ASHLAND COAL INC, 10-K405, 1996-03-06

ASHLAND COAL INC
10-K405, 1996-03-06
BITUMINOUS COAL & LIGNITE SURFACE MINING

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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, 1995

[ ] 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)

Delaware 61-0880012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2205 Fifth Street Road, Huntington, West Virginia 25701
(Address of principal executive offices) (Zip Code)

P. O. Box 6300, Huntington, West Virginia 25771
(Mailing Address) (Zip Code)

Registrant's telephone number, including area code: (304) 526-3333

Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Common Stock, par value $.01 per share New York Stock Exchange

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 February 27, 1996, 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 $137,319,000. In determining this figure, Ashland
Coal, Inc. has assumed that all of its executive officers and 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.'s preferred stock), are
affiliates. Such assumption shall not be deemed conclusive for any other
purpose.

At February 27, 1996, there were 13,501,958 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 29, 1996 (1996
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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PAGE
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<S> <C> <C>
PART I
Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 8
Item 3. Legal Proceedings............................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......................... 10
Item X. Executive Officers of the Registrant......................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 11
Item 6. Selected Financial Data...................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 13
Item 8. Financial Statements and Supplementary Data.................................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................................... 41
PART III
Item10. Directors and Executive Officers of the Registrant........................... 41
Item11. Executive Compensation....................................................... 41
Item12. Security Ownership of Certain Beneficial Owners and Management............... 41
Item13. Certain Relationships and Related Transactions............................... 41
PART IV
Item14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 42
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PART I.

ITEM 1. Business

Ashland Coal, Inc. (Ashland Coal or the Company) is engaged in the mining,
processing and marketing 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. The Company estimates that
as of December 31, 1995, approximately 640 million recoverable tons of proven
and probable coal reserves were held by the Company's subsidiaries in West
Virginia and eastern Kentucky. Ashland Coal was incorporated in Delaware in
1975.

RECENT DEVELOPMENTS

Corporate Restructuring. During early 1996, the Company initiated a
corporate restructuring aimed at reducing general and administrative expenses.
Part of this effort involved merging Company subsidiaries, and on March 1, 1996,
the subsidiaries of Dal-Tex Coal Corporation (Dal-Tex) were merged into Dal-Tex
and Dal-Tex was merged into Hobet Mining, Inc. (Hobet), an independent operating
subsidiary of Ashland Coal. Another aspect of this restructuring involves a
comprehensive evaluation of the processes performed by the Company and its
independent operating subsidiaries. Although this evaluation is not yet
complete, the Company believes that force reductions at the Company's
headquarters and at the mining complexes of its independent operating
subsidiaries will occur as a consequence of this ongoing evaluation. The savings
anticipated from the restructuring are expected to be significant, but the
benefits for 1996 will be offset by related restructuring charges anticipated to
be taken in the period.

Initiatives to Lower Mining Costs. During 1995, a number of new projects
designed to lower mining costs were completed or initiated. At the Hobet 21
mining complex, a new four-hour loadout and expanded coal handling facilities
were put into operation, a deep mine was opened to permit more blending with
lower-quality surface-mined coal, construction began on a refuse conveyor for
the preparation plant to eliminate trucking of refuse, a new motor was installed
on the complex's large dragline to improve its cycle time and work began on
relocating the dragline across the Mud River to reserves with a lower overburden
ratio. During early 1996, a 27-cubic-yard shovel formerly used at Hobet 07 will
be redeployed to Hobet 21. Also during 1996, it is anticipated that the
preparation plant will undergo further expansion of its shipping capacity and
improvements will be made to increase the plant's recovery rate; a new larger
bucket will be used on the dragline to enhance its earth-moving capacity; and
deep mining will be expanded. Other cost-cutting projects being actively
considered for the Hobet 21 complex include additional cast blasting and changes
in the work schedule.

During 1996, it is anticipated the large dragline formerly employed at the
Hobet 07 mining complex (see below) will be relocated to the Dal-Tex complex. It
is anticipated that the dragline will begin production in the fourth quarter of
1996 at a lower cost per ton because of lower overburden ratios at Dal-Tex than
at Hobet 07. Further changes to the work schedules at the Dal-Tex complex are
also being considered.

Operations at the Company's Coal-Mac, Inc. (Coal-Mac) independent operating
subsidiary were changed during 1995 to shift its emphasis from production of
coal for the medium-Btu river market to production of higher-quality,
surface-mined coal for southeastern utility and industrial markets.
Approximately 5 million tons of new, high-quality reserves were acquired in 1995
to permit expanded surface production at Coal-Mac. To lower costs, substantial
reductions were made in administrative costs, a Caterpillar 994 loader and three
150-ton-capacity rock trucks were purchased to work the new surface reserves,
and a rail loading facility was acquired. It is anticipated that improvements to
the loading facility will be completed in 1996 to expand its capacity.

Finally, during 1995, 100,000 tons of ground storage capacity with a
conveyor feed to the Black Bear preparation plant was constructed at the
Mountaineer Mine operated by the Company's Mingo Logan Coal Company (Mingo
Logan) independent operating subsidiary. When raw coal silos at the preparation
plant are full, or if the preparation plant is out of service, this ground
storage facility provides alternative storage to permit the longwall mine to
continue mining operations without interruption.

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Reference is made to the Certain Risk Factors and Recurring Factors
Affecting Results of Operations sections below in Item 7 for discussion of
important factors that could cause the timing and consequences of the Company's
cost reduction efforts to differ from stated expectations and projections.

Expiration of CG&E Contracts. On December 31, 1995, the Company's three
above-market coal sales agreements with Cincinnati Gas & Electric Company (CG&E)
expired. The contracts, which together called for deliveries of approximately
two million tons of coal in 1995, accounted for approximately $83.2 million in
1995 coal sales revenues. All of this tonnage has now been committed for sale
with other customers under long-term sales contracts or is expected to be
committed soon under pending contracts, in each case at current market prices.

Layoffs at Hobet 07. Since November 12, 1995, Hobet has laid off 160
employees at its Hobet 07 mining complex in Mingo and Logan Counties, West
Virginia, and it is possible there will be additional layoffs at this complex.
The action was required as a consequence of continuing low coal prices and
increasing overburden ratios at Hobet 07's surface operations. Although
large-scale surface mining operations have been discontinued, mining will
continue at the Hobet 07 complex to develop its remaining economically mineable
reserves. During 1996, the Marion 8200 Dragline that had been employed in Hobet
07 surface mining operations will be relocated to the Dal-Tex complex.

Share Repurchase Program. In October 1995, the Company's Board of Directors
authorized the purchase by the Company from time to time of up to one million
shares of Ashland Coal's common stock. The purchased shares may be used for
general corporate purposes. As of February 14, 1996, 251,200 shares had been
purchased under this program.

1995 SALES AND PRODUCTION

For the year ended December 31, 1995, the Company and its independent
operating subsidiaries sold approximately 22.5 million tons of coal, as compared
to approximately 20.2 and 16.0 million tons sold in 1994 and 1993, respectively.
Approximately 60% of the total tonnage sold during 1995 was sold under long-term
contracts as compared to approximately 62% for 1994 and 57% for 1993. The
balance was sold on the spot market (contracts with a duration of one year or
less). Sales of metallurgical coal in 1995 totaled 1.8 million tons, or
approximately 8% of the Company's total 1995 coal sales. In 1995, the Company
sold approximately 3.3 million tons of coal in the export market, compared to
approximately 1.7 million tons in 1994 and 2.1 million tons in 1993. Sales of
metallurgical coal accounted for approximately 28% of these export sales in
1995, while the balance of export sales consisted of sales of steam coal.
Approximately 62%, 54% and 61% of total revenues for 1995, 1994 and 1993,
respectively, were derived from long-term contracts. For the year ended December
31, 1995, the Company's independent operating subsidiaries produced
approximately 20.9 million tons of coal as compared to approximately 19.2 and
14.2 million tons for 1994 and 1993, respectively. In addition, the Company
purchased for resale approximately 1.4 million tons of coal during 1995,
approximately 1.3 million tons during 1994, and approximately 1.6 million tons
during 1993.

SALES CONTRACTS

The Company's three above-market contracts with CG&E expired at the end of
1995 and prices were lowered at the beginning of 1996 under three other sales
contracts pursuant to price reopener provisions. In order to accommodate
changing market or operational conditions, contracts frequently contain
"reopener" provisions which, if certain conditions are met, require or permit
the parties to adjust the price, either through renegotiation or predetermined
formula. During 1995, the Company also completed the renegotiation of three
low-sulfur coal supply agreements which resulted in lower prices under these
contracts. The renegotiation of coal sales contract terms after execution of the
contract also is not unusual in the industry.

During 1995 and until the filing date of this report, Ashland Coal entered
into three new domestic long-term utility sales contracts. In the aggregate,
these new long-term commitments cover approximately 1 million base tons per
year. The Company is currently negotiating final documentation for four
additional domestic long-term utility contracts covering approximately 2 million
base tons per year. Finally, the Company has entered into or is negotiating
final documentation for three additional sales contracts with utilities covering

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approximately 1 million base tons per year and for four contracts with
industrial users in the southeastern United States.

Selling prices in many of the Company's long-term coal sales contracts are
adjusted for changes in broad price indices and labor indices and costs. Most of
these contracts also provide for price adjustment related to changes in federal
and state levies on coal mining and processing. In addition, most of the
Company's long-term contracts provide that the customer may vary the quantity of
coal purchased from the base annual quantity specified in the contract,
generally by not more than 15% annually.

OPERATIONS

Mingo Logan Mining Complex

Mingo Logan mining operations are conducted in Mingo and Logan Counties,
West Virginia, on approximately 20,500 acres containing approximately 79 million
recoverable tons of low-sulfur and compliance coal. The Mingo Logan mining
complex currently consists of one surface mining operation conducted by an
independent contract miner, three underground mines operated by independent
contract miners, and a longwall mine (Mountaineer Mine) operated by Mingo Logan.
Three Mingo Logan and one independent contract continuous miner sections also
perform development work at the Mountaineer Mine. 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 two-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 Mountaineer Mine has 100,000
tons of raw coal ground storage capacity, and 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.
The Mingo Logan mining complex produced approximately 7.6 million tons of coal
during 1995.

Dal-Tex Mining Complex

Dal-Tex mining operations are conducted primarily in Logan County, West
Virginia, on approximately 25,000 acres containing approximately 205 million
tons of recoverable low-sulfur and compliance coal. The Dal-Tex complex
currently consists of one surface mine using mountaintop removal techniques and
employing two 51-cubic-yard shovels, one 27-cubic-yard shovel and two
24-cubic-yard loaders as the primary production units, and two deep mines
utilizing continuous miner units. One deep mine is operated by an independent
contract miner. Relocation of the Marion 8200 Dragline from Hobet 07 to the
Dal-Tex complex is underway and the dragline is anticipated to begin operating
in October 1996. It is anticipated this deployment will significantly increase
production from the Dal-Tex complex at a lower cost per ton because of lower
overburden ratios than was achievable at Hobet 07. The Dal-Tex mining complex
includes the Monclo preparation plant which is located on the CSX Transportation
(CSXT) rail system and 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 5.9 million tons of coal were produced at the Dal-Tex
mining complex during 1995.

Hobet 21 Mining Complex

The Hobet 21 mining complex in Boone County, West Virginia, currently has
reserves dedicated to it of approximately 206 million recoverable tons of coal.
Dedicated reserves at this complex increased significantly from the 59 million
tons reported last year as a consequence of additions of existing leases to the
dedicated reserve totals, and not as a consequence of new reserve acquisitions.
Operations at the Hobet 21 complex consist of a surface mine and two contract
deep mines. The surface mine uses mountaintop removal techniques and modern
surface mining equipment, including a 72-cubic-yard walking dragline, a
51-cubic-yard shovel and a 27-cubic yard shovel. The complex includes the
850-ton-per-hour Beth Station preparation plant. An expansion of the raw coal
handling and blending capabilities of this plant was completed in 1995. A

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five-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 150-car rail siding for shipment on the CSXT rail
system. The Beth Station preparation plant has raw coal silo storage capacity of
approximately 15,000 tons and clean coal ground storage for 100,000 tons of
coal. The facility is capable of loading a 15,000 ton unit train in less than
four hours. The Hobet 21 mining complex produced about 3.4 million tons of coal
during 1995.

Hobet 07 Mining Complex

The Hobet 07 mining complex, located in Mingo and Logan Counties, West
Virginia, currently has reserves dedicated to it of approximately 6 million
recoverable tons of coal. The dedicated reserves at Hobet 07 have fallen
significantly from the 40 million tons reported last year, primarily as a
consequence of the adverse effects of increased deep mining on the
recoverability of remaining reserves. This mine complex produced about 2.5
million tons of coal during 1995. Large scale surface mining operations at the
Hobet 07 complex were discontinued in late 1995. This complex will operate one
deep mine through mid-1996, when a second deep mine is scheduled to open.
Anticipated production for 1996 is one million tons. The complex'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.

Coal-Mac Operations

Coal-Mac and other subsidiaries of the Company control approximately 50
million recoverable tons of coal reserves in eastern Kentucky, and of this
total, approximately 15 million recoverable tons of coal reserves in Floyd,
Johnson, Martin and Pike Counties are dedicated to Coal-Mac production. Coal-Mac
operates a surface mine in Floyd County and two surface mines in Pike County,
and an independent contractor operates an underground mine in Pike County.
During 1995, Coal-Mac reduced its production of medium-Btu coal for sale on the
river market, increased production of high-Btu coal for sale on the CSXT rail
system and entered into several new supply contracts with industrial customers
in the southeastern United States for this high-Btu product. The acquisition in
mid-1995 of the coal assets of Hawkins Coal Company, East Kentucky Fuel,
Triangle Fuel Company and certain individuals (collectively, the Hawkins Assets)
for approximately $6 million added approximately 5 million tons of high-Btu coal
to Coal-Mac's reserves. During 1995, total production from Coal-Mac surface and
underground operations, including the Hawkins Assets, was approximately 1.6
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 Gulf and
Atlantic coast transloading facilities for shipment to domestic and
international customers.

Tri-State Terminals, Inc., an independent operating subsidiary of the
Company, operates the Lockwood Dock on a 60-acre site on the Big Sandy River
approximately seven miles upstream from its confluence with the Ohio River. In
addition, Company subsidiaries together own 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. 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 3 to the Company's Consolidated Financial
Statements on page 28 below, and incorporated by reference in this Item 1.

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EMPLOYEES

As of February 29, 1996, the Company and its independent operating
subsidiaries employed a total of 1,587 people (including 16 part-time
employees), 670 of whom are represented by the United Mine Workers of America
(UMWA). Hobet is a signatory to the National Bituminous Coal Wage Agreement of
1993 (Wage Agreement), which was ratified on December 14, 1993, and which
expires by its terms on August 1, 1998. 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 the election of either the UMWA or the Bituminous Coal
Operators' Association (BCOA). 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. 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 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. At February 29, 1996, Ashland
Coal's union subsidiaries had approximately 150 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 below on page 13.

The labor forces at Mingo Logan and its Mountaineer Mining Company and
Bearco divisions are not currently unionized. However, in a 1995 National Labor
Relations Board (NLRB) proceeding, Mingo Logan and certain other employers with
whom Mingo Logan contracts for construction and mining services were determined
to be joint employers by the Acting Regional Director for NLRB Region 9. As a
consequence of this ruling, the bargaining unit at Mingo Logan's Mountaineer
Mine for purposes of collective bargaining has been determined to be comprised
of employees of Mingo Logan and its contractors, and these employees voted
together on January 19, 1995, on the question of whether or not to be
represented by the UMWA. The result of this vote, which was required by the NLRB
decision, is not yet known because the ballots have been sealed pending the
outcome of Mingo Logan's appeal to the NLRB of the decision of the Acting
Regional Director concerning the appropriate bargaining unit. Mingo Logan
expects to prevail in its appeal. If Mingo Logan does prevail on appeal, the
January 19, 1995, representation election results will be invalidated.

REGULATIONS AFFECTING COAL MINING

Coal mining is subject to strict regulation by federal, state, and local
authorities, including, most significantly, with respect to permitting,
environmental, 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.

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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. 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, and compliance with reporting requirements and performance
standards, are preconditions for the issuance and renewal of permits governing
the discharge of pollutants into waters. Further, mining operations are subject
to Clean Water Act regulations with respect to discharges into some ponds
created to treat or dispose of coal mining wastes.

Kentucky and West Virginia also have laws restricting discharge of
pollutants into the waters of those states. West Virginia has a Groundwater
Protection Act which requires groundwater protection plans be developed for
surface mines and coal mining operations. However, coal extraction activities,
i.e., underground works and surface mine pits, are not required to meet these
groundwater quality standards. Related coal mining operations in West Virginia,
such as preparation plants and, in certain cases, refuse piles, must meet
groundwater quality standards. Kentucky has developed a groundwater protection
program, and groundwater protection plans were required to be in place by August
24, 1995, and be maintained at each operation as a site-specific groundwater
protection plan.

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 an 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 subjecting them to liability for the remediation of threatened or
actual releases of hazardous substances (other than waste excluded from federal
and state regulation, as noted above) 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 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
screens.

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

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paid by assigned operators (former employers), transfers of monies in 1993 and
1994 from an overfunded pension trust established for the benefit of retired
UMWA members, and transfers from the Abandoned Mine Lands Fund (funded by a
federal tax on coal production) that commenced in 1995.

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 Hobet (as legal successor to 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. These proceedings involve
fatalities and could result in the imposition of civil penalties. Hobet is also
a party to civil proceedings, not involving a fatality, as the result of alleged
failures to comply with mandatory federal or state health and safety
regulations. The Company believes that any adverse results in these proceedings,
if incurred, would not have a material adverse effect on the Company's
consolidated financial condition, results of operations, or liquidity.

Hobet, on its own behalf and as legal successor to Sharples Coal Company,
formerly a Dal-Tex subsidiary; 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 respirable dust sampling cassettes 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 consolidated 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 loss in the value of the plaintiffs'
property and business. The Company does not believe 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.

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 Inc. (Ashland) granted the
Company permission to continue using the Ashland Coal name on a year-to-year
basis after August 11, 1993, absent written notice from Ashland to cease using
the name at the end of the then applicable one-year period. If Ashland's
ownership in the Company ever falls below 35%, Ashland may require the Company
to remove the name Ashland from the Company's and its subsidiaries' names.

SEASONALITY

7
<PAGE> 10

periods. These adverse effects on the third quarter may make the third quarter
not comparable to the other quarters and not indicative of results to be
expected for the full year.

RELIANCE ON MAJOR CUSTOMERS

The Company's total sales to American Electric Power Company (AEP)
affiliates and to CG&E accounted for approximately 13.9 and 13.2 percent,
respectively, of the Company's total revenues in 1995. AEP affiliates currently
have four long-term contracts with the Company. CG&E's contracts with the
Company expired by their terms at the end of 1995. If the Company experienced an
unanticipated and immediate loss of the AEP affiliates' contracts, the loss
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, 1995, the Company's subsidiaries controlled, primarily
through long-term leases, approximately 130,000 and 88,000 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 subleased space at 2205 Fifth Street Road, Huntington, West
Virginia. The headquarters sublease expires March 31, 1998. The descriptions set
forth above in Item 1. Business of the Mingo Logan, Dal-Tex, Hobet 21 and 07
mining complexes and of Coal-Mac operations 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 a lease
that expires in 2003. In January 1996, Hobet purchased other equipment formerly
leased under a lease with GATX Leasing that expired in 1995. Hobet (as legal
successor to Dal-Tex) also utilizes surface mining equipment leased pursuant to
a sale and leaseback transaction entered into in January 1993. Pursuant to a
1995 amendment to this lease, the term of the lease was extended with respect to
most of the leased equipment until 1998. The lease terminated in January 1996
with respect to all other leased equipment, at which time Dal-Tex purchased this
equipment. For further information about this 1993 sale-leaseback transaction
see Note 17 to the Company's Consolidated Financial Statements on page 39 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).

COAL RESERVES

The Company estimates that its subsidiaries had, as of December 31, 1995,
approximately 640 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 (which can
result in discovery of new reserves and

8
<PAGE> 11

reclassification of reserves from probable to proven as a result of better
geologic data). 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................................................. 387* 203* 590
Kentucky...................................................... 28 22 50
---- --- ---
Total.................................................... 415 225 640
==== === ===
</TABLE>

- ------------------------------

* Increase in proven reserves and decrease in probable reserves from last year's
report is primarily attributable to reclassification of probable reserves to
proven reserves because of new geologic data.

Substantially all of the coal reserves held by the Company's subsidiaries
are controlled by leases which will not expire until the exhaustion of mineable
and merchantable coal. The remaining leases have primary terms expiring in
various years ranging from 1996 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 currently own, lease, or control 15,209 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. Approximately 470 of the 640 million tons of reserves held
by the Company's subsidiaries have been subject to preliminary coal seam
analysis to test sulfur content. Of these tested reserves, 91% consist of
low-sulfur coal with a sulfur content of 1% or less, some of which is compliance
coal, and the balance could be sold as low sulfur with a sulfur content of 1% or
less after blending. The Company believes a majority of the untested reserves
are also low-sulfur with a sulfur content of 1% or less, primarily because the
untested reserves are in the same coal seam on tracts adjacent to the tested
reserves, or are otherwise in close proximity to the tested reserves. Sulfur
content of 1% 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. 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 coal.

The net book value, based on historical cost, of the Company's coal
reserves at December 31, 1995, was $431 million, consisting of $17 million of
prepaid royalties included in current assets, $62 million of prepaid royalties
classified as an other asset, and $352 million net book value of coal lands and
mineral rights. Of this carrying value, approximately $28 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, 1995, future royalty commitments relating to these properties were
approximately $2 million. See Note 5 to the Company's Consolidated Financial
Statements on page 30 below and incorporated by reference in this Item 2.

Title to coal properties held by lessors or grantors to the Company and its
subsidiaries and the boundaries of properties are normally verified at the time
of leasing or acquisition. However, in cases involving less significant
properties and consistent with industry practices, title and boundaries 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.

9
<PAGE> 12

ITEM 3. Legal Proceedings

During 1995, a lawsuit against Mingo Logan filed in 1993 which alleged
product liability, breach of warranty and negligence and sought compensatory and
punitive damages of $45 million was settled for a nominal amount.

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 1995.

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, 63, 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., 48, is Senior Vice President, Marketing, and has
served in this capacity since July 1990.

Marc R. Solochek, 49, is Senior Vice President and Chief Financial
Officer and has served in these capacities since July 1990. He also served
as Treasurer from 1983 to 1992.

Kenneth G. Woodring, 46, is Senior Vice President, Operations, and has
served in this capacity since 1989.

Roy F. Layman, 50, is Administrative Vice President, Law and Human
Resources, and Secretary, and has served in these capacities since April
1993. From July 1990 to April 1993, he served as Administrative Vice
President, General Counsel, and Secretary.

10
<PAGE> 13

PART II.

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's 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
---------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
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................... $.115 $.115 $.115 $.115 $.10 $.10 $.10 $.115
Market price per common share
High...................................... 29 1/4 29 3/8 30 3/4 30 1/8 31 1/4 28 3/4 30 1/8 31
Low....................................... 26 26 26 3/4 20 1/2 27 3/8 22 1/2 26 3/4 27 3/4
</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, the
third quarter of 1990, and the fourth quarter of 1994. 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 31.

As of February 16, 1996, there were 776 holders of record of the Company's
Common Stock.

11
<PAGE> 14

ITEM 6. Selected Financial Data

FIVE-YEAR SELECTED FINANCIAL INFORMATION(1)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992(2) 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Coal sales..................................... $618,886 $589,141 $484,390 $563,932 $430,301
Operating revenues............................. 17,075 21,003 13,952 15,792 13,688
-------- -------- -------- -------- --------
635,961 610,144 498,342 579,724 443,989
-------- -------- -------- -------- --------
Costs and expenses:
Cost of coal sold.............................. 529,618 510,125 446,754 478,286 353,990
Operating expenses............................. 10,995 11,543 10,641 11,502 10,247
Selling, general, and administrative
expenses..................................... 27,901 33,756 35,790 31,959 23,374
-------- -------- -------- -------- --------
568,514 555,424 493,185 521,747 387,611
-------- -------- -------- -------- --------
Operating income................................... 67,447 54,720 5,157 57,977 56,378
Other income (expense):
Interest income................................ 89 366 1,057 1,240 804
Interest expense............................... (20,724) (22,238) (25,342) (21,781) (9,862)
-------- -------- -------- -------- --------
Income (loss) before income taxes and the
cumulative effect of changes in accounting........ 46,812 32,848 (19,128) 37,436 47,320
Income tax expense (benefit)....................... 5,401 628 (64,502)(3) 1,697 8,700
-------- -------- -------- -------- --------
Income before the cumulative effect of changes in
accounting........................................ 41,411 32,220 45,374 35,739 38,620
Cumulative effect of changes in accounting......... -- -- (18,836) -- --
-------- -------- -------- -------- --------
Net income......................................... $ 41,411 $ 32,220 $ 26,538 $ 35,739 $ 38,620
======== ======== ======== ======== ========
COMMON STOCK INFORMATION:
Earnings per share:
Primary........................................ $ 2.22 $ 1.72 $ 1.41(4) $ 2.01 $ 2.40
Fully diluted.................................. 2.16 1.68 1.34(4) 1.88 2.22
Dividends declared per common share................ .46 .415 .40 .40 .40
BALANCE SHEET DATA:
Working capital.................................... $ 24,731 $ 11,955 $ 2,285 $ 37,566 $ 22,898
Total assets....................................... 835,402 838,392 835,991 993,332 546,835
Long-term debt..................................... 172,975 200,000 244,342 317,958 181,066
Other long-term liabilities (excluding deferred
taxes)........................................... 129,444 123,413 113,040 57,521 28,177
Preferred stock subject to redemption(5)........... -- -- -- 34,021 32,741
Stockholders' equity............................... 397,879 368,983 343,427 288,275 200,580
CASH FLOW DATA:
Cash provided by operating activities.............. $121,875 $104,087 $ 74,170 $ 78,759 $ 88,198
Depreciation, depletion, and amortization.......... 70,893 71,795 71,248 67,001 37,169
Purchases of property, plant, and equipment........ 58,245 42,841 20,569 97,136 102,881
<FN>
- ------------------------------

(1) Certain amounts for years prior to 1995 have been reclassified to conform
with the 1995 classifications.

(2) Information for 1992 reflects the acquisition of Dal-Tex Coal Corporation on
April 1, 1992.

(3) 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.

(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. Since the expiration of that
right, the stock has been classified as an element of stockholders' equity.

</TABLE>

12
<PAGE> 15

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Reference is made to the Certain Risk Factors and Recurring Factors
Affecting Results of Operations sections below in this Management's Discussion &
Analysis for discussion of important factors that could cause actual results to
differ from the projections and expectations contained herein.

RESULTS OF OPERATIONS

1995 Compared to 1994

Net income of Ashland Coal for the year ended December 31, 1995, was $41.4
million. Net income in 1994 was $32.2 million.

Gross profit on coal sales (selling price less cost of sales) on a per ton
basis rose slightly from the 1994 level, but would have been slightly lower but
for a reduction of approximately $4.5 million in postretirement benefit expense.
That reduction resulted from a revised actuarial estimate. Sales volume
increased 2.3 million tons, or 11%. The effects of scheduled price and volume
reductions on an important sales contract and of the expiration of another
contract at the end of 1994 were largely offset by a lower average cost per ton.
That lower cost resulted from cost-reduction initiatives and higher production
levels (without appreciable changes in the amount of labor and equipment) at
some of the mines.

Since November 12, 1995, Hobet has laid off 160 employees at its Hobet #07
mine. Hobet has discontinued mountaintop removal mining at that mine, but is
continuing operations on a more limited scale utilizing deep mining. These
changes did not result in any significant charges to income.

Operating revenues declined $3.9 million from 1994 to 1995 principally
because of a number of unusual transactions in 1994: compensation for an
easement which rendered certain coal unmineable, the sale of surplus mining
equipment, proceeds from an insurance settlement, and recoveries from a
contractor for business interruption losses related to the 1992 silo collapse
and the 1993 silo failure at Mingo Logan. Partially offsetting the combined
effects of those transactions was a 1995 settlement with a customer related to
the early termination of a coal sales contract.

Selling, general, and administrative expenses declined $5.9 million,
primarily because of a reduction in sales contract amortization resulting from
the sales contract expiration at the end of 1994. Interest expense decreased
$1.5 million because of lower average debt levels.

Income tax expense rose to $5.4 million in 1995 from $.6 million in 1994,
principally because of an increase in the Company's profitability. The effective
tax rate is sensitive to changes in profitability because of the effect of
percentage depletion.

1994 Compared to 1993

The net income of Ashland Coal for the year ended December 31, 1994, was
$32.2 million. In 1993, earnings 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. After the cumulative effect of those changes in
accounting, net income for 1993 was $26.5 million.

With the adoption of SFAS No. 106 effective January 1, 1993, Ashland Coal
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.

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

13
<PAGE> 16

acquisition of Dal-Tex Coal Corporation (Dal-Tex). 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 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 expectations for future market prices for coal,
the Company believed that the recoverability of those royalties was doubtful.
Finally, the seven-month strike by the United Mine Workers of America (UMWA)
against Hobet and two subsidiaries of Dal-Tex adversely affected the operations
of those companies and, therefore, consolidated net income. Dal-Tex and its
subsidiaries were merged into Hobet on March 1, 1996.

For the year ended December 31, 1994, coal sales volume of 20.2 million
tons and coal sales revenue of $589.1 million were above 1993 levels by 4.2
million tons and $104.8 million, respectively. These increases were attributable
to the effects of the UMWA strike during the last three quarters of 1993. The
average selling price decreased $1.09 per ton from the 1993 level primarily
because of lower prices on sales to two customers, including the Company's
largest customer, whose contracts were renegotiated in 1993.

The 1994 cost of coal sold decreased $2.64 per ton from the 1993 level,
which was negatively affected by the UMWA strike and the $9.9 million charge
relative to prepaid royalties. This decrease would have been greater except for
the fact that the unit cost of coal sold in 1994 was adversely affected by
unusually harsh winter weather in the first quarter and the aftereffects of the
UMWA strike experienced early in the year.

Operating revenues increased $7.1 million. This increase resulted largely
from the unusual transactions discussed above that occurred in 1994.

A $2.0 million decrease in selling, general, and administrative expenses
related primarily to a reduction in amortization of the carrying value of
certain coal supply contracts that were renegotiated in 1993. Interest expense
decreased $3.1 million, reflecting lower average debt levels in 1994.

The effective tax rate for 1994 of 1.9% reflects an improvement in the
Company's profitability. As noted above, the effective tax rate is sensitive to
changes in profitability because of the effect of percentage depletion. The
income tax benefit recorded for 1993 was primarily the result of OBRA coupled
with a decrease in the Company's profitability as a result of the strike by the
UMWA.

BALANCE SHEET

The balance of trade accounts receivable at December 31, 1995, was $14.1
million more than the balance at December 31, 1994. 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, 1995, and December 31, 1994,
reflect the levels of coal sales in December 1995 and December 1994,
respectively. The Company is now exporting more coal than was the case in the
recent past. Depending on the timing and size of individual export shipments,
the number of weeks of sales in receivables will vary and may increase because
receivables from export sales typically bear longer payment terms. All
significant customer accounts are being paid within credit terms.

Other receivables decreased from $9.1 million at December 31, 1994, to $6.9
million at December 31, 1995. The balance at December 31, 1994, was unusually
high because of amounts due for business interruption losses related to the 1993
silo failure at Mingo Logan and a compensation agreement for an easement which
rendered certain coal unmineable.

Inventories decreased $4.2 million from December 31, 1994, to December 31,
1995. A decrease in coal inventories of $5.7 million was partially offset by an
increase in supplies. Coal inventories at export terminals at the end of 1995
were unusually low because of shipment schedules, and inventories at other
facilities were also lower than usual because of additional demand for coal by
some of the Company's customers.

The noncurrent balance of prepaid royalties increased $3.2 million from
December 31, 1994, to December 31, 1995. The Company's coal leases often require
minimum royalty payments which may be used to offset royalty payments due as
coal is mined. Leases frequently provide for minimum payments, which in

14
<PAGE> 17

the early years of the lease often exceed the amounts of royalties expected to
be earned in those years. During 1995, minimum payments under certain leases
exceeded the amounts earned by the lessor for coal mined. The excess will be
recoverable in future years when earned royalties are expected to exceed minimum
payments.

Changes in the balances of accounts payable and accrued expenses from
December 31, 1994, to December 31, 1995, represent normal fluctuations.

Ashland Coal's Board of Directors in 1995 authorized the purchase, from
time to time, of up to one million shares of the Company's common stock. As of
February 14, 1996, 251,200 shares had been purchased under this authorization.
Shares acquired may be used for general corporate purposes.

OUTLOOK

The Company believes that its earnings in 1996 will decrease significantly
from the level of 1995. Contracts with Cincinnati Gas & Electric Company (CG&E)
providing for the sale of coal at prices considerably above current market
prices expired at the end of 1995, and selling prices were reduced at the
beginning of 1996 under three other contracts as a result of price reopener
provisions in those contracts. In combination, these expirations and price
reductions will have a material adverse effect on the Company. The tonnage that
had been committed to CG&E has now been committed for sale to other customers
under long-term sales contracts, or is expected to be committed soon under
pending contracts, in each case at current market prices. Operational changes
already made or planned are expected to have a substantial favorable effect on
1996 earnings, but realization of the full benefit of those actions is not
expected until 1997. In addition, somewhat higher mining costs expected at Mingo
Logan will offset some of the cost reductions at other operations.

During early 1996, the Company began a comprehensive study of the Company's
structure and processes with a view to reducing general and administrative
expenses now and in the future. Although this study is not yet complete, the
Company believes that force reductions at the Company's headquarters and at the
mining complexes of its independent operating subsidiaries will occur as a
consequence of this ongoing evaluation. The savings anticipated from the
restructuring are expected to be significant, but the benefits for 1996 will be
offset by related restructuring charges anticipated to be taken in the period.

Ashland Coal now anticipates that its effective tax rate for 1996 will be
lower than the rate for 1995. The Company's effective rate will be reduced
because of lower profitability. In addition, the Company currently expects to be
able to recognize alternative minimum tax credits (AMT credits) generated during
1996. Congress is currently considering legislation that may enhance the ability
of the Company to use its AMT credits.

The Financial Accounting Standards Board has recently issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not
require, companies to recognize compensation expense related to the grants of
stock or stock options to employees under plans such as the Company's 1988 and
1995 Stock Incentive Plans. Companies choosing not to adopt SFAS No. 123 will
continue to account for such grants using the accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB25), but will be required to make certain disclosures about their
plans, including pro forma net income and earnings per share under the new
method. Ashland Coal is first required to follow the rules of SFAS No. 123 in
1996. The Company expects to continue to follow APB25 for expense recognition
and to make the disclosures required by SFAS No. 123. Accordingly, Ashland Coal
expects that SFAS No. 123 will have no effect on the Company's earnings or
financial position.

The Company believes that the 1990 Clean Air Act Amendments, which became
effective January 1, 1995, have increased demand for low-sulfur coal of the type
that the Company sells. However, it appears that any further effects on market
prices in the near term related to this increase in demand will be mitigated by
the effects of increased supply of competing coals. Because of its level of spot
and contract commitments for 1996, the Company does not expect that a
significant movement in spot prices during 1996 would have a material effect on
the Company's results of operations.

15
<PAGE> 18

Ashland Coal's export sales volume increased significantly in 1995 compared
to 1994 as the result of a better balance of supply and demand worldwide, but
such increase in export sales has not had any significant effect on the
Company's results of operations nor is it expected to in the near future. The
Company sells some metallurgical coal, which is used in the manufacture of
steel. Although metallurgical coal sales may result 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 and profit
potential.

The National Bituminous Coal Wage Agreement of 1993 (Wage Agreement), which
covers the UMWA employees of Hobet, provides for wage increases totalling $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 Wage 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 Wage Agreement and the Memorandum, taken as
a whole, have not had and will not have an adverse effect on costs.

The labor forces at Mingo Logan and its Mountaineer Mining Company and
Bearco divisions are not currently unionized. However, in a National Labor
Relations Board (NLRB) proceeding, Mingo Logan and certain other employers with
whom Mingo Logan contracts for construction and mining services were determined
to be joint employers by the Acting Regional Director for NLRB Region 9. As a
consequence of this ruling, the bargaining unit at Mingo Logan's Mountaineer
Mine for purposes of collective bargaining has been determined to be comprised
of employees of Mingo Logan and its contractors, and these employees voted
together on January 19, 1995, on the question of whether or not to be
represented by the UMWA. The result of this vote, which was required by the NLRB
decision, is not yet known as the ballots have been sealed pending appeal of the
initial determination concerning the appropriate bargaining unit. Mingo Logan
has appealed the Acting Regional Director's decision to the NLRB and expects to
prevail in its appeal. If Mingo Logan does prevail on appeal, the January 19,
1995, representation election results will be invalidated.

The Company continues to investigate acquisition opportunities involving
companies or projects having low-cost operations, low-sulfur coal, a good
contract position, and the potential for production and/or marketing synergies
and margin improvement. Such acquisitions, if they occur, may be in the central
Appalachian coal fields, which is currently the Company's only area of
operations, in coal fields in other regions of the U.S., or abroad.

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) 1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Net cash provided by (used in)
Operating activities
Before changes in operating assets and
liabilities....................................... $126,291 $ 111,867 $ 74,165
Changes in operating assets and liabilities......... (4,416) (7,780) 5
-------- --------- ---------
121,875 104,087 74,170
Investing activities................................... (77,009) (59,051) 35,654
Financing activities................................... (44,234) (44,472) (146,877)
-------- --------- ---------
Increase (decrease) in cash and cash equivalents......... $ 632 $ 564 $ (37,053)
======== ========= =========
</TABLE>

Cash provided by operating activities before changes in operating assets
and liabilities rose in 1995 from 1994 and in 1994 from 1993 primarily because
of increases in sales volume, which were made possible by higher levels of
production. As noted above, production was adversely affected in 1993 by the
strike by the UMWA and in the first quarter of 1994 by the aftereffects of the
strike and by severe winter weather. Cash used for changes in operating assets
and liabilities in 1995 arose primarily from higher accounts receivable

16
<PAGE> 19

balances, which resulted from higher sales volume in 1995, particularly in the
fourth quarter. Cash used for changes in operating assets and liabilities in
1994 reflected growth in accounts receivable balances and inventories, partially
offset by growth in the balances of accounts payable, accrued expenses, and
income taxes payable. In 1993, reduced accounts receivable balances, partially
offset by reductions in the balances of accounts payable, accrued expenses, and
income taxes payable, accounted for most of the reduction in operating assets
and liabilities. All of these changes in 1994 and 1993 were outgrowths of the
UMWA strike.

Cash used during 1995 and 1994 for investing activities primarily reflects
capital expenditures and royalty payments expected to be recovered after one
year. Cash provided by investing activities in 1993 resulted from the sale and
leaseback of certain mining equipment (discussed below).

Cash used in financing activities in 1995 consists of amounts used to repay
borrowings, to pay dividends, and to purchase treasury stock. Dividend payments
and payments on borrowings constitute the cash used in financing activities
during 1994. Cash used in financing activities in 1993 chiefly represented
payments of $141.4 million on borrowings from cash provided by the sale and
leaseback of mining equipment, the liquidation of cash equivalents, and cash
provided by operating activities.

The Company's capital expenditures in 1995, 1994, and 1993 were $58.2
million, $42.8 million, and $20.6 million, respectively. During 1993, the
Company deferred capital expenditures to the extent possible in order to improve
liquidity in anticipation of and during the UMWA strike and in the event that
the Company was required to purchase its convertible Class C preferred stock.
Ashland Coal estimates that capital expenditures in 1996 will be approximately
$68 million.

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 for a three-year term. In May 1995, the Company completed the negotiation
of a two-year extension of that lease for most of the equipment. The equipment
not included in the extension was repurchased by the Company for approximately
$4 million in January 1996. The portion of the equipment included in the
two-year extension may be repurchased at the Company's option in January 1998
for approximately $28 million. Ashland Coal believes that such purchase, if it
should occur, would be funded under the Company's revolving credit agreement or
lines of credit, which borrowings would be repaid from cash flow from operations
in that same year.

Ashland Coal has a revolving credit agreement with a group of banks that
provides for borrowings of up to $500 million until the agreement's termination
in 1999. At December 31, 1995, the Company had $30 million borrowed under this
agreement. The Company also had $175 million of indebtedness under senior
unsecured notes maturing in 1996 through 2006. Certain of these senior notes
amounting to $22.1 million are due on May 15, 1996. The Company anticipates that
it will fund this payment under its revolving credit agreement. Ashland Coal
periodically establishes uncommitted lines of credit with banks. These
agreements generally provide for short-term borrowings at market rates. At
December 31, 1995, there were $255 million of such agreements in effect with
borrowings outstanding of $7.3 million. The Company expects to make payments on
the indebtedness under the lines of credit and discretionary prepayments on
currently existing indebtedness under the revolving credit agreement totalling
approximately $19 million from cash flow generated by operations over the next
12 months.

The Company expects cash flow provided by operating activities to be
reduced in 1996 from the 1995 level because of the expiration of the CG&E
contracts and price adjustments under other contracts as discussed above.
Ashland Coal believes that over the next 12 months cash flow generated by
operating activities will be adequate to fund anticipated capital expenditures
and to reduce debt as discussed above, and to fund its stock purchase program.
Over the longer term, Ashland Coal believes that cash flow from operations will
be adequate to fund anticipated capital expenditures, to reduce the level of
long-term borrowings, and to pay other commitments when due.

CONTINGENCIES

17
<PAGE> 20

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 $2.6 million and $2.2 million at December 31, 1995, and
December 31, 1994, 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 (collectively, closing costs) over the lives of the
various mines. Closing costs, in the aggregate, are estimated to be
approximately $38.0 million. At December 31, 1995, and December 31, 1994, the
accrual for closing costs, which is included in other long-term liabilities and
in accrued expenses, was $9.4 million and $7.7 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 $2.6
million (included in other long-term liabilities) and believes that probable
insurance recoveries of $1.7 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 $3.6
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.

CERTAIN RISK FACTORS

Credit risk--Ashland Coal markets its coal principally to electric
utilities in the United States and Europe. As a group, electric utilities are
stable, well-capitalized entities with favorable credit ratings. Credit is
extended based on an evaluation of each customer's financial condition, and
collateral is not generally required. Credit losses have consistently been
minimal.

Price risk--Selling prices for Ashland Coal's products are determined by
long-term contracts and the spot market. Selling prices in many of Ashland
Coal's long-term contracts are adjusted for changes in certain price indices and
labor costs, including wage rates and benefits under the Wage Agreement or any
successor agreement. Some of the long-term contracts permit adjustment in
contract price for changes in market conditions. Falling market prices raise the
price risk under these contracts. Some of the long-term contracts also provide
for price adjustment if certain federal and state levies on coal mining and
processing are changed or if new laws, rules, or regulations are enacted that
increase the cost of mining, processing, or transporting the coal under those
contracts. Spot prices fluctuate primarily because of changes in demand for and
supply of coal. Demand for coal in the short term is primarily driven by changes
in demand for electricity in the areas serviced by the utilities purchasing the
Company's coal. Demand for electricity in turn depends on the level of economic
activity and other factors such as prolonged temperature extremes. The supply of
coal in the spot market has historically been most affected by excess productive
capacity in the industry and short-term disruptions, frequently labor-related.

The coal industry is highly competitive, and Ashland Coal competes with a
large number of other coal producers. Ashland Coal believes that it can compete
effectively with other coal producers in the eastern United States because of
the Company's low production costs, high-quality reserves, and ability to
accommodate customers' transportation requirements. Factors such as utility
deregulation and new clean air regulations, however, have had, or will have, the
effect of intensifying competition between producers in the eastern United
States and producers in other regions, including other countries. Producers in
some of those regions, because of geological conditions, local labor costs, or
access to inexpensive transportation modes, are able to produce and deliver coal
into some markets at a lower cost than the Company. These competitive factors
have an impact on the Company's pricing.

18
<PAGE> 21

Ashland Coal's operating subsidiaries purchase substantial amounts of
power, fuel, and supplies, generally under purchase orders at current market
prices or purchase agreements of relatively short duration. The employees of
Ashland Coal's Hobet operating subsidiary are covered by the Wage Agreement,
which provides for certain wage rates and benefits during its first three years.
Thereafter, wages and certain benefits are subject to renegotiation. Employees
of other operating subsidiaries are not covered by a union contract but are
compensated at rates representative of prevailing wage rates in the local area.
Among factors influencing such wage rates is the Wage Agreement.

Although the Company cannot predict changes in its costs of production and
coal prices with certainty, Ashland Coal believes that in the current economic
environment of low to moderate inflation, the price adjustment provisions in its
long-term contracts will largely offset changes in the costs of providing coal
under those contracts, except for those costs related to changes in
productivity. Further, because levels of general price inflation are closely
linked to levels of economic activity, it is expected that changes in costs of
producing coal for the spot market may be offset in part by changes in spot coal
prices. The Company attempts to limit its exposure to depressed spot market
prices which result from industry overcapacity by entering into long-term coal
supply agreements, which ordinarily provide for prices in excess of spot market
prices. In the event of a disruption of supply, the Company might, depending on
the level of its sales commitments, benefit from higher spot prices if its own
mines were not affected by the disruption.

Interest rate risk--Ashland Coal has significant debt and lease obligations
which are linked to short-term interest rates. If interest rates rise, Ashland
Coal's costs relative to those obligations would also rise. For example, the
Company estimates that currently a 1% increase in short-term interest rates
would reduce income before income taxes by approximately $1.1 million per year.
Because an increase in interest rates is usually an outgrowth of a higher level
of economic activity and because increased economic activity would likely lead
to a higher demand for electricity and consequently to higher spot prices for
coal, Ashland Coal believes that the negative effects of higher interest rates
on Ashland Coal's earnings could be partially offset, depending on the level of
its sales commitments, by higher spot prices. Additionally, the Company has the
capability to fix its interest rates on borrowings under its revolving credit
agreement for periods up to 12 months and may from time to time utilize certain
types of derivative securities to manage its interest-rate risk. Either
extending the term of short-term borrowings at fixed rates or using derivatives
may reduce the adverse impact of increases in interest rates upon Ashland Coal.
The board of directors has authorized the use of derivatives in a limited
fashion for the management of interest rate risk. The Company has swapped $5
million of its fixed-rate debt for floating-rate debt. The increased exposure to
interest-rate fluctuations has been mitigated through the purchase of an
interest-rate cap.

RECURRING FACTORS AFFECTING RESULTS OF OPERATIONS

The Company's customers frequently combine nuclear, natural gas and other
energy sources in their generating operations, and, accordingly, their demand
for coal varies depending on price and transportation, regulatory, and other
factors. Most of the Company's long-term contracts provide that the customer may
vary from the base annual quantity, generally by not more than 15%, the quantity
of coal purchased under the contract in a particular year. In addition, most of
the Company's contracts contain a force majeure clause, which, in the event of
an act of God or other event beyond the control of the customer, allows the
customer to suspend its performance under the contract for the duration of the
effect of the event.

Sometimes the contract does not require the customer to make up purchases
not made by reason of force majeure. Some contracts contain "reopener"
provisions that require the parties to reach new agreements regarding price in
order to maintain the contract, and from time to time the Company has
renegotiated contracts after execution to extend them or to accommodate changing
market conditions.

The Company's coal production is subject to a variety of operational,
geologic, and weather-related factors that routinely cause production to
fluctuate. Operational factors include anticipated and unanticipated events. For
example, at Mingo Logan's longwall mine, the longwall equipment must be
dismantled and moved to a new area of the mine whenever the coal reserves in a
segment of the mine--called a panel--are exhausted. The size of a panel varies,
and therefore, the frequency of moves can also vary. Unanticipated

19
<PAGE> 22

events, such as the unavailability of essential equipment because of breakdown
or unscheduled maintenance, would also adversely affect production. Permits are
sometimes delayed by unanticipated regulatory requests or processing delays.
Timely completion of improvement projects and equipment relocations depend to a
large degree on availability of labor and equipment, timely issuance of permits,
and the weather. Geologic conditions within mines are not uniform. Overburden
ratios at the surface mines vary, as do roof and floor conditions and seam
thickness in underground mines. These variations can be either positive or
negative for production. Weather conditions can also have a significant effect
on the Company's production, depending on the severity and duration of the
condition. For example, extremely cold weather combined with substantial snow
and ice accumulations may impede surface operations directly and all operations
indirectly by making it difficult for workers and suppliers to reach the mine
sites.

The results of the third quarter of each year are frequently adversely
affected by lower production and resultant higher costs because of scheduled
vacation periods at the West Virginia mines. In addition, costs are typically
somewhat higher during vacation periods because of maintenance activity carried
on during those periods. These adverse effects on the third quarter may make the
third quarter not comparable to the other quarters and not indicative of results
to be expected for the full year.

Hobet is a party to the Wage Agreement. From time to time in the past,
strikes and work stoppages have adversely affected production at the Hobet and
Dal-Tex complexes. Any future strike or work stoppage that affected either the
Hobet #21 or Dal-Tex complex for a prolonged period would have a significant
adverse effect on the Company's results of operations. If the UMWA is successful
in unionizing Mingo Logan (see discussion above), Mingo Logan also would be
subject to labor disruptions of the type that affect union operations.

Any one or a combination of changing demand, fluctuating selling prices,
routine operational, geologic and weather-related factors, unexpected regulatory
changes or results of litigation, or labor disruptions may occur at times or in
a manner that causes current and projected results of operations to deviate from
expectations. Any event disrupting substantially all production at any of the
Hobet #21, Dal-Tex or Mingo Logan complexes for a prolonged period would have a
significant adverse effect on the Company's current and projected results of
operations. The effect of such a disruption at Mingo Logan would be particularly
severe because of the high volume of coal produced at that complex and the
relatively high contribution to operating income by the sale of each ton of that
coal. Decreases in production from anticipated levels usually lead to increased
mining costs and decreased net income.

ITEM 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... 21
Audited Consolidated Financial Statements
Consolidated Statements of Income--Years ended December 31, 1995, 1994 and 1993...... 22
Consolidated Balance Sheets--December 31, 1995 and 1994.............................. 23
Consolidated Statements of Stockholders' Equity--Years ended December 31, 1995, 1994
and 1993........................................................................... 24
Consolidated Statements of Cash Flows--Years ended December 31, 1995, 1994 and
1993............................................................................... 25
Notes to Consolidated Financial Statements........................................... 26
</TABLE>

20
<PAGE> 23

REPORT OF ERNST & YOUNG LLP, 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, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and the schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ashland Coal,
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

As discussed in Note 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.

ERNST & YOUNG LLP

Louisville, Kentucky
January 19, 1996

21
<PAGE> 24

CONSOLIDATED STATEMENTS OF INCOME

ASHLAND COAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(In thousands except earnings per share) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Coal sales............................................... $618,886 $589,141 $484,390
Operating revenues....................................... 17,075 21,003 13,952
-------- -------- --------
635,961 610,144 498,342
COSTS AND EXPENSES:
Cost of coal sold........................................ 529,618 510,125 446,754
Operating expenses....................................... 10,995 11,543 10,641
Selling, general, and administrative expenses............ 27,901 33,756 35,790
-------- -------- --------
568,514 555,424 493,185
-------- -------- --------
Operating income........................................... 67,447 54,720 5,157
OTHER INCOME (EXPENSE):
Interest income.......................................... 89 366 1,057
Interest expense......................................... (20,724) (22,238) (25,342)
-------- -------- --------
Income (loss) before income taxes and the cumulative effect
of changes in accounting................................. 46,812 32,848 (19,128)
Income tax expense (benefit)............................... 5,401 628 (64,502)
-------- -------- --------
Income before the cumulative effect of changes in
accounting............................................... 41,411 32,220 45,374
Cumulative effect of changes in accounting................. -- -- (18,836)
-------- -------- --------
NET INCOME................................................. 41,411 32,220 26,538
Less:
Preferred stock dividends................................ 2,810 2,603 2,660
Accretion on preferred stock subject to redemption....... -- -- 770
-------- -------- --------
Income applicable to common stock.......................... $ 38,601 $ 29,617 $ 23,108
======== ======== ========
EARNINGS PER COMMON SHARE:
Primary:
Earnings before cumulative effect adjustments............ $ 2.22 $ 1.72 $ 2.48
Cumulative effect adjustments............................ -- -- (1.07)
-------- -------- --------
Net income............................................... $ 2.22 $ 1.72 $ 1.41
======== ======== ========
Fully diluted:
Earnings before cumulative effect adjustments............ $ 2.16 $ 1.68 $ 2.34
Cumulative effect adjustments............................ -- -- (1.00)
-------- -------- --------
Net income............................................... $ 2.16 $ 1.68 $ 1.34
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

22
<PAGE> 25

CONSOLIDATED BALANCE SHEETS

ASHLAND COAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
DECEMBER 31
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 1,752 $ 1,120
Trade accounts receivable........................................ 76,442 62,362
Other receivables................................................ 6,890 9,124
Inventories...................................................... 26,038 30,211
Prepaid royalties................................................ 16,622 15,568
Deferred income taxes............................................ 3,512 3,158
Other............................................................ 3,349 4,020
-------- --------
Total current assets............................................. 134,605 125,563
Other assets:
Prepaid royalties................................................ 61,979 58,779
Coal supply agreements........................................... 31,498 35,527
Other............................................................ 21,613 25,108
-------- --------
Total other assets............................................... 115,090 119,414
Property, plant, and equipment, net................................. 585,707 593,415
-------- --------
Total assets..................................................... $835,402 $838,392
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 30,595 $ 35,988
Accrued expenses................................................. 37,279 33,657
Current portion of debt.......................................... 42,000 43,963
-------- --------
Total current liabilities........................................ 109,874 113,608
Long-term debt...................................................... 172,975 200,000
Accrued postretirement benefits other than pension.................. 78,951 75,196
Other long-term liabilities......................................... 50,493 48,217
Deferred income taxes............................................... 25,230 32,388
Stockholders' equity:
Convertible preferred stock...................................... 67,841 67,841
Common stock, $.01 par value, 44,000,000 shares authorized,
13,754,224 issued and 13,567,858 outstanding in 1995 and
13,722,984 shares issued and outstanding in 1994................ 138 137
Paid-in capital.................................................. 109,257 108,711
Retained earnings................................................ 224,574 192,294
Less treasury common stock at cost (186,366 shares).............. (3,931) --
-------- --------
Total stockholders' equity....................................... 397,879 368,983
-------- --------
Total liabilities and stockholders' equity....................... $835,402 $838,392
======== ========
</TABLE>

See notes to consolidated financial statements.

23
<PAGE> 26

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

ASHLAND COAL, INC. AND SUBSIDIARIES

Three years ended December 31, 1995

<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
----------- ------ -------- -------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993............... $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 Class C 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............. 67,841 136 107,087 168,363 343,427
Net income............................. 32,220 32,220
Cash dividends paid:
Common - $.415 per share............. (5,686) (5,686)
Preferred - $10,414 (including $2,800
preference dividend) per share...... (2,603) (2,603)
Issuance of 35,655 shares of common
stock under dividend reinvestment and
stock purchase plan................... 1 980 981
Issuance of 28,825 shares of common
stock under stock incentive plan...... 644 644
----------- ------ -------- -------- ------- --------
Balance at December 31, 1994............. 67,841 137 108,711 192,294 368,983
Net income............................. 41,411 41,411
Cash dividends paid:
Common - $.46 per share.............. (6,321) (6,321)
Preferred - $11,239 (including $2,800
preference dividend) per share...... (2,810) (2,810)
Purchase of 185,300 shares of
common stock.......................... (3,902) (3,902)
Issuance of 31,240 shares of common
stock under stock incentive plan...... 1 546 (29) 518
----------- ------ -------- -------- ------- --------
Balance at December 31, 1995............. $67,841 $138 $109,257 $224,574 $(3,931) $397,879
========== ======== ========= ========= ======== =========
</TABLE>

See notes to consolidated financial statements.

24
<PAGE> 27

CONSOLIDATED STATEMENTS OF CASH FLOWS

ASHLAND COAL, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(In thousands) 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 41,411 $ 32,220 $ 26,538
Adjustments to reconcile to cash provided by
operating activities:
Depreciation, depletion, and amortization........ 70,893 71,795 71,248
Prepaid royalties expensed....................... 21,286 19,868 26,299
Deferred income taxes............................ (7,511) (11,238) (69,166)
Gain on disposition of assets.................... (477) (1,214) (43)
Cumulative effect of changes in accounting....... -- -- 18,836
Partnership costs in excess of cash advances..... 689 436 453
Changes in operating assets and liabilities:
Trade accounts receivable................... (14,080) (16,849) 21,315
Other receivables........................... 2,234 (4,657) 3,954
Inventories................................. 4,173 (7,907) 2,154
Prepaid royalties........................... (4,527) (5,070) (16,967)
Other current assets........................ 1,200 (1,522) (1,921)
Other assets................................ 2,336 2,518 (6,764)
Accounts payable and accrued expenses....... (902) 12,816 (7,688)
Income taxes................................ (764) 2,381 (8,146)
Accrued postretirement benefits other than
pension................................... 3,755 7,351 6,746
Other long-term liabilities................. 2,159 3,159 7,322
----------- ----------- -----------
Cash provided by operating activities............... 121,875 104,087 74,170
INVESTING ACTIVITIES
Property, plant, and equipment:
Purchases........................................ (58,245) (42,841) (20,569)
Proceeds from sales.............................. 2,249 4,280 709
Proceeds from sale and leaseback of equipment....... -- -- 64,182
Advances on prepaid royalties....................... (21,013) (20,490) (8,668)
----------- ----------- -----------
Cash provided by (used in) investing activities..... (77,009) (59,051) 35,654
FINANCING ACTIVITIES
Proceeds from borrowings............................ 1,007,754 1,315,931 1,023,648
Payments on borrowings.............................. (1,039,402) (1,353,570) (1,165,029)
Dividends paid...................................... (9,131) (8,289) (8,096)
Proceeds from sale of common stock.................. 447 1,456 2,600
Purchase of common stock............................ (3,902) -- --
----------- ----------- -----------
Cash used in financing activities................... (44,234) (44,472) (146,877)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.... 632 564 (37,053)
Balance at beginning of year........................ 1,120 556 37,609
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 1,752 $ 1,120 $ 556
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for income taxes, net of
refunds.......................................... $ 13,470 $ 9,218 $ 12,810
Cash paid during the year for interest, net of
amounts capitalized................................ $ 20,281 $ 22,126 $ 25,411
</TABLE>

See notes to consolidated financial statements.

25
<PAGE> 28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASHLAND COAL, INC. AND SUBSIDIARIES

December 31, 1995

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. The Company's mining operations are conducted in eastern
Kentucky and West Virginia, and the coal is marketed primarily in the eastern
United States. 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 sheets.
Allocable costs of the partnership for coal loading and storage are included in
costs and expenses in the consolidated statements 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.

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.

Inventories

Inventories are comprised of the following:

<TABLE>
<CAPTION>
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Coal.................................................................... $ 8,536 $14,198
Supplies................................................................ 17,502 16,013
------- -------
$26,038 $30,211
======= =======
</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.

26
<PAGE> 29

1. ACCOUNTING POLICIES (CONTINUED)
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. The valuation allowance for prepaid royalties was
$7,865,000 and $21,884,000 at December 31, 1995 and 1994, respectively.

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
$34,147,000 and $32,775,000 at December 31, 1995 and 1994, respectively.

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.

Depreciation

Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets.

Asset Impairment

If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on the undiscounted cash
flows related to the asset over its remaining life, then the carrying value of
the asset is reduced by the estimated shortfall of cash flows.

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 or otherwise earned.

Other

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash equivalents (none at December 31, 1995 and 1994) 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.

Interest costs on borrowed funds are capitalized for significant asset
construction projects. Capitalized interest costs were $311,000 in 1995 and
$176,000 in 1994. No interest was capitalized in 1993.

27
<PAGE> 30

1. ACCOUNTING POLICIES (CONTINUED)
Certain amounts in the 1994 financial statements have been reclassified to
conform with the classifications in the 1995 financial statements.

2. RELATED PARTIES

The financial statements include transactions with Ashland Inc. (Ashland),
Saarbergwerke AG (Saarberg), and Carboex International, Ltd. (Carboex) and their
affiliates. Ashland owns 7,274,609 shares of the issued and outstanding common
stock and the issued and outstanding convertible Class B preferred stock of
Ashland Coal, and Carboex owns the issued and outstanding convertible Class C
preferred stock of Ashland Coal. Saarberg owns 66,115 shares of Ashland Coal's
common stock. Prior to February 8, 1995, Saarberg also owned the issued and
outstanding convertible Class B preferred stock. On February 8, 1995, Ashland
purchased Saarberg's Class B preferred stock for $110,076,000. Ashland now has
approximately 55% of the voting power of Ashland Coal in matters other than the
election of directors and is able to elect six members of the 10-member Board of
Directors.

Revenues include sales of coal to Saarberg and miscellaneous items of
income resulting from transactions with Ashland. In addition, Ashland Coal
receives certain services from and provides certain services to Ashland for
which fees are charged between the companies. Ashland Coal purchases fuel, oil,
and other products from Ashland for use in its mining operations.

Saarberg and Carboex are the Company's 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 (which include Saarberg prior to February
8, 1995) are summarized below.

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues:
Saarberg....................................................... $ -- $4,124 $1,408
Ashland and affiliates......................................... 2,390 1 1
Service fees:
Charges from Ashland........................................... 428 392 423
Charges to Ashland............................................. 5 1 1
Commissions paid on European sales of metallurgical coal:
Carboex........................................................ 125 108 135
Saarberg and affiliates........................................ -- 108 135
Commissions paid to Saarberg and affiliates on certain export
sales of steam coal............................................ -- -- 13
Purchases of fuel, oil, and other products from Ashland.......... 5,996 5,881 4,205
</TABLE>

Management believes that charges between Ashland Coal and Ashland for
services were reasonable and that the other transactions summarized above were
concluded on terms equivalent to those prevailing among unaffiliated parties.

3. 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

28
<PAGE> 31

3. DOMINION TERMINAL ASSOCIATES (CONTINUED)
and is required to make periodic cash advances to DTA to fund such costs. On a
cumulative basis, costs exceeded cash advances by $7,622,000 and $6,933,000 at
December 31, 1995 and 1994, respectively (included in other long-term
liabilities). Costs and cash advances for the last three years follow:

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Operating and debt service costs charged to costs and expenses... $3,898 $3,316 $3,158
Cash advances.................................................... 3,209 2,880 2,705
</TABLE>

Future payments for fixed operating costs and debt service are estimated to
approximate $3,000,000 annually through 2015 and $26,000,000 in 2016.

4. TAXES

Significant components of the provision for income tax expense (benefit)
are as follows:

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 11,793 $ 11,037 $ 4,805
State.................................................... 1,119 829 (141)
-------- -------- --------
Total current......................................... 12,912 11,866 4,664
-------- -------- --------
Deferred:
Federal.................................................. (6,894) (10,253) (62,068)
State.................................................... (617) (985) (7,098)
-------- -------- --------
Total deferred........................................ (7,511) (11,238) (69,166)
-------- -------- --------
$ 5,401 $ 628 $(64,502)
======== ======== ========
</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) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income tax expense (benefit) at U.S. statutory rate........ $ 16,384 $ 11,497 $ (6,504)
Increase (decrease) in taxes resulting from:
Percentage depletion allowance........................... (10,431) (10,685) (7,038)
State income taxes, net of effect of federal taxes....... 110 (446) (1,700)
Nontaxable income and nondeductible expenses............. (590) (53) (172)
Effect of enacted tax law changes........................ -- -- (50,231)
Other items.............................................. (72) 315 1,143
-------- -------- --------
$ 5,401 $ 628 $(64,502)
======== ======== ========
</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. OBRA also
permitted the Company to elect to deduct the amortization of goodwill over 15
years. Such amortization was not previously deductible. Ashland Coal elected to
deduct for federal tax purposes the amortization of goodwill associated with the
April 1992 acquisition of Dal-Tex Coal Corporation. As a result of this
election, the Company recognized a $53,538,000 deferred tax asset and an equal
deferred tax benefit.

29
<PAGE> 32

4. TAXES (CONTINUED)

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) 1995 1994
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Acquisition costs allocated to mineral reserves..................... $ 87,301 $ 91,842
Property, plant, and equipment, principally due to differences in
lives and methods of depreciation, depletion, and amortization... 27,613 28,385
Prepaid royalties capitalized for financial reporting purposes...... 19,537 18,819
Acquisition costs allocated to coal supply agreements............... 3,110 3,834
Other............................................................... 3,432 3,020
-------- --------
Total deferred tax liabilities................................... 140,993 145,900
-------- --------
Deferred tax assets:
Goodwill for tax purposes........................................... 37,586 40,932
Postretirement benefits other than pension.......................... 31,228 29,919
Alternative minimum tax credit carryforward......................... 26,971 25,287
Costs not deductible until paid or realized......................... 17,719 15,779
Net operating loss carryforwards.................................... 500 499
Deferred gains not deferred for tax purposes........................ 2,141 1,933
Other............................................................... 3,130 2,321
-------- --------
Total deferred tax assets........................................ 119,275 116,670
-------- --------
Net deferred tax liability..................................... 21,718 29,230
Less current asset............................................... (3,512) (3,158)
-------- --------
Long-term deferred tax liability............................... $ 25,230 $ 32,388
======== ========
</TABLE>

At December 31, 1995, the Company had $459,000 of federal net operating
loss carryforwards, which expire in 2004, and $6,306,000 of state net operating
loss carryforwards, which expire from 2002 through 2008, which may be applied
against future taxable income.

5. PREPAID ROYALTIES

Ashland Coal has entered into various noncancellable royalty lease
agreements under which future minimum payments are approximately $25,000,000 in
1996, $23,000,000 in 1997 through 1999, $22,000,000 in 2000, and $212,000,000 in
the aggregate thereafter.

Coal lands and mineral rights with a carrying value of $2,800,000, prepaid
royalties with a carrying value of $25,132,000 (net of the valuation allowance),
and future royalty commitments of $2,210,000 at December 31, 1995, 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.

30
<PAGE> 33

6. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consists of the following:

<TABLE>
<CAPTION>
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Land.................................................................. $ 5,686 $ 5,393
Coal lands and mineral rights......................................... 462,465 457,971
Buildings and improvements............................................ 38,381 34,881
Equipment and processing facilities................................... 386,624 340,035
Other................................................................. 7,502 6,607
Construction in progress.............................................. 5,184 13,251
-------- --------
905,842 858,138
Less accumulated depreciation, depletion, and amortization............ 320,135 264,723
-------- --------
$585,707 $593,415
======== ========
</TABLE>

7. DEBT AND FINANCING ARRANGEMENTS

Debt consists of the following:

<TABLE>
<CAPTION>
(In thousands) 1995 1994
-------- --------
<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 (rate at
December 31, 1995--6.22%; 1994--6.51%).............................. 30,000 25,000
Indebtedness to banks under lines of credit (weighted average rate at
December 31, 1995--6.09%; 1994--6.74%).............................. 7,315 43,858
Other................................................................. 2,660 105
-------- --------
214,975 243,963
Less current portion.................................................. 42,000 43,963
-------- --------
Long-term debt........................................................ $172,975 $200,000
======== ========
</TABLE>

Ashland Coal has a revolving credit agreement, which terminates in 1999,
with a group of banks providing for borrowings of up to $500,000,000. 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 National
Westminster Bank PLC reference rate, a rate based on LIBOR, or a rate based on
an average market certificate-of-deposit rate. The provisions of the revolving
credit agreement require a facility fee, which is currently computed at the rate
of 0.225% per annum on the amount of the commitment. The rate used to compute
the facility fee is redetermined quarterly based upon the Company's ratio of
debt to equity and may vary from 0.15% to 0.35% per annum. Certain amounts
borrowed under the revolving credit agreement ($18,200,000 in 1995 and
$25,000,000 in 1994) are classified as long-term as the Company has the intent
and ability to maintain these borrowings on a long-term basis.

Ashland Coal periodically establishes uncommitted lines of credit with
banks. These agreements generally provide for short-term borrowings at market
rates. At December 31, 1995, there were $255,000,000 of such agreements in
effect.

Aggregate maturities of debt at December 31, 1995, are $42,000,000 in 1996,
$43,888,000 in 1997, $25,737,000 in 1998, $25,450,000 in 1999, $25,000,000 in
2000, and $52,900,000 thereafter. Included in these maturities are discretionary
prepayments of $19,000,000 in 1996.

31
<PAGE> 34

7. DEBT AND FINANCING ARRANGEMENTS (CONTINUED)

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, 1995, retained earnings of $78,459,000 were available for
dividends.

The Company enters into interest-rate swap agreements to modify the
interest characteristics of its outstanding debt from a fixed to a floating rate
basis. The Company also enters into interest-rate cap agreements to hedge the
exposure to increasing interest rates with respect to its interest-rate swap
program. The effect of activity in these financial instruments is not
significant to the Company's consolidated financial statements. At December 31,
1995, the notional value of interest-rate swap and cap agreements in place was
$5 million.

8. ACCRUED BLACK LUNG BENEFITS

Ashland Coal is liable under the federal Mine Safety and Health Act of
1977, 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 five to
22 years at an assumed 8% after-tax investment return. The accrual for black
lung benefits (included in other long-term liabilities and in accrued expenses)
was $15,841,000 and $14,890,000 at December 31, 1995 and 1994, 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 $2,599,000 and $2,227,000 at December 31, 1995 and
1994, 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 (collectively, closing costs) over the lives of the various mines.
Closing costs, in the aggregate, are estimated to be approximately $38,000,000.
At December 31, 1995 and 1994, the accrual for closing costs, which is included
in other long-term liabilities and in accrued expenses, was $9,418,000 and
$7,653,000, respectively.

10. ACCRUED EXPENSES

Accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Accrued compensation.................................................... $17,800 $15,233
Accrued taxes........................................................... 10,743 10,214
Accrued interest........................................................ 4,313 4,204
Accrued reclamation and mine closing costs.............................. 960 850
Other................................................................... 3,463 3,156
------- -------
$37,279 $33,657
======= =======
</TABLE>

32
<PAGE> 35

11. CAPITAL STOCK

Convertible preferred stock consists of the following:

<TABLE>
<CAPTION>
(In thousands)
<S> <C>
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
Class C, $100 par value, 250 shares authorized, 100 shares issued and
outstanding...................................................................... 34,791
-------
$67,841
=======
</TABLE>

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. Such preference dividend is currently $2,800 per share per annum,
decreases to $1,400 per share per annum in 1999, and will be zero after 2003.

Each share of Class A preferred stock (if issued) is convertible into
13,846 shares of common stock.

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.

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. After the expiration
of the put agreement in September 1993, the Class C preferred stock was
reclassified as an element of stockholders' equity. 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).

Ashland Coal's Board of Directors in 1995 authorized the purchase, from
time to time, of up to one million shares of the Company's common stock. At
February 14, 1996, 251,200 shares had been purchased under this authorization.
Shares acquired may be used for general corporate purposes.

12. 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 plans 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.

33
<PAGE> 36

12. EARNINGS PER SHARE (CONTINUED)
Computations of earnings per share, using the "two class" method, are as
follows:

<TABLE>
<CAPTION>
(In thousands except earnings per share) 1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Income before the cumulative effect of changes in
accounting................................................. $41,411 $32,220 $ 45,374
Less: Common stock dividends................................. 6,321 5,686 5,436
Preferred stock dividends.............................. 2,810 2,603 2,529
Accretion of discount on preferred stock............... -- -- 770
------- ------- --------
Undistributed earnings less accretion before cumulative
effect adjustments......................................... 32,280 23,931 36,639
Cumulative effect of changes in accounting................... -- -- (18,836)
------- ------- --------
Undistributed earnings less accretion........................ $32,280 $23,931 $ 17,803
======= ======= ========
Earnings per common share:
Primary:
Undistributed earnings less accretion before cumulative
effect adjustments.................................... $ 1.76 $ 1.30 $ 2.08
Dividends (except preference dividends)................. .46 .42 .40
------- ------- --------
Earnings before cumulative effect adjustments........... 2.22 1.72 2.48
Cumulative effect adjustments........................... -- -- (1.07)
------- ------- --------
Net income.............................................. $ 2.22 $ 1.72 $ 1.41
======= ======= ========
Fully diluted:
Undistributed earnings less accretion before cumulative
effect adjustments.................................... $ 1.70 $ 1.26 $ 1.94
Dividends (except preference dividends)................. .46 .42 .40
------- ------- --------
Earnings before cumulative effect adjustments........... 2.16 1.68 2.34
Cumulative effect adjustments........................... -- -- (1.00)
------- ------- --------
Net income.............................................. $ 2.16 $ 1.68 $ 1.34
======= ======= ========
</TABLE>

Weighted average shares for computing earnings per share were as follows:

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Primary....................................................... 18,374 18,338 17,579
Fully diluted................................................. 19,002 18,965 18,924
</TABLE>

13. STOCK INCENTIVE PLANS

On August 8, 1988, the stockholders approved a stock incentive plan (1988
Plan) reserving 750,000 shares of Ashland Coal common stock, and on April 28,
1995, the stockholders approved a new stock incentive plan (1995 Plan) reserving
1,000,000 shares of Ashland Coal common stock, in each case for awards to
officers and key employees. The 1988 Plan provides for the granting of incentive
stock options (qualified stock options), nonqualified stock options, stock
appreciation rights (SARs) and restricted stock awards, and the 1995 Plan
provides for granting of those same incentives, as well as merit awards,
performance share awards, and phantom 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 10 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, 1995, no SARs or restricted stock
awards have been granted. Merit awards under the 1995 Plan are grants of Ashland

34
<PAGE> 37

13. STOCK INCENTIVE PLANS (CONTINUED)
Coal stock without restriction and at a nominal cost. Performance share awards
are awards which can be earned by the recipient if Ashland Coal meets certain
preestablished performance measures. Until earned, the performance shares are
nontransferable, and when earned, performance shares are payable in cash, stock,
or restricted stock. Phantom stock awards under the 1995 Plan are based on the
appreciation of hypothetical underlying shares or the earnings performance of
such shares and may be paid in cash or in shares. As of December 31, 1995, no
merit, performance share, or phantom stock awards have been granted.

Information regarding stock options under these plans is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
COMMON AVERAGE COMMON AVERAGE COMMON AVERAGE
(In thousands except per share data) SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1...... 514 $23.23 468 $21.75 432 $20.91
Granted........................... 95 26.13 96 28.45 96 25.50
Exercised......................... (31) 15.24 (29) 16.49 (29) 16.61
Cancelled......................... -- -- (21) 23.29 (31) 26.37
------ ------ ------
Options outstanding at December 31.... 578 24.14 514 23.23 468 21.75
===== ===== =====
Options exercisable at December 31.... 410 351 284
Options available for grant at
December 31......................... 1,000 95 170
</TABLE>

The Financial Accounting Standards Board has recently issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not
require, companies to recognize compensation expense related to the grants of
stock or stock options to employees under plans such as the Company's 1988 and
1995 Plans. Companies choosing not to adopt SFAS No. 123 will continue to
account for such grants using the accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB25), but will
be required to make certain disclosures about their plans, including pro forma
net income and earnings per share under the new method. Ashland Coal is first
required to follow the rules of SFAS No. 123 in 1996. The Company expects to
continue to follow APB25 for expense recognition and to make the disclosures
required by SFAS No. 123. Accordingly, Ashland Coal expects that SFAS No. 123
will have no effect on the Company's earnings or financial position.

14. 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 the 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.

The net pension cost of the plan includes the following components:

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Service cost of benefits earned................................ $ 1,185 $ 1,433 $1,047
Interest cost on projected benefit obligation.................. 1,032 863 712
Actual (return) loss on plan assets............................ (1,872) 787 (506)
Net amortization............................................... 1,148 (1,428) 227
------- ------- ------
Net periodic pension cost.................................... $ 1,493 $ 1,655 $1,480
======= ======= ======
</TABLE>

35
<PAGE> 38

14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheets at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits....................................................... $ 9,450 $ 5,178
Nonvested benefits.................................................... 1,246 728
------- -------
Accumulated benefit obligation..................................... 10,696 5,906
Effect of projected compensation increases.............................. 7,857 5,346
------- -------
Projected benefit obligation....................................... 18,553 11,252
Plan assets at fair value............................................... 8,957 6,920
------- -------
Projected benefit obligation in excess of plan assets.............. 9,596 4,332
Unrecognized transition credit.......................................... 397 497
Unrecognized prior service cost......................................... (8) (8)
Unrecognized net loss................................................... (4,439) (509)
------- -------
Accrued pension liability.......................................... 5,546 4,312
Less amount included in accrued expenses................................ 2,331 998
------- -------
Amount included in other long-term liabilities..................... $ 3,215 $ 3,314
======= =======
</TABLE>

The assumptions used in computing the information above were as follows:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................................ 7.0% 8.5% 7.0%
Expected long-term rate of return on plan assets..................... 9.0% 9.0% 9.0%
Future compensation growth rate...................................... 5.0% 5.0% 5.0%
</TABLE>

Multiemployer Pension and Benefit Plans

Under the labor contract with the United Mine Workers of America (UMWA),
Ashland Coal made payments of $1,348,000 in 1995, $1,293,000 in 1994, and
$475,000 in 1993 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 $17,100,000 at December 31, 1995. 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 in 1993 and 1994 from an overfunded pension trust
established for the benefit of retired UMWA members, and transfers from the
Abandoned Mine Lands Fund (funded by a federal tax on coal production)
commencing in 1995.

Ashland Coal treats its obligation under the Benefit Act as a participation
in a multiemployer plan and recognizes expense as premiums are paid. Ashland
Coal recognized $347,000 in 1995, $296,000 in 1994, and $240,000 in 1993 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 into two multiemployer benefit
trusts.

36
<PAGE> 39

14. EMPLOYEE BENEFIT PLANS (CONTINUED)

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 labor contract ratified by the members of the UMWA in December of 1993
changed the manner in which health care will be provided to and paid for future
retirees. The effect of these changes was to reduce the accumulated
postretirement benefit obligation as of January 1, 1994, by approximately
$2,500,000. That reduction will be amortized over the expected future working
lifetime of active employees.

The net periodic postretirement benefit cost of these plans includes the
following components:

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Service cost.................................................... $ 2,138 $4,522 $4,236
Interest cost................................................... 3,859 4,591 4,988
Amortization of gains........................................... (1,607) (213) --
------- ------ ------
Net periodic postretirement benefit cost........................ $ 4,390 $8,900 $9,224
======= ====== ======
</TABLE>

Net periodic postretirement benefit cost decreased approximately $4,500,000
(an increase in net income of $2,750,000, or $.15 per share on a primary basis
and $.14 per share on a fully diluted basis) in 1995 due to changes in certain
actuarial assumptions, including an increase in the discount rate, a decrease in
the per capita claims cost, and a decrease in the health care cost trend rate.

The following table sets forth the amounts recognized in the consolidated
balance sheets at December 31, 1995 and 1994, none of which have been funded:

<TABLE>
<CAPTION>
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................................. $22,961 $16,611
Fully eligible active plan participants............................... 7,114 6,869
Other active plan participants........................................ 31,993 35,060
------- -------
62,068 58,540
Unrecognized net gain................................................... 15,740 15,710
Unrecognized gain related to prior service.............................. 2,102 2,315
------- -------
Accrued postretirement obligation.................................. 79,910 76,565
Less amount included in accrued expenses................................ 959 1,369
------- -------
Amount included in accrued postretirement benefits other than
pension........................................................... $78,951 $75,196
======= =======
</TABLE>

The discount rate used in determining the accumulated postretirement
benefit obligation was 7% and 8.5% at December 31, 1995 and 1994, respectively.
The assumed health care cost trend rate for 1996 is 9.25%, decreasing to 5% in
the year 2004. 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, 1995, by
$9,235,000, or 14.9%, and the net periodic postretirement benefit cost for 1995
by $1,123,000, or 25.6%.

37
<PAGE> 40

14. 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 $1,928,000 in 1995, $1,621,000 in 1994,
and $1,464,000 in 1993.

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 adopted SFAS No. 112 in 1994. SFAS No. 112 had no
significant effect on the consolidated financial statements.

Changes in Assumptions

The assumptions, including discount rates, used in determining the
accumulated benefit obligations for pensions and for other postretirement
benefits have changed in the past, and it is reasonably possible that changes in
those assumptions will occur in the future. Such changes affect not only the
accumulated benefit obligations, but also the amount of expense recognized each
year.

15. 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, 1995 and 1994, accounts receivable
from electric utilities located in the United States totaled $53,836,000 and
$49,079,000, respectively, and accounts receivable from electric utilities
located in Europe totaled $7,328,000 and $1,146,000, 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 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) 1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Customer A................................................... $88,191 $128,978 $99,251
Customer B................................................... 83,938 82,005 79,620
Customer C................................................... 60,767 60,928 44,033
</TABLE>

In 1995, 1994, and 1993, Ashland Coal had export sales, principally to
European customers, of $78,679,000, $40,608,000, and $50,364,000, respectively.

16. 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 consolidated
balance sheets for cash and cash equivalents approximates its fair value.

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.

38
<PAGE> 41

16. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of Ashland Coal's financial
instruments at December31, 1995 and 1994, are as follows:

<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
(In thousands) AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 1,752 $ 1,752 $ 1,120 $ 1,120
Lines of credit................................... 7,315 7,315 43,858 43,858
Revolving credit agreement........................ 30,000 30,000 25,000 25,000
Senior notes...................................... 175,000 201,000 175,000 188,000
</TABLE>

17. 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
with a term of three years. The proceeds of this transaction were used to repay
borrowings under Ashland Coal's revolving credit agreement. In May 1995, the
lease was amended to extend the term for two years for most of the equipment.
The Company purchased the equipment not included in the extension in January
1996, for approximately $4 million. The lease provides for annual rental
payments of approximately $10,800,000 in 1996, $9,600,000 in 1997, and
$2,300,000 in 1998. At the end of the lease term, the Company has the option to
purchase the equipment for approximately $28,300,000. 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 $23,700,000.

18. 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 $13,737,000 in
1995, $14,088,000 in 1994, and $10,772,000 in 1993. Minimum annual rentals due
in future years under lease agreements in effect at January 1, 1996, are
approximately $11,800,000 in 1996, $11,000,000 in 1997, $5,400,000 in 1998,
$3,100,000 in 1999, $3,200,000 in 2000, and additional amounts thereafter
aggregating $9,800,000 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
$2,550,000 (included in other long-term liabilities) and believes that probable
insurance recoveries of $1,680,000 (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
$3,600,000 (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.

39
<PAGE> 42

19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly financial data for 1995 and 1994 are summarized below.

<TABLE>
<CAPTION>
(In thousands except earnings per share) THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPT. 30(1) DEC. 31
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
1995:
Sales and operating revenues........ $156,624 $151,614 $ 158,566 $169,157
Operating income.................... 15,175 18,215 15,641 18,416
Net income.......................... 9,041 11,566 9,215(2) 11,589(2)(3)
Earnings per common share(6)
Primary.......................... .49 .62 .49 .62
Fully diluted.................... .48 .60 .48 .61
1994:
Sales and operating revenues........ $137,488 $154,650 $ 157,425 $160,581
Operating income.................... 2,459 17,431 15,375 19,455
Net income (loss)................... (3,057)(4) 11,519 10,163(5) 13,595(4)
Earnings (loss) per common share(6)
Primary.......................... (.18) .62 .54 .73
Fully diluted.................... (.18) .60 .53 .71
<FN>
- ------------------------------

(1) The results of the third quarter of each year are frequently adversely
affected by lower production and resultant higher costs because of
scheduled vacation periods at the Company's large mines in West
Virginia. In addition, costs are typically somewhat higher during
vacation periods because of maintenance activity carried on during
those periods. These adverse effects on the third quarter may make the
third quarter not comparable to the other quarters and not indicative
of results to be expected for the full year.

(2) In the third quarter of 1995, the actuarial estimate of the Company's
accumulated obligation for postretirement health and life insurance
benefits was revised. As a result of that revision, postretirement
benefit expense was reduced $2.3 million in the third quarter and $2.2
million in the fourth quarter. Those changes increased net income for
the third quarter by $1.4 million, or $.08 per share on a primary basis
and $.07 on a fully diluted basis and increased net income for the
fourth quarter by $1.3 million, or $.07 per share on a primary and on a
fully diluted basis.

(3) In the fourth quarter of 1995, Ashland Coal and a customer agreed to
terminate a coal supply agreement. As part of this termination
agreement, the customer agreed to make a payment to the Company,
increasing net income for the quarter by $.5 million, or $.03 per share
on a primary basis and on a fully diluted basis.

(4) In the first quarter of 1994, the Company settled a claim against a
construction contractor for business interruption losses sustained by
the Company when a coal silo failed. This settlement increased net
income in the first quarter by $610,000 ($.03 per share on a primary
basis and $.03 per share on a fully diluted basis). Settlement of a
second claim against the same contractor was recognized in the fourth
quarter, adding $843,000 ($.05 per share on a primary basis and $.04 on
a fully diluted basis) to net income.

(5) In the third quarter of 1994, Ashland Coal recognized compensation for
an easement which rendered certain coal unmineable, sold surplus mining
equipment, and received an insurance settlement. In the aggregate,
these transactions increased net income by $2,078,000, which was $.11
per share on a primary and on a fully diluted basis.

(6) The sum of the quarterly earnings per share amounts may 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.

</TABLE>

40
<PAGE> 43

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 2 in
the Company's 1996 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 Pension Plan 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 15 to 22 in the Company's 1996 Proxy Statement. No portion of
the Personnel and Compensation Committee and Key Employee Stock Administration
Committee Report on Executive Compensation for 1995 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 7 of the Company's 1996
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 Page 9 of the Company's 1996
Proxy Statement and the information appearing under the caption "Certain
Relationships and Related Transactions" beginning on Page 23 of the Company's
1996 Proxy Statement.

41
<PAGE> 44

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.............................................. 21
Consolidated Statements of Income--Years Ended December 31, 1995, 1994
and 1993.................................................................. 22
Consolidated Balance Sheets--December 31, 1995 and 1994..................... 23
Consolidated Statements of Stockholders' Equity--Years Ended December 31,
1995, 1994 and 1993....................................................... 24
Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1994
and 1993.................................................................. 25
Notes to Consolidated Financial Statements.................................. 26
(2) The following consolidated financial statement schedule of Ashland Coal, Inc. and
subsidiaries is included in Item 14 at the page indicated:
II--Valuation and Qualifying Accounts....................................... 47
</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.

<TABLE>
<S> <C>
(3) Exhibits filed as part of this Report are as follows:
3.1 - Restated Certificate of Incorporation of the Company, as amended (Exhibit
3.1 to 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
November 15, 1994, among Ashland Coal, Inc., the Banks listed therein,
Bank of America Illinois, Morgan Guaranty Trust Company of New York,
National Westminster Bank PLC, The First National Bank of Chicago and PNC
Bank, National Association as Agents (Exh. 4.1).**
4.2 - 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).
4.3 - 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).
4.4 - 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).
4.5 - Third Amendment Agreement dated as of January 26, 1995, to the September
15, 1990, Note Agreement (Exh. 4.5).***
</TABLE>

42
<PAGE> 45

<TABLE>
<S> <C>
4.6 - 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).
4.7 - 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).
4.8 - Second Amendment Agreement dated as of January 26, 1995, to the May 15,
1991, Note Agreement (Exh. 4.8).***
4.9 - Restated Shareholders Agreement among Ashland Inc. (formerly Ashland Oil,
Inc. and hereafter referred to as Ashland), Saarberg Coal International
GmbH (SCI), a predecessor to Saarbergwerke AG (Saarberg), Carboex
International, Ltd. (Carboex) and the Company dated December 12, 1991
(Exhibit 4.3 to the Company's Form 8-K dated April 6, 1992, is
incorporated herein by reference).
4.10 - Amendment to Restated Shareholders Agreement dated August 6, 1993, among
Ashland, Saarberg, 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).
4.11 - 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).
4.12 - Registration Rights Agreement dated as of August 2, 1993, among the
Company, Ashland, 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 Saarberg (legal successor to SCI),
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 - Agreement of Lease dated January 1, 1988, between Courtney Company and
Allegheny Land Co. No. 2 (assignee of Primeacre Land Corporation under
October 5, 1992, assignments), a second tier subsidiary of the
Company.****
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. and assigned the lease
to Mountaineer Land Company, a subsidiary of the Company (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 Hobet
Mining & Construction Co., Inc., an independent operating subsidiary of
the Company that subsequently changed its name to Hobet Mining, Inc. (Exh.
10.14).*
10.6 - Lease between Oglebay Norton Company and F. B. Nutter, Sr., predecessor in
interest to Hobet Mining & Construction Co., Inc., an independent
operating subsidiary of the Company that subsequently changed its name to
Hobet Mining, Inc. (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>

43
<PAGE> 46

<TABLE>
<S> <C>
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 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. 10.15).*
10.16 - Ashland Coal, Inc. ERISA Forfeiture Plan, as amended (Exh. 10.16).***
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, as
amended (Exh. 10.18).***
10.19 - Ashland Coal, Inc. Nonqualified Excess Benefit Pension Plan (Exh. 10.59).*
10.20 - 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).
10.21 - 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).
10.22 - Letter Agreement dated November 20, 1990, between the Company and William
C. Payne regarding certain supplemental retirement benefits of Mr. Payne
(Exhibit 10.33).**
10.23 - Ashland Coal, Inc. Amended and Restated Deferred Compensation Plan for
Directors' Fees (Exhibit 10.24 to the Company's Form 10-K for the year
ended December 31, 1993, filed with the SEC on March 30, 1994, and
incorporated herein by reference).
10.24 - Coal Sales Agency Agreement dated December 12, 1991 (Met Coal 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).
</TABLE>

44
<PAGE> 47

<TABLE>
<S> <C>
10.25 - Amendment to Met Coal 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).
10.26 - Form of Agreement between the directors of the Company and the Company
providing for indemnification of such directors by the Company to the
extent permitted by Delaware law (Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed May 11, 1994, is incorporated herein by
reference).
10.27 - Form of Agreement between certain officers of the Company providing for
indemnification of such officers by the Company to the extent permitted by
Delaware law (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
filed May 11, 1994, is incorporated herein by reference).
10.28 - Sales Agency Agreement (Carboex Agency Agreement) dated as of February 27,
1982, between the Company and Carboex (Exh. 10.28).***
10.29 - Coal Purchasing Services Agreement dated as of February 1, 1983 between
Carboex and the Company (Exh. 10.31).***
10.30 - Ashland Coal, Inc. Benefit Restoration Plan (Exh. 10.32).***
10.31 - 1995 Stock Incentive Plan for Key Employees of Ashland Coal, Inc. and its
subsidiaries (Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
filed August 10, 1995, is incorporated herein by reference).
10.32 - Coal Lease Agreement dated March 1, 1993, between Oglebay Norton Company
and Allegheny Land Company No. 2, a second tier subsidiary of the Company
(Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed August
10, 1995, is incorporated herein by reference).
11 - Statement re Computation of Per Share Earnings****
21 - Subsidiaries of the Company****
23 - Consent of Independent Auditors****
24 - Power of Attorney****
27 - Financial Data Schedule****
99.1 - Letter Agreement dated as of March 27, 1995, relating to the rights and
obligations of Saarberg under certain contracts with the Company including
Exhibits 4.9, 4.12, 10.1, 10.24 and 10.25 above (Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q filed April 6, 1995, is
incorporated herein by reference).
</TABLE>

- ------------------------------
* 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 in
Item 14(a)(3) of such Form 10-K.

*** Incorporated by reference from the Company's Annual Report on Form
10-K filed with the SEC on March 10, 1995. The Exhibit number referred
to within the parenthesis corresponds to the number of such exhibits
in item 14(a)(3) of such Form 10-K.

**** Included with this Report.

45
<PAGE> 48

Items 10.14, 10.15, 10.16, 10.17, 10.18, 10.19, 10.22, 10.23, 10.30
and 10.31 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 October 27, 1995, to report that
Ashland Coal's Board of Directors authorized the purchase from time to time of
up to one million shares of Ashland Coal common stock.

A Current Report on Form 8-K was filed October 19, 1995, to report the
Company's expectations regarding 1995, 1996 and 1997 earnings.

46
<PAGE> 49

SCHEDULE II

ASHLAND COAL, INC. AND SUBSIDIARIES
SCHEDULE II -- 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, 1995
Reserves Deducted from Asset Accounts
Prepaid Royalties.................... $ 21,884 $ 1,000 $15,019 $ 7,865
Property, Plant and Equipment........ 1,379 -- 1,055 324
Other Assets--Other
Notes and Accounts Receivable...... 8,195 -- 7,965 230
Prepaid Rent....................... 204 24 -- 228
Current Assets--Other Receivables.... 1,220 -- 1,220 --
Year Ended December 31, 1994
Reserves Deducted from Asset Accounts
Prepaid Royalties.................... $ 22,062 $ 1,181 $ 1,359 $ 21,884
Property, Plant and Equipment........ 1,713 100 434 1,379
Other Assets--Other
Notes and Accounts Receivable...... 8,189 6 -- 8,195
Prepaid Rent....................... 180 24 -- 204
Current Assets--Other Receivables.... 1,220 -- -- 1,220
Year Ended December 31, 1993
Reserves Deducted from Asset Accounts
Prepaid Royalties.................... $ 10,634 $ 12,720 $ 1,292 $ 22,062
Property, Plant and Equipment........ 1,638 75 -- 1,713
Other Assets--Other
Notes and Accounts Receivable...... 8,169 20 -- 8,189
Prepaid Rent....................... 156 24 -- 180
Current Assets--Other Receivables.... 1,127 93 -- 1,220
</TABLE>

- ------------------------------
(1) Reserves utilized, unless otherwise indicated.

47
<PAGE> 50

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 5, 1996

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 5, 1996.

<TABLE>
<CAPTION>
SIGNATURES CAPACITY
- ------------------------------- ---------------------------------------------------------------------------
<S> <C>
By: /S/ WILLIAM C. PAYNE Chairman of the Board, President and Chief
--------------------- Executive Officer and Director
William C. Payne

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

Paul W. Chellgren Director

Thomas L. Feazell Director

Juan Antonio Ferrando Director
By: /S/ ROY F. LAYMAN
Robert L. Hintz Director -----------------
Roy F. Layman
J. Marvin Quin Director As Attorney-in-Fact

Thomas Marshall Director

John A. Brothers 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 24 TO THIS REPORT.

<PAGE> 51

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 November 15,
1994, among Ashland Coal, Inc., the Banks listed therein, Bank of America Illinois,
Morgan Guaranty Trust Company of New York, National Westminster Bank PLC, The First
National Bank of Chicago and PNC Bank, National Association as Agents (Exh. 4.1).**
4.2 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).
4.3 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).
4.4 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).
4.5 Third Amendment Agreement dated as of January 26, 1995, to the September 15, 1990,
Note Agreement (Exh. 4.5).***
4.6 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).
4.7 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).
4.8 Second Amendment Agreement dated as of January 26, 1995, to the May 15, 1991, Note
Agreement (Exh. 4.8).***
4.9 Restated Shareholders Agreement among Ashland Inc. (formerly Ashland Oil, Inc. and
hereafter referred to as Ashland), Saarberg Coal International GmbH (SCI), a
predecessor to Saarbergwerke A.G. (Saarberg), Carboex International, Ltd. (Carboex)
and the Company dated December 12, 1991 (Exhibit 4.3 to the Company's Form 8-K
dated April 6, 1992, is incorporated herein by reference).
4.10 Amendment to Restated Shareholders Agreement dated August 6, 1993, among Ashland,
Saarberg, 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).
4.11 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).
4.12 Registration Rights Agreement dated as of August 2, 1993, among the Company,
Ashland, 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> 52

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.1 Restated Coal Off-Take Agreement among Saarberg (legal successor to SCI), 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 Agreement of Lease dated January 1, 1988, between Courtney Company and Allegheny
Land Co. No. 2 (assignee of Primeacre Land Corporation under October 5, 1992,
assignments), a second tier subsidiary of the Company.****
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. and assigned the lease to Mountaineer Land Company,
a subsidiary of the Company (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 Hobet Mining &
Construction Co., Inc. an independent operating subsidiary of the Company that
subsequently changed its name to Hobet Mining, Inc. (Exh. 10.14).*
10.6 Lease between Oglebay Norton Company and F. B. Nutter, Sr., predecessor in interest
to Hobet Mining & Construction Co., Inc. an independent operating subsidiary of the
Company that subsequently changed its name to Hobet Mining, Inc. (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 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. 10.15).*
10.16 Ashland Coal, Inc. ERISA Forfeiture Plan, as amended (Exh. 10.16).***
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, as amended
(Exh. 10.18).***
</TABLE>
<PAGE> 53

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.19 Ashland Coal, Inc. Nonqualified Excess Benefit Pension Plan (Exh. 10.59).*
10.20 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).
10.21 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).
10.22 Letter Agreement dated November 20, 1990, between the Company and William C. Payne
regarding certain supplemental retirement benefits of Mr. Payne (Exhibit 10.33).**
10.23 Ashland Coal, Inc. Amended and Restated Deferred Compensation Plan for Directors'
Fees (Exhibit 10.24 to the Company's Form 10-K for the year ended December 31,
1993, filed with the SEC on March 30, 1994, and incorporated herein by reference).
10.24 Coal Sales Agency Agreement dated December 12, 1991 (Met Coal 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).
10.25 Amendment to Met Coal 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).
10.26 Form of Agreement between the directors of the Company and the Company providing
for indemnification of such directors by the Company to the extent permitted by
Delaware law (Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed May
11, 1994, is incorporated herein by reference).
10.27 Form of Agreement between certain officers of the Company providing for
indemnification of such officers by the Company to the extent permitted by Delaware
law (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed May 11,
1994, is incorporated herein by reference).
10.28 Sales Agency Agreement (Carboex Agency Agreement) dated as of February 27, 1982,
between the Company and Carboex (Exh. 10.28).***
10.29 Coal Purchasing Services Agreement dated as of February 1, 1983 between Carboex and
the Company (Exh. 10.31)***
10.30 Ashland Coal, Inc. Benefit Restoration Plan (Exh. 10.32)***
10.31 1995 Stock Incentive Plan for Key Employees of Ashland Coal, Inc. and its
subsidiaries (Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed
August 10, 1995, is incorporated herein by reference).
10.32 Coal Lease Agreement dated March 1, 1993, between Oglebay Norton Company and
Allegheny Land Company No. 2, a second tier subsidiary of the Company (Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q filed August 10, 1995, is
incorporated herein by reference).
11 Statement re Computation of Per Share Earnings****
</TABLE>
<PAGE> 54

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -----------------------------------------------------------------------------------
<C> <S>
21 Subsidiaries of the Company****
23 Consent of Independent Auditors****
24 Power of Attorney****
27 Financial Data Schedule****
99.1 Letter Agreement dated as of March 27, 1995, relating to the rights and obligations
of Saarberg under certain contracts with the Company, including Exhibits 4.9, 4.12,
10.1, 10.24 and 10.25 above (Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q filed April 6, 1995, is incorporated herein by reference).
</TABLE>

- ------------------------------

* 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 in Item 14(a)(3)
of such Form 10-K.

*** Incorporated by reference from the Company's Annual Report on Form 10-K
filed with the SEC on March 10, 1995. The Exhibit number referred to within
the parenthesis corresponds to the number of such exhibit in item 14(a)(3)
of such Form 10-K.

**** Included with this Report.

<PAGE> 1
Exhibit 10.3

AGREEMENT OF LEASE dated January 1, 1988, between COURTNEY COMPANY, a West
Virginia corporation (hereinafter called "Lessor"), and PRIMEACRE LAND
CORPORATION, a Delaware corporation (hereinafter called "Lessee").

1. PREMISES

1.1 In consideration of the rents, royalties, and other sums to be paid
by Lessee to Lessor and subject to the covenants and agreements hereinafter
contained and to be kept, performed, and observed on the part of Lessee, Lessor
hereby leases to Lessee all of the mineable and merchantable coal (as defined
in Section 3), to the extent that it is owned by Lessor, in, upon, and under the
following-described tract of land, situate partly in Boone County, West
Virginia, and partly in Lincoln County, West Virginia:

The tract of land that was conveyed to Lessor by Frederick L. Thomas,
Trustee, by deed dated August 15, 1958, and recorded in the Office of the
Clerk of the County Commission of said Boone County in Deed Book No. 93, at
page 390, and in the Office of the Clerk of the County Commission of said
Lincoln County in Deed Book No. 153, at page 396.

EXCEPT, HOWEVER, those lands, if any, that have been conveyed by
Lessor to others in connection with boundary line compromises.

TOGETHER WITH those lands, if any, in either of said counties that
have been conveyed to Lessor by others in connection with boundary line
compromises.

TOGETHER, ALSO, WITH the mining rights described below in Section 2.

EXCEPTING AND RESERVING, HOWEVER, to Lessor, its successors and
assigns, the right to recover timber from the surface of the Premises to
the extent that Lessor, in the absence of this Agreement of Lease, would
have such right, but subject to the provisions of Section 13.4.

EXCEPTING AND RESERVING, MOREOVER, to Lessor, its successors and
assigns, all oil and gas and other minerals
<PAGE> 2

(except the above-described coal and such fireclay or other minerals as are
normally removed with said coal) lying or being or found within or
underlying the above-described premises, including methane and other gases
in the coal hereby leased (it being understood, however, that Lessee may
discharge to the atmosphere or use in its operations, but may not sell,
such methane and other gases), together with the right to drill and bore
for and sink shafts for the purpose of testing, exploring for and removing
oil, gas and such other minerals; provided, however, that any such
drilling, boring or sinking of shafts shall be done at such point or points
and in such manner as will not substantially interfere with or injure the
properties or operations of Lessee.

SUBJECT, HOWEVER, to the terms of an Agreement between Courtney Company and
George E. Price, Trustee, Philadelphia Warehouse Company, and United Fuel Gas
Company, dated May 1, 1913, and recorded in said Office of the Clerk of the
County Commission of said Boone County in Oil and Gas Record Book No. 3, at page
158, and in said Office of the Clerk of the County Commission of said Lincoln
County in Oil and Gas Record Book No. 4, at page 173.

1.2 It is the purpose of the Lessor and the Lessee to bring under this
Agreement of Lease all coal, with the appurtenances thereto, that is owned by
Lessor and located within said Boone County or said Lincoln County (the lands
within which coal is located being, to the extent that they are owned by the
Lessor, hereinafter called the "Premises").

2. MINING RIGHTS

2.1 With respect to any part of the Premise where Lessor owns the surface,
Lessor grants to Lessee, for the purpose of mining, removing, gathering,
storing, preparing for market,

2
<PAGE> 3

transporting and shipping the coal, the right and privilege to exercise and use
such mining rights, auxiliary privileges and easements as may be deemed
necessary or convenient by Lessee for the purposes hereof.

2.2 Without limiting the generality of the foregoing grant of rights, said
grant includes, in so far as Lessor has the right to grant such rights, the
right to mine (by any method or process, including deep mining, strip mining,
mountain-top removal and auger and punch mining) and take and remove all of said
coal; the right to use so much of the surface of the Premises as Lessee may
desire for the erection, maintenance and operation of mining structures,
buildings, power lines, tracks, tramways and equipment, for depositing refuse,
slurry, bone, slate and other substances resulting from mining and for drainage,
ventilation, haulage and other purposes in connection with the mining and
removal of such coal and of coal from adjacent and neighboring lands; the right
to haul through and under the Premises coal from neighboring and adjacent lands;
and the right to use in connection with the mining operations of Lessee in, on
and under the Premises and adjacent and neighboring lands sand, rock, water and
other substances found on, in or under the Premises; all without liability for
injury or damage that may result to the overlying strata or the surface land or
to buildings or structures that may now or hereafter be erected thereon or
therein or to springs, wells or water courses in, on or under the Premises or to
anything therein or thereon and

3
<PAGE> 4

without being required in the mining and removal of coal, sand or rock,
including pillars, from the Premises or from other lands to provide vertical,
subjacent or lateral support to any strata overlying the coal within the
Premises or to the surface of the Premises or to anything therein or thereon,
subject, however, as hereinafter set forth.

2.3 With respect to any part of the Premises where Lessor does not own the
surface, Lessor grants to Lessee the same mining rights, privileges and
easements as Lessor possesses or has the right to utilize, subject, however, as
hereinafter set forth, it being understood that those mining rights, privileges
and easements may not be uniform throughout the Premises.

3. MINEABLE AND MERCHANTABLE COAL

3.1 The term "mineable and merchantable" shall refer to coal which, when
reached in the conduct of Lessee's operations hereunder, could be mined by the
use of machinery and methods which, at that time, are modern, practical, and
efficient and could be sold at a reasonable profit on the market then
prevailing. The term "mineable and merchantable" shall be given reasonable and
practicable consideration to the end that as much coal shall be recovered as is
reasonable and practicable without imposing an unreasonable burden upon Lessee
where unfavorable natural conditions or market conditions are encountered.

4. WARRANTIES

4.1. Lessor warrants specially title to the Premises and to the rights,
privileges and easements hereby leased.

4
<PAGE> 5
4.2 If the title of Lessor to any of the coal that is herein described as
being leased shall be defeated by the holder of an outstanding superior title
and as a consequence any mineable and merchantable coal is lost to Lessee by
virtue of a final adjudication by the court of last resort in the State of West
Virginia or by any court of last resort of the United States of America, then
Lessee shall pay no Tonnage Royalty (as defined in Section 7) to Lessor for coal
with respect Lessor's title is defeated and the Minimum Quarterly Royalty (as
defined in Section 6) shall be reduced in the same proportion as the acreage of
coal contained within the Premises is reduced by virtue of such defeat of title;
and if Tonnage Royalty shall theretofore have been paid in respect of such coal,
then Lessor shall refund to Lessee the amount of thereof, with interest from the
date of such final adjudication.

4.3 For six (6) months after any such final adjudication, Lessor shall be
entitled to purchase the coal so lost. If Lessor does not purchase the same
within said period of six (6) months, Lessee may purchase it. If such coal is
purchased by Lessor during the term hereof and is so located as to be mineable
and merchantable, taking into account the then status of Lessee's mining, it
shall thereupon become part of the Premises, and Lessee shall repay to Lessor
any of the above amounts therefore refunded by Lessor to Lessee with respect to
such coal and shall adjust the Minimum Quarterly Royalty accordingly.

5
<PAGE> 6
4.4 All actions against Lessor affecting title to the Premises and all
actions against Lessee affecting such title, if Lessor is duly notified thereof
by Lessee, shall be defended by Lessor at its own expense, but Lessee may on its
own account and at its own expense have associate counsel in any such
litigation.

5. TERM

5.1 The term hereof shall commence upon the date hereof and shall terminate
on December 31, 20O7, subject to extension as provided in Section 5.2 and to
earlier termination as provided in Section 5.3 and in Section 20.1 and subject
to the continuation of certain rights and obligations as provided in Section
23.1.

5.2 If Lessee has kept and performed all the covenants of this Lease,
Lessee may extend the term hereof for as many additional periods of twenty (20)
years each as Lessee may find necessary or desirable for the purposes of mining
all of the merchantable and mineable coal within the Premises, the term as so
extended being subject in each instance to the provisions of Section 5.3 and
Section 20.1 concerning earlier termination and subject to the continuation of
certain rights and obligations as provided in Section 23.1.

5.3 The term hereof shall terminate, except for the continuation of certain
rights and obligations as provided in Section 23.1, upon the removal of all of
the mineable and merchantable coal from the Premises.

6. PREPAID ROYALTY AND MINIMUM QUARTERLY ROYALTY

6.1 Lessor acknowledges receipt from Lessee, under the provisions of a
former lease of the coal within the Premises, of

6
<PAGE> 7
prepaid but unrecovered royalties in the amount of Three Hundred Seventy-three
Thousand Five Hundred Dollars ($373,500), which amount shall be regarded for the
purposes of recoupment hereunder as unrecovered Minimum Quarterly Royalty.

6.2 Lessee shall pay to Lessor with respect to each calendar quarter during
the term hereof the following minimum royalty (the "Minimum Quarterly Royalty"),
the obligation to pay which shall be in lieu of any obligation, express or
implied, to mine with due diligence:

<TABLE>
<CAPTION>
With respect to quarters in Minimum Quarterly Royalty
- --------------------------- -------------------------
<S> <C>
Calendar years 1988 through 1990 $25,000
Calendar years 1991 and 1992 $31,250
Calendar years 1993 and 1994 $37,500
Calendar years 1995 and 1996 $43,750
Calendar years 1997 through 2007 $50,000
Thereafter See Section 6.5
</TABLE>

subject, however, to reduction as provided in Section 4.2 if Lessor's title to
all or any part of the Premises is defeated.

6.3 The Minimum Quarterly Royalty shall be paid on the 25th day of the
first month following the calendar quarter with respect to which it is payable.

6.4 If the Minimum Quarterly Royalty is to be reduced during the course of
a calendar year by virtue of failure of Lessor's title, as provided in Section
4.2, so that there would be defined, in the absence of this provision, two (2)
or more distinct amounts of Minimum Quarterly Royalty with respect to such
calendar quarter, the Minimum Quarterly Royalty with respect to

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<PAGE> 8
such calendar quarter shall be the weighted average of each of the individual
amounts, the weights assigned being proportional to the number of days that each
such decrease is in effect during such calendar quarter.

6.5 The Minimum Quarterly Royalty during each twenty(20) year extension of
the term hereof shall be determined as follows:

6.5.1 At any time when Lessee has the right to extend the term of
this lease and shall be willing to do so if a satisfactory Minimum
Quarterly Royalty can be determined, Lessee shall give Lessor notice of
that fact no later than nine (9) months prior to the expiration of said
term. Thereupon, Lessor and Lessee shall attempt to negotiate the amount or
amounts of Minimum Quarterly Royalty to be paid during said term, as
extended, if Lessee exercises said right. If they do not reach agreement
prior to six (6) months before the expiration of said term, Lessee may,
within the immediately succeeding two (2) weeks submit the determination of
the Minimum Quarterly Royalty to be paid during said period to arbitration
as provided in Section 24. The arbitrators shall be instructed to submit
their decision no later than one (1) month before the expiration of said
term.

6.5.2 The Minimum Quarterly Royalty as determined by agreement or by
arbitration shall be consistent with minimum royalties in effect at the
time in then recent coal leases

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<PAGE> 9
of coal lands of comparable size and location and containing coal of
comparable quantity and quality in Boone County, West Virginia, and Lincoln
County, West Virginia.

6.5.3 Lessee may exercise its option to extend the term hereof on the
terms so determined as to Minimum Quarterly Royalty no later than the date
of expiration of the then term, failing which exercise said option shall
lapse.

7. TONNAGE ROYALTY

7.1 Lessee shall pay to Lessor for each ton (2,000 pounds) of coal mined
and removed from the Premises a tonnage royalty (the "Tonnage Royalty") equal to
the following:

7.1.1 if such coal is mined and removed by a sublessee of Lessee, the
greater of (i) three per cent (3%) of the gross selling price of such coal,
as defined in Section 7.2 or Section 7.3 or (b) one-half (1/2) of the
tonnage royalty thereon payable by such sublessee to Lessee; or

7.1.2 otherwise three and one-half (3 1/2) per cent of the gross
selling price of such coal, as defined in Section 7.2 or Section 7.3.

7.2 For the purpose of calculating Tonnage Royalty upon coal sold to
parties not affiliated in any way with Lessee or, in the instance of a sublease,
upon coal sold to parties not affiliated in any way with the sublessee, the
gross selling price of coal shall be:

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<PAGE> 10
7.2.1 if such coal is shipped by rail car, either raw or after
preparation, the price actually charged the ultimate purchaser f.o.b. rail
car;

7.2.2 if such coal is shipped f.o.b. barge after preparation, the
price actually charged the ultimate purchaser f.o.b. barge, without any
deduction except the cost of transportation to the barge after preparation;

7.2.3 if such coal sold f.o.b. barge on a raw basis, the price
actually charged the purchaser without any deduction other than
transportation costs in excess of the transportation costs that would have
been incurred if such coal had been sold f.o.b. rail car; and

7.2.4 if such coal is shipped by truck, the price actually charged the
purchaser without any deduction except the cost of transportation.

In no event shall there be any deduction for selling costs, selling commissions,
advertising, credit losses, hauling or tippling, or consumer sales taxes or
severance taxes imposed or for discounts or allowances actually allowed to
arm's-length wholesalers, middlemen, or purchasers.

7.3 For the purpose of computing Tonnage Royalty upon coal sold by Lessee
to any party affiliated in any way with Lessee or, in the instance of a
sublessee, upon coal sold to any party affiliated in any way with sublessee, the
gross selling price of coal shall be the average of the fair market values
obtainable for coals of comparable quality mined in the Boone County, West
Virginia, and Lincoln County, West Virginia, area and sold in

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<PAGE> 11
similar markets, such fair market values to be established between
representatives of Lessor and Lessee effective each January 1 and July 1 during
the term hereof for the ensuing six (6) calendar months.

7.4 If Lessor and Lessee fail to agree upon the gross selling price, the
gross selling price of coal shall be established on the basis of the definition
of Section 7.2 or Section 7.3, as may be appropriate, by an independent third
party, knowledgeable about coal markets, to be selected by the parties. The fees
for the services of said third party shall be borne equally by Lessor and
Lessee. If Lessor and Lessee fail to agree on the third party to be selected, or
if either Lessor or Lessee is unwilling to accept any gross selling price
established by such third party, the matter shall be submitted to arbitration as
provided in Section 24.

8. ROYALTY UPON THE SALE OF BY-PRODUCTS

8.1 Lessee shall pay Lessor a sum equal to ten per cent (10%) of the
amounts charged for the sale during the term hereof of any slate, refuse or like
by-products obtained from the Premises and resulting from the production or
cleaning of coal, whether prior to the date hereof or during the term hereof.

8.2 Such royalty shall be accounted for and paid for as provided in
Section 10.

9. WHEELAGE

9.1 Lessee shall pay Lessor wheelage of one-fourth of one per cent (1/4%)
of the gross selling price of coal mined from

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<PAGE> 12
lands other than the Premises and stored or processed on and shipped from the
Premises.

9.2 Such wheelage shall be accounted for and paid for as provided in
Section 10, the quantity being determined as provided in Section 11.

10. STATEMENTS AND PAYMENTS

10.1 On or before the 25th day of each calendar month, Lessee shall submit
to Lessor, in duplicate, a statement showing the tonnage of coal mined and
removed during the preceding calendar month, the gross selling price of such
coal, the Tonnage Royalty thereon, a reference to the method by which said
tonnage has been computed, as agreed upon pursuant to the provisions of Section
11, the quantity of coal on which wheelage is payable and a reference to the
method by which said quantity has been computed, the gross selling price of such
coal, the wheelage thereon, any sum payable as royalty on the sale of
by-products and all other information required for the computation of Tonnage
Royalty pursuant to the provisions of Section 7, the computation of royalty on
the sale of by-products pursuant to the provisions of Section 8 and for the
computation of wheelage payable pursuant to the provisions of Section 9
(including, if appropriate, a statement that no Tonnage Royalty or royalty on
the sale by by-products or wheelage is payable). Lessee shall submit such
monthly statement whether or not any payment is due.

10.2 To the extent that the sum of the Tonnage Royalty, the royalty upon
the sale of by-products and the wheelage to be paid

12
<PAGE> 13
pursuant to said statement exceeds the Minimum Quarterly Royalty applicable to
said quarter, Lessee may apply against such excess any prepaid but unrecovered
Minimum Quarterly Royalty (including, as provided in Section 6.1 the unrecovered
prepaid royalties therein specified). Lessee shall accompany such statement with
payment of all amounts due in accordance with such statement.

10.3 To the extent that the sum of the Tonnage Royalty, the royalty upon
the sale of by-products and the wheelage payable as provided in Section 9 is
with respect to any calendar quarter less than the Minimum Quarterly Royalty for
such calendar quarter, Lessee shall accompany said statement with payment of the
difference, which difference shall be recoupable as provided in Section 10.2.

11. DETERMINATION OF QUANTITY

11.1 The quantity of coal mined and removed hereunder shall be determined
as follows:

11.1.1 the quantity of coal mined from the Premises and shipped by
rail without being commingled with other coal shall be determined by
railroad weights;

11.1.2 the quantity of coal mined from the Premises and shipped by
other means or sold locally or used on the premises, which shall in no
event be commingled with other coal, shall be determined by standardized
weigh scales to be provided by Lessee and in accordance with the scale
books and accounts of Lessee or according to any further procedure that may
be proposed by Lessee and accepted by Lessor for the correct ascertainment
and report of such quantity.

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<PAGE> 14
11.1.3 the quantity of coal commingled with coal from other premises
shall be determined by prorating the total weight of such coal, determined
as provided in Section 11.1.2, between the various lessors or owners
according to the tonnage mined from the premises of each during the
relevant period or periods, which tonnage shall be based on mine car
weights or on weightometers if belt conveyors are used or by engineers'
measurements and computations made by usual, customary, modern and accurate
methods or by any other scientifically reliable and accurante appliance or
method.

11.2 The quantity of coal used in the preparation of coal for market shall
not be taken into account in computing the quantity of coal for the purpose of
calculating the Tonnage Royalty.

12. RECORDS AND INSPECTION OF RECORDS

12.1 Lessee shall keep true and accurate accounts of all coal mined and
removed by it hereunder in such manner as to segregate the quantities of coal
mined and removed hereunder from the quantities of coal mined and removed from
other lands of Lessee.

12.2 Lessee shall permit Lessor to inspect its records relating to coal
mined and removed hereunder; and Lessor may inspect, audit, and copy such books
and records of Lessee as may be necessary or desirable to determine the accuracy
of the

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<PAGE> 15
coal mined and removed hereunder. All such inspections shall be conducted during
Lessee's normal business hours and in such manner as not to interfere
unreasonably with the mining operations or business operations of Lessee.

12.3 Lessor shall have the right to obtain from any railroad or trucking
company by which coal mined hereunder shall be shipped, and from any person who
weighs coal mined hereunder, manifests and other information as to the quantity
of coal mined hereunder and to obtain from any purchaser of coal mined hereunder
information concerning the quantity of such coal purchased and the price or
prices paid therefore at such time or times as Lessor may desire such
information; and this provision shall constitute full authority to such
railroad, trucking company, person, or purchaser to give such information to
Lessor.

13. OPERATIONS

13.1 Lessee shall commence and thereafter carry on its mining operations
hereunder in a careful, skillful, and workmanlike manner in accordance with good
mining practices and the laws and regulations of the United States of America
and the State of West Virginia and their political subdivisions having
jurisdiction over such operations and in such manner as, subject to the other
provisions hereof, will permit the recovery of as much mineable and merchantable
coal as is practicable and with due regard to the future of the Premises as a
coal property.

13.2 Lessor and Lessee hereby waive any requirement for the maintenance of
barrier pillars between the Premises and any other mines of Lessee, including
any barrier pillars required by statute.

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<PAGE> 16
13.3 In the event that Lessee shall encounter faults, rolls, or any other
adverse condition which, in its judgment, prohibits it from mining and removing
coal in accordance with the terms hereof, Lessee shall, before abandoning the
area or areas involved, give notice in writing to Lessor; and Lessor shall have
the right, if exercised within fourteen (14) days after receipt of such notice,
to inspect the area or areas involved to determine in its opinion whether or not
the coal therein should be mined and removed in accordance with the terms and
provisions hereof. Should the parties disagree on this point, the question
shall, at the option of Lessor, either (i) be submitted to a mining engineer
selected and agreed upon by Lessor and Lessee, in which event the decision of
such engineer, which shall be rendered in writing within twenty (20) days after
submission to him, shall be binding on the parties hereto; or (ii) be submitted
to arbitration pursuant to Section 24; provided, however, that if the decision
of such engineer or arbitrators is that the coal in such area or areas should be
mined and removed, Lessee may at its sole election determine whether to return
to said area or areas to mine and remove the coal therein or rather to pay
Tonnage Royalty in respect of said coal.

13.4 Lessee shall give Lessor reasonable notice and opportunity to recover
timber to which Lessor is entitled in advance of strip or auger mining, failing
which removal Lessee

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<PAGE> 17
may recover, remove, use or destroy such timber without liability therefor to
Lessor.

13.5 If at any time Lessee shall not conduct its operations as provided
herein, as a result of which coal that otherwise would be minable and
merchantable is not mined or is otherwise lost, Lessee shall pay to Lessor, at
the time it would otherwise have been payable, the full royalty that would
otherwise be due thereon, based on the estimated tonnage of minable and
merchantable coal that remains unmined or is otherwise lost. Any dispute
between the parties as to the liability of Lessee under the provisions of this
paragraph shall be submitted to arbitration as provided in Section 24.

13.6 Lessee shall use all reasonable precautions necessary or prudent to
avoid damage to or destruction of the Premises or any part thereof by fire and
will comply with all applicable laws and regulations of the State of West
Virginia concerning fire and fire safety.

14. SURVEYS AND MAPS

14.1 Lessee shall cause a survey of the mine workings to be made promptly,
as the work proceeds, by a competent mining engineer and shall keep an accurate,
complete, and current map of the Premises and mine workings on a scale of one
hundred (100) feet to the inch in conformity in all respects with the
requirements of the pertinent laws of the United States of America and the State
of West Virginia. Said map shall show all property lines, surface improvements,
and areas of active,

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<PAGE> 18
projected, and completed mining and shall at all times be accessible to Lessor
and its agents and representatives for inspection. Accurate measurements at
diverse places of the thickness of the seam of coal, as the same is mined, as
well as the location of faults, clay veins and rolls shall be shown on the mine
maps. Lessee shall furnish a true, complete, and correct copy of such map to
Lessor, in duplicate, without demand therefor, within thirty (30) days after the
first day of January and July of each year.

14.2 Lessee shall also keep an accurate and complete map of the Premises
and mine workings on a scale of five hundred (500) feet to the inch showing, in
addition to the abovementioned information, the projection of the mine
development, and Lessee shall furnish a true, complete, and correct copy of the
same to Lessor, without demand therefor, within thirty (30) days after the first
day of January and July of each year.

14.3 All maps, or copies thereof, together with the surveys, notebooks,
and calculations, or copies thereof, as well as all engineering records and data
and drilling exploration data, relative to the Premises and mine workings, or
copies thereof, shall be accessible to Lessor, its agents and representatives,
for inspection and copying and shall be delivered to and become the property of
Lessor upon the termination of Lessee's leasehold hereunder.

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<PAGE> 19
15. INSPECTION

15.1 Lessor and its agents, engineers and other persons acting on its
behalf may enter the mines or works of Lessee at all reasonable times and at the
sole risk of Lessor in order to inspect, to examine, to select samples of coal,
to survey or measure the seam or any part thereof, and to ascertain the
condition of the mines, the methods practiced, and the amount of coal mined and
removed and to carry out any other activity pertinent to the administration of
this Agreement of Lease. While on the Premises, neither Lessor nor any such
agent or representative shall be regarded as an employee of Lessee. Lessor
shall give Lessee due notice of its intention to make such entrances in order to
afford an opportunity for Lessee's engineer or agent to accompany the
representative of Lessor. Neither Lessor's right to inspect Lessee's records
and mines nor the exercise of that right shall be construed as a direction by
Lessor or an approval by Lessor of any activity or omission of or by Lessee.

16. COMPLIANCE WITH LAWS AND REGULATIONS

16.1 Lessee shall conduct all activities hereunder in compliance with such
laws and regulations of the United States of America and the State of West
Virginia and their political subdivisions having jurisdiction over such
activities as may be in effect from time to time. Lessee shall comply with all
valid rules, regulations, and orders of any regulatory body having jurisdiction
in mining matters and shall secure all permits and other authorizations required
by any competent governmental authority; provided, nevertheless, that in dealing
with any rule,

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<PAGE> 20
order, citation, prohibition, or directive, actions to be taken by Lessee to
achieve compliance by Lessee shall be in the sole discretion of Lessee and the
existence of such rule, order, citation, prohibition or directive or a failure
to comply therewith shall not be deemed to be a default under the terms of this
Agreement of Lease unless and until such failure to comply or failure to correct
any situation constituting a failure to comply shall materially affect the value
of the Premises as a coal property, materially diminish Lessor's estate in the
Premises, or constitute a failure to comply with a final unappealed or
unappealable order of any court or governmental body empowered to issue said
order; provided, moreover, that Lessee shall indemnify Lessor and hold it
harmless from any penalties, fines, costs, and expenses, including legal fees,
court costs, and expenses paid or incurred by Lessor as a result of Lessee's
actions or failures to act under this Section 16.

17. TAXES AND OTHER ASSESSMENTS

17.1 Lessee shall pay all taxes, levies, fees, assessments, and other
charges imposed by the United States of America or the State of West Virginia or
any political subdivision thereof or municipal corporation therein upon the
entire estate of Lessor in the lands of which the Premises are a part (except
those taxes which are separately assessed to Lessor on its oil and gas) or upon
the leasehold estate hereby created, upon coal mined and produced therefrom and
upon operations of Lessee in the Premises, so that Lessor shall be entirely
relieved from such charges.

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<PAGE> 21
Lessee shall also pay all taxes, levies, fees, assessments, and other charges
imposed by the United States of America or the State of West Virginia or any
political subdivision thereof or any municipal corporation therein, upon Lessee
or upon any real estate, plant, equipment, or improvements of Lessee on the
Premises. If any payment on account of any or all of the above shall be made in
the first instance by Lessor, Lessee shall reimburse the amount thereof to
Lessor within thirty (30) days after presentation of an invoice therefor. It is
not intended that Lessee shall pay or be required to pay any income, profits,
excise, occupational, or privilege tax levied upon or measured by the royalty
income of Lessor hereunder.

18. BLACK LUNG AND INDEMNIFICATION

18.1 As between Lessor and Lessee in relation to any third party, Lessee
shall be the operator of the Premises and shall be considered the responsible
operator with respect to any claim for benefits filed by any of its employees or
former employees or members of the families of either under the Black Lung
Benefits Act of 1972, the Black Lung Benefits Reform Act of 1977, the Black Lung
Benefits Revenue Acts of 1977 and 1981, and the Black Lung Benefits Amendments
of 1981, as they may hereafter be amended, and all rules and regulations adopted
pursuant thereto (the "Act"). Lessee shall secure and shall require any other
person who operates, controls, or supervises a coal mine or performs services or
construction at any time on the Premises or who otherwise may be liable for the
payment of black lung

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<PAGE> 22
benefits to secure the payment of such benefits to its employees under the Act
in accordance with applicable laws and regulations and shall provide Lessor, at
least annually and more often upon request, with appropriate certification that
each of them has provided security for the payment of such benefits. Lessee
shall notify Lessor immediately in writing of any change or alteration in the
status of that security. Without limiting the generality of this Section 18,
Lessee agrees to indemnify and hold Lessor harmless from any liability it may
have for the payment of such benefits because of a person's employment with
Lessee or others on the Premises. Lessor is not and will not be considered an
"operator" or a "responsible operator" within the meaning of the Act with
respect to Lessee's employees or the employees of others.

18.2 Lessee alone shall be responsible for any injury to any person or
property of others caused by it in the course of its operations hereunder or in
the exercise of any of the rights granted hereunder and for any mining that
Lessee may perform outside of the borders of the Premises and shall indemnify
Lessor and save Lessor harmless from and against any and all suits, actions,
costs, loss or damages and Lessor's reasonable attorney's fees resulting
therefrom; provided, however, that Lessee does not assume by this provision
responsibility for any damage or injury for which, but for this paragraph, there
would be no legal responsibility or liability on the part of Lessee.

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<PAGE> 23

19. CONDEMNATION

19.1 Should the Premises or any part thereof be taken pursuant to eminent
domain proceedings or be declared by any governmental body or agency to be
unsuitable for mining, Lessee shall be entitled to claim all damages thereto and
therefor, except that Lessor shall be entitled to all royalties due upon tonnage
mined up to the date of taking or declaration, and Lessor shall be further
entitled to claim as damages the royalties on all coal that would have been
mined from the Premises by Lessee during the unexpired term of this Agreement of
Lease and any extensions thereof had the property not been taken or declared
unsuitable for mining.

20. DEFAULT PROVISIONS

20.1 If (i) Lessee shall fail or default in the payment of any sum
required to be paid by it hereunder when and as the same shall become due and
payable and any such default shall continue for a period of thirty (30) days
after written demand by Lessor for such payment, (ii) Lessee shall fail or
default in the performance of any one (1) or more of the following covenants or
conditions: to prosecute its operations in accordance with the terms hereof; to
secure all required permits, licenses, and identification numbers and pay all
fees in connection therewith and fulfill all obligations in relations thereto;
to permit Lessor access to the Premises; to provide Lessor any consent, waivers
or other documentation that may be requested by Lessor or third parties and
required by this Agreement of Lease; to keep

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<PAGE> 24
accurate records, maps, surveys, and statements respecting all aspects of its
operations hereunder; to provide any statements required hereunder; to permit
Lessor to examine and survey Lessee's operations and to examine its books,
accounts, statements, and maps and plans to the extent provided herein; to use
recognized modern mining methods and practices or to expend reasonable and
necessary funds for proper health and safety measures and apply proper effort to
development, reclamation, drainage, and pollution control; to become and remain
a subscriber to the Workers' Compensation Fund of West Virginia or otherwise
provide workers' compensation coverage for its employees and maintain insurance
for, or otherwise guarantee the payment of, Federal Black Lung benefits for its
employees in accordance with applicable laws; to pay all taxes, fees, levies,
assessments and other charges imposed or assessed against it as provided herein;
to indemnify Lessor as provided hereunder; to comply with the restrictions on
assignment and the creation of liens and encumbrances contained herein; to
forward all notices and documents as provided for hereunder; or to perform any
other covenant or condition herein contained to be performed by it not then in
the process of arbitration and such default shall continue for a period of
thirty (30) days (except for any default not susceptible of being cured within
such thirty- (30-) day period, in which event the time permitted to cure such
default shall be extended for so long as shall be reasonably necessary to cure
the same, provided that Lessee commences promptly and

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<PAGE> 25
proceeds diligently to cure such default) after written demand by Lessor for the
performance thereof (or as to matters that formed the subject of arbitration,
for a period of thirty (30) days after written demand by Lessor for compliance
with the decision of the arbitrators) or (iii) Lessee shall file a petition in
bankruptcy, make an assignment for the benefit of its creditors, consent to the
appointment of a receiver, be adjudicated a bankrupt, file a petition for
reorganization, have a receiver appointed, or have an order entered against it
for reorganization, then Lessor, at its option, may:

(a) declare a forfeiture of the leasehold of Lessee hereunder and of all
the right, title, and interest of Lessee in and to the Premises;

(b) re-enter and take possession of the Premises, including all
improvements and personal property theretofore placed by Lessee in or upon
the Premises, to the complete exclusion of Lessee and if Lessee shall
refuse to give such possession to Lessor, proceed to obtain such possession
in any manner permitted under the laws of the State of West Virginia; and

(c) proceed to collect all indebtedness of Lessee to Lessor in any manner
permitted under the laws of the State of West Virginia.

21. REMEDIES

21.1 All of the remedies granted to Lessor herein shall be deemed to be
cumulative. No exercise of any remedy shall be considered an election by Lessor
of remedies or as a waiver of

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<PAGE> 26
any other remedy specified in Section 20. Moreover, the specification of
remedies in Section 20 shall not be deemed to exclude Lessor from any other
legal or equitable remedy or remedies that it may have. No failure on the part
of Lessor to enforce any of its rights hereunder for any period or periods shall
operate as an estoppel or as a waiver against Lessor or prevent Lessor at any
subsequent time from electing to exercise all or any of such rights in respect
of a default or otherwise. Any provision hereof which is enforceable only to a
limited extent may be enforced to such extent with the same effect as if such
provision had expressly provided in the alternative for the enforcement thereof
to the extent to which such provision may be enforceable.

21.2 In addition to all other remedies, a lien is hereby reserved and
imposed upon the leasehold estate of Lessee hereunder, all sums due Lessor from
Lessee hereunder and all property of Lessee present upon the lands of Lessor
hereunder to secure the payment of any and all sums due to Lessor from Lessee
hereunder.

22. OPTION TO PURCHASE; REMOVAL OF PROPERTY

22.1 Upon the termination of the term hereof, Lessor may purchase at fair
market value any or all of Lessee's machinery, equipment and improvements then
upon the Premises. Said right must be exercised by Lessor, if at all, within
four (4) months following the termination of said term. If Lessor and Lessee
fail to agree upon the fair market value of any such machinery,

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<PAGE> 27
equipment or improvements that Lessor may be interested in buying, such fair
market value shall be determined by arbitration in accordance with the
provisions of Section 24.

22.2 If not in default hereunder at the time of termination of the term
hereof, Lessee may for a reasonable time after such termination remove from the
Premises all of its machinery, equipment and improvements and other property,
except that which Lessor has elected to purchase.

23. RECLAMATION AND REHABILITATION

23.1 Lessee shall be solely responsible for the reclamation and
rehabilitation, at Lessee's sole expense, of any portions of the Premises mined
hereunder and water treatment, if such water treatment is required by any laws
or regulations of the State of West Virginia or the United State of America now
or hereafter in force, which obligations shall survive the termination of
Lessee's leasehold. During such reclamation, rehabilitation or water treatment
after termination of Lessee's leasehold hereunder, Lessee shall continue to have
such use of the Premises as is necessary or convenient to carry out its
obligations, subject to the provisions of Section 18.

24. ARBITRATION

24.1 Any disagreement or dispute between the parties hereto as to any of
the rights or obligations of the parties to this Agreement of Lease or as to the
performance or nonperformance of any of the provisions hereof, other than the
failure of Lessee to render an account of and pay royalties when due as herein

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<PAGE> 28
provided, shall be submitted to arbitration under the jurisdiction of 9 U.S.C. 1
et seq., as follows: one (1) arbitrator shall be chosen by Lessor and one by
Lessee within ten (10) days after notice in writing from either party to the
other; the two (2) so chosen shall select a third arbitrator within five (5)
days after the selection of the second of them. If either party shall tail to
select an arbitrator within said period of ten (10) days, such arbitrator may be
appointed by any Federal court having jurisdiction over the area in which the
Premises, or any part thereof, lie, upon the application of the party. If the
two (2) arbitrators so chosen fail to agree upon a third arbitrator within five
(5) days after the selection of the second of them, the third arbitrator shall
be appointed by said court upon the application of either or both of the
parties. The award of the arbitrators shall be made in writing within fifteen
(15) days from the final submission of the question to the arbitrators and one
(1) copy thereof shall be furnished to each of the parties hereto. An award by
all or a majority of said arbitrators shall be final, conclusive, and binding on
the parties as to the question or questions submitted to arbitration. The
arbitrators shall determine the costs of the arbitration, including reasonable
compensation to the arbitrators, and the party or parties by which such costs
are to be paid. The award of the arbitrators may be entered as a decree or
order by any court of competent jurisdiction.

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25. NOTICES AND PAYMENTS

25.1 All communications from Lessee to Lessor hereunder shall be deemed to
be sufficiently given and served if sent (by certified mail in the instance of
notice) to:

Courtney Company
c/o Spilman, Thomas, Battle & Klostermeyer
P. O. Box 273
Charleston, West Virginia 25321-O273

or to such other address as Lessor may prescribe from time to time by written
notice to Lessee.

25.2 All communications from Lessor to Lessee hereunder shall be deemed to
be sufficiently given and served if sent (by certified mail in the instance of
notice) to:

Primeacre Land Corporation
c/o Bethlehem Steel Corporation
Real Estate Services Division
Bethlehem, Pennsylvania 18016

or at such other address as Lessee may prescribe from time to time by written
notice to Lessor.

26. RELATIONSHIP OF PARTIES

26.1 The relationship between the parties hereto is that of landlord and
tenant, and such relationship shall not be interpreted or established as that of
partners, joint venturers, covenants, co-tenants, principal and agent, or any
other relationship other than that of landlord and tenant. Nothing in this
Agreement of Lease, expressed or implied, is intended or shall be construed to
confer upon or give to any person, firm, or corporation, other than the parties
hereto and their successors or assigns, any remedy or claims under or by reason
of this

29
<PAGE> 30
Agreement of Lease or any term, covenant or condition hereof; and all the terms,
covenants, conditions, promises, and agreements in this Agreement of Lease
contained shall be for the sole and exclusive benefit of the parties hereto and
their successors and assigns.

26.2 Lessor's right of review and approval of Lessee's mining application,
plans, maps, and other data and Lessor's right to inspect Lessee's records or
mines or the exercise of any of those rights shall not be construed as creating
an employment relationship, a partnership, a joint venture, a cotenancy, an
agency or any relationship other than that of Lessor and Lessee between the
parties to this Agreement of Lease.

27. PROHIBITION OF ASSIGNMENT AND LIENS

27.1 Lessee may sublet any portion of the Premises upon giving notice
thereof to Lessor of its intention to sublet, and Lessee shall furnish Lessor
with a copy of any agreements by which it sublets any portion of the Premises.

27.2 Lessee shall not assign this Agreement of Lease without the prior
written consent of Lessor; provided, however, that Lessee may assign this
Agreement of Lease to Bethlehem Steel Corporation, a Delaware corporation, or to
any subsidiary of Bethlehem Steel Corporation or to any company into which
Lessee may be merged or that may be formed by any consolidation to which Lessee
shall be a party or to which substantially all of the assets of Lessee shall
have been conveyed; provided, moreover, that such merged company or such
consolidated company, as the

30
<PAGE> 31
case may be, shall in each such instance assume the obligations of Lessee; and
provided, further, that no such assignment shall relieve Lessee from liability
for the performance of all of the terms, covenants and conditions hereof.

28. SUCCESSORS AND ASSIGNS

28.1 This Agreement of Lease shall be binding upon and inure to the
benefit of the parties hereto and, subject to the provisions of Section 27, upon
and to their successors and assigns.

29. HEADINGS

29.1 The captions and headings of the various provisions of this Agreement
of Lease are for the purpose of convenience only and in no way define, limit or
describe the scope or intent of this Agreement of Lease or in any way affect or
alter any of the provisions hereof; and no such headings or captions shall be
used by any court or by the arbitrators referred to in Section 24 in
interpreting any of the provisions hereof.

30. GOVERNING LAW

30.1 This Agreement of Lease and the provisions hereof shall be governed
by and interpreted in accordance with the laws of the State of West Virginia.

31. TERMINATION OF EARLIER LEASE

31.1 The Agreement of Lease dated October 1, 1968, between Lessor and
Lessee is hereby terminated except as to any obligations that have heretofore
accrued thereunder.

32. ENTIRE AGREEMENT

32.1 This Agreement of Lease constitutes the entire agreement between
Lessor and Lessee with regard to the matters with which it is concerned.

31
<PAGE> 32
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement of Lease
as of the day and year first above written.

COURTNEY COMPANY,
ATTEST: by

/s/ Mary Delle Thomas /s/ Virginia T. Jones

Secretary President

ATTEST: PRIMEACRE LAND CORPORATION,
by

/s/ C.W. Campbell, Jr. /s/ D. L. Swearingen

Assistant Secretary President

STATE OF WEST VIRGINIA )
) SS.:
COUNTY OF GREENBRIER )

I, Ruth R. Richmond, a Notary Public of said State and County, do certify
that Virginia T. Jones, who signed the writing above, bearing date the 1st day
of January, 1988, for COURTNEY COMPANY, a corporation, has this day in my said
County, before me, acknowledged the said writing to be the act and deed of said
corporation.

Given under my hand this 6th day of June, 1988.

/s/ Ruth R. Richmond
----------------------
Notary Public

My commission expires: September 8, 1991

32
<PAGE> 33

COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF LEHIGH )

I, Nancy C. Radogna, a Notary Public of said Commonwealth and County, do
certify that D. L. Swearingen, who signed the writing above, bearing date the
1st day of January, 1988, for PRIMEACRE LAND CORPORATION, a corporation, has
this day in my said County, before me, acknowledged the said writing to be the
act and deed of said corporation.

Given under my hand and official seal this 10th day of May, 1988.

/s/ Nancy C. Radogna
----------------------
Notary Public

This instrument was prepared by:
C. W. Campbell, Jr.
c/o Bethlehem Steel Corporation
Bethlehem, Pennsylvania 18016

33
<PAGE> 34

ASSIGNMENT OF AGREEMENT OF LEASE

THIS ASSIGNMENT OF AGREEMENT OF LEASE, dated October 5, 1992, by and
between PRIMEACRE LAND CORPORATION, a Delaware corporation ("Primeacre"), and
ALLEGHENY LAND COMPANY NO. 2, a Delaware corporation ("A11egheny No. 2"),

WITNESSETH:
WHEREAS, by Agreement of Lease between Courtney Company and Primeacre
dated January 1, 1988, and recorded in the Office of the Clerk of the County
Commission of Boone County, West Virginia in Oil and Gas Lease Book No. 25, at
page 277, and in the Office of the Clerk of the County Commission of Linco1n
County, West Virginia in Lease Book No. 45, at page 333 (said Agreement of
Lease being hereinafter referred to as the "Courtney Lease"), said Courtney
Company leased to Primeacre certain premises located partly in Boone County,
West Virginia and partly in Lincoln County, West Virginia; and

WHEREAS, by Sublease dated January 1, 1989, Primeacre sublet to Hobet
Mining, Inc. ("Hobet") the Winifrede seam of coal and the seams of coa1
overlying the Winifrede seam of coal underlying a portion of the premises
covered by the Courtney Lease, and by Amendment No. 1 dated May 1, 1989,
recorded in the Office of the Clerk of the County Commission for Boone County,
West Virginia in Coal Lease Book 23, at page 8O5, Primeacre and Hobet amended
said Sublease dated January 1, 1989, so as to grant to Hobet certain
additional rights with respect to a portion of the premises covered by the
Courtney Lease; and
<PAGE> 35

WHEREAS, by Agreement dated April 26, 1991, Primeacre granted to
Allegheny Land Company ("Allegheny") the right to enter upon a portion of the
premises covered by the Courtney Lease to perform test drilling and further
granted to Allegheny options to sublet three parcels of land comprising a
portion of the premises covered by the Courtney Lease; and

WHEREAS, by another Agreement dated April 26, 1991, among said
Courtney Company, Primeacre and Allegheny, said Courtney Company waived certain
provisions of the Courtney Lease as to certain mining operations of Allegheny
under a proposed sublease; and

WHEREAS, by Sublease dated November 1, 1991, recorded in said Boone
County Office in Coal Lease Book 24, at page 574, and in the Office of the
Clerk of the County Commission for Lincoln County, West Virginia, in Lease Book
46, at page 538, Primeacre sublet to Allegheny the Winifrede seam of coal and
the seams of coal overlying the Winifrede seam of coal within a parcel of land
comprising a portion of the premises covered by the Courtney Lease, and being
one of the parcels on which Allegheny was granted an option to sublet pursuant
to said first-mentioned Agreement dated April 26, 1991; and

WHEREAS, by Sublease dated January 2, 1992, Allegheny sublet to Hobet
its rights under said Sublease dated November 1, 1991; and

2
<PAGE> 36
WHEREAS, by letter agreement dated April 6, 1992, among Primeacre,
Hobet and Allegheny, said Sublease dated January 1, 1989, was terminated and
Primeacre and Allegheny agreed to amend said Sublease dated November 1, 1991,
to include a portion of the premises formerly covered by said Sublease dated
January 1, 1989, and A11egheny and Hobet agreed to amend said Sublease dated
January 2, 1992, to include such premises; and

WHEREAS, by Amendment No. 1 dated March 1, 1992, recorded in said
Boone County Office in Coal Lease Book 24, at page 610, Primeacre and
Allegheny amended said Sublease dated November 1, 1991, to include the premises
formerly covered by said Sublease dated January 1, 1989; and

WHEREAS, by Sublease dated April 1, 1992, recorded in said Boone
County Office in Coal Lease Book 24, at page 613, and in said Lincoln County
Office in Lease Book 46, at page 691, Primeacre sublet to Allegheny the
Winifrede seam of coal and the seams of coal overlying the Winifrede seam of
coal within a parcel of land comprising a portion of the premises covered by
the Courtney Lease, and being one of the parcels on which Allegheny was
granted an option to sublease pursuant to said first-mentioned Agreement dated
Aprll 26, 1991.

NOW, THEREFORE, the parties hereto in consideration of the foregoing,
which are not mere recitals but are an integral part of this assignment, and
further in consideration of the sum of One Dollar ($1) and other good and
valuable consideration paid by Allegheny No. 2 to Primeacre, the receipt and
sufficiency of which are hereby acknowledged, hereby agree as follows:

3
<PAGE> 37
1. ASSIGNMENT.

Primeacre hereby sells, assigns, conveys and transfers to Allegheny No. 2,
pursuant to the terms and conditions of that certain Asset Purchase Agreement by
and between Primeacre and Allegheny No. 2 also entered into contemporaneously
with this Agreement, effective as of October 9, 1992, but subject to the consent
thereto by said Courtney Company, all of the right, title and interest of
Primeacre in, to and under the Courtney Lease, and the leasehold estate created
thereby and the appurtenances thereto, including all of the right, title and
interest of Primeacre, as sublessor, in and to the subleases and agreements
recited above, together with the amendments thereto dated October 5, 1992, and
entitled Consent to Agreement of Lease, Amendment of Agreement of Lease,
Estoppel Certificate and Guaranty.

2. ACCEPTANCE OF ASSIGNMENT.

Allegheny No. 2 hereby accepts the assignment set forth in paragraph 1
hereof, and hereby assumes and shall comply with, fulfill and perform all of the
obligations, covenants, terms and conditions thereof imposed upon the lessee
under the Courtney Lease and accruing on and after the effective date of the
above assignment.

4
<PAGE> 38

IN WITNESS WHEREOF, the parties hereto have executed
this Assignment of Agreement of Lease as of the day and year
first above written.

ATTEST: PRIMEACRE LAND CORPORATION
by
/s/ C. W. CAMPBELL, JR. /s/ D. L. SWEARINGEN

Secretary President

ATTEST: ALLEGHENY LAND COMPANY NO.2
by
/s/ JAMES T. KETRON MICHAEL F. MORAN

Secretary Vice President

5
<PAGE> 39
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF LEHIGH )

The foregoing instrument was acknowledged before me this 5th day of
October, 1992, by D. L. Swearingen of PRIMEACRE LAND CORPORATION, a Delaware
corporation, on behalf of the corporation.

My commission expires December 27, 1993.

/s/ LYNN L. DEPPE
-------------------
Notary Public

COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF LEHIGH )

The foregoing instrument was acknowledged before me this 5th day of
October, 1992, by Michael F. Moran of ALLEGHENY LAND COMPANY NO. 2, a West
Virginia corporation, on behalf of the corporation.

My commission expires December 27, 1993.

/s/ LYNN L. DEPPE
-------------------
Notary Public

This instrument was prepared by:
C. W. Campbell Jr.
c/o Primeacre Land Corporation
1170 Eighth Avenue
Bethlehem, Pennsylvania 18016-7699

6
<PAGE> 40

ASSIGNMENT OF LEASES

THIS ASSIGNMENT OF LEASES, dated October 5, 1992, by and between
PRIMEACRE LAND CORPORATION, a Delaware corporation ("Primeacre"), and
ALLEGHENY LAND COMPANY NO. 2, a Delaware corporation ("Assignee"),

WITNESSETH:

WHEREAS, Primeacre desires to assign its right, title and interest in
and to those certain lease and sublease agreements more particularly described
on Exhibit A attached hereto (collectively, the "Leases"); and

WHEREAS, Assignee desires to accept such assignment and to assume all
obligations of Primeacre under the Leases.

NOW, THEREFORE, the parties hereto for ONE DOLLAR ($1.00) and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, agree as follows:

1. ASSIGNMENT. Primeacre hereby assigns and transfers to Assignee,
effective as of October , 1992, all the right, title and interest of
Primeacre in, to, and under the Leases.

2. ACCEPTANCE OF ASSIGNMENT. Assignee hereby accepts the assignment
set forth in paragraph 1 hereof and hereby assumes, and shall comply with and
perform all of the obligations imposed upon Primeacre under the Leases and
accruing on and after October 9, 1992.

<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
of Leases as of the day and year first above written.

ASSIGNOR:

ATTEST: PRIMEACRE LAND CORPORATION
by
/s/ C.W. CAMPBELL, JR. /s/ D. L. SWEARINGEN

Secretary President

ASSIGNEE:

ATTEST: ALLEGHENY LAND COMPANY NO. 2
by
/s/ JAMES T. KETRON MICHAEL F. MORAN

Secretary Vice President

2
<PAGE> 42

Exhibit A:

1. Lease between The Chesapeake and Ohio Railway Company and Carlile
C. Thompson dated April 30, 1953, concerning 0.14 acres of land for a driveway
and portion of a garage, as assigned to Bethlehem Steel Corporation by The
Chesapeake and Ohio Railway Company by Assignment of Leases dated May 1, 1975.

2. Agreement (of lease) by and between Bethlehem Mines Corporation,
Parsner Creek Lumber Company, Inc., and Hobet Mining and Construction Co.,
Inc., dated January 1, 1982, concerning the use of certain lands located in
Boone County, West Virginia, as assigned to Jackie Cooper, d/b/a Sugar Tree
Lumber Company by Parsner Creek Lumber Company, Inc., by Assignment dated
September 18, 1984 (and consented to by Bethlehem Mines Corporation).

3. Sublease between Primeacre Land Corporation and Allegheny Land
Company dated November 1, 1991, as amended by Amendment No. 1 dated March 1,
1992, concerning the Winifrede seam of coal and all coal overlying said
Winifrede seam underlying a certain portion of the premises subject to the
lease between Courtney Company and Primeacre Land Corporation dated January 1,
1988.*

a. Sublease Agreement between Allegheny Land Company and
Hobet Mining, Inc. dated January 1, 1992, concerning the leasing of certain
seams of coal underlying premises subject to the Sublease between Primeacre
Land Corporation and Allegheny Land Company dated November 1, 1991.

3
<PAGE> 43

4. Sublease between Primeacre Land Corporation and Allegheny Land
Company dated April 1, 1992, concerning the Winifrede seam of coal and all
coal overlying said Winifrede seam underlying a certain portion of the premises
subject to the lease between Courtney Company and Primeacre Land Corporation
dated January 1, 1988.*

- ---------------
*Pursuant to exercise of option to sublease contained in Agreement between
Primeacre Land Corporation and Allegheny Land Company dated April 26, 1991.
Agreement between Courtney Company, Primeacre Land Corporation and Allegheny
Land Company dated April 26, 1991, amends lease dated January 1, 1988, between
Courtney Company and Primeacre Land Corporation for purposes of operations of
sublessee under said sublease.

COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF LEHIGH )

On this, the 5th day of October, 1992, before me, a Notary Public in
and for the Commonwealth of Pennsylvania, personally appeared D. L. Swearingen,
who acknowledged himself to be the President of PRIMEACRE LAND CORPORATION, a
corporation, and that he as such President, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as the President.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ LYNN L. DEPPE
-------------------
Notary Public

COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF LEHIGH )

On this, the 5th day of October, 1992, before me, a Notary Public in
and for the Commonwealth of Pennsylvania, personally appeared Michael F. Moran,
who acknowledged himself to be the Vice President of ALLEGHENY LAND COMPANY NO.
2, a corporation, and that he as such Vice President, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as the Vice President.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ LYNN L. DEPPE
-------------------
Notary Public

<PAGE> 1

EXHIBIT 11

STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Income before the cumulative effect of changes in
accounting................................................. $41,411 $32,220 $ 45,374
Less:
Common stock dividends..................................... 6,321 5,686 5,436
Preferred stock dividends.................................. 2,810 2,603 2,529
Accretion of discount on preferred stock (subject to
redemption)............................................. -- -- 770
------- ------- --------
Undistributed earnings less accretion before cumulative
effect adjustments.................................... 32,280 23,931 36,639
Cumulative effect of changes in accounting................... -- -- (18,836)
------- ------- --------
Undistributed earnings less accretion................... $32,280 $23,931 $ 17,803
======= ======= ========
PRIMARY
Average shares and equivalents outstanding:
Shares outstanding......................................... 13,733 13,699 13,593
Shares issuable upon
Conversion of preferred stock........................... 4,587 4,587 3,877
Exercise of stock options............................... 54 52 109
------- ------- --------
Total................................................... 18,374 18,338 17,579
======= ======= ========
Per share amounts:
Undistributed earnings less accretion before cumulative
effect adjustments...................................... $ 1.76 $ 1.30 $ 2.08
Dividends (except preference dividends).................... .46 .42 .40
------- ------- --------
Earnings before cumulative effect adjustments.............. 2.22 1.72 2.48
Cumulative effect adjustments.............................. -- -- (1.07)
------- ------- --------
Net income.............................................. $ 2.22 $ 1.72 $ 1.41
======= ======= ========
FULLY DILUTED
Average shares and equivalents outstanding:
Shares outstanding......................................... 13,733 13,699 13,593
Shares issuable upon
Conversion of preferred stock........................... 5,212 5,212 5,212
Exercise of stock options............................... 57 54 119
------- ------- --------
Total................................................... 19,002 18,965 18,924
======= ======= ========
Per share amounts:
Undistributed earnings less accretion before cumulative
effect adjustments...................................... $ 1.70 $ 1.26 $ 1.94
Dividends (except preference dividends).................... .46 .42 .40
------- ------- --------
Earnings before cumulative effect adjustments.............. 2.16 1.68 2.34
Cumulative effect adjustments.............................. -- -- (1.00)
------- ------- --------
Net income.............................................. $ 2.16 $ 1.68 $ 1.34
======= ======= ========
</TABLE>

<PAGE> 1

EXHIBIT 21

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(1)...................................................... Delaware
Allegheny Land Company No. 2................................................... Delaware
Ashland Coal International, Ltd................................................ Barbados
Ashland Coal Sales (Ohio), Inc................................................. Delaware
Ashland Terminal, Inc.......................................................... Delaware
Coal-Mac, Inc.(2).............................................................. Kentucky
Mingo Logan Coal Company....................................................... Delaware
Mountain Gem Land, Inc.(3)..................................................... West Virginia
Mountain Mining, Inc.(4)....................................................... Delaware
Mountaineer Land Company....................................................... Delaware
Mountaineer Land Company No. 2................................................. Delaware
P. C. Holding, Inc............................................................. Delaware
Saarcar Coal, Inc.............................................................. Kentucky
Tri-State Terminals, Inc....................................................... Delaware
<FN>
- ------------------------------

(1) On December 31, 1995, Servco, Inc., formerly a subsidiary of Ashland Coal,
Inc.'s Mountain Mining subsidiary, was merged into Allegheny Land Company.

(2) Coal-Mac, Inc. has one subsidiary, which is Bebe Coal Corporation, a
Kentucky corporation.

(3) On December 31, 1995, Mountain Gem Land No. 2, Inc., formerly a subsidiary
of Ashland Coal, Inc., was merged into Mountain Gem Land, Inc.

(4) Mountain Mining, Inc. has two subsidiaries. Julian Tipple, Inc. is
incorporated in Delaware; and Hobet Mining, Inc. is incorporated in West
Virginia. On May 31, 1995, Tri-State Testing Co., Inc., was merged into
Hobet Mining, Inc. and on March 1, 1996, Sharples Coal Corporation and Old
Hickory Coal Company were merged into their parent, Dal-Tex Coal
Corporation, and Dal-Tex Coal Corporation was merged into its parent, Hobet
Mining, Inc. Former Mountain Mining, Inc. subsidiaries Drennen Tipple
Corporation and Filbeth Enterprises, Inc. were merged into Hobet Mining,
Inc. on March 1, 1996.

</TABLE>

<PAGE> 1

EXHIBIT 23

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. 33-46856) pertaining to
the 1995 Stock Incentive Plan of Ashland Coal, Inc. and its subsidiaries and in
the related Prospectus, (3) the Registration Statement (Form S-8 No. 33-26549)
pertaining to the Ashland Coal, Inc. Employee Thrift Plan and in the related
Prospectus, (4) the Registration Statement (Form S-8 No. 33-38229) pertaining to
the Coal-Mac, Inc. Savings and Retirement Plan 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 19, 1996, with respect
to the consolidated financial statements and schedule of Ashland Coal, Inc. and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1995.

/s/ ERNST & YOUNG LLP

Louisville, Kentucky
February 29, 1996

<PAGE> 1

EXHIBIT 24

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, 1995, 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 22, 1996

<TABLE>
<S> <C>
By: /s/ WILLIAM C. PAYNE Chairman of the Board, President, Chief
--------------------- Executive Officer and Director
William C. Payne

By: /s/ PAUL W. CHELLGREN Director
----------------------
Paul W. Chellgren
Director
By: ---------------------
Robert E. Yancey, Jr.

By: /s/ THOMAS L. FEAZELL Director
--------------------------
Thomas L. Feazell

By: /s/ J. MARVIN QUIN Director
--------------------------
J. Marvin Quin

By: /s/ JUAN ANTONIO FERRANDO Director
---------------------------
Juan Antonio Ferrando

By: /s/ ROBERT L. HINTZ Director
--------------------------
Robert L. Hintz
Director
By: -------------------------
Robert A. Charpie

By: /s/ J. A. BROTHERS Director
--------------------------
J. A. Brothers

By: /s/ THOMAS MARSHALL Director
--------------------------
Thomas Marshall
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,752
<SECURITIES> 0
<RECEIVABLES> 83,332
<ALLOWANCES> 0
<INVENTORY> 26,038
<CURRENT-ASSETS> 134,605
<PP&E> 905,842
<DEPRECIATION> 320,135
<TOTAL-ASSETS> 835,402
<CURRENT-LIABILITIES> 109,874
<BONDS> 0
<COMMON> 138
0
67,841
<OTHER-SE> 329,900
<TOTAL-LIABILITY-AND-EQUITY> 835,402
<SALES> 618,886
<TOTAL-REVENUES> 635,961
<CGS> 529,618
<TOTAL-COSTS> 568,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,724
<INCOME-PRETAX> 46,812
<INCOME-TAX> 5,401
<INCOME-CONTINUING> 41,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,411
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.16

</TABLE>