SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-2918
ASHLAND OIL, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0122250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Ashland Drive, Russell, Kentucky 41169
(Address of principal executive offices) (Zip Code)
P. O. Box 391, Ashland, Kentucky 41114
(Mailing Address) (Zip Code)
Registrant's telephone number, including area code (606)329-3333
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 ___
At April 30, 1994, there were 60,622,599 shares of Registrant's Common Stock
outstanding. One-half of one Right to purchase one-tenth of a share of
Cumulative Preferred Stock, Series of 1987 accompanies each outstanding share
of Registrant's Common Stock.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
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ASHLAND OIL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
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<CAPTION>
Three months ended Six months ended
March 31 March 31
------------------------- --------------------------------
(In thousands except per share data) 1994 1993 1994 1993
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues (including
excise taxes) $ 2,206,642 $ 2,385,614 $ 4,778,218 $ 4,940,470
Other 16,590 28,114 23,025 45,204
------------ ------------- ------------- -------------
2,223,232 2,413,728 4,801,243 4,985,674
COSTS AND EXPENSES
Cost of sales and operating expenses 1,609,654 1,872,295 3,523,916 3,904,749
Excise taxes on products and merchandise 199,120 157,269 404,950 319,955
Selling, general and administrative expenses 251,793 259,493 498,362 489,039
Depreciation, depletion and amortization 71,507 73,216 143,926 147,430
General corporate expenses 23,229 21,083 42,061 36,953
------------ ------------- ------------- -------------
2,155,303 2,383,356 4,613,215 4,898,126
------------ ------------- ------------- -------------
OPERATING INCOME 67,929 30,372 188,028 87,548
OTHER INCOME (EXPENSE)
Interest income 454 391 909 695
Interest expense (28,950) (32,183) (58,266) (64,136)
Equity income (loss) 3,936 3,805 (2,443) 12,546
------------ ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 43,369 2,385 128,228 36,653
Income taxes 10,450 1,550 36,930 11,070
------------ ------------- ------------- -------------
NET INCOME $ 32,919 $ 835 $ 91,298 $ 25,583
============ ============= ============= =============
EARNINGS PER SHARE - Note E
Primary $ .47 $ .01 $ 1.36 $ .43
Assuming full dilution $ .46 $ .01 $ 1.30 $ .42
DIVIDENDS PAID PER COMMON SHARE $ .25 $ .25 $ .50 $ .50
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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ASHLAND OIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
March 31 September 30 March 31
(In thousands) 1994 1993 1993
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 64,981 $ 40,984 $ 62,955
Accounts receivable 1,096,515 1,198,643 1,045,452
Allowance for doubtful accounts (21,422) (20,318) (17,365)
Construction completed and in progress 22,262 50,972 8,624
Inventories - Note B 594,257 552,406 619,129
Deferred income taxes 63,460 78,243 92,796
Other current assets 90,794 72,071 121,925
----------- ------------ ------------
1,910,847 1,973,001 1,933,516
INVESTMENTS AND OTHER ASSETS
Investments in and advances to unconsolidated
affiliates 268,801 279,978 277,697
Investments of captive insurance companies 190,494 184,689 195,968
Cost in excess of net assets of companies
acquired 55,396 64,650 66,890
Other noncurrent assets 291,768 279,634 273,697
----------- ------------ ------------
806,459 808,951 814,252
PROPERTY, PLANT AND EQUIPMENT
Cost 5,763,707 5,704,852 5,604,691
Accumulated depreciation, depletion and
amortization (2,985,863) (2,934,987) (2,857,390)
----------- ------------ ------------
2,777,844 2,769,865 2,747,301
----------- ------------ ------------
$5,495,150 $ 5,551,817 $ 5,495,069
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $ 71,089 $ 158,862 $ 208,825
Trade and other payables 1,367,277 1,418,491 1,533,006
Income taxes 23,079 41,560 41,043
----------- ------------ ------------
1,461,445 1,618,913 1,782,874
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,377,433 1,399,458 1,559,349
Accrued pension and other postretirement
benefits 508,495 510,662 513,052
Reserves of captive insurance companies 191,611 173,039 186,373
Deferred income taxes 34,035 43,857 49,913
Other long-term liabilities and deferred credits 393,769 351,094 323,814
Commitments and contingencies - Note C
----------- ------------ ------------
2,505,343 2,478,110 2,632,501
STOCKHOLDERS' EQUITY
Convertible preferred stock 293,179 293,179 -
Common stockholders' equity 1,235,183 1,161,615 1,079,694
----------- ------------ ------------
1,528,362 1,454,794 1,079,694
----------- ------------ ------------
$5,495,150 $ 5,551,817 $ 5,495,069
=========== ============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<TABLE>
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ASHLAND OIL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
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<CAPTION>
Loan to
leveraged
employee
Deferred stock
translation ownership Prepaid
Common Paid-in Retained adjustments plan contribution
(In thousands) stock capital earnings and other (LESOP) to LESOP Total
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1992 $ 59,948 $ 146,418 $ 930,990 $ 6,586 $ (34,519) $ (23,386) $ 1,086,037
Net income 25,583 25,583
Dividends on common stock (29,422) (556) (29,978)
Issued common stock under
stock incentive plans 12 138 150
Allocation of LESOP shares
to participants 9,073 9,073
Other changes (11,612) 441 (11,171)
--------- ---------- ----------- --------- ---------- ---------- ------------
BALANCE AT MARCH 31, 1993 $ 59,960 $ 146,556 $ 927,151 $ (5,026) $ (34,078) $ (14,869) $ 1,079,694
========= ========== =========== ========= ========== ========== ============
BALANCE AT OCTOBER 1, 1993 $ 60,022 $ 142,481 $1,008,264 $ (9,801) $ (33,457) $ (5,894) $ 1,161,615
Net income 91,298 91,298
Dividends on common stock (29,851) (281) (30,132)
Dividends on preferred
stock (9,375) (9,375)
Issued common stock under
stock incentive plans 585 15,725 16,310
Allocation of LESOP shares
to participants 6,175 6,175
Other changes (156) (1,141) 589 (708)
--------- ---------- ----------- --------- ---------- ---------- ------------
BALANCE AT MARCH 31, 1994 $ 60,607 $ 158,050 $1,060,336 $(10,942) $ (32,868) $ - $ 1,235,183
========= ========== =========== ========= ========== ========== ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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ASHLAND OIL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
------------------------------------------------------------------------------
Six months ended
March 31
-------------------------
(In thousands) 1994 1993
------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS
Net income $ 91,298 $ 25,583
Expense (income) not affecting cash
Depreciation, depletion and amortization <F1> 149,957 153,057
Deferred income taxes 9,780 9,800
Undistributed earnings of unconsolidated
affiliates 5,193 (4,080)
Gain on sale of operations - net of current
income taxes (355) (9,635)
Other noncash items 29,080 587
Change in operating assets and liabilities <F2> 14,172 (5,391)
---------- ----------
299,125 169,921
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt - 273,000
Proceeds from issuance of capital stock 16,310 150
Repayment of long-term debt (34,628) (135,283)
Decrease in short-term debt (76,500) (120,491)
Dividends paid (39,507) (29,978)
---------- ----------
(134,325) (12,602)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (152,987) (203,573)
Purchase of operations - net of cash acquired (42,895) (1,470)
Proceeds from sale of operations 53,937 63,045
Disposals of property, plant and equipment 6,612 19,845
Investment purchases <F3> (135,814) (220,614)
Investment sales and maturities <F3> 130,344 195,119
---------- ----------
(140,803) (147,648)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 23,997 9,671
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 40,984 53,284
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 64,981 $ 62,955
========== ==========
[FN]
<F1> Includes amounts charged to general corporate expenses.
<F2> Excludes changes resulting from operations acquired or sold.
<F3> Represents primarily investment transactions of captive insurance
companies.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
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ASHLAND OIL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - GENERAL
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities and Exchange
Commission regulations, but are subject to any year-end audit
adjustments which may be necessary. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. These financial
statements should be read in conjunction with Ashland's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, as amended by
Form 10-K/A, Amendment No. 1 filed December 2, 1993 (hereinafter
referred to as "Form 10-K"). Results of operations for the periods
ended March 31, 1994, are not necessarily indicative of results to be
expected for the year ending September 30, 1994.
NOTE B - INVENTORIES
------------------------------------------------------------------------
March 31 September 30 March 31
(In thousands) 1994 1993 1993
------------------------------------------------------------------------
Crude oil $ 243,959 $ 273,189 $ 344,827
Petroleum products 274,936 257,726 300,439
Chemicals and other products 349,602 336,494 343,231
Materials and supplies 43,118 44,570 45,274
Excess of replacement costs
over LIFO carrying values (317,358) (359,573) (414,642)
---------- ---------- ----------
$ 594,257 $ 552,406 $ 619,129
========== ========== ==========
NOTE C - LITIGATION, CLAIMS AND CONTINGENCIES
Federal, state and local statutes and regulations relating to the
protection of the environment and the health and safety of employees and
other individuals have a significant impact on the conduct of Ashland's
businesses. For information regarding environmental and health and
safety expenditures and reserves, see the "Miscellaneous - Governmental
Regulation and Action - Environmental Protection" section of Ashland's
Form 10-K.
Environmental reserves are subject to considerable uncertainties which
affect Ashland's ability to estimate its share of the ultimate costs of
remediation efforts. Such uncertainties involve the nature and extent
of contamination at each site, the extent of required cleanup efforts,
varying costs of alternate cleanup methods, changes in environmental
remediation requirements, the potential effect of technological
improvements, the number and financial strength of other potentially
responsible parties at multi-party sites, and the identification of new
environmental sites. As a result, charges to income for environmental
liabilities could have a material adverse effect on results of opera-
tions in a particular quarter or fiscal year as assessments and
remediation efforts proceed or as new claims arise. However, such
charges are not expected to have a material adverse effect on
Ashland's consolidated financial position.
Ashland has numerous insurance policies from insurers that provide
coverage at various levels for environmental liabilities. Ashland is
currently involved in negotiations concerning the amount of insurance
coverage for environmental costs under certain of these policies. In
addition, certain costs of remediation efforts related to underground
storage tanks are eligible for reimbursement from various state
administered funds. Probable recoveries related to costs incurred in
prior years or expected to be incurred in future years are included in
other noncurrent assets.
Ashland has indemnified the purchaser of an engineering company sold in
1990 against losses related to certain custom boilers built by the
company and other matters. Ashland is continuing its efforts to
resolve remaining issues related to this indemnity. Future charges
could be incurred under this indemnity, but any amounts are uncertain
at this time.
In addition, Ashland and its subsidiaries are parties to numerous claims
and lawsuits (some of which are for substantial amounts) with respect to
product liability and commercial and other matters. While these claims
and actions are being contested, the outcome of individual matters is
not predictable with assurance. Although any actual liability is not
determinable as of March 31, 1994, Ashland believes that any liability
resulting from these matters involving Ashland and its subsidiaries,
after taking into consideration Ashland's insurance coverages and
amounts already provided for, should not have a material adverse effect
on Ashland's consolidated financial position.
NOTE D - ACQUISITIONS AND DIVESTITURES
During the six months ended March 31, 1994, Ashland acquired an asphalt
terminal in Lexington, Kentucky, Valvoline distributorships in six
European countries, three specialty chemicals businesses and a North
Carolina paving company. These acquisitions were accounted for as
purchases and did not have a significant impact on Ashland's
consolidated financial statements.
Also during the period, Ashland completed the sale of its Illinois Basin
crude oil gathering and trucking operations and most of APAC's Arizona
operations. Proceeds from the sale of these operations totaled
$53,937,000 and resulted in no significant gain or loss.
<TABLE>
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ASHLAND OIL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE E - COMPUTATION OF EARNINGS PER SHARE
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<CAPTION>
Three months ended Six months ended
March 31 March 31
----------------------- -----------------------------
(In thousands except per share data) 1994 1993 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Income available to common shares
Net income $ 32,919 $ 835 $ 91,298 $ 25,583
Ashland Coal, Inc. (ACI) equity income
(net of income taxes) - (1,560) - (6,414)
Ashland's share of ACI primary earnings
per share (net of income taxes) - 1,537 - 5,946
Dividends on convertible preferred stock (4,687) - (9,375) -
--------- ---------- ---------- ----------
$ 28,232 $ 812 $ 81,923 $ 25,115
========= ========== ========== ==========
Average common shares and equivalents
outstanding
Average common shares outstanding 60,361 59,959 60,222 59,955
Common shares issuable upon exercise of
stock options 872 126 662 126
Share adjustment for prepaid contribution
to LESOP (560) (1,109) (561) (1,110)
--------- ---------- ---------- ----------
60,673 58,976 60,323 58,971
========= ========== ========== ==========
Earnings per share $ .47 $ .01 $ 1.36 $ .43
========= ========== ========== ==========
------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE ASSUMING
FULL DILUTION
Income available to common shares
Net income $ 32,919 $ 835 $ 91,298 $ 25,583
ACI equity income (net of income taxes) - (1,560) - (6,414)
Ashland's share of ACI earnings per share
assuming full dilution (net of income taxes) - 1,473 - 5,563
Interest on convertible debentures (net
of income taxes) - - 2,930 -
Dividends on convertible preferred stock (4,687) - - -
--------- ---------- ---------- ----------
$ 28,232 $ 748 $ 94,228 $ 24,732
========= ========== ========== ==========
Average common shares and equivalents
outstanding
Average common shares outstanding 60,361 59,959 60,222 59,955
Common shares issuable upon
Exercise of stock options 946 157 925 140
Conversion of debentures - - 2,772 -
Conversion of preferred stock - - 9,276 -
Share adjustment for prepaid contribution
to LESOP (560) (1,109) (561) (1,110)
--------- ---------- ---------- ----------
60,747 59,007 72,634 58,985
========= ========== ========== ==========
Earnings per share $ .46 $ .01 $ 1.30 $ .42
========= ========== ========== ==========
</TABLE>
<TABLE>
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ASHLAND OIL, INC. AND SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
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<CAPTION>
Three months ended Six months ended
March 31 March 31
------------------------- --------------------------------
(Dollars in thousands except as noted) 1994 1993 1994 1993
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUES
Petroleum $ 970,407 $ 1,124,643 $ 2,136,227 $ 2,342,931
SuperAmerica 380,860 429,350 804,677 911,719
Valvoline 213,174 239,283 484,986 444,759
Chemical 683,337 640,290 1,326,489 1,257,546
Construction 176,402 169,817 492,454 444,502
Exploration 47,648 60,180 99,227 136,674
Intersegment sales (265,186) (277,949) (565,842) (597,661)
------------ ------------ ------------- -------------
$ 2,206,642 $ 2,385,614 $ 4,778,218 $ 4,940,470
============ ============ ============= =============
OPERATING INCOME
Petroleum $ 30,145 $ (6,103) $ 74,827 $ (13,956)
SuperAmerica 9,627 12,664 31,002 30,687
Valvoline 11,746 12,818 26,486 26,037
------------ ------------ ------------- -------------
Total Refining and Marketing Group 51,518 19,379 132,315 42,768
Chemical 26,051 29,487 54,351 47,998
Construction 3,150 - 23,066 10,508
Exploration 10,439 2,589 20,357 23,227
General corporate expenses (23,229) (21,083) (42,061) (36,953)
------------ ------------ ------------- -------------
$ 67,929 $ 30,372 $ 188,028 $ 87,548
============ ============ ============= =============
EQUITY INCOME (LOSS)
Arch Mineral Corporation $ 3,670 $ (439) $ (3,722) $ 1,461
Ashland Coal, Inc. (1,208) 1,691 (1,915) 6,949
Other 1,474 2,553 3,194 4,136
------------ ------------ ------------- -------------
$ 3,936 $ 3,805 $ (2,443) $ 12,546
============ ============ ============= =============
OPERATING INFORMATION
Petroleum
Product sales (barrels per day) <F1> 304,724 336,115 341,277 336,435
Refining inputs (barrels per day) <F2> 296,070 338,679 328,109 332,544
Value of products manufactured per barrel $ 20.02 $ 22.35 $ 20.45 $ 23.07
Input cost per barrel 14.44 19.45 15.19 19.92
------------ ------------ ------------- -------------
Refining margin per barrel $ 5.58 $ 2.90 $ 5.26 $ 3.15
SuperAmerica
Product sales (barrels per day) 65,992 72,855 68,955 76,082
Merchandise sales $ 117,489 $ 132,676 $ 240,933 $ 276,672
Valvoline product sales (barrels per day) <F1> 16,541 15,312 16,527 15,052
Construction backlog <F3>
At end of period $ 508,417 $ 564,669 $ 508,417 $ 564,669
Increase during period $ 61,074 $ 43,873 $ 13,450 $ 65,091
Exploration
Net daily production
Natural gas (thousands of cubic
feet) <F1> 96,532 101,396 98,406 100,343
Nigerian crude oil (barrels) 19,168 21,611 19,321 22,554
Sales price
Natural gas (per thousand cubic feet) $ 2.49 $ 2.28 $ 2.53 $ 2.67
Nigerian crude oil (per barrel) $ 13.55 $ 17.82 $ 14.36 $ 18.40
Arch Mineral Corporation <F4>
Tons sold (thousands) 5,655 4,921 9,485 10,382
Sales price per ton $ 27.31 $ 26.03 $ 26.01 $ 25.76
Ashland Coal, Inc. <F4>
Tons sold (thousands) 4,464 4,534 7,894 9,890
Sales price per ton $ 29.77 $ 29.52 $ 30.69 $ 29.66
---------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes intersegment sales.
<F2> Includes crude oil and other purchased feedstocks.
<F3> Amounts have been restated to exclude APAC's Arizona operations which were sold in February 1994.
<F4> Amounts are reported on a 100% basis for these affiliated companies accounted for on the equity method.
</TABLE>
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ASHLAND OIL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Current Quarter - Ashland recorded its best second quarter since 1986 with net
income of $33 million for the three months ended March 31, 1994, compared to
net income of $1 million for the same period last year. Operating income for
the current quarter totaled $68 million, compared to $30 million for last
year's second quarter. The increase in earnings was due primarily to Ashland
Petroleum's improved results. Each of the non-refining businesses also had
strong performances, and overall results from coal operations were profitable
following the December conclusion of the mine workers' strike.
Year-to-Date - Net income for the six months ended March 31, 1994, amounted to
$91 million, compared to net income of $26 million for the six months ended
March 31, 1993. The improvement reflected substantially higher earnings from
Ashland Petroleum. Operating results from SuperAmerica, Valvoline, Chemical,
and Construction were also above that of a year ago, while Exploration showed
a decline. In addition, Ashland's coal investments reported equity losses
compared to income last year.
PETROLEUM
Current Quarter - Operating income for Ashland Petroleum totaled $30 million
for the quarter ended March 31, 1994, compared to a loss of $6 million for the
same period last year. The improvement in earnings reflected an increase in
the refining margin (the difference between the value of products manufactured
and input cost) from $2.90 per barrel in 1993 to $5.58 per barrel in 1994.
Margins were strong throughout the quarter as crude oil costs remained low and
product prices strengthened from the levels experienced late in the December
1993 quarter. This improvement was limited by lower-than-normal product
volumes due to a scheduled maintenance turnaround at the Catlettsburg,
Kentucky refinery during the latter part of the quarter. The quarter ended
March 31, 1993, included a gain of $15 million on the sale of TPT, an inland
waterways barge operation.
Year-to-Date - For the six months ended March 31, 1994, Ashland Petroleum
recorded an operating profit of $75 million compared to an operating loss of
$14 million for the same period last year, which included the $15 million gain
noted above. An increase in the refining margin to $5.26 per barrel this
year, compared to $3.15 per barrel last year, accounted for the majority of
the improvement in earnings. Ashland Petroleum continues to make progress
toward its long-term goal of improving profits and reducing costs by $1 per
barrel of daily refining capacity by the end of fiscal 1994. Since the end of
the quarter ended March 31, 1994, refining margins have contracted; however,
U. S. petroleum product inventories are generally low which should ultimately
be favorable for margins.
SUPERAMERICA
Current Quarter - Operating income for the second quarter of fiscal 1994
totaled $10 million, compared to $13 million for the second quarter of fiscal
1993. The decline in earnings reflected lower sales volumes for both gasoline
and merchandise, due to the sale of 80 stores in non-strategic areas last
year. From continuing operations, SuperAmerica experienced strong margins and
volumes for both gasoline and merchandise, although retail gasoline margins
declined somewhat from the December 1993 quarter.
Year-to-Date - For the six months ended March 31, 1994, SuperAmerica's
operating income of $31 million remains slightly ahead of 1993's record pace.
Increases in gasoline and merchandise margins more than offset a decline in
sales volumes due to fewer stores. The division expects to add 25 stores this
year in markets directly supplied by Ashland Petroleum and 12 stores were
completed in the first six months. At March 31, 1994, 594 stores were
operating, compared to 641 stores at March 31, 1993.
VALVOLINE
Current Quarter - For the three months ended March 31, 1994, operating income
for Valvoline totaled $12 million, compared to $13 million for the same period
last year. Higher revenues from branded motor oil and Valvoline Instant Oil
Change (VIOC) were more than offset by lower earnings from automotive chemical
sales. Increased branded motor oil revenues were the result of higher motor
oil sales volumes and favorable customer response to value-added promotions
and Valvoline's new Durablend semi-synthetic motor oil. Improved VIOC sales
reflected increases in the number of company owned stores, average ticket
prices and average car counts. However, earnings from automotive chemicals
were adversely affected by lower margins. In early March, Valvoline completed
the acquisition of distributorships in six European countries.
Year-to-Date - For the six months ended March 31, 1994, Valvoline set a new
first half earnings record with operating income of $26 million, slightly
above the earnings reported last year. Higher revenues from branded motor oil
and VIOC were partially offset by lower earnings from automotive chemical
sales. The fluctuations in these operations were a result of the same factors
described in the quarter comparison.
CHEMICAL
Current Quarter - For the second quarter of fiscal 1994, Ashland Chemical's
operating income totaled $26 million, compared to last year's record March
quarter of $29 million. Reduced petrochemical production, due primarily to
the turnaround at Catlettsburg, and higher environmental remediation expenses
were major contributors to the decline. Despite record sales, operating
income for the distribution group was down, reflecting higher operating
expenses. The specialty chemicals group reported its highest second quarter
operating income in its history as a growing economy stimulated demand.
Year-to-Date - For the six months ended March 31, 1994, operating income
totaled $54 million, compared to $48 million for the same period last year.
Income from the distribution group and the specialty chemicals group increased
this year reflecting improved sales volumes. However, these increases were
partially offset by higher environmental remediation expenses and lower
Petrochemical results.
CONSTRUCTION
Current Quarter - For the second quarter of fiscal 1994, Construction
operations reported operating income of $3 million, compared to break-even
results for the same period last year. During the quarter, the sale of most
of APAC's Arizona operations to Kiewit Construction Group, Inc. was completed,
resulting in a gain that exceeded unusually low winter costs, which are
normally deferred and amortized over the last six months of the year. The
decline in winter costs reflected better margins, more favorable operating
conditions, and a better quality backlog.
Year-to-Date - For the six months ended March 31, operating income totaled $23
million this year, compared to $11 million last year. The increase in income
is a result of the same factors described in the quarter comparison. Backlog
at March 31, 1994, of $508 million was down from the $565 million at March 31,
1993, which has been adjusted to exclude the Arizona operations. With no
deferred winter costs to amortize over the rest of the year, Construction's
outlook is very positive.
EXPLORATION
Current Quarter - Operating income for the three months ended March 31, 1994,
totaled $10 million, compared to income of $3 million for the same period last
year. Earnings from domestic operations were $2 million higher as increased
natural gas prices and a decline in exploration costs were only partially
offset by a reduction in natural gas volumes produced. Income from foreign
operations increased this quarter despite the ongoing decline in Nigerian
crude oil production. Improved results from crude oil trading activities and
the fact that last year's operating income included higher expenses associated
with seismic acquisition activity on two offshore blocks in Nigeria were
responsible for the increased earnings. Ashland has reached an agreement to
assign to TOTAL, the French multinational integrated oil and gas company, a 50
percent interest in a production sharing contract signed in 1992 between
Ashland and the Nigerian National Petroleum Corporation for these two offshore
blocks. The interpretation of new seismic data is near completion and the
first exploration well is scheduled to commence later this month.
Year-to-Date - Operating income for the six months ended March 31, 1994,
totaled $20 million, compared to $23 million for the same period last year.
Domestic operating income decreased $10 million, due principally to a $4
million reduction in natural gas revenues reflecting lower prices as well as a
$1 million decline in crude oil revenues due to the weakness in world crude
oil prices. Prior year results also included the favorable impact of a
contract settlement. Foreign operating income increased $7 million primarily
for the same reasons noted in the quarter comparison.
GENERAL CORPORATE EXPENSES
For the second quarter of this year, general corporate expenses totaled $23
million compared to $21 million last year. Reflected in this year's results
were increases in expenses for key employee incentive compensation plans and
general environmental and litigation reserves, partially offset by a gain
resulting from the repayment of certain partially reserved notes from
affiliated companies. These net expenses are partially responsible for the $5
million increase in the year-to-date comparison. In addition, six-months
results for the prior year included income from a receipt related to the
previous sale of an engineering company concerning an earnout arrangement and
other matters, partially offset by losses resulting from debt prepayments.
OTHER INCOME (EXPENSE)
Interest expense for the quarter and year-to-date periods ended March 31,
1994, declined when compared to the same periods for the prior year,
reflecting a decline in total debt outstanding. During fiscal 1993, funds
provided from long-term borrowings and the issuance of convertible preferred
stock were used to retire long-term debt, based on scheduled maturities or
opportunities for lower interest rates.
Equity income from Arch Mineral increased $4 million for the quarter but
decreased $5 million for the six months ended March 31, 1994. The increase in
earnings for the quarter was attributed to excellent performances at several
of the Apogee mines, reflecting higher sales volumes and lower unit operating
costs. In addition, the prior year's second quarter results included payments
to the Bituminous Coal Operators Association under a mutual assistance pact,
while the current quarter included income as a result of a change in vacation
policy for salaried employees. Earnings for the year-to-date period declined,
reflecting the negative impact of the United Mine Worker's of America (UMWA)
strike on this year's first quarter profits.
Ashland recorded an equity loss from Ashland Coal of $1 million for the
current quarter and an equity loss of $2 million for the six months ended
March 31, 1994. This compares to last year's second quarter equity income of
$2 million and $7 million for the year-to-date. Unfavorable mining costs in
the current quarter reflected severe winter weather, unexpected adverse
geological conditions at one mine and the operational aftereffects of the UMWA
strike. A damage recovery related to a 1992 silo collapse at Mingo Logan's
preparation plant partially offset the effects of the higher costs in the
quarter. In addition to these items, the year-to-date results for the current
fiscal year were negatively impacted by the effect of the UMWA strike on the
first quarter's profits.
FINANCIAL POSITION
------------------
LIQUIDITY
Ashland's financial position has enabled it to continue investment grade
ratings on its indebtedness and obtain capital for its financing needs.
Ashland's senior debt ratings are Baa1 from Moody's and BBB from Standard &
Poor's. Ashland has revolving credit agreements providing for up to $350
million in borrowings, none of which were in use at March 31, 1994. At that
date under a shelf registration with the Securities and Exchange Commission,
Ashland could issue an additional $302 million in medium-term notes as future
opportunities or needs arise. Ashland also has access to commercial paper
markets and various uncommitted lines of credit, none of which were in use at
March 31, 1994. Certain debt agreements contain covenants restricting the
amount by which Ashland can increase its indebtedness. Under these covenants,
Ashland's indebtedness could have been increased by an additional $720 million
at March 31, 1994.
Cash and cash equivalents at March 31, 1994, were $65 million, compared to $41
million at September 30, 1993. Cash flows from operations, a major source of
Ashland's liquidity, amounted to $299 million for the six months ended March
31, 1994, compared to $170 million for the six months ended March 31,1993.
This increase was attributed primarily to higher earnings this year.
Working capital at March 31, 1994, was $449 million, compared to $354 million
at September 30, 1993. Liquid assets (cash, cash equivalents and accounts
receivable) as a percent of current liabilities amounted to 78% at March 31,
1994, compared to 75% at September 30, 1993. Ashland's working capital is
significantly affected by its use of the LIFO method of inventory valuation,
which valued such inventories at $317 million below their replacement costs at
March 31, 1994.
CAPITAL RESOURCES
For the six months ended March 31, 1994, property additions amounted to $153
million, compared to $204 million for the same period last year, reflecting
the expected reduction of Ashland Petroleum's capital expenditures in fiscal
1994 as a result of the completion of various refinery units in 1993.
Property additions (including exploration costs and geophysical expenses) and
cash dividends for the remainder of 1994 are estimated at $249 million and $39
million, respectively. Ashland anticipates meeting its remaining 1994 capital
requirements for property additions and dividends primarily from internally
generated funds. However, external financing may be necessary to provide
funds for the remaining contractual maturities of $52 million for long-term
debt, for acquisitions or for common stock purchases.
During the quarter, the sale of APAC's Arizona operations to Kiewit
Construction Group, Inc. was finalized, substantially completing the company's
previously announced asset divestiture program. Proceeds from the divestiture
were combined with internally generated funds and used to reduce debt, fund
capital requirements for property additions and pay dividends.
At March 31, 1994, up to 3.5 million additional shares of common stock can be
purchased from time to time in open market transactions under Ashland's
repurchase program. The number of shares ultimately purchased and the prices
Ashland will pay for its stock are subject to periodic review by management.
No shares have been purchased under this program since 1991.
Ashland's capitalization at March 31, 1994, consists of debt due within one
year (2%), long-term debt (46%), deferred income taxes (1%), convertible
preferred stock (10%), and common stockholders' equity (41%). Reflecting an
improvement in the balance sheet, total debt as a percent of total
capitalization dropped to 48%, compared to 61% a year ago. At March 31, 1994,
long-term debt included $86 million of floating-rate debt, and the interest
rates on an additional $430 million of fixed-rate debt were converted to
floating rates through interest rate swaps. As a result, interest costs will
fluctuate with short-term interest rates in 1994 on 36% of Ashland's long-term
debt.
ENVIRONMENTAL MATTERS
Federal, state and local statutes and regulations relating to the protection
of the environment and the health and safety of employees and other
individuals have resulted in higher operating costs and capital investments by
the industries in which Ashland operates. Because of the continuing trend
toward greater environmental awareness and increasingly stringent
environmental regulations, Ashland believes that expenditures for compliance
with environmental, health and safety regulations will continue to have a
significant impact on the conduct of its businesses. Although it cannot
predict accurately how these developments will affect future operations and
earnings, Ashland does not believe its costs will vary significantly from
those of its competitors in the petroleum and chemical industries. For
information regarding environmental and health and safety expenditures and
reserves, see the "Miscellaneous - Governmental Regulation and Action -
Environmental Protection" section of Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties which affect
Ashland's ability to estimate its share of the ultimate costs of remediation
efforts. Such uncertainties involve the nature and extent of contamination at
each site, the extent of required cleanup efforts, varying costs of alternate
cleanup methods, changes in environmental remediation requirements, the
potential effect of technological improvements, the number and financial
strength of other potentially responsible parties at multi-party sites, and
the identification of new environmental sites. As a result, charges to income
for environmental liabilities could have a material effect on results of
operations in a particular quarter or fiscal year as assessments and
remediation efforts proceed or as new claims arise. However, such charges are
not expected to have a material adverse effect on Ashland's consolidated
financial position, cash flow or liquidity.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Environmental Proceedings -- (1) As of March 31, 1994, Ashland was
subject to 69 notices received from the United States Environmental
Protection Agency ("USEPA") identifying Ashland as a "potentially
responsible party" ("PRP") under the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA") and the Superfund
Amendment and Reauthorization Act ("SARA") for potential joint and
several liability for cleanup costs in connection with alleged
releases of hazardous substances from various waste treatment or
disposal sites. These sites are currently subject to ongoing
investigation and remedial activities, overseen by the USEPA in
accordance with procedures established under CERCLA and SARA
regulations, in which Ashland may be participating as a member of
various PRP groups. Generally, the type of relief sought by the
USEPA includes remediation of contaminated soil and/or groundwater,
reimbursement for the costs of site cleanup or oversight expended by
the USEPA, and/or long-term monitoring of environmental conditions at
the sites. Ashland also receives notices from state environmental
agencies pursuant to similar state legislation. Ashland carefully
monitors the investigatory and remedial activity at each of the
sites. Based on its experience with site remediation, its
familiarity with current environmental laws and regulations, its
analysis of the specific hazardous substances at issue, the existence
of other financially viable PRPs and its current estimates of
investigatory, clean-up and monitoring costs at each site, Ashland
believes that its liability at these sites, either individually or in
the aggregate, after taking into account established reserves, will
not have a material adverse effect on Ashland s consolidated
financial position, cash flow or liquidity. Estimated costs for
these matters are recognized in accordance with generally accepted
accounting principles governing probability and the ability to
reasonably estimate future costs.
(2) On March 26, 1993, Ashland received a Notice of Violation and
Opportunity to Show Cause ("Show Cause Notice") from the USEPA. The
Show Cause Notice alleges violations of Section 304 of the Emergency
Planning and Community Right-to-Know Act of 1986 ("EPCRA") in that
while Ashland notified the Kentucky Division for Air Quality, it
allegedly, on various occasions, failed to notify certain other
appropriate agencies about releases of a regulated substance in
amounts greater than the reportable quantity from its Catlettsburg
refinery. Ashland anticipates signing a settlement with the USEPA
pursuant to which Ashland will implement various supplemental
environmental projects at the Catlettsburg refinery, fund various
internal projects of state and local emergency organizations and
pay a civil penalty of $312,000.
(3) On March 7, 1994, Ashland Chemical Company received a notice of
violation from the Georgia Environmental Protection Division ("EPD")
seeking a penalty of $130,000 for alleged violations of the Georgia
hazardous waste regulations at the company s chemical distribution
facility in Doraville, Georgia. The alleged violations include:
failure to properly store and label up to seven drums of used
absorbent; improper maintenance of the groundwater monitoring wells
at the facility; and certain recordkeeping violations. Ashland
Chemical has corrected the alleged violations and has reached a
settlement with the EPD to pay the sum of $110,000.
El Paso Dispute -- On March 11, 1993, a complaint was filed by El Paso
Refinery, L.P., against Scurlock Permian Corporation ("SPC"), a
wholly owned subsidiary of Ashland, in the District Court of El Paso
County, Texas. El Paso Refinery, L.P., is currently in Chapter 7
bankruptcy. Plaintiff alleges that SPC wrongfully breached certain
duties under a contract to supply crude oil. Plaintiff further
alleges violations of Texas usury law, common law fraud and duress
and seeks substantial damages. In an apparent companion case filed
the same day by individual plaintiffs (two officers of El Paso
Refining, Inc., the general partner of El Paso Refinery, L.P.),
damages are sought against SPC and others based upon the execution by
plaintiffs of promissory notes in connection with the financing of
the refinery. Ashland and SPC believe these complaints to be without
merit and intend to defend them vigorously. SPC is a creditor in the
El Paso bankruptcy proceeding and had filed a proof of claim for
approximately $39,000,000 against the bankrupt estate. As of April
18, 1994, SPC had received approximately $16,900,000 from the
liquidation of collateral. Ashland believes its current reserves are
adequate to cover any shortfall that could be sustained in the
bankruptcy proceeding.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements 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 Oil, Inc.
--------------------------------
(Registrant)
Date May 9, 1994 Kenneth L. Aulen
--------------------------------
Kenneth L. Aulen
Administrative Vice President
and Controller (Chief
Accounting Officer)
Date May 9, 1994 Thomas L. Feazell
--------------------------------
Thomas L. Feazell
Senior Vice President,
General Counsel and Secretary
<PAGE>
