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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
1000 Ashland Drive
Russell, Kentucky 41169
Telephone Number: (606) 329-3333
Securities Registered Pursuant to Section 12(b):
Name of each exchange
Title of each class on which registered
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Common Stock, par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock and Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g): None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) as
been subject to such filing requirements for the past 90 days. Yes __X__
No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
At October 31, 1997, based on the New York Stock Exchange closing
price, the aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $3,174,811,812. In determining this
amount, Ashland Inc. has assumed that directors, certain of its executive
officers, and persons known to it to be the beneficial owners of more than
five percent of its common stock are affiliates. Such assumption shall not
be deemed conclusive for any other purpose.
At October 31, 1997, there were 75,019,275 shares of Registrant's
common stock outstanding.
Documents Incorporated by Reference
Portions of Registrant's Annual Report to Shareholders for the fiscal
year ended September 30, 1997 are incorporated by reference into Parts I
and II.
Portions of Registrant's definitive Proxy Statement for its January
29, 1998 Annual Meeting of Shareholders are incorporated by reference into
Part III.
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<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Corporate Developments 1
Chemical 2
Valvoline 3
APAC 4
Refining and Marketing 5
Petroleum 5
SuperAmerica 7
Coal 7
Miscellaneous 9
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a
Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Stock and
Related Security Holder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the
Registrant 13
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15
<PAGE>
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22, 1936,
with its principal executive offices located at 1000 Ashland Drive,
Russell, Kentucky 41169 (Mailing Address: P.O. Box 391, Ashland, Kentucky
41114) (Telephone: (606) 329-3333). The terms "Ashland" and the "Company"
as used herein include Ashland Inc. and its consolidated subsidiaries,
except where the context indicates otherwise.
Ashland's businesses are grouped into five industry segments:
Chemical, Valvoline, APAC, Refining and Marketing and Coal. Financial
information about these segments for the five fiscal years ended September
30, 1997 is set forth on Pages 62 and 63 of Ashland's Annual Report to
Shareholders for the fiscal year ended September 30, 1997 ("Annual
Report").
Ashland Chemical distributes industrial chemicals, solvents,
thermoplastics and resins, and fiberglass materials, and manufactures and
sells a wide variety of specialty chemicals and certain petrochemicals.
Valvoline is a marketer of branded, packaged motor oil and automotive
chemicals, antifreeze, filters, rust preventives and coolants. In addition,
Valvoline is engaged in the "fast oil change" business through outlets
operating under the Valvoline Instant Oil Change(R) and Valvoline Rapid Oil
Change(R) names.
APAC performs contract construction work, including highway paving and
repair, excavation and grading, and bridge construction, and produces
asphaltic and ready-mix concrete, crushed stone and other aggregate,
concrete block and certain specialized construction materials in the
southern and midwestern United States.
Refining and Marketing operations are conducted by Ashland Petroleum
and SuperAmerica. Ashland Petroleum is an independent petroleum refiner and
a supplier of petroleum products to the transportation and commercial fleet
industries, other industrial customers and independent marketers, and to
SuperAmerica for retail distribution. In addition, Ashland Petroleum
gathers and transports crude oil and petroleum products and distributes
petroleum products under the Ashland(R) brand name. SuperAmerica operates
combination gasoline and merchandise stores under the SuperAmerica(R) and
Rich(R) brand names.
Ashland's coal operations are conducted by Arch Coal, Inc., which is
54% owned by Ashland and is publicly traded, and which produces and markets
bituminous coal in Central Appalachia, the Illinois Basin and the Hanna
Basin in Wyoming for sale to domestic and foreign electric utility and
industrial customers.
At September 30, 1997, Ashland and its consolidated subsidiaries had
approximately 37,200 employees (excluding contract employees).
CORPORATE DEVELOPMENTS
In May 1997, USX Corporation and Ashland announced the signing of a
letter of intent to pursue a combination of the major elements of the
petroleum supply, refining, marketing and transportation operations of
USX's Marathon Group and Ashland. USX-Marathon would own a 62 percent
ownership interest and Ashland would own a 38 percent ownership interest in
the joint venture to be known as Marathon Ashland Petroleum LLC. The joint
venture is expected to be formed following regulatory reviews, execution of
definitive agreements and approval by the Ashland and USX Boards of
Directors.
On July 1, 1997, Ashland sold the domestic exploration and production
assets of Blazer Energy Corporation (formerly Ashland Exploration, Inc.) to
the Norwegian energy company, Statoil, through its U.S. energy management
subsidiary, The Eastern Group, for $566 million. Ashland has entered into
an agreement to sell its Nigerian exploration and production operations,
which is subject to the approval of the Nigerian government and other
conditions. For further information, see Note B to the Consolidated
Financial Statements on Page 50 in Ashland's Annual Report.
On July 1, 1997, Ashland Coal, Inc. and Arch Mineral Corporation
merged into a new, publicly traded corporation, named Arch Coal, Inc.
Ashland owns 54% of the new company. The merger created the sixth largest
coal company in the United States by tons mined. For further information
relating to Arch Coal, see "Coal".
<PAGE>
CHEMICAL
Ashland Chemical Company, a division of Ashland, is engaged in the
manufacture, distribution and sale of a wide variety of chemical and
plastic products. Ashland Chemical owns and operates 34 manufacturing
facilities and participates in 12 manufacturing joint ventures in 10 states
and 14 foreign countries. In addition, Ashland Chemical owns or leases
approximately 100 distribution facilities in North America and 25
distribution facilities in 17 foreign countries. Ashland Chemical is
comprised of the following operations:
DISTRIBUTION
INDUSTRIAL CHEMICALS & SOLVENTS DIVISION ("IC&S") - IC&S markets
chemical products, ingredients and solvents to industrial chemical users in
major markets through distribution centers in the United States, Canada,
Mexico and Puerto Rico. It distributes approximately 3,500 chemical
products made by many of the nation's leading chemical manufacturers and a
growing number of off-shore producers, as well as petrochemicals from
Ashland's refineries. It specializes in supplying mixed truckloads and
less-than-truckload quantities to many industries, including the paint and
coatings, inks, adhesives, polymer, rubber, industrial and institutional
compounding, automotive, appliance and paper industries. It also offers
customers chemical waste collection, disposal and recycling services,
working in cooperation with major chemical waste services companies.
FINE INGREDIENTS DIVISION - This division (formerly part of the IC&S
division) distributes cosmetic and pharmaceutical specialty chemicals, and
food-grade and nutritional additives and ingredients across North America.
FRP SUPPLY DIVISION - This division markets to customers in the
reinforced plastics and cultured marble industries mixed truckload and
less-than-truckload quantities of polyester resins, fiberglass and other
specialty reinforcements, catalysts and allied products from more than 50
distribution locations throughout North America.
GENERAL POLYMERS DIVISION - This division markets a broad range of
thermoplastic injection molding and extrusion materials to processors in
the plastics industry through distribution locations in the United States,
Canada, Mexico and Puerto Rico. It also provides plastic material transfer
and packaging services and less-than-truckload quantities of packaged
thermoplastics. The basic resins business unit markets bulk thermoplastic
resins to a variety of proprietary processors in North America.
ASHLAND PLASTICS EUROPE - This division (formerly known as the Ashland
Plastics Division) markets a broad range of thermoplastics to processors in
Europe, including Finland, Norway, Sweden and Germany. Ashland Plastics has
distribution centers located in Belgium, France, Italy, the Netherlands,
Ireland, Spain, and the United Kingdom. The division has compounding
manufacturing facilities located in Italy and Spain.
SPECIALTY CHEMICALS
COMPOSITE POLYMERS DIVISION - This division manufactures and sells a
broad range of chemical-resistant, fire-retardant and general-purpose
grades of unsaturated polyester and vinyl ester resins for the reinforced
plastics industry. Key markets include the transportation, construction and
marine industries. It has manufacturing plants in Jacksonville, Arkansas;
Colton and Los Angeles, California; Bartow, Florida; Ashtabula, Ohio;
Philadelphia and Neville Island, Pennsylvania; and Benicarlo, Spain.
In September 1997, the company reached an agreement in principle to
purchase the unsaturated polyester resins business of Buna Sow Leuna
Olefinvergund GmbH (BSL). The agreement is subject to the execution of a
definitive agreement and is expected to close by the first calendar quarter
of 1998. This acquisition will add a manufacturing facility in Schkopau,
Germany.
SPECIALTY POLYMERS & ADHESIVES DIVISION - This division manufactures
and sells specialty phenolic resins for paper impregnation and friction
material bonding; acrylic polymers for pressure-sensitive adhesives;
emulsion polymer isocyanate adhesives for structural wood bonding;
polyurethane and epoxy structural adhesives for bonding fiberglass
reinforced plastics, composites, thermoplastics and metals in automotive,
recreational, and industrial applications; induction bonding systems for
thermoplastic materials; elastomeric polymer adhesives and butyl rubber
roofing tapes for commercial roofing applications; and vapor curing,
high-performance urethane coatings systems. It has manufacturing plants in
Calumet City, Illinois; Norwood, New Jersey; and Ashland, Ohio.
DREW AMEROID MARINE DIVISION - This division supplies specialty
chemicals for water and fuel treatment and general maintenance as well as
refrigeration services, sealing products, welding and refrigerant products
and fire fighting and safety services to the world's merchant marine fleet.
Drew Ameroid Marine currently provides shipboard technical service for more
than 10,000 vessels from more than 30 locations serving 700 ports
throughout the world.
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<PAGE>
ELECTRONIC CHEMICALS DIVISION - This division manufactures and sells a
variety of ultra-high purity chemicals for the worldwide semiconductor
manufacturing industry through various manufacturing locations and also
custom blends and packages high-purity liquid chemicals to customer
specifications. It has manufacturing plants in Newark, California; Milan,
Italy; Easton, Pennsylvania; Dallas, Texas, and Campbell, California. In
addition, it also enters into long-term agreements to provide complete
chemical management services, including purchasing, warehousing and
delivering chemicals for in-plant use, for major facilities of large
consumers of high-purity chemicals. Ashland Chemical is currently building
a new, ultra-high purity manufacturing and packaging facility in Pueblo,
Colorado, targeted for completion in spring 1998.
FOUNDRY PRODUCTS DIVISION - This division manufactures and sells
foundry chemicals worldwide, including sand-binding resin systems,
refractory coatings, release agents, engineered sand additives, riser
sleeves, and die lubricants. The division purchased the remaining 50%
ownership interest in its Brazilian affiliate, Ashland Bentonit Resinas,
Ltda., from Bentonit Uniao Nordeste, S.A. in September 1997. This division
serves the global metal casting industry from 22 locations in 18 countries.
DREW INDUSTRIAL DIVISION - This division supplies specialized
chemicals and consulting services for the treatment of boiler water,
cooling water, steam, fuel and waste streams. It also supplies process
chemicals and technical services to the pulp and paper and mining
industries and additives to manufacturers of latex and paints. It conducts
operations throughout North America, Europe and the Far East through
subsidiaries, joint venture companies and distributors. The division has
manufacturing plants in Kansas City, Kansas; Kearny, New Jersey; Houston,
Texas; Ajax, Ontario, Canada; Singapore; Sydney and Perth, Australia; and
Auckland, New Zealand.
PETROCHEMICALS
This division markets aromatic and aliphatic solvents manufactured at
facilities located at the Catlettsburg, Kentucky refinery. It also
manufactures maleic anhydride at Neal, West Virginia, and Neville Island,
Pennsylvania, and methanol near Plaquemine, Louisiana. The division formed
an Energy Services business unit in July 1997 to provide industrial and
commercial businesses with expert management of their total energy
requirements. The new business will source and supply natural gas,
electricity and natural gas liquids.
OTHER MATTERS
MELAMINE CHEMICALS, INC. ("MCI") - In October 1997, MCI and Borden
Chemicals Inc. ("Borden") announced that a definitive agreement had been
reached providing for Borden to tender for all of the outstanding shares of
MCI for $20.50 per share. Ashland tendered its 1,275,000 shares under the
terms of the offer and received $26,137,500 for such shares.
DUBLIN, OHIO HEADQUARTERS TECHNICAL CENTER EXPANSION - Ashland
Chemical is constructing a 115,000-square-foot facility to expand its
Technical Center in Dublin, Ohio. The project is targeted for completion in
late calendar year 1998.
For information relating to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") and the Superfund Amendments and
Reauthorization Act of 1986 ("SARA") (CERCLA and SARA hereinafter sometimes
referred to collectively as "Superfund"), and the Resource Conservation and
Recovery Act ("RCRA"), see "Miscellaneous-Governmental Regulation and
Action-Environmental Protection."
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of
automotive and industrial oils, automotive chemicals, and automotive and
environmental services, with sales in more than 140 countries. The
Valvoline(R) trademark was federally registered in 1873 and is the oldest
trademark for a lubricating oil in the United States. See also "Refining
and Marketing." Valvoline has diversified its operations in recent years
and is comprised of the following business units:
NORTH AMERICAN PRODUCTS - Valvoline's largest division, North
American, markets automotive, commercial, and industrial lubricants and
automotive chemicals to a broad network of North American customers.
Valvoline branded motor oil is one of the top selling brands in the U.S.
private passenger car and light truck market.
North American markets Zerex(R) antifreeze and Pyroil(R) automotive
chemicals. Zerex(R) is the second-leading antifreeze brand in the U.S. This
division also markets R-12, an automotive refrigerant that was phased out
of production in 1995. R-12 is being replaced in the market by
new-generation refrigerants.
The domestic commercial/fleet group continued its strategic alliance
with the Cummins Engine Company to distribute heavy-duty lubricants to the
commercial market.
3
<PAGE>
VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline(R)
branded products and TECTYL(R) rust preventives worldwide through
company-owned affiliates or divisions in Australia, Denmark, Great Britain,
the Netherlands, Sweden, Germany, Switzerland, Austria, France, Italy,
Belgium and South Africa. Licensees and distributors market products in
other parts of Europe, Central and South America, the Far East, the Middle
East and certain African countries. Joint ventures have been established in
Argentina, Ecuador, Thailand and India. Packaging and blending plants and
distribution centers in Australia, Canada, Denmark, Sweden, Great Britain,
the Netherlands and the United States supply international customers.
VALVOLINE INSTANT OIL CHANGE(R) ("VIOC") - VIOC is one of the largest
competitors in the expanding U.S. "fast oil change" service business,
providing Valvoline with a significant share of the installed segment of
the passenger car and light truck motor oil market. Incorporation of the
Valvoline name and trademark in VIOC's name, store signage and advertising
provides an ongoing Valvoline presence in the communities in which VIOC
stores are located. As of September 30, 1997, 382 company-owned and 137
franchise service centers were operating in 15 and 27 states, respectively.
In 1997, the "MVP" (Maximum Vehicle Performance) program continued
VIOC's industry leadership in customer-service innovation. MVP is a
computer-based program that maintains service records on all customer
vehicles, system-wide. MVP also contains a database on all car makes and
models, which allows service recommendations based on vehicle owner's
manual recommendations.
FIRST RECOVERY - As of September 30, 1997, Ecogard, Inc., through its
First Recovery division, was collecting used motor oil at an annual rate of
64 million gallons from a network of automotive aftermarket retailers and
service businesses in 48 states. Completing Valvoline's "total fluid
management" approach to customer service, First Recovery provides an
environmental service to Valvoline customers in the U.S., collecting used
antifreeze and oil filters as well.
APAC
The APAC group of companies, which are located in 13 southern and
midwestern states, perform construction work such as paving, repair and
resurfacing highways, streets, airports, residential and commercial
developments, sidewalks, and driveways; grading and base work; and
excavation and related activities in the construction of bridges and
structures, drainage facilities and underground utilities. APAC also
produces and sells construction materials, such as hot-mix asphalt and
ready-mix concrete, crushed stone and other aggregate and, in certain
markets, concrete block and specialized construction materials, such as
architectural block.
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
18 permanent operating quarry locations, 32 other aggregate production
facilities, 34 ready-mix concrete plants, 145 hot-mix asphalt plants, and a
fleet of over 9,000 mobile equipment units, including heavy construction
equipment and transportation-related equipment.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 26% of the raw aggregate produced by APAC is used in
APAC's own contract construction work and the production of various
processed construction materials. The remainder is sold to third parties.
APAC also purchases substantial quantities of raw aggregate from other
producers whose proximity to the job site render it economically feasible.
Most other raw materials, such as liquid asphalt, portland cement and
reinforcing steel, are purchased from others. APAC is not dependent upon
any one supplier or customer.
Approximately 60% of APAC's revenues are derived directly from highway
and other public sector sources. The other 40% are derived from industrial
and commercial customers, and other private developers, and other
contractors to the public sector.
Climate and weather significantly affect revenues in the construction
business. Due to its location, APAC tends to enjoy a relatively long
construction season. Most of APAC's operating income is generated during
the construction period of May to October.
Total backlog at September 30, 1997 was $693 million, compared to $647
million at September 30, 1996. The backlog orders at September 30, 1997 are
considered firm, and a major portion is expected to be filled during fiscal
1998.
4
<PAGE>
REFINING AND MARKETING
Refining and Marketing operations are conducted by Ashland Petroleum
and SuperAmerica. Ashland Petroleum, a division of Ashland, has
responsibility for obtaining Ashland's crude oil requirements, operating
Ashland's refineries, marketing the refined petroleum products and
transporting and storing crude oil and refined products. SuperAmerica
Group, a division of Ashland, conducts retail petroleum marketing
operations under the SuperAmerica(R) and Rich(R) names. See "Corporate
Developments" for information relating to the proposed joint venture with
USX-Marathon.
PETROLEUM
CRUDE OIL SUPPLY - The crude oil processed in Ashland Petroleum's
refineries is obtained from negotiated lease, contract and spot purchases
or exchanges. During fiscal 1997, Ashland Petroleum's negotiated lease,
contract and spot purchases of United States crude oil for refinery input
averaged 111,392 barrels per day (1 barrel = 42 U.S. gallons), including
93,122 barrels per day acquired through Ashland's Scurlock Permian
subsidiary. During fiscal 1997, Ashland Petroleum's foreign crude oil
requirements were met largely through purchases from various foreign
national oil companies, producing companies and traders, as well as
purchases of an average of 60,800 barrels per day during fiscal 1997 from
Canada through Scurlock Permian's Canadian subsidiary. Purchases of foreign
crude oil (including Canada) represented 68% of Ashland Petroleum's crude
oil requirements during fiscal 1997 and in fiscal 1996.
In addition to providing crude oil for Ashland Petroleum's refineries,
Scurlock Permian and its Canadian subsidiary are actively engaged in
purchasing, selling and trading crude oil, principally at Midland, Texas,
Cushing, Oklahoma, and St. James, Louisiana, three of the major
distribution points for United States crude oil, as well as major trading
and distribution hubs in western Canada.
REFINING AND WHOLESALE MARKETING - Ashland Petroleum owns and operates
three refineries, located in its key markets, with an aggregate rated
refining capacity of 360,000 barrels of crude oil per calendar day. The
Catlettsburg, Kentucky, refinery has a refining capacity of 220,000 barrels
per day, and the St. Paul Park, Minnesota, and Canton, Ohio, refineries
each have rated refining capacities of 70,000 barrels per day. Ashland
Petroleum's refineries are complex and include crude oil atmospheric and
vacuum distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. Each has the capability to
process a wide variety of crude oils and to produce normal refinery
products, including reformulated gasoline. In addition, the Catlettsburg
refinery manufactures lubricating oils and a wide range of petrochemicals.
Ashland Petroleum's principal marketing areas for gasoline and fuel
oils include the Ohio River Valley, the upper Midwest, the upper Great
Plains and the southeastern United States.
Ashland Petroleum's production of gasoline, kerosene and light fuel
oils is sold in 20 states through wholesale channels of distribution
(including company owned and exchange terminals and 17 Ashland brand bulk
plants in 4 states) and at retail through Ashland(R) brand distributor
locations, SuperAmerica(R) and Rich(R). Gasoline is sold at wholesale
primarily to independent marketers, jobbers, and chain retailers who resell
through several thousand retail outlets principally under their own names,
and also under the Ashland(R) brand name. As of September 30, 1997, 37
jobbers were committed to Ashland's jobber program and 601 units had been
reimaged. Ashland also supplies 46 reseller outlets using the Ashland(R)
brand name. Gasoline, kerosene, distillates and aviation products are also
sold to utilities, railroads, river towing companies, commercial fleet
operators, airlines and governmental agencies.
Ashland Petroleum also produces asphalt cements, polymerized asphalt,
asphalt emulsions and industrial asphalts and markets these products in 18
states. Additionally, Ashland Petroleum manufactures petroleum pitch,
primarily used in the graphite electrode, clay target and refractory
industries.
The table below shows Ashland's refining operations for the last three
fiscal years.
<TABLE>
<CAPTION>
Years Ended September 30
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
REFINERY INPUT (IN THOUSANDS OF BARRELS PER DAY) 362.6 372.3 353.8
------------------------------------------------
REFINERY PRODUCTION (IN THOUSANDS OF BARRELS PER DAY)
-----------------------------------------------------
Gasoline 178.3 183.5 176.8
Distillates and Kerosene 98.0 102.1 92.5
Asphalt 29.9 30.4 31.5
Jet and Turbine Fuel 11.6 11.4 11.1
Heavy Fuel Oils 7.9 7.1 6.7
Lubricants 7.1 7.7 7.7
Other 20.7 20.0 16.8
</TABLE>
5
<PAGE>
The table below shows the average daily consolidated sales (excluding
intercompany sales) of petroleum products and crude oil by Ashland
Petroleum, SuperAmerica and Valvoline for the last three fiscal years.
Sales of gasoline (excluding excise taxes) represented approximately 17%,
18% and 17% of Ashland's consolidated sales and operating revenues
(excluding excise taxes) in fiscal years 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Years Ended September 30
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
CONSOLIDATED PRODUCT SALES (IN THOUSANDS OF BARRELS PER DAY)
Gasoline 197.1 197.6 193.7
Crude Oil 108.6 116.3 112.5
Distillates and Kerosene 108.5 112.8 102.8
Asphalt 37.4 37.0 36.8
Jet and Turbine Fuel 12.4 9.6 9.6
Heavy Fuel Oils 7.5 7.0 7.1
Lubricants 13.8 14.8 15.0
Other 29.9 28.0 28.3
</TABLE>
TRANSPORTATION AND STORAGE - Ashland owns, leases or has an ownership
interest in 5,790 miles of active pipeline in 13 states. This network
transports crude oil and refined products to and from terminals, refineries
and other pipelines. This includes 2,545 miles of crude oil gathering
lines, 2,729 miles of crude oil trunk lines, 475 miles of refined product
lines and 41 miles of natural gas liquid lines.
Ashland has an 18.6% ownership interest in LOOP LLC ("LOOP"), the only
U.S. deep water port facility capable of receiving crude oil from very
large crude carriers and which has a capacity to off-load 1,000,000 to
1,200,000 barrels per day. Ashland also has a 21.4% ownership interest in
LOCAP INC. ("LOCAP"), a pipeline operation which has a capacity of
1,200,000 barrels per day, and a 21.6% undivided ownership interest in the
Capline Pipeline System, which has a nominal capacity of 1,175,000 barrels
per day. LOCAP owns a pipeline connecting LOOP and the Capline System that
originates at St. James, Louisiana. These port and pipeline systems provide
Ashland Petroleum with access to common carrier transportation from the
Louisiana Gulf Coast to Patoka, Illinois. At Patoka, the Capline System
connects with other common carrier pipelines owned or leased by Ashland
which provide transportation to Ashland Petroleum's refineries in Kentucky
and Ohio. For summarized financial statements and information with respect
to advances and transportation payments made by Ashland to LOOP and LOCAP,
see Notes D and I of Notes to Consolidated Financial Statements in
Ashland's Annual Report.
In addition, Ashland owns a 33% stock interest in Minnesota Pipe Line
Company, which owns a crude oil pipeline in Minnesota. Minnesota Pipe Line
Company provides Ashland Petroleum with access to 270,000 barrels per day
nominal capacity of crude oil common carrier transportation from
Clearbrook, Minnesota to Cottage Grove, Minnesota, which is in the vicinity
of Ashland Petroleum's St. Paul Park, Minnesota, refinery.
Ashland Petroleum's river transportation operations include 8 towboats
(6 owned, 2 leased) and 170 barges that transport crude oil and refined
products on the Ohio, Mississippi and Illinois rivers, their tributaries,
and the Intracoastal Waterway. In 1995, Ashland entered into an agreement
with Jeffboat, a division of American Commercial Marine Service Company, to
construct 42 new double-hulled inland river tank barges. As of September
30, 1997, construction on 34 of the new double-hulled units has been
completed. These barges will replace current single-hulled barges owned and
operated by Ashland in order to comply with requirements of the Oil
Pollution Act of 1990. Displaced single-hulled units will be divested or
recycled into dock floats within Ashland's system. See also "Miscellaneous
- - Governmental Regulation and Action - Environmental Protection."
Ashland Petroleum leases on a long-term basis two 80,000 ton
deadweight tankers, which are primarily used for third party delivery of
foreign crude oil to the United States. Ashland Petroleum's requirements
for tankers are met by chartering tankers for individual voyages.
Ashland Petroleum leases rail cars in various sizes and capacities for
movement of petroleum products and chemicals. Ashland Petroleum also owns a
large number of tractor-trailers, additional trailers, and a large fleet of
tank trucks and general service trucks.
6
<PAGE>
Ashland Petroleum owns or has an interest in 34 terminal facilities
from which it sells a wide range of petroleum products. These facilities
are supplied by a combination of river barge, pipeline, truck and rail.
Ashland Petroleum also owns or operates a number of other terminals that
are used in connection with the transportation of petroleum products or
crude oil.
OTHER MATTERS - There are traditional seasonal variations in Ashland
Petroleum's sales and operating results. The seasonality that Ashland
Petroleum experiences is due primarily to increased demand for gasoline
during the summer driving season, higher demand for distillate during the
winter heating season, and increased demand for asphalt from the road
paving industry during the last six months of Ashland's fiscal year. The
refining industry experiences a similar seasonality. For Ashland's fiscal
years 1995 through 1997, refining margins for Ashland Petroleum have
averaged $3.69 per barrel for the six-month periods ended March 31 and
$5.19 per barrel for the six-month periods ended September 30.
For information on federal, state and local statutes and regulations
relating to releases into the environment or protection of the environment,
see "Miscellaneous-Governmental Regulation and Action-Environmental
Protection." For information relating to certain environmental litigation,
see "Legal Proceedings-Environmental Proceedings."
SUPERAMERICA
SUPERAMERICA(R) STORES - SuperAmerica operates 641 (497 owned and 144
leased) combination gasoline and merchandise stores in 10 states in the
Ohio Valley and upper Midwest under the SuperAmerica(R) name. These stores
are designed for high volume sales. SuperAmerica stores offer consumers
gasoline, diesel fuel (at selected locations) and a broad mix of other
goods and services, such as fresh-baked goods, automated teller machines,
video rentals, automotive accessories and a line of private-label items.
SuperAmerica has also added on-premise brand-name restaurants at some
outlets to enhance overall profitability. At September 30, 1997, there were
81 SuperAmerica locations with branded food service.
SuperAmerica operates warehouse distribution centers in Bloomington,
Minnesota, and Ashland, Kentucky, that distribute certain merchandise to
its stores. SuperAmerica also operates a commissary in Russell, Kentucky,
that produces sandwiches, salads and other food products for distribution
to stores in the Ohio Valley. A wholly owned subsidiary of Ashland also
operates a large bakery and commissary in St. Paul Park, Minnesota, under
the name SuperMom's(R) that supplies baked goods, sandwiches and salads.
In addition to its product and service innovations, SuperAmerica has
adopted a number of technological enhancements that improve efficiency and
service. SuperAmerica has bar code scanning and home office to store
satellite communication links. SuperAmerica is also one of the first in the
industry to operate a data warehouse to collect and analyze data from its
stores.
In addition to the 641 company-owned and leased SuperAmerica stores,
SuperAmerica has 27 jobber/franchisees who operate 43 stores in Minnesota
and Wisconsin. During fiscal 1997, 33 new or rebuilt SuperAmerica retail
outlets were opened. During fiscal 1997, 38% of the revenues of the
SuperAmerica stores (excluding excise taxes) were derived from the sale of
merchandise and 62% of such revenues were derived from the sale of gasoline
and diesel fuel.
RICH OIL - SuperAmerica also operates 125 (97 owned and 28 leased)
retail gasoline outlets in Kentucky, Ohio and West Virginia under the
Rich(R) name. These outlets are generally smaller, are located in
less-densely-populated areas and generate lower gasoline volumes than the
average SuperAmerica store.
OTHER MATTERS
For information on federal, state and local statutes and regulations
relating to releases into the environment or protection of the environment,
see "Miscellaneous-Governmental Regulation and Action-Environmental
Protection." For information relating to certain environmental litigation,
see "Legal Proceedings-Environmental Proceedings."
COAL
ARCH COAL, INC. ("ARCH COAL") - Ashland owns approximately 54% of Arch
Coal, a publicly traded Delaware corporation (NYSE:ACI) resulting from the
merger of Ashland Coal, Inc. and Arch Mineral Corporation. See "Corporate
Developments" for a discussion of the July 1, 1997 merger transaction. The
unaudited pro forma combined operating data below are not representative of
the operating results which would have occurred had the merger occurred as
of the beginning of the periods presented or dates indicated or of the
operating results which may be achieved in the future.
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Arch Coal is engaged in the production, transportation, processing and
marketing of bituminous coal produced in Central Appalachia, the Illinois
Basin and the Hanna Basin in Wyoming. Arch Coal concentrates primarily on
acquiring and developing low-sulfur steam coal reserves for sale to
electric utility customers in the United States and abroad. Arch Coal
relies on third-party rail, barge and truck transportation to deliver coal
to its domestic customers. A substantial portion of shipments to
international customers are made primarily from the Dominion Terminal
Associates terminal facility in Newport News, Virginia. Arch Coal
subsidiaries are partners in the partnership that owns and operates this
terminal.
For its fiscal year ended December 31, 1996, on a pro forma combined
basis, Arch Coal and its independent operating subsidiaries sold 51.3
million tons of coal, as compared to 49.2 and 48.1 million tons sold in
1995 and 1994, respectively. Of the total number of tons sold during fiscal
1996, approximately 68% were under long term contracts, as compared to 69%
for 1995 and 67% for 1994, with the balance being sold on the spot market.
In fiscal 1996, Arch Coal and its independent operating subsidiaries sold
2.4 million tons of coal in the export market, compared to 3.5 million tons
in 1995 and 2.2 million tons in 1994. Sales of coal represented
approximately 10%, 5% and 6% of Ashland's consolidated revenues in its
fiscal years ended September 30, 1997, 1996 and 1995, respectively.
For its fiscal year ended December 31, 1996, Arch Coal's independent
operating subsidiaries produced approximately 47.4 million tons of coal, as
compared to 46.5 and 46.6 million tons for 1995 and 1994, respectively. In
addition, Arch Coal purchased for resale approximately 3.9 million tons of
coal during 1996 and approximately 2.6 and 2.5 million tons of coal during
1995 and 1994.
Approximately 66%, 70% and 68% of total revenues for fiscal years
1996, 1995 and 1994, respectively, were derived from long-term contracts.
In the nine months ended September 30, 1997, on a pro forma combined basis,
Arch Coal sold 40.1 million tons of coal, 69% of which was sold under
contracts with a duration of more than one year. During this period, 94% of
Arch Coal's total sales came from the production of its subsidiaries, while
the remaining coal sold came from brokerage activities. During this
nine-month period, 58% of Arch Coal's production was from its surface mines
and the remainder was from its underground and auger mines.
During its fiscal year ended December 31, 1996, Arch Coal's pro forma
combined sales to affiliates of The Southern Company and affiliates of
American Electric Power accounted for approximately 14.6% and 13.1%,
respectively, of pro forma combined revenues from coal sales for such
period. The loss of such customers would have a material adverse effect on
Arch Coal.
As of September 30, 1997, Arch Coal estimates it owned or controlled
recoverable coal reserves in the proven and probable categories of
approximately 2.1 billion tons. Arch Coal believes that a majority of these
reserves have a sulfur content of less than 1.6 pounds of sulfur dioxide
per million Btu and a substantial portion have a sulfur content of less
than 1.2 pounds of sulfur dioxide per million Btu. Ashland has not made an
independent verification of this information.
Arch Coal's coal properties are owned outright and controlled by
lease. Royalties paid to lessors on leased properties are either on a fixed
price per ton basis or on a percentage of the gross sales price basis. Most
of these leases run until the exhaustion of mineable and merchantable coal.
The remaining leases have primary terms ranging from one to 40 years from
the date of their execution, with many containing options to renew. Those
term leases covering principal reserves under Arch Coal's current mining
plans are not scheduled to expire prior to expiration of those plans in
2003 (at Arch Coal's Coal Mac, Inc. operations) and 2006 (at the balance of
Arch Coal's operations). Mining plans are not necessarily indicative of the
life of the mine. The extent to which reserves will eventually be mined
depends upon a variety of factors, including future economic conditions and
governmental actions affecting both the mining and marketability of
low-sulfur steam coal.
Arch Coal's Apogee Coal Company ("Apogee") and Hobet Mining, Inc.
("Hobet") subsidiaries, are members of the Bituminous Coal Operators
Association ("BCOA") and each is a signatory to a five year collective
bargaining agreement with the United Mine Workers of America that expires
on August 1, 1998. In the nine months ended September 30, 1997, Apogee's
and Hobet's combined production represented approximately 55% of Arch
Coal's total production on a pro forma combined basis. Two other Arch Coal
subsidiaries are signatories to collective bargaining agreements with
independent employee associations. Employees of the remainder of Arch
Coal's operating subsidiaries are not represented by labor unions.
Arch Coal is subject to extensive federal and state environmental laws
and regulations, including the federal Surface Mining Control and
Reclamation Act of 1977, the Clean Water Act, RCRA and the Clean Air Act,
as well as related federal environmental regulations and similar state
enactments. In addition, the Federal Mine Safety and Health Act of 1977
("MSHA") imposes health and safety standards on all mining operations.
Regulations under MSHA are comprehensive and affect numerous aspects of
mining operations, including the
8
<PAGE>
training of mine personnel, mining procedures, blasting and the equipment
used in mining operations. Although the cost of compliance with these laws,
regulations and requirements is substantial, it is not expected to have a
material adverse impact on Arch Coal's results of operations, financial
condition or competitive position.
The Clean Air Act contains acid rain provisions which require
substantial reductions in sulfur dioxide emissions by power plants in the
United States. Typically, power plants burn low-sulfur coal as a means of
reducing sulfur dioxide emissions. Because Arch Coal has significant
low-sulfur coal reserves, future sales should be positively affected by
stringent enforcement of sulfur dioxide emission standards.
MISCELLANEOUS
GOVERNMENTAL REGULATION AND ACTION
Ashland's operations are affected by political developments and laws
and regulations, such as restrictions on production, restrictions on
imports and exports, the maintenance of specified reserves, price controls,
tax increases and retroactive tax claims, expropriation of property,
cancellation of contract rights, environmental protection controls and laws
pertaining to workers' health and safety. As discussed in part below, a
number of bills have been enacted or proposed by the United States Congress
and various state governments which have, or could have, a significant
impact on Ashland.
GENERAL - As a refiner, Ashland is substantially affected by changes
in world crude oil prices. Many world and regional events can have
substantial effects on world crude oil prices and can increase volatility
in world markets. Ashland expects to be able to acquire adequate supplies
of crude oil at competitive prices. However, Ashland cannot predict whether
foreign and United States petroleum product price levels will permit its
refineries to operate on a profitable basis. Neither can it predict the
effect on its operations and financial condition from possible changes in
the policies of the Organization of Petroleum Exporting Countries ("OPEC")
or in actions by the President of the United States and the Congress, from
changes in taxes and federal regulation of the oil and gas business in the
United States, or from other developments that cannot be foreseen.
The stability of Ashland's crude oil supply from foreign sources is
subject to factors beyond its control, such as military conflict involving
oil-producing countries, the possibility of nationalization of assets,
embargoes of the type imposed by OPEC in 1973, internal instability in one
or more oil-producing countries, and rapid increases in crude oil prices.
Although Ashland will continue, for economic reasons, to rely upon foreign
crude oil sources for a substantial portion of its crude oil supply, the
extent of operation in the domestic crude oil market afforded by its
Scurlock Permian subsidiary assists in offsetting the adverse effects
frequently associated with market volatility. See "Refining and Marketing -
Petroleum-Crude Oil Supply" for Ashland's crude oil processing
requirements.
Imported crude oil is subject at present to payment of duty, which is
10.5(cent) per barrel for crudes over 25(degree) API gravity (2.1(cent) per
barrel for Canadian imports) and 5.25(cent) per barrel for crudes below
25(degree) API gravity (1.05(cent) per barrel for Canadian imports).
Imported crude oil is also subject to a customs users fee of .17% of the
value of the crude oil. For information with respect to tax assessments on
crude oil, see also "Miscellaneous Governmental Regulation and Action -
Environmental Protection."
Retail marketing "divorcement" legislation and wholesale and retail
pricing regulations have been adopted in some states. They are proposed
from time to time in other states and at the federal level. If such
legislation were adopted at the federal level or in the states where
SuperAmerica sells petroleum products, it could have a material adverse
impact on Ashland's results of operations.
ENVIRONMENTAL PROTECTION - Federal, state and local statutes and
regulations relating to the protection of the environment have a
significant impact on the conduct of Ashland's businesses. Ashland's
capital and operating expenditures for air, water and solid waste control
facilities for continuing operations are summarized below.
<TABLE>
<CAPTION>
Years Ended September 30
-----------------------------------------
(In millions) 1997 1996 1995
-------------------------------------- ------ ------ -----
<S> <C> <C> <C>
Capital expenditures $ 26 $ 38 $ 42
Operating expenditures 155 153 148
</TABLE>
At September 30, 1997, Ashland's reserves for environmental
assessments and remediation efforts were $150 million, reflecting Ashland's
estimates of the costs which are most likely to be incurred over an
extended period to remediate identified environmental conditions for which
costs are reasonably estimable.
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<PAGE>
Based on current environmental regulations, Ashland estimates capital
expenditures for air, water and solid waste control facilities to be $30
million in 1998. Expenditures for investigatory and remedial efforts in
future years are subject to the uncertainties associated with environmental
exposures, including identification of new environmental sites and changes
in laws and regulations and their application. Such expenditures, however,
are not expected to have a material adverse effect on Ashland's
consolidated financial position, cash flow or liquidity. For information
regarding the 1996 multimedia inspections which were conducted by the
United States Environmental Protection Agency ("USEPA") at Ashland
Petroleum's three refineries, see "Legal Proceedings".
Federal, state and local environmental laws and regulations have had,
and will continue to have, a significant impact on the manner in which
Ashland conducts its business, manages its refining, storage, pipeline and
retail facilities and selects its range of refined products. A summary of
the effects of the most significant of these laws and regulations is set
forth below.
The USEPA and the states in which Ashland conducts petroleum marketing
operations have adopted regulations and laws concerning underground storage
tanks covering, among other things, registration of tanks, release
detection, corrosion protection, response to releases, and closure of, and
financial responsibility for, underground storage tank systems. Under RCRA,
underground storage tanks used for retail distribution of petroleum
products must be brought into compliance with the variety of engineering
specifications and leak protection technologies by calendar year-end 1998.
In anticipation of this compliance deadline, Ashland's retail petroleum
marketing operations have upgraded the underground storage tanks at
approximately 96% of the Company's existing marketing locations, and
Ashland anticipates that the remaining locations will be brought into
timely compliance.
As originally enacted, Superfund provided for the establishment of a
fund to be used for a hazardous substance clean-up program, administered by
the USEPA and funded by: (i) a petroleum tax on domestic crude oil and on
imported crude oil equalized at 9.7(cent) per barrel plus a 5(cent) per
barrel oil spill tax, as more fully described below, (ii) a chemical
feedstock tax, (iii) a tax on imported chemical derivatives, (iv) an
"environmental tax" based on corporate alternative minimum taxable income,
and (v) the motor fuel tax to finance the new Underground Storage Tank
Trust Fund. During 1996, the tax provisions of Superfund expired. As a
result Ashland paid no Superfund taxes during fiscal 1997. Superfund is
undergoing consideration for significant amendments, including
reauthorization of the taxing provisions as well as a reevaluation of the
cleanup liability allocation scheme and improved cleanup remedy selection.
However, it is uncertain at this time what revisions will be formally
considered by Congress, or if any such revisions will in fact be adopted.
The Oil Pollution Act of 1990 ("OPA 90") established a $1 billion
trust fund to cover cleanup-related costs of oil spills after statutory
liability limits for a responsible party have been reached, or where the
responsible party is otherwise unidentifiable or unable to pay. The trust
fund is financed, when depleted below specified levels, through an excise
tax of 5(cent) per barrel on domestic crude oil and imported petroleum oil
products (pursuant to Superfund). OPA 90 subjects responsible parties to
strict liability for removal costs and damages (including natural resource
damages) resulting from oil spills, and requires the preparation and
implementation of spill-response plans for designated vessels and
facilities. Additionally, OPA 90 requires that new tank vessels entering or
operating in domestic waters be double-hulled, and that existing tank
vessels that are not double-hulled be retrofitted or removed from domestic
service according to a phase-out schedule.
On July 1, 1994, the United States Coast Guard issued interim final
regulations dealing with financial responsibility for water pollution under
OPA 90 and CERCLA. The regulations require self-propelled tank vessel
owners and operators to maintain evidence of financial responsibility,
effective December 28, 1994, sufficient to meet their potential liability
defined under OPA 90 and CERCLA for spills of oil or hazardous substances.
The Director, Coast Guard National Pollution Funds Center, has granted
permission to Ashland to self-insure the financial responsibility amount
for liability purposes for Ashland's ocean tankers, as provided in OPA 90.
The Federal Clean Air Act required the refining industry to market
cleaner-burning, reformulated gasoline ("RFG") beginning January 1, 1995,
for use in nine specified metropolitan areas across the country. Ashland
does not directly supply gasoline in any of the nine metropolitan areas.
However, several urban locations within Ashland's marketing area have opted
into the RFG program, and Ashland has been able to meet expected demand for
RFG in its marketing area. The Clean Air Act also required the refining
industry to supply 39 carbon monoxide (CO) non-attainment areas with
gasoline containing 2.7 weight percent oxygen for four winter months each
year. Upon being re-designated CO attainment, several of these areas are
seeking to opt-out of the oxygenated gasoline requirements. Ashland
believes it will have a continuing need to supply oxygenated gasoline only
at St. Paul Park, Minnesota, whose primary market is a CO non-attainment
area.
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RCRA, which requires management of hazardous waste, is scheduled to be
reauthorized by Congress, although timing of such reauthorization is
uncertain. Reauthorization issues may include an expansion of hazardous
waste program coverage, recycling, used oil, and solid waste management.
These issues may be addressed in additional USEPA rulemakings unrelated to
the statutory reauthorization efforts. It is anticipated that both the
reauthorization and other future rulemakings will result in increased
environmental compliance costs which cannot currently be estimated.
RESEARCH
Ashland conducts a program of research and development to invent and
improve products and processes and to improve environmental controls for
its existing facilities. It maintains its primary research facilities in
Catlettsburg, Kentucky, and Dublin, Ohio. Research and development costs
are expensed as incurred ($29 million in 1997, $28 million in 1996 and $24
million in 1995).
COMPETITION
In all of its operations, Ashland is subject to intense competition
both from companies in the respective industries in which it operates and
from products of companies in other industries. In most of these segments,
competition is based primarily on price, with factors such as reliability
of supply, service and quality being considered. Ashland Chemical competes
in a number of chemical distribution, specialty chemical and petrochemical
markets. Its chemicals and solvents distribution businesses compete with
national, regional and local companies throughout North America. Its
plastics distribution businesses compete worldwide. Ashland Chemical's
specialty chemicals businesses compete globally in selected niche markets,
largely on the basis of technology and service, while holding proprietary
technology in virtually all their specialty chemicals businesses.
Petrochemicals are largely commodities, with pricing and quality being the
most important factors. Valvoline competes primarily with domestic oil
companies and, to a lesser extent, with international oil companies on a
worldwide basis. Valvoline's brand recognition and increasing market share
in the "fast oil change" market are important competitive factors.
The majority of the business for which APAC competes is obtained by
competitive bidding. Ashland Petroleum competes primarily with other
domestic refiners and, to a lesser extent, with imported products.
Ashland's refineries are located close to its market areas, giving the
Company a geographic advantage in supplying these areas. While some
integrated competitors have sources of controlled crude production, few
competitors in Ashland Petroleum's market areas are significantly crude
self-sufficient. SuperAmerica competes with major oil companies,
independent oil companies and independent marketers. Virtually all of
SuperAmerica's refined products are supplied by Ashland Petroleum.
SuperAmerica strives to provide high quality and efficient service and
enjoys gasoline and merchandise sales per store exceeding the convenience
store industry average, based on the 1997 National Association of
Convenience Store State of the Industry Survey. The coal industry is highly
competitive, and Arch Coal competes (principally in price, location and
quality of coal) with a large number of other coal producers, some of which
are substantially larger and have greater financial resources and larger
reserve bases than Arch Coal.
FORWARD LOOKING STATEMENTS
This Form 10-K, and the documents incorporated by reference, contain
forward-looking statements within the meaning of Section 27A of the
Securities and Exchange Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including various information within the Capital
Resources, Derivative Instruments and Outlook sections in Management's
Discussion and Analysis in Ashland's Annual Report. Although Ashland
believes that its expectations are based on reasonable assumptions, it
cannot assure that the expectations contained in such statements will be
achieved. Important factors which could cause actual results to differ
materially from those contained in such statements are discussed
immediately below, as well as in other portions of this Form 10-K and in
Note A to the Consolidated Financial Statements under risks and
uncertainties in Ashland's Annual Report.
Ashland's operations are affected by domestic and international
political, legislative, regulatory and legal actions. Such actions may
include changes in the policies of OPEC or other developments involving or
affecting oil-producing countries, including military conflict, embargoes,
internal instability or actions or reactions of the government of the
United States in anticipation of or in response to such developments.
Domestic and international economic conditions, such as recessionary
trends, inflation, interest and monetary exchange rates, as well as changes
in the availability and market prices of crude oil and petroleum products,
can also have a significant effect on Ashland's operations. While Ashland
maintains reserves for anticipated liabilities and carries various levels
of insurance, Ashland could be affected by civil, criminal, regulatory or
administrative actions, claims or proceedings. In addition, climate and
weather can significantly affect Ashland in several of its operations such
as its construction, heating oil and coal businesses.
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<PAGE>
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, and the principal
location of Ashland Petroleum, which is owned, are located in Russell,
Kentucky. Principal offices of other major operations are located in
Lexington, Kentucky (SuperAmerica and Valvoline); Dublin, Ohio (Chemical);
Atlanta, Georgia (APAC); and St. Louis, Missouri (Arch Coal), all of which
are leased. Ashland's principal manufacturing, marketing and other
materially important physical properties are described under the
appropriate segment under Item 1. Additional information concerning certain
leases may be found in Note I of Notes to Consolidated Financial Statements
in Ashland's Annual Report.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - (1) As of September 30, 1997, Ashland had
been identified as a "potentially responsible party" ("PRP") under
Superfund or similar state laws for potential joint and several liability
for cleanup costs in connection with alleged releases of hazardous
substances in connection with 78 waste treatment or disposal sites. These
sites are currently subject to ongoing investigation and remedial
activities, overseen by the USEPA or a state agency, in which Ashland may
be participating as a member of various PRP groups. Generally, the type of
relief sought includes remediation of contaminated soil and/or groundwater,
reimbursement for the costs of site cleanup or oversight expended, and/or
long-term monitoring of environmental conditions at the sites. Ashland
carefully monitors the investigatory and remedial activity at many of these
sites. Based on its experience with site remediation, its familiarity with
current environmental laws and regulations, its analysis of the specific
hazardous substances at issue, the existence of other financially viable
PRPs and its current estimates of investigatory, clean-up and monitoring
costs at each site, Ashland believes that its liability at these sites,
either individually or in the aggregate, after taking into account
established reserves, will not have a material adverse effect on Ashland's
consolidated financial position, cash flow or liquidity. Estimated costs
for these matters are recognized in accordance with generally accepted
accounting principles governing the likelihood that costs will be incurred
and Ashland's ability to reasonably estimate future costs. For additional
information regarding Superfund, see "Miscellaneous - Governmental
Regulation and Action-Environmental Protection".
(2) On March 19, 1996, after consultation with the USEPA, the Kentucky
Division for Air Quality issued a finding that Ashland had not demonstrated
compliance with certain air regulations governing emissions of volatile
organic compounds ("VOC") at its Catlettsburg, Kentucky refinery, and
referred the matter to USEPA - Region IV for formal enforcement action. On
May 27, 1997, Kentucky and Ashland entered into an Agreed Order resolving
the issues in contention. Under the terms of the Agreed Order, Ashland
agreed to pay a civil penalty and to design, construct and install
additional VOC controls. Separately, the USEPA issued a Notice of Violation
to Ashland regarding this matter.
(3) In the fall of 1996, the USEPA conducted multimedia inspections of
Ashland's three refineries. Over the past several months, the USEPA and
Ashland have engaged in discussions to resolve the issues identified during
these inspections. The parties have reached a tentative agreement and have
begun the process of drafting a settlement document. Resolution is expected
to involve both a penalty payment and environmental projects. Ashland
expects to finalize the settlement agreement before the end of calendar
year 1997 or early calendar 1998.
(4) On October 24, 1996, the rock strata overlaying an abandoned
underground mine adjacent to the coal-refuse impoundment used by an Arch
Coal subsidiary's preparation plant failed, resulting in an accidental
discharge of approximately 6.3 million gallons of water and fine coal
slurry into a tributary of the Powell River in Lee County, Virginia. As a
consequence, the Director of the State Water Control Board and the
Department of Mines, Minerals and Energy of the Commonwealth of Virginia
filed a suit in Lee County Virginia Circuit Court against the Arch Coal
subsidiary, Lone Mountain Processing, Inc., alleging violations of effluent
limitations and reporting violations under Lone Mountain's National
Pollutant Discharge Elimination System permits under the Clean Water Act.
The Commonwealth of Virginia agreed to vacate two notices of violation and
a show cause order in exchange for Lone Mountain's payment to the
Commonwealth of a fine of approximately $1.4 million. A final order
effectuating the settlement was entered as a judgment by the court on
October 29, 1997. At the request of the USEPA and the U.S. Fish & Wildlife
Service, the United States Attorney for the Western District of Virginia
also has opened a criminal investigation of the 1996 incident. Arch Coal is
cooperating with the investigation, the results of which are not expected
until sometime in calendar 1998.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise, during the quarter ended September
30, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is hereby incorporated by reference the information appearing in
Note N of Notes to Consolidated Financial Statements in Ashland's Annual
Report.
At September 30, 1997, there were approximately 22,000 holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and Chicago stock exchanges (ticker symbol ASH) and has trading
privileges on the Boston, Cincinnati, Pacific, Philadelphia and Amsterdam
stock exchanges.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing
under the caption "Five-Year Selected Financial Information" on Page 61 in
Ashland's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing
under the caption "Management's Discussion and Analysis" on Pages 36 to 42
in Ashland's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There is hereby incorporated by reference the information appearing
under the caption "Derivative Instruments" on Page 41 in Ashland's Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the consolidated financial
statements appearing on Pages 43 through 59 and the supplemental
information appearing on Pages 62 and 63 in Ashland's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear
under the caption "Election of Directors" in Ashland's definitive Proxy
Statement for its January 29, 1998 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 1997 ("Proxy
Statement").
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically after the top two officers as to other Senior Vice
Presidents, Administrative Vice Presidents and other executive officers.)
PAUL W. CHELLGREN* (age 54) was elected as Chairman of the Board on
January 30, 1997, and is Chief Executive Officer and Director of Ashland
and a Director of Arch Coal, Inc. , having served in such capacities since
1996, 1992 and 1997 respectively. During the past five years, he has also
served as President and Chief Operating Officer of Ashland.
JOHN A. BROTHERS* (age 57) is Executive Vice President of Ashland and
has served in such capacity since January 1997. During the last five years,
he has also served as Senior Vice President and Group Operating Officer -
SuperAmerica Group, The Valvoline Company and Ashland Chemical Company.
- -----------------------
*Member of Ashland's Executive Committee
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JAMES R. BOYD* (age 51) is Senior Vice President and Group Operating
Officer of Ashland - Ashland Services Company, APAC, Inc. and a Director of
Arch Coal, Inc., having served in such capacities since 1989, 1990, 1993
and 1997 respectively.
DAVID J. D'ANTONI* (age 52) is Senior Vice President of Ashland and
President of Ashland Chemical Company and has served in such capacities
since 1988.
THOMAS L. FEAZELL* (age 60) is Senior Vice President, General Counsel
and Secretary of Ashland and a Director of Arch Coal, Inc. and has served
in such capacities since 1992, 1981, 1992 and 1997, respectively.
D. DUANE GILLIAM* (age 53) is Senior Vice President of Ashland and
President of Ashland Petroleum Company and has served in such capacities
since October 1997. During the past five years he has also served as
Executive Vice President of Ashland Petroleum Company and Group Vice
President for Ashland Petroleum's Scurlock Permian division.
J. MARVIN QUIN* (age 50) is Senior Vice President and Chief Financial
Officer of Ashland and a Director of Arch Coal, Inc. and has served in such
capacities since 1992 and 1997, respectively.
HARRY M. ZACHEM* (age 53) is Senior Vice President - Public Affairs
and has served in such capacity since 1988.
JAMES J. O'BRIEN (age 43) is Senior Vice President of Ashland and
President of The Valvoline Company and has served in such capacities since
January 1997 and October 1995, respectively. During the past five years he
has also served as Vice President of Ashland, Vice President of Ashland
Petroleum Company, Executive Assistant to the Chief Executive Officer and
Regional Manager of Ashland Chemical's General Polymers division.
JOHN F. PETTUS (age 54) is Senior Vice President of Ashland and
President of SuperAmerica Group and has served in such capacities since
1989 and 1988, respectively.
CHARLES F. POTTS (age 53) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
KENNETH L. AULEN (age 48) is Administrative Vice President and
Controller of Ashland and has served in such capacities since 1992. During
the past five years he has also served as Auditor of Ashland.
PHILIP W. BLOCK* (age 50) is Administrative Vice President - Human
Resources of Ashland and has served in such capacity since 1992.
JOHN W. DANSBY (age 52) is Administrative Vice President and Treasurer
of Ashland and has served in such capacities since 1992.
WILLIAM R. SAWRAN (age 52) is Vice President and Chief Information
Officer of Ashland, and President of Ashland Services Company and has
served in such capacities since 1984, with the exception of Chief
Information Officer which he assumed in 1994.
WILLIAM P. TIEFEL (age 48) is Vice President of Ashland and President
of Ashland Exploration Holdings, Inc. and has served in such capacities
since February 1997.
FRED E. LUTZEIER (age 45) is Auditor of Ashland and has served in such
capacity since December 1992. During the past five years he has also served
as Vice President and Controller of Arch Mineral Corporation.
Each executive officer (other than Vice Presidents who are appointed
by Ashland's management) is elected by the Board of Directors to a term of
one year, or until the successor is duly elected, at the annual meeting of
the Board of Directors, except in those instances where the officer is
elected at other than an annual meeting of the Board of Directors, in which
case the tenure will expire at the next annual meeting of the Board of
Directors unless the officer is re-elected.
- --------------------------
*Member of Ashland's Executive Committee
14
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation" and "Compensation of Directors"
in Ashland's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear
under the caption "Election of Directors" and the information regarding the
ownership of securities of Ashland in Ashland's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear
under the caption "Compensation Committee Interlocks and Insider
Participation" in Ashland's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) and (2) Financial Statements and Financial Schedule
The consolidated financial statements and financial schedule of
Ashland presented or incorporated by reference in this report are listed in
the index on Page 19.
(3) Exhibits
3.1 - Second Restated Articles of Incorporation of Ashland, as
amended to May 16, 1996 (filed as Exhibit 3.1 to Ashland's
Form 8-K dated May 16, 1996, and incorporated herein by
reference).
3.2 - Bylaws of Ashland, as amended to January 30, 1997 (filed as
Exhibit 3.2 to Ashland's Form 10-Q for the quarter ended
December 31, 1996, and incorporated herein by reference).
4.1 - Ashland agrees to provide the SEC, upon request, copies of
instruments defining the rights of holders of long-term debt
of Ashland, and all of its subsidiaries for which
consolidated or unconsolidated financial statements are
required to be filed with the SEC.
4.2 - Indenture, dated as of August 15, 1989, as amended and
restated as of August 15, 1990, between Ashland and
Citibank, N.A., as Trustee (filed as Exhibit 4(a) to
Ashland's Form 10-K for the fiscal year ended September 30,
1991, and incorporated herein by reference).
4.3 - Rights Agreement, dated as of May 16, 1996, between Ashland
Inc. and Harris Trust and Savings Bank, together with Form
of Right Certificate (filed as Exhibits 4(a) and 4(c),
respectively, to Ashland's Form 8-A filed with the SEC on
May 16, 1996, and incorporated herein by reference).
The following Exhibits 10.1 through 10.18 are compensatory plans or
arrangements or management contracts required to be filed as exhibits
pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
10.1 - Amended Stock Incentive Plan for Key Employees of Ashland
Inc. and its Subsidiaries (filed as Exhibit 10(c).1 to
Ashland's Form 10-K for the fiscal year ended September 30,
1996, and incorporated herein by reference).
10.2 - Ashland Inc. Deferred Compensation and Stock Incentive Plan
for Non-Employee Directors.
10.3 - Ashland Inc. Director Retirement Plan (filed as Exhibit
10(c).3 to Ashland's Form 10-K for the fiscal year ended
September 30, 1988, and incorporated herein by reference).
10.4 - Ninth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Key Executive Employees.
10.5 - Ashland Inc. Amended Performance Unit Plan (filed as Exhibit
10(c).5 to Ashland's Form 10-K for the fiscal year ended
September 30, 1994, and incorporated herein by reference).
15
<PAGE>
10.6 - Ashland Inc. Incentive Compensation Plan (filed as Exhibit
10(c).6 to Ashland's Form 10-K for the fiscal year ended
September 30, 1993, and incorporated herein by reference).
10.7 - Ashland Inc. Director Death Benefit Program (filed as
Exhibit 10(c).10 to Ashland's Form 10-K for the fiscal year
ended September 30, 1990, and incorporated herein by
reference).
10.8 - Ashland Inc. Salary Continuation Plan (filed as Exhibit
10(c).11 to Ashland's Form 10-K for the fiscal year ended
September 30, 1988, and incorporated herein by reference).
10.9 - Forms of Ashland Inc. Executive Employment Contract between
Ashland Inc. and certain executive officers of Ashland
(filed as Exhibit 10(c).12 to Ashland's Form 10-K for the
fiscal year ended September 30, 1989, and incorporated
herein by reference).
10.10 - Form of Indemnification Agreement between Ashland Inc. and
each member of its Board of Directors (filed as Exhibit
10(c).13 to Ashland's Form 10-K for the fiscal year ended
September 30, 1990, and incorporated herein by reference).
10.11 - Ashland Inc. Nonqualified Excess Benefit Pension Plan.
10.12 - Ashland Inc. Long-Term Incentive Plan (filed as Exhibit
10(c).12 to Ashland's Form 10-K for the fiscal year ended
September 30, 1996, and incorporated herein by reference).
10.13 - Ashland Inc. Directors' Charitable Award Program (filed as
Exhibit 10(c).13 to Ashland's Form 10-K for the fiscal year
ended September 30, 1996, and incorporated herein by
reference).
10.14 - Ashland Inc. 1993 Stock Incentive Plan (filed as Exhibit
10(c).14 to Ashland's Form 10-K for the fiscal year ended
September 30, 1996, and incorporated herein by reference).
10.15 - Ashland Inc. 1995 Performance Unit Plan (filed as Exhibit
10(c).15 to Ashland's Form 10-K for the fiscal year ended
September 30, 1996, and incorporated herein by reference).
10.16 - Ashland Inc. Incentive Compensation Plan for Key Executives
(filed as Exhibit 10(c).16 to Ashland's Form 10-K for the
fiscal year ended September 30, 1996, and incorporated
herein by reference).
10.17 - Ashland Inc. Deferred Compensation Plan.
10.18 - Ashland Inc. 1997 Stock Incentive Plan.
11 - Computation of Earnings Per Share (appearing on Page 22 of
Ashland's Form 10-K for the fiscal year ended September 30,
1997).
13 - Portions of Ashland's Annual Report to Shareholders,
incorporated by reference herein, for the fiscal year ended
September 30, 1997.
21 - List of Subsidiaries.
23 - Consent of independent auditors.
24 - Power of Attorney, including resolutions of the Board of
Directors.
27 - Financial Data Schedule.
Upon written or oral request, a copy of the above exhibits will be
furnished at cost.
(B) REPORTS ON FORM 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ASHLAND INC.
(Registrant)
By:
/s/ Kenneth L. Aulen
---------------------------------
(Kenneth L. Aulen, Administrative
Vice President and Controller)
Date: November 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant, in the capacities indicated, on November 25, 1997.
Signatures Capacity
/s/ PAUL W. CHELLGREN
- -------------------- Chairman of the Board, Chief Executive Officer
PAUL W. CHELLGREN and Director
/s/ J. MARVIN QUIN
- -------------------- Senior Vice President and Chief
J. MARVIN QUIN Financial Officer
/s/ KENNETH L. AULEN
- -------------------- Administrative Vice President,
KENNETH L. AULEN Controller and Principal Accounting Officer
* Director
- --------------------
JACK S. BLANTON
* Director
- --------------------
THOMAS E. BOLGER
* Director
- --------------------
SAMUEL C. BUTLER
* Director
- --------------------
FRANK C. CARLUCCI
* Director
- --------------------
RALPH E. GOMORY
* Director
- --------------------
MANNIE L. JACKSON
* Director
- --------------------
PATRICK F. NOONAN
* Director
- --------------------
JANE C. PFEIFFER
17
<PAGE>
* Director
- --------------------
MICHAEL D. ROSE
* Director
- --------------------
WILLIAM L. ROUSE , JR.
* Director
- --------------------
ROBERT B. STOBAUGH
* BY: /S/ THOMAS L. FEAZELL
------------------------
THOMAS L. FEAZELL
ATTORNEY-IN-FACT
DATE: November 25, 1997
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
Page
Consolidated financial statements and supplemental information:
Statements of consolidated income................................ *
Consolidated balance sheets...................................... *
Statements of consolidated stockholders' equity.................. *
Statements of consolidated cash flows............................ *
Notes to consolidated financial statements....................... *
Five-year information by industry segment........................ *
Consolidated financial schedule:
II - Valuation and qualifying accounts........................... 21
- -----------
*The consolidated financial statements appearing on Pages 43 through
59 and the supplemental information appearing on Pages 61 through 63 in
Ashland's Annual Report are incorporated by reference in this Annual Report
on Form 10-K.
Schedules other than that listed above have been omitted because
of the absence of the conditions under which they are required or because
the information required is shown in the consolidated financial statements
or the notes thereto. Separate financial statements of unconsolidated
affiliates are omitted because each company does not constitute a
significant subsidiary using the 20% tests when considered individually.
Summarized financial information for such affiliates is disclosed in Note D
of Notes to Consolidated Financial Statements in Ashland's Annual Report.
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements and schedule of
Ashland Inc. and subsidiaries listed in the accompanying index to financial
statements and financial schedules (Item 14(a)). These financial statements
and schedule are the responsibility of Ashland's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Ashland Inc. and
subsidiaries at September 30, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note A to the consolidated financial statements, in
fiscal 1995 Ashland changed its method of accounting relative to
impairments of long-lived assets.
ERNST & YOUNG LLP
Louisville, Kentucky
November 5, 1997
20
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997
Reserves deducted from asset accounts
Accounts receivable $27 $ 8 $(10)(1) $ (1) $24
Inventories 10 2 (1) - 11
=================================================================================================================================
YEAR ENDED SEPTEMBER 30, 1996
Reserves deducted from asset accounts
Accounts receivable $25 $10 $ (8)(1) $ - $27
Inventories 6 6 (2) - 10
=================================================================================================================================
YEAR ENDED SEPTEMBER 30, 1995
Reserves deducted from asset accounts
Accounts receivable $23 $ 9 $ (7)(1) $ - $25
Inventories 6 3 (3) - 6
=================================================================================================================================
(1) Uncollected amounts written off, net of recoveries of $2 million in 1997, $2 million in 1996 and $1 million in 1995.
</TABLE>
21
<PAGE>
Ashland Inc. and Subsidiaries
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
Years Ended September 30
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions except per share data) 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Income available to common shares
Net income $ 279 $ 211 $ 24
Dividends on convertible preferred stock (9) (19) (19)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 270 $ 192 $ 5
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 70 64 62
Common shares issuable upon exercise of stock options 1 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
71 65 62
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $3.80 $2.97 $ .08
====================================================================================================================================
EARNINGS PER SHARE ASSUMING FULL DILUTION
Income available to common shares
Net income $ 279 $ 211 $ 24
Interest on convertible debentures (net of income taxes) - 5 -
Dividends on convertible preferred stock - - (19)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 279 $ 216 $ 5
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 70 64 62
Common shares issuable upon
Exercise of stock options 2 1 1
Conversion of debentures - 3 -
Conversion of preferred stock 4 9 -
- ------------------------------------------------------------------------------------------------------------------------------------
76 77 63
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $3.67 $2.82 $ .08
====================================================================================================================================
</TABLE>
22
ASHLAND INC.
DEFERRED COMPENSATION AND
STOCK INCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS
(Amended as of September 18, 1997)
ARTICLE I. GENERAL PROVISIONS
1. PURPOSE
The purpose of this Ashland Inc. Deferred Compensation and Stock
Incentive Plan For Non-Employee Directors (the "Plan") is to provide each
Director with an opportunity to defer some or all of the Director's Fees as
a means of saving for retirement or other purposes. In addition, the Plan
provides Directors with the ability to increase their proprietary interest
in the Company's long-term prospects by permitting Directors to receive all
or a portion of their Fees in Ashland Common Stock and providing for the
grant of options to purchase Ashland Common Stock to Directors.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Accounting Date" means the Business Day on which a
calculation concerning a Participant's Compensation Account is performed,
or as otherwise defined by the Committee.
(b) "Act" means the Securities Act of 1933, as amended from time
to time.
(c) "Agreement" means a written agreement setting forth the terms
of an Option.
(d) "Beneficiary" means the person(s) designated by a Participant
in accordance with Article V, Section 1.
(e) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(f) "Business Day" means a day on which the New York Stock
Exchange is open for trading activity.
(g) "Change in Control" shall be deemed to occur (1) upon the
approval of the shareholders of the Company (or if such approval is not
required, upon the approval of the Board) of (A) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of Common Stock would be
converted into cash, securities or other property other than a merger in
which the holders of Common Stock immediately prior to the merger will have
the same proportionate ownership of Common Stock of the surviving
corporation immediately after the merger, (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company, or (C) adoption of any
plan or proposal for the liquidation or dissolution of the Company, (2)
when any "person" (as defined in Section 3(a)(9) or 13(d) of the Exchange
Act), other than the Company or any subsidiary or employee benefit plan or
trust maintained by the Company, shall become the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
more than 15% of the Common Stock outstanding at the time, without the
approval of the Board, or (3) if at any time during a period of two
consecutive years, individuals who at the beginning of such period
constituted the Board shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for election by the
Company's shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such two-year period.
<PAGE>
(h) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(i) "Committee" means the Personnel and Compensation Committee of
the Board or its designee.
(j) "Common Stock" means the common stock, $1.00 par value, of
Ashland Inc.
(k) "Common Stock Fund" means that investment option, approved by
the Committee, in which a Participant's Retirement Account may be deemed to
be invested and may earn income based on a hypothetical investment in
Common Stock.
(l) "Company" means Ashland Inc., its divisions and subsidiaries.
(m) "Corporate Human Resources" means the Corporate Human
Resources Department of the Company.
(n) "Credit Date" means the date on which any Fees would otherwise
have been paid to the Participant or in the case of the Participant's
designation of investment option changes, within three Business Days after
the Participant's designation is received by Corporate Human Resources, or
as otherwise designated by the Committee.
(o) "Deferral Account" means the account(s) to which the
Participant's Deferred Fees are credited and from which, pursuant to
Article III, Section 5, distributions are made.
(p) "Deferred Fees" means the Fees elected by the Participant to
be deferred pursuant to the Plan.
(q) "Director" means any non-employee director of the Company.
(r) "Disability" means a Director's incapacity, due to physical or
mental illness, resulting in an inability to attend to his or her duties
and responsibilities as a member of the Board.
(s) "Election" means a Participant's delivery of a written notice
of election to the Secretary of the Company electing to defer payment of
his or her Fees or to receive such Fees in the form of Common Stock.
(t) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(u) "Exercise Price" means, with respect to each share of Common
Stock subject to an Option, the price at which such share may be purchased
from the Company pursuant to the exercise of such Option.
(v) "Fair Market Value" means the price of a share of Common
Stock, as reported on the Composite Tape for New York Stock Exchange issues
on the date and at the time designated by the Company.
(w) "Fees" mean the annual retainer and meeting fees, as well as
any per diem compensation for special assignments, earned by a Director for
his or her service as a member of the Board during a calendar year or
portion thereof.
(x) "Fiscal Year" means that annual period commencing October 1
and ending the following September 30.
(y) "Nonqualified Stock Option" means any Option that does not
comply with the provisions of Section 422 of the Code.
<PAGE>
(z) "Option" means the right to purchase Common Stock as provided
in Article IV.
(aa) "Participant" means a Director who has elected to defer
payment of all or a portion of his or her Fees and/or to receive all or a
specified portion of his or her Fees in shares of Common Stock.
(bb) "Payment Commencement Date" means the date payments of
amounts deferred begin pursuant to Article III, Section 6.
(cc) "Personal Representative" means the person or persons who,
upon the disability or incompetence of a Director, shall have acquired on
behalf of the Director, by legal proceeding or otherwise, the right to
receive the benefits specified in this Plan.
(dd) "Plan" means this Ashland Inc. Deferred Compensation and
Stock Incentive Plan For Non-Employee Directors.
(ee) "Stock Account" means an account by that name established
pursuant to Article III, Section 1.
(ff) "Stock Unit(s)" means the share equivalents credited to a
Participant's Stock Account pursuant to Article III, Section 1.
(gg) "Termination" means retirement from the Board or termination
of service as a Director for any other reason.
3. SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION
(a) Shares Authorized for Issuance. There shall be reserved for
issuance under the Plan 500,000 shares of Common Stock, subject to
adjustment pursuant to subsection (b) below; provided, however, that of
such shares, only 150,000 shares shall be available for issuance in
connection with the award of Options. Such shares shall be authorized but
unissued shares of Common Stock. If any Option shall expire without having
been exercised in full, the shares subject to the unexercised portion of
such Option shall again be available for the purposes of the Plan.
(b) Adjustments in Certain Events. In the event of any change in
the outstanding Common Stock of the Company by reason of any stock split,
stock dividend, recapitalization, merger, consolidation, reorganization,
combination, or exchange of shares, split-up, split-off, spin-off,
liquidation or other similar change in capitalization, or any distribution
to common shareholders other than cash dividends, the number or kind of
shares that may be issued under the Plan shall be automatically adjusted so
that the proportionate interest of the Directors shall be maintained as
before the occurrence of such event. Such adjustment shall be conclusive
and binding for all purposes of the Plan.
4. ELIGIBILITY
Any non-employee Director of the Company shall be eligible to
participate in the Plan.
5. ADMINISTRATION
Full power and authority to construe, interpret and administer the
Plan shall be vested in the Company and the Committee. Decisions of the
Company and the Committee shall be final, conclusive and binding upon all
parties. Day-to-day administration of the Plan shall be the responsibility
of Corporate Human Resources. This Department may authorize new or modify
existing forms for use under this Plan so long as any such modified or new
forms are not inconsistent with the terms of the Plan.
ARTICLE II. COMMON STOCK PROVISION
Each Director may elect to receive all or a portion of his or her
Fees in shares of Common Stock by making an Election pursuant to Article
III, Section 4. Shares shall be issued to the Director at the end of each
quarter beginning in the quarter the Election is effective. The number of
shares of Common Stock so issued shall be equal to the amount of Fees which
otherwise would have been payable to such Director during the quarter
divided by the Fair Market Value. Only whole number of shares of Common
Stock will be issued, with any fractional shares to be paid in cash.
<PAGE>
ARTICLE III. DEFERRED COMPENSATION
1. PARTICIPANT ACCOUNTS
(a) Upon election to participate in the Plan, there shall be
established a Deferral Account to which there shall be credited any
Deferred Fees as of each Credit Date. The Deferral Account shall be
credited (or debited) on each Accounting Date with income (or loss) based
upon a hypothetical investment in any one or more of the investment options
available under the Plan, as prescribed by the Committee, which may include
a Common Stock Fund, as elected by the Participant under the terms of
Article III, Section 4.
(b) The Stock Account of a Participant shall be credited on each
Accounting Date with Stock Units equal to the number of shares of Common
Stock (including fractions of a share) that could have been purchased with
the amount of such deferred Fees as to which a stock deferral election has
been made at the Fair Market Value on the Accounting Date. As of the date
of any dividend distribution date for the Common Stock, the Participant's
Stock Account shall be credited with additional Stock Units equal to the
number of shares of Common Stock (including fractions of a share) that
could have been purchased, at the Fair Market Value on such date, with the
amount which would have been paid as dividends on that number of shares
(including fractions of a share) of Common Stock which is equal to the
number of Stock Units then credited to the Participant's Stock Account.
2. FINANCIAL HARDSHIP
Upon the written request of a Participant or a Participant's
Personal Representative and a finding that continued deferral will result
in an unforeseeable financial hardship to the Participant, the Committee or
the Company (each in its sole discretion) may authorize (a) the payment of
all or a part of a Participant's Deferral Account in a single installment
prior to his or her ceasing to be a Director, or (b) the acceleration of
payment of any multiple installments hereof. It is intended that the
Committee's determinations as to whether the Participant has suffered an
"unforeseeable financial emergency" shall be made consistent with the
requirements under Section 457(d) of the Internal Revenue Code. If the
Participant requesting a payment contemplated by subsection (a) or (b) of
this Article III, Section 2 is a member of the Committee, such Participant
shall abstain from the Committee's determination as to whether such payment
shall be made.
3. ACCELERATED DISTRIBUTION
(a) Availability of Withdrawal Prior to Termination. The
Participant or the Participant's Beneficiary who is receiving installment
payments under the Plan may elect, in writing, to withdraw all or a portion
of a Participant's Deferral Account at any time prior to the time such
Deferral Account otherwise becomes payable under the Plan, provided the
conditions specified in subsections (c), (d) and (e) of this Article III,
Section 3 are satisfied.
(b) Acceleration of Periodic Distributions. Upon the written
election of the Participant or the Participant's Beneficiary who is
receiving installment payments under the Plan, the Participant or
Participant's Beneficiary may elect to have all or a portion of the
remaining installments distributed in the form of an immediately payable
lump sum, provided the conditions specified in subsection (c) and (e) of
this Article III, Section 3 are satisfied.
(c) Forfeiture Penalty. In the event of a withdrawal pursuant to
subsection (a) of this Article III, Section 3, or an accelerated
distribution pursuant to subsection (b) of this Article III, Section 3, the
Participant shall forfeit from such Deferral Account an amount equal to 10%
of the amount of the withdrawal or accelerated distribution, as the case
may be. The forfeited amount shall be deducted from the Deferral Account
prior to giving effect to the requested withdrawal or acceleration. Neither
the Participant nor the Participant's Beneficiary shall have any right or
claim to the forfeited amount, and the Company shall have no obligation
whatsoever to the Participant, the Participant's Beneficiary or any other
person with regard to the forfeited amount.
(d) Minimum Withdrawal. In no event shall the amount withdrawn in
accordance with subsection (a) of this Article III, Section 3 be less than
25% of the amount credited to such Participant's Deferral Account
immediately prior to the withdrawal.
<PAGE>
(e) Suspension from Deferrals. In the event of a withdrawal
pursuant to subsection (a) or (b) of this Article III, Section 3, a
Participant who is otherwise eligible to make deferrals of Fees under this
Plan shall be prohibited from making such deferrals with respect to the
remainder of the current Fiscal Year and the Fiscal Year of the Plan
immediately following the Fiscal Year of the Plan during which the
withdrawal was made, and any Election previously made by the Participant
with respect to deferrals of Fees for such Fiscal Year of the Plan shall be
void and of no effect.
4. MANNER OF ELECTION
(a) General. Any Director wishing to participate in the Plan may
elect to do so by delivering to the Secretary of the Company an Election on
a form prescribed by Corporate Human Resources designating the manner in
which such Deferred Fees are to be invested in accordance with Article III,
Section 1 and electing the timing and form of distribution. The timing of
the filing of the appropriate form with Corporate Human Resources shall be
determined by the Company or the Committee. An effective election to defer
Fees may not be revoked or modified except as otherwise determined by the
Company or the Committee or as stated herein.
(b) Investment Alternatives - Existing Balances. A Participant may
elect to change an existing selection as to the investment alternatives in
effect with respect to existing deferred Fees (in increments prescribed by
the Committee or the Company) as often, and with such restrictions, as
determined by the Committee or by the Company.
(c) Change of Beneficiary. A Participant may, at any time, elect
to change the designation of a Beneficiary in accordance with Article V,
Section 1 hereof.
(d) Initial Election. With respect to Directors' Fees payable for
all or any portion of a calendar year after such person's initial Election
to the office of Director of the Company, any such person wishing to
participate in the Plan may file a proper Election within 30 days after
such election to office. Any such Election shall be effective upon filing
or as soon as possible thereafter with respect to such Fees.
5. DISTRIBUTION
(a) Deferral Account. In accordance with the Participant's
Election, Deferred Fees credited to a Participant's Deferral Account shall
be distributed in cash or shares of Common Stock (or a combination of
both). If no election is made by a Participant as to the distribution or
form of payment of his or her Deferral Account, upon Termination such
account shall be paid in cash in lump sum. The entire Deferral Account must
be paid out within forty years following the date of the Participant's
Termination.
(b) Change of Distribution of Deferral Account. A Participant will
be allowed to change the Election as to the applicable payment period for
all amounts deferred pursuant to such Election, subject to approval by the
Company or the Committee. Such change must be made by the earlier of:
(i) the date six months prior to the first day of the month
following the Participant's Termination; or
(ii) the December 31 immediately preceding the first day of
the month following the Participant's Termination.
If the Participant making such change is a member of the Committee, such
Participant shall abstain from the Committee's decision to approve or
disapprove such change.
6. PAYMENT COMMENCEMENT DATE
Payments of amounts deferred pursuant to a valid Election shall
commence after a Participant's Termination in accordance with his or her
Election. If a Participant dies prior to the first deferred payment
specified in an Election, payments shall commence to the Participant's
Beneficiary on the first payment date so specified.
<PAGE>
7. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the
event of a "Change in Control" (as defined in Section 2(g) of Article I),
each Participant in the Plan shall receive an automatic lump sum cash
distribution of all amounts accrued in the Participant's Cash and/or Stock
Account(s) (including interest at the Prime Rate of Interest through the
business day immediately preceding the date of distribution) not later than
fifteen (15) days after the date of the "Change in Control." For this
purpose, the balance in the Stock Account shall be determined by
multiplying the number of Stock Units by the higher of (a) the highest
closing price of a share of Common Stock during the period commencing 30
days prior to such Change in Control or (b) if the Change in Control of the
Company occurs as a result of a tender or exchange offer or consummation of
a corporate transaction, then the highest price paid per share of Common
Stock pursuant thereto. Any consideration other than cash forming a part or
all of the consideration for Common Stock to be paid pursuant to the
applicable transaction shall be valued at the valuation price thereon
determined by the Board.
In addition, the Company shall reimburse a Director for the legal
fees and expenses incurred if the Director is required to seek to obtain or
enforce any right to distribution. In the event that it is determined that
such Director is properly entitled to a cash distribution hereunder, such
Director shall also be entitled to interest thereon at the Prime Rate of
Interest quoted by Citibank, N.A. as its prime commercial lending rate on
the subject date from the date such distribution should have been made to
and including the date it is made. Notwithstanding any provision of this
Plan to the contrary, Article I, Section 2(g) and Section 7 of this Article
may not be amended after a "Change in Control" occurs without the written
consent of a majority in number of Participants.
ARTICLE IV. OPTIONS
1. OPTION GRANT
On the first business day following the Company's Annual Meeting
of Shareholders in 1994 and each year thereafter until 2004, or, if no such
meeting is held, on January 31 or the first business day thereafter, and
each year thereafter until 2004 (such day hereinafter referred to as the
"Effective Date"), each person who is a Director of the Company on the
Effective Date shall be automatically granted an Option to purchase 1,000
shares of Common Stock if, but only if, the return on average common
stockholders' equity of the Company for the immediately preceding fiscal
year as set forth in the Company's Annual Report to Shareholders is equal
to or greater than 10%.
2. OPTION TERMS
Options granted under the Plan shall be subject to the following
terms and conditions:
(a) Option Designation and Agreement. Any Option granted under the
Plan shall be granted as a Nonqualified Stock Option. Each Option shall be
evidenced by an Agreement between the recipient and the Company containing
the terms and conditions of the Option.
(b) Option Price. The Exercise Price of Common Stock issued
pursuant to each Option shall be equal to Fair Market Value of the Common
Stock on the Effective Date.
(c) Term of Option. No Option shall be exercisable more than ten
years after the date the Option is granted.
(d) Vesting. Options granted under the Plan shall vest six months
after the date of grant.
(e) Exercise. Options, to the extent they are vested, may be
exercised in whole or in part at any time during the option period;
provided, however, that an Option may not be exercised at any time for
fewer than 50 shares (or the total remaining shares covered by the Option
if fewer than 50 shares) during the term of the Option. The specified
number of shares will be issued upon receipt by the Company of (i) notice
from the optionee of exercise of an Option, and (ii) payment to the Company
(as provided in (f) below), of the Exercise Price for the number of shares
with respect to which the Option is exercised. Each such notice and payment
shall be delivered or mailed by postpaid mail, addressed to the Treasurer
of the Company at, Ashland Inc., 1000 Ashland Drive, Russell, Kentucky,
41169, or such other place as the Company may designate from time to time.
<PAGE>
(f) Payment for Shares. The Exercise Price for the Common Stock
shall be paid in full when the Option is exercised. The Exercise Price may
be paid in whole or in part (i) in cash, (ii) in whole shares of Common
Stock (which shares of Common Stock must have been owned by the Director
six months or longer, and not used to effect a stock option exercise within
the preceding six months, unless the Committee specifically provides
otherwise) and evidenced by negotiable certificates, valued at their Fair
Market Value, (iii) Attestation or (iv) by a combination of such methods of
payment. In addition, a Director may exercise the Option by effecting a
"cashless exercise," with a broker, of the Option. "Attestation" means the
delivery to the Company of a completed Attestation Form prescribed by the
Company setting forth the whole shares of Common Stock owned by the
Director which the Director wishes to utilize to pay the Option price. The
Common Stock listed on the Attestation Form must have been owned by the
Director six months or longer, and not have been used to effect an Option
exercise within the preceding six months, unless the Committee specifically
provides otherwise.
(g) Termination . If a Director's service on the Board terminates
by reason of (i) normal retirement from the Board at age 70, (ii) the death
or Disability of such Director, (iii) a Change of Control of the Company,
or (iv) voluntary early retirement to take a position in governmental
service, any Option held by such Director may thereafter be exercised by
the Director, or in the event of death, by his or her Beneficiary to the
extent it was vested and exercisable at the time of Termination, (i) for a
period equal to the number of years of completed Board service as of the
date of Termination of the Director on whose behalf the Option is
exercised, or (ii) until the expiration of the stated term of such Option,
whichever period is the shorter. In the event of Termination for any reason
other than those set forth above, any Option held by such Director may
thereafter be exercised by the Director to the extent it was vested and
exercisable at the time of Termination (i) for a period of one year from
the date of such Termination or (ii) until the expiration of the stated
term of such Option, whichever period is the shorter.
(h) Term. No Option shall be granted pursuant to the Plan on or
after the tenth anniversary of the date of shareholder approval, but Option
awards granted prior to such tenth anniversary may extend beyond that date
until the expiration of their terms.
3. TRANSFER OF OPTIONS
Options granted under the Plan shall be transferable by will, by
the laws of descent and distribution, and, subject to the discretion and
direction of the Committee, may be made transferable by the Director-holder
thereof during his or her lifetime.
ARTICLE V. MISCELLANEOUS PROVISIONS
1. BENEFICIARY DESIGNATION
A Director may designate one or more persons (including a trust)
to whom or to which payments are to be made if the Director dies before
receiving payment of all amounts due hereunder. A designation of
Beneficiary will be effective only after the signed Election is filed with
the Secretary of the Company while the Director is alive and will cancel
all designations of a Beneficiary signed and filed earlier. If the Director
fails to designate a Beneficiary as provided above or if all of a
Director's Beneficiaries predecease him or her and he or she fails to
designate a new Beneficiary, remaining unpaid amounts shall be paid in one
lump sum to the estate of such Director. If all Beneficiaries of the
Director die before the Director or before complete payment of all amounts
due hereunder, the remaining unpaid amounts shall be paid in one lump sum
to the estate of the last to die of such Beneficiaries.
2. INALIENABILITY OF BENEFITS
The interests of the Directors and their Beneficiaries under the
Plan may not in any way be voluntarily or involuntarily transferred,
alienated or assigned, nor be subject to attachment, execution, garnishment
or other such equitable or legal process. Subject to Section 3 of Article
IV of this Plan, any Option shall be exercisable, during a Director's
lifetime, only by him or her or his or her Personal Representative.
3. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
<PAGE>
4. AMENDMENTS
The Committee may amend, alter or terminate this Plan at any time
without the prior approval of the Directors; provided, however, that the
Committee may not, without approval by the shareholders:
(a) materially increase the number of securities that may be
issued under the Plan (except as provided in Article I, Section 3),
(b) materially modify the requirements as to eligibility for
participation in the Plan,
(c) otherwise materially increase the benefits accruing to
participants under the Plan, or
(d) amend any provision relating to the amount, price, timing or
vesting of the Options, other than to comport with changes in the Code or
the rules and regulations promulgated thereunder.
5. COMPLIANCE WITH RULE 16b-3
It is the intention of the Company that the Plan comply in all
respects with Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act and that Plan Participants remain non-employee directors ("Non-Employee
Directors") for purposes of administering other employee benefit plans of
the Company and having such other plans be exempt from Section 16(b) of the
Exchange Act. Therefore, if any Plan provision is found not to be in
compliance with Rule 16b-3 or if any Plan provision would disqualify Plan
participants from remaining Non-Employee Directors, that provision shall be
deemed amended so that the Plan does so comply and the Plan participants
remain Non-Employee Directors, to the extent permitted by law and deemed
advisable by the Committee, and in all events the Plan shall be construed
in favor of its meeting the requirements of Rule 16b-3.
6. EFFECTIVE DATE
The Plan was approved by the shareholders of the Company on
January27, 1994, and originally became effective as of November 9, 1993,
and has been restated in this document effective September 18, 1997.
NINTH AMENDED AND RESTATED
ASHLAND INC.
SUPPLEMENTAL EARLY RETIREMENT PLAN
FOR CERTAIN KEY EXECUTIVE EMPLOYEES
November 6, 1997
ARTICLE I. PURPOSE AND EFFECTIVE DATE.
1.01 The purpose of the Plan is to allow designated senior executive
employees to retire prior to their sixty-fifth birthday without an
immediate substantial loss of income. This Plan is a supplemental
retirement arrangement for a select group of management.
1.02 The Ninth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Key Executive Employees is hereby
amended effective November 6, 1997. However, the rights and
obligations of Employees who were selected by the Board or
approved for participation pursuant to the eligibility
requirements of the Plan to receive a benefit under the Plan, or
who were receiving benefits prior to November 6, 1997,
(irrespective of the Effective Retirement Date(s) of such
Employee(s)), shall be governed by the terms of the Plan in effect
at the time of such retirement.
ARTICLE II. DEFINITIONS.
The following terms used herein shall have the following meanings
unless the context otherwise requires:
2.01 "Age" - means the age of an Employee as of his or her last
birthday.
2.02 "Annual Retirement Income" - means the annual income payable under
this Plan by Ashland for the lifetime of a Participant commencing
on such Participant's Effective Retirement Date and ending on his
or her date of death, subject to the provisions of Section 5.04.
2.03 "Ashland" - means Ashland Inc. and its present or future
subsidiary corporations.
2.04 "Board" - means the Board of Directors of Ashland and their
designees.
<PAGE>
2.05 "Change in Control" - shall be deemed to occur (1) upon the
approval of the shareholders of Ashland (or if such approval is
not required, the approval of the Board) of (A) any consolidation
or merger of Ashland in which Ashland is not the continuing or
surviving corporation or pursuant to which shares of Ashland
common stock would be converted into cash, securities or other
property other than a merger in which the holders of Ashland
common stock immediately prior to the merger will have the same
proportionate ownership of common stock of the surviving
corporation immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of
Ashland, or (C) adoption of any plan or proposal for the
liquidation or dissolution of Ashland, (2) when any "person" (as
defined in Section 3(a)(9) or 13(d) of the Securities Exchange Act
of 1934), other than Ashland or any subsidiary or employee benefit
plan or trust maintained by Ashland or any of its subsidiaries,
shall become the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or
indirectly, of more than 15% of the Ashland common stock
outstanding at the time, without the approval of the Board, or (3)
if at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the
Board shall cease for any reason to constitute at least a majority
thereof, unless the election or nomination for election by
Ashland's shareholders of each new director during such two-year
period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning
of such two-year period.
2.06 "Committee" - means the Personnel and Compensation Committee of
the Board and their designees.
2.07 "Effective Retirement Date" - means the date upon which a
Participant retires under this Plan which shall be the first day
of the month following the Participant's 62nd birthday or, at
Ashland's discretion or as otherwise provided in Article V or VI,
any earlier age. Upon approval as provided in
2
<PAGE>
Sections 3.01 and 3.02, the "Effective Retirement Date" of a
Participant may occur after the Employee reaches age 62.
2.08 "Employee" - means an executive employee of Ashland who (i) is at
least 55 years of age or such earlier age pursuant to Section
5.06(b); and (ii) is deemed on the Effective Retirement Date to be
a Level V or above employee under the Incentive Compensation Plan.
2.09 "Employment Contracts" - means those contractual agreements, in
effect from time to time, which are approved by the Board and
which provide an Employee with a specified period of employment
and other benefits.
2.10 "Final Average Bonus" - means the Participant's average bonus paid
under the Incentive Compensation Plan (including amounts that may
have been deferred) during the highest thirty-six (36) months out
of the final sixty-month (60) period. For these purposes, the
"bonus paid" for a particular month within a particular fiscal
year under such plan shall be equal to the amount of such bonus
actually paid (regardless of the date paid, but excluding any
adjustment for the deferral of such payment) to such Participant
on account of such fiscal year divided by the number of months
contained in such fiscal year which were used in determining the
amount of such bonus actually paid to such Participant.
2.11 "Final Average Compensation" - means the average total
compensation paid during the highest thirty-six months (36) out of
the final sixty-month (60) period. For these purposes, "total
compensation paid" is the sum of the "compensation paid" and the
"bonus paid" during a particular month. "Compensation paid" shall
be the base rate of compensation for such Participant in effect on
the first day of such calendar month. "Bonus paid" shall have the
same meaning as set forth in Section 2.10.
2.12 "Incentive Compensation Plan" - means the Ashland Inc. Incentive
Compensation Plan or the Ashland Inc. Incentive Compensation Plan
for Key Executives, as applicable.
3
<PAGE>
2.13 "Participant" - means an Employee who has been approved for
participation in the Plan pursuant to Article III or Section 5.06.
2.14 "Plan" - means the Ninth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain Key Executive
Employees as set forth herein.
2.15 "Service" - means the number of years and fractional years of
employment by Ashland of an Employee, measured from the first day
of the month coincident with or next succeeding his or her initial
date of employment up to and including such Employee's Effective
Retirement Date. For purposes of this Section 2.15, Service shall
include an Employee's employment with a subsidiary or an affiliate
of Ashland determined in accordance with rules from time to time
adopted or approved by the Board.
ARTICLE III. PARTICIPATION IN PLAN.
Eligibility for benefits shall be determined as follows:
3.01 Except as otherwise provided in Section 3.03, an Employee who on
the Effective Retirement Date is deemed to be a Level I or II
Participant under the Incentive Compensation Plan shall require
Board approval to participate in this Plan.
3.02 An Employee who on the Effective Retirement Date is deemed to be a
Level III, IV, or V Participant under the Incentive Compensation
Plan shall require the approval of either (i) Ashland's Chief
Executive Officer or (ii) Ashland's Administrative Vice President,
Human Resources and either the Executive Vice President or the
Chief Financial Officer to participate in this Plan.
3.03 Subject to the provisions of Article VI, in the event of a "Change
in Control" (as defined in Section 2.05), an Employee who is
deemed to be a Level I or II Participant under the Incentive
Compensation Plan shall automatically be deemed to be approved by
the Board for participation under this Plan.
3.04 The Board or Chief Executive Officer or Chief Operating Officer,
as applicable, may approve such key executives for participation
in the Plan as they deem to be appropriate, all in its sole
discretion.
4
<PAGE>
3.05 Ashland reserves the right to terminate any Participant for
"Cause" prior to his or her Effective Retirement Date, with a
resulting forfeiture of the payment of benefits under the Plan.
Ashland also reserves the right to terminate any Participant's
participation in the Plan for "Cause" subsequent to his or her
Effective Retirement Date. For purposes of this Section 3.05,
"Cause" shall mean the willful and continuous failure of a
Participant to substantially perform his or her duties to Ashland
(other than any such failure resulting from incapacity due to
physical or mental illness), or the willful engaging by a
Participant in gross misconduct materially and demonstrably
injurious to Ashland, each to be determined by Ashland in its sole
discretion.
ARTICLE IV. INTERACTION WITH EMPLOYMENT CONTRACTS.
4.01 Notwithstanding any provision of this Plan to the contrary, an
Employee who has entered into an Employment Contract with Ashland
and who is either terminated without "Cause" prior to a "change in
control of Ashland" or is terminated without "Cause" or resigns
for "Good Reason" following a "change in control of Ashland" (each
quoted term as defined in the applicable employment agreement)
shall be entitled to receive the benefits as provided pursuant to
this Plan. Benefits payable hereunder in such a situation shall be
calculated in accordance with the payment option selected by the
Employee at such time.
4.02 Benefits Prior to "Change in Control."
If the Employee's termination is without "Cause" prior to a
"change in control of Ashland," benefits payable hereunder shall
not include those benefits which would have been payable to the
Employee during the first two (2) years of his or her retirement
under the Plan. The benefits payable hereunder shall commence no
earlier than as of the first day of the calendar month coincident
with or next following the second anniversary following the
Employee's "Date of Termination" (as defined in the applicable
employment agreement); however, if the Employee elects to receive
such benefits in a
5
lump sum as provided in Section 5.04(b)(1), such benefits shall
commence and be payable as therein specified.
4.03 Benefits Subsequent to a "Change in Control."
If the Employee's termination is without "Cause" or he or she
resigns for "Good Reason" following a "change in control of
Ashland," benefits payable hereunder shall not include those
benefits which would have been payable to the Employee during the
first three (3) years of his or her retirement under the Plan. The
benefits payable hereunder shall commence no earlier than as of
the first day of the calendar month coincident with or next
following the third anniversary following the Employee's "Date of
Termination" (as defined in the applicable employment agreement);
however, if the Employee elects to receive such benefits in a lump
sum as provided in Section 5.04(b)(1), such benefits shall
commence and be payable as therein specified.
4.04 If a Participant accepts, during a period of five (5) years
subsequent to his or her Effective Retirement Date, any consulting
or employment activity which is in direct conflict with the
business of Ashland at such time (such determination regarding
conflicting activity to be made in the sole discretion of the
Board), he or she shall not be entitled to the receipt of any
further payments of Annual Retirement Income under this Plan;
provided, however, he or she shall not be restricted in any manner
with respect to any other non-conflicting activity in which he or
she is engaged.
If a Participant wishes to accept employment or consulting
activity which may be prohibited under this Section 4.04, such
Participant may submit to Ashland written notice (Attention:
Administrative Vice President, Human Resources) of his or her wish
to accept such employment or consulting activity. If within ten
(10) business days following receipt of such notice Ashland does
not notify the Participant in writing of Ashland's objection to
his or her accepting such employment or consulting activity, then
such Participant shall be free to accept such employment or
consulting activity for the period of time and upon the basis set
forth in his or her written request.
6
<PAGE>
ARTICLE V. ANNUAL RETIREMENT INCOME AND OTHER BENEFITS.
5.01 LEVELS I AND II.
The Annual Retirement Income of a Participant who is deemed to be
a Level I or II Participant under the Incentive Compensation Plan
shall be equal to:
(a) Pre-Age 62 Benefit
A Participant who retires under this Plan shall receive
an Annual Retirement Income from and after the first day
of the calendar month next following his or her Effective
Retirement Date until the end of the month in which he or
she attains age 62 equal to the greater of (1) the
amounts provided in the following schedule or (2) 50% of
Final Average Compensation. Notwithstanding the previous
sentence, in the event such Participant retired with less
than 20 years of Service, such Annual Retirement Income
shall be multiplied by a fraction (A) the numerator of
which is such Participant's years of and fractional years
of Service, and (B) the denominator of which is twenty
(20).
% of
Retirement Compensation
1st - Year After Effective 75%
Retirement Date
2nd - " 70%
3rd - " 65%
4th - " 60%
5th - " 55%
6th - Year and thereafter 50%
to Age 62
For purposes of this Section 5.01(a), "% of Compensation"
shall mean the annualized average of the Participant's
base monthly compensation rates (excluding incentive
awards, bonuses, and any other form of extraordinary
compensation) in effect with respect to Ashland on the
first day of the thirty-six (36) consecutive calendar
7
<PAGE>
months which will give the highest average out of the
one-hundred twenty (120) consecutive calendar month
period ending on the Participant's Effective Retirement
Date.
(b) Age 62 Benefit and Thereafter
From and after the first day of the calendar month next
following his or her Effective Retirement Date, or the
attainment of age 62, whichever is later, the
Participant's Annual Retirement Income shall be equal to
50% of Final Average Compensation; provided, however,
that in the event such Participant retired with less than
20 years of Service, such Annual Retirement Income shall
be 50% of Final Average Compensation multiplied by a
fraction (A) the numerator of which is such Participant's
years of and fractional years of Service, and (B) the
denominator of which is twenty (20).
(c) Benefit Reduction
The amount of benefit provided in paragraphs (a) and (b) of
this Section 5.01 shall be reduced by the sum of the
following:
(1) the Participant's benefit under the Ashland Inc.
and Affiliates Pension Plan (the "Pension Plan")
(assuming 50% of such Participant's account under
the Ashland Inc. Leveraged Employee Stock
Ownership Plan were transferred to the Pension
Plan, as allowed under the terms of each of the
said plans), determined on the basis of a single
life annuity form of benefit;
(2) the Participant's benefit under any other defined
benefit pension plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as
amended which is maintained by Ashland, determined
on the basis of a single life annuity form of
benefit (said plans referred to in sub-paragraphs
(1) and (2) of this paragraph (c) are hereinafter
referred to jointly and severally as the "Affected
Plans");
8
<PAGE>
(3) the Participant's benefit under the Ashland Inc.
Nonqualified Excess Benefit Pension Plan,
determined on the basis of a single life annuity
form of benefit; and
(4) the Participant's benefit under the Ashland Inc.
ERISA Forfeiture Plan attributable to amounts
which were forfeited under the Ashland Inc.
Leveraged Employee Stock Ownership Plan,
multiplied by 50%, and determined on the basis of
a single life annuity benefit.
In the event a Participant's benefit hereunder is paid as
a lump sum pursuant to an election under Section
5.04(b)(1), the reduction to such benefit shall be
calculated based upon the lump sum actuarial present
value of the benefits referred to in sub-paragraphs
(1)-(4) of this paragraph (c) to which the Participant
would be entitled at age 62, regardless of the date
payments actually commence. In the event the
Participant's benefit hereunder is paid in any form of
periodic payments, the reduction shall apply from and
after the date the Participant actually commences
payments under the plans referred to under sub-paragraphs
(1), (2) or (3) of this paragraph (c).
5.02 LEVELS III, IV AND V.
The Annual Retirement Income of a Participant who on his or her
Effective Retirement Date was deemed to be a Level III, IV, or V
Participant under the Incentive Compensation Plan shall, from and
after the first day of the calendar month next following his or
her 62nd birthday, be equal to 50% of Participant's Final Average
Bonus; provided, however, that in the event such Participant
retired with less than 20 years of Service, such Annual Retirement
Income after age 62 shall be 50% of Final Average Bonus multiplied
by a fraction (A) the numerator of which is such Participant's
years of and fractional years of Service, and (B) the denominator
of which is twenty (20). Although a Participant may elect to
commence benefits under this Plan upon his or her Effective
Retirement Date, there shall be an
9
<PAGE>
actuarial adjustment (consistent with that applied under Ashland's
qualified pension plan, as from time to time in effect) for
Participants receiving benefits under this Section 5.02 whose
Effective Retirement Date is prior to age 62.
5.03 Annual Retirement Income benefits payable under Sections 5.01 and
5.02 for a period of less than 12 months due to a Participant's
attainment of age 62 or death will be payable on a pro-rata basis,
with months taken as a fraction of a year.
5.04 Payment Options.
(a) Election.
A Participant shall, subject to Sections 5.05 and 5.06,
elect the form in which such benefit shall be paid from
among those identified in this Section 5.04 and such
election shall be made at the time and in the manner
prescribed by Ashland, from time to time, provided that
the election is made before the Participant's Effective
Retirement Date. Such election, including the designation
of any contingent annuitant or alternate recipient under
Sections 5.04(b)(4) or (5), shall be irrevocable except
as otherwise set forth herein. Notwithstanding anything
in the foregoing to the contrary, any Participant
approved for participation in the Plan pursuant to
Sections 3.01, 3.02 and 3.04 who makes an election under
Section 5.04(b)(2) shall make such election by the later
of -
(1) the 60th day following such Participant's
approval to participate in this Plan; or
(2) the earlier of -
(A) the date six months prior to Participant's
Effective Retirement Date; or
(B) the December 31 immediately preceding the
Participant's Effective Retirement Date.
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<PAGE>
Such deferral election shall be made in the
manner prescribed by Ashland, from time to time,
and shall be irrevocable as of the applicable
time identified under Sections 5.04(a)(1) or
(2).
Until the time at which an election becomes irrevocable,
a Participant shall be able to change it.
(b) Optional Forms of Payment.
(1) Lump Sum Option. A Participant may elect to
receive the benefit under Article V as a lump
sum distribution, subject to the discretion of
the Committee as described below. A lump sum
benefit payable under the Plan to a Participant
shall be computed on the basis of the
actuarially equivalent present value of such
Participant's benefit under Article V based upon
(1) the 1971 Group Annuity Mortality Table for
males, regardless of whether the Participant is
male or female and (2) the average of the
monthly published Pension Benefit Guaranty
Corporation ("PBGC") interest rates for the
six-month period which ends on the January 1 or
July 1, which immediately precedes the date as
of which this calculation is made (hereinafter
called the "Applicable PBGC Rate"). The
Applicable PBGC Rate is the one used for the
valuation of benefits paid as annuities from
terminating single-employer plans for the first
20 years following the valuation date. Such lump
sum shall be payable within thirty (30) days
following the later of the Participant's
Effective Retirement Date, or at such later date
as Ashland or its delegate may determine, in its
sole discretion. The Committee shall have the
sole discretion to provide a lump sum benefit
option to a class of retirees for a given
calendar year. The decision as to whether to
provide a lump sum benefit option shall
generally be made by the Committee at the last
Committee meeting prior thereto. The option
shall be made
11
<PAGE>
available to a Participant contingent upon
various considerations, including, but not
limited to, the following: The tax status of
Ashland, including without limitation, the
corporate and individual tax rate then
applicable and whether or not Ashland has or
projects a net operating loss; the current and
projected liquidity of Ashland, including cash
flow, capital expenditures and dividends;
Ashland `s borrowing requirements and debt
leverage; applicable book charges;
organizational issues, including succession
issues; security of the retirement payment(s)
with respect to the retiree; and the
Participant's preference.
(2) Lump Sum Deferral Option. A Participant who is
eligible to receive a lump sum distribution
under 5.04(b)(1) shall be able to elect to defer
all or a portion of the receipt of the elected
lump sum (in increments of such percentage or
such amount as may be prescribed by Ashland or
its delegatee, from time to time), by having the
obligation to distribute such amount transferred
to the Ashland Inc. Deferred Compensation Plan
to be held thereunder in a notional account and
paid pursuant to the applicable provisions of
such Plan, as they may be amended from time to
time; provided, however, that the election to
defer such distribution shall be made at the
time and in the manner prescribed in Section
5.04(a)(1) and (2).
(3) Single Life Annuity. A Participant may elect to
have such benefit paid in the form of equal
monthly payments for and during such
Participant's life, with such payments ending at
such Participant's death. Payments under this
option shall be actuarially equivalent to the
benefit provided under Section 5.01 or 5.02,
whichever is applicable, determined on the basis
of the
12
<PAGE>
applicable actuarial assumptions and other
relevant provisions used for the same in the
Pension Plan.
(4) Joint and Survivor Income Option. A Participant
may elect to receive an actuarially reduced
benefit payable monthly during the Participant's
lifetime with payments to continue after his or
her death to the person he designates
(hereinafter called "contingent annuitant"), in
an amount equal to (1) 100% of such actuarially
reduced benefit, (2) 66 2/3% of such actuarially
reduced benefit, or (3) 50% of such actuarially
reduced benefit. Benefit payments under this
option shall terminate with the monthly payment
for the month in which occurred the date of
death of the later to die of the Participant and
his or her contingent annuitant. The following
additional limitations and conditions apply to
this option:
(A) The contingent annuitant shall be
designated by the Participant in writing in
such form and at such time as Ashland may
from time to time prescribe. Before the
Participant's Effective Retirement Date,
the Participant may change the contingent
annuitant elected.
(B) In the event of the death of the contingent
annuitant prior to the date as of which the
election is irrevocable, the Participant's
selection of this option shall be void and
the Participant may change the contingent
annuitant or change the option elected,
subject to the applicable limitations and
conditions applied to elections for the
options described under 5.04(a)(1) and (2).
(C) Actuarial equivalence under this
sub-paragraph (4) shall be determined on
the basis of the applicable actuarial
assumptions and other relevant provisions
used for the same in the Pension Plan.
13
<PAGE>
(5) Period Certain Income Option. A Participant may
elect to receive an actuarially reduced benefit
payable monthly during his or her lifetime and
terminating with the monthly payment for the
month in which his or her death occurs, with the
provision that not less than a total of 120
monthly payments shall be made in any event to
him or her and/or the person designated by him
or her to receive payments under this
sub-paragraph (5) in the event of his or her
death (hereinafter called "alternate
recipient"). If a Participant and his or her
alternate recipient die after the Effective
Retirement Date, but before the total specified
monthly payments have been made to such
Participant and/or his or her alternate
recipient, the commuted value of the remaining
unpaid payments shall be paid in a lump sum to
the estate of the later to die of the
Participant or his or her alternate recipient.
The following additional limitations and
conditions shall apply to this option:
(A) The alternate recipient shall be designated
in writing by the Participant in such form
and at such time as Ashland may from time
to time prescribe. The designation of an
alternate recipient under this
sub-paragraph (5) is irrevocable after the
Effective Retirement Date, provided,
however, a Participant may designate a new
alternate recipient if the one first
designated dies before the Participant and
after the Effective Retirement Date.
(B) In the event of the death of the alternate
recipient prior to the date as of which the
election is irrevocable, the Participant's
selection of this option shall be void and
the Participant may change the alternate
recipient or change the option elected,
subject to the applicable limitations
14
<PAGE>
and conditions applied to elections for the
options described under 5.04(a)(1) and (2).
(C) Actuarial equivalence under this sub-paragraph (5) shall
be determined on the basis of the applicable actuarial
assumptions and other relevant provisions used for the
same in the Pension Plan.
5.05. Payment of Small Amounts.
Unless such Participant elects to receive his or her
benefit in a lump sum as provided in Section 5.04, in the
event a monthly benefit under this Plan, payable to
either a Participant or to his or her contingent
annuitant, alternate recipient or surviving spouse, is
too small (in the sole judgment of Ashland) to be paid
monthly, such benefit may be paid quarterly,
semi-annually, or annually, as determined by Ashland to
be administratively convenient.
5.06. Surviving Benefits.
(a) Except as otherwise provided in Section 5.04 of
this Plan, in the event that a Participant
receiving Annual Retirement Income benefits
shall die after his or her Effective Retirement
Date, no additional benefits shall be payable by
Ashland under this Plan to such deceased
Participant's beneficiaries, survivors, or
estate.
(b) If an Employee dies while in active service with
Ashland
(1) prior to approval for participation in the
Plan and said Employee is a Level I or II
participant under the Incentive Compensation
Plan; or
(2) after approval for participation in the Plan
but prior to making an election pursuant to
Section 5.04(a) and said Employee is a Level I
-V participant under the Incentive Compensation
Plan; then such Employee shall be deemed:
(i) to be a Participant under the Plan in the
case of Section 5.06 (b)(1);
15
<PAGE>
(ii) to have commenced participation one (1) day
prior to the date of the Employee's death; and
(iii) to have elected to receive his or her
benefits in the form of the 100% Joint &
Survivor retirement income option and to have
designated his or her spouse as the beneficiary
thereunder.
(c) In the event an Employee is approved for
participation under the Plan and dies after
having made an election under Section 5.04(a)
but prior to his or her Effective Retirement
Date, then such Employee shall be deemed to have
commenced participation one (1) day prior to the
date of the Employee's death and payment shall
be made under this Plan in accordance with the
Employee's election.
5.07 After a Participant's Effective Retirement Date, he or she shall
continue to participate in Ashland's Group Life Insurance, Medical
and Dental programs in the same manner and under the same terms
and conditions as provided for retirees as a class under the
provisions of such programs, as from time to time in effect.
Except as otherwise expressly provided in this Plan, a
Participant's active participation in all employee benefit
programs maintained by Ashland derived from his or her employment
status with Ashland shall be discontinued.
ARTICLE VI. CHANGE IN CONTROL.
Notwithstanding any provision of this Plan to the contrary, in the
event of a Change in Control, an Employee who is deemed to be a
Level I or II Participant under Ashland's Incentive Compensation
Plan, shall automatically be deemed to be approved by the Board
for participation under this Plan and may, in his or her sole
discretion, elect to retire prior to the date the Employee reaches
age 62.
16
<PAGE>
In addition, Ashland shall reimburse an Employee for legal fees
and expenses incurred by such Employee if he or she is required
to, and is successful in, seeking to obtain or enforce any right
to payment pursuant to the Plan. In the event that it shall be
determined that such Employee is properly entitled to the payment
of benefits hereunder, such Employee shall also be entitled to
interest thereon payable in an amount equivalent to the prime rate
of interest (quoted by Citibank, N.A. as its prime commercial
lending rate on the latest date practicable prior to the date of
the actual commencement of payments) from the date such payment(s)
should have been made to and including the date it is made.
Notwithstanding any provision of this Plan to the contrary, the
provisions of this Plan may not be amended after a Change in
Control occurs without the written consent of a majority of the
Board who were directors prior to the Change in Control.
ARTICLE VII. MISCELLANEOUS.
7.01 The obligations of Ashland hereunder constitute merely the promise
of Ashland to make the payments provided for in this Plan. No
employee, his or her spouse or the estate of either of them shall
have, by reason of this Plan, any right, title or interest of any
kind in or to any property of Ashland. To the extent any
Participant has a right to receive payments from Ashland under
this Plan, such right shall be no greater than the right of any
unsecured general creditor of Ashland.
7.02 Full power and authority to construe, interpret and administer
this Plan shall be vested in the Board or its delegate. Decisions
of the Board or its delegate shall be final, conclusive and
binding upon all parties.
7.03 This Plan shall be binding upon Ashland and any successors to the
business of Ashland and shall inure to the benefit of the
Participants and their beneficiaries, if applicable. Except as
otherwise provided in Article VI, the
17
<PAGE>
Board or its delegate may, at any time, amend this Plan,
retroactively or otherwise, but no such amendment may adversely
affect the rights of any Participant who has been approved for
participation in the Plan except to the extent that such action is
required by law.
7.04 Except as otherwise provided in Section 5.04, no right or interest
of the Participants under this Plan shall be subject to voluntary
or involuntary alienation, assignment or transfer of any kind.
7.05 This Plan shall be governed for all purposes by the laws of the
Commonwealth of Kentucky.
18
Conformed copy including Amendment No. 1
as adopted 9/18/97
ASHLAND INC. NONQUALIFIED EXCESS BENEFIT
PENSION PLAN - 1996 RESTATEMENT
as adopted on September 19, 1996
- ------------------------------------------------------------------------------
WHEREAS, the Employee Retirement Income Security Act of 1974
("ERISA") establishes maximum limitations on benefits and contributions for
retirement plans which meet the requirements of Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code");
WHEREAS, Ashland Inc. ("Ashland" or the "Company") maintains
certain pension plans which are subject to the aforesaid limitations on
benefits and contributions;
WHEREAS, Ashland adopted the Ashland Oil, Inc. Nonqualified
Pension Plan as of September 24, 1975 (which is now called the Ashland Inc.
Nonqualified Excess Benefit Pension Plan, otherwise referred to as the
"Plan"), for the purpose of providing benefits for certain employees in
excess of the aforesaid limitations;
WHEREAS, the Plan was amended and completely restated as of July
21, 1977;
WHEREAS, the Plan was amended and completely restated as of
October 1, 1982;
WHEREAS, the Plan was amended and completely restated as of
November 3, 1988;
WHEREAS, Ashland has retained the authority to make additional
amendments to or terminate the Plan;
WHEREAS, Ashland desires to further amend and restate the Plan
and, as so amended, to continue the Plan in full force and effect;
NOW, THEREFORE, effective September 19, 1996, Ashland does hereby
further amend and restate the Plan in accordance with the following terms
and conditions:
1. Designation and Purpose of Plan. The Plan is designated the
"Ashland Inc. Nonqualified Excess Benefit Pension Plan" ("Plan"). The
purpose of the Plan is to provide benefits for certain employees in excess
of the limitations on contributions, benefits, and compensation imposed by
Sections 415 and 401(a)(17) of the Code (including successor provisions
thereto) on the plans to which those Sections apply. The portion of the
Plan providing benefits in excess of the Section 415 limits is an "excess
benefit plan" as that term is defined in
<PAGE>
Section 3(36) of ERISA. It is intended that the portion, if any, of the
Plan which is not an excess benefit plan shall be maintained primarily for
a select group of management or highly compensated employees.
2. Eligibility. Subject to Section 11, the Plan shall apply to
those employees -
(i) who have retired as an early, normal, or deferred normal retiree under
the provisions of the Ashland Inc. and Affiliates Pension Plan ("Ashland
Pension Plan"), as it may be amended, from time to time, or under
provisions of any other retirement plan, as such other plan may be amended
from time to time, which, from time to time, is specifically designated by
Ashland for purposes of eligibility and benefits under the Plan (all such
plans are hereinafter referred to jointly and severally as "Affected
Plans"); and
(ii) who have been approved for participation in this Plan by Ashland or
its delegate, and such approval may, in the discretion of Ashland, be made
(A) before an employee's actual early, normal or deferred retirement; or
(B) posthumously in the event of a benefit potentially available under
Section 6 of the Plan.
Notwithstanding anything to the contrary contained herein, any employee who
would be entitled to participate in this Plan, but who is not a member of a
select group of management or a highly compensated employee, shall be
entitled to a benefit amount payable under the Plan based solely on the
limitations on benefits imposed under Section 415 of the Code.
3. Benefit Amount.
(i) Computation. At any particular time, the benefit payable to a retiree
eligible to participate in this Plan pursuant to the provisions in Section
2 shall be computed by subtracting from (A) the sum of (B) and (C) where -
(A) shall be the single life annuity that would be
payable at age 62 to such retiree under the Affected Plans -
(1) with the benefit so payable thereunder
calculated by disregarding any salary deferrals that may have been made by
such retiree under the Ashland Inc. Deferred Compensation Plan and thereby
restoring any salary that may have been so deferred to such retiree's
compensation for purposes of the Affected Plans, and
(2) prior to any reductions made because of the
limits imposed by Sections 415 and 401(a)(17) of the Code;
2
<PAGE>
provided that the single life annuity that would be so payable under the
Ashland Pension Plan shall be computed without applying any offset
attributable to the Ashland Inc. Leveraged Employee Stock Ownership Plan
("LESOP"), and such single life annuity shall be actuarially adjusted to be
equivalent to a single life annuity payable at the particular time
applicable based upon the applicable actuarial assumptions and other
relevant provisions used for the same in the Affected Plans; [as amended by
Amendment No. 1 adopted 9/18/97]
(B) shall be the single life annuity that would be
payable at age 62 to such retiree under the Affected Plans after reducing
the amount so payable for the limits imposed by Sections 415 and 401(a)(17)
of the Code, provided that such single life annuity that would be so
payable under the Ashland Pension Plan shall be computed after first
applying the offset attributable to the Offset Account (as that term is
defined under the LESOP) in the LESOP, and each such single life annuity
shall be actuarially adjusted to be equivalent to a single life annuity
payable at the particular time applicable based upon the applicable
actuarial assumptions and other relevant provisions used for the same in
the Affected Plans; and
(C) shall be the single life annuity that would be
actuarially equivalent to such retiree's nonforfeitable portion of the
Offset Account under the LESOP as of the valuation date thereunder
coincident with or next preceding such retiree's termination of employment
using the actuarial assumptions prescribed for this purpose in the Ashland
Pension Plan.
(ii) Commencement. Subject to Section 6, the benefit computed under
paragraph (i) of this Section 3 shall commence or otherwise be paid or
transferred pursuant to the provisions in Sections 4 or 5, effective as of
the date as of which payments to such retiree commence under the Affected
Plans.
4. Payment Options.
(i) Election. A retiree eligible under Section 2 for the benefit under
Section 3 shall, subject to Sections 5 and 6, elect the form in which such
benefit shall be paid from among those identified in this Section 4 and
such election shall be made at the time and in the manner prescribed by
Ashland, from time to time, provided that the election is made before the
first day of the month following such retiree's termination from
employment. Such election, including the designation of any contingent
annuitant or alternate recipient under sub-paragraphs (D) or (E) of
paragraph (ii) of this Section 4, shall be irrevocable except as otherwise
set forth herein.
3
<PAGE>
Notwithstanding anything in the foregoing to the contrary, any retiree who
makes an election under sub-paragraph (B) of paragraph (ii) of this Section
4 shall make such election by the later of -
(A) the 60th day following such retiree's approval to
participate in this Plan as provided under Section 2; or
(B) by the earlier of -
(1) the date six months prior to the first day of
the month following such retiree's termination from employment; or
(2) the December 31 immediately preceding the first
day of the month following such retiree's termination from employment.
Such election under sub-paragraph (B) of paragraph (ii) of this Section 4
shall be made in the manner prescribed by Ashland, from time to time, and
shall be irrevocable as of the applicable time identified under (A) or (B)
of this paragraph (i) of Section 4. Until the time at which such election
becomes irrevocable, an eligible retiree shall be able to change it.
(ii) Optional Forms of Payment.
(A) Lump Sum Option. Notwithstanding any provisions of
Section 3 to the contrary, a retiree in an eligible class may elect to
receive all of the benefit under Section 3 as a lump sum distribution,
subject to the discretion of the Committee as described below. A lump sum
benefit payable under the Plan to a retiree in an eligible class shall be
computed on the basis of the actuarially equivalent present value of such
retiree's benefit under Section 3 of the Plan payable at the particular
time applicable based upon (1) the 1971 Group Annuity Mortality Table for
males, regardless of whether the retiree is male or female and (2) the
average of the monthly published Pension Benefit Guaranty Corporation
("PBGC") interest rates for the six-month period which ends on the January
1 or July 1 which immediately precedes the date as of which this
calculation is made (hereinafter called the "Applicable PBGC Rate"). The
Applicable PBGC Rate is the one used for the valuation of benefits paid as
annuities from terminating single-employer plans for the first 20 years
following the valuation date. Such lump sum shall be payable within thirty
(30) days of the retiree's retirement date, or at such later date as
Ashland or its delegate may determine, in its sole discretion. The
Personnel and Compensation Committee of Ashland's Board of Directors shall
have the sole discretion to provide a lump sum benefit
4
<PAGE>
option to a class of retirees for a given calendar year. The decision as to
whether to provide a lump sum benefit option shall generally be made by the
Committee at the last committee meeting prior thereto. The option shall be
made available to a retiree contingent upon various considerations,
including, but not limited to, the following:
The tax status of the Company, including without limitation, the
corporate and individual tax rate then applicable and whether or
not the Company has or projects a net operating loss; the current
and projected liquidity of the Company, including cash flow,
capital expenditures and dividends; Company borrowing requirements
and debt leverage; applicable book charges; organizational issues,
including succession issues; security of the retirement payment(s)
with respect to the retiree; and the retiree's preference.
(B) Lump Sum Deferral Option. A retiree who is eligible
to receive a lump sum distribution under sub-paragraph (A) of this
paragraph (ii) of Section 4 and who was part of a select group of
management or a highly compensated employee, shall be able to elect to
defer all or a portion of the receipt of the elected lump sum (in
increments of such percentage or such amount as may be prescribed by
Ashland or its delegatee, from time to time),[as amended by Amendment No. 1
adopted 9/18/97] by having the obligation to distribute such amount
transferred to the Ashland Inc. Deferred Compensation Plan to be held
thereunder in a notional account and paid pursuant to the applicable
provisions of such Plan, as they may be amended from time to time;
provided, however, that the election to defer such distribution shall be
made at the time and in the manner prescribed in paragraph (i) of this
Section 4. [The prior last sentence was deleted by Amendment No. 1 adopted
9/18/97.]
(C) Single Life Annuity. A retiree eligible under Section
2 for the benefit under Section 3 may elect to have such benefit paid in
the form of equal monthly payments for and during such retiree's life, with
such payments ending at such retiree's death. Before such election becomes
irrevocable as provided under paragraph (i) of Section 4, the retiree may
change the option elected, subject to the applicable limitations and
conditions applied to elections for the options described under
sub-paragraphs (A) and (B) of this paragraph (ii) of Section 4. Payments
under this option shall be actuarially equivalent to the benefit provided
5
<PAGE>
under Section 3, determined on the basis of the applicable actuarial
assumptions and other relevant provisions used for the same in the Ashland
Pension Plan.
(D) Joint and Survivor Income Option. A retiree eligible
under Section 2 for the benefit under Section 3 may elect to receive an
actuarially reduced benefit payable monthly during the retiree's lifetime
with payments to continue after his death to the person he designates
(hereinafter called "contingent annuitant"), in an amount equal to (1) 100%
of such actuarially reduced benefit, (2) 66 2/3% of such actuarially
reduced benefit, or (3) 50% of such actuarially reduced benefit. Benefit
payments under this option shall terminate with the monthly payment for the
month in which occurred the date of death of the later to die of the
retiree and his contingent annuitant. The following additional limitations
and conditions apply to this option:
(a) The contingent annuitant shall be designated by
the retiree in writing in such form and at such time as Ashland may from
time to time prescribe.
(b) In the event the contingent annuitant dies prior
to the date the election of this optional form of benefit becomes
irrevocable as provided under paragraph (i) of Section 4, the retiree's
selection of this option shall be void. Before the date the election of
this optional form of benefit becomes irrevocable as provided under
paragraph (i) of Section 4, the retiree may change the contingent annuitant
or change the option elected, subject to the applicable limitations and
conditions applied to elections for the options described under
sub-paragraphs (A) and (B) of this paragraph (ii) of Section 4.
(c) In the event of the death of the retiree prior
to the date the election is irrevocable as provided under paragraph (i) of
Section 4, such retiree shall be deemed to have terminated employment on
the day before his death (for reasons other than death) and survived until
the day after the date as of which the benefit he elected under this
sub-paragraph (D) would have commenced.
(d) Actuarial equivalence under this sub-paragraph
(D) shall be determined on the basis of the applicable actuarial
assumptions and other relevant provisions used for the same in the Ashland
Pension Plan.
(E) Period Certain Income Option. A retiree eligible
under Section 2 for the benefit under Section 3 may elect to receive an
actuarially reduced benefit payable monthly during his lifetime and
terminating with the monthly payment for the month in which his death
6
<PAGE>
occurs, with the provision that not less than a total of 120 monthly
payments shall be made in any event to him and/or the person designated by
him to receive payments under this sub-paragraph (E) in the event of his
death (hereinafter called "alternate recipient"). Such alternate recipient
shall be designated in writing by the retiree in such form and at such time
as Ashland may from time to time prescribe. If a retiree and his alternate
recipient die after the date as of which payments have commenced but before
the total specified monthly payments have been made to such retiree and/or
his alternate recipient, the commuted value of the remaining unpaid
payments shall be paid in a lump sum to the estate of the later to die of
the retiree or his alternate recipient. The following additional
limitations and conditions shall apply to this option:
(a) A retiree may designate a new alternate
recipient if the one first designated dies before the retiree and after the
date the election of this optional form of benefit became irrevocable under
paragraph (i) of Section 4. In the event the alternate recipient dies prior
to the date the election becomes irrevocable as provided under paragraph
(i) of Section 4, the retiree's selection of this option shall be void.
Before the date the election of this optional form of benefit becomes
irrevocable as provided under paragraph (i) of Section 4, the retiree may
change the alternate recipient or change the option elected, subject to the
applicable limitations and conditions applied to elections for the options
described under sub-paragraphs (A) and (B) of this paragraph (ii) of
Section 4.
(b) In the event of the death of the retiree prior
to the date the election is irrevocable as provided under paragraph (i) of
Section 4, such retiree shall be deemed to have terminated employment on
the day before his death (for reasons other than death) and survived until
the day after the date as of which the benefit he elected under this
sub-paragraph (E) would have commenced.
(c) Actuarial equivalence under this sub-paragraph
(E) shall be determined on the basis of the applicable actuarial
assumptions and other relevant provisions used for the same in the Ashland
Pension Plan.
(F) Death Before Payment. Subject to Section 6, in the
event a retiree eligible under Section 2 for the benefit under Section 3
dies after having made an election of an optional form of payment under
this paragraph (ii) of Section 4 before the date such election became
irrevocable as provided under paragraph (i) of Section 4, such retiree
shall be deemed to have
7
<PAGE>
terminated employment on the day before his death (for reasons other than
death) and survived until the day after the date as of which the optional
form of payment he elected would have commenced and payment shall then be
made under the Plan in accordance with such retiree's election.
5. Payment of Small Amounts. Unless such retiree elects to receive
his or her benefit in a lump sum as provided in Section 4, in the event a
monthly benefit under this Plan, payable to either a retiree or to his
contingent annuitant, alternate recipient or surviving spouse, is too small
(in the sole judgment of Ashland) to be paid monthly, such benefit may be
paid quarterly, semi-annually, or annually, as determined by Ashland to be
administratively convenient.
6. Surviving Spouse Benefit. In the event a retiree who was
eligible under Section 2 for the benefit under Section 3 dies, leaving a
surviving spouse, before electing an optional form of payment under
paragraph (ii) of Section 4 and before the date such an election would have
become irrevocable under paragraph (i) of Section 4, then such retiree
shall be deemed to have -
(i) elected the joint and 100% survivor income option under sub-paragraph
(D) of paragraph (ii) of Section 4;
(ii) named his spouse as the 100% contingent annuitant;
(iii) terminated employment on the day before his death (for reasons other
than death); and
(iv) survived until the day after the date as of which such benefit would
have commenced.
7. Costs. In appropriate cases, Ashland may cause an affiliate to
make the payment (or an allocable portion thereof) called for by the Plan
directly to the person eligible to receive such payments.
8. Confidentiality and No Competition. All benefits under the Plan
shall be forfeited by anyone who discloses confidential information to
others outside of Ashland's organization without the prior written consent
of Ashland or who accepts, during a period of five (5) years following his
or her retirement, any employment or consulting activity which is in direct
conflict with the business of Ashland at such time. Such determination
shall be made in the sole discretion of Ashland. A breach of this Section 8
shall result in an immediate forfeiture of benefits payable to any retiree
under the Plan.
8
<PAGE>
9. Lost Participant/Beneficiary. In the event Ashland, after
reasonable effort, is unable to locate a person to whom a benefit is
payable under the Plan, such benefit shall be forfeited; provided, however,
that such benefit shall be reinstated (in the same amount and form as that
of the benefit forfeited without any obligation to pay amounts which would
otherwise have previously come due) upon proper claim made by such person
prior to termination of the Plan.
(i) The obligations of Ashland and any affiliate thereof with respect to
benefits under this Plan constitute merely the unsecured promise of Ashland
and/or its affiliates, as the case may be, to make the payments provided
for in this Plan. No property of Ashland or any affiliate is or shall, by
reason of the Plan, be held in trust or be deemed to be held in trust for
any person and any participant or beneficiary under the Plan, the estate of
either of them and any person claiming under or through them shall not
have, by reason of the Plan, any right, title or interest of any kind in or
to any property of Ashland and its affiliates. To the extent any person has
a right to receive payments under the Plan, such right shall be no greater
than the right of any unsecured general creditor of Ashland/ or its
affiliates.
(ii) Ashland shall administer the Plan. Ashland shall have full power and
authority to amend, modify, or terminate the Plan and shall have all powers
and the discretion necessary and convenient to administer the Plan in
accordance with its terms, including, but not limited to, all necessary,
appropriate, discretionary and convenient power and authority to interpret,
administer and apply the provisions of the Plan with respect to all persons
having or claiming to have any rights, benefits, entitlements or
obligations under the Plan. This includes, without limitation, the ability
to construe and interpret provisions of the Plan, make determinations
regarding law and fact, reconcile any inconsistencies between provisions in
the Plan or between provisions of the Plan and any other statement
concerning the Plan, whether oral or written, supply any omissions to the
Plan or any document associated with the Plan, and to correct any defect in
the Plan or in any document associated with the Plan. All such
interpretations of the Plan and documents associated with the Plan and
questions concerning its administration and application, as determined by
Ashland, shall be binding on all persons having an interest under the Plan.
Ashland may delegate (and may give to its delegatee the power and authority
to redelegate) to
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any person or persons any responsibility, power or duty under the Plan.
Decisions of Ashland or its delegatee shall be final, conclusive, and
binding on all parties.
(iii) Except as expressly allowed pursuant to Sections 3 and 4 of this Plan
in regard to the form of benefit option, no right or interest of any person
entitled to a benefit under the Plan shall be subject to voluntary or
involuntary alienation, assignment, transfer, hypothecation, pledge, or
encumbrance of any kind; provided, however, Ashland or any affiliate may
offset or cause an offset to be made against any payment to be made under
the Plan in regard to amounts due and owing from such person to Ashland or
any affiliate. Notwithstanding anything to the contrary in this paragraph
(iii), legally required tax withholding on benefit payments, the recovery,
by any means, of previously made overpayments of Plan benefits, or the
direct deposit of Plan benefit payments in a bank or similar account,
provided that such direct deposits are allowed by Ashland in the
administration of the Plan and provided that such direct deposit is not
part of an arrangement constituting an assignment or alienation, shall not
be considered to be prohibited under this paragraph (iii).
(iv) No amount paid or payable under the Plan shall be deemed salary or
other compensation to any employee for the purpose of computing benefits to
which such employee or any other person may be entitled under any employee
benefit plan of Ashland or any affiliate.
(v) To the extent that state law shall not have been preempted by ERISA or
any other law of the United States, the Plan shall be governed by the laws
of the Commonwealth of Kentucky.
(vi) The Plan described herein shall amend and supersede, as of September
19, 1996, all provisions in the Ashland Oil, Inc. Nonqualified Pension Plan
as Amended, dated as of November 3, 1988, except as otherwise provided
herein and further excepting that the rights of former employees who
terminated employment, retired, or became disabled prior to the day before
the effective date hereof shall be governed by the terms of the Plan as in
effect at the time of such termination of employment, retirement, or
disability, unless otherwise provided herein.
11. Change in Control. Notwithstanding any provision of this Plan
to the contrary, in the event of a Change in Control (as defined
hereinafter in this Section 11), any employee who would or will meet the
requirements of Section 2, except that such employee has not been approved
to participate as provided under paragraph (ii) of Section 2, shall be
deemed to be approved for participation hereunder, regardless of when such
employee actually retires and
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commences benefits under an Affected Plan and such entitlement shall be
vested from and after the time of such Change in Control. Ashland shall
reimburse an employee for legal fees and expenses incurred if he or she is
required to, and is successful in, seeking to obtain or enforce any right
to payment pursuant to the Plan after a Change in Control. In the event
that it shall be determined that such employee is properly entitled to the
payment of benefits hereunder, such employee shall also be entitled to
interest thereon payable in an amount equivalent to the prime rate of
interest (quoted by Citibank, N.A. as its prime commercial lending rate on
the latest date practicable prior to the date of the actual commencement of
payments) from the date such payment(s) should have been made to and
including the date it is made. Notwithstanding any provision of this Plan
to the contrary, the Plan may not be amended after a Change in Control
without the written consent of a majority of the Board of Directors of
Ashland (hereinafter "Board") who were directors prior to the Change in
Control. For purposes of this Section 11, a Change of Control shall be
deemed to occur (1) upon the approval of the shareholders of Ashland (or if
such approval is not required, upon approval of the Board) of (A) any
consolidation or merger of Ashland in which Ashland is not the continuing
or surviving corporation or pursuant to which shares of Ashland common
stock would be converted into cash, securities or other property other than
a merger in which the holders of Ashland common stock immediately prior to
the merger will have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger, (B) any sale,
lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of Ashland, or
(C) adoption of any plan or proposal for the liquidation or dissolution of
Ashland, (2) when any "person" (as defined in Section 3(a)(9) or Section
13(d) of the Securities Exchange Act of 1934), other than Ashland or any
subsidiary or employee benefit plan or trust maintained by Ashland or any
of its subsidiaries, shall become the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 15% of the Ashland common stock outstanding at the
time, without the approval of the Board, or (3) if at any time during a
period of two consecutive years, individuals who at the beginning of such
period constituted the Board shall cease for any reason to constitute at
least a majority thereof, unless the election or nomination for election by
Ashland's shareholders of each new director during
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such two-year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
two-year period.
ASHLAND INC.
DEFERRED COMPENSATION PLAN
(Amended and Restated as of September 18, 1997)
1. PURPOSE
The purpose of this Ashland Inc. Deferred Compensation Plan (the
"Plan"), is to provide eligible key employees of the Company with an
opportunity to defer compensation to be earned by them from the Company as
a means of saving for retirement or other future purposes.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Accounting Date" means the Business Day on which a
calculation concerning a Participant's Compensation Account is performed,
or as otherwise defined by the Committee.
(b) "Beneficiary" means the person(s) designated by the
Participant in accordance with Section 12, or if no person(s) is/are so
designated, the estate of a deceased Participant.
(c) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(d) "Business Day" means a day on which the New York Stock
Exchange is open for trading activity.
(e) "Change in Control" shall be deemed to occur (1) upon the
approval of the shareholders of the Company (or if such approval is not
required, upon the approval of the Board) of (A) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of Common Stock would be
converted into cash, securities or other property other than a merger in
which the holders of Common Stock immediately prior to the merger will have
the same proportionate ownership of Common Stock of the surviving
corporation immediately after the merger, (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company, or (C) adoption of any
plan or proposal for the liquidation or dissolution of the Company, (2)
when any "person" (as defined in Section 3(a)(9) or 13(d) of the Exchange
Act), other than Ashland Inc. or any subsidiary or employee benefit plan or
trust maintained by Ashland Inc. or any of its subsidiaries, shall become
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 15% of the Common Stock outstanding at
the time, without the approval of the Board, or (3) if at any time during a
period of two consecutive years, individuals who at the beginning of such
period constituted the Board shall cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for
election by the Company's shareholders of each new director during such
two-year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
two-year period.
(f) "Committee" means the Personnel and Compensation Committee of
the Board or its designee.
(g) "Common Stock" means the common stock, $1.00 par value, of
Ashland Inc.
(h) "Common Stock Fund" means that investment option, approved by
the Committee, in which a Participant's Compensation Account may be deemed
to be invested and may earn income based on a hypothetical investment in
Common Stock.
(i) "Company" means Ashland Inc., its divisions, subsidiaries and
affiliates.
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(j) "Compensation" means any employee compensation determined by
the Committee to be properly deferrable under the Plan.
(k) "Compensation Account(s)" means the Retirement Account and/or
the In-Service Account(s).
(l) "Corporate Human Resources" means the Corporate Human
Resources Department of the Company.
(m) "Credit Date" means the date on which Compensation would
otherwise have been paid to the Participant or in the case of the
Participant's designation of investment option changes, within three
Business Days after the Participant's designation is received by Corporate
Human Resources, or as otherwise designated by the Committee.
(n) "Deferred Compensation" means the Compensation elected by the
Participant to be deferred pursuant to the Plan.
(o) "Election" means a Participant's delivery of a written notice
of election to Corporate Human Resources electing to defer payment of all
or a portion of his or her Compensation either until retirement,
Termination, death or such other time as further provided by the Committee
or the Company.
(p) "Employee" means a full-time, regular salaried employee (which
term shall be deemed to include officers) of the Company, its present and
future subsidiary corporations as defined in Section 424 of the Internal
Revenue Code of 1986, as amended or its affiliates.
(q) "Excess Payments" means payments made to a Participant
pursuant to the Plan and the Excess Plan.
(r) "Excess Plan" means the Ashland Inc. Nonqualified Excess
Benefit Pension Plan, as it now exists or as it may hereafter be amended.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Fair Market Value" means the price of a share of Common
Stock, as reported on the Composite Tape for New York Stock Exchange issues
on the date and at the time designated by the Company.
(u) "Fiscal Year" means that annual period commencing October 1
and ending the following September 30.
(v) "In-Service Account" means the account(s) to which the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.
(w) "Participant" means an Employee selected by the Committee to
participate in the Plan and who has elected to defer payment of all or a
portion of his or her Compensation under the Plan.
(x) "Plan" means this Ashland Inc. Deferred Compensation Plan as
it now exists or as it may hereafter be amended.
(y) "Retirement Account" means the account(s) to which the
Participant's Deferred Compensation is credited and from which, pursuant to
Section 10, distributions are made.
(z) "SERP" means the Ninth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain Key Executive Employees, as
it now exists or as it may hereafter be amended.
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(aa) "SERP Payments" means payments made to a Participant pursuant
to the Plan and the SERP.
(bb) "Stock Unit(s)" means the share equivalents credited to the
Common Stock Fund of a Participant's Compensation Account pursuant to
Section 6.
(cc) "Termination" means termination of services as an Employee
for any reason other than retirement.
3. SHARES; ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION
(a) Shares Authorized for Issuance. There shall be reserved for
issuance under the Plan 500,000 shares of Common Stock, subject to
adjustment pursuant to subsection (c) below.
(b) Units Authorized for Credit. The maximum number of Stock Units
that may be credited to Participants' Compensation Accounts under the Plan
is 1,500,000, subject to adjustment pursuant to subsection (c) below.
(c) Adjustments in Certain Events. In the event of any change in
the outstanding Common Stock of the Company by reason of any stock split,
share dividend, recapitalization, merger, consolidation, reorganization,
combination, or exchange or reclassification of shares, split-up,
split-off, spin-off, liquidation or other similar change in capitalization,
or any distribution to common shareholders other than cash dividends, the
number or kind of shares or Stock Units that may be issued or credited
under the Plan shall be automatically adjusted so that the proportionate
interest of the Participants shall be maintained as before the occurrence
of such event. Such adjustment shall be conclusive and binding for all
purposes of the Plan.
4. ELIGIBILITY
The Committee shall have the authority to select from management
and/or highly compensated Employees those Employees who shall be eligible
to participate in the Plan; provided, however, that employees and/or
retirees who have elected to defer an amount into this Plan from another
plan sponsored or maintained by Ashland Inc., the terms of which allowed
such employee or retiree to make such a deferral election into this Plan,
shall be considered to be eligible to participate in this Plan.
5. ADMINISTRATION
Full power and authority to construe, interpret and administer the
Plan shall be vested in the Company and the Committee. This power and
authority includes, but is not limited to, selecting Compensation eligible
for deferral, establishing deferral terms and conditions and adopting
modifications, amendments and procedures as may be deemed necessary,
appropriate or convenient by the Committee. Decisions of the Company and
the Committee shall be final, conclusive and binding upon all parties.
Day-to-day administration of the Plan shall be the responsibility of
Corporate Human Resources.
6. PARTICIPANT ACCOUNTS
Upon election to participate in the Plan, there shall be
established a Retirement Account and/or In-Service Account, as designated
by the Participant to which there shall be credited any Deferred
Compensation, as of each Credit Date. Each such Compensation Account shall
be credited (or debited) on each Accounting Date with income (or loss)
based upon a hypothetical investment in any one or more of the investment
options available under the Plan, as prescribed by the Committee for the
particular compensation credited, which may include a Common Stock Fund, as
elected by the Participant under the terms of Section 9.
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7. FINANCIAL HARDSHIP
Upon the written request of a Participant or a Participant's legal
representative and a finding that continued deferral will result in an
unforeseeable financial emergency to the Participant, the Committee or the
Company (each in its sole discretion) may authorize (a) the payment of all
or a part of a Participant's Compensation Account in a single installment
prior to his or her ceasing to be a Participant, or (b) the acceleration of
payment of any multiple installments thereof. It is intended that the
Committee's determinations as to whether the Participant has suffered an
"unforeseeable financial emergency" shall be made consistent with the
requirements under Section 457(d) of the Internal Revenue Code.
8. ACCELERATED DISTRIBUTION
(a) Availability of Withdrawal Prior to Retirement. The
Participant or the Participant's Beneficiary who is receiving installment
payments under the Plan may elect, in writing, to withdraw all or a portion
of a Participant's Compensation Account at any time prior to the time such
Compensation Account otherwise becomes payable under the Plan, provided the
conditions specified in Sections 8(c), 8(d) and 8(e) hereof are satisfied.
(b) Acceleration of Periodic Distributions. Upon the written
election of the Participant or the Participant's Beneficiary who is
receiving installment payments under the Plan, the Participant or
Participant's Beneficiary may elect to have all or a portion of the
remaining installments distributed in the form of an immediately payable
lump sum, provided the conditions specified in Section 8(c) and 8(e) hereof
are satisfied.
(c) Forfeiture Penalty. In the event of a withdrawal pursuant to
Section 8(a), or an accelerated distribution pursuant to Section 8(b), the
Participant shall forfeit from such Compensation Account an amount equal to
10% of the amount of the withdrawal or accelerated distribution, as the
case may be. The forfeited amount shall be deducted from the Compensation
Account prior to giving effect to the requested withdrawal or acceleration.
Neither the Participant nor the Participant's Beneficiary shall have any
right or claim to the forfeited amount, and the Company shall have no
obligation whatsoever to the Participant, the Participant's Beneficiary or
any other person with regard to the forfeited amount.
(d) Minimum Withdrawal. In no event shall the amount withdrawn in
accordance with Section 8(a) be less than 25% of the amount credited to
such Participant's Compensation Account immediately prior to the
withdrawal.
(e) Suspension from Deferrals. In the event of a withdrawal
pursuant to Section 8(a) or 8(b), a Participant who is otherwise eligible
to make deferrals of Compensation under this Plan shall be prohibited from
making such deferrals with respect to the remainder of the current Fiscal
Year and the Fiscal Year of the Plan immediately following the Fiscal Year
of the Plan during which the withdrawal was made, and any Election
previously made by the Participant with respect to deferrals of
Compensation for such Fiscal Years of the Plan shall be void and of no
effect.
9. MANNER OF ELECTION
(a) General. Any Employee selected by the Committee to participate
in the Plan may elect to do so by delivering to Corporate Human Resources
an Election on a form prescribed by Corporate Human Resources, designating
the Compensation Account to which the Deferred Compensation is to be
credited, electing the timing and form of distribution, and setting forth
the manner in which such Deferred Compensation shall be invested in
accordance with Section 6 hereof. The timing of the filing of the
appropriate form with Corporate Human Resources shall be determined by the
Company or the Committee. An effective election to defer Compensation may
not be revoked or modified except as otherwise determined by the Company or
the Committee or as stated herein. In addition to the provisions contained
in this Plan, any deferrals of SERP Payments or Excess Payments must be in
accordance with the terms of the SERP or the Excess Plan.
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(b) Investment Alternatives -- Existing Balances. A Participant
may elect to change an existing selection as to the investment alternatives
in effect with respect to an existing Compensation Account (in increments
prescribed by the Committee or the Company) as often, and with such
restrictions, as determined by the Committee or by the Company.
(c) Change of Beneficiary. A Participant may, at any time, elect
to change the designation of a Beneficiary in accordance with Section 11
hereof.
10. DISTRIBUTION
(a) Retirement Account. In accordance with the Participant's
Election, Deferred Compensation credited to a Participant's Retirement
Account shall be distributed in cash or shares of Common Stock (or a
combination of both). If no Election is made by a Participant as to the
distribution or form of payment of his or her Retirement Account, upon the
earlier of death or retirement such account shall be paid in cash in lump
sum. The entire Retirement Account must be paid out within forty years
following the date of the earlier of the Participant's death or retirement.
(b) In-Service Account. In accordance with the Participant's
Election and within the guidelines established by the Committee or the
Company, Deferred Compensation credited to a Participant's In-Service
Account shall be distributed in cash. A Participant may make different
Elections with respect to the applicable distribution periods for different
deferral cycles in the In-Service Accounts.
(c) Termination. Notwithstanding the foregoing, in the event of a
Participant's Termination, the Company reserves the right to distribute the
Participant's Compensation Account at such time and in such manner as
deemed appropriate.
(d) Change of Distribution of Compensation Account. A Participant
will be allowed to change the Election as to the distribution of Deferred
Compensation of his or her Retirement Account for all amounts previously
deferred pursuant to such Election, subject to approval by the Committee or
the Company. Such change must be made by the earlier of:
(1) the date six months prior to the first day of the
month following such Participant's retirement; or
(2) the December 31 immediately preceding the first day
of the month following such Participant's retirement.
A Participant may not change the Election as to the distribution
of Deferred Compensation in his or her In-Service Account(s) except as
otherwise set forth in Sections 7 and 8.
11. BENEFICIARY DESIGNATION
A Participant may designate one or more persons (including a
trust) to whom or to which payments are to be made if the Participant dies
before receiving distribution of all amounts due hereunder. A designation
of Beneficiary will be effective only after the signed Election is filed
with Corporate Human Resources while the Participant is alive and will
cancel all designations of Beneficiary signed and filed earlier. If the
Participant fails to designate a Beneficiary as provided above or if all of
a Participant's Beneficiaries predecease him or her and he or she fails to
designate a new Beneficiary, the remaining unpaid amounts shall be paid in
one lump sum to the estate of such Participant. If all Beneficiaries of the
Participant die after the Participant but before complete payment of all
amounts due hereunder, the remaining unpaid amounts shall be paid in one
lump sum to the estate of the last to die of such Beneficiaries.
5
<PAGE>
12. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the
event of a Change in Control, each Participant in the Plan shall receive an
automatic lump sum cash distribution of all amounts accrued in the
Participant's Compensation Account not later than fifteen (15) days after
the date of the Change in Control. For this purpose, the balance in the
portion of a Participant's Compensation Account invested in the Common
Stock Fund shall be determined by multiplying the number of Stock Units by
the higher of (a) the highest Fair Market Value on any date within the
period commencing 30 days prior to such Change in Control, or (b) if the
Change in Control of the Company occurs as a result of a tender or exchange
offer or consummation of a corporate transaction, then the highest price
paid per share of Common Stock pursuant thereto. Any consideration other
than cash forming a part or all of the consideration for Common Stock to be
paid pursuant to the applicable transaction shall be valued at the
valuation price thereon determined by the Board.
In addition, the Company shall reimburse a Participant for the
legal fees and expenses incurred if the Participant is required to seek to
obtain or enforce any right to distribution. In the event that it is
determined that such Participant is properly entitled to a cash
distribution hereunder, such Participant shall also be entitled to interest
thereon payable in an amount equivalent to the Prime Rate of Interest
quoted by Citibank, N.A. as its prime commercial lending rate on the
subject date from the date such distribution should have been made to and
including the date it is made. Notwithstanding any provision of this Plan
to the contrary, this Section 12 may not be amended after a Change in
Control occurs without the written consent of a majority in number of
Participants.
13. INALIENABILITY OF BENEFITS
The interests of the Participants and their Beneficiaries under
the Plan may not in any way be voluntarily or involuntarily transferred,
alienated or assigned, nor subject to attachment, execution, garnishment or
other such equitable or legal process. A Participant or Beneficiary cannot
waive the provisions of this Section 13.
14. GOVERNING LAW
The provisions of this plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky, except to the
extent preempted by Federal law.
15. AMENDMENTS
The Committee may amend, alter or terminate this Plan at any time
without the prior approval of the Board; provided, however, that the
Committee may not, without approval by the Board and the shareholders:
(a) increase the number of securities that may be issued under the
Plan (except as provided in Section 3(c));
(b) materially modify the requirements as to eligibility for
participation in the Plan; or
(c) otherwise materially increase the benefits accruing to
Participants under the Plan.
16. EFFECTIVE DATE
The Plan was approved by the shareholders of the Company on
January 26, 1995, and originally became effective as of October1, 1994, and
has been restated in this document effective as of September 18, 1997.
6
ASHLAND INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Ashland Inc. 1997 Stock Incentive Plan is to
promote the interests of Ashland Inc. and its shareholders by providing
incentives to its directors, officers and employees. Accordingly, the
Company may grant to selected officers and employees Options, Stock
Appreciation Rights, Restricted Stock, Merit Awards and Performance Share
Awards in an effort to attract and retain in its employ qualified
individuals and to provide such individuals with incentives to continue
service with Ashland, devote their best efforts to the Company and
improve Ashland's economic performance, thus enhancing the value of the
Company for the benefit of shareholders. The Plan also provides an
incentive for qualified persons, who are not officers or employees of the
Company, to serve on the Board of Directors of the Company and to
continue to work for the best interests of the Company by rewarding such
persons with automatic grants of Restricted Stock of the Company.
Options, Stock Appreciation Rights, Merit Awards and Performance Shares
may not be granted to such Outside Directors under the Plan.
SECTION 2. DEFINITIONS
(A) "Agreement" shall mean a written agreement setting forth the
terms of an Award, to be entered into at the Company's discretion.
(B) "Ashland" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(C) "Award" shall mean an Option, a Stock Appreciation Right, a
Restricted Stock Award, a Merit Award, or a Performance Share Award, in
each case granted under this Plan.
(D) "Ashland Inc. 1993 Plan" shall mean the Ashland Inc. 1993 Stock
Incentive Plan, as it now exists or as it may hereafter be amended.
(E) "Beneficiary" shall mean the person, persons, trust or trusts
designated by an Employee or Outside Director or if no designation has
been made, the person, persons, trust, or trusts entitled by will or the
laws of descent and distribution to receive the benefits specified under
this Plan in the event of an Employee's or Outside Director's death.
(F) "Board" shall mean the Board of Directors of the Company.
(G) "Change in Control" shall be deemed to occur (1) upon approval of
the shareholders of Ashland (or if such approval is not required, upon
the approval of the Board) of (A) any consolidation or merger of Ashland
in which Ashland is not the continuing or surviving corporation or
pursuant to which shares of Common Stock would be converted into cash,
securities or other property other than a merger in which the holders of
Common Stock immediately prior to the merger will have the same
proportionate ownership of Common Stock of the surviving corporation
immediately after the merger, (B) any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of all
or substantially all the assets of Ashland, or (C) adoption of any plan
or proposal for the liquidation or dissolution of Ashland, (2) when any
"person" (as defined in Section 3(a)(9) or 13(d) of the Exchange Act),
other than Ashland or any Subsidiary or employee benefit plan or trust
maintained by Ashland, shall become the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of more than
15% of Ashland's Common Stock outstanding at the time, without the
approval of the Board, or (3) at any time during a period of two
consecutive years, individuals who at the beginning of such period
constituted the Board shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for election by
Ashland's shareholders of each new director during such two-year period
was approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
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(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Committee" shall mean the Personnel and Compensation Committee
of the Board, as from time to time constituted, or any successor
committee of the Board with similar functions, which shall consist of
three or more members, each of whom shall be a Non-Employee Director and
an "outside director" as defined in the regulations issued under Section
162(m) of the Code.
(J) "Common Stock" shall mean the Common Stock of the Company ($1.00
par value), subject to adjustment pursuant to Section 13.
(K) "Company" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(L) "Employee" shall mean a regular, full-time or part-time employee
of Ashland as selected by the Committee to receive an award under the
Plan.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(N) "Exercise Price" shall mean, with respect to each share of Common
Stock subject to an Option, the price fixed by the Committee at which
such share may be purchased from the Company pursuant to the exercise of
such Option, which price at no time may be less than 100% of the Fair
Market Value of the Common Stock on the date the Option is granted.
(O) "Fair Market Value" shall mean the price of the Common Stock as
reported on the Composite Tape of the New York Stock Exchange on the date
and at the time selected by the Company or as otherwise provided in the
Plan.
(P) "Incentive Stock Option" or "ISO" shall mean an Option that is
intended by the Committee to meet the requirements of Section 422 of the
Code or any successor provision.
(Q) "Merit Award" shall mean an award of Common Stock issued pursuant
to Section 9 of the Plan.
(R) "Non-Employee Director" shall mean a non-employee director within
the meaning of applicable regulatory requirements, including those
promulgated under Section 16 of the Exchange Act.
(S) "Nonqualified Stock Option" or "NQSO" shall mean an Option
granted pursuant to this Plan which does not qualify as an Incentive
Stock Option.
(T) "Option" shall mean the right to purchase Common Stock at a price
to be specified and upon terms to be designated by the Committee or
otherwise determined pursuant to this Plan. An Option shall be designated
by the Committee as a Nonqualified Stock Option or an Incentive Stock
Option.
(U) "Outside Director" shall mean a director of the Company who is
not also an Employee of the Company.
(V) "Performance Goals" means performance goals as may be established
in writing by the Committee which may be based on earnings, stock price,
return on equity, return on investment, total return to shareholders,
economic value added, debt rating or achievement of business or
operational goals, such as drilling or exploration targets or profit per
barrel. Such goals may be absolute in their terms or measured against or
in relation to other companies comparably or otherwise situated. Such
performance goals may be particular to an Employee or the division,
department, branch, line of business, subsidiary or other unit in which
the Employee works and/or may be based on the performance of Ashland
generally.
(W) "Performance Period" shall mean the period designated by the
Committee during which the performance objectives shall be measured.
(X) "Performance Share Award" shall mean an award of shares of Common
Stock, the issuance of which is contingent upon attainment of performance
objectives specified by the Committee.
(Y) "Performance Shares" shall mean those shares of Common Stock
issuable pursuant to a Performance Share Award.
<PAGE>
(Z) "Personal Representative" shall mean the person or persons who,
upon the disability or incompetence of an Employee or Outside Director,
shall have acquired on behalf of the Employee or Outside Director by
legal proceeding or otherwise the right to receive the benefits specified
in this Plan.
(AA) "Plan" shall mean this Ashland Inc. 1997 Stock Incentive Plan.
(BB) "Restricted Period" shall mean the period designated by the
Committee during which Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered, which period in the case
of Employees shall not be less than one year from the date of grant
(unless otherwise directed by the Committee), and in the case of Outside
Directors is the period set forth in subsection (B) of Section 8.
(CC) "Restricted Stock" shall mean those shares of Common Stock
issued pursuant to a Restricted Stock Award which are subject to the
restrictions, terms, and conditions set forth in the related Agreement,
if any.
(DD) "Restricted Stock Award" shall mean an award of Restricted
Stock.
(EE) "Retained Distributions" shall mean any securities or other
property (other than regular cash dividends) distributed by the Company
in respect of Restricted Stock during any Restricted Period.
(FF) "Retirement" shall mean retirement of an Employee from the
employ of the Company at any time as described in the Ashland Inc. and
Affiliates Pension Plan or in any successor pension plan, as from time to
time in effect.
(GG) "Section 16(b) Optionee" shall mean an Employee or former
Employee who is subject to Section 16(b) of the Exchange Act.
(HH) "Stock Appreciation Right" or "SAR" shall mean the right of the
holder to elect to surrender an Option or any portion thereof which is
then exercisable and receive in exchange therefor shares of Common Stock,
cash, or a combination thereof, as the case may be, with an aggregate
value equal to the excess of the Fair Market Value of one share of Common
Stock over the Exercise Price specified in such Option multiplied by the
number of shares of Common Stock covered by such Option or portion
thereof which is so surrendered. An SAR may only be granted concurrently
with the grant of the related Option. An SAR shall be exercisable upon
any additional terms and conditions (including, without limitation, the
issuance of Restricted Stock and the imposition of restrictions upon the
timing of exercise) which may be determined as provided in the Plan.
(II) "Subsidiary" shall mean any present or future subsidiary
corporations, as defined in Section 424 of the Code, of Ashland.
(JJ) "Tax Date" shall mean the date the withholding tax obligation
arises with respect to the exercise of an Award.
SECTION 3. STOCK SUBJECT TO THE PLAN
There will be reserved for issuance under the Plan (upon the exercise
of Options and Stock Appreciation Rights, upon awards of Restricted
Stock, Performance Shares and Merit Awards and for stock bonuses on
deferred awards of Restricted Stock and Performance Shares), an aggregate
of 3,212,000 shares of Ashland Common Stock, par value $1.00 per share;
provided, however, that of such shares, only 500,000 shares in the
aggregate shall be available for issuance for Restricted Stock Awards and
Merit Awards. Such shares shall be authorized but unissued shares of
Common Stock. Except as provided in Sections 7 and 8, if any Award under
the Plan shall expire or terminate for any reason without having been
exercised in full, or if any Award shall be forfeited, the shares subject
to the unexercised or forfeited portion of such Award shall again be
available for the purposes of the Plan. During the term of the Plan (as
provided in Section 14 hereof), no Employee shall be granted more than a
total of 500,000 in Options or Stock Appreciation Rights.
<PAGE>
SECTION 4. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have no authority regarding the granting of Restricted Stock to Outside
Directors, as such grants are fixed pursuant to subsection (B) of Section
8 of the Plan.
In addition to any implied powers and duties that may be needed to
carry out the provisions of the Plan, the Committee shall have all the
powers vested in it by the terms of the Plan, including exclusive
authority (except as to Awards of Restricted Stock granted to Outside
Directors) to select the Employees to be granted Awards under the Plan,
to determine the type, size and terms of the Awards to be made to each
Employee selected, to determine the time when Awards will be granted, and
to prescribe the form of the Agreements embodying Awards made under the
Plan. Subject to the provisions of the Plan specifically governing Awards
of Restricted Stock granted or to be granted to Outside Directors
pursuant to subsection (B) of Section 8 herein, the Committee shall be
authorized to interpret the Plan and the Awards granted under the Plan,
to establish, amend and rescind any rules and regulations relating to the
Plan, to make any other determinations which it believes necessary or
advisable for the administration of the Plan, and to correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in
any Award in the manner and to the extent the Committee deems desirable
to carry it into effect. Any decision of the Committee in the
administration of the Plan, as described herein, shall be final and
conclusive.
The Committee may act only by a majority of its members. Any
determination of the Committee may be made, without notice, by the
written consent of the majority of the members of the Committee. In
addition, the Committee may authorize any one or more of their number or
any officer of the Company to execute and deliver documents on behalf of
the Committee. No member of the Committee shall be liable for any action
taken or omitted to be taken by him or her or by any other member of the
Committee in connection with the Plan, except for his or her own willful
misconduct or as expressly provided by statute.
The provisions of this Section 4 with respect to decisions made by,
and authority of, the Committee shall be subject to the provisions of
subsection (B) of Section 8 herein.
SECTION 5. ELIGIBILITY
Awards may only be granted (i) to individuals who are Employees of
Ashland, and (ii) as expressly provided in subsection (B) of Section 8 of
the Plan, to individuals who are duly elected Outside Directors of
Ashland.
SECTION 6. OPTIONS
A. Designation and Price.
(a) Any Option granted under the Plan may be granted as an
Incentive Stock Option or as a Nonqualified Stock Option as shall be
designated by the Committee at the time of the grant of such Option.
Each Option shall, at the discretion of the Company and as directed
by the Committee, be evidenced by an Agreement between the recipient
and the Company, which Agreement shall specify the designation of the
Option as an ISO or a NQSO, as the case may be, and shall contain
such terms and conditions as the Committee, in its sole discretion,
may determine in accordance with the Plan.
(b) Every Incentive Stock Option shall provide for a fixed
expiration date of not later than ten years from the date such
Incentive Stock Option is granted. Every Nonqualified Stock Option
shall provide for a fixed expiration date of not later than ten years
and one month from the date such Nonqualified Stock Option is
granted.
(c) The Exercise Price of Common Stock issued pursuant to each
Option shall be fixed by the Committee at the time of the granting of
the Option; provided, however, that such Exercise Price shall in no
event be less than 100% of the Fair Market Value of the Common Stock
on the date such Option is granted.
<PAGE>
B. Exercise.
The Committee may, in its discretion, provide for Options granted
under the Plan to be exercisable in whole or in part; provided,
however, that no Option shall be exercisable prior to the first
anniversary of the date of its grant, except as provided in Section
11 or as the Committee otherwise determines in accordance with the
Plan, and in no case may an Option be exercised at any time for fewer
than 50 shares (or the total remaining shares covered by the Option
if fewer than 50 shares) during the term of the Option. The specified
number of shares will be issued upon receipt by Ashland of (i) notice
from the holder thereof of the exercise of an Option, and (ii)
payment to Ashland (as provided in this Section 6, subsection (C)
below), of the Exercise Price for the number of shares with respect
to which the Option is exercised. Each such notice and payment shall
be delivered or mailed by postpaid mail, addressed to the Treasurer
of Ashland at Ashland Inc., 1000 Ashland Drive, Russell, Kentucky
41169, or such other place or person as Ashland may designate from
time to time.
C. Payment for Shares.
Except as otherwise provided in this Section 6, the Exercise
Price for the Common Stock shall be paid in full when the Option is
exercised. Subject to such rules as the Committee may impose, the
Exercise Price may be paid in whole or in part (i) in cash, (ii) in
whole shares of Common Stock owned by the Employee and evidenced by
negotiable certificates, valued at their Fair Market Value (which
shares of Common Stock must have been owned by the Employee six
months or longer, and not used to effect an Option exercise within
the preceding six months, unless the Committee specifically provides
otherwise), (iii) by Attestation, (iv) by a combination of such
methods of payment, or (v) by such other consideration as shall
constitute lawful consideration for the issuance of Common Stock and
be approved by the Committee (including, without limitation,
effecting a "cashless exercise," with a broker, of the Option).
"Attestation" means the delivery to Ashland of a completed
Attestation Form prescribed by Ashland setting forth the whole shares
of Common Stock owned by the Employee which the Employee wishes to
utilize to pay the Exercise Price. The Common Stock listed on the
Attestation Form must have been owned by the Employee six months or
longer, and not have been used to effect an Option exercise within
the preceding six months, unless the Committee specifically provides
otherwise. A "cashless exercise" of an option is a procedure by which
a broker provides the funds to an Employee to effect an option
exercise. At the direction of the Employee, the broker will either
(i) sell all of the shares received when the option is exercised and
pay the Employee the proceeds of the sale (minus the option exercise
price, withholding taxes and any fees due to the broker) or (ii) sell
enough of the shares received upon exercise of the option to cover
the exercise price, withholding taxes and any fees due the broker and
deliver to the Employee (either directly or through the Company) a
stock certificate for the remaining shares. Dispositions to a broker
effecting a cashless exercise are not exempt under Section 16 of the
Exchange Act.
SECTION 7. STOCK APPRECIATION RIGHTS
The Committee may grant Stock Appreciation Rights pursuant to the
provisions of this Section 7 to any holder of any Option granted under
the Plan with respect to all or a portion of the shares subject to the
related Option. An SAR may only be granted concurrently with the grant of
the related Option. Subject to the terms and provisions of this Section
7, each SAR shall be exercisable only at the same time and to the same
extent the related Option is exercisable and in no event after the
termination of the related Option. An SAR shall be exercisable only when
the Fair Market Value (determined as of the date of exercise of the SAR)
of each share of Common Stock with respect to which the SAR is to be
exercised shall exceed the Exercise Price per share of Common Stock
subject to the related Option. An SAR granted under the Plan shall be
exercisable in whole or in part by notice to Ashland. Such notice shall
state that the holder of the SAR elects to exercise the SAR and the
number of shares in respect of which the SAR is being exercised.
Subject to the terms and provisions of this Section 7, upon the
exercise of an SAR, the holder thereof shall be entitled to receive from
Ashland consideration (in the form hereinafter provided) equal in value
to the excess of the Fair Market Value (determined as of the date of
exercise of the SAR) of each share of Common Stock with respect to which
such SAR has been exercised over the Exercise Price per share of Common
Stock subject to the related Option. The Committee may stipulate in the
Agreement the form of consideration which shall be received upon the
exercise of an
<PAGE>
SAR. If no consideration is specified therein, upon the exercise of an
SAR, the holder may specify the form of consideration to be received by
such holder, which shall be in shares of Common Stock, or in cash, or
partly in cash and partly in shares of Common Stock (valued at Fair
Market Value on the date of exercise of the SAR) , as the holder shall
request; provided, however, that the Committee, in its sole discretion,
may disapprove the form of consideration requested and instead authorize
the payment of such consideration in shares of Common Stock (valued as
aforesaid), or in cash, or partly in cash and partly in shares of Common
Stock.
Upon the exercise of an SAR, the related Option shall be deemed
exercised to the extent of the number of shares of Common Stock with
respect to which such SAR is exercised and to that extent a corresponding
number of shares of Common Stock shall not again be available for the
grant of Awards under the Plan. Upon the exercise or termination of the
related Option, the SAR with respect thereto shall be considered to have
been exercised or terminated to the extent of the number of shares of
Common Stock with respect to which the related Option was so exercised or
terminated.
SECTION 8. RESTRICTED STOCK AWARDS
A. Awards to Employees
The Committee may make an award of Restricted Stock to selected
Employees, which may, at the Company's discretion and as directed by the
Committee, be evidenced by an Agreement which shall contain such terms
and conditions as the Committee, in its sole discretion, may determine.
The amount of each Restricted Stock Award and the respective terms and
conditions of each Award (which terms and conditions need not be the same
in each case) shall be determined by the Committee in its sole
discretion. As a condition to any Award hereunder, the Committee may
require an Employee to pay to the Company a non-refundable amount equal
to, or in excess of, the par value of the shares of Restricted Stock
awarded to him or her. Subject to the terms and conditions of each
Restricted Stock Award, the Employee, as the owner of the Common Stock
issued as Restricted Stock, shall have all rights of a shareholder
including, but not limited to, voting rights as to such Common Stock and
the right to receive dividends thereon when, as and if paid.
In the event that a Restricted Stock Award has been made to an
Employee whose employment or service is subsequently terminated for any
reason prior to the lapse of all restrictions thereon, such Restricted
Stock will be forfeited in its entirety by such Employee; provided,
however, that the Committee may, in its sole discretion, limit such
forfeiture.
Employees may be offered the opportunity to defer the receipt of
payment of vested shares of Restricted Stock, and Common Stock may be
granted as a bonus for deferral, under terms as may be established by the
Committee from time to time; however, in no event shall the Common Stock
granted as a bonus for deferral exceed 20% of the Restricted Stock so
deferred.
B. Awards to Outside Directors
During the term of the Plan, (i) each Outside Director who was
granted an award of restricted stock under the Ashland Inc. 1993 Plan
shall be granted an Award of 1,000 shares of Restricted Stock upon the
fifth anniversary of his or her prior award under the Ashland Inc. 1993
Plan; and (ii) each person who is hereafter duly appointed or elected as
an Outside Director and who does not receive an award under the Ashland
Inc. 1993 Plan shall be granted, effective on the date of his or her
appointment or election to the Board, an Award of 1,000 shares of
Restricted Stock; provided, however, that no Outside Director shall
receive an award of Restricted Stock under this Plan if such award would
be in addition to a simultaneous award of 1,000 shares of Restricted
Stock under the Ashland Inc. 1993 Plan. All Awards under this subsection
(B) are subject to the limitation on the number of shares of Common Stock
available pursuant to Section 3 and to the terms and conditions set forth
in this subsection (B) and subsection (C) below.
As a condition to any Award hereunder, the Outside Director may be
required to pay to the Company a non-refundable amount equal to the par
value of the shares of Restricted Stock awarded to him or her. Upon the
granting of the Restricted Stock Award, such Outside Director shall be
entitled to all rights incident to ownership of Common Stock of the
Company with respect to his or her Restricted Stock, including, but not
limited to, the right to vote such
<PAGE>
shares of Restricted Stock and to receive dividends thereon when, as and
if paid; provided, however, that, subject to subsection (C) hereof, in no
case may any shares of Restricted Stock granted to an Outside Director be
sold, assigned, transferred, pledged, or otherwise encumbered during the
Restricted Period which shall not lapse until the earlier to occur of the
following: (i) retirement from the Board at age 70, (ii) the death or
disability of such Outside Director, (iii) a 50% change in the beneficial
ownership of the Company as defined in Rule 13d-3 under the Exchange Act,
or (iv) voluntary early retirement to take a position in governmental
service. Unless otherwise determined and directed by the Committee, in
the case of voluntary resignation or other termination of service of an
Outside Director prior to the occurrence of any of the events described
in the preceding sentence, any grant of Restricted Stock made to him or
her pursuant to this subsection (B) will be forfeited by such Outside
Director. As used herein, a director shall be deemed "disabled" when he
or she is unable to attend to his or her duties and responsibilities as a
member of the Board because of incapacity due to physical or mental
illness.
C. Transferability
Subject to subsection (B) of Section 15 hereof, Restricted Stock may
not be sold, assigned, transferred, pledged, or otherwise encumbered
during a Restricted Period, which, in the case of Employees, shall be
determined by the Committee and, unless otherwise determined by the
Committee, shall not be less than one year from the date such Restricted
Stock was awarded, and, in the case of Outside Directors, shall be
determined in accordance with subsection (B) of this Section 8. The
Committee may, at any time, reduce the Restricted Period with respect to
any outstanding shares of Restricted Stock awarded under the Plan to
Employees, but, unless otherwise determined by the Committee, such
Restricted Period shall not be less than one year.
During the Restricted Period, certificates representing the
Restricted Stock and any Retained Distributions shall be registered in
the recipient's name and bear a restrictive legend to the effect that
ownership of such Restricted Stock (and any such Retained Distributions),
and the enjoyment of all rights appurtenant thereto are subject to the
restrictions, terms, and conditions provided in the Plan and the
applicable Agreement, if any. Such certificates shall be deposited by the
recipient with the Company, together with stock powers or other
instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and
any securities constituting Retained Distributions which shall be
forfeited in accordance with the Plan and the applicable Agreement, if
any. Restricted Stock shall constitute issued and outstanding shares of
Common Stock for all corporate purposes. The recipient will have the
right to vote such Restricted Stock, to receive and retain all regular
cash dividends, and to exercise all other rights, powers, and privileges
of a holder of Common Stock with respect to such Restricted Stock, with
the exception that (i) the recipient will not be entitled to delivery of
the stock certificate or certificates representing such Restricted Stock
until the restrictions applicable thereto shall have expired; (ii) the
Company will retain custody of all Retained Distributions made or
declared with respect to the Restricted Stock (and such Retained
Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if
ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid, or declared shall have become
vested, and such Retained Distributions shall not bear interest or be
segregated in separate accounts; (iii) subject to subsection (B) of
Section 15 hereof, the recipient may not sell, assign, transfer, pledge,
exchange, encumber, or dispose of the Restricted Stock or any Retained
Distributions during the Restricted Period; and (iv) a breach of any
restrictions, terms, or conditions provided in the Plan or established by
the Committee with respect to any Restricted Stock or Retained
Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
SECTION 9. MERIT AWARDS
The Committee may from time to time make an award of Common Stock
under the Plan to selected Employees for such reasons and in such amounts
as the Committee, in its sole discretion, may determine. As a condition
to any such Merit Award, the Committee may require an Employee to pay to
the Company an amount equal to, or in excess of, the par value of the
shares of Common Stock awarded to him or her.
<PAGE>
SECTION 10. PERFORMANCE SHARES
The Committee may make awards of Common Stock which may, in the
Company's discretion and as directed by the Committee, be evidenced by an
Agreement, to selected Employees on the basis of the Company's financial
performance in any given period. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine the
Employees who shall receive such Performance Shares, to determine the
number of such shares to be granted for each Performance Period, and to
determine the duration of each such Performance Period. There may be more
than one Performance Period in existence at any one time, and the
duration of Performance Periods may differ from each other.
The Performance Goals and Performance Period applicable to an award
of Performance Shares shall be set forth in writing by the Committee no
later than 90 days after the commencement of the Performance Period and
shall be communicated to the Employee. The Committee shall have the
discretion to later revise the Performance Goals solely for the purpose
of reducing or eliminating the amount of compensation otherwise payable
upon attainment of the Performance Goals; provided that the Performance
Goals and the amounts payable upon attainment of the Performance Goals
may be adjusted during any Performance Period to reflect promotions,
transfers or other changes in an Employee's employment so long as such
changes are consistent with the Performance Goals established for other
Employees in the same or similar positions.
In making a Performance Share award, the Committee may take into
account an Employee's responsibility level, performance, cash
compensation level, incentive compensation awards and such other
considerations as it deems appropriate. Each Performance Share award
shall be established in shares of Common Stock and/or shares of
Restricted Stock in such proportions as the Committee shall determine.
The original amount of any Performance Share award shall not exceed
250,000 shares of Common Stock or Restricted Stock.
The Committee shall determine, in its sole discretion, the manner of
payment, which may include (i) cash, (ii) shares of Common Stock, or
(iii) shares of Restricted Stock in such proportions as the Committee
shall determine. Employees may be offered the opportunity to defer the
receipt of payment of earned Performance Shares, and Common Stock may be
granted as a bonus for deferral under terms as may be established by the
Committee from time to time; however, in no event shall the Common Stock
granted as a bonus for deferral exceed 20% of the Performance Shares so
deferred.
An Employee must be employed by the Company at the end of a
Performance Period in order to be entitled to payment of Performance
Shares in respect of such period; provided, however, that in the event of
an Employee's cessation of employment before the end of such period, or
upon the occurrence of his or her death, retirement, or disability, or
other reason approved by the Committee, the Committee may, in its sole
discretion, limit such forfeiture.
SECTION 11. CONTINUED EMPLOYMENT, AGREEMENT TO SERVE AND EXERCISE PERIODS
(A) Subject to the provisions of subsection (F) of this Section 11,
every Option and SAR shall provide that it may not be exercised in whole
or in part for a period of one year after the date of granting such
Option (unless otherwise determined by the Committee) and if the
employment of the Employee shall terminate prior to the end of such one
year period (or such other period determined by the Committee), the
Option granted to such Employee shall immediately terminate.
(B) Every Option shall provide that in the event the Employee dies
(i) while employed by Ashland, (ii) during the periods in which Options
may be exercised by an Employee determined to be disabled as provided in
subsection (C) of this Section 11 or (iii) after Retirement, such Option
shall be exercisable, at any time or from time to time, prior to the
fixed termination date set forth in the Option, by the Beneficiaries of
the decedent for the number of shares which the Employee could have
acquired under the Option immediately prior to the Employee's death.
(C) Every Option shall provide that in the event the employment of
any Employee shall cease by reason of disability, as determined by the
Committee at any time during the term of the Option, such Option shall be
exercisable, at any time or from time to time prior to the fixed
termination date set forth in the Option by such Employee for the
<PAGE>
number of shares which the Employee could have acquired under the Option
immediately prior to the Employee's disability. As used herein, an
Employee will be deemed "disabled" when he or she becomes unable to
perform the functions required by his or her regular job due to physical
or mental illness and, in connection with the grant of an Incentive Stock
Option shall be disabled if he or she falls within the meaning of that
term as provided in Section 22(e)(3) of the Code. The determination by
the Committee of any question involving disability shall be conclusive
and binding.
(D) Every Option shall provide that in the event the employment of
any Employee shall cease by reason of Retirement, such Option may be
exercised at any time or from time to time, prior to the fixed
termination date set forth in the Option for the number of shares which
the Employee could have acquired under the Option immediately prior to
such Retirement.
(E) Except as provided in subsections (A), (B), (C), (D), (F) and (G)
of this Section 11, every Option shall provide that it shall terminate on
the earlier to occur of the fixed termination date set forth in the
Option or thirty (30) days after cessation of the Employee's employment
for any cause only in respect of the number of shares which the Employee
could have acquired under the Option immediately prior to such cessation
of employment; provided, however, that no Option may be exercised after
the fixed termination date set forth in the Option.
(F) Notwithstanding any provision of this Section 11 to the contrary,
any Award granted pursuant to the Plan, except a Restricted Stock Award
to Outside Directors, which is governed by Section 8, subsection (B),
may, in the discretion of the Committee or as provided in the relevant
Agreement (if any), become exercisable, at any time or from time to time,
prior to the fixed termination date set forth in the Award for the full
number of awarded shares or any part thereof, less such numbers as may
have been theretofore acquired under the Award (i) from and after the
time the Employee ceases to be an Employee of Ashland as a result of the
sale or other disposition by Ashland of assets or property (including
shares of any Subsidiary) in respect of which such Employee had
theretofore been employed or as a result of which such Employee's
continued employment with Ashland is no longer required, and (ii) in the
case of a Change in Control of Ashland, from and after the date of such
Change in Control.
(G) Notwithstanding any provision of this Section 11 to the contrary,
in the event the Committee determines, in its sole and absolute
discretion, that the employment of any Employee has terminated for a
reason or in a manner adversely affecting the Company (which may include,
without limitation, taking other employment or rendering service to
others without the consent of the Company), then the Committee may direct
that such Employee forfeit any and all Options that he or she could
otherwise have exercised pursuant to the terms of this Plan.
(H) Each Employee granted an Award under this Plan shall agree by his
or her acceptance of such Award to remain in the service of Ashland for a
period of at least one year from the date of the Agreement respecting the
Award between Ashland and the Employee (or, if no Agreement is entered
into, at least one year from the date of the Award). Such service shall,
subject to the terms of any contract between Ashland and such Employee,
be at the pleasure of Ashland and at such compensation as Ashland shall
reasonably determine from time to time. Nothing in the Plan, or in any
Award granted pursuant to the Plan, shall confer on any individual any
right to continue in the employment of or service to Ashland or interfere
in any way with the right of Ashland to terminate the Employee's
employment at any time.
(I) Subject to the limitations set forth in Section 422 of the Code,
the Committee may adopt, amend, or rescind from time to time such
provisions as it deems appropriate with respect to the effect of leaves
of absence approved by any duly authorized officer of Ashland with
respect to any Employee.
SECTION 12. WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of an Award. Unless
otherwise prohibited by the Committee, each Employee may satisfy any such
tax withholding obligation by any of the following means, or by a
combination of such means: (i) a cash payment, (ii) authorizing Ashland
to withhold from the shares of Common Stock otherwise issuable to the
Employee pursuant to the exercise or vesting of an Award a number of
shares having a Fair Market Value, as of the Tax Date, which will satisfy
the amount
<PAGE>
of the withholding tax obligation, or (iii) by delivery to Ashland of a
number of shares of Common Stock having a Fair Market Value as of the Tax
Date which will satisfy the amount of the withholding tax obligation
arising from an exercise or vesting of an Award. An Employee's election
to pay the withholding tax obligation by (ii) or (iii) above must be made
on or before the Tax Date, is irrevocable, is subject to such rules as
the Committee may adopt, and may be disapproved by the Committee. If the
amount requested is not paid, the Committee may refuse to issue Common
Stock under the Plan.
SECTION 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination, or exchange of
shares, split-up, split-off, spin-off, liquidation or other similar
change in capitalization, or any distribution to common stockholders
other than cash dividends, the number or kind of shares that may be
issued under the Plan pursuant to Section 3 and the number or kind of
shares subject to, or the price per share under any outstanding Award
shall be automatically adjusted so that the proportionate interest of the
Employee or Outside Director shall be maintained as before the occurrence
of such event. Such adjustment shall be conclusive and binding for all
purposes of the Plan.
SECTION 14. AMENDMENTS AND TERMINATIONS
Unless the Plan shall have been earlier terminated as hereinafter
provided, no Awards shall be granted hereunder after January30, 2002. The
Board or the Committee may at any time terminate, modify or amend the
Plan in such respects as it shall deem advisable; provided, however, that
the Board or the Committee may not, without approval by the holders of a
majority of the outstanding shares of stock present and voting at any
annual or special meeting of shareholders of Ashland change the manner of
determining the minimum Exercise Price of Options, other than to change
the manner of determining the Fair Market Value of the Common Stock as
set forth in Section 2.
SECTION 15. MISCELLANEOUS PROVISIONS
(A) Except as to Awards to Outside Directors, no Employee or other
person shall have any claim or right to be granted an Award under the
Plan.
(B) An Employee's or Outside Director's rights and interest under the
Plan may not be assigned or transferred in whole or in part, either
directly or by operation of law or otherwise (except in the event of an
Employee's or Outside Director's death, by will or the laws of descent
and distribution), including, but not by way of limitation, execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner,
and no such right or interest of any Employee or Outside Director in the
Plan shall be subject to any obligation or liability of such individual;
provided, however, that an Employee's or Outside Director's rights and
interest under the Plan may, subject to the discretion and direction of
the Committee, be made transferable by such Employee or Outside Director
during his or her lifetime. Except as specified in Section 8, the holder
of an Award shall have none of the rights of a shareholder until the
shares subject thereto shall have been registered in the name of the
person receiving or person or persons exercising the Award on the
transfer books of the Company.
(C) No Common Stock shall be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable Federal, state, and other securities laws.
(D) The expenses of the Plan shall be borne by the Company.
(E) By accepting any Award under the Plan, each Employee and Outside
Director and each Personal Representative or Beneficiary claiming under
or through him or her shall be conclusively deemed to have indicated his
or her acceptance and ratification of, and consent to, any action taken
under the Plan by the Company, the Board or the Committee.
(F) Awards granted under the Plan shall be binding upon Ashland, its
successors, and assigns.
<PAGE>
(G) The appropriate officers of the Company shall cause to be filed
any reports, returns, or other information regarding Awards hereunder or
any Common Stock issued pursuant hereto as may be required by Sections
13, 15(d) or 16(a) of the Exchange Act, or any other applicable statute,
rule, or regulation.
(H) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required.
(I) Each Employee shall be deemed to have been granted any Award on
the date the Committee took action to grant such Award under the Plan or
such later date as the Committee in its sole discretion shall determine
at the time such grant is authorized.
SECTION 16. EFFECTIVENESS OF THE PLAN
The Plan shall be submitted to the shareholders of the Company for
their approval and adoption on January 30, 1997 or such other date fixed
for the next meeting of shareholders or any adjournment or postponement
thereof. The Plan shall not be effective and no Award shall be made
hereunder unless and until the Plan has been so approved and adopted at a
meeting of the Company's shareholders.
SECTION 17. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
<TABLE>
<CAPTION>
Ashland Inc. and Subsidiaries
Management's Discussion and Analysis
Years Ended September 30
(In millions) 1997 1996 1995
========================================================================================================================
<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUES
Refining and Marketing(1) $ 6,719 $ 6,485 $ 5,891
Valvoline 1,099 1,199 1,113
Chemical 4,047 3,695 3,551
APAC 1,257 1,235 1,123
Coal(2) 1,367 580 610
Intersegment sales (289) (302) (316)
- ------------------------------------------------------------------------------------------------------------------------
$ 14,200 $12,892 $11,972
========================================================================================================================
OPERATING INCOME
Refining and Marketing(1) $ 189 $ 89 $ (1)
Valvoline 67 82 (4)
Chemical 144 169 159
APAC 82 83 75
Coal(2) 68 36 66
General corporate expenses (60) (97) (91)
- ------------------------------------------------------------------------------------------------------------------------
$ 490 $ 362 $ 204
========================================================================================================================
EQUITY INCOME
Arch Mineral Corporation(2) $ - $ 13 $ (4)
Other 15 11 11
- -----------------------------------------------------------------------------------------------------------------------
$ 15 $ 24 $ 7
========================================================================================================================
Operating information
Refining and Marketing(1)
Refining inputs (thousand barrels per day)(3) 358.5 368.5 349.5
Value of products manufactured per barrel $ 26.43 $ 24.64 $ 22.49
Input cost per barrel 21.39 20.50 18.28
------------------------------------------------------------
Refining margin per barrel $ 5.04 $ 4.14 $ 4.21
Refined product sales (thousand barrels per day)
Wholesale sales to
Ashland brand retail jobbers 23.0 17.6 1.0
Other wholesale customers(4) 295.3 303.5 309.4
SuperAmerica retail system 76.1 74.2 71.5
------------------------------------------------------------
Total refined product sales 394.4 395.3 381.9
SuperAmerica merchandise sales (millions) $ 600 $ 583 $ 548
Valvoline lubricant sales (thousand barrels per day)(4) 19.1 19.5 19.1
APAC construction backlog at September 30 (millions) $ 693 $ 647 $ 672
Coal(5)
Tons sold (millions) 53.7 50.6 49.2
Sales price per ton $ 25.46 $ 25.85 $ 26.93
Major revenue sources (percent of sales)
Gasoline 17% 18% 17%
Coal 10% 5% 6%
========================================================================================================================
</TABLE>
(1) Segments formerly identified as Petroleum and SuperAmerica were
combined effective October 1, 1996. Prior years amounts have been
restated.
(2) Ashland Coal and Arch Mineral merged effective July 1, 1997, into
Arch Coal, Inc. Prior interim periods of fiscal 1997 were restated to
consolidate Ashland's interest in Arch Mineral for the entire year.
Prior years were not restated, reflecting Ashland's interest in
Ashland Coal on a consolidated basis and Ashland's interest in Arch
Mineral on the equity method of accounting. See Note C to the
consolidated financial statements.
(3) Includes crude oil and other purchased feedstocks.
(4) Includes intersegment sales.
(5) Amounts are reported on a 100% basis and prior amounts have been
restated to show pro forma information for Arch Coal prior to the
merger.
<PAGE>
RESULTS OF OPERATIONS
Ashland's net income amounted to $279 million in 1997, $211 million in 1996
and $24 million in 1995. However, such earnings include the results of
discontinued operations, as well as various unusual items which had a
significant effect on the comparisons. The following table shows the
effects of unusual items on operating income and income from continuing
operations for the three years ended September 30, 1997.
<TABLE>
<CAPTION>
Income from
Operating income continuing operations
----------------------------- ----------------------------------
(In millions) 1997 1996 1995 1997 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Income before unusual items $544 $362 $320 $220 $136 $91
Costs related to coal merger (39) - - (13) - -
Asset impairment write-downs (26) - (79) (22) - (52)
Early retirement and restructuring programs - - (37) - - (25)
LIFO inventory liquidation gain 11 - - 7 - -
- ------------------------------------------------------------------------------------------------------------------------------
Income as reported $490 $362 $204 $192 $136 $14
==============================================================================================================================
</TABLE>
During 1997, Ashland reached a decision to sell Blazer Energy, its
exploration and production subsidiary. Ashland sold Blazer's domestic
operations for $566 million during July 1997, resulting in an after tax
gain of $71 million. In addition, Ashland has reached an agreement in
principle to sell its Nigerian operations, subject to the approval of the
Nigerian government and other conditions. As a result, Exploration was
reclassified as a discontinued operation in Ashland's income statements and
its investment in the Nigerian operations is carried on Ashland's
consolidated balance sheet as net assets of discontinued operations held
for sale at September 30, 1997. For comparison purposes, prior year income
statements and balance sheets have been restated.
Also during July 1997, Ashland Coal and Arch Mineral merged to form Arch
Coal, Inc., in which Ashland has a 54% ownership interest. Previously,
Ashland consolidated its investment in Ashland Coal (in which it owned 57%)
and accounted for its investment in Arch Mineral (in which it owned 50%) on
the equity method. Due to the merger, the results of Arch Mineral were
consolidated in fiscal 1997, but its results for prior years remain on the
equity method. Many synergistic opportunities are being pursued as a result
of the merger, some of which led to the charge of $39 million to write-off
duplicate facilities previously owned by Arch Mineral and to provide for
severance and other costs related to the merger.
Other unusual items in 1997 included goodwill write-downs of $26 million by
Valvoline and Ashland Chemical and a gain of $11 million from the
liquidation of certain inventories of Refining and Marketing. While Ashland
remains committed to expanding Valvoline and Ashland Chemical on a global
basis, results from certain of their European operations have been well
below the levels which were expected when they were acquired, necessitating
write-downs of the related goodwill. The inventory gain resulted from
reductions in the crude oil and petroleum product inventories of Refining
and Marketing that were accounted for on the last-in, first-out (LIFO)
method. LIFO inventories are valued at their costs in the years acquired,
and such costs were well below the current replacement costs of the
liquidated inventories.
Effective September 30, 1995, Ashland adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
result, Ashland recorded charges of $79 million in 1995 to write down
various assets to their fair values, including an idle unit at Ashland
Petroleum's Catlettsburg refinery, certain unused crude oil gathering
pipelines of Scurlock Permian and petroleum product marketing properties
which were being sold or shut down. Fair values were based upon appraisals
or estimates of discounted future cash flows. In addition, charges of $37
million related to early retirement and restructuring programs were
incurred, reflecting efforts by Ashland Petroleum and several other
divisions to reduce their costs and improve their competitive positions.
Excluding unusual items, income from continuing operations amounted to $220
million in 1997, compared to $136 million in 1996. Refining and Marketing
results were up considerably, as were earnings from Ashland's coal
investments. Results from Valvoline, Ashland Chemical and APAC would have
exceeded their record levels achieved in 1996 if they had not incurred
higher allocations of general corporate expenses. Ashland began allocating
more of these expenses in 1997 to the segments to better reflect their
costs of doing business. Income from continuing operations of $136 million
for 1996 was up from $91 million in 1995 before unusual items. Record
results were achieved in 1996 by Valvoline, Ashland Chemical and APAC,
combined with increased earnings from Refining and Marketing and Arch
Mineral. Such improvements more than offset the reduced earnings from
Ashland Coal.
The following table compares operating income before unusual items by
segment for the three years ended September 30, 1997. The consolidation of
Arch Mineral's results significantly affects the comparability of operating
income from Coal for 1997. In addition, the increased allocations of
general corporate expenses reduced the operating results of the segments on
a comparative basis by $39 million, but did not have a significant impact
on overall operating income.
<PAGE>
<TABLE>
<CAPTION>
Ashland Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In millions) 1997 1996 1995
=======================================================================================================
<S> <C> <C> <C>
Operating income
Refining and Marketing $178 $89 $101
Valvoline 77 82 1
Chemical 160 169 164
APAC 82 83 75
Coal 107 36 66
General corporate expenses (60) (97) (87)
- -------------------------------------------------------------------------------------------------------
$544 $362 $320
=======================================================================================================
</TABLE>
(Bar graph appears in the left margin comparing Ashland Inc. operating
income for fiscal 1995, 1996 and 1997. The graph shows the breakdown
between Ashland's Coal, Refining and Marketing, and growth businesses
composed of Valvoline, Chemical and APAC.)
REFINING AND MARKETING
Operating income from Refining and Marketing before unusual items doubled
from $89 million in 1996 to $178 million in 1997. Principal factors leading
to the improved results included better refining margins, reduced refining
expenses and increased retail margins for both gasoline and merchandise.
However, these improvements were partially offset by lower earnings from
Scurlock Permian and an additional $19 million allocation of general
corporate expenses.
During the first half of fiscal 1997, Refining operated at near break-even
levels reflecting refining margins which averaged $3.89 a barrel. Crude oil
costs increased rapidly in the December quarter and wholesale product
prices were slow to respond. Although margins began improving during the
March quarter as crude oil costs softened, heavy flooding in the Ohio
Valley limited Ashland's ability to ship products on the river systems.
Refining margins increased dramatically in the last half of the year,
averaging $6.01 a barrel excluding LIFO inventory gains, reflecting strong
gasoline and asphalt demand. In addition, refining expenses for 1997 were
reduced by 25 cents a barrel, despite lower throughputs, reflecting
continuing efforts by Ashland Petroleum to reduce its costs and improve its
competitive position.
(Bar graph appears in the left margin comparing operating income from
Refining and Marketing for fiscal 1995, 1996 and 1997.)
In other areas, results from Scurlock Permian were down $12 million due to
lower margins on crude oil sales, reflecting increased competition for the
declining production in many of its gathering areas. Earnings from
SuperAmerica increased $10 million due to increased gasoline and
merchandise margins. Sales volumes were also higher, reflecting an
increased number of locations, but the effect was largely offset by
increased operating and occupancy costs. At September 30, 1997, 766 retail
locations were operating, compared to 742 locations in 1996 and 704
locations in 1995. Included in these totals are 641 SuperAmerica stores in
1997, 624 stores in 1996 and 609 stores in 1995, with the remainder being
Rich Oil outlets.
Operating income from Refining and Marketing amounted to $89 million in
1996, compared to $101 million in 1995 before unusual items. Although
earnings from Refining increased, SuperAmerica's results were adversely
affected by an extremely competitive environment. A $7 million improvement
in earnings from Refining was achieved even though rapidly rising crude oil
prices late in 1996 led to severe margin compression and a weak September
1996 quarter. Despite the modest improvement, results for 1996 were still
disappointing given the progress Ashland Petroleum made in improving its
competitive position. Refinery runs averaged 368,500 barrels a day, up 5%
from 1995 and refining expenses (other than fuel consumed in the refining
process) were reduced by 26 cents a barrel, due to the higher level of
throughputs and ongoing efforts to reduce costs and increase efficiency.
The effects of these improvements, however, were largely offset by higher
average crude oil costs, which could not be fully passed through in product
prices, and associated increases in fuel costs. For the year, input costs
increased $2.22 a barrel, peaking in the September 1996 quarter with an
increase of $4.58 a barrel compared to the September 1995 quarter. As a
result, refining margins were compressed during what is normally the strong
summer driving season.
On the other hand, results from SuperAmerica declined $19 million compared
to 1995. While gasoline and merchandise volumes were both up on a per store
basis, the effect was more than offset by a decline in gasoline margins of
1.5 cents a gallon and increased operating costs. Higher labor and
occupancy costs resulted from a continued tight labor market, the ongoing
roll-out of the co-branding partnership program with fast-food chains,
initial costs associated with the opening of new stores and rebuilds, and
the ongoing operation of additional stores.
VALVOLINE
Excluding unusual items, Valvoline's operating income amounted to $77
million in 1997, compared to a record $82 million in 1996. Gross profits
from Valvoline's core lubricant and antifreeze businesses combined were up
nearly 20%, reflecting improved margins. However, this improvement was more
than offset by an increase of $5 million in general corporate expense
allocations and by a reduction in gross profits from R-12, an automotive
refrigerant. Due to cool summer weather which shortened the peak season,
sales volumes of R-12 were down significantly in 1997. In addition, the
used oil collection business operated profitably, while earnings from
Valvoline Instant Oil Change (VIOC) declined slightly due to higher
operating expenses. At September 30, 1997, VIOC operated 382 company-owned
outlets, compared to 374 outlets in 1996 and 365 outlets in 1995. In
addition, the VIOC franchising program continued to expand with 137 outlets
open in 1997, compared to 100 outlets in 1996 and 90 outlets in 1995.
(Bar graph appears in the left margin comparing operating income from
Valvoline for fiscal 1995, 1996 and 1997.)
<PAGE>
Operating income from Valvoline was $82 million in 1996, compared to near
break-even results before unusual items for 1995. The record earnings
reflected improved results from nearly all of Valvoline's business units,
including a significant earnings boost from the sale of R-12. Prices for
R-12 escalated rapidly during 1996, as shortages developed within the
market. Due to its ozone-depleting characteristics, the U.S. Environmental
Protection Agency banned the production of R-12 at the end of 1995, but
sales of existing inventories of this refrigerant are still permitted. Even
aside from R-12 earnings, however, Valvoline's results would still have
been up significantly. Results from its lubricant business improved,
reflecting increased volumes, higher margins on both branded and private
label sales and reduced advertising and promotional costs. In addition,
results from VIOC nearly doubled, while the used oil collection business
continued to approach profitability.
CHEMICAL
Ashland Chemical's operating income before unusual items amounted to $160
million in 1997, compared to a record $169 million in 1996. Earnings from
petrochemicals were up $13 million, reflecting increased cumene and
methanol sales volumes and margins. Operating income from specialty
chemicals improved $5 million on the strength of higher electronic chemical
sales volumes and margins, but the effect was partially offset by lower
marine chemical sales volumes. Results from the distribution businesses
were down $3 million due to margin declines for industrial chemicals and
solvents. Ashland Chemical also incurred an additional $11 million
allocation of general corporate expenses, as well as charges of $8 million
for environmental remediation and plant shutdown costs.
(Bar graph appears in the right margin comparing operating income from
Ashland Chemical for fiscal 1995, 1996 and 1997.)
Operating income of Ashland Chemical increased from $164 million before
unusual items in 1995 to $169 million in 1996 and represented Ashland
Chemical's fourth straight year of record earnings. Outstanding results
from specialty chemicals, a moderate increase from the distribution
businesses and reduced environmental remediation costs more than offset a
decline from petrochemicals. Results from the distribution businesses were
up 5% on the strength of improved sales volumes, while earnings from
specialty chemicals improved by 56%. The 1995 acquisition of Aristech's
unsaturated polyester resin business was a major contributor to the
improved specialty chemical results, along with higher sales volumes and
margins for electronic chemicals. However, operating income from
petrochemicals declined by $50 million, due largely to reduced prices for
methanol, but also due to increased natural gas prices and higher feedstock
costs for cumene and solvents.
APAC
Operating income from the APAC construction companies amounted to $82
million in 1997, compared to a record $83 million in 1996. Net revenue
(total revenue less subcontract work) was up 4%, while production of hot
mix asphalt and crushed aggregate reached record levels. The effects,
however, were more than offset by an additional $4 million in general
corporate expense allocations.
(Bar graph appears in the right margin comparing operating income from APAC
for fiscal 1995, 1996 and 1997.)
APAC achieved its third straight year of record results in 1996 with
operating income of $83 million, compared to $75 million in 1995. APAC's
results reflected its ongoing efforts in cost control, safety and materials
technology, allowing the highway construction group to take full advantage
of a strong construction economy. Revenues rose 10%, reflecting a higher
level of both public and private sector construction jobs, as well as
increased sales of hot-mix asphalt, crushed aggregate and ready-mix
concrete.
COAL
Operating income for Coal for 1997 reflects the consolidation of Arch
Mineral results as of October 1, 1996, and includes charges of $39 million
for costs related to the merger of Ashland Coal and Arch Mineral. Prior to
1997, Arch Mineral was accounted for on the equity method, creating
comparability problems. If Arch Mineral had been consolidated in all three
years, pro forma operating income from Ashland's coal investments before
unusual items would have amounted to about $100 million for 1995 and $88
million for 1996, compared to $107 million for 1997. Ashland Coal's
contributions to the 1997 results are up from 1996 despite the expiration
of certain of its higher priced sales contracts and price reductions under
certain other sales contracts around the end of December 1995. Ashland Coal
subsequently reduced its average costs per ton to record levels, enabling
it to more than offset the effects of reduced sales prices. Arch Mineral's
contributions to these earnings are also up strongly from 1996, reflecting
increased production and reduced administrative and interest costs.
(Bar graph appears in the right margin comparing operating income from Coal
for fiscal 1995, 1996 and 1997.)
Operating income for 1996 and 1995 reflect only Ashland Coal's results.
Ashland Coal had a difficult year in 1996 due largely to contract
expirations and other price reductions in that year. As a result, operating
income amounted to $36 million in 1996, compared to $66 million in 1995
reflecting the lower sales prices.
Charges for asset impairment and restructuring costs reduced Ashland's
equity earnings from Arch Mineral by $6 million in 1995. Adjusting for
these unusual items, Arch Mineral generated equity income of $13 million in
1996 and $2 million in 1995. Arch's results for 1996 were favorably
affected by increased sales volumes and lower mining costs, as well as the
restructuring completed in 1995.
GENERAL CORPORATE EXPENSES
Excluding unusual items, general corporate expenses were $60 million in
1997, $97 million in 1996 and $87 million in 1995. The reduction in 1997
reflects the allocation of an additional $41 million in costs to the
segments, including $2 million to the discontinued operations of Blazer
Energy. The remaining changes over the three-year period result principally
from fluctuations in incentive and deferred compensation costs.
<PAGE>
Ashland Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
DISCONTINUED OPERATIONS
Net income from discontinued operations (excluding the after tax gain of
$71 million on the sale of Blazer Energy's domestic operations in 1997)
amounted to $25 million in 1997, $75 million in 1996 and $10 million in
1995. Results for 1996 included an after tax gain of $48 million from the
settlement of claims against Columbia Gas Transmission involving natural
gas contracts that were abrogated by Columbia in 1991.
FINANCIAL POSITION
LIQUIDITY
Ashland's financial position has enabled it to obtain capital for its
financing needs and to maintain investment grade ratings on its senior debt
of Baa2 from Moody's and BBB from Standard & Poor's. Ashland has a
revolving credit agreement providing for up to $320 million in borrowings,
under which no borrowings were outstanding at September 30, 1997. At that
date, Arch Coal also had revolving credit agreements providing for up to
$500 million in borrowings, of which $240 million was in use. Under a shelf
registration, Ashland can issue an additional $220 million in medium-term
notes should future opportunities or needs arise. Ashland and Arch Coal
also have access to various uncommitted lines of credit and commercial
paper markets, under which Arch Coal had short-term notes of $35 million
outstanding at September 30, 1997. While certain debt agreements contain
covenants limiting new borrowings, Ashland could still have increased its
indebtedness by up to $2.1 billion at September 30, 1997.
Cash flows from continuing operations, a major source of Ashland's
liquidity, amounted to $852 million in 1997, $651 million in 1996 and $442
million in 1995. The significant improvements in cash flows reflects a
higher level of earnings, modest working capital growth and the
consolidation of Arch Coal in 1997. Cash flows from operations exceeded
Ashland's capital requirements for net property additions and dividends
since 1994 by $470 million, providing additional funds for debt repayment
and acquisitions.
(Bar graph appears in the left margin comparing cash flows from continuing
operations for fiscal 1995, 1996 and 1997.)
Property additions amounted to $1.3 billion during the last three years and
are summarized in the Information by Industry Segment on Page 63. While
about 40% of Ashland's capital expenditures during this period were in
Refining and Marketing, its percent of the total expenditures has declined
in each of those three years. Capital expenditures by Valvoline, Ashland
Chemical and APAC, Ashland's growth businesses, also accounted for 40% of
the total expenditures since 1994, increasing from 37% in 1995 to 45% in
1997.
(Bar graph appears in the left margin comparing Ashland Inc. property
additions for fiscal 1995, 1996 and 1997.)
Cash flows used for acquisitions amounted to $478 million during the last
three years. Such acquisitions include $252 million for certain operations
of Aristech Chemical Corporation and numerous smaller chemical companies,
$124 million for additional interests in Ashland Coal, $47 million for
Zerex and $36 million for various construction companies. Of the total
capital invested in acquisitions since 1994, 70% was employed in Valvoline,
Ashland Chemical and APAC.
Long-term borrowings provided cash flows of $573 million during the last
three years, including the issuance of $407 million of medium-term notes,
$75 million of pollution-control bonds and $88 million of Arch Coal debt.
The proceeds from these long-term borrowings were used in part to retire
$778 million of long-term debt (scheduled maturities as well as refundings
to reduce interest costs). Cash flows were supplemented as necessary by the
issuance of short-term notes and commercial paper.
Working capital at September 30, 1997, was $734 million, and liquid assets
(cash, cash equivalents and accounts receivable) amounted to 88% of current
liabilities at that date. Ashland's working capital is significantly
affected by its use of the LIFO method of inventory valuation, which valued
inventories $416 million below their replacement costs at September 30,
1997.
CAPITAL RESOURCES
Ashland's capital employed at September 30, 1997, consisted of debt (43%),
minority interest (7%) and common stockholders' equity (50%). Debt as a
percent of capital employed is down from 50% at the end of 1996, reflecting
strong cash flows from operations during 1997, as well as the sale of the
domestic operations of Blazer Energy. In addition, minority interest
increased from 4% at September 30, 1996, reflecting the consolidation of
Arch Mineral. Common stockholders' equity increased from 38% at the end of
1996, due to the conversion of $290 million of preferred stock into common,
as well as the strong earnings during 1997.
(Bar graph appears in the left margin comparing debt as a percent of
capital employed for fiscal 1995, 1996 and 1997.)
During fiscal 1998, Ashland anticipates capital expenditures of
approximately $560 million. Capital expenditures in Refining and Marketing
are expected to amount to about $170 million, including nearly $40 million
for SuperAmerica. Capital expenditures of Valvoline, Ashland Chemical and
APAC are projected at around $240 million, with most of the remainder
invested by Arch Coal. Both Ashland and Arch Coal anticipate meeting their
1998 capital requirements for property additions and dividends from
internally generated funds.
<PAGE>
ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations relating to the protection of
the environment have resulted in higher operating costs and capital
investments by the industries in which Ashland operates. Because of the
continuing trends toward greater environmental awareness and ever
increasing regulations, Ashland believes that expenditures for
environmental compliance will continue to have a significant effect on its
businesses. Although it cannot accurately predict how such trends will
affect future operations and earnings, Ashland believes the nature and
significance of its ongoing compliance costs will be comparable to those of
its competitors in the petroleum, chemical and mining industries.
Capital expenditures for air, water and solid waste control facilities for
continuing operations amounted to $26 million in 1997, $38 million in 1996
and $42 million in 1995. Based on current environmental regulations,
Ashland anticipates such capital expenditures will amount to about $30
million in 1998. Environmental remediation and compliance expenditures
amounted to $155 million in 1997, $153 million in 1996 and $148 million in
1995, and are expected to be in the range of $160 million in 1998. Such
compliance expenditures do not include the costs of additives, such as MTBE
and ethanol, used to meet reformulated gasoline and oxygenated fuel
requirements.
Environmental reserves are subject to considerable uncertainties that
affect Ashland's ability to estimate its share of the ultimate costs of
required remediation efforts. Such uncertainties involve the nature and
extent of contamination at each site, the extent of required cleanup
efforts under existing environmental regulations, widely varying costs of
alternate cleanup methods, changes in environmental regulations, the
potential effect of continuing improvements in remediation technology, and
the number and financial strength of other potentially responsible parties
at multiparty sites.
During 1997, the U. S. Environmental Protection Agency (EPA) completed
comprehensive inspections of compliance with federal environmental laws and
regulations at Ashland's three refineries. Ashland continues to cooperate
and hold discussions with the EPA concerning these inspections, as well as
what additional remediation actions may be required or costs may be
incurred.
Ashland does not believe that any liability resulting from environmental
matters, after taking into consideration its insurance coverages and
amounts already provided for, will have a material adverse effect on its
consolidated financial position, cash flows or liquidity.
DERIVATIVE INSTRUMENTS
Ashland is exposed to various market risks, including changes in certain
commodity prices, foreign currency rates and interest rates. To manage the
volatility relating to these natural business exposures, Ashland enters
into various derivative transactions in accordance with its established
policies. Ashland does not hold or issue derivative instruments for trading
purposes.
Ashland selectively uses commodity futures contracts to reduce its exposure
to certain risks inherent within its refining business. Such contracts are
used principally to hedge the value of intransit crude oil cargoes, hedge
exposure under fixed-price petroleum product sales contracts, obtain higher
prices for crude oil sales, protect against margin compression caused by
increasing crude oil prices, take advantage of attractive refining margins
and lock in costs on a portion of the natural gas fuel needs of the
refineries. Ashland also uses forward exchange contracts to hedge certain
foreign currency transaction exposures of its operations. The potential
loss from a hypothetical 10% adverse change in commodity prices or foreign
currency rates on Ashland's open commodity futures and foreign exchange
contracts at September 30, 1997, would not materially affect Ashland's
consolidated financial position, results of operations or cash flows.
Ashland uses interest rate swap agreements to obtain greater access to the
lower borrowing costs normally available on floating-rate debt, while
minimizing refunding risk through the issuance of long-term, fixed-rate
debt. Long-term debt at September 30, 1997, included about $280 million of
floating-rate debt, and the interest rates on an additional $370 million of
fixed-rate debt were converted to LIBOR floating rates through unleveraged
interest rate swap agreements. As a result, Ashland's annual interest costs
in 1998 will fluctuate based on short-term interest rates on about $650
million of Ashland's consolidated long-term debt outstanding at September
30, 1997, as well as on any short-term notes and commercial paper.
OUTLOOK
Ashland Chemical will continue to pursue growth through internal efforts
and selective acquisitions. Ashland Chemical will emphasize integrated
products and services, targeting its North American customers and a growing
international sales base with existing offerings and extensions into
untapped markets, such as its recent entry into the distribution market for
nutritional products. With market globalization favoring producers that
have a worldwide presence, investments in acquisitions will also continue
as attractive opportunities to add volume, technologies or market coverage
are identified.
APAC will pursue growth through geographic expansion, enhanced materials
production capabilities and product line extensions, such as concrete
paving and greater site development services. Continued federal
infrastructure funding and an expanding economy should continue to benefit
APAC's efforts to build market position in existing markets and reduce
costs. APAC's construction backlog amounted to a record year end level of
$693 million at September 30, 1997. Such backlog includes a modest increase
in the public sector and a slight decrease in the private sector, and is
expected to contain margins comparable to those included in last year's
backlog.
Valvoline will focus on extending and leveraging its brand franchise to
related products, while pursuing international growth through aggressive
marketing, joint ventures and application of domestic competencies. R-12
margins are expected to remain strong, although the level of annual demand
is uncertain. Domestic sales volumes of higher-margin packaged lubricants
serving
<PAGE>
Ashland Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
the "do-it-yourself" market are expected to continue to give ground to
lower-margin bulk sales to the "do-it-for-me" market. However, sales of
automotive chemicals and international sales of lubricants are expected to
provide continued growth opportunities.
Although margins are expected to remain volatile, key external factors look
promising for the refining and marketing industry. The economy is
reasonably strong, inflation appears to be under control, and economic
growth continues at a modest pace. In addition, petroleum product demand is
expected to continue increasing over 1% annually for the rest of the
decade. Such increases reflect a leveling of fuel efficiency in the
passenger car fleet, increasing sales of light-truck and sport-utility
vehicles which average fewer miles per gallon than passenger cars, and an
increasing number of vehicle miles traveled. Refinery utilization rates are
strong, which should be beneficial for refining margins.
Ashland Petroleum continues to strengthen its position in refining by
enhancing its production of higher-value products, reducing its operating
expenses and increasing its volumes sold under company brands. While
SuperAmerica continues to expand its retail network, Ashland Petroleum is
also increasing controlled gasoline sales through its branded
jobber/distributor marketing program. Under that program, 601 retail
locations were operating at September 30, 1997, compared to 485 locations
at the end of 1996. Controlled sales volumes are up 21% since 1994,
accounting for over 47% of refinery gasoline production in 1997, providing
deeper market penetration in key Midwest markets, strengthening margins and
reducing Ashland Petroleum's dependence on wholesale markets.
During 1997, Ashland and Marathon Oil Company signed a letter of intent to
combine the petroleum refining and marketing and most transportation assets
of the two companies. Ashland and Marathon have resolved all material
matters concerning valuation and due diligence, and anticipate signing
definitive agreements in December 1997. Ashland would have a 38% ownership
interest in the proposed joint venture. Ashland expects that the proposed
venture will be able to achieve substantial synergies beginning in 1998 by
pursuing operational efficiencies and integrating the strengths of the
business processes, management systems and administrative support functions
of the two companies.
Arch Coal's results for 1998 are expected to benefit from numerous steps
which have been taken or are underway to capture synergies resulting from
the merger of Ashland Coal and Arch Mineral. Arch Coal's low debt and high
cash flow provide the financial strength to support continued operational
improvements, acquisitions and internal expansion.
Ashland's debt at the end of 1997 was down by $255 million from the prior
year, despite the addition of $236 million in debt resulting from the
consolidation of Arch Coal as of October 1, 1996. As a result, net interest
costs are expected to be significantly lower in 1998, given the reduction
in Ashland's debt during 1997. Annualizing the interest cost on outstanding
debt at September 30, 1997, would result in net interest expense of about
$125 million during 1998, compared to $170 million in 1997. Such debt
reduction also provides Ashland with greater financial flexibility to
pursue its growth goals.
EFFECTS OF INFLATION AND CHANGING PRICES
Ashland's financial statements are prepared on the historical cost method
of accounting and, as a result, do not reflect changes in the dollar's
purchasing power. Although annual inflation rates have been low in recent
years, Ashland's results are still affected by the cumulative inflationary
trend from prior years.
In the capital-intensive industries in which Ashland operates, replacement
costs for its properties would generally exceed their historical costs.
Accordingly, depreciation, depletion and amortization expense would be
greater if it were based on current replacement costs. However, since
replacement facilities would reflect technological improvements and changes
in business strategies, such facilities would be expected to be more
productive than existing facilities, mitigating the increased expense.
Ashland uses the last-in, first-out (LIFO) method to value a substantial
portion of its inventories to provide a better matching of revenues with
current costs. However, LIFO values such inventories below their
replacement costs.
Monetary assets (such as cash, cash equivalents and accounts receivable)
lose purchasing power as a result of inflation, while monetary liabilities
(such as accounts payable and indebtedness) result in a gain, because they
can be settled with dollars of diminished purchasing power. Ashland's
monetary liabilities exceed its monetary assets, which results in net
purchasing power gains and provides a hedge against the effects of future
inflation.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including various information
within the Capital Resources, Derivative Instruments and Outlook sections.
Although Ashland believes that its expectations are based on reasonable
assumptions, it cannot assure that the expectations contained in such
statements will be achieved. Important factors which could cause actual
results to differ materially from those contained in such statements are
discussed in Note A to the Consoldiated Financial Statements under risks
and uncertainties. Other factors and risks affecting Ashland's revenues and
operations are contained in Ashland's Form 10-K for the fiscal year ended
September 30, 1997, which is on file with the Securities and Exchange
Commission.
<PAGE>
<TABLE>
<CAPTION>
ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
YEARS ENDED SEPTEMBER 30
(In millions except per share data) 1997 1996 1995
===================================================================================================================================
<S> <C> <C> <C>
REVENUES
Sales and operating revenues (including excise taxes) $14,200 $12,892 $11,972
Other 119 76 66
- -----------------------------------------------------------------------------------------------------------------------------------
14,319 12,968 12,038
COSTS AND EXPENSES
Cost of sales and operating expenses 10,860 9,975 9,130
Excise taxes on products and merchandise 992 985 988
Selling, general and administrative expenses 1,405 1,275 1,269
Depreciation, depletion and amortization 572 371 447
- -----------------------------------------------------------------------------------------------------------------------------------
13,829 12,606 11,834
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 490 362 204
OTHER INCOME (EXPENSE)
Interest expense (net of interest income) (170) (169) (171)
Equity income - Note D 15 24 7
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 335 217 40
Income taxes - Note E (119) (73) (3)
Minority interest in earnings of subsidiaries (24) (8) (23)
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 192 136 14
Income from discontinued operations (net of income taxes) - Note B 25 75 10
Gain on sale of discontinued operations (net of income taxes) - Note B 71 - -
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 288 211 24
Extraordinary loss on early retirement of debt (net of income taxes) - Note F (9) - -
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME 279 211 24
Dividends on convertible preferred stock (9) (19) (19)
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME AVAILABLE TO COMMON SHARES $ 270 $ 192 $ 5
===================================================================================================================================
EARNINGS PER SHARE - Note A
Primary
Income (loss) from continuing operations $ 2.57 $ 1.81 $ (.08)
Income from discontinued operations .36 1.16 .16
Gain on sale of discontinued operations 1.00 - -
Extraordinary loss (.13) - -
---------------------------------------------------
Net income $ 3.80 $ 2.97 $ .08
Assuming full dilution
Income (loss) from continuing operations $ 2.52 $ 1.84 $ (.08)
Income from discontinued operations .33 .98 .16
Gain on sale of discontinued operations .94 - -
Extraordinary loss (.12) - -
---------------------------------------------------
Net income $ 3.67 $ 2.82 $ .08
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING
Primary 71 65 62
Assuming full dilution 76 77 63
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ASHLAND INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30
(In millions) 1997 1996
===================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 268 $ 77
Accounts receivable (less allowances for doubtful accounts of
$24 million in 1997 and $27 million in 1996) 1,730 1,621
Inventories - Note A 729 708
Other current assets 268 259
- -------------------------------------------------------------------------------------------------------------------
2,995 2,665
INVESTMENTS AND OTHER ASSETS
Investments in and advances to unconsolidated affiliates - Note D 86 157
Investments of captive insurance companies 189 178
Cost in excess of net assets of companies acquired (less accumulated
amortization of $70 million in 1997 and $43 million in 1996) 120 120
Coal supply agreements (less accumulated amortization of
$53 million in 1997 and $44 million in 1996) 195 44
Net assets of discontinued operations held for sale - Note B 18 326
Other noncurrent assets 283 314
- -------------------------------------------------------------------------------------------------------------------
891 1,139
PROPERTY, PLANT AND EQUIPMENT
Cost
Refining and Marketing 3,497 3,395
Valvoline 328 312
Chemical 904 818
APAC 671 626
Coal 1,904 980
Corporate 167 154
- -------------------------------------------------------------------------------------------------------------------
7,471 6,285
Accumulated depreciation, depletion and amortization (3,580) (3,000)
- -------------------------------------------------------------------------------------------------------------------
3,891 3,285
- -------------------------------------------------------------------------------------------------------------------
$7,777 $7,089
===================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
(In millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
Notes payable to financial institutions $ 35 $ 117
Current portion of long-term debt 58 86
Trade and other payables 2,045 1,973
Income taxes 123 22
- ----------------------------------------------------------------------------------------------------------------------
2,261 2,198
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Notes F and G 1,639 1,784
Employee benefit obligations - Note M 854 613
Reserves of captive insurance companies 161 166
Other long-term liabilities and deferred credits 565 340
Commitments and contingencies - Notes G, I and L
- ----------------------------------------------------------------------------------------------------------------------
3,219 2,903
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 273 174
STOCKHOLDERS' EQUITY - Notes F, J and K
Preferred stock, no par value, 30 million shares authorized
Convertible preferred stock, 6 million shares issued in 1996,
$300 million liquidation value - 293
Common stockholders' equity
Common stock, par value $1.00 per share
Authorized - 150 million shares
Issued - 75 million shares in 1997 and 64 million shares in 1996 75 64
Paid-in capital 605 280
Retained earnings 1,379 1,185
Other (35) (8)
- ----------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity 2,024 1,521
- ----------------------------------------------------------------------------------------------------------------------
2,024 1,814
- ----------------------------------------------------------------------------------------------------------------------
$7,777 $7,089
======================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Preferred Common Paid-in Retained Loan to
(In millions) stock stock capital earnings LESOP Other Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1994 $293 $61 $159 $1,126 $(33) $(11) $1,595
Net income 24 24
Dividends
Preferred stock (19) (19)
Common stock, $1.10 a share (68) (68)
Issued common stock under
Share offering program 2 49 51
Acquisition of operations
of other companies 1 40 41
Stock incentive plans 7 7
LESOP loan repayments 22 22
Other changes 1 1 2
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 293 64 256 1,063 (11) (10) 1,655
Net income 211 211
Dividends
Preferred stock (19) (19)
Common stock, $1.10 a share (70) (70)
Issued common stock under
Stock incentive plans 18 18
Employee savings plan 6 6
LESOP loan repayments 11 11
Other changes 2 2
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 293 64 280 1,185 - (8) 1,814
Net income 279 279
Dividends
Preferred stock (9) (9)
Common stock, $1.10 a share (76) (76)
Issued common stock under
Preferred stock conversion (290) 9 281 -
Stock incentive plans 2 44 46
Employee savings plan 1 1
Preferred stock redemption (3) (3)
Other changes (1) (27) (28)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 $ - $75 $605 $1,379 $ - $(35) $2,024
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Ashland Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended September 30
(In millions) 1997 1996 1995
===============================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Income from continuing operations $192 $136 $ 14
Expense (income) not affecting cash
Depreciation, depletion and amortization 572 371 447
Deferred income taxes 3 (11) (71)
Other noncash items 45 1 43
Change in operating assets and liabilities(1) 40 154 9
- -------------------------------------------------------------------------------------------------------------------------------
852 651 442
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 175 68 330
Proceeds from issuance of capital stock 35 16 55
Repayment of long-term debt (621) (97) (60)
Increase (decrease) in short-term debt (57) (84) 38
Dividends paid (97) (93) (92)
- -------------------------------------------------------------------------------------------------------------------------------
(565) (190) 271
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (431) (430) (399)
Purchase of operations - net of cash acquired (96) (83) (299)
Investment purchases(2) (248) (455) (725)
Investment sales and maturities(2) 216 491 704
Other - net - 6 32
- -------------------------------------------------------------------------------------------------------------------------------
(559) (471) (687)
- -------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS (272) (10) 26
Cash provided (used) by discontinued operations - Note B 436 35 (14)
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 164 25 12
Cash and cash equivalents - beginning of year 104 (3) 52 40
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $268 $ 77 $ 52
===============================================================================================================================
DECREASE (INCREASE) IN OPERATING ASSETS(1)
Accounts receivable $ 1 $ (52) $ (126)
Inventories 17 2 (60)
Other current assets (6) (6) 11
Investments and other assets (3) 10 31
INCREASE (DECREASE) IN OPERATING LIABILITIES(1)
Trade and other payables (143) 216 176
Income taxes 80 (12) (2)
Noncurrent liabilities 94 (4) (21)
- -------------------------------------------------------------------------------------------------------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES $ 40 $ 154 $ 9
===============================================================================================================================
</TABLE>
(1) Excludes changes resulting from operations acquired or sold.
(2) Represents primarily investment transactions of captive insurance
companies.
(3) Includes $27 million of cash and cash equivalents of Arch Mineral
Corporation that was presented on a consolidated basis effective
October 1, 1996 (see Note A).
See Notes to Consolidated Financial Statements.
<PAGE>
ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Ashland and
its majority-owned subsidiaries. Investments in joint ventures and 20% to
50% owned affiliates are accounted for on the equity method. Ashland Coal,
Inc. and Arch Mineral Corporation merged on July 1, 1997, into a new
corporation known as Arch Coal, Inc., in which Ashland has a 54% ownership
interest. Beginning in the September 1997 quarter, Arch Coal was
consolidated in Ashland's financial statements. Prior interim quarters in
1997 were restated to reflect Arch Mineral on a consolidated basis for
comparison purposes. Since Arch Mineral was previously accounted for on the
equity method, the comparability of various amounts included in Ashland's
consolidated financial statements and the accompanying notes are affected.
RISKS AND UNCERTAINTIES
The preparation of Ashland's consolidated financial statements in
conformity with generally accepted accounting principles requires Ashland's
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and the disclosures
of contingent assets and liabilities. Significant items subject to such
estimates and assumptions include the carrying value of long-lived assets,
environmental reserves, employee benefit obligations, income recognized
under construction contracts, and the ultimate realization of deferred tax
assets. Actual results could differ from the estimates and assumptions
used.
Ashland's operations are affected by domestic and international political,
legislative, regulatory and legal actions. Such actions may include changes
in the policies of the Organization of Petroleum Exporting Countries or
other developments involving or affecting oil-producing countries,
including military conflict, embargoes, internal instability or actions or
reactions of the government of the United States in anticipation of, or in
response to, such actions.
Domestic and international economic conditions, such as recessionary
trends, inflation, interest and monetary exchange rates, as well as changes
in the availability or prices of crude oil and petroleum products, can have
a significant effect on Ashland's operations. While Ashland maintains
reserves for anticipated liabilities and carries various levels of
insurance, Ashland could be affected by civil, criminal, regulatory or
administrative actions, claims or proceedings relating to environmental or
other matters. In addition, climate and weather can significantly affect
Ashland in several of its operations, such as its construction, heating oil
and coal businesses.
<TABLE>
<CAPTION>
INVENTORIES
(In millions) 1997 1996
=================================================================================================
<S> <C> <C>
Crude oil $277 $316
Petroleum products 289 323
Chemicals 341 342
Other products 174 146
Materials and supplies 64 55
Excess of replacement costs over LIFO carrying values (416) (474)
- --------------------------------------------------------------------------------------------------
$729 $708
==================================================================================================
</TABLE>
Crude oil, petroleum products, chemicals and other products with a
replacement cost of $751 million at September 30, 1997, and $834 million at
September 30, 1996, are valued using the last-in, first-out (LIFO) method.
The remaining inventories are stated generally at the lower of cost (using
the first-in, first-out [FIFO] or average cost method) or market.
Ashland decreased certain LIFO inventories in 1997 for operating reasons.
Cost of sales and operating expenses include costs for these inventories
based on prior years' LIFO carrying values which were less than current
replacement costs. As a result of LIFO inventory liquidations, net income
was increased by $7 million ($.09 per share) in 1997. The effects of LIFO
inventory liquidations during 1996 and 1995 were not significant.
PROPERTY, PLANT AND EQUIPMENT
The cost of plant and equipment (other than the costs of purchasing rights
to coal reserves and mine development costs) is principally depreciated by
the straight-line method over the estimated useful lives of the assets.
Costs of purchasing rights to coal reserves and mine development costs are
depleted by the units-of-production method over the estimated recoverable
reserves. Coal exploration costs are expensed as incurred.
Estimated costs of major refinery turnarounds are accrued, while other
maintenance and repair costs are expensed as incurred. Maintenance and
repair expense amounted to $463 million in 1997, $355 million in 1996 and
$341 million in 1995.
<PAGE>
ENVIRONMENTAL COSTS
Accruals for environmental costs are recognized when it is probable that a
liability has been incurred and the amount of that liability can be
reasonably estimated. Such costs are charged to expense if they relate to
the remediation of conditions caused by past operations or are not expected
to mitigate or prevent contamination from future operations. Accruals are
recorded at undiscounted amounts based on experience, assessments and
current technology without regard to any third-party recoveries and are
regularly adjusted as environmental assessments and remediation efforts
proceed.
EARNINGS PER SHARE
Primary earnings per share is based on net income less preferred dividends
divided by the average number of common shares and equivalents outstanding
during the respective years. Shares of common stock issuable under stock
options are treated as common stock equivalents when dilutive.
Earnings per share assuming full dilution begins with the primary earnings
per share computation. Prior to 1997, shares issuable upon conversion of
the preferred stock and 6.75% subordinated debentures were added to average
common shares and equivalents when dilutive. In such cases, net income was
further adjusted by adding back preferred dividends and interest expense
(net of tax) on these debentures.
In the computation of earnings per share assuming full dilution for 1997,
the preferred shares which were converted in March 1997 (see Note J) were
assumed to be converted to common shares as of the beginning of the year,
in accordance with generally accepted accounting principles. If the shares
had been assumed converted as of the beginning of the year for the primary
computation, the resulting primary earnings per share would have amounted
to $3.70. The 6.75% convertible subordinated debentures were retired in
July 1997 (see Note F) and, therefore, were not assumed converted for the
1997 computation.
DERIVATIVE INSTRUMENTS
Ashland selectively uses commodity futures contracts to reduce its exposure
to certain risks inherent within its refining business. Such contracts are
used principally to hedge the value of intransit crude oil cargoes, hedge
exposure under fixed-price sales contracts, obtain higher prices for crude
oil sales, protect against margin compression caused by increasing crude
oil prices, take advantage of attractive refining margins and lock in
prices on a portion of the natural gas fuel needs of the refineries.
Realized gains and losses on these contracts are included in cost of sales
in the original contract month, with amounts paid or received on early
terminations deferred on the balance sheet in other current assets or trade
and other payables, as appropriate (the deferral method). In addition,
commodity futures contracts are used as an alternate method of obtaining or
selling crude oil and petroleum products to balance physical barrel
activity. These contracts are marked-to-market each month and included in
accounts receivable, with the offsetting unrealized gain or loss included
in cost of sales (the fair value method).
Ashland uses forward exchange contracts to hedge foreign currency
transaction exposures of its operations. These contracts are
marked-to-market each month and included in trade and other payables, with
the offsetting gain or loss included in other revenues (the fair value
method).
Ashland uses interest rate swap agreements to obtain greater access to the
lower borrowing costs normally available on floating-rate debt, while
minimizing refunding risk through the issuance of long-term, fixed-rate
debt. Each interest rate swap agreement is designated with all or a portion
of the principal balance and term of a specific debt obligation. These
agreements involve the exchange of amounts based on a fixed interest rate
for amounts based on variable interest rates over the life of the
agreement, without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest
rates change is accrued and recognized as an adjustment of interest expense
related to the debt (the accrual method). The related amount payable to or
receivable from counterparties is included in trade and other payables. The
fair values of the swap agreements are not recognized in the financial
statements. Gains and losses on terminations of interest rate swap
agreements are deferred on the balance sheet (in other long-term
liabilities) and amortized as an adjustment to interest expense related to
the debt over the remaining term of the original contract life of the
terminated swap agreement.
STOCK INCENTIVE PLANS
Effective October 1, 1996, Ashland adopted the disclosure requirements of
Financial Accounting Standards Board Statement No. 123 (FAS 123),
"Accounting for Stock-Based Compensation." With respect to accounting for
its stock options, as permitted under FAS 123, Ashland has retained the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related
Interpretations (see Note K).
ACCOUNTING CHANGES
Effective September 30, 1995, Ashland adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
result, Ashland recorded charges of $83 million ($79 million included in
depreciation, depletion and amortization and $4 million charged to
discontinued operations) to write down certain assets to their estimated
fair values. These assets included an idle unit at Ashland Petroleum's
Catlettsburg refinery, certain unused crude oil gathering pipelines of
Scurlock Permian, and petroleum product marketing properties which were
being sold or shut down. Fair values were based upon appraisals or
estimates of discounted future cash flows. Operating income was reduced for
each of the affected segments as follows: Refining and Marketing ($68
million); Valvoline ($3 million); Chemical ($4 million); and general
corporate expenses ($4 million). In addition, Arch Mineral adopted FAS 121
and recorded a charge to write down certain idle facilities, decreasing
Ashland's equity income by $3 million. The adoption of FAS 121 reduced
Ashland's net income for 1995 by $54 million or $.86 per share.
<PAGE>
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER
Cash equivalents include highly liquid investments maturing within three
months after purchase. Investments of captive insurance companies
(primarily foreign corporate and government debt obligations) are carried
at market value plus accrued interest.
Income related to construction contracts is generally recognized by the
units-of-production method, which is a variation of the
percentage-of-completion method. Any anticipated losses on such contracts
are charged against operations as soon as such losses are estimable.
Costs in excess of net assets of companies acquired are amortized by the
straight-line method over periods generally ranging from 10 to 40 years,
with an average remaining life of 13 years. Costs of acquired coal supply
agreements are capitalized and amortized over the contract sales tonnage.
Research and development costs are expensed as incurred ($29 million in
1997, $28 million in 1996 and $24 million in 1995).
Certain prior year amounts have been reclassified in the consolidated
financial statements and accompanying notes to conform with 1997
classifications.
NOTE B - DISCONTINUED OPERATIONS
On July 1, 1997, Ashland sold the domestic exploration and production
operations of Blazer Energy Corporation, realizing cash proceeds of $566
million. The sale resulted in a pretax gain of $138 million which, net of
$67 million of income taxes, produced a gain on sale of discontinued
operations of $71 million. Ashland has reached an agreement in principle to
sell its exploration and production operations in Nigeria, subject to the
approval of the Nigerian government and other conditions. Accordingly,
results from the Exploration segment are shown as discontinued operations
with prior years restated. Components of amounts reflected in the income
statements, balance sheets and cash flow statements are presented in the
following table.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
======================================================================================================================
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $240 $320(1) $204
Costs and expenses (215) (226) (210)
- ----------------------------------------------------------------------------------------------------------------------
Operating income (loss) 25 94 (6)
Income tax benefit (expense) - (19) 16
- ----------------------------------------------------------------------------------------------------------------------
Income from discontinued operations $ 25 $ 75(1) $ 10
======================================================================================================================
BALANCE SHEET DATA
Current assets $ 59 $ 76
Investments and other assets 1 1
Property, plant and equipment - net 57 430
Current liabilities (41) (81)
Noncurrent liabilities (58) (100)
- ----------------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations held for sale $ 18 $326
======================================================================================================================
CASH FLOW DATA
Cash flows from operations $(90) $115 $ 58
Cash flows from investment (including sales proceeds) 526 (80) (72)
- ----------------------------------------------------------------------------------------------------------------------
Cash provided (used) by discontinued operations $436 $ 35 $(14)
======================================================================================================================
(1) Includes a gain of $73 million ($48 million after income taxes)
resulting from the settlement of claims in the bankruptcy
reorganization of Columbia Gas Transmission and Columbia Gas
Systems.
</TABLE>
<PAGE>
NOTE C - INFORMATION BY INDUSTRY SEGMENT
Ashland's operations are conducted primarily in the United States and are
managed along industry segments, which include Refining and Marketing,
Valvoline, Chemical, APAC and Coal. Information by industry segment is
shown on Pages 62 and 63.
Refining and Marketing operations are conducted by Ashland Petroleum and
SuperAmerica. Ashland Petroleum is a leading regional refiner and marketer
in the Midwest. In addition to supplying petroleum products to
SuperAmerica, Valvoline, Ashland Chemical and APAC, Ashland Petroleum is a
leading supplier of petroleum products to the transportation and commercial
fleet industries, other industrial customers and independent marketers
(including marketers operating under the Ashland brand name). Ashland
Petroleum also transports crude oil and petroleum products in connection
with its refining and wholesale marketing operations and gathers and
markets crude oil through Scurlock Permian. SuperAmerica includes Ashland's
retail gasoline and merchandise marketing operations, including the
SuperAmerica chain of high-volume retail stores. Gasoline and merchandise
are also sold from outlets operated by SuperAmerica under the Rich brand
name. Operations are conducted primarily in the Ohio Valley and Upper
Midwest.
During 1997, Ashland and Marathon Oil Company signed a letter of intent to
combine the petroleum refining and marketing and most transportation assets
of the two companies. Ashland would have a 38% ownership interest in the
proposed joint venture. On October 30, 1997, Ashland and Marathon announced
that the two firms had resolved all material matters concerning valuation
and due diligence, and anticipate signing definitive agreements in December
1997.
Valvoline is a marketer of automotive and industrial oils, automotive
chemicals, antifreeze, filters, rust preventives and coolants, with sales
in more than 140 countries. In addition, Valvoline is engaged in the "fast
oil change" business through outlets operating under the Valvoline Instant
Oil Change and Valvoline Rapid Oil Change names and provides environmental
services for the collection of used oil, antifreeze and filters.
Chemical businesses are managed by Ashland Chemical, which distributes
industrial chemicals, solvents, thermoplastics and resins, fiberglass
materials and fine ingredients. Ashland Chemical also manufactures a wide
variety of specialty chemicals and certain petrochemicals. Major specialty
chemicals include foundry products, water treatment and marine service
chemicals, specialty polymers and adhesives, unsaturated polyester resins,
and high-purity electronic and laboratory chemicals. Ashland Chemical's
petrochemicals division manufactures and markets maleic anhydride and
methanol, and markets cumene, aromatic and aliphatic solvents, and
propylene manufactured by Ashland Petroleum. Marketing of the
petrochemicals manufactured by Ashland Petroleum will be transferred to
Refining and Marketing in fiscal 1998.
The APAC group of companies, which are located in 13 southern and
midwestern states, perform contract construction work including paving,
repair and resurfacing highways, streets, airports, residential and
commercial developments, sidewalks, and driveways; grading and base work;
and excavation and related activities in the construction of bridges and
structures, drainage facilities and underground utilities. APAC also
produces and sells construction materials, such as asphaltic and ready-mix
concrete, crushed stone and other aggregate and, in certain markets,
concrete block and specialized construction materials, such as
architectural block.
Coal operations are conducted by 54% owned, publicly traded Arch Coal,
Inc., which was created on July 1, 1997, by the merger of Ashland Coal,
Inc. and Arch Mineral Corporation. Beginning in the September 1997 quarter,
Arch Coal was consolidated in Ashland's financial statements. Prior interim
quarters in 1997 were restated to reflect Arch Mineral on a consolidated
basis for comparison purposes. Arch Mineral was previously accounted for on
the equity method. Arch Coal is the largest producer of bituminous,
low-sulfur coal in the eastern United States. Arch markets coal to electric
utilities and industrial customers throughout the United States, Europe and
Japan. Coal is produced from surface and deep mines located in Illinois,
Kentucky, Virginia, West Virginia and Wyoming. Arch also markets coal mined
by independent producers.
On July 1, 1997, Ashland sold the domestic exploration and production
operations of Blazer Energy Corporation. Ashland has reached an agreement
in principle to sell its exploration and production operations in Nigeria,
subject to the approval of the Nigerian government and other conditions.
Accordingly, results from the Exploration segment are shown as discontinued
operations with prior years restated (see Note B).
Certain information with respect to continuing foreign operations follows.
<TABLE>
<CAPTION>
Income from continuing operations
Total assets before income taxes
------------------------ -----------------------------------------------
(In millions) 1997 1996 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Foreign operations
Refining and Marketing $ 63 $ 70 $ 2 $ 3 $ 4
Valvoline 103 127 (7)(1) 4 3
Chemical 363 327 26(1) 41 42
- ---------------------------------------------------------------------------------------------------------------------------------
$529 $ 524 $21 $ 48 $49
=================================================================================================================================
</TABLE>
(1) Includes charges of $10 million for Valvoline and $16 million for
Chemical to write down goodwill related to certain European
operations.
<PAGE>
NOTE D - UNCONSOLIDATED AFFILIATES
Affiliated companies accounted for on the equity method include LOOP LLC
and LOCAP INC. (18.6% and 21.4% owned corporate joint ventures operating a
deepwater offshore port and related pipeline facilities in the Gulf of
Mexico) and various other companies. Prior to 1997, Arch Mineral
Corporation was 50% owned and accounted for on the equity method (see Notes
A and C). Summarized financial information reported by these affiliates and
a summary of the amounts recorded in Ashland's consolidated financial
statements follow. At September 30, 1997, Ashland's retained earnings
include $55 million of undistributed earnings from unconsolidated
affiliates accounted for on the equity method.
<TABLE>
<CAPTION>
Arch Mineral LOOP LLC and
(In millions) Corporation LOCAP INC. Other Total
==============================================================================================================================
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1997
Financial position
Current assets $ 30 $ 311
Current liabilities (81) (161)
--------------------------------
Working capital (51) 150
Noncurrent assets 586 149
Noncurrent liabilities (438) (104)
--------------------------------
Stockholders' equity $ 97 $ 195
================================
Results of operations
Sales and operating revenues $ 123 $ 994
Gross profit 40 238
Net income 27 38
Amounts recorded by Ashland
Investments and advances 18 68 $ 86
Equity income 2 13 15
Dividends received - 9 9
==============================================================================================================================
SEPTEMBER 30, 1996
Financial position
Current assets $ 165 $ 28 $ 265
Current liabilities (142) (82) (151)
--------------------------------------------------------
Working capital 23 (54) 114
Noncurrent assets 752 613 225
Noncurrent liabilities (646) (489) (107)
--------------------------------------------------------
Stockholders' equity $ 129 $ 70 $ 232
========================================================
Results of operations
Sales and operating revenues $ 727 $ 117 $ 846
Gross profit 98 38 214
Net income 27 8 28
Amounts recorded by Ashland
Investments and advances 73 13 71 $ 157
Equity income 13 2 9 24
Dividends received - - 7 7
==============================================================================================================================
SEPTEMBER 30, 1995
Results of operations
Sales and operating revenues $ 714 $ 119 $ 775
Gross profit 50 36 193
Net income (loss) (8)(1) 4 29
Amounts recorded by Ashland
Equity income (loss) (4) 1 10 $ 7
Dividends received 3 1 8 12
==============================================================================================================================
</TABLE>
(1) Includes a charge of $12 million resulting from asset impairment
write-downs under FAS 121 and provisions for early retirement and
restructuring programs.
<PAGE>
<TABLE>
<CAPTION>
NOTE E - INCOME TAXES
A summary of the provision for income taxes related to continuing
operations follows.
(In millions) 1997 1996 1995
===================================================================================================================================
<S> <C> <C> <C>
Current(1)
Federal $ 92 $ 60 $ 52
State 7 7 10
Foreign 17 17 12
- -----------------------------------------------------------------------------------------------------------------------------------
116 84 74
Deferred 3 (11) (71)
- -----------------------------------------------------------------------------------------------------------------------------------
$119 $ 73 $ 3
===================================================================================================================================
</TABLE>
(1) Income tax payments amounted to $82 million in 1997, $110 million in
1996 and $54 million in 1995.
Deferred income taxes are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
Temporary differences which give rise to significant deferred tax assets
(liabilities) follow. These amounts are recorded in various asset and
liability accounts on Ashland's consolidated balance sheets.
<TABLE>
<CAPTION>
(In millions) 1997 1996
===================================================================================================================================
<S> <C> <C>
Employee benefit obligations $365 $ 251
Environmental, insurance and litigation reserves 148 118
Alternative minimum tax credit carryforwards 76(1) 77
Uncollectible accounts receivable 18 19
Compensated absences 16 16
Other items 89 58
- -----------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 712 539
- -----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (523) (405)
Coal supply agreements (38) (9)
Undistributed equity income (19) (18)
Prepaid royalties 2 (18)
- -----------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (578) (450)
- -----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $134 $ 89
===================================================================================================================================
</TABLE>
(1) Alternative minimum tax credit carryforwards at September 30, 1997,
relate entirely to Arch Coal, Inc.
The U.S. and foreign components of income from continuing operations before
income taxes and a reconciliation of the normal statutory federal income
tax with the provision for income taxes follow.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
===================================================================================================================================
<S> <C> <C> <C>
Income from continuing operations before income taxes and minority interest
United States $314 $169 $ (9)
Foreign 21 48 49
- -----------------------------------------------------------------------------------------------------------------------------------
$335 $217 $ 40
===================================================================================================================================
Income taxes computed at U.S. statutory rates $117 $ 76 $ 14
Increase (decrease) in amount computed resulting from
Equity income (4) (5) -
State income taxes 7 4 5
Net impact of foreign results 10 - (4)
Percentage depletion allowance (22) (6) (14)
Other items 11 4 2
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes $119 $ 73 $ 3
===================================================================================================================================
</TABLE>
The Internal Revenue Service (IRS) has examined Ashland's consolidated U.S.
income tax returns through 1993. As a result of its examinations, the IRS
has proposed adjustments, certain of which are being contested by Ashland.
Ashland believes it has adequately provided for any income taxes and
related interest which may ultimately be paid on contested issues.
<PAGE>
<TABLE>
<CAPTION>
NOTE F - LONG-TERM DEBT
(In millions) 1997 1996
================================================================================================================================
<S> <C> <C>
Senior debt of Ashland
Medium-term notes, due 1998-2025, interest at an average rate
of 8.3% at September 30, 1997 (5.8% to 10.4%) $ 936 $ 909
8.80% debentures, due 2012 250 250
11.125% sinking fund debentures, due 2017 - 200
Pollution control and industrial revenue bonds, due
1998-2022, interest at an average rate of 6.4%
at September 30, 1997 (3.5% to 7.4%) 217 227
Other 2 3
- -------------------------------------------------------------------------------------------------------------------------------
1,405 1,589
6.75% convertible subordinated debentures, due 2014,
convertible into common stock at $51.34 per share - 124
Debt of Arch Coal, Inc. not guaranteed by Ashland
9.78% senior notes, due 1997-2000 - 101
9.66% senior notes, due 2001-2006 - 54
7.79% senior notes, due 1998-2003 43 -
Revolving credit agreement, due 2002, variable interest rate
based on LIBOR, interest rate of 5.9% at September 30, 1997 240 -
Other 9 2
- -------------------------------------------------------------------------------------------------------------------------------
1,697 1,870
Current portion of long-term debt (58) (86)
- -------------------------------------------------------------------------------------------------------------------------------
$1,639 $1,784
================================================================================================================================
</TABLE>
Aggregate maturities of long-term debt are $58 million in 1998, $48 million
in 1999, $41 million in 2000, $79 million in 2001 and $328 million in 2002.
Excluded from such maturities are $38 million of floating-rate pollution
control and industrial revenue bonds, due between 2003 and 2009. These
bonds are subject to early redemptions at the bondholders' option, but
generally not before October 1, 1998.
Ashland has a revolving credit agreement which expires on February 9, 2000,
providing for up to $320 million in borrowings, under which no borrowings
were outstanding at September 30, 1997. In addition, Arch Coal has
revolving credit agreements which expire on June 30, 2002, providing for up
to $500 million in borrowings, of which $240 million was in use at
September 30, 1997.
Certain debt agreements contain covenants restricting dividends, share
repurchases and other distributions with respect to Ashland's capital
stock, as well as covenants limiting new borrowings. At September 30, 1997,
distributions with respect to Ashland's capital stock were restricted to $1
billion and additional debt was limited to $2.1 billion.
Interest payments on all indebtedness amounted to $191 million in 1997,
$175 million in 1996, and $163 million in 1995. The weighted average
interest rate on short-term borrowings outstanding was 6.7% at September
30, 1997, and 5.9% at September 30, 1996.
EXTRAORDINARY LOSS
On June 3, 1997, Ashland called for redemption all of its outstanding 6.75%
Convertible Subordinated Debentures. On July 3, 1997, $123 million of the
Debentures were redeemed for 101.35% of the principal amount, plus accrued
interest, thereby eliminating an associated 2.4 million shares of Ashland
Common Stock that had been reserved for conversion. On September 3, 1997,
Ashland announced its intention to redeem its 11.125% Sinking Fund
Debentures on October 15, 1997. The principal amount outstanding of $200
million had a redemption price of 105.562%, plus accrued interest to the
redemption date. On September 23, 1997, Ashland delivered to the trustee
U.S. Treasury securities maturing on October 15, 1997, sufficient to cover
the redemption price and accrued interest in accordance with the indenture
agreement, thereby relieving Ashland of any further obligations under the
Debentures. The redemption premium and writeoff of unamortized deferred
debt issuance expenses related to these two transactions resulted in pretax
charges totaling $15 million which, net of income tax benefits of $6
million, resulted in an extraordinary loss of $9 million on the early
retirement of debt.
<PAGE>
NOTE G - FINANCIAL INSTRUMENTS
COMMODITY AND FOREIGN CURRENCY HEDGES
Ashland uses commodity futures contracts and forward exchange contracts to
reduce its exposure to certain risks inherent within its businesses as
described in Note A. The fair value of open commodity and foreign exchange
contracts was not significant at September 30, 1997, and 1996.
INTEREST RATE SWAPS
Ashland uses interest rate swap agreements to obtain greater access to the
lower borrowing costs normally available on floating-rate debt, while
minimizing refunding risk through the issuance of long-term, fixed-rate
debt. At September 30, 1997, Ashland had unleveraged swap agreements with a
notional principal amount of $370 million. These agreements were used to
convert fixed rates on certain debt, including the 8.80% debentures and
various medium-term notes, to variable rates. The variable rates are
generally adjusted quarterly or semiannually based on London Interbank
Offered Rates (LIBOR), but may be fixed for longer terms using forward rate
agreements. Notional amounts do not quantify risk or represent assets or
liabilities of Ashland, but are used in the determination of cash
settlements under the agreements. Ashland is exposed to credit losses from
counterparty nonperformance, but does not anticipate any losses from its
agreements, all of which are with major financial institutions.
At September 30, 1997, Ashland was receiving a weighted-average fixed
interest rate of 6.0% and paying a weighted-average variable interest rate
of 5.9%, calculated on the notional amount. Interest expense was reduced by
$2 million in 1997 and 1996 and an insignificant amount in 1995 resulting
from settlements under these agreements. Under its current swap agreements,
Ashland's annual interest expense in 1998 will change by about $4 million
for each 1% change in LIBOR. The terms remaining on Ashland's swaps range
from 4 to 80 months, with a weighted-average remaining life of 27 months.
The carrying amounts and fair values of Ashland's significant financial
instruments, including interest rate swaps, at September 30, 1997, and
1996, are shown below. The fair values of cash and cash equivalents and
notes payable to financial institutions approximate their carrying amounts.
The fair values of investments of captive insurance companies are based on
quoted market prices plus accrued interest. The fair values of long-term
debt are based on quoted market prices or, if market prices are not
available, the present values of the underlying cash flows discounted at
Ashland's incremental borrowing rates. The fair values of interest rate
swaps are based on quoted market prices, which reflect the present values
of the difference between estimated future variable-rate payments and
future fixed-rate receipts.
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------------
Carrying Fair Carrying Fair
(In millions) amount value amount value
===================================================================================================================
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 268 $ 268 $ 77 $ 77
Investments of captive insurance companies 189 189 178 178
Interest rate swaps - 1
Liabilities
Notes payable to financial institutions 35 35 117 117
Long-term debt (including current portion) 1,697 1,864 1,870 2,024
Interest rate swaps - 4
===================================================================================================================
</TABLE>
NOTE H - ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
In February 1995, Ashland purchased all of Ashland Coal's Class B Preferred
Stock for $110 million. The purchase increased Ashland's ownership of
Ashland Coal from 39% to 54%. As a result of this transaction, Ashland Coal
was consolidated into Ashland's financial statements retroactive to October
1, 1994. Ashland continued to reinvest dividends from Ashland Coal in
additional shares of its common stock, increasing its ownership in Ashland
Coal to 57% as of July 1, 1997, when Ashland Coal and Arch Mineral
Corporation merged (see Notes A and C).
Also during 1995, Ashland acquired the unsaturated polyester resins,
polyester distribution and maleic anhydride businesses of Aristech Chemical
Corporation, the Zerex antifreeze product line, the northern West Virginia
assets of two natural gas producers, and various other chemical and
construction businesses. These and several smaller acquisitions completed
in various segments during the last three years were generally accounted
for as purchases and did not have a significant effect on Ashland's
consolidated financial statements.
DIVESTITURES
Ashland completed several small divestitures in various segments during the
last three years which did not have a significant effect on Ashland's
consolidated financial statements. In 1997, Ashland completed the sale of
the domestic operations of Blazer Energy Corporation. See Note B for a
description of this transaction and its impact on Ashland's consolidated
financial statements.
<PAGE>
NOTE I - LEASES AND OTHER COMMITMENTS
LEASES
Ashland and its subsidiaries are lessees in noncancelable leasing
agreements for office buildings, warehouses, pipelines, transportation and
marine equipment, storage facilities, retail outlets, manufacturing
facilities and other equipment and properties which expire at various
dates. Capitalized lease obligations are not significant and are included
in long-term debt. Future minimum rental payments at September 30, 1997,
and rental expense under operating leases follow.
<TABLE>
<CAPTION>
(In millions)
- -----------------------------------------------------------------------------------------------------------------------------------
Future minimum rental payments Rental expense 1997 1996 1995
========================================== ==================================================================================
<S> <C> <C> <C> <C> <C>
1998 $ 84
1999 74 Minimum rentals
2000 66 (including rentals under
2001 52 short-term leases) $166 $146 $129
2002 36 Contingent rentals 13 14 11
Later years 174 Sublease rental income (13) (16) (18)
- ------------------------------------------ ----------------------------------------------------------------------------------
$486 $166 $144 $122
===================================================================================================================================
</TABLE>
In addition, Arch Coal has entered into various noncancelable royalty lease
agreements under which future minimum payments are approximately $31
million annually through 2002 and $253 million in the aggregate thereafter.
OTHER COMMITMENTS
Under agreements with LOOP and LOCAP (see Note D), Ashland is obligated,
based upon its equity ownership, to provide a portion of the total debt
service and defined operating and administrative costs of these joint
ventures. This annual obligation is reduced by transportation charges paid
by Ashland and by a pro rata portion of transportation charges paid by
third parties who are not equity participants. If, after each obligor's
requirements have been satisfied, the joint ventures are unable to meet
cash requirements, Ashland is obligated to advance its pro rata share of
the deficiency. All funds provided to these joint ventures are used as
advances against future transportation charges. At September 30, 1997,
substantially all advances made to LOOP and LOCAP by Ashland had been
applied against transportation charges. Transportation charges incurred
amounted to $16 million in 1997, $16 million in 1996 and $21 million in
1995. At September 30, 1997, Ashland's contingent liability for its share
of the indebtedness of LOOP and LOCAP secured by throughput and deficiency
agreements amounted to approximately $83 million.
Arch Coal owns 17.5% of a joint venture operating a coal-loading and
storage facility at Newport News, Va. Venture partners are required to pay
their share of the venture's costs in relation to their ownership (for
fixed operating costs and debt service) or facility usage (for variable
operating costs). Arch Coal's share of such payments amounted to
approximately $4 million annually in each of the last three years. Future
payments for fixed operating costs and debt service are estimated to
approximate $3 million annually through 2015 and $26 million in 2016.
Additionally, Ashland is contingently liable for a guarantee relating to an
office building partially occupied by Arch Coal. At September 30, 1997,
such obligation has a present value of approximately $6 million.
NOTE J - CAPITAL STOCK
In March 1997, Ashland called for redemption the 6 million outstanding
shares of its $3.125 Cumulative Convertible Preferred Stock. Each preferred
share was convertible into 1.546 shares of Ashland common stock, plus cash
for fractional shares. Almost 99% of the series was submitted for
conversion to common stock by the March 31 deadline. The remaining
preferred shares were redeemed at a price of $51.88 per share plus 19.1
cents per share of accrued and unpaid dividends.
Under Ashland's Shareholder Rights Plan, each common share is accompanied
by one right to purchase one-thousandth share of preferred stock for $140.
Each one-thousandth share of preferred stock will be entitled to dividends
and to vote on an equivalent basis with one common share. The rights are
neither exercisable nor separately transferable from the common shares
unless a party acquires or tenders for more than 15% of Ashland's common
stock. If any party acquires more than 15% of Ashland's common stock or
acquires Ashland in a business combination, each right (other than those
held by the acquiring party) will entitle the holder to purchase preferred
stock of Ashland or the acquiring company at a substantial discount. The
rights expire on May 16, 2006, and can be redeemed at any time prior to
becoming exercisable.
At September 30, 1997, 500,000 shares of cumulative preferred stock are
reserved for potential issuance under the Shareholder Rights Plan. At
September 30, 1997, 5 million common shares are reserved for issuance under
outstanding stock options.
<PAGE>
NOTE K - STOCK INCENTIVE PLANS
Ashland has stock incentive plans under which key employees or directors
can purchase shares of common stock under stock options or restricted stock
awards. Stock options are granted to employees at a price equal to the fair
market value of the stock on the date of grant and become exercisable over
periods of one to three years. Unexercised options lapse 10 years after the
date of grant. Restricted stock awards entitle employees or directors to
purchase shares at a nominal cost, to vote such shares and to receive any
dividends thereon. However, such shares are subject to forfeiture upon
termination of service before the restriction period ends.
Ashland accounts for its stock incentive plans in accordance with APB 25,
as permitted by FAS 123. In accordance with APB 25, Ashland has not
recognized compensation expense for stock options because the exercise
price of the options equals the market price of the underlying stock on the
date of grant, which is the measurement date. If the alternative method of
accounting for stock incentive plans prescribed by FAS 123 had been
followed, the impact on Ashland's net income and earnings per share for
1997 and 1996 would not have been material. A summary of stock options
follows.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------- -------------------------
Weighted average Weighted average Weighted average
Common option price Common option price Common option price
(In thousands except per share data) shares per share shares per share shares per share
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year(1) 5,247 $33.97 5,222 $32.72 4,697 $32.50
Granted 814 53.22 823 38.92 839 33.86
Exercised (1,271) 32.94 (747) 30.45 (164) 27.47
Canceled (72) 37.29 (51) 37.35 (150) 38.16
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year(1) 4,718 $37.52 5,247 $33.97 5,222 $32.72
=================================================================================================================================
Exercisable - end of year 3,373 $33.78 3,820 $32.81 3,777 $32.17
=================================================================================================================================
</TABLE>
(1) Shares of common stock available for future grants of options or
awards amounted to 5,778,000 at September 30, 1997, and 3,403,000 at
September 30, 1996. Exercise prices for options outstanding at
September 30, 1997, ranged from $23.88 to $53.38 per share. The
weighted average remaining contractual life of the options was 7
years.
NOTE L - LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local environmental laws
and regulations that require remediation efforts at multiple locations,
including operating facilities, previously owned or operated facilities,
and Superfund or other waste sites. Consistent with its accounting policy
for environmental costs, Ashland's reserves for environmental assessments
and remediation efforts amounted to $150 million at September 30, 1997, and
$173 million at September 30, 1996. Such amounts reflect Ashland's most
likely estimates of the costs which will be incurred over an extended
period to remediate identified environmental conditions for which costs are
reasonably estimable.
Environmental reserves are subject to considerable uncertainties that
affect Ashland's ability to estimate its share of the ultimate costs of
required remediation efforts. Such uncertainties involve the nature and
extent of contamination at each site, the extent of required cleanup
efforts under existing environmental regulations, widely varying costs of
alternate cleanup methods, changes in environmental regulations, the
potential effect of continuing improvements in remediation technology, and
the number and financial strength of other potentially responsible parties
at multiparty sites.
During 1997, the U. S. Environmental Protection Agency (EPA) completed
comprehensive inspections of compliance with federal environmental laws and
regulations at Ashland's three refineries. Ashland continues to cooperate
and hold discussions with the EPA concerning these inspections, as well as
what additional remediation actions may be required or costs may be
incurred.
In addition to environmental matters, Ashland and its subsidiaries are
parties to numerous claims and lawsuits, some of which are for substantial
amounts. While these actions are being contested, the outcome of individual
matters is not predictable with assurance.
Ashland does not believe that any liability resulting from these matters,
after taking into consideration its insurance coverages and amounts already
provided for, will have a material adverse effect on its consolidated
financial position.
<PAGE>
NOTE M - EMPLOYEE BENEFIT PLANS
PENSION PLANS
Ashland and its subsidiaries sponsor defined benefit pension plans that
cover substantially all employees, other than union employees covered by
multiemployer pension plans under collective bargaining agreements.
Benefits under Ashland's plans generally are based on employees' years of
service and compensation during the years immediately preceding retirement.
For certain plans, such benefits are expected to come in part from one-half
of employees' leveraged employee stock ownership plan (LESOP) accounts.
Ashland determines the level of contributions to pension plans annually and
contributes amounts within allowable limitations imposed by Internal
Revenue Service regulations. The following tables detail the funded status
of the plans and the components of pension expense. A discount rate of
7.25% and an assumed rate of salary increases of 5% were used in
determining the actuarial present value of projected benefit obligations at
September 30, 1997 (8% and 5% at September 30, 1996).
<TABLE>
<CAPTION>
1997 1996
----------------------------------- ---------------------------------
Plans with Plans with Plans with Plans with
assets in excess ABO in excess assets in excess ABO in excess
(In millions) of ABO of assets of ABO of assets
==================================================================================================================================
<S> <C> <C> <C> <C>
Plan assets at fair value (primarily listed
stocks and bonds) $433 $ 69 $360 $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations (ABO)
Vested 317 99 284 29
Nonvested 45 49 35 36
- ----------------------------------------------------------------------------------------------------------------------------------
362 148 319 65
- ----------------------------------------------------------------------------------------------------------------------------------
Plan assets less than (in excess of) ABO (71) 79(1) (41) 65(1)
Provision for future salary increases 173 34 149 17
Deferred pension costs (5) (10) (10) (15)
- ----------------------------------------------------------------------------------------------------------------------------------
Net accrued pension costs(2) $ 97 $103 $ 98 $ 67
==================================================================================================================================
Components of deferred pension costs
Unrecognized transition gain (loss) $ 6 $ (2) $ 10 $ (4)
Unrecognized net loss - (33) (9) (34)
Unrecognized prior service costs (11) (2) (11) (1)
Recognition of minimum liability - 27 - 24
- ----------------------------------------------------------------------------------------------------------------------------------
$ (5) $(10) $(10) $ (15)
==================================================================================================================================
(In millions) 1997 1996 1995
==================================================================================================================================
Components of pension expense
Service cost $ 39 $ 32 $ 23
Interest cost 48 40 34
Actual investment gain on plan assets (86) (34) (51)
Deferred investment gain(3) 50 6 30
Other amortization and deferral 2 3 1
Enhanced retirement program pension cost - - 15
- ----------------------------------------------------------------------------------------------------------------------------------
$ 53 $ 47 $ 52
==================================================================================================================================
</TABLE>
(1) Includes unfunded ABO of $77 million in 1997 and $65 million in 1996
for nonqualified defined benefit plans.
(2) Amounts are recorded in various asset and liability accounts on
Ashland's consolidated balance sheets.
(3) The expected long-term rate of return on plan assets was 9%.
OTHER POSTRETIREMENT BENEFIT PLANS
Ashland and its subsidiaries sponsor several unfunded benefit plans, as
well as participate in multiemployer plans sponsored by the United Mine
Workers of America (UMWA), which provide health care and life insurance
benefits for eligible employees who retire from active service or are
disabled. The health care plans are contributory with the exception of the
UMWA plan. Retiree contributions to Ashland's health care plans are
adjusted periodically and contain other cost-sharing features such as
deductibles and coinsurance. Life insurance plans are generally
noncontributory. Ashland currently funds the costs of benefits as they are
paid.
Effective October 1, 1992, Ashland amended nearly all of its retiree health
care plans to place a cap on the company's contributions and to adopt a
cost-sharing method based upon years of service. These amendments reduced
the accumulated postretirement benefit obligation (APBO) for retiree health
care plans at that date by $197 million, which is being amortized to income
over approximately 12 years. The cap limits Ashland's contributions to a
specific base year per capita health care cost, increasing thereafter by up
to 4.5% per year. For those plans not capped, various health care cost
trend rates are assumed. Increasing the assumed health care cost trend
rates by one percentage point in each year for non-capped plans would
increase the APBO as of September 30, 1997, by $49 million and the net
periodic postretirement benefit cost for 1997 by $4 million.
<PAGE>
The following tables detail the status of the plans and the components of
postretirement benefit expense. The APBO was determined using a discount
rate of 7.25% at September 30, 1997, and 8% at September 30, 1996.
<TABLE>
<CAPTION>
1997 1996
----------------------------------- ---------------------------------
Health care Health care
-------------------- -------------------
Ashland UMWA Life Ashland UMWA Life
(In millions) plans plan insurance plans plan insurance
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit
obligations (APBO)
Retired or disabled employees $132 $124 $26 $113 $17 $25
Fully eligible active plan participants 44 74 5 29 4 5
Other active plan participants 141 59 7 107 20 5
- --------------------------------------------------------------------------------------------------------------------------------
317 257 38 249 41 35
Unrecognized net gain (loss) (21) 1 (4) 4 24 (2)
Unrecognized plan amendment credit 96 - 4 110 2 5
- --------------------------------------------------------------------------------------------------------------------------------
Accrued other postretirement benefit costs $392 $258 $38 $363 $67 $38
================================================================================================================================
1997 1996 1995
------------------- -------------------- ---------------------
Health Life Health Life Health Life
(In millions) care insurance care insurance care Insurance
================================================================================================================================
Components of other postretirement benefit expense
Service cost $ 14 $ 1 $12 $ 1 $12 $ 1
Interest cost 37 3 21 3 20 2
Amortization and deferral
(principally plan amendment credit) (21) - (16) (1) (15) (1)
- --------------------------------------------------------------------------------------------------------------------------------
$ 30 $ 4 $17 $ 3 $17 $ 2
================================================================================================================================
</TABLE>
OTHER PLANS
Certain union employees are covered under multiemployer defined benefit
pension plans administered by unions. Amounts charged to pension expense
and contributed to the plans were $5 million in 1997 and $2 million in both
1996 and 1995.
Ashland and its subsidiaries sponsor various savings plans to assist
eligible employees in providing for retirement or other future needs. Under
the principal plans, Ashland contributes up to 4.2% of a participating
employee's earnings (1.2% for LESOP participants prior to March 31, 1996)
and Arch Coal contributes up to 6%. Company contributions amounted to $27
million in 1997, $15 million in 1996 and $9 million in 1995.
Note N - Quarterly Financial Information (Unaudited)
The following table presents quarterly financial information and per share
data relative to Ashland's common stock. Sales and operating revenues and
operating income have been restated effective October 1, 1996, to reflect
the merger of Ashland Coal and Arch Mineral (see Notes A and C) and for all
prior periods to present Blazer Energy as discontinued operations (see Note
B).
<TABLE>
<CAPTION>
Quarters ended December 31 March 31 June 30 September 30
- ------------------------------------------------------------ -------------------- ---------------------- ----------------------
(In millions except per share data) 1996 1995(1) 1997 1996 1997 1996 1997(2) 1996
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $ 3,545 $3,024 $3,346 $3,006 $3,643 $3,429 $3,665 $3,433
Operating income 89 96 65 23 225 146 111 98
Income (loss) from continuing
operations $ 24 $ 32 $ 2 $ (13) $ 119 $ 76 $ 48 $ 41
Income from discontinued operations 12 55 5 11 9 4 71 5
Extraordinary loss - - - - (2) - (8) -
--------------------------------------------------------------------------------------------
Net income (loss) $ 36 $ 87 $ 7 $ (2) $ 126 $ 80 $ 111 $ 46
Primary earnings (loss) per share
Continuing operations $ .30 $ .43 $ (.05) $ (.27) $ 1.57 $ 1.10 $ .62 $ .55
Discontinued operations .17 .86 .08 .16 .11 .06 .94 .09
Extraordinary loss - - - - (.02) - (.10) -
--------------------------------------------------------------------------------------------
Net income (loss) $ .47 $ 1.29 $ .03 $ (.11) $ 1.66 $ 1.16 $ 1.46 $ .64
Common dividends per share .275 .275 .275 .275 .275 .275 .275 .275
Market price per common share
High 48-7/8 36-1/2 45-1/8 39-1/2 48-1/4 44-1/8 54-15/16 40-1/4
Low 39-3/8 30-3/8 39-1/4 34-1/4 40-1/8 38-1/8 46-1/2 35
===================================================================================================================================
</TABLE>
(1) A gain resulting from the settlement of claims in the bankruptcy
reorganization of Columbia Gas Transmission and Columbia Gas Systems
increased income from discontinued operations by $48 million, or $.74
per share, in the quarter ended December 31, 1995.
(2) In the quarter ended September 30, 1997, unusual items reduced income
from continuing operations by $28 million, or $.38 per share. See
Management's Discussion and Analysis and Information by Industry
Segment for a discussion of these items. A gain on the sale of the
domestic operations of Blazer Energy increased income from
discontinued operations by $71 million, or $.94 per share (see Note
B).
<PAGE>
<TABLE>
<CAPTION>
ASHLAND INC. AND SUBSIDIARIES
FIVE-YEAR SELECTED FINANCIAL INFORMATION
Years Ended September 30
(In millions except per share data) 1997 1996 1995 1994 1993
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues
Sales and operating revenues (including excise taxes) $14,200 $12,892 $11,972 $10,140 $ 9,958
Other 119 76 66 39 53
Costs and expenses
Cost of sales and operating expenses (10,860) (9,975) (9,130) (7,614) (7,790)
Excise taxes on products and merchandise (992) (985) (988) (877) (645)
Selling, general and administrative expenses (1,405) (1,275) (1,269) (1,074) (1,044)
Depreciation, depletion and amortization (572) (371) (447) (275) (271)
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 490 362 204 339 261
Other income (expense)
Interest expense (net of interest income) (170) (169) (171) (116) (122)
Equity income 15 24 7 22 26
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and minority interest 335 217 40 245 165
Income taxes (119) (73) (3) (82) (58)
Minority interest in earnings of subsidiaries (24) (8) (23) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 192 136 14 163 107
Income from discontinued operations 25 75 10 34 35
Gain on sale of discontinued operations 71 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 288 211 24 197 142
Extraordinary loss on early retirement of debt (9) - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 279 $ 211 $ 24 $ 197 $ 142
=================================================================================================================================
BALANCE SHEET INFORMATION
Working capital
Current assets $ 2,995 $ 2,665 $ 2,535 $ 2,109 $ 1,914
Current liabilities 2,261 2,198 2,048 1,641 1,574
- ---------------------------------------------------------------------------------------------------------------------------------
$ 734 $ 467 $ 487 $ 468 $ 340
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,777 $ 7,089 $ 6,853 $ 5,662 $ 5,442
- ---------------------------------------------------------------------------------------------------------------------------------
Capital employed
Debt due within one year $ 93 $ 203 $ 272 $ 133 $ 159
Long-term debt (less current portion) 1,639 1,784 1,828 1,391 1,399
Minority interest in consolidated subsidiaries 273 174 179 - -
Convertible preferred stock - 293 293 293 293
Common stockholders' equity 2,024 1,521 1,362 1,302 1,162
- ---------------------------------------------------------------------------------------------------------------------------------
$ 4,029 $ 3,975 $ 3,934 $ 3,119 $ 3,013
=================================================================================================================================
CASH FLOW INFORMATION
Cash flows from continuing operations $ 852 $ 651 $ 442 $ 345 $ 200
Additions to property, plant and equipment 431 430 399 335 390
Dividends 97 93 92 79 66
=================================================================================================================================
Common stock information
Primary earnings per share
Income (loss) from continuing operations $ 2.57 $ 1.81 $ (.08) $ 2.37 $ 1.66
Net income 3.80 2.97 .08 2.94 2.26
Dividends per share 1.10 1.10 1.10 1.00 1.00
=================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ASHLAND INC. AND SUBSIDIARIES
FIVE-YEAR INFORMATION BY INDUSTRY SEGMENT
YEARS ENDED SEPTEMBER 30
(In millions) 1997 1996 1995 1994 1993
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
SALES AND OPERATING REVENUES
Refining and Marketing(1) $ 6,719 $ 6,485 $ 5,891 $ 5,428 $5,594
Valvoline 1,099 1,199 1,113 1,001 938
Chemical 4,047 3,695 3,551 2,885 2,586
APAC 1,257 1,235 1,123 1,101 1,116
Coal(2) 1,367 580 610 - -
Intersegment sales(3)
Refining and Marketing(1) (263) (276) (280) (249) (251)
Other (26) (26) (36) (26) (25)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 14,200 $ 12,892 $ 11,972 $ 10,140 $9,958
===================================================================================================================================
OPERATING INCOME
Refining and Marketing(1) $ 189(4) $ 89 $ (1) $ 172 $ 121(5)
Valvoline 67(6) 82 (4) 52 56
Chemical 144(6) 169 159 125 108
APAC 82 83 75 70 53
Coal(2) 68(7) 36 66 - -
General corporate expenses (60) (97) (91) (80)(8) (77)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 490(9) $ 362 $ 204(10) $ 339 $ 261
===================================================================================================================================
IDENTIFIABLE ASSETS
Refining and Marketing(1) $ 2,669 $ 2,780 $ 2,659 $ 2,657 $2,604
Valvoline 549 557 603 532 430
Chemical 1,558 1,458 1,372 1,122 958
APAC 531 489 433 404 440
Coal(2) 1,719 899 928 - -
Discontinued operations 18 326 285 221 265
Corporate(11) 733 580 573 726 745
- -----------------------------------------------------------------------------------------------------------------------------------
$ 7,777 $ 7,089 $ 6,853 $ 5,662 $5,442
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995 1994 1993
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Refining and Marketing(1) $150 $187 $183 $194 $255
Valvoline 29 19 25 25 21
Chemical 101 80 76 61 51
APAC 62 62 47 45 43
Coal(2) 74 58 58 - -
Corporate 15 24 10 10 20
- ----------------------------------------------------------------------------------------------------------------------------------
$431 $430 $399 $335 $390
===================================================================================================================================
DEPRECIATION, DEPLETION AND AMORTIZATION
Refining and Marketing(1) $160 $153 $234 $161 $155
Valvoline 32(6) 23 24 19 18
Chemical 94(6) 67 58 43 42
APAC 49 44 42 40 44
Coal(2) 223(12) 72 72 - -
Corporate 14 12 17 12 12
- ----------------------------------------------------------------------------------------------------------------------------------
$572 $371 $447(13) $275 $271
===================================================================================================================================
</TABLE>
(1) Segments formerly identified as Petroleum and SuperAmerica were
combined effective October 1, 1996. Prior year amounts have been
restated.
(2) Ashland Coal and Arch Mineral merged effective July 1, 1997, into
Arch Coal, Inc. Prior interim periods of fiscal 1997 were restated to
consolidate Ashland's interest in Arch Mineral for the entire year.
Prior years were not restated, reflecting Ashland's interest in
Ashland Coal on a consolidated basis (since 1995) and Ashland's
interest in Arch Mineral on the equity method of accounting. Prior to
1995 Ashland Coal was accounted for on the equity method. See Note C
to the financial statements.
(3) Intersegment sales are accounted for at prices which approximate
market value.
(4) Includes a gain of $11 million resulting from LIFO inventory
liquidations.
(5) Includes a gain of $15 million on the sale of TPT, an inland
waterways barge operation.
(6) Includes charges of $10 million for Valvoline and $16 million for
Chemical to write down goodwill related to certain European
operations.
(7) Includes charges of $39 million for duplicate facility write-offs,
severance and other costs resulting from the merger of Ashland Coal
and Arch Mineral into Arch Coal, Inc.
(8) Includes a net gain of $11 million related to litigation matters.
(9) Effective October 1, 1996, the methodology for allocating corporate
general and administrative expenses was changed. For purposes of
comparison to prior year results, segment operating income for the
year ended September 30, 1997, excluding the increased allocations,
amounted to: Refining and Marketing - $208 million; Valvoline - $72
million; Chemical - $155 million; APAC - $86 million; Coal - $68
million; and general corporate expenses - $(101) million.
(10) Includes charges for unusual items totaling $116 million, consisting
of asset impairment write-downs of $79 million under FAS 121 and
provisions of $37 million for early retirement and restructuring
programs. The combined effect of these items reduced operating income
for each of the segments as follows: Refining and Marketing - $102
million; Valvoline - $5 million; Chemical - $5 million; and general
corporate expenses - $4 million.
(11) Includes principally cash, cash equivalents, investments in and
advances to unconsolidated affiliates and investments of captive
insurance companies.
(12) Includes charges of $25 million for duplicate facility write-offs
resulting from the merger of Ashland Coal and Arch Mineral into Arch
Coal, Inc.
(13) Includes charges of $79 million for asset impairment write-downs
which increased depreciation, depletion and amortization for each of
the segments as follows: Refining and Marketing - $68 million;
Valvoline - $3 million; Chemical - $4 million; and Corporate - $4
million.
EXHIBIT 21
LIST OF SUBSIDIARIES
Subsidiaries of Ashland Inc. ("AI") at September 30, 1997, included
the companies listed below. Ashland has numerous unconsolidated affiliates,
which are primarily accounted for on the equity method, and majority-owned
consolidated subsidiaries in addition to the companies listed below. Such
affiliates and subsidiaries are not listed below since they would not
constitute a significant subsidiary considered in the aggregate as a single
entity.
<TABLE>
<CAPTION>
Jurisdiction of Immediate
Company Incorporation Parent*
<S> <C> <C>
APAC-Alabama, Inc.................................................... Delaware AHI
APAC-Arkansas, Inc................................................... Delaware AHI
APAC-Carolina, Inc................................................... Delaware AHI
APAC-Florida, Inc.................................................... Delaware AHI
APAC-Georgia, Inc.................................................... Georgia AHI
APAC Holdings, Inc. ("AHI").......................................... Delaware AI
APAC, Inc............................................................ Delaware AHI
APAC-Kansas, Inc..................................................... Delaware AHI
APAC-Mississippi, Inc................................................ Delaware AHI
APAC-Oklahoma, Inc................................................... Delaware AHI
APAC-Tennessee, Inc.................................................. Delaware AHI
APAC-Texas, Inc...................................................... Delaware AHI
APAC-Virginia, Inc................................................... Delaware AHI
Arch Coal, Inc....................................................... Delaware AI 54%
Ashland Chemical Canada Ltd.......................................... Alberta, Canada AI
Ashland Chemical Hispania, S.A....................................... Spain AI
Ashland Crude Trading, Inc........................................... Delaware AI
Ashland France S.A................................................... France AIHI
Ashland International Holdings , Inc. ("AIHI")....................... Delaware AI
Ashland Italia S.p.A................................................. Italy AIHI 82% - AI 18%
Ashland Nederland B.V................................................ Netherlands AIHI
Ashland Pipe Line, L.L.C. ("APL").................................... Kentucky AI 99% - SPC 1%
Ashland Scurlock Permian Canada, Ltd................................. Alberta, Canada SPC
Ashland UK Limited................................................... United Kingdom AIHI
Ash Property, Inc.................................................... Ohio AI
Ashmont Insurance Company, Inc. ("AIC").............................. Vermont AI
Bluegrass Insurance Company Limited.................................. Bermuda AIC
Iberia Ashland Chemical S.A.......................................... Spain AI 70%
Mid-Valley Supply Co................................................. Kentucky AI
Ohio River Pipe Line Company......................................... Delaware AI
Scurlock Permian Corporation ("SPC")................................. Kentucky AI
Scurlock Permian Pipe Line Corporation............................... Kentucky SPC
Valvoline (Australia) Pty. Ltd....................................... Australia AIHI
Valvoline Canada Ltd................................................. Ontario, Canada AIHI
Vecom International B.V.............................................. Netherlands AIHI
- ---------------
</TABLE>
*100% of the voting securities are owned by the immediate parent
except as otherwise indicated.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-52125) pertaining to the Ashland Inc. Deferred
Compensation and Stock Incentive Plan for Non-Employee Directors, in the
Registration Statement (Form S-8 No. 2-95022) pertaining to the Ashland
Inc. Amended Stock Incentive Plan for Key Employees, in the Registration
Statement (Form S-8 No. 33-7501) pertaining to the Ashland Inc. Employee
Savings Plan, in the Registration Statement (Form S-8 No. 33-26101)
pertaining to the Ashland Inc. Long-Term Incentive Plan, in the
Registration Statement (Form S-8 No. 33-55922) pertaining to the Ashland
Inc. 1993 Stock Incentive Plan, in the Registration Statement (Form S-8 No.
33-49907) pertaining to the Ashland Inc. Leveraged Employee Stock Ownership
Plan, in the Registration Statement (Form S-8 No. 33-62901) pertaining to
the Ashland Inc. Deferred Compensation Plan, in the Registration Statement
(Form S-8 No. 333-33617) pertaining to the Ashland Inc. 1997 Stock
Incentive Plan, in the Registration Statement (Form S-3 No. 33-57011) as
amended by Post-Effective Amendment No. 2, pertaining to the U.S.
$200,000,000 Ashland Inc. Medium-Term Notes, Series H, and the related
Prospectus, of our report dated November 5, 1997, with respect to the
consolidated financial statements and schedule of Ashland Inc. and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
September 30, 1997.
Ernst & Young LLP
November 24, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and
Officers of ASHLAND INC., a Kentucky corporation, which is about to file an
Annual Report on Form 10-K with the Securities and Exchange Commission
under the provisions of the Securities Exchange Act of 1934, as amended,
hereby constitutes and appoints PAUL W. CHELLGREN, THOMASL. FEAZELL and
DAVID L. HAUSRATH, and each of them, his true and lawful attorneys-in-fact
and agents, with full power to act without the others to sign and file such
Annual Report and the exhibits thereto and any and all other documents in
connection therewith with the Securities and Exchange Commission, and to do
and perform any and all acts and things requisite and necessary to be done
in connection with the foregoing as fully as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
Dated: November 6, 1997
<TABLE>
<S> <C>
/s/ Paul W. Chellgren /s/ Ralph E. Gomory
- ------------------------------------------ -----------------------------------------
Paul W. Chellgren, Chairman of the Board Ralph E. Gomory, Director
and Chief Executive Officer
/s/ J. Marvin Quin /s/ Mannie L. Jackson
- ------------------------------------------ -----------------------------------------
J. Marvin Quin, Senior Vice President Mannie L. Jackson, Director
and Chief Financial Officer
/s/ Jack S. Blanton /s/ Patrick F. Noonan
- ------------------------------------------ -----------------------------------------
Jack S. Blanton, Director Patrick F. Noonan, Director
/s/ Thomas E. Bolger /s/ Jane C. Pfeiffer
- ------------------------------------------ -----------------------------------------
Thomas E. Bolger, Director Jane C. Pfeiffer, Director
/s/ Samuel C. Butler /s/ Michael D. Rose
- ------------------------------------------ -----------------------------------------
Samuel C. Butler, Director Michael D. Rose, Director
/s/ Frank C. Carlucci /s/ William L. Rouse, Jr.
- ------------------------------------------ -----------------------------------------
Frank C. Carlucci, Director William L. Rouse, Jr., Director
/s/ Robert B. Stobaugh
-----------------------------------------
Robert B. Stobaugh, Director
</TABLE>
<PAGE>
ASHLAND INC.
Assistant Secretary's Certificate
I, T. CODY WALES, an Assistant Secretary of Ashland Inc., a
Commonwealth of Kentucky corporation (the "Corporation"), do hereby certify
as follows:
1. Attached hereto as Exhibit A is a true and correct copy of
resolutions duly adopted by the Board of Directors of the
Corporation at a meeting duly called and held on November 6, 1997;
at such meeting a quorum was present and acting throughout; and
such resolutions have not been amended or rescinded and are in
full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Corporation on this 10th day of November, 1997.
/s/ T. C. Wales
------------------------
T. C. Wales
Assistant Secretary
[S E A L]
<PAGE>
EXHIBIT A
Board Resolutions Related to Annual Report on Form 10-K
The Chairman called attention to the Corporation's Annual Report on Form
10-K, a draft of which was previously circulated to the Board. After
discussion, upon motion duly made and seconded, the following resolutions
were unanimously adopted:
RESOLVED, that the Corporation's Annual Report to the Securities
and Exchange Commission ("SEC") on Form 10-K (the "Form 10-K") in
the form previously circulated to the Board in preparation for the
meeting be, and it hereby is, approved with such changes as the
Chairman of the Board, any Vice President, the Secretary or David
L. Hausrath ("Authorized Persons") shall approve, the execution
and filing of the Form 10-K with the SEC to be conclusive evidence
of such approval; provided, however, that without derogating from
the binding effect of the above, it is understood that an
Authorized Person shall cause the distribution, prior to the
filing with the SEC, of a copy of such Form 10-K to the directors
in substantially that form which is to be filed with the SEC and
that each director's oral concurrence with respect to such form
shall be obtained prior to the filing with the SEC;
FURTHER RESOLVED, that the Authorized Persons be, and each of them
hereby is, authorized to file with the SEC the Form 10-K and any
amendments thereto on Form 10-K/A and/or any other applicable
form; and
FURTHER RESOLVED, that the Authorized Persons be, and each of them
hereby is, authorized and directed to take such other action as
may be necessary and proper to implement the foregoing
resolutions.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S ANNUAL REPORT TO
SHAREHOLDERS FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH ANNUAL REPORT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 268
<SECURITIES> 0
<RECEIVABLES> 1,754
<ALLOWANCES> 24
<INVENTORY> 729
<CURRENT-ASSETS> 2,995
<PP&E> 7,471
<DEPRECIATION> 3,580
<TOTAL-ASSETS> 7,777
<CURRENT-LIABILITIES> 2,261
<BONDS> 1,639
<COMMON> 75
0
0
<OTHER-SE> 1,949
<TOTAL-LIABILITY-AND-EQUITY> 7,777
<SALES> 14,200
<TOTAL-REVENUES> 14,319
<CGS> 12,424
<TOTAL-COSTS> 12,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 320
<INCOME-TAX> 119
<INCOME-CONTINUING> 192
<DISCONTINUED> 96
<EXTRAORDINARY> (9)
<CHANGES> 0
<NET-INCOME> 279
<EPS-PRIMARY> 3.80
<EPS-DILUTED> 3.67
</TABLE>
