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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Telephone Number: (859) 815-3333
Securities Registered Pursuant to Section 12(b):
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock and Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G): NONE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
At October 31, 2002, based on the New York Stock Exchange closing
price, the aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $1,780,870,376. In determining this
amount, the Registrant has assumed that its directors and executive
officers are affiliates. Such assumption shall not be deemed conclusive for
any other purpose.
At October 31, 2002, there were 68,242,197 shares of Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the fiscal
year ended September 30, 2002 are incorporated by reference into Parts I,
II and IV.
Portions of Registrant's definitive Proxy Statement for its January
30, 2003 Annual Meeting of Shareholders are incorporated by reference into
Part III.
TABLE OF CONTENTS
PART I Page
Item 1. Business........................................................ 1
APAC ......................................................... 1
Ashland Distribution............................................ 2
Ashland Specialty Chemical...................................... 2
Valvoline....................................................... 3
Refining and Marketing.......................................... 4
Miscellaneous................................................... 7
Item 2. Properties...................................................... 10
Item 3. Legal Proceedings............................................... 10
Item 4. Submission of Matters to a
Vote of Security Holders........................................ 12
Item X. Executive Officers of Ashland................................... 12
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters....................................... 13
Item 6. Selected Financial Data......................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 13
Item 8. Financial Statements and Supplementary Data..................... 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 13
Item 11. Executive Compensation.......................................... 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Shareholder Matters.......... 14
Item 13. Certain Relationships and Related Transactions.................. 14
Item 14. Controls and Procedures......................................... 14
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................... 15
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22, 1936,
with its principal executive offices located at 50 E. RiverCenter
Boulevard, Covington, Kentucky 41011 (Mailing Address: 50 E. RiverCenter
Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391) (Telephone: (859)
815-3333). The terms "Ashland" and the "Company" as used herein include
Ashland Inc. and its consolidated subsidiaries, except where the context
indicates otherwise.
Ashland's businesses are grouped into five industry segments: APAC,
Ashland Distribution, Ashland Specialty Chemical, Valvoline and Refining
and Marketing. Financial information about these segments for the three
fiscal years ended September 30, 2002 is set forth on pages 60 and 61 of
Ashland's Annual Report to Shareholders for the fiscal year ended September
30, 2002 ("Annual Report").
APAC performs asphalt and concrete contract construction work,
including highway paving and repair, excavation and grading, and bridge
construction, and produces asphaltic and ready-mix concrete, crushed stone
and other aggregate in the southern and midwestern United States.
Ashland Distribution distributes industrial chemicals and solvents,
plastics, composite materials and fine ingredients in North America and
plastics in Europe. Ashland Distribution also provides environmental and
energy management services. Ashland Specialty Chemical manufactures
composites, adhesives, and casting binder chemicals for use in the
transportation and construction industries. Ashland Specialty Chemical also
manufactures water treatment chemicals for use in the general industrial
and merchant marine markets. In addition, Ashland Specialty Chemical
manufactures high purity chemicals and provides services to the
microelectronics industry.
Valvoline is a producer and marketer of premium packaged motor oil and
automotive chemicals, including appearance products, antifreeze, filters,
rust preventives and coolants. In addition, Valvoline is engaged in the
"fast oil change" business through outlets operating under the Valvoline
Instant Oil Change(R) name.
Marathon Ashland Petroleum LLC ("MAP"), a joint venture with Marathon
Oil Company, operates seven refineries with a total crude oil refining
capacity of 935,000 barrels per day. Refined products are distributed
through a network of independent and company-owned outlets in the Midwest,
the upper Great Plains and the southeastern United States. Marathon Oil
Company holds a 62% interest in MAP, and Ashland holds a 38% interest in
MAP. Ashland accounts for its investment in MAP using the equity method.
At September 30, 2002, Ashland and its consolidated subsidiaries had
approximately 24,300 employees (excluding contract employees).
APAC
The APAC group of companies is the nation's largest asphalt and
concrete paving company and is a major supplier of construction materials.
APAC performs construction work, such as paving, repairing and resurfacing
highways, streets, airports, residential and commercial developments,
sidewalks and driveways, and grading and base work. In addition, it
performs a number of construction services such as excavation and related
activities in the construction of bridges and structures, drainage
facilities and underground utilities. APAC conducts its business through 25
market focused business units operating in 14 southern and midwestern
states. Distinguished by their local identities, these business units
provide construction services, technologies and materials throughout the
regions in which they operate. These market focused business units are
supported by management and administrative staff in Atlanta, Georgia.
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
36 permanent operating quarry locations, 61 other aggregate production
facilities, 67 ready-mix concrete plants, 242 hot-mix asphalt plants and a
fleet of over 16,500 mobile equipment units, including heavy construction
equipment and transportation-related equipment. In certain market areas,
APAC is vertically integrated with asphalt, aggregate and ready-mix
operations, all complementing one another.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 30% of the raw aggregate produced by APAC is used in
APAC's own contract construction work and the production of various
processed construction materials. The remainder is sold to third parties.
APAC also purchases substantial quantities of raw aggregate from other
producers whose proximity to the job site renders it economically
attractive. Most other raw materials, such as liquid asphalt, portland
cement and reinforcing steel, are purchased from third parties.
Approximately 79% of APAC's sales and operating revenues are
construction revenues, with the remaining 21% coming from sales of
construction materials. Approximately 83% of APAC's construction revenues
are derived
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directly from highway and other public sector sources, with the remaining
17% coming from industrial and commercial customers and private developers.
Climate and weather significantly affect revenues and margins in the
construction business. Due to its location, APAC tends to enjoy a
relatively long construction season. Most of APAC's operating income is
generated during the construction period of May to October.
Total backlog at September 30, 2002 was $1,691 million (including
APAC's $130 million proportionate share of work related to an
unconsolidated equity joint venture), compared to $1,629 million at
September 30, 2001. APAC includes a construction project in its backlog
when a contract is awarded or a firm letter of commitment is obtained and
funding is in place. The backlog at September 30, 2002 is considered firm,
and a major portion is expected to be completed during fiscal 2003.
ASHLAND DISTRIBUTION
Ashland Distribution Company ("Ashland Distribution") distributes
chemicals, plastics, reinforcements and resins, and fine ingredients in
North America and plastics in Europe. Suppliers include many of the
nation's leading chemical manufacturers and a growing number of offshore
producers. Ashland Distribution specializes in providing mixed truckloads
and less-than-truckload quantities to customers in a wide range of
industries. Deliveries are facilitated through a network of owned or leased
facilities including approximately 70 locations in North America and 25
locations in 18 foreign countries. Ashland Distribution operates in the
following major market segments:
CHEMICALS - Ashland Distribution distributes specialty and industrial
chemicals, additives and solvents to industrial users through distribution
centers in the United States, Canada, Mexico and Puerto Rico, as well as
some export operations. Markets served include the paint and coatings,
inks, adhesives, polymer, rubber, industrial and institutional compounding,
automotive, appliance and paper industries.
PLASTICS - Ashland Distribution sells a broad range of branded
thermoplastic resins to injection molders, extruders, blow molders, and
rotational molders in the plastics industry through distribution locations
in the United States, Canada, Mexico and Puerto Rico. It also provides
plastic material transfer and packaging services and less-than-truckload
quantities of packaged thermoplastics. Additionally, Ashland Distribution
markets a broad range of thermoplastics to processors in Europe via
distribution centers located in Belgium, England, Finland, France, Germany,
Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Spain and
Sweden.
COMPOSITES - Ashland Distribution supplies mixed truckload and
less-than-truckload quantities of polyester thermosetting resins,
fiberglass and other specialty reinforcements, catalysts and allied
products to customers in the reinforced plastics and cultured marble
industries through distribution facilities located throughout North
America.
INGREDIENTS - Ashland Distribution markets food-grade and nutritional
additives and ingredients to customers in North America. It also
distributes cosmetic and pharmaceutical specialty chemicals.
SERVICES - Ashland Distribution also provides energy and environmental
management services. Energy services include customized management of
energy purchasing, supply and transportation. Environmental services,
working in cooperation with chemical waste service companies, provide
customers with chemical waste collection, disposal and recycling services.
ASHLAND SPECIALTY CHEMICAL
Ashland Specialty Chemical Company ("Ashland Specialty Chemical")
manufactures composites, adhesives, and casting binder chemicals for use in
the transportation and construction industries. Ashland Specialty Chemical
also manufactures water treatment chemicals for use in the general
industrial and merchant marine markets. In addition, it manufactures high
purity chemicals and provides services to the microelectronics industry.
Ashland Specialty Chemical owns and operates 33 manufacturing facilities
and participates in 14 manufacturing joint ventures in 18 countries.
Ashland Specialty Chemical is comprised of the following business units:
COMPOSITE POLYMERS - This business unit manufactures and sells a broad
range of chemical-resistant, fire-retardant, general-purpose and
high-performance marine grades of unsaturated polyester and vinyl ester
resins and gelcoats for the reinforced plastics industry. Key markets
include the transportation, construction and marine industries. This
business unit has manufacturing plants in Jacksonville and Fort Smith,
Arkansas; Los Angeles, California; Bartow, Florida; McMinnville, Oregon;
Philadelphia, Pennsylvania; Johnson Creek, Wisconsin; Kelowna, British
Columbia, Canada; Kunshan, China; Porvoo and Lahti, Finland; Sauveterre,
France; Miszewo, Poland; Benicarlo, Spain; and, through separate joint
ventures has manufacturing plants in Sao Paolo, Brazil, and Jeddah, Saudi
Arabia. In addition, this business unit also manufactures products through
other Ashland Specialty Chemical facilities located in Neville Island,
Pennsylvania, and Mississauga, Ontario, Canada. Effective September 2002,
the former Petrochemicals business unit became a group within the Composite
Polymers business unit. The
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Petrochemical business manufactures maleic anhydride at Neal, West Virginia
and also markets maleic anhydride in North America.
CASTING SOLUTIONS (FORMERLY FOUNDRY PRODUCTS) - This business unit
manufactures and sells foundry chemicals worldwide, including sand-binding
resin systems, refractory coatings, release agents, engineered sand
additives and riser sleeves. This business unit serves the global metal
casting industry from 24 manufacturing locations in 18 countries. This
business unit changed its name to Casting Solutions business unit in 2002.
DREW INDUSTRIAL - This business unit supplies specialized chemicals
and consulting services for the treatment of boiler water, cooling water,
steam, fuel and waste streams. It also supplies process chemicals and
technical services to the pulp and paper and mining industries and
additives to manufacturers of latex and paint. It conducts operations
throughout North America, Europe and the Far East through subsidiaries,
joint venture companies and distributors. This business unit has
manufacturing plants in Kearny, New Jersey; Houston, Texas; Sydney and
Perth, Australia; Singapore; Ajax, Ontario, Canada; Somercotes, England;
and Auckland, New Zealand.
ELECTRONIC CHEMICALS - This business unit manufactures and sells a
variety of ultrapure chemicals for the worldwide semiconductor industry
through various manufacturing locations and also custom blends and packages
ultrapure liquid chemicals to customer specifications. This business unit
operates manufacturing plants in Pueblo, Colorado; Easton, Pennsylvania;
Dallas, Texas; Pyongtaek-Shi, Kyonggi-Do, Korea; Milan, Italy; and through
a joint venture with Union Petrochemical Corporation, an ultrapure-process
chemicals manufacturing facility in Taiwan. In addition, it enters into
long-term agreements to provide complete on-site chemical management
services, including purchasing, warehousing and delivering chemicals for
in-plant use of high purity chemicals at major facilities of large
consumers. This business unit's Fab Services business provides full-service
equipment parts-cleaning, refurbishment and management services to the
semiconductor manufacturing industry from facilities in Chandler and Tempe,
Arizona; and Austin and Carrollton, Texas.
SPECIALTY POLYMERS & ADHESIVES - This business unit manufactures and
sells specialty phenolic resins for paper impregnation and friction
material bonding; acrylic polymers for pressure-sensitive adhesives;
emulsion polymer isocyanate adhesives for structural wood bonding;
polyurethane and epoxy structural adhesives for bonding fiberglass
reinforced plastics, composites, thermoplastics and metals in automotive,
recreational, and industrial applications; induction bonding systems for
thermoplastic materials; elastomeric polymer adhesives and butyl rubber
roofing tapes for commercial roofing applications; and vapor-curing,
high-performance urethane coatings systems. It has manufacturing plants in
Calumet City, Illinois; Norwood and Totowa, New Jersey; Ashland and
Columbus, Ohio; White City, Oregon; and Kidderminster, England.
DREW MARINE - This business unit supplies specialty chemicals for
water and fuel treatment and general maintenance, as well as sealing
products, welding and refrigerant products and fire fighting and safety
services to the world's merchant marine fleet. It also provides shipboard
technical service for vessels serving ports throughout the world.
OTHER MATTERS
For information on Ashland Distribution and Ashland Specialty Chemical
and federal, state and local statutes and regulations governing releases
into, or protection of, the environment, see "Item 1. Business -
Miscellaneous - Environmental Matters" and "Item 3. Legal Proceedings -
Environmental Proceedings" in this Form 10-K.
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of
premium-branded automotive and commercial oils, automotive chemicals,
automotive appearance products and automotive services, with sales in more
than 140 countries. The Valvoline(R) trademark was federally registered in
1873 and is the oldest trademark for a lubricating oil in the United
States. Valvoline is comprised of the following business units:
NORTH AMERICAN: DO IT YOURSELF ("DIY") & DO IT FOR ME ("DIFM") - In
the United States and Canada, Valvoline markets its array of premium
automotive lubricants and chemicals to the U.S. private passenger car and
light truck market through two large business units based on the consumer
segments of the market, "Do-It-Yourself" and "Do-It-For-Me." These two
business units market Valvoline(R) motor oil, one of the top selling brands
in the United States; synthetic SynPower(R) automobile chemicals for
"under-the-hood" use; Eagle One(R) automotive appearance products; Zerex(R)
antifreeze; and Pyroil(R) automotive chemicals. The DIY business unit sells
the Valvoline family of brands to consumers who perform their own auto
maintenance, through retail auto parts stores, mass merchandisers, and
warehouse distributors and their affiliated jobber stores such as NAPA and
Carquest. The DIFM business unit sells Valvoline products to consumers who
use auto service businesses, such as car dealers and
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quick lubes, through a network of independent distributors and five
company-owned and operated "direct market" operations.
The domestic Commercial and Specialty Products Group, operated within
the DIFM business unit, has a strategic alliance with Cummins Engine
Company, Inc. to distribute heavy-duty lubricants to the commercial market.
This business unit also markets R-12, an automotive refrigerant that
was phased out of production in 1995. R-12 is being replaced in the market
by a new generation of refrigerants. Valvoline expects to deplete its
inventory of R-12 in fiscal 2003.
EAGLE ONE - Eagle One is a brand of premium automobile appearance
chemicals for "above-the-hood" applications. Products include waxes,
polishes and wheel cleaners. Managed by Valvoline as a separate business
unit, Eagle One markets its products through Valvoline's DIY and DIFM
business units in North America and through the Valvoline International
business unit. During fiscal 2002, Eagle One successfully introduced
Wax-As-U-Dry automobile wax. Wax-As-U-Dry is a first-of-its-kind product
designed to be applied to the automobile during the hand-drying process
following the washing of the automobile.
VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline
branded products and Eagle One automotive appearance products through
company-owned affiliates or business units in Australia, Austria, Belgium,
Brazil, Denmark, Finland, Germany, Great Britain, Italy, the Netherlands,
Poland, South Africa, Sweden and Switzerland. TECTYL(R) rust preventives
are marketed in Europe. Licensees and distributors market certain products
in other parts of Europe, Mexico, Central and South America, the Far East,
the Middle East and certain African countries. Joint ventures have been
established in China, Ecuador, India, Thailand and Venezuela. Packaging and
blending plants and distribution centers in Australia, Canada, the
Netherlands and the United States supply international customers.
VALVOLINE INSTANT OIL CHANGE(R) ("VIOC") - VIOC is one of the largest
competitors in the expanding U.S. "fast oil change" service business,
providing Valvoline with a significant share of the installed segment of
the passenger car and light truck motor oil market. As of September 30,
2002, 363 company-owned and 335 franchised service centers were operating
in 40 states.
VIOC has continued its customer service innovation through its
upgraded and enhanced Maximum Vehicle Performance program ("MVP"). MVP is a
computer-based program that maintains system-wide service records on all
customer vehicles. MVP also contains a database on all car models, which
allows employees to make service recommendations based on a vehicle owner's
manual recommendations.
REFINING AND MARKETING
Refining and Marketing operations are conducted by MAP and its
subsidiaries, including its wholly-owned subsidiaries, Speedway
SuperAmerica LLC and Marathon Ashland Pipe Line LLC. Marathon Oil Company
("Marathon") holds a 62% interest in MAP and Ashland holds a 38% interest
in MAP.
REFINING
MAP owns and operates seven refineries with an aggregate refining
capacity of 935,000 barrels of crude oil per calendar day (1 barrel = 42
United States gallons). The table below sets forth the location and daily
crude oil throughput capacity (measured in barrels) of each of MAP's
refineries as of September 30, 2002:
Garyville, Louisiana...................................232,000
Catlettsburg, Kentucky.................................222,000
Robinson, Illinois.....................................192,000
Detroit, Michigan...................................... 74,000
Canton, Ohio........................................... 73,000
Texas City, Texas...................................... 72,000
St. Paul Park, Minnesota............................... 70,000
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Total ............................................935,000
=======
MAP's refineries include crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. The refineries have the
capability to process a wide variety of crude oils and to produce typical
refinery products, including reformulated gasoline ("RFG"). In addition to
typical refinery products, the Catlettsburg refinery, an ISO-9000 certified
facility, manufactures lubricating oils and a wide range of petrochemicals.
For the twelve months ended September 30, 2002, 74% of MAP's production of
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lubricating oils was purchased by Valvoline and 39% of MAP's production of
petrochemicals was purchased by Ashland Distribution.
MAP also produces a wide range of asphalt products, petroleum pitch
(primarily used in the graphite electrode, clay target and refractory
industries), aromatics, aliphatic hydrocarbons, cumene, base lube oil,
slack wax and polymer grade propylene.
The table below sets forth MAP's refinery total input and refinery
production by product group for the twelve months ended September 30, 2002,
2001 and 2000. Refinery total inputs include crude oil and other
feedstocks.
Twelve Months Ended September 30
----------------------------------------------------
2002 2001 2000
---- ---- ----
Refinery Input
(in thousands of barrels per day) 1,080.9 1,051.0 1,033.4
---------------------------------
Refined Product Yields
(in thousands of barrels per day)
Gasoline............................... 594.0 560.5 559.0
Distillates............................ 292.9 278.7 271.5
Propane................................ 21.7 21.2 21.0
Feedstocks & Special Products.......... 83.5 69.9 68.9
Heavy Fuel Oils........................ 21.3 44.7 41.2
Asphalt................................ 73.3 74.5 73.3
------- ------- -------
Total................... 1,086.7 1,049.5 1,034.9
======= ======= =======
Planned maintenance activities requiring temporary shutdown of certain
refinery operating units are periodically performed at each refinery. MAP
had a major turnaround at the St. Paul Park refinery in the twelve months
ended September 30, 2002.
The Garyville, Louisiana coker unit project achieved mechanical
completion in October 2001 and was operating at full production by
mid-December 2001. To supply this new unit, MAP entered into a multi-year
contract with P.M.I. Comercio Internacional, S.A. de C.V., an affiliate of
Petroleos Mexicanos, to purchase approximately 90,000 barrels per day of
heavy Mayan crude oil. The contract was increased to approximately 100,000
barrels per day in July 2002.
At its Catlettsburg, Kentucky refinery, MAP has initiated a multi-year
integrated investment program to upgrade product yield realizations and
reduce fixed and variable manufacturing expenses. This program involves the
expansion, conversion and retirement of certain refinery processing units
which, in addition to improving profitability, will reduce the refinery's
total gasoline pool sulfur below 30 parts per million, thereby eliminating
the need for low sulfur gasoline compliance investments at the refinery.
The project is expected to be completed in late 2003.
MARKETING
MAP's principal marketing areas for gasoline and distillates include
the Midwest, the upper Great Plains and the southeastern United States.
Gasoline and distillates are sold in 21 states. Gasoline is sold at
wholesale primarily to independent marketers, jobbers and chain retailers
who resell these products through several thousand retail outlets. MAP also
supplies approximately 3,800 jobber-dealer, open-dealer and lessee-dealer
locations using the Marathon(R) and Ashland(R) brand names.
Gasoline, distillates and aviation products are also sold to
utilities, railroads, river towing companies, commercial fleet operators,
airlines and governmental agencies. About half of MAP's propane is sold
into the home heating markets and the balance is purchased by industrial
consumers. Propylene, cumene, aromatics, aliphatics, and sulfur are
marketed to customers in the chemical industry. Base lube oils and slack
wax are sold throughout the United States. Pitch is also sold domestically,
but approximately 10% of pitch products are exported into growing markets
in Canada, Mexico, India, and South America.
MAP markets asphalt through owned and leased terminals located
throughout the Midwest and Southeast. The MAP customer base includes
approximately 900 asphalt paving contractors, government entities (states,
counties, cities and townships) and asphalt roofing shingle manufacturers.
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Retail sales of gasoline and diesel fuel are made through MAP's
wholly-owned subsidiary, Speedway SuperAmerica LLC ("SSA"). As of September
30, 2002, SSA had 2,063 retail outlets in 13 states in the Midwest and
Southeast which sell petroleum products and convenience store merchandise
primarily under the brand names Speedway(R) and SuperAmerica(R). The retail
locations sell a variety of food, merchandise, cigarettes, candy and
beverages. Several locations also have on-premises brand-name restaurants
such as Subway(R) and Taco Bell(R).
During the twelve months ended September 30, 2002, 57% of SSA's
revenues (excluding excise taxes) were derived from the sale of gasoline
and diesel fuel, and the remainder were derived from the sale of
merchandise.
Pilot Travel Centers LLC ("PTC"), a joint venture with Pilot
Corporation ("Pilot"), is the largest operator of travel centers in the
United States with approximately 230 locations in 35 states. The travel
centers offer diesel fuel, gasoline and a variety of other services
associated with such locations, including on-premises brand-name
restaurants. Pilot and MAP each own a 50% interest in PTC.
The table below shows the volume of MAP's consolidated refined product
sales for the twelve months ended September 30, 2002, 2001 and 2000.
Twelve Months Ended September 30
---------------------------------------------------------
2002 2001 2000
---- ---- ----
Refined Product Sales
(in thousands of barrels per day)
---------------------------------
Gasoline.......................... 774.3 741.0 752.1
Distillates....................... 345.7 349.6 351.2
Propane........................... 22.7 21.5 21.6
Feedstocks & Special Products .... 80.3 68.1 67.6
Heavy Fuel Oils................... 22.0 46.3 40.9
Asphalt........................... 76.2 75.8 75.1
------- ------- -------
Total......... 1,321.2 1,302.3 1,308.5
======= ======= =======
Matching Buy/Sell Volumes
included in above..................... 69.3 43.7 41.4
MAP sells RFG in parts of its marketing territory, primarily Chicago,
Illinois; Louisville, Kentucky; Northern Kentucky; and Milwaukee,
Wisconsin. MAP also markets low-vapor-pressure gasolines in nine states.
SUPPLY AND TRANSPORTATION
The crude oil processed in MAP's refineries is obtained from
negotiated contract and spot purchases or exchanges. For the twelve months
ended September 30, 2002, MAP's negotiated contract and spot purchases for
refinery input of crude oil produced in the U.S. averaged 454,800 barrels
per day, including an average of 46,900 net barrels per day acquired from
Marathon. For the twelve months ended September 30, 2002, MAP's foreign
crude oil requirements were met largely through purchases from various
foreign national oil companies, producing companies and traders. Purchases
of foreign crude oil represented 51% of MAP's crude oil requirements for
the twelve months ended September 30, 2002.
MAP's ownership or interest in domestic pipeline systems in its
refining and marketing areas is significant. MAP owns, leases or has an
ownership interest in 7,160 miles of pipelines in 12 states. This network
transports crude oil and refined products to and from terminals, refineries
and other pipelines. It includes 10 miles of crude oil gathering lines,
3,410 miles of crude oil trunk lines and 3,740 miles of refined product
lines.
MAP has a 46.7% ownership interest in LOOP LLC ("LOOP"), which is the
owner and operator of the only U.S. deepwater port facility capable of
receiving crude oil from very large crude carriers. Ashland has retained a
4% ownership interest in LOOP. MAP also owns a 49.9% ownership interest in
LOCAP INC. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP to the Capline system. Ashland has retained an
8.6% ownership interest in LOCAP. In addition, MAP has a 37.2% ownership
interest in the Capline system. These port and pipeline systems provide MAP
with access to common carrier transportation from the Louisiana Gulf Coast
to Patoka, Illinois. At Patoka, the Capline system connects with other
common carrier pipelines owned by MAP that provide transportation to MAP's
refineries in Illinois, Kentucky, Michigan, Minnesota and Ohio.
Ohio River Pipe Line LLC ("ORPL"), a subsidiary of MAP, is building a
pipeline from Kenova, West Virginia to Columbus, Ohio. ORPL is a common
carrier pipeline company and the pipeline will be an interstate common
carrier pipeline. The pipeline is currently known as Cardinal Products Pipe
Line and is expected to initially move about 50,000 barrels per day of
refined petroleum into the central Ohio region. ORPL has secured all of the
rights-
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of-way required to build the pipeline, and the final permits required to
build the pipeline have been approved. Construction on the pipeline began
in August 2002, with start-up of the pipeline expected in the first half of
2003.
MAP has been designated operator of the Centennial Pipeline, owned
jointly by Panhandle Eastern Pipe Line Company, a subsidiary of CMS Energy
Corporation, MAP, and TE Products Pipe Line Company, Limited Partnership.
The new pipeline system, which connects the Gulf Coast refiners with the
Midwest market, has the initial capacity to transport approximately 210,000
barrels per day of refined petroleum products and began deliveries of
refined products in April 2002.
MAP also has a 33.3% ownership interest in Minnesota Pipe Line
Company, which operates a crude oil pipeline in Minnesota. Minnesota Pipe
Line Company provides MAP with access to crude oil common carrier
transportation from Clearbrook, Minnesota, to Cottage Grove, Minnesota,
which is in the vicinity of MAP's St. Paul Park, Minnesota refinery.
MAP's marine transportation operations include towboats and barges
that transport refined products on the Ohio, Mississippi and Illinois
rivers, their tributaries and the Intracoastal Waterway. MAP also leases
and owns railcars in various sizes and capacities for movement and storage
of petroleum products and a large number of tractors, tank trailers and
general service trucks.
In addition, MAP owns and operates 88 terminal facilities from which
it sells a wide range of petroleum products. These facilities are supplied
by a combination of barges, pipeline, truck and/or rail.
OTHER MATTERS
For information on MAP and federal, state and local statutes and
regulations governing releases into the environment or protection of the
environment, see "Item 1. Business - Miscellaneous - Environmental Matters"
in this Form 10-K.
MISCELLANEOUS
ENVIRONMENTAL MATTERS
Ashland has implemented a company-wide environmental policy overseen
by the Public Policy - Environmental Committee of Ashland's Board of
Directors. Ashland's Environmental, Health and Safety ("EH&S") department
has the responsibility to ensure that Ashland's operating groups maintain
environmental compliance in accordance with applicable laws and
regulations. This responsibility is carried out via training; widespread
communication of EH&S policies, information and regulatory updates;
formulation of relevant policies, procedures and work practices; design and
implementation of EH&S management systems; internal auditing by an
independent auditing group within the EH&S department; monitoring of
regulatory developments that may affect Ashland's operations; assistance to
the operating divisions in identifying compliance issues and opportunities
for voluntary actions that go beyond compliance; and incident response
planning and implementation.
Federal, state and local laws and regulations relating to the
protection of the environment have a significant impact on how Ashland
conducts its businesses. New laws are being enacted and regulations are
being adopted by various regulatory agencies on a continuing basis, and the
costs of compliance with these new rules cannot be estimated until the
manner in which they will be implemented has been more accurately defined.
In addition, most foreign countries in which Ashland conducts business have
laws dealing with similar matters.
At September 30, 2002, Ashland's reserves for environmental
remediation amounted to $169 million, reflecting Ashland's estimates of the
most likely costs that will be incurred over an extended period to
remediate identified conditions for which the costs are reasonably
estimable, without regard to any third-party recoveries. Environmental
remediation reserves are subject to numerous inherent uncertainties that
affect Ashland's ability to estimate its share of the costs. Such
uncertainties involve the nature and extent of contamination at each site,
the extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods, changes in
environmental regulations, the potential effect of continuing improvements
in remediation technology, and the number and financial strength of other
potentially responsible parties at multiparty sites. Ashland regularly
adjusts its reserves as environmental remediation continues. None of the
remediation locations is individually material to Ashland as its largest
reserve for any site is less than $10 million. As a result, Ashland's
exposure to adverse developments with respect to any individual site is not
expected to be material, and these sites are in various stages of ongoing
remediation. Although environmental remediation could have a material
effect on results of operations if a series of adverse developments occurs
in a particular quarter or fiscal year, Ashland believes that the chance of
such developments occurring in the same quarter or fiscal year is remote.
In connection with the formation of MAP, Marathon and Ashland each
retained responsibility for certain environmental costs arising out of
their respective prior ownership and operation of the facilities
transferred to MAP.
7
In certain situations, various threshold provisions apply, eliminating or
reducing the financial responsibility of the contributing party until
certain levels of expenditure have been reached. In other situations,
sunset provisions gradually diminish the level of financial responsibility
of the contributing party over time.
AIR - The Clean Air Act (the "CAA") imposes stringent limits on air
emissions, establishes a federally mandated operating permit program, and
allows for civil and criminal enforcement actions. Additionally, it
establishes air quality attainment deadlines and control requirements based
on the severity of air pollution in a given geographical area. Various
state clean air acts implement, complement and, in some instances, add to
the requirements of the federal CAA. The requirements of the CAA and its
state counterparts have a significant impact on the daily operation of
Ashland's businesses and, in many cases, on product formulation and other
long-term business decisions. Ashland's businesses maintain numerous
permits pursuant to these clean air laws and have implemented systems to
oversee ongoing compliance efforts.
In July 1997, the United States Environmental Protection Agency
("EPA") promulgated revisions to the National Ambient Air Quality Standards
("NAAQS") for ground level ozone and particulate matter. As written, the
revisions could have a significant effect on certain of Ashland's chemical
manufacturing and distribution businesses, and on MAP. In 2001, the U.S.
Supreme Court upheld the EPA's authority to set NAAQS without considering
the costs related to compliance. In early 2002, the Washington, D.C.
District Court of Appeals upheld EPA's proposed revisions to the NAAQS. EPA
has begun to implement the new ozone and particulate matters standards,
which could result in areas of the country, where Ashland and MAP conduct
operations, being designated as not in compliance with the NAAQS. Until
these revisions have been more fully implemented, it is not currently
possible to estimate any potential financial impact that the revised
standards may have on Ashland's or MAP's operations.
WATER - Ashland's businesses maintain numerous discharge permits, as
the National Pollutant Discharge Elimination System of the Clean Water Act
("CWA") and state programs require, and have implemented systems to oversee
their compliance efforts. In addition, several of MAP's operations, in
particular its barge and terminal facilities, are regulated under the Oil
Pollution Act of 1990.
SOLID WASTE - Ashland's businesses are subject to the Resource
Conservation and Recovery Act ("RCRA"), which establishes standards for the
management of solid and hazardous wastes. Besides affecting current waste
disposal practices, RCRA also addresses the environmental effects of
certain past waste disposal operations, the recycling of wastes and the
storage of regulated substances in underground tanks.
REMEDIATION - Ashland currently operates, and in the past has
operated, various facilities where, during the normal course of business
releases of hazardous substances have occurred. Federal and state laws,
including but not limited to RCRA and various remediation laws, require
that contamination caused by such releases be assessed and, if necessary,
remediated to meet applicable standards. MAP operates, and in the past has
operated, certain retail outlets where, during the normal course of
business releases of petroleum products from underground storage tanks have
occurred. Federal and state laws require that contamination caused by such
releases at these sites be assessed and, if necessary, remediated to meet
applicable standards.
RESEARCH
Ashland conducts a program of research and development to invent and
improve products and processes and to improve environmental controls for
its existing facilities. It maintains its research facilities in Dublin,
Ohio; Lexington, Kentucky; and Atlanta, Georgia. Research and development
costs are expensed as they are incurred and totaled $38 million in fiscal
2002 ($36 million in 2001 and $33 million in 2000).
COMPETITION
In all its operations, Ashland is subject to intense competition both
from companies in the industries in which it operates and from products of
companies in other industries.
The majority of the business for which APAC competes is obtained by
competitive bidding. There are a substantial number of competitors in the
markets in which APAC operates and, as a result, all of APAC's goods and
services are marketed under highly competitive conditions. Factors which
influence APAC's competitiveness are price, reputation for quality, the
availability of aggregate materials, machinery and equipment, knowledge of
local markets and conditions and estimating abilities.
Each of Ashland Distribution's businesses, except for the plastics
distribution businesses, compete with national, regional and local
companies throughout North America. The plastics distribution businesses
compete in both North America and Europe. Competition in these businesses
is based primarily on price and reliability of supply. Ashland Specialty
Chemical's businesses compete globally in selected niche markets, largely
on the basis of technology and service. The number of competitors in the
specialty chemical business varies from product to product, and it is not
8
practical to identify such competitors because of the broad range of
products and markets served by those products. However, many of Ashland
Specialty Chemical's businesses hold proprietary technology, and Ashland
believes it has a leading or strong market position in most of its
specialty chemical products. Ashland Specialty Chemical's petrochemicals
business is largely a commodities business, with pricing and quality being
the most important factors.
Valvoline competes in the highly competitive lubricants business
principally through product and service quality, distribution capability, a
focused "master" brand strategy, advertising and sales promotion. Some of
the major brands of motor oils and lubricants Valvoline competes with
internationally are Havoline(R), Castrol(R), Pennzoil(R) and Quaker
State(R). The highly competitive consumer products car care business is
primarily composed of maintenance chemicals, appearance products and tire
cleaners. Valvoline competes primarily in this market through specific
product performance benefits, distribution capability and advertising and
sales promotion. In the highly competitive "fast oil change" business,
Valvoline competes with other leading independent fast lube chains on a
national, regional or local basis, as well as automobile dealers and
service stations. Valvoline's brand recognition, service offering and
increasing market presence in the U.S. "fast oil change" market, as well as
quality of service, speed, location, convenience and sales promotion, are
important competitive factors.
MAP competes with a large number of companies to acquire crude oil for
refinery processing and in the distribution and marketing of a full array
of petroleum products. MAP believes it ranks among the top ten U.S.
petroleum companies on the basis of crude oil refining capacity as of
September 30, 2002. MAP competes in four distinct markets for the sale of
refined products - wholesale, spot, branded and retail distribution. MAP
believes it competes with approximately 40 companies in the wholesale
distribution of petroleum products to private brand marketers and large
commercial and industrial consumers; approximately 80 companies in the sale
of petroleum products in the spot market; approximately 10
refiner/marketers in the supply of branded petroleum products to dealers
and jobbers; and approximately 600 petroleum product retailers in the
retail sale of petroleum products. MAP also competes in the convenience
store industry through SSA's retail outlets and in the travel center
industry through their ownership in PTC. The retail outlets offer consumers
gasoline, diesel fuel (at selected locations) and a variety of food,
merchandise, cigarettes, candy and beverages.
FORWARD-LOOKING STATEMENTS
This Form 10-K and the documents incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including various information within the "Capital Resources,"
"Application of Critical Accounting Policies," "Derivative Instruments" and
"Outlook" sections in Management's Discussion and Analysis in Ashland's
Annual Report. Words such as "anticipates," "believes," "estimates,"
"expects," "is likely," "predicts," and variations of such words and
similar expressions are intended to identify such forward-looking
statements. Although Ashland believes that its expectations are based on
reasonable assumptions, it cannot assure that the expectations contained in
such statements will be achieved. Important factors which could cause
actual results to differ materially from those contained in such statements
are discussed under "Risks and Uncertainties" in Note A of Notes to
Consolidated Financial Statements in Ashland's Annual Report. For a
discussion of other factors and risks affecting Ashland's revenues and
operations see "Item 1. Business - Miscellaneous - Marketing Conditions"
below.
MARKETING CONDITIONS
Domestic and international political, legislative, regulatory and
legal changes may adversely affect Ashland's results of operations.
Political actions may include changes in the policies of the Organization
of Petroleum Exporting Countries or other developments involving or
affecting oil-producing countries, including military conflict, embargoes,
internal instability or actions or reactions of the U.S. government in
anticipation of, or in response to, such actions. Profitability of MAP
depends largely on the margin between the cost of crude oil and other
feedstocks refined and the selling prices of refined products. MAP is a
purchaser of crude oil in order to satisfy its refinery throughput
requirements. As a result, MAP's overall profitability could be adversely
affected by increases in crude oil and other feedstock prices that are not
recovered in the market place through higher prices. Reference should be
made to the Refining and Marketing section of the Management's Discussion
and Analysis section in Ashland's Annual Report for a discussion of the
impact of crude oil costs on MAP's operating performance. While Ashland
maintains reserves for anticipated liabilities and carries various levels
of insurance, Ashland could be affected by civil, criminal, regulatory or
administrative proceedings and claims relating to asbestos, environmental
remediation and other matters.
Ashland's operations are subject to various U.S. and foreign laws and
regulations relating to environmental protection and worker health and
safety. These laws and regulations regulate discharges of pollutants into
the air and water, the management and disposal of hazardous substances, and
the cleanup of contaminated properties. The costs
9
of complying with these laws and regulations can be substantial and may
increase as applicable requirements become more stringent and new rules are
implemented. If violation of these laws and regulations occur, Ashland may
be forced to pay substantial fines, to complete additional costly projects,
or to modify or curtail its operations to limit contaminant emissions.
The profitability of Ashland's businesses are particularly susceptible
to downturns in the economy, particularly downturns in the segments of the
U.S. economy related to the purchase and sale of durable goods, including
housing, construction, automotive, marine and semiconductor. Both overall
demand for Ashland's products and its profit margins may decline as a
direct result of an economic recession, inflation, changes in the prices of
hydrocarbons and other raw materials (e.g., crude oil and petroleum and
chemical products), consumer confidence, interest rates or governmental
fiscal policies. In addition, Ashland's profitability may experience
significant changes as a result of variations in sales, changes in product
mix or pricing competition.
In addition, changes in climate and weather can significantly affect
the performance of several of Ashland's operations. Extreme variations from
normal climatic conditions could have a significant effect on the operating
results of APAC's construction operations. In particular, unfavorable
weather conditions will delay the completion of construction projects, and
may require the use of additional resources. In addition, most of the
refined products sold by MAP are seasonal in nature, and thus demand for
those products may decline due to significant changes in prevailing climate
and weather conditions. MAP's production or distribution operations are
also subject to disruption by extreme weather conditions such as floods,
frozen rivers or hurricanes.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, is located in
Covington, Kentucky. Principal offices of other major operations are
located in Atlanta, Georgia (APAC); Dublin, Ohio (Ashland Distribution and
Ashland Specialty Chemical); Lexington, Kentucky (Valvoline); and Russell,
Kentucky (Administrative Services). All of these offices are leased, except
for the Russell office, which is owned. Principal manufacturing, marketing
and other materially important physical properties of Ashland and its
subsidiaries are described under the appropriate segment under Item 1 in
this Form 10-K. Additional information concerning certain leases may be
found in Note F of Notes to Consolidated Financial Statements in Ashland's
Annual Report.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - As of September 30, 2002, Ashland has been
identified as a "potentially responsible party" ("PRP") under Superfund or
similar state laws for potential joint and several liability for clean-up
costs in connection with alleged releases of hazardous substances
associated with 97 waste treatment or disposal sites. These sites are
currently subject to ongoing investigation and remedial activities,
overseen by the EPA or a state agency, in which Ashland is typically
participating as a member of a PRP group. Generally, the type of relief
sought includes remediation of contaminated soil and/or groundwater,
reimbursement for past costs of site clean-up and administrative oversight,
and/or long-term monitoring of environmental conditions at the sites. The
ultimate costs are not predictable with assurance and could be material.
However, based on its experience with site remediation, its analysis of the
specific hazardous substances at issue, the existence of other financially
viable PRPs and its current estimates of investigatory, clean-up and
monitoring costs at each site, Ashland does not believe that any liability
at these sites, either individually or in the aggregate, will have a
material adverse effect on Ashland's consolidated financial position, cash
flows or liquidity. For information regarding environmental matters and
Ashland's reserves for environmental remediation, see "Management's
Discussion and Analysis - Application of Critical Accounting Policies -
Environmental Remediation" and Note M of Notes to Consolidated Financial
Statements in Ashland's Annual Report and "Item 1. Business - Miscellaneous
- - Environmental Matters" in this Form 10-K.
ASBESTOS-RELATED LITIGATION - Ashland is subject to liabilities from
claims alleging personal injury caused by exposure to asbestos. Those
claims result primarily from indemnification obligations undertaken in 1990
in connection with the sale of Riley Stoker Corporation ("Riley"), a former
subsidiary. Although Riley was neither a producer nor a manufacturer of
asbestos, its industrial boilers contained some asbestos-containing
components produced by other companies.
10
A summary of asbestos claims activity follows. Because claims are
frequently filed and settled in large groups, the amount and timing of
settlements, and the number of open claims, can fluctuate significantly
from period to period. Over the last 17 years, Riley has been dismissed as
a defendant in 55% of the resolved claims.
2002 2001 2000
---- ---- ----
(In thousands)
Open claims - beginning of year....... 167 118 93
New claims filed...................... 45 52 37
Claims settled........................ (15) (2) (9)
Claims dismissed...................... (37) (1) (3)
---- ---- ----
Open claims - end of year............ 160 167 118
==== ==== ====
Amounts spent on litigation defense and claim settlements totaled $38
million in 2002, $15 million in 2001 and $11 million in 2000. Insurance
provides reimbursements for most of these costs, and coverage-in-place
agreements exist with the insurance carriers that provide substantially all
of the coverage that is currently being accessed. The amounts not
recoverable are generally due from insurers that are insolvent, rather than
as a result of uninsured claims or the exhaustion of the insurance
coverage.
In previous years, Ashland recognized a net reserve for the estimated
litigation defense and claim settlement costs to settle open claims that
would not be recovered from insolvent insurance carriers. However, the
reserve and related receivable are now presented on a gross basis in
Ashland's consolidated balance sheet at September 30, 2001, to conform to
the 2002 presentation. This change did not result from an increase in
expected asbestos exposure, and had no effect on net income or
stockholders' equity. Under this presentation, the reserve for asbestos
claims amounted to $202 million at September 30, 2002, and $199 million at
September 30, 2001. Such reserve reflects the estimated costs on an
undiscounted basis that will be incurred over an extended period to resolve
open claims. In addition, the receivable for recoveries of litigation
defense and claim settlement costs from insurers amounted to $196 million
at September 30, 2002, and $178 million at September 30, 2001.
The reserve for asbestos claims is based on assumptions and estimates
derived from currently known facts. However, projecting future events, such
as the average cost of resolving the open claims, is subject to numerous
variables that are extremely difficult to predict. These variables include
the type and severity of the disease alleged by each claimant, dismissal
rates, future costs of medical treatment, the impact of bankruptcies of
other companies that are co-defendants in claims, uncertainties surrounding
the litigation process from jurisdiction to jurisdiction and from case to
case, and the impact of potential changes in legislative or judicial
standards.
Ashland believes that insurance will cover the majority of the costs
that will be incurred on open and future asbestos claims. Equitas Limited
("Equitas") and other London companies currently provide about 59% of the
insurance coverage, and this percentage could decline over time to around
44% if higher layers of coverage provided by other carriers have to be
accessed. The remaining 41% of the coverage is currently provided by five
companies, all of which are rated A or higher by A. M. Best Company.
Depending upon the level of costs that are ultimately incurred, the
non-London coverage could ultimately expand to about 25 insurance companies
or groups. Companies or groups that provide about 90% of this coverage are
also rated A or higher.
Ashland has not recognized a reserve for future asbestos claims that
may be asserted. Although additional claim filings are expected, Ashland
does not have sufficient information to make a reasonable estimate of the
number of new claims that might be filed. Furthermore, any predictions
about the other variables discussed previously are subject to even greater
uncertainty as the projection period lengthens. Ashland has retained the
services of professional advisors to assist management in the estimation of
projected liabilities and probable insurance recoveries for future asbestos
claims. Results of that effort are expected to be available during the
quarter ending March 31, 2003.
Although coverage limits are resolved in the coverage-in-place
agreement with Equitas and the other London companies, there is a
disagreement with these companies over the timing of recoveries. Depending
upon the assumptions made with respect to the projected payments to settle
future claims, an unfavorable resolution of this disagreement could
materially affect the present value of additional insurance recoveries from
those companies. Until such time as this disagreement is resolved, Ashland
will use the less favorable interpretation of this agreement in estimating
such insurance recoveries.
SHAREHOLDER DERIVATIVE LITIGATION - On August 16, 2002, Central
Laborers' Pension Fund, derivatively as a shareholder of Ashland,
instituted an action in the Circuit Court of Kentucky in Kenton County
against Ashland's then-serving Board of Directors. On motion of Ashland and
the other defendants, the case was removed to the
11
United States District Court, Eastern District of Kentucky, Covington
Division. Plaintiff has moved to remand the case to the state court. The
action is purportedly filed on behalf of Ashland, and asserts the following
causes of action against the Directors: breach of fiduciary duty, abuse of
control, gross mismanagement, and waste of corporate assets. The suit also
names Paul W. Chellgren, the then-serving Chief Executive Officer and
Chairman of the Board, and James R. Boyd, former Senior Vice President and
Group Operating Officer, as individual defendants, and it seeks to recover
an unstated sum from them individually alleging unjust enrichment from
various transactions completed during their tenure with Ashland. The suit
further seeks an unspecified sum from Mr. Chellgren individually based upon
alleged usurpation of corporate opportunities. The suit also names Mr. J.
Marvin Quin, Ashland's Chief Financial Officer, as well as three former
employees of Ashland's wholly-owned subsidiary, APAC, as individual
defendants and alleges that they participated in the preparation and filing
of false financial statements during fiscal years 1999 - 2001. The suit
further names Ernst & Young LLP ("E&Y"), as a defendant, alleging
professional accounting malpractice and negligence in the conduct of its
audit of Ashland's 1999 and 2000 financial statements, respectively, as
well as alleging that E&Y aided and abetted the individual defendants in
their alleged breach of duties. The complaint seeks to recover, jointly and
severally, from defendants an unstated sum of compensatory and punitive
damages. The complaint seeks equitable and/or injunctive relief to avoid
continuing harm from alleged ongoing illegal acts, and seeks a disgorgement
of defendants' alleged insider-trading gains, in addition to the reasonable
cost and expenses incurred in bringing the complaint, including attorneys'
and experts' fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September
30, 2002.
ITEM X. EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically after the Chief Executive Officer as to other Senior Vice
Presidents, Administrative Vice Presidents and other executive officers).
JAMES J. O'BRIEN (age 48) is Chairman of the Board, Chief Executive
Officer and Director of Ashland and has served in such capacities since
November 15, 2002, October 1, 2002 and August 13, 2002, respectively.
During the past five years, he has also served as President, Chief
Operating Officer, Senior Vice President and Group Operating Officer of
Ashland and President of The Valvoline Company.
PAUL W. CHELLGREN (age 59) was Ashland's Chairman of the Board, Chief
Executive Officer and a Director of Ashland - positions he had held since
1997, 1996 and 1992, respectively. Mr. Chellgren retired as Chief Executive
Officer on October 1, 2002, and as Chairman of the Board and Director on
November 15, 2002.
DAVID J. D'ANTONI (age 57) is Senior Vice President and Group
Operating Officer of Ashland and has served in such capacities since 1988
and 1999, respectively. During the past five years, he has also served as
President of Ashland Chemical Company.
CHARLES F. POTTS (age 58) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
J. MARVIN QUIN (age 55) is Senior Vice President and Chief Financial
Officer of Ashland and has served in such capacities since 1992.
KENNETH L. AULEN (age 53) is Administrative Vice President and
Controller of Ashland and has served in such capacities since 1992.
GARY A. CAPPELINE (age 53) is Vice President of Ashland and President
of Ashland Specialty Chemical Company effective December 4, 2002. During
the last five years, he has also served as a chemical industry partner at
Bear Stearns Merchant Bank, President of AlliedSignal Specialty Chemicals
and Group Vice President, Pigments and Additives of Engelhard Corp.
JAMES A. DUQUIN (age 55) was Vice President of Ashland and President
of Ashland Specialty Chemical Company - positions he had held since 1999.
During the past five years, he also served as Group Vice President -
Specialty Chemical Division of Ashland Chemical Company. Mr. DuQuin
resigned as Vice President of Ashland and President of Ashland Specialty
Chemical Company on November 25, 2002 and will retire from Ashland on
December 31, 2002.
12
DAVID L. HAUSRATH (age 50) is Vice President and General Counsel of
Ashland and has served in such capacities since 1998 and 1999,
respectively. During the past five years, he has also served as Associate
General Counsel of Ashland.
J. DAN LACY (age 55) is Vice President - Corporate Affairs of Ashland
and has served in such capacity since 1986.
SAMUEL J. MITCHELL (age 41) is Vice President of Ashland and President
of The Valvoline Company and has served in such capacities since January
2002. During the past five years, he has also served as Vice President -
Retail Business, Vice President of Marketing and Director of Marketing -
The Valvoline Company.
RICHARD P. THOMAS (age 56) is Vice President and Secretary of Ashland
and has served in such capacities since 1998 and 1999, respectively.
FRANK L. WATERS (age 41) is Vice President of Ashland and President of
Ashland Distribution Company and has served in such capacities since
January 2002. During the past five years, he has also served as Vice
President of Ashland Plastics - Europe, Director of Sales for Ashland
Distribution's Fine Ingredients Division and an Executive Assistant of
Ashland.
Each executive officer is elected by the Board of Directors of Ashland
to a term of one year, or until his successor is duly elected, at the
annual meeting of the Board of Directors, except in those instances where
the officer is elected other than at an annual meeting of the Board of
Directors, in which case his tenure will expire at the next annual meeting
of the Board of Directors unless the officer is re-elected.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is hereby incorporated by reference the information appearing in
Note P of Notes to Consolidated Financial Statements in Ashland's Annual
Report.
At September 30, 2002, there were approximately 17,700 holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and Chicago stock exchanges (ticker symbol ASH) and has trading
privileges on the Boston, Cincinnati, Pacific and Philadelphia stock
exchanges.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing
under the caption "Five-Year Selected Financial Information" on page 62 in
Ashland's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing
under the caption "Management's Discussion and Analysis" on pages 32 to 41
in Ashland's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There is hereby incorporated by reference the information appearing
under the caption "Derivative Instruments" on page 40 in Ashland's Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the consolidated financial
statements appearing on pages 43 through 61 in Ashland's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Inc.'s Board of Directors - Nominees for
Election at the 2003 Annual Meeting" and the information regarding Section
16 beneficial ownership reporting compliance in Ashland's definitive Proxy
Statement for its January 30, 2003 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 2002 ("Proxy
Statement"). See also the list of Ashland's executive officers and related
information under "Executive Officers of Ashland" in Part I - Item X in
this Form 10-K.
13
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation," "Compensation of Directors"
and "Miscellaneous - Personnel and Compensation Committee Interlocks and
Insider Participation" in Ashland's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
There is hereby incorporated by reference the information to appear
under the caption "Ashland Common Stock Ownership of Directors and Certain
Officers of Ashland" and the information regarding the ownership of
securities of Ashland in Ashland's Proxy Statement.
The following table summarizes the equity compensation plans under
which Ashland Common Stock may be issued as of September 30, 2002. Except
as disclosed in the narrative to the table, all plans were approved by
shareholders of Ashland.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
PLAN CATEGORY NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
------------- BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES
WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (a))
------------------- ---------- ----------------------
(a) (b) (c)
Equity compensation plans
approved by security 6,636,877 $37.72 3,727,439
holders.....................
Equity compensation plans
not approved by security
holders (1)................. 845,392 $33.88 0
--------- ------ ---------
Total............... 7,482,269 $37.28 3,727,439
========= ====== =========
(1) The Ashland Inc. Stock Option Plan for Employees of Joint Ventures
is the only equity compensation plan of Ashland not approved by
Ashland's shareholders. This plan was approved by Ashland's Board
of Directors on September 17, 1998 and is specifically designed to
grant stock options to employees of joint ventures in which
Ashland has an interest. There are currently no shares reserved
for future issuance under this plan. The Board of Directors
authorizes the issuance of the shares at the time the stock
options are granted. A recipient of such stock options will have
the right to purchase Ashland Common Stock at a price and on terms
specified by the Personnel and Compensation Committee of Ashland's
Board of Directors. The stock options listed in the table above
have been granted to certain MAP employees and were registered
with the SEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear
under the caption "Miscellaneous - Business Relationships" in Ashland's
Proxy Statement.
ITEM 14. CONTROLS AND PROCEDURES
(a) Ashland's Chief Executive Officer and its Chief Financial Officer,
after evaluating the effectiveness of Ashland's disclosure
controls and procedures as of a date within 90 days of the filing
date of this Form 10-K, have concluded that the disclosure
controls and procedures were effective to ensure that material
information relating to Ashland and its consolidated subsidiaries
was made known to them by others within those entities.
(b) There were no significant changes in Ashland's internal controls
or in other factors that could significantly affect these controls
or procedures subsequent to the date of Ashland's evaluation, nor
were there any significant deficiencies or material weaknesses in
Ashland's internal controls. As a result, no corrective actions
were required or undertaken.
14
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
(1) and (2) Financial Statements and Financial Schedule
The consolidated financial statements and financial schedule of
Ashland presented or incorporated by reference in this report are listed in
the index on page 20.
(3) Exhibits
3.1 Third Restated Articles of Incorporation of Ashland (filed as
Exhibit 3 to Ashland's Form 10-Q for the quarter ended June 30,
2002 and incorporated herein by reference).
3.2 By-laws of Ashland, effective as of November 15, 2002.
4.1 Ashland agrees to provide the SEC, upon request, copies of
instruments defining the rights of holders of long-term debt of
Ashland and all of its subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed with
the SEC.
4.2 Indenture, dated as of August 15, 1989, as amended and restated as
of August 15, 1990, between Ashland and Citibank, N.A., as Trustee
(filed as Exhibit 4.2 to Ashland's Form 10-K for the fiscal year
ended September 30, 2001 and incorporated herein by reference).
4.3 Indenture, dated as of September 7, 2001, between Ashland and U.S.
Bank National Association, as Trustee (filed as Exhibit 4.3 to
Ashland's Form 10-K for the fiscal year ended September 30, 2001
and incorporated herein by reference).
4.4 Rights Agreement, dated as of May 16, 1996, between Ashland Inc.
and the Rights Agent, together with Form of Right Certificate
(filed as Exhibit 4.4 to Ashland's Form 10-K for the fiscal year
ended September 30, 2001 and incorporated herein by reference).
The following Exhibits 10.1 through 10.15 are compensatory plans or
arrangements or management contracts required to be filed as exhibits
pursuant to Item 601(b)(10)(ii)(A) of Regulation S-K.
10.1 Amended Stock Incentive Plan for Key Employees of Ashland Inc. and
its Subsidiaries (filed as Exhibit 10.1 to Ashland's Form 10-K for
the fiscal year ended September 30, 1999 and incorporated herein
by reference).
10.2 Ashland Inc. Deferred Compensation Plan for Non-Employee
Directors.
10.3 Ashland Inc. Deferred Compensation Plan.
10.4 Tenth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Employees, as amended.
10.5 Ashland Inc. Salary Continuation Plan.
10.6 Form of Ashland Inc. Executive Employment Contract between Ashland
Inc. and certain executives of Ashland.
10.7 Form of Separation Agreement and General Release between Ashland
Inc. and Paul W. Chellgren, former Chief Executive Officer of
Ashland.
10.8 Form of Indemnification Agreement between Ashland Inc. and each
member of its Board of Directors (filed as Exhibit 10.8 to
Ashland's Form 10-K for the fiscal year ended September 30, 2001
and incorporated herein by reference).
10.9 Ashland Inc. Nonqualified Excess Benefit Pension Plan.
10.10 Ashland Inc. Long-Term Incentive Plan (filed as Exhibit 10.9 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.11 Ashland Inc. Directors' Charitable Award Program.
10.12 Ashland Inc. 1993 Stock Incentive Plan (filed as Exhibit 10.11 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
15
10.13 Ashland Inc. 1995 Performance Unit Plan (filed as Exhibit 10.12 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.14 Ashland Inc. 1997 Stock Incentive Plan.
10.15 Amended and Restated Ashland Inc. Incentive Plan.
10.16 Amended and Restated Limited Liability Company Agreement of
Marathon Ashland Petroleum LLC dated as of December 31, 1998
(filed as Exhibit 10.17 to Ashland's Form 10-K for the fiscal year
ended September 30, 1999 and incorporated herein by reference).
10.17 Put/Call, Registration Rights and Standstill Agreement as amended
to December 31, 1998 among Marathon Oil Company, USX Corporation,
Ashland Inc. and Marathon Ashland Petroleum (filed as Exhibit
10.18 to Ashland's Form 10-K for the fiscal year ended September
30, 1999 and incorporated herein by reference).
11 Computation of Earnings Per Share (appearing on page 48 of
Ashland's Annual Report to Shareholders, incorporated by reference
herein, for the fiscal year ended September 30, 2002).
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Ashland's Annual Report to Shareholders, incorporated
by reference herein, for the fiscal year ended September 30, 2002.
21 List of subsidiaries.
23.1 Consent of independent auditors.
24 Power of Attorney, including resolutions of the Board of
Directors.
99.1 Certificate of Chief Executive Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
99.2 Certificate of Chief Financial Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
Upon written or oral request, a copy of the above exhibits will be
furnished at cost.
(b) Reports on Form 8-K
A report on Form 8-K was filed August 2, 2002, to report that Paul W.
Chellgren, Chairman and Chief Executive Officer of Ashland, announced his
plans to retire effective November 15, 2002.
A report on Form 8-K was filed on August 7, 2002 to report that
Ashland had submitted to the SEC the Statements under Oath of the Principal
Executive Officer and the Principal Financial Officer pursuant to the SEC's
June 27, 2002 Order requiring the filing of such statements.
A report on Form 8-K was filed on August 13, 2002 to report that James
J. O'Brien had been named President and Chief Operating Officer and was
elected to Ashland's Board of Directors. O'Brien would become Chairman of
the Board and Chief Executive Officer of Ashland effective November 15,
2002 when Paul W. Chellgren, the then current Chairman and Chief Executive
Officer retired.
A report on Form 8-K was filed on September 19, 2002 to report that
James J. O'Brien would become Chief Executive Officer of Ashland effective
October 1, 2002 and Chairman of the Board effective November 15, 2002.
16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ASHLAND INC.
(Registrant)
By:
/s/ J. Marvin Quin
-----------------------------------
J. Marvin Quin
Senior Vice President and Chief
Financial Officer
Date: December 3, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant, in the capacities indicated, on December 3, 2002.
SIGNATURES CAPACITY
---------- --------
/S/ JAMES J. O'BRIEN Chairman of the Board, Chief Executive Officer
- --------------------------- and Director
JAMES J. O'BRIEN
/S/ J. MARVIN QUIN Senior Vice President and Chief
- --------------------------- Financial Officer
J. MARVIN QUIN
/S/ KENNETH L. AULEN Administrative Vice President, Controller and
- --------------------------- Principal Accounting Officer
KENNETH L. AULEN
* Director
- ---------------------------
SAMUEL C. BUTLER
* Director
- ---------------------------
FRANK C. CARLUCCI
* Director
- ---------------------------
ERNEST H. DREW
* Director
- ---------------------------
JAMES B. FARLEY
* Director
- ---------------------------
ROGER W. HALE
* Director
- ---------------------------
BERNADINE P. HEALY
* Director
- ---------------------------
MANNIE L. JACKSON
* Director
- ---------------------------
PATRICK F. NOONAN
17
* Director
- ---------------------------
JANE C. PFEIFFER
* Director
- ---------------------------
WILLIAM L. ROUSE, JR.
* Director
- ---------------------------
THEODORE M. SOLSO
* Director
- ---------------------------
MICHAEL J. WARD
*By: /s/ David L. Hausrath
---------------------
David L. Hausrath
Attorney-in-Fact
Date: December 3, 2002
CERTIFICATION
-------------
Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Chief Executive Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings.
I, James J. O'Brien, Chief Executive Officer of Ashland Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of Ashland Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
18
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 3, 2002
/s/ James J. O'Brien
-----------------------
Chief Executive Officer
CERTIFICATION
-------------
Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Chief Financial Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings.
I, J. Marvin Quin, Chief Financial Officer of Ashland Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of Ashland Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 3, 2002
/s/ J. Marvin Quin
------------------------
Chief Financial Officer
19
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
Page
----
Consolidated financial statements:
Statements of consolidated income ................................*
Consolidated balance sheets ......................................*
Statements of consolidated stockholders' equity ..................*
Statements of consolidated cash flows ............................*
Notes to consolidated financial statements .......................*
Information by industry segment ..................................*
Report of independent auditors....................................21
Consolidated financial schedule:
Schedule II - Valuation and qualifying accounts...................22
*The consolidated financial statements appearing on pages 43 through
61 in Ashland's Annual Report are incorporated by reference in this Annual
Report on Form 10-K.
Schedules other than that listed above have been omitted because of
the absence of the conditions under which they are required or because the
information required is shown in the consolidated financial statements or
the notes thereto. Separate financial statements for MAP required by Rule
3-09 of Regulation S-X will be filed as an amendment to this Form 10-K
within 90 days after the end of MAP's fiscal year ending December 31, 2002.
Separate financial statements of other unconsolidated affiliates are
omitted because each company does not constitute a significant subsidiary
using the 20% tests when considered individually. Summarized financial
information for such affiliates is disclosed in Note D of Notes to
Consolidated Financial Statements in Ashland's Annual Report.
20
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements and schedule of
Ashland Inc. and consolidated subsidiaries listed in the accompanying index
to financial statements and financial schedule (Item 15(a)). These
financial statements and schedule are the responsibility of Ashland's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 15(a)) present fairly, in all material
respects, the consolidated financial position of Ashland Inc. and
consolidated subsidiaries at September 30, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 2002, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note A to the financial statements, in 2002 the
Company changed its method of accounting for goodwill and other intangible
assets. Additionally, as discussed in Note A to the financial statements,
in 2001 the Company and its unconsolidated affiliate, Marathon Ashland
Petroleum LLC, changed their method of accounting for derivatives.
/s/ Ernst & Young LLP
Cincinnati, Ohio
November 6, 2002
21
- -----------------------------------------------------------------------------------------------------------------------------------
Ashland Inc. and Consolidated Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------------------------
(In millions) Balance at Provisions Balance
beginning charged to Reserves Other at end
Description of year earnings utilized changes of year
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002
Reserves deducted from asset accounts
Accounts receivable $ 34 $ 24 $ (23)(1) $ - $ 35
Inventories 15 7 (6) - 16
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2001
Reserves deducted from asset accounts
Accounts receivable $ 25 $ 34 $ (25)(1) $ - $ 34
Inventories 13 5 (3) - 15
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2000
Reserves deducted from asset accounts
Accounts receivable $ 23 $ 15 $( 12)(1) $(1) $ 25
Inventories 15 3 (5) - 13
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Uncollected amounts written off, net of recoveries which were not
significant in 2002, $1 million in 2001 and $1 million in 2000.
22
Exhibit Index
Exhibit No. Description
3.2 By-laws of Ashland, effective as of November 15, 2002.
10.2 Ashland Inc. Deferred Compensation Plan for Non-Employee
Directors.
10.3 Ashland Inc. Deferred Compensation Plan.
10.4 Tenth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Employees, as amended.
10.5 Ashland Inc. Salary Continuation Plan.
10.6 Form of Ashland Inc. Executive Employment Contract between Ashland
Inc. and certain executives of Ashland.
10.7 Form of Separation Agreement and General Release between Ashland
Inc. and Paul W. Chellgren, former Chief Executive Officer of
Ashland.
10.9 Ashland Inc. Nonqualified Excess Benefit Pension Plan.
10.11 Ashland Inc. Directors' Charitable Award Program.
10.14 Ashland Inc. 1997 Stock Incentive Plan.
10.15 Amended and Restated Ashland Inc. Incentive Plan.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Ashland's Annual Report to Shareholders, incorporated
by reference herein, for the fiscal year ended September 30, 2002.
21 List of subsidiaries.
23.1 Consent of independent auditors.
24 Power of Attorney, including resolutions of the Board of
Directors.
99.1 Certificate of Chief Executive Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
99.2 Certificate of Chief Financial Officer of Ashland pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.