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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Telephone Number: (859) 815-3333
Securities Registered Pursuant to Section 12(b):
Name of each exchange
Title of each class on which registered
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Common Stock, par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock and Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g): None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
At October 31, 2001, based on the New York Stock Exchange closing
price, the aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $2,759,644,567. In determining this
amount, the Registrant has assumed that its directors and executive
officers are affiliates. Such assumption shall not be deemed conclusive for
any other purpose.
At October 31, 2001, there were 69,041,473 shares of Registrant's
common stock outstanding.
Documents Incorporated by Reference
Portions of Registrant's Annual Report to Shareholders for the fiscal
year ended September 30, 2001 are incorporated by reference into Parts I,
II and IV.
Portions of Registrant's definitive Proxy Statement for its January
31, 2002 Annual Meeting of Shareholders are incorporated by reference into
Part III.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ...................................................... 1
APAC........................................................... 1
Ashland Distribution........................................... 2
Ashland Specialty Chemical..................................... 3
Valvoline...................................................... 4
Refining and Marketing......................................... 5
Miscellaneous.................................................. 8
Item 2. Properties..................................................... 11
Item 3. Legal Proceedings.............................................. 11
Item 4. Submission of Matters to a
Vote of Security Holders...................................... 12
Item X. Executive Officers of Ashland.................................. 12
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters....................................... 13
Item 6. Selected Financial Data........................................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 13
Item 8. Financial Statements and Supplementary Data.................... 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 13
PART III
Item 10. Directors and Executive Officers of the Registrant............. 13
Item 11. Executive Compensation......................................... 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................... 14
Item 13. Certain Relationships and Related Transactions................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 14
PART I
ITEM 1. BUSINESS
Ashland Inc. is a Kentucky corporation, organized on October 22, 1936,
with its principal executive offices located at 50 E. RiverCenter
Boulevard, Covington, Kentucky 41011 (Mailing Address: 50 E. RiverCenter
Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391) (Telephone: (859)
815-3333). The terms "Ashland" and the "Company" as used herein include
Ashland Inc. and its consolidated subsidiaries, except where the context
indicates otherwise.
Ashland's businesses are grouped into five industry segments: APAC,
Ashland Distribution, Ashland Specialty Chemical, Valvoline and Refining
and Marketing. Financial information about these segments for the three
fiscal years ended September 30, 2001 is set forth on pages 54 and 55 of
Ashland's Annual Report to Shareholders for the fiscal year ended September
30, 2001 ("Annual Report").
APAC performs asphalt and concrete contract construction work,
including highway paving and repair, excavation and grading, and bridge
construction, and produces asphaltic and ready-mix concrete, crushed stone
and other aggregate in the southern and midwestern United States.
Ashland Distribution distributes industrial chemicals and solvents,
plastics, fiber reinforcements and fine ingredients in North America and
plastics in Europe. Ashland Distribution also provides environmental and
energy management services. Ashland Specialty Chemical manufactures and
sells a wide variety of high-performance chemicals, resins, products and
services and certain petrochemicals.
Valvoline is a producer and marketer of premium packaged motor oil and
automotive chemicals, including appearance products, antifreeze, filters,
rust preventives and coolants. In addition, Valvoline is engaged in the
"fast oil change" business through outlets operating under the Valvoline
Instant Oil Change(R) name.
Marathon Ashland Petroleum LLC ("MAP"), a joint venture with Marathon
Oil Company, operates seven refineries with a total crude oil refining
capacity of 935,000 barrels per day. Refined products are distributed
through a network of independent and company-owned outlets in the Midwest,
the upper Great Plains and the southeastern United States. Marathon Oil
Company holds a 62% interest in MAP, and Ashland holds a 38% interest in
MAP. Ashland accounts for its investment in MAP using the equity method.
At September 30, 2001, Ashland and its consolidated subsidiaries had
approximately 25,100 employees (excluding contract employees).
APAC
The APAC group of companies is the nation's largest asphalt and
concrete paving company and is a major supplier of construction materials.
APAC performs construction work, such as paving, repairing and resurfacing
highways, streets, airports, residential and commercial developments,
sidewalks and driveways, and grading and base work. In addition, it
performs a number of construction services such as excavation and related
activities in the construction of bridges and structures, drainage
facilities and underground utilities. APAC conducts its business through 45
divisions operating in 14 southern and midwestern states. Distinguished by
their local identities, these divisions provide construction services,
technologies and materials throughout the regions in which they operate.
These divisions are supported by management and administrative staff in
Atlanta, Georgia.
To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It currently has
37 permanent operating quarry locations, 58 other aggregate production
facilities, 68 ready-mix concrete plants, 248 hot-mix asphalt plants and a
fleet of over 17,000 mobile equipment units, including heavy construction
equipment and transportation-related equipment. In certain market areas
APAC is vertically integrated with asphalt, aggregate and ready-mix
operations, all complementing one another.
Raw aggregate generally consists of sand, gravel, granite, limestone
and sandstone. About 30% of the raw aggregate produced by APAC is used in
APAC's own contract construction work and the production of various
processed construction materials. The remainder is sold to third parties.
APAC also purchases substantial quantities
1
of raw aggregate from other producers whose proximity to the job site
renders it economically attractive. Most other raw materials, such as
liquid asphalt, portland cement and reinforcing steel, are purchased from
third parties.
APAC has customers in both the public and private sectors.
Approximately 68% of APAC's revenues are derived directly from highway and
other public sector sources. The other 32% are derived from industrial and
commercial customers, private developers and other contractors to the
public sector.
Climate and weather significantly affect revenues in the construction
business. Due to its location, APAC tends to enjoy a relatively long
construction season. Most of APAC's operating income is generated during
the construction period of May to October.
Total backlog at September 30, 2001 was $1,629 million, compared to
$1,397 million at September 30, 2000. APAC includes a construction project
in its backlog when a contract is awarded or a firm letter of commitment is
obtained and funding is in place. The backlog at September 30, 2001 is
considered firm, and a major portion is expected to be completed during
fiscal 2002.
ASHLAND DISTRIBUTION
Ashland Distribution distributes chemicals, plastics, fiber
reinforcements and fine ingredients in North America and plastics in
Europe. Ashland Distribution owns or leases approximately 70 distribution
facilities in North America and 20 distribution facilities in 13 foreign
countries. Ashland Distribution is comprised of the following divisions:
INDUSTRIAL CHEMICALS & SOLVENTS DIVISION - This division markets
specialty and industrial chemicals, additives and solvents to industrial
chemical users in major markets through distribution centers in the United
States, Canada, Mexico and Puerto Rico, as well as some export operations.
It distributes approximately 7,000 chemicals, solvents, additives and raw
materials made by many of the nation's leading chemical manufacturers and a
growing number of offshore producers. It specializes in supplying mixed
truckloads and less-than-truckload quantities to many industries, including
the paint and coatings, inks, adhesives, polymer, rubber, industrial and
institutional compounding, automotive, appliance and paper industries. The
Industrial Chemicals & Solvents division offers e-commerce ordering at
www.go2ashland.com.
GENERAL POLYMERS DIVISION - This division markets a broad range of
branded thermoplastic resins to injection molders, extruders, blow molders,
and rotational molders in the plastics industry through distribution
locations in the United States, Canada, Mexico and Puerto Rico. It also
provides plastic material transfer and packaging services and
less-than-truckload quantities of packaged thermoplastics. The General
Polymers division offers e-commerce ordering at www.gpashland.com.
FRP SUPPLY DIVISION - This division markets mixed truckload and
less-than-truckload quantities of polyester thermosetting resins,
fiberglass and other specialty reinforcements, catalysts and allied
products to customers in the reinforced plastics and cultured marble
industries through distribution facilities located throughout North
America. The FRP Supply division offers e-commerce ordering at
www.eFRP.com.
FINE INGREDIENTS DIVISION - This division distributes cosmetic and
pharmaceutical specialty chemicals and food-grade and nutritional additives
and ingredients across North America. The Fine Ingredients division offers
e-commerce ordering at www.FIDonline.com.
ASHLAND PLASTICS EUROPE DIVISION - This division markets a broad range
of thermoplastics to processors in Europe. Ashland Plastics Europe has
distribution centers located in Belgium, England, Finland, France, Germany,
Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Spain and
Sweden. The division also has a small compound manufacturing facility
located in Spain.
SERVICE BUSINESSES DIVISION - This division consists of Energy
Services and Environmental Services. Energy Services provides customized
management of energy purchasing, supply and transportation. Environmental
Services provides customers chemical waste collection, disposal and
recycling services, working in cooperation with chemical waste services
companies. Environmental Services offers e-commerce ordering at
www.ashlandES.com.
2
ASHLAND SPECIALTY CHEMICAL
Ashland Specialty Chemical manufactures and supplies specialty
chemical products and services to industries including the adhesives,
automotive, composites, foundry, merchant marine, paint, paper, plastics,
semiconductor fabrication, watercraft and water treatment industries.
Ashland Specialty Chemical owns and operates 33 manufacturing facilities
and participates in 14 manufacturing joint ventures in 18 countries.
Ashland Specialty Chemical is comprised of the following divisions:
COMPOSITE POLYMERS DIVISION - This division manufactures and sells a
broad range of chemical-resistant, fire-retardant, general-purpose and
high-performance marine grades of unsaturated polyester and vinyl ester
resins and gelcoats for the reinforced plastics industry. Key markets
include the transportation, construction and marine industries. The
division has manufacturing plants in Jacksonville and Fort Smith, Arkansas;
Los Angeles, California; Bartow, Florida; McMinnville, Oregon;
Philadelphia, Pennsylvania; Johnson Creek, Wisconsin; Kelowna, British
Columbia, Canada; Kunshan, China; Porvoo and Lahti, Finland; Sauveterre,
France; Miszewo, Poland; Benicarlo, Spain; and, through separate joint
ventures has manufacturing plants in Sao Paolo, Brazil and Jeddah, Saudi
Arabia. In addition, the division also manufactures products through other
Ashland Specialty Chemical facilities located in Neville Island,
Pennsylvania and Mississauga, Ontario, Canada.
FOUNDRY PRODUCTS DIVISION - This division manufactures and sells
foundry chemicals worldwide, including sand-binding resin systems,
refractory coatings, release agents, engineered sand additives and riser
sleeves. This division serves the global metal casting industry from 24
manufacturing locations in 18 countries.
DREW INDUSTRIAL DIVISION - This division supplies specialized
chemicals and consulting services for the treatment of boiler water,
cooling water, steam, fuel and waste streams. It also supplies process
chemicals and technical services to the pulp and paper and mining
industries and additives to manufacturers of latex and paint. It conducts
operations throughout North America, Europe and the Far East through
subsidiaries, joint venture companies and distributors. The division has
manufacturing plants in Kearny, New Jersey; Houston, Texas; Sydney and
Perth, Australia; Singapore; Ajax, Ontario, Canada; Somercotes, England;
and Auckland, New Zealand.
ELECTRONIC CHEMICALS DIVISION - This division manufactures and sells a
variety of ultrapure chemicals for the worldwide semiconductor industry
through various manufacturing locations and also custom blends and packages
ultrapure liquid chemicals to customer specifications. The division
operates manufacturing plants in Pueblo, Colorado; Easton, Pennsylvania;
Dallas, Texas; Pyongtaek-Shi, Kyonggi-Do, Korea; Milan, Italy and through a
joint venture with Union Petrochemical Corporation, an ultrapure-process
chemicals manufacturing facility in Taiwan. In addition, it enters into
long-term agreements to provide complete on-site chemical management
services, including purchasing, warehousing and delivering chemicals for
in-plant use, at major facilities of large consumers, of high purity
chemicals. The division's Fab Services business provides full-service
equipment parts-cleaning refurbishment and management services to the
semiconductor manufacturing industry from facilities in Chandler and Tempe,
Arizona; and Austin and Carrollton, Texas.
SPECIALTY POLYMERS & ADHESIVES DIVISION - This division manufactures
and sells specialty phenolic resins for paper impregnation and friction
material bonding; acrylic polymers for pressure-sensitive adhesives;
emulsion polymer isocyanate adhesives for structural wood bonding;
polyurethane and epoxy structural adhesives for bonding fiberglass
reinforced plastics, composites, thermoplastics and metals in automotive,
recreational, and industrial applications; induction bonding systems for
thermoplastic materials; elastomeric polymer adhesives and butyl rubber
roofing tapes for commercial roofing applications; and vapor-curing,
high-performance urethane coatings systems. It has manufacturing plants in
Calumet City, Illinois; Norwood and Totowa, New Jersey; Ashland and
Columbus, Ohio; White City, Oregon; and Kidderminster, England.
DREW MARINE DIVISION - This division supplies specialty chemicals for
water and fuel treatment and general maintenance, as well as sealing
products, welding and refrigerant products and fire fighting and safety
services to the world's merchant marine fleet. Drew Marine currently
provides shipboard technical service for more than 11,000 vessels from more
than 100 locations serving approximately 900 ports throughout the world.
PETROCHEMICALS DIVISION - This division manufactures maleic anhydride
at Neal, West Virginia and also markets maleic anhydride and methanol in
North America.
3
OTHER MATTERS
For information on Ashland Distribution and Ashland Specialty Chemical
and federal, state and local statutes and regulations governing releases
into, or protection of, the environment, see "Item 1. Business -
Miscellaneous - Environmental Matters" and "Item 3. Legal Proceedings -
Environmental Proceedings" in this Form 10-K.
VALVOLINE
The Valvoline Company, a division of Ashland, is a marketer of
premium-branded automotive and industrial oils, automotive chemicals,
automotive appearance products and automotive services, with sales in more
than 140 countries. The Valvoline(R) trademark was federally registered in
1873 and is the oldest trademark for a lubricating oil in the United
States. Valvoline is comprised of the following business units:
NORTH AMERICAN PRODUCTS - This unit, Valvoline's largest operating
division, markets automotive, commercial, and industrial lubricants,
automotive chemicals and automotive appearance products to a broad network
of North American customers. This unit markets Valvoline-branded motor oil,
one of the top selling brands in the U.S. private passenger car and light
truck market, and premium synthetic SynPower(R) automobile chemicals for
"under-the-hood" use. During fiscal 2001, Valvoline successfully introduced
MaxLife(TM) motor oil, the first lubricant for vehicles with more than
75,000 miles.
North American Products also markets Eagle One(R) premium automotive
appearance products, Zerex(R) antifreeze and Pyroil(R) automotive
chemicals. Zerex is the second leading antifreeze brand in the United
States. This division also markets R-12, an automotive refrigerant that was
phased out of production in 1995. R-12 is being replaced in the market by a
new generation of refrigerants and Valvoline's inventories of R-12 are
expected to be depleted in fiscal 2002.
The domestic commercial and specialty products group of the North
American Products unit has a strategic alliance with Cummins Engine
Company, Inc. to distribute heavy-duty lubricants to the commercial market.
In September 2001, Valvoline introduced Spirit(TM) 3-D Foam. Spirit is
a spray-on, peel-off 3-D foam that can be used for spraying spirit slogans
on cars, SUVs and trucks, as well as around the home, office or school.
EAGLE ONE - Eagle One is a brand of premium automobile appearance
chemicals for "above-the-hood" applications. Products include waxes,
polishes and wheel cleaners. Managed by Valvoline as a separate business
unit, Eagle One markets its products through Valvoline's North American
Products and Valvoline International divisions.
VALVOLINE INTERNATIONAL - Valvoline International markets Valvoline
branded products and Eagle One automotive appearance products through
company-owned affiliates or divisions in Argentina, Australia, Austria,
Belgium, Brazil, Denmark, Finland, Germany, Great Britain, Italy, the
Netherlands, Poland, South Africa, Sweden and Switzerland. TECTYL(R) rust
preventives are marketed in Europe. Licensees and distributors market
certain products in other parts of Europe, Mexico, Central and South
America, the Far East, the Middle East and certain African countries. Joint
ventures have been established in China, Ecuador, India, Thailand and
Venezuela. Packaging and blending plants and distribution centers in
Australia, Canada, the Netherlands and the United States supply
international customers.
VALVOLINE INSTANT OIL CHANGE(R) ("VIOC") - VIOC is one of the largest
competitors in the expanding U.S. "fast oil change" service business,
providing Valvoline with a significant share of the installed segment of
the passenger car and light truck motor oil market. As of September 30,
2001, 364 company-owned and 311 franchised service centers were operating
in 38 states.
VIOC has continued its customer service innovation through its Maximum
Vehicle Performance program ("MVP"). MVP is a computer-based program that
maintains system-wide service records on all customer vehicles. MVP also
contains a database on all car models, which allows employees to make
service recommendations based on a vehicle owner's manual recommendations.
4
REFINING AND MARKETING
Refining and Marketing operations are conducted by MAP and its
subsidiaries, including its wholly-owned subsidiaries, Speedway
SuperAmerica LLC and Marathon Ashland Pipe Line LLC. Marathon Oil Company
("Marathon") holds a 62% interest in MAP and Ashland holds a 38% interest
in MAP.
REFINING
MAP owns and operates seven refineries with an aggregate refining
capacity of 935,000 barrels of crude oil per calendar day (1 barrel = 42
United States gallons). The table below sets forth the location and daily
crude oil throughput capacity (measured in barrels) of each of MAP's
refineries as of September 30, 2001:
Garyville, Louisiana........................................... 232,000
Catlettsburg, Kentucky......................................... 222,000
Robinson, Illinois............................................. 192,000
Detroit, Michigan.............................................. 74,000
Canton, Ohio................................................... 73,000
Texas City, Texas.............................................. 72,000
St. Paul Park, Minnesota....................................... 70,000
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Total.......................................................... 935,000
=======
MAP's refineries include crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. The refineries have the
capability to process a wide variety of crude oils and to produce typical
refinery products, including reformulated gasoline ("RFG"). In addition to
typical refinery products, the Catlettsburg refinery, an ISO-9000 certified
facility, manufactures lubricating oils and a wide range of petrochemicals.
For the twelve months ended September 30, 2001, 76% of MAP's production of
lubricating oils was purchased by Valvoline and 38% of MAP's production of
petrochemicals was purchased by Ashland Distribution.
MAP also produces a wide range of asphalt products, petroleum pitch
(primarily used in the graphite electrode, clay target and refractory
industries), aromatics, aliphatic hydrocarbons, cumene, base oil, slack wax
and molten sulfur.
The table below sets forth MAP's refinery total input and refinery
production by product group for the twelve months ended September 30, 2001,
2000 and 1999. Refinery total inputs include crude oil and other
feedstocks.
Twelve Months Ended September 30
------------------------------------------
2001 2000 1999
---- ---- ----
Refinery Input
(in thousands of barrels per day) 1,051.0 1,033.4 1,034.0
-----------------------------------
Refined Product Yields
(in thousands of barrels per day)
-----------------------------------
Gasoline........................... 560.5 559.0 565.5
Distillates........................ 278.7 271.5 265.6
Propane............................ 21.2 21.0 22.2
Feedstocks & Special Products...... 69.9 68.9 64.9
Heavy Fuel Oils.................... 44.7 41.2 45.1
Asphalt............................ 74.5 73.3 70.4
------- ------- -------
Total............. 1,049.5 1,034.9 1,033.7
======= ======= =======
Planned maintenance activities requiring temporary shutdown of certain
refinery operating units are periodically performed at each refinery. MAP
completed major turnarounds at the Robinson and Detroit refineries in the
twelve months ended September 30, 2001, and at the Catlettsburg refinery in
the period ended September 30, 2000.
5
The Garyville, Louisiana coker unit project achieved mechanical
completion in early October 2001. It is anticipated that the coker unit
project will be at full production in December 2001. To supply this new
unit, MAP reached an agreement with P.M.I. Comercio Internacional, S.A. de
C.V., an affiliate of Petroleos Mexicanos, to purchase approximately 90,000
barrels per day of heavy Mayan crude oil. This agreement is multi-year and
will begin upon completion of the coker unit.
MARKETING
MAP's principal marketing areas for gasoline and distillates include
the Midwest, the upper Great Plains and the southeastern United States.
Gasoline and distillates are sold in 24 states. Gasoline is sold at
wholesale primarily to independent marketers, jobbers and chain retailers
who resell these products through several thousand retail outlets
principally under their own names. MAP also supplies approximately 3,800
jobber-dealer, open-dealer and lessee-dealer locations using the
Marathon(R) and Ashland(R) brand names.
Gasoline, distillates and aviation products are also sold to
utilities, railroads, river towing companies, commercial fleet operators,
airlines and governmental agencies.
MAP markets asphalt through owned and leased terminals located
throughout the Midwest and Southeast. The MAP customer base includes
approximately 900 asphalt paving contractors, government entities (states,
counties, cities and townships) and asphalt roofing shingle manufacturers.
Retail sales of gasoline and diesel fuel are made through MAP's
wholly-owned subsidiary, Speedway SuperAmerica LLC ("SSA"). As of September
30, 2001, SSA had 2,145 retail outlets in 17 states in the Midwest and
Southeast which sell petroleum products and convenience store merchandise
primarily under the brand names Speedway(R) and SuperAmerica(R). The retail
locations sell a variety of food, merchandise, cigarettes, candy and
beverages. Several locations also have on-premises brand-name restaurants
such as Subway(R) and Taco Bell(R).
During the twelve months ended September 30, 2001, 67% of SSA's
revenues (excluding excise taxes) were derived from the sale of gasoline
and diesel fuel, and the remainder were derived from the sale of
merchandise.
Effective September 1, 2001, MAP and Pilot Corporation ("Pilot")
completed a transaction to form Pilot Travel Centers LLC ("PTC") which
combined SSA's and Pilot's travel centers. Pilot and MAP each own a 50%
interest in PTC. By combining these travel centers, MAP continues to
further enhance its retail presence. PTC is the largest operator of travel
centers in the United States with more than 235 locations in 35 states. The
travel centers offer diesel fuel, gasoline and a variety of other services
associated with such locations, including on-premises brand-name
restaurants.
The table below shows the volume of MAP's consolidated refined product
sales for the twelve months ended September 30, 2001, 2000 and 1999.
Twelve Months Ended September 30
------------------------------------------
2001 2000 1999
---- ---- ----
Refined Product Sales
(in thousands of barrels per day)
---------------------------------
Gasoline 741.0 752.1 699.3
Distillates 349.6 351.2 324.6
Propane 21.5 21.6 22.4
Feedstocks & Special Products 68.1 67.6 65.1
Heavy Fuel Oils 46.3 40.9 44.9
Asphalt 75.8 75.1 74.3
------- ------- -------
Total 1,302.3 1,308.5 1,230.6
======= ======= =======
Matching Buy/Sell Volumes
included in above.................... 43.7 41.4 47.7
6
MAP sells RFG in parts of its marketing territory, primarily Chicago,
Illinois; Louisville, Kentucky; Northern Kentucky; Maryland; Virginia; and
Milwaukee, Wisconsin. MAP also markets low-vapor-pressure gasolines in
eleven states.
SUPPLY AND TRANSPORTATION
The crude oil processed in MAP's refineries is obtained from
negotiated contract and spot purchases or exchanges. For the twelve months
ended September 30, 2001, MAP's negotiated contract and spot purchases for
refinery input of crude oil produced in the U.S. averaged 388,700 barrels
per day, including an average of 28,200 net barrels per day acquired from
Marathon. For the twelve months ended September 30, 2001, MAP's foreign
crude oil requirements were met largely through purchases from various
foreign national oil companies, producing companies and traders. Purchases
of foreign crude oil represented 57% of MAP's crude oil requirements for
the twelve months ended September 30, 2001.
MAP's ownership or interest in domestic pipeline systems in its
refining and marketing areas is significant. MAP owns, leases or has an
ownership interest in 6,466 miles of pipelines in 11 states. This network
transports crude oil and refined products to and from terminals, refineries
and other pipelines. It includes 68 miles of crude oil gathering lines,
3,564 miles of crude oil trunk lines and 2,834 miles of refined product
lines.
MAP has a 46.7% ownership interest in LOOP LLC ("LOOP"), which is the
owner and operator of the only U.S. deepwater port facility capable of
receiving crude oil from very large crude carriers. Ashland has retained a
4% ownership interest in LOOP. MAP also owns a 49.9% ownership interest in
LOCAP INC. ("LOCAP"), which is the owner and operator of a crude oil
pipeline connecting LOOP to the Capline system. Ashland has retained an
8.6% ownership interest in LOCAP. In addition, MAP has a 37.2% ownership
interest in the Capline system. These port and pipeline systems provide MAP
with access to common carrier transportation from the Louisiana Gulf Coast
to Patoka, Illinois. At Patoka, the Capline system connects with other
common carrier pipelines owned or leased by MAP that provide transportation
to MAP's refineries in Illinois, Kentucky, Michigan, Minnesota and Ohio.
MAP's subsidiary, Ohio River Pipe Line LLC ("ORPL"), plans to build a
pipeline from Kenova, West Virginia, to Columbus, Ohio. ORPL is a common
carrier pipeline company and the pipeline will be an interstate common
carrier pipeline. The pipeline, which will be named Cardinal Products Pipe
Line, is expected to initially move about 50,000 barrels per day of refined
petroleum products into the central Ohio region. Construction is currently
planned for the summer of 2002 pending receipt of permits, with start-up of
the pipeline to follow late in the fourth quarter of calendar 2002.
MAP has a 33.3% ownership interest in Centennial Pipeline LLC, a
limited liability company formed to develop an interstate refined petroleum
products pipeline extending from the U.S. Gulf of Mexico to the Midwest. In
March 2001, the Federal Energy Regulatory Commission approved the
abandonment of a 720-mile, 26-inch diameter pipeline extending from
Longville, Louisiana to Bourbon, Illinois, from natural gas service thereby
allowing conversion to refined products transportation by Centennial
Pipeline. Also as part of the project, a two-million barrel terminal
storage facility is being constructed and a new 74-mile, 24-inch diameter
pipeline extending from Beaumont, Texas, to Longville, Louisiana has been
built. Marathon Ashland Pipe Line LLC has been designated operator of the
pipeline. The Centennial Pipeline system will connect with existing MAP
transportation assets and other common carrier lines. It is expected to be
operational in the first quarter of calendar 2002.
MAP also has a 33.3% ownership interest in Minnesota Pipe Line
Company, which operates a crude oil pipeline in Minnesota. Minnesota Pipe
Line Company provides MAP with access to crude oil common carrier
transportation from Clearbrook, Minnesota, to Cottage Grove, Minnesota,
which is in the vicinity of MAP's St. Paul Park, Minnesota refinery.
MAP's marine transportation operations include towboats and barges
that transport refined products on the Ohio, Mississippi and Illinois
rivers, their tributaries and the Intracoastal Waterway. MAP also leases
and owns railcars in various sizes and capacities for movement and storage
of petroleum products and a large number of tractors, tank trailers and
general service trucks.
In addition, MAP owns and operates 91 terminal facilities from which
it sells a wide range of petroleum products. These facilities are supplied
by a combination of barges, pipeline, truck and/or rail.
7
OTHER MATTERS
For information on MAP and federal, state and local statutes and
regulations governing releases into the environment or protection of the
environment, see "Item 1. Business - Miscellaneous - Environmental Matters"
in this Form 10-K.
MISCELLANEOUS
ENVIRONMENTAL MATTERS
Ashland has implemented a company-wide environmental policy overseen
by the Public Policy - Environmental Committee of Ashland's Board of
Directors. Ashland's Environmental, Health and Safety group has the
responsibility to ensure that Ashland's operating groups maintain
environmental compliance in accordance with applicable laws and
regulations.
Federal, state and local laws and regulations relating to the
protection of the environment have a significant impact on how Ashland
conducts its businesses. New laws are being enacted and regulations are
being adopted by various regulatory agencies on a continuing basis, and the
costs of compliance with these new rules cannot be estimated until the
manner in which they will be implemented has been more accurately defined.
In addition, most foreign countries in which Ashland conducts business have
laws dealing with similar matters.
At September 30, 2001, Ashland's reserves for environmental
remediation amounted to $176 million, reflecting Ashland's estimates of the
most likely costs which will be incurred over an extended period to
remediate identified environmental conditions for which the costs are
reasonably estimable, without regard to any third-party recoveries.
Environmental remediation reserves are subject to numerous inherent
uncertainties that affect Ashland's ability to estimate its share of the
ultimate costs of the 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. Reserves are regularly adjusted as
environmental remediation continues. None of the remediation locations is
individually material to Ashland as its largest reserve for any site is
under $10 million. As a result, Ashland's exposure to adverse developments
with respect to any individual site is not expected to be material, and
these sites are in various stages of the ongoing environmental remediation
process. Although environmental remediation could have a material effect on
results of operations if a series of adverse developments occurs in a
particular quarter or fiscal year, Ashland believes that the chance of such
developments occurring in the same quarter or fiscal year is remote.
Ashland does not believe that any liability resulting from environmental
remediation, after taking into consideration expected recoveries from
insurers, contributions by other responsible parties and amounts already
provided for, will have a material adverse effect on its consolidated
financial position, cash flows or liquidity.
In connection with the formation of MAP, Marathon and Ashland each
retained responsibility for certain environmental costs arising out of
their respective prior ownership and operation of the facilities
transferred to MAP. In certain situations, various threshold provisions
apply, eliminating or reducing the financial responsibility of the
contributing party until certain levels of expenditure have been reached.
In other situations, sunset provisions gradually diminish the level of
financial responsibility of the contributing party over time.
AIR - The Clean Air Act (the "CAA") imposes stringent limits on air
emissions, establishes a federally mandated operating permit program, and
allows for civil and criminal enforcement actions. Additionally, it
establishes air quality attainment deadlines and control requirements based
on the severity of air pollution in a given geographical area. Various
state clean air acts implement, complement and, in some instances, add to
the requirements of the federal CAA. The requirements of the CAA and its
state counterparts have a significant impact on the daily operation of
Ashland's businesses and, in many cases, on product formulation and other
long-term business decisions. Ashland's businesses maintain numerous
permits pursuant to these clean air laws and have implemented systems to
oversee ongoing compliance efforts.
8
In July 1997, the United States Environmental Protection Agency
("EPA") promulgated revisions to the National Ambient Air Quality Standards
("NAAQS") for ground level ozone and particulate matter. These revisions,
if they are implemented by the states, could have a significant effect on
certain of Ashland's chemical manufacturing and distribution businesses,
and on MAP. The EPA's authority and scientific basis to promulgate these
standards were challenged by industry. Although in 2001 the U.S. Supreme
Court upheld the EPA's ability to set NAAQS's without considering the costs
related to compliance, several other EPA actions were remanded to the Court
of Appeals for further consideration. Litigation continues, as do efforts
by the EPA and other regulatory and law enforcement agencies to achieve the
objectives of these standards through other means. It is not currently
possible to estimate any potential financial impact that any revised
standards may have on Ashland's operations.
WATER - Ashland's businesses maintain numerous discharge permits, as
the National Pollutant Discharge Elimination System of the Clean Water Act
("CWA") and state programs require, and have implemented systems to oversee
their compliance efforts. In addition, several of MAP's operations, in
particular its barge and terminal facilities, are regulated under the Oil
Pollution Act of 1990.
SOLID WASTE - Ashland's businesses are subject to the Resource
Conservation and Recovery Act ("RCRA"), which establishes standards for the
management of solid and hazardous wastes. Besides affecting current waste
disposal practices, RCRA also addresses the environmental effects of
certain past waste disposal operations, the recycling of wastes and the
storage of regulated substances in underground tanks.
REMEDIATION - Ashland currently operates, and in the past has operated
various facilities where, during the normal course of operations, releases
of hazardous substances have occurred. Federal and state laws, including
but not limited to RCRA and various remediation laws, require that
contamination caused by such releases be assessed and, if necessary,
remediated to meet applicable standards. MAP operates, and in the past has
operated, certain retail outlets where, during the normal course of
operations, releases of petroleum products from underground storage tanks
have occurred. Federal and state laws require that contamination caused by
such releases at these sites be assessed and, if necessary, remediated to
meet applicable standards.
RESEARCH
Ashland conducts a program of research and development to invent and
improve products and processes and to improve environmental controls for
its existing facilities. It maintains its research facilities in Dublin,
Ohio; Lexington, Kentucky; and Atlanta, Georgia. Research and development
costs are expensed as they are incurred and totaled $36 million in fiscal
2001 ($33 million in 2000 and $30 million in 1999).
COMPETITION
In all its operations, Ashland is subject to intense competition both
from companies in the industries in which it operates and from products of
companies in other industries.
The majority of the business for which APAC competes is obtained by
competitive bidding. There are a substantial number of competitors in the
markets in which APAC operates and, as a result, all of APAC's goods and
services are marketed under highly competitive conditions. Factors which
influence APAC's competitiveness are price, reputation for quality, the
availability of aggregate materials, machinery and equipment, knowledge of
local markets and conditions and estimating abilities.
Each of Ashland Distribution's businesses, except for the plastics
distribution businesses, compete with national, regional and local
companies throughout North America. The plastics distribution businesses
compete in both North America and Europe. Competition in these businesses
is based primarily on price and reliability of supply. Ashland Specialty
Chemical's businesses compete globally in selected niche markets, largely
on the basis of technology and service. The number of competitors in the
specialty chemical business varies from product to product, and it is not
practical to identify such competitors because of the broad range of
products and markets served by those products. However, many of Ashland
Specialty Chemical's businesses hold proprietary technology, and Ashland
believes it has a leading or strong market position in most of its
specialty chemical products. Ashland Specialty Chemical's petrochemicals
business is largely a commodities business, with pricing and quality being
the most important factors.
Valvoline competes in the highly competitive lubricants business
principally through product and service quality, distribution capability, a
focused "master" brand strategy, advertising and sales promotion. Some of
the
9
major brands of motor oils and lubricants Valvoline competes with
internationally are Havoline(R), Castrol(R), Pennzoil(R) and Quaker
State(R). The highly competitive consumer products car care business is
primarily composed of maintenance chemicals, appearance products and tire
cleaners. Valvoline competes primarily in this market through specific
product performance benefits, distribution capability and advertising and
sales promotion. In the highly competitive "fast oil change" business,
Valvoline competes with other leading independent fast lube chains on a
national, regional or local basis, as well as automobile dealers and
service stations. Valvoline's brand recognition, service offering and
increasing market presence in the U.S. "fast oil change" market, as well as
quality of service, speed, location, convenience and sales promotion, are
important competitive factors.
MAP competes with a large number of companies to acquire crude oil for
refinery processing and in the distribution and marketing of a full array
of petroleum products. MAP believes it ranks among the top ten U.S.
petroleum companies on the basis of crude oil refining capacity as of
September 30, 2001. MAP competes in four distinct markets for the sale of
refined products - wholesale, spot, branded and retail distribution. MAP
believes it competes with approximately 50 companies in the wholesale
distribution of petroleum products to private brand marketers and large
commercial and industrial consumers; approximately 75 companies in the sale
of petroleum products in the spot market; 13 refiner/marketers in the
supply of branded petroleum products to dealers and jobbers; and over 600
petroleum product retailers in the retail sale of petroleum products. MAP
also competes in the convenience store industry through SSA's retail
outlets and in the travel center industry through their ownership in PTC.
The retail outlets offer consumers gasoline, diesel fuel (at selected
locations) and a variety of food, merchandise, cigarettes, candy and
beverages.
FORWARD-LOOKING STATEMENTS
This Form 10-K and the documents incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including various information within the "Capital Resources,"
"Derivative Instruments," "Outlook" and "Conversion to the Euro" sections
in Management's Discussion and Analysis in Ashland's Annual Report. Words
such as "anticipates," "believes," "estimates," "expects," "is likely,"
"predicts," and variations of such words and similar expressions are
intended to identify such forward-looking statements. Although Ashland
believes that its expectations are based on reasonable assumptions, it
cannot assure that the expectations contained in such statements will be
achieved. Important factors which could cause actual results to differ
materially from those contained in such statements are discussed under
"Risks and Uncertainties" in Note A of Notes to Consolidated Financial
Statements in Ashland's Annual Report. For a discussion of other factors
and risks affecting Ashland's revenues and operations see "Item 1. Business
- Miscellaneous - Marketing Conditions" below.
MARKETING CONDITIONS
Domestic and international political, legislative, regulatory and
legal changes may adversely affect Ashland's results of operations.
Political actions may include changes in the policies of the Organization
of Petroleum Exporting Countries or other developments involving or
affecting oil-producing countries, including military conflict, embargoes,
internal instability or actions or reactions of the U.S. government in
anticipation of, or in response to, such actions. Profitability of MAP
depends largely on the margin between the cost of crude oil and other
feedstocks refined and the selling prices of refined products. MAP is a
purchaser of crude oil in order to satisfy its refinery throughput
requirements. As a result, MAP's overall profitability could be adversely
affected by increases in crude oil and other feedstock prices that are not
recovered in the market place through higher prices. Reference should be
made to the Refining and Marketing section of the Management's Discussion
and Analysis section in Ashland's Annual Report for a discussion of the
impact of crude oil costs on MAP's operating performance. While Ashland
maintains reserves for anticipated liabilities and carries various levels
of insurance, Ashland could be affected by civil, criminal, regulatory or
administrative actions, claims or proceedings.
Ashland's operations are subject to various U.S. and foreign laws and
regulations relating to environmental protection and worker health and
safety. These laws and regulations regulate discharges of pollutants into
the air and water, the management and disposal of hazardous substances, and
the cleanup of contaminated properties. The costs of complying with these
laws and regulations can be substantial and may increase as applicable
requirements become more stringent and new rules are implemented. If
violation of these laws and regulations occur, Ashland may be
10
forced to pay substantial fines, to complete additional costly projects, or
to modify or curtail its operations to limit contaminant emissions.
The profitability of Ashland's businesses are particularly susceptible
to downturns in the economy, particularly downturns in the segments of the
U.S. economy related to the purchase and sale of durable goods, including
housing, construction, automotive, marine and semiconductor. Both overall
demand for Ashland's products and its profit margins may decline as a
direct result of an economic recession, inflation, changes in the prices of
hydrocarbons and other raw materials (e.g., crude oil and petroleum and
chemical products), consumer confidence, interest rates or governmental
fiscal policies. In addition, Ashland's profitability may experience
significant changes as a result of variations in sales, changes in product
mix or pricing competition.
In addition, changes in climate and weather can significantly affect
the performance of several of Ashland's operations. Extreme variations from
normal climatic conditions could have a significant effect on the operating
results of APAC's construction operations. In particular, unfavorable
weather conditions will delay the completion of construction projects, and
may require the use of additional resources. In addition, most of the
refined products sold by MAP are seasonal in nature, and thus demand for
those products may decline due to significant changes in prevailing climate
and weather conditions. MAP's production or distribution operations are
also subject to disruption by extreme weather conditions such as floods,
frozen rivers or hurricanes.
ITEM 2. PROPERTIES
Ashland's corporate headquarters, which is leased, is located in
Covington, Kentucky. Principal offices of other major operations are
located in Atlanta, Georgia (APAC); Dublin, Ohio (Ashland Distribution and
Ashland Specialty Chemical); Lexington, Kentucky (Valvoline); and Russell,
Kentucky (Administrative Services). All of these offices are leased, except
for the Russell office, which is owned. Principal manufacturing, marketing
and other materially important physical properties of Ashland and its
subsidiaries are described under the appropriate segment under Item 1 in
this Form 10-K. Additional information concerning certain leases may be
found in Note J of Notes to Consolidated Financial Statements in Ashland's
Annual Report.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - (1) As of September 30, 2001, Ashland has
been identified as a "potentially responsible party" ("PRP") under
Superfund or similar state laws for potential joint and several liability
for clean-up costs in connection with alleged releases of hazardous
substances associated with 99 waste treatment or disposal sites. These
sites are currently subject to ongoing investigation and remedial
activities, overseen by the EPA or a state agency, in which Ashland is
typically participating as a member of a PRP group. Generally, the type of
relief sought includes remediation of contaminated soil and/or groundwater,
reimbursement for past costs of site clean-up and administrative oversight,
and/or long-term monitoring of environmental conditions at the sites. The
ultimate costs are not predictable with assurance and could be material.
However, based on its experience with site remediation, its analysis of the
specific hazardous substances at issue, the existence of other financially
viable PRPs and its current estimates of investigatory, clean-up and
monitoring costs at each site, Ashland does not believe that any liability
at these sites, either individually or in the aggregate, will have a
material adverse effect on Ashland's consolidated financial position, cash
flows or liquidity. For additional information regarding environmental
matters and reserves, see "Management's Discussion and Analysis -
Environmental Matters" and Note M of Notes to Consolidated Financial
Statements in Ashland's Annual Report and "Item 1. Business - Miscellaneous
- Environmental Matters" in this Form 10-K.
(2) As a result of an EPA enforcement initiative wherein information
relating to construction projects conducted within refineries since 1980,
including financial data, permit status and operational results, are
reviewed for compliance with specific provisions of the CAA, MAP, as well
as several other refiners, entered into negotiations with the EPA and the
Justice Department. On August 30, 2001, the U.S. District Court for the
Eastern District of Michigan approved and entered MAP's settlement
agreement with the EPA, which includes MAP's commitment to spend
approximately $270 million in environmental capital expenditures and
improvements to MAP's refineries. These improvements include the
installation of specific control technologies over a period of eight years.
In addition, MAP's settlement provides for payment of a civil penalty in
the amount of $3.8 million and the
11
performance of $8 million in supplemental environmental projects. Ashland
has agreed to reimburse MAP a total of $1 million for these projects.
OTHER PROCEEDINGS - In addition to the environmental matters described
above, there are pending or threatened against Ashland and its current and
former subsidiaries various claims, lawsuits and administrative
proceedings. Such actions are with respect to commercial matters, product
liability, toxic tort liability, numerous asbestos claims, and other
environmental matters, which seek remedies or damages some of which are for
substantial amounts. While these actions are being contested, their outcome
is not predictable with assurance and could be material to results of
operations in the period they are recognized. However, Ashland does not
believe that any liability resulting from these actions after taking into
consideration expected recoveries from insurers, contributions by other
responsible parties and amounts already provided for, will have a material
adverse effect on its consolidated financial position, cash flows or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September
30, 2001.
ITEM X. EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland's executive officers, their ages
and their positions and offices during the last five years (listed
alphabetically after the Chief Executive Officer as to other Senior Vice
Presidents, Administrative Vice Presidents and other executive officers).
PAUL W. CHELLGREN (age 58) is Chairman of the Board, Chief Executive
Officer and Director of Ashland and has served in such capacities since
1997, 1996 and 1992, respectively.
JAMES R. BOYD (age 55) is Senior Vice President and Group Operating
Officer of Ashland and has served in such capacities since 1990 and 1993,
respectively. Mr. Boyd will retire from Ashland effective January 31, 2002.
DAVID J. D'ANTONI (age 56) is Senior Vice President and Group
Operating Officer of Ashland and has served in such capacities since 1988
and 1999, respectively. During the past five years, he has also served as
President of Ashland Chemical Company.
JAMES J. O'BRIEN (age 47) is Senior Vice President and Group Operating
Officer of Ashland and President of The Valvoline Company and has served in
such capacities since 1997, 2001, and 1995, respectively. During the past
five years, he has also served as Vice President of Ashland.
CHARLES F. POTTS (age 57) is Senior Vice President of Ashland and
President of APAC, Inc. and has served in such capacities since 1992.
J. MARVIN QUIN (age 54) is Senior Vice President and Chief Financial
Officer of Ashland and has served in such capacities since 1992.
KENNETH L. AULEN (age 52) is Administrative Vice President and
Controller of Ashland and has served in such capacities since 1992.
PHILIP W. BLOCK (age 54) is Administrative Vice President - Human
Resources of Ashland and has served in such capacity since 1992.
PETER M. BOKACH (age 55) is Vice President of Ashland and President of
Ashland Distribution Company and has served in such capacities since 1999.
During the past five years, he has also served as Group Vice President -
Distribution Division of Ashland Chemical Company.
JAMES A. DUQUIN (age 54) is Vice President of Ashland and President of
Ashland Specialty Chemical Company and has served in such capacities since
1999. During the past five years, he has also served as Group Vice
President - Specialty Chemical Division of Ashland Chemical Company.
DAVID L. HAUSRATH (age 49) is Vice President and General Counsel of
Ashland and has served in such capacities since 1998 and 1999,
respectively. During the past five years, he has also served as Associate
General Counsel of Ashland.
12
J. DAN LACY (age 54) is Vice President - Corporate Affairs of Ashland
and has served in such capacity since 1986.
RICHARD P. THOMAS (age 55) is Vice President and Secretary of Ashland
and has served in such capacities since 1998 and 1999, respectively. During
the past five years, he has also served as Associate General Counsel of
Ashland and Administrative Vice President and General Counsel of Ashland
Petroleum Company.
Each executive officer is elected by the Board of Directors of Ashland
to a term of one year, or until his successor is duly elected, at the
annual meeting of the Board of Directors, except in those instances where
the officer is elected other than at an annual meeting of the Board of
Directors, in which case his tenure will expire at the next annual meeting
of the Board of Directors unless the officer is re-elected.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
There is hereby incorporated by reference the information appearing in
Note P of Notes to Consolidated Financial Statements in Ashland's Annual
Report.
At September 30, 2001, there were approximately 18,500 holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and Chicago stock exchanges (ticker symbol ASH) and has trading
privileges on the Boston, Cincinnati, Pacific and Philadelphia stock
exchanges.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing
under the caption "Five-Year Selected Financial Information" on page 56 in
Ashland's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing
under the caption "Management's Discussion and Analysis" on pages 28 to 35
in Ashland's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There is hereby incorporated by reference the information appearing
under the caption "Derivative Instruments" on pages 33 and 34 in Ashland's
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the consolidated financial
statements appearing on pages 37 through 55 in Ashland's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Inc.'s Board of Directors - Nominees for
Election at the 2002 Annual Meeting" and the information regarding Section
16 beneficial ownership reporting compliance in Ashland's definitive Proxy
Statement for its January 31, 2002 Annual Meeting of Shareholders, which
will be filed with the SEC within 120 days after September 30, 2001 ("Proxy
Statement"). See also the list of Ashland's executive officers and related
information under "Executive Officers of Ashland" in Part I - Item X in
this Form 10-K.
13
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear
under the captions "Executive Compensation," "Compensation of Directors"
and "Miscellaneous - Personnel and Compensation Committee Interlocks and
Insider Participation" in Ashland's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear
under the caption "Ashland Common Stock Ownership of Directors and Certain
Officers of Ashland" and the information regarding the ownership of
securities of Ashland in Ashland's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear
under the caption "Miscellaneous - Business Relationships" in Ashland's
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
(1) and (2) Financial Statements and Financial Schedule
The consolidated financial statements and financial schedule of
Ashland presented or incorporated by reference in this report are listed in
the index on page 19.
(3) Exhibits
3.1 Second Restated Articles of Incorporation of Ashland, as amended
to January 30, 1998 (filed as Exhibit 3 to Ashland's Form 10-Q for
the quarter ended December 31, 1997 and incorporated herein by
reference).
3.2 By-laws of Ashland, effective as of June 21, 2001 (filed as
Exhibit 3.2 to Ashland's Form 10-Q for the quarter ended June 30,
2001 and incorporated herein by reference).
4.1 Ashland agrees to provide the SEC, upon request, copies of
instruments defining the rights of holders of long-term debt of
Ashland and all of its subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed with
the SEC.
4.2 Indenture, dated as of August 15, 1989, as amended and restated as
of August 15, 1990, between Ashland and Citibank, N.A., as
Trustee.
4.3 Indenture, dated as of September 7, 2001, between Ashland and U.S.
Bank National Association, as Trustee.
4.4 Rights Agreement, dated as of May 16, 1996, between Ashland Inc.
and the Rights Agent, together with Form of Right Certificate.
The following Exhibits 10.1 through 10.15 are compensatory plans or
arrangements or management contracts required to be filed as exhibits
pursuant to Item 601(b)(10)(ii)(A) of Regulation S-K.
10.1 Amended Stock Incentive Plan for Key Employees of Ashland Inc. and
its Subsidiaries (filed as Exhibit 10.1 to Ashland's Form 10-K for
the fiscal year ended September 30, 1999 and incorporated herein
by reference).
10.2 Ashland Inc. Deferred Compensation Plan for Non-Employee Directors
(filed as Exhibit 10.2 to Ashland's Form 10-K for the fiscal year
ended September 30, 1999 and incorporated herein by reference).
14
10.3 Ashland Inc. Deferred Compensation Plan (filed as Exhibit 10.14 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.4 Tenth Amended and Restated Ashland Inc. Supplemental Early
Retirement Plan for Certain Employees, as amended (filed as
Exhibit 10.2 to Ashland's Form 10-Q for the quarter ended December
31, 2000 and incorporated herein by reference).
10.5 Ashland Inc. Salary Continuation Plan.
10.6 Form of Ashland Inc. Executive Employment Contract between Ashland
Inc. and certain executives of Ashland (filed as Exhibit 10.6 to
Ashland's Form 10-K for the fiscal year ended September 30, 1999
and incorporated herein by reference).
10.7 Form of Separation Agreement and General Release between Ashland
Inc. and James R. Boyd, an executive officer of Ashland.
10.8 Form of Indemnification Agreement between Ashland Inc. and each
member of its Board of Directors.
10.9 Ashland Inc. Nonqualified Excess Benefit Pension Plan (filed as
Exhibit 10.11 to Ashland's Form 10-K for the fiscal year ended
September 30, 1998 and incorporated herein by reference).
10.10 Ashland Inc. Long-Term Incentive Plan (filed as Exhibit 10.9 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.11 Ashland Inc. Directors' Charitable Award Program (filed as Exhibit
10.10 to Ashland's Form 10-K for the fiscal year ended September
30, 2000 and incorporated herein by reference).
10.12 Ashland Inc. 1993 Stock Incentive Plan (filed as Exhibit 10.11 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.13 Ashland Inc. 1995 Performance Unit Plan (filed as Exhibit 10.12 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.14 Ashland Inc. 1997 Stock Incentive Plan (filed as Exhibit 10.15 to
Ashland's Form 10-K for the fiscal year ended September 30, 2000
and incorporated herein by reference).
10.15 Ashland Inc. Amended and Restated Ashland Inc. Incentive Plan
(filed as Exhibit 10.1 to Ashland's Form 10-Q for the quarter
ended December 31, 2000 and incorporated herein by reference).
10.16 Amended and Restated Limited Liability Company Agreement of
Marathon Ashland Petroleum LLC dated as of December 31, 1998
(filed as Exhibit 10.17 to Ashland's Form 10-K for the fiscal year
ended September 30, 1999 and incorporated herein by reference).
10.17 Put/Call, Registration Rights and Standstill Agreement as amended
to December 31, 1998 among Marathon Oil Company, USX Corporation,
Ashland Inc. and Marathon Ashland Petroleum (filed as Exhibit
10.18 to Ashland's Form 10-K for the fiscal year ended September
30, 1999 and incorporated herein by reference).
11 Computation of Earnings Per Share (appearing on page 43 of
Ashland's Annual Report to Shareholders, incorporated by reference
herein, for the fiscal year ended September 30, 2001).
12 Computation of Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
13 Portions of Ashland's Annual Report to Shareholders, incorporated
by reference herein, for the fiscal year ended September 30, 2001.
21 List of subsidiaries.
15
23.1 Consent of independent auditors.
24 Power of Attorney, including resolutions of the Board of
Directors.
Upon written or oral request, a copy of the above exhibits will be
furnished at cost.
(B) REPORTS ON FORM 8-K
None.
16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ASHLAND INC.
(Registrant)
By:
/s/ Kenneth L. Aulen
---------------------------------------
(Kenneth L. Aulen, Administrative
Vice President and Controller)
Date: December 3, 2001
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT, IN THE CAPACITIES INDICATED, ON DECEMBER 3, 2001.
SIGNATURES CAPACITY
---------- --------
/s/ PAUL W. CHELLGREN Chairman of the Board, Chief
--------------------------------- Executive Officer and Director
PAUL W. CHELLGREN
/s/ J. MARVIN QUIN Senior Vice President and Chief
--------------------------------- Financial Officer
J. MARVIN QUIN
/s/ KENNETH L. AULEN Administrative Vice President,
--------------------------------- Controller and Principal
KENNETH L. AULEN Accounting Officer
* Director
---------------------------------
SAMUEL C. BUTLER
* Director
---------------------------------
FRANK C. CARLUCCI
* Director
---------------------------------
ERNEST H. DREW
17
* Director
---------------------------------
JAMES B. FARLEY
* Director
---------------------------------
RALPH E. GOMORY
* Director
---------------------------------
ROGER W. HALE
* Director
---------------------------------
BERNADINE P. HEALY
* Director
---------------------------------
MANNIE L. JACKSON
* Director
---------------------------------
PATRICK F. NOONAN
* Director
---------------------------------
JANE C. PFEIFFER
* Director
---------------------------------
WILLIAM L. ROUSE , JR.
* Director
---------------------------------
THEODORE M. SOLSO
* Director
---------------------------------
MICHAEL J. WARD
* By: /s/ David L. Hausrath
---------------------
David L. Hausrath
Attorney-in-Fact
Date: December 3, 2001
18
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
PAGE
----
Consolidated financial statements:
Statements of consolidated income ...............................*
Consolidated balance sheets .....................................*
Statements of consolidated stockholders' equity .................*
Statements of consolidated cash flows ...........................*
Notes to consolidated financial statements ......................*
Information by industry segment .................................*
Report of independent auditors................................. 20
Consolidated financial schedule:
Schedule II - Valuation and qualifying accounts................ 21
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*The consolidated financial statements appearing on pages 37 through
55 in Ashland's Annual Report are incorporated by reference in this Annual
Report on Form 10-K.
Schedules other than that listed above have been omitted because of
the absence of the conditions under which they are required or because the
information required is shown in the consolidated financial statements or
the notes thereto. Separate financial statements for MAP required by Rule
3-09 of Regulation S-X will be filed as an amendment to this Form 10-K
within 90 days after the end of MAP's fiscal year ending December 31, 2001.
Separate financial statements of other unconsolidated affiliates are
omitted because each company does not constitute a significant subsidiary
using the 20% tests when considered individually. Summarized financial
information for such affiliates is disclosed in Note F of Notes to
Consolidated Financial Statements in Ashland's Annual Report.
19
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements and schedule of
Ashland Inc. and consolidated subsidiaries listed in the accompanying index
to financial statements and financial schedule (Item 14(a)). These
financial statements and schedule are the responsibility of Ashland's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Ashland Inc. and
consolidated subsidiaries at September 30, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 2001, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note A to the financial statements, in 2001 the
Company and its unconsolidated affiliate, Marathon Ashland Petroleum LLC,
changed their method of accounting for derivatives.
/s/ Ernst & Young LLP
Ernst & Young LLP
Cincinnati, Ohio
October 31, 2001
20
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Ashland Inc. and Consolidated Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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(In millions) Balance at Provisions Balance
beginning charged to Reserves Other at end
Description of year earnings utilized changes of year
===================================================================================================================================
YEAR ENDED SEPTEMBER 30, 2001
Reserves deducted from asset accounts
Accounts receivable $ 25 $ 34 $(25) (1) $ - $ 34
Inventories 13 5 (3) - 15
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YEAR ENDED SEPTEMBER 30, 2000
Reserves deducted from asset accounts
Accounts receivable $ 23 $ 15 $(12) (1) $ (1) $ 25
Inventories 15 3 (5) - 13
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YEAR ENDED SEPTEMBER 30, 1999
Reserves deducted from asset accounts
Accounts receivable $ 19 $ 12 $ (8) (1) $ - $ 23
Inventories 11 7 (3) - 15
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(1) Uncollected amounts written off, net of recoveries of $1 million
in 2001, $1 million in 2000 and $2 million in 1999.
21
EXHIBIT INDEX
Exhibit
No. Description
------- ------------------------------------------------------------------
4.2 Indenture between Ashland and Citibank, N.A., as trustee.
4.3 Indenture between Ashland and U. S. Bank National Association, as
trustee.
4.4 Rights Agreement between Ashland and the Rights Agent, together
with Form of Right Certificate.
10.5 Ashland Inc. Salary Continuation Plan.
10.7 Form of Separation Agreement and General Release between Ashland
Inc. and James R. Boyd.
10.8 Form of Indemnification Agreement between Ashland Inc. and each
member of its Board of Directors.
12 Computation of Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
13 Portions of Ashland's Annual Report to Shareholders for the fiscal
year ended September 30, 2001.
21 List of subsidiaries.
23.1 Consent of independent auditors.
24 Power of Attorney, including resolutions of the Board of
Directors.