Ashland Inc. and Subsidiaries
Management's Discussion and Analysis
Years Ended September 30
(In millions) 1996 1995 1994
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SALES AND OPERATING REVENUES
Petroleum $ 5,614 $ 5,050 $ 4,666
SuperAmerica 1,928 1,788 1,706
Valvoline 1,199 1,113 1,000
Chemical 3,695 3,551 2,885
APAC 1,235 1,123 1,101
Coal(1) 580 610 -
Exploration 241 198 199
Intersegment sales (1,362) (1,266) (1,223)
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$13,130 $12,167 $10,334
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OPERATING INCOME
Petroleum $ 55 $ (54) $ 113
SuperAmerica 34 53 59
Valvoline 82 (4) 52
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Total Refining and Marketing Group 171 (5) 224
Chemical 169 159 125
APAC 83 75 70
Coal(1) 36 66 -
Exploration 94 (6) 28
General corporate expenses (97) (91) (80)
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$ 456 $ 198 $ 367
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EQUITY INCOME
Ashland Coal, Inc.(1) $ - $ - $ 6
Arch Mineral Corporation 13 (4) 7
Other 11 11 9
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$ 24 $ 7 $ 22
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OPERATING INFORMATION
Petroleum
Product sales (thousand barrels per day)(2) 390.5 377.2 357.7
Refining inputs (thousand barrels per day)(3) 368.5 349.5 338.4
Value of products manufactured per barrel $ 24.64 $ 22.49 $ 21.50
Input cost per barrel 20.50 18.28 16.49
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Refining margin per barrel $ 4.14 $ 4.21 $ 5.01
SuperAmerica
Product sales (thousand barrels per day) 74.2 71.5 70.2
Merchandise sales (millions) $ 583 $ 548 $ 519
Valvoline lubricant sales (thousand barrels per day)(2) 19.5 19.1 17.9
APAC construction backlog at September 30 (millions) $ 647 $ 672 $ 554
Ashland Coal, Inc.(4)
Tons sold (millions) 22.0 22.0 18.2
Sales price per ton $ 26.35 $ 27.80 $ 29.85
Arch Mineral Corporation(4)
Tons sold (millions) 28.6 27.2 24.3
Sales price per ton $ 25.47 26.23 26.35
Exploration
Net daily production
Natural gas (million cubic feet)(2) 108.4 102.9 94.3
Nigerian crude oil (thousand barrels) 17.5 18.8 18.7
Sales price
Natural gas (per thousand cubic feet) $ 2.39 $ 1.89 $ 2.42
Nigerian crude oil (per barrel) $ 18.46 $ 16.17 $ 15.01
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(1) Ashland Coal was consolidated in 1996 and 1995 and accounted for
on the equity method in 1994 (see Note F to the financial statements).
(2) Includes intersegment sales.
(3) Includes crude oil and other purchased feedstocks.
(4) Ashland's ownership interest is 56% in Ashland Coal (39% prior to 1995)
and 50% in Arch Mineral.
RESULTS OF OPERATIONS
Ashland's net income amounted to $211 million in 1996, $24 million in
1995 and $197 million in 1994. However, comparisons of these results are
affected by various unusual items. The following table shows the effects of
unusual items on operating and net income for the three years ended
September 30, 1996.
Operating income Net income
--------------------------------- ----------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994
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Income before unusual items $383 $318 $356 $163 $103 $ 190
Columbia Gas bankruptcy settlement 73 - - 48 - -
Asset impairment write-downs - (83) - - (54) -
Early retirement and restructuring programs - (37) - - (25) -
Litigation matters - - 11 - - 7
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Income as reported $456 $198 $367 $211 $ 24 $197
==================================================================================================================================
During 1995, Ashland Exploration entered into a settlement agreement with
Columbia Gas Transmission to resolve claims involving natural gas sales
contracts that were abrogated by Columbia in 1991. The agreement provided
for a $78 million payment to Ashland Exploration, of which 5% would be
withheld by Columbia to be used to potentially satisfy the claims of
non-settling producers. Ashland Exploration received the net proceeds under
this agreement in 1996, which resulted in operating income of $73 million.
At this time, it is uncertain what portion, if any, of the withheld amount
will ultimately be received by Ashland Exploration.
Effective September 30, 1995, Ashland adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
result, Ashland recorded charges of $83 million to write down certain
assets to their fair values, including an idle unit at Ashland Petroleum's
Catlettsburg refinery, certain unused crude oil gathering pipelines of
Scurlock Permian, various petroleum product marketing properties to be sold
or shut down and various other assets. Fair values were based upon
appraisals or estimates of discounted future cash flows. In addition,
charges of $37 million related to early retirement and restructuring
programs were incurred, reflecting efforts by Ashland Petroleum and several
other divisions to reduce their costs and improve their competitive
positions.
Excluding unusual items, net income amounted to $163 million in 1996,
compared to $103 million in 1995. Record results were achieved by
Valvoline, Ashland Chemical and APAC, combined with increased earnings from
Ashland Petroleum, Ashland Exploration and Arch Mineral. Such improvements
more than offset the reduced earnings from SuperAmerica and Ashland Coal.
Net income before unusual items amounted to $103 million in 1995, compared
to $190 million in 1994. Record results from Ashland Chemical, APAC and
Ashland Coal were more than offset by reduced earnings from Ashland
Petroleum, Valvoline, Ashland Exploration and Arch Mineral, as well as
higher interest costs.
The following table compares operating income before unusual items by
segment for the last three years. Due to Ashland's purchase of an
additional interest in Ashland Coal during 1995, the results of Ashland
Coal were consolidated and shown as a new segment beginning with that year.
(In millions) 1996 1995 1994
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Operating income
Petroleum $ 55 $ 48 $113
SuperAmerica 34 53 59
Valvoline 82 1 52
Chemical 169 164 125
APAC 83 75 70
Coal 36 66 -
Exploration 21 (2) 28
General corporate expenses (97) (87) (91)
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$383 $318 $356
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(Bar graph appears in the right margin comparing Ashland Inc. operating
income for fiscal 1994, 1995 and 1996. The graph shows the breakdown
between Ashland's petroleum and energy and chemical related businesses.)
PETROLEUM
Operating income of Ashland Petroleum amounted to $55 million in 1996,
compared to $48 million in 1995 before unusual items. The improvement was
achieved even though rapidly rising crude oil prices late in 1996 led to
severe margin compression and a weak September 1996 quarter. Despite the
modest improvement, results for 1996 were still disappointing given the
progress Ashland Petroleum made in its ongoing efforts to improve its
competitive position. Refinery runs averaged 368,500 barrels a day, up 5%
from 1995 and refining expenses (other than fuel consumed in the refining
process) were reduced by 26(cent) a barrel, due to the higher level of
throughputs and ongoing efforts to reduce costs and increase efficiency.
The effects of these improvements, however, were largely offset by higher
average crude oil costs, which could not be fully passed through in product
prices, and associated increases in fuel costs. For the year, input costs
increased $2.22 a barrel, peaking in the September 1996 quarter with an
increase of $4.58 a barrel compared to the September 1995 quarter. As a
result, refining margins were compressed during what is normally the strong
summer driving season.
(Bar graph appears in the right margin comparing operating income from
Ashland Petroleum for fiscal 1994, 1995 and 1996.)
Ashland Inc. and Subsidiaries
Management's Discussion and Analysis
Operating income of Ashland Petroleum declined from $113 million in 1994 to
$48 million in 1995. Refining margins in 1995 were adversely affected by
the market confusion surrounding the introduction of reformulated gasoline
and by excess industry production of gasoline in the March 1995 quarter.
During that quarter, refiners switched production from distillate to
gasoline in response to one of the warmest winters of this century. While
refining margins recovered and averaged $5.07 a barrel during the last half
of 1995, overall refining margins for the year declined from $5.01 a barrel
in 1994 to $4.21 a barrel in 1995. Refining expenses also declined 12(cent)
a barrel in 1995 as the refineries operated at near capacity levels during
the last half of the year and cost savings from Ashland Petroleum's
restructuring program began to be realized. Earnings from Scurlock Permian
were up $4 million, reflecting better margins on crude oil transported.
SUPERAMERICA
An extremely competitive retail environment during 1996 adversely affected
results from SuperAmerica, reducing its operating income from $53 million
in 1995 to $34 million in 1996. While gasoline and merchandise volumes were
both up on a per store basis, the effect was more than offset by a decline
in gasoline margins of 1.5(cent) a gallon and increased operating costs.
Higher labor and occupancy costs resulted from a continued tight labor
market, the ongoing roll-out of the co-branding partnership program with
fast-food chains, initial costs associated with the opening of new stores
and rebuilds, and the ongoing operation of additional stores. At September
30, 1996, 742 retail locations were operating, compared to 704 locations in
1995 and 693 locations in 1994. Included in these totals are 624
SuperAmerica(R) stores in 1996, 609 stores in 1995 and 598 stores in 1994,
with the remainder being Rich Oil(R) outlets.
Earnings from SuperAmerica amounted to $53 million in 1995, compared to $59
million in 1994. Gasoline volumes were up slightly reflecting a higher
number of stores, and merchandise sales volumes were up on a per store
basis. However, the effects were more than offset by higher labor and
training costs, reflecting the increased number of stores, the tight labor
market and costs associated with the co-branding fast-food program.
(Bar graph appears in the left margin comparing operating income from
SuperAmerica for fiscal 1994, 1995 and 1996.)
VALVOLINE
Operating income from Valvoline was a record $82 million for 1996, compared
to near break-even results before unusual items for 1995. The record
earnings reflect improved results from nearly all of Valvoline's business
units, including a significant short-term earnings boost from the sale of
R-12, an automotive refrigerant. R-12 prices escalated rapidly during 1996,
as shortages developed within the market. Due to its ozone-depleting
characteristics, the U.S. Environmental Protection Agency banned the
production of R-12 at the end of 1995, but sales of existing inventories of
this refrigerant are still permitted. Even aside from R-12 earnings,
however, Valvoline's results would still have been up significantly.
Results from its lubricant business improved, reflecting increased volumes,
higher margins on both branded and private label sales and reduced
advertising and promotional costs. In addition, results from Valvoline
Instant Oil Change(R) (VIOC) nearly doubled, while the used oil collection
business continued to approach profitability. At September 30, 1996, VIOC
operated 374 company-owned outlets, compared to 365 outlets in 1995 and 347
outlets in 1994. In addition, the VIOC franchising program continued to
expand with 100 outlets open in 1996, compared to 90 outlets in 1995 and 75
outlets in 1994.
Valvoline had an extremely difficult year in 1995, operating just above
break-even levels, compared to 1994 when earnings of $52 million were
achieved. Domestic motor oil earnings were down considerably, reflecting
reductions in branded sales volumes, cost increases for additives and
packaging materials, higher advertising and promotional expenses, and a
continuing shift from packaged products to lower-margin bulk sales. Due to
competitive pressures, the higher costs could not be fully passed through
in higher sales prices, particularly with respect to private label sales.
Car care products and Zerex(R) antifreeze were negatively impacted by weak
demand reflecting the unusually warm winter weather and by escalating costs
for ethylene glycol, while results from R-12 refrigerants were adversely
affected by illegal imports. Operating income from international operations
was also down due to higher distribution costs and aggressive advertising
and promotional expenses to expand the European distributorships acquired
in 1994. Although average car counts and ticket prices continued to
improve, results from VIOC were down due to increased labor and material
costs.
(Bar graph appears in the left margin comparing operating income from
Valvoline for fiscal 1994, 1995 and 1996.)
CHEMICAL
For the fifth consecutive year, Ashland Chemical was the leading earnings
contributor to Ashland's results. Operating income increased from $164
million before unusual items in 1995 to $169 million in 1996 and represents
Ashland Chemical's fourth straight year of record earnings. Outstanding
results from the specialty chemical group, a moderate increase from the
distribution businesses and reduced environmental remediation costs more
than offset a decline from petrochemicals. Results from the distribution
businesses were up 5% on the strength of improved sales volumes, while
specialty chemicals earnings improved by 56%. The 1995 acquisition of
Aristech's unsaturated polyester resin business was a major contributor to
the improved results, along with higher sales volumes and margins for
electronic chemicals. Operating income from petrochemicals declined by $50
million, due largely to reduced prices for methanol, but also due to
increased natural gas prices and higher feedstock costs for cumene and
solvents.
(Bar graph appears in the left margin comparing operating income from
Ashland Chemical for fiscal 1994, 1995 and 1996.)
Ashland Chemical's operating income of $164 million in 1995 was up over 30%
from its 1994 results of $125 million. A strong performance from the
petrochemical businesses was a key factor in the improvement. Exceptionally
strong prices for methanol during the first half of the year and higher
sales volumes and margins for cumene were responsible for most of the
petrochemical improvement. Operating income from methanol returned to more
normal levels during the last half of 1995, declining $22 million from the
earnings achieved during the first half of the fiscal year. Results from
the distribution businesses were up nearly 25%, reflecting higher sales
volumes. However, operating income from specialty chemicals was down 10%
due to reduced margins for water treatment chemicals and foundry products.
APAC
The APAC construction companies achieved their third straight year of
record results in 1996 with operating income of $83 million, compared to
$75 million in 1995. APAC's results continue to reflect its ongoing efforts
in cost control, safety and materials technology, allowing the highway
construction group to take full advantage of a strong construction economy.
Revenues rose 10%, reflecting a higher level of both public and private
sector construction jobs, as well as increased sales of hot-mix asphalt,
aggregate and ready-mix concrete.
APAC's operating income amounted to $75 million in 1995, compared to $70
million in 1994, which included income of $9 million related to the Arizona
operations that were sold in 1994. A strong backlog, which enhanced
revenues and margins from construction jobs, and close attention to costs
and safety were primary factors in APAC's improvement.
(Bar graph appears in the right margin comparing operating income from
APAC for fiscal 1994, 1995 and 1996.)
COAL
Ashland Coal had a difficult year in 1996 due largely to the expiration of
certain attractively-priced coal sales contracts in December 1995.
Operating income amounted to $36 million in 1996, compared to $66 million
in 1995 reflecting the lower sales prices. Results for 1996 also included
charges of $4 million related to Ashland Coal's restructuring of its
corporate and subsidiary support functions.
As a result of Ashland's acquisition of an additional interest, Ashland
Coal was consolidated beginning in 1995. Prior to 1995, Ashland accounted
for its investment in Ashland Coal on the equity method of accounting. On a
comparable basis, operating income from Ashland Coal increased from $35
million in 1994 to $66 million in 1995. The improvement reflects increased
productivity and cost reductions in 1995, combined with the adverse effects
of the UMW strike (including the related aftereffects) on 1994 results.
Such improvements more than offset the reduction in average sales prices
resulting from the expiration of a sales contract in the December 1994
quarter and other contract changes.
(Bar graph appears in the right margin comparing operating income from
Ashland Coal for fiscal 1994, 1995 and 1996.)
EXPLORATION
Operating income from Ashland Exploration amounted to $94 million in 1996,
including the gain of $73 million from the Columbia settlement. Excluding
unusual items in both years, Ashland Exploration's results for 1996
improved $23 million from 1995. Domestic operations were responsible for
$19 million of the improvement. Natural gas prices rose 50(cent) per
thousand cubic feet in 1996, reflecting industry-wide price improvements
associated with increased demand and more normal winter weather. In
addition, production increased 5%, partly due to the acquisition of
additional Appalachian properties in 1995. Depreciation, depletion and
amortization were also down in 1996, reflecting favorable reserve revisions
and the effects of the FAS 121 impairment reserves recorded in 1995.
Results from foreign operations were up $4 million, as 1995 results
included dry hole costs from an exploratory well offshore Nigeria.
Ashland Exploration incurred an operating loss of $2 million in 1995,
compared to operating income of $28 million in 1994. Results from domestic
operations were down $14 million, reflecting depressed natural gas prices.
The effect of reduced prices was partially offset, however, by a 9%
increase in natural gas production. Foreign earnings were down $16 million,
reflecting a combination of reduced profitability from the Nigerian
operations and increased exploration costs associated with Nigerian
offshore blocks acquired under a 1992 production-sharing agreement.
(Bar graph appears in the right margin comparing operating income from
Ashland Exploration for fiscal 1994, 1995 and 1996.)
GENERAL CORPORATE EXPENSES
Excluding unusual items, general corporate expenses were $97 million in
1996, $87 million in 1995 and $91 million in 1994. Expenses for 1996
include increased costs for incentive and deferred compensation. Expenses
for 1994 included consulting fees and other expenses related to a
corporatewide cost-control program and higher accruals for
performance-based compensation, which were partially offset by income from
the resolution of certain matters related to Ashland's former engineering
subsidiaries.
OTHER INCOME (EXPENSE)
Interest expense (net of interest income) amounted to $169 million in 1996,
$171 million in 1995 and $117 million in 1994. The changes in interest
costs incurred during the last three years resulted principally from
fluctuations in debt levels and, to a lesser extent, higher interest rates
in 1995.
Charges for asset impairment and restructuring costs reduced Ashland's
equity earnings from Arch Mineral by $6 million in 1995. Adjusting for
these unusual items, Arch Mineral generated equity income of $13 million in
1996, $2 million in 1995 and $7 million in 1994. Arch's results for 1996
were favorably affected by increased sales volumes and lower mining costs,
as well as the restructuring completed in 1995. Results for 1995 were
negatively affected by weak demand for Illinois high-sulfur coal and by
high mining costs resulting from unfavorable overburden ratios and adverse
geological conditions at certain Appalachian operations. The prolonged
strike by the United Mine Workers, which extended from April into December
1993, had a significant effect on the comparability of results for 1994.
(Bar graph appears in the right margin comparing operating income from
Arch Mineral for fiscal 1994, 1995 and 1996.)
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 to maintain investment grade ratings on its senior debt
of Baa1 from Moody's and BBB from Standard & Poor's. Ashland has a
revolving credit agreement providing for up to $320 million in borrowings,
under which no borrowings were outstanding at September 30, 1996. At that
date, Ashland Coal also had revolving credit agreements providing for up to
$500 million in borrowings, of which $25 million was in use. Under a shelf
registration, Ashland can issue an additional $107 million in medium-term
notes should future opportunities or needs arise. Ashland and Ashland Coal
also have access to various uncommitted lines of credit and commercial
paper markets, under which short-term notes of $92 million were outstanding
at September 30, 1996. 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 $1.4 billion at September
30, 1996.
Cash flows from operations, a major source of Ashland's liquidity, amounted
to $767 million in 1996, $500 million in 1995 and $454 million in 1994. The
significant improvement in cash flows for 1996 reflects a higher level of
earnings, including the favorable effect of the Columbia settlement, and
reduced working capital requirements. Most of the unusual items that
reduced earnings in 1995 were non-cash charges and did not adversely affect
cash flows for that year. Cash flows from operations exceeded Ashland's
capital requirements for net property additions and dividends during the
last three years by nearly $200 million. The majority of other capital
requirements (i.e., for debt repayment, acquisitions, etc.) during this
period have come from borrowings, the issuance of stock and sales of
operations.
(Bar graph appears in the left margin comparing cash flows from operations
for fiscal 1994, 1995 and 1996.)
Property additions amounted to $1.3 billion during the last three years and
are summarized in the Information by Industry Segment on Page 61. While
about one-third of Ashland's capital expenditures during this period were
in Ashland Petroleum, its percent of the total expenditures has declined
every year since 1991. Capital expenditures by the related energy and
chemical businesses accounted for almost two-thirds of the total
expenditures during the last three years, increasing from 59% in 1994 to
72% in 1996.
(Bar graph appears in the left margin comparing property additions for
fiscal 1994, 1995 and 1996. The graph shows the breakdown between Ashland's
petroleum and energy and chemical related businesses.)
Long-term borrowings provided funds of $475 million since 1993, including
the issuance of $395 million of medium-term notes and $75 million of
pollution-control bonds. The proceeds from these long-term borrowings were
used to retire $266 million of long-term debt (scheduled maturities as well
as refundings to reduce interest costs) and to partially fund acquisitions.
Cash flows were supplemented as necessary by the issuance of short-term
notes and commercial paper.
(Bar graph appears in the left margin comparing debt as a percent of
capital employed for fiscal 1994, 1995 and 1996.)
Acquisitions (including operations acquired through the issuance of $41
million of Ashland common stock in 1995) amounted to $516 million since
1993. Such acquisitions include $212 million for certain operations of
Aristech Chemical Corporation and numerous smaller chemical companies, $118
million for additional interests in Ashland Coal, $69 million for Zerex and
Valvoline's European distributorships, $68 million for Appalachian natural
gas producing properties and $42 million for various construction
companies. Proceeds from the sale of operations generated $73 million
during the last three years, including the divestiture of APAC's Arizona
operations.
Investment purchases, sales and maturities relate primarily to the turnover
in the debt securities held by Ashland's captive insurance companies. The
net cash inflow related to these transactions in the last three years
principally reflects the decrease in the investment portfolios of these
companies.
Working capital at September 30, 1996, was $461 million, and liquid assets
(cash, cash equivalents and accounts receivable) amounted to 76% of current
liabilities at that date. Ashland's working capital is significantly
affected by its use of the LIFO method of inventory valuation, which valued
inventories $474 million below their replacement costs at September 30,
1996.
CAPITAL RESOURCES
Ashland's capital employed at September 30, 1996, consisted of debt (49%),
deferred income taxes (2%), minority interest (4%), convertible preferred
stock (7%) and common stockholders' equity (38%). Debt as a percent of
capital employed decreased from 53% at the end of 1995, reflecting strong
cash flows from operations during 1996 and the net proceeds from the
Columbia settlement. Long-term debt at September 30, 1996, included $48
million of floating-rate debt, and the interest rates on an additional $510
million of fixed-rate debt were converted to floating rates through
interest rate swap agreements. As a result, interest costs in 1997 will
fluctuate based on short-term interest rates on $558 million of Ashland's
consolidated long-term debt, as well as on any short-term notes and
commercial paper.
During fiscal 1997, Ashland anticipates capital expenditures of
approximately $525 million. Ashland Petroleum's capital expenditures are
expected to amount to about $175 million, of which nearly $50 million is
committed to the continued expansion of the Ashland branded program and
petrochemical production at the division's Catlettsburg refinery. The
remaining $350 million of projected capital expenditures are directed to
growth opportunities in Ashland's related
energy and chemical businesses. Ashland anticipates meeting its 1997
capital requirements for property additions and dividends from internally
generated funds.
At September 30, 1996, Ashland could issue up to an additional $49 million
in common stock under a shelf registration. During 1995, 1.4 million shares
were issued under this registration, generating net proceeds to Ashland of
$51 million. No shares were issued under this registration during 1996.
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 ever
increasing regulations, Ashland believes that expenditures for
environmental compliance will continue to have a significant effect on its
businesses. Although it cannot accurately predict how such trends will
affect future operations and earnings, Ashland believes the nature and
significance of its ongoing compliance costs will be comparable to those of
its competitors in the petroleum, chemical and extractive industries.
Capital expenditures for air, water and solid waste control facilities
amounted to $40 million in 1996, $44 million in 1995 and $63 million in
1994. Based on current environmental regulations, Ashland anticipates such
capital expenditures will amount to about $25 million in 1997. Ashland's
environmental remediation and compliance expenditures amounted to $158
million in 1996, $151 million in 1995 and $140 million in 1994, and are
expected to be in the range of $160 million in 1997. Such compliance
expenditures do not include the costs of additives, such as MTBE and
ethanol, used to meet reformulated gasoline and oxygenated fuel
requirements.
Environmental reserves are subject to considerable uncertainties that
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.
During 1996, the U. S. Environmental Protection Agency (EPA) notified
Ashland that its three refineries would be subject to a comprehensive
inspection of compliance with federal environmental laws and regulations.
The inspections of two of the refineries have been completed and the third
inspection is expected to be completed before the end of this calendar
year. Such inspections could result in sanctions, monetary penalties and
further remedial expenditures. Also during 1996, Ashland arranged for an
independent review of environmental compliance at its three refineries by
an outside consulting firm, self-reported to the EPA a number of issues of
non-compliance with applicable laws or regulations, and commenced a program
to address these matters. Ashland is not in a position to determine what
actions, if any, may be instituted and is similarly uncertain at this time
what additional remedial actions may be required or costs incurred.
However, this matter is not expected to have a material adverse effect on
Ashland's consolidated financial position.
OUTLOOK
Although refining margins are expected to remain volatile, key external
factors look promising for the refining industry. The industry is currently
operating at a high rate of capacity, with gasoline and distillate
inventories down from last year's levels at this time. The economy is
reasonably strong, inflation appears to be under control, and economic
growth continues at a modest pace. In addition, petroleum product demand is
expected to continue increasing over 1% annually for the rest of the
decade. Such increases reflect a leveling of fuel efficiency in the
passenger car fleet, increasing sales of light-truck and sport-utility
vehicles which average fewer miles per gallon than passenger cars, and an
increasing number of vehicle miles traveled.
Ashland Petroleum continues to strengthen its position in refining by
enhancing its production of higher-value products through projects like the
expansion of its Catlettsburg petrochemical complex, reducing its operating
expenses and increasing its volumes sold under company brands. While
SuperAmerica continues to expand its retail network, Ashland Petroleum is
also increasing controlled gasoline sales through its branded
jobber/distributor marketing program. Under that program, 485 retail
locations were operating at September 30, 1996, and an additional 146
locations are committed to join the program in 1997. SuperAmerica(R) and
Ashland(R) brand expansions should increase controlled volumes to more than
65% of refinery gasoline production by 2001, providing deeper market
penetration in key Midwest markets, strengthening margins and reducing
Ashland Petroleum's dependence on wholesale markets.
Although Ashland is committed to improving profitability from its refining
operations, management believes its greatest opportunities for growth are
found within its related energy and chemical businesses. Although
SuperAmerica now plans to scale back its new store program to some extent
in response to excess capacity in certain markets, the division still
expects to build about 150 new retail locations over the next five years,
and selectively expand its partnership program with fast-food chains. The
new stores should increase SuperAmerica's share in strategic markets where
it is already a leader.
Ashland Inc. and Subsidiaries
Management's Discussion and Analysis
Ashland Chemical and APAC will pursue growth through internal efforts and
selective acquisitions. Ashland Chemical will continue to emphasize
integrated marketing and distribution efforts, targeting its North American
customers and a growing international sales base. Investments in
acquisitions will also continue as attractive opportunities to add volume,
technologies, market coverage or a worldwide presence are identified.
Continued federal infrastructure funding and an expanding economy should
continue to benefit APAC's efforts to build market position in existing
markets and reduce costs. APAC's construction backlog amounted to $647
million at September 30, 1996 and is expected to contain margins comparable
to those included in last year's backlog. Although this backlog reflects
modest decreases in both the public and private sectors, the reductions are
not expected to have a significant effect on APAC's results for 1997.
Valvoline will focus on the continued integration of recent growth efforts,
reducing costs and improving return on investment, while pursuing
international growth through aggressive marketing and joint ventures. R-12
margins are expected to remain strong through 1997, but most of Valvoline's
R-12 inventories will likely be depleted by the end of that year. Domestic
sales volumes of higher-margin packaged lubricants serving the
"do-it-yourself" market will likely continue to give ground to lower-margin
bulk sales to the "do-it-for-me" market. However, sales of automotive
chemicals and international sales of lubricants are expected to provide
continued growth opportunities.
Ashland Exploration's natural gas production in 1997 is expected to
increase as the Vermilion field in the Gulf of Mexico comes on stream.
Continued development of the Nigerian producing properties is expected to
extend the useful lives of those fields. Development of the new offshore
Nigerian properties is expected to commence in 1997, but production will
not begin until at least 1998.
Ashland Coal's results for 1997 are expected to benefit from numerous steps
which have been taken or are underway at its mines to offset the effects of
the coal sales contracts which expired in December 1995. During the
September 1996 quarter, Ashland Coal completed the relocation of a dragline
to a mine with better geology. In addition, operations have begun in a new
area at another mine where the overburden ratios are more favorable. The
repositioning of a dragline at that mine to this area around the end of
calendar 1996 will provide additional benefits. Arch Mineral is expected to
continue benefiting from the restructuring of its operations which occurred
in 1995. While Arch will likely continue having difficulty marketing its
high-sulfur Illinois coal, it is working to increase its low-sulfur coal
production, reduce its costs and improve its market position. A low cost
structure is vital to both Ashland Coal and Arch Mineral, since they will
have an ever increasing exposure to competition from coal produced in other
regions of the U.S. and to the competitive pressures brought about by
utility deregulation. Ashland Coal and Arch Mineral have jointly announced
that they have resumed merger discussions. While Ashland believes a merger
would offer considerable synergies, Ashland cannot predict whether a merger
will occur.
EFFECTS OF INFLATION AND CHANGING PRICES
Ashland's financial statements are prepared on the historical cost method
of accounting and, as a result, do not reflect changes in the dollar's
purchasing power. Although annual inflation rates have been low in recent
years, Ashland's results are still affected by the cumulative inflationary
trend from prior years.
In the capital-intensive industries in which Ashland operates, replacement
costs for its properties would generally exceed their historical costs.
Accordingly, depreciation, depletion and amortization expense would be
greater if it were based on current replacement costs. However, since
replacement facilities would reflect technological improvements and changes
in business strategies, such facilities would be expected to be more
productive than existing facilities, mitigating the increased expense.
Ashland uses the last-in, first-out (LIFO) method to value a substantial
portion of its inventories to provide a better matching of revenues with
current costs. However, LIFO values such inventories below their
replacement costs.
Monetary assets (such as cash, cash equivalents and accounts receivable)
lose purchasing power as a result of inflation, while monetary liabilities
(such as accounts payable and indebtedness) result in a gain, because they
can be settled with dollars of diminished purchasing power. Ashland's
monetary liabilities exceed its monetary assets, which results in net
purchasing power gains and provides a hedge against the effects of future
inflation.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis contains 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 and Outlook sections. 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 in Note A
to the Consolidated Financial Statements under risks and uncertainties.
Other factors and risks affecting Ashland's revenues and operations are
contained in Ashland's Form 10-K for the fiscal year ended September 30,
1996, which is on file with the Securities and Exchange Commission.
Ashland Inc. and Subsidiaries
Statements of Consolidated Income
Years Ended September 30
(In millions except per share data) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales and operating revenues (including excise taxes) $13,130 $12,167 $10,334
Other 155 72 48
- ----------------------------------------------------------------------------------------------------------------------------
13,285 12,239 10,382
COSTS AND EXPENSES
Cost of sales and operating expenses 10,151 9,286 7,742
Excise taxes on products and merchandise 985 988 877
Selling, general and administrative expenses 1,291 1,280 1,088
Depreciation, depletion and amortization 402 487 308
- ----------------------------------------------------------------------------------------------------------------------------
12,829 12,041 10,015
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 456 198 367
OTHER INCOME (EXPENSE)
Interest expense (net of interest income) - Notes A and E (169) (171) (117)
Equity income - Note C 24 7 22
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 311 34 272
Income taxes - Note I (92) 13 (75)
Minority interest in earnings of subsidiaries (8) (23) -
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME 211 24 197
Dividends on convertible preferred stock (19) (19) (19)
- ----------------------------------------------------------------------------------------------------------------------------
INCOME AVAILABLE TO COMMON SHARES $ 192 $ 5 $ 178
============================================================================================================================
EARNINGS PER SHARE - NOTE A
Primary $ 2.97 $ .08 $ 2.94
Assuming full dilution $ 2.82 $ .08 $ 2.79
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING
Primary 65 62 61
Assuming full dilution 77 63 72
- ----------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
Ashland Inc. and Subsidiaries
Consolidated Balance Sheets
September 30
(In millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Note A $ 77 $ 52
Accounts receivable (less allowances for doubtful accounts of
$27 million in 1996 and $25 million in 1995) 1,666 1,575
Construction completed and in progress - at contract prices 50 42
Inventories - Note A 736 726
Deferred income taxes - Note I 112 90
Other current assets 99 90
- ---------------------------------------------------------------------------------------------------------------------
2,740 2,575
INVESTMENTS AND OTHER ASSETS
Investments in and advances to unconsolidated affiliates - Note C 157 145
Investments of captive insurance companies - Note A 178 192
Cost in excess of net assets of companies acquired (less accumulated
amortization of $43 million in 1996 and $35 million in 1995) 120 107
Other noncurrent assets 359 403
- ---------------------------------------------------------------------------------------------------------------------
814 847
PROPERTY, PLANT AND EQUIPMENT
Cost
Petroleum 2,881 2,860
SuperAmerica 514 488
Valvoline 312 294
Chemical 818 737
APAC 626 566
Coal 980 972
Exploration (successful efforts method) 1,089 1,011
Corporate 154 150
- ---------------------------------------------------------------------------------------------------------------------
7,374 7,078
Accumulated depreciation, depletion and amortization (3,659) (3,508)
- ---------------------------------------------------------------------------------------------------------------------
3,715 3,570
- ---------------------------------------------------------------------------------------------------------------------
$7,269 $6,992
=====================================================================================================================
See Notes to Consolidated Financial Statements.
(In millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
Notes payable to financial institutions $ 117 $ 186
Commercial paper - 15
Current portion of long-term debt 86 71
Trade and other payables 2,044 1,778
Income taxes 32 44
- -----------------------------------------------------------------------------------------------------------------------
2,279 2,094
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Notes D and E 1,784 1,828
Employee benefit obligations - Note J 613 613
Reserves of captive insurance companies 166 169
Deferred income taxes - Note I 64 49
Other long-term liabilities and deferred credits 375 405
Commitments and contingencies - Notes E, H and K
- -----------------------------------------------------------------------------------------------------------------------
3,002 3,064
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 174 179
STOCKHOLDERS' EQUITY - Notes D, L and M
Preferred stock, no par value, 30 million shares authorized
Convertible preferred stock, 6 million shares issued, $300 million
liquidation value 293 293
Common stockholders' equity
Common stock, par value $1.00 per share
Authorized - 150 million shares
Issued - 64 million shares in 1996 and 1995 64 64
Paid-in capital 280 256
Retained earnings 1,185 1,063
Loan to leveraged employee stock ownership plan (LESOP) - (11)
Other (8) (10)
- -----------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity 1,521 1,362
- -----------------------------------------------------------------------------------------------------------------------
1,814 1,655
- -----------------------------------------------------------------------------------------------------------------------
$7,269 $6,992
=======================================================================================================================
Ashland Inc. and Subsidiaries
Statements of Consolidated Common Stockholders' Equity
Prepaid
Common Paid-in Retained Loan to contribution
(In millions) stock capital earnings LESOP to LESOP Other Total
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 1, 1993 $60 $143 $1,008 $(33) $(6) $(10) $1,162
Net income 197 197
Dividends
Preferred stock (19) (19)
Common stock, $1.00 a share (60) (60)
Issued common stock under
stock incentive plans 1 16 17
Allocation of LESOP shares
to participants 6 6
Other changes (1) (1)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1994 61 159 1,126 (33) - (11) 1,302
Net income 24 24
Dividends
Preferred stock (19) (19)
Common stock, $1.10 a share (68) (68)
Issued common stock under
Share offering program 2 49 51
Acquisition of operations
of other companies 1 40 41
Stock incentive plans 7 7
LESOP loan repayments 22 22
Other changes 1 1 2
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 64 256 1,063 (11) - (10) 1,362
Net income 211 211
Dividends
Preferred stock (19) (19)
Common stock, $1.10 a share (70) (70)
Issued common stock under
Stock incentive plans 18 18
Employee savings plan 6 6
LESOP loan repayments 11 11
Other changes 2 2
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 $64 $280 $1,185 $ - $ - $ (8) $1,521
================================================================================================================================
See Notes to Consolidated Financial Statements.
Ashland Inc. and Subsidiaries
Statements of Consolidated Cash Flows
Years Ended September 30
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS
Net income $211 $ 24 $ 197
Expense (income) not affecting cash
Depreciation, depletion and amortization 402 487 308
Deferred income taxes (6) (73) 2
Other noncash items 35 33 22
Change in operating assets and liabilities(1) 125 29 (75)
- ---------------------------------------------------------------------------------------------------------------------------------
767 500 454
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 68 330 77
Proceeds from issuance of capital stock 16 55(2) 17
Loan repayment from leveraged employee stock ownership plan 11 22 -
Repayment of long-term debt (97) (60) (109)
Increase (decrease) in short-term debt (84) 38 (5)
Dividends paid (93) (92) (79)
- ---------------------------------------------------------------------------------------------------------------------------------
(179) 293 (99)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (510) (444) (376)
Purchase of operations - net of cash acquired (86) (327)(2) (62)
Proceeds from sale of operations 4 10 59
Investment purchases(3) (455) (725) (335)
Investment sales and maturities(3) 491 704 335
Other - net (7) 1 23
- ---------------------------------------------------------------------------------------------------------------------------------
(563) (781) (356)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25 12 (1)
Cash and cash equivalents - beginning of year 52 40 41
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 77 $ 52 $ 40
=================================================================================================================================
DECREASE (INCREASE) IN OPERATING ASSETS(1)
Accounts receivable $(80) $(112) $(153)
Construction completed and in progress (8) 13 (3)
Inventories (3) (63) (45)
Refundable income taxes (2) - -
Deferred income taxes 6 (7) -
Other current assets (1) 12 (7)
Investments and other assets 10 31 15
INCREASE (DECREASE) IN OPERATING LIABILITIES(1)
Trade and other payables 251 169 95
Income taxes (12) 4 (10)
Noncurrent liabilities (36) (18) 33
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES $125 $ 29 $ (75)
=================================================================================================================================
(1) Excludes changes resulting from operations acquired or sold.
(2) Excludes $41 million of common stock issued in acquisitions.
(3) Represents primarily investment transactions of captive insurance companies.
See Notes to Consolidated Financial Statements.
Ashland Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Ashland and
its majority-owned subsidiaries. Investments in joint ventures and 20% to
50% owned affiliates are accounted for on the equity method. Since Ashland
Coal, Inc. was consolidated in 1996 and 1995 and accounted for on the
equity method in 1994 (see Note F), the comparability of various amounts
included in Ashland's consolidated financial statements and the
accompanying notes are affected.
RISKS AND UNCERTAINTIES
The preparation of Ashland's consolidated financial statements in
conformity with generally accepted accounting principles requires Ashland's
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and the disclosures
of contingent assets and liabilities. Significant items subject to such
estimates and assumptions include the carrying value of property, plant and
equipment, environmental reserves, income recognized under construction
contracts, and the ultimate realization of deferred tax assets, among other
items. Actual results could differ from the estimates and assumptions used.
Ashland's operations are affected by domestic and international political,
legislative, regulatory and legal actions. Such 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 government of the United States in anticipation of, or in
response to, such actions.
Domestic and international economic conditions, such as recessionary
trends, inflation, interest and monetary exchange rates, as well as changes
in the availability or prices of crude oil, natural gas and petroleum
products, can have a significant effect on Ashland's operations. While
Ashland maintains reserves for anticipated liabilities and carries various
levels of insurance, Ashland could be affected by civil, criminal,
regulatory or administrative actions, claims or proceedings relating to
environmental or other matters. In addition, climate and weather can
significantly affect Ashland in several of its operations, such as its
construction, natural gas, heating oil and coal businesses.
INVENTORIES
(In millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Crude oil $336 $285
Petroleum products 323 284
Chemicals 342 315
Other products 146 176
Materials and supplies 63 66
Excess of replacement costs over LIFO carrying values (474) (400)
- ---------------------------------------------------------------------------------------------------------------
$736 $726
===============================================================================================================
Crude oil, petroleum products, chemicals and other products with a
replacement cost of approximately $834 million at September 30, 1996, and
$741 million at September 30, 1995, are valued using the last-in, first-out
(LIFO) method. The remaining inventories are stated generally at the lower
of cost (using the first-in, first-out [FIFO] or average cost method) or
market.
PROPERTY, PLANT AND EQUIPMENT
The cost of plant and equipment (other than capitalized lease acquisition,
exploration and development costs) is depreciated by the straight-line
method over the estimated useful lives of the assets. Oil and gas lease
acquisition, exploration and development costs are accounted for using the
successful efforts method. Coal lease acquisition and development costs
which are recoverable are capitalized. Coal exploration costs are expensed
as incurred. Capitalized costs are depleted by the units-of-production
method over the estimated recoverable reserves.
Estimated costs of major refinery turnarounds are accrued, while other
maintenance and repair costs are expensed as incurred. Maintenance and
repair expense amounted to $362 million in 1996, $355 million in 1995 and
$279 million in 1994.
ENVIRONMENTAL COSTS
Accruals for environmental costs are recognized when it is probable that a
liability has been incurred and the amount of that liability can be
reasonably estimated. Such costs are charged to expense if they relate to
the remediation of conditions caused by past operations or are not expected
to mitigate or prevent contamination from future operations. Accruals are
recorded at undiscounted amounts based on experience, assessments and
current technology without regard to any third-party recoveries and are
regularly adjusted as environmental assessments and remediation efforts
proceed.
EARNINGS PER SHARE
Primary earnings per share is based on net income less preferred dividends
divided by the average number of common shares and equivalents outstanding
during the respective years. Shares of common stock issuable under stock
options are treated as common stock equivalents when dilutive.
Earnings per share assuming full dilution begins with the primary earnings
per share computation. Shares issuable upon conversion of the preferred
stock and 6.75% subordinated debentures are added to average common shares
and equivalents when dilutive. In such cases, net income is further
adjusted by adding back preferred dividends and interest expense (net of
tax) on these debentures.
DERIVATIVE INSTRUMENTS
Ashland uses commodity futures contracts to reduce its exposure to changing
prices for crude oil, petroleum products and natural gas, and uses forward
exchange contracts to hedge certain risks associated with changing foreign
currency exchange rates. Gains and losses on commodity contracts are
accounted for as part of the transactions or activities being hedged. Gains
and losses on forward exchange contracts that hedge assets, liabilities or
firm commitments are recognized when the related items being hedged are
settled. Gains and losses on contracts hedging anticipated foreign currency
transactions are reflected in income in the period the change occurs. In
the Statements of Consolidated Cash Flows, Ashland reports the cash flows
resulting from its hedging activities in the same category as the related
item that is being hedged.
Ashland uses interest rate swap agreements to obtain greater access to the
lower borrowing costs normally available on floating-rate debt, while
minimizing refunding risk through the issuance of long-term, fixed-rate
debt. Periodic settlements under the swap agreements are recognized as
adjustments of interest expense for the related periods.
STOCK INCENTIVE PLANS
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (FAS 123), "Accounting for Stock-Based Compensation." With respect
to accounting for its stock options, as permitted under FAS 123, Ashland
intends to retain the intrinsic value method currently used as prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. Ashland will provide
disclosures in accordance with FAS 123 when FAS 123 is adopted in fiscal
1997.
ACCOUNTING CHANGES
Effective September 30, 1995, Ashland adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
result, Ashland recorded charges of $83 million (included in depreciation,
depletion and amortization) to write down certain assets to their fair
values. These assets included an idle unit at Ashland Petroleum's
Catlettsburg refinery, certain unused crude oil gathering pipelines of
Scurlock Permian, various petroleum product marketing properties to be sold
or shut down, and various other assets. Fair values were based upon
appraisals or estimates of discounted future cash flows. Operating income
was reduced for each of the affected segments as follows: Petroleum ($68
million); Valvoline ($3 million); Chemical ($4 million); Exploration ($4
million); and general corporate expenses ($4 million). In addition, Arch
Mineral adopted FAS 121 and recorded a charge to write down certain idle
facilities, decreasing Ashland's equity income by $3 million. The adoption
of FAS 121 reduced Ashland's net income for 1995 by $54 million or $.86 per
share.
OTHER
Cash equivalents include highly liquid investments maturing within three
months after purchase. Investments of captive insurance companies are
primarily foreign corporate and government debt obligations and are carried
at market value plus accrued interest.
Income related to construction contracts is generally recognized by the
units-of-production method, which is a variation of the
percentage-of-completion method. Any anticipated losses on such contracts
are charged against operations as soon as such losses are estimable.
Costs in excess of net assets of companies acquired are amortized by the
straight-line method over periods generally ranging from 10 to 40 years,
with an average remaining life of 13 years.
Research and development costs are expensed as incurred ($27 million in
1996, $24 million in 1995 and $23 million in 1994).
Interest is capitalized on projects where construction of an asset takes
considerable time and involves substantial expenditures. Capitalized
interest was not significant during the last three years.
Certain prior year amounts have been reclassified in the consolidated
financial statements to conform with 1996 classifications.
NOTE B - INFORMATION BY INDUSTRY SEGMENT
Ashland's operations are conducted primarily in the United States and are
managed along industry segments, which include Petroleum, SuperAmerica,
Valvoline, Chemical, APAC, Coal and Exploration. Information by industry
segment is shown on Pages 60 and 61.
Petroleum operations are conducted by Ashland Petroleum, one of the
nation's largest independent petroleum refiners. In addition to supplying
petroleum products to SuperAmerica, Valvoline, Ashland Chemical and APAC,
Ashland Petroleum is a leading supplier of petroleum products to the
transportation and commercial fleet industries, other industrial customers
and independent marketers (including dealers operating under the Ashland(R)
brand name). Principal products include gasoline, distillates and kerosene,
asphalt, jet and turbine fuel, lubricants, and heavy fuel oils. Ashland
Petroleum also gathers and transports crude oil and petroleum products in
connection with its refining and wholesale marketing operations and markets
crude oil through Scurlock Permian.
SuperAmerica includes Ashland's retail gasoline and merchandise marketing
operations, including the SuperAmerica(R) chain of high-volume retail
stores. Gasoline and merchandise are also sold from outlets operated by
SuperAmerica under the Rich(R) brand name. Operations are conducted
primarily in the Ohio Valley and Upper Midwest.
Valvoline is a marketer of automotive and industrial oils, automotive
chemicals, antifreeze, filters, rust preventives and coolants, with sales
in more than 140 countries. In addition, Valvoline is engaged in the "fast
oil change" business through outlets operating under the Valvoline Instant
Oil Change(R) and Valvoline Rapid Oil Change(R) names and provides
environmental services for the collection of used oil, antifreeze and
filters.
Chemical businesses are managed by Ashland Chemical, which distributes
industrial chemicals, solvents, thermoplastics and resins, and fiberglass
materials. Ashland Chemical also manufactures a wide variety of specialty
chemicals and certain petrochemicals. Major specialty chemicals include
foundry products, water treatment and marine service chemicals, specialty
polymers and adhesives, unsaturated polyester resins, and high-purity
electronic and laboratory chemicals. Principal petrochemicals include
cumene, toluene, xylene, aromatic and aliphatic solvents, propylene, maleic
anhydride and methanol.
APAC performs contract construction work, including highway paving and
repair, excavation and grading, and bridge and sewer construction. APAC
also produces asphaltic and ready-mix concrete, crushed stone and other
aggregate, concrete block and certain specialized construction materials in
13 southern states.
Coal operations are conducted by 56% owned, publicly traded Ashland Coal,
Inc., which produces low-sulfur bituminous coal in central Appalachia for
sale to domestic and foreign electric utility and industrial markets.
Ashland also holds a 50% equity interest in Arch Mineral Corporation (see
Note C). Arch Mineral produces metallurgical and steam coal from surface
and deep mines in Illinois, Kentucky, Virginia, West Virginia and Wyoming
for sale to utility and steel companies. Both Ashland Coal and Arch Mineral
market coal mined by independent producers.
Exploration operations are conducted by Ashland Exploration, which is
engaged in crude oil and natural gas production in the Appalachian Basin
and Gulf Coast areas of the United States and crude oil production in
Nigeria.
Certain information with respect to foreign operations follows.
Total assets Income before income taxes
-------------------------- --------------------------------------------------
(In millions) 1996 1995 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Foreign operations
Petroleum $ 70 $ 30 $ 3 $ 4 $ 1
Valvoline 127 124 4 3 10
Chemical 327 302 41 42 28
Exploration 98 36 11 9 22
- -----------------------------------------------------------------------------------------------------------------------
$622 $492 $59 $58 $61
=======================================================================================================================
NOTE C - UNCONSOLIDATED AFFILIATES
Affiliated companies accounted for on the equity method include: Arch
Mineral Corporation (a 50% owned coal company); LOOP INC. and LOCAP INC.
(18.6% and 21.4% owned corporate joint ventures operating a deepwater
offshore port and related pipeline facilities in the Gulf of Mexico); and
various other companies. Prior to 1995, Ashland Coal, Inc. was less than
50% owned and accounted for on the equity method (see Note F). Summarized
financial information reported by these affiliates and a summary of the
amounts recorded in Ashland's consolidated financial statements follow.
Ashland's retained earnings include $106 million of undistributed earnings
from unconsolidated affiliates accounted for on the equity method.
Ashland Arch Mineral LOOP INC. and
(In millions) Coal, Inc. Corporation LOCAP INC. Other Total
- ----------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1996
Financial position
Current assets $ 165 $ 28 $ 265
Current liabilities (142) (82) (151)
---------------------------------------------
Working capital 23 (54) 114
Noncurrent assets 752 613 225
Noncurrent liabilities (646) (489) (107)
---------------------------------------------
Stockholders' equity $ 129 $ 70 $ 232
=============================================
Results of operations
Sales and operating revenues $ 727 $ 117 $ 846
Gross profit 98 38 214
Net income 27 8 28
Amounts recorded by Ashland
Investments and advances 73 13 71 $ 157
Equity income 13 2 9 24
Dividends received - - 7 7
- ----------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1995
Financial position
Current assets $ 148 $ 27 $ 238
Current liabilities (134) (91) (130)
---------------------------------------------
Working capital 14 (64) 108
Noncurrent assets 790 633 202
Noncurrent liabilities (693) (506) (101)
---------------------------------------------
Stockholders' equity $ 111 $ 63 $ 209
=============================================
Results of operations
Sales and operating revenues $ 714 $ 119 $ 775
Gross profit 50 36 193
Net income (loss) (8)(1) 4 29
Amounts recorded by Ashland
Investments and advances 63 12 70 $ 145
Equity income (loss) (4) 1 10 7
Dividends received 3 1 8 12
- ----------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1994
Results of operations
Sales and operating revenues $ 561 $ 641 $ 149 $ 701
Gross profit 71 60 54 172
Net income 17 14 15 14
Amounts recorded by Ashland
Equity income 6 7 3 6 $ 22
Dividends received 3 - - 5 8
- ----------------------------------------------------------------------------------------------------------------------------
(1)Includes a charge of $12 million resulting from
asset impairment write-downs under FAS 121 and provisions for
early retirement and restructuring programs.
NOTE D - LONG-TERM DEBT
(In millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------
Senior debt of Ashland
Medium-term notes, due 1997-2025, interest at an average rate
of 8.4% at September 30, 1996 (5.8% to 10.4%) $ 909 $ 895
8.80% debentures, due 2012 250 250
11.125% sinking fund debentures, due 2017 200 200
Pollution control and industrial revenue bonds, due
1998-2022, interest at an average rate of 6.4%
at September 30, 1996 (3.7% to 7.4%) 227 217
Other 3 33
- ---------------------------------------------------------------------------------------------------------
1,589 1,595
6.75% convertible subordinated debentures, due 2014,
convertible into common stock at $51.34 per share 124 124
Debt of Ashland Coal, Inc. not guaranteed by Ashland
9.78% senior notes, due 1997-2000 101 101
9.66% senior notes, due 2001-2006 54 54
Other 2 25
- ---------------------------------------------------------------------------------------------------------
1,870 1,899
Current portion of long-term debt (86) (71)
- ---------------------------------------------------------------------------------------------------------
$1,784 $1,828
=========================================================================================================
Aggregate maturities of long-term debt are $86 million in 1997, $85 million
in 1998, $73 million in 1999, $66 million in 2000 and $89 million in 2001.
Excluded from such maturities are $38 million of floating-rate pollution
control and industrial revenue bonds, due between 2003 and 2009. These
bonds are subject to early redemptions at the bondholders' option, but
generally not before 1998.
Ashland has a revolving credit agreement which expires on February 9, 2000,
providing for up to $320 million in borrowings, under which no borrowings
were outstanding at September 30, 1996. In addition, Ashland Coal has
revolving credit agreements which expire on November 15, 1999, providing
for up to $500 million in borrowings, of which $25 million was in use at
September 30, 1996.
Certain debt agreements contain covenants restricting dividends, share
repurchases and other distributions with respect to Ashland's capital
stock, as well as covenants limiting new borrowings. At September 30, 1996,
distributions with respect to Ashland's capital stock were restricted to
$793 million and additional debt was limited to $1.4 billion.
Interest payments on all indebtedness amounted to $175 million in 1996,
$163 million in 1995 and $119 million in 1994. The weighted average
interest rate on short-term borrowings outstanding was 5.9% at September
30, 1996, and 6.0% at September 30, 1995.
NOTE E - FINANCIAL INSTRUMENTS
COMMODITY HEDGES
Ashland Petroleum selectively uses commodity futures contracts to reduce
its exposure to certain risks inherent within its refining business. Such
contracts are used principally to hedge the value of intransit crude oil
cargoes, hedge exposure under fixed-price sales contracts, obtain higher
prices for crude oil sold by Scurlock Permian, protect against margin
compression caused by increasing crude oil prices, take advantage of
attractive refining margins and lock in prices on a portion of the natural
gas fuel needs of the refineries. Ashland Exploration also selectively uses
futures contracts to reduce price volatility and lock in favorable sales
prices for future production of natural gas and crude oil. In addition,
trading in commodity futures contracts is a natural extension of cash
market trading and is occasionally used as an alternate method of obtaining
or selling crude oil and petroleum products to balance physical barrel
activity. The fair value of open commodity contracts was not significant at
September 30, 1996 and 1995.
FOREIGN CURRENCY HEDGES
Ashland uses forward exchange contracts to hedge certain significant
foreign currency transaction exposures of its operations. Forward exchange
contracts are used to hedge foreign currency-denominated accounts
receivable and payable. Any investments of Ashland's captive insurance
companies in foreign currency-denominated debt obligations are also hedged.
In addition, Ashland from time to time will enter into forward exchange
contracts to establish with certainty the functional currency amount of
future firm commitments denominated in other currencies, as well as hedge
against the effects of changing exchange rates on anticipated foreign
currency transactions. The fair value of open forward exchange contracts
was not significant at September 30, 1996 and 1995.
INTEREST RATE SWAPS
Ashland uses interest rate swap agreements to obtain greater access to the
lower borrowing costs normally available on floating-rate debt, while
minimizing refunding risk through the issuance of long-term, fixed-rate
debt. At September 30, 1996, Ashland had unleveraged swap agreements with a
notional principal amount of $510 million which were used to convert fixed
rates on certain debt, including the 8.80% debentures and various
medium-term notes, to variable rates. The variable rates are generally
adjusted quarterly or semiannually based on London Interbank Offered Rates
(LIBOR), but may be fixed for longer terms using forward rate agreements.
Notional amounts do not quantify risk or represent assets or liabilities of
Ashland, but are used in the determination of cash settlements under the
agreements. Ashland is exposed to credit losses from counterparty
nonperformance, but does not anticipate any losses from its agreements, all
of which are with major financial institutions.
At September 30, 1996, Ashland was receiving a weighted-average fixed
interest rate of 5.9% and paying a weighted-average variable interest rate
of 5.7%, calculated on the notional amount. Interest expense was reduced by
$2 million in 1996, an insignificant amount in 1995 and $9 million in 1994
resulting from settlements under these agreements. Under its current swap
agreements, Ashland's annual interest expense in 1997 will change by about
$5 million for each 1% change in LIBOR. The terms remaining on Ashland's
swaps range from 8 to 68 months, with a weighted-average remaining life of
32 months.
The carrying amounts and fair values of Ashland's significant financial
instruments, including interest rate swaps, at September 30, 1996, and 1995
are shown below. The fair values of cash and cash equivalents, notes
payable to financial institutions and commercial paper approximate their
carrying amounts. The fair values of investments of captive insurance
companies are based on quoted market prices plus accrued interest. The fair
values of long-term debt are based on quoted market prices or, if market
prices are not available, the present values of the underlying cash flows
discounted at Ashland's incremental borrowing rates. The fair values of
interest rate swaps are based on quoted market prices, which reflect the
present values of the difference between estimated future variable-rate
payments and future fixed-rate receipts.
1996 1995
------------------------------ -----------------------------
Carrying Fair Carying Fair
(In millions) amount value amount value
- --------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 77 $ 77 $ 52 $ 52
Investments of captive insurance companies 178 178 192 192
Liabilities
Notes payable to financial institutions and
commercial paper 117 117 201 201
Long-term debt (including current portion) 1,870 2,024 1,899 2,090
Interest rate swaps - 4 - 5
- --------------------------------------------------------------------------------------------------------------------------------
NOTE F - ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
In February 1995, Ashland purchased from Saarbergwerke AG all of Ashland
Coal's Class B Preferred Stock for $110 million. The purchase increased
Ashland's ownership of Ashland Coal from 39% to 54%. 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. Ashland has
continued to reinvest dividends from Ashland Coal in additional shares of
its common stock, increasing its ownership in Ashland Coal to 56% as of
September 30, 1996.
Also during 1995, Ashland acquired the unsaturated polyester resins,
polyester distribution and maleic anhydride businesses of Aristech Chemical
Corporation, the Zerex(R) antifreeze product line, the northern West
Virginia assets of two natural gas producers, and various other chemical
and construction businesses. These and several smaller acquisitions
completed in various segments during the last three years were generally
accounted for as purchases and did not have a significant effect on
Ashland's consolidated financial statements.
DIVESTITURES
In 1994, Ashland sold APAC's Arizona operations. This and several smaller
divestitures completed in various segments during the last three years did
not have a significant effect on Ashland's consolidated financial
statements.
NOTE G - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents quarterly financial information and per share
data relative to Ashland's common stock.
Quarters ended December 31 March 31 June 30 September 30
- ------------------------------------------------------------------------------------------------------------------------
(In millions except per share data)
1995(1) 1994 1996 1995 1996 1995 1996 1995(2)
- ------------------------------------------------------------------------------------------------------------------------
Sales and operating revenues $3,079 $2,924 $3,072 $2,735 $3,481 $3,256 $3,500 $3,252
Operating income (loss) 175 91 33 4 148 109 100 (7)
Net income (loss) 87 35 (2) (29) 80 48 46 (30)
Primary earnings (loss) per share 1.29 .50 (.11) (.55) 1.16 .69 .64 (.55)
Common dividends per share .275 .275 .275 .275 .275 .275 .275 .275
Market price per common share
High 36-1/2 39-7/8 39-1/2 35-5/8 44-1/8 38-3/8 40-1/4 35-3/8
Low 30-3/8 31-1/4 34-1/4 31-5/8 38-1/8 33-1/2 35 32
- ------------------------------------------------------------------------------------------------------------------------
(1) A gain resulting from the settlement of Ashland Exploration's claims in
the bankruptcy reorganization of Columbia Gas Transmission and Columbia Gas
Systems increased operating income by $73 million, net income by $48
million and earnings per share by $.74 in the quarter ended December 31,
1995.
(2) Charges for asset impairment write-downs under FAS 121 and early
retirement and restructuring programs reduced operating income by $120
million, net income by $79 million and earnings per share by $1.25 in the
quarter ended September 30, 1995.
NOTE H - LEASES AND OTHER COMMITMENTS
LEASES
Ashland and its subsidiaries are lessees in noncancelable leasing
agreements for office buildings, warehouses, pipelines, transportation and
marine equipment, storage facilities, retail outlets, manufacturing
facilities and other equipment and properties which expire at various
dates. Capitalized lease obligations are not significant and are included
in long-term debt. Future minimum rental payments at September 30, 1996,
and rental expense under operating leases follow.
(In millions)
- ------------------------------------------------------------------------------------------------------------------------
Future minimum rental payments Rental expense 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
1997 $ 89
1998 80 Minimum rentals
1999 61 (including rentals under
2000 57 short-term leases) $160 $142 $113
2001 45 Contingent rentals 14 10 12
Later years 198 Sublease rental income (17) (18) (12)
- ------------------------------------------------------------------------------------------------------------------------
$530 $157 $134 $113
========================================================================================================================
In addition, Ashland Coal has entered into various noncancelable royalty
lease agreements under which future minimum payments are approximately $23
million annually through 2001 and $190 million in the aggregate thereafter.
OTHER COMMITMENTS
Under agreements with LOOP and LOCAP (see Note C), Ashland is obligated,
based upon its equity ownership, to provide a portion of the total debt
service and defined operating and administrative costs of these joint
ventures. This annual obligation is reduced by transportation charges paid
by Ashland and by a pro rata portion of transportation charges paid by
third parties who are not equity participants. If, after each obligor's
requirements have been satisfied, the joint ventures are unable to meet
cash requirements, Ashland is obligated to advance its pro rata share of
the deficiency. All funds provided to these joint ventures are used as
advances against future transportation charges. At September 30, 1996,
substantially all advances made to LOOP and LOCAP by Ashland had been
applied against transportation charges. Transportation charges incurred
amounted to $16 million in 1996, $21 million in 1995 and $24 million in
1994. At September 30, 1996, Ashland's contingent liability for its share
of the indebtedness of LOOP and LOCAP secured by throughput and deficiency
agreements amounted to approximately $89 million.
Ashland Coal owns 17.5% of a joint venture operating a coal loading and
storage facility at Newport News, Va. Venture partners are required to pay
their share of the venture's costs in relation to their ownership (for
fixed operating costs and debt service) or facility usage (for variable
operating costs). Ashland Coal's share of such payments amounted to
approximately $3 million annually in each of the last three years. Future
payments for fixed operating costs and debt service are estimated to
approximate $3 million annually through 2015 and $26 million in 2016.
Additionally, Ashland is contingently liable for a guarantee relating to
the office building partially occupied by Ashland Coal. At September 30,
1996, such obligation has a present value of approximately $7 million.
Ashland is contingently liable for up to $16 million of borrowings under a
revolving credit agreement of AECOM Technology Corporation, an
unconsolidated affiliate. Ashland's guaranteed portion of outstanding
borrowings under this agreement amounted to $7 million at September 30,
1996.
NOTE I - INCOME TAXES
A summary of the provision for income taxes follows.
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------------
Current(1)
Federal $74 $ 38 $ 56
State 7 11 8
Foreign 17 11 9
- -------------------------------------------------------------------------------------
98 60 73
Deferred (6) (73) 2
- -------------------------------------------------------------------------------------
$92 $(13) $ 75
=====================================================================================
(1) Income tax payments amounted to $110 million in 1996, $54 million in
1995 and $71 million in 1994.
Deferred income taxes are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
Temporary differences which give rise to significant deferred tax assets
(liabilities) follow.
(In millions) 1996 1995
- ---------------------------------------------------------------------------------------------------
Employee benefit obligations $251 $250
Environmental, insurance and litigation reserves 116 111
Alternative minimum tax credit carryforwards 77 75
Uncollectible accounts receivable 19 18
Compensated absences 16 15
Other items 64 62
- ------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 543 531
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (450) (445)
Undistributed equity income (18) (17)
Prepaid royalties (18) (17)
Coal supply agreements (9) (11)
- ------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (495) (490)
- ------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 48 $ 41
========================================================================================================================
The U.S. and foreign components of income before income taxes and a
reconciliation of the normal statutory federal income tax with the
provision for income taxes follow.
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest
United States $252 $(24) $211
Foreign 59 58 61
- -------------------------------------------------------------------------------------------------------------------------------
$311 $ 34 $272
===============================================================================================================================
Income taxes computed at U.S. statutory rates $109 $ 12 $ 95
Increase (decrease) in amount computed resulting from
Equity income (5) - (6)
State income taxes 4 5 6
Net impact of foreign results (4) (8) (8)
Non-conventional fuel credit (11) (10) (10)
Percentage depletion allowance (6) (14) -
Other items 5 2 (2)
- -------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 92 $(13) $ 75
===============================================================================================================================
The Internal Revenue Service (IRS) has examined Ashland's consolidated U.S.
income tax returns through 1991. As a result of its examinations, the IRS
has proposed adjustments, certain of which are being contested by Ashland.
Ashland believes it has adequately provided for any income taxes and
related interest which may ultimately be paid on contested issues.
NOTE J - EMPLOYEE BENEFIT PLANS
PENSION PLANS
Ashland sponsors pension plans which cover substantially all employees,
other than union employees covered by multiemployer pension plans under
collective bargaining agreements. Benefits under Ashland's plans generally
are based on employees' years of service and compensation during the years
immediately preceding their retirement. For certain plans, such benefits
are expected to come in part from one-half of employees' leveraged employee
stock ownership plan (LESOP) accounts. Ashland determines the level of
contributions to its pension plans annually and contributes amounts within
allowable limitations imposed by Internal Revenue Service regulations.
Ashland contributed the maximum tax-deductible contributions to its pension
plans during the last three years. The following tables detail the funded
status of the plans and the components of pension expense. A discount rate
of 8% and an assumed rate of salary increases of 5% were used in
determining the actuarial present value of projected benefit obligations at
September 30, 1996 (7.5% and 5% at September 30, 1995).
1996 1995
Plans with Plans with Plans with Plans with
assets in excess ABO in excess assets in excess ABO in excess
(In millions) of ABO of assets of ABO of assets
- ------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value (primarily listed
stocks and bonds) $360 $ - $ 14 $290
- ------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations (ABO)
Vested 284 29 13 289
Nonvested 35 36 1 69
- ------------------------------------------------------------------------------------------------------------------------
319 65 14 358
- ------------------------------------------------------------------------------------------------------------------------
Plan assets less than (in excess of) ABO (41) 65(1) - 68(1)
Provision for future salary increases 149 17 1 162
Deferred pension costs (10) (15) (3) (63)
- ------------------------------------------------------------------------------------------------------------------------
Net accrued (prepaid) pension costs(2) $ 98 $ 67 $ (2) $167
========================================================================================================================
Components of deferred pension costs
Unrecognized transition gain (loss) $ 10 $ (4) $ - $ 9
Unrecognized net loss (9) (34) (2) (93)
Unrecognized prior service costs (11) (1) (1) (9)
Recognition of minimum liability - 24 - 30
- ------------------------------------------------------------------------------------------------------------------------
$ (10) $(15) $ (3) $ (63)
========================================================================================================================
(In millions) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Components of pension expense
Service cost $ 32 $ 23 $ 24
Interest cost 40 34 29
Actual investment loss (gain) on plan assets (34) (51) 7
Deferred investment gain (loss)(3) 6 30 (27)
Other amortization and deferral 3 1 4
Enhanced retirement program pension cost - 15 -
- ------------------------------------------------------------------------------------------------------------------------
$ 47 $ 52 $ 37
========================================================================================================================
(1) Includes unfunded ABO of $65 million in 1996 and $62 million in 1995
for non-qualified supplemental pension plans.
(2) Amounts are recorded in various asset and liability accounts on
Ashland's consolidated balance sheets.
(3) The expected long-term rate of return on plan assets was 9%.
OTHER POSTRETIREMENT BENEFIT PLANS
Ashland sponsors several unfunded benefit plans which provide health care
and life insurance benefits for eligible employees who retire from active
service or are disabled. The health care plans are contributory, with
retiree contributions adjusted periodically, and contain other cost-sharing
features such as deductibles and coinsurance. The life insurance plans are
generally noncontributory. Ashland funds the costs of these plans on a
pay-as-you-go basis.
Effective October 1, 1992, Ashland amended nearly all of its retiree health
care plans to place a cap on the company's contributions and to adopt a
cost-sharing method based upon years of service. The cap limits Ashland's
contributions to the 1992 per capita health care costs, increasing
thereafter by up to 4.5% per year. These amendments reduced the accumulated
postretirement benefit obligation (APBO) for retiree health care plans at
that date by $197 million, which is being amortized to income over
approximately 12 years.
The following tables detail the status of the plans and the components of
postretirement benefit expense. The APBO was determined using a discount
rate of 8% at September 30, 1996, and 7.5% at September 30, 1995. Under the
amended plan, the assumed annual rate of increase in the per capita cost is
4.5%.
1996 1995 1994
-------------------- ------------------- --------------------
Health Life Health Life Health Life
(In millions) care insurance care insurance care insurance
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligations (APBO)
Retired or disabled employees $130 $25 $146 $26
Fully eligible active plan participants 33 5 33 4
Other active plan participants 127 5 123 5
- --------------------------------------------------------------------------------------------------
290 35 302 35
Unrecognized net gain (loss) 28 (2) (2) (4)
Unrecognized plan amendment credit 112 5 129 6
- ------------------------------------------------------------------------------------------------------------------------------
Accrued other postretirement benefit costs $430 $38 $429 $37
==============================================================================================================================
Components of other postretirement benefit
expense
Service cost $ 12 $ 1 $ 12 $ 1 $ 7 $1
Interest cost 21 3 20 2 16 2
Amortization and deferral
(principally plan amendment credit) (16) (1) (15) (1) (15) (1)
- ------------------------------------------------------------------------------------------------------------------------------
$ 17 $ 3 $ 17 $ 2 $ 8 $2
==============================================================================================================================
OTHER PLANS
Certain union employees are covered under multiemployer defined benefit
pension plans administered by unions. Amounts charged to pension expense
and contributed to the plans were $2 million in both 1996 and 1995, and $1
million in 1994.
Ashland sponsors various savings plans to assist eligible employees in
providing for retirement or other future needs. Ashland matches employee
contributions up to 6% of their qualified earnings at a rate of 70% (20%
for LESOP participants prior to April 1, 1996). The increased company
contributions after March 31, 1996, are in the form of Ashland Common
Stock. Ashland's contributions (including the value of common shares
contributed to the plans) amounted to $15 million in 1996, $9 million in
1995 and $7 million in 1994.
NOTE K - LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local environmental laws
and regulations which require remediation efforts at multiple locations,
including operating facilities, previously owned or operated facilities,
and Superfund or other waste sites. Consistent with its accounting policy
for environmental costs, Ashland's reserves for environmental assessments
and remediation efforts amounted to $173 million at September 30, 1996, and
$174 million at September 30, 1995. Such amounts reflect Ashland's most
likely estimates of the costs which will be incurred over an extended
period to remediate identified environmental conditions for which costs are
reasonably estimable.
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. In addition, various costs of remediation
efforts related to underground storage tanks are eligible for reimbursement
from state administered funds.
During 1996, the U. S. Environmental Protection Agency (EPA) notified
Ashland that its three refineries would be subject to a comprehensive
inspection of compliance with federal environmental laws and regulations.
The inspections of two of the refineries have been completed and the third
inspection is expected to be completed before the end of this calendar
year. Such inspections could result in sanctions, monetary penalties and
further remedial expenditures. Also during 1996, Ashland arranged for an
independent review of environmental compliance at its three refineries by
an outside consulting firm, self-reported to the EPA a number of issues of
non-compliance with applicable laws or regulations, and commenced a program
to address these matters. Ashland is not in a position to determine what
actions, if any, may be instituted and is similarly uncertain at this time
what additional remedial actions may be required or costs incurred.
However, this matter is not expected to have a material adverse effect on
Ashland's consolidated financial position.
In addition to environmental matters, 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 September 30, 1996, 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.
NOTE L - CAPITAL STOCK
In May 1993, Ashland sold 6 million shares of cumulative convertible
preferred stock priced at $50 per share, realizing net proceeds, after fees
and expenses, of $293 million. The shares have no voting rights and are
entitled to cumulative annual dividends of $3.125 per share. They have
liquidation preferences equal to $50 per share plus accrued and unpaid
dividends, and are convertible at any time at the option of the holders
into 1.546 shares of Ashland common stock. The preferred shares are
redeemable at the option of Ashland at $51.88 per share beginning March 25,
1997, and declining gradually to $50 per share by March 15, 2003, plus
accrued and unpaid dividends to the redemption date.
Under Ashland's Shareholder Rights Plan, each common share is accompanied
by one right to purchase one-thousandth share of preferred stock for $140.
Each one-thousandth share of preferred stock will be entitled to dividends
and to vote on an equivalent basis with one common share. The rights are
neither exercisable nor separately transferable from the common shares
unless a party acquires or tenders for more than 15% of Ashland's common
stock. If any party acquires more than 15% of Ashland's common stock or
acquires Ashland in a business combination, each right (other than those
held by the acquiring party) will entitle the holder to purchase preferred
stock of Ashland or the acquiring company at a substantial discount. The
rights expire on May 16, 2006, and can be redeemed at any time prior to
becoming exercisable.
At September 30, 1996, 500,000 shares of cumulative preferred stock are
reserved for potential issuance under the Shareholder Rights Plan. At
September 30, 1996, 17 million common shares are reserved for conversion of
debentures and preferred stock and for issuance under outstanding stock
options.
NOTE M - STOCK OWNERSHIP PLANS
LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN
During 1986, Ashland established a leveraged employee stock ownership plan
(LESOP) to cover the majority of its salaried employees. LESOP purchases of
Ashland common stock that year were generally funded through a loan from
Ashland, of which the remaining principal at September 30, 1986, amounted
to $246 million. In 1987, Ashland contributed excess assets recovered from
certain company pension plans to the LESOP and prepaid $212 million of the
remaining principal. Because one-half of employees' LESOP accounts serve to
fund future benefits paid by certain pension plans, one-half of the funds
used to prepay the LESOP debt was accounted for by Ashland as a prepaid
LESOP contribution.
Ashland common shares held by the LESOP related to the contribution of
excess pension assets were allocated to employees' accounts over an
eight-year period ending September 30, 1994. The remaining shares were
allocated as the loan to the LESOP was repaid. All shares were allocated
and the loan was fully repaid as of March 31, 1996. The projected costs of
the LESOP (including the prepaid contribution, projected dividends on the
related unallocated shares and projected future contributions) were
expensed on a pro rata basis as the original shares were allocated to
employees. This expense totaled $7 million in 1996, $14 million in 1995 and
$18 million in 1994. Additional contributions from Ashland were not
required through September 30, 1994, since dividends on unallocated shares
exceeded interest and administrative costs, with the excess used to prepay
portions of the remaining principal on the loan. Contributions from Ashland
amounted to $11 million in 1996 and $22 million in 1995.
STOCK INCENTIVE PLANS
Ashland has stock incentive plans under which key employees or directors
can purchase shares of common stock under stock options or restricted stock
awards. Stock options are granted to employees at a price equal to the fair
market value of the stock on the date of grant and become exercisable over
periods of one to three years. Unexercised options lapse 10 years after the
date of grant. Restricted stock awards entitle employees or directors to
purchase shares at a nominal cost, to vote such shares and to receive any
dividends thereon. However, such shares are subject to forfeiture upon
termination of service before the restriction period ends.
1996 1995 1994
---------------------- ------------------------- --------------------------
Common Price range Common Price range Common Price range
(In thousands except per share data) shares per share shares per share shares per share
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding -
beginning of year(1) 5,222 $23-7/8 - 41 4,697 $14-1/4 - 41 4,504 $13-3/8 - 41
Options granted 823 31-1/8 - 39 839 33 - 33-7/8 860 35-7/8 - 37-1/2
Options exercised (747) 23-7/8 - 41 (164) 14-1/4 - 35-5/8 (639) 13-3/8 - 41
Options canceled (51) 33-1/8 - 41 (150) 23-7/8 - 41 (28) 23-7/8 - 41
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding -
end of year(1) 5,247 $23-7/8 - 41 5,222 $23-7/8 - 41 4,697 $14-1/4 - 41
=======================================================================================================================
Options exercisable -
end of year 3,820 $23-7/8 - 41 3,777 $23-7/8 - 41 3,242 $14-1/4 - 41
- -----------------------------------------------------------------------------------------------------------------------
(1) Shares of common stock available for
future grants of options or awards amounted to 3,403,000 at September 30,
1996, and 4,236,000 at September 30, 1995.
Ashland Inc. and Subsidiaries
FIVE-YEAR INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
(In millions) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
SALES AND OPERATING REVENUES
Petroleum $ 5,614 $ 5,050 $ 4,666 $ 4,752 $ 4,848
SuperAmerica 1,928 1,788 1,706 1,785 1,888
Valvoline 1,199 1,113 1,000 938 900
Chemical 3,695 3,551 2,885 2,586 2,488
APAC 1,235 1,123 1,101 1,116 1,043
Coal(1) 580 610 - - -
Exploration 241 198 199 247 262
Intersegment sales(2)
Petroleum (1,334) (1,228) (1,193) (1,195) (1,182)
Other (28) (38) (30) (30) (36)
- ----------------------------------------------------------------------------------------------------------------------------------
$13,130 $12,167 $10,334 $10,199 $10,211
==================================================================================================================================
OPERATING INCOME (LOSS)
Petroleum $ 55 $ (54) $ 113 $ 56(3) $ (125)
SuperAmerica 34 53 59 65 1
Valvoline 82 (4) 52 56 50
----------------------------------------------------------------------------------------
Total Refining and Marketing Group 171 (5) 224 177 (74)
Chemical 169 159 125 108 81
APAC 83 75 70 53 45
Coal(1) 36 66 - - -
Exploration 94(4) (6) 28 36 17
General corporate expenses (97) (91) (80)(5) (77) (132)
- ----------------------------------------------------------------------------------------------------------------------------------
$ 456 $ 198(6) $ 367 $ 297 $(63)(7)
==================================================================================================================================
IDENTIFIABLE ASSETS
Petroleum $ 2,374 $ 2,258 $ 2,259 $ 2,240 $ 2,296
SuperAmerica 406 401 398 364 446
Valvoline 557 603 532 430 402
Chemical 1,458 1,372 1,122 958 999
APAC 489 433 404 440 437
Coal(1) 899 928 - - -
Exploration 506 424 374 375 361
Corporate(8) 580 573 726 745 727
- ----------------------------------------------------------------------------------------------------------------------------------
$ 7,269 $ 6,992 $ 5,815 $ 5,552 $ 5,668
==================================================================================================================================
(In millions) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Petroleum $145 $136 $155 $230 $273
SuperAmerica 42 47 39 25 37
Valvoline 19 25 25 21 19
Chemical 80 76 61 51 47
APAC 62 47 45 43 42
Coal(1) 58 58 - - -
Exploration 80 45 41 42 67
Corporate 24 10 10 20 19
- ----------------------------------------------------------------------------------------------------------------------------------
$510 $444 $376 $432 $504
==================================================================================================================================
DEPRECIATION, DEPLETION AND AMORTIZATION
Petroleum $122 $204 $134 $127 $125
SuperAmerica 31 29 27 28 31
Valvoline 23 24 19 18 17
Chemical 67 58 43 42 43
APAC 44 42 40 44 45
Coal(1) 72 72 - - -
Exploration 31 41 33 34 28
Corporate 12 17 12 12 13
- ----------------------------------------------------------------------------------------------------------------------------------
$402 $487(9) $308 $305 $302
==================================================================================================================================
(1) Amounts relate to Ashland Coal, which was consolidated beginning in
1995.
(2) Intersegment sales are accounted for at prices which approximate market
value.
(3) Includes a gain of $15 million on the sale of TPT, an inland waterways
barge operation.
(4) Includes a gain of $73 million resulting from the settlement of Ashland
Exploration's claims in the bankruptcy reorganization of Columbia Gas
Transmission and Columbia Gas Systems.
(5) Includes a net gain of $11 million related to litigation matters.
(6) Includes charges for unusual items totaling $120 million, consisting of
asset impairment write-downs of $83 million under FAS 121 and provisions of
$37 million for early retirement and restructuring programs. The combined
effect of these items reduced operating income for each of the segments as
follows: Petroleum ($102 million); Valvoline ($5 million); Chemical ($5
million); Exploration ($4 million); and general corporate expenses ($4
million).
(7) Includes charges for unusual items totaling $208 million consisting of
provisions for a voluntary enhanced retirement program ($31 million);
various asset write-downs, including properties held for sale and assets of
discontinued operations ($64 million); future environmental cleanup costs
($41 million); reserves for future costs associated with certain custom
boilers built by a former engineering subsidiary and other matters ($38
million); and the current year effect of the adoption of a new accounting
standard for postretirement benefits ($34 million). The combined effect of
all of these items reduced operating income for each of the segments as
follows: Petroleum ($89 million); SuperAmerica ($28 million); Valvoline ($2
million); Chemical ($15 million); APAC ($9 million); Exploration ($16
million); and general corporate expenses ($49 million).
(8) Includes principally cash, cash equivalents, investments in and
advances to unconsolidated affiliates and investments of captive insurance
companies.
(9) Includes charges of $83 million for asset impairment write-downs which
increased depreciation, depletion and amortization for each of the segments
as follows: Petroleum ($68 million); Valvoline ($3 million); Chemical ($4
million); Exploration ($4 million); and Corporate ($4 million).
Ashland Inc. and Subsidiaries SUPPLEMENTAL OIL AND GAS INFORMATION
OIL AND GAS RESERVES, REVENUES AND COSTS
The following tables summarize Ashland's (1) crude oil and natural gas
reserves, (2) results of operations from oil and gas producing and
marketing activities, (3) costs incurred, both capitalized and expensed, in
oil and gas producing activities, and (4) capitalized costs for oil and gas
producing activities, along with the related accumulated depreciation,
depletion and amortization. U.S. crude oil and natural gas reserves are
reported net of royalties and interests owned by others. Foreign crude oil
reserves relate to reserves available to Ashland, as producer, under a
long-term contract with the Nigerian National Petroleum Corporation.
Reserves reported in the table are estimated and are subject to future
revisions.
1996 1995 1994
---------------------- --------------------- ---------------------
U. S. Foreign Total U. S. Foreign Total U. S. Foreign Total
- --------------------------------------------------------------------------------------------------------------------------------
CRUDE OIL RESERVES (millions of barrels)
Proved developed and undeveloped reserves
Beginning of year 1.3 14.4 15.7 .9 7.6 8.5 1.4 7.7 9.1
Revisions of previous estimates .4 7.2 7.6 .2 12.3 12.5 (.1) 6.7 6.6
Extensions and discoveries - 4.7 4.7 - 1.4 1.4 - - -
Purchases (net of sales) of reserves in place .1 - .1 .4 - .4 (.1) - (.1)
Production (.2) (6.4) (6.6) (.2) (6.9) (7.1) (.3) (6.8) (7.1)
- --------------------------------------------------------------------------------------------------------------------------------
End of year 1.6 19.9 21.5 1.3 14.4 15.7 .9 7.6 8.5
================================================================================================================================
Proved developed reserves
Beginning of year 1.3 14.4 15.7 .9 7.6 8.5 1.3 7.7 9.0
End of year 1.6 17.2 18.8 1.3 14.4 15.7 .9 7.6 8.5
- --------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS RESERVES (billions of cubic feet)
Proved developed and undeveloped reserves
Beginning of year 507.4 349.2 455.5
Revisions of previous estimates 37.6 90.7 (98.2)
Extensions and discoveries 70.0 21.2 25.9
Purchases (net of sales) of
reserves in place 1.6 83.8 .4
Production (39.7) (37.5) (34.4)
- --------------------------------------------------------------------------------------------------------------------------------
End of year 576.9 507.4 349.2
================================================================================================================================
Proved developed reserves
Beginning of year 427.3 320.5 352.0
End of year 477.0 427.3 320.5
- --------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS (in millions)
Revenues
Sales to third parties $112 $126 $ 238 $ 86 $110 $196 $ 96 $ 99 $195
Intersegment sales(1) 3 - 3 2 - 2 4 - 4
- --------------------------------------------------------------------------------------------------------------------------------
115 126 241 88 110 198 100 99 199
Costs and expenses
Production (lifting) costs(2) (30) (64) (94) (27) (49) (76) (24) (90) (114)
Exploration expenses (9) - (9) (11) (27) (38) (13) (1) (14)
Depreciation, depletion, amortization
and valuation provisions (34) (2) (36) (41) (1) (42) (34) (1) (35)
Other costs(3) 40 (1) 39 (24) (1) (25) (25) (2) (27)
Income and foreign exploration taxes (19) (46) (65) 16 (23) (7) 7 19 26
- --------------------------------------------------------------------------------------------------------------------------------
$ 63 $ 13 $ 76 $ 1 $ 9 $ 10 $ 11 $ 24 $ 35
================================================================================================================================
COSTS INCURRED (in millions)
Property acquisition costs
Proved properties $ 2 $ - $ 2 $ 69 $ - $ 69 $ 1 $ - $ 1
Unproved properties 5 - 5 2 - 2 2 - 2
Exploration costs 13 12 25 17 31 48 19 1 20
Development costs 35 28 63 30 10 40 32 2 34
- --------------------------------------------------------------------------------------------------------------------------------
CAPITALIZED COSTS (in millions)
Proved properties $624 $437 $1,061 $584 $400 $984
Unproved properties 13 1 14 11 1 12
- --------------------------------------------------------------------------------------------------
637 438 1,075 595 401 996
Accumulated depreciation,
depletion and amortization (254) (393) (647) (226) (392) (618)
- --------------------------------------------------------------------------------------------------
$383 $ 45 $ 428 $369 $ 9 $378
================================================================================================================================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO OIL
AND GAS RESERVES
The following tables summarize discounted future net cash flows and changes
in such flows in accordance with Financial Accounting Standards Board
Statement No. 69 (FAS 69), "Disclosures about Oil and Gas Producing
Activities." Under the guidelines of FAS 69, estimated future cash flows
are determined based on current prices for crude oil and natural gas,
estimated production of proved crude oil and natural gas reserves,
estimated future production and development costs of those reserves based
on current costs and economic conditions, and estimated future income and
foreign exploration taxes based on taxing arrangements in effect at
year-end. Such cash flows are then discounted using the prescribed 10%
rate.
Many other assumptions could have been made which may have resulted in
significantly different estimates. Ashland does not rely upon these
estimates in making investment and operating decisions. Furthermore,
Ashland does not represent that such estimates are indicative of its
expected future cash flows or the current value of its reserves. Since gas
prices utilized in deriving these estimates are based on conditions that
existed at September 30 and are usually different than prices that exist at
December 31 due to seasonal fluctuations in the natural gas market, the
estimates may not be comparable to those of other companies with different
fiscal years. Prices can also vary significantly at the same point in time
from year to year due to a variety of factors. The average gas price used
in the discounted future net cash flows calculations was based on $1.85 per
million Btu at Henry Hub for 1996 and $1.64 for 1995.
Discounted future net cash flows (in millions) U.S. Foreign Total
- -------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1996
Future cash inflows $1,273 $ 434 $1,707
Future production (lifting) costs (509) (293) (802)
Future development costs (55) (21) (76)
Future income and foreign exploration taxes (116) (99) (215)
- -------------------------------------------------------------------------------------------------------------------------------
593 21 614
Annual 10% discount (304) (4) (308)
- -------------------------------------------------------------------------------------------------------------------------------
$ 289 $ 17 $ 306
===============================================================================================================================
SEPTEMBER 30, 1995
Future cash inflows $1,060 $ 228 $1,288
Future production (lifting) costs (505) (159) (664)
Future development costs (58) (16) (74)
Future income and foreign exploration taxes (33) (33) (66)
- -------------------------------------------------------------------------------------------------------------------------------
464 20 484
Annual 10% discount (212) (3) (215)
- -------------------------------------------------------------------------------------------------------------------------------
$ 252 $ 17 $ 269
===============================================================================================================================
1996 1995 1994
Changes in discounted future ---------------------- -------------------- --------------------
net cash flows (in millions) U. S. Foreign Total U. S. Foreign Total U. S. Foreign Total
- -------------------------------------------------------------------------------------------------------------------------------
Net change due to extensions and
discoveries $ 27 $ 29 $ 56 $ 25 $ 6 $ 31 $ 21 $ - $ 21
Sales of oil and gas produced - net of
production (lifting) costs (85) (63) (148) (61) (61) (122) (76) (9) (85)
Changes in prices 60 20 80 24 24 48 (186) (3) (189)
Previously estimated development
costs incurred 22 28 50 7 35 42 24 2 26
Net change due to revisions of
previous estimates of reserves 4 73 77 7 46 53 (17) 34 17
Purchases (net of sales) of reserves in place 1 - 1 40 - 40 - - -
Accretion of 10% discount 25 1 26 20 1 21 31 1 32
Other - net(4) 10 (32) (22) (9) (40) (49) 33 (11) 22
Net change in income and foreign
exploration taxes (27) (56) (83) 2 (4) (2) 59 (13) 46
- -------------------------------------------------------------------------------------------------------------------------------
37 - 37 55 7 62 (111) 1 (110)
Discounted future net cash flows
Beginning of year 252 17 269 197 10 207 308 9 317
- -------------------------------------------------------------------------------------------------------------------------------
End of year $289 $ 17 $306 $252 $ 17 $269 $ 197 $ 10 $ 207
===============================================================================================================================
(1) Intersegment sales are accounted for at prices which approximate market
value.
(2) Includes only costs incurred to operate and maintain wells,
related equipment and facilities.
(3) Includes results of crude oil trading.
(4) Includes changes in future production and development costs and changes
in the timing of future production.
Ashland Inc. and Subsidiaries
FIVE-YEAR SELECTED FINANCIAL INFORMATION
Years Ended September 30
(In millions except per share data) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Revenues
Sales and operating revenues (including excise taxes) $13,130 $12,167 $10,334 $10,199 $10,211
Other 155 72 48 57 40
Costs and expenses
Cost of sales and operating expenses (10,151) (9,286) (7,742) (7,951) (8,210)
Excise taxes on products and merchandise (985) (988) (877) (645) (659)
Selling, general and administrative expenses (1,291) (1,280) (1,088) (1,058) (1,143)
Depreciation, depletion and amortization (402) (487) (308) (305) (302)
- -------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 456 198 367 297 (63)
Other income (expense)
Interest expense (net of interest income) (169) (171) (117) (123) (128)
Equity income 24 7 22 26 33
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, minority interest and
the cumulative effect of accounting changes 311 34 272 200 (158)
Income taxes (92) 13 (75) (58) 90
Minority interest in earnings of subsidiaries (8) (23) - - -
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before the cumulative effect
of accounting changes 211 24 197 142 (68)
Cumulative effect of accounting changes - - - - (268)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 211 $ 24 $ 197 $ 142 $ (336)
===============================================================================================================================
BALANCE SHEET INFORMATION
Working capital
Current assets $ 2,740 $ 2,575 $ 2,171 $ 1,973 $ 2,110
Current liabilities 2,279 2,094 1,688 1,619 2,046
- -------------------------------------------------------------------------------------------------------------------------------
$ 461 $ 481 $ 483 $ 354 $ 64
===============================================================================================================================
Total assets $ 7,269 $ 6,992 $ 5,815 $ 5,552 $ 5,668
- -------------------------------------------------------------------------------------------------------------------------------
Capital employed
Debt due within one year $ 203 $ 272 $ 133 $ 159 $ 306
Long-term debt (less current portion) 1,784 1,828 1,391 1,399 1,444
Deferred income taxes 64 49 30 44 59
Minority interest in consolidated subsidiaries 174 179 - - -
Convertible preferred stock 293 293 293 293 -
Common stockholders' equity 1,521 1,362 1,302 1,162 1,086
- -------------------------------------------------------------------------------------------------------------------------------
$ 4,039 $ 3,983 $ 3,149 $ 3,057 $ 2,895
===============================================================================================================================
CASH FLOW INFORMATION
Cash flows from operations $ 767 $ 500 $ 454 $ 250 $ 398
Additions to property, plant and equipment 510 444 376 432 504
Dividends 93 92 79 66 60
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION
Primary earnings (loss) per share $ 2.97 $ .08 $ 2.94 $ 2.26 $ (1.18)(1)
Dividends per share 1.10 1.10 1.00 1.00 1.00
- -------------------------------------------------------------------------------------------------------------------------------
(1) Excludes the cumulative effect of accounting changes of $(4.57) per share.