SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
1000 Ashland Drive
Russell, Kentucky 41169
Telephone Number: (606) 329-3333
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ( X ) No
( )
At January 31, 1996, there were 63,808,373 shares of Registrant's
Common Stock outstanding. One-half of one Right to purchase one-tenth of a
share of Cumulative Preferred Stock, Series of 1987 accompanies each
outstanding share of Registrant's Common Stock.
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PART I - FINANCIAL INFORMATION
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ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
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Three months ended
December 31
----------------------
(In millions except per share data) 1995 1994(1)
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REVENUES
Sales and operating revenues (including excise taxes) $ 3,079 $ 2,924
Other 94(2) 15
---------- ----------
3,173 2,939
COSTS AND EXPENSES
Cost of sales and operating expenses 2,350 2,213
Excise taxes on products and merchandise 238 244
Selling, general and administrative expenses 289 272
Depreciation, depletion and amortization 98 94
General corporate expenses 23 25
---------- ----------
2,998 2,848
---------- ----------
OPERATING INCOME 175 91
OTHER INCOME (EXPENSE)
Interest expense (net of interest income) (43) (38)
Equity income 4 6
---------- ----------
INCOME BEFORE INCOME TAXES 136 59
Income taxes (44) (16)
Minority interest in earnings of subsidiaries (5) (8)
---------- ----------
NET INCOME 87 (2) 35
Dividends on convertible preferred stock (5) (5)
---------- ----------
INCOME AVAILABLE TO COMMON SHARES $ 82 $ 30
========== ==========
EARNINGS PER SHARE - Note E
Primary $ 1.29(2) $ .50
Assuming full dilution $ 1.16 $ .50
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275
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(1) Amounts have been restated to reflect the consolidation of Ashland Coal,
Inc. (see Note D).
(2) Includes a gain of $73 million ($48 million or 74 cents a share after
income taxes) resulting from the settlement of Ashland Exploration's
claims in the bankruptcy reorganization of Columbia Gas Transmission
and Columbia Gas Systems.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ASHLAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31 September 30 December 31
(In millions) 1995 1995 1994(1)
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ASSETS
--------
CURRENT ASSETS
Cash and cash equivalents $ 62 $ 52 $ 57
Accounts receivable 1,591 1,600 1,430
Allowance for doubtful accounts (25) (25) (21)
Construction completed and in progress 26 42 31
Inventories - Note B 791 726 729
Deferred income taxes 89 90 67
Other current assets 105 90 92
---------- --------- ----------
2,639 2,575 2,385
INVESTMENTS AND OTHER ASSETS
Investments in and advances to unconsolidated affiliates 147 145 154
Investments of captive insurance companies 200 192 182
Cost in excess of net assets of companies acquired 106 107 81
Other noncurrent assets 392 403 409
---------- --------- ----------
845 847 826
PROPERTY, PLANT AND EQUIPMENT
Cost 7,125 7,078 6,809
Accumulated depreciation, depletion and amortization (3,574) (3,508) (3,374)
---------- --------- ----------
3,551 3,570 3,435
---------- --------- ----------
$ 7,035 $ 6,992 $ 6,646
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Debt due within one year $ 279 $ 272 $ 267
Trade and other payables 1,741 1,778 1,579
Income taxes 75 44 45
---------- --------- ----------
2,095 2,094 1,891
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,781 1,828 1,614
Employee benefit obligations 622 613 599
Reserves of captive insurance companies 177 169 179
Deferred income taxes 41 49 66
Other long-term liabilities and deferred credits 413 405 452
Commitments and contingencies - Note C
---------- --------- ----------
3,034 3,064 2,910
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES
178 179 226
STOCKHOLDERS' EQUITY
Convertible preferred stock 293 293 293
Common stockholders' equity 1,435 1,362 1,326
---------- --------- ----------
1,728 1,655 1,619
---------- --------- ----------
$ 7,035 $ 6,992 $ 6,646
========== ========= ==========
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(1) Amounts have been restated to reflect the consolidation of Ashland Coal, Inc. (see Note D).
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
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Loan to
leveraged
employee
stock
ownership
Common Paid-in Retained plan
(In millions) stock capital earnings (LESOP) Other Total
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BALANCE AT OCTOBER 1, 1994 $ 61 $ 159 $ 1,126 $ (33) $ (11) $ 1,302
Net income 35 35
Dividends
Preferred stock (5) (5)
Common stock (16) (16)
Issued common stock under stock
incentive plans 3 3
LESOP loan repayment 8 8
Other changes (1) (1)
-------- -------- --------- ----------- ------- ---------
BALANCE AT DECEMBER 31, 1994 $ 61 $ 162 $ 1,140 $ (25) $ (12) $ 1,326
======== ======== ========= =========== ======= =========
BALANCE AT OCTOBER 1, 1995 $ 64 $ 256 $ 1,063 $ (11) $ (10) $ 1,362
Net income 87 87
Dividends
Preferred stock (5) (5)
Common stock (17) (17)
Issued common stock under stock
incentive plans 2 2
LESOP loan repayment 3 3
Other changes 3 3
-------- -------- --------- ----------- ------- ---------
BALANCE AT DECEMBER 31, 1995 $ 64 $ 258 $ 1,128 $ (8) $ (7) $ 1,435
======== ======== ========= =========== ======= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ASHLAND INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
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Three months ended
December 31
--------------------------------
(In millions) 1995 1994(1)
===================================================================================================================================
CASH FLOWS FROM OPERATIONS
Net income $ 87 $ 35
Expense (income) not affecting cash
Depreciation, depletion and amortization (2) 101 97
Deferred income taxes (9) 10
Other noncash items 10 -
Change in operating assets and liabilities (3) (27) (38)
--------- ---------
162 104
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 1 63
Proceeds from issuance of capital stock 1 1
Loan repayment from leveraged employee stock ownership plan 3 8
Repayment of long-term debt (16) (11)
Increase (decrease) in short-term debt (25) 41
Dividends paid (23) (23)
--------- ---------
(59) 79
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (74) (117)
Purchase of operations - net of cash acquired (17) (54)
Proceeds from sale of operations 1 2
Investment purchases (4) (117) (63)
Investment sales and maturities (4) 114 63
Other-net - 3
--------- ---------
(93) (166)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 10 17
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 52 40
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 62 $ 57
========= =========
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(1) Amounts have been restated to reflect the consolidation of Ashland Coal, Inc. (see Note D).
(2) Includes amounts charged to general corporate expenses.
(3) Excludes changes resulting from operations acquired or sold.
(4) Represents primarily investment transactions of captive insurance companies.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - GENERAL
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and
Securities and Exchange Commission regulations, but are subject to
any year-end audit adjustments which may be necessary. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. These financial statements should be read in
conjunction with Ashland's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995. Results of operations for
the period ended December 31, 1995, are not necessarily indicative
of results to be expected for the year ending September 30, 1996.
NOTE B - INVENTORIES
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December 31 September 30 December 31
(In millions) 1995 1995 1994
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Crude oil $ 318 $ 285 $ 254
Petroleum products 331 284 300
Chemicals and other products 505 491 490
Materials and supplies 69 66 62
Excess of replacement costs over LIFO carrying values (432) (400) (377)
------- -------- --------
$ 791 $ 726 $ 729
======== ======== ========
NOTE C - LITIGATION, CLAIMS AND CONTINGENCIES
Federal, state and local statutes and regulations relating to the
protection of the environment have a significant impact on the
conduct of Ashland's businesses. For information regarding
environmental expenditures and reserves, see the "Miscellaneous -
Governmental Regulation and Action - Environmental Protection"
section of Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
which affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites. As a result, charges to income for environmental
liabilities could have a material effect on results of operations
in a particular quarter or fiscal year as assessments and
remediation efforts proceed or as new remediation sites are
identified. However, such charges are not expected to have a
material adverse effect on Ashland's consolidated financial
position.
Ashland has numerous insurance policies that provide coverage at
various levels for environmental costs. Ashland is currently
involved in negotiations concerning the amount of insurance
coverage for environmental costs under some of these policies. In
addition, various costs of remediation efforts related to
underground storage tanks are eligible for reimbursement from
state administered funds. Probable recoveries related to certain
costs incurred or expected to be incurred in future years are
included in other noncurrent assets.
In addition, Ashland and its subsidiaries are parties to numerous
claims and lawsuits (some of which are for substantial amounts).
While these actions are being contested, the outcome of individual
matters is not predictable with assurance. Although any actual
liability is not determinable as of December 31, 1995, Ashland
believes that any liability resulting from these matters, after
taking into consideration Ashland's insurance coverages and
amounts already provided for, should not have a material adverse
effect on Ashland's consolidated financial position.
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ASHLAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE D - ACQUISITIONS
During the three months ended December 31, 1995, Ashland acquired
a chemical distribution business and certain oil and gas producing
properties. These acquisitions were accounted for as purchases and
did not have a significant effect on Ashland's consolidated
financial statements.
In February 1995, Ashland purchased from Saarbergwerke AG all of
Ashland Coal's Class B Preferred Stock for $110 million,
representing about 15 percent of Ashland Coal's voting stock. The
purchase increased Ashland's ownership of Ashland Coal from 39
percent to 54 percent. As a result of this transaction, Ashland
Coal was consolidated into Ashland's financial statements
retroactive to October 1, 1994. Ashland's investment in Ashland
Coal previously had been accounted for on the equity method.
Amounts for the quarter ended December 31, 1994, have been
restated accordingly.
NOTE E - COMPUTATION OF EARNINGS PER SHARE
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Three months ended
December 31
---------------------
(In millions except per share data) 1995 1994
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PRIMARY EARNINGS PER SHARE
Income available to common shares
Net income $ 87 $ 35
Dividends on convertible preferred stock (5) (5)
--------- ---------
$ 82 $ 30
========= =========
Average common shares and equivalents outstanding 64 61
========= =========
Earnings per share $ 1.29 $ .50
========= =========
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EARNINGS PER SHARE
ASSUMING FULL DILUTION
Income available to common shares
Net income $ 87 $ 35
Dividends on convertible preferred stock - (5)
Interest on convertible debentures (net of income taxes) 1 -
--------- ---------
$ 88 $ 30
========= =========
Average common shares and equivalents outstanding
Average common shares outstanding 64 61
Common shares issuable upon
Conversion of debentures 3 -
Conversion of preferred stock 9 -
--------- ---------
76 61
========= =========
Earnings per share $ 1.16 $ .50
========= =========
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ASHLAND INC. AND SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
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Three months ended
December 31
------------------------------
(Dollars in millions except as noted) 1995 1994
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SALES AND OPERATING REVENUES
Petroleum $ 1,232 $ 1,229
SuperAmerica 456 442
Valvoline 275 268
Chemical 886 818
APAC 329 274
Coal 164 156
Exploration 56 48
Intersegment sales (319) (311)
----------- -----------
$ 3,079 $ 2,924
=========== ===========
OPERATING INCOME
Petroleum $ 18 $ 2
SuperAmerica 11 18
Valvoline 12 9
----------- -----------
Total Refining and Marketing Group 41 29
Chemical 38 47
APAC 23 20
Coal 17 20
Exploration 79 -
General corporate expenses (23) (25)
----------- -----------
$ 175 $ 91
=========== ===========
EQUITY INCOME
Arch Mineral Corporation $ 2 $ 3
Other 2 3
----------- -----------
$ 4 $ 6
=========== ===========
OPERATING INFORMATION
Petroleum
Product sales (thousand barrels per day) (1) 387.0 360.0
Refining inputs (thousand barrels per day) (2) 378.2 321.9
Value of products manufactured per barrel $ 22.05 $ 21.45
Input cost per barrel 18.00 17.55
----------- -----------
Refining margin per barrel $ 4.05 $ 3.90
SuperAmerica
Product sales (thousand barrels per day) 75.3 72.5
Merchandise sales $ 139 $ 132
Valvoline lubricant sales (thousand barrels per day) (1) 20.1 17.6
APAC construction backlog
At end of period $ 616 $ 523
Decrease during period $ (56) $ (31)
Ashland Coal, Inc. (3)
Tons sold (millions) 6.0 5.5
Sales price per ton $ 27.32 $ 28.46
Arch Mineral Corporation (3)
Tons sold (millions) 6.9 7.4
Sales price per ton $ 25.85 $ 26.84
Exploration
Net daily production
Natural gas (million cubic feet) (1) 111.0 88.9
Nigerian crude oil (thousand barrels) 18.2 19.4
Sales price
Natural gas (per thousand cubic feet) $ 2.18 $ 1.86
Nigerian crude oil (per barrel) $ 16.21 $ 15.85
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(1) Includes intersegment sales.
(2) Includes crude oil and other purchased feedstocks.
(3) Ashland's ownership interest is 55% in Ashland Coal and 50% in Arch Mineral.
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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RESULTS OF OPERATIONS
Ashland recorded net income of $87 million for the first quarter
of fiscal 1996, compared to $35 million for the first quarter of
fiscal 1995. Operating income for the current quarter totaled $175
million, compared to $91 million for last year's December quarter.
Results for the quarter just ended included operating income of
$73 million ($48 million after income taxes) from the settlement
of Ashland Exploration's claims in the bankruptcy reorganization
of Columbia Gas Transmission and Columbia Gas Systems. Excluding
this unusual item, net income increased 13%, reflecting mixed
operating results. In addition to improved earnings from Ashland
Exploration, Valvoline and APAC, Ashland Petroleum reported a
substantial increase in operating income this quarter. These
positive comparisons were partially offset by reduced earnings
from Ashland Chemical, SuperAmerica and Ashland Coal, as well as
higher interest costs.
PETROLEUM
Operating income for Ashland Petroleum totaled $18 million for the
quarter ended December 31, 1995, compared to $2 million for the
same period last year. The improvement in earnings reflected an
increase in the refining margin (the difference between the value
of products manufactured and input cost), higher production and
sales volumes, and a decrease in per barrel refining expenses. The
refining margin averaged $4.05 a barrel for the first quarter of
fiscal 1996, up from last year's first quarter average of $3.90 a
barrel, despite an increase of 45 cents a barrel in crude oil and
other input costs. Monthly throughput records were set at each of
the three refineries, while total throughput averaged 378,200
barrels a day. This represents a 17% improvement compared to the
December 1994 quarter, reflecting a general maintenance turnaround
at the Canton, Ohio refinery last year, as well as increased
refining capacity resulting from prior investments and other
efficiency measures. Refining expenses declined 34 cents a barrel
when compared to the same quarter last year, due to the increase
in throughputs and Ashland Petroleum's ongoing efforts to cut
costs and improve efficiency.
Current conditions in the refining industry are favorable as
gasoline demand remains strong and inventories of gasoline and
distillate are low. Consequently, Ashland Petroleum should benefit
in fiscal 1996 from these favorable industry conditions and its
improved competitive position.
SUPERAMERICA
SuperAmerica reported operating income of $11 million for the
quarter ended December 31, 1995, compared to $18 million for the
same period last year. The decrease in earnings reflected a
decline in gasoline margins, combined with higher labor and
training costs associated with new store openings and a tight
labor market. These unfavorable comparisons were partially offset
by higher gasoline and merchandise volumes, resulting from the
increase in the number of stores in operation this year. In
addition, merchandise margins were up slightly in the current
quarter. At December 31, 1995, 616 SuperAmerica stores were in
operation, compared to 602 stores at December 31, 1994. During the
current quarter, 9 new SuperAmerica stores were opened. Also, 4
Rich outlets were opened in the quarter, bringing the total stores
in operation to 99 at December 31, 1995.
VALVOLINE
For the three months ended December 31, 1995, Valvoline's
operating income totaled $12 million, compared to last year's
first quarter earnings of $9 million. Valvoline's emphasis on new
marketing initiatives and cost-control efforts have aided its
recovery from problems experienced during the last half of fiscal
1995. The increase in earnings from last year's first quarter
included improved results from most of Valvoline's product lines.
An increase in operating income from the lubricant business
resulted from higher sales volumes and margins, while improved
results from First Recovery, Valvoline's used motor oil collection
business, reflected a strengthened market for used oils. Also,
Valvoline Instant Oil Change reported record earnings, reflecting
higher average car counts and ticket prices, combined with an
increase in the number of company-operated quick-lube outlets from
356 at December 31, 1994, to 368 at December 31, 1995.
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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CHEMICAL
Ashland Chemical's operating income for the first quarter of
fiscal 1996 was $38 million, representing the second best December
quarter in its history. However, these results were down from last
year's record first quarter earnings of $47 million, due primarily
to the exceptionally strong methanol market last year. Partially
offsetting such decline, the distribution and specialty chemical
groups reported record first quarter earnings. Volumes were up in
all of the distribution businesses, while the composite polymers
business, a division of the specialty chemicals group, benefited
from improved margins due to raw material price reductions.
APAC
APAC's construction operations also reported its second best
December quarter, with earnings of $23 million for the three
months ended December 31, 1995. When compared to last year's first
quarter earnings of $20 million, operating income improved 14%, as
record revenues were generated in the current quarter by
capitalizing on a strong year-end backlog. Backlog at December 31,
1995, totaled $616 million, compared to $523 million at December
31, 1994. With a strong first quarter and an 18% increase in
backlog at December 31, the construction operations are well
positioned for the spring construction season.
COAL
Ashland Coal reported operating income of $17 million for the
quarter ended December 31, 1995, compared to $20 million for the
same period last year. Record coal sales volumes and a decline in
the average cost of coal sold in the current quarter substantially
offset the effect of the decrease in the average selling price
from the December 1994 quarter. Ashland Coal's average selling
price declined from the 1994 level due to the expiration of a
sales contract at the end of 1994 and other contract changes, and
because of weakness in the markets for coal during 1995. The
average selling price is expected to decline again in 1996 due to
the expiration of several high-priced, high-volume sales contracts
at the end of calendar 1995 and price reopeners under other
contracts. Ashland Coal expects its results for calendar 1996 to
be materially adversely affected by these factors. Ashland Coal
also expects cost reduction initiatives now underway to partially
offset the impact of these developments in 1996 and to have even
greater positive effects in calendar 1997.
EXPLORATION
For the first quarter of fiscal 1996, Ashland Exploration reported
income of $79 million, compared to near break-even results for the
same period last year. As noted earlier, results for the current
quarter included operating income of $73 million from the
settlement of Ashland Exploration's claims in the bankruptcy
reorganization of Columbia Gas Transmission and Columbia Gas
Systems. A 25% increase in natural gas production and a 32 cent
increase in the average price per thousand cubic feet also
contributed to the improvement in operating income. Natural gas
production averaged 111 million cubic feet a day, reflecting in
part last year's acquisitions of additional producing properties
in Appalachia.
OTHER INCOME (EXPENSE)
Interest expense for the quarter ended December 31, 1995,
increased $5 million when compared to the same period last year,
reflecting higher average outstanding balances for long-term debt.
Ashland recorded equity income of $2 million from Arch Mineral for
the current quarter, compared to $3 million for the three months
ended December 31, 1994. Although down from last year's quarter,
results from Arch Mineral returned to profitability after
consecutive quarters of equity losses in the second half of fiscal
1995. Cost reductions and last year's restructuring of operations
contributed to the improvement. The decrease in earnings from last
year's quarter was due primarily to lower production and sales
volumes. Weak spot markets for the Wyoming and Illinois operations
and higher overburden ratios at Arch of West Virginia contributed
to the reduction in earnings.
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------------------------------
FINANCIAL POSITION
LIQUIDITY
Ashland's financial position has enabled it to obtain capital for
its financing needs and maintain investment grade ratings on its
senior debt of Baa1 from Moody's and BBB from Standard & Poor's.
Ashland has revolving credit agreements providing for up to $370
million in borrowings, none of which were in use at December 31,
1995. In addition, Ashland Coal has revolving credit agreements
providing for up to $500 million in borrowings, of which $30
million was in use at December 31, 1995. At that date, Ashland
could issue an additional $154 million in medium-term notes under
a shelf registration should future opportunities or needs arise.
Ashland and Ashland Coal also have access to various uncommitted
lines of credit and commercial paper markets, and had short-term
notes and commercial paper of $146 million outstanding at December
31, 1995. While certain debt agreements contain covenants
restricting the amount by which Ashland can increase its
indebtedness, such indebtedness could have been increased by up to
$1.22 billion at December 31, 1995.
Cash and cash equivalents at December 31, 1995, were $62 million,
compared to $52 million at September 30, 1995. Cash flows from
operations, a major source of Ashland's liquidity, amounted to
$162 million for the three months ended December 31, 1995,
compared to $104 million for the three months ended December 31,
1994. This increase resulted from the proceeds Ashland received
from the bankruptcy settlement previously discussed.
Working capital at December 31, 1995, was $544 million, compared
to $481 million at September 30, 1995, and $494 at December 31,
1994. Liquid assets (cash, cash equivalents and accounts
receivable) amounted to 78% of current liabilities at December 31,
1995, and September 30, 1995. Ashland's working capital is
significantly affected by its use of the LIFO method of inventory
valuation, which valued such inventories at $432 million below
their replacement costs at December 31, 1995.
CAPITAL RESOURCES
For the three months ended December 31, 1995, property additions
amounted to $74 million, compared to $117 million for the same
period last year. Property additions (including exploration costs
and geophysical expenses) and cash dividends for the remainder of
fiscal 1996 are estimated at $474 million and $71 million,
respectively. Ashland anticipates meeting its remaining 1996
capital requirements for property additions and dividends from
internally generated funds. However, external financing may be
necessary to provide funds for the remaining contractual
maturities of $56 million for long-term debt or for acquisitions.
Ashland's capital employed at December 31, 1995, consisted of debt
(51%), deferred income taxes (1%), minority interest (5%),
convertible preferred stock (7%), and common stockholders' equity
(36%). Debt as a percent of capital employed was 51% at December
31, 1995, compared to 53% at September 30, 1995. At December 31,
1995, long-term debt included $64 million of floating-rate debt,
and the interest rates on an additional $465 million of fixed-rate
debt were converted to floating rates through interest rate swap
agreements. As a result, future interest costs will fluctuate
based on short-term interest rates in 1996 on $529 million of
Ashland's consolidated long-term debt, as well as on any
short-term notes and commercial paper.
At December 31, 1995, Ashland could issue up to an additional $49
million in common stock under a shelf registration. During the
quarter ended December 31, 1995, no shares were issued under this
registration.
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ASHLAND INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations relating to the
protection of the environment have resulted in higher operating
costs and capital investments by the industries in which Ashland
operates. Because of the continuing trends toward greater
environmental awareness and increasing regulations, Ashland
believes that expenditures for environmental compliance will
continue to have a significant effect on the conduct of its
businesses. Although it cannot accurately predict how these
developments will affect future operations and earnings, Ashland
believes the nature and significance of its costs will be
comparable to those of its competitors in the petroleum, chemical
and extractive industries. For information regarding environmental
expenditures and reserves, see the "Miscellaneous - Governmental
Regulation and Action - Environmental Protection" section of
Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
which affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites. As a result, charges to income for environmental
liabilities could have a material effect on results of operations
in a particular quarter or fiscal year as assessments and
remediation efforts proceed or as new remediation sites are
identified. However, such charges are not expected to have a
material adverse effect on Ashland's consolidated financial
position, cash flow or liquidity.
PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
Environmental Proceedings - (1) As of September 30, 1995, Ashland was
subject to 84 notices received from the USEPA identifying Ashland as a
"potentially responsible party" ("PRP") under Superfund for potential joint
and several liability for cleanup costs in connection with alleged releases
of hazardous substances from various waste treatment or disposal sites.
These sites are currently subject to ongoing investigation and remedial
activities, overseen by the USEPA in accordance with procedures established
under Superfund regulations, in which Ashland may be participating as a
member of various PRP groups. Generally, the type of relief sought by the
USEPA includes remediation of contaminated soil and/or groundwater,
reimbursement for the costs of site cleanup or oversight expended by the
USEPA, and/or long-term monitoring of environmental conditions at the
sites. Ashland also receives notices from state environmental agencies
pursuant to similar state legislation. Ashland carefully monitors the
investigatory and remedial activity at many of these sites. Based on its
experience with site remediation, its familiarity with current
environmental laws and regulations, its analysis of the specific hazardous
substances at issue, the existence of other financially viable PRPs and its
current estimates of investigatory, clean-up and monitoring costs at each
site, Ashland believes that its liability at these sites, either
individually or in the aggregate, after taking into account established
reserves, will not have a material adverse effect on Ashland's consolidated
financial position, cash flow or liquidity but could have a material
adverse effect on results of operations in a particular quarter or fiscal
year. Estimated costs for these matters are recognized in accordance with
generally accepted accounting principles governing probability and the
ability to reasonably estimate future costs.
(2) In connection with a demand for penalties, Ashland has received a draft
Stipulation Agreement from the Minnesota Pollution Control Agency relating
to various alleged environmental regulatory violations regarding hazardous
waste and water quality and spill matters at Ashland's St. Paul Park
refinery. Ashland is having discussions with the Minnesota Pollution
Control Agency toward finalization of the Stipulation Agreement.
(3) On or about April 21, 1995, Ashland received an Administrative
Complaint and a Notice of Proposed Assessment of Administrative Civil
Penalty from the USEPA - Region IV. The Complaint alleges that Ashland
missed its April 1, 1994 interim construction deadline and maintained
insufficient records regarding construction of a wastewater system at its
Catlettsburg, Kentucky refinery. The USEPA is seeking an administrative
civil penalty of $162,500 for these alleged violations. Ashland filed an
Answer and has requested an administrative hearing on the merits of the
complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Ashland's Annual Meeting of Shareholders was held on January 25, 1996,
at the Ashland Petroleum Executive Office Building, Ashland Drive, Russell,
Kentucky at 10:30 a.m.
(b) Ashland's shareholders at said meeting elected 5 directors:
Votes
Affirmative Withheld
James E. Bolger 53,236,637 2,888,208
Frank C. Carlucci 53,136,345 2,926,745
James B. Farley 53,247,272 2,882,021
James R. Rinehart 53,245,144 2,867,508
W. L. Rouse, Jr. 53,229,847 2,876,348
Directors who continued in office: Jack S. Blanton, Samuel C. Butler,
Paul W. Chellgren, Edmund B. Fitzgerald, Ralph E. Gomory, Mannie L.
Jackson, John R. Hall, Patrick F. Noonan, Jane C. Pfeiffer, Michael D. Rose
and Dr. Robert B. Stobaugh. James W. Vandeveer, a director of Ashland since
1964, retired at the Annual Meeting.
(c) Ashland's shareholders at said meeting ratified the appointment of
Ernst & Young LLP as independent auditors for fiscal year 1996 by a vote of
55,214,043 affirmative to 673,689 negative and 219,485 abstention votes.
(d) The results of voting on a shareholder proposal for the Board of
Directors to take steps necessary to require that at future elections of
directors all directors be elected annually were 28,037,900 negative to
23,573,386 affirmative and 906,247 abstention and 3,589,683 broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on January 25, 1996 to announce that John R.
Hall, Ashland's chairman and chief executive officer will retire as chief
executive officer October 1, 1996 and retire as chairman of the board in
January 1997 and that Paul W. Chellgren, Ashland's President and Chief
Operating Officer, will succeed Mr. Hall in both capacities.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ashland Inc.
------------------------------
(Registrant)
/s/ Kenneth L. Aulen
Date February 14, 1996 ------------------------------
Kenneth L. Aulen
Administrative Vice President and
Controller
(Chief Accounting Officer)
Date February 14, 1996 /s/ Thomas L. Feazell
------------------------------
Thomas L. Feazell
Senior Vice President,
General Counsel and Secretary