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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9993
ASHLAND COAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware 61-0880012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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2205 Fifth Street Road, Huntington, West Virginia 25701
(Address of principal executive offices) (Zip Code)
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P. O. Box 6300, Huntington, West Virginia 25771
(Mailing address) (Zip Code)
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Registrant's telephone number, including area code: (304) 526-3333
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: 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 March 10, 1994, based on the New York Stock Exchange closing price, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $182,300,000. In determining this figure, Ashland
Coal, Inc. has assumed that all of its executive officers, directors and persons
known to it to be the beneficial owners of more than five percent of its common
stock (assuming conversion of Ashland Coal, Inc. preferred stock) are
affiliates. Such assumption shall not be deemed conclusive for any other
purpose.
At March 10, 1994, there were 13,658,732 shares of registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Ashland Coal, Inc.'s definitive Proxy Statement to be filed with
the Securities and Exchange Commission not later than April 30, 1994 (1994 Proxy
Statement), are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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PART I
Item 1. Business................................................... 1
Item 2. Properties................................................. 7
Item 3. Legal Proceedings.......................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........ 9
Item X. Executive Officers of the Registrant....................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 9
Item 6. Selected Financial Data.................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11
Item 8. Financial Statements and Supplementary Data................ 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 38
PART III
Item 10. Directors and Executive Officers of the Registrant......... 38
Item 11. Executive Compensation..................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 38
Item 13. Certain Relationships and Related Transactions............. 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 39
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PART I.
ITEM 1. BUSINESS
Ashland Coal, Inc. (Ashland Coal or the Company) is engaged in the mining,
processing, marketing and distribution of low-sulfur bituminous coal. The
Company sells its coal primarily to electric utilities in the eastern United
States. The Company also exports coal, primarily to European customers. Ashland
Coal was incorporated in Delaware in 1975.
The Company's consolidated results for 1993 were significantly affected by a
selective strike by the United Mine Workers of America (UMWA) from May to
December 1993 against the operations of two subsidiaries of the Company's
Dal-Tex Coal Corporation subsidiary (Dal-Tex) and the operations of the
Company's Hobet Mining, Inc. subsidiary (Hobet). These Dal-Tex subsidiaries
(Dal-Tex Subsidiaries) and Hobet were signatories to the National Bituminous
Coal Wage Agreement of 1988 (1988 Wage Agreement). For further information about
the strike and the terms of its settlement, see "Employees" on page 4.
The Company was engaged in preliminary discussions with Arch Mineral
Corporation about a possible business combination of the two entities, but the
parties terminated these discussions in mid-February 1994.
For the year ended December 31, 1993, the Company and its independent
operating subsidiaries sold approximately 16 million tons of coal, as compared
to approximately 19.1 and 14.3 million tons sold in 1992 and 1991, respectively.
Approximately 57% of the total number of tons sold during 1993 was sold under
long-term contracts as compared to approximately 66% for 1992 and 67% for 1991.
The balance was sold on the spot market (which includes contracts with a
duration of one year or less). In 1993, the Company sold approximately 2.1
million tons of coal in the export market, compared to approximately 3.9 million
tons in 1992 and 3.8 million tons in 1991. Approximately 61%, 71% and 71% of
total revenues for 1993, 1992 and 1991, respectively, were derived from
long-term contracts. For the year ended December 31, 1993, the Company's
independent operating subsidiaries produced approximately 14.2 million tons of
coal as compared to approximately 16.7 and 12.2 million tons for 1992 and 1991,
respectively. In addition, the Company purchased for resale approximately 1.6
million tons of coal during 1993 and approximately 2.0 million tons of coal
during each of 1992 and 1991.
Selling prices in many of the Company's long-term coal sales contracts are
adjusted for changes in broad price indices and labor costs, including wage
rates and other benefits under the National Bituminous Coal Wage Agreement of
1993 (Wage Agreement) between the UMWA and the Bituminous Coal Operators'
Association (BCOA), or any successor agreement. Some of these contracts also
provide for price adjustment if certain federal and state levies on coal mining
and processing are changed. In addition, most of the Company's long-term
contracts provide that the customer may vary from the base annual quantity,
usually by not more than 15%, the quantity of coal purchased under the contract
in a particular year.
In addition to customary adjustment provisions, in order to accommodate
changing market or operational conditions, the renegotiation of coal sales
contract terms after execution of the contract is not unusual in the industry.
During 1993, the Company completed the renegotiation of three low-sulfur coal
supply agreements with Appalachian Power Company (APCO), an operating subsidiary
of the American Electric Power Company and two supply agreements with Consumers
Power Company (Consumers). The coal under all the APCO contracts is for delivery
principally to APCO's John E. Amos Plant in Putnam County, West Virginia. One
APCO contract, which is supplied by Hobet, was to expire on September 30, 1998,
but has now been extended to December 31, 2003. Under the original contract,
approximately 1.1 million tons would have been shipped in 1994, and thereafter
the tonnage was scheduled to decline each year until the contract's 1998
expiration. The amended contract calls for annual coal deliveries of 1.2 million
tons beginning January 1, 1994, and continuing to December 31, 2003. It also
provides for significant price reductions on January 1, 1994, July 1, 1994 and
January 1, 1995. In addition, the price under a second APCO contract, which is
supplied by Dal-Tex
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and expires on December 31, 1994, was reduced and will be reduced again on July
1, 1994. In connection with the foregoing price reductions, a third APCO
contract, under which shipments from Dal-Tex are to begin on January 1, 1995,
and which originally was to expire on December 31, 1999, has been extended
through December 31, 2003.
One Consumers contract, which is supplied by Dal-Tex, was renegotiated to
decrease the annual tonnage from 1 million tons a year to 970,000 tons, and the
price was reduced through December 31, 1994. Thereafter, the contract price
returns to the price that was in effect before the reduction, as adjusted under
the terms of the contract to December 31, 1994. The per ton price of a second
Consumers contract was reduced pursuant to a price reopener provision. In
addition, the parties amended the quality provisions and extended the term of
this contract two years. The quantities deliverable under this contract did not
change.
The Company estimates that as of December 31, 1993, approximately 723
million recoverable tons of proven and probable coal reserves were held by the
Company's subsidiaries in West Virginia and eastern Kentucky, of which
approximately 276 million tons are recoverable using surface mining methods. A
more detailed discussion of the Company's coal reserves is set forth below in
Item 2. PROPERTIES, Coal Reserves, on page 8. Based upon limited information
obtained from preliminary prospecting, drilling and coal seam analysis, the
Company estimates that a substantial portion of this coal has a sulfur content
of 1 percent or less, some of which is compliance coal. Sulfur content of 1
percent or less refers to percentage by weight, while "compliance coal" is coal
which emits 1.2 pounds or less of sulfur dioxide per million BTU upon combustion
without the aid of sulfur reduction technology.
OPERATIONS
MINGO LOGAN COAL COMPANY
Mingo Logan Coal Company (Mingo Logan), an independent operating subsidiary
of the Company, conducts its operations in Mingo County, West Virginia, on
approximately 20,600 acres containing approximately 110 million recoverable tons
of low-sulfur and compliance coal.
Mingo Logan's operations consist of surface mining operations conducted by
two independent contract miners, four underground mines operated by two other
independent contract miners, and a longwall mine (Mountaineer Mine) operated by
Mingo Logan. Mingo Logan's Black Bear preparation plant has a plant feed
capacity of 1,600 tons per hour, and is connected to the Mountaineer Mine by a
2-mile overland conveyor. The Black Bear preparation plant is connected to the
loadout on the Norfolk Southern Railway Company (Norfolk Southern) railroad by a
second overland conveyor that is approximately seven-tenths of a mile in length.
The preparation plant, loadout and conveyors are located on land leased from
Pocahontas Land Corporation, an affiliate of Norfolk Southern. The Black Bear
preparation plant and loadout have silo storage capacity of approximately 19,500
tons of raw coal and approximately 24,000 tons of clean coal, respectively. In
addition, the loadout has ground storage capacity of approximately 100,000 tons.
The loadout facility is capable of loading a 13,000-ton unit train in less than
four hours. Mingo Logan operations produced approximately 7 million tons of coal
during 1993.
DAL-TEX COAL CORPORATION
Dal-Tex, an independent operating subsidiary of the Company, conducts its
operations on approximately 22,000 acres of coal lands located primarily in
Logan County, West Virginia, containing approximately 214 million tons of
recoverable reserves of low-sulfur and compliance coal. Dal-Tex's operations
currently consist of two surface mines operated by a Dal-Tex subsidiary using
mountaintop removal techniques and three deep mines, two operated by a Dal-Tex
subsidiary and one operated by a contract miner. At the surface mines, two
51-cubic-yard shovels and other large excavators are used for overburden
removal. Continuous miner units are utilized in the deep mine operations. The
Dal-Tex operations include the Monclo preparation plant located on the CSX
Transportation (CSXT) rail
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system which is capable of a raw coal feed of 2,000 tons per hour. This plant is
capable of loading a 14,000-ton unit train in less than four hours.
Approximately 2.8 million tons of coal were produced at all of the Dal-Tex
operations during 1993.
HOBET MINING, INC.
Hobet, an independent operating subsidiary of the Company, operates two
large surface mines in southern West Virginia. The Hobet 21 mine in Boone
County, West Virginia, currently has reserves dedicated to it of approximately
62 million recoverable tons of coal, of which 42 million tons are recoverable by
surface mining. This mine uses mountaintop removal techniques and modern surface
mining equipment, including a 72-cubic-yard walking dragline and a 51-cubic-yard
shovel. The mine's operations include the 850-ton-per-hour Beth Station
preparation plant. The Company expects to expand the raw coal handling and
blending capabilities of this plant by late 1994 or early 1995. A 5-mile
overland conveyor belt system transports the coal from the mine to the Beth
Station preparation plant where the coal is cleaned and loaded into railcars at
the adjacent 125-car rail siding for shipment on the CSXT rail system. The Beth
Station preparation plant has a storage capacity in silos of 5,000 tons of raw
coal and 10,000 tons of clean coal. The Hobet 21 mine produced about 1.5 million
marketable tons of coal during 1993. A new underground mine with an initial
production rate of 250,000 tons per year is planned to be opened at the Hobet 21
mine in the third quarter of 1994.
The Hobet 07 mine, located in Mingo and Logan Counties, West Virginia,
currently has reserves dedicated to it of approximately 42 million recoverable
tons of coal. This mine uses mountaintop removal techniques and modern surface
mining equipment including a 72-cubic-yard walking dragline and two
27-cubic-yard shovels. The mine's operations include the 950-ton-per-hour Pine
Creek preparation plant. This plant has the capability of loading a 10,000-ton
unit train in less than eight hours. Coal is loaded into railcars on the
facility's 100-car rail siding, which is served by the CSXT rail system. The
Pine Creek preparation plant has a storage capacity in silos of 10,000 tons of
raw coal and 15,000 tons of clean coal. This mine produced about .8 million
marketable tons of coal during 1993. It is currently anticipated that operations
at the Hobet 07 mine will be suspended by the end of the decade based on current
coal price and mining cost projections. See the Outlook section of Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS beginning on page 13 below.
COAL-MAC, INC.
Coal-Mac, Inc. (Coal-Mac), another independent operating subsidiary of the
Company, conducts mining operations in eastern Kentucky. Coal-Mac and other
subsidiaries of the Company control approximately 51 million recoverable tons of
coal reserves in Johnson, Martin, Pike, and Floyd Counties, Kentucky. Coal-Mac
operates surface mines and independent contractors operate underground mines in
Floyd County, Kentucky. Total production from Coal-Mac's surface and underground
operations during 1993 was approximately 2.0 million tons of coal.
TRANSPORTATION
Coal from the mines of the Company's independent operating subsidiaries is
transported by rail, truck and barge to domestic customers and to inland
waterway and Atlantic seaboard transloading facilities for shipment to
international customers. During 1993, approximately 74% of the coal sold by the
Company was shipped to the customer by rail, 21% was shipped by barge and 5% was
shipped by truck.
Tri-State Terminals, Inc., an independent operating subsidiary of the
Company, operates the Lockwood Dock situated on a 60-acre tract on the Big Sandy
River approximately seven miles upstream from its confluence with the Ohio
River. The Lockwood Dock is comprised of a truck receiving and coal storage
facility, a 1,400-ton-per-hour crushing and blending facility and a barge
loading facility capable of loading a 1,500-ton barge every 70 minutes. In
addition, coal sold through this facility may be loaded into trucks for delivery
to customers. During 1993, 3.6 million tons of coal
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were loaded and shipped from the Lockwood Dock. Of this amount, 3.2 million tons
were loaded and shipped for the Company's account and .4 million tons were
loaded and shipped for third parties for a fee.
The Company owns a 17.5 percent interest in Dominion Terminal Associates
(DTA), which leases and operates a ground storage-to-vessel coal transloading
facility (the DTA Facility) in Newport News, Virginia. The DTA Facility has a
throughput capacity of 20 million tons of coal per year and ground storage
capacity of approximately 1.7 million tons. During 1993, DTA loaded through the
DTA Facility approximately 1.0 million tons of coal for the Company's account.
The DTA Facility serves international customers, as well as domestic coal users
located on the eastern seaboard of the United States. For additional information
concerning the Company's investment in DTA, see Note 4 to the Company's
Consolidated Financial Statements on page 27 below, and incorporated by
reference in this Item 1.
EMPLOYEES
As of March 1, 1994, the Company and its independent operating subsidiaries
employed a total of 1,687 people (including 24 part-time employees), of whom 772
are represented by the UMWA. Hobet and the Dal-Tex Subsidiaries were signatories
to the 1988 Wage Agreement, which expired by its terms on February 1, 1993. On
February 2, 1993, a selective strike was commenced by the UMWA against another
coal company, which strike later expanded to other coal companies. The
operations of the Company's independent operating subsidiaries were not
interrupted by that strike, but pursuant to an agreement (Assistance Agreement)
among members of the BCOA, Hobet and the Dal-Tex Subsidiaries made payments for
the benefit of BCOA members that were struck. The selective strike ended and
obligations in respect of such strike under the Assistance Agreement also ended
on March 2, 1993, when the UMWA and BCOA agreed to extend the 1988 Wage
Agreement to May 3, 1993. However, on May 18, 1993, each of Hobet and the
Dal-Tex Subsidiaries were struck by the UMWA. On December 16, 1993, union miners
returned to work at the mines of Hobet and the Dal-Tex Subsidiaries following
ratification of the Wage Agreement on December 14, 1993. The Wage Agreement
provides for a total wage increase of $1.30 per hour over the first three years
of the contract, changes in medical coverage providing for deductibles and
copayments, more flexible work rules that will permit coal production to take
place 24 hours a day and seven days a week, increases in employer contributions
to an education and retraining fund, and employer contributions to fund the new
Labor Management Positive Change Program and the new 1993 Benefit Fund created
by the Wage Agreement. The contract provisions of the Wage Agreement applicable
to wages, pensions and medical benefits are fixed for the first three years of
the contract, but thereafter wages and pension benefits are subject to
renegotiation at the UMWA's election and certain provisions of the medical plan
are subject to renegotiation at either the UMWA's or the BCOA's election. The
Labor Management Positive Change Program mandated by the Wage Agreement
establishes a board comprised of union and management representatives to explore
methods of increasing productivity and efficiency.
In connection with the Wage Agreement, the UMWA and BCOA also entered into a
Memorandum of Understanding that requires that certain jobs at mines of Ashland
Coal's nonunion subsidiaries be offered to UMWA miners under the following
conditions. At any existing, new or newly acquired operation of a nonunion
subsidiary of Ashland Coal, the subsidiary must offer the first three of every
five job openings for certain jobs to active and laid-off employees of any union
subsidiary. The first two jobs must be filled from among the senior laid-off and
active miners of any union subsidiary of the Company provided such miners have
the ability to step in and perform the job at the time the job is awarded. The
third job must be filled with the senior laid-off or active miner of any union
subsidiary provided such miner has the ability to step in and perform the work
of the job at the time the job is awarded and has actually performed the job
within the last three years. The final two out of five jobs may be filled from
any source at the sole discretion of the nonunion subsidiary's management.
Similarly, Ashland Coal's nonunion coal mining subsidiaries must require certain
of their lessees, licensees, contractors and subcontractors that are engaged
after the date of execution of the Memorandum of Understanding to offer the
first three of every five job openings for certain jobs to active
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and laid-off UMWA-represented employees at any Ashland Coal union subsidiary.
Generally, this requirement applies only where both (i) the lessees, licensees,
contractors and subcontractors produce and process coal for the nonunion
subsidiaries and (ii) the coal is sold by the nonunion subsidiaries. Ashland
Coal's union subsidiaries do not currently have any laid-off union workers.
Finally, the Memorandum of Understanding prohibits Ashland Coal and its nonunion
subsidiaries from engaging in any transaction, restructuring or reorganization
for the purpose of evading obligations under the Memorandum of Understanding.
For additional discussion, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS beginning below on page 11. The
Company believes that the provisions of the Wage Agreement and the Memorandum of
Understanding, taken as a whole, will not significantly change the costs
experienced under the 1988 Wage Agreement.
REGULATIONS AFFECTING COAL MINING
Coal mining is subject to strict regulation by federal, state and local
authorities, including, most significantly, with respect to permitting and
environmental matters and health and safety matters.
PERMITTING AND ENVIRONMENTAL MATTERS
Numerous permits are required for mining operations. The Company believes
all permits required to conduct present mining operations have been obtained.
The Company believes that, upon the filing of the required information with the
appropriate regulatory agencies, all permits necessary for continuing operations
will be obtained.
The federal Surface Mining Control and Reclamation Act of 1977 (SMCRA) was
enacted to regulate certain surface mining of coal and the surface effects of
underground mining. Kentucky and West Virginia have similar laws and regulations
regulating surface and deep mining that impose, among other requirements,
reclamation and environmental requirements and standards.
The federal Clean Water Act affects coal mining operations by imposing
effluent discharge restrictions on pollutants discharged into waters. Kentucky
and West Virginia also have laws restricting discharges of pollutants into the
waters of those states. In addition, the United States Environmental Protection
Agency (EPA) has permitting requirements for storm water discharges from
industrial facilities. These regulations require permits for some aspects of
mining operations. Regular monitoring, as well as compliance with reporting
requirements and performance standards, are preconditions for the issuance and
renewal of permits governing the discharge of pollutants into waters. Further,
as a result of a recent court decision, mining operations may be subject to
Clean Water Act regulations for discharges into some ponds created to treat coal
mining wastes. Previously, these ponds were not considered waters regulated by
the Clean Water Act. Kentucky and West Virginia are also developing groundwater
protection programs, but such programs have not been implemented and
consequently the effect such programs may have on coal mining operations is
unclear.
The federal Resource Conservation and Recovery Act (RCRA) and implementing
federal regulations exclude from the definition of hazardous waste all coal
extraction, beneficiation and processing wastes. Additionally, other coal mining
wastes which are subject to a SMCRA permit are exempt from RCRA permits and
standards. Kentucky and West Virginia similarly exempt coal mine waste from
their respective state hazardous waste laws and regulations. The federal
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act, affects coal mining
operations by imposing a cleanup requirement for threatened or actual releases
of hazardous substances, other than the foregoing exempted hazardous waste, that
may endanger public health or welfare or the environment.
The federal Clean Air Act, as amended in 1990, imposes numerous requirements
on various categories of emission sources. While the new statutory requirements
do not directly impose new requirements on coal mining emission sources, it is
possible that the EPA will implement the statute in a way that will impose
additional regulatory requirements on industry sources including a duty to
obtain an operating permit not previously required. The EPA previously published
rules which do not
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require coal mines to include fugitive emissions in determining the
applicability of the Clean Air Act's Prevention of Significant Deterioration
Program. Although this rule was challenged, the rule was upheld and no appeal to
the decision was filed. In addition, West Virginia state air regulations impose
permitting obligations and performance standards on certain coal preparation
plants and coal handling facilities such as crushers and screeners.
HEALTH AND SAFETY MATTERS
The federal Mine Safety and Health Act of 1977 imposes health and safety
standards on all mining operations. Regulations are comprehensive and affect
numerous aspects of mining operations, including training of mine personnel,
mining procedures, blasting and the equipment used in mining operations. The
Black Lung Benefits Reform Act of 1977 generally requires each coal mine
operator to secure payment of federal and state black lung benefits to its
employees through insurance, bonds or contributions to a state-controlled fund.
The Black Lung Benefits Reform Act of 1977 also provides for the payment from a
trust fund of benefits and medical expenses to employees for whom no benefits
have been obtainable from their employer. This trust is financed by a tax on
coal sales.
The Coal Industry Retiree Health Benefit Act of 1992 (Benefit Act) addressed
two underfunded trust funds which were to provide medical benefits for certain
UMWA retirees. The Benefit Act provides for the funding of medical and death
benefits for certain retired members of the UMWA through premiums to be paid by
assigned operators (former employers), transfers of monies from an overfunded
pension trust established for the benefit of retired UMWA members, and transfers
from the Abandoned Mine Lands Fund, which is funded by a federal tax on coal
production. This funding arrangement commenced February 1, 1993. Some former
employers have filed suits challenging the constitutionality of the Benefit Act,
but the eventual outcome of such litigation is uncertain.
COMPLIANCE WITH REGULATORY REQUIREMENTS AND EXISTING ENVIRONMENTAL LIABILITY
The Company's independent operating subsidiaries endeavor to conduct their
operations in compliance with all applicable federal, state and local laws and
regulations. However, because of the extensive and comprehensive regulatory
requirements, violations during mining operations are not unusual in the
industry. Mingo Logan and Dal-Tex are each a party to civil proceedings as a
result of alleged failures to comply with mandatory federal or state health and
safety regulations. Each of these proceedings involves a fatality and could
result in the imposition of civil penalties. The Company believes that any
adverse result, if incurred, would not have a material adverse effect on the
Company's consolidated financial condition, results of operations or liquidity.
Hobet, Sharples Coal Company, which is a subsidiary of Dal-Tex, Mingo Logan
and other unrelated coal mining companies, individually, are parties to a civil
proceeding with respect to the alleged failure of each of them to handle a
respirable dust sampling cassette in accordance with regulations of the Mine
Safety and Health Administration. Violations of federal and state health and
safety regulations can result in civil and criminal penalties. To date, the
monetary penalties assessed in respect of violations of these regulations have
not been material and the Company does not anticipate that future assessments in
respect of violations to date will be material to the Company's financial
condition, results of operations or liquidity.
Mingo Logan is a party to civil and administrative proceedings brought by
owners of commercial surface property overlying part of Mingo Logan's
Mountaineer Mine. These proceedings seek revocation of mining permits for the
Mountaineer Mine and seek damages for alleged business disruptions and loss of a
water well. It is unlikely that Mingo Logan's mining permits will be revoked as
a result of these proceedings. It is impossible to predict the outcome of the
damage claim at this stage of the proceedings, but any adverse result, if
incurred, is not expected to have a material adverse effect on the Company's
consolidated financial condition, results of operations or liquidity.
The Company is not aware of any existing conditions on property in which it
has an ownership or other interest that would give rise to material liability
under federal, state and local environmental laws, regulations or ordinances.
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The Company believes that continued compliance with regulatory standards
will not substantially affect its ability to compete with similarly situated
coal mining companies. The cost of regulatory compliance, however, frequently
increases the cost of mining coal and to this extent makes coal less competitive
with alternative fuels.
TRADEMARKS AND TRADENAMES
Under an agreement executed in 1993, Ashland Oil, Inc. (Ashland Oil) granted
the Company permission to continue using the Ashland name on a year to year
basis after August 11, 1993, absent written notice from Ashland Oil to cease
using the name at the end of the then applicable one year period. The Company
also is permitted to use Ashland trademarks until July 1, 1994. If Ashland Oil's
ownership in the Company ever falls below 35%, Ashland Oil may require the
Company to remove the name Ashland from the Company's and its subsidiaries'
names.
RELIANCE ON MAJOR CUSTOMERS
The Company's total sales to subsidiaries of American Electric Power Company
and Cincinnati Gas & Electric Company accounted for approximately 20 and 16
percent, respectively, of the Company's total revenues in 1993. The loss of
these customers could have a material adverse effect on the Company's business
and results of operations.
COMPETITION
The coal industry is highly competitive, and the Company competes
(principally in price, location and quality of coal) with a large number of
other coal producers, some of which are substantially larger and have greater
financial resources and larger reserve bases than the Company. Most long-term
supply agreements and spot market orders are the result of competitive bidding.
Coal also competes with other energy sources such as oil, natural gas,
hydropower and nuclear energy for steam and electrical power generation. Over
time, the cost and other factors, such as safety and environmental
considerations, relating to these alternative fuels will affect the overall
demand for coal as a fuel.
ITEM 2. PROPERTIES
As of December 31, 1993, the Company's subsidiaries controlled, primarily
through long-term leases, approximately 130,604 and 114,581 acres of coal lands
in West Virginia and eastern Kentucky, respectively. The Company's subsidiaries
also control through ownership or long-term leases 917 acres of land in eastern
Kentucky and West Virginia, which are used either for its coal processing
facilities or are being held for possible future development. The Pine Creek,
Beth Station and Black Bear preparation plants are located on properties held
under leases which expire in 2030, 2022 and 2007 (with an optional 20-year
extension), respectively. The Company's headquarters occupy approximately 52,000
square feet of leased space at 2205 Fifth Street Road, Huntington, West
Virginia. The headquarters lease expires March 31, 1998. The descriptions of the
Mingo Logan, Dal-Tex, Hobet and Coal-Mac mines set forth above in Item 1.
BUSINESS are hereby incorporated into this Item 2. by reference.
The Company's subsidiaries currently own or lease the equipment that is
significant to their mining operations. Hobet leases equipment under leases that
expire in 2003 and 1995. Hobet and Dal-Tex also utilize surface mining equipment
leased pursuant to a sale and leaseback transaction entered into in January
1993. The lease term expires in January 1996. For further information about this
1993 transaction see Note 18 to the Company's Consolidated Financial Statements
on page 36 below.
The Company, through its subsidiaries, owns a 17.5 percent interest in DTA,
which is the lessee and operator of a ground storage-to-vessel coal transloading
facility at Newport News, Virginia (see Item 1. BUSINESS -- Transportation).
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COAL RESERVES
The Company estimates that Company subsidiaries had, as of December 31,
1993, approximately 723 million recoverable tons of proven and probable coal
reserves. Reserve totals vary from year to year for each Company subsidiary
depending upon the amount of coal mined in any year, the acquisition and
disposition of reserves in such year and exploration and development activity.
The following table presents the Company's estimate of such reserves:
RECOVERABLE COAL
<TABLE>
<CAPTION>
PROVEN PROBABLE TOTAL
------ -------- -----
(MILLIONS OF TONS)
<S> <C> <C> <C>
West Virginia..................................... 313.2 359.1 672.3
Kentucky.......................................... 34.5 16.1 50.6
------ -------- -----
Total......................................... 347.7 375.2 722.9
------ -------- -----
------ -------- -----
</TABLE>
Substantially all of the coal reserves held by the Company's subsidiaries
are controlled by leases which will not expire until the exhaustion of minable
and merchantable coal. The remaining leases have primary terms expiring in
various years ranging from 1994 to 2013, and most contain options to renew for
stated periods. Royalties are paid to lessors either as a fixed price per ton or
as a percentage of the gross sales price of the mined coal. The majority of the
significant leases are on a percentage royalty basis. In certain cases a lease
bonus is required, payable either at the time of execution of the lease or in
annual installments following such execution. In most cases, the lease bonus
amount is applied to reduce future production royalties. Subsidiaries of the
Company own, lease or control 28,679 acres of coal lands upon which exploration
has not been conducted.
Federal and state legislation controlling air pollution affects the demand
for certain types of coal by limiting the amount of sulfur dioxide which may be
emitted as a result of fuel combustion and, thereby, encourages a greater demand
for low-sulfur coal. Based upon limited information obtained from preliminary
prospecting, drilling and coal seam analysis, the Company estimates that a
substantial portion of the reserves held by Company subsidiaries consists of
low-sulfur coal with a sulfur content of 1 percent or less, some of which is
compliance coal. Most of the Company's reserves are primarily suitable for the
steam coal markets. However, a substantial portion of the coal reserves at Mingo
Logan may also be used as a high-volatile, low-sulfur metallurgical grade coal.
The net book value, based on historical cost, of such mineral reserves at
December 31, 1993, was $460 million, consisting of $15 million of prepaid
royalties included in current assets, $54 million of prepaid royalties
classified as an other asset and $391 million net book value of coal lands and
mineral rights. Of this carrying value, approximately $31 million is
attributable to certain reserves which are not currently in production and for
which there are no current plans for significant production. In addition, as of
December 31, 1993, future royalty commitments relating to these properties were
approximately $3 million. See Note 6 to the Company's Consolidated Financial
Statements beginning on Page 28 below and incorporated by reference in this Item
2.
Consistent with industry practice, a limited investigation of title to coal
properties is conducted prior to leasing. The titles of the lessors or grantors
and the boundaries of leased properties are not completely verified until such
time as the Company's independent operating subsidiaries prepare to mine such
reserves. If defects in title or boundaries of undeveloped reserves are
discovered in the future, control of and the right to mine such reserves could
be adversely affected.
ITEM 3. LEGAL PROCEEDINGS
There is a pending suit in Circuit Court for Mingo County, West Virginia,
filed September 3, 1993, by the administrator of an estate of a deceased
employee of Mingo Logan. The employee died in an accident involving the longwall
mining equipment at the Mountaineer Mine. The suit is based on product
liability, breach of warranty, and negligence claims against Mingo Logan and
other unrelated defendants, including the equipment manufacturer, and alleges
compensatory and punitive damages
8
<PAGE>
of $45 million. Mingo Logan denies responsibility for the accident and the
Company believes that the claim will not have a material adverse effect on its
financial condition, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter of
1993.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and
their positions and offices held during the last five years (Senior Vice
Presidents are listed alphabetically):
WILLIAM C. PAYNE, 61, is Chairman of the Board of Directors, and
President and Chief Executive Officer, and has served in such capacities
since 1992 and 1987, respectively. He has served as a Director since 1987.
C. HENRY BESTEN, JR., 46, is Senior Vice President, Marketing, and has
served in this capacity since July 1990. From 1987 to 1990, he served as
Administrative Vice President, Administration and Coal Resources.
MARC R. SOLOCHEK, 48, is Senior Vice President and Chief Financial
Officer and has served in these capacities since July 1990. From 1983 to
1990, he served as Administrative Vice President and Chief Financial
Officer and from 1983 to 1992, he served as Treasurer.
KENNETH G. WOODRING, 44, is Senior Vice President, Operations, and has
served in this capacity since 1989.
ROY F. LAYMAN, 48, is Administrative Vice President, Law and Human
Resources, and Secretary, and has served in these capacities since April
1993. From 1987 to 1990, he served as Vice President, General Counsel and
Secretary and from July 1990 to April 1993 he served as Administrative Vice
President, General Counsel and Secretary.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's par value $.01 Common Stock (Common Stock) is listed and
traded on the New York Stock Exchange and also has unlisted trading privileges
on the Chicago Stock Exchange (symbol: ACI).
Information regarding the Company's Common Stock is shown in the following
table.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
1993 1992
------------------------------------------ ------------------------------------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend per common share................. $.10 $.10 $.10 $.10 $.10 $.10 $.10 $.10
Market price per common share
High.................................... 27 3/4 25 7/8 31 1/2 31 3/4 38 37 3/4 30 3/4 30 1/4
Low..................................... 24 1/2 22 23 1/2 27 1/8 26 3/4 29 23 5/8 25 1/8
</TABLE>
The Company paid its first quarterly dividend in the fourth quarter of 1988.
The Company increased its dividend in the fourth quarter of 1989 and the third
quarter of 1990. The Company expects to continue paying regular cash dividends,
although there is no assurance as to the amount or payment of dividends in the
future because they are dependent on the Company's future earnings, capital
requirements and financial condition. In addition, the payment of dividends is
subject to the restriction described in Note 7 to the Company's Consolidated
Financial Statements below on Page 29.
Information available as of February 16, 1994, indicates that there were 579
holders of record of the Company's Common Stock.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL INFORMATION
ASHLAND COAL, INC. AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31
(IN THOUSANDS EXCEPT PER SHARE DATA) 1993 1992(1) 1991 1990(2) 1989(3)
INCOME STATEMENT DATA:
Revenues:
Coal sales......................................... $484,390 $563,932 $430,301 $393,875 $303,696
Operating revenues................................. 13,952 15,792 13,688 13,481 12,723
-------- -------- -------- -------- --------
498,342 579,724 443,989 407,356 316,419
-------- -------- -------- -------- --------
Costs and expenses:
Cost of coal sold.................................. 446,754 478,286 353,990 336,556 257,693
Operating expenses................................. 10,641 11,502 10,247 9,255 8,599
Selling, general, and administrative expenses...... 35,790 31,959 23,374 20,704 17,996
-------- -------- -------- -------- --------
493,185 521,747 387,611 366,515 284,288
-------- -------- -------- -------- --------
Operating income..................................... 5,157 57,977 56,378 40,841 32,131
Other income (expense):
Interest income.................................... 1,057 1,240 804 297 2,023
Interest expense................................... (25,342) (21,781 ) (9,862) (10,048 ) (3,617 )
-------- -------- -------- -------- --------
Income (loss) before income taxes and the cumulative
effect of changes in accounting..................... (19,128) 37,436 47,320 31,090 30,537
Income tax expense (benefit)......................... (64,502) 1,697 8,700 4,736 6,301
-------- -------- -------- -------- --------
Income before the cumulative effect of changes in
accounting.......................................... 45,374 35,739 38,620 26,354 24,236
Cumulative effect of changes in accounting........... (18,836) -- -- -- --
-------- -------- -------- -------- --------
Net income........................................... $ 26,538 $35,739 $ 38,620 $26,354 $24,236
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
COMMON STOCK INFORMATION:
Earnings per share:
Primary............................................ $ 1.41(4) $ 2.01 $ 2.40 $ 1.60 $ 1.47
Fully diluted...................................... 1.34(4) 1.88 2.22 1.49 1.36
Dividends declared per common share.................. .40 .40 .40 .36 .23
BALANCE SHEET DATA:
Working capital...................................... $ 2,285 $37,566 $ 22,898 $23,213 $25,467
Total assets......................................... 835,991 993,332 546,835 478,732 321,156
Long-term debt....................................... 244,342 317,958 181,066 148,392 25,293
Other long-term liabilities (excluding deferred
taxes).............................................. 109,416 54,039 24,355 21,335 20,680
Preferred stock subject to redemption................ --(5) 34,021 32,741 31,509 30,324
Stockholders' equity................................. 343,427 288,275 200,580 169,347 150,515
CASH FLOW DATA:
Net cash provided by operating activities............ $ 74,170 $78,759 $ 88,198 $58,922 $56,453
Depreciation, depletion, and amortization............ 71,248 67,001 37,169 29,399 23,574
Purchases of property, plant, and equipment.......... 20,569 97,136 102,881 38,453 20,964
<FN>
- ------------------------------
(1) Information for 1992 reflects the acquisition of Dal-Tex Coal Corporation
on April 1, 1992.
(2) Information for 1990 reflects the acquisition of Mingo Logan Coal Company
on January 24, 1990.
(3) Information for 1989 reflects the acquisition of Coal-Mac, Inc. on January
9, 1989.
(4) Includes a charge of $1.44 on a primary basis and $1.34 on a fully diluted
basis for the cumulative effect of the adoption of Statement of Financial
Accounting Standards (SFAS) No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, effective January 1, 1993.
Also includes $0.37 on a primary basis and $0.34 on a fully diluted basis
for the favorable cumulative effect of the adoption of SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, effective January 1, 1993.
(5) The right of the holder of Class C preferred stock to require Ashland Coal
to repurchase that stock expired during 1993. Subsequent to the expiration
of that right, the stock has been classified as an element of
stockholders' equity.
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
1993 COMPARED TO 1992
Ashland Coal's earnings for the year ended December 31, 1993, were $45.4
million before adjustments for the cumulative effect of the changes in
accounting required by the adoption of Statement of Financial Accounting
Standards (SFAS) No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS, and SFAS No. 109, ACCOUNTING FOR INCOME TAXES. This
compares to net income of $35.7 million in 1992. After the cumulative effect of
changes in accounting, net income for 1993 was $26.5 million.
With the adoption of SFAS No. 106 effective January 1, 1993, Ashland Coal
(the Company) immediately recognized an accumulated postretirement benefit
obligation of $40.9 million ($25.3 million net of tax), which decreased income
by the same amount. The adoption of SFAS No. 109, effective the same date,
required the adjustment of the carrying value of certain assets, which had been
acquired in prior business combinations, to their pretax amounts. That
adjustment increased income by $10.5 million ($6.5 million net of tax). The
net-of-tax amounts are reflected in the consolidated income statement as the
cumulative effect of changes in accounting. Exclusive of the cumulative effect
of changes in accounting, the combined effect of the adoption of SFAS No. 106
and SFAS No. 109 on income before income taxes and net income for 1993 was a
decrease of $8.6 million and $5.3 million, respectively.
In addition to the accounting changes discussed above, three other factors
significantly affected earnings during 1993. First, there was an income tax
benefit of $50.2 million principally as a result of the Company's election to
deduct for federal tax purposes the amortization of goodwill associated with the
April 1992 acquisition of Dal-Tex Coal Corporation. This amortization was not
previously deductible, however the deduction is now permitted over 15 years as a
result of the Omnibus Budget Reconciliation Act of 1993 (OBRA). The second
factor was a special charge of $9.9 million ($6.0 million after tax) to increase
the valuation allowance for certain prepaid royalties. The mineral reserves
represented by those royalties are not conducive to large-scale, low-cost
mining, and, given the Company's current expectations for future market prices
for coal, the Company now believes that the recoverability of those royalties is
doubtful. Finally, the seven-month strike by the United Mine Workers of America
(UMWA) against Hobet Mining, Inc. and two subsidiaries of Dal-Tex adversely
affected the operations of those companies and, therefore, consolidated net
income. The strike ended December 16, 1993, with the ratification of a new
five-year contract.
Coal sales volume of 16.0 million tons and coal sales revenue of $484.4
million declined from 1992's levels by 3.0 million tons and $79.5 million,
respectively. Sales volume and revenue were positively affected by the presence
of Dal-Tex for the full year in 1993, as compared to nine months in 1992, and by
increased production from the Mountaineer longwall mine of Mingo Logan Coal
Company. These positive factors, however, were more than offset by the negative
effects of the UMWA strike during the last three quarters of 1993. The average
selling price increased $.65 per ton primarily because of strike-related higher
selling prices in the spot market.
The unit cost of coal sold increased $2.79 per ton because of the effects of
the UMWA strike, the special charge relative to prepaid royalties, and the
effects of the adoption of the new accounting standards. In addition, early in
the year, Dal-Tex experienced a higher than normal level of equipment failures,
and Mingo Logan's longwall mine operated in difficult mining conditions with
resultant unfavorable costs.
Selling, general, and administrative expenses increased $3.8 million
primarily because of a full year's amortization of the carrying value of one of
Dal-Tex's sales contracts, higher costs for salaries, payroll taxes, and
benefits (including the effect of SFAS No. 106), and costs related to the
investigation
11
<PAGE>
of a possible business combination with Arch Mineral Corporation. The Company
and Arch terminated their discussions regarding such a combination in
mid-February 1994. Interest expense increased $3.6 million over 1992 largely due
to the discontinuation of the capitalization of construction period interest
after the start-up of Mingo Logan's longwall equipment late in 1992.
The income tax benefit recorded in 1993 was a result of OBRA and decreases
in profitability coupled with higher percentage depletion relative to income.
The Company's effective tax rate is sensitive to changes in profitability
because of the effect of percentage depletion.
1992 COMPARED TO 1991
Ashland Coal's net income for the year ended December 31, 1992, was $35.7
million compared to $38.6 million in 1991, a decrease of $2.9 million, or 7.5
percent.
Coal sales volume of 19.1 million tons and coal sales revenue of $563.9
million in 1992 were above 1991's levels by 4.8 million tons and $133.6 million,
respectively. The acquisition of Dal-Tex on April 1, 1992, and expanded
production from the mines at Mingo Logan were the major contributors to the
increase in coal sales volume and revenue. Partially offsetting these
contributions were declines in sales volume and revenue at Coal-Mac, Inc. The
average selling price declined from 1991's level as the result of the lower
average selling prices of the Dal-Tex sales agreements and weakness in the
domestic spot and export markets, partially offset by an increase in the
proportion of shipments to higher-priced domestic contract customers.
The unit cost of coal sold increased slightly during 1992, reflecting less
favorable mining conditions and consequent higher costs at the mines of Hobet.
This increase was partially offset by the addition of low-cost production at
Dal-Tex and the continued expansion of low-cost production at Mingo Logan.
Selling, general, and administrative expenses increased $8.6 million,
primarily due to $7.6 million in amortization of the carrying value of one of
Dal-Tex's sales contracts. Interest expense increased $11.9 million over 1991
due to the higher level of debt resulting from the Dal-Tex acquisition and the
development expenditures at Mingo Logan and due to lower amounts of construction
period interest being capitalized.
The effective tax rate for 1992 was significantly below 1991's rate. This
decrease resulted from a decrease in profitability in 1992, the effects of the
Dal-Tex acquisition, and higher percentage depletion at Mingo Logan. The
acquisition of Dal-Tex had a significant beneficial impact on operating income,
leading to a significant increase in percentage depletion. However, due to the
interest expense incurred in funding the acquisition, income before income taxes
was affected only moderately by the acquisition.
BALANCE SHEET
Cash equivalents declined from $37.0 million at December 31, 1992, to zero
at the end of 1993. Late in 1992, Ashland Coal borrowed funds in excess of its
immediate needs in order to improve liquidity in early 1993. These borrowings
were repaid in February 1993. Subsequently, the Company again borrowed
additional funds and maintained those funds as cash equivalents in order to be
assured of adequate liquidity during the course of the strike by the UMWA. Those
cash equivalents were utilized to repay borrowings at the conclusion of the
strike.
The balance of trade accounts receivable at December 31, 1993, declined
$21.3 million from the balance at December 31, 1992. Ashland Coal's trade
accounts receivable balance generally represents four to five weeks of coal
sales, dependent upon the specific customer accounts and payment terms thereon.
The balances of trade receivables at December 31, 1992, and December 31, 1993,
reflect the levels of coal sales in December 1992 and December 1993,
respectively. Coal sales in December 1993 were markedly lower because of the
strike by the UMWA and its aftereffects.
Inventories at December 31, 1993, were $2.2 million less than at December
31, 1992, principally as the result of lower inventories of coal. Coal
inventories declined $4.0 million because stockpiles
12
<PAGE>
were drawn down during the strike. This decrease was partially offset, however,
by an increase in supplies inventories of $1.8 million, primarily at Mingo
Logan. The latter increase reflects a buildup during 1993 of parts and supplies
in support of the fully developed longwall mine and, to a lesser extent, as a
precaution against interruptions in the delivery of supplies during the strike.
Because of the strike by the UMWA, prepaid royalties which are typically
recovered in the normal course of mining each year were not fully recovered in
1993. This has resulted in temporarily higher current prepaid balances, but is
not expected to affect the ultimate recoverability of these royalties.
The balance of accounts payable declined $7.3 million from the balance at
December 31, 1992, to $27.3 million at December 31, 1993. Purchases of goods and
services were reduced during the strike, and deliveries of goods and services
had not reached normal levels by the end of the year. Accrued expenses changed
little largely because production had resumed at the struck mines, and accrued
compensation was therefore at a normal level by the end of the year.
The balance of the net deferred income tax liability at December 31, 1993,
declined $86.6 million from the balance at December 31, 1992. This change arose
principally as a result of tax law changes contained in OBRA (discussed above),
which accounted for $50.2 million of the reduction, and the adoption of SFAS No.
106, which caused Ashland Coal to record a $15.5 million deferred tax asset
related to the immediate recognition of the accumulated postretirement benefit
obligation.
In 1988, Ashland Coal and the holder of Ashland Coal's convertible Class C
preferred stock entered into an agreement granting the holder the right to
require, during the thirty-day period beginning August 18, 1993, Ashland Coal to
purchase all the Class C shares. The holder did not exercise its put during the
specified period, and all rights under the put have expired. The convertible
Class C preferred stock has therefore been classified as an element of
stockholders' equity in the December 31, 1993, balance sheet rather than outside
stockholders' equity as was done at December 31, 1992.
OUTLOOK
The Company's 1994 results of operations will be adversely affected by the
first-quarter aftereffects of the UMWA strike, which was settled late in 1993,
and severe weather conditions. The severe winter weather experienced in early
1994 has had a significant adverse effect on the Company's mining and processing
operations. In addition, the severe weather has adversely affected both rail and
barge movements of coal. The combination of these factors will likely result in
reduced volumes and increased costs in the first quarter of 1994. The Company
expects that earnings for the first quarter will be approximately break-even.
For the full year of 1994, Ashland Coal believes that average cost per ton will
approximate the 1992 level. With higher sales volume than in 1993 and resultant
lower fixed costs per ton, the Company expects operating income in 1994 to
improve significantly over 1993's level.
Since the settlement of the UMWA strike, spot market prices have fallen, but
have remained above the level that prevailed prior to the strike. The
combination of low utility inventories and severe weather is having a positive
impact on current spot market prices. In addition, the demand for low-sulfur
coal should continue to increase as the economy grows and as the effective date
of the Clean Air Act amendments approaches. Sales to a major contract customer
are expected to be above normal levels during 1994 as shortfalls in shipments
that were scheduled for the strike-affected period are made up. The price on
these contract sales is above the Company's average selling price.
The Company has completed negotiations with two customers, including the
Company's largest customer, concerning the price, extension of the term, and the
quality and quantity of future deliveries under existing coal sales contracts
with these customers. These new agreements will result in reduced coal sales
revenues and cash flow in 1994. A substantial part of these decreases will be
offset by additional sales volumes in later years. In addition, adjustments will
be made in the rates of amortization of the carrying value of certain of these
contracts, reducing amortization expense in 1994. Contracts with another major
customer are expected to expire at the end of 1995, but could be
13
<PAGE>
renegotiated prior to then, based on current market prices. Because these
contracts are priced above current market prices, these expirations will have a
significant effect on earnings in 1996 and subsequent years.
During 1993, export sales by Ashland Coal declined to 2.1 million tons from
3.9 million tons in 1992 because of weakness in the European economy and
increased competition from both other fuels and other exporting countries.
Because of strike-related factors in the domestic market, this decline had
little effect on 1993's results of operations. The Company expects its export
sales to show gradual growth from 1993 levels, but does not expect that export
sales will have any significant effect on its results of operations. Also in
1993, the Company sold 1.6 million tons of metallurgical coal, which is used in
the manufacture of steel. Although metallurgical coal ordinarily results in
somewhat better profitability than similar sales of steam coal sold to electric
utilities, Ashland Coal does not expect that sales of metallurgical coal will
become a significant part of its total marketing strategy. Both export and
metallurgical coal sales do, however, enhance Ashland Coal's market flexibility.
The Company does not now expect that coal prices will be as high during the
remainder of this decade as was anticipated in the mid-1980's, when the dragline
development at Hobet 07 commenced. To compensate for these expected lower
prices, it may be necessary, if costs at Hobet's 07 mine are not reduced, for
Hobet to suspend operations at such mine by the end of the decade. In addition,
costs are expected to be reduced by an expansion of the Hobet 21 mine. This
expansion is expected to include the development of contract underground mines
beginning in 1994, the construction of a raw coal handling and blending facility
in 1994, and expansion of the preparation plant in 1995.
The National Bituminous Coal Wage Agreement of 1993, which covers the UMWA
employees of Hobet and of Dal-Tex's subsidiaries, provides for wage increases
totaling $1.30 per hour over the first three years, changes in the health care
plan intended to reduce costs, and improvements in work rules. Wage levels are
subject to renegotiation after both the third and fourth years of the contract.
In connection with the Agreement, a Memorandum of Understanding was entered into
that provides for positions at mines of Ashland Coal's nonunion subsidiaries to
be offered to UMWA miners under certain conditions. The Company believes that
the provisions of the new Agreement and the Memorandum, taken as a whole, will
not significantly change the costs experienced under the prior agreement.
LIQUIDITY AND CAPITAL RESOURCES
The following is a summary of cash provided by or used in each of the
indicated types of activities during the past three years.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
Net cash provided by (used in)
Operating activities
Before changes in operating assets and liabilities................... $ 74,165 $ 113,807 $ 83,051
Changes in operating assets and liabilities.......................... 5 (35,048) 5,147
----------- ------------ ------------
74,170 78,759 88,198
Investing activities................................................... 35,654 (330,783) (105,834)
Financing activities................................................... (146,877) 281,419 24,898
----------- ------------ ------------
Increase (decrease) in cash and cash equivalents......................... $ (37,053) $ 29,395 $ 7,262
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Cash provided by operating activities before changes in operating assets and
liabilities decreased in 1993 from 1992 primarily because of reduced sales
volume resulting from the strike by the UMWA. Cash provided by operating
activities before changes in operating assets and liabilities increased in 1992
from 1991 primarily because of increases in sales volume that resulted from the
April 1992 acquisition of Dal-Tex and expanded operations at Mingo Logan. The
reduction in 1993 from 1992 in cash used for changes in operating assets and
liabilities primarily resulted from a reduction in accounts receivable balances
during 1993, principally as a result of the UMWA strike. The significant
14
<PAGE>
increase in 1992 compared to 1991 in cash used for changes in operating assets
and liabilities reflects higher accounts receivable balances, primarily because
of the addition of Dal-Tex and the expansion of operations at Mingo Logan, and
higher expenditures for prepaid royalties, primarily because of required
payments under a lease held by Dal-Tex.
Cash provided by investing activities in 1993 resulted from the sale and
leaseback of certain mining equipment (discussed below). Cash used in investing
activities in 1992 reflects the acquisition of Dal-Tex and construction activity
at Mingo Logan. Cash used during 1991 for investing activities was primarily for
construction activity at Mingo Logan.
Cash used in financing activities in 1993 chiefly represents payments of
$141.4 million on long-term borrowings from cash provided by the sale and
leaseback of mining equipment, the liquidation of cash equivalents, and cash
provided by operating activities. Cash provided by financing activities during
1992 and 1991 represents the proceeds of borrowings (and the sale of common
stock in 1992) for the purpose of funding the 1992 Dal-Tex acquisition and
capital expenditures not funded by cash provided by operating activities.
The Company's capital expenditures during 1993 were $20.6 million, which was
$76.6 million lower than in 1992. Expenditures for 1992 included $55 million
related to the development of the Mingo Logan mine complex, which was completed
in 1992. During 1993, the Company deferred some planned capital expenditures
until 1994 to the extent possible in order to improve liquidity during the UMWA
strike and in advance of the potential exercise of the put on convertible Class
C preferred stock. Ashland Coal estimates that during 1994 capital expenditures
will be approximately $65 million, including $11 million for the construction of
a raw coal handling and blending facility at Hobet 21.
On January 29, 1993, mining equipment valued at approximately $64 million
being used by Dal-Tex and Hobet was sold and leased back under an operating
lease. The sale and leaseback of this equipment gives Ashland Coal additional
liquidity under its revolving credit agreement with little impact on financial
results. The Company is no longer pursuing an agreement with a bank which would
have allowed for sales of up to $35 million of trade accounts receivable at any
given time.
Ashland Coal has a revolving credit agreement with a group of banks
providing for borrowings of up to $215 million, of which $50 million was
borrowed at December 31, 1993. This commitment will be reduced in each calendar
quarter until termination in 1997. The Company has $175 million of indebtedness
under senior unsecured notes maturing in 1996 through 2006. Ashland Coal also
periodically establishes uncommitted lines of credit with banks. These
agreements generally provide for short-term borrowings at market rates. At
December 31, 1993, there were $222.9 million of such agreements in effect with
$56.3 million of indebtedness under these agreements. Of that amount, $19.3
million was classified as long-term debt, because Ashland Coal has the intent to
maintain these borrowings on a long-term basis and the ability to do so through
the use of the revolving credit agreement. The Company expects to repay the
remaining $37 million of indebtedness under these lines of credit during 1994
and, accordingly, that amount was included in the current portion of long-term
debt at December 31, 1993.
The Company expects 1994 cash flow provided by operating activities to
increase significantly from 1993 as a result of the conclusion of the UMWA
strike and anticipated higher sales by Hobet and Dal-Tex during 1994. Ashland
Coal believes that 1994 cash flow generated by operating activities will be
adequate to fund anticipated capital expenditures and make the discretionary
debt prepayments discussed above. Over the longer term, Ashland Coal believes
that cash flow from operations will be adequate to fund anticipated capital
expenditures, to make discretionary debt prepayments on indebtedness under lines
of credit and the revolving credit agreement, and to pay scheduled debt
maturities and other commitments when due.
15
<PAGE>
CONTINGENCIES
Under the 1977 Surface Mining Control and Reclamation Act, a mine operator
is responsible for postmining reclamation on every mine for at least five years
after the mine is closed. Ashland Coal performs a substantial amount of
reclamation of disturbed acreage as an integral part of its normal mining
process. All such costs are expensed as incurred. The remaining costs of
reclamation are estimated and accrued as mining progresses. The accrual for such
reclamation (included in other long-term liabilities and in accrued expenses)
was $2.5 million and $3.0 million at December 31, 1993 and 1992, respectively.
In addition, the Company accrues the costs of removal at the conclusion of
mining of roads, preparation plants, and other facilities and other costs
(closing costs) over the lives of the various mines. Closing costs, in the
aggregate, are estimated to be approximately $46.0 million. At December 31, 1993
and 1992, the accrual for closing costs, which is included in other long-term
liabilities and in accrued expenses, was $4.7 million and $3.9 million,
respectively.
Ashland Coal is a party to numerous claims and lawsuits with respect to
various matters, such as personal injury claims, claims for property damage, and
claims by lessors, that are typical of the sorts of claims encountered in the
coal industry. The Company provides for costs related to contingencies when a
loss is probable and the amount is reasonably determinable. The Company
estimates that its probable aggregate loss as a result of such claims is $4.6
million (included in other long-term liabilities) and believes that probable
insurance recoveries of $3.9 million (included in other assets) related to these
claims will be realized. The Company estimates that its reasonably possible
aggregate losses from all currently pending litigation could be as much as $5.5
million (before tax) in excess of the probable loss previously recognized.
However, the Company believes it is probable that substantially all of such
losses, if any occur, will be insured. After conferring with counsel, it is the
opinion of management that the ultimate resolution of these claims, to the
extent not previously provided for, will not have a material adverse effect on
the consolidated financial condition, results of operations, or liquidity of the
Company.
Ashland Coal has claims outstanding against a construction contractor for
business interruption losses sustained by the Company when a coal silo failed
and a second silo was unavailable during repairs. Recoveries under these claims
are not expected to be material.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. 18
Audited Consolidated Financial Statements
Consolidated Statements of Income--Years ended December 31, 1993, 1992 and 1991............................ 19
Consolidated Balance Sheets--December 31, 1993 and 1992.................................................... 20
Consolidated Statements of Stockholders' Equity--Years ended December 31, 1993, 1992 and 1991.............. 22
Consolidated Statements of Cash Flows--Years ended December 31, 1993, 1992 and 1991........................ 23
Notes to Consolidated Financial Statements................................................................. 24
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Ashland Coal, Inc.
We have audited the accompanying consolidated balance sheets of Ashland
Coal, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1993. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ashland Coal, Inc. and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1993, the Company changed its methods of accounting for income taxes
and for postretirement benefits other than pensions.
/s/ ERNST & YOUNG
Louisville, Kentucky
January 28, 1994
18
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
ASHLAND COAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(IN THOUSANDS EXCEPT EARNINGS PER SHARE) 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Coal sales............................ $484,390 $563,932 $430,301
Operating revenues.................... 13,952 15,792 13,688
-------- -------- --------
498,342 579,724 443,989
COSTS AND EXPENSES:
Cost of coal sold..................... 446,754 478,286 353,990
Operating expenses.................... 10,641 11,502 10,247
Selling, general, and administrative
expenses............................. 35,790 31,959 23,374
-------- -------- --------
493,185 521,747 387,611
-------- -------- --------
Operating income........................ 5,157 57,977 56,378
OTHER INCOME (EXPENSE):
Interest income....................... 1,057 1,240 804
Interest expense...................... (25,342) (21,781) (9,862)
-------- -------- --------
Income (loss) before income taxes and
the cumulative effect of changes in
accounting............................. (19,128) 37,436 47,320
Income tax expense (benefit)............ (64,502) 1,697 8,700
-------- -------- --------
Income before the cumulative effect of
changes in accounting.................. 45,374 35,739 38,620
Cumulative effect of changes in
accounting............................. (18,836) -- --
-------- -------- --------
NET INCOME.............................. 26,538 35,739 38,620
Less:
Preferred stock dividends............. 2,660 2,435 2,435
Accretion on preferred stock subject
to redemption........................ 770 1,280 1,232
-------- -------- --------
Income applicable to common stock....... $ 23,108 $ 32,024 $ 34,953
-------- -------- --------
-------- -------- --------
EARNINGS PER COMMON SHARE:
Primary:
Earnings before cumulative effect
adjustments........................ $ 2.48 $ 2.01 $ 2.40
Cumulative effect adjustments....... (1.07) -- --
-------- -------- --------
Net income.......................... $ 1.41 $ 2.01 $ 2.40
-------- -------- --------
-------- -------- --------
Fully diluted:
Earnings before cumulative effect
adjustments........................ $ 2.34 $ 1.88 $ 2.22
Cumulative effect adjustments....... (1.00) -- --
-------- -------- --------
Net income.......................... $ 1.34 $ 1.88 $ 2.22
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
ASHLAND COAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
(IN THOUSANDS) 1993 1992
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 556 $ 37,609
Trade accounts receivable............................................................ 45,513 66,828
Other receivables.................................................................... 4,467 8,421
Inventories.......................................................................... 22,304 24,458
Prepaid royalties.................................................................... 15,098 8,947
Assets to be sold and leased back.................................................... -- 64,182
Deferred income taxes................................................................ 2,116 --
Other................................................................................ 4,829 1,001
---------- -----------
Total current assets................................................................. 94,883 211,446
Other assets:
Prepaid royalties.................................................................... 53,557 60,372
Coal supply agreements............................................................... 47,032 59,889
Other................................................................................ 29,328 25,108
---------- -----------
Total other assets................................................................... 129,917 145,369
Property, plant, and equipment:
At cost
Land............................................................................... 5,254 5,251
Coal lands and mineral rights...................................................... 456,898 450,267
Buildings and improvements......................................................... 27,998 26,322
Equipment and processing facilities................................................ 330,671 317,232
Other.............................................................................. 5,688 5,328
Construction in progress........................................................... 2,580 2,196
---------- -----------
829,089 806,596
Less accumulated depreciation, depletion, and amortization........................... 217,898 170,079
---------- -----------
Net property, plant, and equipment................................................... 611,191 636,517
---------- -----------
Total assets........................................................................... $ 835,991 $ 993,332
---------- -----------
---------- -----------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1993 1992
---------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 27,302 $ 34,618
Accrued expenses..................................................................... 28,036 28,408
Income taxes payable................................................................. -- 395
Deferred income taxes................................................................ -- 5,434
Current portion of long-term debt.................................................... 37,260 105,025
---------- -----------
Total current liabilities............................................................ 92,598 173,880
Long-term debt......................................................................... 244,342 317,958
Accrued postretirement benefits........................................................ 67,845 20,243
Other long-term liabilities............................................................ 41,571 33,796
Deferred income taxes.................................................................. 42,584 121,677
Deferred gain on sale and leaseback of assets.......................................... 3,624 3,482
Convertible Class C preferred stock.................................................... -- 34,021
Stockholders' equity:
Convertible preferred stock
Class A, $100 par value, 500 shares authorized, none outstanding................... -- --
Class B, $100 par value, 250 shares authorized, 150 shares issued and
outstanding....................................................................... 33,050 33,050
Class C, $100 par value, 250 shares authorized, 100 shares issued and
outstanding....................................................................... 34,791 --
Common stock, $.01 par value, 44,000,000 shares authorized, 13,658,504 and 13,553,246
shares issued and outstanding in 1993 and 1992...................................... 136 136
Paid-in capital...................................................................... 107,087 104,398
Retained earnings.................................................................... 168,363 150,691
---------- -----------
Total stockholders' equity........................................................... 343,427 288,275
---------- -----------
Total liabilities and stockholders' equity............................................. $ 835,991 $ 993,332
---------- -----------
---------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ASHLAND COAL, INC. AND SUBSIDIARIES
THREE YEARS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON PAID-IN RETAINED
(IN THOUSANDS) CLASS B CLASS C STOCK CAPITAL EARNINGS TOTAL
--------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991........................ $ 33,050 $ $ 115 $ 42,621 $ 93,561 $ 169,347
Net income...................................... 38,620 38,620
Cash dividends paid:
Common - $.40 per share....................... (4,623) (4,623)
Preferred - $9,738 (including $4,200
preference dividend) per share............... (2,435) (2,435)
Accretion on preferred stock subject to
redemption..................................... (1,232) (1,232)
Issuance of 29,046 shares of common stock under
stock incentive plan........................... 1 902 903
--------- --------- ----------- --------- --------- ---------
Balance at December 31, 1991...................... 33,050 116 43,523 123,891 200,580
Net income...................................... 35,739 35,739
Cash dividends paid:
Common - $.40 per share....................... (5,224) (5,224)
Preferred - $9,738 (including $4,200
preference dividend) per share............... (2,435) (2,435)
Accretion on preferred stock subject to
redemption..................................... (1,280) (1,280)
Issuance of 1,950,000 shares of common stock,
net of $1,739,000 underwriting and stock
issuance expenses.............................. 20 60,290 60,310
Issuance of 25,700 shares of common stock under
stock incentive plan........................... 585 585
--------- --------- ----------- --------- --------- ---------
Balance at December 31, 1992...................... 33,050 136 104,398 150,691 288,275
Net income...................................... 26,538 26,538
Cash dividends paid:
Common - $.40 per share....................... (5,436) (5,436)
Preferred - $10,638 (including $4,200
preference dividend) per share............... (2,660) (2,660)
Accretion on preferred stock subject to
redemption..................................... (770) (770)
Reclassification of preferred stock no longer
subject to redemption.......................... 34,791 34,791
Issuance of 76,533 shares of common stock under
dividend reinvestment and stock purchase
plan........................................... 2,123 2,123
Issuance of 28,725 shares of common stock under
stock incentive plan........................... 566 566
--------- --------- ----------- --------- --------- ---------
Balance at December 31, 1993...................... $ 33,050 $ 34,791 $ 136 $ 107,087 $ 168,363 $ 343,427
--------- --------- ----------- --------- --------- ---------
--------- --------- ----------- --------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ASHLAND COAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(IN THOUSANDS) 1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................................... $ 26,538 $ 35,739 $ 38,620
Adjustments to reconcile to cash provided by operating activities:
Depreciation, depletion, and amortization................................... 71,248 67,001 37,169
Prepaid royalties expensed.................................................. 26,299 20,860 13,309
Loss on notes receivable.................................................... -- 590 944
Deferred income taxes....................................................... (69,166) (11,132) (8,014)
(Gain) loss on disposition of assets........................................ (43) 39 (451)
Cumulative effect of changes in accounting.................................. 18,836 -- --
Partnership costs in excess of cash advances................................ 453 710 584
Stock option compensation expense........................................... -- -- 890
Changes in operating assets and liabilities, net of effects of acquisition
of subsidiary:
Trade accounts receivable................................................. 21,315 (23,358) (5,195)
Other receivables......................................................... 3,954 (622) (1,528)
Inventories............................................................... 2,154 5,197 3,834
Prepaid royalties......................................................... (16,967) (21,145) (4,690)
Other current assets...................................................... (1,921) 28 (70)
Other assets.............................................................. (6,764) 1,594 1,330
Accounts payable and accrued expenses..................................... (7,688) (1,004) 5,734
Income taxes.............................................................. (8,146) 2,855 3,296
Accrued postretirement benefits........................................... 6,746 938 --
Other long-term liabilities............................................... 7,322 469 2,436
----------- ----------- ----------
Net cash provided by operating activities..................................... 74,170 78,759 88,198
INVESTING ACTIVITIES
Property, plant, and equipment:
Purchases................................................................... (20,569) (97,136) (102,881)
Proceeds from sales......................................................... 709 1,075 1,252
Proceeds from sale and leaseback of equipment................................. 64,182 -- --
Acquisition of subsidiary, net of cash acquired............................... -- (229,212) --
Advances on prepaid royalties................................................. (8,668) (5,510) (4,205)
----------- ----------- ----------
Net cash provided by (used in) investing activities........................... 35,654 (330,783) (105,834)
FINANCING ACTIVITIES
Proceeds from long-term borrowings............................................ 1,023,648 1,726,148 585,290
Payments on long-term borrowings.............................................. (1,165,029) (1,485,328) (553,347)
Dividends paid................................................................ (8,096) (7,659) (7,058)
Proceeds from sale of common stock............................................ 2,600 48,258 13
----------- ----------- ----------
Net cash provided by (used in) financing activities........................... (146,877) 281,419 24,898
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents.............................. (37,053) 29,395 7,262
Balance at beginning of year.................................................. 37,609 8,214 952
----------- ----------- ----------
Cash and cash equivalents at end of year...................................... $ 556 $ 37,609 $ 8,214
----------- ----------- ----------
----------- ----------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for income taxes, net of refunds.................... $ 12,810 $ 9,974 $ 13,419
Cash paid during the year for interest, net of amounts capitalized............ $ 25,411 $ 22,521 $ 8,475
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASHLAND COAL, INC. AND SUBSIDIARIES
DECEMBER 31, 1993
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Ashland Coal,
Inc. and its subsidiaries (the Company or Ashland Coal), which operate in the
coal mining industry. All subsidiaries are wholly owned. Significant
intercompany transactions and accounts have been eliminated in consolidation.
Ashland Coal's 17.5% partnership interest in Dominion Terminal Associates is
accounted for on the equity method in the consolidated balance sheet. Allocable
costs of the partnership for coal loading and storage are included in costs and
expenses in the statement of income.
CHANGES IN ACCOUNTING METHODS
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT
BENEFITS OTHER THAN PENSIONS. SFAS No. 106 requires the accrual method of
accounting for postretirement health care and life insurance benefits based on
actuarially determined costs to be recognized over the period the employee
provides service to the Company. As of January 1, 1993, the Company recognized
the full amount of its actuarially estimated accumulated postretirement benefit
obligation (APBO) as of that date which had not been previously recognized. The
APBO represents the present value of the estimated future benefits payable to
current retirees and a pro rata portion of estimated benefits payable to active
employees after retirement. The pretax charge to 1993 earnings was $40,856,000,
which was $25,331,000 ($1.44 per share on a primary basis and $1.34 per share on
a fully diluted basis) net of tax. The latter amount has been reflected in the
consolidated statement of income as a cumulative effect of an accounting change.
The incremental cost, excluding the cumulative effect adjustment, in 1993
for postretirement health and life insurance benefits under the new accounting
method amounted to $6,341,000 before tax and $3,868,000 ($.22 per share on a
primary basis and $.20 per share on a fully diluted basis) net of tax. In prior
years, the Company expensed claims for such postretirement benefits as paid. The
amount included in postretirement benefit expense for 1992 under the previous
accounting method was $884,000. Also in 1992, $1,262,000 of interest expense was
recognized in connection with the April 1, 1992, acquisition of Dal-Tex Coal
Corporation (Dal-Tex) and its estimated $19,305,000 obligation for retiree
health and life insurance benefits at acquisition, which was recorded in the
purchase price allocation. In the absence of the accounting change, the Company
would have recognized postretirement health and life insurance costs of
$1,167,000 and related interest expense of $1,716,000 in 1993.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires a liability approach for
measuring deferred taxes based on temporary differences between the financial
statement and tax bases of assets and liabilities existing at each balance sheet
date using enacted tax rates for years during which taxes are expected to be
paid or recovered. Adoption of SFAS No. 109 required the adjustment of the
carrying value of certain assets, which had been acquired in prior business
combinations, to their pretax amounts. That adjustment increased 1993 income by
$10,476,000, which was $6,495,000 ($.37 per share on a primary basis and $.34
per share on a fully diluted basis) net of tax. The latter amount has been
reflected in the consolidated statement of income as a cumulative effect of an
accounting change. Exclusive of the cumulative effect adjustment, the effect of
adopting SFAS No. 109 on income before income taxes and
24
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
net income for 1993 was a decrease of $2,267,000 and $1,383,000 ($.08 per share
on a primary basis and $.07 per share on a fully diluted basis), respectively,
as a result of increased depreciation and amortization expense on assets
acquired in prior business combinations.
INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
--------- ---------
<S> <C> <C>
Coal........................................................................................ $ 6,884 $ 10,880
Supplies.................................................................................... 15,420 13,578
--------- ---------
$ 22,304 $ 24,458
--------- ---------
--------- ---------
</TABLE>
Coal inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market. Supplies inventories are valued at the
lower of average cost or market.
DEPRECIATION
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets.
EXPLORATION AND DEVELOPMENT COSTS
Coal exploration costs are expensed as incurred. Development costs, which
are recoverable, are capitalized and amortized by the units-of-production method
over the estimated recoverable reserves.
COAL ACQUISITION COSTS AND PREPAID ROYALTIES
Coal lease rights obtained through acquisition of other companies are
capitalized and amortized primarily by the units-of-production method over the
estimated recoverable reserves.
Rights to leased coal lands are often acquired through royalty payments.
Where royalty payments represent prepayments recoupable against future
production, they are capitalized, and amounts expected to be recouped within one
year are classified as a current asset. As mining occurs on these leases, the
prepayment is offset against earned royalties and is included in the cost of
coal mined. The Company provides a valuation allowance for royalties estimated
to be nonrecoupable.
COAL SUPPLY AGREEMENTS
Acquisition costs allocated to coal supply agreements (sales contracts) are
capitalized and amortized to selling expense on the basis of coal to be shipped
over the term of the contract. Accumulated amortization for sales contracts was
$44,882,000 and $31,638,000 at December 31, 1993 and 1992, respectively.
DEFERRED GAIN ON SALE AND LEASEBACK OF ASSETS
Gain resulting from the sale and leaseback of assets is deferred and
amortized over the term of the operating lease as a reduction of rental expense.
REVENUE RECOGNITION
Coal sales revenues include sales to customers of coal produced at Company
operations and purchased from other companies. The Company recognizes revenue
from coal sales at the time title passes to the customer. Revenues other than
from coal sales are included in operating revenues and are recognized in income
as services are performed.
OTHER
Cash equivalents (none at December 31, 1993, and $36,979,000 at December 31,
1992) represent highly liquid investments with a maturity of three months or
less when purchased. Cash equivalents are recorded at cost, plus accrued
interest, which approximates market.
25
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
Interest costs on borrowed funds are capitalized for significant asset
construction projects. Capitalized interest costs were $4,911,000 in 1992 and
$6,497,000 in 1991. No interest was capitalized in 1993.
Certain 1992 amounts included in the consolidated balance sheet have been
reclassified to conform to 1993 classifications.
2. ACQUISITION
On April 1, 1992, Ashland Coal acquired Dal-Tex for consideration of
approximately $242,000,000, which included the issuance to the seller of 400,000
shares of Ashland Coal's common stock valued at $12,400,000. The cash portion
was financed through bank borrowings and the issuance of 1,550,000 shares of
common stock.
This acquisition has been accounted for as a purchase, with the cost of the
acquisition allocated to the assets acquired and liabilities assumed based on
their respective estimated fair values at the date of acquisition. Such
allocations were based on appraisals and Ashland Coal's evaluation of fair
value. The results of operations of Dal-Tex have been included in Ashland Coal's
consolidated financial statements since the acquisition date.
3. RELATED PARTIES
The financial statements include transactions with Ashland Oil, Inc.
(Ashland Oil), Saarbergwerke A.G. (Saarberg), and Carboex International, Ltd.
(Carboex) and their affiliates. Ashland Oil owns 6,998,129 shares of the issued
and outstanding common stock and Saarberg and Carboex own the issued and
outstanding convertible Class B preferred stock and convertible Class C
preferred stock, respectively.
Revenues include sales of coal to Saarberg and miscellaneous items of income
resulting from transactions with Ashland Oil. In addition, Ashland Coal receives
certain services from and provides certain services to Ashland Oil for which
fees are charged between the companies. Ashland Coal purchases fuel, oil, and
other products for use in its mining operations from Ashland Oil.
In 1991, Ashland Coal appointed Saarberg and Carboex as its exclusive agents
for the purpose of selling metallurgical coal to the steel industry in Europe.
Under the terms of the agreement, Ashland Coal pays a 2% commission on all such
sales.
Transactions with related parties are summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Saarberg............................................................................... $ 1,408 $ -- $ --
Ashland Oil and affiliates............................................................. 1 -- --
Service fees:
Charges from Ashland Oil............................................................... 423 338 334
Charges to Ashland Oil................................................................. 1 1 9
Commissions paid on European sales of metallurgical coal:
Carboex................................................................................ 135 -- --
Saarberg and affiliates................................................................ 135 -- --
Commissions paid to Saarberg and affiliates on certain export sales of steam coal........ 13 117 100
Purchases of fuel, oil, and other products from Ashland Oil.............................. 4,205 7,174 7,053
</TABLE>
Management believes that charges between Ashland Coal and Ashland Oil for
services were reasonable and that the other transactions summarized above were
concluded on terms equivalent to those prevailing among unaffiliated parties.
26
<PAGE>
4. DOMINION TERMINAL ASSOCIATES
Ashland Coal holds a 17.5% general partnership interest in Dominion Terminal
Associates (DTA), which operates a ground storage-to-vessel coal transloading
facility in Newport News, Virginia. DTA leases the facility from Peninsula Ports
Authority of Virginia (PPAV) for amounts sufficient to meet debt service
requirements. Financing is provided through $132,800,000 of tax-exempt bonds
issued by PPAV which mature July 1, 2016.
Under the terms of a throughput and handling agreement with DTA, each
partner is charged its share of cash operating and debt service costs in
exchange for the right to use its share of the facility's loading capacity and
is required to make periodic cash advances to DTA to fund such costs. On a
cumulative basis, costs exceeded cash advances by $6,497,000 and $6,044,000 at
December 31, 1993 and 1992, respectively (included in other long-term
liabilities). Costs and cash advances for the last three years follow:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Operating and debt service costs charged to costs and expenses...................... $ 3,158 $ 3,849 $ 3,971
Cash advances....................................................................... 2,705 3,139 3,387
</TABLE>
Future payments for fixed operating costs and debt service will approximate
$3,300,000 annually through 2015 and $26,000,000 in 2016.
5. TAXES
Significant components of the provision for income tax expense (benefit) are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.................................................................... $ 4,805 $ 12,057 $ 14,554
State...................................................................... (141) 772 2,160
---------- ---------- ----------
Total current............................................................ 4,664 12,829 16,714
---------- ---------- ----------
Deferred:
Federal.................................................................... (62,068) (10,526) (7,450)
State...................................................................... (7,098) (606) (564)
---------- ---------- ----------
Total deferred........................................................... (69,166) (11,132) (8,014)
---------- ---------- ----------
$ (64,502) $ 1,697 $ 8,700
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
A reconciliation of the normal statutory federal income tax on Ashland
Coal's pretax income with the Company's actual income tax expense (benefit)
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Income tax expense (benefit) at U.S. statutory rate........................... $ (6,504) $ 12,728 $ 16,089
Increase (decrease) in taxes resulting from:
Effect of enacted tax law changes........................................... (50,231) -- --
Percentage depletion allowance.............................................. (7,038) (11,200) (8,034)
State income taxes, net of effect of federal taxes.......................... (93) 509 1,426
Nontaxable income and nondeductible expenses................................ (172) (368) (460)
Other items................................................................. (464) 28 (321)
---------- ---------- ---------
$ (64,502) $ 1,697 $ 8,700
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Income tax benefit for 1993 includes a net $50,231,000 deferred tax benefit
resulting from the enactment of the Omnibus Budget Reconciliation Act of 1993
(OBRA). OBRA increased the marginal tax rate on corporations by 1%, which
resulted in Ashland Coal's recognizing an additional net deferred tax liability
of $3,307,000 and a like amount of deferred income tax expense. The new law also
permits the Company to elect to deduct the amortization of goodwill over 15
years. Such amortization
27
<PAGE>
5. TAXES (CONTINUED)
was not previously deductible. Ashland Coal has elected to deduct for federal
tax purposes the amortization of goodwill associated with the April 1992
acquisition of Dal-Tex. As a result of this election, the Company recognized a
$53,538,000 deferred tax asset and an equal deferred tax benefit.
Significant components of the Company's deferred tax liabilities and assets
that result from carryforwards and temporary differences between the financial
statement basis and tax basis of assets and liabilities are summarized as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
---------- -----------
<S> <C> <C>
Deferred tax liabilities:
Acquisition costs allocated to mineral reserves........................................ $ 95,316 $ 87,834
Property, plant, and equipment, principally due to differences in lives and methods of
depreciation, depletion, and amortization............................................. 29,034 36,257
Prepaid royalties capitalized for financial reporting purposes......................... 18,055 21,355
Acquisition costs allocated to coal supply agreements.................................. 7,439 12,644
Other.................................................................................. 3,035 2,987
---------- -----------
Total deferred tax liabilities....................................................... 152,879 161,077
---------- -----------
Deferred tax assets:
Goodwill for tax purposes.............................................................. 43,774 --
Postretirement benefits other than pensions............................................ 27,260 3,837
Alternative minimum tax credit carryforward............................................ 20,121 15,078
Costs not deductible until paid or realized............................................ 13,318 11,535
Net operating loss carryforwards....................................................... 3,584 228
Deferred gains not deferred for tax purposes........................................... 2,080 2,152
Other.................................................................................. 2,274 1,136
---------- -----------
Total deferred tax assets............................................................ 112,411 33,966
---------- -----------
Net deferred tax liability......................................................... 40,468 127,111
Less current (asset) liability....................................................... (2,116) 5,434
---------- -----------
Long-term deferred tax liability................................................... $ 42,584 $ 121,677
---------- -----------
---------- -----------
</TABLE>
At December 31, 1993, the Company had $3,584,000 of U.S. net operating loss
carryforwards (expiring $222,000 in 2003 and $3,362,000 in 2008) which may be
applied against future taxable income.
6. PREPAID ROYALTIES
Ashland Coal has entered into various noncancellable royalty lease
agreements under which future minimum payments are approximately $25,000,000
annually in 1994 through 1998 and amounts aggregating $261,000,000 thereafter.
Coal lands and mineral rights with a carrying value of $2,963,000, prepaid
royalties with a carrying value of $27,788,000 (net of the valuation allowance
described below), and future royalty commitments of $2,818,000 at December 31,
1993, represent amounts attributable to coal properties for which there are no
immediate plans for significant production. Geological surveys performed by
outside consultants indicate that there are sufficient reserves relative to
these properties to permit recovery of Ashland Coal's investment.
In 1993, Ashland Coal recorded a special charge of $9,900,000, which reduced
net income $6,039,000 ($.34 per share on a primary basis and $.32 per share on a
fully diluted basis), to increase the valuation allowance for prepaid royalties
relative to certain properties. Because the reserves represented by those
royalties are not conducive to large-scale, low-cost mining, the Company
believes
28
<PAGE>
6. PREPAID ROYALTIES (CONTINUED)
that the recoverability of those royalties is doubtful, given the Company's
current expectations for future market prices for coal. The valuation allowance
for prepaid royalties was $22,062,000 and $10,634,000 at December 31, 1993 and
1992, respectively.
7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
---------- -----------
<S> <C> <C>
9.78% senior unsecured notes, payable in four equal annual installments beginning
September 15, 1997...................................................................... $ 100,000 $ 100,000
9.66% senior unsecured notes, payable in six equal annual installments beginning May 15,
2001.................................................................................... 52,900 52,900
8.92% senior unsecured notes, due May 15, 1996........................................... 22,100 22,100
Indebtedness to banks under revolving credit agreement................................... 50,000 247,000
Indebtedness to banks under lines of credit.............................................. 56,332 --
Other.................................................................................... 270 983
---------- -----------
281,602 422,983
Less current portion..................................................................... 37,260 105,025
---------- -----------
$ 244,342 $ 317,958
---------- -----------
---------- -----------
</TABLE>
Ashland Coal has a revolving credit agreement with a group of banks
providing for borrowings of up to $215,000,000. The rate of interest on
borrowings under this agreement is, at Ashland Coal's option, a money market
rate determined by a competitive bid process, the Continental Bank N.A.
reference rate, or a rate based upon LIBOR. This commitment will be reduced in
each calendar quarter until termination in 1997. The provisions of the revolving
credit agreement require a facility fee of 1/4% per annum on the outstanding
commitment.
Ashland Coal periodically establishes uncommitted lines of credit with
banks. These agreements generally provide for short-term borrowings at market
rates. At December 31, 1993, there were $222,900,000 of such agreements in
effect.
Aggregate maturities of long-term debt are $37,260,000 in 1994, $66,715,000
in 1995, $24,727,000 in 1996, $25,000,000 in 1997, $25,000,000 in 1998, and
$102,900,000 thereafter. Included in these maturities are discretionary
prepayments of $37,000,000 in 1994, $66,705,000 in 1995, and $2,627,000 in 1996.
Excluded from current maturities are $19,332,000 of borrowings under lines of
credit with banks. These borrowings are classified as long-term debt since
Ashland Coal has the intent to maintain these borrowings on a long-term basis
and the ability to do so through the use of the revolving credit agreement.
The credit agreements contain, among other covenants, provisions setting
forth certain requirements for current ratio and consolidated net worth and
restrictions on the payment of dividends and the creation of additional debt. At
December 31, 1993, retained earnings of $46,824,000 were available for
dividends.
8. ACCRUED BLACK LUNG BENEFITS
Ashland Coal is liable under the federal Coal Mine Health and Safety Act of
1969, as amended, to provide for pneumoconiosis (black lung) benefits to
eligible employees, former employees, and dependents with respect to claims
filed by such persons on or after July 1, 1973. Ashland Coal is also liable
under various states' statutes for black lung benefits. Ashland Coal currently
provides for federal and state claims principally through a self-insurance
program. Charges are being made to current operations in amounts sufficient to
amortize the actuarially computed liability for black lung benefits over
29
<PAGE>
8. ACCRUED BLACK LUNG BENEFITS (CONTINUED)
10-25 years at an assumed 8% after-tax investment return. The accrual for black
lung benefits (included in other long-term liabilities) was $14,430,000 and
$14,014,000 at December 31, 1993 and 1992, respectively.
9. ACCRUED POSTMINING RECLAMATION AND MINE CLOSING COSTS
Under the 1977 Surface Mining Control and Reclamation Act, a mine operator
is responsible for postmining reclamation on every mine for at least five years
after the mine is closed. Ashland Coal performs a substantial amount of
reclamation of disturbed acreage as an integral part of its normal mining
process. All such costs are expensed as incurred. The remaining costs of
reclamation are estimated and accrued as mining progresses. The accrual for such
reclamation (included in other long-term liabilities and in accrued expenses)
was $2,500,000 and $3,017,000 at December 31, 1993 and 1992, respectively. In
addition, the Company accrues the costs of removal at the conclusion of mining
of roads, preparation plants, and other facilities and other costs (closing
costs) over the lives of the various mines. Closing costs, in the aggregate, are
estimated to be approximately $46,000,000. At December 31, 1993 and 1992, the
accrual for closing costs, which is included in other long-term liabilities and
in accrued expenses, was $4,692,000 and $3,925,000, respectively.
10. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
--------- ---------
<S> <C> <C>
Accrued compensation........................................................................ $ 13,181 $ 12,449
Accrued taxes............................................................................... 6,614 6,325
Accrued interest............................................................................ 4,091 4,160
Accrued reclamation and mine closing costs.................................................. 1,590 2,530
Other....................................................................................... 2,560 2,944
--------- ---------
$ 28,036 $ 28,408
--------- ---------
--------- ---------
</TABLE>
11. CONVERTIBLE CLASS C PREFERRED STOCK
Ashland Coal and Carboex entered into a put agreement in 1988 granting to
Carboex the right to require Ashland Coal to purchase its 100 shares of Class C
preferred stock for $37,500,000 to be paid over two years. Carboex could
exercise its right during the thirty day period beginning August 18, 1993, but
did not do so. These securities were recorded at their fair market value at date
of issue, and the carrying value was increased to the 1993 present value of the
redemption amount by periodic charges to retained earnings ($770,000 in 1993,
$1,280,000 in 1992, and $1,232,000 in 1991). After the expiration of the put
agreement, the Class C preferred stock was reclassified as an element of
stockholders' equity.
12. CAPITAL STOCK
Holders of shares of Class A, B, and C preferred stock are entitled to
receive dividends at such times and in such amounts as shall be equal to the
dividends payable on the number of shares of common stock into which each such
share of preferred stock is convertible. In addition, holders of Class B and C
preferred stock are entitled to receive cumulative dividends in preference to
common stock of $4,200 per share per annum for the first five years from August
1988 and $2,800 for the next five years, with preference dividend amounts
decreasing to zero at the end of fifteen years.
Each share of Class A preferred stock (if issued) is convertible into 13,846
shares of common stock.
30
<PAGE>
12. CAPITAL STOCK (CONTINUED)
Each share of Class B and C preferred stock is convertible into shares of
common stock as follows:
<TABLE>
<S> <C>
Through August 17, 1998...................................................... 18,346 shares
August 18, 1998 - August 17, 2003............................................ 19,596 shares
Thereafter................................................................... 20,846 shares
</TABLE>
Holders of Class B and C preferred stock, voting cumulatively and together
as a class, have the right to elect one director for each 63 shares of such
Class B and C preferred stock held by them, up to a maximum of three directors.
The 1992 acquisition of Dal-Tex was funded in part by the private placement
of 1,550,000 shares of Ashland Coal's common stock to accredited institutional
investors and the issuance of 400,000 shares to the seller of Dal-Tex. On the
sale of these shares, Ashland Coal realized $60,310,000 after underwriting and
stock issuance expenses of $1,739,000.
13. EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average number
of common and common equivalent shares outstanding during each year. Shares of
common stock issuable under the Company's stock incentive plan are treated as
common stock equivalents when dilutive. Fully diluted earnings per share are
based on conversion rights that become effective within 10 years of the
respective balance sheet date.
Computations of earnings per share, using the "two class" method, are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT EARNINGS PER SHARE) 1993 1992 1991
---------- --------- ---------
<S> <C> <C> <C>
Income before the cumulative effect of changes in accounting......................... $ 45,374 $ 35,739 $ 38,620
Less: Common stock dividends......................................................... 5,436 5,224 4,623
Preferred stock dividends....................................................... 2,529 2,435 2,435
Accretion of discount on preferred stock (subject to redemption)................ 770 1,280 1,232
---------- --------- ---------
Undistributed earnings less accretion before cumulative effect adjustments........... 36,639 26,800 30,330
Cumulative effect of changes in accounting........................................... (18,836) -- --
---------- --------- ---------
Undistributed earnings less accretion................................................ $ 17,803 $ 26,800 $ 30,330
---------- --------- ---------
---------- --------- ---------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Earnings per common share:
Primary:
Undistributed earnings less accretion before cumulative effect
adjustments.................................................... $ 2.08 $ 1.61 $ 2.00
Dividends (except preference dividends)......................... .40 .40 .40
--------- --------- ---------
Earnings before cumulative effect adjustments................... 2.48 2.01 2.40
Cumulative effect adjustments................................... (1.07) -- --
--------- --------- ---------
Net income...................................................... $ 1.41 $ 2.01 $ 2.40
--------- --------- ---------
--------- --------- ---------
Fully diluted:
Undistributed earnings less accretion before cumulative effect
adjustments.................................................... $ 1.94 $ 1.48 $ 1.82
Dividends (except preference dividends)......................... .40 .40 .40
--------- --------- ---------
Earnings before cumulative effect adjustments................... 2.34 1.88 2.22
Cumulative effect adjustments................................... (1.00) -- --
--------- --------- ---------
Net income...................................................... $ 1.34 $ 1.88 $ 2.22
--------- --------- ---------
--------- --------- ---------
</TABLE>
31
<PAGE>
13. EARNINGS PER SHARE (CONTINUED)
Weighted average shares for computing earnings per share were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Primary............................................................................. 17,579 16,668 15,155
Fully diluted....................................................................... 18,924 18,115 16,655
</TABLE>
14. STOCK INCENTIVE PLAN
On August 8, 1988, the stockholders approved a stock incentive plan
reserving 750,000 shares of Ashland Coal common stock for awards to officers and
key employees. The plan provides for the granting of incentive stock options
(qualified stock options), nonqualified stock options, stock appreciation rights
(SARs) and restricted stock awards. Stock options generally become exercisable
in full or in part one year from date of grant and are granted at a price equal
to 100% of the fair market value of the stock on the date of grant. SARs entitle
employees to surrender stock options and receive cash or stock in an amount
equal to the excess of the market value of the optioned shares over their option
price. Unexercised options and any accompanying SARs lapse ten years after the
date of grant. Restricted stock awards may entitle employees to purchase shares
at a nominal cost. Such awards entitle employees to vote shares acquired and to
receive any dividends thereon, but such shares cannot be sold or transferred and
are subject to forfeiture if employees terminate their employment prior to the
prescribed period, which can be from one to five years. As of December 31, 1993,
no SARs or restricted stock awards have been granted.
Information regarding this plan follows:
<TABLE>
<CAPTION>
1993 1992 1991
------------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE COMMON AVERAGE COMMON AVERAGE
(IN THOUSANDS EXCEPT PER SHARE DATA) COMMON SHARES PRICE SHARES PRICE SHARES PRICE
------------- ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1................. 432 $ 20.91 398 $ 17.99 283 $ 14.69
Granted........................................ 96 25.50 75 34.38 162 22.00
Exercised...................................... (29) 16.61 (26) 15.44 (47) 11.94
Cancelled...................................... (31) 26.37 (15) 20.38 --
--- --- ---
Options outstanding at December 31............... 468 21.75 432 20.91 398 17.99
--- --- ---
--- --- ---
Options exercisable at December 31............... 284 204 136
Options available for grant at December 31....... 170 235 295
</TABLE>
15. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
The Company has a noncontributory defined benefit pension plan covering
certain of its salaried and nonunion hourly employees. Benefits for salaried
employees generally are based on years of service and the employee's
compensation during the three years prior to retirement. For hourly employees,
the plan provides for a stated benefit for each year of service. Ashland Coal
funds the plan in an amount not less than minimum statutory funding requirements
nor more than the maximum amount that can be deducted for federal income tax
purposes. Plan assets consist primarily of equity securities and fixed income
securities.
32
<PAGE>
15. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net pension expense of the plan included the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned....................................................... $ 1,047 $ 735 $ 527
Interest cost on projected benefit obligation......................................... 712 492 358
Actual return on plan assets.......................................................... (506) (104) (484)
Net amortization...................................................................... 227 (158) 203
--------- --------- ---------
Net periodic pension cost........................................................... $ 1,480 $ 965 $ 604
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheet at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits........................................................................... $ 5,707 $ 4,417
Nonvested benefits........................................................................ 838 644
--------- ---------
Accumulated benefit obligation.......................................................... 6,545 5,061
Effect of projected compensation increases.................................................. 5,803 4,454
--------- ---------
Projected benefit obligation............................................................ 12,348 9,515
Plan assets at fair value................................................................... 6,012 4,625
--------- ---------
Projected benefit obligation in excess of plan assets................................... 6,336 4,890
Unrecognized transition credit.............................................................. 597 697
Unrecognized prior service cost............................................................. (8) (8)
Unrecognized net loss....................................................................... (2,998) (2,133)
--------- ---------
Accrued pension liability............................................................... 3,927 3,446
Less amount included in accrued expenses.................................................... 1,152 947
--------- ---------
Amount included in other long-term liabilities.......................................... $ 2,775 $ 2,499
--------- ---------
--------- ---------
</TABLE>
The assumptions used in computing the information above were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Discount rate........................................................................... 7.0% 7.5% 8.0%
Expected long-term rate of return on plan assets........................................ 9.0% 9.0% 10.0%
Future compensation growth rate......................................................... 5.0% 5.0% 6.0%
</TABLE>
MULTIEMPLOYER PENSION AND BENEFIT PLANS
Under the labor contract with the United Mine Workers of America (UMWA),
Ashland Coal made payments of $475,000 in 1993, $1,105,000 in 1992, and $669,000
in 1991 into a multiemployer defined benefit pension plan trust established for
the benefit of union employees. Payments are based on hours worked. Under the
Multiemployer Pension Plan Amendments Act of 1980, a contributor to a
multiemployer pension plan may be liable, under certain circumstances, for its
proportionate share of the plan's unfunded vested benefits (withdrawal
liability). Ashland Coal has estimated its share of such amount to be
$16,500,000 at December 31, 1993. Ashland Coal is not aware of any circumstances
which would require it to reflect its share of unfunded vested pension benefits
in its financial statements.
The Coal Industry Retiree Health Benefit Act of 1992 (Benefit Act) provides
for the funding of medical and death benefits for certain retired members of the
UMWA through premiums to be paid by assigned operators (former employers),
transfers of monies from an overfunded pension trust established for the benefit
of retired UMWA members, and transfers from the Abandoned Mine Lands
33
<PAGE>
15. EMPLOYEE BENEFIT PLANS (CONTINUED)
Fund, which is funded by a federal tax on coal production. This funding
arrangement commenced February 1, 1993. Some former employers, however, have
filed suits challenging the constitutionality of the Benefit Act.
Ashland Coal treats its obligation under the Benefit Act as a participation
in a multiemployer plan and recognizes expense as premiums are paid. During
1993, Ashland Coal recognized $240,000 in expense relative to premiums paid
pursuant to the Benefit Act. The Company believes that the amount of its
obligation under the Benefit Act is not significant. Under the prior funding
arrangement for retirees now covered by the Benefit Act, Ashland Coal paid
$609,000 in 1993, $4,809,000 in 1992, and $2,606,000 in 1991 into two
multiemployer benefit trusts.
OTHER POSTRETIREMENT BENEFIT PLANS
Ashland Coal and its subsidiaries currently provide certain postretirement
health and life insurance coverage for eligible employees. Generally, covered
employees who terminate employment after meeting the eligibility requirements
for pension benefits are also eligible for postretirement coverage for
themselves and their dependents. The salaried employee postretirement medical
and dental plans are contributory, with retiree contributions adjusted
periodically, and contain other cost-sharing features such as deductibles and
coinsurance. The postretirement medical plan for retirees who were members of
the UMWA is not contributory. The Company's current funding policy is to fund
the cost of all postretirement health and life insurance benefits as they are
paid.
The net periodic postretirement benefit expense of these plans for 1993
included the following components:
<TABLE>
<S> <C>
(IN THOUSANDS)
Service cost............................................................................................ $ 4,236
Interest cost........................................................................................... 4,988
---------
Net periodic postretirement benefit cost................................................................ $ 9,224
---------
---------
</TABLE>
The following table sets forth the amounts recognized in the consolidated
balance sheet at December 31, 1993, none of which have been funded:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................................................. $ 21,080
Fully eligible active plan
participants........................................................................................ 8,669
Other active plan participants....................................................................... 39,084
---------
68,833
Unrecognized net gain.................................................................................. 323
---------
Accrued postretirement obligation.................................................................... 69,156
Less amount included in accrued expenses............................................................... 1,311
---------
Amount included in accrued postretirement benefits................................................... $ 67,845
---------
---------
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7% and 8.25% at December 31, 1993 and 1992, respectively. The
assumed health care cost trend rate for 1994 is 13%, decreasing to 5% in the
year 2010. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993, by $12,300,000, or
17.9%, and the net periodic postretirement benefit cost for 1993 by $2,000,000,
or 21.7%.
34
<PAGE>
15. EMPLOYEE BENEFIT PLANS (CONTINUED)
OTHER PLANS
Ashland Coal sponsors three savings plans which were established to assist
eligible employees in providing for their future retirement needs. Ashland
Coal's contributions to the plans were $1,464,000 in 1993, $1,135,000 in 1992,
and $616,000 in 1991.
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS, which requires that
employers who provide benefits to former or inactive employees after employment
but before retirement recognize the obligation for those benefits under certain
conditions. Ashland Coal will adopt SFAS No. 112 in 1994. Ashland Coal does not
believe that SFAS No. 112 will have a significant effect on the consolidated
financial statements.
16. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Ashland Coal places its cash equivalents in investment grade short-term
investments and limits the amount of credit exposure to any one commercial
issuer.
Ashland Coal markets its coal principally to electric utilities in the
United States and Europe. As of December 31, 1993 and 1992, accounts receivable
from electric utilities located in the United States totaled $31,609,000 and
$49,908,000, respectively, and accounts receivable from electric utilities
located in Europe totaled $2,491,000 and $10,738,000, respectively. Credit is
extended based on an evaluation of the customer's financial condition, and
collateral is not generally required. Credit losses are provided for in the
financial statements and consistently have been minimal.
Ashland Coal is committed under several long-term contracts to supply coal
that meets certain quality requirements at specified prices. These prices are
generally adjusted based on indices. Quantities sold under some of these
contracts may vary from year to year within certain limits at the option of the
customer. Sales (including spot sales) to major customers were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1992 1991
--------- ----------- ---------
<S> <C> <C> <C>
Customer A.................................................................... $ 99,251 $ 128,245 $ 87,728
Customer B.................................................................... 79,620 84,172 78,219
Customer C.................................................................... 44,033 68,826 41,006
</TABLE>
In 1993, 1992, and 1991, Ashland Coal had export sales, principally to
European customers, of $50,364,000, $93,832,000, and $95,229,000, respectively.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by Ashland Coal in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
LONG-TERM AND SHORT-TERM DEBT: The carrying amounts of Ashland Coal's
borrowings under its revolving credit agreement and under lines of credit
approximate their fair value. The fair values of Ashland Coal's senior notes are
estimated using discounted cash flow analyses, based on Ashland Coal's current
incremental borrowing rates for similar types of borrowing arrangements.
35
<PAGE>
17. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of Ashland Coal's financial instruments
at December 31, 1993, are as follows:
<TABLE>
<CAPTION>
CARRYING
(IN THOUSANDS) AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Cash and cash equivalents............................................................... $ 556 $ 556
Lines of credit......................................................................... 56,332 56,332
Revolving credit agreement.............................................................. 50,000 50,000
Senior notes............................................................................ 175,000 197,000
</TABLE>
18. SALE AND LEASEBACK
On January 29, 1993, Ashland Coal sold mining equipment valued at
approximately $64,000,000 and leased back the equipment under an operating
lease. The proceeds of this transaction were used to repay borrowings under
Ashland Coal's revolving credit agreement. The lease has a term of three years
and provides for minimum annual rental payments of $9,467,000 in 1994,
$9,160,000 in 1995, and $2,242,000 in 1996. At the end of the lease term, the
Company has the option to purchase the equipment for $43,172,000. Alternatively,
the equipment may be sold by the lessor to a third party. In the event of such a
sale, the Company will be required to make payment to the lessor in the event
and to the extent that the proceeds are below $35,631,000.
19. COMMITMENTS AND CONTINGENCIES
Ashland Coal leases office space, mining equipment, land, and various other
properties under noncancellable long-term leases, expiring at various dates.
Rental expense related to these operating leases amounted to $10,772,000 in
1993, $3,510,000 in 1992, and $4,371,000 in 1991. Minimum annual rentals due in
future years under lease agreements in effect at January 1, 1994, are
approximately $13,241,000 in 1994, $12,293,000 in 1995, $5,449,000 in 1996,
$3,239,000 in 1997, $2,928,000 in 1998, and additional amounts thereafter
aggregating $14,910,000 through 2011.
Ashland Coal is a party to numerous claims and lawsuits with respect to
various matters. The Company provides for costs related to contingencies when a
loss is probable and the amount is reasonably determinable. The Company
estimates that its probable aggregate loss as a result of such claims is
$4,600,000 (included in other-long-term liabilities) and believes that probable
insurance recoveries of $3,900,000 (included in other assets) related to these
claims will be realized. The Company estimates that its reasonably possible
aggregate losses from all currently pending litigation could be as much as
$5,500,000 (before tax) in excess of the probable loss previously recognized.
However, the Company believes it is probable that substantially all of such
losses, if any occur, will be insured. After conferring with counsel, it is the
opinion of management that the ultimate resolution of these claims, to the
extent not previously provided for, will not have a material adverse effect on
the consolidated financial condition, results of operations, or liquidity of the
Company.
Ashland Coal has claims outstanding against a construction contractor for
business interruption losses sustained by the Company when a coal silo failed
and a second silo was unavailable during repairs. Recoveries under these claims
are not expected to be material.
36
<PAGE>
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial data for 1993 and 1992 are summarized below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS EXCEPT EARNINGS PER SHARE) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1993:
Sales and operating revenues............................................. $138,167 $134,990 $113,751 $111,434
Operating income (loss).................................................. 5,527 7,050 (7,041) (379)
Income (loss) before the cumulative effect of changes in accounting...... 1,534 1,724 43,699 (1,583)
Cumulative effect of changes in accounting............................... (18,836) -- -- --
Net income (loss)........................................................ (17,302) 1,724 43,699(1) (1,583)(2)
Earnings (loss) per common share(3)
Primary
Income (loss) before cumulative effect adjustments................... .06 .07 2.45 (.10)
Net income (loss).................................................... (1.05) .07 2.45 (.10)
Fully diluted
Income (loss) before cumulative effect adjustments................... .06 .07 2.31 (.10)
Net income (loss).................................................... (1.05) .07 2.31 (.10)
1992:
Sales and operating revenues............................................. $110,820 $144,618 $160,701 $163,585
Operating income......................................................... 11,379 14,602 14,829 17,167
Net income............................................................... 7,282 8,084 7,964 12,409(4)
Earnings per common share(3)
Primary................................................................ .44 .44 .43 .69
Fully diluted.......................................................... .41 .41 .41 .64
<FN>
- ------------------------
(1) In the third quarter of 1993, Ashland Coal recognized $50,247,000 ($2.84 per
share on a primary basis and $2.67 per share on a fully diluted basis) of
deferred tax benefit primarily as the result of a change in tax law that
allows the deduction of the amortization of goodwill associated with the
1992 acquisition of Dal-Tex. Also in the third quarter, the Company recorded
a special charge to increase the valuation allowance relative to certain
prepaid royalties. This special charge of $9,900,000 reduced net income by
$6,039,000, which is $.34 per share on a primary basis and $.32 on a fully
diluted basis.
(2) In the fourth quarter of 1993, the Company (a) recognized $1,182,000 in
additional mine closing cost accruals, depreciation, and amortization as the
result of a shortening of the estimated life of a mine, (b) increased its
estimate of certain state taxes payable relative to the first three quarters
of 1993, increasing costs and expenses by $1,012,000, and (c) recognized a
$1,130,000 reduction in costs and expenses for payments made into a benefit
fund (established by the Coal Industry Retiree Health Benefit Act of 1992)
during 1993 which will be applied to future obligations. In the aggregate
these adjustments increased net loss for the quarter by $648,000, or $.04
per share on a primary basis and $.03 per share on a fully diluted basis.
(3) The sum of the quarterly earnings per share amounts does not equal earnings
per share for the full year, because per share amounts are computed
independently for each quarter and for the year based on the weighted
average number of common and common equivalent shares outstanding during
each period and because of certain adjustments required to avoid
antidilution of fully diluted loss per share for any period in which a loss
is experienced.
(4) In the fourth quarter of 1992, Ashland Coal lowered its estimate of the
annual effective tax rate to 4.5%, which increased net income by $1,931,000,
or $.11 per share on a primary basis and $.10 per share on a fully diluted
basis.
</TABLE>
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements with accountants
with respect to accounting and financial disclosure during the two most recent
fiscal years.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the subcaption "Nominees for Director"
which appears under the caption "Election of Directors" beginning on Page 4 in
the Company's 1994 Proxy Statement. See also the list of the Company's executive
officers and related information under "Executive Officers of the Registrant" in
Part I, Item X herein.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the "Summary Compensation Table", the
"Option Grants in Last Fiscal Year" table, the "Aggregated Option Exercises in
Last Fiscal Year and FY-End Option Values" table, the "Long Term Incentive Plans
Awards in Last Fiscal Year" table, the Other Compensation Plans section
(including the Pension Plan Table), the Employment Contracts and Termination of
Employment and Change in Control Arrangements section, the Compensation of
Directors section, and the Compensation Committee Interlocks and Insider
Participation section appearing on Pages 19 to 28 in the Company's 1994 Proxy
Statement. No portion of the Personnel and Compensation Committee and Key
Employee Stock Administration Committee Report on Executive Compensation for
1993 or the "Comparison of Cumulative Total Return" table is incorporated herein
in reliance on Regulation S-K, Item 402(a)(8).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" beginning on Page 9 of the Company's 1994
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the subcaptions "Restated Shareholders
Agreement" and "Registration Rights Agreement" on Pages 11 and 12 of the
Company's 1994 Proxy Statement and the information appearing under the caption
"Certain Relationships and Related Transactions" beginning on Page 28 of the
Company's 1994 Proxy Statement.
38
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
<TABLE>
<CAPTION>
PAGE
---
<S> <C> <C>
(1) The following consolidated financial statements of Ashland Coal, Inc. and
subsidiaries are included in Item 8 at the page indicated:
Report of Independent Auditors............................................. 18
Consolidated Statements of Income--Years Ended December 31, 1993, 1992 and
1991...................................................................... 19
Consolidated Balance Sheets--December 31, 1993 and 1992.................... 20
Consolidated Statements of Stockholders' Equity--Years Ended December 31,
1993, 1992 and 1991....................................................... 22
Consolidated Statements of Cash Flows--Years Ended December 31, 1993, 1992
and 1991................................................................. 23
Notes to Consolidated Financial Statements................................. 24
</TABLE>
(2) The following consolidated financial statement schedules of Ashland
Coal, Inc. and subsidiaries are included in Item 14 at the page
indicated:
<TABLE>
<S> <C> <C> <C>
V -- Property, Plant and Equipment......................................... 43
VI -- Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment.................................................. 44
VIII -- Valuation and Qualifying Accounts..................................... 45
X -- Supplementary Income Statement Information............................ 46
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(3) Exhibits filed as part of this Report are as follows:
<TABLE>
<C> <C> <S>
3.1 - Restated Certificate of Incorporation of the Company, as amended (Exhibit 3.1
to the Post-Effective Amendment No. 1 to the Company's Registration Statement
on Form S-3 dated May 5, 1993, is incorporated herein by reference).
3.2 - Amended By-laws of the Company (Exh. 3.4).*
4.1 - Amended and Restated Credit Agreement (Credit Agreement) dated as of April 1,
1992, among Ashland Coal, Inc., the Banks listed therein, Continental Bank
N.A., as Agent, and National Westminster Bank PLC, as Co-Agent (Exhibit 4.1
to the Company's Form 8-K dated April 6, 1992, is incorporated herein by
reference).
4.2 - First Amendment to Credit Agreement dated as of February 1, 1993 (Exhibit 4.1
to the Company's Current Report on Form 8-K dated March 15, 1993, is
incorporated herein by reference).
4.3 - Amended and Restated Trust Agreement dated as of April 1, 1992, among Ashland
Coal, Inc., the Banks signatory thereto, Continental Bank N.A., as Agent,
National Westminster Bank PLC, as Co-Agent, and Continental Bank, National
Association, as Bid Trustee (Exhibit 4.2 to the Company's Form 8-K dated
April 6, 1992, is incorporated herein by reference).
4.4 - Note Agreement dated as of September 15, 1990 (September 15, 1990, Note
Agreement), among Ashland Coal, Inc. and the Purchasers named in Schedule I
thereto relating to the Company's $100,000,000 9.78% Senior Notes due
September 15, 2000 (filed as an Exhibit to the Company's Form 10-Q filed with
the SEC on November 13, 1990, and incorporated herein by reference).
</TABLE>
39
<PAGE>
<TABLE>
<C> <C> <S>
4.5 - First Amendment Agreement dated as of May 15, 1991, to the September 15,
1990, Note Agreement (filed as an Exhibit to the Company's Form 10-Q filed
with the SEC on August 12, 1991, and incorporated herein by reference).
4.6 - Second Amendment Agreement dated as of March 1, 1993, to the September 15,
1990, Note Agreement. (Exhibit 4.6 to the Company's Form 10-K for the year
ended December 31, 1992, filed with the SEC on March 23, 1993, is
incorporated herein by reference).
4.7 - Composite conformed copy of Note Agreement dated as of May 15, 1991 (May 15,
1991, Note Agreement), among the Company and the Purchasers named in Schedule
I thereto relating to the Company's $22,100,000 8.92% Senior Notes due May
15, 1996, and $52,900,000 9.66% Senior Notes due May 15, 2006 (filed as an
Exhibit to the Company's Form 10-Q filed with the SEC on August 12, 1991, and
incorporated herein by reference).
4.8 - First Amendment Agreement dated as of March 1, 1993, to the May 15, 1991,
Note Agreement. (Exhibit 4.8 to the Company's Form 10-K for the year ended
December 31, 1992, filed with the SEC on March 23, 1993, is incorporated
herein by reference).
4.9 - Amendment to Restated Shareholders Agreement dated August 6, 1993, among
Ashland Oil, Inc. (Ashland Oil), Saarberg Coal International GmbH (SCI), a
predecessor to Saarbergwerke A.G. (Saarberg), Carboex International, Ltd.
(Carboex) and the Company (Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q dated August 16, 1993, is incorporated herein by reference).
4.10 - Stockholder Agreement, dated as of April 2, 1992, among the United Company,
United Affiliates Corporation (UAC), James W. McGlothlin, W. W. McGlothlin,
N. D. Street, Charles T. Carter and the Company (Exhibit 4.4 to the Company's
Form 8-K dated April 6, 1992, is incorporated herein by reference).
4.11 - Registration Rights Agreement dated as of August 2, 1993, among the Company,
Ashland Oil, Saarberg and Carboex (Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q dated August 13, 1993, is incorporated herein by
reference).
10.1 - Restated Coal Off-Take Agreement among SCI (a predecessor of Saarberg),
Carboex and the Company (Exhibit 10.1 to the Company's Form 8-K dated April
6, 1992, is incorporated herein by reference).
10.2 - Lease between Little Coal Land Company and Ashland Land & Development Co., a
wholly owned subsidiary of the Company, which was merged into Allegheny Land
Company, a wholly owned subsidiary of the Company (Exh. 10.11).*
10.3 - Surface Lease between H. G. Schaeffer, III, et al., and Ashland Land &
Development Co., a wholly owned subsidiary of the Company, which was merged
into Allegheny Land Company, a wholly owned subsidiary of the Company (Exh.
10.12).*
10.4 - Lease Agreement between Consolidation Coal Company and Addington Brothers
Mining, Inc., an independent operating subsidiary of the Company that
subsequently changed its name to Saarcar Coal, Inc. (Exh. 10.13).*
10.5 - Lease between Dickinson Properties, Inc., the Southern Land Company, and F.
B. Nutter, Jr. and F. B. Nutter, Sr., predecessors in interest to a wholly
owned subsidiary of the Company (Exh. 10.14).*
10.6 - Lease between Oglebay Norton Company and F. B. Nutter, Sr., predecessor in
interest to a wholly owned subsidiary of the Company (Exh. 10.15).*
10.7 - Lease between James O. Cole, et al., and Hobet Mining & Construction Co.,
Inc., an independent operating subsidiary of the Company that subsequently
changed its name to Hobet Mining, Inc. (Exh. 10.18).*
</TABLE>
40
<PAGE>
<TABLE>
<C> <C> <S>
10.8 - Lease between Island Creek Coal Company and Hobet Mining & Construction Co.,
Inc., an independent operating subsidiary of the Company that subsequently
changed its name to Hobet Mining, Inc. (Exh. 10.19).*
10.9 - Lease Agreement between Fielden B. Nutter, Dorothy Nutter and Hobet Mining &
Construction Co., Inc., an independent operating subsidiary of the Company
that subsequently changed its name to Hobet Mining, Inc. (Exh. 10.22).*
10.10 - Lease and Modification Agreement between Horse Creek Coal Land Company,
Ashland Oil and Hobet Mining & Construction Co., Inc., an independent
operating subsidiary of the Company that subsequently changed its name to
Hobet Mining, Inc. (Exh. 10.24).*
10.11 - Lease Agreement between C. C. Lewis Heirs Limited Partnership and Allegheny
Land Company, a wholly owned subsidiary of the Company (Exh. 10.25).*
10.12 - Sublease between F. B. Nutter, Sr., et al., and Hobet Mining & Construction
Co., Inc., an independent operating subsidiary of the Company that
subsequently changed its name to Hobet Mining, Inc. (Exh. 10.27).*
10.13 - Coal Lease Agreement dated as of March 31, 1992, among Dal-Tex Coal
Corporation as lessee and UAC and Phoenix Coal Corporation, as lessors, and
related Company Guarantee (Exhibit 10.2 to the Company's Form 8-K dated April
6, 1992, is incorporated herein by reference).
10.14 - 1988 Stock Incentive Plan for Key Employees of Ashland Coal, Inc. and its
subsidiaries (Exh. 10.34).*
10.15 - Ashland Coal, Inc. Performance Unit Plan (Exh. 10.35).*
10.16 - Ashland Coal, Inc. ERISA Forfeiture Plan (Exh. 10.46).*
10.17 - Ashland Coal, Inc. Deferred Compensation Plan for Key Employees (Exh.
10.47).*
10.18 - Ashland Coal, Inc. Incentive Compensation Program for Key Employees (Exh.
10.48).*
10.19 - Form of Ashland Coal, Inc. Master Trust Agreement (Exh. 10.56).*
10.20 - Ashland Coal, Inc. Nonqualified Excess Benefit Pension Plan (Exh. 10.59).*
10.21 - Lease dated as of October 1, 1987, between Pocahontas Land Corporation and
Mingo Logan Collieries Company whose name is now Mingo Logan Coal Company.
(Exhibit 10.3 to Amendment No. 1 filed with SEC on February 14, 1990, to the
Company's Form 8-K filed with the SEC on February 8, 1990, is incorporated
herein by reference).
10.22 - Consent, Assignment of Lease and Guaranty dated January 24, 1990, among
Pocahontas Land Corporation, Mingo Logan Coal Company, Mountain Gem Land,
Inc. and Ashland Coal, Inc. (Exhibit 10.4 to Amendment No. 1 filed with the
SEC on February 14, 1990, to the Company's Form 8-K filed with the SEC on
February 8, 1990, is incorporated herein by reference).
10.23 - Letter Agreement dated November 20, 1990, between the Company and William C.
Payne regarding certain supplemental retirement benefits of Mr. Payne
(Exhibit 10.33).**
10.24 - Ashland Coal, Inc. Amended and Restated Deferred Compensation Plan for
Directors' Fees (Exhibit 10.34).***
10.25 - Coal Sales Agency Agreement dated December 12, 1991 (Agency Agreement) among
the Company, Saarberg and Carboex (Exhibit 10.31 to the Company's Form 10-K
for the year ended December 31, 1991, filed with the SEC on March 4, 1992,
and incorporated herein by reference).
10.26 - Amendment to Agency Agreement dated January 26, 1993 (Exhibit 10.29 to the
Company's Form 10-K for the year ended December 31, 1992, filed with the SEC
on March 25, 1993, and incorporated herein by reference).
</TABLE>
41
<PAGE>
<TABLE>
<C> <C> <S>
11 - Statement Re Computation of Per Share Earnings.***
22 - Subsidiaries of the Company.***
24 - Consent of Independent Auditors.***
25 - Powers of Attorney.***
<FN>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-22425) filed with the SEC on June 9, 1988, and
Amendments No. 1, No. 2 and No. 3 filed with the SEC on July 14, 1988,
August 3, 1988, and August 5, 1988, respectively, and Post-Effective
Amendment No. 1 filed with the SEC on August 11, 1988. The exhibit number
referred to within the parentheses corresponds to the number of such exhibit
in Item 16(a) of Post-Effective Amendment No. 1 to such Registration
Statement.
** Incorporated by reference from the Company's Annual Report on Form 10-K
filed with the SEC on March 21, 1991. The Exhibit number referred to within
the parentheses corresponds to the number of such exhibit on Item 14(a)(3)
of such Form 10-K.
*** Included with this Report.
</TABLE>
Items 10.14, 10.15, 10.16, 10.17, 10.18, 10.20, 10.23 and 10.24 are
executive compensation plans.
Upon written or oral request to the Company's Secretary, a copy of any of
the above exhibits will be furnished at cost.
(b) Reports on Form 8-K
A current Report on Form 8-K was filed on December 22, 1993 to report UMWA
ratification of the Wage Agreement and the return of UMWA workers to the mines
of Hobet and the Dal-Tex Subsidiaries.
42
<PAGE>
ASHLAND COAL, INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT ADDITIONS BALANCE
BEGINNING AT AT END
DESCRIPTION OF YEAR COST(1) RETIREMENTS OTHER(2) OF YEAR
- ----------------------------------- --------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Land............................. $ 5,251 $ 518 $ 35 $ (480) $ 5,254
Coal Lands and Mineral Rights.... 450,267 2,587 6,041 10,085 456,898
Buildings and Improvements....... 26,322 1,969 14 (279) 27,998
Equipment and Processing
Facilities...................... 317,232 12,754 2,738 3,423 330,671
Other............................ 5,328 509 182 33 5,688
Construction in Progress......... 2,196 2,262 5 (1,873) 2,580
--------- --------- ----------- ----------- --------
$ 806,596 $ 20,599 $9,015 $ 10,909 $829,089
--------- --------- ----------- ----------- --------
--------- --------- ----------- ----------- --------
Year Ended December 31, 1992
Land............................. $ 3,869 $ 330 $27 $ 1,079 $ 5,251
Coal Lands and Mineral Rights.... 187,292 24,863 955 239,067 450,267
Buildings and Improvements....... 18,447 626 305 7,554 26,322
Equipment and Processing
Facilities...................... 257,835 70,535 6,481 (4,657)(3) 317,232
Other............................ 4,661 908 352 111 5,328
Construction in Progress......... 22,177 297 -- (20,278) 2,196
--------- --------- ----------- ----------- --------
$ 494,281 $ 97,559 $8,120 $ 222,876 $806,596
--------- --------- ----------- ----------- --------
--------- --------- ----------- ----------- --------
Year Ended December 31, 1991
Land............................. $ 3,235 $ 677 $ 12 $ (31) $ 3,869
Coal Lands and Mineral Rights.... 171,292 1,774 796 15,022(4) 187,292
Buildings and Improvements....... 16,402 2,171 146 20 18,447
Equipment and Processing
Facilities...................... 184,221 75,234 3,039 1,419 257,835
Other............................ 16,487 4,986 1,836 (14,976)(4) 4,661
Construction in Progress......... 5,401 18,287 -- (1,511) 22,177
--------- --------- ----------- ----------- --------
$ 397,038 $ 103,129 $5,829 $ (57) $494,281
--------- --------- ----------- ----------- --------
--------- --------- ----------- ----------- --------
<FN>
- ------------------------
(1) Includes $54,639 during 1992 and $70,224 during 1991 for the expansion of
operations at Mingo Logan Coal Company.
(2) For 1993, principally includes adjustments to mineral reserves acquired in
prior business combinations required by the adoption of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, on
January 1, 1993. For 1992, principally includes assets acquired through an
acquisition of a subsidiary. For 1991, principally includes reclassifica-
tions of construction in progress to respective asset classifications.
(3) Includes $(79,760) reclassified to assets to be sold and leased back.
(4) Reflects reclassification of $14,970 of mineral development costs.
</TABLE>
43
<PAGE>
ASHLAND COAL, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED
AT TO COSTS BALANCE
BEGINNING AND AT END
DESCRIPTION OF YEAR EXPENSES RETIREMENTS OTHER(1) OF YEAR
- ----------------------------------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Land............................. $ 10 $ 5 $ -- $ -- $ 15
Coal Lands and Mineral Rights.... 51,536 20,192 6,041 18 65,705
Buildings and Improvements....... 10,067 1,646 11 16 11,718
Equipment and Processing
Facilities...................... 105,073 33,259 2,153 66 136,245
Other............................ 3,393 964 142 -- 4,215
--------- --------- ----------- --------- --------
$ 170,079 $56,066 $8,347 $ 100 $217,898
--------- --------- ----------- --------- --------
--------- --------- ----------- --------- --------
Year Ended December 31, 1992
Land............................. $ 6 $ 4 $ -- $ -- $ 10
Coal Lands and Mineral Rights.... 35,796 16,004 874 610 51,536
Buildings and Improvements....... 8,655 1,415 27 24 10,067
Equipment and Processing
Facilities...................... 89,909 34,980 4,219 (15,597)(2) 105,073
Other............................ 2,896 853 351 (5) 3,393
--------- --------- ----------- --------- --------
$ 137,262 $53,256 $5,471 $ (14,968) $170,079
--------- --------- ----------- --------- --------
--------- --------- ----------- --------- --------
Year Ended December 31, 1991
Land............................. $ 14 $ 4 $ 12 $ -- $ 6
Coal Lands and Mineral Rights.... 23,664 8,021 754 4,865(3) 35,796
Buildings and Improvements....... 7,604 1,056 5 -- 8,655
Equipment and Processing
Facilities...................... 71,489 20,962 2,542 -- 89,909
Other............................ 5,835 2,924 1,560 (4,303)(3) 2,896
--------- --------- ----------- --------- --------
$ 108,606 $32,967 $4,873 $ 562 $137,262
--------- --------- ----------- --------- --------
--------- --------- ----------- --------- --------
<FN>
- ------------------------
(1) Includes mine development costs offset against royalties and similar costs
otherwise payable, and other reclassifications.
(2) Includes $(15,578) reclassified to assets to be sold and leased back.
(3) Reflects reclassification of $4,865 of mineral development costs.
</TABLE>
44
<PAGE>
ASHLAND COAL, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) YEAR
- ---------------------------------------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1993
Reserves Deducted from Asset Accounts
Prepaid Royalties................... $ 10,634 $ 12,720 (2) $1,292 $ 22,062
Property, Plant and Equipment....... 1,638 75 -- 1,713
Other Assets........................ 9,452 137 -- 9,589
Year Ended December 31, 1992
Reserves Deducted from Asset Accounts
Prepaid Royalties................... $ 10,645 $ 3,000 $3,011 $ 10,634
Property, Plant and Equipment....... 1,498 153 13 1,638
Other Assets........................ 8,313 1,139 -- 9,452
Year Ended December 31, 1991
Reserves Deducted from Asset Accounts
Prepaid Royalties................... $ 8,842 $ 3,000 $1,197 $ 10,645
Property, Plant and Equipment....... 1,433 726 661 1,498
Other Assets........................ 7,237 1,076 -- 8,313
<FN>
- ------------------------------
(1) Reserves utilized, unless otherwise indicated.
(2) Includes $9,900 special charge to increase the valuation allowance for
certain prepaid royalties.
</TABLE>
45
<PAGE>
ASHLAND COAL, INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
-------------------------------
YEAR ENDED DECEMBER 31
-------------------------------
ITEM(1) 1993 1992 1991
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Maintenance and Repairs........................................................ $ 37,507 $ 42,208 $ 27,560
Amortization of Intangible Assets.............................................. 15,609 14,334 5,734
Severance Taxes................................................................ 13,568 14,527 10,506
Federal Black Lung Excise Tax.................................................. 11,307 12,142 8,341
Property Taxes................................................................. 5,531 3,386 2,496
Coal Royalties................................................................. 23,721 44,681 30,885
<FN>
- ------------------------------
(1) Amounts for advertising are not presented because such amounts are less than
1 percent of total sales and revenues.
</TABLE>
46
<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 COAL, INC.
(Registrant)
By: /s/ MARC R. SOLOCHEK
-----------------------------------
Marc R. Solochek
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: March 30, 1994
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 and in the capacities indicated on March 30, 1994.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
By: /s/ WILLIAM C. PAYNE
--------------------------------------- Chairman of the Board, President and Chief Executive
William C. Payne Officer and Director
By: /s/ MARC R. SOLOCHEK
--------------------------------------- Senior Vice President and Chief Financial Officer
Marc R. Solochek
By: /s/ WILLIAM M. GERRICK
--------------------------------------- Controller and Principal Accounting Officer
William M. Gerrick
</TABLE>
<TABLE>
<S> <C> <C>
Robert A. Charpie Director
Paul W. Chellgren Director
Werner Externbrink Director
Thomas L. Feazell Director
By: /s/ ROY F. LAYMAN
----------------------
Roy F. Layman
Juan Antonio Ferrando Director AS ATTORNEY-IN-FACT
Robert L. Hintz Director
J. Marvin Quin Director
Robert E. Yancey, Jr. Director
Michael G. Ziesler Director
</TABLE>
ORIGINAL POWERS OF ATTORNEY AUTHORIZING WILLIAM C. PAYNE, MARC R. SOLOCHEK,
AND ROY F. LAYMAN, AND EACH OF THEM, TO SIGN THIS ANNUAL REPORT ON FORM 10-K AND
AMENDMENTS THERETO ON BEHALF OF THE ABOVE-NAMED PERSONS HAVE BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AS EXHIBIT 25 TO THIS REPORT.
47
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, as amended (Exhibit 3.1 to the Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-3 dated May 5, 1993, is incorporated
herein by reference).
3.2 Amended By-laws of the Company (Exh. 3.4).*
4.1 Amended and Restated Credit Agreement (Credit Agreement) dated as of April 1, 1992, among Ashland Coal,
Inc., the Banks listed therein, Continental Bank N.A., as Agent, and National Westminster Bank PLC, as
Co-Agent (Exhibit 4.1 to the Company's Form 8-K dated April 6, 1992, is incorporated herein by reference).
4.2 First Amendment to Credit Agreement dated as of February 1, 1993 (Exhibit 4.1 to the Company's Current
Report on Form 8-K dated March 15, 1993, is incorporated herein by reference).
4.3 Amended and Restated Trust Agreement dated as of April 1, 1992, among Ashland Coal, Inc., the Banks
signatory thereto, Continental Bank N.A., as Agent, National Westminster Bank PLC, as Co-Agent, and
Continental Bank, National Association, as Bid Trustee (Exhibit 4.2 to the Company's Form 8-K dated April
6, 1992, is incorporated herein by reference).
4.4 Note Agreement dated as of September 15, 1990 (September 15, 1990, Note Agreement), among Ashland Coal,
Inc. and the Purchasers named in Schedule I thereto relating to the Company's $100,000,000 9.78% Senior
Notes due September 15, 2000 (filed as an Exhibit to the Company's Form 10-Q filed with the SEC on
November 13, 1990, and incorporated herein by reference).
4.5 First Amendment Agreement dated as of May 15, 1991, to the September 15, 1990, Note Agreement (filed as an
Exhibit to the Company's Form 10-Q filed with the SEC on August 12, 1991, and incorporated herein by
reference).
4.6 Second Amendment Agreement dated as of March 1, 1993, to the September 15, 1990, Note Agreement. (Exhibit
4.6 to the Company's Form 10-K for the year ended December 31, 1992, filed with the SEC on March 23, 1993,
is incorporated herein by reference).
4.7 Composite conformed copy of Note Agreement dated as of May 15, 1991 (May 15, 1991, Note Agreement), among
the Company and the Purchasers named in Schedule I thereto relating to the Company's $22,100,000 8.92%
Senior Notes due May 15, 1996, and $52,900,000 9.66% Senior Notes due May 15, 2006 (filed as an Exhibit to
the Company's Form 10-Q filed with the SEC on August 12, 1991, and incorporated herein by reference).
4.8 First Amendment Agreement dated as of March 1, 1993, to the May 15, 1991, Note Agreement. (Exhibit 4.8 to
the Company's Form 10-K for the year ended December 31, 1992, filed with the SEC on March 23, 1993, is
incorporated herein by reference).
4.9 Amendment to Restated Shareholders Agreement dated August 6, 1993, among Ashland Oil, Inc. (Ashland Oil),
Saarberg Coal International GmbH (SCI), a predecessor to Saarbergwerke A.G. (Saarberg), Carboex
International, Ltd. (Carboex) and the Company (Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
dated August 16, 1993, is incorporated herein by reference).
4.10 Stockholder Agreement, dated as of April 2, 1992, among the United Company, United Affiliates Corporation
(UAC), James W. McGlothlin, W. W. McGlothlin, N. D. Street, Charles T. Carter and the Company (Exhibit 4.4
to the Company's Form 8-K dated April 6, 1992, is incorporated herein by reference).
4.11 Registration Rights Agreement dated as of August 2, 1993, among the Company, Ashland Oil, Saarberg and
Carboex (Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated August 13, 1993, is incorporated
herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
10.1 Restated Coal Off-Take Agreement among SCI (a predecessor of Saarberg), Carboex and the Company (Exhibit
10.1 to the Company's Form 8-K dated April 6, 1992, is incorporated herein by reference).
10.2 Lease between Little Coal Land Company and Ashland Land & Development Co., a wholly owned subsidiary of
the Company, which was merged into Allegheny Land Company, a wholly owned subsidiary of the Company (Exh.
10.11).*
10.3 Surface Lease between H. G. Schaeffer, III, et al., and Ashland Land & Development Co., a wholly owned
subsidiary of the Company, which was merged into Allegheny Land Company, a wholly owned subsidiary of the
Company (Exh. 10.12).*
10.4 Lease Agreement between Consolidation Coal Company and Addington Brothers Mining, Inc., an independent
operating subsidiary of the Company that subsequently changed its name to Saarcar Coal, Inc. (Exh.
10.13).*
10.5 Lease between Dickinson Properties, Inc., the Southern Land Company, and F. B. Nutter, Jr. and F. B.
Nutter, Sr., predecessors in interest to a wholly owned subsidiary of the Company (Exh. 10.14).*
10.6 Lease between Oglebay Norton Company and F. B. Nutter, Sr., predecessor in interest to a wholly owned
subsidiary of the Company (Exh. 10.15).*
10.7 Lease between James O. Cole, et al., and Hobet Mining & Construction Co., Inc., an independent operating
subsidiary of the Company that subsequently changed its name to Hobet Mining, Inc. (Exh. 10.18).*
10.8 Lease between Island Creek Coal Company and Hobet Mining & Construction Co., Inc., an independent
operating subsidiary of the Company that subsequently changed its name to Hobet Mining, Inc. (Exh.
10.19).*
10.9 Lease Agreement between Fielden B. Nutter, Dorothy Nutter and Hobet Mining & Construction Co., Inc., an
independent operating subsidiary of the Company that subsequently changed its name to Hobet Mining, Inc.
(Exh. 10.22).*
10.10 Lease and Modification Agreement between Horse Creek Coal Land Company, Ashland Oil and Hobet Mining &
Construction Co., Inc., an independent operating subsidiary of the Company that subsequently changed its
name to Hobet Mining, Inc. (Exh. 10.24).*
10.11 Lease Agreement between C. C. Lewis Heirs Limited Partnership and Allegheny Land Company, a wholly owned
subsidiary of the Company (Exh. 10.25).*
10.12 Sublease between F. B. Nutter, Sr., et al., and Hobet Mining & Construction Co., Inc., an independent
operating subsidiary of the Company that subsequently changed its name to Hobet Mining, Inc. (Exh.
10.27).*
10.13 Coal Lease Agreement dated as of March 31, 1992, among Dal-Tex Coal Corporation as lessee and UAC and
Phoenix Coal Corporation, as lessors, and related Company Guarantee (Exhibit 10.2 to the Company's Form
8-K dated April 6, 1992, is incorporated herein by reference).
10.14 1988 Stock Incentive Plan for Key Employees of Ashland Coal, Inc. and its subsidiaries (Exh. 10.34).*
10.15 Ashland Coal, Inc. Performance Unit Plan (Exh. 10.35).*
10.16 Ashland Coal, Inc. ERISA Forfeiture Plan (Exh. 10.46).*
10.17 Ashland Coal, Inc. Deferred Compensation Plan for Key Employees (Exh. 10.47).*
10.18 Ashland Coal, Inc. Incentive Compensation Program for Key Employees (Exh. 10.48).*
10.19 Form of Ashland Coal, Inc. Master Trust Agreement (Exh. 10.56).*
10.20 Ashland Coal, Inc. Nonqualified Excess Benefit Pension Plan (Exh. 10.59).*
10.21 Lease dated as of October 1, 1987, between Pocahontas Land Corporation and Mingo Logan Collieries Company
whose name is now Mingo Logan Coal Company. (Exhibit 10.3 to Amendment No. 1 filed with SEC on February
14, 1990, to the Company's Form 8-K filed with the SEC on February 8, 1990, is incorporated herein by
reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
10.22 Consent, Assignment of Lease and Guaranty dated January 24, 1990, among Pocahontas Land Corporation, Mingo
Logan Coal Company, Mountain Gem Land, Inc. and Ashland Coal, Inc. (Exhibit 10.4 to Amendment No. 1 filed
with the SEC on February 14, 1990, to the Company's Form 8-K filed with the SEC on February 8, 1990, is
incorporated herein by reference).
10.23 Letter Agreement dated November 20, 1990, between the Company and William C. Payne regarding certain
supplemental retirement benefits of Mr. Payne (Exhibit 10.33).**
10.24 Ashland Coal, Inc. Amended and Restated Deferred Compensation Plan for Directors' Fees (Exhibit 10.34).***
10.25 Coal Sales Agency Agreement dated December 12, 1991 (Agency Agreement) among the Company, Saarberg and
Carboex (Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 1991, filed with the SEC
on March 4, 1992, and incorporated herein by reference).
10.26 Amendment to Agency Agreement dated January 26, 1993 (Exhibit 10.29 to the Company's Form 10-K for the
year ended December 31, 1992, filed with the SEC on March 25, 1993, and incorporated herein by reference).
11 Statement Re Computation of Per Share Earnings.***
22 Subsidiaries of the Company.***
24 Consent of Independent Auditors.***
25 Powers of Attorney.***
<FN>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-22425) filed with the SEC on June 9, 1988, and
Amendments No. 1, No. 2 and No. 3 filed with the SEC on July 14, 1988,
August 3, 1988, and August 5, 1988, respectively, and Post-Effective
Amendment No. 1 filed with the SEC on August 11, 1988. The exhibit number
referred to within the parentheses corresponds to the number of such exhibit
in Item 16(a) of Post-Effective Amendment No. 1 to such Registration
Statement.
** Incorporated by reference from the Company's Annual Report on Form 10-K
filed with the SEC on March 21, 1991. The Exhibit number referred to within
the parentheses corresponds to the number of such exhibit on Item 14(a)(3)
of such Form 10-K.
*** Included with this Report.
</TABLE>
<PAGE>
EXHIBIT 10.24
AMENDED AND RESTATED
ASHLAND COAL, INC
DEFERRED COMPENSATION PLAN FOR DIRECTORS' FEES
-------------------------------------------------------
1. PURPOSE.
The purpose of this Deferred Compensation Plan For Directors' Fees (as
amended and restated effective January 1, 1994, the "Plan") is to provide
each Director of Ashland Coal, Inc. with an opportunity to defer some or all
the director's retainer and meeting fees, as well as any per diem
compensation for special assignments, which may be payable to the Director
for future services to be performed by him or her as a member of any
committee thereof, as a means of saving for retirement or other purposes.
2. DEFINITIONS.
The following definitions shall be applicable for purposes of the Plan:
(a) "Accounting Date" means each December 31, March 31, June 30, and
September 30.
(b) "Beneficiary" means the person, persons, entity, entities or the estate
of a Participant (or Beneficiary) which the Participant (or, where
applicable a surviving Beneficiary) designates on Participant's Notice of
Election Form (Exhibit A) to receive the undistributed portion of a
Participant's Compensation Account, if any, upon the Participant's (or
Beneficiary's) death or such person or entity as becomes entitled to such
benefits pursuant to the terms of this Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Compensation Account" means the account to which the Director's
Deferred Compensation is credited, together with income accrued
thereunder, and which is established pursuant to Section 5.
(e) "Common Stock" means the common stock, $0.01 par value, of the Company.
(f) "Company" means Ashland Coal, Inc.
(g) "Deferred Compensation" means 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 which is deferred pursuant to an
Election.
(h) "Director" means any director of the Company who is not an employee of
the Company or one of its subsidiaries and who is separately compensated
for his or her services on the Board, or any committee thereof.
(i) "Disability" shall have the same meaning as the term "disability" in
Rule 16a-1(c)(3) of the regulations under the Securities Exchange Act of
1934.
(j) "Election" means a Participant's delivery of a written Notice of
Election in the form of Exhibit A to the Vice President Human Resources
of the Company electing to defer payment of all or a portion of his or
her compensation as a Director.
(k) "Fair Market Value" means, as of any specified date (or, if a weekend or
holiday, the next preceding business day), the closing price of the
Common Stock, as reported on the New York Stock Exchange Composite Tape.
(l) "Participant" means a Director who has elected, under the terms and
conditions of the Plan, to defer payment of all or a portion of his or
her compensation as a Director.
<PAGE>
(m) "Payment Commencement Date" means, with respect to annual installments,
January 2 of the first year of deferred payment selected by a Director in
his or her Election and, with respect to quarterly installments, the
first business day of the calendar quarter of deferred payment selected
by a Director in his or her Election.
(n) "Plan" means this Ashland Coal, Inc. Deferred Compensation Plan For
Directors' Fees.
(o) "Prime Rate of Interest" means the rate of interest quoted by Citibank,
N.A. as its prime commercial lending rate on the last day of each
calendar quarter.
(p) "Stock Unit(s)" means the share equivalents credited to a Participant's
Compensation Account pursuant to Section 6.
(q) "Termination" means retirement from the Board or termination of service
as a Director for any other reason.
3. ELIGIBILITY.
Any Director who is separately compensated for his or her services on the
Board, or on any committee of such Board, shall be eligible to participate
in the Plan.
4. ADMINISTRATION.
Full power and authority to construe, interpret, and administer the Plan
shall be vested in the Board. Decisions of the Board shall be final,
conclusive and binding upon all parties. Day-to-day administration of the
Plan shall be the responsibility of the Company's Human Resources
Department. Said Human Resources Department may modify any forms provided
for herein or authorize new forms for use under this Plan as Senior
Management of the Company may from time to time deem necessary or
appropriate so long as any such modified or new forms are not otherwise
inconsistent with the terms and provisions of this Plan.
Notwithstanding the terms of an Election made by a Participant hereunder,
the Board may, in its sole discretion, change the terms of such Election, on
its own initiative or, upon the request of a Participant or his or her
representative, or a Participant's Beneficiary or such Beneficiary's
representative, upon a demonstration by or on behalf of the Participant of
substantial financial hardship as a result of the Disability of the
Participant. The amount of any such distribution shall be limited to the
amount deemed necessary by the Board to alleviate or remedy the
Participant's hardship arising from such Disability.
5. COMPENSATION ACCOUNT.
Upon election to participate in the Plan, there shall be established a
Compensation Account for the Participant to which shall be credited his or
her Deferred Compensation on the date it would have been paid but for the
deferral. Funds credited to a Compensation Account shall remain a part of
the general funds of the Company and nothing contained in this Plan shall be
deemed to create a trust or fund of any kind or create any fiduciary
relationship. Nothing contained herein shall be deemed to give any
Participant any ownership or other proprietary, security or other rights in
any funds, stock or assets owned or possessed by the Company, whether or not
earmarked for the Company's own purposes as a reserve or fund to be utilized
by the Company for the discharge of its obligations hereunder. To the extent
that any person acquires a right to receive payments or distributions from
the Company under this Plan, such right shall be no greater than the right
of any unsecured creditor of the Company.
6. ELECTION TO DEFER.
Upon his or her election to participate, the Participant shall either elect
to have the Deferred Compensation in his or her Compensation Account
credited on each Accounting Date with (1) an amount based on the Prime Rate
of Interest quoted on such Accounting Date, or (2) a number of Stock Units
or (3) a combination of both.
2
<PAGE>
Pursuant to the Stock Unit election, each Stock Unit shall represent one
hypothetical share of Common Stock and shall entitle the Participant to
receive benefits as hereinafter provided. The number of Stock Units credited
to such electing Participant shall be determined by dividing each amount of
Deferred Compensation which such Participant has elected to convert to Stock
Units by the Fair Market Value of a share of Common Stock as of the day on
which such Deferred Compensation is credited to the Participant's
Compensation Account or, in the case of amounts already deferred, as of the
effective date of such election as provided in Section 7. Fractional units
shall be credited to the Participant as a result of the foregoing
calculation.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization or reclassification of securities, reorganization,
combination or exchange of shares or other similar changes in Common Stock,
appropriate adjustments shall be made in the Stock Units credited to
Participants in the same manner as shares of Common Stock represented by
such Stock Units would have been adjusted had such shares been outstanding.
Stock Units credited to a Participant shall additionally be adjusted to take
into consideration all dividends which would have been declared and paid
with respect to a number of shares of Common Stock equal to the number of
hypothetical shares represented by such Stock Units to the extent the record
date for such dividends is subsequent to the time that such Stock Units are
credited to such Participant's Compensation Account. Dividend equivalents
taken into account for these purposes shall be credited to such
Participant's Compensation Account as of the payment date of the related
dividends in the form of additional whole or fractional Stock Units. The
number of Stock Units credited to a Participant for this purpose shall be
equal to the amount of cash dividends which would have been so declared and
paid divided by the Fair Market Value of a Stock Unit as of the dividend
payment date.
7. MANNER OF ELECTION.
Any Director wishing to participate in the Plan must deliver to the Vice
President Human Resources of the Company a written notice, on the Notice of
Election Form substantially in the form attached as Exhibit A, electing to
defer payment of all or a portion (in 25 percent increments) of his or her
compensation as a Director (an "Election"). An Election shall become
effective on January 1, 1989 if filed by December 31, 1988. Thereafter, a
person for whom an Election is not in effect may elect to participate in the
Plan as follows: (a) with respect to Directors' fees payable for any
calendar year by filing an Election, in accordance with the procedure
described above, on or before December 31 of the preceding calendar year;
and (b) 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, or any subsequent re-election if immediately prior thereto
he was not serving as a Director, by filing an Election, in accordance with
the procedure described above, within 30 days subsequent to such election or
re-election.
An effective Election may not be revoked or modified, except as to changes
in the designation of Beneficiary and as otherwise stated herein, with
respect to Directors' fees payable for the calendar year or portion of a
calendar year for which such Election is effective and such Election, unless
terminated or modified as described below, shall apply to Directors' fees
payable with respect to each subsequent calendar year. An effective Election
may be terminated or modified for any subsequent calendar year by the
filing, as described above, of either a new Election, in regard to
modifications, or a Notice of Termination of Deferrals, substantially in the
form attached as Exhibit B, in regard to terminations, on or before the
December 31 immediately preceding the calendar year for which such
modification or termination is to be effective. Except for payment periods
commencing on a Director's death, retirement or Disability, a Director's
designation of the applicable payment period with respect to his or her
existing deferrals may not provide for any distribution from the
Compensation Account within the first six months after the Election or any
modification thereto. A Director's designation shall be forever binding upon
the Director, and with respect to any and all deferrals for subsequent
calendar years, cannot be changed except as provided in Section 4. Not
earlier than six months after the date of a Director's Election and provided
any change in election does not occur within six months of any other change
in election,
3
<PAGE>
a Director may elect to change an existing selection as to the investment
alternative in effect with respect to his or her existing account (in 25
percent increments) by filing with the Vice President Human Resources of the
Company a Notice of Change in Investment Alternative, substantially in the
form attached as Exhibit C, at least fifteen (15) days prior to the
commencement of the quarter in which the Director desires the change to
become effective. The revision will be deemed effective as of the first
business day of the next quarter subsequent to the filing of such Notice of
Change in Investment Alternative.
8. ADJUSTMENT OF DEFERRED COMPENSATION ACCOUNT.
As of each Accounting Date, the Compensation Account for each Director shall
be adjusted for the period, or applicable portion thereof, elapsed since the
last preceding Accounting Date as follows:
(a) FIRST, the account shall be charged with any distribution made during
the period in accordance with Sections 9 and 10 below;
(b) SECOND, the account shall be credited with the amount, if any, of
Director's fees deferred during the period in accordance with an
effective Election under Section 7 above; and
(c) FINALLY, the average account balance shall be credited with an amount
based on the Prime Rate of Interest quoted on such Account Date or the
number of Stock Units held in such account shall be credited with
additional Stock Units representing the dividend equivalents paid with
respect to the Stock Units credited to such account on any dividend
payment date during such quarterly period, or a combination of both, for
the quarterly period ending on such Accounting Date for the actual number
of days elapsed.
9. MANNER OF PAYMENT.
A Director's Compensation Account will be paid to the Director or, in the
event of his or her death, to a Beneficiary, in accordance with the
Director's Election, all such payments to be made in cash. If a Director
elects to receive payment of his or her Compensation Account in
installments, the payment period shall not exceed twenty (20) years
following the date of the Director's Termination. The amount of any
installment payment shall be determined by multiplying (i) the balance in
the Director's Compensation Account on the date of such installment by (ii)
a fraction, the numerator of which is one and the denominator of which is
the number of remaining unpaid installments. In the event that different
payment periods are approved for a single Participant provided herein, the
foregoing formula will be applied separately to the relevant portions of the
Compensation Account for such Participants which are subject to separate
payment periods. Amounts held pending distribution pursuant to this Section
9 shall continue to be credited with an amount based on the Prime Rate of
Interest or a number of Stock Units, or a combination of both, pursuant to
Section 6 above.
10. PAYMENT COMMENCEMENT DATE.
Payments of amounts deferred pursuant to a valid Election shall commence (i)
with respect to annual installments, on the January 2 of the first year of
deferred payment selected by a Director in his or her Election and (ii) with
respect to quarterly installments, on the first business day of the first
calendar quarter of deferred payment selected by a Director in his or her
Election. If a Director dies prior to the first deferred payment specified
in an Election, payments shall commence on the first payment date so
specified.
11. BENEFICIARY DESIGNATION.
A Director may designate, on a Notice of Election Form in the form attached
as Exhibit A, any person to whom 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 Vice President Human Resources of the Company while the Director is
alive and will cancel all designations of Beneficiary signed and filed
earlier. In the absence of an effective Beneficiary designation, a
Participant's (or Beneficiary's, in the case of the death of a
4
<PAGE>
Beneficiary receiving benefits) surviving spouse, if any, or, if none, his
children, if any, PER STIRPES, or, if none, the Participant's estate, will
be the Beneficiary. A Beneficiary receiving benefits in accordance with the
Plan may designate a beneficiary who will be entitled to receive, where
applicable, the remaining benefits due the Beneficiary after the
Beneficiary's death. If a designated Beneficiary should survive a
Participant but die (or, if a trust, terminate) before all benefits have
been paid to the Beneficiary, the remainder of the payments shall be made as
the Beneficiary may designate or, absent a properly executed Beneficiary
designation, to the Beneficiary's estate or, if a trust, to the
Beneficiaries in distribution of the trust.
12. INALIENABILITY OF BENEFITS.
The interests of the Participants and their Beneficiaries under the Plan may
not in any way be voluntarily or involuntarily transferred, alienated or
assigned, nor subject to attachment, execution, garnishment or other such
equitable or legal process.
13. GOVERNING LAW.
The provisions of this Plan shall be interpreted and construed in accordance
with the laws of the State of West Virginia.
14. AMENDMENTS.
The Board may amend, alter or terminate this Plan at any time without the
approval of the Participants.
5
<PAGE>
EXHIBIT A
ASHLAND COAL, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS' FEES
NOTICE OF ELECTION FORM
---------------------------
I, ____________________________, an eligible Director for purposes of the
Ashland Coal, Inc. Deferred Compensation Plan For Directors' Fees (the "Plan"),
hereby elect to participate in the Plan and make the following elections with
respect to compensation which hereinafter becomes due to me for services as a
Director of Ashland Coal, Inc. (the "Company").
I. AMOUNT OF DEFERRED COMPENSATION
I hereby elect to defer my compensation for services as a Director as
follows (indicate from 0 to 100%, in 25% increments):
<TABLE>
<S> <C>
------------% Directors' Fees and other Compensation
</TABLE>
II. FORM OF PAYMENT OF DEFERRED COMPENSATION (CHECK ONE)
I hereby elect the following payment period designated below, which term
shall hereinafter be applicable to each subsequent year in which I elect to
defer any Directors' Fees payable to me:
<TABLE>
<S> <C>
------------ Lump Sum payable on the January 2 following the earlier of
my termination of service as a Director or death.
------------ Lump Sum payable on January 2, -------, or, if earlier, the
January 2 nineteen (19) years following the earlier of my
termination of service as a Director or death.
------------ In -------annual OR -------quarterly installments (not to
extend beyond the 20th anniversary of my termination of
service) commencing upon my termination of my service as a
Director with all installments unpaid at my death payable
in a lump sum to the applicable Beneficiary named below
commencing (PLEASE SELECT ONE):
90 days after my death
-------
1 year after my death
-------
2 years after my death
-------
------------ In -------annual OR -------quarterly installments (not to
extend beyond the earlier of the 20th anniversary of my
termination of service or death) commencing upon my
termination of service or death as a Director, with all
installments unpaid at my death payable annually or
quarterly, as the case may be, to the Beneficiary named
below.
</TABLE>
III.FORM OF INVESTMENT ALTERNATIVE
I hereby elect to have my future Deferred Compensation Account with the
Company deemed to be invested in the following manner (indicate from 0 to
100%, in 25% increments--in front of EACH item):
<TABLE>
<S> <C>
------------ Based on the Prime Rate of Interest quoted by Citibank,
N.A. at the end of each quarter.
------------ By making a hypothetical investment in Common Stock with
the assumption of automatic dividend reinvestment in the
form of stock equivalents.
</TABLE>
<PAGE>
IV. BENEFICIARY SELECTION (OPTIONAL)
I hereby elect to have any amounts credited to my Deferred Compensation
Account that are payable on account of my death paid to the following
Primary Beneficiary or Beneficiaries:
Primary:
<TABLE>
<S> <C>
---------------------------------- ----------------------------------
NAME RELATIONSHIP
----------------------------------
ADDRESS
</TABLE>
If the named Primary Beneficiary predeceases me, the following person is
designated as Contingent Beneficiary to receive any such unpaid deferred
fees:
Contingent:
<TABLE>
<S> <C>
---------------------------------- ----------------------------------
NAME RELATIONSHIP
----------------------------------
ADDRESS
</TABLE>
I understand that this Election applies to compensation to be earned
subsequent to the date of this Election and in each succeeding calendar year
until the calendar year following the one in which I file a revised Election or
a written Notice of Termination of Deferrals. With respect to each such year to
which this Election applies, the Election becomes irrevocable as of midnight on
December 31 of the immediately preceding calendar year. I understand that the
Deferred Compensation will be paid to me as provided in Section 9 of the Plan. I
further understand that my initial designation as to the applicable payment
period shall be forever binding during my participation in the Plan and cannot
be changed without the prior approval of the Board.
I understand that in executing this Election, I agree to be bound by the
terms and conditions of the Plan and agree that such terms and conditions shall
be binding upon my Beneficiaries, distributees and personal representatives.
I also understand that any compensation deferred by me represents a
contractual obligation of the Company to make future payment in the form elected
and that the Company will not be required to reserve or otherwise set aside
funds to meet said obligations.
<TABLE>
<S> <C>
---------------------------------------------
Signature of Director
---------------------------------------------
Date
</TABLE>
2
<PAGE>
EXHIBIT B
NOTICE OF TERMINATION OF DEFERRALS
----------------------------------------
Mr. Ronald J. Coleman
Vice President Human Resources
Ashland Coal, Inc.
2205 Fifth Street Road
Huntington, West Virginia 25701
Ashland Coal, Inc.
Deferred Compensation Plan
for Directors' Fees (the "Plan")
-----------------------------
Dear Sir:
Pursuant to the provisions of the Plan, I hereby terminate my Election to
defer under the Plan effective as of January 1, 19____.
<TABLE>
<S> <C> <C>
DATE: ------------------- SIGNATURE: ----------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
ASHLAND COAL, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS' FEES
NOTICE OF CHANGE IN INVESTMENT ALTERNATIVE
-------------------------------------------------
I, ____________________________, an eligible Director for purposes of the
Ashland Coal, Inc. Deferred Compensation Plan For Directors' Fees (the "Plan"),
hereby elect to have that portion of my Deferred Compensation Account with the
Company as of
- ---------------------, 19
- -------, deemed hereafter invested in the following manner (indicate from 0 to
100%, in 25% increments--in front of EACH item):
<TABLE>
<S> <C>
------------ Based on the Prime Rate of Interest quoted by Citibank,
N.A. at the end of each quarter.
------------ By making a hypothetical investment in Common Stock with
the assumption of automatic dividend equivalents in the
form of stock equivalents.
</TABLE>
With respect to future compensation which becomes due to me and which I
elect to defer, I hereby elect to have that portion of my Deferred Compensation
Account with the Company deemed invested in the following manner (indicate from
0 to 100%, in 25% increments--in front of EACH item):
<TABLE>
<S> <C>
------------ Based on the Prime Rate of Interest quoted by Citibank,
N.A. at the end of each quarter.
------------ By making a hypothetical investment in Common Stock with
the assumption of automatic dividend equivalents in the
form of stock equivalents.
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------
Signature of Director
---------------------------------------------
Date
</TABLE>
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Income before the cumulative effect of changes in accounting................... $ 45,374 $ 35,739 $ 38,620
Less:
Common stock dividends....................................................... 5,436 5,224 4,623
Preferred stock dividends.................................................... 2,529 2,435 2,435
Accretion of discount on preferred stock (subject to redemption)............. 770 1,280 1,232
--------- --------- ---------
Undistributed earnings less accretion before cumulative effect
adjustments............................................................... 36,639 26,800 30,330
Cumulative effect of changes in accounting..................................... (18,836) -- --
--------- --------- ---------
Undistributed earnings less accretion...................................... $ 17,803 $ 26,800 $ 30,330
--------- --------- ---------
--------- --------- ---------
PRIMARY
Average shares and equivalents outstanding:
Shares outstanding........................................................... 13,593 13,060 11,556
Shares issuable upon
Conversion of preferred stock.............................................. 3,877 3,461 3,461
Exercise of stock options.................................................. 109 147 138
--------- --------- ---------
Total...................................................................... 17,579 16,668 15,155
--------- --------- ---------
--------- --------- ---------
Per share amounts:
Undistributed earnings less accretion before cumulative effect adjustments... $ 2.08 $ 1.61 $ 2.00
Dividends (except preference dividends)...................................... .40 .40 .40
--------- --------- ---------
Earnings before cumulative effect adjustments................................ 2.48 2.01 2.40
Cumulative effect adjustments................................................ (1.07) -- --
--------- --------- ---------
Net Income................................................................. $ 1.41 $ 2.01 $ 2.40
--------- --------- ---------
--------- --------- ---------
FULLY DILUTED
Average shares and equivalents outstanding:
Shares outstanding........................................................... 13,593 13,060 11,556
Shares issuable upon
Conversion of preferred stock.............................................. 5,212 4,899 4,899
Exercise of stock options.................................................. 119 156 200
--------- --------- ---------
Total...................................................................... 18,924 18,115 16,655
--------- --------- ---------
--------- --------- ---------
Per share amounts:
Undistributed earnings less accretion before cumulative effect adjustments... $ 1.94 $ 1.48 $ 1.82
Dividends (except preference dividends)...................................... .40 .40 .40
--------- --------- ---------
Earnings before cumulative effect adjustments................................ 2.34 1.88 2.22
Cumulative effect adjustments................................................ (1.00) -- --
--------- --------- ---------
Net Income................................................................. $ 1.34 $ 1.88 $ 2.22
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 22
STATEMENT AS TO SUBSIDIARIES OF ASHLAND COAL, INC.
The following is a complete list of the subsidiaries of Ashland Coal, Inc.,
a Delaware corporation:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
A. B. & H. Processing, Inc. ................................................................... Kentucky
Allegheny Land Company......................................................................... Delaware
Allegheny Land Company No. 2................................................................... Delaware
Ashland Coal International Ltd.(1)............................................................. Delaware
Ashland Terminal, Inc. ........................................................................ Delaware
Coal-Mac, Inc.(2).............................................................................. Kentucky
Mingo Logan Coal Company....................................................................... Delaware
Mountain Gem Land, Inc. ....................................................................... West Virginia
Mountain Gem Land No. 2, Inc. ................................................................. West Virginia
Mountain Mining, Inc.(3)....................................................................... Delaware
Mountaineer Land Company....................................................................... Delaware
Mountaineer Land Company No. 2................................................................. Delaware
P. C. Holding, Inc. ........................................................................... Delaware
Prince Carsaar Coal Sales Ltd. ................................................................ Barbados
Saarcar Coal, Inc. ............................................................................ Kentucky
Tri-State Terminals, Inc. ..................................................................... Delaware
Tri-State Testing Co., Inc. ................................................................... Delaware
<FN>
- ------------------------
(1) Ashland Coal International Ltd. has one subsidiary, which is Ashland Coal
Sales (Ohio), Inc., a Delaware corporation.
(2) Coal-Mac, Inc. has one subsidiary, which is Bebe Coal Corporation, a
Kentucky corporation.
(3) Mountain Mining, Inc. has five subsidiaries. Two are incorporated in
Delaware: Drennen Tipple Corporation and Julian Tipple, Inc.; and three are
incorporated in West Virginia: Filbeth Enterprises, Inc., Hobet Mining, Inc.
and Servco, Inc. Hobet Mining, Inc. has one subsidiary: Dal-Tex Coal
Corporation, a Delaware corporation. Dal-Tex Coal Corporation has two
subsidiaries: Sharples Coal Corporation and Old Hickory Coal Company, both
West Virginia corporations.
</TABLE>
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (1) the Registration
Statement (Form S-8 No. 33-26548) pertaining to the 1988 Stock Incentive Plan
for Key Employees of Ashland Coal, Inc. and its subsidiaries and in the related
Prospectus, (2) the Registration Statement (Form S-8 No. 33-26549) pertaining to
the Ashland Coal, Inc. Employee Thrift Plan and in the related Prospectus, (3)
the Registration Statement (Form S-8 No. 33-38229) pertaining to the Coal-Mac,
Inc. Savings and Retirement Plan and in the related Prospectus, (4) the
Registration Statement (Form S-3 No. 33-46856) of Ashland Coal, Inc. and in the
related prospectus and (5) the Registration Statement (Form S-3 No. 33-54122) of
Ashland Coal, Inc. and in the related Prospectus of our report dated January 28,
1994, with respect to the consolidated financial statements and schedules of
Ashland Coal, Inc. and subsidiaries included in the Annual Report (Form 10-K)
for the year ended December 31, 1993.
/s/ ERNST & YOUNG
Louisville, Kentucky
March 28, 1994
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That each of the undersigned Directors and
Officers of ASHLAND COAL, INC., a Delaware corporation ("Ashland Coal"), hereby
constitutes and appoints William C. Payne, Marc R. Solochek and Roy F. Layman,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power to act without the others, to sign Ashland Coal's Annual Report on Form
10-K for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of 1934,
as amended, to affix the corporate seal of Ashland Coal thereto and to attest
said seal, to file such Annual Report and the exhibits thereto and any and all
other documents in connection therewith, including without limitation amendments
thereto, with the Securities and Exchange Commission, and to do and perform any
and all other acts and things requisite and necessary to be done in connection
with the foregoing as fully as he 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: February 24, 1994
<TABLE>
<C> <S>
/s/ WILLIAM C. PAYNE Chairman of the Board, President,
- ------------------------------------------- Chief Executive Officer and
William C. Payne Director
/s/ PAUL W. CHELLGREN
- ------------------------------------------- Director
Paul W. Chellgren
/s/ ROBERT E. YANCEY, JR.
- ------------------------------------------- Director
Robert E. Yancey, Jr.
/s/ THOMAS L. FEAZELL
- ------------------------------------------- Director
Thomas L. Feazell
/s/ J. MARVIN QUIN
- ------------------------------------------- Director
J. Marvin Quin
/s/ JUAN ANTONIO FERRANDO
- ------------------------------------------- Director
Juan Antonio Ferrando
/s/ WERNER EXTERNBRINK
- ------------------------------------------- Director
Werner Externbrink
/s/ MICHAEL G. ZIESLER
- ------------------------------------------- Director
Michael G. Ziesler
/s/ ROBERT L. HINTZ
- ------------------------------------------- Director
Robert L. Hintz
/s/ ROBERT A. CHARPIE
- ------------------------------------------- Director
Robert A. Charpie
</TABLE>
