, 1999 are incorporated by reference into
Parts I and II.
Portions of Registrant's definitive Proxy Statement for its
January 27, 2000 Annual Meeting of Shareholders are incorporated by
reference into Part III.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business .................................................. 1
Corporate Developments................................. 1
APAC................................................... 2
Ashland Distribution................................... 2
Ashland Specialty Chemical............................. 3
Valvoline.............................................. 4
Refining and Marketing................................. 5
Arch Coal.............................................. 8
Miscellaneous.......................................... 10
Item 2. Properties................................................. 12
Item 3. Legal Proceedings.......................................... 12
Item 4. Submission of Matters to a
Vote of Security Holders................................. 13
Item X. Executive Officers of Ashland.............................. 13
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters.................................. 14
Item 6. Selected Financial Data.................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..15
Item 8. Financial Statements and Supplementary Data.................15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................15
PART III
Item 10. Directors and Executive Officers of the Registrant..........15
Item 11. Executive Compensation......................................15
Item 12. Security Ownership of Certain Beneficial
Owners and Management.....................................15
Item 13. Certain Relationships and Related Transactions..............15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...............................................15
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22,
1936, with its principal executive offices located at 50 E. RiverCenter
Boulevard, Covington, Kentucky 41012 (Mailing Address: 50 E. RiverCenter
Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391) (Telephone: (606)
815-3333). 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 six industry segments: APAC,
Ashland Distribution, Ashland Specialty Chemical, Valvoline, Refining and
Marketing and Arch Coal. Financial information about these segments for the
three fiscal years ended September 30, 1999, is set forth on Pages 52 and
53 of Ashland's Annual Report to Shareholders for the fiscal year ended
September 30, 1999 ("Annual Report").
APAC performs contract construction work, including highway paving and
repair, excavation and grading, and bridge construction, and produces
asphaltic and ready-mix concrete, crushed stone and other aggregate,
concrete block and certain specialized construction materials in the
southern and midwestern United States.
Ashland Distribution distributes industrial chemicals, solvents,
ingredients, thermoplastics and resins, fiberglass materials and fine
ingredients in North America and plastics in Europe. Ashland Specialty
Chemical manufactures and sells a wide variety of performance chemicals,
resins, products and services and certain petrochemicals. Ashland
Distribution and Ashland Specialty Chemical were formed from the division
of Ashland Chemical in March 1999.
Valvoline is a marketer of premium branded, packaged motor oil and
automotive chemicals, automotive appearance products, 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) name.
Marathon Ashland Petroleum LLC ("MAP"), a joint venture with Marathon
Oil Company, operates seven refineries with a total crude oil refining
capacity of 935,000 barrels per day. Refined products are distributed
through a network of independent and company-owned outlets in the Midwest,
the upper Great Plains and the southeastern United States. Marathon Oil
Company has a 62% interest in MAP, and Ashland holds a 38% interest.
Ashland accounts for its investment in MAP using the equity method.
Ashland's coal operations are conducted by Arch Coal, Inc., which is
owned 58% by Ashland and is publicly traded. Arch Coal produces,
transports, processes and markets bituminous coal produced in Central
Appalachia and the western and midwestern United States. Ashland accounts
for its investment in Arch Coal using the equity method.
At September 30, 1999, Ashland and its consolidated subsidiaries had
approximately 23,000 employees (excluding contract employees).
CORPORATE DEVELOPMENTS
In October 1999, Ashland completed its tender offer for Superfos a/s,
a Denmark based industrial company. In November 1999, in a series of
transactions, Ashland sold the businesses of Superfos, other than its U.S.
construction operations, to a unit of Industri Kapital, a European private
equity fund, for cash and a short-term note of $285 million (to be redeemed
by the end of the March 2000 quarter). Ashland's net cost for the U.S.
construction business of Superfos will be approximately $520 million.
In October 1999, Ashland announced that it was making progress on its
study to explore strategic alternatives for its investment in Arch Coal and
that a tax-free spin-off to its shareholders would seem to be its preferred
alternative. Ashland also announced that it has submitted a proposal to
Arch Coal and has begun discussions with a special committee of the Arch
Coal Board of Directors regarding such a spin-off transaction. Such a
spin-off would be subject, among other things, to a negotiated agreement
with the special committee of the Arch Coal Board of Directors, approval by
the Arch Coal shareholders, a favorable ruling from the Internal Revenue
Service and approval of Ashland's Board of Directors. There can be no
assurance that an agreement with the special committee of the Arch Coal
Board of Directors will be reached or that the necessary approvals of the
Arch Coal shareholders and the Ashland Board of Directors will be obtained
or that a favorable ruling from the Internal Revenue Service
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will be obtained. Even if an agreement were reached and such conditions
were met, Ashland anticipates that it would be several months before a
spin-off could be consummated.
APAC
The APAC group of companies performs construction work such as
paving, repairing and resurfacing highways, streets, airports, residential
and commercial developments, sidewalks and driveways; grading and base
work; and excavation and related activities in the construction of bridges
and structures, drainage facilities and underground utilities in 14
southern and midwestern states. APAC also produces and sells construction
materials, such as hot-mix asphalt and ready-mix concrete, crushed stone
and other aggregate and, in certain markets, concrete block and specialized
construction materials, such as architectural block. For information on
Ashland's acquisition of the U.S. construction operations of Superfos a/s,
see "Item 1. Corporate Developments."
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
26 permanent operating quarry locations, 40 other aggregate production
facilities, 54 ready-mix concrete plants, 189 hot-mix asphalt plants and a
fleet of over 11,000 mobile equipment units, including heavy construction
equipment and transportation-related equipment.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 26% of the raw aggregate produced by APAC is used in
APAC's own contract construction work and the production of various
processed construction materials. The remainder is sold to third parties.
APAC also purchases substantial quantities of raw aggregate from other
producers whose proximity to the job site renders it economically feasible.
Most other raw materials, such as liquid asphalt, portland cement and
reinforcing steel, are purchased from third parties. APAC is not dependent
upon any one supplier or customer.
Approximately 59% of APAC's revenues are derived directly from highway
and other public sector sources. The other 41% are derived from industrial
and commercial customers, private developers and other contractors to the
public sector. The 1998 highway funding authorization package increased
federal funding for highways by $52 billion over a six-year period. More
importantly, the states in which APAC operates should see an average
increase in annual funding of 59% or $3.3 billion, based on current
estimates.
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, 1999 was $948 million, compared to $838
million at September 30, 1998. The backlog orders at September 30, 1999 are
considered firm, and a major portion is expected to be filled during fiscal
2000.
ASHLAND DISTRIBUTION
Ashland Distribution distributes chemicals, plastics, fiber
reinforcements and fine ingredients in North America and plastics in
Europe. Ashland Distribution owns or leases approximately 100 distribution
facilities in North America and 25 distribution facilities in 17 foreign
countries. Ashland Distribution is comprised of the following business
units:
INDUSTRIAL CHEMICALS & SOLVENTS DIVISION - This division markets
specialty chemicals, additives and solvents to industrial chemical users in
major markets through distribution centers in the United States, Canada,
Mexico and Puerto Rico. It distributes approximately 7,000 chemicals,
solvents, additives and raw materials made by many of the nation's leading
chemical manufacturers and a growing number of offshore producers. It
specializes in supplying mixed truckloads and less-than-truckload
quantities to many industries, including the paint and coatings, inks,
adhesives, polymer, rubber, industrial and institutional compounding,
automotive, appliance and paper industries. It also offers customers
chemical waste collection, disposal and recycling services, working in
cooperation with major chemical waste services companies.
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GENERAL POLYMERS DIVISION - This division markets a broad range of
thermoplastic resins to injection molders, extruders, blow molders, and
rotational molders 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 division's basic resins group
markets bulk wide-spec and off-grade thermoplastic resins to a variety of
proprietary processors in North America.
FRP SUPPLY DIVISION - This division markets to customers in the
reinforced plastics and cultured marble industries mixed truckload and
less-than-truckload quantities of polyester resins, fiberglass and other
specialty reinforcements, catalysts and allied products from distribution
facilities located throughout North America.
FINE INGREDIENTS DIVISION - This division distributes cosmetic and
pharmaceutical specialty chemicals and food-grade and nutritional additives
and ingredients across North America.
ASHLAND PLASTICS EUROPE - This division markets a broad range of
thermoplastics to processors in Europe. Ashland Plastics Europe has
distribution centers located in Belgium, Finland, France, Germany, Ireland,
Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom and
has compounding manufacturing facilities located in Italy and Spain.
DISTRIBUTION SERVICES - This division provides warehousing and
trucking services for North American distribution businesses. It operates a
network of 95 warehouses and a fleet of 475 trucks making deliveries to
44,000 customers throughout North America.
ASHLAND SPECIALTY CHEMICAL
Ashland Specialty Chemical manufactures and supplies specialty
chemical products and services to industries including the adhesives,
automotive, composites, foundry, merchant marine, paint, paper, plastics
and semiconductor fabrication industries. Ashland Specialty Chemical owns
and operates 36 manufacturing facilities and participates in 14
manufacturing joint ventures in 20 countries. Ashland Specialty Chemical is
comprised of the following business units:
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;
Los Angeles, California; Bartow, Florida; Ashtabula, Ohio; Philadelphia,
Pennsylvania; Kelowna, British Columbia, Canada; Benicarlo, Spain; and,
through a joint venture, in Jeddah, Saudi Arabia and Sao Paolo, Brazil. In
addition, the division also manufactures products through other Ashland
Specialty Chemical facilities located in Mississauga, Ontario, Canada and
Neville Island, Pennsylvania.
FOUNDRY PRODUCTS DIVISION - This division manufactures and sells
foundry chemicals worldwide, including sand-binding resin systems,
refractory coatings, release agents, engineered sand additives, riser
sleeves and die lubricants. This division serves the global metal casting
industry from 22 locations in 18 countries. The division is currently
building a manufacturing facility in China expected to be completed in the
third quarter of calendar 2000.
DREW INDUSTRIAL DIVISION - This division supplies specialized
chemicals and consulting services for the treatment of boiler water,
cooling water, steam, fuel and waste streams. It also supplies process
chemicals and technical services to the pulp and paper and mining
industries and additives to manufacturers of latex and paint. It conducts
operations throughout North America, Europe and the Far East through
subsidiaries, joint venture companies and distributors. The division has
manufacturing plants in Kearny, New Jersey; Houston, Texas; Ajax, Ontario,
Canada; Somercotes, England; Singapore; Sydney and Perth, Australia; and
Auckland, New Zealand.
ELECTRONIC CHEMICALS DIVISION - This division manufactures and sells a
variety of ultrapure chemicals for the worldwide semiconductor industry
through various manufacturing locations and also custom blends and packages
ultrapure liquid chemicals to customer specifications. The division
operates manufacturing plants in Pueblo, Colorado; Easton, Pennsylvania;
Dallas, Texas and Milan, Italy. In addition, it enters into long-term
agreements to provide complete on-site chemical management services,
including purchasing, warehousing and delivering chemicals for in-plant
use, at major facilities of large consumers of high purity chemicals. This
division has entered into a joint venture with Union Petrochemical
Corporation of Taipei, Taiwan to build and operate an ultrapure process
chemicals manufacturing facility in Taiwan. In addition, the division
recently built a facility in Korea to manufacture specialty stripper
products for semiconductor manufacturing.
3
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 and Totowa, New Jersey; and Ashland and
Columbus, Ohio.
DREW MARINE DIVISION - This division supplies specialty chemicals for
water and fuel treatment and general maintenance, as well as sealing
products, welding and refrigerant products and fire fighting and safety
services to the world's merchant marine fleet. Drew Marine currently
provides shipboard technical service for more than 10,000 vessels from more
than 100 locations serving approximately 600 ports throughout the world.
PETROCHEMICALS DIVISION - This division manufactures maleic anhydride
at Neal, West Virginia, and Neville Island, Pennsylvania. Its Energy
Services business unit provides industrial and commercial businesses with
expert management of their total energy requirements.
RESEARCH AND DEVELOPMENT - Ashland Specialty Chemical conducts
research and commercial development programs at the Technical Center in
Dublin, Ohio to identify and develop innovative technologies.
OTHER MATTERS
For information on Ashland Distribution and Ashland Specialty
Chemical and federal, state and local statutes and regulations governing
releases into, or protection of, the environment, see "Item 1.
Miscellaneous - Environmental Matters" and "Item 3. Legal Proceedings -
Environmental Proceedings."
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of premium
branded automotive and industrial oils, automotive chemicals, automotive
appearance products and automotive 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.
Valvoline is comprised of the following business units:
NORTH AMERICAN PRODUCTS - This unit, Valvoline's largest division,
markets automotive, commercial, and industrial lubricants, automotive
chemicals and automotive appearance products to a broad network of North
American customers. This unit markets Valvoline branded motor oil, one of
the top selling brands in the U.S. private passenger car and light truck
market and premium synthetic SynPower(R) automobile chemicals for
"under-the-hood" use.
North American Products also markets Eagle One(R) premium automotive
appearance products, Zerex(R) antifreeze and Pyroil(R) automotive
chemicals. Zerex is the second leading antifreeze brand in the United
States. This division also markets R-12, an automotive refrigerant that was
phased out of production in 1995. R-12 is being replaced in the market by a
new generation of refrigerants.
The domestic commercial and specialty products group of the North
American Products unit continued its strategic alliance with Cummins Engine
Company to distribute heavy-duty lubricants to the commercial market.
EAGLE ONE - Eagle One is a brand of premium automobile appearance
chemicals for "above-the-hood" applications. Products include waxes,
polishes and wheel cleaners. Managed by Valvoline as a separate business
unit, Eagle One markets its products through Valvoline's North American
Products and Valvoline International divisions.
VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline
branded products, TECTYL(R) rust preventives and Eagle One automotive
appearance products through company-owned affiliates or divisions in
Argentina, Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Great Britain, Italy, the Netherlands, Poland, South Africa, Sweden,
Switzerland and Thailand. Licensees and distributors market products in
other parts of Europe, Mexico, Central and South America, the Far East, the
Middle East and certain African countries. Joint
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ventures have been established in Ecuador, India, Thailand and Venezuela.
Packaging and blending plants and distribution centers in Australia, 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. As of September 30,
1999, 377 company-owned and 207 franchised service centers were operating
in 35 states.
VIOC has continued its customer service innovation through its Maximum
Vehicle Performance program ("MVP"). MVP is a computer-based program that
maintains system-wide service records on all customer vehicles. MVP also
contains a database on all car models, which allows employees to make
service recommendations based on vehicle owner's manual recommendations.
ECOGARD, INC. - In September 1999, Valvoline sold Ecogard, Inc. to
Safety-Kleen Corp. Ecogard, Inc., through its First Recovery division,
collects used motor oil from a network of automotive aftermarket retailers
and service businesses.
REFINING AND MARKETING
Refining and Marketing operations are conducted by MAP and its
subsidiaries, including its wholly-owned subsidiaries, Speedway
SuperAmerica LLC and Marathon Ashland Pipe Line LLC. Marathon Oil Company
holds a 62% interest in MAP and Ashland holds a 38% interest in MAP.
REFINING
MAP owns and operates seven refineries with an aggregate refining
capacity of 935,000 barrels of crude oil per calendar day. The table below
sets forth the location and daily throughput capacity (measured in barrels)
of each of MAP's refineries as of September 30, 1999:
Garyville, Louisiana.............................................................. 232,000
Catlettsburg, Kentucky............................................................ 222,000
Robinson, Illinois................................................................ 192,000
Detroit, Michigan................................................................ 74,000
Canton, Ohio..................................................................... 73,000
Texas City, Texas................................................................ 72,000
St. Paul Park, Minnesota......................................................... 70,000
-------
Total................................................................. 935,000
=======
MAP's refineries include crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. The refineries have the
capability to process a wide variety of crude oils and to produce typical
refinery products, including reformulated gasoline ("RFG"). In addition to
typical refinery products, the Catlettsburg refinery manufactures
lubricating oils and a wide range of petrochemicals. For the twelve months
ended September 30, 1999, 73% of MAP's production of lubricating oils was
purchased by Valvoline and 40% of MAP's production of petrochemicals was
purchased by Ashland Distribution.
MAP also produces asphalt cements, polymerized asphalt, asphalt
emulsions and industrial asphalts. Additionally, MAP manufactures petroleum
pitch, primarily used in the graphite electrode, clay target and refractory
industries.
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The table below sets forth MAP's refinery input and refinery
production by product group for the twelve months ended September 30, 1999
and for the nine months ended September 30, 1998.
Twelve Months Ended Nine Months ended
-------------------- -----------------
September 30, 1999 September 30, 1998
------------------ ------------------
Refinery Input (In thousands of barrels per day) 1,034.0 1,023.3
------------------------------------------------
Refined Product Yields (In thousands of barrels per day)
--------------------------------------------------------
Gasoline .................................................... 565.5 539.8
Distillates.................................................... 265.6 269.2
Propane........................................................ 22.2 20.9
Feedstocks & Special Products................................. 64.9 71.7
Heavy Fuel Oils................................................ 45.1 47.4
Asphalt........................................................ 70.4 69.3
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Total.....................................1,033.7 1,018.3
======= =======
MAP and Epsilon Products Company have developed facilities to produce
800 million pounds per year of polymer grade propylene and polypropylene at
the Garyville refinery. MAP owns and operates facilities to produce polymer
grade propylene, which began production in June 1999. Epsilon Products
Company owns and operates the polypropylene facilities and markets its
output.
During the second quarter of 1999, MAP sold Scurlock Permian LLC, its
crude oil gathering business, to Plains Marketing, L. P. Scurlock Permian's
crude oil gathering operations were conducted in an area reaching from the
Rocky Mountains to the Gulf Coast. In addition, Scurlock Permian was
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. MAP retained the
western Canadian operations of Marathon Ashland Petroleum Canada, Ltd.
MARKETING
MAP's principal marketing areas for gasoline, kerosene and light
oils include the Midwest, the upper Great Plains and the southeastern
United States. Gasoline, kerosene and light fuel oils are sold in 25
states. Gasoline is sold at wholesale primarily to independent marketers,
jobbers and chain retailers who resell through several thousand retail
outlets principally under their own names. MAP also supplies 3,171
jobber-dealer, open-dealer and lessee-dealer locations using the
Marathon(R) and Ashland(R) brand names.
Gasoline, kerosene, distillates and aviation products are also sold to
utilities, railroads, river towing companies, commercial fleet operators,
airlines and governmental agencies.
Retail sales of gasoline and diesel fuel are made through MAP's
wholly-owned subsidiary, Speedway SuperAmerica LLC. Speedway SuperAmerica
LLC operates 2,217 retail outlets (convenience store-gasoline stations and
truck stops) in 20 states in the Southeast and Midwest under brand names
including Speedway(R), SuperAmerica(R), Rich(R) and others. The convenience
store-gasoline locations offer consumers gasoline, diesel fuel (at selected
locations) and a broad mix of other products and services, such as tobacco,
soft drinks, health and beauty aids, groceries, fresh-baked goods,
automated teller machines, automotive accessories and a line of
private-label items. The truck stops offer diesel fuel, gasoline and a
variety of other services associated with such locations. Several truck
stop and convenience store locations also have on-premises brand-name
restaurants such as Subway and Taco Bell.
On May 24, 1999, MAP signed an agreement with Ultramar Diamond
Shamrock ("UDS") to purchase 179 UDS owned-and-operated convenience stores,
five product terminals and an assignment of supply contracts for
approximately 240 branded UDS jobber stations in Michigan. MAP anticipates
closing this transaction before the end of calendar 1999, subject to
receipt of government approvals, consents of third parties and satisfaction
of customary closing conditions.
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During the twelve months ended September 30, 1999, 59% of the revenues
(excluding excise taxes) of the Speedway SuperAmerica LLC stores were
derived from the sale of gasoline and diesel fuel and 41% of such revenues
were derived from the sale of merchandise.
The table below shows the volume of MAP's consolidated refined product
sales for the twelve months ended September 30, 1999 and the nine months
ended September 30, 1998.
Twelve Months Ended Nine Months ended
------------------- -----------------
September 30, 1999 September 30, 1998
------------------ ------------------
Refined Product Sales (In thousands of barrels per day)
-------------------------------------------------------
Gasoline....................................................... 699.3 659.1
Distillates.................................................... 324.6 312.9
Propane........................................................ 22.4 20.8
Feedstocks & Special Products.................................. 65.1 68.8
Heavy Fuel Oils................................................ 44.9 48.4
Asphalt........................................................ 74.3 73.7
--------- --------
Total................................... 1,230.6 1,183.7
======= =======
Matching Buy/Sell Volumes included in above.................... 47.7 38.4
MAP sells RFG in parts of its marketing territory, primarily
Chicago, Illinois; Louisville, Kentucky; Northern Kentucky; Maryland;
Virginia; and Milwaukee, Wisconsin. MAP also markets low vapor pressure
gasolines in eleven states.
SUPPLY AND TRANSPORTATION
The crude oil processed in MAP's refineries is obtained from
negotiated lease, contract and spot purchases or exchanges. For the twelve
months ended September 30, 1999, MAP's negotiated lease, contract and spot
purchases of U.S. crude oil for refinery input averaged 325,400 barrels per
day (1 barrel = 42 United States gallons) including an average of 21,800
barrels per day acquired from Marathon Oil Company. For the twelve months
ended September 30, 1999, MAP's foreign crude oil requirements were met
largely through purchases from various foreign national oil companies,
producing companies and traders. Purchases of foreign crude oil represented
64% of MAP's crude oil requirements for the twelve months ended September
30, 1999.
MAP's ownership or interest in domestic pipeline systems in its
refining and marketing areas is significant. MAP owns, leases or has an
ownership interest in 7,282 miles of active pipeline in 16 states. This
network transports crude oil and refined products to and from terminals,
refineries and other pipelines. It includes 381 miles of crude oil
gathering lines, 4,040 miles of crude oil trunk lines and 2,861 miles of
refined product lines.
MAP has a 46.7% ownership interest in LOOP LLC ("LOOP"), which is the
owner and operator of the only U.S. deepwater port facility capable of
receiving crude oil from very large crude carriers. Ashland has retained a
4% ownership interest in LOOP. MAP also owns a 49.9% ownership interest in
LOCAP INC. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP to the Capline system. Ashland has retained an
8.6% ownership interest in LOCAP. In addition, MAP has a 37.169% ownership
interest in the Capline system. These port and pipeline systems provide MAP
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 MAP which provide
transportation to MAP's refineries in Illinois, Kentucky, Michigan and
Ohio.
MAP also has a stock interest in Minnesota Pipe Line Company, which
owns a crude oil pipeline in Minnesota. Minnesota Pipe Line Company
provides MAP with access to crude oil common carrier transportation from
Clearbrook, Minnesota to Cottage Grove, Minnesota, which is in the vicinity
of MAP's St. Paul Park, Minnesota refinery.
MAP's marine transportation operations include towboats and barges
that transport refined products on the Ohio, Mississippi and Illinois
rivers, their tributaries and the Intracoastal Waterway. In addition, MAP
leases on a long-term basis two 80,000 deadweight ton tankers, which are
"bare boat sub-chartered" to a third party operation. These tankers are not
essential for MAP to satisfy its own crude oil requirements.
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MAP leases and owns rail cars in various sizes and capacities for
movement of petroleum products and chemicals. MAP also owns or leases a
large number of tractor-trailers, tank trailers and general service trucks.
In addition, MAP owns and operates 88 terminal facilities from
which it sells a wide range of petroleum products. These facilities are
supplied by a combination of barges, pipeline, truck and rail.
OTHER MATTERS
MAP experiences normal seasonal variations in its sales and operating
results. This seasonality 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 construction season.
For information on MAP and federal, state and local statutes and
regulations governing releases into the environment or protection of the
environment, see "Item 1. Miscellaneous - Environmental Matters."
ARCH COAL
Ashland owns approximately 58% of Arch Coal, Inc., a publicly-traded
corporation (NYSE:ACI). Arch Coal files periodic reports, including annual
reports on Form 10-K, pursuant to the Securities Exchange Act of 1934. For
information on Ashland's proposed spin-off of Arch Coal, see "Item 1.
Corporate Developments."
Arch Coal is the second largest coal producer in the United States
with annual production that accounts for almost 10% of annual U.S. coal
production. Arch Coal mines, processes and markets primarily compliance and
low-sulfur coal from 40 surface, underground and auger mines located in
western, central Appalachian and midwestern United States coal fields.
Compliance and low-sulfur coal are types of coal that, when burned, emit
1.2 pounds and 1.6 pounds or less of sulfur dioxide per million Btu,
respectively. Coal from the mines of Arch Coal's subsidiaries is
transported by rail, truck and barge to domestic customers and to Atlantic
or Pacific coast terminals for shipment to domestic and international
customers.
On June 1, 1998, Arch Coal acquired the Colorado and Utah coal
operations of Atlantic Richfield Company ("ARCO") and simultaneously
combined the acquired ARCO operations, Arch Coal's Wyoming operations and
ARCO's Wyoming operations in a new joint venture named Arch Western
Resources, LLC ("Arch Western"). Arch Western is 99% owned by Arch Coal and
1% owned by ARCO. All of the domestic coal reserves acquired from ARCO are
"compliance coal," meeting the sulfur dioxide emissions requirements of
Phase II of the Clean Air Act.
The following discussion includes pro forma combined operating data
which gives effect to the merger of Ashland Coal, Inc. and Arch Mineral
Corporation (which occurred on July 1, 1997) as if it had occurred at
October 1, 1996 and to the acquisition of ARCO's U.S. operations as of June
1, 1998. The pro forma combined operating data does not purport to
represent the operating results which would have been achieved had the
merger of Ashland Coal, Inc. and Arch Mineral Corporation actually occurred
as of October 1, 1996.
Arch Coal and its independent operating subsidiaries (which does not
include tons sold by Canyon Fuel as Arch Coal's interest therein is
accounted for using the equity method) sold approximately 109.3 million
tons of coal in the twelve months ended September 30, 1999, as compared to
67.3 and 53.7 million tons sold in the twelve months ended September 30,
1998 and 1997, respectively. Of the total tonnage sold in the twelve months
ended September 30, 1999, approximately 80.3% was sold under long term
contracts (contracts having a term greater than one year), as compared to
76.5% and 72.4% for the twelve months ended September 30, 1998 and 1997,
respectively, with the balance being sold on the spot market (contracts
having a term of one year or less). In the twelve months ended September
30, 1999, Arch Coal and its independent operating subsidiaries sold 3.9
million tons of coal in the export market (which does not include tons sold
by Canyon Fuel), compared to 3.8 and 2.7 million tons in the twelve months
ended September 30, 1998 and 1997, respectively.
During the twelve months ended September 30, 1999, Arch Coal's total
sales to American Electric Power Company, Inc. ("AEP") and Southern Company
and their respective affiliates accounted for approximately 11.3% and
11.1%, respectively, of Arch Coal's total revenues for such period. AEP,
Southern Company and/or their affiliates each currently has multiple
long-term contracts with Arch Coal. If Arch Coal experienced an immediate
loss of all of the contracts with either of these customers, the loss could
have a material adverse effect on Arch Coal.
As of September 30, 1999, Arch Coal estimates it owned or controlled
measured (proven) and indicated (probable) coal reserves of approximately
3.6 billion tons, as set forth in the following table. Reserve estimates
are
8
prepared by Arch Coal's engineers and geologists and are reviewed and
updated periodically. Total reserve estimates will change from time to time
reflecting mining activities, analysis of new engineering and geological
data, changes in reserve holdings and other factors. Anticipated losses
from extraction and, where applicable, washing of the coal have been
eliminated from the estimate. Arch Coal believes that a majority of these
reserves are comprised of low-sulfur coal, and a substantial portion of
such low-sulfur coal is "compliance coal." Ashland has not made an
independent verification of the reserve estimate or sulfur content of the
estimated reserves.
RECOVERABLE COAL
Region or State Measured Indicated Total
--------------- -------- --------- -----
(Thousands of Tons)
Central Appalachia .................................... 982,079 418,171 1,400,250
Illinois .............................................. 241,735 86,687 328,422
Colorado .............................................. 115,327 24,931 140,258
Utah .................................................. 183,330 57,420 240,750 *
Wyoming ............................................... 1,423,878 68,794 1,492,672
--------- ------- ---------
Total................................. 2,946,349 656,003 3,602,352
========= ======= =========
* Represents 100% of the reserves held by Canyon Fuel Company, LLC, in which Arch Coal holds a 65%
interest.
Arch Coal's coal properties are either owned outright or controlled by
lease. As of September 30, 1999, Arch Coal's subsidiaries owned, or
controlled primarily through long-term leases, approximately 104,346,
57,571 and 14,500 acres of coal lands in Wyoming, Utah and Colorado,
respectively; 273,000, 90,500 and 2,000 acres of coal lands in West
Virginia, Eastern Kentucky, and Virginia, respectively; and 118,600 acres
of coal lands in the Illinois Basin.
Approximately 84,327 acres of Arch Coal's 660,000 acres of coal land
(which totals include 100% of the acreage held by Canyon Fuel) are leased
from the federal government with terms expiring between 1999 and 2019,
subject to readjustment and/or extension and to earlier termination for
failure to meet diligent development requirements. Additionally, private
term leases covering principal reserves under Arch Coal's current mining
plans are not scheduled to expire prior to expiration of projected mining
activities. Arch Coal's subsidiaries also control through ownership or
long-term leases approximately 5,880 acres of land which are used either
for Arch Coal's coal processing facilities or are being held for possible
future development. Royalties are paid to lessors either as a fixed price
per ton or as a percentage of the gross sales price of the mined coal. Most
of these leases run until the exhaustion of mineable and merchantable coal.
The remaining leases have primary terms ranging from one to 40 years from
the date of their execution, with most containing options to renew. Mining
plans are not necessarily indicative of the life of the mine. The extent to
which reserves will eventually be mined depends upon a variety of factors,
including future economic conditions and governmental actions affecting
both the mining and marketability of coal.
Arch Coal's Apogee Coal Company and Hobet Mining, Inc. subsidiaries
are members of the Bituminous Coal Operators Association, and each is a
signatory to a collective bargaining agreement with the United Mine Workers
of America that expires on December 31, 2002. Two other Arch Coal
subsidiaries are signatories to collective bargaining agreements with
independent employee associations. Employees of the remainder of Arch
Coal's operating subsidiaries are not represented by labor unions.
For information on federal and state statutes and regulations
governing the coal industry, see "Item 1. Miscellaneous - Environmental
Matters."
9
MISCELLANEOUS
ENVIRONMENTAL MATTERS
Ashland has implemented a company-wide environmental policy overseen
by the Public Policy - Environmental Committee of Ashland's Board of
Directors. Ashland's Environmental, Health and Safety group has the
responsibility to ensure that Ashland's operating groups maintain
environmental compliance in accordance with applicable laws and
regulations.
Federal, state and local laws and regulations relating to the
protection of the environment have a significant impact on how Ashland
conducts its businesses. These include the Clean Air Act ("CAA") with
respect to air emissions, the Clean Water Act ("CWA") with respect to water
discharges, the Resource Conservation and Recovery Act ("RCRA") with
respect to solid and hazardous waste generation, treatment, storage and
disposal, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") and the Superfund Amendments and Reauthorization
Act of 1986 ("SARA") with respect to releases and remediation of hazardous
substances (CERCLA and SARA are sometimes referred to collectively as
"Superfund"), the Toxic Substances Control Act ("TSCA") with respect to
chemical formulation and use, the Oil Pollution Act of 1990 ("OPA 90") with
respect to oil pollution, spill response and financial assurance
requirements for marine operations, the Surface Mining Control and
Reclamation Act of 1977 ("SMCRA") with respect to surface mining, the
Federal Occupational Safety and Health Act ("OSHA") with respect to
workplace health and safety standards, the Federal Mine Safety and Health
Act of 1977 ("MSHA") with respect to health and safety standards on mining
operations, and various other federal, state and local laws related to the
environment, health and safety. In addition, most foreign countries in
which Ashland conducts business have laws dealing with the same matters.
In connection with the formation of MAP, Marathon and Ashland each
retained responsibility for certain environmental costs arising out of
their respective prior ownership and operation of the facilities
transferred to MAP. In certain situations, various threshold provisions
apply, eliminating or reducing the financial responsibility of the
contributing party until certain levels of expenditure have been reached.
In other situations, sunset provisions gradually diminish the level of
financial responsibility of the contributing party over time.
At September 30, 1999, Ashland's reserves for environmental
assessments and remediation efforts were $166 million, reflecting Ashland's
current estimate of the costs which are most likely to be incurred over the
period during which the clean-up will be performed to remediate identified
environmental conditions for which costs are reasonably estimable.
Expenditures for investigatory and remedial efforts in future years
are subject to the uncertainties associated with environmental exposures,
including identification of new sites at which cleanup is required 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.
AIR - The CAA imposes stringent limits on air emissions, establishes a
federally mandated operating permit program, and allows for civil and
criminal enforcement actions. Additionally, it establishes air quality
attainment deadlines and control requirements based on the severity of air
pollution in a given geographical area. Various state clean air acts
implement, complement and, in some instances, add to the requirements of
the federal CAA. The requirements of the CAA and its state counterparts
have a significant impact on the daily operation of Ashland's businesses
and, in many cases, on product formulation and other long-term business
decisions. Ashland's businesses maintain numerous permits pursuant to these
clean air laws, and have implemented systems to oversee ongoing compliance
efforts.
In July 1997, the United States Environmental Protection Agency
("EPA") promulgated revisions to the National Ambient Air Quality Standards
for ground level ozone and particulate matter. These revisions, if they are
implemented by the states, could have a significant effect on certain of
Ashland's chemical manufacturing and
10
distribution businesses, and on MAP. However, EPA's authority and
scientific basis to promulgate these standards were challenged by industry
and overturned by the federal Court of Appeals for the District of
Columbia. Litigation is continuing as are efforts by EPA and other
regulatory and law enforcement agencies to achieve the objectives of these
standards through other means. It is not currently possible to estimate any
potential financial impact that any revised standards may have on Ashland's
operations.
WATER - Ashland's businesses maintain numerous discharge permits as
required under the National Pollutant Discharge Elimination System of the
CWA and state programs, and have implemented systems to oversee their
compliance efforts. In addition, several of MAP's operations, in particular
its barge and terminal facilities, are regulated under OPA 90.
SOLID WASTE - Ashland's businesses are subject to RCRA, which
establishes standards for the management of solid and hazardous wastes.
Besides affecting current waste disposal practices, RCRA also addresses the
environmental effects of certain past waste disposal operations, the
recycling of wastes and the regulation of underground storage tanks
("USTs") containing regulated substances. In addition, new laws are being
enacted and regulations are being adopted by various regulatory agencies on
a continuing basis, and the costs of compliance with these new rules cannot
be estimated until the manner in which they will be implemented has been
more accurately defined.
REMEDIATION - Ashland currently or has in the past operated various
facilities where, during the normal course of operations, releases of
hazardous constituents have occurred. Federal and state laws, including but
not limited to RCRA and various remediation laws, require that
contamination caused by such releases be assessed and, if necessary,
remediated to meet applicable standards. MAP operates, and in the past has
operated, certain retail outlets where, during the normal course of
operations, releases of petroleum products from USTs have occurred. Federal
and state laws require that contamination caused by such releases at these
sites be assessed and, if necessary, remediated to meet applicable
standards.
SURFACE MINING - SMCRA was enacted to regulate the surface mining of
coal and the surface effects of underground coal mining. All states in
which Arch Coal's subsidiaries operate have similar laws and regulations
enacted pursuant to SMCRA. These laws impose environmental performance
standards, requirements to perform land and natural resource reclamation,
and funding requirements to assure that adequate financial reserves are
maintained to meet all substantive environmental obligations.
On October 20, 1999, the U.S. District Court for the Southern District
of West Virginia permanently enjoined the West Virginia Division of
Environmental Protection (the "West Virginia DEP") from issuing new permits
that authorize the construction of "valley fills" as part of coal mining
operations. The injunction stems from litigation brought by private
individuals challenging the legality of surface mining in West Virginia
which results in the construction of such valley fills. A valley fill is an
engineered work located at a lower elevation from the surface mine where
excess rock and earth is placed during mining.
The district court has granted a stay of its injunction pending the
outcome of an appeal of the court's decision filed by the West Virginia DEP
with the U.S. Court of Appeals for the Fourth Circuit. It is impossible to
predict with certainty the outcome of the appeal. If, however, the district
court's decision is not overturned or if a legislative or other solution is
not achieved, then Arch Coal and other coal producers' ability to mine coal
in West Virginia in the future would be seriously compromised.
RESEARCH
Ashland conducts a program of research and development to invent
and improve products and processes and to improve environmental controls
for its existing facilities. It maintains its primary research facilities
in Dublin, Ohio; Lexington, Kentucky; and Atlanta, Georgia. Research and
development costs are expensed as they are incurred and totaled $27 million
in fiscal 1999 ($28 million in 1998 and $29 million in 1997).
COMPETITION
In all its operations, Ashland is subject to intense competition both
from companies in the industries in which it operates and from products of
companies in other industries. The majority of the business for which APAC
competes is obtained by competitive bidding. Ashland Distribution's
chemicals and solvents distribution businesses compete with national,
regional and local companies throughout North America, while its plastics
distribution businesses compete worldwide. Ashland Specialty Chemical's
businesses compete globally in selected niche
11
markets, largely on the basis of technology and service, while holding
proprietary technology in virtually all its specialty chemicals businesses.
Ashland Specialty Chemical's petrochemicals business is largely a
commodities business, with pricing and quality being the most important
factors. Valvoline competes primarily with domestic oil companies and, to a
lesser extent, with international oil companies on a worldwide basis.
Valvoline's brand recognition and increasing market share in the "fast oil
change" market are important competitive factors.
MAP competes primarily with other domestic refiners and, to a lesser
extent, with imported products. MAP's refineries are located close to its
market areas, giving MAP a geographic advantage in supplying these regions.
MAP's retail operations compete with major oil companies, independent oil
companies and independent marketers. The coal industry is highly
competitive, and Arch Coal competes (principally in price, location and
quality of coal) with other coal producers.
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 Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including various information within the "Capital Resources,"
"Derivative Instruments," "Year 2000 Readiness" and "Outlook" sections in
Management's Discussion and Analysis in Ashland's Annual Report. Words such
as "anticipates," "believes," "estimates," "expects," "is likely,"
"predicts," and variations of such words and similar expressions are
intended to identify such forward-looking statements. 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 under
"Risks and Uncertainties" in Note A of Notes to Consolidated Financial
Statements in Ashland's Annual Report. Other factors and risks affecting
Ashland's revenues and operations are discussed below, as well as in other
portions of this Form 10-K.
Ashland's operations are affected by domestic and international
political, legislative, regulatory and legal actions. Such actions may
include changes in the policies of OPEC or other developments affecting
oil-producing countries, changes in tax laws, and changes in environmental,
health and safety laws.
Domestic and international economic conditions, such as recessionary
trends, inflation, interest and monetary exchange rates, as well as changes
in demand for products and services, can also have a significant effect on
Ashland's operations. Although 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 APAC construction
activities, MAP's heating oil businesses and Arch Coal's sales and
production of coal.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, is located in
Covington, Kentucky. Principal offices of other major operations are
located in Atlanta, Georgia (APAC); Dublin, Ohio (Ashland Distribution and
Ashland Specialty Chemical); Lexington, Kentucky (Valvoline); and Russell,
Kentucky (Administrative Services), all of which are leased, except for the
Russell office, which is owned. Principal manufacturing, marketing and
other materially important physical properties of Ashland and its
subsidiaries are described under the appropriate segment under Item 1.
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
ENVIRONMENTAL PROCEEDINGS - (1) As of September 30, 1999, Ashland had
been identified as a "potentially responsible party" ("PRP") under
Superfund or similar state laws for potential joint and several liability
for clean-up costs in connection with alleged releases of hazardous
substances in connection with 89 waste treatment or disposal sites. These
sites are currently subject to ongoing investigation and remedial
activities, overseen by the EPA or a state agency, in which Ashland is
typically participating as a member of a PRP group. Generally, the type of
relief sought includes remediation of contaminated soil and/or groundwater,
reimbursement for past costs of site clean-up and administrative oversight,
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
12
aggregate, after taking into account its insurance coverage and established
financial reserves, will not have a material adverse effect on Ashland's
consolidated financial position, cash flow or liquidity. However, such
matters could have a material effect on Ashland's results of operations in
a particular quarter or fiscal year as they develop or as new issues are
identified. Estimated costs for these matters are recognized in accordance
with generally accepted accounting principles governing the likelihood that
costs will be incurred and Ashland's ability to reasonably estimate future
costs.
(2) Pursuant to a 1990 Agreed Order with the Commonwealth of
Kentucky's Natural Resources and Environmental Protection Cabinet
("NREPC"), Ashland has conducted source investigation and remedial
activities related to hydrocarbon contamination of the groundwater beneath
the Catlettsburg, Kentucky refinery, operated since 1998 by MAP. In 1999,
Ashland and the NREPC initiated negotiations for a new Agreed Order which
would identify future investigative efforts and establish timetables for
strategic remedial activities. This Order is also expected to include a
monetary penalty. In connection with the formation of MAP, Ashland agreed
to retain responsibility for this matter. Because discussions are ongoing,
Ashland is unable to predict what the final penalty amount might be.
However, the penalty amount is not expected to have a material adverse
effect on Ashland's consolidated financial position, cash flow or
liquidity.
LOCKHEED LITIGATION - Ashland was a defendant in a series of cases
involving more than 600 former workers at the Lockheed aircraft
manufacturing facility in Burbank, California. The plaintiffs alleged
personal injuries resulting from exposure to chemicals sold to Lockheed by
Ashland, and inadequate labeling of such chemicals. Ashland has reached an
agreement with plaintiffs' counsel to fully resolve and settle this matter,
subject to execution of appropriate documents by the parties and approval
by the court. Ashland believes the settlement amount, which is not material
to Ashland, will be covered by insurance.
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, 1999.
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 after the top two officers as to other Senior Vice
Presidents, Administrative Vice Presidents and other executive officers).
PAUL W. CHELLGREN* (age 56) is Chairman of the Board, Chief Executive
Officer and Director of Ashland and a Director of Arch Coal, Inc. and has
served in such capacities since 1997, 1996, 1992 and 1997, respectively.
During the past five years, he has also served as President and Chief
Operating Officer of Ashland.
JOHN A. BROTHERS* (age 59) was an Executive Vice President of
Ashland, a position he had held since 1997. During the past five years, he
also served as Senior Vice President and Group Operating Officer - The
Valvoline Company and Ashland Chemical Company. Mr. Brothers retired
effective September 30, 1999.
JAMES R. BOYD* (age 53) is Senior Vice President and Group Operating
Officer - APAC, Inc. and a Director of Arch Coal, Inc., having served in
such capacities since 1989, 1993 and 1997, respectively.
DAVID J. D'ANTONI* (age 54) is Senior Vice President and Group
Operating Officer - Ashland Distribution Company and Ashland Specialty
Chemical Company and has served in such capacities since 1998 and 1999,
respectively. During the past five years, he has also served as President
of Ashland Chemical Company.
JAMES J. O'BRIEN (age 45) is Senior Vice President of Ashland and
President of The Valvoline Company and has served in such capacities since
1997 and 1995, respectively. During the past five years, he has also served
as Vice President of Ashland and Vice President of Ashland Petroleum
Company.
CHARLES F. POTTS (age 55) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
- ---------------
*Member of Ashland's Executive Committee
13
J. MARVIN QUIN* (age 52) is Senior Vice President and Chief Financial
Officer of Ashland and a Director of Arch Coal, Inc. and has served in such
capacities since 1992 and 1997, respectively.
KENNETH L. AULEN (age 50) is Administrative Vice President and
Controller of Ashland and has served in such capacities since 1992.
PHILIP W. BLOCK* (age 52) is Administrative Vice President - Human
Resources of Ashland and a Director of Arch Coal, Inc. and has served in
such capacities since 1992 and 1999, respectively.
PETER M. BOKACH (age 53) is Vice President of Ashland and President of
Ashland Distribution Company and has served in such capacities since 1999.
During the past five years, he has also served as Group Vice President
Distribution of Ashland Chemical Company.
JAMES A. DUQUIN (age 52) is Vice President of Ashland and President of
Ashland Specialty Chemical Company and has served in such capacities since
1999. During the past five years, he has also served as Group Vice
President - Specialty Chemical Division and Vice President - IC&S Division
of Ashland Chemical Company.
DAVID L. HAUSRATH* (age 47) is Vice President and General Counsel of
Ashland and has served in such capacities since 1998 and 1999,
respectively. During the past five years, he has also served as Associate
General Counsel and Assistant General Counsel of Ashland.
J. DAN LACY* (age 52) is Vice President - Corporate Affairs of
Ashland and has served in such capacity since 1986.
RICHARD P. THOMAS* (age 53) is Vice President and Secretary of Ashland
and has served in such capacities since 1998 and 1999, respectively. During
the past five years, he has also served as Associate General Counsel of
Ashland and Administrative Vice President and General Counsel of Ashland
Petroleum Company.
LAMAR M. CHAMBERS (age 45) is Auditor of Ashland and has served in
such capacity since 1998. During the past five years, he has also served as
Vice President, Finance and Controller of MAP, Administrative Vice
President - Finance of Ashland Petroleum Company and Executive Assistant to
the Chief Executive Officer of Ashland.
Each executive officer is elected by the Board of Directors of Ashland
to a term of one year, or until his or her successor is duly elected, at
the annual meeting of the Board of Directors, except in those instances
where the officer is elected other than at an annual meeting of the Board
of Directors, in which case his or her 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 P of Notes to Consolidated Financial Statements in Ashland's Annual
Report.
At September 30, 1999, there were approximately 21,000 holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and Chicago stock exchanges (ticker symbol ASH) and has trading
privileges on the Boston, Cincinnati, Pacific and Philadelphia stock
exchanges.
During the quarter ended September 30, 1999, Ashland issued 790,011
shares of its Common Stock, par value $1.00 per share in connection with
the acquisition of Buster Paving Company, Inc., which closed on August 31,
1999. The shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and the
regulations thereunder.
- ---------------
*Member of Ashland's Executive Committee
14
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing
under the caption "Five-Year Selected Financial Information" on Page 54 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 26 to 33
in Ashland's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There is hereby incorporated by reference the information appearing
under the caption "Derivative Instruments" on Pages 31 and 32 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 35 through 53 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 "Ashland Inc.'s Board of Directors - Nominees for
Election at the 2000 Annual Meeting" and the information regarding Section
16 beneficial ownership reporting compliance in Ashland's definitive Proxy
Statement for its January 27, 2000 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 1999 ("Proxy
Statement"). See also the list of Ashland's executive officers and related
information under "Executive Officers of Ashland" in Part I - Item X
herein.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation," "Compensation of Directors"
and "Miscellaneous - Personnel and Compensation Committee Interlocks and
Insider Participation" in Ashland's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Common Stock Ownership of Directors and Certain
Officers of Ashland" 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 "Business Relationships" 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 20.
15
(3) Exhibits
3.1 - Second Restated Articles of Incorporation of
Ashland, as amended to January 30, 1998 (filed
as Exhibit 3 to Ashland's Form 10-Q for the
quarter ended December 31, 1997 and incorporated
herein by reference).
3.2 - By-laws of Ashland, as amended to January 28,
1999 (filed as Exhibit 3.2 to Ashland's Form
10-Q for the quarter ended December 31, 1998 and
incorporated herein by reference).
4.1 - Ashland agrees to provide the SEC, upon
request, copies of instruments defining the
rights of holders of long-term debt of Ashland
and all of its subsidiaries for which
consolidated or unconsolidated financial
statements are required to be filed with the
SEC.
4.2 - Indenture, dated as of August 15, 1989, as
amended and restated as of August 15, 1990,
between Ashland and Citibank, N.A., as Trustee
(filed as Exhibit 4(a) to Ashland's Form 10-K
for the fiscal year ended September 30, 1991 and
incorporated herein by reference).
4.3 - Rights Agreement, dated as of May 16, 1996,
between Ashland Inc. and Harris Trust and
Savings Bank, together with Form of Right
Certificate (filed as Exhibits 4(a) and 4(c),
respectively, to Ashland's Form 8-A filed with
the SEC on May 16, 1996 and incorporated herein
by reference).
The following Exhibits 10.1 through 10.16 are compensatory plans or
arrangements or management contracts required to be filed as exhibits
pursuant to Item 601(b)(10)(ii)(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 Plan for
Non-Employee Directors.
10.3 - Tenth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain
Employees.
10.4 - Ashland Inc. Incentive Compensation Plan
(filed as Exhibit 10.6 to Ashland's Form 10-K
for the fiscal year ended September 30, 1993 and
incorporated herein by reference).
10.5 - 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).
10.6 - Form of Ashland Inc. Executive Employment
Contract between Ashland Inc. and certain
executive officers of Ashland.
10.7 - 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).
10.8 - Ashland Inc. Nonqualified Excess Benefit
Pension Plan (filed as Exhibit 10.11 to
Ashland's Form 10-K for the fiscal year ended
September 30, 1998 and incorporated herein by
reference).
10.9 - Ashland Inc. Long-Term Incentive Plan.
10.10 - Ashland Inc. Directors' Charitable Award
Program (filed as Exhibit 10.13 to Ashland's
Form 10-K for the fiscal year ended September
30, 1996 and incorporated herein by reference).
10.11 - Ashland Inc. 1993 Stock Incentive Plan.
10.12 - Ashland Inc. 1995 Performance Unit Plan (filed
as Exhibit 10.2 to Ashland's Form 10-Q for the
quarter ended December 31, 1998 and incorporated
herein by reference).
10.13 - Ashland Inc. Incentive Compensation Plan for
Key Executives.
10.14 - Ashland Inc. Deferred Compensation Plan.
16
10.15 - Ashland Inc. 1997 Stock Incentive Plan (filed
as Exhibit 10.18 to Ashland's Form 10-K for the
fiscal year ended September 30, 1998 and
incorporated herein by reference).
10.16 - Retirement Agreement with Michael D. Rose,
director of Ashland.
10.17 - Amended and Restated Limited Liability Company
Agreement of Marathon Ashland Petroleum LLC
dated as of December 31, 1998.
10.18 - Put/Call, Registration Rights and Standstill
Agreement as amended to December 31, 1998
among Marathon Oil Company, USX Corporation,
Ashland Inc. and Marathon Ashland Petroleum LLC.
11 - Computation of Earnings Per Share (appearing
on Page 41 of Ashland's Annual Report to
Shareholders, incorporated by reference herein,
for the fiscal year ended September 30, 1999).
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, 1999.
21 - List of subsidiaries.
23 - Consent of independent auditors.
24 - Power of Attorney, including resolutions of
the Board of Directors.
27 - Financial Data Schedule for the fiscal year
ended September 30, 1999.
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 29, 1999 to announce
certain events relating to Ashland's tender offer for Superfos a/s.
A report on Form 8-K was filed on October 6, 1999 to announce that a
tax-free spin-off would be Ashland's preferred alternative for its
investment in Arch Coal. The report also noted that Ashland is reviewing
its alternatives with respect to a change in its ownership in MAP.
A report on Form 8-K was filed on October 12, 1999 to announce that
shareholders representing more than 90% of the share capital of Superfos
a/s accepted Ashland's September 27, 1999 offer and that Ashland will
implement the tender offer.
17
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 7, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT, IN THE CAPACITIES INDICATED, ON DECEMBER 7, 1999.
Signatures Capacity
---------- --------
/s/ PAUL W. CHELLGREN
- ------------------------ Chairman of the Board, Chief Executive Officer
PAUL W. CHELLGREN and Director
/s/ J. MARVIN QUIN
- ------------------------ Senior Vice President and Chief Financial Officer
J. MARVIN QUIN
/s/ KENNETH L. AULEN
- ------------------------ Administrative Vice President, Controller and
KENNETH L. AULEN Principal Accounting Officer
*
- ------------------------ Director
SAMUEL C. BUTLER
*
- ------------------------ Director
FRANK C. CARLUCCI
*
- ------------------------ Director
ERNEST H. DREW
*
- ------------------------ Director
JAMES B. FARLEY
*
- ------------------------ Director
BERNADINE P. HEALY
18
*
- ------------------------ Director
MANNIE L. JACKSON
*
- ------------------------ Director
PATRICK F. NOONAN
*
- ------------------------ Director
JANE C. PFEIFFER
*
- ------------------------ Director
MICHAEL D. ROSE
*
- ------------------------ Director
WILLIAM L. ROUSE , JR.
*
- ------------------------ Director
THEODORE M. SOLSO
* By: /s/ David L. Hausrath
--------------------------
David L. Hausrath
Attorney-in-Fact
Date: December 7, 1999
19
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
Page
----
Consolidated financial statements:
Statements of consolidated income ...............................*
Consolidated balance sheets .....................................*
Statements of consolidated stockholders' equity .................*
Statements of consolidated cash flows ...........................*
Notes to consolidated financial statements ......................*
Information by industry segment .................................*
Consolidated financial schedule:
II - Valuation and qualifying account...........................22
-----------
*The consolidated financial statements appearing on Pages 35
through 53 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 for MAP and Arch Coal
required by Rule 3-09 of Regulation S-X will be filed as an amendment to
this Form 10-K within 90 days after the end of these entities' fiscal years
ending December 31, 1999. Separate financial statements of other
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 E of Notes to Consolidated Financial Statements in
Ashland's Annual Report.
20
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements and schedule of
Ashland Inc. and consolidated subsidiaries listed in the accompanying index
to financial statements and financial schedule (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
consolidated subsidiaries at September 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1999, 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.
/s/ Ernst & Young LLP
Louisville, Kentucky
November 3, 1999
21
- -------------------------------------------------------------------------------
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, 1999
Reserves deducted from asset accounts
Accounts receivable $ 19 $ 12 $ (8)(1) $ - $ 23
Inventories 11 7 (3) - 15
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998
Reserves deducted from asset accounts
Accounts receivable $ 25 $ 8 $(10)(1) $ (4) $ 19
Inventories 11 2 (2) - 11
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
Reserves deducted from asset accounts
Accounts receivable $ 27 $ 9 $(10)(1) $ (1) $ 25
Inventories 10 2 (1) - 11
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Uncollected amounts written off, net of recoveries of $2 million in 1999, 1998 and 1997.
22
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 - Amended Stock Incentive Plan for Key Employees
of Ashland Inc. and its Subsidiaries.
10.2 - Ashland Inc. Deferred Compensation Plan for
Non-Employee Directors.
10.3 - Tenth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain
Employees.
10.6 - Form of Ashland Inc. Executive Employment
Contract between Ashland Inc. and certain
executive officers of Ashland.
10.9 - Ashland Inc. Long-Term Incentive Plan.
10.11 - Ashland Inc. 1993 Stock Incentive Plan.
10.13 - Ashland Inc. Incentive Compensation Plan for
Key Executives.
10.14 - Ashland Inc. Deferred Compensation Plan.
10.16 - Retirement Agreement with Michael D. Rose,
director of Ashland.
10.17 - Amended and Restated Limited Liability Company
Agreement of Marathon Ashland Petroleum LLC
dated as of December 31, 1998.
10.18 - Put/Call, Registration Rights and Standstill
Agreement as amended to December 31, 1998
among Marathon Oil Company, USX Corporation,
Ashland Inc. and Marathon Ashland Petroleum LLC.
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, 1999.
21 - List of subsidiaries.
23 - Consent of independent auditors.
24 - Power of Attorney, including resolutions of
the Board of Directors.
27 - Financial Data Schedule for the fiscal year
ended September 30, 1999.