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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, 1998
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) has
been subject to such filing requirements for the past 90 days. Yes / X /
No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / X /
At October 30, 1998, 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 $3,249,504,576. In determining this
amount, the Registrant 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 30, 1998, there were 75,057,315 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, 1998 are incorporated by reference into Parts I
and II.
Portions of Registrant's definitive Proxy Statement for its January
28, 1999 Annual Meeting of Shareholders are incorporated by reference into
Part III.
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TABLE OF CONTENTS
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PART I
Item 1. Business ....................................................... 1
Ashland Chemical....................................... 1
APAC................................................... 3
Valvoline.............................................. 4
Refining and Marketing................................. 5
Arch 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
Item X. Executive Officers of Ashland................................... 13
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters....................................... 14
Item 6. Selected Financial Data......................................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 14
Item 8. Financial Statements and Supplementary Data..................... 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 14
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 14
Item 11. Executive Compensation.......................................... 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................... 14
Item 13. Certain Relationships and Related Transactions.................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 15
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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). Effective January 4, 1999, Ashland's
principal executive offices will be located at 50 E. RiverCenter Boulevard,
Covington, Kentucky 41012 (Mailing Address: 50 E. RiverCenter Boulevard,
P.O. Box 391, Covington, Kentucky 41012-0391) (Telephone: (606) 815-3333).
The terms "Ashland" and the "Company" as used herein include Ashland Inc.
and its consolidated subsidiaries, except where the context indicates
otherwise.
Ashland's businesses are grouped into five industry segments: Ashland
Chemical, APAC, Valvoline, Refining and Marketing and Arch Coal. Financial
information about these segments for the three fiscal years ended September
30, 1998 is set forth on Pages 60 and 61 of Ashland's Annual Report to
Shareholders for the fiscal year ended September 30, 1998 ("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.
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.
Valvoline is a marketer of branded, packaged motor oil and automotive
chemicals, automotive appearance products, antifreeze, filters, rust
preventives and coolants. In addition, Valvoline is engaged in the "fast
oil change" business through outlets operating under the Valvoline Instant
Oil Change(R) name.
Effective January 1, 1998, Ashland and USX-Marathon completed a
transaction to form Marathon Ashland Petroleum LLC ("MAP"), which combined
major portions of the supply, refining, marketing and transportation
operations of the two companies. Marathon has a 62% interest in MAP, and
Ashland holds a 38% interest. MAP operates seven refineries with a total
crude oil refining capacity of 935,000 barrels per day. Refined products
are distributed through a network of independent and company-owned outlets
in the Midwest, the upper Great Plains and the southeastern United States.
Ashland accounts for its investment in MAP using the equity method of
accounting.
Ashland's coal operations are conducted by Arch Coal, Inc., which is
owned 55% by Ashland and is publicly traded. Arch Coal produces,
transports, processes and markets bituminous coal produced in Central
Appalachia and the western and midwestern United States. Ashland accounts
for its investment in Arch Coal using the equity method of accounting.
At September 30, 1998, Ashland and its consolidated subsidiaries had
approximately 21,200 employees (excluding contract employees).
ASHLAND CHEMICAL
Ashland Chemical Company, a division of Ashland, is engaged in the
manufacture, distribution and sale of a wide variety of chemicals, fine
ingredients and plastic products. Ashland Chemical owns and operates 36
manufacturing facilities and participates in 13 manufacturing joint
ventures in 11 states and 19 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 - This division markets
specialty chemicals, additives and solvents to industrial chemical users in
major markets through distribution centers in the United States, Canada,
Mexico and Puerto Rico. It distributes approximately 7,000 chemicals,
solvents, additives and raw materials made by many of the nation's leading
chemical manufacturers and a growing number of offshore producers. It
specializes in supplying mixed truckloads and less-than-truckload
quantities to many industries, including the paint and coatings, inks,
adhesives, polymer, rubber, industrial and institutional compounding,
automotive, appliance and paper industries. It also offers customers
chemical waste collection, disposal and recycling services, working in
cooperation with major chemical waste services companies.
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GENERAL POLYMERS DIVISION - This division markets a broad range of
thermoplastic resins to injection molding, extruders, blow molders, and
rotational molders in the plastics industry through distribution locations
in the United States, Canada, Mexico and Puerto Rico. It also provides
plastic material transfer and packaging services and less-than-truckload
quantities of packaged thermoplastics. The division's basic resins group
markets bulk wide-spec and off-grade thermoplastic resins to a variety of
proprietary processors in North America.
FRP SUPPLY DIVISION - This division markets to customers in the
reinforced plastics and cultured marble industries mixed truckload and
less-than-truckload quantities of polyester resins, fiberglass and other
specialty reinforcements, catalysts and allied products from distribution
locations located throughout North America.
FINE INGREDIENTS DIVISION - This division distributes cosmetic and
pharmaceutical specialty chemicals and food-grade and nutritional additives
and ingredients across North America.
ASHLAND PLASTICS EUROPE - This division markets a broad range of
thermoplastics to processors in Europe. Ashland Plastics Europe has
distribution centers located in Belgium, Finland, France, Germany, Ireland,
Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom and
has compounding manufacturing facilities located in Italy and Spain.
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;
Los Angeles, California; Bartow, Florida; Ashtabula, Ohio; Philadelphia,
Pennsylvania; Kelowna, British Columbia, Canada; Benicarlo, Spain; and
through a joint venture in Jeddah, Saudi Arabia. In addition, the division
also manufactures products through other Ashland Chemical facilities
located in Mississauga, Ontario, Canada and Neville Island, Pennsylvania.
FOUNDRY PRODUCTS DIVISION - This division manufactures and sells
foundry chemicals worldwide, including sand-binding resin systems,
refractory coatings, release agents, engineered sand additives, riser
sleeves, and die lubricants. This division serves the global metal casting
industry from 22 locations in 18 countries.
DREW INDUSTRIAL DIVISION - This division supplies specialized
chemicals and consulting services for the treatment of boiler water,
cooling water, steam, fuel and waste streams. It also supplies process
chemicals and technical services to the pulp and paper and mining
industries and additives to manufacturers of latex and paint. It conducts
operations throughout North America, Europe and the Far East through
subsidiaries, joint venture companies and distributors. The division has
manufacturing plants in Kansas City, Kansas; Kearny, New Jersey; Houston,
Texas; Ajax, Ontario, Canada; Somercotes, England; Singapore; Sydney and
Perth, Australia; and Auckland, New Zealand.
ELECTRONIC CHEMICALS DIVISION - This division manufactures and sells a
variety of ultrapure chemicals for the worldwide semiconductor industry
through various manufacturing locations and also custom blends and packages
ultrapure liquid chemicals to customer specifications. It recently opened a
new $45 million state-of-the-art manufacturing facility in Pueblo,
Colorado. The division also operates manufacturing plants in Newark,
California; Milan, Italy; Easton, Pennsylvania; and Dallas, Texas. In
addition, it enters into long-term agreements to provide complete on-site
chemical management services, including purchasing, warehousing and
delivering chemicals for in-plant use, at major facilities of large
consumers of high purity chemicals. This division formed a joint venture
with Union Petrochemical Corporation of Taipei, Taiwan to build and operate
an ultrapure process chemicals manufacturing facility in Taiwan. In
addition, the division has acquired property in Korea to build a facility
to manufacture specialty stripper products for semiconductor manufacturing.
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; Ashland and Columbus, Ohio;
and Totowa, New Jersey.
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DREW MARINE DIVISION - This division supplies specialty chemicals for
water and fuel treatment and general maintenance, as well as sealing
products, welding and refrigerant products and fire fighting and safety
services to the world's merchant marine fleet. Drew Marine currently
provides shipboard technical service for more than 10,000 vessels from more
than 100 locations serving 600 ports throughout the world.
PETROCHEMICALS
This division manufactures maleic anhydride at Neal, West Virginia,
and Neville Island, Pennsylvania, and methanol near Plaquemine, Louisiana.
Its Energy Services business unit provides industrial and commercial
businesses with expert management of their total energy requirements, by
sourcing and supplying natural gas and natural gas liquids.
OTHER MATTERS
DUBLIN, OHIO HEADQUARTERS TECHNICAL CENTER EXPANSION - In October
1998, Ashland Chemical completed construction of a 115,000-square-foot
facility expanding its Technical Center in Dublin, Ohio.
For information on Ashland Chemical and federal, state and local
statutes and regulations governing releases into the environment or
protection of the environment, see "Item 1. Miscellaneous - Environmental
Matters" and "Item 3. Legal Proceedings - Environmental Proceedings."
APAC
The APAC group of companies performs construction work such as
paving, repairing and resurfacing highways, streets, airports, residential
and commercial developments, sidewalks and driveways; grading and base
work; and excavation and related activities in the construction of bridges
and structures, drainage facilities and underground utilities in 14
southern and midwestern states. APAC also produces and sells construction
materials, such as hot-mix asphalt and ready-mix concrete, crushed stone
and other aggregate and, in certain markets, concrete block and specialized
construction materials, such as architectural block.
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
24 permanent operating quarry locations, 32 other aggregate production
facilities, 46 ready-mix concrete plants, 167 hot-mix asphalt plants and a
fleet of over 10,000 mobile equipment units, including heavy construction
equipment and transportation-related equipment.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 24% 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 third parties. 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, private developers and other contractors to the
public sector. The 1998 highway funding authorization package increased
federal funding for highways by $52 billion over a six-year period. More
importantly, the states in which APAC operates should see an average
increase in annual funding of 59% or $3.3 billion, based on current
estimates.
Climate and weather significantly affect revenues in the construction
business. Due to its location, APAC tends to enjoy a relatively long
construction season. Most of APAC's operating income is generated during
the construction period of May to October.
Total backlog at September 30, 1998 was $838 million, compared to $693
million at September 30, 1997. The backlog orders at September 30, 1998 are
considered firm, and a major portion is expected to be filled during fiscal
1999.
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VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of
automotive and industrial oils, automotive chemicals, automotive appearance
products 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.
Valvoline is comprised of the following business units:
NORTH AMERICAN PRODUCTS - This unit, Valvoline's largest division,
markets automotive, commercial, and industrial lubricants, automotive
chemicals and automotive appearance products to a broad network of North
American customers. This unit markets Valvoline branded motor oil, one of
the top selling brands in the U.S. private passenger car and light truck
market. In 1998, this unit introduced a line of premium synthetic
SynPower(R) automobile chemicals for "under-the-hood" use.
North American Products also markets Eagle One(R) automotive
appearance products, Zerex(R) antifreeze and Pyroil(R) automotive
chemicals. Zerex is the second leading antifreeze brand in the United
States. This division also markets R-12, an automotive refrigerant that was
phased out of production in 1995. R-12 is being replaced in the market by a
new generation of refrigerants.
The domestic commercial/fleet group of the North American Products
unit continued its strategic alliance with Cummins Engine Company to
distribute heavy-duty lubricants to the commercial market.
EAGLE ONE - Acquired in February 1998, Eagle One is a brand of premium
automobile chemicals for "above-the-hood" applications. Products include
waxes, polishes and wheel cleaners. Managed by Valvoline as a separate
business unit, Eagle One markets its products through Valvoline's North
American Products and Valvoline International divisions.
VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline
branded products, TECTYL(R) rust preventives and Eagle One automotive
appearance products worldwide through company-owned affiliates or divisions
in Argentina, Australia, Austria, Belgium, Denmark, France, Germany, Great
Britain, Italy, the Netherlands, Poland, South Africa, Sweden and
Switzerland. Licensees and distributors market products in other parts of
Europe, Mexico, Central and South America, the Far East, the Middle East
and certain African countries. Joint ventures have been established in
Ecuador, India and the Netherlands. Packaging and blending plants and
distribution centers in Australia, Canada, Denmark, the Netherlands, Sweden
and the United States supply international customers.
VALVOLINE INSTANT OIL CHANGE(R) ("VIOC") - VIOC is one of the largest
competitors in the expanding U.S. "fast oil change" service business,
providing Valvoline with a significant share of the installed segment of
the passenger car and light truck motor oil market. As of September 30,
1998, 391 company-owned and 183 franchised service centers were operating
in 34 states.
In 1998, VIOC continued it's customer service innovation through its
Maximum Vehicle Performance program ("MVP"). MVP is a computer-based
program that maintains system-wide service records on all customer
vehicles. MVP also contains a database on all car models, which allows
employees to make service recommendations based on vehicle owner's manual
recommendations.
ECOGARD, INC. - Ecogard, Inc. through its First Recovery division,
collects used motor oil from a network of automotive aftermarket retailers
and service businesses in 48 states and Puerto Rico. Completing Valvoline's
"total fluid management" approach to customer service, First Recovery
provides an environmental service to Valvoline customers in the United
States, collecting used antifreeze and oil filters as well.
As a fulfillment of its strategy to market premium branded products
worldwide, Valvoline began construction in 1998 of a $4 million new product
development laboratory at its headquarters complex in Lexington, Kentucky.
The laboratory is expected to open in early calendar 1999.
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REFINING AND MARKETING
Refining and Marketing operations are conducted by MAP and its
subsidiaries, including its wholly-owned subsidiary, Speedway SuperAmerica
LLC. As previously discussed, effective January 1, 1998, the major elements
of Ashland's and USX-Marathon's refining, marketing and transportation
operations were conveyed to MAP. Marathon has a 62% interest in MAP, and
Ashland holds a 38% interest.
REFINING
MAP owns and operates seven refineries with an aggregate refining
capacity of 935,000 barrels of crude oil per calendar day. The table below
sets forth the location and daily throughput capacity of each of MAP's
refineries as of September 30, 1998:
Garyville, Louisiana........................................ 232,000
Catlettsburg, Kentucky...................................... 222,000
Robinson, Illinois.......................................... 192,000
Detroit, Michigan.......................................... 74,000
Canton, Ohio............................................... 73,000
Texas City, Texas.......................................... 72,000
St. Paul Park, Minnesota................................... 70,000
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935,000
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MAP's refineries include crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. The refineries have the
capability to process a wide variety of crude oils and to produce typical
refinery products, including reformulated gasoline ("RFG"). In addition to
typical refinery products, the Catlettsburg refinery manufactures
lubricating oils and a wide range of petrochemicals. During the nine months
ended September 30, 1998, 73% of MAP's production of lubricating oils was
purchased by Valvoline and 38% of MAP's production of petrochemicals was
purchased by Ashland Chemical.
MAP also produces asphalt cements, polymerized asphalt, asphalt
emulsions and industrial asphalts. Additionally, MAP manufactures petroleum
pitch, primarily used in the graphite electrode, clay target and refractory
industries.
The table below sets forth MAP's refinery input and refinery
production by product group for the nine months ended September 30, 1998.
Due to the recent formation of MAP, comparative information is not
available.
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For the Nine Months ended
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September 30, 1998
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Refinery Input (In thousands of barrels per day)................................. 1,023.3
------------------------------------------------
Refined Product Yields (In thousands of barrels per day)
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Gasoline......................................................................... 539.8
Distillates...................................................................... 269.2
Propane.......................................................................... 20.9
Feedstocks & Special Products.................................................... 71.7
Heavy Fuel Oil................................................................... 47.4
Asphalt.......................................................................... 69.3
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Total............................................................ 1,018.3
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MAP and Epsilon Products Company have agreed to develop facilities
to produce 800 million pounds per year of polymer grade propylene and
polypropylene at the Garyville refinery. MAP will build and operate
facilities to produce polymer grade propylene. Production of the polymer
grade propylene is scheduled to begin in the second quarter of calendar
1999. Epsilon Products Company will construct and own the polypropylene
facilities and market its output.
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MARKETING
MAP's principal marketing areas for gasoline, kerosene and light oils
include the Midwest, the upper Great Plains and the southeastern United
States. MAP's production of gasoline, kerosene and light fuel oils is sold
in 26 states through wholesale channels of distribution (including
company-owned and exchange terminals in 25 states) and at retail through
jobber and dealer-operated locations under the brand names Marathon(R) and
Ashland(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
Marathon and Ashland brand names. MAP also supplies lessee-dealer outlets
using the Marathon and Ashland brand names. Gasoline, kerosene, distillates
and aviation products are also sold to utilities, railroads, river towing
companies, commercial fleet operators, airlines and governmental agencies.
The table below shows the volume of MAP's consolidated refined product
sales for the nine months ended September 30, 1998.
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For the Nine Months ended
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September 30, 1998
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Refined Product Sales (In thousands of barrels per day)
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Gasoline......................................................................... 659.1
Distillates...................................................................... 312.9
Propane.......................................................................... 20.8
Feedstocks & Special Products.................................................... 68.8
Heavy Fuel Oil................................................................... 48.4
Asphalt.......................................................................... 73.7
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Total............................................................ 1,183.7
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Matching Buy/Sell Volumes included in above...................................... 38.4
</TABLE>
To comply with provisions of the 1990 Amendments to the Clean Air Act,
MAP sells RFG in a small part of its marketing territory where RFG is
required, primarily Chicago, Illinois; Louisville, Kentucky; Northern
Kentucky and Milwaukee, Wisconsin.
Retail sales of gasoline and diesel fuel are also made through MAP's
wholly-owned subsidiary, Speedway SuperAmerica LLC, which operates 2,291
stores in 19 states in the Southeast and Midwest under brand names
including Speedway(R), SuperAmerica(R), Rich(R), United, Bonded(R) and
others. The convenience store-gasoline locations offer consumers gasoline,
diesel fuel (at selected locations) and a broad mix of other products and
services, such as fresh-baked goods, automated teller machines, video
rentals, automotive accessories and a line of private-label items. The
truck stops offer diesel fuel, gasoline and a variety of other services
associated with such locations. Several truck stop and convenience store
locations also have on-premises brand-name restaurants.
During the nine months ended September 30, 1998, 64% of the revenues
(excluding excise taxes) of the Speedway SuperAmerica LLC stores were
derived from the sale of gasoline and diesel fuel and 36% of such revenues
were derived from the sale of merchandise.
SUPPLY AND TRANSPORTATION
The crude oil processed in MAP's refineries is obtained from
negotiated lease, contract and spot purchases or exchanges. For the nine
months ended September 30, 1998, MAP's negotiated lease, contract and spot
purchases of U.S. crude oil for refinery input averaged 333,900 barrels per
day (1 barrel = 42 United States gallons) including an average of 25,600
barrels per day acquired from Marathon Oil Company. For the nine months
ended September 30, 1998, MAP's foreign crude oil requirements were met
largely through purchases from various foreign national oil companies,
producing companies and traders. Purchases of foreign crude oil represented
63% of MAP's crude oil requirements for the nine months ended September 30,
1998.
In addition, MAP, through its subsidiaries, is 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 U.S. crude oil, as well as at major trading and
distribution hubs in western Canada.
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MAP's ownership or interest in domestic pipeline systems in its
refining and marketing areas is significant. MAP owns, leases or has an
ownership interest in 9,981 miles of active pipeline in 16 states. This
network transports crude oil and refined products to and from terminals,
refineries and other pipelines. It includes 2,639 miles of crude oil
gathering lines, 4,485 miles of crude oil trunk lines and 2,857 miles of
refined product lines.
MAP has a 46.7% ownership interest in LOOP LLC ("LOOP"), which is the
owner and operator of the only U.S. deepwater port facility capable of
receiving crude oil from very large crude carriers. Ashland has retained a
4% ownership interest in LOOP. MAP also owns a 49.9% ownership interest in
LOCAP INC. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP to the Capline system. Ashland has retained an
8.6% ownership interest in LOCAP. In addition, MAP has a 37.169% ownership
interest in the Capline system. These port and pipeline systems provide MAP
with access to common carrier transportation from the Louisiana Gulf Coast
to Patoka, Illinois. At Patoka, the Capline system connects with other
common carrier pipelines owned or leased by MAP which provide
transportation to MAP's refineries in Illinois, Kentucky, Michigan and
Ohio.
MAP also has a stock interest in Minnesota Pipe Line Company, which
owns a crude oil pipeline in Minnesota. Minnesota Pipe Line Company
provides MAP with access to 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 MAP's St. Paul Park,
Minnesota, refinery.
MAP's marine transportation operations include towboats and barges
that transport refined products on the Ohio, Mississippi and Illinois
rivers, their tributaries, and the Intracoastal Waterway. In addition, MAP
leases on a long-term basis two 80,000 deadweight ton tankers, which are
primarily used for third-party delivery of foreign crude oil to the United
States. These tankers are not essential for MAP to satisfy its own crude
oil requirements.
MAP leases rail cars in various sizes and capacities for movement of
petroleum products and chemicals. MAP also owns a large number of
tractor-trailers, tank trailers and general service trucks.
In addition, MAP owns and operates 88 terminal facilities from which
it sells a wide range of petroleum products. These facilities are supplied
by a combination of barges, pipeline, truck and rail. MAP 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
MAP experiences normal seasonal variations in its sales and operating
results. This seasonality is due primarily to increased demand for gasoline
during the summer driving season, higher demand for distillate during the
winter heating season and increased demand for asphalt from the road paving
industry during the construction season.
For information on MAP and federal, state and local statutes and
regulations governing releases into the environment or protection of the
environment, see "Item 1. Miscellaneous-Environmental Matters." For
information relating to certain environmental litigation retained by
Ashland, see "Item 3. Legal Proceedings-Environmental Proceedings."
ARCH COAL
Ashland owns approximately 55% of Arch Coal, Inc. ("Arch Coal"), a
publicly-traded corporation (NYSE:ACI) resulting from the merger of Ashland
Coal, Inc. and Arch Mineral Corporation on July 1, 1997. Arch Coal files
periodic reports, including annual reports on Form 10-K, pursuant to the
Securities Exchange Act of 1934.
Arch Coal is engaged in the production, transportation, processing and
marketing of bituminous and sub-bituminous coal produced in Central
Appalachia and the western and midwestern United States. Arch Coal is the
nation's second largest coal producer, with annual production that accounts
for almost 10% of annual U.S. coal production. 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. Shipments to international customers are
made primarily from a terminal facility in Newport News, Virginia, and a
terminal facility in Los Angeles, California.
On June 1, 1998, Arch Coal acquired the Colorado and Utah coal
operations of Atlantic Richfield Company ("ARCO") and simultaneously
combined the acquired ARCO operations, Arch Coal's Wyoming operations and
ARCO's Wyoming operations in a new joint venture named Arch Western
Resources, LLC ("Arch Western"). Arch Western is 99% owned by Arch Coal and
1% owned by ARCO. All of the domestic coal reserves acquired from ARCO are
compliance coal, meeting the sulfur dioxide emissions requirements of Phase
II of the Clean Air Act.
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The following discussion includes pro forma combined operating data
which gives effect to the merger of Ashland Coal and Arch Mineral (which
occurred on July 1, 1997) as if it had occurred at the beginning of each
period presented and to the acquisition of ARCO's U.S. operations as of
June 1, 1998. The pro forma combined operating data does not purport to
represent the operating results which would have been achieved had the
merger of Ashland Coal, Inc. and Arch Mineral Corporation actually occurred
as of the beginning of the periods presented or dates indicated, or of the
operating results which may be achieved in the future.
Arch Coal and its independent operating subsidiaries sold 67.3 million
tons of coal in the twelve months ended September 30, 1998, as compared to
53.7 and 50.6 million tons sold in the twelve months ended September 30,
1997 and 1996, respectively. Of the total tonnage sold in the twelve months
ended September 30, 1998 (which does not include tons sold by Canyon Fuel
as Arch Coal's interest therein is accounted for on the equity method),
approximately 76.5% was sold under long term contracts, as compared to
72.4% and 74.7% for the twelve months ended September 30, 1997 and 1996,
respectively, with the balance being sold on the spot market. In the twelve
months ended September 30, 1998, Arch Coal and its independent operating
subsidiaries sold 3.8 million tons of coal in the export market (which does
not include tons sold by Canyon Fuel), compared to 2.7 and 3.1 million tons
in the twelve months ended September 30, 1997 and 1996, respectively.
During the twelve months ended September 30, 1998, Arch Coal's
combined sales to affiliates of The Southern Company and affiliates of
American Electric Power accounted for approximately 13.1% and 12.9%,
respectively, of combined revenues from coal sales for such period. The
loss of such customers could have a material adverse effect on Arch Coal.
As of September 30, 1998, Arch Coal estimates it owned or controlled
measured (proven) and indicated (probable) coal reserves of approximately
3.4 billion tons, as set forth in the following table. Reserve estimates
are prepared by Arch Coal's engineers and geologists and are reviewed and
updated periodically. Total reserve estimates will change from time to time
reflecting mining activities, analysis of new engineering and geological
data, changes in reserve holdings and other factors. Anticipated losses
from extraction and, where applicable, washing of the coal have been
eliminated from the estimate. Arch Coal believes that a majority of these
reserves 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 the reserve estimate or sulfur content of the
estimated reserves.
<TABLE>
<CAPTION>
RECOVERABLE COAL*
Measured Indicated Total
---------- --------- -----
(Thousands of Tons)
<S> <C> <C> <C>
Central Appalachia ......................................... 1,018,098 436,789 1,454,887
Illinois ................................................... 308,579 101,499 410,078
Colorado ................................................... 120,917 25,872 146,789
Utah ....................................................... 135,082 91,454 226,536**
Wyoming .................................................... 1,067,510 43,449 1,110,959
Other ...................................................... 0 28,815 28,815
--------- ------- ---------
Total..................................... 2,650,186 727,878 3,378,064
========= ======= =========
* Does not include reserves associated with the Thundercloud Tract acquired in October, 1998.
** Represents 100% of the reserves held by Canyon Fuel Company, LLC, in which Arch Coal holds a 65%
interest.
</TABLE>
8
<PAGE>
On October 1, 1998, Arch Coal was the successful bidder on the
3,546 acre Thundercloud Tract in the Powder River Basin of Wyoming. The
Thundercloud Tract contains an estimated 412 million tons of demonstrated
coal reserves and is contiguous with Arch Coal's Black Thunder mine. Final
approval of this coal lease is expected following routine governmental
review.
Arch Coal's coal properties are either owned outright or 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 most containing options to renew.
Approximately 73,778 acres of Arch Coal's total 638,518 acres of coal land
(which totals include 100% of the acreage held by Canyon Fuel Company, LLC,
in which Arch Coal holds a 65% interest) are leased from the federal
government with terms expiring between January 1, 1999 and October 1, 2015,
subject to readjustment and/or extension and to earlier termination for
failure to meet diligent development requirements. Those term and federal
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 and Hobet Mining, Inc. subsidiaries
are members of the Bituminous Coal Operators Association, and each is a
signatory to a collective bargaining agreement with the United Mine Workers
of America that expires on December 31, 2002. Two other Arch Coal
subsidiaries are signatories to collective bargaining agreements with
independent employee associations. Employees of the remainder of Arch
Coal's operating subsidiaries are not represented by labor unions.
For information on federal and state statutes and regulations
governing the coal industry, see "Item 1. Miscellaneous - Environmental
Matters."
MISCELLANEOUS
ENVIRONMENTAL MATTERS
Ashland has implemented a company-wide environmental policy overseen
by the Public Policy - Environmental Committee of Ashland's Board of
Directors. Ashland's Environmental, Health and Safety group has the
responsibility to ensure that Ashland's operating groups maintain
environmental compliance in accordance with applicable laws and
regulations.
Federal, state and local laws and regulations relating to the
protection of the environment have a significant impact on how Ashland
conducts its businesses. These include the Clean Air Act ("CAA") with
respect to air emissions, the Clean Water Act ("CWA") with respect to water
discharges, the Resource Conservation and Recovery Act ("RCRA") with
respect to solid and hazardous waste generation, treatment, storage and
disposal, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") and the Superfund Amendments and Reauthorization
Act of 1986 ("SARA") with respect to releases and remediation of hazardous
substances (CERCLA and SARA are sometimes referred to collectively as
"Superfund"), the Toxic Substances Control Act ("TSCA") with respect to
chemical formulation and use, the Oil Pollution Act of 1990 ("OPA 90") with
respect to oil pollution, spill response and financial assurance
requirements for marine operations, the Surface Mining Control and
Reclamation Act of 1977 ("SMCRA") with respect to surface mining, the
Federal Occupational Safety and Health Act ("OSHA") with respect to
workplace health and safety standards, the Federal Mine Safety and Health
Act of 1977 ("MSHA") with respect to health and safety standards on mining
operations, and various other federal, state and local laws related to the
environment, health and safety. In addition, many foreign countries have
laws dealing with the same matters.
In connection with the formation of MAP, Marathon and Ashland each
retained responsibility for certain environmental costs arising out of
their respective prior ownership and operation of the facilities
transferred to MAP. In certain situations, various threshold provisions
apply, eliminating or reducing the financial responsibility of the
contributing party until certain levels of expenditure have been reached.
In other situations, sunset provisions gradually diminish the level of
financial responsibility of the contributing party over time.
9
<PAGE>
Ashland's capital expenditures for air, water and solid waste control
facilities amounted to $25 million in fiscal 1998, $26 million in 1997 and
$38 million in 1996. The amounts for 1998 include expenditures for air,
water and solid waste control facilities transferred to MAP for which
Ashland has retained responsibility.
At September 30, 1998, Ashland's reserves for environmental
assessments and remediation efforts were $172 million, reflecting Ashland's
current estimate of the costs which are most likely to be incurred over the
period during which the clean-up will be performed to remediate identified
environmental conditions for which costs are reasonably estimable.
Based on current environmental regulations, Ashland estimates that
capital expenditures for air, water and solid waste control facilities will
be $30 million in fiscal 1999. 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 ("EPA") at Ashland's
three former refineries, see "Item 3. Legal Proceedings - Environmental
Proceedings."
AIR - The CAA imposes stringent limits on air emissions, establishes a
federally mandated operating permit program and allows for civil and
criminal enforcement sanctions. The requirements of the CAA have a major
impact on both the day-to-day activities of the refining, distribution and
marketing operations of MAP and MAP's product formulation decisions. CAA
requirements have a lesser effect on the other operations of Ashland. The
CAA establishes air quality attainment deadlines and control requirements
based on the severity of air pollution in a geographical area. In addition,
the standards for RFG will become even more stringent in the year 2000,
when Phase II RFG will be required.
In July 1997, the EPA promulgated revisions to the National Ambient
Air Quality Standards for ground level ozone and particulate matter, both
of which are primarily associated with auto emissions. The ground level
ozone is also associated with the use of certain volatile organic compounds
used and distributed in Ashland's chemical business. The impact of these
revised standards could be significant and lead to additional reduction of
ozone precursors, but the potential financial effects on Ashland and MAP
cannot be reasonably estimated until the states develop and implement State
Implementation Plans covering their standards.
WATER - Ashland's businesses maintain numerous discharge permits as
required under the National Pollutant Discharge Elimination System of the
CWA, and have implemented systems to oversee their compliance efforts. In
addition, MAP is regulated under OPA 90 which amended the CWA. OPA 90
requires the owner or operator of a tank vessel or a facility to maintain
an emergency plan to respond to discharges of oil or hazardous substances.
Also, in case of such spills, OPA 90 requires responsible companies to pay
removal costs and damages, including damages to natural resources, provides
for substantial civil penalties, and allows for the imposition of criminal
sanctions. 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.
SOLID WASTE - Ashland's businesses are subject to RCRA, which
establishes standards for the management of solid and hazardous wastes.
Besides affecting current waste disposal practices, RCRA also addresses the
environmental effects of certain past waste disposal operations, the
recycling of wastes and the regulation of underground storage tanks
("USTs") containing regulated substances. Under RCRA, USTs used for retail
distribution of petroleum products must be brought into compliance with a
variety of engineering specifications and leak protection technologies by
calendar year end 1998. MAP anticipates that its USTs will be in timely
compliance. In addition, new laws are being enacted and regulations are
being adopted by various regulatory agencies on a continuing basis, and the
costs of compliance with these new rules cannot be estimated until the
manner in which they will be implemented has been more accurately defined.
REMEDIATION - MAP operates certain retail outlets where, during the
normal course of operations, releases of petroleum products from USTs have
occurred. Federal and state laws require that contamination caused by such
releases at these sites be assessed and, if necessary, remediated to meet
applicable standards. The enforcement of the UST regulations under RCRA has
been delegated to the states, which administer their own UST programs.
10
<PAGE>
Ashland also currently or has in the past operated various facilities
where, during the normal course of operations, releases of hazardous
constituents have occurred. Federal and state laws, including but not
limited to RCRA and various remediation laws, require that contamination
caused by such releases be assessed and, if necessary, remediated to meet
applicable standards.
SURFACE MINING - SMCRA was enacted to regulate the surface mining of
coal and the surface effects of underground coal mining. All states in
which Arch Coal's subsidiaries operate have similar laws and regulations
enacted pursuant to SMCRA. These laws impose, among other requirements,
environmental performance standards and requirements to perform
reclamation.
A lawsuit brought by private individuals has challenged the legality
of surface mining in West Virginia which results in the construction of
"valley fills." A valley fill is an engineered work located at a lower
elevation from the surface mine where the excess rock and earth is placed
during mining. Arch Coal is contesting this legal challenge vigorously, but
it is impossible to predict the outcome of these proceedings with
certainty. If these proceedings result in substantial changes in permits,
significant delays in obtaining new permits, or substantial new
restrictions on Arch Coal's existing operations, such changes, delays or
restrictions would have a material adverse affect on Arch Coal's
operations.
RESEARCH
Ashland conducts a program of research and development to invent and
improve products and processes and to improve environmental controls for
its existing facilities. It maintains its primary research facilities in
Dublin, Ohio. Research and development costs are expensed as they are
incurred and totaled $28 million in fiscal 1998 ($29 million in 1997 and
$28 million in 1996).
COMPETITION
In all its operations, Ashland is subject to intense competition both
from companies in the industries in which it operates and from products of
companies in other industries. In most of these segments, competition is
based primarily on price, with factors such as reliability of supply,
service and quality also 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. The majority of the business for which APAC
competes is obtained by competitive bidding.
Valvoline competes primarily with domestic oil companies and, to a
lesser extent, with international oil companies on a worldwide basis.
Valvoline's brand recognition and increasing market share in the "fast oil
change" market are important competitive factors. MAP competes primarily
with other domestic refiners and, to a lesser extent, with imported
products. MAP's refineries are located close to its market areas, giving
MAP a geographic advantage in supplying these regions. MAP's retail
operations compete with major oil companies, independent oil companies and
independent marketers. The coal industry is highly competitive, and Arch
Coal competes (principally in price, location and quality of coal) with
other coal producers.
FORWARD-LOOKING STATEMENTS
This Form 10-K and the documents incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including various information within the "Capital Resources,"
"Derivative Instruments," "Year 2000 Readiness" and "Outlook" sections in
Management's Discussion and Analysis in Ashland's Annual Report. Words such
as "anticipates," "believes," "estimates," "expects," "is likely,"
"predicts," and variations of such words and similar expressions are
intended to identify such forward-looking statements. Although Ashland
believes that its expectations are based on reasonable assumptions, it
cannot assure that the expectations contained in such statements will be
achieved. Important factors which could cause actual results to differ
materially from those contained in such statements are discussed under
"Risks and Uncertainties" in Note A of Notes to Consolidated Financial
Statements in Ashland's Annual Report. Other factors and risks affecting
Ashland's revenues and operations are discussed below, as well as in other
portions of this Form 10-K.
11
<PAGE>
Ashland's operations are affected by domestic and international
political, legislative, regulatory and legal actions. Such actions may
include changes in the policies of OPEC or other developments affecting
oil-producing countries, changes in tax laws, and changes in environmental,
health and safety laws.
Domestic and international economic conditions, such as recessionary
trends, inflation, interest and monetary exchange rates, as well as changes
in demand for products and services, can also have a significant effect on
Ashland's operations. Although Ashland maintains reserves for anticipated
liabilities and carries various levels of insurance, Ashland could be
affected by civil, criminal, regulatory or administrative actions, claims
or proceedings. In addition, climate and weather can significantly affect
Ashland in several of its operations such as its construction activities,
MAP's heating oil businesses and Arch Coal's sales and production of coal.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, is located in
Russell, Kentucky. Effective January 4, 1999, Ashland's corporate
headquarters, which will be leased, will be located in Covington, Kentucky.
Principal offices of other major operations are located in Dublin, Ohio
(Chemical); Atlanta, Georgia (APAC); and Lexington, Kentucky (Valvoline),
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 H of Notes to Consolidated Financial Statements
in Ashland's Annual Report.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - (1) As of September 30, 1998, Ashland had
been identified as a "potentially responsible party" ("PRP") under
Superfund or similar state laws for potential joint and several liability
for clean-up costs in connection with alleged releases of hazardous
substances in connection with 83 waste treatment or disposal sites. These
sites are currently subject to ongoing investigation and remedial
activities, overseen by the EPA or a state agency, in which Ashland is
typically participating as a member of a PRP group. Generally, the type of
relief sought includes remediation of contaminated soil and/or groundwater,
reimbursement for past costs of site clean-up and administrative oversight,
and/or long-term monitoring of environmental conditions at the sites.
Ashland carefully monitors the investigatory and remedial activity at many
of these sites. Based on its experience with site remediation, its
familiarity with current environmental laws and regulations, its analysis
of the specific hazardous substances at issue, the existence of other
financially viable PRPs and its current estimates of investigatory,
clean-up and monitoring costs at each site, Ashland believes that its
liability at these sites, either individually or in the aggregate, after
taking into account its insurance coverage and established reserves, will
not have a material adverse effect on Ashland's consolidated financial
position, cash flow or liquidity. However, such matters could have a
material effect on results of operations in a particular quarter or fiscal
year as they develop or as new issues are identified. Estimated costs for
these matters are recognized in accordance with generally accepted
accounting principles governing the likelihood that costs will be incurred
and Ashland's ability to reasonably estimate future costs.
(2) In 1996, the EPA conducted so-called multimedia inspections of
Ashland's three refineries in which it evaluated virtually all aspects of
the environmental operations of these facilities. The EPA and Ashland have
reached an agreement and have finalized a settlement document with respect
to alleged violations discovered during these inspections. Ashland has
agreed to pay $5.864 million in civil penalties. Ashland will also
undertake specific remedial projects and improvements at the refinery
sites, as well as a number of supplemental environmental projects involving
improvements to the facilities' operations, which will exceed current state
and federal environmental requirements. The total cost of these projects is
expected to be $26 million. In connection with the formation of MAP,
Ashland agreed to retain responsibility for matters arising out of the
multimedia inspections.
LOCKHEED LITIGATION - Ashland is a defendant in a series of cases
involving more than 600 former workers at the Lockheed aircraft
manufacturing facility in Burbank, California. The plaintiffs allege
personal injuries resulting from exposure to chemicals sold to Lockheed by
Ashland, and inadequate labeling of such chemicals. The cases are being
tried in the Superior Court of the State of California for the County of
Los Angeles. To date, five trials involving approximately 130 plaintiffs
have resulted in total verdicts adverse to Ashland, after taking into
consideration a reduction of the punitive damages award in the fifth trial
ordered by the trial judge, of $79.4 million ($73.9 million of which is
punitive damages). The damage awards have been, or will be, appealed.
Ashland continues to believe, upon advice of counsel, that there is a
substantial probability that the punitive damage awards will be reversed or
substantially further reduced, and that, after taking into account probable
recoveries under insurance policies, these cases will not have a material
adverse effect on Ashland's consolidated financial position, cash flow or
liquidity.
12
<PAGE>
In addition, Ashland filed an action in Kentucky against approximately
44 insurance carriers to confirm coverage for liabilities under the
Lockheed cases. One of the insurance carriers in turn filed an action in
California seeking to deny insurance coverage for liabilities in these
cases.
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, 1998.
ITEM X. EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically after the top two officers as to other Senior Vice
Presidents, Administrative Vice Presidents and other executive officers.)
PAUL W. CHELLGREN* (age 55) is Chairman of the Board, Chief Executive
Officer and Director of Ashland and a Director of Arch Coal, Inc. and has
served in such capacities since 1997, 1996, 1992 and 1997, respectively.
During the past five years, he has also served as President and Chief
Operating Officer of Ashland.
JOHN A. BROTHERS* (age 58) is Executive Vice President of Ashland and
has served in such capacities since 1997. During the past five years, he
has also served as Senior Vice President and Group Operating Officer - The
Valvoline Company and Ashland Chemical Company.
JAMES R. BOYD* (age 52) is Senior Vice President and Group Operating
Officer of Ashland - APAC, Inc. and a Director of Arch Coal, Inc., having
served in such capacities since 1989, 1993 and 1997, respectively.
DAVID J. D'ANTONI* (age 53) is Senior Vice President of Ashland and
President of Ashland Chemical Company and has served in such capacities
since 1988.
THOMAS L. FEAZELL* (age 61) 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.
JAMES J. O'BRIEN (age 44) is Senior Vice President of Ashland and
President of The Valvoline Company and has served in such capacities since
1997 and 1995, respectively. During the past five years, he has also served
as Vice President of Ashland, Vice President of Ashland Petroleum Company
and Executive Assistant to the Chief Executive Officer.
CHARLES F. POTTS (age 54) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
J. MARVIN QUIN* (age 51) is Senior Vice President and Chief Financial
Officer of Ashland and a Director of Arch Coal, Inc. and has served in such
capacities since 1992 and 1997, respectively.
KENNETH L. AULEN (age 49) is Administrative Vice President and
Controller of Ashland and has served in such capacities since 1992.
PHILIP W. BLOCK* (age 51) is Administrative Vice President - Human
Resources of Ashland and has served in such capacity since 1992.
LAMAR M. CHAMBERS (age 44) is Auditor of Ashland and has served in
such capacity since September 1998. During the past five years, he has also
served as Vice President and Controller of MAP, Administrative Vice
President - Finance of Ashland Petroleum, Executive Assistant to the Chief
Executive Officer and Assistant Controller of Ashland.
DANIEL B. HUFFMAN (age 53) is Treasurer of Ashland and has served in
such capacity since November 1998. During the past five years, he has also
served as Assistant Treasurer of Ashland.
Each executive officer (other than Vice Presidents who are appointed
by Ashland's management) is elected by the Board of Directors of Ashland to
a term of one year, or until his or her successor is duly elected, at the
annual meeting of the Board of Directors, except in those instances where
the officer is elected other than at an annual meeting of the Board of
Directors, in which case his or her tenure will expire at the next annual
meeting of the Board of Directors unless the officer is re-elected.
- -----------------------
*Member of Ashland's Executive Committee
13
<PAGE>
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 O of Notes to Consolidated Financial Statements in Ashland's Annual
Report.
At September 30, 1998, there were approximately 20,900 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 62 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 34 to 41
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 39 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 61 in Ashland's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Inc.'s Board of Directors" in Ashland's
definitive Proxy Statement for its January 28, 1999 Annual Meeting of
Shareholders, which will be filed with the SEC within 120 days after
September 30, 1998 ("Proxy Statement"). See also the list of Ashland's
executive officers and related information under "Executive Officers of
Ashland" in Part I - Item X herein.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation," "Compensation of Directors"
and "Personnel and Compensation Committee Interlocks and Insider
Participation" in Ashland's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear
under the caption "Stock Ownership of Directors and Certain Officers of
Ashland" and the information regarding the ownership of securities of
Ashland in Ashland's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear
under the caption "Business Relationships" in Ashland's Proxy Statement.
14
<PAGE>
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 January 30, 1998 (filed as Exhibit 3 to
Ashland's Form 10-Q for the quarter ended December 31,
1997, and incorporated herein by reference).
3.2 - Bylaws of Ashland, as amended to March 19, 1998
(filed as Exhibit 3 to Ashland's Form 10-K/A (Amendment
No. 1) for the fiscal year ended September 30, 1998
filed on May 1, 1998, and incorporated herein by
reference).
4.1 - Ashland agrees to provide the SEC, upon request,
copies of instruments defining the rights of holders of
long-term debt of Ashland, and all of its subsidiaries
for which consolidated or unconsolidated financial
statements are required to be filed with the SEC.
4.2 - Indenture, dated as of August 15, 1989, as amended
and restated as of August 15, 1990, between Ashland and
Citibank, N.A., as Trustee (filed as Exhibit 4(a) to
Ashland's Form 10-K for the fiscal year ended September
30, 1991, and incorporated herein by reference).
4.3 - Rights Agreement, dated as of May 16, 1996, between
Ashland Inc. and Harris Trust and Savings Bank,
together with Form of Right Certificate (filed as
Exhibits 4(a) and 4(c), respectively, to Ashland's Form
8-A filed with the SEC on May 16, 1996, and
incorporated herein by reference).
The following Exhibits 10.1 through 10.18 are compensatory plans or
arrangements or management contracts required to be filed as exhibits
pursuant to Item 601(b)(10)(ii)(A) of Regulation S-K.
10.1 - Amended Stock Incentive Plan for Key Employees of
Ashland Inc. and its Subsidiaries (filed as Exhibit
10.1 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 10.5 to Ashland's Form 10-K for the fiscal year
ended September 30, 1994, and incorporated herein by
reference).
10.6 - Ashland Inc. Incentive Compensation Plan (filed as
Exhibit 10.6 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).
15
<PAGE>
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 10.12 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 10.13 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 10.14 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 10.15 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 10.16 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 (filed as
Exhibit 10.17 to Ashland's Form 10-K for the fiscal
year ended September 30, 1997, and incorporated herein
by reference).
10.18 - Ashland Inc. 1997 Stock Incentive Plan.
11 - Computation of Earnings Per Share (appearing on Page
49 of Ashland's Annual Report to Shareholders,
incorporated by reference herein, for the fiscal year
ended September 30, 1998).
13 - Portions of Ashland's Annual Report to Shareholders,
incorporated by reference herein, for the fiscal year
ended September 30, 1998.
21 - List of subsidiaries.
23 - Consent of independent auditors.
24 - Power of Attorney, including resolutions of the Board
of Directors.
27.1 - Financial Data Schedule for the fiscal year ended
September 30, 1998.
27.2 - Restated Financial Data Schedule for the fiscal year
ended September 30, 1997.
27.3 - Restated Financial Data Schedule for the fiscal year
ended September 30, 1996.
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 30, 1998
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 30, 1998.
Signatures Capacity
---------- --------
/s/ PAUL W. CHELLGREN
- ------------------------ Chairman of the Board, Chief Executive Officer
PAUL W. CHELLGREN and Director
/s/ J. MARVIN QUIN
- ------------------------ Senior Vice President and Chief Financial Officer
J. MARVIN QUIN
/s/ KENNETH L. AULEN
- ------------------------ Administrative Vice President, Controller and
KENNETH L. AULEN Principal Accounting Officer
*
- ------------------------ Director
SAMUEL C. BUTLER
*
- ------------------------ Director
FRANK C. CARLUCCI
*
- ------------------------ Director
ERNEST H. DREW
*
- ------------------------ Director
JAMES B. FARLEY
*
- ------------------------ Director
RALPH E. GOMORY
17
<PAGE>
*
- ------------------------ Director
BERNADINE P. HEALY
*
- ------------------------ Director
MANNIE L. JACKSON
*
- ------------------------ Director
PATRICK F. NOONAN
*
- ------------------------ Director
JANE C. PFEIFFER
*
- ------------------------ Director
MICHAEL D. ROSE
*
- ------------------------ Director
WILLIAM L. ROUSE , JR.
* By: /s/ Thomas L. Feazell
--------------------------
Thomas L. Feazell
Attorney-in-Fact
Date: November 30, 1998
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
PAGE
Consolidated financial statements:
Statements of consolidated income ...................................*
Consolidated balance sheets .........................................*
Statements of consolidated stockholders' equity .....................*
Statements of consolidated cash flows ...............................*
Notes to consolidated financial statements ..........................*
Information by industry segment .....................................*
Consolidated financial schedule:
II - Valuation and qualifying accounts..............................21
-----------
*The consolidated financial statements appearing on Pages 43
through 61 in Ashland's Annual Report are incorporated by reference in this
Annual Report on Form 10-K.
Schedules other than that listed above have been omitted because
of the absence of the conditions under which they are required or because
the information required is shown in the consolidated financial statements
or the notes thereto. Separate financial statements for MAP and Arch Coal
required by Rule 3-09 of Regulation S-X will be filed as an amendment to
this Form 10-K within 90 days after the end of these entities' fiscal years
ending December 31, 1998. Separate financial statements of other
unconsolidated affiliates are omitted because each company does not
constitute a significant subsidiary using the 20% tests when considered
individually. Summarized financial information for such affiliates is
disclosed in Note 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 consolidated subsidiaries listed in the accompanying index
to financial statements and financial schedule (Item 14(a)). These
financial statements and schedule are the responsibility of Ashland's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Ashland Inc. and
consolidated subsidiaries at September 30, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Louisville, Kentucky
November 4, 1998
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, 1998
Reserves deducted from asset accounts
Accounts receivable $25 $ 8 $(10) (F1) $ (4) $19
Inventories 11 2 (2) - 11
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
Reserves deducted from asset accounts
Accounts receivable $27 $ 9 $(10) (F1) $ (1) $25
Inventories 10 2 (1) - 11
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1996
Reserves deducted from asset accounts
Accounts receivable $25 $10 $ (8) (F1) $ - $27
Inventories 6 6 (2) - 10
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(F1) Uncollected amounts written off, net of recoveries of $2 million in 1998, 1997 and 1996.
</FN>
21
</TABLE>
EXHIBIT INDEX
Exhibit No. Description
10.2 - Ashland Inc. Deferred Compensation and Stock
Incentive Plan for Non-Employee Directors.
10.4 - Ninth Amended and Restated Ashland Inc.
Supplemental Early Retirement Plan for Certain Key
Executive Employees.
10.11 - Ashland Inc. Nonqualified Excess Benefit Pension
Plan.
10.18 - Ashland Inc. 1997 Stock Incentive Plan.
13 - Portions of Ashland's Annual Report to
Shareholders, incorporated by reference herein, for
the fiscal year ended September 30, 1998.
21 - List of subsidiaries.
23 - Consent of independent auditors.
24 - Power of Attorney, including resolutions of the
Board of Directors.
27.1 - Financial Data Schedule for the fiscal year ended
September 30, 1998.
27.2 - Restated Financial Data Schedule for the fiscal year
ended September 30, 1997.
27.3 - Restated Financial Data Schedule for the fiscal year
ended September 30, 1996.
ASHLAND INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(Amended as of January 28, 1998)
ARTICLE I. GENERAL PROVISIONS
1. PURPOSE
The purpose of this Ashland Inc. Deferred Compensation 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.
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) "Beneficiary" means the person(s) designated by a Participant
in accordance with Article IV, Section 1.
(d) "Board" means the Board of Directors of Ashland Inc. or its
designee.
(e) "Business Day" means a day on which the New York Stock
Exchange is open for trading activity.
(f) "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.
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee on Directors" means the Committee on Directors of
the Board or its designee.
(i) "Common Stock" means the common stock, $1.00 par value, of
Ashland Inc.
(j) "Common Stock Fund" means that investment option, approved by
the Committee on Directors, 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.
(k) "Company" means Ashland Inc., its divisions and subsidiaries.
(l) "Corporate Human Resources" means the Corporate Human
Resources Department of the Company.
(m) "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.
(n) "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.
(o) "Deferred Fees" means the Fees elected by the Participant to
be deferred pursuant to the Plan.
(p) "Director" means any non-employee director of the Company.
(q) "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.
(r) "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.
(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) "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.
(v) "Fiscal Year" means that annual period commencing October 1
and ending the following September 30.
(w) "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.
(x) "Payment Commencement Date" means the date payments of amounts
deferred begin pursuant to Article III, Section 6.
(y) "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.
(z) "Plan" means this Ashland Inc. Deferred Compensation Plan For
Non-Employee Directors.
(aa) "Stock Account" means an account by that name established
pursuant to Article III, Section 1.
(bb) "Stock Unit(s)" means the share equivalents credited to a
Participant's Stock Account pursuant to Article III, Section 1.
(cc) "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. Such shares shall be
authorized but unissued shares of Common Stock.
(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 on Directors.
Decisions of the Company and the Committee on Directors shall be final,
conclusive and binding upon all parties. Day-to-day administration of the
Plan shall be the responsibility of Corporate Human Resources. This
Department may authorize new or modify existing forms for use under this
Plan so long as any such modified or new forms are not inconsistent with
the terms of the Plan.
ARTICLE II. COMMON STOCK PROVISION
Each Director may elect to receive all or a portion of his or her
Fees in shares of Common Stock by making an Election pursuant to Article
III, Section 4. Shares shall be issued to the Director at the end of each
quarter beginning in the quarter the Election is effective. The number of
shares of Common Stock so issued shall be equal to the amount of Fees which
otherwise would have been payable to such Director during the quarter
divided by the Fair Market Value. Only whole number of shares of Common
Stock will be issued, with any fractional shares to be paid in cash.
ARTICLE III. DEFERRED COMPENSATION
1. PARTICIPANT ACCOUNTS
(a) Upon election to participate in the Plan, there shall be
established a Deferral Account to which there shall be credited any
Deferred Fees as of each Credit Date. The Deferral Account shall be
credited (or debited) on each Accounting Date with income (or loss) based
upon a hypothetical investment in any one or more of the investment options
available under the Plan, as prescribed by the Committee on Directors,
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 on
Directors 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 such a payment is a member of the Committee on
Directors, the Participant shall abstain from the Committee on Directors'
determination as to whether the payment shall be made.
3. ACCELERATED DISTRIBUTION
(a) Availability of Withdrawal Prior to Termination. The
Participant or the Participant's Beneficiary who is receiving installment
payments under the Plan may elect, in writing, to withdraw all or a portion
of a Participant's Deferral Account at any time prior to the time such
Deferral Account otherwise becomes payable under the Plan, provided the
conditions specified in subsections (c), (d) and (e) of this Article III,
Section 3 are satisfied.
(b) Acceleration of Periodic Distributions. Upon the written
election of the Participant or the Participant's Beneficiary who is
receiving installment payments under the Plan, the Participant or
Participant's Beneficiary may elect to have all or a portion of the
remaining installments distributed in the form of an immediately payable
lump sum, provided the conditions specified in subsection (c) and (e) of
this Article III, Section 3 are satisfied.
(c) Forfeiture Penalty. In the event of a withdrawal pursuant to
subsection (a) of this Article III, Section 3, or an accelerated
distribution pursuant to subsection (b) of this Article III, Section 3, the
Participant shall forfeit from such Deferral Account an amount equal to 10%
of the amount of the withdrawal or accelerated distribution, as the case
may be. The forfeited amount shall be deducted from the Deferral Account
prior to giving effect to the requested withdrawal or acceleration. Neither
the Participant nor the Participant's Beneficiary shall have any right or
claim to the forfeited amount, and the Company shall have no obligation
whatsoever to the Participant, the Participant's Beneficiary or any other
person with regard to the forfeited amount.
(d) Minimum Withdrawal. In no event shall the amount withdrawn in
accordance with subsection (a) of this Article III, Section 3 be less than
25% of the amount credited to such Participant's Deferral Account
immediately prior to the withdrawal.
(e) Suspension from Deferrals. In the event of a withdrawal
pursuant to subsection (a) or (b) of this Article III, Section 3, a
Participant who is otherwise eligible to make deferrals of Fees under this
Plan shall be prohibited from making such deferrals with respect to the
remainder of the current Fiscal Year and the Fiscal Year of the Plan
immediately following the Fiscal Year of the Plan during which the
withdrawal was made, and any Election previously made by the Participant
with respect to deferrals of Fees for such Fiscal Year of the Plan shall be
void and of no effect.
4. MANNER OF ELECTION
(a) General. Any Director wishing to participate in the Plan may
elect to do so by delivering to the Secretary of the Company an Election on
a form prescribed by Corporate Human Resources designating the manner in
which such Deferred Fees are to be invested in accordance with Article III,
Section 1 and electing the timing and form of distribution. The timing of
the filing of the appropriate form with Corporate Human Resources shall be
determined by the Company or the Committee on Directors. An effective
election to defer Fees may not be revoked or modified except as otherwise
determined by the Company or the Committee on Directors 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 on Directors or the Company) as often, and with such
restrictions, as determined by the Committee on Directors 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 IV,
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 and as prescribed by the Committee on Directors, Deferred Fees
credited to a Participant's Deferral Account shall be distributed in cash
or shares of Common Stock (or a combination of both). Unless otherwise
directed by the Committee on Directors, 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 on
Directors, such Participant shall abstain from the Committee on Directors'
decision to approve or disapprove such change.
6. PAYMENT COMMENCEMENT DATE
Payments of amounts deferred pursuant to a valid Election shall
commence after a Participant's Termination in accordance with his or her
Election. If a Participant dies prior to the first deferred payment
specified in an Election, payments shall commence to the Participant's
Beneficiary on the first payment date so specified.
7. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the
event of a "Change in Control" (as defined in Section 2(f) 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(f) 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. 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.
3. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
4. AMENDMENTS
The Committee on Directors may amend, alter or terminate this Plan
at any time without the prior approval of the Directors; provided, however,
that the Committee on Directors 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, or
(c) otherwise materially increase the benefits accruing to
participants under the Plan.
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 on Directors, 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
January 27, 1994, and originally became effective as of November 9, 1993,
and has been restated in this document effective January 28, 1998.
NINTH AMENDED AND RESTATED
ASHLAND INC.
SUPPLEMENTAL EARLY RETIREMENT PLAN
FOR CERTAIN KEY EXECUTIVE EMPLOYEES
May 21, 1998
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 May 21, 1998. 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 May 21, 1998 shall be
governed by the terms of the Plan in effect at the time of such
Employee(s)' Effective Retirement Date(s) unless otherwise
determined by the Committee in its sole discretion.
ARTICLE II. DEFINITIONS.
The following terms used herein shall have the following meanings
unless the context otherwise requires: 2.01 "Age" - means the age of an
Employee as of his or her last birthday. 2.02 "Annual Retirement Income" -
means the annual income payable under this Plan by Ashland for the lifetime
of a Participant commencing on such Participant's Effective Retirement Date
and ending on his or her date of death, subject to the provisions of
Section 5.04.
2.03 "Ashland" - means Ashland Inc. and its present or future
subsidiary corporations.
2.04 "Board" - means the Board of Directors of Ashland and their
designees.
2.05 "Change in Control" - shall be deemed to occur (1) upon the
approval of the shareholders of Ashland (or if such approval is
not required, the approval of the Board) of (A) any consolidation
or merger of Ashland in which Ashland is not the continuing or
surviving corporation or pursuant to which shares of Ashland
common stock would be converted into cash, securities or other
property other than a merger in which the holders of Ashland
common stock immediately prior to the merger will have the same
proportionate ownership of common stock of the surviving
corporation immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of
Ashland, or (C) adoption of any plan or proposal for the
liquidation or dissolution of Ashland, (2) when any "person" (as
defined in Section 3(a)(9) or 13(d) of the Securities Exchange Act
of 1934), other than Ashland or any subsidiary or employee benefit
plan or trust maintained by Ashland or any of its subsidiaries,
shall become the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or
indirectly, of more than 15% of the Ashland common stock
outstanding at the time, without the approval of the Board, or (3)
if at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the
Board shall cease for any reason to constitute at least a majority
thereof, unless the election or nomination for election by
Ashland's shareholders of each new director during such two-year
period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning
of such two-year period.
2.06 "Committee" - means the Personnel and Compensation Committee of
the Board and their designees.
2.07 "Effective Retirement Date" - means the date upon which a
Participant retires under this Plan which shall be the first day
of the month following the Participant's 62nd birthday or, at
Ashland's discretion or as otherwise provided in Article V or VI,
any earlier age. Upon approval as provided in 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.
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.
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 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.
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
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");
(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 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.
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
such actuarial assumptions as determined by the
Committee. 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 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 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.
(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 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); (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. 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 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.
Conformed copy including Amendment No. 2
as adopted 5/20/98
ASHLAND INC. NONQUALIFIED EXCESS BENEFIT
PENSION PLAN - 1996 RESTATEMENT
as adopted on September 19, 1996
- ------------------------------------------------------------------------------
WHEREAS, the Employee Retirement Income Security Act of 1974
("ERISA") establishes maximum limitations on benefits and contributions for
retirement plans which meet the requirements of Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code");
WHEREAS, Ashland Inc. ("Ashland" or the "Company") maintains
certain pension plans which are subject to the aforesaid limitations on
benefits and contributions;
WHEREAS, Ashland adopted the Ashland Oil, Inc. Nonqualified
Pension Plan as of September 24, 1975 (which is now called the Ashland Inc.
Nonqualified Excess Benefit Pension Plan, otherwise referred to as the
"Plan"), for the purpose of providing benefits for certain employees in
excess of the aforesaid limitations;
WHEREAS, the Plan was amended and completely restated as of July
21, 1977; WHEREAS, the Plan was amended and completely restated as of
October 1, 1982; WHEREAS, the Plan was amended and completely restated as
of November 3, 1988; WHEREAS, Ashland has retained the authority to make
additional amendments to or terminate the Plan;
WHEREAS, Ashland desires to further amend and restate the Plan
and, as so amended, to continue the Plan in full force and effect;
NOW, THEREFORE, effective September 19, 1996, Ashland does hereby
further amend and restate the Plan in accordance with the following terms
and conditions:
1. Designation and Purpose of Plan. The Plan is designated the
"Ashland Inc. Nonqualified Excess Benefit Pension Plan" ("Plan"). The
purpose of the Plan is to provide benefits for certain employees in excess
of the limitations on contributions, benefits, and compensation imposed by
Sections 415 and 401(a)(17) of the Code (including successor provisions
thereto) on the plans to which those Sections apply. The portion of the
Plan providing benefits in excess of the Section 415 limits is an "excess
benefit plan" as that term is defined in Section 3(36) of ERISA. It is
intended that the portion, if any, of the Plan which is not an excess
benefit plan shall be maintained primarily for a select group of management
or highly compensated employees.
2. Eligibility. Subject to Section 11, the Plan shall apply to
those employees - (i) who have retired as an early, normal, or deferred
normal retiree under the provisions of the Ashland Inc. and Affiliates
Pension Plan ("Ashland Pension Plan"), as it may be amended, from time to
time, or under provisions of any other retirement plan, as such other plan
may be amended from time to time, which, from time to time, is specifically
designated by Ashland for purposes of eligibility and benefits under the
Plan (all such plans are hereinafter referred to jointly and severally as
"Affected Plans"); and (ii) who have been approved for participation in
this Plan by Ashland or its delegate, and such approval may, in the
discretion of Ashland, be made (A) before an employee's actual early,
normal or deferred retirement; or (B) posthumously in the event of a
benefit potentially available under Section 6 of the Plan. Notwithstanding
anything to the contrary contained herein, any employee who would be
entitled to participate in this Plan, but who is not a member of a select
group of management or a highly compensated employee, shall be entitled to
a benefit amount payable under the Plan based solely on the limitations on
benefits imposed under Section 415 of the Code.
3. Benefit Amount.
(i) Computation. At any particular time, the benefit payable to a retiree
eligible to participate in this Plan pursuant to the provisions in Section
2 shall be computed by subtracting from (A) the sum of (B) and (C) where -
(A) shall be the single life annuity that would be
payable at age 62 to such retiree under the Affected Plans -
(1) with the benefit so payable thereunder
calculated by disregarding any salary deferrals that may have been made by
such retiree under the Ashland Inc. Deferred Compensation Plan and thereby
restoring any salary that may have been so deferred to such retiree's
compensation for purposes of the Affected Plans, and
(2) prior to any reductions made because of the
limits imposed by Sections 415 and 401(a)(17) of the Code;
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. 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 such actuarial assumptions (including the
interest rate) as determined from time to time by the Committee, described
below. ^ [as amended by Amendment No. 2 adopted 5/20/98] The Personnel and
Compensation Committee of Ashland's Board of Directors 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 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
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
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 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.
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 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 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 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.
1997 STOCK INCENTIVE PLAN
(As amended January 1, 1998)
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 an automatic grant of Restricted Stock of the Company upon
being appointed or elected to the Company's Board of Directors. 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) "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.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "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.
(G) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(H) "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.
(I) "Committee on Directors" shall mean the Committee on Directors of
the Board, as from time to time constituted, or any successor committee
of the Board with similar functions.
(J) "Common Stock" shall mean the Common Stock of the Company ($1.00
par value), subject to adjustment pursuant to Section 13.
(K) "Company" shall mean, collectively, Ashland Inc. and its
Subsidiaries.
(L) "Employee" shall mean a regular, full-time or part-time employee
of Ashland as selected by the Committee to receive an Award under the
Plan.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(N) "Exercise Price" shall mean, with respect to each share of Common
Stock subject to an Option, the price fixed by the Committee at which
such share may be purchased from the Company pursuant to the exercise of
such Option, which price at no time may be less than 100% of the Fair
Market Value of the Common Stock on the date the Option is granted.
(O) "Fair Market Value" shall mean the price of the Common Stock as
reported on the Composite Tape of the New York Stock Exchange on the date
and at the time selected by the Company or as otherwise provided in the
Plan.
(P) "Incentive Stock Option" or "ISO" shall mean an Option that is
intended by the Committee to meet the requirements of Section 422 of the
Code or any successor provision.
(Q) "Merit Award" shall mean an award of Common Stock issued pursuant
to Section 9 of the Plan.
(R) "Non-Employee Director" shall mean a non-employee director within
the meaning of applicable regulatory requirements, including those
promulgated under Section 16 of the Exchange Act.
(S) "Nonqualified Stock Option" or "NQSO" shall mean an Option
granted pursuant to this Plan which does not qualify as an Incentive
Stock Option.
(T) "Option" shall mean the right to purchase Common Stock at a price
to be specified and upon terms to be designated by the Committee or
otherwise determined pursuant to this Plan. An Option shall be designated
by the Committee as a Nonqualified Stock Option or an Incentive Stock
Option.
(U) "Outside Director" shall mean a director of the Company who is
not also an Employee of the Company.
(V) "Performance Goals" means performance goals as may be established
in writing by the Committee which may be based on earnings, stock price,
return on equity, return on investment, total return to shareholders,
economic value added, debt rating or achievement of business or
operational goals, such as drilling or exploration targets or profit per
barrel. Such goals may be absolute in their terms or measured against or
in relation to other companies comparably or otherwise situated. Such
performance goals may be particular to an Employee or the division,
department, branch, line of business, subsidiary or other unit in which
the Employee works and/or may be based on the performance of Ashland
generally.
(W) "Performance Period" shall mean the period designated by the
Committee during which the performance objectives shall be measured.
(X) "Performance Share Award" shall mean an award of shares of Common
Stock, the issuance of which is contingent upon attainment of performance
objectives specified by the Committee.
(Y) "Performance Shares" shall mean those shares of Common Stock
issuable pursuant to a Performance Share Award.
(Z) "Personal Representative" shall mean the person or persons who,
upon the disability or incompetence of an Employee or Outside Director,
shall have acquired on behalf of the Employee or Outside Director by
legal proceeding or otherwise the right to receive the benefits specified
in this Plan.
(AA) "Plan" shall mean this Ashland Inc. 1997 Stock Incentive Plan.
(BB) "Restricted Period" shall mean the period designated by the
Committee during which Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered, which period in the case
of Employees shall not be less than one year from the date of grant
(unless otherwise directed by the Committee), and in the case of Outside
Directors is the period set forth in subsection (B) of Section 8.
(CC) "Restricted Stock" shall mean those shares of Common Stock
issued pursuant to a Restricted Stock Award which are subject to the
restrictions, terms, and conditions set forth in the related Agreement,
if any.
(DD) "Restricted Stock Award" shall mean an award of Restricted
Stock.
(EE) "Retained Distributions" shall mean any securities or other
property (other than regular cash dividends) distributed by the Company
in respect of Restricted Stock during any Restricted Period.
(FF) "Retirement" shall mean retirement of an Employee from the
employ of the Company at any time as described in the Ashland Inc. and
Affiliates Pension Plan or in any successor pension plan, as from time to
time in effect.
(GG) "Section 16(b) Optionee" shall mean an Employee or former
Employee who is subject to Section 16(b) of the Exchange Act.
(HH) "Stock Appreciation Right" or "SAR" shall mean the right of the
holder to elect to surrender an Option or any portion thereof which is
then exercisable and receive in exchange therefor shares of Common Stock,
cash, or a combination thereof, as the case may be, with an aggregate
value equal to the excess of the Fair Market Value of one share of Common
Stock over the Exercise Price specified in such Option multiplied by the
number of shares of Common Stock covered by such Option or portion
thereof which is so surrendered. An SAR may only be granted concurrently
with the grant of the related Option. An SAR shall be exercisable upon
any additional terms and conditions (including, without limitation, the
issuance of Restricted Stock and the imposition of restrictions upon the
timing of exercise) which may be determined as provided in the Plan.
(II) "Subsidiary" shall mean any present or future subsidiary
corporations, as defined in Section 424 of the Code, of Ashland.
(JJ) "Tax Date" shall mean the date the withholding tax obligation
arises with respect to the exercise of an Award.
Section 3. Stock Subject To The Plan
There will be reserved for issuance under the Plan (upon the exercise
of Options and Stock Appreciation Rights, upon awards of Restricted
Stock, Performance Shares and Merit Awards and for stock bonuses on
deferred awards of Restricted Stock and Performance Shares), an aggregate
of 3,212,000 shares of Ashland Common Stock, par value $1.00 per share;
provided, however, that of such shares, only 500,000 shares in the
aggregate shall be available for issuance for Restricted Stock Awards and
Merit Awards. Such shares shall be authorized but unissued shares of
Common Stock. Except as provided in Sections 7 and 8, if any Award under
the Plan shall expire or terminate for any reason without having been
exercised in full, or if any Award shall be forfeited, the shares subject
to the unexercised or forfeited portion of such Award shall again be
available for the purposes of the Plan. During the term of the Plan (as
provided in Section 14 hereof), no Employee shall be granted more than a
total of 500,000 in Options or Stock Appreciation Rights.
Section 4. Administration
Except as provided in subsection (B) of Section 8 herein, the Plan
shall be administered by the Committee.
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 (or, in the case of subsection (B) of Section 8 herein,
the Committee on Directors) may act only by a majority of its members.
Any determination of the Committee or the Committee on Directors may be
made, without notice, by the written consent of the majority of the
members of the Committee or the Committee on Directors. In addition, the
Committee or the Committee on Directors 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 or the Committee on Directors. No
member of the Committee or the Committee on Directors shall be liable for
any action taken or omitted to be taken by him or her or by any other
member of the Committee or the Committee on Directors in connection with
the Plan, except for his or her own willful misconduct or as expressly
provided by statute.
Section 5. Eligibility
Awards may only be granted (i) to individuals who are Employees of
Ashland, and (ii) as expressly provided in subsection (B) of Section 8 of
the Plan, to individuals who are duly elected Outside Directors of
Ashland.
Section 6. Options
A. Designation and Price.
(a) Any Option granted under the Plan may be granted as an Incentive
Stock Option or as a Nonqualified Stock Option as shall be designated by
the Committee at the time of the grant of such Option. Each Option shall,
at the discretion of the Company and as directed by the Committee, be
evidenced by an Agreement between the recipient and the Company, which
Agreement shall specify the designation of the Option as an ISO or a
NQSO, as the case may be, and shall contain such terms and conditions as
the Committee, in its sole discretion, may determine in accordance with
the Plan.
(b) Every Incentive Stock Option shall provide for a fixed expiration
date of not later than ten years from the date such Incentive Stock
Option is granted. Every Nonqualified Stock Option shall provide for a
fixed expiration date of not later than ten years and one month from the
date such Nonqualified Stock Option is granted.
(c) The Exercise Price of Common Stock issued pursuant to each Option
shall be fixed by the Committee at the time of the granting of the
Option; provided, however, that such Exercise Price shall in no event be
less than 100% of the Fair Market Value of the Common Stock on the date
such Option is granted.
B. Exercise.
The Committee may, in its discretion, provide for Options granted
under the Plan to be exercisable in whole or in part; provided, however,
that no Option shall be exercisable prior to the first anniversary of the
date of its grant, except as provided in Section 11 or as the Committee
otherwise determines in accordance with the Plan, and in no case may an
Option be exercised at any time for fewer than 50 shares (or the total
remaining shares covered by the Option if fewer than 50 shares) during
the term of the Option. The specified number of shares will be issued
upon receipt by Ashland of (i) notice from the holder thereof of the
exercise of an Option, and (ii) payment to Ashland (as provided in this
Section 6, subsection (C) below), of the Exercise Price for the number of
shares with respect to which the Option is exercised. Each such notice
and payment shall be delivered or mailed by postpaid mail, addressed to
the Treasurer of Ashland at Ashland Inc., 1000 Ashland Drive, Russell,
Kentucky 41169, or such other place or person as Ashland may designate
from time to time.
C. Payment for Shares.
Except as otherwise provided in this Section 6, the Exercise Price
for the Common Stock shall be paid in full when the Option is exercised.
Subject to such rules as the Committee may impose, the Exercise Price may
be paid in whole or in part (i) in cash, (ii) in whole shares of Common
Stock owned by the Employee and evidenced by negotiable certificates,
valued at their Fair Market Value (which shares of Common Stock must have
been owned by the Employee six months or longer, and not used to effect
an Option exercise within the preceding six months, unless the Committee
specifically provides otherwise), (iii) by Attestation, (iv) by a
combination of such methods of payment, or (v) by such other
consideration as shall constitute lawful consideration for the issuance
of Common Stock and be approved by the Committee (including, without
limitation, effecting a "cashless exercise," with a broker, of the
Option). "Attestation" means the delivery to Ashland of a completed
Attestation Form prescribed by Ashland setting forth the whole shares of
Common Stock owned by the Employee which the Employee wishes to utilize
to pay the Exercise Price. The Common Stock listed on the Attestation
Form must have been owned by the Employee six months or longer, and not
have been used to effect an Option exercise within the preceding six
months, unless the Committee specifically provides otherwise. A "cashless
exercise" of an option is a procedure by which a broker provides the
funds to an Employee to effect an option exercise. At the direction of
the Employee, the broker will either (i) sell all of the shares received
when the option is exercised and pay the Employee the proceeds of the
sale (minus the option exercise price, withholding taxes and any fees due
to the broker) or (ii) sell enough of the shares received upon exercise
of the option to cover the exercise price, withholding taxes and any fees
due the broker and deliver to the Employee (either directly or through
the Company) a stock certificate for the remaining shares. Dispositions
to a broker effecting a cashless exercise are not exempt under Section 16
of the Exchange Act.
Section 7. Stock Appreciation Rights
The Committee may grant Stock Appreciation Rights pursuant to the
provisions of this Section 7 to any holder of any Option granted under
the Plan with respect to all or a portion of the shares subject to the
related Option. An SAR may only be granted concurrently with the grant of
the related Option. Subject to the terms and provisions of this Section
7, each SAR shall be exercisable only at the same time and to the same
extent the related Option is exercisable and in no event after the
termination of the related Option. An SAR shall be exercisable only when
the Fair Market Value (determined as of the date of exercise of the SAR)
of each share of Common Stock with respect to which the SAR is to be
exercised shall exceed the Exercise Price per share of Common Stock
subject to the related Option. An SAR granted under the Plan shall be
exercisable in whole or in part by notice to Ashland. Such notice shall
state that the holder of the SAR elects to exercise the SAR and the
number of shares in respect of which the SAR is being exercised.
Subject to the terms and provisions of this Section 7, upon the
exercise of an SAR, the holder thereof shall be entitled to receive from
Ashland consideration (in the form hereinafter provided) equal in value
to the excess of the Fair Market Value (determined as of the date of
exercise of the SAR) of each share of Common Stock with respect to which
such SAR has been exercised over the Exercise Price per share of Common
Stock subject to the related Option. The Committee may stipulate in the
Agreement the form of consideration which shall be received upon the
exercise of an SAR. If no consideration is specified therein, upon the
exercise of an SAR, the holder may specify the form of consideration to
be received by such holder, which shall be in shares of Common Stock, or
in cash, or partly in cash and partly in shares of Common Stock (valued
at Fair Market Value on the date of exercise of the SAR) , as the holder
shall request; provided, however, that the Committee, in its sole
discretion, may disapprove the form of consideration requested and
instead authorize the payment of such consideration in shares of Common
Stock (valued as aforesaid), or in cash, or partly in cash and partly in
shares of Common Stock.
Upon the exercise of an SAR, the related Option shall be deemed
exercised to the extent of the number of shares of Common Stock with
respect to which such SAR is exercised and to that extent a corresponding
number of shares of Common Stock shall not again be available for the
grant of Awards under the Plan. Upon the exercise or termination of the
related Option, the SAR with respect thereto shall be considered to have
been exercised or terminated to the extent of the number of shares of
Common Stock with respect to which the related Option was so exercised or
terminated.
Section 8. Restricted Stock Awards
A. Awards to Employees
The Committee may make an award of Restricted Stock to selected
Employees, which may, at the Company's discretion and as directed by the
Committee, be evidenced by an Agreement which shall contain such terms
and conditions as the Committee, in its sole discretion, may determine.
The amount of each Restricted Stock Award and the respective terms and
conditions of each Award (which terms and conditions need not be the same
in each case) shall be determined by the Committee in its sole
discretion. As a condition to any Award hereunder, the Committee may
require an Employee to pay to the Company a non-refundable amount equal
to, or in excess of, the par value of the shares of Restricted Stock
awarded to him or her. Subject to the terms and conditions of each
Restricted Stock Award, the Employee, as the owner of the Common Stock
issued as Restricted Stock, shall have all rights of a shareholder
including, but not limited to, voting rights as to such Common Stock and
the right to receive dividends thereon when, as and if paid.
In the event that a Restricted Stock Award has been made to an
Employee whose employment or service is subsequently terminated for any
reason prior to the lapse of all restrictions thereon, such Restricted
Stock will be forfeited in its entirety by such Employee; provided,
however, that the Committee may, in its sole discretion, limit such
forfeiture.
Employees may be offered the opportunity to defer the receipt of
payment of vested shares of Restricted Stock, and Common Stock may be
granted as a bonus for deferral, under terms as may be established by the
Committee from time to time; however, in no event shall the Common Stock
granted as a bonus for deferral exceed 20% of the Restricted Stock so
deferred.
B. Awards to Outside Directors
During the term of the Plan, each person who is duly appointed or
elected as an Outside Director 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. All Awards under this subsection (B) are subject to
the limitation on the number of shares of Common Stock available pursuant
to Section 3 and to the terms and conditions set forth in this subsection
(B) and subsection (C) below.
As a condition to any Award hereunder, the Outside Director may be
required to pay to the Company a non-refundable amount equal to the par
value of the shares of Restricted Stock awarded to him or her. Upon the
granting of the Restricted Stock Award, such Outside Director shall be
entitled to all rights incident to ownership of Common Stock of the
Company with respect to his or her Restricted Stock, including, but not
limited to, the right to vote such shares of Restricted Stock and to
receive dividends thereon when, as and if paid; provided, however, that,
subject to subsection (C) hereof, in no case may any shares of Restricted
Stock granted to an Outside Director be sold, assigned, transferred,
pledged, or otherwise encumbered during the Restricted Period which shall
not lapse until the earlier to occur of the following: (i) retirement
from the Board at age 70, (ii) the death or disability of such Outside
Director, (iii) a 50% change in the beneficial ownership of the Company
as defined in Rule 13d-3 under the Exchange Act, or (iv) voluntary early
retirement to take a position in governmental service. Unless otherwise
determined and directed by the Committee on Directors, in the case of
voluntary resignation or other termination of service of an Outside
Director prior to the occurrence of any of the events described in the
preceding sentence, any grant of Restricted Stock made to him or her
pursuant to this subsection (B) will be forfeited by such Outside
Director. As used herein, a director shall be deemed "disabled" when he
or she is unable to attend to his or her duties and responsibilities as a
member of the Board because of incapacity due to physical or mental
illness.
C. Transferability
Subject to subsection (B) of Section 15 hereof, Restricted Stock may
not be sold, assigned, transferred, pledged, or otherwise encumbered
during a Restricted Period, which, in the case of Employees, shall be
determined by the Committee and, unless otherwise determined by the
Committee, shall not be less than one year from the date such Restricted
Stock was awarded, and, in the case of Outside Directors, shall be
determined in accordance with subsection (B) of this Section 8. The
Committee may, at any time, reduce the Restricted Period with respect to
any outstanding shares of Restricted Stock awarded under the Plan to
Employees, but, unless otherwise determined by the Committee, such
Restricted Period shall not be less than one year.
During the Restricted Period, certificates representing the
Restricted Stock and any Retained Distributions shall be registered in
the recipient's name and bear a restrictive legend to the effect that
ownership of such Restricted Stock (and any such Retained Distributions),
and the enjoyment of all rights appurtenant thereto are subject to the
restrictions, terms, and conditions provided in the Plan and the
applicable Agreement, if any. Such certificates shall be deposited by the
recipient with the Company, together with stock powers or other
instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and
any securities constituting Retained Distributions which shall be
forfeited in accordance with the Plan and the applicable Agreement, if
any. Restricted Stock shall constitute issued and outstanding shares of
Common Stock for all corporate purposes. The recipient will have the
right to vote such Restricted Stock, to receive and retain all regular
cash dividends, and to exercise all other rights, powers, and privileges
of a holder of Common Stock with respect to such Restricted Stock, with
the exception that (i) the recipient will not be entitled to delivery of
the stock certificate or certificates representing such Restricted Stock
until the restrictions applicable thereto shall have expired; (ii) the
Company will retain custody of all Retained Distributions made or
declared with respect to the Restricted Stock (and such Retained
Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if
ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid, or declared shall have become
vested, and such Retained Distributions shall not bear interest or be
segregated in separate accounts; (iii) subject to subsection (B) of
Section 15 hereof, the recipient may not sell, assign, transfer, pledge,
exchange, encumber, or dispose of the Restricted Stock or any Retained
Distributions during the Restricted Period; and (iv) a breach of any
restrictions, terms, or conditions provided in the Plan or established by
the Committee with respect to any Restricted Stock or Retained
Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
Section 9. Merit Awards
The Committee may from time to time make an award of Common Stock
under the Plan to selected Employees for such reasons and in such amounts
as the Committee, in its sole discretion, may determine. As a condition
to any such Merit Award, the Committee may require an Employee to pay to
the Company an amount equal to, or in excess of, the par value of the
shares of Common Stock awarded to him or her.
Section 10. Performance Shares
The Committee may make awards of Common Stock which may, in the
Company's discretion and as directed by the Committee, be evidenced by an
Agreement, to selected Employees on the basis of the Company's financial
performance in any given period. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine the
Employees who shall receive such Performance Shares, to determine the
number of such shares to be granted for each Performance Period, and to
determine the duration of each such Performance Period. There may be more
than one Performance Period in existence at any one time, and the
duration of Performance Periods may differ from each other.
The Performance Goals and Performance Period applicable to an award
of Performance Shares shall be set forth in writing by the Committee no
later than 90 days after the commencement of the Performance Period and
shall be communicated to the Employee. The Committee shall have the
discretion to later revise the Performance Goals solely for the purpose
of reducing or eliminating the amount of compensation otherwise payable
upon attainment of the Performance Goals; provided that the Performance
Goals and the amounts payable upon attainment of the Performance Goals
may be adjusted during any Performance Period to reflect promotions,
transfers or other changes in an Employee's employment so long as such
changes are consistent with the Performance Goals established for other
Employees in the same or similar positions.
In making a Performance Share award, the Committee may take into
account an Employee's responsibility level, performance, cash
compensation level, incentive compensation awards and such other
considerations as it deems appropriate. Each Performance Share award
shall be established in shares of Common Stock and/or shares of
Restricted Stock in such proportions as the Committee shall determine.
The original amount of any Performance Share award shall not exceed
250,000 shares of Common Stock or Restricted Stock.
The Committee shall determine, in its sole discretion, the manner of
payment, which may include (i) cash, (ii) shares of Common Stock, or
(iii) shares of Restricted Stock in such proportions as the Committee
shall determine. Employees may be offered the opportunity to defer the
receipt of payment of earned Performance Shares, and Common Stock may be
granted as a bonus for deferral under terms as may be established by the
Committee from time to time; however, in no event shall the Common Stock
granted as a bonus for deferral exceed 20% of the Performance Shares so
deferred.
An Employee must be employed by the Company at the end of a
Performance Period in order to be entitled to payment of Performance
Shares in respect of such period; provided, however, that in the event of
an Employee's cessation of employment before the end of such period, or
upon the occurrence of his or her death, retirement, or disability, or
other reason approved by the Committee, the Committee may, in its sole
discretion, limit such forfeiture.
Section 11. Continued Employment, Agreement To Serve And Exercise Periods
(A) Subject to the provisions of subsection (F) of this Section 11,
every Option and SAR shall provide that it may not be exercised in whole
or in part for a period of one year after the date of granting such
Option (unless otherwise determined by the Committee) and if the
employment of the Employee shall terminate prior to the end of such one
year period (or such other period determined by the Committee), the
Option granted to such Employee shall immediately terminate.
(B) Every Option shall provide that in the event the Employee dies
(i) while employed by Ashland, (ii) during the periods in which Options
may be exercised by an Employee determined to be disabled as provided in
subsection (C) of this Section 11 or (iii) after Retirement, such Option
shall be exercisable, at any time or from time to time, prior to the
fixed termination date set forth in the Option, by the Beneficiaries of
the decedent for the number of shares which the Employee could have
acquired under the Option immediately prior to the Employee's death.
(C) Every Option shall provide that in the event the employment of
any Employee shall cease by reason of disability, as determined by the
Committee at any time during the term of the Option, such Option shall be
exercisable, at any time or from time to time prior to the fixed
termination date set forth in the Option by such Employee for the number
of shares which the Employee could have acquired under the Option
immediately prior to the Employee's disability. As used herein, an
Employee will be deemed "disabled" when he or she becomes unable to
perform the functions required by his or her regular job due to physical
or mental illness and, in connection with the grant of an Incentive Stock
Option shall be disabled if he or she falls within the meaning of that
term as provided in Section 22(e)(3) of the Code. The determination by
the Committee of any question involving disability shall be conclusive
and binding.
(D) Every Option shall provide that in the event the employment of
any Employee shall cease by reason of Retirement, such Option may be
exercised at any time or from time to time, prior to the fixed
termination date set forth in the Option for the number of shares which
the Employee could have acquired under the Option immediately prior to
such Retirement.
(E) Except as provided in subsections (A), (B), (C), (D), (F) and (G)
of this Section 11, every Option shall provide that it shall terminate on
the earlier to occur of the fixed termination date set forth in the
Option or thirty (30) days after cessation of the Employee's employment
for any cause only in respect of the number of shares which the Employee
could have acquired under the Option immediately prior to such cessation
of employment; provided, however, that no Option may be exercised after
the fixed termination date set forth in the Option.
(F) Notwithstanding any provision of this Section 11 to the contrary,
any Award granted pursuant to the Plan, except a Restricted Stock Award
to Outside Directors, which is governed by Section 8, subsection (B),
may, in the discretion of the Committee or as provided in the relevant
Agreement (if any), become exercisable, at any time or from time to time,
prior to the fixed termination date set forth in the Award for the full
number of awarded shares or any part thereof, less such numbers as may
have been theretofore acquired under the Award (i) from and after the
time the Employee ceases to be an Employee of Ashland as a result of the
sale or other disposition by Ashland of assets or property (including
shares of any Subsidiary) in respect of which such Employee had
theretofore been employed or as a result of which such Employee's
continued employment with Ashland is no longer required, and (ii) in the
case of a Change in Control of Ashland, from and after the date of such
Change in Control.
(G) Notwithstanding any provision of this Section 11 to the contrary,
in the event the Committee determines, in its sole and absolute
discretion, that the employment of any Employee has terminated for a
reason or in a manner adversely affecting the Company (which may include,
without limitation, taking other employment or rendering service to
others without the consent of the Company), then the Committee may direct
that such Employee forfeit any and all Options that he or she could
otherwise have exercised pursuant to the terms of this Plan.
(H) Each Employee granted an Award under this Plan shall agree by his
or her acceptance of such Award to remain in the service of Ashland for a
period of at least one year from the date of the Agreement respecting the
Award between Ashland and the Employee (or, if no Agreement is entered
into, at least one year from the date of the Award). Such service shall,
subject to the terms of any contract between Ashland and such Employee,
be at the pleasure of Ashland and at such compensation as Ashland shall
reasonably determine from time to time. Nothing in the Plan, or in any
Award granted pursuant to the Plan, shall confer on any individual any
right to continue in the employment of or service to Ashland or interfere
in any way with the right of Ashland to terminate the Employee's
employment at any time.
(I) Subject to the limitations set forth in Section 422 of the Code,
the Committee may adopt, amend, or rescind from time to time such
provisions as it deems appropriate with respect to the effect of leaves
of absence approved by any duly authorized officer of Ashland with
respect to any Employee.
Section 12. Withholding Taxes
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of an Award. Unless
otherwise prohibited by the Committee, each Employee may satisfy any such
tax withholding obligation by any of the following means, or by a
combination of such means: (i) a cash payment, (ii) authorizing Ashland
to withhold from the shares of Common Stock otherwise issuable to the
Employee pursuant to the exercise or vesting of an Award a number of
shares having a Fair Market Value, as of the Tax Date, which will satisfy
the amount of the withholding tax obligation, or (iii) by delivery to
Ashland of a number of shares of Common Stock having a Fair Market Value
as of the Tax Date which will satisfy the amount of the withholding tax
obligation arising from an exercise or vesting of an Award. An Employee's
election to pay the withholding tax obligation by (ii) or (iii) above
must be made on or before the Tax Date, is irrevocable, is subject to
such rules as the Committee may adopt, and may be disapproved by the
Committee. If the amount requested is not paid, the Committee may refuse
to issue Common Stock under the Plan.
Section 13. Adjustments Upon Changes In Capitalization
In the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination, or exchange of
shares, split-up, split-off, spin-off, liquidation or other similar
change in capitalization, or any distribution to common stockholders
other than cash dividends, the number or kind of shares that may be
issued under the Plan pursuant to Section 3 and the number or kind of
shares subject to, or the price per share under any outstanding Award
shall be automatically adjusted so that the proportionate interest of the
Employee or Outside Director shall be maintained as before the occurrence
of such event. Such adjustment shall be conclusive and binding for all
purposes of the Plan.
Section 14. Amendments And Terminations
Unless the Plan shall have been earlier terminated as hereinafter
provided, no Awards shall be granted hereunder after January 30, 2002.
The Board, the Committee, or the Committee on Directors 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 an Award of 1,000 Restricted Shares to an Outside
Director upon being appointed or elected to the Company's Board of
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 or, in the case of an Outside Director, the Committee on
Directors, 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, the Committee or the Committee
on Directors.
(F) Awards granted under the Plan shall be binding upon Ashland, its
successors, and assigns.
(G) The appropriate officers of the Company shall cause to be filed
any reports, returns, or other information regarding Awards hereunder or
any Common Stock issued pursuant hereto as may be required by Sections
13, 15(d) or 16(a) of the Exchange Act, or any other applicable statute,
rule, or regulation.
(H) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required.
(I) Each Employee shall be deemed to have been granted any Award on
the date the Committee took action to grant such Award under the Plan or
such later date as the Committee in its sole discretion shall determine
at the time such grant is authorized.
Section 16. Effectiveness Of The Plan
The Plan was submitted to the shareholders of the Company for their
approval and adoption on January 30, 1997 and was approved by the
shareholders on that date.
Section 17. Governing Law
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended September 30
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES AND OPERATING REVENUES
Ashland Chemical $4,087 $ 3,929 $ 3,602
APAC 1,444 1,257 1,235
Valvoline 1,023 1,053 1,133
Refining and Marketing - 6,828 6,570
Intersegment sales (20) (234) (227)
- ----------------------------------------------------------------------------------------------------------------
$6,534 $ 12,833 $ 12,313
================================================================================================================
OPERATING INCOME
Ashland Chemical $ 158 $ 140 $ 170
APAC 90 82 83
Valvoline 53 65 79
Refining and Marketing(F1) 254 209 101
Inventory valuation adjustments(F2) (15) - -
Arch Coal 25 25 22
Corporate (118) (60) (96)
- ----------------------------------------------------------------------------------------------------------------
$ 447 $ 461 $ 359
================================================================================================================
OPERATING INFORMATION
APAC
Construction backlog at September 30 (millions) $ 838 $ 693 $ 647
Hot mix asphalt production (million tons) 23.1 20.3 19.3
Aggregate production (million tons) 20.3 17.0 15.8
Valvoline lubricant sales (thousand barrels per day) 16.7 15.8 15.1
Refining and Marketing(F3)
Refined product sold (thousand barrels per day) 1,183.7
Crude oil refined (thousand barrels per day) 904.6
Arch Coal(F3)
Tons sold (millions) 67.3 53.7 50.6
Tons produced (millions) 61.8 50.0 46.6
================================================================================================================
</TABLE>
[FN]
(F1) Effective January 1, 1998, includes Ashland's equity income from
Marathon Ashland Petroleum LLC (MAP), amortization of Ashland's
excess investment in MAP, and certain retained refining and
marketing activities.
(F2) Represents Ashland's share of inventory adjustments associated
with the formation of MAP and changes in MAP's inventory market
valuation reserve. The reserve reflects the excess of the LIFO
cost of MAP's crude oil and refined product inventories over their
net realizable values.
(F3) Amounts represent 100 percent of the volumes of MAP or Arch Coal.
MAP commenced operations January 1, 1998.
</FN>
34
<PAGE>
BASIS OF PRESENTATION
During 1998, Ashland and Marathon Oil Company formed Marathon Ashland
Petroleum LLC (MAP), combining the major elements of the refining,
marketing and transportation operations of the two companies. Marathon has
a 62% interest in MAP and Ashland holds a 38% interest, which is accounted
for using the equity method of accounting. For comparison purposes, Ashland
changed its method of accounting for the businesses conveyed to MAP to the
equity method as of the beginning of fiscal 1998. Since restatement of
financial statements for years prior to 1998 is not permitted under
generally accepted accounting principles, Ashland's financial statements
for 1998 are not comparable to 1997 and 1996. The change had no effect on
Ashland's net income or common stockholders' equity, but reduced its
revenues, costs, assets and liabilities, and changed certain components of
its cash flow.
RESULTS OF OPERATIONS
Ashland's net income amounted to $203 million in 1998, $279 million in 1997
and $211 million in 1996. However, such earnings include various unusual
items which significantly affected the comparisons. The following table
shows the effects of unusual items on Ashland's operating and net income
for the three years ended September 30, 1998.
<TABLE>
<CAPTION>
Operating income Net income
--------------------------- ------------------------------
(In millions) 1998 1997 1996 1998 1997 1996
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Income before unusual items $541 $489 $359 $263 $245 $163
G&A restructuring and headquarters move (50) - - (31) - -
Environmental and severance reserves (43) - - (26) - -
LIFO inventory adjustments (15) - - (9) - -
Gain on sale of Melamine Chemicals 14 - - 6 - -
Gain on sale of Blazer Energy - - - - 71 -
Asset impairment write-downs - (26) - - (22) -
Costs related to coal merger - (13) - - (13) -
Inventory liquidation gains - 11 - - 7 -
Extraordinary loss on debt prepayment - - - - (9) -
Columbia Gas bankruptcy settlement - - - - - 48
- ------------------------------------------------------------------------------------------------------------------------------
Income as reported $447 $461 $359 $203 $279 $211
==============================================================================================================================
</TABLE>
During 1998, Ashland restructured its corporate general and administrative
functions and decided to move its headquarters. Costs associated with these
actions are estimated at $57 million, of which $50 million was recognized
in 1998. The remainder will be recognized as relocations occur in 1999. In
addition, when MAP was formed, Ashland contractually agreed to complete
certain voluntary efforts in progress at various operating locations
conveyed to MAP, as well as retain the costs associated with issues
addressed in a multi-media inspection of former Ashland refineries by the
Environmental Protection Agency. Ashland also decided to close a landfill
near its former refinery at Catlettsburg, Kentucky. Charges associated with
these issues amounted to $38 million. An additional $5 million was provided
for severance costs associated with the consolidation of MAP's retail
marketing headquarters. Other unusual items included a gain of $14 million
from the sale of Ashland's stock in Melamine Chemicals, and a charge of $15
million for Ashland's share of inventory adjustments associated with the
formation of MAP and changes in MAP's inventory market valuation reserve.
That reserve reflects the excess of the LIFO costs of MAP's crude oil and
refined product inventories over their net realizable values.
During 1997, Ashland decided 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
1998, Ashland completed its withdrawal from the business through the sale
of its Nigerian operations with no significant gain or loss.
Ashland Coal and Arch Mineral merged in July 1997 to form Arch Coal, Inc.
Many synergistic opportunities were pursued, some of which led to the
charge of $13 million to write-off duplicate facilities previously owned by
Arch Mineral and 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, a gain of $11 million from the
liquidation of certain inventories of Refining and Marketing and an
extraordinary loss of $9 million related to the prepayment of certain
long-term debt. While Ashland remains committed to expanding Ashland
Chemical and Valvoline on a global basis, results from certain of their
European operations were 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 below the current
replacement costs of the inventories.
Ashland entered into a settlement agreement during 1995 with Columbia Gas
Transmission to resolve claims involving natural gas sales contracts that
were abrogated by Columbia in 1991. The agreement provided for a $78
million payment to Ashland, of which 5% would be withheld by Columbia to be
used to potentially satisfy the claims of non-settling producers. The net
proceeds were received under this agreement in 1996, resulting in net
income of $48 million.
35
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (CONTINUED)
Excluding unusual items, net income amounted to $263 million in 1998,
compared to $245 million in 1997. While the majority of the improvement
came from Refining and Marketing, APAC also achieved record results in
1998. Ashland Chemical, Valvoline and Arch Coal reported reduced earnings.
Net income of $245 million for 1997 was up from $163 million in 1996.
Refining and Marketing results were up considerably, as were earnings from
Ashland's coal investments. Although results from Ashland Chemical, APAC
and Valvoline were down from their 1996 levels, the declines resulted from
higher allocations of Corporate expenses in most cases. Ashland began
allocating more of these expenses in 1997 to the segments to better reflect
their costs of doing business.
The following table compares operating income before unusual items by
segment for the three years ended September 30, 1998. The increased
allocations of Corporate expenses reduced the operating results of the
segments on a comparative basis by $39 million beginning in 1997, but did
not have a significant impact on overall income.
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------------
Operating income
Ashland Chemical $144 $156 $170
APAC 90 82 83
Valvoline 53 75 79
Refining and Marketing 297 198 101
Arch Coal 25 38 22
Corporate (68) (60) (96)
- ----------------------------------------------------------------------------
$541 $489 $359
============================================================================
(Bar graph appears in the left margin comparing operating income from
Ashland Inc. for fiscal 1996, 1997 and 1998.)
ASHLAND CHEMICAL
Excluding unusual items, operating income of Ashland Chemical decreased
from $156 million in 1997 to $144 million in 1998, reflecting lower results
from all business groups. Operating income from the distribution businesses
was down slightly, due to reduced sales volumes of industrial chemicals and
solvents. Results from specialty chemicals declined $9 million, as reduced
earnings from electronic chemicals and foundry products more than offset
the favorable effects of costs reductions by marine chemicals. Electronic
chemicals felt the adverse effects of the Asian crisis on the domestic
semiconductor industry, as well as start-up costs associated with its new
manufacturing plant in Pueblo, Colorado. Foundry products were also
affected by the Asian crisis, as well as the strike at General Motors and
unfavorable translation effects from the strong U. S. Dollar on the
earnings from its foreign operations. Results from petrochemicals were down
$3 million, reflecting very weak methanol markets.
Ashland Chemical's operating income before unusual items amounted to $156
million in 1997, compared to $170 million in 1996. Results from the
distribution businesses were down slightly due to margin declines for
industrial chemicals and solvents. 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. Earnings from petrochemicals were up $3
million, reflecting increased methanol sales volumes and margins. Ashland
Chemical also incurred an additional $11 million allocation of Corporate
expenses, as well as charges of $8 million for environmental remediation
and plant shutdown costs.
(Bar graph appears in the left margin comparing operating income from
Ashland Chemical for fiscal 1996, 1997 and 1998.)
APAC
The APAC construction companies achieved record results in 1998 with
operating income of $90 million, compared to $82 million in 1997.
Reflecting newly acquired operations, including the Masters-Jackson group,
net revenue (total revenue less subcontract work) was up 17%, while
production of asphalt and crushed aggregate increased 13% and 19%. In
addition, liquid asphalt costs per ton were down about 7%, enhancing
margins.
Operating income from APAC amounted to $82 million in 1997, compared to $83
million in 1996. Net revenue was up 4%, while production of hot mix asphalt
increased 5% and crushed aggregate was up 8%. The favorable effects,
however, were more than offset by an additional $4 million in Corporate
expense allocations.
(Bar graph appears in the left margin comparing operating income from
APAC for fiscal 1996, 1997 and 1998.)
VALVOLINE
Operating income from Valvoline was $53 million in 1998, compared to $75
million in 1997 before unusual items. The decline reflects a $24 million
reduction in gross profit from R-12, an automotive refrigerant. Ample
inventory of R-12 at the distributor and retail levels reduced the demand
during 1998. Valvoline's earnings decline also reflects lower antifreeze
margins, as well as increased advertising and promotional expenses related
to the introduction of Valvoline's Synpower premium automotive chemicals
line and Eagle One appearance products. In addition, the used oil
collection business felt the adverse effects of soft used oil fuel prices
and costs associated with new collection programs. On the positive side,
earnings from Valvoline's core lubricant and international operations
improved significantly, reflecting higher sales volumes and better domestic
product mix. Earnings from Valvoline Instant Oil Change (VIOC) were also up
slightly, reflecting higher revenues per car serviced. At September 30,
1998, VIOC operated 391 company-owned
36
<PAGE>
outlets, compared to 382 outlets in 1997 and 374 outlets in 1996. In
addition, the VIOC franchising program was expanded significantly, with 183
outlets open in 1998, compared to 137 outlets in 1997 and 100 outlets in
1996.
Excluding unusual items, Valvoline's operating income amounted to $75
million in 1997, compared to $79 million in 1996. Gross profits from
Valvoline's core lubricant business were up 13%, reflecting improved
margins, while gross profits from antifreeze increased $8 million as
margins recovered from extremely depressed levels in 1996. However, these
improvements were more than offset by an increase of $5 million in
Corporate expense allocations and by a reduction in gross profits from
R-12. Due to cool summer weather which shortened the peak season, sales
volumes of R-12 were down significantly in 1997. The used oil collection
business operated profitably, while earnings from VIOC declined slightly
due to higher operating expenses.
(Bar graph appears in the right margin comparing operating income from
Valvoline for fiscal 1996, 1997 and 1998.)
REFINING AND MARKETING
Excluding unusual items, operating income from Refining and Marketing was
$297 million in 1998, up $99 million from last year. Results for 1998
include the operating income of Ashland Petroleum and SuperAmerica for the
December 1997 quarter prior to the formation of MAP, Ashland's 38% share of
MAP's earnings for the nine months ended September 30, 1998, amortization
of Ashland's excess investment in MAP, and results of certain retained
refining and marketing activities. Earnings from Ashland's former refining
and marketing businesses in the December 1997 quarter were up $20 million
from last year's quarter, reflecting higher refining margins, combined with
a 3.2 cent a gallon improvement in retail margins. In addition, results
from MAP for the nine months ended September 30, 1998, reflect a $79
million improvement from the results achieved by Ashland Petroleum and
SuperAmerica for that period last year. While this improvement resulted
principally from more favorable industry conditions in 1998, a different
mix of operations and captured synergies were also factors in the year to
year improvement. In addition, results during the March 1997 quarter were
adversely affected by heavy flooding in the Ohio Valley which limited
Ashland Petroleum's ability to ship products on the river systems.
Operating income from Refining and Marketing before unusual items nearly
doubled from $101 million in 1996 to $198 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
Corporate expenses.
During the first half of fiscal 1997, Refining operated at near break-even
levels reflecting 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 improved 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 continued efforts by
Ashland Petroleum to improve its competitive position.
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.
(Bar graph appears in the right margin comparing operating income from
Refining and Marketing for fiscal 1996, 1997 and 1998.)
ARCH COAL
Ashland's equity income from Arch Coal amounted to $25 million in 1998,
compared to combined equity income of $38 million from Arch Mineral and
Ashland Coal before unusual items in 1997. Eastern coal sales declined 14%
in 1998, and margins were down reflecting costs associated with the closing
of certain mines, the scheduled expiration of a favorable long-term supply
contract with Georgia Power, and costs related to extensive maintenance
projects undertaken during this summer's shutdown for miners' vacations. In
addition, the newly acquired western operations have not yet reached the
level of earnings necessary to offset the incremental interest costs on the
debt incurred to acquire those operations. The effects of these shortfalls,
however, were partially offset by a gain on the sale of certain inactive
mining assets in eastern Kentucky, which increased Ashland's equity income
by $6 million.
Combined equity income from Ashland's coal investments amounted to $38
million in 1997 before unusual items, compared to $22 million in 1996. Arch
Mineral's contributions to such earnings were up strongly from 1996,
reflecting increased production and reduced administrative and interest
costs. Ashland Coal's contributions to 1997 results were also up from 1996
despite the expiration of certain higher priced sales contracts at 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 the
reduced sales prices.
(Bar graph appears in the right margin comparing equity income from
Arch Coal for fiscal 1996, 1997 and 1998.)
CORPORATE
Excluding unusual items, Corporate expenses were $68 million in 1998, $60
million in 1997 and $96 million in 1996. Although administrative costs were
down slightly in 1998, amounts allocated to divisions declined $11 million
principally due to the formation of MAP. 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.
37
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTEREST EXPENSE
Interest expense (net of interest income) amounted to $130 million in 1998,
$142 million in 1997 and $151 million in 1996. The reductions since 1996
resulted principally from the redemption of certain high interest rate debt
using the proceeds from the sale of Blazer Energy during 1997.
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 and $75 million in 1996. 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.
(Bar graph appears in the left margin comparing cash flows from
continuing operations for fiscal 1996, 1997 and 1998.)
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 which expires on February 9, 2000, providing for
up to $320 million in borrowings, none of which was in use at September 30,
1998. Under a shelf registration, Ashland can also issue an additional $220
million in medium-term notes should future opportunities or needs arise.
Furthermore, Ashland has access to various uncommitted lines of credit and
commercial paper markets, under which short-term notes of $84 million were
outstanding at September 30, 1998. While the revolving credit agreement
contains covenants limiting new borrowings, Ashland could have increased
its indebtedness (including any borrowings under that agreement) by up to
$2 billion at September 30, 1998.
Cash flows from continuing operations, a major source of Ashland's
liquidity, amounted to $366 million in 1998, $565 million in 1997 and $544
million in 1996. The reduction in cash flows from operations in 1998
reflects increased working capital requirements across Ashland's operating
divisions and changes resulting from the formation of MAP. Since MAP is
accounted for on the equity method, Ashland's share of MAP's capital
expenditures are now reported as a reduction of cash flows from operations
(i.e., such expenditures reduce distributions from equity affiliates). Cash
flows from operations exceeded Ashland's capital requirements for net
property additions and dividends since 1995 by nearly $275 million,
providing additional funds for debt repayment and acquisitions.
Property additions amounted to just over $1 billion during the last three
years and are summarized in the Information by Industry Segment on Page 61.
Although the overall trend is down for that period, the reductions were
within Refining and Marketing. Capital expenditures by Ashland's
wholly-owned operations increased from $161 million in 1996 to $254 million
in 1998, with growth in each of those operations. Ashland Chemical
accounted for 53% of the capital expenditures (excluding Refining and
Marketing and Corporate) over that three-year period, with APAC accounting
for 34% and Valvoline accounting for 13%. Capital used for acquisitions
(including companies acquired through the issuance of common stock)
amounted to $417 million during the last three years, of which $199 million
was invested in Ashland Chemical, $172 million in APAC and $28 million in
Valvoline. A summary of the capital employed in Ashland's continuing
operations at the end of the last three fiscal years follows.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Ashland Chemical $1,034 $ 904 $ 871
APAC 452 273 234
Valvoline 357 339 363
Refining and Marketing 1,729 1,515 1,522
Arch Coal 373 353 332
- ----------------------------------------------------------------------------------
$3,945 $3,384 $3,322
==================================================================================
</TABLE>
(Bar graph appears in the left margin comparing property additions for
fiscal 1996, 1997 and 1998.)
Capital employed in Ashland Chemical and APAC increased during the period,
as the majority of Ashland's capital budget and acquisitions were focused
in these areas. Although Valvoline's capital expenditures have increased
over this period, the effects were largely offset by reductions in its
working capital requirements. Capital employed in Refining and Marketing
increased in 1998, reflecting the purchase of leased assets associated with
the formation of MAP. Despite that one-time capital infusion, however,
capital employed in Ashland's wholly-owned operations still increased from
44% of total capital employed at the end of fiscal 1996 to 47% at September
30, 1998.
(Bar graph appears in the left margin comparing capital employed for
fiscal 1996, 1997 and 1998.)
Long-term borrowings provided cash flows of $304 million during the last
three years, including the issuance of $150 million in senior notes, $134
million of medium-term notes and $20 million of pollution-control bonds.
The proceeds from these long-term borrowings were used in part to retire
$522 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.
38
<PAGE>
At September 30, 1998, working capital (excluding debt due within one year)
amounted to $592 million, compared to $741 million at the end of fiscal
1997. Liquid assets (cash, cash equivalents and accounts receivable)
amounted to 84% of current liabilities at September 30, 1998, compared to
90% at the end of fiscal 1997. The reductions principally reflect the
working capital conveyed to MAP. Ashland's working capital is affected by
its use of the LIFO method of inventory valuation, which valued inventories
$57 million below their replacement costs at September 30, 1998.
(Bar graph appears in the right margin comparing debt as a percent of
capital employed for fiscal 1996, 1997 and 1998.)
CAPITAL RESOURCES
During 1998, Ashland's Board of Directors authorized the purchase of up to
four million shares of Ashland common stock. Under this authorization, one
million shares were purchased in 1998 at a cost of $46 million. The number
of shares ultimately purchased and the prices Ashland will pay for its
stock are subject to periodic review by management.
At September 30, 1998, Ashland's debt level amounted to $1.6 billion,
compared to $1.4 billion at the end of fiscal 1997. The increase reflects
an aggressive acquisition program during 1998, as well as the purchase of
leased assets associated with the formation of MAP. Common stockholders'
equity increased by $113 million during 1998 to $2.1 billion, principally
due to earnings of $119 million retained in the business. Although common
stock was issued for acquisitions and employee stock incentive plans, a
nearly equivalent amount was repurchased. Debt as a percent of capital
employed amounted to 43% at September 30, 1998, compared to 41% at the end
of fiscal 1997.
During fiscal 1999, Ashland anticipates capital expenditures of
approximately $200 million. Ashland anticipates meeting its 1999 capital
requirements for property additions, dividends and scheduled debt
repayments of $41 million from internally generated funds. However,
external financing may be necessary to provide funds for acquisitions or
purchases of common stock.
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.
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.
Ashland does not believe that any liability resulting from environmental
matters, after taking into consideration its insurance coverage and amounts
already provided for, will have a material adverse effect on its
consolidated financial position, cash flows or liquidity. However, such
matters could have a material effect on results of operations in a
particular quarter or fiscal year as they develop or as new issues are
identified.
DERIVATIVE INSTRUMENTS
Ashland is exposed to various market risks, including changes in certain
commodity prices, foreign currency rates and interest rates. To manage
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 or derivatives to
manage its exposure to price fluctuations for natural gas used by Ashland's
manufacturing facilities. In addition, these financial products are used to
hedge fixed price natural gas purchase or sales contracts entered into
under Ashland's energy management program for its suppliers and customers.
Ashland also uses forward exchange contracts to hedge foreign currency
transaction exposures of its operations. However, 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, 1998, would not significantly 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, 1998, included $39 million of
floating-rate debt, and the interest rates on an additional $225 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 1999 will fluctuate based on short-term interest rates on $264 million
of its long-term debt outstanding at September 30, 1998, as well as on any
short-term notes and commercial paper.
39
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUTLOOK
Ashland Chemical will continue to pursue growth through internal efforts
and selective acquisitions. The Company 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. 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. APAC's construction backlog
amounted to a record year end level of $838 million at September 30, 1998.
Such backlog includes increases in both the public and private sectors, and
is expected to contain margins comparable to those included in last year's
backlog. The 1998 highway funding reauthorization package increased funding
for highways by $52 billion over a six-year period. More importantly, the
states in which APAC operates should see an average increase in annual
federal funding of 59% or $3.3 billion, based on current estimates.
(Bar graph appears in the left margin comparing construction backlog for
fiscal 1996, 1997 and 1998.)
Valvoline will leverage its Valvoline brand franchise to related premium
"below-the-hood" products, while developing the Eagle One brand into a
master brand for "above-the-hood" products. Domestic sales volumes of
higher-margin packaged lubricants serving 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
appearance products, as well as international sales of lubricants are
expected to provide continued growth opportunities. VIOC's future growth
will focus principally on expanding the number of franchised rather than
company-operated outlets.
Although margins are expected to remain volatile, key external factors look
promising for the refining and marketing industry. Demand for petroleum
products is expected to grow modestly, due to 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, reflecting the increased demand, which should
be beneficial for MAP's refining margins. MAP is also the largest U. S.
supplier of asphalt, so increased funding for highway construction also
benefits MAP.
MAP's initial estimate of annual efficiency savings was $200 million before
taxes, which it expected to realize by its fourth year of operation. MAP
now expects to realize more than $130 million in annual, repeatable pretax
savings in calendar 1998 and another $100 million in calendar 1999.
Efficiencies have been identified in personnel, procurement, crude oil
purchases and other areas.
Stricter environmental regulations and increasing demand for electricity
and the low-sulfur coal to generate it should benefit Arch Coal. Arch
Coal's strong cash flow provides the financial strength to support
continued debt reductions, operational improvements and acquisitions of
attractive properties.
Permits required to conduct operations at certain of Arch Coal's mines in
West Virginia are currently being challenged in third party suits against
the agencies which issue those permits. Arch is vigorously opposing these
claims and the affected subsidiaries have intervened in these lawsuits in
support of the related agencies. The major focus of these actions relates
to the approval of "valley fills," the large, engineered works into which
excess earth and rock extracted during surface mining is placed.
Modification of existing or pending permits to restrict or eliminate the
use of valley fills would have an adverse effect on Arch.
YEAR 2000 READINESS
Ashland, like most other companies, is faced with the Year 2000 issue and
began developing plans in 1994 to address the possible exposures. Project
teams are responsible for coordinating the assessment, remediation and
testing of the necessary modifications to Ashland's computer applications,
including both its internal information systems and embedded systems, as
well as assessing the Year 2000 readiness of its critical suppliers and
developing contingency plans. The team's progress is regularly monitored by
Ashland's senior management and periodically reported to the Audit
Committee of Ashland's Board of Directors.
Ashland has completed the assessment phase related to its internal
information systems, and is resolving identified issues through system
modifications or replacement. Although testing will continue, Ashland
believes that about 75% of its critical systems are currently Year 2000
compliant, and that the remaining critical systems will be compliant by
April 1999.
Ashland is also assessing the embedded systems that operate such items as
its manufacturing systems, laboratory processes, security systems and
heating and air conditioning. Ashland expects to complete this assessment
by March 1999, and remediate or replace non-compliant embedded systems as
necessary by June 1999. The quality of the responses received from the
manufacturers of such equipment, the estimated effect of the individual
system on Ashland, and the ability of Ashland to perform meaningful tests
will determine whether independent testing of embedded systems will be
conducted.
Formal communications have been initiated with critical vendors to assess
the potential exposure to Ashland from their failure to remediate their own
Year 2000 issues. A failure by any of these vendors could become a
significant challenge to Ashland's ability to operate its facilities at
affected locations. Vendors contacted include Ashland's suppliers,
financial institutions and companies providing utilities (electric,
telephone and water), and alternate providers of products and services will
be established, if deemed necessary. Although Ashland has no means of
ensuring the Year 2000 readiness of such vendors, it will continue to
gather information and
40
<PAGE>
monitor their compliance. Based on the representations provided by these
vendors to date, Ashland has no reason to believe that a failure of this
nature might occur.
Ashland is also developing contingency plans related to the Year 2000
issue, addressing various scenarios and alternatives. Among other things,
such plans will likely include replacing electronic applications with
manual processes, identifying alternate vendors, adjusting staffing
requirements, and increasing raw material inventory levels, as deemed
necessary. Preliminary plans are expected to be completed by March 1999,
and will be regularly updated as current issues develop or new issues are
identified.
Although a full assessment has not yet been completed, Ashland estimates
that its remaining costs related to Year 2000 issues will not exceed $15
million. Such amount is based on various assumptions, including the
expected availability and costs of internal and external resources and the
complexity of the necessary changes. Such estimate does not include any
costs of new systems for which the principal justification is improved
business functionality, rather than Year 2000 compliance. Since Ashland's
Year 2000 compliance program was initiated several years ago and has been
integrated with other system enhancements, Ashland's total costs of
remediating Year 2000 issues are not readily discernible.
Ashland believes it has an effective program to resolve significant Year
2000 issues in a timely manner. However, critical phases of that program
have not yet been completed and certain exposures are outside Ashland's
direct control. If Ashland is unsuccessful in identifying or remediating
Year 2000 issues in its critical systems, is affected by critical vendors
not being Year 2000 ready, or is affected by general economic disruptions
resulting from Year 2000 issues, its consolidated financial position or
results of operations could be materially adversely affected.
MAP and Arch Coal also have prepared their own programs to deal with Year
2000 issues. Arch Coal's program is outlined in the Management's Discussion
and Analysis section of its Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998. MAP's program is covered in the Management's
Discussion and Analysis section for the Marathon Group in USX Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
Both of these documents are on file with the Securities and Exchange
Commission.
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, Outlook and Year 2000
Readiness 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 under Risks and Uncertainties in Note A to
the Consolidated Financial Statements. 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, 1998, which is on file with the
Securities and Exchange Commission.
41
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
Years Ended September 30
<TABLE>
<CAPTION>
(In millions except per share data) 1998 1997 1996
================================================================================================================================
<S> <C> <C> <C>
REVENUES
Sales and operating revenues (including excise taxes) $6,534 $12,833 $12,313
Equity income - Note D 329 39 33
Other income 70 89 66
- --------------------------------------------------------------------------------------------------------------------------------
6,933 12,961 12,412
COSTS AND EXPENSES
Cost of sales and operating expenses 5,299 9,810 9,512
Excise taxes on products and merchandise - 992 985
Selling, general and administrative expenses 1,006 1,350 1,257
Depreciation, depletion and amortization 181 348 299
- --------------------------------------------------------------------------------------------------------------------------------
6,486 12,500 12,053
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 447 461 359
Interest expense (net of interest income) (130) (142) (151)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 317 319 208
Income taxes - Note E (114) (127) (72)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 203 192 136
Income from discontinued operations (net of income taxes) - Note B - 25 75
Gain on sale of discontinued operations (net of income taxes) - Note B - 71 -
- --------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 203 288 211
Extraordinary loss on early retirement of debt (net of income taxes) - Note F - (9) -
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME 203 279 211
Dividends on convertible preferred stock - (9) (19)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME AVAILABLE TO COMMON SHARES $ 203 $ 270 $ 192
================================================================================================================================
EARNINGS PER SHARE - Note A
Basic
Income from continuing operations $ 2.68 $ 2.61 $ 1.82
Income from discontinued operations - .36 1.18
Gain on sale of discontinued operations - 1.02 -
Extraordinary loss - (.13) -
-----------------------------------------------
Net income $ 2.68 $ 3.86 $ 3.00
Diluted
Income from continuing operations $ 2.63 $ 2.51 $ 1.80
Income from discontinued operations - .33 1.16
Gain on sale of discontinued operations - .92 -
Extraordinary loss - (.12) -
-----------------------------------------------
Net income $ 2.63 $ 3.64 $ 2.96
================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
43
<PAGE>
<TABLE>
<CAPTION>
Ashland Inc. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30
(In millions) 1998 1997
=====================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34 $ 250
Accounts receivable (less allowances for doubtful accounts of
$19 million in 1998 and $25 million in 1997) 1,110 1,585
Inventories - Note A 440 660
Deferred income taxes 104 103
Other current assets 140 122
- ---------------------------------------------------------------------------------------------------------------------
1,828 2,720
INVESTMENTS AND OTHER ASSETS
Investment in MAP - Note D 2,102 -
Investment in Arch Coal - Note D 422 403
Cost in excess of net assets of companies acquired (less accumulated
amortization of $65 million in 1998 and $70 million in 1997) 207 120
Other noncurrent assets 362 541
- ---------------------------------------------------------------------------------------------------------------------
3,093 1,064
PROPERTY, PLANT AND EQUIPMENT
Cost
Ashland Chemical 1,049 904
APAC 809 671
Valvoline 354 328
Refining and Marketing - 3,497
Corporate 201 167
- ---------------------------------------------------------------------------------------------------------------------
2,413 5,567
Accumulated depreciation, depletion and amortization (1,252) (2,889)
- ---------------------------------------------------------------------------------------------------------------------
1,161 2,678
- ---------------------------------------------------------------------------------------------------------------------
$6,082 $6,462
=====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
44
<PAGE>
<TABLE>
<CAPTION>
(In millions) 1998 1997
=================================================================================================
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
Notes payable to financial institutions $ 84 $ -
Current portion of long-term debt 41 49
Trade and other payables 1,199 1,867
Income taxes 37 112
- -------------------------------------------------------------------------------------------------
1,361 2,028
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Notes F and G 1,507 1,356
Employee benefit obligations - Note N 458 539
Reserves of captive insurance companies 165 161
Other long-term liabilities and deferred credits 454 354
Commitments and contingencies - Notes G, H and K
- -------------------------------------------------------------------------------------------------
2,584 2,410
STOCKHOLDERS' EQUITY - Notes F, I and J
Preferred stock, no par value, 30 million shares authorized
Common stockholders' equity
Common stock, par value $1.00 per share
Authorized - 300 million shares
Issued - 76 million shares in 1998 and 75 million
shares in 1997 76 75
Paid-in capital 602 605
Retained earnings 1,501 1,379
Accumulated other comprehensive income (42) (35)
- -------------------------------------------------------------------------------------------------
2,137 2,024
- -------------------------------------------------------------------------------------------------
$6,082 $6,462
=================================================================================================
</TABLE>
45
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
other
Preferred Common Paid-in Retained Loan to comprehensive
(In millions) stock stock capital earnings LESOP income Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1995 $293 $64 $255 $1,064 $(11) $(10) $1,655
Total comprehensive income(F1) 211 1 212
Preferred stock cash dividends (19) (19)
Common stock cash dividends, $1.10 a share (70) (70)
Issued common stock under
Stock incentive plans 19 19
Employee savings plan 6 6
LESOP loan repayment 11 11
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 293 64 280 1,186 - (9) 1,814
Total comprehensive income(F1) 279 (26) 253
Preferred stock cash dividends (9) (9)
Common stock cash dividends, $1.10 a share (77) (77)
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) (1)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 - 75 605 1,379 - (35) 2,024
Total comprehensive income(F1) 203 (7) 196
Common stock cash dividends, $1.10 a share (84) (84)
Issued common stock under
Stock incentive plans 1 15 16
Acquisitions of other companies 1 29 3 33
Repurchase of common stock (1) (45) (46)
Other changes (2) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $ - $76 $602 $1,501 $ - $(42) $2,137
==================================================================================================================================
</TABLE>
[FN]
(F1) Reconciliations of net income to total comprehensive income follow.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
==================================================================================================================================
<S> <C> <C> <C>
Net income $203 $279 $211
Minimum pension liability adjustment (6) (4) 5
Related tax benefit (expense) 2 2 (2)
Unrealized translation adjustments (7) (27) (1)
Related tax benefit 1 - -
Unrealized gains (losses) on securities 8 5 (3)
Related tax benefit (expense) (3) (2) 1
Losses (gains) on securities included in net income (3) - 1
Related tax expense 1 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $196 $253 $212
==================================================================================================================================
</TABLE>
At September 30, 1998, accumulated other comprehensive income was a loss of
$42 million comprised of net unrealized translation losses of $28 million,
a minimum pension liability of $18 million and unrealized gains on
securities of $4 million.
</FN>
See Notes to Consolidated Financial Statements.
46
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended September 30
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
==================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Income from continuing operations $203 $192 $136
Expense (income) not affecting cash
Depreciation, depletion and amortization 181 348 299
Deferred income taxes 60 33 (9)
Equity income from affiliates (329) (39) (33)
Distributions from equity affiliates 252 20 12
Other items (6) - -
Change in operating assets and liabilities(F1) 5 11 139
- ----------------------------------------------------------------------------------------------------------------------------------
366 565 544
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 150 87 67
Proceeds from issuance of capital stock 10 35 15
Repayment of long-term debt (53) (395) (74)
Repurchase of capital stock (46) (3) -
Increase (decrease) in short-term debt 81 (68) (84)
Dividends paid (84) (86) (89)
- ----------------------------------------------------------------------------------------------------------------------------------
58 (430) (165)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (274) (356) (372)
Purchase of leased assets associated with the formation of MAP (254) - -
Purchase of operations - net of cash acquired (194) (79) (83)
Investment purchases(F2) (215) (248) (455)
Investment sales and maturities(F2) 308 216 490
Other - net 44 27 25
- ----------------------------------------------------------------------------------------------------------------------------------
(585) (440) (395)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH USED BY CONTINUING OPERATIONS (161) (305) (16)
Cash provided (used) by discontinued operations - Note B (55) 485 35
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (216) 180 19
Cash and cash equivalents - beginning of year 250 70 51
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 34 $250 $ 70
==================================================================================================================================
DECREASE (INCREASE) IN OPERATING ASSETS(F1)
Accounts receivable $ (54) $(16) $(60)
Inventories (21) 30 (4)
Deferred income taxes (16) - 5
Other current assets (36) 6 (12)
Investments and other assets (19) (5) 3
INCREASE (DECREASE) IN OPERATING LIABILITIES(F1)
Trade and other payables 33 (117) 228
Income taxes (2) 31 5
Noncurrent liabilities 120 82 (26)
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES $ 5 $ 11 $139
==================================================================================================================================
</TABLE>
[FN]
(F1) Excludes changes resulting from operations acquired or sold.
(F2) Represents primarily investment transactions of captive
insurance companies.
</FN>
See Notes to Consolidated Financial Statements.
47
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Ashland and
its majority-owned subsidiaries, except Arch Coal, Inc. Investments in
joint ventures, 20% to 50% owned affiliates and Arch Coal are accounted for
on the equity method. Ashland Coal, Inc. and Arch Mineral Corporation
merged on July 1, 1997, to form Arch Coal, Inc., in which Ashland has a 55%
ownership interest. In 1998, Ashland adopted Emerging Issues Task Force
Issue No. 96-16 (EITF 96-16), "Investor's Accounting for an Investee When
the Investor Has a Majority of the Voting Interest but the Minority
Shareholder or Shareholders Have Certain Approval or Veto Rights." The
adoption of EITF 96-16 resulted in a change in the method of accounting for
Ashland's investment in Arch Coal from consolidation to the equity method.
As a result of the accounting change and the restatement of prior periods
for comparison purposes, all of Ashland's coal investments are now
accounted for on the equity method for all periods presented. The change
had no effect on Ashland's net income or common stockholders' equity, but
reduced its revenues, costs, assets and liabilities, and changed certain
components of its cash flow.
Effective January 1, 1998, Ashland and Marathon Oil Company formed Marathon
Ashland Petroleum LLC (MAP), combining the major elements of the refining,
marketing and transportation operations of the two companies. Marathon has
a 62% interest in MAP and Ashland holds a 38% interest, which is accounted
for using the equity method of accounting. For comparison purposes, Ashland
changed its method of accounting for the businesses conveyed to MAP to the
equity method effective October 1, 1997, the beginning of Ashland's 1998
fiscal year. Restatement of financial statements for years prior to 1998 is
not permitted under generally accepted accounting principles. As a result,
1998 is not comparable to 1997 and 1996. The change had no effect on
Ashland's net income or common stockholders' equity, but reduced its
revenues, costs, assets and liabilities, and changed certain components of
its cash flow.
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,
inventory and receivable valuation allowances, 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 results, including those of MAP and Arch Coal, are affected by
domestic and international economic, political, legislative, regulatory and
legal actions, as well as weather conditions. Economic conditions, such as
recessionary trends, inflation, interest and monetary exchange rates, and
changes in the prices of crude oil, petroleum products and petrochemicals,
can have a significant effect on operations. Political 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 United States government in anticipation of, or
in response to, such actions. 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 the environment or other matters. In
addition, climate and weather can significantly affect Ashland's results
from several of its operations, such as its construction activities, MAP's
heating oil business and coal sales and production of Arch Coal.
INVENTORIES
<TABLE>
<CAPTION>
(In millions) 1998 1997
==============================================================================================================
<S> <C> <C>
Chemicals $352 $341
Petroleum products 48 289
Crude oil - 277
Other products 88 131
Materials and supplies 9 38
Excess of replacement costs over LIFO carrying values (57) (416)
- --------------------------------------------------------------------------------------------------------------
$440 $660
==============================================================================================================
</TABLE>
Chemicals, petroleum products, crude oil and other products with a
replacement cost of $285 million at September 30, 1998, and $751 million at
September 30, 1997, 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
48
<PAGE>
liquidations, net income was increased by $7 million ($.09 per share) in
1997. The effects of LIFO inventory liquidations during 1998 and 1996 were
not significant.
LONG-LIVED ASSETS
The cost of plant and equipment is principally depreciated by the
straight-line method over the estimated useful lives of the assets. 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 12 years. Long-lived assets with recorded
values that are not expected to be recovered through future cash flows are
written down to current fair value, which is generally determined from
estimated discounted future net cash flows (assets held for use) or net
realizable value (assets held for sale).
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
During 1998, Ashland adopted Financial Accounting Standards Board Statement
No. 128 (FAS 128), "Earnings per Share." FAS 128 replaced the previously
reported primary and fully diluted earnings per share (EPS) with basic and
diluted EPS. Unlike primary EPS, basic EPS excludes any dilutive effects of
options and convertible securities. Diluted EPS is very similar to the
previously reported fully diluted EPS. EPS amounts for all periods have
been presented, and where necessary, restated to conform to the FAS 128
requirements. The following table sets forth the computation of basic and
diluted EPS from continuing operations.
<TABLE>
<CAPTION>
(In millions except per share data) 1998 1997 1996
=================================================================================================================================
<S> <C> <C> <C>
NUMERATOR
Income from continuing operations $ 203 $ 192 $ 136
Preferred stock dividends - (9) (19)
- ---------------------------------------------------------------------------------------------------------------------------------
Numerator for basic EPS - Income available to common shares 203 183 117
Effect of dilutive securities
Dividends on convertible preferred stock - 9 -
Interest on convertible debentures (net of income taxes) - 4 -
- ---------------------------------------------------------------------------------------------------------------------------------
Numerator for diluted EPS - Income available
to common shares after assumed conversions $ 203 $ 196 $ 117
=================================================================================================================================
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 76 70 64
Common shares issuable upon
Exercise of stock options 1 2 1
Conversion of debentures - 2 -
Conversion of preferred stock - 4 -
- ---------------------------------------------------------------------------------------------------------------------------------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 77 78 65
=================================================================================================================================
BASIC EPS FROM CONTINUING OPERATIONS $2.68 $2.61 $1.82
DILUTED EPS FROM CONTINUING OPERATIONS $2.63 $2.51 $1.80
=================================================================================================================================
</TABLE>
DERIVATIVE INSTRUMENTS
Ashland selectively uses commodity futures contracts or derivatives to
manage its exposure to price fluctuations for natural gas used by Ashland's
manufacturing facilities. In addition, these financial products are used to
hedge fixed price natural gas purchase or sales contracts entered into
under Ashland's energy management program for its suppliers and customers.
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 (the deferral 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 income (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
49
<PAGE>
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE INSTRUMENTS (CONTINUED)
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 (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 over the
remaining term of the original contract life of the terminated swap
agreement.
STOCK INCENTIVE PLANS
These financial statements include 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 J).
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.
Research and development costs are expensed as incurred ($28 million in
1998, $29 million in 1997 and $28 million in 1996).
Certain prior year amounts have been reclassified in the consolidated
financial statements and accompanying notes to conform with 1998
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. On May 6, 1998, Ashland completed its withdrawal
from the exploration business through the sale of its exploration and
production operations in Nigeria with no significant gain or loss.
Components of amounts reflected in the income statements, balance sheets
and cash flow statements related to these discontinued operations are
presented in the following table.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
===================================================================================================================
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ - $240 $320(F1)
Costs and expenses - (215) (226)
- -------------------------------------------------------------------------------------------------------------------
Operating income - 25 94
Income tax expense - - (19)
- -------------------------------------------------------------------------------------------------------------------
Income from discontinued operations $ - $ 25 $ 75(F1)
===================================================================================================================
BALANCE SHEET DATA
Current assets $ - $ 59
Investments and other assets - 1
Property, plant and equipment - net - 57
Current liabilities - (41)
Noncurrent liabilities - (58)
- ----------------------------------------------------------------------------------------------
Net assets of discontinued operations held for sale
(other noncurrent assets) $ - $ 18
==============================================================================================
CASH FLOW DATA
Cash flows from operations $ (81) $(41) $115
Cash flows from investment (including sales proceeds) 26 526 (80)
- -------------------------------------------------------------------------------------------------------------------
Cash provided (used) by discontinued operations $ (55) $485 $ 35
===================================================================================================================
</TABLE>
[FN]
(F1) 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.
</FN>
50
<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 Ashland Chemical, APAC,
Valvoline, Refining and Marketing, and Arch Coal. Information by industry
segment is shown on Pages 60 and 61.
Ashland Chemical 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. Marketing of the petrochemicals
manufactured by Ashland Petroleum (now MAP) was transferred to Refining and
Marketing in fiscal 1998. Prior year industry segment information has been
restated to reflect this change.
The APAC group of companies performs contract construction work such as
paving, repairing and resurfacing highways, streets, airports, residential
and commercial developments, sidewalks, and driveways; grading and base
work; and excavation and related activities in the construction of bridges
and structures, drainage facilities and underground utilities in 14
southern and midwestern states. APAC also produces and sells construction
materials, such as hot-mix asphalt and ready-mix concrete, crushed stone
and other aggregate and, in certain markets, concrete block and specialized
construction materials, such as architectural block.
Valvoline is a marketer of automotive and industrial oils, chemicals,
appearance products and automotive and environmental services, with sales
in more than 140 countries. Valvoline is engaged in the "fast oil change"
business through outlets operating under the Valvoline Instant Oil Change
name.
The Refining and Marketing segment includes Ashland's 38% ownership
interest in Marathon Ashland Petroleum LLC (MAP) and certain retained
refining and marketing activities. MAP was formed January 1, 1998,
combining the major elements of the refining, marketing and transportation
operations of Ashland and Marathon Oil Company, which holds a 62% interest
in MAP. MAP has seven refineries with a combined crude oil refining
capacity of 935,000 barrels per day, 88 light products and asphalt
terminals in the Midwest and Southeast United States, more than 5,600
retail marketing outlets in 20 states and significant pipeline holdings.
Ashland accounts for its interest in MAP using the equity method of
accounting. As a result, 1998 is not comparable to prior years in which
Ashland's 100% ownership interest in the former Ashland Petroleum and
SuperAmerica was consolidated.
The following table sets forth certain unaudited pro forma financial
information for Ashland assuming MAP was formed as of the beginning of both
fiscal 1998 and 1997. This pro forma financial information may not be
indicative of the results of operations for Ashland that would have
resulted if the transaction had occurred as of the dates assumed or which
will be obtained in the future.
<TABLE>
<CAPTION>
(In millions except per share data) 1998 1997
=========================================================================================================
<S> <C> <C>
Revenues $6,864 $6,507
Income from continuing operations(F1) 155 196
Net income 155 283
Diluted earnings per share
Income from continuing operations(F1) 2.01 2.57
Net income 2.01 3.69
=========================================================================================================
</TABLE>
[FN]
(F1)Includes inventory adjustments associated with the formation of MAP and
changes in MAP's inventory market valuation reserves. Pro forma income
from continuing operations excluding these items would have been $215
million ($2.78 per share) in 1998 and $221 million ($2.89 per share) in
1997. Reported income from continuing operations, excluding these
inventory adjustments, was $212 million ($2.75 per share) in 1998 and
$192 million ($2.51 per share) in 1997.
</FN>
Arch Coal, Inc. is a publicly traded company which was created July 1,
1997, as a result of the merger of Ashland Coal, Inc. and Arch Mineral
Corporation. Ashland holds a 55% ownership interest in Arch Coal, which it
accounts for under the equity method of accounting as described in Note A.
Ashland's former ownership interests in Ashland Coal and Arch Mineral are
also presented using the equity method. Arch Coal is the nation's second
largest coal producer with subsidiary operations in West Virginia,
Kentucky, Virginia, Illinois, Wyoming, Colorado and Utah. Through these
operations, Arch Coal provides nearly 10% of the nation's coal supply.
Information about Ashland's domestic and foreign operations follows.
Ashland has no material operations in any individual foreign country.
<TABLE>
<CAPTION>
Revenues from external customers* Long-lived assets
------------------------------------------------- ---------------------------
(In millions) 1998 1997 1996 1998 1997
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
United States $5,868 $11,821 $11,490 $1,300 $2,821
Foreign 1,065 1,140 922 163 118
- -------------------------------------------------------------------------------------------------------------------------------
$6,933 $12,961 $12,412 $1,463 $2,939
===============================================================================================================================
* Sales of gasoline accounted for 0% in 1998, 19% in 1997 and 18% in
1996 of Ashland's consolidated revenues from external customers,
excluding excise taxes.
</TABLE>
51
<PAGE>
NOTE D - UNCONSOLIDATED AFFILIATES
Affiliated companies accounted for on the equity method include Marathon
Ashland Petroleum LLC (MAP), Arch Coal, Inc. and various other companies.
See Notes A and C for a description of MAP and Arch Coal, as well as a
discussion of the adoption of the equity method for these two investees.
Summarized financial information reported by these affiliates and a summary
of the amounts recorded in Ashland's consolidated financial statements
follow. MAP is organized as a limited liability corporation (LLC) that has
elected to be taxed as a partnership. Therefore, the parents are
responsible for income taxes applicable to their share of MAP's taxable
income. The net income reflected below for MAP does not include any
provision for income taxes which will be incurred by MAP's parents. At
September 30, 1998, Ashland's retained earnings include $356 million of
undistributed earnings from unconsolidated affiliates accounted for on the
equity method.
<TABLE>
<CAPTION>
(In millions) MAP Arch Coal Other Total
==============================================================================================================
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998
Financial position
Current assets $ 3,190 $ 362 $ 74
Current liabilities (1,915) (384) (34)
-----------------------------------------------
Working capital 1,275 (22) 40
Noncurrent assets 3,588 2,470 63
Noncurrent liabilities (320) (1,826) (15)
-----------------------------------------------
Stockholders' equity $ 4,543 $ 622 $ 88
===============================================
Results of operations
Sales and operating revenues $ 14,588 (F1) $ 1,363 $ 165
Income from operations 729 (F1) 103 45
Net income 742 (F1) 51 13
Amounts recorded by Ashland
Investments and advances 2,102 (F2) 422 (F2)(F3) 45 $2,569
Equity income 298 (F4) 25 6 329
Distributions received 233 (F4) 10 9 252
==============================================================================================================
SEPTEMBER 30, 1997
Financial position
Current assets $ 275 $ 341
Current liabilities (233) (242)
---------------------------
Working capital 42 99
Noncurrent assets 1,362 735
Noncurrent liabilities (809) (542)
---------------------------
Stockholders' equity $ 595 $ 292
===========================
Results of operations
Sales and operating revenues $ 1,367 $ 1,117
Income from operations 71 278
Net income 50 65
Amounts recorded by Ashland
Investments and advances 403 86 $ 489
Equity income 25 14 39
Distributions received 12 8 20
==============================================================================================================
SEPTEMBER 30, 1996
Results of operations
Sales and operating revenues $ 1,307 $ 963
Income from operations 137 252
Net income 46 36
Amounts recorded by Ashland
Equity income 22 11 $ 33
Distributions received 5 7 12
==============================================================================================================
</TABLE>
[FN]
(F1)Amounts represent results of operations for MAP for the nine months
ended September 30, 1998 (since inception).
(F2)At September 30, 1998, Ashland's investment exceeded its underlying
equity in net assets by $376 million for MAP and $80 million for Arch
Coal. Such excess was being amortized against equity income on a
straight-line basis for MAP ($28 million annually) and on the basis of
tons of coal produced for Arch Coal ($3 million in 1998).
(F3)The market value of Ashland's investment at September 30, 1998, was
$323 million based on the market price of Arch Coal's common stock.
(F4)Includes $36 million of equity income and $61 million in cash flow from
Ashland's former Refining and Marketing operations for the quarter
ended December 31, 1997, which were restated to the equity method.
</FN>
52
<PAGE>
NOTE E - INCOME TAXES
A summary of the provision for income taxes related to continuing
operations follows.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
======================================================================================================================
<S> <C> <C> <C>
Current(F1)
Federal $ 42 $ 72 $ 57
State (1) 5 7
Foreign 13 17 17
- ----------------------------------------------------------------------------------------------------------------------
54 94 81
Deferred 60 33 (9)
- ----------------------------------------------------------------------------------------------------------------------
$ 114 $ 127 $ 72
======================================================================================================================
</TABLE>
[FN]
(F1)Income tax payments amounted to $109 million in 1998, $51 million in
1997 and $105 million in 1996.
</FN>
Deferred income taxes are provided for income and expense items recognized
in different years for tax and financial reporting purposes. Temporary
differences which give rise to significant deferred tax assets and
liabilities follow. These amounts are recorded in various asset and
liability accounts on Ashland's consolidated balance sheets.
<TABLE>
<CAPTION>
(In millions) 1998 1997
======================================================================================================================
<S> <C> <C>
Employee benefit obligations $182 $224
Environmental, insurance and litigation reserves 119 103
Compensation accruals 49 48
Uncollectible accounts receivable 16 19
Other items 63 48
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 429 442
- ----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 83 339
Investment in unconsolidated affiliates 362 51
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 445 390
- ----------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $(16) $ 52
======================================================================================================================
</TABLE>
The U.S. and foreign components of income from continuing operations before
income taxes and a reconciliation of the statutory federal income tax with
the provision for income taxes follow.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
======================================================================================================================
<S> <C> <C> <C>
Income from continuing operations before income taxes
United States $274 $298 $160
Foreign 43 21 48
- ----------------------------------------------------------------------------------------------------------------------
$317 $319 $208
======================================================================================================================
Income taxes computed at U.S. statutory rates $111 $112 $ 73
Increase (decrease) in amount computed resulting from
Equity income (10) (10) (8)
State income taxes 5 6 4
Net impact of foreign results 5 10 -
Other items 3 9 3
- ----------------------------------------------------------------------------------------------------------------------
Income taxes $114 $127 $ 72
======================================================================================================================
</TABLE>
53
<PAGE>
NOTE F - LONG-TERM DEBT
<TABLE>
<CAPTION>
(In millions) 1998 1997
======================================================================================================================
<S> <C> <C>
Medium-term notes, due 1999-2025, interest at a weighted average rate
of 8.2% at September 30, 1998 (5.8% to 10.4%) $ 888 $ 936
8.80% debentures, due 2012 250 250
Pollution control and industrial revenue bonds, due
2003-2022, interest at a weighted average rate of 6.5%
at September 30, 1998 (3.8% to 7.4%) 217 217
6.625% senior notes, due 2008 150 -
Other 43 2
- ----------------------------------------------------------------------------------------------------------------------
1,548 1,405
Current portion of long-term debt (41) (49)
- ----------------------------------------------------------------------------------------------------------------------
$ 1,507 $ 1,356
======================================================================================================================
</TABLE>
Aggregate maturities of long-term debt are $41 million in 1999, $36 million
in 2000, $74 million in 2001, $82 million in 2002 and $88 million in 2003.
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 holders' option, but not
before October 1, 1999.
Ashland has a revolving credit agreement which expires on February 9, 2000,
providing for up to $320 million in borrowings, none of which was in use at
September 30, 1998. The agreement contains covenants limiting new
borrowings, as well as requiring the maintenance of a minimum equity level.
Based on Ashland's financial position at September 30, 1998, borrowings
(including any borrowings under this agreement) could be increased by up to
$2 billion, or stockholders' equity could be reduced by up to $1.1 billion.
Additional permissible borrowings are reduced by 150% of any reductions in
stockholders' equity.
Interest payments on all indebtedness amounted to $132 million in 1998,
$161 million in 1997 and $155 million in 1996. The weighted average
interest rate on short-term borrowings outstanding was 6.0% at September
30, 1998.
EXTRAORDINARY LOSS
On June 3, 1997, Ashland called its outstanding 6.75% Convertible
Subordinated Debentures. On July 3, 1997, $123 million of the Debentures
were redeemed for 101.35% of the principal amount, plus accrued interest,
thereby eliminating an associated 2.4 million shares of Ashland Common
Stock that had been reserved for conversion. On September 3, 1997, Ashland
announced its intention to redeem its 11.125% Sinking Fund Debentures on
October 15, 1997. The principal amount outstanding of $200 million had a
redemption price of 105.562%, plus accrued interest to the redemption date.
On September 23, 1997, Ashland delivered to the trustee U.S. Treasury
securities maturing on October 15, 1997, sufficient to cover the redemption
price and accrued interest in accordance with the indenture agreement,
thereby relieving Ashland of any further obligations under the Debentures.
The redemption premium and writeoff of unamortized deferred debt issuance
expenses related to these two transactions resulted in pretax charges
totaling $15 million which, net of income tax benefits of $6 million,
resulted in an extraordinary loss of $9 million on the early retirement of
debt.
NOTE G - FINANCIAL INSTRUMENTS
COMMODITY AND FOREIGN CURRENCY HEDGES
Ashland uses commodity futures contracts and forward exchange contracts to
reduce its exposure to certain risks inherent within its businesses as
described in Note A. The fair value of open commodity and foreign exchange
contracts was not significant at September 30, 1998, and 1997.
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, 1998, Ashland had unleveraged swap agreements with a
notional principal amount of $225 million. These agreements were used to
convert fixed rates on certain debt, including $140 million of the
medium-term notes and $85 million of the 8.80% debentures, 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.
54
<PAGE>
At September 30, 1998, Ashland was receiving a weighted-average fixed
interest rate of 6.4% and paying a weighted-average variable interest rate
of 5.7%, calculated on the notional amount. Interest expense was reduced by
$1 million in 1998 and $2 million in both 1997 and 1996 resulting from
settlements under these agreements. Under its current swap agreements,
Ashland's annual interest expense in 1999 will change by about $2 million
for each 1% change in LIBOR. The terms remaining on Ashland's swaps range
from 15 to 68 months, with a weighted-average remaining life of 27 months.
FAIR VALUES
The carrying amounts and fair values of Ashland's significant financial
instruments, including interest rate swaps, at September 30, 1998, and
1997, 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 differences between estimated future variable-rate payments and
future fixed-rate receipts.
<TABLE>
<CAPTION>
1998 1997
---------------------------- -------------------------
Carrying Fair Carrying Fair
(In millions) amount value amount value
===============================================================================================================================
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 34 $ 34 $ 250 $ 250
Investments of captive insurance companies(F1) 98 98 189 189
Interest rate swaps - 8 - 1
Liabilities
Notes payable to financial institutions 84 84 - -
Long-term debt (including current portion) 1,548 1,775 1,405 1,570
===============================================================================================================================
</TABLE>
[FN]
(F1)Included in other noncurrent assets in the Consolidated Balance Sheets.
</FN>
NOTE H - LEASES AND OTHER COMMITMENTS
LEASES
Ashland and its subsidiaries are lessees in noncancelable leasing
agreements for office buildings, warehouses, transportation 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, 1998, and rental expense under
operating leases follow. In December 1997 and January 1998, Ashland
purchased $254 million in formerly leased assets in connection with the
formation of Marathon Ashland Petroleum LLC (MAP), resulting in reduced
rental expense and future minimum rental payments.
<TABLE>
<CAPTION>
(In millions)
- -------------------------------------------------------------------------------------------------------------
Future minimum rental payments Rental expense 1998 1997 1996
================================== =======================================================================
<S> <C> <C> <C> <C> <C>
1999 $ 37
2000 32 Minimum rentals
2001 27 (including rentals under
2002 23 short-term leases) $119 $144 $134
2003 20 Contingent rentals 8 13 13
Later years 135 Sublease rental income (6) (13) (16)
- ---------------------------------- -----------------------------------------------------------------------
$ 274 $121 $144 $131
=============================================================================================================
</TABLE>
OTHER COMMITMENTS
To obtain mining permits, Arch Coal must post surety bonds guaranteeing
that it will perform any required reclamation upon closure of a mine. Such
bonds are currently included in Ashland's corporate surety bond program
which includes its wholly-owned subsidiaries, primarily the APAC group of
construction companies. Since Ashland has indemnity agreements with its
surety companies, Ashland was guarantor for reclamation and various other
bonds posted by Arch Coal totaling $442 million at September 30, 1998.
Ashland and Marathon (collectively the Lenders) have entered into a
revolving credit agreement providing for loans up to $500 million to MAP.
Loans will be funded by the Lenders based on their respective ownership
interests. No loans have been made under this agreement.
55
<PAGE>
NOTE I - CAPITAL STOCK
On August 7, 1998, Ashland's Board of Directors authorized the purchase of
up to 4 million shares of Ashland common stock in the open market, of which
1 million shares had been purchased through September 30, 1998, at a cost
of $46 million.
In March 1997, Ashland called 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 Ashland's Board of Directors can amend
certain provisions of the Plan or redeem the rights at any time prior to
their becoming exercisable.
At September 30, 1998, 500,000 shares of cumulative preferred stock are
reserved for potential issuance under the Shareholder Rights Plan and 5
million common shares are reserved for issuance under outstanding stock
options.
NOTE J - 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.
As discussed in Note A, Ashland accounts for its stock incentive plans 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, Ashland's net
income and earnings per share would have been reduced to the pro forma
amounts in the table below. The weighted average fair value of options
granted was determined using the Black-Scholes option pricing model with
the indicated assumptions.
<TABLE>
<CAPTION>
1998 1997 1996
================================================================================================================================
<S> <C> <C> <C>
Pro forma
Net income (in millions) $ 199 $ 277 $ 211
Basic earnings per share 2.63 3.83 3.00
Diluted earnings per share 2.58 3.61 2.96
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value per share of options granted $11.45 $11.28 $9.63
- --------------------------------------------------------------------------------------------------------------------------------
Assumptions (weighted average)
Risk-free interest rate 4.7% 4.6% 6.6%
Expected dividend yield 2.0% 2.5% 2.5%
Expected volatility 23.8% 22.5% 22.3%
Expected life (in years) 5.0 5.0 5.0
================================================================================================================================
</TABLE>
A progression of activity and various other information relative to stock
options is presented in the table below.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ -------------------------- ----------------------------
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(F1) 4,718 $37.52 5,247 $33.97 5,222 $32.72
Granted 580 48.07 814 53.22 823 38.92
Exercised (282) 34.85 (1,271) 32.94 (747) 30.45
Canceled (51) 45.78 (72) 37.29 (51) 37.35
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year(F1) 4,965 $38.82 4,718 $37.52 5,247 $33.97
===================================================================================================================================
Exercisable - end of year 3,836 $35.93 3,373 $33.78 3,820 $32.81
===================================================================================================================================
</TABLE>
[FN]
(F1) Shares of common stock available for future grants of options or
awards amounted to 5,134,000 at September 30, 1998, and 5,778,000
at September 30, 1997. Exercise prices per share for options
outstanding at September 30, 1998, ranged from $23.88 to $33.88
for 2,023,000 shares, from $35.63 to $43.13 for 1,587,000 shares,
and from $48.00 to $53.38 for 1,355,000 shares. The weighted
average remaining contractual life of the options was 6.5 years.
</FN>
56
<PAGE>
NOTE K - 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 current operating facilities, operating facilities conveyed to
Marathon Ashland Petroleum LLC (MAP), previously owned or operated
facilities, and Superfund or other waste sites. During 1998, Ashland
provided additional environmental reserves of $38 million associated
principally with the completion of certain voluntary efforts in progress at
various operating facilities conveyed to MAP and the closing of a landfill
near its former Catlettsburg, Kentucky refinery. Consistent with its
accounting policy for environmental costs, Ashland's reserves for
environmental assessments and remediation efforts amounted to $172 million
at September 30, 1998, and $150 million at September 30, 1997. Such amounts
reflect Ashland's estimates of the most likely costs which will be incurred
over an extended period to remediate identified environmental conditions
for which the costs are reasonably estimable, without regard to any
third-party recoveries.
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.
Ashland is a defendant in a series of cases involving more than 600 former
workers at the Lockheed aircraft manufacturing facility in Burbank,
California. The plaintiffs allege personal injury resulting from exposure
to chemicals sold to Lockheed by Ashland, and inadequate labeling of such
chemicals. The cases are being tried in the Superior Court of the State of
California for the County of Los Angeles. To date, five trials involving
approximately 130 plaintiffs have resulted in total verdicts adverse to
Ashland of $152 million, including $147 million of punitive damages. Nearly
all of these amounts were awarded in the most recently conducted trial. The
damage awards have been, or will be, appealed. Ashland believes, upon
advice of counsel, that there is a substantial likelihood that the punitive
damage awards will be reversed or substantially reduced.
In addition to these matters, Ashland and its subsidiaries are parties to
numerous other claims and lawsuits, some of which are also 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 any of the above
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. However, such
matters could have a material effect on results of operations in a
particular quarter or fiscal year as they develop or as new issues are
identified.
NOTE L - ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
During 1998, APAC acquired 10 Missouri-based companies known as the
Masters-Jackson group, strengthening APAC's capabilities in asphalt
production and paving, concrete paving, aggregate production and
bridge-building, and also acquired several smaller construction businesses.
Also in 1998, Ashland Chemical acquired Gwil Industries' Plastics Division
and made several smaller acquisitions to expand its distribution and
specialty chemical businesses. In addition, Valvoline acquired the Eagle
One brand of premium automotive appearance products. Eagle One and four of
the smaller APAC acquisitions were acquired by the issuance of a total of
$61 million in Ashland common stock, certain of which were accounted for as
poolings of interests. Prior periods were not restated since the effects
would have been insignificant. The other acquisitions, as well as several
smaller acquisitions completed in 1997 and 1996, were accounted for as
purchases and did not have a significant effect on Ashland's consolidated
financial statements.
DIVESTITURES
During 1998, Ashland sold its 23% interest in Melamine Chemicals for $26
million, resulting in a pretax gain of $14 million ($6 million after tax).
In 1997, Ashland sold the domestic exploration and production operations of
Blazer Energy Corporation. In 1998, Ashland completed its withdrawal from
the business through the sale of its exploration and production operations
in Nigeria. See Note B for a description of these transactions and their
impact on Ashland's consolidated financial statements.
NOTE M - RELATED PARTY TRANSACTIONS
Ashland sells chemicals and lubricants to Marathon Ashland Petroleum LLC
(MAP) and purchases petroleum products from MAP. Such transactions are in
the ordinary course of business at negotiated prices comparable to those of
transactions with other customers and suppliers. In addition, Ashland
leases certain facilities to MAP, and provides certain computer, treasury,
accounting, internal auditing and legal services to MAP. For the nine
months ended September 30, 1998, Ashland's sales to MAP amounted to $14
million, its purchases from MAP amounted to $147 million, and its costs
charged to MAP amounted to $21 million. Ashland's transactions with other
affiliates and related parties were not significant.
57
<PAGE>
NOTE N - EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
Ashland and its subsidiaries sponsor defined benefit pension plans that
cover substantially all employees. Benefits under these plans are generally
based on employees' years of service and compensation during the years
immediately preceding their retirement. For certain plans, 50% of
employees' leveraged employee stock ownership plan (LESOP) accounts are
coordinated with and used to fund their pension benefits. Ashland
determines the level of contributions to its pension plans annually and
contributes amounts within the limitations imposed by Internal Revenue
Service regulations.
Ashland and its subsidiaries also sponsor unfunded postretirement benefit
plans, which provide health care and life insurance benefits for eligible
employees who retire or are disabled. Retiree contributions to Ashland's
health care plans are adjusted periodically, and the plans contain other
cost-sharing features such as deductibles and coinsurance. Life insurance
plans are generally noncontributory. Ashland funds the costs of benefits as
they are paid.
Summaries of the changes in the benefit obligations and plan assets
(primarily listed stocks and debt securities) and of the funded status of
the plans follow.
<TABLE>
<CAPTION>
Other postretirement
Pension benefits benefits
-------------------------- ----------------------------
(In millions) 1998 1997 1998 1997
===============================================================================================================================
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at October 1 $635 $533 $308 $273
Service cost 28 36 8 11
Interest cost 34 42 16 21
Retiree contributions - - 4 5
Benefits paid (27) (24) (21) (23)
Obligations assumed by MAP (153) - (66) -
Other-primarily actuarial loss 86 48 13 21
- -------------------------------------------------------------------------------------------------------------------------------
Benefit obligations at September 30 $603 $635 $262 $308
===============================================================================================================================
CHANGE IN PLAN ASSETS
Value of plan assets at October 1 $435 $348 $ - $ -
Actual return on plan assets 19 74 - -
Employer contributions 4 31 17 18
Retiree contributions - - 4 5
Benefits paid (17) (18) (21) (23)
Assets transferred to MAP (72) - - -
- -------------------------------------------------------------------------------------------------------------------------------
Value of plan assets at September 30 $369 $435 $ - $ -
===============================================================================================================================
FUNDED STATUS OF THE PLANS
Accumulated obligations less plan assets(F1) $103 $ 6 $262 $308
Provision for future salary increases 131 194 - -
- -------------------------------------------------------------------------------------------------------------------------------
Excess of obligations over plan assets(F1) 234 200 262 308
Unrecognized actuarial loss (106) (42) (12) (25)
Unrecognized transition gain - 3 - -
Unrecognized prior service credit (cost) (6) (11) 48 101
- -------------------------------------------------------------------------------------------------------------------------------
Net liability recognized $122 $150 $298 $384
===============================================================================================================================
BALANCE SHEET LIABILITIES (ASSETS)
Prepaid benefit costs $ (2) $ (2) $ - $ -
Accrued benefit liabilities 156 179 298 384
Intangible assets (3) (3) - -
Accumulated other comprehensive income (29) (24) - -
- -------------------------------------------------------------------------------------------------------------------------------
Net liability recognized $122 $150 $298 $384
===============================================================================================================================
ASSUMPTIONS AS OF SEPTEMBER 30
Discount rate 7.00% 7.25% 7.00% 7.25%
Rate of compensation increase 5.00 5.00 - -
Expected return on plan assets 9.00 9.00 - -
===============================================================================================================================
</TABLE>
[FN]
(F1) The projected benefit obligations, accumulated benefit obligations
and plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were $603 million, $472
million and $369 million as of September 30, 1998, and $109
million, $88 million and $11 million as of September 30, 1997.
Unfunded accumulated benefit obligations include $84 million in
1998 and $77 million in 1997 associated with nonqualified defined
benefit plans.
</FN>
58
<PAGE>
The following table details the components of pension and other
postretirement benefit costs.
<TABLE>
<CAPTION>
Pension benefits Other postretirement benefits
--------------------------------------- --------------------------------------
(In millions) 1998 1997 1996 1998 1997 1996
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Service cost $28 $36 $31 $ 8 $11 $11
Interest cost 34 42 39 16 21 19
Expected return on plan assets (30) (31) (27) - - -
Other amortization and deferral 8 1 2 (10) (16) (16)
- --------------------------------------------------------------------------------------------------------------------------------
$40 $48 $45 $ 14 $16 $14
================================================================================================================================
</TABLE>
Ashland amended nearly all of its retiree health care plans in 1992 to
place a cap on its contributions and to adopt a cost-sharing method based
upon years of service. The cap limits Ashland's contributions to base year
per capita costs, plus annual increases of up to 4.5% per year. These
amendments reduced Ashland's obligations under its retiree health care
plans at that time by $197 million, which was being amortized to income
over approximately 12 years. During 1998, Marathon Ashland Petroleum LLC
(MAP) assumed certain of Ashland's postretirement benefit obligations, and
$38 million of the unrecognized credit from this plan amendment was applied
against the carrying value of Ashland's investment in MAP. The remaining
credit at September 30, 1998, will be amortized over approximately 6 years.
OTHER PLANS
Ashland sponsors a savings plan to assist eligible employees in providing
for retirement or other future needs. Under that plan, Ashland contributes
up to 4.2% of a participating employee's earnings (1.2% for LESOP
participants prior to March 31, 1996). Company contributions amounted to
$15 million in 1998, $21 million in 1997 and $12 million in 1996.
NOTE O - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents quarterly financial information and per share
data relative to Ashland's common stock. Since the businesses conveyed to
MAP are accounted for on the equity method in 1998, sales and operating
revenues are not comparable to 1997 when these businesses were consolidated
(see Note A).
<TABLE>
<CAPTION>
Quarters ended December 31 March 31 June 30 September 30
- ---------------------------------------------------------- ----------------------- ---------------- ---------------------
(In millions except per share data) 1997 1996 1998 1997 1998 1997 1998(F1) 1997(F2)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $1,598 $3,200 $ 1,473 $2,991 $1,705 $3,299 $1,757 $3,342
Operating income 114 77 80 46 226 211 26 127
Income from continuing operations $ 52 $ 24 $ 28 $ 2 $ 123 $ 119 $ - $ 48
Income from discontinued operations - 12 - 5 - 9 - 71
Extraordinary loss - - - - - (2) - (8)
---------------------------------------------------------------------------------------------
Net income $ 52 $ 36 $ 28 $ 7 $ 123 $ 126 $ - $ 111
Basic earnings per share
Continuing operations $ .69 $ .30 $ .37 $ (.05) $ 1.61 $ 1.60 $ - $ .63
Discontinued operations - .18 - .08 - .11 - .95
Extraordinary loss - - - - - (.02) - (.10)
---------------------------------------------------------------------------------------------
Net income $ .69 $ .48 $ .37 $ .03 $ 1.61 $ 1.69 $ - $ 1.48
Diluted earnings per share
Continuing operations $ .68 $ .30 $ .37 $ (.05) $ 1.59 $ 1.54 $ - $ .62
Discontinued operations - .17 - .08 - .11 - .93
Extraordinary loss - - - - - (.02) - (.10)
---------------------------------------------------------------------------------------------
Net income $ .68 $ .47 $ .37 $ .03 $ 1.59 $ 1.63 $ - $ 1.45
Common dividends per share .275 .275 .275 .275 .275 .275 .275 .275
Market price per common share
High 55 48-7/8 57-15/16 45-1/8 56-3/16 48-1/4 56-5/16 54-15/16
Low 44-1/8 39-3/8 49-1/2 39-1/4 48 40-1/8 45-5/16 46-1/2
==================================================================================================================================
</TABLE>
[FN]
(F1) In the quarter ended September 30, 1998, unusual items reduced
income from continuing operations by $69 million, or $.91 per
diluted share. See Management's Discussion and Analysis and
Information by Industry Segment for a discussion of these items.
(F2) In the quarter ended September 30, 1997, unusual items reduced
income from continuing operations by $28 million, or $.38 per
diluted 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
$.93 per diluted share (see Note B).
</FN>
59
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
=====================================================================================================================
<S> <C> <C> <C>
REVENUES
Sales and operating revenues
Ashland Chemical $4,087 $ 3,929 $ 3,602
APAC 1,444 1,257 1,235
Valvoline 1,023 1,053 1,133
Refining and Marketing - 6,828 6,570
Intersegment sales(F1)
Ashland Chemical (9) (13) (14)
Valvoline (11) (12) (12)
Refining and Marketing - (209) (201)
- ---------------------------------------------------------------------------------------------------------------------
6,534 12,833 12,313
Equity income
Ashland Chemical 6 9 6
Refining and Marketing 298 5 5
Arch Coal 25 25 22
- ---------------------------------------------------------------------------------------------------------------------
329 39 33
Other income
Ashland Chemical 43 26 21
APAC 8 6 9
Valvoline 6 8 11
Refining and Marketing 4 31 20
Corporate 9 18 5
- ---------------------------------------------------------------------------------------------------------------------
70 89 66
- ---------------------------------------------------------------------------------------------------------------------
$6,933 $12,961 $ 12,412
=====================================================================================================================
OPERATING INCOME
Ashland Chemical $ 158(F2) $ 140(F3) $ 170
APAC 90 82 83
Valvoline 53 65(F3) 79
Refining and Marketing(F4) 254(F5) 209(F6) 101
Inventory valuation adjustments(F7) (15) - -
Arch Coal 25 25(F8) 22
Corporate (118)(F9) (60) (96)
- ---------------------------------------------------------------------------------------------------------------------
$ 447 $ 461 $ 359
=====================================================================================================================
ASSETS
Ashland Chemical $1,776 $ 1,583 $ 1,485
APAC 757 531 489
Valvoline 581 550 556
Refining and Marketing 2,189 2,726 2,831
Arch Coal 422 403 381
Corporate(F10) 357 669 754
- ---------------------------------------------------------------------------------------------------------------------
$6,082 $ 6,462 $ 6,496
=====================================================================================================================
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT IN EQUITY AFFILIATES
Ashland Chemical $ 30 $ 40 $ 38
APAC 10 - -
Valvoline 5 6 6
Refining and Marketing 2,102 37 33
Arch Coal 422 403 381
Corporate - 3 7
- ---------------------------------------------------------------------------------------------------
$ 2,569 $ 489 $ 465
===================================================================================================
EXPENSE (INCOME) NOT AFFECTING CASH
Depreciation, depletion and amortization
Ashland Chemical $ 79 $ 94(F3) $ 67
APAC 64 49 44
Valvoline 24 32(F3) 23
Refining and Marketing - 160 153
Corporate 14 13 12
- ---------------------------------------------------------------------------------------------------
181 348 299
Other noncash items(F11)
Ashland Chemical (4) 2 (15)
APAC 3 9 -
Valvoline (1) (4) (1)
Refining and Marketing 36 22 2
Arch Coal (15) (11) (16)
Corporate (42) (4) -
- ---------------------------------------------------------------------------------------------------
(23) 14 (30)
- ---------------------------------------------------------------------------------------------------
$ 158 $ 362 $ 269
===================================================================================================
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Ashland Chemical $ 141 $ 100 $ 80
APAC 81 62 62
Valvoline 32 29 19
Refining and Marketing - 150 187
Corporate 20 15 24
- ---------------------------------------------------------------------------------------------------
$ 274 $ 356 $ 372
===================================================================================================
</TABLE>
[FN]
(F1)Intersegment sales are accounted for at prices which approximate
market value.
(F2)Includes a gain of $14 million on the sale of Ashland's 23 percent
interest in Melamine Chemicals, Inc.
(F3)Includes charges of $16 million for Ashland Chemical and $10
million for Valvoline to write down goodwill related to certain
European operations.
(F4)Effective January 1, 1998, includes Ashland's equity income from
MAP, amortization of Ashland's excess investment in MAP, and
certain retained refining and marketing activities.
(F5)Includes charges of $43 million for reserves for retained
environmental issues associated with properties contributed to MAP
and for certain severance costs.
(F6)Includes a gain of $11 million resulting from LIFO inventory
liquidations.
(F7)Represents Ashland's share of inventory adjustments associated
with the formation of MAP and changes in MAP's inventory market
valuation reserve. The reserve reflects the excess of the LIFO
cost of MAP's crude oil and refined product inventories over their
net realizable values.
(F8)Includes charges of $13 million for duplicate facility write-offs,
severance and other costs resulting from the merger of Ashland
Coal and Arch Mineral into Arch Coal, Inc.
(F9)Includes charges of $50 million related to a restructuring of
corporate G&A functions and the move of Ashland's headquarters.
The charge includes severance costs to be paid to terminated
employees, reserves for excess leased real estate, and
contributions of cash and other real estate committed to be
conveyed to Ashland-area charitable and economic development
organizations.
(F10)Includes principally cash, cash equivalents, investments of
captive insurance companies, and net assets of discontinued
operations held for sale.
(F11)Includes deferred taxes, equity income from affiliates net of
distributions, and other items not affecting cash.
</FN>
61
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
FIVE-YEAR SELECTED FINANCIAL INFORMATION
Years Ended September 30
<TABLE>
<CAPTION>
(In millions except per share data) 1998 1997 1996 1995 1994
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues
Sales and operating revenues (including excise taxes) $6,534 $12,833 $12,313 $11,361 $10,140
Equity income 329 39 33 25 22
Other income 70 89 66 54 70
Costs and expenses
Cost of sales and operating expenses (5,299) (9,810) (9,512) (8,664) (7,613)
Excise taxes on products and merchandise - (992) (985) (988) (877)
Selling, general and administrative expenses (1,006) (1,350) (1,257) (1,252) (1,105)
Depreciation, depletion and amortization (181) (348) (299) (374) (275)
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 447 461 359 162 362
Interest expense (net of interest income) (130) (142) (151) (149) (117)
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 317 319 208 13 245
Income taxes (114) (127) (72) 1 (82)
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 203 192 136 14 163
Income from discontinued operations - 25 75 10 34
Gain on sale of discontinued operations - 71 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 203 288 211 24 197
Extraordinary loss on early retirement of debt - (9) - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 203 $ 279 $ 211 $ 24 $ 197
=================================================================================================================================
BALANCE SHEET INFORMATION
Working capital
Current assets $ 1,828 $ 2,720 $ 2,539 $ 2,405 $ 2,109
Current liabilities 1,361 2,028 2,067 1,908 1,641
- ---------------------------------------------------------------------------------------------------------------------------------
$ 467 $ 692 $ 472 $ 497 $ 468
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 6,082 $ 6,462 $ 6,496 $ 6,225 $ 5,662
- ---------------------------------------------------------------------------------------------------------------------------------
Capital employed
Debt due within one year $ 125 $ 49 $ 127 $ 200 $ 133
Long-term debt (less current portion) 1,507 1,356 1,653 1,672 1,391
Convertible preferred stock - - 293 293 293
Common stockholders' equity 2,137 2,024 1,521 1,362 1,302
- ---------------------------------------------------------------------------------------------------------------------------------
$ 3,769 $ 3,429 $ 3,594 $ 3,527 $ 3,119
=================================================================================================================================
CASH FLOW INFORMATION
Cash flows from continuing operations $ 366 $ 565 $ 544 $ 322 $ 345
Additions to property, plant and equipment 274 356 372 341 335
Dividends 84 86 89 87 79
=================================================================================================================================
COMMON STOCK INFORMATION
Diluted earnings per share
Income (loss) from continuing operations $ 2.63 $ 2.51 $ 1.80 $ (.08) $ 2.32
Net income 2.63 3.64 2.96 .08 2.79
Dividends per share 1.10 1.10 1.10 1.10 1.00
=================================================================================================================================
62
</TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Subsidiaries of Ashland Inc. ("AI") at October 1, 1998, 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-Missouri, 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 55%
Ashland Canada Inc................................................... Ontario, Canada AIHI
Ashland Chemical Hispania, S.A....................................... Spain AI
Ashland France S.A................................................... France AIHI 85% - AI 15%
Ashland International Holdings , Inc. ("AIHI")....................... Delaware AI
Ashland Italia S.p.A................................................. Italy AIHI 43.50% - AI 56.50%
Ashland Nederland B.V................................................ Netherlands AIHI
Ashland UK Limited................................................... United Kingdom AIHI
Ash Property, Inc.................................................... Ohio AI
Ashmont Insurance Company, Inc. ("AIC").............................. Vermont AI
Bluegrass Insurance Company Limited.................................. Bermuda AIC
Marathon Ashland Petroleum LLC....................................... Delaware AI 38%
Valvoline (Australia) Pty. Ltd....................................... Australia AIHI
Vecom International B.V.............................................. Netherlands AIHI
- ---------------
*100% of the voting securities are owned by the immediate parent except as otherwise indicated.
</TABLE>
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 4, 1998, with respect to the
consolidated financial statements and schedule of Ashland Inc. and
consolidated subsidiaries included in this Annual Report (Form 10-K) for
the year ended September 30, 1998.
Ernst & Young LLP
November 24, 1998
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, THOMAS L. 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 5, 1998
/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/ Bernadine P. Healy
- --------------------------------------- ---------------------------------
J. Marvin Quin, Senior Vice President and Bernadine P. Healy, Director
Chief Financial Officer
/s/ Kenneth L. Aulen /s/ Mannie L. Jackson
- --------------------------------------- ---------------------------------
Kenneth L. Aulen, Administrative Vice President, Mannie L. Jackson, Director
Controller and Principal Accounting Officer
/s/ Samuel C. Butler /s/ Patrick F. Noonan
- --------------------------------------- ---------------------------------
Samuel C. Butler, Director Patrick F. Noonan, Director
/s/ Frank C. Carlucci /s/ Jane C. Pfeiffer
- --------------------------------------- ---------------------------------
Frank C. Carlucci, Director Jane C. Pfeiffer, Director
/s/ Ernest H. Drew /s/ Michael D. Rose
- --------------------------------------- ---------------------------------
Ernest H. Drew, Director Michael D. Rose, Director
/s/ James B. Farley /s/ William L. Rouse, Jr.
- --------------------------------------- ---------------------------------
James B. Farley, Director William L. Rouse, Jr., Director
<PAGE>
ASHLAND INC.
Certificate of Assistant Secretary
The undersigned hereby certifies that he is an Assistant Secretary
of Ashland Inc., a Kentucky corporation (the "Corporation"), and that, as
such, he is authorized to execute this Certificate on behalf of the
Corporation and further certifies that:
(a) Attached hereto as Exhibit A is a true and correct copy
of an excerpt from the minutes of the meeting of the
Board of Directors of the Corporation held on November 5,
1998, setting forth certain actions taken at such
meeting, and the powers and authorities granted pursuant
to such actions have at all times been in effect without
amendment, waiver, rescission or modification since
November 5, 1998.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
seal of the Corporation on this 18th day of November, 1998.
/s/ T. C. Wales
---------------------------------
T. C. Wales
Assistant Secretary
[SEAL]
<PAGE>
EXHIBIT A
EXCERPT FROM
MINUTES OF DIRECTORS' MEETING
ASHLAND INC.
November 5, 1998
RESOLVED, that the Corporation's Annual Report to the Securities and
Exchange Commission (the "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, the
President, 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,
1998 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-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 1,129
<ALLOWANCES> 19
<INVENTORY> 440
<CURRENT-ASSETS> 1,828
<PP&E> 2,413
<DEPRECIATION> 1,252
<TOTAL-ASSETS> 6,082
<CURRENT-LIABILITIES> 1,361
<BONDS> 1,507
<COMMON> 76
0
0
<OTHER-SE> 2,061
<TOTAL-LIABILITY-AND-EQUITY> 6,082
<SALES> 6,534
<TOTAL-REVENUES> 6,933
<CGS> 5,480
<TOTAL-COSTS> 5,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 317
<INCOME-TAX> 114
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.63
</TABLE>
<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,
1998, WHICH RESTATED AND RECLASSIFIED CERTAIN PRIOR
YEAR AMOUNTS, 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> 250
<SECURITIES> 0
<RECEIVABLES> 1,610
<ALLOWANCES> 25
<INVENTORY> 660
<CURRENT-ASSETS> 2,720
<PP&E> 5,567
<DEPRECIATION> 2,889
<TOTAL-ASSETS> 6,462
<CURRENT-LIABILITIES> 2,028
<BONDS> 1,356
<COMMON> 75
0
0
<OTHER-SE> 1,949
<TOTAL-LIABILITY-AND-EQUITY> 6,462
<SALES> 12,833
<TOTAL-REVENUES> 12,961
<CGS> 11,150
<TOTAL-COSTS> 11,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 319
<INCOME-TAX> 127
<INCOME-CONTINUING> 192
<DISCONTINUED> 96
<EXTRAORDINARY> (9)
<CHANGES> 0
<NET-INCOME> 279
<EPS-PRIMARY> 3.86
<EPS-DILUTED> 3.64
</TABLE>
<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,
1998, WHICH RESTATED AND RECLASSIFIED CERTAIN PRIOR
YEAR AMOUNTS, 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-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 70
<SECURITIES> 0
<RECEIVABLES> 1,585
<ALLOWANCES> 27
<INVENTORY> 678
<CURRENT-ASSETS> 2,539
<PP&E> 5,306
<DEPRECIATION> 2,671
<TOTAL-ASSETS> 6,496
<CURRENT-LIABILITIES> 2,067
<BONDS> 1,653
<COMMON> 64
0
293
<OTHER-SE> 1,457
<TOTAL-LIABILITY-AND-EQUITY> 6,496
<SALES> 12,313
<TOTAL-REVENUES> 12,412
<CGS> 10,796
<TOTAL-COSTS> 10,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> 208
<INCOME-TAX> 72
<INCOME-CONTINUING> 136
<DISCONTINUED> 75
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 2.96
</TABLE>
