==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.Yes [X] No___
At July 31, 1998, there were 76,470,285 shares of Registrant's Common
Stock outstanding. One Right to purchase one-thousandth of a share of
Series A Participating Cumulative Preferred Stock accompanies each
outstanding share of Registrant's Common Stock.
==============================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
-------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
-------------------------- -------------------------
(In millions except per share data) 1998 1997 1998 1997
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues (including excise taxes) $ 1,705 $ 3,299 $ 4,777 $ 9,491
Equity income 159 17 265 44
Other 13 12 58 42
----------- ---------- ----------- -----------
1,877 3,328 5,100 9,577
COSTS AND EXPENSES
Cost of sales and operating expenses 1,368 2,451 3,877 7,275
Excise taxes on products and merchandise - 253 - 748
Selling, general and administrative expenses 238 334 673 984
Depreciation, depletion and amortization 45 79 129 236
----------- ---------- ----------- -----------
1,651 3,117 4,679 9,243
----------- ---------- ----------- -----------
OPERATING INCOME 226 211 421 334
Interest expense (net of interest income) (33) (38) (96) (112)
----------- ---------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 193 173 325 222
Income taxes (70) (54) (122) (78)
----------- ---------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 123 119 203 144
Income from discontinued operations (net of income taxes) - 9 - 26
----------- ---------- ----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS 123 128 203 170
Extraordinary loss on early retirement of debt
(net of income taxes) - (2) - (2)
----------- ---------- ----------- -----------
NET INCOME $ 123 $ 126 $ 203 $ 168
=========== ========== =========== ===========
EARNINGS PER SHARE - Note G
Basic
Income from continuing operations $ 1.61 $ 1.60 $ 2.69 $ 1.98
Income from discontinued operations - .11 - .37
Extraordinary loss - (.02) - (.02)
----------- ---------- ----------- -----------
Net income $ 1.61 $ 1.69 $ 2.69 $ 2.33
=========== ========== =========== ===========
Diluted
Income from continuing operations $ 1.59 $ 1.54 $ 2.64 $ 1.90
Income from discontinued operations - .11 - .33
Extraordinary loss - (.02) - (.02)
----------- ---------- ----------- -----------
Net income $ 1.59 $ 1.63 $ 2.64 $ 2.21
=========== =========== =========== ===========
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275 $ .825 $ .825
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------------
June 30 September 30 June 30
(In millions) 1998 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 44 $ 250 $ 112
Accounts receivable 1,050 1,610 1,581
Allowance for doubtful accounts (20) (25) (27)
Inventories - Note A 486 660 717
Deferred income taxes 90 103 105
Other current assets 145 122 132
---------- ---------- ----------
1,795 2,720 2,620
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) 2,119 - -
Investment in Arch Coal 426 403 406
Cost in excess of net assets of companies acquired 179 120 150
Net assets of discontinued operations held for sale - 18 341
Other noncurrent assets 369 523 468
---------- ---------- ----------
3,093 1,064 1,365
PROPERTY, PLANT AND EQUIPMENT
Cost 2,315 5,567 5,478
Accumulated depreciation, depletion and amortization (1,225) (2,889) (2,841)
---------- ---------- ----------
1,090 2,678 2,637
---------- ---------- ----------
$ 5,978 $ 6,462 $ 6,622
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $ 230 $ 49 $ 337
Trade and other payables 1,032 1,867 1,757
Income taxes 63 112 24
---------- ---------- ----------
1,325 2,028 2,118
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,509 1,356 1,580
Employee benefit obligations 436 539 533
Reserves of captive insurance companies 178 161 171
Other long-term liabilities and deferred credits 356 354 297
Commitments and contingencies - Note E
---------- ---------- ----------
2,479 2,410 2,581
COMMON STOCKHOLDERS' EQUITY 2,174 2,024 1,923
---------- ---------- ----------
$ 5,978 $ 6,462 $ 6,622
========== ========== ==========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------------
Preferred Common Paid-in Retained
(In millions) stock stock capital earnings Other Total
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1996 $ 293 $ 64 $ 280 $ 1,185 $ (8) $ 1,814
Net income 168 168
Dividends
Preferred stock (9) (9)
Common stock (56) (56)
Issued common stock under
Preferred stock conversion (290) 9 281 -
Stock incentive plans 1 25 26
Employee savings plan 1 1
Preferred stock redemption (3) (3)
Other changes (18) (18)
------- --------- -------- ---------- -------- --------
BALANCE AT JUNE 30, 1997 $ - $ 74 $ 587 $ 1,288 $ (26) $ 1,923
======= ========= ======== ========== ======== ========
BALANCE AT OCTOBER 1, 1997 $ - $ 75 $ 605 $ 1,379 $ (35) $ 2,024
Net income 203 203
Dividends on common stock (62) (62)
Issued common stock under
Stock incentive plans 13 13
Acquisition of other companies 1 1 7 9
Other changes (3) (10) (13)
------- --------- -------- ---------- -------- --------
BALANCE AT JUNE 30, 1998 $ - $ 76 $ 616 $ 1,527 $ (45) $ 2,174
======= ========= ======== ========== ======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
Nine months ended
June 30
----------------------------
(In millions) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Income from continuing operations $ 203 $ 144
Expense (income) not affecting cash
Depreciation, depletion and amortization 129 236
Deferred income taxes 27 37
Equity income from affiliates (265) (44)
Distributions from equity affiliates 154 16
Other noncash items (6) -
Change in operating assets and liabilities (1) (224) (155)
----------- -----------
18 234
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 150 87
Proceeds from issuance of capital stock 8 19
Repayment of long-term debt (47) (60)
Increase in short-term debt 171 109
Dividends paid (62) (65)
----------- -----------
220 90
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (177) (233)
Purchase of leased assets associated with the formation of MAP (254) -
Purchase of operations - net of cash acquired (147) (67)
Proceeds from sale of operations 26 -
Investment purchases (2) (173) (160)
Investment sales and maturities (2) 272 150
Other - net 19 18
----------- -----------
(434) (292)
----------- -----------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS (196) 32
Cash provided (used) by discontinued operations (10) 10
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (206) 42
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 250 70
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 44 $ 112
=========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Excludes changes resulting from operations acquired or sold.
(2) Represents primarily investment transactions of captive
insurance companies.
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
- --------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and
Securities and Exchange Commission regulations, but are subject to
any year-end audit adjustments which may be necessary. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. These financial statements should be read in
conjunction with Ashland's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997. Results of operations for
the periods ended June 30, 1998, are not necessarily indicative of
results to be expected for the year ending September 30, 1998.
BASIS OF PRESENTATION
Effective October 1, 1997, Ashland adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." As a result, equity income is now included in
operating income, with prior periods restated.
Effective October 1, 1997, responsibility for marketing of the
petrochemicals and lube base stocks manufactured by Ashland
Petroleum was transferred from Ashland Chemical and Valvoline to
Refining and Marketing, now MAP. Prior period information by
industry segment was restated for the transfer.
As described in Note B, Ashland's investment in Arch Coal is now
accounted for on the equity method and prior periods were restated
to reflect Ashland's coal investments on the equity method for all
periods presented. However, as described in Note D, the formation
of MAP required a change in accounting for Ashland's Refining and
Marketing segment. Restatement of financial statements for years
prior to 1998 was not permitted under generally accepted
accounting principles. As a result, the 1998 and 1997 periods are
not comparable.
<TABLE>
<CAPTION>
INVENTORIES
--------------------------------------------------------------------------------------------------------------------
June 30 September 30 June 30
(In millions) 1998 1997 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals $ 388 $ 341 $ 377
Petroleum products 50 289 318
Other products 96 131 133
Crude oil - 277 287
Materials and supplies 10 38 36
Excess of replacement costs over LIFO carrying values (58) (416) (434)
-------- ------- -------
$ 486 $ 660 $ 717
======== ======= =======
</TABLE>
NOTE B - ARCH COAL
Ashland Coal, Inc. and Arch Mineral Corporation merged on July 1,
1997, into a new corporation known as Arch Coal, Inc., in which
Ashland has a 55% ownership interest. Effective with the June 1998
quarter, Ashland early adopted Emerging Issues Task Force Issue
No. 96-16 (EITF 96-16), "Investor's Accounting
6
<PAGE>
- --------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
NOTE B - ARCH COAL (continued)
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. Arch
Coal also files periodic reports, including annual reports on Form
10-K, pursuant to the Securities and Exchange Act of 1934.
Unaudited income statement information for Arch Coal follows.
Amounts for the periods ended June 30, 1997, are combined results
for the former Arch Mineral Corporation and Ashland Coal, Inc.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
-------------------------- ----------------------------
(In millions) 1998 1997 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 342 $ 344 $ 970 $ 1,044
Income from operations 27 31 80 91
Net income 14 22 50 63
</TABLE>
NOTE C - DISCONTINUED OPERATIONS
On July 1, 1997, Ashland sold the domestic exploration and
production operations of Blazer Energy Corporation. On May 6,
1998, Ashland completed its withdrawal from the business through
the sale of its exploration and production operations in Nigeria
with no significant gain or loss. Accordingly, results from the
Exploration segment are shown as discontinued operations.
Components of amounts reflected in the income statements, balance
sheets and cash flow statements are presented in the following
table.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
-------------------------- ----------------------------
(In millions) 1998 1997 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ - $ 62 $ - $ 216
Costs and expenses - (53) - (191)
----------- ----------- ----------- ------------
Operating income - 9 - 25
Income tax benefit - - - 1
----------- ----------- ----------- ------------
Net income $ - $ 9 $ - $ 26
=========== =========== =========== ============
BALANCE SHEET DATA
Current assets $ - $ 74
Investments and other assets - 8
Property, plant and equipment - net - 430
Current liabilities - (67)
Noncurrent liabilities - (104)
----------- ------------
Net assets held for sale $ - $ 341
=========== ============
CASH FLOW DATA
Cash flows from operations $ (36) $ 44
Cash flows from investment 26 (34)
----------- ------------
Cash provided (used) by discontinued operations $ (10) $ 10
=========== ============
7
</TABLE>
<PAGE>
- --------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
NOTE D - REFINING AND MARKETING
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 contributed to MAP to the
equity method effective October 1, 1997, the beginning of
Ashland's current fiscal year, restating results for the quarter
ended December 31, 1997. 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.
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>
-------------------------------------------------------------------------------------------------------------------
Nine months ended
June 30
-----------------------
(In millions except per share data) 1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 5,031 $ 4,704
Income from continuing operations (1) 156 121
Net income 156 145
Diluted earnings per share
Income from continuing operations (1) 2.03 1.61
Net income 2.03 1.91
---------
(1) 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 $204 million
($2.65 per share) in 1998 and $162 million ($2.14 per share)
in 1997. Reported income from continuing operations,
excluding these inventory adjustments, was $200 million
($2.60 per share) in 1998 and $144 million ($1.90 per share)
in 1997.
</TABLE>
Unaudited income statement information follows for MAP for the
three months and six months ended June 30, 1998. Such results
included 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.
These adjustments increased MAP's income from operations by $3
million for the three months and $12 million for the six months
ended June 30, 1998.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
(In millions) June 30, 1998 June 30, 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 4,952 $ 9,541
Income from operations 409 547
Net income 417 558
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 above for MAP does not
include any provision for income taxes which will be incurred by
MAP's parents.
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
NOTE E - LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local
environmental laws and regulations that require remediation
efforts at multiple locations, including operating facilities,
previously owned or operated facilities, and Superfund or other
waste sites. For information regarding environmental expenditures
and reserves, see the "Miscellaneous - Governmental Regulation and
Action - Environmental Protection" section of Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
that affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites.
During 1997, the U.S. Environmental Protection Agency (EPA)
completed comprehensive inspections of three refineries owned by
Ashland prior to the formation of Marathon Ashland Petroleum LLC
(MAP), which evaluated Ashland's compliance with federal
environmental laws and regulations at those facilities. Ashland
continues to cooperate and participate in discussions with the EPA
concerning the results of these inspections, including discussions
about the nature and extent of any additional remediation actions
or equipment modifications or upgrades that may be required to
respond to the findings of the inspections. Under the terms of the
agreements pursuant to which the refineries were conveyed to MAP,
Ashland agreed to retain responsibility for matters arising out of
these inspections, including commencement of work as soon as
practical on certain enumerated projects.
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 California for the County of Los
Angeles. To date, five trials involving approximately 130
plaintiffs have resulted in total verdicts adverse to Ashland of
$152.2 million ($146.7 million of which is punitive damages). 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
for substantial amounts. While these actions are being contested,
the outcome of individual matters is not predictable with
assurance.
Ashland does not believe that any liability resulting from these
matters, after taking into consideration its insurance coverages
and amounts already provided for, will have a material adverse
effect on its consolidated financial position, 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.
9
<PAGE>
- --------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
NOTE F - ACQUISITIONS
During the nine months ended June 30, 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. In
addition, Valvoline acquired the Eagle One(R) brand of premium
automotive appearance products, while Ashland Chemical made
several smaller acquisitions to expand its distribution and
specialty chemical businesses. Eagle One and three of the smaller
APAC acquisitions were acquired by the issuance of a total of $41
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 were accounted for as purchases and did not have a
significant effect on Ashland's consolidated financial statements.
NOTE G - COMPUTATION OF EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 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>
-------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
----------------------- -----------------------
(In millions except per share data) 1998 1997 1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR
Income from continuing operations $ 123 $ 119 $ 203 $ 144
Preferred stock dividends - - - (9)
---------- ---------- ---------- -----------
Numerator for basic EPS - Income
available to common shares 123 119 203 135
Effect of dilutive securities
Dividends on convertible preferred stock - - - 9
Interest on convertible debentures (net of income taxes) - 1 - 4
---------- ---------- ---------- -----------
Numerator for diluted EPS - Income available
to common shares after assumed conversions $ 123 $ 120 $ 203 $ 148
========== ========== ========== ===========
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 76 74 76 68
Common shares issuable upon
Exercise of stock options 1 1 1 1
Conversion of debentures - 3 - 3
Conversion of preferred stock - - - 6
---------- ---------- ---------- -----------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 77 78 77 78
========== ========== ========== ===========
BASIC EPS FROM CONTINUING OPERATIONS $ 1.61 $ 1.60 $ 2.69 $ 1.98
========== ========== ========== ===========
DILUTED EPS FROM CONTINUING OPERATIONS $ 1.59 $ 1.54 $ 2.64 $ 1.90
========== ========== ========== ===========
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
----------------------------- ----------------------------
(Dollars in millions except as noted) 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUES
Ashland Chemical $ 1,020 $ 1,035 $ 3,081 $ 2,915
APAC 428 347 963 843
Valvoline 260 285 749 792
Refining and Marketing - 1,696 - 5,111
Intersegment sales
Refining and Marketing - (57) - (151)
Other (3) (7) (16) (19)
------------ ------------ ------------- -----------
$ 1,705 $ 3,299 $ 4,777 $ 9,491
============ ============ ============= ===========
OPERATING INCOME
Ashland Chemical $ 42 $ 50 $ 132 $ 118
APAC 31 29 50 48
Valvoline 17 29 34 66
Refining and Marketing (1) 147 103 224 110
Inventory valuation adjustments (2) 1 - 5 -
Arch Coal 7 12 25 32
General corporate expenses (19) (12) (49) (40)
------------ ------------ ------------- -----------
$ 226 $ 211 $ 421 $ 334
============ ============ ============= ===========
OPERATING INFORMATION
(mbpd = thousand barrels per day)
APAC
Construction backlog at June 30 (millions) $ 875 $ 701
Hot mix asphalt production (million tons) 7.2 5.9 14.8 13.2
Aggregate production (million tons) 5.9 4.7 14.2 11.8
Valvoline lubricant sales (mbpd) 17.6 16.4 16.2 15.4
Refining and Marketing (3)
Refined products sold (mbpd) 1,178.9 1,160.8
Crude oil refined (mbpd) 923.2 914.3
Arch Coal (4)
Tons sold (millions) 16.8 13.5 41.4 41.1
Tons produced (millions) 16.6 14.0 40.8 41.8
----------------------------------------------------------------------------------------------------------------------------------
(1) 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.
(2) 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.
(3) Amounts represent 100% of the volumes of MAP, which commenced
operations January 1, 1998.
(4) Includes tonnage of the domestic coal operations acquired from Atlantic
Richfield effective June 1, 1998.
</TABLE>
11
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
CURRENT QUARTER - Ashland recorded net income of $123 million for
the quarter ended June 30, 1998, including net income of $1
million from inventory valuation adjustments related to Marathon
Ashland Petroleum LLC (MAP), the oil refining and marketing
company formed January 1, 1998, between Ashland and Marathon Oil
Company. The quarter's results compare to net income of $126
million for the quarter ended June 30, 1997, which included an
extraordinary loss of $2 million on the early retirement of debt.
Although last year's June quarter included net income of $9
million from discontinued operations of the former Exploration
segment, results for this year's quarter were enhanced by lower
net interest costs resulting from the use of the proceeds from the
sale of those operations to reduce debt.
YEAR-TO-DATE - Ashland recorded net income of $203 million for the
nine months ended June 30, 1998. This amount includes $9 million
in unusual net income, including MAP's inventory valuation
adjustments and a December-quarter gain from the sale of Ashland's
23% interest in Melamine Chemicals. Net income for the nine months
ended June 30, 1997, amounted to $168 million, including the $2
million extraordinary loss. Although the 1997 period included
income from discontinued operations of $26 million, results for
the 1998 period benefited from a $16 million reduction in net
interest costs resulting from the use of the sales proceeds to
reduce debt.
Results for the periods ended June 30, 1997, have been restated
for a variety of reasons as described in Note A to the condensed
consolidated financial statements. These restatements present the
results for the prior year's periods on a basis consistent with
the current year's presentation and all comparisons within this
discussion reflect these restatements.
The formation of MAP on January 1, 1998, resulted in a restatement
of Ashland's results for the quarter ended December 31, 1997, as
described in Note D to the condensed consolidated financial
statements. This restatement presents results for both the quarter
and nine months ended June 30, 1998, on a consistent basis.
However, since the 1997 periods were not restated, results for the
1998 and 1997 periods for the Refining and Marketing segment are
not comparable.
ASHLAND CHEMICAL
CURRENT QUARTER - Ashland Chemical reported operating income of
$42 million for the quarter ended June 30, 1998, compared to $50
million for the same period a year ago. The decline was due to a
number of factors. First, the 1997 quarter included a small gain
from the sale of foreign technology by Melamine Chemicals. Second,
the downturn in Asian markets moderately affected Foundry Products
and Electronic Chemicals in the Specialty Chemicals Group.
Finally, softer methanol markets led to a decline in the
Petrochemicals Group. Operating income from the Distribution Group
was up slightly, reflecting improvements from the European
plastics operations.
YEAR-TO-DATE - Ashland Chemical reported operating income of $132
million for the nine months ended June 30, 1998, compared to $118
million for the same period of fiscal 1997. The current period
includes a pretax gain of $14 million on the sale of Ashland's 23%
interest in Melamine Chemicals. Operating income for the
Distribution Group was up slightly reflecting improvements from
the European plastics businesses, Fine Ingredients and General
Polymers, more than offsetting a decline in IC&S. Results for the
Specialty Chemicals Group were also up slightly as improvements in
Drew Marine, Specialty Polymers &
12
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
ASHLAND CHEMICAL (continued)
Adhesives, Composite Polymers and Drew Industrial were partially
offset by declines in Electronic Chemicals and Foundry Products.
The downturn in the Asian markets contributed to these declines.
The Petrochemicals Group was off slightly as reduced profits from
methanol more than offset improvements from maleic anhydride.
APAC
CURRENT QUARTER - For the third quarter of fiscal 1998, APAC's
construction operations reported record June quarter operating
income of $31 million, compared to $29 million for the June 1997
quarter. Favorable weather conditions across the Southeast and
Midwest led to increased construction activity as well as record
materials production.
YEAR-TO-DATE - The APAC construction companies reported operating
income of $50 million for the first nine months of fiscal 1998,
compared to $48 million for the 1997 period. Net revenue (total
revenue less subcontract work) was up 16%, while hot mix asphalt
production was up 12% and crushed aggregate production was up 21%
from 1997. The construction backlog at June 30, 1998, amounted to
$875 million, the highest ever reported, and represented a 25%
improvement over the level of June 1997. In addition, the
reauthorization of the federal highway funding program bodes well
for APAC. Based on current estimates, the states in which APAC
operates should see an average increase in annual highway funding
of $3.3 billion (59%) for the six year program.
VALVOLINE
CURRENT QUARTER - Valvoline reported operating income of $17
million for the quarter ended June 30, 1998, compared to $29
million for the quarter ended June 30, 1997. The decrease in
earnings was primarily the result of lower R-12 refrigerant sales
volumes and prices. Ample inventory at the distributor and retail
levels reduced the demand for R-12. The current quarter was also
negatively impacted by lower used oil fuel prices for First
Recovery, Valvoline's used oil collection unit. The decline also
reflects increased advertising and promotional expenses for the
successful introduction of Valvoline's Synpower(R) automotive
chemicals line and Eagle One(R) appearance products. Valvoline's
core lubricants business performed very well, with favorable
volumes and margins compared to 1997.
YEAR-TO-DATE - Valvoline reported operating income of $34 million
for the nine months ended June 30, 1998, compared to $66 million
for the comparable 1997 period. The decrease was generally due to
the same factors discussed in the quarterly comparison, and also
includes the costs associated with the February 1998 acquisition
of Eagle One Industries.
REFINING AND MARKETING
CURRENT QUARTER - Operating income from Refining and Marketing
(excluding $1 million in net favorable inventory valuation
adjustments) amounted to $147 million for the quarter ended June
30, 1998, compared to $103 million for the quarter ended June 30,
1997. As described previously in this discussion and discussed
further in Note D to the condensed consolidated financial
statements, the formation of MAP effective January 1, 1998, makes
operating results between the current and prior year periods not
13
<PAGE>
- --------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------
REFINING AND MARKETING (continued)
comparable. Refining and Marketing operating income for the
quarter ended June 30, 1998, consisted of Ashland's equity income
from MAP, amortization of Ashland's excess investment in MAP, and
certain retained refining and marketing activities. Operating
income for the quarter ended June 30, 1997, represents Ashland's
100% interest in its former refining and marketing businesses.
While the improvement in operating income resulted principally
from more favorable industry conditions in the June 1998 quarter,
a different mix of operations resulting from the formation of MAP
was also a significant factor in the improvement. Because of its
Midwest market position, MAP enjoys stronger product margins
compared to the Gulf or East Coast reference markets. MAP
continues to successfully capture efficiency benefits and is
continuing the integration process. The current focus is on
actively integrating the logistical, retail marketing, wholesale
marketing and refining operations, as well as administrative
functions that Ashland and Marathon transferred to MAP.
Potential efficiencies derived by MAP have been broadly estimated
to be in excess of $200 million annually on a pretax basis. While
part of these efficiencies are beginning to be realized, full
realization should occur over the next few years as MAP's
integration plans are implemented.
MAP is implementing a maintenance and safety improvement program
at the Catlettsburg, Ky., Canton, Ohio, and St. Paul Park, Minn.,
refineries which has or will result in the scheduled shutdown of
certain production units at various times over the next several
months. MAP does not expect product shortages as a result of this
downtime. The costs of the program, as well as the effects of
reduced production levels, could have a negative impact on MAP
profitability during the remainder of calendar 1998, however, such
effects are not expected to be material to Ashland.
YEAR-TO-DATE - Refining and Marketing reported operating income of
$224 million for the nine months ended June 30, 1998, excluding $5
million in net favorable inventory valuation adjustments. This
amount represents 100% of the operating income generated in the
quarter ended December 31, 1997, by the businesses Ashland
contributed to MAP, plus Ashland's share of MAP's earnings for the
six months ended June 30, 1998, amortization of Ashland's excess
investment in MAP, and certain retained refining and marketing
activities. For the nine months ended June 30, 1997, Ashland's
former refining and marketing businesses generated $110 million in
operating income. Reported results for the six months ended June
30, 1998, show a $94 million improvement over the same period last
year, and reflect the same factors described in the quarterly
comparison above. In addition, the March 1997 quarter was impacted
by heavy flooding in the Ohio Valley which limited the ability to
ship product on the river. Ashland's former businesses reported a
$20 million increase in operating income for the December 1997
quarter, compared to the December 1996 quarter. This increase was
the result of lower average crude oil costs for the quarter and
improved refining margins. In addition, retail gasoline margins
also improved, and sales of gasoline and merchandise increased.
ARCH COAL
CURRENT QUARTER - Operating income generated from Ashland's
investment in Arch Coal amounted to $7 million for the quarter
ended June 30, 1998, compared to combined earnings of $12 million
from Ashland's investments in Arch Mineral and Ashland Coal for
the quarter ended June 30, 1997. The decline was due to the
previously announced expiration at the end of calendar 1997 of an
above-market-priced contract with
14
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
ARCH COAL (continued)
Georgia Power, the January closing of a longwall mining operation
in eastern Kentucky and higher interest costs related to the $1.14
billion acquisition of Atlantic Richfield's (ARCO) domestic coal
operations completed on June 1, 1998. The transaction makes Arch
Coal the nation's second largest coal producer with expected coal
sales of nearly 110 million tons annually, annual revenues of
about $1.8 billion, and a reserve base of approximately 3.4
billion tons. Arch is now a much stronger competitor in a rapidly
consolidating industry.
YEAR-TO-DATE - Operating income generated from Ashland's
investment in Arch Coal amounted to $25 million for the nine
months ended June 30, 1998, compared to combined earnings of $32
million from Ashland's investments in Arch Mineral and Ashland
Coal for the nine months ended June 30, 1997. Cost savings related
to the merger have made a positive contribution to earnings.
However, these savings and the positive impact of the June 1998
operating results from the ARCO operations were more than offset
by the factors described in the current quarter comparison above.
GENERAL CORPORATE EXPENSES
General corporate expenses amounted to $19 million in the quarter
ended June 30, 1998, compared to $12 million for the quarter ended
June 30, 1997. Year-to-date amounts were $49 million for the
current year versus $40 million for the prior year. The absolute
level of G&A expenses is actually down somewhat; however, due to
the formation of MAP and the sale of Ashland's exploration
business, a greater amount has been retained at the corporate
level. On July 20, 1998, Ashland announced a program to
substantially reduce G&A expenses. The program, which is already
under way, includes the relocation of corporate headquarters to
Covington, Ky., in the Cincinnati metropolitan area, and a
restructuring of administrative functions companywide. The
restructuring process is expected to result in the elimination of
150 to 225 jobs at corporate headquarters in Ashland, Ky., and
will result in a charge against September 1998 earnings.
INTEREST EXPENSE (NET OF INTEREST INCOME)
For the three months ended June 30, 1998, interest expense (net of
interest income) totaled $33 million, compared to $38 million for
the June 1997 quarter. Year-to-date amounts were $96 million for
the current year versus $112 million for the prior year. The
decline reflected a decrease in interest expense as a result of
Ashland's improved financial position. Ashland used the proceeds
from the July 1997 sale of its domestic exploration and production
operations to significantly reduce its debt levels. However, this
reduction was partially offset by increased debt levels resulting
from $254 million in purchases of leased assets in December 1997
and January 1998 associated with the formation of MAP and by
acquisitions during 1998.
DISCONTINUED OPERATIONS
See Note C to the condensed consolidated financial statements for
a discussion of the discontinued operations of the former
Exploration segment.
15
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
FINANCIAL POSITION
LIQUIDITY
Ashland's financial position has enabled it to obtain capital for
its financing needs and to maintain investment grade ratings on
its senior debt of Baa2 from Moody's and BBB from Standard &
Poor's. Ashland has a revolving credit agreement providing for up
to $320 million in borrowings, under which no borrowings were
outstanding at June 30, 1998. Under a shelf registration, Ashland
can issue an additional $220 million in medium-term notes should
future opportunities or needs arise. Ashland also has access to
various uncommitted lines of credit and commercial paper markets,
under which short-term notes and commercial paper of $174 million
were outstanding at June 30, 1998.
Cash flows from continuing operations, a major source of Ashland's
liquidity, amounted to $18 million for the nine months ended June
30, 1998, compared to $234 million for the nine months ended June
30, 1997. This decrease was due in part to the change in
accounting to the equity method for Ashland's former Refining and
Marketing operations. This change in accounting effectively
reclassifies the capital expenditures for property, plant and
equipment for these operations from investing activities to a
reduction of cash flows from operations. Property additions for
Refining and Marketing amounted to $108 million for the nine
months ended June 30, 1997. The current period was also affected
by increased working capital requirements and the payment of
income taxes related to the sale of Ashland's domestic exploration
and production operations.
Operating working capital (accounts receivable and inventories,
less trade and other payables) at June 30, 1998, was $484 million,
compared to $378 million at September 30, 1997, and $514 million
at June 30, 1997. Liquid assets (cash, cash equivalents and
accounts receivable) amounted to 81% of current liabilities at
June 30, 1998, compared to 90% at September 30, 1997, and 79% at
June 30, 1997. Ashland's working capital is affected by its use of
the LIFO method of inventory valuation, which valued inventories
$58 million below their replacement costs at June 30, 1998.
CAPITAL RESOURCES
For the nine months ended June 30, 1998, property additions
amounted to $177 million, compared to $233 million for the same
period last year. The prior year includes $108 million for the
businesses contributed to MAP. Property additions and cash
dividends for the remainder of fiscal 1998 are estimated at $89
million and $21 million. On August 7, 1998, Ashland's Board of
Directors authorized the company to repurchase up to 4 million
shares of its common stock in the open market. The timing and
exact number of shares to be purchased will be dependent on market
conditions. Ashland anticipates meeting its remaining 1998 capital
requirements for property additions, dividends, common share
repurchases and $14 million in contractual maturities of long-term
debt from internally generated funds. In February 1998, Ashland
issued $150 million aggregate principal amount of 6.625% Senior
Notes due 2008.
Ashland's capital employed at June 30, 1998, consisted of debt
(44%) and common stockholders' equity (56%). In comparison, debt
as a percent of capital employed amounted to 41% at September 30,
1997, and 50% at June 30, 1997. At June 30, 1998, long-term debt
included about $40 million of floating-rate debt, and the interest
rates on an additional $270 million of fixed-rate debt were
converted to floating rates through interest rate swap agreements.
As a result, interest costs for the remainder of 1998 will
fluctuate
16
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
CAPITAL RESOURCES (continued)
based on short-term interest rates on about $310 million of
Ashland's consolidated long-term debt, as well as on any
short-term notes and commercial paper.
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 increasingly stringent regulations,
Ashland believes that expenditures for environmental compliance
will continue to have a significant effect on its businesses.
Although it cannot accurately predict how such trends will affect
future operations and earnings, Ashland believes the nature and
significance of its ongoing compliance costs will be comparable to
those of its competitors in the chemical, mining and petroleum
industries. For information on certain specific environmental
proceedings and investigations, see the "Legal Proceedings"
section of this Form 10-Q. For information regarding environmental
expenditures and reserves, see the "Miscellaneous - Governmental
Regulation and Action - Environmental Protection" section of
Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
which affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites.
During 1997, the U.S. Environmental Protection Agency (EPA)
completed comprehensive inspections of three refineries owned by
Ashland prior to the formation of MAP. See Note E to the condensed
consolidated financial statements for a discussion of this matter.
Ashland does not believe that any liability resulting from
environmental matters, after taking into consideration its
insurance coverages and amounts already provided for, will have a
material adverse effect on its consolidated financial position,
cash flows or liquidity. 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.
YEAR 2000 ISSUE
Ashland, like most other companies, is faced with the Year 2000
Issue, which is the result of computer programs written with two
digits rather than four to define the applicable year. Any
computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 instead of the year 2000. This
could result in a system failure or miscalculations causing
disruptions of operations or financial processes, such as
equipment failures or a temporary inability to process
transactions or send invoices.
Ashland began developing plans in 1994 to address the possible
exposures related to the impact of the Year 2000 Issue. A project
team is responsible for coordinating the assessment, remediation,
testing and implementation of the necessary modifications to its
key computer applications (which consist of internally
17
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
YEAR 2000 ISSUE (continued)
developed computer applications, as well as third party software,
hardware and embedded chip systems) to assure such systems and
related processes will continue to function after December 31,
1999.
The assessment phase related to internally developed computer
applications has been completed and the estimated additional costs
for making the necessary changes to such systems, including
implementation and testing efforts, are not expected to exceed $10
million and will be expensed as incurred. This estimate was based
on various factors including availability of internal and external
resources and complexity of the software applications. Such
estimate does not include costs of new systems for which the
principal justification is improved business functionality, rather
than Year 2000 compliance.
The investigation and assessment phase for the third party
software, hardware and embedded chip systems is underway. Included
in this phase of the project is an effort to obtain
representations and assurances from third party vendors that their
software and hardware products being used by Ashland are or will
be Year 2000 compliant. Implementation and testing phases are
expected to be completed in 1999.
Ashland's goal is to ensure that all of the critical systems and
processes remain functional. However, because certain systems may
be interrelated with systems outside the control of Ashland, there
can be no assurances that all implementations will be successful.
Ashland does not expect the costs to modify its systems or to
correct any unsuccessful system implementations will have a
material adverse impact on its financial position, results of
operations or cash flows.
FORWARD LOOKING STATEMENTS
This Form 10-Q 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. Although Ashland
believes that its expectations are based on reasonable
assumptions, it cannot assure that the expectations contained in
such statements will be achieved. Important factors which could
cause actual results to differ materially from those contained in
such statements are discussed in Note A to the Consolidated
Financial Statements under risks and uncertainties in Ashland's
Annual Report for the fiscal year ended September 30, 1997. Other
factors and risks affecting Ashland's revenues and operations are
contained in Ashland's Form 10-K for the fiscal year ended
September 30, 1997, which is on file with the Securities and
Exchange Commission.
The above discussion under "Results of Operations - Refining and
Marketing" contains forward-looking statements with respect to the
amount and timing of efficiencies to be realized by MAP. Some
factors that could potentially cause actual results to differ
materially from present expectations include unanticipated costs
to implement shared technology, difficulties in integrating
corporate structures, delays in leveraging volume procurement
advantages or delays in personnel rationalization. The same
discussion also contains forward-looking statements regarding
maintenance and safety programs which are based on a number of
assumptions, including (among others) the time required to
complete the maintenance and safety programs, costs and downtime
related to these activities, and the effect of reduced production
on profitability. To the extent these assumptions prove
inaccurate, actual results could be materially different than
present expectations.
18
<PAGE>
PART II - OTHER INFORMATION
- -----------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
Environmental Proceedings - (1) As of June 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 cleanup
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 USEPA or a state agency, in which Ashland may be
participating as a member of various PRP groups. Generally, the type of
relief sought includes remediation of contaminated soil and/or groundwater,
reimbursement for the costs of site cleanup or oversight expended, and/or
long-term monitoring of environmental conditions at the sites. Ashland
carefully monitors the investigatory and remedial activity at many of these
sites. Based on its experience with site remediation, its familiarity with
current environmental laws and regulations, its analysis of the specific
hazardous substances at issue, the existence of other financially viable
PRPs and its current estimates of investigatory, clean-up and monitoring
costs at each site, Ashland believes that its liability at these sites,
either individually or in the aggregate, after taking into account
established reserves, will not have a material adverse effect on Ashland's
consolidated financial position, cash flow or liquidity. 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. For additional information regarding Superfund, see the
"Miscellaneous Governmental Regulation and Action-Environmental Protection"
section of Ashland's Form 10-K.
(2) On March 19, 1996, after consultation with the USEPA, the Kentucky
Division for Air Quality issued a finding that Ashland had not demonstrated
compliance with certain air regulations governing emissions of volatile
organic compounds ("VOC") at its Catlettsburg, Kentucky refinery, and
referred the matter to USEPA - Region IV for formal enforcement action. On
May 27, 1997, Kentucky and Ashland entered into an Agreed Order resolving
the issues in contention. Under the terms of the Agreed Order, Ashland
agreed to pay a civil penalty and to design, construct and install
additional VOC controls. Separately, the USEPA issued a Notice of Violation
to Ashland regarding this matter. In connection with the formation of MAP,
the Catlettsburg Refinery was conveyed to Catlettsburg Refinery, LLC, a
subsidiary of MAP. Under the terms of the agreements pursuant to which the
Catlettsburg Refinery was conveyed, Ashland agreed to retain responsibility
for matters arising out of the Agreed Order and Notice of Violation.
(3) In the fall of 1996, the USEPA conducted multimedia inspections of
Ashland's three refineries. Over the past several months, the USEPA and
Ashland have engaged in discussions to resolve the issues identified during
these inspections. The parties have reached a tentative agreement on many
major issues and have begun the process of drafting a settlement document.
Resolution is expected to involve both a penalty payment and environmental
projects. Ashland expects to finalize the settlement agreement in calendar
1998. In connection with the formation of MAP, the refineries were conveyed
to MAP (or a subsidiary of MAP). Under the terms of the agreements
conveying Ashland's three refineries to MAP, Ashland agreed to retain
responsibility for matters arising out of the multimedia inspections.
(4) On October 24, 1996, the rock strata overlaying an abandoned
underground mine adjacent to the coal-refuse impoundment used by an Arch
Coal subsidiary's preparation plant failed, resulting in an accidental
discharge of approximately 6.3 million gallons of water and fine coal
slurry into a tributary of the Powell River in Lee County, Virginia.
Certain civil actions regarding this incident were resolved in 1997. At the
request of the USEPA and the U.S. Fish & Wildlife Service, the United
States Attorney for the Western District of Virginia has opened a criminal
investigation of the 1996 incident. Arch Coal is cooperating with the
investigation, the results of which are not expected until sometime later
this year.
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 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 $152.2 million
($146.7 million of which is punitive damages). 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, and that, after taking into account
possible recoveries under insurance policies, these cases will not have a
material adverse effect on Ashland's consolidated financial position, cash
flow or liquidity.
ITEM 5. OTHER INFORMATION
Amended Rule 14a-4, adopted by the SEC on May 21, 1998, and with an
effective date of June 29, 1998, sets a 45-day advance notice requirement
for a shareholder proposal not proposed for inclusion in a company's proxy
statement. Under the amended rule, if a proponent does not notify the
company at least 45 days prior to the month and day on which the company
mailed the prior year's proxy statement, then the company's management
proxies would be allowed to use discretionary voting authority when the
proposal is raised at the annual shareholders' meeting, without including
any discussion of the matter in the company's proxy statement. The 45-day
advance notice provision is superseded by an advance notice by-law
provision and by state law. Article II, Section 2 of Ashland's By-laws
provides that for business to be properly brought before an annual meeting
of Ashland's shareholders, the proponent must give Ashland written notice
not later than 90 days in advance of the meeting (unless the meeting is
held earlier than the last Thursday in January, in which case notice to the
company must be given within 10 days after the first public disclosure of
the date of the annual meeting). Ashland's advance notice By-law provision
supersedes Rule 14a-4's 45-day advance notice requirement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the quarter ended June 30,
1998
27.2 Restated Financial Data Schedule for the quarter ended
March 31, 1998
27.3 Restated Financial Data Schedule for the quarter ended
December 31, 1997
27.4 Restated Financial Data Schedule for the year ended
September 30, 1997
27.5 Restated Financial Data Schedule for the quarter ended
June 30, 1997
27.6 Restated Financial Data Schedule for the quarter ended
March 31, 1997
27.7 Restated Financial Data Schedule for the quarter ended
December 31, 1996
27.8 Restated Financial Data Schedule for the year ended
September 30, 1996
27.9 Restated Financial Data Schedule for the year ended
September 30, 1995
(b) Reports on Form 8-K
A report on Form 8-K dated June 1, 1998 was filed to announce that
Arch Coal, Inc. had completed the acquisition of Atlantic Richfield's
domestic coal operations.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Ashland Inc.
----------------------------------
(Registrant)
Date /s/ Kenneth L. Aulen
--------------- ----------------------------------
Kenneth L. Aulen
Administrative Vice
President and Controller
(Chief Accounting Officer)
Date /s/ Thomas L. Feazell
---------------- ---------------------------------
Thomas L. Feazell
Senior Vice President, General Counsel
and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- --------- -----------------------------------------------------------------
27.1 Financial Data Schedule for the quarter ended June 30, 1998
27.2 Restated Financial Data Schedule for the quarter ended March 31,
1998
27.3 Restated Financial Data Schedule for the quarter ended December
31, 1997
27.4 Restated Financial Data Schedule for the year ended September 30,
1997
27.5 Restated Financial Data Schedule for the quarter ended June 30,
1997
27.6 Restated Financial Data Schedule for the quarter ended March 31,
1997
27.7 Restated Financial Data Schedule for the quarter ended December
31, 1996
27.8 Restated Financial Data Schedule for the year ended September 30,
1996
27.9 Restated Financial Data Schedule for the year ended September 30,
1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S 3RD QUARTER 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 1,050
<ALLOWANCES> 20
<INVENTORY> 486
<CURRENT-ASSETS> 1,795
<PP&E> 2,315
<DEPRECIATION> 1,225
<TOTAL-ASSETS> 5,978
<CURRENT-LIABILITIES> 1,325
<BONDS> 1,509
<COMMON> 76
0
0
<OTHER-SE> 2,098
<TOTAL-LIABILITY-AND-EQUITY> 5,978
<SALES> 4,777
<TOTAL-REVENUES> 5,100
<CGS> 4,006
<TOTAL-COSTS> 4,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 325
<INCOME-TAX> 122
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S 2ND QUARTER 1998 10-Q
WHICH WAS RESTATED IN THE 3RD QUARTER 1998 10-Q, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q'S AND NOTE B OF NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IN THE 3RD QUARTER 10-Q THAT
EXPLAINS THE RESTATEMENT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 1,004
<ALLOWANCES> 20
<INVENTORY> 465
<CURRENT-ASSETS> 1,664
<PP&E> 2,250
<DEPRECIATION> 1,186
<TOTAL-ASSETS> 5,812
<CURRENT-LIABILITIES> 1,281
<BONDS> 1,536
<COMMON> 76
0
0
<OTHER-SE> 1,991
<TOTAL-LIABILITY-AND-EQUITY> 5,812
<SALES> 3,071
<TOTAL-REVENUES> 3,223
<CGS> 2,594
<TOTAL-COSTS> 2,594
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 132
<INCOME-TAX> 51
<INCOME-CONTINUING> 81
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S 1ST QUARTER 1998 10-Q
WHICH WAS RESTATED IN THE 3RD QUARTER 1998 10-Q, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q'S AND NOTE B OF NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IN THE 3RD QUARTER 10-Q THAT
EXPLAINS THE RESTATEMENT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 996
<ALLOWANCES> 19
<INVENTORY> 449
<CURRENT-ASSETS> 1,658
<PP&E> 2,159
<DEPRECIATION> 1,160
<TOTAL-ASSETS> 5,508
<CURRENT-LIABILITIES> 1,206
<BONDS> 1,345
<COMMON> 75
0
0
<OTHER-SE> 1,981
<TOTAL-LIABILITY-AND-EQUITY> 5,508
<SALES> 1,598
<TOTAL-REVENUES> 1,674
<CGS> 1,349
<TOTAL-COSTS> 1,349
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 87
<INCOME-TAX> 35
<INCOME-CONTINUING> 52
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
</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,
1997, WHICH WAS RESTATED IN THE 3RD QUARTER 1998 10-Q,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS AND NOTE B OF NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS IN THE 3RD QUARTER
10-Q THAT EXPLAINS THE RESTATEMENT.
<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> 8
<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 3RD QUARTER 1998 10-Q,
WHICH RESTATED THE PERIOD ENDED JUNE 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q
AND NOTE B OF NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS THAT EXPLAINS THE RESTATEMENT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 112
<SECURITIES> 0
<RECEIVABLES> 1,581
<ALLOWANCES> 27
<INVENTORY> 717
<CURRENT-ASSETS> 2,620
<PP&E> 5,478
<DEPRECIATION> 2,841
<TOTAL-ASSETS> 6,622
<CURRENT-LIABILITIES> 2,118
<BONDS> 1,580
<COMMON> 74
0
0
<OTHER-SE> 1,849
<TOTAL-LIABILITY-AND-EQUITY> 6,622
<SALES> 9,491
<TOTAL-REVENUES> 9,577
<CGS> 8,259
<TOTAL-COSTS> 8,259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 222
<INCOME-TAX> 78
<INCOME-CONTINUING> 144
<DISCONTINUED> 26
<EXTRAORDINARY> (2)
<CHANGES> 0
<NET-INCOME> 168
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S 2ND QUARTER 1997 10-Q
WHICH WAS RESTATED IN THE 3RD QUARTER 1998 10-Q, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q'S AND NOTE B OF NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IN THE 3RD QUARTER 10-Q THAT
EXPLAINS THE RESTATEMENT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 70
<SECURITIES> 0
<RECEIVABLES> 1,656
<ALLOWANCES> 26
<INVENTORY> 727
<CURRENT-ASSETS> 2,667
<PP&E> 5,410
<DEPRECIATION> 2,779
<TOTAL-ASSETS> 6,692
<CURRENT-LIABILITIES> 2,162
<BONDS> 1,723
<COMMON> 74
0
0
<OTHER-SE> 1,738
<TOTAL-LIABILITY-AND-EQUITY> 6,692
<SALES> 6,191
<TOTAL-REVENUES> 6,248
<CGS> 5,475
<TOTAL-COSTS> 5,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 49
<INCOME-TAX> 23
<INCOME-CONTINUING> 26
<DISCONTINUED> 17
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43
<EPS-PRIMARY> .51
<EPS-DILUTED> .50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S 1ST QUARTER 1997 10-Q
WHICH WAS RESTATED IN THE 3RD QUARTER 1998 10-Q, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q'S AND NOTE B OF NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IN THE 3RD QUARTER 10-Q THAT
EXPLAINS THE RESTATEMENT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 1,647
<ALLOWANCES> 27
<INVENTORY> 734
<CURRENT-ASSETS> 2,623
<PP&E> 5,360
<DEPRECIATION> 2,728
<TOTAL-ASSETS> 6,644
<CURRENT-LIABILITIES> 2,076
<BONDS> 1,729
<COMMON> 65
0
293
<OTHER-SE> 1,490
<TOTAL-LIABILITY-AND-EQUITY> 6,644
<SALES> 3,200
<TOTAL-REVENUES> 3,228
<CGS> 2,828
<TOTAL-COSTS> 2,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 41
<INCOME-TAX> 17
<INCOME-CONTINUING> 24
<DISCONTINUED> 12
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> .48
<EPS-DILUTED> .47
</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,
1997, WHICH WAS RESTATED IN THE 3RD QUARTER 1998 10-Q,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS AND NOTE B OF NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS IN THE 3RD QUARTER
10-Q THAT EXPLAINS THE RESTATEMENT.
<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> 12,407
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S ANNUAL REPORT TO
SHAREHOLDERS FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
1997, WHICH WAS RESTATED IN THE 3RD QUARTER 1998 10-Q,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS AND NOTE B OF NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS IN THE 3RD QUARTER
10-Q THAT EXPLAINS THE RESTATEMENT.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 1,512
<ALLOWANCES> 25
<INVENTORY> 667
<CURRENT-ASSETS> 2,405
<PP&E> 5,095
<DEPRECIATION> 2,571
<TOTAL-ASSETS> 6,225
<CURRENT-LIABILITIES> 1,908
<BONDS> 1,672
<COMMON> 64
0
293
<OTHER-SE> 1,298
<TOTAL-LIABILITY-AND-EQUITY> 6,225
<SALES> 11,361
<TOTAL-REVENUES> 11,435
<CGS> 10,026
<TOTAL-COSTS> 10,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 13
<INCOME-TAX> (1)
<INCOME-CONTINUING> 14
<DISCONTINUED> 10
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
