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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9993
ASHLAND COAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware 61-0880012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
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Registrant's telephone number, including area code: (304) 526-3333
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any amendment to this Form 10-K. [X]
At March 6, 1997, 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 $142,986,702. 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 by the
holders thereof), are affiliates. Such assumption shall not be deemed conclusive
for any other purpose.
At March 6, 1997, there were 13,518,008 shares of registrant's common stock
outstanding.
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TABLE OF CONTENTS
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PART I
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 7
Item 3. Legal Proceedings....................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders..................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters... 9
Item 6. Selected Financial Data................................................. 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 11
Item 8. Financial Statements and Supplementary Data............................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................ 39
PART III
Item10. Directors and Executive Officers of the Registrant...................... 39
Item11. Executive Compensation.................................................. 40
Item12. Security Ownership of Certain Beneficial Owners and Management.......... 44
Item13. Certain Relationships and Related Transactions.......................... 46
PART IV
Item14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 48
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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, 1996, approximately 615 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
Possible Business Combination. On January 27, 1997, the Boards of
Directors of Ashland Coal and Arch Mineral Corporation (Arch) jointly announced
that they had approved an agreement in principle calling for the combination of
the two companies. The exchange ratio to be used for the transaction would
result in former Ashland Coal and Arch stockholders holding approximately 48
percent and 52 percent of the combined company, respectively. Further terms and
conditions of the transaction are continuing to be negotiated. Consummation of
the transaction is strictly conditioned upon the negotiation and execution of
definitive agreements between the parties, receipt of all necessary governmental
and regulatory consents, and approval by the stockholders of both corporations.
1996 SALES AND PRODUCTION
For the year ended December 31, 1996, the Company and its independent
operating subsidiaries sold approximately 21.8 million tons of coal, as compared
to approximately 22.5 and 20.2 million tons sold in 1995 and 1994, respectively.
Approximately 63% of the total tonnage sold during 1996 was sold under long-term
contracts as compared to approximately 60% for 1995 and 62% for 1994. The
balance was sold on the spot market (contracts with a duration of one year or
less). Sales of metallurgical coal in 1996 totaled 2.1 million tons, or
approximately 9% of the Company's total 1996 coal sales. In 1996, the Company
sold approximately 2.3 million tons of coal in the export market, compared to
approximately 3.3 million tons in 1995 and 1.7 million tons in 1994. Sales of
metallurgical coal accounted for approximately 48% of these export sales in
1996, while the balance of export sales consisted of sales of steam coal.
Approximately 62%, 62% and 54% of total revenues for 1996, 1995 and 1994,
respectively, were derived from long-term contracts. For the year ended December
31, 1996, the Company's independent operating subsidiaries produced
approximately 20.5 million tons of coal as compared to approximately 20.9 and
19.2 million tons for 1995 and 1994, respectively. In addition, the Company
purchased for resale approximately 1.8 million tons of coal during 1996,
approximately 1.4 million tons during 1995 and approximately 1.3 million tons
during 1994.
SALES CONTRACTS
Prices were lowered at the beginning of 1996 under certain sales contracts
covering approximately 1.5 million tons of coal 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 1996 and through February 26, 1997, Ashland Coal signed new domestic
long-term utility sales contracts covering approximately 4.2 million base tons
per year in the aggregate. The Company is currently negotiating final
documentation for additional coal sales contracts covering approximately 2.0
million base tons per year.
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 10 to 20% annually.
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OPERATIONS
Mingo Logan Mining Complex
The Mingo Logan mining complex is located in Mingo and Logan Counties, West
Virginia, on approximately 20,500 acres containing approximately 63 million
recoverable tons of low-sulfur and compliance coal. The mining complex is
accessible by public road, and AEP (American Electric Power) provides the
complex with electric power. The Mingo Logan mining complex currently consists
of one surface mining operation conducted by an independent contract miner, two
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 operate 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 for approximately
19,500 tons of raw coal and approximately 24,000 tons of clean coal,
respectively. In addition, the loadout has ground storage capacity for
approximately 100,000 tons. The loadout facility is capable of loading a
13,000-ton unit train in less than four hours. The total cost of property,
plant, and equipment at the Mingo Logan complex at December 31, 1996, was $310.9
million, and the net book value was $187.2 million. The Mingo Logan mining
complex produced approximately 7.5 million tons of coal during 1996.
Dal-Tex Mining Complex
The Dal-Tex mining complex is located primarily in Logan County, West
Virginia, on approximately 25,000 acres containing approximately 195 million
tons of recoverable low-sulfur and compliance coal. The complex is accessible by
public road, and AEP provides the complex with electric power. The Dal-Tex
complex currently consists of one surface mine using mountaintop removal
techniques and modern surface mining equipment, including a Marion 8200
Dragline, two 51-cubic-yard shovels, and one 24-cubic-yard loader. The large
dragline formerly employed at the Hobet 07 mining complex was dismantled and
then re-erected at the Dal-Tex complex. Utilization of the dragline recommenced
in the third quarter of 1996 at a lower cost per ton because of lower overburden
ratios at Dal-Tex than at Hobet 07. The size of the bucket on this dragline was
increased to 83 cubic yards from 72 cubic yards. The surface mine is
complemented by two deep mines utilizing continuous miner sections. One deep
mine is operated by an independent contract miner. 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. A spiral circuit was installed at the Monclo preparation plant in
early 1996 that increased the efficiency of that plant. The Monclo preparation
plant and loadout have ground storage capacity for approximately 150,000 tons of
raw coal and approximately 180,000 tons of clean coal, respectively. This plant
is capable of loading a 14,000-ton unit train in less than four hours. The total
cost of property, plant, and equipment at the Dal-Tex complex at December 31,
1996, was $327.2 million, and the net book value was $268.7 million.
Approximately 6.1 million tons of coal were produced at the Dal-Tex mining
complex during 1996.
Hobet 21 Mining Complex
The Hobet 21 mining complex in Boone County, West Virginia, currently has
reserves dedicated to it of approximately 277 million recoverable tons of coal.
The complex is accessible by public road, and AEP provides the complex with
electric power. The Hobet 21 mining complex produced about 4.3 million tons of
coal during 1996. Operations at the Hobet 21 complex consist of a surface mine,
one auger contractor and two contract deep mines. The surface mine uses
mountaintop removal techniques and modern surface mining equipment, including an
83-cubic-yard walking dragline, a 51-cubic-yard shovel, a 27-cubic-yard shovel
and a 24-cubic-yard loader. The complex includes the 1,400-ton-per-hour Beth
Station preparation plant. A 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
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rail system. The Beth Station preparation plant has raw coal silo storage
capacity of approximately 15,000 tons and ground storage for more than 100,000
tons of coal. The facility is capable of loading a 15,000-ton unit train in less
than four hours. The total cost of property, plant, and equipment at the Hobet
21 complex at December 31, 1996, was $143.4 million, and the net book value was
$70.2 million.
During 1996 and early 1997, a number of new projects designed to lower
mining costs were completed at the Hobet 21 mining complex. The complex's large
dragline was moved into an area of lower overburden ratios; construction of a
refuse conveyor for the preparation plant to eliminate trucking of refuse was
completed; and a 27-cubic-yard shovel formerly used at Hobet 07 and a
24-cubic-yard loader formerly used at the Dal-Tex complex were redeployed to
Hobet 21. Also during 1996, the preparation plant underwent further expansion of
its shipping capacity, and improvements were made to increase the plant's
recovery rate. Deep mining was expanded with the addition of a second production
unit in the Camp Creek deep mine. Other cost-reduction projects at the Hobet 21
complex include a $10.5 million upgrade and extension of the overland conveyor
system which is scheduled to be completed in the third quarter of 1997.
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 3 million
recoverable tons of coal. The complex is accessible by public road, and AEP
provides the complex with electric power. This complex has three deep mines, one
of which is operated by the Company and two of which are operated by
contractors. 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. This mine complex produced about 1.0 million tons of
coal during 1996. The total cost of property, plant, and equipment at the Hobet
07 complex at December 31, 1996, was $53.7 million, and the net book value was
$13.7 million.
Coal-Mac Operations
Approximately 7 million recoverable tons of coal reserves in Pike County,
Kentucky, are dedicated to Coal-Mac operations. All Coal-Mac operations are
accessible by public road, and AEP provides the operations with electric power.
Coal-Mac operates three surface mines in Pike County. During 1996, 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 coal supply contracts with industrial customers in the
Southeastern United States for this high-Btu product. The total cost of
property, plant, and equipment at Coal-Mac's active operations at December 31,
1996, was $54.4 million, and the net book value was $25.2 million. During 1996,
total production from Coal-Mac operations was approximately 1.6 million tons of
coal. A new Coal-Mac rail loading facility was completed late in 1996.
TRANSPORTATION
Coal from the mines of the Company's independent operating subsidiaries is
transported by rail, truck, and barge to domestic customers and to Atlantic
coast terminals 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% 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 26 below and incorporated by reference in this Item 1.
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EMPLOYEES
As of February 18, 1997, the Company and its independent operating
subsidiaries employed a total of 1,528 people (including 11 part-time
employees), 710 of whom are represented by the United Mine Workers of America
(UMWA). The Company's Hobet Mining, Inc. (Hobet) independent operating
subsidiary 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 provided 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.
During 1996, wages and pension benefits under the Wage Agreement were
renegotiated at the UMWA's election and certain provisions of the medical plan
were renegotiated at the election of the UMWA, but the renegotiated terms did
not increase the Company's costs significantly.
On August 13, 1996, the National Labor Relations Board (NLRB) ruled that
the employees of Mingo Logan Coal Company (Mingo Logan) another independent
operating subsidiary of Ashland Coal, may not be grouped with the employees of
two of Mingo Logan's contractors to create a single bargaining unit for purposes
of collective bargaining at Mingo Logan's Mountaineer Mine. An earlier decision
by an acting regional NLRB director had ruled that employees of Mingo Logan and
these two contractors were a single bargaining unit and, as a result, these
employees had voted together in a January 1995 election to determine whether or
not they were to be represented by the UMWA. As a consequence of the NLRB
ruling, the election was vacated, and the ballots from the 1995 election, which
were impounded by the NLRB and were not opened, will never be counted. The NLRB
additionally ruled that there are three separate bargaining units at Mingo
Logan's Mountaineer Mine, one consisting of Mingo Logan's employees, and that
any future UMWA representation election at any unit depends upon an adequate
showing of interest in having such election by such unit. On August 26, 1996,
the UMWA withdrew its petition seeking a representation election by the
employees of Mingo Logan and its two contractors.
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.
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 that groundwater protection plans be developed for
surface mines and coal mining operations. However, coal extraction activities,
i.e., underground
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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 also has a groundwater protection program. Groundwater
protection plans are 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 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
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 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 administrative
proceedings 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, 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
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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
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.
RELIANCE ON MAJOR CUSTOMERS
The Company's total sales to AEP and to Consumers Power Company accounted
for approximately 14.9 and 11.2 percent, respectively, of the Company's total
revenues in 1996. AEP and Consumers Power Company each currently have multiple
long-term contracts with the Company. If the Company experienced an
unanticipated and immediate loss of all of the AEP contracts or all of the
Consumers Power Company 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 may affect the overall
demand for coal as a fuel.
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ITEM 2. Properties
As of December 31, 1996, the Company's subsidiaries controlled, primarily
through long-term leases, approximately 130,000 and 78,000 acres of coal lands
in West Virginia and eastern Kentucky, respectively. The Company's subsidiaries
also control through ownership or long-term leases approximately 900 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 65,000 square feet of subleased space at 2205 Fifth Street Road,
Huntington, West Virginia. The headquarters sublease was renegotiated during
1996 to extend the term to August 5, 2005, and increase the subleased space. The
descriptions set forth above in Item 1. Business of the Mingo Logan, Dal-Tex,
Hobet 21 and Hobet 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 some of its equipment under
a lease that expires in 2003. In 1996, Hobet purchased other equipment formerly
leased under a lease with GATX Leasing that expired in 1995. Hobet (as legal
successor to Dal-Tex Coal Corporation) 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 Coal Corporation purchased this equipment. For further information
about this 1993 sale-leaseback transaction see Note 17 to the Company's
Consolidated Financial Statements on page 36 below.
The Company, through its subsidiaries, owns a 17.5% 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, 1996,
approximately 615 million recoverable tons of proven and probable coal reserves.
Reserve estimates are prepared by Ashland Coal's engineers and geologists and
reviewed and updated periodically. Reserve estimates will change from time to
time reflecting mining activities, analysis of new engineering and geological
data, changes in reserve holdings and other factors. Ashland Coal engaged John
T. Boyd ("Boyd"), an independent mining and geological engineering firm, to
audit evidence supporting Ashland Coal's reserve base tonnage estimates and
assess Ashland Coal's methodology and practices applied in formulating its
estimates. In March 1997, Boyd completed its independent audit and has expressed
its professional opinion that Ashland Coal's estimate of its coal reserves as of
December 31, 1996, was reasonably calculated in accordance with standard mining
engineering procedures and parameters. Boyd did not review Ashland Coal's
classification of its reserve holdings by sulfur content. The following table
presents the Company's estimated reserves at December 31, 1996:
RECOVERABLE COAL
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PROVEN PROBABLE TOTAL
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(MILLIONS OF TONS)
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West Virginia................................................. 420 156 576
Kentucky...................................................... 27 12 39
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Total.................................................... 447 168 615
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Substantially all of the coal reserves held by the Company's subsidiaries
and the reserves currently being mined at each of the Mingo Logan, Dal-Tex,
Hobet 21 and Hobet 07 mining complexes and at Coal-Mac operations 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 1997 to 2013, and most
7
<PAGE> 10
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 approximately 17,000 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 450 million tons of the 615 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 coal 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, 1996, was $416 million, consisting of $18 million of
prepaid royalties included in current assets, $61 million of prepaid royalties
classified as an other asset, and $337 million net book value of coal lands and
mineral rights. Of this carrying value, approximately $27 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, 1996, future royalty commitments relating to these properties were
approximately $2 million. See Note 5 to the Company's Consolidated Financial
Statements on page 28 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.
ITEM 3. Legal Proceedings
On August 6, 1996, the Company, its Hobet Mining, Inc. subsidiary and an
officer of the Company were served with the complaint of Addington Enterprises,
Inc. (Addington), certain of its affiliates, and an individual contractor of one
of the Addington affiliates alleging various causes of action (including breach
of contract, fraud and conversion) and related damages of $72 million plus
punitive damages. The damage claims arose in connection with highwall mining
operations by Addington at the Hobet 07 and Hobet 21 mining complexes, which
operations were terminated by Addington at Hobet 07 on or about December 27,
1995, and at Hobet 21 on or about February 20, 1996. Such damage claims are
presently pending in the Circuit Court of Boone County, West Virginia. The
contractor for Addington is also seeking declaratory relief in connection with a
security agreement covering certain equipment belonging to such contractor. The
parties defendant intend to vigorously defend the claims, and the Company
believes the claims are without merit. The Company has responded to this
complaint and has filed counterclaims.
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 1996.
8
<PAGE> 11
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
---------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
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 $.115 $.115 $.115 $.115
Market price per common share
High...................................... 24 3/8 26 3/8 25 3/4 28 3/8 29 1/4 29 3/8 30 3/4 30 1/8
Low....................................... 20 1/2 22 1/2 22 1/4 23 3/8 26 26 26 3/4 20 1/2
</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 28.
As of February 14, 1997, there were 963 holders of record of the Company's
common stock.
9
<PAGE> 12
ITEM 6. Selected Financial Data
FIVE-YEAR SELECTED FINANCIAL INFORMATION(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(In thousands, except per share data) 1996 1995 1994 1993 1992(2)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Coal sales.................................... $565,174 $618,886 $589,141 $484,390 $563,932
Operating revenues............................ 12,030 17,075 21,003 13,952 15,792
-------- -------- -------- -------- --------
577,204 635,961 610,144 498,342 579,724
-------- -------- -------- -------- --------
Costs and expenses:
Cost of coal sold............................. 508,960 529,618 510,125 446,754 478,286
Operating expenses............................ 9,559 10,995 11,543 10,641 11,502
Selling, general, and administrative
expenses.................................... 26,864 27,901 33,756 35,790 31,959
-------- -------- -------- -------- --------
545,383 568,514 555,424 493,185 521,747
-------- -------- -------- -------- --------
Operating income.................................. 31,821 67,447 54,720 5,157 57,977
Other income (expense):
Interest income............................... 417 89 366 1,057 1,240
Interest expense.............................. (17,905) (20,724) (22,238) (25,342) (21,781)
-------- -------- -------- -------- --------
Income (loss) before income taxes and the
cumulative effect of changes in accounting...... 14,333 46,812 32,848 (19,128) 37,436
Income tax expense (benefit)...................... (2,180) 5,401 628 (64,502)(3) 1,697
-------- -------- -------- -------- --------
Income before the cumulative effect of changes in
accounting...................................... 16,513 41,411 32,220 45,374 35,739
Cumulative effect of changes in accounting........ -- -- -- (18,836) --
-------- -------- -------- -------- --------
Net income........................................ $ 16,513 $ 41,411 $ 32,220 $ 26,538 $ 35,739
======== ======== ======== ======== ========
COMMON STOCK INFORMATION:
Earnings per share:
Primary....................................... $ .87 $ 2.22 $ 1.72 $ 1.41(4) $ 2.01
Fully diluted................................. .86 2.16 1.68 1.34(4) 1.88
Dividends declared per common share............... .46 .46 .415 .40 .40
BALANCE SHEET DATA:
Working capital................................... $ 17,216 $ 24,731 $ 11,955 $ 2,285 $ 37,566
Total assets...................................... 805,077 835,402 838,392 835,991 993,332
Long-term debt.................................... 135,339 172,975 200,000 244,342 317,958
Other long-term liabilities (excluding deferred
taxes).......................................... 137,685 129,444 123,413 113,040 57,521
Preferred stock subject to redemption(5).......... -- -- -- -- 34,021
Stockholders' equity.............................. 404,292 397,879 368,983 343,427 288,275
CASH FLOW DATA:
Cash provided by operating activities............. $118,031 $121,875 $104,747 $ 74,170 $ 79,023
Depreciation and amortization of property, plant,
and equipment................................... 64,699 65,127 58,344 56,386 53,095
Other amortization................................ 5,480 5,766 13,451 14,862 13,906
Purchases of property, plant, and equipment....... 52,628 58,245 43,501 20,569 97,400
</TABLE>
- ------------------------------
(1) Certain amounts for years prior to 1996 have been reclassified to conform
with the 1996 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 $50.2 million 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 $.37 on a primary basis and $.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.
10
<PAGE> 13
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made to the "Contingencies," "Certain Risk Factors" and
"Factors Routinely Affecting Results of Operations" sections below in this
Management's Discussion and Analysis for discussion of important factors that
could cause actual results to differ from the projections, expectations, and
other nonhistorical information contained herein.
RESULTS OF OPERATIONS
1996 Compared to 1995
Net income for the year ended December 31, 1996, was $16.5 million,
compared to net income of $41.4 million for the year ended December 31, 1995.
Gross profit on coal sales (selling price less cost of sales) on a per-ton
basis declined significantly from the level achieved in 1995. That decline was
chiefly the result of the expiration at the end of 1995 of contracts with
Cincinnati Gas & Electric Company (CG&E) providing for the sale of approximately
2.0 million tons of coal at prices considerably above current market prices and
the reduction of selling prices at the beginning of 1996 under certain other
contracts covering approximately 1.5 million tons of coal as a result of price
reopener provisions in those contracts. The cost per ton of coal sold declined
slightly from the 1995 level, and coal sales volume fell 3% in 1996, to 21.8
million tons.
Operating revenues declined $5.0 million, primarily because of a reduction
in railroad freight contract revenue resulting from lower shipments from the
Hobet 07 complex, lower operating revenues related to export shipments and lower
royalty income on reserves subleased to other coal companies. Those reductions
were partially offset by $1.9 million of revenue related to agreed reductions in
1996 deliveries under a long-term sales contract. Operating expenses declined
$1.4 million principally because of lower expenses related to reserves subleased
to other coal companies.
Selling, general, and administrative expenses declined $1.0 million
primarily because of lower commissions paid on coal sales. Interest expense
decreased $2.8 million principally because of lower average debt levels.
The Company's income tax expense declined from $5.4 million in 1995 to a
negative $2.2 million in 1996. The effective tax rate for 1996 reflects lower
profitability coupled with the effects of percentage depletion. The effective
tax rate is sensitive to changes in profitability because of the effects of
percentage depletion.
In the first quarter of 1996, the Company began a comprehensive study of
the Company's structure and processes with the objective of reducing
administrative expenses. As a result of this study, a number of salaried
positions were eliminated, and some of the operations in West Virginia were
consolidated. Costs of $4.2 million related to this restructuring were largely
offset by related cost reductions in 1996.
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 on a per-ton basis rose slightly from the 1994
level, but would have been slightly lower except 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.
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
11
<PAGE> 14
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 a
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. As noted
above, the effective tax rate is sensitive to changes in profitability because
of the effect of percentage depletion.
BALANCE SHEET
The balance of trade accounts receivable at December 31, 1996, was $19.7
million less than the balance at December 31, 1995, primarily because of a lower
level of sales in December 1996 than in December 1995. The actual level of trade
receivables at any date is dependent upon the specific customer accounts active
at that date and the payment terms for those accounts. For example, the
expiration of the CG&E contracts, which had payment terms particularly favorable
to the Company, has affected the balance of trade receivables. Currently, the
balance of trade receivables represents approximately five weeks of sales. All
significant customer accounts are being paid within credit terms.
Inventories were $15.4 million higher at December 31, 1996, than at
December 31, 1995. This increase is primarily related to higher coal inventories
at export terminals in preparation for shipments in January 1997 and a recovery
from a lower-than-usual level of coal inventory at December 31, 1995.
The increase in the balance of accounts payable from December 31, 1995, to
December 31, 1996, represents normal fluctuations. The reduction in accrued
expenses relates to lower accruals for payroll and certain employee benefits.
In 1995, Ashland Coal's Board of Directors authorized the purchase from
time to time of up to one million shares of the Company's common stock. As of
December 31, 1996, 256,000 shares had been purchased under this authorization.
Shares acquired may be used for general corporate purposes.
OUTLOOK
Increased production at Hobet 21 and Dal-Tex will permit the Company to
increase its sales volume significantly in 1997 from the 1996 level. The move of
the dragline at the Hobet 21 complex across the Mud River was completed early in
January 1997. This move, to an area with lower overburden ratios than those
experienced during most of 1996, is anticipated to result in higher production
at a lower cost per ton. The overland conveyor system at the complex is being
extended and upgraded at a cost of $10.5 million. The work is expected to be
completed in the third quarter of 1997, and to reduce costs.
The dragline that was dismantled at Hobet 07 and re-erected at the Dal-Tex
complex commenced operations in August 1996. As a result of dragline operations
at Dal-Tex, Dal-Tex production during the fourth quarter of 1996 increased
significantly and cost per ton was significantly reduced. This improved
performance is expected to continue. The Company's expectations for continued
high production levels and low costs at Dal-Tex and for increased production and
lower cost per ton at Hobet 21 assume timely completion of improvements, no
unanticipated labor or transportation disruptions, or major equipment problems,
and the absence of certain other operational, geologic, and weather-related
factors that can adversely affect production. See "Factors Routinely Affecting
Results of Operations" below.
In addition to the operational improvements at Hobet 21 and Dal-Tex, 1997
will receive the full benefit of the 1996 restructuring discussed above in the
comparison of 1996 to 1995 results of operations.
Ashland Coal anticipates that its effective tax rate for 1997 will be
positive, reflecting higher profitability and the level of percentage depletion.
The Company currently expects to be able to continue to recognize all of the
alternative minimum tax credits it generates.
12
<PAGE> 15
The Company believes that Phase I sulfur dioxide emission reductions
required by 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 positive 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, including higher-sulfur coals
which can be consumed by utilities holding sulfur dioxide emission allowances
issued by the Environmental Protection Agency (EPA).
The Company believes that spot price movements during 1997 will be affected
chiefly by the weather. However, because of its level of spot and contract
commitments for 1997, at the time of this report the Company does not expect
that a significant movement in spot prices during 1997 would have a material
effect on the Company's results of operations for 1997 when compared to its
expectations for 1997.
The National Bituminous Coal Wage Agreement of 1993 (Wage Agreement), which
covers the employees of Hobet Mining, Inc. (Hobet) represented by the United
Mine Workers of America (UMWA), provided 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 and certain benefits
under the Wage Agreement were recently renegotiated, but the additional costs to
the Company arising from this renegotiation are not significant.
CSX Corporation (CSX) and Norfolk Southern Corporation (NS) are each
attempting to acquire Conrail Inc. (Conrail). CSX and NS are major railroads in
the Eastern United States, and together transport most of the coal sold by the
Company. Conrail, whose primary service area is the Northeastern United States,
is also a major railroad. If Conrail combines with either of CSX or NS, costs of
the combined railroad may be somewhat lower than the costs of either independent
railroad. If lower costs are realized and freight rates are lowered as a
consequence, the coal of some producers could become less costly on a delivered
basis and therefore gain a competitive advantage. Although it appears likely
that the assets of Conrail will be acquired by one or both of CSX and NS, it is
not possible to predict with certainty the effects of such an acquisition on
interregional competition and, specifically, on the Company.
Ashland Coal and Arch Mineral Corporation (Arch) have reached an agreement
in principle calling for the combination of the two companies. The exchange
ratio to be used for the transaction will result in the former Ashland Coal and
Arch stockholders holding approximately 48 percent and 52 percent of the
combined company, respectively. Further terms and conditions of the transaction
are continuing to be negotiated. Consummation of the transaction is conditioned
upon the negotiation and execution of definitive agreements between the parties,
receipt of all necessary governmental and regulatory consents, and approval by
the stockholders of both corporations.
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) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Before changes in operating assets and liabilities.... $104,885 $126,291 $111,867
Changes in operating assets and liabilities........... 13,146 (4,416) (7,120)
-------- -------- --------
118,031 121,875 104,747
Investing activities..................................... (70,002) (77,009) (59,711)
Financing activities..................................... (48,947) (44,234) (44,472)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... $ (918) $ 632 $ 564
======== ======== ========
</TABLE>
Cash provided by operating activities before changes in operating assets
and liabilities decreased in 1996 from the level in 1995 primarily because of a
lower average selling price on coal sales in 1996. The reduction in average
selling price was principally related to the expiration of the CG&E contracts at
the end of 1995 and the reduction of selling prices at the beginning of 1996
under certain other contracts. Cash provided by
13
<PAGE> 16
operating activities before changes in operating assets and liabilities rose in
1995 from 1994 primarily because of increases in sales volume, which were made
possible by higher levels of production. Production in 1994 was adversely
affected by unusually harsh winter weather in the first quarter and the
aftereffects of a 1993 strike by the UMWA. Cash provided by changes in operating
assets and liabilities increased in 1996 from the amount of cash used in 1995
primarily due to a decrease in the level of trade receivables partially offset
by increases in inventories. Cash used for changes in operating assets and
liabilities in 1995 arose primarily from higher accounts receivable balances,
which resulted from higher sales volume at the end of 1995. Cash used for
changes in operating assets and liabilities in 1994 reflected growth in accounts
receivable balances and inventories, partially offset by higher balances of
accounts payable, accrued expenses, and income taxes payable. The changes in
1994 were outgrowths of the 1993 strike, which ended late in the year.
Cash used for investing activities primarily reflects capital expenditures
and royalty payments expected to be recovered after one year. The change from
year to year primarily represents fluctuations in the level of capital
expenditures.
Cash used in financing activities in 1996, 1995, and 1994 consists
primarily of amounts used to repay borrowings and to pay dividends. In addition,
relatively small amounts of cash were used in 1996 and 1995 to purchase treasury
stock.
The Company's capital expenditures in 1996, 1995, and 1994 were $52.6
million, $58.2 million, and $43.5 million, respectively. Ashland Coal estimates
that its capital expenditures in 1997 may be as great as $60 million.
On January 29, 1993, mining equipment valued at approximately $64 million
being used by 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 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 anticipates that such purchase, if it should occur, would be funded under
the Company's revolving credit agreement or lines of credit.
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, 1996, the Company had borrowings of $15 million under
this agreement. At December 31, 1996, the Company also had $152.9 million of
indebtedness under senior unsecured notes maturing in 1997 through 2006. Senior
notes amounting to $22.1 million were paid on May 15, 1996, with the proceeds of
borrowings under lines of credit. Ashland Coal periodically establishes
uncommitted lines of credit with banks. These agreements generally provide for
short-term borrowings at market rates. At December 31, 1996, there were $170
million of such agreements in effect with borrowings outstanding of $6.3
million. The Company expects to make payments on its indebtedness during 1997
totalling approximately $41 million from cash flow generated by operations. The
Company expects that a payment of $25 million due on a senior note in September
1997 will be made from funds borrowed under the revolving credit agreement or
bank lines of credit or both. Some of those borrowings are expected to be repaid
during 1997.
Ashland Coal believes that over the next 12 months cash flow generated by
operating activities will be adequate to fund anticipated capital expenditures,
to reduce debt as discussed above, and to fund any share repurchases under 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
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
14
<PAGE> 17
progresses. The accrual for such reclamation (included in other long-term
liabilities and in accrued expenses) was $2.7 million, and $2.6 million at
December 31, 1996 and 1995, 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 million. At December 31, 1996 and 1995, the accrual for
closing costs, which is included in other long-term liabilities and in accrued
expenses, was $10.5 million and $9.4 million, respectively.
Ashland Coal is a party to numerous claims and lawsuits 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 and to claims
related to labor and employment of the sort encountered by employers in general.
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 $2.1 million (included in
other long-term liabilities) and believes that probable insurance recoveries of
$.6 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 $4.3 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. Most electric utilities with whom the
Company conducts business are stable, well-capitalized entities with favorable
credit ratings. Deregulation in the electric utility industry may adversely
affect the credit worthiness of some utilities. Generally, credit is extended
based on an evaluation of the customer's financial condition, and collateral is
not required. Historically, credit losses have 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 coal demand and
supply. 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. Factors such as the availability of sulfur
dioxide emissions allowances issued by the EPA, utility deregulation, and new
clean air regulations have had, or will have, the effect of further 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.
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 Hobet are covered by the Wage Agreement, which provides
for certain wage rates and benefits. Employees of other operating subsidiaries
are not covered by a union contract but are compensated at
15
<PAGE> 18
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. 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 $.9 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 at the time, 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 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 Company enters into interest-rate swap agreements to modify the
interest characteristics of its outstanding debt. At December 31, 1996, the
Company had entered into interest-rate swap agreements having a total notional
value of $65 million. Of this total notional amount, $40 million was used to
convert fixed-rate debt to a variable rate. Under these agreements, the Company
receives a weighted average fixed rate of 6.59% and was paying a weighted
average variable rate at December 31, 1996, of 5.78%. The average remaining life
on these swaps at December 31, 1996, was approximately 52 months. During the
fourth quarter of 1996, interest rates declined, and the Company chose to reduce
its exposure to variable interest rates by entering into $25 million of reverse
swap agreements. At December 31, 1996, the Company was obligated to pay a
weighted average fixed rate of 6.26% under these agreements and will receive a
weighted average variable rate, which was 5.78% at that date. The terms and
amounts of these swaps coincide with the stated maturities of the fixed-rate
debt obligations being converted. The variable rates are adjusted using six
months LIBOR. Interest expense for 1996 was reduced by $.2 million under these
agreements based on a net average notional position for the year of $24.8
million. The Company's exposure to large interest-rate fluctuations on its
variable-rate debt has been mitigated through the purchase of short-term
interest-rate caps totalling $35 million as of December 31, 1996.
FACTORS ROUTINELY AFFECTING RESULTS OF OPERATIONS
The Company's customers frequently combine various qualities of coal,
nuclear, natural gas and other energy sources in their generating operations,
and, accordingly, their demand for coal of the kind produced by the Company
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 10% to 20%, 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
the contract term or to accommodate changing market conditions.
16
<PAGE> 19
The Company's coal production and sales are subject to a variety of
operational, geologic, transportation, and weather-related factors that
routinely cause production to fluctuate. Operational factors affecting
production 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 events, such as the unavailability of
essential equipment because of breakdown or unscheduled maintenance, could
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. Sales can be adversely affected by
fluctuations in production and by transportation delays arising from equipment
unavailability and weather-related events, such as flooding.
Geologic conditions within mines are not uniform. Overburden ratios and the
relative composition of overburden 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 Hobet's mining
complexes. Any future strike or work stoppage that affected either of the Hobet
21 or Dal-Tex complexes for a prolonged period would have a significant adverse
effect on the Company's results of operations.
Any one or a combination of changing demand; fluctuating selling prices;
routine operational, geologic, transportation 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 projections and 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.
17
<PAGE> 20
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... 19
Audited Consolidated Financial Statements
Consolidated Statements of Income--Years ended December 31, 1996, 1995 and
1994........................................................................... 20
Consolidated Balance Sheets--December 31, 1996 and 1995......................... 21
Consolidated Statements of Stockholders' Equity--Years ended December 31, 1996,
1995 and 1994.................................................................. 22
Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and
1994........................................................................... 23
Notes to Consolidated Financial Statements...................................... 24
</TABLE>
18
<PAGE> 21
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, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Louisville, Kentucky
January 22, 1997
19
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
ASHLAND COAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(In thousands except earnings per share) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Coal sales............................................... $565,174 $618,886 $589,141
Operating revenues....................................... 12,030 17,075 21,003
-------- -------- --------
577,204 635,961 610,144
COSTS AND EXPENSES:
Cost of coal sold........................................ 508,960 529,618 510,125
Operating expenses....................................... 9,559 10,995 11,543
Selling, general, and administrative expenses............ 26,864 27,901 33,756
-------- -------- --------
545,383 568,514 555,424
-------- -------- --------
Operating income........................................... 31,821 67,447 54,720
OTHER INCOME (EXPENSE):
Interest income.......................................... 417 89 366
Interest expense......................................... (17,905) (20,724) (22,238)
-------- -------- --------
Income before income taxes................................. 14,333 46,812 32,848
Income tax expense (benefit)............................... (2,180) 5,401 628
-------- -------- --------
NET INCOME................................................. 16,513 41,411 32,220
Less preferred stock dividends............................. 2,810 2,810 2,603
-------- -------- --------
Income applicable to common stock.......................... $ 13,703 $ 38,601 $ 29,617
======== ======== ========
EARNINGS PER COMMON SHARE:
Primary.................................................. $ .87 $ 2.22 $ 1.72
Fully diluted............................................ $ .86 $ 2.16 $ 1.68
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
ASHLAND COAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
(In thousands) 1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 834 $ 1,752
Trade accounts receivable........................................ 56,743 76,442
Other receivables................................................ 6,260 6,890
Inventories...................................................... 41,394 26,038
Prepaid royalties................................................ 17,525 16,622
Deferred income taxes............................................ 2,187 3,512
Other............................................................ 2,177 3,349
-------- --------
Total current assets............................................. 127,120 134,605
Other assets:
Prepaid royalties................................................ 61,040 61,979
Coal supply agreements........................................... 27,712 31,498
Other............................................................ 14,355 18,924
-------- --------
Total other assets............................................... 103,107 112,401
Property, plant, and equipment, net................................. 574,850 588,396
-------- --------
Total assets..................................................... $805,077 $835,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 37,544 $ 30,595
Accrued expenses................................................. 30,599 37,279
Income taxes payable............................................. 761 --
Current portion of debt.......................................... 41,000 42,000
-------- --------
Total current liabilities........................................ 109,904 109,874
Long-term debt...................................................... 135,339 172,975
Accrued postretirement benefits other than pension.................. 82,464 78,951
Other long-term liabilities......................................... 55,221 50,493
Deferred income taxes............................................... 17,857 25,230
Stockholders' equity:
Convertible preferred stock...................................... 67,841 67,841
Common stock, $.01 par value, 44,000,000 shares authorized,
13,775,074 issued and 13,518,008 outstanding in 1996 and
13,754,224 issued and 13,567,858 outstanding in 1995........... 138 138
Paid-in capital.................................................. 109,689 109,257
Retained earnings................................................ 232,060 224,574
Less treasury common stock at cost (257,066 shares in 1996 and
186,366 shares in 1995)........................................ (5,436) (3,931)
-------- --------
Total stockholders' equity....................................... 404,292 397,879
-------- --------
Total liabilities and stockholders' equity....................... $805,077 $835,402
======== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ASHLAND COAL, INC. AND SUBSIDIARIES
Three years ended December 31, 1996
<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, 1994............ $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
$2,800 preference dividend) per
share.......................... (2,810) (2,810)
Purchase of 185,300 shares of common
stock............................. (3,902) (3,902)
Issuance of 31,240 shares of common
stock under stock incentive
plan.............................. 1 546 (29) 518
------- ---- -------- -------- ------- --------
Balance at December 31, 1995.......... 67,841 138 109,257 224,574 (3,931) 397,879
Net income.......................... 16,513 16,513
Cash dividends paid:
Common--$.46 per share............ (6,217) (6,217)
Preferred--$11,239 (including
$2,800 preference dividend) per
share.......................... (2,810) (2,810)
Purchase of 70,700 shares of common
stock............................. (1,505) (1,505)
Issuance of 20,850 shares of common
stock under stock incentive
plan.............................. 432 432
------- ---- -------- -------- ------- --------
Balance at December 31, 1996.......... $67,841 $138 $109,689 $ 232,060 $(5,436) $404,292
======= ==== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
ASHLAND COAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(In thousands) 1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................. $ 16,513 $ 41,411 $ 32,220
Adjustments to reconcile to cash provided by operating
activities:
Depreciation and amortization of property, plant,
and equipment................................... 64,699 65,127 58,344
Other amortization................................ 5,480 5,766 13,451
Prepaid royalties expensed........................ 23,738 21,286 19,868
Deferred income taxes............................. (6,048) (7,511) (11,238)
(Gain) loss on disposition of assets.............. 3 (477) (1,214)
Partnership costs in excess of cash advances...... 500 689 436
Changes in operating assets and liabilities:
Trade accounts receivable....................... 19,699 (14,080) (16,849)
Other receivables............................... 630 2,234 (4,657)
Inventories..................................... (15,356) 4,173 (7,907)
Prepaid royalties............................... (3,358) (4,527) (5,070)
Other current assets............................ 327 1,200 (1,522)
Other assets.................................... 3,037 2,336 3,178
Accounts payable and accrued expenses........... (1,280) (902) 12,816
Income taxes.................................... 1,347 (764) 2,381
Accrued postretirement benefits other than
pension....................................... 3,513 3,755 7,351
Other long-term liabilities..................... 4,587 2,159 3,159
--------- ----------- -----------
Cash provided by operating activities.................. 118,031 121,875 104,747
INVESTING ACTIVITIES
Property, plant, and equipment:
Purchases......................................... (52,628) (58,245) (43,501)
Proceeds from sales............................... 3,324 2,249 4,280
Advances on prepaid royalties.......................... (20,698) (21,013) (20,490)
--------- ----------- -----------
Cash used in investing activities...................... (70,002) (77,009) (59,711)
FINANCING ACTIVITIES
Proceeds from borrowings............................... 904,080 1,007,754 1,315,931
Payments on borrowings................................. (942,870) (1,039,402) (1,353,570)
Dividends paid......................................... (9,027) (9,131) (8,289)
Proceeds from sale of common stock..................... 375 447 1,456
Purchase of common stock............................... (1,505) (3,902) --
--------- ----------- -----------
Cash used in financing activities...................... (48,947) (44,234) (44,472)
--------- ----------- -----------
Increase (decrease) in cash and cash equivalents....... (918) 632 564
Balance at beginning of year........................... 1,752 1,120 556
--------- ----------- -----------
Cash and cash equivalents at end of year............... $ 834 $ 1,752 $ 1,120
========= =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for income taxes, net of
refunds.............................................. $ 2,521 $ 13,470 $ 9,218
Cash paid during the year for interest, net of amounts
capitalized.......................................... $ 17,746 $ 20,281 $ 22,126
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASHLAND COAL, INC. AND SUBSIDIARIES
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.
Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------- -------
<S> <C> <C>
Coal............................................................ $22,320 $ 8,536
Supplies........................................................ 19,074 17,502
------- -------
$41,394 $26,038
======= =======
</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.
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
$6,327,000 and $7,865,000 at December 31, 1996 and 1995, 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
$37,933,000 and $34,147,000 at December 31, 1996 and 1995, respectively.
Exploration Costs
Costs related to locating coal deposits and determining the economic
mineability of such deposits are expensed as incurred.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Costs of purchasing
rights to coal reserves and of developing new mines or significantly expanding
the capacity of existing mines are amortized using the units-of-production
method. Plant and equipment are depreciated principally on the straight-line
method over the
24
<PAGE> 27
1. ACCOUNTING POLICIES (CONTINUED)
estimated useful lives of the assets, which range from three to 33 years.
Interest costs on borrowed funds are capitalized for significant asset
construction projects. Capitalized interest costs were $382,000 in 1996,
$311,000 in 1995, and $176,000 in 1994.
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 projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.
Income Taxes
Deferred income taxes are 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.
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, 1996 and 1995) 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.
The Company accrues amounts to be paid or received under interest-rate swap
and cap agreements over the lives of the agreements. Such amounts are recognized
as adjustments to interest expense over the lives of agreements, thereby
adjusting the effective interest rate on the Company's debt.
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the classifications in the 1996 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 7,481,290 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. Prior to February 8, 1995, Saarberg 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 57% of the voting power of Ashland Coal in matters other
than the election of directors and could 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
25
<PAGE> 28
2. RELATED PARTIES (CONTINUED)
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) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenues:
Saarberg............................................... $ -- $ -- $4,124
Ashland and affiliates................................. 7 2,390 1
Service fees:
Charges from Ashland................................... 429 428 392
Charges to Ashland..................................... 1 5 1
Commissions paid on European sales of metallurgical coal:
Carboex................................................ 100 125 108
Saarberg and affiliates................................ -- -- 108
Purchases of fuel, oil, and other products from
Ashland................................................ 5,525 5,996 5,881
</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 and
is required to make periodic cash advances to DTA to fund such costs. On a
cumulative basis, costs exceeded cash advances by $8,122,000 and $7,622,000 at
December 31, 1996 and 1995, respectively (included in other long-term
liabilities). Costs and cash advances for the last three years follow:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Operating and debt service costs charged to costs and
expenses............................................... $4,031 $3,898 $3,316
Cash advances............................................ 3,531 3,209 2,880
</TABLE>
Future payments for fixed operating costs and debt service are estimated to
approximate $3,300,000 annually through 2015 and $26,000,000 in 2016.
26
<PAGE> 29
4. INCOME TAXES
Significant components of the provision for income tax expense (benefit)
are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $ 3,702 $11,793 $ 11,037
State.............................................. 166 1,119 829
------- ------- --------
Total current................................... 3,868 12,912 11,866
------- ------- --------
Deferred:
Federal............................................ (5,638) (6,894) (10,253)
State.............................................. (410) (617) (985)
------- ------- --------
Total deferred.................................. (6,048) (7,511) (11,238)
------- ------- --------
$(2,180) $ 5,401 $ 628
======= ======= ========
</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) 1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Income tax expense at U.S. statutory rate........... $ 5,017 $16,384 $ 11,497
Increase (decrease) in taxes resulting from:
Percentage depletion allowance.................... (6,552) (10,431) (10,685)
State income taxes, net of effect of federal
taxes.......................................... (302) 110 (446)
Nontaxable income, net of nondeductible
expenses....................................... (414) (590) (53)
Other items....................................... 71 (72) 315
-------- ------- --------
$ (2,180) $ 5,401 $ 628
======== ======= ========
</TABLE>
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) 1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Acquisition costs allocated to mineral reserves............. $ 83,908 $ 87,301
Property, plant, and equipment, principally due to
differences in lives and methods of depreciation and
amortization............................................. 26,873 27,613
Prepaid royalties capitalized for financial reporting
purposes................................................. 19,619 19,537
Acquisition costs allocated to coal supply agreements....... 2,261 3,110
Other....................................................... 2,822 3,432
-------- --------
Total deferred tax liabilities........................... 135,483 140,993
-------- --------
Deferred tax assets:
Goodwill for tax purposes................................... 34,503 37,586
Postretirement benefits other than pension.................. 32,707 31,228
Alternative minimum tax credit carryforward................. 29,529 26,971
Costs not deductible until paid or realized................. 17,722 17,719
Net operating loss carryforwards............................ 557 500
Deferred gains not deferred for tax purposes................ 2,075 2,141
Other....................................................... 2,720 3,130
-------- --------
Total deferred tax assets................................ 119,813 119,275
-------- --------
Net deferred tax liability............................. 15,670 21,718
Less current asset....................................... (2,187) (3,512)
-------- --------
Long-term deferred tax liability....................... $ 17,857 $ 25,230
======== ========
</TABLE>
27
<PAGE> 30
4. INCOME TAXES (CONTINUED)
At December 31, 1996, the Company had $459,000 of federal net operating
loss carryforwards, which expire in 2004, and $7,362,000 of state net operating
loss carryforwards, which expire from 2001 through 2011, 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 $23,000,000 in
1997, 1998, and 1999, $22,000,000 in 2000 and 2001, and $190,000,000 in the
aggregate thereafter.
Coal lands and mineral rights with a carrying value of $1,600,000, prepaid
royalties with a carrying value of $25,100,000 (net of the valuation allowance),
and future royalty commitments of $2,250,000 at December 31, 1996, 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.
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-------- --------
<S> <C> <C>
Cost:
Land........................................................ $ 11,361 $ 9,126
Coal lands and mineral rights............................... 439,564 462,465
Buildings and improvements.................................. 38,836 38,381
Equipment and processing facilities......................... 410,798 386,624
Other....................................................... 6,930 7,502
Construction in progress.................................... 9,934 5,184
-------- --------
917,423 909,282
Less accumulated depreciation and amortization................ 342,573 320,886
-------- --------
$574,850 $588,396
======== ========
</TABLE>
7. DEBT AND FINANCING ARRANGEMENTS
Debt consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-------- --------
<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
Indebtedness to banks under revolving credit agreement
(rate at December 31, 1996-5.91%; 1995-6.22%)............... 15,000 30,000
Indebtedness to banks under lines of credit (weighted average
rate at December 31, 1996-7.25%; 1995-6.09%)................ 6,261 7,315
Other......................................................... 2,178 2,660
-------- --------
176,339 214,975
Less current portion.......................................... 41,000 42,000
-------- --------
Long-term debt................................................ $135,339 $172,975
======== ========
</TABLE>
28
<PAGE> 31
7. DEBT AND FINANCING ARRANGEMENTS (CONTINUED)
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 0.1875% 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 ($6,000,000 in 1996 and
$18,200,000 in 1995) 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, 1996, there were $170,000,000 of such agreements in
effect.
Aggregate maturities of debt at December 31, 1996, are $41,000,000 in 1997,
$31,785,000 in 1998, $25,630,000 in 1999, $25,025,000 in 2000, $8,817,000 in
2001, and $44,082,000 thereafter. Included in these maturities are expected
discretionary prepayments of $9,000,000 in 1997 and $6,000,000 in 1998.
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, 1996, retained earnings of $73,375,000 were available for
dividends.
The Company enters into interest-rate swap agreements to modify the
interest characteristics of its outstanding debt. At December 31, 1996, the
Company had entered into interest-rate swap agreements having a total notional
value of $65,000,000. Of this total notional amount, $40,000,000 was used to
convert fixed-rate debt to a variable rate. Under these agreements, the Company
receives a weighted average fixed rate of 6.59% and was paying a weighted
average variable rate at December 31, 1996, of 5.78%. The average remaining life
on these swaps at December 31, 1996, was approximately 52 months. During the
fourth quarter of 1996 interest rates declined, and the Company chose to reduce
its exposure to variable interest rates by entering into $25,000,000 of reverse
swap agreements. At December 31, 1996, the Company was obligated to pay a
weighted average fixed rate of 6.26% under these agreements and will receive a
weighted average variable rate which was 5.78% at that date. The terms and
amounts of these swaps coincide with the stated maturities of the fixed-rate
debt obligations being converted. The variable rates are adjusted using six
month LIBOR. Interest expense for 1996 was reduced by $210,000 under these
agreements based on a net average notional position for the year of $24,800,000.
The Company's exposure to large interest-rate fluctuations on its variable-rate
debt has been mitigated through the purchase of short-term interest-rate caps
totalling $35,000,000 as of December 31, 1996.
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 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 three to 16 years
(five to 22 years in 1995 and 1994) at an assumed 7% (8% in 1995 and 1994)
after-tax investment return. The accrual for black lung benefits (included in
other long-term liabilities and in accrued expenses) was $16,222,000 and
$15,841,000 at December 31, 1996 and 1995, respectively.
29
<PAGE> 32
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 $2,749,000 and $2,599,000 at December 31, 1996 and
1995, 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, 1996 and 1995, the accrual for closing costs (included in other
long-term liabilities and in accrued expenses) was $10,501,000 and $9,418,000,
respectively.
10. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------- -------
<S> <C> <C>
Accrued compensation............................................ $12,148 $17,800
Accrued taxes................................................... 11,206 10,743
Accrued interest................................................ 3,928 4,313
Accrued reclamation and mine closing costs...................... 1,025 960
Other........................................................... 2,292 3,463
------- -------
$30,599 $37,279
======= =======
</TABLE>
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.
30
<PAGE> 33
11. CAPITAL STOCK (CONTINUED)
In 1995 Ashland Coal's Board of Directors authorized the purchase, from
time to time, of up to one million shares of the Company's common stock. At
December 31, 1996, 256,000 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.
Computations of earnings per share, using the "two class" method, are as
follows:
<TABLE>
<CAPTION>
(In thousands except earnings per share) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net income............................................ $16,513 $41,411 $32,220
Less: Common stock dividends.......................... 6,217 6,321 5,686
Preferred stock dividends........................ 2,810 2,810 2,603
------- ------- -------
Undistributed earnings................................ $ 7,486 $32,280 $23,931
======= ======= =======
Earnings per common share:
Primary:
Undistributed earnings........................... $ .41 $ 1.76 $ 1.30
Dividends (except preference dividends).......... .46 .46 .42
------- ------- -------
Net income....................................... $ .87 $ 2.22 $ 1.72
======= ======= =======
Fully diluted:
Undistributed earnings........................... $ .40 $ 1.70 $ 1.26
Dividends (except preference dividends).......... .46 .46 .42
------- ------- -------
Net income....................................... $ .86 $ 2.16 $ 1.68
======= ======= =======
</TABLE>
Weighted average shares for computing earnings per share were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Primary................................................. 18,142 18,374 18,338
Fully diluted........................................... 18,782 19,002 18,965
</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, 1996, no SARs or restricted stock
awards have been granted. Merit awards under the 1995 Plan are grants of Ashland
Coal stock without restriction and at a nominal cost. Performance share awards
are awards which can be
31
<PAGE> 34
13. STOCK INCENTIVE PLANS (CONTINUED)
earned by the recipient if Ashland Coal meets certain pre-established
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, 1996, no merit, performance
share, or phantom stock awards have been granted.
Information regarding stock options under these plans is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
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........ 578 $24.14 514 $23.23 468 $21.75
Granted................................. 181 22.25 95 26.13 96 28.45
Exercised............................... (21) 17.99 (31) 15.24 (29) 16.49
Forfeited............................... (38) 29.09 -- -- (21) 23.29
--- ----- ---
Options outstanding at December 31...... 700 23.56 578 24.14 514 23.23
=== ===== ===
Options exercisable at December 31...... 454 23.59 410 23.10 351 21.11
Options available for grant at December
31.................................... 857 1,000 95
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, 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 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 are required to make certain
disclosures about their plans, including pro forma net income and earnings per
share under the new method. The Company has elected to continue to follow APB25
for expense recognition and to make the disclosures required by SFAS No. 123.
Under SFAS No. 123's transition rules, Ashland Coal has determined the
following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands except earnings per share) 1996 1995
------- -------
<S> <C> <C>
Pro forma net income............................................ $16,066 $41,169
Pro forma earnings per share:
Primary....................................................... .85 2.20
Fully diluted................................................. .83 2.15
</TABLE>
For purposes of these pro forma disclosures, the estimated fair value of
the options is amortized over the options' vesting periods. The effect of
compensation expense from stock options on 1995 pro forma net income reflects
only the first year of vesting of 1995 awards. The 1996 pro forma net income
reflects the second year of vesting of 1995 awards and the first year of vesting
of 1996 awards. Because the Company's option awards are generally not fully
vested until after three years from the date of grant, the full effect of
recognizing compensation expense in pro forma net income will not be apparent
until 1997.
The fair values of options granted in 1996 and 1995 were determined to be
$862,000 and $642,000, respectively, using the Black-Scholes option pricing
model and the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Risk-free interest rate............................................ 5.44% 7.34%
Dividend yield..................................................... 2% 2%
Volatility of the expected market price of the Company's common
stock............................................................ .22 .24
Expected life of options (in years)................................ 4 4
</TABLE>
The fair value per option granted was $4.76 in 1996 and $6.72 in 1995.
Exercise prices for options outstanding as of December 31, 1996, range from $11
to $34.375, and the weighted-average remaining
32
<PAGE> 35
13. STOCK INCENTIVE PLANS (CONTINUED)
contractual life at that date was 6.3 years. The table below shows pertinent
information on options outstanding at December 31, 1996, priced below $25 per
share and priced at $25 per share or more.
<TABLE>
<CAPTION>
OPTION EXERCISE PRICE
---------------------------
BELOW $25 $25 OR MORE
---------- ------------
<S> <C> <C>
Options outstanding (in thousands)............................. 406 294
Weighted-average exercise price................................ $20.30 $28.06
Weighted-average remaining contractual life (in years)......... 6.0 6.8
Options currently exercisable (in thousands)................... 225 229
Weighted-average exercise price of options currently
exercisable.................................................. $18.74 $28.36
</TABLE>
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) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost of benefits earned....................... $ 1,508 $ 1,185 $ 1,433
Interest cost on projected benefit obligation......... 1,290 1,032 863
Actual (return) loss on plan assets................... (1,111) (1,872) 787
Net amortization...................................... 212 1,148 (1,428)
------- ------- -------
Net periodic pension cost........................... $ 1,899 $ 1,493 $ 1,655
======= ======= =======
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheets at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................... $ 9,428 $ 9,450
Nonvested benefits............................................ 1,227 1,246
------- -------
Accumulated benefit obligation............................. 10,655 10,696
Effect of projected compensation increases...................... 7,826 7,857
------- -------
Projected benefit obligation............................... 18,481 18,553
Plan assets at fair value....................................... 12,644 8,957
------- -------
Projected benefit obligation in excess of plan assets...... 5,837 9,596
Unrecognized transition credit.................................. 297 397
Unrecognized prior service cost................................. (7) (8)
Unrecognized net loss........................................... (1,476) (4,439)
------- -------
Accrued pension liability.................................. 4,651 5,546
Less amount included in accrued expenses........................ 63 2,331
------- -------
Amount included in other long-term liabilities............. $ 4,588 $ 3,215
======= =======
</TABLE>
33
<PAGE> 36
14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The assumptions used in computing the information above were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.75% 7.0 % 8.5 %
Expected long-term rate of return on plan assets........... 9.00% 9.0 % 9.0 %
Future compensation growth rate............................ 5.00% 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 $1,076,000 in 1996, $1,348,000 in 1995, and
$1,293,000 in 1994 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 $15,200,000 at December 31, 1996. 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 $651,000 in 1996, $347,000 in 1995, and $296,000
in 1994 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.
Other Postretirement Benefit Plans
Ashland Coal and its subsidiaries currently provide certain postretirement
health and life insurance coverage for eligible employees. Generally, covered
employees who terminate employment after meeting the eligibility requirements
for pension benefits are also eligible for postretirement coverage for
themselves and their dependents. The salaried employee postretirement medical
and dental plans are contributory, with retiree contributions adjusted
periodically, and contain other cost-sharing features such as deductibles and
coinsurance. The postretirement medical plan for retirees who were members of
the UMWA is not contributory. The Company's current funding policy is to fund
the cost of all postretirement health and life insurance benefits as they are
paid.
The net periodic postretirement benefit cost of these plans includes the
following components:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Service cost........................................... $ 2,628 $ 2,138 $4,522
Interest cost.......................................... 3,878 3,859 4,591
Amortization of gains.................................. (1,193) (1,607) (213)
------- ------- ------
Net periodic postretirement benefit cost............... $ 5,313 $ 4,390 $8,900
======= ======= ======
</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.
34
<PAGE> 37
14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the amounts recognized in the consolidated
balance sheets at December 31, 1996 and 1995, none of which have been funded:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................... $19,041 $22,961
Fully eligible active plan participants....................... 5,590 7,114
Other active plan participants................................ 30,667 31,993
------- -------
55,298 62,068
Unrecognized net gain........................................... 26,678 15,740
Unrecognized gain related to prior service...................... 1,889 2,102
------- -------
Accrued postretirement obligation............................. 83,865 79,910
Less amount included in accrued expenses........................ 1,401 959
------- -------
Amount included in accrued postretirement benefits other than
pension.................................................... $82,464 $78,951
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.75% and 7% at December 31, 1996 and 1995, respectively.
That change and a decrease in the actuarial assumption regarding per capita
claims cost were responsible for the reduction in the accumulated postretirement
benefit obligation from December 31, 1995, to December 31, 1996. The assumed
health care cost trend rate for 1997 is 8.5%, 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, 1996, by $8,386,000, or
15.2%, and the net periodic postretirement benefit cost for 1996 by $1,024,000,
or 19.3%.
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 $2,107,000 in 1996, $1,928,000 in 1995,
and $1,621,000 in 1994.
Restructuring Charges
In the first quarter of 1996, the Company began restructuring support
functions at its West Virginia operations and at its corporate headquarters. The
charge to operations for severance pay and other costs related to the
restructuring amounted to approximately $4,200,000 during 1996.
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, 1996 and 1995, accounts receivable
from electric utilities located in the United States totaled $42,341,000 and
$53,836,000, respectively. Accounts receivable from electric utilities located
in Europe totaled $7,328,000 as of December 31, 1995. There were no accounts
receivable from European electric utilities at the end of 1996. Generally,
credit is extended based on an evaluation of the customer's financial
35
<PAGE> 38
15. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS (CONTINUED)
condition, and collateral is not required. Credit losses are provided for in the
financial statements and historically 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) 1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Customer A........................................... $86,076 $88,191 $128,978
Customer B........................................... 64,403 60,767 60,928
Customer C........................................... 4,073 83,938 82,005
</TABLE>
In 1996, 1995, and 1994, Ashland Coal had export sales, principally to
European customers, of $55,280,000, $78,679,000, and $40,608,000, 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 their 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.
Interest-rate caps and swaps: The fair values of interest-rate caps and
swaps are based on quoted market prices, which reflect the present value of the
difference between estimated future amounts paid (none for caps) and received.
The carrying amounts and fair values of Ashland Coal's financial
instruments at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
(In thousands) AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 834 $ 834 $ 1,752 $ 1,752
Lines of credit........................... 6,261 6,261 7,315 7,315
Revolving credit agreement................ 15,000 15,000 30,000 30,000
Senior notes.............................. 152,900 173,000 175,000 201,000
Interest-rate caps and swaps.............. -- 572 -- 125
</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. 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
$4,000,000. The lease provides for annual rental payments of approximately
$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.
36
<PAGE> 39
18. SUBSEQUENT EVENT
Ashland Coal and Arch Mineral Corporation (Arch) have reached an agreement
in principle calling for the combination of the two companies. The exchange
ratio to be used for the transaction will result in the former Ashland Coal and
Arch stockholders holding approximately 48 percent and 52 percent of the
combined company, respectively. Further terms and conditions of the transaction
are continuing to be negotiated. Consummation of the transaction is conditioned
upon the negotiation and execution of definitive agreements between the parties,
receipt of all necessary governmental and regulatory consents, and approval by
the stockholders of both corporations.
19. COMMITMENTS AND CONTINGENCIES
Ashland Coal leases 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 $11,332,000 in 1996, $13,737,000
in 1995, and $14,088,000 in 1994. Minimum annual rentals due in future years
under lease agreements in effect at January 1, 1997, are approximately
$11,648,000 in 1997, $5,651,000 in 1998, $3,067,000 in 1999, $3,168,000 in 2000,
$3,242,000 in 2001, and additional amounts thereafter aggregating $6,639,000
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
$2,100,000 (included in other long-term liabilities) and believes that probable
insurance recoveries of $610,000 (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
$4,300,000 (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.
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial data for 1996 and 1995 are summarized below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(In thousands except earnings per share) MARCH 31 JUNE 30 SEPT. 30(1) DEC. 31
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
1996:
Sales and operating revenues.......... $143,324(2) $138,800 $ 142,991(2) $152,089
Operating income...................... 6,216 (3) 7,640 6,272 11,693
Net income............................ 1,515 3,090 2,501 9,407
Earnings per common share:(6)
Primary............................ .07 .16 .13 .51
Fully diluted...................... .07 .16 .13 .50
1995:
Sales and operating revenues.......... $156,624 $151,614 $ 158,566 $169,157(5)
Operating income...................... 15,175 18,215 15,641(4) 18,416(4)
Net income............................ 9,041 11,566 9,215 11,589
Earnings per common share:(6)
Primary............................ .49 .62 .49 .62
Fully diluted...................... .48 .60 .48 .61
</TABLE>
- ------------------------------
(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
37
<PAGE> 40
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
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 first and third quarters of 1996, the Company and a customer
agreed to reduce the tonnage to be delivered in 1996 under a coal supply
agreement. As part of these agreed reductions, the customer agreed to
make payments to the Company which increased operating revenues in the
first and third quarters by $1.1 million and $.8 million, respectively.
These agreements increased net income for the first quarter by $.7
million, or $.04 per share on a primary and on a fully diluted basis,
and increased net income for the third quarter by $.5 million, or $.03
per share on a primary and on a fully diluted basis.
(3) In the first quarter of 1996, the Company provided for a restructuring
charge of $3.8 million related to restructuring certain support
functions at its West Virginia operations and at corporate. The charge
reduced net income for the quarter by $2.6 million, or $.14 per share on
a primary and on a fully diluted basis.
(4) 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.
(5) 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 operating revenues by $.9 million and increasing net income
for the quarter by $.5 million, or $.03 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.
38
<PAGE> 41
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
Directors of the Registrant
The following is a list of the Company's directors, their ages and their
positions and offices held during the past five years:
J. A. "Fred" Brothers, Executive Vice President of Ashland Inc. since 1997,
Senior Vice President and Group Operating Officer of Ashland Inc. from 1988 to
1997. A Director of Ashland Coal since 1995. Director, Keybank N.A. and The Geon
Company (a manufacturer and marketer of vinyl plastics). Age 56.
Robert A. Charpie, Chairman of Ampersand Ventures, Inc. (a venture capital
company); retired in September 1988 as Chairman of the Board of Cabot
Corporation; a Director of Ashland Coal since 1988. Director, Champion
International Corporation. Age 71.
Paul W. Chellgren, Chairman of the Board of Ashland Inc. since 1997; Chief
Executive Officer of Ashland Inc. since 1996; President of Ashland Inc. since
1992; Chief Operating Officer of Ashland Inc. from 1992 to 1996; Senior Vice
President and Chief Financial Officer of Ashland Inc. from 1988 to 1992;
Chairman of the Board of Ashland Coal from 1982 to 1992; a Director of Ashland
Coal since 1981. Director, Ashland Inc. and PNC Bank Corp. Age 54.
Thomas L. Feazell, Senior Vice President, General Counsel and Secretary of
Ashland Inc. since 1992; Administrative Vice President and General Counsel of
Ashland Inc. from 1988 to 1992; a Director of Ashland Coal since 1981. Director,
National City Bank of Ashland, Kentucky. Age 60.
Juan Antonio Ferrando, Director of Carboex International, Ltd.; Senior Vice
President, Business Development, Sociedad Espanola de Carbon Exterior, S.A. (a
coal supply firm controlled by a Spanish state-owned corporation, and the owner
of Carboex) since 1986; during the past five years, has served in a variety of
managerial positions in Desarrollo de Operaciones Mineras, S.A. (a coal mining
company with operations in Spain and other countries); a Director of Ashland
Coal since 1988. Director, Granitos Espanoles, S.A. (a Spanish company which
produces and sells granite). Age 55.
Robert L. Hintz, Chairman of the Board of R. L. Hintz & Associates (a
management consulting firm) since 1989; retired in 1988 as Executive Vice
President of CSX Corporation. A Director of Ashland Coal since 1993. Director,
Reynolds Metals Corporation, Scott & Stringfellow, Inc. and Chesapeake
Corporation. Age 66.
Thomas Marshall, retired in 1995 as Chairman of the Board of Aristech
Chemical Corporation, a position he had held from 1986; Chief Executive Officer
of Aristech Chemical Corporation from 1986 to 1994; a Director of Ashland Coal
since 1995. Director, PNC Bank Corp. and Allegheny Teledyne Incorporated. Age
68.
William C. Payne, Chairman of the Board of Ashland Coal since 1992;
President and Chief Executive Officer and a Director of Ashland Coal since 1987.
Age 64.
J. Marvin Quin, Senior Vice President and Chief Financial Officer of
Ashland Inc. since 1992; Administrative Vice President and Treasurer of Ashland
Inc. from 1987 to 1992; a Director of Ashland Coal since 1992. Director,
Kentucky Electric Steel, Inc. Age 49.
Robert E. Yancey, Jr., Senior Vice President and Group Operating Officer of
Ashland Inc. and President of Ashland Petroleum Company, a division of Ashland
Inc. since 1986; a Director of Ashland Coal since 1987. Age 51.
39
<PAGE> 42
Except as otherwise indicated, the directors have held the principal
occupations described above during the past five years. Ashland Inc. owns
approximately 57% of the outstanding shares of common stock of Ashland Coal,
assuming conversion of the preferred stock to common stock (see Item 12,
Security Ownership of Certain Beneficial Owners and Management).
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, 64, 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., 49, is Senior Vice President, Marketing, and has
served in this capacity since 1990.
Marc R. Solochek, 50, is Senior Vice President and Chief Financial
Officer and has served in these capacities since 1991 and 1985,
respectively. He also served as Treasurer from 1983 to 1992.
Kenneth G. Woodring, 47, is Senior Vice President, Operations, and has
served in this capacity since 1989.
Roy F. Layman, 51, is Administrative Vice President, Law and Human
Resources, and Secretary, and has served in these capacities since 1993.
From 1990 to 1993, he served as Administrative Vice President, General
Counsel, and Secretary.
ITEM 11. Executive Compensation
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
AWARDS
ANNUAL COMPENSATION -------------------- PAYOUTS
------------------------------------------- RESTRICTED -------
OTHER ANNUAL STOCK LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS1 COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION4
POSITION YEAR ($) ($) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
William C. Payne 1996 310,000 -0- -0- -0- 30,000 4,202 2 6,300
Chairman 1995 309,423 163,397 -0- -0- 15,000 -0- 6,300
President & CEO 1994 294,423 110,000 -0- -0- 15,000 90,176 3 12,366
Kenneth G. Woodring 1996 237,500 -0- -0- -0- 15,000 2,577 2 6,300
Senior Vice President 1995 237,019 86,763 -0- -0- 7,500 -0- 6,290
1994 224,423 64,128 -0- -0- 7,500 56,783 3 9,426
C. Henry Besten, Jr. 1996 175,000 -0- -0- -0- 10,000 1,868 2 6,256
Senior Vice President 1995 174,615 69,180 -0- -0- 5,000 -0- 6,333
1994 164,500 54,177 -0- -0- 5,000 43,961 3 6,909
Marc R. Solochek 1996 175,000 -0- -0- -0- 10,000 1,437 2 6,300
Senior Vice President 1995 174,615 58,680 -0- -0- 5,000 -0- 5,831
& CFO 1994 164,500 49,227 -0- -0- 5,000 34,661 3 4,606
Roy F. Layman 1996 157,500 -0- -0- -0- 8,000 1,288 2 6,300
Admin. Vice President 1995 157,211 42,914 -0- -0- 4,000 -0- 6,300
& Secretary 1994 149,615 34,807 -0- -0- 4,000 30,998 3 6,284
</TABLE>
1 These amounts represent the amount of money earned under the Ashland Coal,
Inc. Incentive Compensation Program for Key Employees with respect to the
subject year and paid in the immediately succeeding year.
2 This amount represents the amount paid in 1997 for the four years of the
1993-1996 plan cycle under the Ashland Coal, Inc. Performance Unit Plan.
40
<PAGE> 43
3 This amount represents the amount paid in 1995 for the four years of the
1991-1994 plan cycle under the Ashland Coal, Inc. Performance Unit Plan.
4 These amounts represent contributions by Ashland Coal to the named executive's
account under the Ashland Coal, Inc. Employee Thrift Plan. For information
concerning supplemental retirement benefits payable to Mr. Payne following
retirement, see Employment Contracts and Termination of Employment and Change
in Control Arrangements on page 42 of this report.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------
% OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ----------------------
NAME (#)1 YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Payne 30,000 16.6 22.25 3/21/2006 424,318 1,078,251
Kenneth G. Woodring 15,000 8.3 22.25 3/21/2006 212,159 539,125
C. Henry Besten, Jr. 10,000 5.5 22.25 3/21/2006 141,439 359,417
Marc R. Solochek 10,000 5.5 22.25 3/21/2006 141,439 359,417
Roy F. Layman 8,000 4.4 22.25 3/21/2006 113,151 287,534
</TABLE>
1 The options are not exercisable at all during the first year following the
February 21, 1996, date of the grant, are exercisable with respect to 50
percent of the underlying shares after the first anniversary date of the grant
and until the second anniversary, and are exercisable between the second and
third anniversaries of the grant with respect to an additional 25 percent of
the underlying shares. After the third anniversary of the date of the grant,
the options are exercisable with respect to 100 percent of the underlying
shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE ------------------------------ ------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Payne 4,000 48,500 83,750 41,250 370,937 117,188
Kenneth G. Woodring -0- -0- 48,210 20,625 306,080 88,594
C. Henry Besten, Jr. -0- -0- 32,750 13,750 151,562 59,062
Marc R. Solochek -0- -0- 28,250 13,750 134,937 59,063
Roy F. Layman -0- -0- 34,500 11,000 259,750 47,250
</TABLE>
PENSION PLAN
The Ashland Coal, Inc. Pension Plan (Pension Plan) covers certain full-time
salaried and hourly employees, including the executives named in the Summary
Compensation Table set forth above. To the extent benefits under the qualified
Pension Plan would exceed the limits established by Section 415 of the Internal
Revenue Code of 1986, as amended (Code), they would be payable under Ashland
Coal's Nonqualified Excess Benefit Pension Plan. Similarly, to the extent
benefits payable under the qualified Pension Plan are limited by Section
401(a)(17) of the Code, such benefits will be provided to certain employees
under Ashland Coal's Benefits Restoration Plan. The following table shows the
estimated annual benefits payable to eligible employees under the qualified
Pension Plan, the Nonqualified Excess Benefit Plan,
41
<PAGE> 44
and the Benefits Restoration Plan using the benefit formula for salaried
employees and assuming continued employment until the normal date of retirement
at age 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
YEARS OF SERVICE
-----------------------------------------------------------
REMUNERATION 15 20 25 30 35
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000 $21,826 $ 29,101 $ 36,377 $ 43,652 $ 50,927
$125,000 $27,451 $ 36,601 $ 45,752 $ 54,902 $ 64,052
$150,000 $33,076 $ 44,101 $ 55,127 $ 66,152 $ 77,177
$175,000 $38,701 $ 51,601 $ 64,502 $ 77,402 $ 90,302
$200,000 $44,326 $ 59,101 $ 73,877 $ 88,652 $103,427
$225,000 $49,951 $ 66,601 $ 83,252 $ 99,902 $116,552
$250,000 $55,576 $ 74,101 $ 92,627 $111,152 $129,677
$275,000 $61,201 $ 81,601 $102,002 $122,402 $142,802
$300,000 $66,826 $ 89,101 $111,377 $133,652 $155,927
$325,000 $72,451 $ 96,601 $120,752 $144,902 $169,052
$350,000 $78,076 $104,101 $130,127 $156,152 $182,177
$375,000 $83,701 $111,601 $139,502 $167,402 $195,302
</TABLE>
Remuneration is computed only on annual salary shown in the Summary
Compensation Table and excludes all other amounts shown in that table. The
benefits set forth in the table above assumes the remuneration set forth is the
remuneration during the highest consecutive 36-month period of the final
120-month period prior to retirement. For the purposes of computing the Annual
Retirement Benefit payable under the Pension Plan, no more than the annual
compensation limit established by the Code may be taken into account. This limit
is currently $150,000.
As of December 31, 1996, Messrs. Payne, Woodring, Besten, Solochek and
Layman had credited service in the Pension Plan of 19 years, 18 years and 7
months, 23 years and 9 months, 20 years and 4 months, and 25 years and 5 months,
respectively.
The amounts in the foregoing table are shown on a straight life basis and
are not subject to any reductions for Social Security or other benefits received
by the participant. The amounts include the pre-January 1987 portion of the
benefit vested and annuitized upon termination and re-establishment of the
Pension Plan in January 1987. Under the Pension Plan, officers are entitled to
benefits on the same basis as other salaried employees. For a complete
discussion of the supplemental annual benefits payable upon retirement to
William C. Payne under his supplemental retirement benefits agreement, see
Employment Contracts and Termination of Employment and Change in Control
Arrangements below.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
EMPLOYMENT CONTRACT
In October 1990, Ashland Coal entered into a supplemental retirement
benefits agreement with Mr. Payne (Agreement). Under the Agreement, if Mr.
Payne's employment is terminated by Ashland Coal without cause, if he resigns
for any reason following a change in control, or if he retires with or without
the consent of the Board of Directors of Ashland Coal, then he would receive (on
an annual basis) a supplemental benefit equal to 50 percent of his average base
compensation plus average incentive compensation paid or accrued under Ashland
Coal's Incentive Compensation Plan during the highest 36 months of the final 60-
month period of his employment. Benefits payable under the Agreement are reduced
by any benefits payable to Mr. Payne under Ashland Coal's Pension Plan, any
other qualified defined benefit pension plan maintained
42
<PAGE> 45
by Ashland Coal, the Nonqualified Excess Benefit Pension Plan, and the Benefit
Restoration Plan. As a consequence of this Agreement, Mr. Payne's benefits under
the Pension Plan, the Nonqualified Excess Benefit Pension Plan, and the Benefit
Restoration Plan will be supplemented by approximately $132,700 per year,
assuming (1) he retires at age 65, (2) that half of the sum of (A) his average
base compensation paid during the highest 36 months of the final 60-month period
of his employment and (B) his average incentive compensation paid during the
highest 36 months of the final 60 month period of his employment is $223,700,
and (3) that his regular benefit under the Pension Plan, the Nonqualified Excess
Benefit Pension Plan and the Benefit Restoration Plan, upon retirement at age 65
would be $91,000. Benefits under the Agreement are not prorated based on years
of service, and are not payable if Mr. Payne's employment is terminated by
Ashland Coal for cause.
SALARY CONTINUATION PLAN
Ashland Coal has adopted a Salary Continuation Plan pursuant to which each
regular, full-time salaried employee (including the executives named in the
Summary Compensation Table, but excluding employees covered by collective
bargaining agreements, employees of entities in which Ashland Coal has a 50
percent or less ownership interest and certain international employees of
Ashland Coal and its subsidiaries) may receive a certain lump sum payment and
other benefits if certain conditions are met, and a participant's employment is
terminated without cause within two years after the conditions are met. The
conditions are that: (1) the Board determines that a "change of control" has
occurred; and (2) that the Board of Directors elects to extend the benefits of
the plan to the eligible employees. Benefits under the Salary Continuation Plan
are determined according to the following schedule:
<TABLE>
<CAPTION>
LENGTH OF SERVICE PAYMENT
- ------------------- ------------------------
<S> <C>
Up to 5 full years 3 months' compensation
6-10 full years 6 months' compensation
11-15 full years 1 year's compensation
1 1/2 years'
16-20 full years compensation
20+ years 2 years' compensation
</TABLE>
As of December 31, 1996, Messrs. Payne, Woodring, Besten, Solochek, and
Layman had service under the Salary Continuation Plan of 20, 19, 24, 21 and 26
years, respectively.
COMPENSATION OF DIRECTORS
Nonemployee directors of Ashland Coal during 1996 received an annual
retainer of $19,000 and a $1,100 fee for each Board of Directors and Board of
Directors committee meeting attended and expenses incurred in attending all such
meetings. A director who serves as a chairman of a committee is entitled to
receive an additional $2,500 fee per year for each chairmanship held by such
director. In addition, directors receive accidental death and dismemberment
insurance coverage of $100,000. Messrs. Brothers, Chellgren, Feazell, Quin and
Yancey have waived the payment of their fees and retainers, which waiver may be
withdrawn at any time. Under the Deferred Compensation Plan for Directors' Fees,
a director who is separately compensated for his services on the Board or a
committee of the Board may defer all or part of his director's retainer, meeting
fees and any per diem compensation for special assignments. A director may elect
either to earn interest on deferred amounts based on the prime rate (as quoted
by Citibank, N.A. as its prime commercial lending rate on the last day of each
calendar quarter) or to have the deferred amounts fluctuate in value based on a
hypothetical investment in Ashland Coal common stock. Deferred amounts, plus
earnings, are payable in cash to the director, his estate, or beneficiary over
such period of time as might be designated by the director, in no event to
extend beyond the twentieth anniversary of the termination of his services as a
director.
Messrs. Charpie, Marshall, and Hintz were appointed members of a Special
Committee on April 25, 1996, to explore potential structures and tax effects of
a possible business combination with Arch. On January 20, 1997, the Board
(without the participation of Messrs. Charpie, Marshall, and Hintz) approved a
43
<PAGE> 46
payment of $30,000 to each of Messrs. Charpie, Marshall, and Hintz for their
service on the Special Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Personnel and Compensation Committee (P&C Committee) is composed
entirely of outside directors and has the responsibility, among other things,
for approving Ashland Coal's executive compensation program, except for the
grant of stock options. The Key Employee Stock Administration Committee (KESA
Committee), which is also composed entirely of outside directors, was
responsible for approving grants of stock options under Ashland Coal's 1988
Stock Incentive Plan for Key Employees, and is responsible for approving grants
under the 1995 Stock Incentive Plan.
None of the members of either the P&C Committee or the KESA Committee are
officers or employees of Ashland Coal or any of its subsidiaries or former
officers or employees of Ashland Coal or any of its subsidiaries. Messrs.
Charpie, Yancey, Marshall, and Feazell served on the P&C Committee for all of
1996. Messrs. Hintz, Charpie, and Marshall served on the KESA Committee for all
of 1996. Messrs. Feazell and Yancey are employees of Ashland Inc. (see Item 13,
Certain Relationships and Related Transactions for further information about the
relationship of Ashland Coal with Ashland Inc.).
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of February 28, 1997,
unless otherwise noted, concerning ownership of Ashland Coal's outstanding
preferred stock, common stock into which preferred stock may be converted
(hereinafter referred to as "Equivalents") and outstanding common stock. Except
for the Equivalents and the common stock which may be acquired by means of
dividend reinvestments under the Ashland Coal Dividend Reinvestment and Stock
Purchase Plan in respect of dividends declared to holders of record on a record
date after February 28, 1997, the listed persons have no other right to acquire
beneficial ownership of common stock of Ashland Coal exercisable within 60 days
after February 28, 1997. Common Stock and Equivalents Beneficially Owned and
Approximate Percentage of Common Stock and Equivalents are calculated assuming
full conversion of the Class B and the Class C preferred stock at the current
conversion rate. Ashland Inc. owns common stock and Equivalents representing
about 57 percent of the voting power of Ashland Coal, and has the power to elect
a majority of the Board of Directors. If the Equivalents are excluded from the
computation of Approximate Percentage of Common Stock and Equivalents, Ashland
Inc.
44
<PAGE> 47
owns approximately 55 percent of the common stock. Each stockholder has sole
voting and dispositive power with respect to the stock listed next to its or his
name unless otherwise noted.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK APPROXIMATE
PREFERRED STOCK AND EQUIVALENTS PERCENTAGE OF
BENEFICIALLY BENEFICIALLY COMMON STOCK
NAME AND ADDRESS OWNED OWNED AND EQUIVALENTS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Ashland Inc.1 150(Class 10,233,189 2 57%
P. O. Box 391 B)
Ashland, Kentucky 41114
Carboex International, Ltd.3 100(Class 1,834,600 4 10%
Bolan House C)
P. O. Box N-3010
Nassau, Bahamas
J. A. Brothers1 0 3,159 *
Robert A. Charpie 0 10,000 *
Paul W. Chellgren1 0 5,336 5 *
Thomas L. Feazell1 0 667 *
Juan Antonio Ferrando3 0 0 0%
Robert L. Hintz 0 1,000 *
Thomas Marshall 0 2,500 *
William C. Payne 0 127,250 6 *
J. Marvin Quin1 0 500 *
Robert E. Yancey, Jr.1 0 1,000 *
Kenneth G. Woodring 0 66,960 7 *
C. Henry Besten, Jr. 0 46,452 8 *
Marc R. Solochek 0 39,188 9 *
Roy F. Layman 0 41,769 10 *
All executive officers and directors as a 0 345,781 11 2%
group (14 persons )
- ---------------------------------------------------------------------------------------------------
</TABLE>
1 Messrs. Brothers, Chellgren, Feazell, Quin, and Yancey, directors of
Ashland Coal, are executive officers of Ashland Inc., and to the extent
they may be deemed to be control persons of Ashland Inc., they may be
deemed to be beneficial owners of shares owned by Ashland Inc. Each of
Messrs. Brothers, Chellgren, Feazell, Quin, and Yancey disclaims
beneficial ownership of such stock.
2 The Class B Preferred Stock is currently convertible at the rate of
18,346 shares of common stock for each share of Class B Preferred Stock.
Ashland Inc. is the only holder of Ashland Coal's Class B preferred
stock.
3 Mr. Ferrando, a director of Ashland Coal, is a director of Carboex, and
to the extent he may be deemed to be a control person of Carboex, he may
be deemed to be a beneficial owner of shares owned by Carboex. Mr.
Ferrando disclaims beneficial ownership of such shares.
4 The common stock equivalent of 100 shares of Class C preferred stock
currently convertible at the rate of 18,346 shares of common stock for
each share of Class C preferred stock. Carboex is the only holder of
Ashland Coal's Class C preferred stock.
5 Includes 1,067 shares owned by members of Mr. Chellgren's family for
which he disclaims beneficial ownership.
6 Includes 106,250 shares held subject to currently exercisable stock
options.
7 Includes 59,460 shares held subject to currently exercisable stock
options.
45
<PAGE> 48
8 Includes 4,955 shares, as of December 31, 1996, held by Mr. Besten under
Ashland Coal's Employee Thrift Plan, which provides participants with
voting and investment power with respect to such shares, and 40,250
shares held subject to currently exercisable stock options.
9 Includes 3,420 shares, as of December 31, 1996, held by Mr. Solochek
under Ashland Coal's Employee Thrift Plan, which provides participants
with voting and investment power with respect to such shares, and 35,750
shares held subject to currently exercisable stock options.
10 Includes 27 shares owned by a member of Mr. Layman's family for which
Mr. Layman disclaims beneficial ownership, 1,189 shares, as of December
31, 1996, held by Mr. Layman under Ashland Coal's Employee Thrift Plan,
which provides participants with voting and investment power with
respect to such shares, and 40,500 shares held subject to currently
exercisable stock options.
11 Includes 1,094 shares owned by family members of persons in the group
for which such persons disclaim beneficial ownership, 9,564 shares, as
of December 31, 1996, held by executive officers under Ashland Coal's
Employee Thrift Plan, which provides participants with voting and
investment power with respect to such shares, and 282,210 shares held
subject to currently exercisable stock options.
* Represents less than 1 percent of the total number of shares of common
stock and Equivalents outstanding.
ITEM 13. Certain Relationships and Related Transactions
Ashland Coal receives certain services from and provides certain services
to Ashland Inc. for which fees are charged between the companies. During 1996,
Ashland Coal paid Ashland Inc. $429,000, and Ashland Inc. paid Ashland Coal
$1,000 for these services.
Ashland Coal also has purchased fuel, oil and other products from Ashland
Inc. at current market prices using standard purchase orders. Such purchases
amounted to $5,525,000 in 1996.
Ashland Inc. currently guarantees $17.8 million of the Company's coal
royalty payments, landlease, and Huntington headquarters office lease
obligations.
By Coal Sales Agency Agreement dated December 12, 1991, as amended on
January 26, 1993 and as of January 1, 1995 ("Agency Agreement"), the Company
appointed Saarberg and Carboex (collectively, "Sales Agent"), as its exclusive
agent for the purpose of selling high-volatile coking coal and PCI product from
reserves controlled by Ashland Coal's subsidiaries for use in the steel making
process to customers within an area comprised of Europe, several neighboring
Mediterranean countries and the former Soviet Union. Ashland Coal agreed to make
available for sale pursuant to the Agency Agreement a minimum of 250,000 tons of
high volatile coking coal per year. Pursuant to the Agency Agreement, the Sales
Agent has certain options to request PCI product in substitution for high
volatile coking coal. The Agency Agreement is for a term through December 31,
2000, if certain sales volumes are achieved during the two-year period of
calendar 1996 and 1997. During 1996, Ashland Coal paid Carboex $100,000 for its
services as agent under the terms of the Agency Agreement.
During 1996, Ashland Coal had coal sales of approximately $7,000 to Arch.
Ashland Inc. owns 50% of Arch's outstanding capital stock, and Arch is currently
in merger negotiations with Ashland Coal. See Item 1, Business-Recent
Developments on page one of this report.
Management believes charges between Ashland Coal and Ashland Inc. for
services rendered or provided were reasonable, and that the other transactions
described above were concluded on terms equivalent to those prevailing among
unaffiliated parties.
Ernst & Young LLP is the independent auditor for Ashland Inc., and Ernst &
Young S.A., a Spanish affiliate of Ernst & Young LLP, is the independent auditor
for Carboex.
46
<PAGE> 49
RESTATED SHAREHOLDERS AGREEMENT
Ashland Inc. and Carboex (together, the Principal Shareholders) and Ashland
Coal are parties to a Restated Shareholders Agreement, as amended (Shareholders
Agreement), imposing certain restrictions on the disposition of Ashland Coal
capital stock held by them. The Shareholders Agreement also binds transferees of
the Principal Shareholders and applies to all shares of capital stock of Ashland
Coal, including any shares of common stock into which the preferred stock may be
converted. The Shareholders Agreement also restricts Ashland Coal's business to
coal mining, processing and marketing and related business activities.
Under the Shareholders Agreement, the Principal Shareholders may dispose of
their shares without consent of the other Principal Shareholder in an
underwritten public offering; with certain limits, in resales exempt from
registration under the Securities Act of 1933 (the "Act") under Rule 144
thereof; or to buyers who with their affiliates would own fewer than 500,000
common shares after the disposition.
REGISTRATION RIGHTS AGREEMENT
Ashland Coal and the Principal Shareholders are parties to a Registration
Rights Agreement, effective on July 1, 1994, pursuant to which Ashland Coal
granted to each of the Principal Shareholders "demand" and "piggyback-on-demand"
registration rights requiring Ashland Coal to register common stock held by the
Principal Shareholders under the Act for sale to the public, as well as certain
"incidental" registration rights entitling the Principal Shareholders to
register common stock (subject to limitations on the number registered) in
offerings by Ashland Coal or other holders of registration rights.
47
<PAGE> 50
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.............................................. 19
Consolidated Statements of Income--Years Ended December 31, 1996, 1995 and
1994...................................................................... 20
Consolidated Balance Sheets--December 31, 1996 and 1995..................... 21
Consolidated Statements of Stockholders' Equity--Years Ended December 31,
1996, 1995 and 1994....................................................... 22
Consolidated Statements of Cash Flows--Years Ended December 31, 1996, 1995
and 1994.................................................................. 23
Notes to Consolidated Financial Statements.................................. 24
(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....................................... 53
</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>
48
<PAGE> 51
<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 Company (legal successor by merger with Allegheny Land Co.
No. 2, the assignee of Primeacre Land Corporation under October 5, 1992,
assignments), a second-tier subsidiary of the Company (Exhibit 10.3 to the
Company Form 10-K for the year ended December 31, 1995, filed with the SEC
on March 6, 1996, is incorporated herein by reference).
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).*
</TABLE>
49
<PAGE> 52
<TABLE>
<S> <C>
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 Hobet Mining, Inc.
(successor by merger with 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 - Amended and restated 1988 Stock Incentive Plan for Key Employees of
Ashland Coal, Inc. and its subsidiaries.****
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 - Amended and restated Ashland Coal, Inc. Deferred Compensation Plan for Key
Employees.****
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>
50
<PAGE> 53
<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 - Amended and Restated 1995 Stock Incentive Plan for Key Employees of
Ashland Coal, Inc. and its subsidiaries.****
10.32 - Coal Lease Agreement dated March 1, 1993, between Oglebay Norton Company
and Allegheny Land Company (successor to Allegheny Land Company No. 2) a
first-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****
23.1 - Consent of Independent Auditors****
23.2 - Consent of Mining and Geological Consultants****
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.
51
<PAGE> 54
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 10, 1996, to report that
Ashland Coal and Arch Mineral Corporation had resumed discussions of options for
combining the companies.
52
<PAGE> 55
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, 1996
Reserves Deducted from Asset Accounts
Prepaid Royalties.................... $ 7,865 $ -- $ 1,538 $ 6,327
Property, Plant, and Equipment....... 324 1,000 -- 1,324
Other Assets--Other
Notes and Accounts Receivable...... 230 -- 230 --
Prepaid Rent....................... 228 2 230 --
Current Assets--Supplies Inventory... -- 203 -- 203
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
</TABLE>
- ------------------------------
(1) Reserves utilized, unless otherwise indicated.
53
<PAGE> 56
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 7, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 7, 1997.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
- -------------------------------------- ---------------------------------------------
<S> <C>
By: /S/ WILLIAM C. PAYNE Chairman of the Board, President and Chief
---------------------- Executive
William C. Payne Officer and Director
By: /S/ MARC R. SOLOCHEK Senior Vice President and Chief Financial
---------------------- Officer
Marc R. Solochek
By: /S/ WILLIAM M. GERRICK Controller and Principal Accounting Officer
----------------------
William M. Gerrick
Paul W. Chellgren Director
Robert E. Yancey, Jr. Director
Thomas L. Feazell Director
Juan Antonio Ferrando Director By: /S/ ROY F. LAYMAN
Robert L. Hintz Director -------------------
J. Marvin Quin Director Roy F. Layman
Thomas Marshall Director As Attorney-in-Fact
John A. Brothers Director
Robert A. Charpie 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.
54
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- ----------------------------------------------------------------------------------
<S> <C>
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).***
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).
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- ----------------------------------------------------------------------------------
<S> <C>
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 Company (legal successor by merger with Allegheny Land Co. No. 2, the
assignee of Primeacre Land Corporation under October 5, 1992, assignments), a
second-tier subsidiary of the Company (Exhibit 10.3 to the Company Form 10-K for
the year ended December 31, 1995, filed with the SEC on March 6, 1996, is
incorporated herein by reference).
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 Hobet Mining, Inc.
(successor by merger with 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 - Amended and restated 1988 Stock Incentive Plan for Key Employees of Ashland Coal,
Inc. and its subsidiaries.****
10.15 - Ashland Coal, Inc. Performance Unit Plan (Exh. 10.15).*
10.16 - Ashland Coal, Inc. ERISA Forfeiture Plan, as amended (Exh. 10.16).***
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- ----------------------------------------------------------------------------------
<S> <C>
10.17 - Amended and restated Ashland Coal, Inc. Deferred Compensation Plan for Key
Employees.****
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).
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 - Amended and Restated 1995 Stock Incentive Plan for Key Employees of Ashland Coal,
Inc. and its subsidiaries.****
10.32 - Coal Lease Agreement dated March 1, 1993, between Oglebay Norton Company and
Allegheny Land Company (successor to Allegheny Land Company No. 2) a first-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****
23.1 - Consent of Independent Auditors****
23.2 - Consent of Mining and Geological Consultants****
24 - Power of Attorney****
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- ----------------------------------------------------------------------------------
<S> <C>
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.
<PAGE> 1
Exhibit 10.14
1988 STOCK INCENTIVE PLAN FOR KEY EMPLOYEES
OF ASHLAND COAL, INC. AND ITS SUBSIDIARIES
SECTION 1. PURPOSE
The purpose of the 1988 Stock Incentive Plan for Key Employees of
Ashland Coal, Inc. And Its Subsidiaries (herein called the "Plan") is to
promote the interests of Ashland Coal, Inc. (herein called "Ashland") and its
shareholders by providing their officers and key employees with an incentive to
continue service with Ashland and its subsidiaries. Through the grant of stock
options, stock appreciation rights and Restricted Stock awards (collectively
referred to as "Grants"), Ashland seeks to attract and retain in its employ
individuals of training, experience and ability and to furnish additional
incentive to officers and other key employees upon whose judgment, initiative
and efforts the successful conduct of its business largely depends.
SECTION 2. ADMINISTRATION
(a) The Plan shall be administered by the Personnel and Compensation
Committee of the Board of Directors of Ashland (herein called the "Committee"),
consisting of not less than three directors of Ashland who shall be appointed,
from time to time, by the Board of Directors of Ashland. No person who is (or,
within one year prior to his or her appointment as a member of the Committee,
was) eligible to participate in the Plan shall be a member of the Committee.
Subject to the express provisions of the Plan, the Committee shall have plenary
authority to interpret the Plan, to prescribe, amend, and rescind from time to
time rules and regulations relating to the Plan, to determine the eligible
employees to whom Grants shall be made, to determine whether any option
hereunder shall be deemed to be an "incentive stock option" as provided by
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code")
(herein referred to as "incentive stock options") or an option not qualifying
as an "incentive stock option" under the Code (herein referred to as
"non-qualified options"), to determine the terms and provisions of the
respective Grants (which terms and provisions of the respective Grants (which
terms and provisions need not be the same in each case), and to make the
administration of the Plan. In making such determinations, the Committee may
take into account the nature of the services rendered by the respective
employees, their present and potential contributions to Ashland's success and
such other factors as the Committee in its discretion shall deem relevant. The
determinations of the Committee on the matters referred to in this Section 2
shall be conclusive.
(b) All determinations of the Committee shall be made by not less than
a majority of its members. Any decision or determination reduced to writing and
signed by all the members shall be fully as effective as if it had been made by
a majority vote at a meeting duly called and held. No member of the Committee
shall be liable, in the absence of bad faith, for any act or omission with
respect to his or her services on the Committee. Service on the Committee shall
constitute service as a Director of Ashland so that members of the Committee
shall be entitled to indemnification and reimbursement for their services as
members of the Committee to the same extent as for services as Directors of
Ashland.
<PAGE> 2
SECTION 3. STOCK SUBJECT TO THE PLAN
There will be reserved for issuance upon the exercise of options and
stock appreciation rights and upon awards of Restricted Stock (as defined in
Section 12), to be granted from time to time under the Plan, an aggregate of
750,000 shares of Ashland Common Stock, par value $.01 per share ("Common
Stock"). Such shares may be in whole or in part, as the Board of Directors of
Ashland (the "Board") shall from time to time determine, authorized and
unissued shares of Common Stock or issued shares of Common Stock which shall
have been reacquired by Ashland. If any option or stock appreciation right
granted under the Plan shall expire or terminate for any reason without having
been exercised (or considered to have been exercised as provided in Section 7)
in full, or if any Restricted Stock award shall be forfeited, the shares
subject thereto shall again be available for the purposes of the Plan.
SECTION 4. ELIGIBILITY
Options and Restricted Stock may be granted only to salaried employees
(which term shall be deemed to include officers) of Ashland and of its present
and future subsidiary corporations as defined in Section 425 of the Code
("subsidiaries"). A director of Ashland or of a subsidiary who is not also such
an employee of Ashland or of one of its subsidiaries will not be eligible to
receive any options or Restricted Stock under the Plan. An employee who has
been granted an option may be granted an additional option or options.
Notwithstanding anything to the contrary contained herein, no employee
may be granted incentive stock options (under all incentive stock option plans
of Ashland and its affiliates) which are first exercisable in any calendar year
for stock having an aggregate fair market value (determined as of the date an
option is granted) exceeding $100,000. For purposes of the Plan, fair market
value of Common Stock shall be the closing price of a share of Common Stock on
the New York Stock Exchange on the date of reference or, if the Common Stock is
not then listed, admitted to trading, or traded on such Exchange on that day,
fair market value shall be determined by the Committee using any reasonable
method in good faith.
SECTION 5. PERIOD OF PLAN AND DURATION OF OPTIONS
(a) No options or Restricted Stock awards shall be granted under the
Plan after May 26, 1997.
(b) Every incentive stock option shall provide for a fixed expiration
date of not later than ten years from the date such incentive option is
granted; every non-qualified stock option shall provide for a fixed expiration
date of not later than ten years and one month from the date such non-qualified
option is granted.
2
<PAGE> 3
SECTION 6. OPTION DESIGNATION AND PRICE
(a) Any option granted under the Plan may be granted as an incentive
stock option or as a non-qualified stock option as shall be designated at the
time of the grant of such option.
(b) The option price per share of the Common Stock underlying each
option shall be fixed by the Committee, but shall not be less than 100% of the
fair market value of the stock at the time of the granting of the options.
SECTION 7. EXERCISE OF OPTIONS
The Committee may in its discretion prescribe in the option grant the
installments, if any, in which an option granted under the Plan shall become
exercisable provided that no option shall be exercisable prior to the first
anniversary of the date of its grant except as provided in Section 11 or as the
Committee otherwise determines. In no case may an option be exercised at any
time for less than 50 shares or the remaining shares covered by the option if
less than 50 shares) during the term of the option. The specified number of
shares will be issued to and transferred to the employee upon receipt by
Ashland of (i) notice from the optionee of exercise of an option and (ii)
either payment to Ashland of the option price of the number of shares with
respect to which the option is exercised of (with approval of the Committee) a
promissory note as provided in Section 8 hereof. Each such notice and payment
shall be delivered or mailed by postpaid mail, addressed to the treasurer of
Ashland at Ashland's Executive Offices at 2205 Fifth Street Road, Huntington,
West Virginia, or such other place as Ashland may designate from time to time.
SECTION 8. PAYMENT FOR SHARES
Except as otherwise provided in this Section 8, the option price shall
be paid in full when the option is exercised. The price may be paid in whole or
in part in (a) cash or (b) whole shares of Common Stock evidenced by negotiable
certificates, valued at their fair market value on the date of exercise, or (c)
by a combination of such methods of payment. If certificates representing
shares of Common Stock are used to pay all or part of the purchase price of an
option, separate certificates shall be delivered by Ashland representing the
same number of shares as each certificate so used an additional certificate
shall be delivered representing the additional shares to which the employee is
entitled as a result of exercise of the option. Moreover, an employee may
request Ashland to "pyramid" his shares; that is, to automatically apply the
shares which he is entitled to receive on the exercise of a portion of a stock
option to satisfy the exercise for additional portions of the option, thus
resulting in multiple simultaneous exercises of options by use of whole shares
as payment.
3
<PAGE> 4
The Committee may in its discretion authorize payment of all or a part
of the option price over a period of not more than five years from the date the
option is exercised. Any unpaid balance of the option price shall be evidenced
by the employee's promissory note payable to the order of Ashland which shall
bear interest at such rate or rates as determined from time to time by the
committee, but not less than the rate required to avoid imputed interest or
original issue discount under the Code.
SECTION 9. GENERAL STOCK APPRECIATION RIGHTS
The Committee may grant general stock appreciation rights ("SARs")
pursuant to the provisions of this Section 9 to the holder of any option
granted under the Plan (a "related option") with respect to all or a portion of
the shares subject to the related option. An SAR may only be granted
concurrently with the grant of the related option. Subject to the terms and
provisions of this Section 9, each SAR shall be exercisable only at the same
time and to the same extent the related option is exercisable and in no event
after the termination of the related option. SARs shall be exercisable only
when the fair market value (determined as of the date of exercise of the SARs)
of each share of Common Stock with respect to which the SARs are to be
exercised shall exceed the option price per share of Common Stock subject to
the related option. SARs granted under the Plan shall be exercisable in whole
or in part by notice to Ashland. Such notice shall state that the holder of the
SARs elects to exercise the SARs and the number of shares in respect of which
the SARs are being exercised.
Subject to the terms and provisions of this Section 9 upon the
exercise of SARs, the holder thereof shall be entitled to receive from Ashland
consideration (in the form hereinafter provided) equal in value to the excess
of the fair market value (determined as of the date of exercise of the SARs) of
each share of Common Stock with respect to which such SARs have been exercised
over the option price per share of Common Stock subject to the related option.
Upon the exercise of an SAR, the holder may specify the form of consideration
to be received by such holder, which shall be in shares of Common Stock (valued
at fair market value on the date of exercise of the SAR), or in cash, or partly
in cash and partly in shares of Common Stock, as the holder shall request;
provided, however, that the Committee, in its sole discretion, may disapprove
the form of consideration requested and instead authorize the payment of such
consideration in shares of Common Stock (valued as aforesaid), or in cash, or
partly in cash and partly in shares of Common Stock, as the committee shall
determine. For purposes of this Section 9, the date of exercise of an SAR shall
mean the date on which the Company shall have received notice from the holder
of the SAR of the exercise of such SAR.
Upon the exercise of SARs, the related option shall be considered to
have been exercised (a) to the extent of the number of shares of Common Stock
with respect to which such SARs are exercised and (b) to that extent for
purposes of determining the number of shares of Common Stock available for the
grant of options and Restricted Stock under the Plan. Upon the exercise or
termination of the related option, the SARs with respect to such related option
shall be
4
<PAGE> 5
considered to have been exercised or terminated to the extent of the number of
shares of Common Stock with respect to which the related option was so
exercised or terminated.
SECTION 10. NONTRANSFERABILITY OF OPTIONS AND STOCK
APPRECIATION RIGHTS
No option or SAR granted under the Plan shall be transferable
otherwise than by will or the laws of descent and distribution, and an option
or SAR may be exercised, during the lifetime of the holder thereof, only by him
or her.
SECTION 11. CONTINUED EMPLOYMENT AND AGREEMENT TO SERVE
(a) Subject to the provisions of Paragraphs (b), (c) and (e) of this
Section 11, every option shall provide that it may not be exercised in whole or
in part for a period of one year after the date of granting such option and if
the employment of the employee shall be terminated, for any reason other than
death or disability as determined by the committee, prior to the end of such
one year period, the option granted to such employee shall immediately
terminate.
(b) Every option shall provide that in the event of the death of the
employee while employed by Ashland or one of its subsidiaries or death during
the one-year period of disability described in Paragraph (c) of this Section 11
or within three months after cessation of employment for any cause, it shall be
exercisable, at any time or from time to time, prior to the fixed termination
date set forth in the option, by the estate of the decedent, or by any person
who shall acquire the right to exercise such option by bequest or by the laws
of descent and distribution for the full number of optioned shares or any part
thereof, less such number as may have been theretofore acquired under the
option.
(c) Every option shall provide that in the event the employment of any
employee shall cease by reason of total and permanent disability within the
meaning of Section 22(e) (3) of the Code as determined by the Committee at any
time during the term of the option, it shall be exercisable, at any time or
from time to time by such employee prior to the fixed termination date set
forth in the option, during a period of one year of continuing disability
following termination of employment by reason of such disability for the full
number of optioned shares or any part thereof, less such number as may have
been theretofore acquired under the option.
(d) Except as provided in Paragraphs (a), (b), (c) and (e) of this
Section 11, every option shall provide that it shall terminate on the earlier
to occur of the fixed termination date set forth in the option or three months
after cessation of the employee's employment for any cause, and, except as
provided in Paragraph (e) of this Section 11, if exercised after cessation of
such employment, may be exercised only in respect of the number of shares which
the employee could have acquired under the option immediately exercised after
the fixed termination date set forth in the option.
5
<PAGE> 6
(e) Notwithstanding any provision of this Section 11 to the contrary,
any option granted pursuant to the Plan and any related SAR may, in the
discretion of the Committee or as provided in the relevant option agreement,
become fully exercisable as to all optioned shares (i) from and after the time
the employee ceases to be an employee of Ashland or any of its subsidiaries as
a result of the sale or other disposition by Ashland of assets or property
(including shares of any subsidiary) in respect of which the employee had
theretofore been employed or as a result of which optionee's continued
employment with Ashland or any subsidiary is no longer required and (ii) in the
case of a change in control (as hereinafter defined) of Ashland from and after
the date of such change in control. For purposes of this Paragraph (e), the
term "change in control" means an event or circumstance which will only be
deemed to occur at such time as (i) any "person" (as that term is used in
Sections 13(d) and 14(d) (2) of the Exchange Act), other than the Company or a
subsidiary thereof or any employee benefit plan sponsored by the Company or a
subsidiary thereof, shall be become the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) directly or indirectly, of securities
representing 50% or more of the combined voting power for election of directors
of the then outstanding securities of the Company or any successor of the
Company; (ii) during any period of two (2) consecutive years or less,
individuals who at the beginning of such period constituted the Board of
Directors of the Company cease, for any reason, to constitute at least a
mjaority of the Board of Directors, unless the election or nomination for
election of each new director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of the
period; (iii) the shareholders of the Company approve any merger or
consolidation as a result of which the Common Stock of the Company shall be
changed, converted or exchanged (other than a merger with a wholly-owned
subsidiary of the Company) or any liquidation of the Company or any sale or
other disposition of substantially all the assets of the Company, or (iv) the
shareholders of the Company approve any merger or consolidation to which the
Company is a party as a result of which the persons who were shareholders of
the Company immediately prior to the effective date of the merger or
consolidation shall have beneficial ownership of less than 50% of the combined
voting power for election of directors of the surviving corporation following
the effective date of such merger of consolidation; provided, however, no
Change in Control of the Company shall be deemed to have occurred pursuant to
(i) through (iv) above unless the Board of Directors, which is in office prior
to such Change of Control, determines that the event described in (i) through
(iv) above should constitute a Change of Control hereunder.
(f) Each employee granted an option under this Plan shall agree by his
or her acceptance of such option to remain in the service of Ashland or a
subsidiary corporation of Ashland for a period of at least one year from the
date of the option agreement between Ashland and the employee. Such service
shall, subject to the terms of any contract between Ashland or any such
subsidiary and such employee, be at the pleasure of Ashland or such subsidiary
and at such compensation as Ashland or such subsidiary shall reasonably
determine from time to time. Nothing in the Plan or in any option granted
pursuant to the Plan shall confer on any individual any right to continue in
the employment of Ashland or any of its subsidiaries or interfere in any way
with the right of Ashland or any of its subsidiaries to terminate his or her
employment at any time.
6
<PAGE> 7
(g) Subject to the limitations set forth in Section 422A of the Code,
the Committee may adopt, amend or rescind from time to time such provisions as
it deems appropriate with respect tot he effect of leaves of absence approved
by any duly authorized officer of Ashland with respect to any optionee.
(h) The determination by the Committee of any question involving
disability shall be conclusive and binding.
SECTION 12. RESTRICTED STOCK AWARDS
The Committee may grant to employees shares of Common Stock subject to
certain restrictions (herein referred to as "Restricted Stock"). The amount of
Restricted Stock to be granted to any eligible employee and the respective
terms and conditions of such grant (which terms and provisions need not be the
same in each case) shall be determined by the Committee in its sole discretion.
As a condition to any award and the corresponding delivery of Restricted Stock
hereunder, the Committee may require an employee to pay an amount equal to, or
in excess of, the par value of the shares of Restricted Stock awarded to him or
her. Each certificate issued in respect of shares of Restricted Stock granted
to a participant under the Plans shall be registered in the name of the
participant and shall bear the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeitures) contained in Section 12 of the 1988 Stock Incentive Plan
for Key Employees of Ashland Coal, Inc. and Its Subsidiaries and an
Agreement entered into between the registered owner and Ashland Coal,
Inc."
Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered during a "Restricted Period", which shall be determined by
the Committee and which shall not be less than one year nor more than five
years from the date of grant. The Committee may reduce the Restricted Period
with respect to any outstanding shares of Restricted Stock at any time, but in
no event shall the Restricted Period be less than one year. Except for such
restrictions, the employee, as the owner of the Common Stock issued as
Restricted Stock, shall have all rights of a shareholder including, but not
limited to, the right to vote such Common Stock and to receive dividends
thereon as and when paid.
In the event that an employee's employment is terminated by reason of
death or physical or mental disability, or for such other reasons as the
committee may provide, the employee (or his or her estate) will receive his or
her Restricted Stock subject to the terms of his or her employment agreement
which agreement shall be in accordance with the terms and provisions set forth
in Section 11(f) herein. In the case of voluntary resignation or any other
termination of employment, an employee's Restricted Stock will be forfeited;
provided, however, that the Committee may limit such forfeiture to that portion
thereof which is proportional to the unelapsed portion of the Restricted
Period.
7
<PAGE> 8
At the end of the Restricted Period all shares of Restricted Stock
shall be free and clear of all restrictions to the employee. All such shares
may also be deemed free and clear of all restrictions to the employee to the
same extent provided in Section 11(e) either in the discretion of the Committee
or as provided in the relevant employment agreement.
SECTION 13. WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of non-qualified stock options
and SARs granted hereunder or the award or vesting of Restricted Stock. Unless
otherwise prohibited by the Committee, each participant may satisfy any such
tax withholding obligation by any of the following means, or by a combination
of such means: (i) a cash payment; (ii) authorizing Ashland to withhold from
the shares of Ashland Common Stock otherwise issuable to the participant as a
result of the exercise of the non-qualified stock option or SAR a number of
shares having a fair market value, as of the date the withholding tax
obligation arises (the "Tax Date"), which will satisfy the amount of the
withholding tax obligation, or (ii) by delivery to Ashland of a number of
shares of Common Stock having a fair market value as of the Tax Date which will
satisfy the amount of the withholding tax obligation arising from an exercise
of non-qualified options or SARs or the award or vesting of Restricted Stock. A
participant's election to pay the withholding tax obligation by (ii) or (iii)
above must be made on or before the Tax Date, is irrevocable, is subject to
such rules as the Committee may adopt, and may be disapproved by the Committee.
SECTION 14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event the market price of Common Stock shall decrease as a
result of any recapitalization, reorganization, merger, consolidation, spinoff,
separation, partial liquidation, or other transaction described in Section
425(a) of the Code, then, in the discretion of the Committee (and subject to
any Internal Revenue Service requirements that may be applicable) the price per
share of Common Stock under each option or Restricted Stock award granted
pursuant to the Plan may be appropriately adjusted (and the number of shares
subject to option or Restricted Stock awards may be appropriately adjusted).
For purposes of the preceding sentence, the decrease in market price of Common
Stock may be determined in any manner the Committee deems reasonable, including
the comparison of such market price immediately before and immediately after
the event giving rise to any such decrease, subject to Internal Revenue Service
requirements.
Adjustments under this Section 13 shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive, and
the committee in its discretion in making such adjustments may disregard
fractional shares.
SECTION 15. AMENDMENTS AND TERMINATIONS
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on, and no award shall be granted after, May
26, 1997. The Plan may be terminated, modified or amended by the shareholders
of Ashland. The Board may at any time
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terminate, modify or amend the Plan in such respects as it shall deem
advisable; provided, however, that the Board may not, without approval by the
holders of a mjaority of the outstanding shares of stock present and voting at
any annual or special meeting of shareholders of Ashland, (i) increase (except
as provided in Section 13) the maximum number of shares which may be issued
under options, SARs or Restricted Stock granted under the Plan, (ii) change the
class of employees eligible to receive options, SARs and Restricted Stock
awards, (iii) change the manner of determining the minimum option prices other
than to change the manner of determining the fair market value of the Common
Stock as set forth in Section 4, or (iv) extend the period during which options
or Restricted Stock awards may be granted or exercised. No termination,
modification or amendment of the Plan may, without the consent of the employee
to whom any option, SAR or Restricted Stock award shall theretofore have been
granted, adversely affect the rights of such employee under such option, SAR or
Restricted Stock award.
SECTION 16. EFFECTIVENESS OF THE PLAN
The Plan shall be effective on May 27, 1988, subject to its
ratification by the holders of a majority of the shares of Ashland stock
entitled to vote on or before May 26, 1989. The Committee may in its discretion
authorize the granting of options and SARs and Restricted Stock awards, the
exercise of which shall be expressly subject tot he conditions that (a) the
Plan shall have been approved or ratified as aforesaid by the shareholders of
Ashland and (b) a Registration Statement under the Securities Act of 1933, as
amended, with respect to such shares shall have become effective.
SECTION 17. TIME OF GRANTING OPTIONS AND RESTRICTED STOCK AWARDS
Nothing contained in the Plan or any resolutions adopted or to be
adopted by the Board of Directors of Ashland or the shareholders of Ashland
shall constitute the granting of any option, SAR or Restricted Stock award
hereunder. Options, SARs and Restricted Stock awards shall be granted hereunder
only by action of or pursuant to the authority of the Committee and the date of
grant shall be the date fixed in the determination thereof by the Committee;
provided, however, that no participant shall have any rights in respect of such
grant unless and until he or she shall have executed and delivered an option or
employment agreement, as the case may be, in form and substance satisfactory to
the Committee.
SECTION 18. USE OF CERTAIN TERMS
Options, SARs and Restricted Stock awards granted under the Plan shall
be binding upon Ashland, its successors and assigns. Unless the context
otherwise requires, the terms used in the Plan which correspond to like terms
defined in Sections 421 through 425, inclusive, of the Code and regulations and
revenue rulings applicable thereto shall have the meanings attributed to them
in said sections of such Code.
APPROVED BY THE BOARD: AUGUST 1, 1996
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Exhibit 10.17
ASHLAND COAL, INC.
DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES
1. PURPOSE
The purpose of this Deferred Compensation Plan For Key Employees (the "Plan")
is to provide eligible salaried employees of Ashland Coal, Inc. and its
subsidiaries and affiliates (hereinafter collectively called "Ashland") with an
opportunity to defer awards of Incentive Compensation, or such other Employee
Compensation, excluding base salary, as the Personnel and Compensation
Committee of the Board of Directors determines to be properly deferrable, as a
means of saving for their retirement or other purposes. Participant levels
within the Incentive Compensation Plan which will be eligible to defer awards
of Incentive Compensation under the terms of this Plan shall be determined from
time to time by the Senior Management of Ashland Coal, Inc.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "ACCOUNTING DATE" means each December 31, March 31, June 30
and September 30.
(b) "BENEFICIARY" means the person or persons who upon the death
of a Participant shall have acquired, by will, laws of
descent and distribution or by other legal proceedings, the
right to the Participant's Compensation Account.
(c) "BOARD" means the Board of Directors of Ashland Coal, Inc.
(d) "CHANGE IN CONTROL" will only be deemed to occur at such time
as (i) any "person" (as that term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act), other than the Company or
a subsidiary thereof or any employee benefit plan sponsored
by the Company or a subsidiary thereof, shall become the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly, of securities
representing 50% or more of the combined voting power for
election of directors of the then outstanding securities of
the Company or any successor of the Company; (ii) during any
period of two (2) consecutive years of less, individuals who
at the beginning of such period constituted the Board of
Directors of the Company cease, for any reason, to
constitute at least a majority of the Board of Directors,
unless the election or nomination for election of each new
director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the
beginning of the period; (iii) the shareholders of the
Company approve any merger or consolidation as a result of
which the Common Stock of the Company shall be changed,
converted or exchanged (other than a merger with a
wholly-owned subsidiary of the Company) or any liquidation
of the Company or any sale or other disposition of
substantially all the assets of the Company, or (iv)
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the shareholders of the Company approve any merger or
consolidation to which the Company is a party as a result of
which the persons who were shareholders of the Company
immediately prior to the effective date of the merger or
consolidation shall have beneficial ownership of less than
50% of the combined voting power for election of directors of
the surviving corporation following the effective date of
such merger of consolidation; provided, however, no Change in
Control of the Company shall be deemed to have occurred
pursuant to (i) through (iv) above unless the Board of
Directors, which is in office prior to such Change of
Control, determines that the event described in (i) through
(iv) above should constitute a Change of Control hereunder.
(e) "COMMITTEE" means the Personnel and Compensation Committee of
the Board.
(f) "COMPANY" means Ashland Coal, Inc. and its subsidiaries and
affiliates.
(g) "COMPENSATION ACCOUNT" means the account to which the
Employee's deferred Incentive Compensation Award or other
Employee Compensation determined to be properly deferrable by
the Committee is credited, together with interest accrued
thereunder, and which is established pursuant to Section 5.
(h) "DEFERRED COMPENSATION" means the Employee's deferral of an
Incentive Compensation Award or such other Employee
Compensation determined to be deferrable by the Committee.
(i) "ELECTION" means a Participant's delivery of a written Notice
of Election to the Vice President-Human Resources of Ashland
Coal, Inc. electing to defer payment of all or a portion of
his or her Incentive Compensation Award or such other
Employee Compensation determined to be deferrable by the
Committee.
(j) "EMPLOYEE" means a salaried employee (which term shall be
deemed to include officers) of Ashland Coal, Inc. and of its
present and future subsidiary corporations as defined in
Section 425 of the Internal Revenue Code of 1986, as amended.
(k) "EMPLOYEE COMPENSATION" means any employee compensation,
other than an Employee's base salary, or an award of
Incentive Compensation, determined by the Committee to be
properly deferrable under the Plan.
(l) "FISCAL YEAR" shall mean the annual period commencing October
1, 1987 and ending September 30, 1988; then the period
beginning October 1, 1988, and ending December 31, 1988; and
thereafter each annual period commencing January 1 and ending
the following December 31.
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(m) "INCENTIVE COMPENSATION AWARD" means the amount granted to a
Participant as an award under the Company's Incentive
Compensation Plan.
(n) "INCENTIVE COMPENSATION PLAN" means the incentive
compensation program of the Company, as from time to time
amended, pursuant to which certain key employees of the
Company earn incentive cash compensation.
(o) "PARTICIPANT" means an Employee who has elected, under the
terms and conditions of the Plan, to defer payment of all or
a portion of his or her Incentive Compensation Award or such
other Employee Compensation determined to be properly
deferrable by the Committee.
(p) "PAYMENT COMMENCEMENT DATE" means, with respect to annual
installments, January 2 of the first year of deferred payment
selected by an Employee in his or her Election and, with
respect to quarterly installments, the first business day of
the first calendar quarter of deferred payment selected by an
Employee in his or her Election.
(q) "PLAN" means this Ashland Coal, Inc. Deferred Compensation
Plan For Key Employees.
(r) "PRIME RATE OF INTEREST" means the rate of interest quoted by
Citibank, N.A. at its prime commercial lending rate on the
last day of each quarter.
(s) "SERVICE YEAR" means the Fiscal Year or portion thereof
during which the services have been rendered for which an
award of Incentive Compensation or Employee Compensation is
payable.
(t) "TERMINATION" means retirement from the Company or
termination of services as an Employee for any other reason.
3. ELIGIBILITY
Those Employees (including officers) of Ashland Coal, Inc. and its subsidiaries
and of its present and future subsidiary corporations as defined in Section 425
of the Internal Revenue Code of 1986, as amended, who are determined to
constitute a select group of management or highly compensated employees, shall
be eligible to participate in the Plan.
4. ADMINISTRATION
Full power and authority to construe, interpret and administer the Plan shall
be vested in the Personnel and Compensation Committee of the Board. Decisions
of the Personnel and Compensation Committee shall be final, conclusive and
binding upon all parties. Day-to-day
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administration of the Plan shall be the responsibility of the Human Resources
Department of Ashland Coal, Inc. Said Human Resources Department may modify any
forms provided for herein or authorize new forms for use under this Plan as
Senior Management of Ashland Coal, Inc. may from time to time deem necessary or
appropriate so long as any such modified or new forms are not otherwise
inconsistent with the terms and provisions of this Plan. Notwithstanding the
terms of an Election made by a Participant hereunder, the Committee may, in its
sole discretion, change the terms of such Election, on its own initiative or,
upon the request of a Participant or his or her representative, or a
Participant's Beneficiary or such Beneficiary's representative upon a
demonstration by or on behalf of the Participant of substantial financial
hardship as a result of accident, illness, disability or other event beyond the
control of the Participant. The amount of any such distribution shall be
limited to the amount deemed necessary by the Committee to alleviate or remedy
the Participant's hardship.
5. COMPENSATION ACCOUNT
Upon election to participate in the Plan, there shall be established a
Compensation Account for the Participant to which shall be credited any
deferred Incentive Compensation Award or other Employee Compensation as of each
Accounting Date. Funds credited to a Compensation Account shall remain a part
of the general funds of the Company and nothing contained in this Plan shall be
deemed to create a trust or fund of any kind or create any fiduciary
relationship. Nothing contained herein shall be deemed to give any Participant
any ownership or other proprietary, security or other rights in any funds,
stock or assets owned or possessed by the Company, whether or not earmarked for
the Company's own purposes as a reserve or fund to be utilized by the Company
for the discharge of its obligations hereunder. To the extent that any person
acquires a right to receive payments or distributions from the Company under
this Plan, such right shall be no greater than the right of any unsecured
creditor of the Company.
6. ELECTION TO DEFER
An Employee who is eligible to receive an Incentive Compensation Award or other
Employee Compensation for performance during any Service Year may elect, under
the terms and conditions of the Plan, including Section 7, to defer payment of
all or a portion (in 25% increments) of any such compensation. Such Election
shall be made by written notice in the manner specified herein and shall be
irrevocable, except as to changes in the designation of Beneficiary and as
otherwise stated herein. An Employee's initial designation of the applicable
payment period with respect to his or her existing deferrals shall be forever
binding upon the Employee, and with respect to any and all deferrals for
subsequent Service Years, cannot be changed without the prior approval of the
Board.
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7. MANNER OF ELECTION
Any eligible Employee wishing to participate in the Plan must deliver to the
Vice President-Human Resources of Ashland Coal, Inc. a written notice, on a
Notice of Election Form substantially in the form attached as Exhibit A,
electing to defer payment of all or a portion (in 25% increments) of his or her
Incentive Compensation Award or other Employee Compensation (an "Election"). An
Election shall become effective with respect to any Incentive Compensation
Award payable for the Service Year ending September 30, 1988, if filed by
September 30, 1988. For subsequent Service Years, a person for whom an Election
is not in effect may elect to participate in the Plan as follows: (a) with
respect to any Incentive Compensation Award or other Employee Compensation
payable for any Service Year, by filing an Election in accordance with the
procedure described above, on or before the last day of the preceding Service
Year; and (b) with respect to any Incentive Compensation Award or other
Employee Compensation payable for any Service Year, or applicable portion
thereof, after such person's initial eligibility, by filing an Election, in
accordance with the procedure described above, within 30 days subsequent to
such initial eligibility. With respect to an election under section (b) above,
the Election shall apply only to the portion of the Incentive Compensation
Award or other Employee Compensation determined by multiplying the total
amount, if any, for the Service Year by a fraction under which the numerator is
the number of days in the Service Year immediately following the date of the
election and the denominator is the number of days in the Service Year
beginning with the date of the Employee's initial eligibility for the Plan.
An effective Election may not be revoked or modified, except as to changes in
the designation of Beneficiary and as otherwise stated herein, with respect to
a Service Year for which such Election is effective and such Election, unless
terminated or modified as described below, shall apply to each subsequent
Service Year. An effective Election may be terminated or modified for any
subsequent Service Year by the filing, as described above, of either a new
Election, in regard to modifications, or a Notice of Termination of Deferrals,
substantially in the form attached as Exhibit B, in regard to terminations, on
or before the last day of the Fiscal Year immediately preceding the Service
Year for which such modification or termination is to be effective. A person
for whom an effective Election is terminated may thereafter file a new Election
for future Service Years for which he or she is eligible to participate in the
Plan; however, his or her initial designation as to the applicable payment
period shall continue to apply to future deferrals, subject to change only with
the prior approval of the Committee.
8. ADJUSTMENT OF DEFERRED COMPENSATION ACCOUNT
As of each Accounting Date, the Compensation Account for each Employee shall be
adjusted for the period, or applicable portion thereof, elapsed since the last
preceding Accounting Date as follows:
(a) First, the account shall be charged with any distribution
made during the period in accordance with Sections 9 and 10
below;
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(b) Secondly, the account shall be credited with the amount, if
any, of the Incentive Compensation Award or other Employee
Compensation deferred during the period in accordance with an
effective Election under Section 7 above; and
(c) Finally, the average account balance shall be credited with
an amount based on the Prime Rate of Interest quoted on such
Accounting Date for the quarterly period ending on such
Accounting Date for the actual number of days elapsed during
such quarter.
9. MANNER OF PAYMENT
An Employee's Compensation Account will be paid to the Employee, or in the
event of his or her death, to a designated Beneficiary, in accordance with the
Employee's Election, all such payments to be made in cash. If an Employee
elects to receive payment of his or her Compensation Account in either annual
or quarterly installments or in a lump sum, the payment period shall not exceed
ten (10) years following the date of the Employee's Termination. The amount of
any installment payment shall be determined by multiplying (i) the balance in
the Employee's Compensation Account on the date of such installment by (ii) a
fraction, the numerator of which is one and the denominator of which is the
number of remaining unpaid installments. In the event that different payment
periods are approved for a single Participant as otherwise provided herein, the
foregoing formula will be applied separately to the relevant portions of the
Compensation Account for such Participant which are subject to separate payment
periods. Amounts held pending distribution pursuant to this Section 9 shall
continue to be credited with an amount based on the Prime Rate of Interest.
10. PAYMENT COMMENCEMENT DATE
Payments of amounts deferred pursuant to a valid Election shall commence (i)
with respect to annual installments, on the January 2 of the first Year of
deferred payment selected by an Employee in his or her Election and (ii) with
respect to quarterly installments, on the first business day of the first
calendar quarter of deferred payment selected by an Employee in his or her
Election. If an Employee dies prior to the first deferred payment specified in
an Election, payments shall commence to the Employee's Beneficiary on the first
payment date so specified.
11. BENEFICIARY DESIGNATION
An Employee may designate, on a Notice of Election Form substantially in the
form attached as Exhibit A, any person to whom payments are to be made if the
Employee dies before receiving payment of all amounts due hereunder. A
designation of Beneficiary will be effective only after the signed Election is
filed with the Vice President-Human Resources of Ashland Coal, Inc. while the
Employee is alive and will cancel all designations of Beneficiary signed and
filed earlier. If the Employee fails to designate a Beneficiary as provided
above, or if all Beneficiaries of the Employee die before the Employee or
before complete payment of all amounts due hereunder,
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remaining unpaid amounts shall be paid in one lump sum to the estate of the
last to die of such designated Beneficiaries.
12. CHANGE IN CONTROL
Notwithstanding any provision of this Plan to the contrary, in the event of a
Change in Control (as defined in Section 2(d), each Participant in the Plan
shall receive an automatic lump sum distribution of all amounts accrued in the
Participant's Compensation Account (including interest at the Prime Rate of
Interest through the business day immediately preceding the date of
distribution) not later than fifteen (15) days after the date of the Change in
Control. In addition, the Company shall reimburse a Participant for the legal
fees and expenses incurred if the Participant is required to, and is successful
in, seeking to obtain or enforce any right to distribution. In the event that
it is determined that such Participant is properly entitled to a cash
distribution hereunder, such Participant shall also be entitled to interest
thereon payable in an amount equivalent to the prime rate of interest (quoted
by Citibank, N.A. as its prime commercial lending rate on the latest date
practicable prior to the date of actual distribution) from the date such
distribution should have been made to and including the date it is made.
Notwithstanding any provision of this Plan to the contrary, this Section 12 may
not be amended after a Change in Control occurs without the written consent of
a majority in number of Participants.
13. INALIENABILITY OF BENEFITS
The interests of the Participants and their Beneficiaries under the Plan may
not in any way be voluntarily or involuntarily transferred, alienated or
assigned, nor subject to attachment, execution, garnishment or other such
equitable or legal process.
14. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in accordance
with the laws of the State of Delaware.
15. AMENDMENTS
The Committee may amend, alter or terminate this Plan at any time without the
approval of the Participants.
APPROVED BY THE BOARD: AUGUST 1, 1996
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Exhibit 10.31
ASHLAND COAL, INC.
1995 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of the Ashland Coal, Inc. 1995 Stock Incentive Plan is to
promote the interests of Ashland Coal, Inc. and its shareholders by providing
the officers and employees of the Company and its Subsidiaries with an
incentive to continue service with Ashland. Accordingly, the Company may grant
to selected officers and employees of Ashland Stock Options (both options
qualifying under Code section 422 and options not so qualifying), Stock
Appreciation Rights, Restricted Stock, Merit Awards, Performance Share Awards
and Phantom Stock Awards in an effort to attract and retain in Ashland's employ
qualified individuals and to provide such individuals with incentives to devote
their best efforts to Ashland through ownership of the Company's stock, thus
enhancing the value of the Company for the benefit of shareholders. The
proceeds received by the Company from the exercise of options granted pursuant
to this Plan shall be used for general corporate purposes.
ARTICLE II
DEFINITIONS
2.01.AGREEMENT means a written agreement (including any amendment or supplement
thereto) between the between between the Company and an Employee specifying the
terms and conditions of an Award.
2.02. ASHLAND means, collectively, Ashland Coal, Inc. and its Subsidiaries.
2.03. AWARD means an Option, a Stock Appreciation Right, a Restricted Stock
Award, a Merit Award, a Performance Share Award, or a Phantom Stock Award, in
each case granted under this Plan.
2.04. BENEFICIARY means the person, persons, trust or trusts designated by an
Employee, or if no designation has been made, the person, persons, trust, or
trusts entitled by will or the laws of descent and distribution to receive the
benefits specified under this Plan in the event of an Employee's death.
2.05. BOARD means the Board of Directors of the Company.
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2.06. CHANGE IN CONTROL means an event or circumstance which will only be
deemed to occur at such time as (i) any "person" (as that term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act), other than the Company or a
subsidiary thereof or any employee benefit plan sponsored by the Company or a
subsidiary thereof, shall become the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) directly or indirectly, of securities
representing 50% or more of the combined voting power for election of directors
of the then outstanding securities of the Company or any successor of the
Company; (ii) during any period of two (2) consecutive years or less,
individuals who at the beginning of such period constituted the Board of
Directors of the Company cease, for any reason, to constitute at least a
majority of the Board of Directors, unless the election or nomination for
election of each new director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of the
period; (iii) the shareholders of the Company approve any merger or
consolidation as a result of which the Common Stock of the Company shall be
changed, converted or exchanged (other than a merger with a wholly-owned
subsidiary of the Company) or any liquidation of the Company or any sale or
other disposition of substantially all the assets of the Company, or (iv) the
shareholders of the Company approve any merger or consolidation to which the
Company is a party as a result of which the persons who were shareholders of
the Company immediately prior to the effective date of the merger or
consolidation shall have beneficial ownership of less than 50% of the combined
voting power for election of directors of the surviving corporation following
the effective date of such merger of consolidation; provided, however, no
Change in Control of the Company shall be deemed to have occurred pursuant to
(i) through (iv) above unless the Board of Directors, which is in office prior
to such Change of Control, determines that the event described in (i) through
(iv) above should constitute a Change of Control hereunder.
2.07. CODE means the Internal Revenue Code of 1986, as amended from time to
time.
2.08. COMMITTEE means the Key Employee Stock Administration or "KESA" Committee
of the Board, as from time to time constituted, or any successor committee of
the Board with similar functions, which shall consist of three or more members,
each of whom shall be Disinterested.
2.09. COMMON STOCK means the Common Stock of the Company ($.01 par value),
subject to adjustment pursuant to Article 14.
2.10. COMPANY means Ashland Coal, Inc.
2.11. DISINTERESTED means disinterested within the meaning of applicable
regulatory requirements, including those promulgated under Section 16 of the
Exchange Act.
2.12. EMPLOYEE means an officer or employee of Ashland.
2.13. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
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2.14. EXERCISE PRICE means, with respect to each share of Common Stock subject
to an Option, the price fixed by the Committee at which such share may be
purchased from the Company pursuant to the exercise of such Option, which price
at no time may be less than 100% of the Fair Market Value of the Common Stock
on the date the Option is granted.
2.15. FAIR MARKET VALUE means, on any given date, the closing price of a share
of Common Stock as reported on the New York Stock Exchange composite tape on
such day, or, if the Common Stock was not traded on the New York Stock Exchange
on such day, then on the next preceding day that the Common Stock was traded on
such exchange, all as reported by such service as the Committee may select. If
shares of Common Stock are not then traded on the New York Stock Exchange, the
Fair Market Value shall be determined by the Committee using any reasonable
method in good faith.
2.16. INCENTIVE STOCK OPTION or ISO means an Option that is intended by the
Committee to meet the requirements of Section 422 of the Code or any successor
provision. No Option that is intended to be an Incentive Stock Option shall be
invalid for failure to qualify as an Incentive Stock Option.
2.17. MERIT AWARD means an award of Common Stock issued pursuant to Article IX
of the Plan.
2.18. NONQUALIFIED STOCK OPTION or NQSO means an Option granted pursuant to
this Plan which does not qualify as an Incentive Stock Option.
2.19. OPTION means the right to purchase Common Stock at a price to be
specified and upon terms to be designated by the Committee or otherwise
determined pursuant to this Plan. An Option shall be designated by the
Committee as a Nonqualified Stock Option or an Incentive Stock Option.
2.20. ORIGINAL OPTION means an option defined as such in Section 6.04 of
Article VI of the Plan.
2.21. PERFORMANCE PERIOD means the period designated by the Committee during
which the performance objectives shall be measured.
2.22. PERFORMANCE SHARE AWARD means an award of shares of Common Stock, the
issuance of which is contingent upon attainment of performance objectives
specified by the Committee.
2.23. PERFORMANCE SHARES means those shares of Common Stock issuable pursuant
to a Performance Share Award.
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2.24. PERSONAL REPRESENTATIVE means the person or persons who, upon the
disability or incompetence of an Employee, shall have acquired on behalf of the
Employee by legal proceeding or otherwise the right to receive the benefits
specified in this Plan.
2.25. PHANTOM STOCK AWARD means a hypothetical or target award of a number of
shares of Common Stock, the vesting, earnout or payment of which is contingent
upon the completion of a number of years of service, the occurrence of an event
or the attainment of performance objectives established by the Committee.
2.26. PLAN means this Ashland Coal, Inc. 1995 Stock Incentive Plan.
2.27. RESTRICTED PERIOD means the period designated by the Committee during
which Restricted Stock may not be sold, assigned, transferred, pledged, or
otherwise encumbered, which period shall not be less than one year from the
date of grant.
2.28. RESTRICTED STOCK means those shares of Common Stock issued pursuant to a
Restricted Stock Award which are subject to the restrictions, terms, and
conditions set forth in the related Agreement.
2.29. RESTRICTED STOCK AWARD means an award of Restricted Stock.
2.30. RETAINED DISTRIBUTIONS means any securities or other property (other than
cash dividends) distributed by the Company in respect of Restricted Stock
during any Restricted Period.
2.31. RETIREMENT means retirement of an Employee from the employ of Ashland as
described in a tax-qualified pension or profit sharing plan maintained by
Ashland in which the Employee participates.
2.32. SECTION 16(B) OPTIONEE means an Employee or former Employee who is
subject to Section 16(b) of the Exchange Act.
2.33. STOCK APPRECIATION RIGHT or SAR means the right of the holder to
surrender an Option or any portion thereof which is then exercisable and/or
receive in exchange therefor shares of Common Stock, cash, or a combination
thereof, as the case may be, with an aggregate value equal to the excess of the
Fair Market Value of one share of Common Stock over the Exercise Price
specified in such Option or SAR multiplied by the number of shares of Common
Stock covered by such Option or SAR or portion thereof which is so surrendered.
An SAR shall be exercisable upon any additional terms and conditions
(including, without limitation, the issuance of Restricted Stock and the
imposition of restrictions upon the timing of exercise) which may be determined
as provided in the Plan.
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2.34. SUBSIDIARY means any present or future subsidiary corporation, as defined
in Section 424 of the Code, of the Company.
2.35. TAX DATE means the date the withholding tax obligation arises with
respect to the exercise of an Award.
ARTICLE III
STOCK SUBJECT TO THE PLAN
There will be reserved for issuance under the Plan (upon the exercise
of Options and Stock Appreciation Rights, upon awards of Restricted Stock,
Performance Shares, Merit Awards and Phantom Stock Awards (where such Awards
include the value of the hypothetical or target number of shares of Common
Stock) and for stock bonuses on deferred awards of Restricted Stock,
Performance Shares and Phantom Stock Awards (where such Awards include the
value of the hypothetical or target number of shares of Common Stock)), an
aggregate of 1,000,000 shares of Common Stock. Such shares shall be authorized
but unissued shares of Common Stock. Except as provided in Articles VII, VIII,
and XI, if any Award under the Plan shall expire or terminate for any reason
without having been exercised in full, or if any Award shall be forfeited, the
shares subject to the unexercised, terminated or forfeited portion of such
Award shall again be available for the purposes of this Plan.
ARTICLE IV
ADMINISTRATION
This Plan shall be administered by the Committee. No person who is
(or, within one year prior to his or her appointment as a member of the
Committee, was) eligible to participate in this Plan, or in any stock option or
stock bonus plan of the Company shall be a member of the Committee.
In addition to any implied powers and duties that may be needed to
carry out the provisions of the Plan, the Committee shall have all the powers
vested in it by the terms of the Plan, including, without limitation, exclusive
authority to select the Employees to be granted Awards under the Plan, to
determine the type, size and terms (not inconsistent with the provisions of
this Plan) of the Awards to be made to each Employee selected, to determine the
time when Awards will be granted, and to prescribe the form of the Agreements
embodying Awards made under the Plan. The terms of any Award may include
conditions (in addition to those in this Plan) on the exercisability of all or
any part of an Option or on the transferability or forfeitability of Restricted
Stock or a Phantom Stock Award. Notwithstanding any such conditions, the
Committee may, in its discretion, accelerate the time at which any Option may
be exercised or the time at which Restricted Stock or a Phantom Stock Award may
become transferable or nonforfeitable.
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The Committee shall be authorized to interpret the Plan and the Awards
granted under the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, to make any other determinations which it
believes necessary or advisable for the administration of the Plan, and to
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent the Committee deems
desirable to carry it into effect. Any decision of the Committee in the
administration of the Plan, as described herein, shall be final and conclusive.
The express grant in the Plan of any specific power to the Committee shall not
be construed as limiting any power or authority of the Committee.
The Committee may act only by a majority of its members. Any
determination of the Committee may be made, without notice, by the written
consent of the majority of the members of the Committee. In addition, the
Committee may authorize any one or more of their number or any officer of the
Company to execute and deliver documents on behalf of the Committee. No member
of the Committee shall be liable for any action taken or omitted to be taken by
him or her or by any other member of the Committee in connection with the Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
ARTICLE V
ELIGIBILITY
Awards may be granted only to individuals who are employees of the
Company or its Subsidiaries. A director of the Company or a Subsidiary who is
an employee of the Company or a Subsidiary may be granted Awards under this
Plan. A member of the Committee may not participate in this Plan or be eligible
for Awards hereunder during the time that his or her participation would
prevent the Committee from being disinterested for purposes of Securities and
Exchange Commission Rule 16b-3 as in effect from time to time.
ARTICLE VI
STOCK OPTIONS
6.01. DESIGNATION AND PRICE
(a) Any Option granted under the Plan may be granted as an Incentive
Stock Option or as a Nonqualified Stock Option as shall be designated by the
Committee at the time of the grant of such Option. Each Option shall be
evidenced by an Agreement between the recipient and the Company, which
Agreement shall specify the designation of the Option as an ISO or a NQSO, as
the case may be, and shall contain such terms and conditions as the Committee,
in its sole discretion, may determine in accordance with the Plan.
(b) Every Incentive Stock Option shall provide for a fixed expiration
date of not later than ten years from the date such Incentive Stock Option is
granted.
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(c) The Exercise Price of Common Stock issued pursuant to each Option
shall be fixed by the Committee at the time of the granting of the Option;
provided, however, that such Exercise Price shall in no event be less than 100%
of the Fair Market Value of the Common Stock on the date such Option is
granted.
(d) An option may be granted with or without a related SAR.
6.02. EXERCISE
The Committee may, in its discretion, provide for Options granted
under the Plan to be exercisable in whole or in part; provided, however, that
no Option may be exercised at any time for fewer than 50 shares (or the total
remaining shares covered by the Option if fewer than 50 shares) during the term
of the Option. The specified number of shares will be issued upon receipt by
the Company of (i) notice from the Optionee of exercise of an Option, and (ii)
either payment to the Company (as provided in this Article VI, Section 6.03
below), of the Exercise Price for the number of shares with respect to which
the Option is exercised, or with approval of the Committee, a secured
promissory note as hereinafter provided. Each such notice and payment shall be
delivered or mailed by post-paid mail, addressed to Ashland Coal, Inc., 2205
Fifth Street Road, Huntington, West Virginia 25701, Attn: Vice President-Human
Resources, or such other place or to the attention of such other person as the
Company may designate from time to time. Separate stock certificates shall be
issued by the Company for those shares acquired pursuant to the exercise of an
ISO and for those shares acquired pursuant to a NQSO.
6.03. PAYMENT FOR SHARES
Except as otherwise provided in this Article VI, the Exercise Price
for the Common Stock shall be paid in full when the Option is exercised.
Subject to such rules as the Committee may impose, the Exercise Price may be
paid in whole or in part in (i) cash, (ii) whole shares of Common Stock owned
by the Employee six months or longer and evidenced by negotiable certificates,
valued at their Fair Market Value on the date of exercise, (iii) by a
combination of such methods of payment, or (iv) such other consideration as
shall constitute lawful consideration for the issuance of Common Stock and be
approved by the Committee (including without limitation, assurance satisfactory
to the Committee from a broker registered under the Exchange Act, of the
delivery of the proceeds of an imminent sale of the stock to be issued pursuant
to the exercise of such Option, such sale to be made at the direction of the
Employee). If certificates representing shares of Common Stock are used to pay
all or part of the Exercise Price of an Option, separate certificates shall be
delivered by the Company representing the same number of shares as each
certificate so used and an additional certificate shall be delivered
representing any additional shares to which the Employee is entitled as a
result of exercise of the Option. The Committee may, in its discretion,
authorize payment of all or any part of the Exercise Price over a period of not
more than five years from the date the Option is exercised. In such instance
any unpaid balance of the Exercise Price shall be evidenced by the Employee's
promissory note payable to the order of the Company which shall be secured by
such collateral and shall bear interest at such rate or rates as determined
from time to time by the Committee.
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ARTICLE VII
STOCK APPRECIATION RIGHTS
The Committee may grant Stock Appreciation Rights pursuant to the
provisions of this Article VII to any Employee. Subject to the terms and
provisions of this Article VII, an SAR shall be exercisable only when the Fair
Market Value (determined as of the date of exercise of the SAR) of each share
of Common Stock with respect to which the SAR is to be exercised shall exceed
the Exercise Price per share of Common Stock subject to the SAR. An SAR granted
under the Plan shall be exercisable in whole or in part by notice to the
Company. Such notice shall state that the holder of the SAR elects to exercise
the SAR and the number of shares in respect of which the SAR is being
exercised. For purposes of this Article VII, the date of exercise of an SAR
shall mean the date on which the Company receives such notice.
Subject to the terms and provisions of this Article VII, upon the
exercise of an SAR, the holder thereof shall be entitled to receive from
Ashland consideration (in the form hereinafter provided) equal in value to the
excess of the Fair Market Value (determined as of the date of exercise of the
SAR) of each share of Common Stock with respect to which such SAR has been
exercised over the Exercise Price per share of Common Stock subject to the SAR.
The Committee may stipulate in the Agreement the form of consideration which
shall be received upon the exercise of an SAR. If no consideration is specified
therein, upon the exercise of an SAR, the holder may specify the form of
consideration to be received by such holder, which shall be in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the SAR), or in
cash, or partly in cash and partly in shares of Common Stock, as the holder
shall request; provided, however, that the Committee, in its sole discretion,
may disapprove the form of consideration requested and instead authorize the
payment of such consideration in shares of Common Stock (valued as aforesaid),
or in cash, or partly in cash and partly in shares of Common Stock.
Upon the exercise of an SAR, an Option for the number of shares of
Common Stock with respect to which such SAR is exercised shall be deemed to
have been exercised and to that extent a corresponding number of shares of
Common Stock shall not again be available for the grant of Awards under the
Plan. Upon the exercise or termination of an SAR, the number of shares with
respect thereto shall be considered to have been exercised or terminated to the
extent of the number of shares of Common Stock with respect to which the SAR
was so exercised or terminated.
ARTICLE VIII
RESTRICTED STOCK AWARDS
The Committee may make awards of Restricted Stock, evidenced by an
Agreement which shall contain such terms and conditions as the Committee, in
its sole discretion, may determine. The amount of each Restricted Stock Award
and the respective terms and conditions of each
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Award (which terms and conditions need not be the same in each case) shall be
determined by the Committee in its sole discretion. The consideration to be
paid by an Employee for any Award made hereunder shall be fixed by the
Committee from time to time, but shall in no event be less than the par value
of the shares of Restricted Stock awarded to him or her determined in a manner
and on a basis consistent with Delaware General Corporation Law. Any such
Restricted Stock Award shall automatically expire if not purchased in
accordance with the Committee's requirements within thirty (30) days after the
date of grant. Subject to the terms and conditions of each Restricted Stock
Award, the Employee, as the owner of the Common Stock issued as Restricted
Stock, shall have all rights of a shareholder including, but not limited to,
voting rights as to such Common Stock and the right to receive dividends
thereon when, as and if paid.
In the event that a Restricted Stock Award has been made to an
Employee whose employment or service is subsequently terminated for any reason
prior to the lapse of all restrictions thereon, such Restricted Stock will be
forfeited in its entirety by such Employee; provided, however, that the
Committee may, in its sole discretion, limit such forfeiture. Any Restricted
Stock so forfeited by an Employee shall not again be available for the grant of
Awards under the Plan.
Employees may be offered the opportunity to defer the receipt of
payment of vested shares of Restricted Stock, and Common Stock may be granted
as a bonus for deferral, under terms as may be established by the Committee
from time to time; however, in no event shall the Common Stock granted as a
bonus for deferral exceed 20% of the Restricted Stock so deferred.
Restricted Stock may not be sold, assigned, transferred, pledged, or
otherwise encumbered during a Restricted Period, which shall be determined by
the Committee and which shall not be less than one year from the date such
Restricted Stock was awarded. The Committee may at any time, reduce the
Restricted Period with respect to any outstanding shares of Restricted Stock
awarded under the Plan to Employees, but in no event shall such Restricted
Period be less than one year.
During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the recipient's
name and bear a restrictive legend to the effect that ownership of such
Restricted Stock (and any such Retained Distributions), and the enjoyment of
all rights appurtenant thereto are subject to the restrictions, terms, and
conditions provided in this Plan and the applicable Agreement. Such
certificates shall be deposited by the recipient with the Company, together
with stock powers or other instruments of assignment, each endorsed in blank,
which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions which
shall be forfeited in accordance with the Plan and the applicable Agreement.
Restricted Stock shall constitute issued and outstanding shares of Common Stock
for all corporate purposes. The recipient will have the right to vote such
Restricted Stock, to receive and retain all cash dividends, and to exercise all
other rights, powers and privileges of a holder of Common Stock with respect to
such Restricted Stock, with the exception that (i) the recipient will not be
entitled to delivery of the stock certificate or certificates representing such
Restricted Stock until the restrictions applicable
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thereto shall have expired; (ii) the Company will retain custody of all
Retained Distributions made or declared with respect to the Restricted Stock
(and such Retained Distributions will be subject to the same restrictions,
terms and conditions as are applicable to the Restricted Stock) until such
time, if ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid, or declared shall have become vested,
and such Retained Distributions shall not bear interest or be segregated in
separate accounts; (iii) the recipient may not sell, assign, transfer, pledge,
exchange, encumber, or dispose of the Restricted Stock or any Retained
Distributions during the Restricted Period; and (iv) a breach of any
restrictions, terms, or conditions provided in the Plan or established by the
Committee with respect to any Restricted Stock or Retained Distributions will
cause a forfeiture of such Restricted Stock and any Retained Distributions with
respect thereto.
ARTICLE IX
MERIT AWARDS
The Committee may from time to time make an award of Common Stock
under the Plan to selected Employees for such reasons and in such amounts as
the Committee, in its sole discretion, may determine. The consideration to be
paid by an Employee for any such Merit Award made hereunder shall be fixed by
the Committee from time to time, but shall in no event be less than the par
value of the shares of Common Stock awarded to him or her determined in a
manner and on a basis consistent with Delaware General Corporative Law.
ARTICLE X
PERFORMANCE SHARES
The Committee may make awards of Common Stock, evidenced by an
Agreement, to selected Employees on the basis of the Company's financial
performance in any given period. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Employees who
shall receive such Performance Shares, to determine the number of such shares
to be granted for each Performance Period, and to determine the duration of
each such Performance Period. There may be more than one Performance Period in
existence at any one time, and the duration of Performance Periods may differ
from each other.
The Committee shall establish performance measures for each
Performance Period on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time, in its sole discretion,
determine. Such measures may include, but shall not be limited to, return on
investment, earnings per share, return on shareholders' equity, or return to
shareholders. The performance measures determined by the Committee shall be
established prior to the beginning of each Performance Period but may be
subject to such later revisions as the Committee shall deem appropriate.
Performance Shares may not be sold, assigned, transferred, pledged, or
otherwise encumbered, except as herein provided and as provided in Section
11.04 of Article XI, during the Performance Period.
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The Committee shall determine, in its sole discretion, the manner of
payment, which may include (i) cash, (ii) shares of Common Stock, or (iii)
shares of Restricted Stock in such proportions as the Committee shall
determine. Employees may be offered the opportunity to defer the receipt of
payment of earned Performance Shares, and Common Stock may be granted as a
bonus for deferral under terms as may be established by the Committee from time
to time; however, in no event shall the Common Stock granted as a bonus for
deferral exceed 20% of the Performance Shares so deferred.
An Employee must be employed by the Company at the end of a
Performance Period in order to be entitled to payment of Performance Shares in
respect of such period; provided, however, that in the event of an Employee's
cessation of employment before the end of such period, or upon the occurrence
of his or her death, retirement, or disability, or other reason approved by the
Committee, the Committee may, in its sole discretion, limit such forfeiture.
The preceding sentence shall not affect an Employee's right to receive payment
of Performance Shares that were earned in a Performance Period that ended prior
to the Employee's termination of employment, death, retirement or disability.
ARTICLE XI
PHANTOM STOCK AWARDS
The Committee may make Phantom Stock Awards (which may be based solely
on the value of the underlying shares, solely on any earnings or appreciation
thereon, or both) evidenced by an Agreement, to selected Employees on the basis
of the completion of a number of years of service, the occurrence of an event
or the attainment of personal or corporate performance objectives established
by the Committee in its sole discretion. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine the Employees
who shall receive Phantom Stock Awards, to determine the number of hypothetical
or target shares as to which each such Award is subject, and to determine the
terms and conditions of each such Award. There may be more than one Phantom
Stock Award in existence at any one time with respect to a selected Employee,
and the terms and conditions of each such Award may differ from each other.
The Committee shall establish vesting or performance measures for each
Phantom Stock Award on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time, in its sole discretion,
determine. Such measures may include, but shall not be limited to, years of
service, periods of employment, the occurrence of certain events and individual
or corporate performance objectives including but not limited to return on
investment, earnings per share, return on shareholders' equity, or return to
shareholders. The vesting or performance measures determined by the Committee
shall be established at the time a Phantom Stock Award is made by the Committee
but may be subject to such later revisions as the Committee shall deem
appropriate. Phantom Stock Awards may not be sold, assigned, transferred,
pledged, or otherwise encumbered, except as herein provided and as provided in
Section 12.04 of Article XII, during the Performance Period.
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The Committee shall determine, in its sole discretion, the manner of
payment, which may include (i) cash, (ii) shares of Common Stock, or (iii)
shares of Common Stock in such proportions as the Committee shall determine.
Employees may be offered the opportunity to defer the receipt of payment of
earned Phantom Stock Awards, and cash or Common Stock may be granted as a bonus
for deferral under such terms as may be established by the Committee from time
to time; however, in no event shall the cash or Common Stock granted as a bonus
for deferral exceed 20% of the applicable Phantom Stock Award so deferred.
In the event that a Phantom Stock Award has been made to an Employee
whose employment or service is subsequently terminated for any reason before it
is vested or prior to its earnout or the lapse of all restrictions thereon,
such Phantom Stock Award or the applicable portion thereof will be forfeited by
such Employee; provided, however, that the Committee may, in its sole
discretion, limit such forfeiture. Any Phantom Stock Award so forfeited by an
Employee (relating to the value of the underlying hypothetical or target shares
of Common Stock) shall not again be available for the grant of Awards under the
Plan.
ARTICLE XII
SPECIAL EXERCISE RULES AND
CONTINUED EMPLOYMENT AND AGREEMENT TO SERVE
12.01. DEATH
Every Option shall provide that in the event the Employee dies (i)
while employed by the Company, (ii) during the period of disability described
in Section 12.02 of this Article XII, (iii) within three months after cessation
of employment for any cause (other than Retirement), or (iv) after Retirement
while Options remain outstanding, such Option shall be exercisable, at any time
or from time to time, prior to the fixed termination date set forth in the
Option, by the Beneficiaries of the decedent for the number of shares which the
Employee could have acquired under the Option immediately prior to the
Employee's death.
12.01. DISABILITY
Every Option shall provide that in the event the employment of any
Employee shall cease by reason of total and permanent disability within the
meaning of Section 22(e)(3) of the Code, as determined by the Committee at any
time during the term of the Option, such Option shall be exercisable, at any
time or from time to time by such Employee prior to its termination date for
the number of shares which the Employee could have acquired under the Option
immediately prior to the Employee's total and permanent disability. The
determination by the Committee of any question involving disability shall be
conclusive and binding.
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12.03. OTHER SEPARATIONS FROM SERVICE
Except as provided in Sections 12.01 and 12.04 of this Article XII,
every Option shall provide that it shall terminate on the earlier to occur of
the fixed termination date set forth in the Option or three months after
cessation of the Employee's employment for any cause except Retirement, in
which event the Option shall be exercisable at any time prior to its
termination date. If an Option is exercised after cessation of employment or
Retirement, it may be exercised only in respect of the number of shares which
the Employee could have acquired under the Option immediately prior to such
cessation of employment or Retirement; provided, however, that no Option may be
exercised after the fixed termination date set forth in the Option.
12.04. CERTAIN ACCELERATIONS
Notwithstanding any provision of this Article XII to the contrary, any
Award granted pursuant to the Plan, may, in the discretion of the Committee or
as provided in the relevant Agreement, become exercisable (earned or vested in
the case of a Phantom Stock Award), at any time or from time to time, prior to
satisfying the earnout or vesting requirements or the fixed termination date
set forth in the Award for the full amount or number of awarded shares or any
part thereof, less such amount or number as may have theretofore become vested
or been acquired under the Award (i) from and after the time the Employee
ceases to be an Employee of Ashland as a result of the sale or other
disposition by Ashland of assets or property (including shares of any
subsidiary) in respect of which such Employee had theretofore been employed or
as a result of which such Employee's continued employment with Ashland is no
longer required, and (ii) in the case of a Change in Control of the Company,
from and after the date of such Change in Control.
12.05. CONTINUED EMPLOYMENT UNDERTAKING
Each Employee granted an Award under this Plan shall agree by his or
her acceptance of such Award to remain in the service of Ashland for a period
of at least one year from the date of the Agreement respecting the Award. Such
service shall, subject to the terms of any contract between Ashland and such
Employee, be at the pleasure of Ashland and at such compensation as Ashland
shall reasonably determine from time to time. Nothing in the Plan, or in any
Award granted pursuant to the Plan, shall confer on any individual any right to
continue in the employment of or service to Ashland or interfere in any way
with the right of Ashland to terminate the Employee's employment at any time.
12.06. LEAVES OF ABSENCE
Subject to the limitations set forth in Section 422 of the Code, the
Committee may adopt, amend, or rescind from time to time such provisions as it
deems appropriate with respect to the effect of leaves of absence approved by
any duly authorized officer of Ashland with respect to any Employee.
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ARTICLE XIII
WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes
applicable to gains resulting from the exercise of an Award. Unless otherwise
prohibited by the Committee, each Employee may satisfy any such tax withholding
obligation by any of the following means, or by a combination of such means:
(i) cash withholding from a payment relating to an Award, (ii) a cash payment,
(iii) authorizing the Company to withhold from the shares of Common Stock
otherwise issuable to the Employee pursuant to the exercise or vesting of an
Award a number of shares having a Fair Market Value, as of the Tax Date, which
will satisfy the amount of the withholding tax obligation, or (iv) by delivery
to the Company of a number of shares of Common Stock having a Fair Market Value
as of the Tax Date which will satisfy the amount of the withholding tax
obligation arising from an exercise or vesting of an Award. An Employee's
election to pay the withholding tax obligation by (iii) or (iv) above must be
made on or before the Tax Date, is irrevocable, is subject to such rules as the
Committee may adopt, and may be disapproved by the Committee. If the amount
requested is not paid, the Committee may refuse to issue Common Stock under the
Plan.
ARTICLE XIV
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination, or exchange of shares, split-up,
split-off, spin-off, liquidation or other change in capitalization, or any
distribution to common stockholders other than cash dividends, the number or
kind of shares that may be issued under the Plan pursuant to Article III and
the number or kind of shares subject to, or the price per share under any
outstanding Award shall be automatically adjusted so that the proportionate
interest of the Employee shall be maintained as before the occurrence of such
event. Any such adjustment must be made on a basis determined fair by the
Committee and in accordance with the Company's Restated Certificate of
Incorporation, as amended, and its Amended Bylaws, as in effect at the time,
and in accordance with all applicable laws. Such adjustment shall be conclusive
and binding for all purposes of the Plan.
ARTICLE XV
AMENDMENTS AND TERMINATIONS
Unless the Plan shall have been terminated as hereinafter provided,
the Plan shall terminate on, and no Award shall be granted after May 1, 2005.
The Plan may be terminated, modified or amended by the shareholders of the
Company. The Board may at any time terminate, modify or amend the Plan in such
respects as it shall deem advisable; provided, however, that the Board may not,
without approval by the holders of a majority of the outstanding shares of
stock present and
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voting at any annual or special meeting of shareholders of the Company: (i)
increase (except as provided in Article XIII) the maximum number of shares
which may be issued pursuant to the Awards granted under the Plan, (ii) change
the class of persons eligible to receive Awards, (iii) change the manner of
determining the minimum Exercise Price of Options other than to change the
manner of determining the Fair Market Value of the Common Stock as set forth in
Article II, or (iv) extend the period during which Awards may be granted or
exercised.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.01. NO RIGHT TO AWARD
Employees are selected for Awards at the sole discretion of the
Committee. No Employee shall have any claim or right to be granted an Award
under the Plan.
16.02. ASSIGNMENT OR ALIENATION
An Employee's rights and interest under the Plan may not be assigned,
transferred, pledged or otherwise encumbered, in whole or in part, either
directly or by operation of law or otherwise (except in the event of an
Employee's death, by will or the laws of descent and distribution), including,
but not by way of limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy or in any other manner, and no such right or interest of any
Employee in the Plan shall be subject to any obligation or liability of any
such Employee. An Award shall be exercisable, during an Employee's lifetime,
only by him or her or his or her Personal Representative. Except as specified
in Article VIII, the holder of an Award shall have none of the rights of a
shareholder until the shares subject thereto shall have been registered in the
name of the person receiving or person or persons exercising the Award on the
transfer books of Ashland.
16.03. COMPLIANCE WITH SECURITIES LAWS
No Common Stock shall be issued hereunder unless counsel for Ashland
shall be satisfied that such issuance will be in compliance with applicable
Federal, state, and other securities laws. The appropriate officers of the
Company shall cause to be filed any reports, returns, or other information
regarding Awards hereunder or any Common Stock issued pursuant hereto as may be
required by Section 13 or 15(d) of the Exchange Act, or any other applicable
statute, rule, or regulation.
16.04. EXPENSES
The expenses of the Plan shall be borne by the Company.
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16.05. CONSENT TO, RATIFICATION OF CERTAIN ACTIONS
By accepting any Award under the Plan, each Employee and each Personal
Representative or Beneficiary claiming under or through him or her shall be
conclusively deemed to have indicated his or her acceptance and ratification
of, and consent to, any action taken under the Plan by the Company, the Board
or the Committee.
16.06. BINDING NATURE OF ACTIONS
Awards granted under the Plan shall be binding upon the Company, its
successors, and assigns.
16.07. OTHER COMPENSATION ARRANGEMENTS
Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required.
16.08. TIME AWARDS GRANTED
Each Employee shall be deemed to have been granted any Award on the
date the Committee took action to grant such Award under the Plan or such later
date as the Committee in its sole discretion shall determine at the time such
grant is authorized.
ARTICLE XVII
EFFECTIVENESS OF THE PLAN
The Plan shall be submitted to the shareholders of the Company for
their approval and adoption on April 28, 1995 or such other date fixed for the
next meeting of shareholders or any adjournment or postponement thereof. The
Plan shall not be effective and no Award shall be made hereunder unless and
until the Plan has been so approved and adopted at a meeting of the Company's
shareholders. Subject to approval by the shareholders on April 28, 1995, the
Plan shall be effective May 1, 1995.
ARTICLE XVIII
GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the State of Delaware.
No Option or SAR shall be exercisable, no Common Stock shall be
issued, no certificates for shares of Common Stock shall be delivered, and no
payment shall be made under this Plan
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except in compliance with all applicable federal and state laws and regulations
(including, without limitation, withholding tax requirements) and the rules of
all domestic stock exchanges on which shares of Common Stock may be listed. The
Company shall have the right to rely on an opinion of its counsel as to such
compliance. Any share certificate issued to evidence Common Stock for which
shares of Restricted Stock are awarded, Performance Shares or a Phantom Stock
Award were earned or for which an Option or SAR is exercised may bear such
legends and statements as the Company deems advisable to assure compliance with
federal and state laws and regulations. No Option or SAR shall be exercisable,
no Common Stock shall be issued, no certificate for shares shall be delivered,
and no payment shall be made under this Plan until the Company has obtained
such consent or approval as the Committee may deem advisable from regulatory
bodies having jurisdiction over such matters.
ARTICLE XIX
UNFUNDED PLAN
The Plan, insofar as it provides for grants, shall be unfunded, and
the Company shall not be required to segregate any assets that may at any time
be represented by grants under this Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based solely upon any
contractual obligations that may be created pursuant to this Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
ARTICLE XX
RULES OF CONSTRUCTION
Headings are given to the articles and sections of this Plan solely as
a convenience to facilitate reference. The reference to any statute,
regulation, or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
APPROVED BY THE BOARD: AUGUST 1, 1996
17
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net Income.................................................... $16,513 $41,411 $32,220
Less: Common stock dividends................................. 6,217 6,321 5,686
Preferred stock dividends.............................. 2,810 2,810 2,603
------- ------- -------
Undistributed earnings................................... $ 7,486 $32,280 $23,931
======= ======= =======
PRIMARY
Average shares and equivalents outstanding:
Shares outstanding.......................................... 13,519 13,733 13,699
Shares issuable upon
Conversion of preferred stock............................ 4,587 4,587 4,587
Exercise of stock options................................ 36 54 52
------- ------- -------
Total.................................................... 18,142 18,374 18,338
======= ======= =======
Per share amounts:
Undistributed earnings...................................... $ .41 $ 1.76 $ 1.30
Dividends (except preference dividends)..................... .46 .46 .42
------- ------- -------
Net income............................................... $ .87 $ 2.22 $ 1.72
======= ======= =======
FULLY DILUTED
Average shares and equivalents outstanding:
Shares outstanding.......................................... 13,519 13,733 13,699
Shares issuable upon
Conversion of preferred stock............................ 5,212 5,212 5,212
Exercise of stock options................................ 51 57 54
------- ------- -------
Total.................................................... 18,782 19,002 18,965
======= ======= =======
Per share amounts:
Undistributed earnings...................................... $ .40 $ 1.70 $ 1.26
Dividends (except preference dividends)..................... .46 .46 .42
------- ------- -------
Net income............................................... $ .86 $ 2.16 $ 1.68
======= ======= =======
</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>
Allegheny Land Company(1)...................................................... 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......................................................... West Virginia
Mountain Mining, Inc.(3)....................................................... Delaware
Mountaineer Land Company(4).................................................... Delaware
P. C. Holding, Inc.(5)......................................................... Delaware
Tri-State Terminals, Inc....................................................... Delaware
</TABLE>
- ------------------------------
(1) On April 30, 1996, Allegheny Land Company No. 2, formerly a subsidiary of
Ashland Coal, Inc., was merged into Allegheny Land Company.
(2) Coal-Mac, Inc. has one subsidiary, which is Bebe Coal Corporation, a
Kentucky corporation. On December 31, 1996, Saarcar Coal, Inc., formerly a
subsidiary of Ashland Coal, Inc., was merged into Coal-Mac, Inc.
(3) Mountain Mining, Inc. has two subsidiaries. Julian Tipple, Inc. is
incorporated in Delaware; and Hobet Mining, Inc. is incorporated in West
Virginia. On February 29, 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 February
29, 1996.
(4) On December 31, 1996, Mountaineer Land Company No. 2, formerly a subsidiary
of Ashland Coal, Inc., was merged into Mountaineer Land Company.
(5) On June 30, 1996, A.B.&H. Processing, Inc., formerly a subsidiary of Ashland
Coal, Inc., was merged into P.C. Holding, Inc.
<PAGE> 1
EXHIBIT 23.1
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 22, 1997, 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, 1996.
/s/ ERNST & YOUNG LLP
Louisville, Kentucky
March 6, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF MINING AND GEOLOGICAL CONSULTANTS
We hereby 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-3 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 the results reported in our Letter Report dated
March 3, 1997, with respect to the demonstrated coal reserve base of Ashland
Coal, Inc. as of December 31, 1996 included in the Annual Report (Form 10-K) for
the year ended December 31, 1996. We also consent to any reference to us under
the heading "Coal Reserves" in your Form 10-K and to the filing of our Letter
Report and this Consent as exhibits to said Form 10-K, or supplementally with
the Commission.
We further wish to advise that we were not employed on a contingent basis
and that at the time of the preparation of our report, as well as at present,
neither John T. Boyd Company nor any of its employees had, or now has, a
substantial interest in Ashland Coal, Inc., or any of its subsidiaries, as a
holder of its securities, promoter, underwriter, voting trustee, director,
officer, or employee of the said registrant, Ashland Coal, Inc.
Respectfully Submitted,
JOHN T. BOYD COMPANY
/s/ JAMES W. BOYD
--------------------------------------
James W. Boyd
President
March 6, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That each of the undersigned directors and
the undersigned Director/Officer 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, 1996,
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 26, 1997
<TABLE>
<S> <C> <C>
/s/ WILLIAM C. PAYNE Chairman of the Board, President, Chief
- -------------------------------------- Executive
William C. Payne Officer and Director
/s/ PAUL W. CHELLGREN Director
- --------------------------------------
Paul W. Chellgren
/s/ ROBERT E. YANCEY, JR. Director
- --------------------------------------
Robert E. Yancey, Jr.
/s/ THOMAS L. FEAZELL Director
- --------------------------------------
_
Thomas L. Feazell
/s/ J. MARVIN QUIN Director
- --------------------------------------
J. Marvin Quin
/s/ JUAN ANTONIO FERRANDO Director
- --------------------------------------
Juan Antonio Ferrando
/s/ ROBERT L. HINTZ Director
- --------------------------------------
Robert L. Hintz
/s/ ROBERT A. CHARPIE Director
- --------------------------------------
Robert A. Charpie
/s/ J. A. BROTHERS Director
- --------------------------------------
J. A. Brothers
/s/ THOMAS MARSHALL Director
- --------------------------------------
Thomas Marshall
</TABLE>
<TABLE> <S> <C>
<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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 834
<SECURITIES> 0
<RECEIVABLES> 63,003
<ALLOWANCES> 0
<INVENTORY> 41,394
<CURRENT-ASSETS> 127,120
<PP&E> 917,423
<DEPRECIATION> 342,573
<TOTAL-ASSETS> 805,077
<CURRENT-LIABILITIES> 109,904
<BONDS> 0
0
67,841
<COMMON> 138
<OTHER-SE> 336,313
<TOTAL-LIABILITY-AND-EQUITY> 805,077
<SALES> 565,174
<TOTAL-REVENUES> 577,204
<CGS> 508,960
<TOTAL-COSTS> 545,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,905
<INCOME-PRETAX> 14,333
<INCOME-TAX> (2,810)
<INCOME-CONTINUING> 16,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,513
<EPS-PRIMARY> .87
<EPS-DILUTED> .86
</TABLE>
