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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 1-32532
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 20-0865835
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky 41012-0391
Telephone Number (859) 815-3333
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
Indicate by checkmark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes |X| No |_|
At June 30, 2005, there were 74,199,816 shares of Registrant's Common
Stock outstanding. One Right to purchase one-thousandth of a share of
Series A Participating Cumulative Preferred Stock accompanies each
outstanding share of Registrant's Common Stock.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
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Three months ended Nine months ended
June 30 June 30
------------------------ ------------------------
(In millions except per share data) 2005 2004 2005 2004
-------------------------------------------------------------------------------------------------- ------------------------
REVENUES
Sales and operating revenues $ 2,492 $ 2,206 $ 6,731 $ 5,967
Equity income 315 221 530 277
Other income 14 12 49 34
----------- ---------- ---------- -----------
2,821 2,439 7,310 6,278
COSTS AND EXPENSES
Cost of sales and operating expenses 2,074 1,844 5,678 5,002
Selling, general and administrative expenses 337 303 957 882
----------- ---------- ---------- -----------
2,411 2,147 6,635 5,884
----------- ---------- ---------- -----------
OPERATING INCOME 410 292 675 394
Gain on the MAP Transaction - Note D (1) 1,295 - 1,295 -
Loss on early retirement of debt - Note D (143) - (145) -
Net interest and other financial costs (31) (29) (89) (88)
----------- ---------- ---------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,531 263 1,736 306
Income taxes 236 (96) 157 (111)
----------- ---------- ---------- -----------
INCOME FROM CONTINUING OPERATIONS 1,767 167 1,893 195
Results from discontinued operations (net of income taxes) - Note B - (6) - (16)
----------- ---------- ---------- -----------
NET INCOME $ 1,767 $ 161 $ 1,893 $ 179
=========== ========== ========== ===========
BASIC EARNINGS PER SHARE - Note A
Income from continuing operations $ 24.13 $ 2.38 $ 26.11 $ 2.80
Results from discontinued operations - (.09) - (.23)
----------- ---------- ---------- -----------
Net income $ 24.13 $ 2.29 $ 26.11 $ 2.57
=========== ========== ========== ===========
DILUTED EARNINGS PER SHARE - Note A
Income from continuing operations $ 23.65 $ 2.35 $ 25.48 $ 2.75
Results from discontinued operations - (.09) - (.22)
----------- ---------- ---------- -----------
Net income $ 23.65 $ 2.26 $ 25.48 $ 2.53
=========== ========== ========== ===========
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275 $ .825 $ .825
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(1) "MAP Transaction" refers to the June 30, 2005 transfer of Ashland's
38% interest in Marathon Ashland Petroleum LLC (MAP), Ashland's
maleic anhydride business and 60 Valvoline Instant Oil Change centers
in Michigan and northwest Ohio to Marathon Oil Corporation in a
transaction valued at approximately $3.7 billion. See Note D for
further information.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30 September 30 June 30
(In millions) 2005 2004 2004
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ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 692 $ 243 $ 183
Accounts receivable proceeds from the MAP Transaction - Note D 913 - -
Accounts receivable 1,564 1,331 1,256
Allowance for doubtful accounts (44) (41) (39)
Inventories - Note A 567 458 510
Deferred income taxes 113 103 115
Other current assets 125 208 204
-------------- -------------- --------------
3,930 2,302 2,229
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) - 2,713 2,568
Goodwill 576 513 513
Asbestos insurance receivable (noncurrent portion) 374 399 400
Deferred income taxes 160 - -
Other noncurrent assets 501 319 339
-------------- -------------- --------------
1,611 3,944 3,820
PROPERTY, PLANT AND EQUIPMENT
Cost 3,219 3,104 3,043
Accumulated depreciation, depletion and amortization (1,839) (1,848) (1,825)
-------------- -------------- --------------
1,380 1,256 1,218
-------------- -------------- --------------
$ 6,921 $ 7,502 $ 7,267
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Debt due within one year $ 78 $ 439 $ 204
Trade and other payables 1,358 1,362 1,384
Income taxes 71 14 15
-------------- -------------- --------------
1,507 1,815 1,603
NONCURRENT LIABILITIES
Long-term debt (less current portion) 90 1,109 1,338
Employee benefit obligations 444 428 394
Deferred income taxes - 367 313
Reserves of captive insurance companies 190 179 196
Asbestos litigation reserve (noncurrent portion) 534 568 565
Other long-term liabilities and deferred credits 409 330 358
Commitments and contingencies - Notes G
-------------- -------------- --------------
1,667 2,981 3,164
COMMON STOCKHOLDERS' EQUITY 3,747 2,706 2,500
-------------- -------------- --------------
$ 6,921 $ 7,502 $ 7,267
============== ============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
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Accumulated
other
Common Paid-in Retained comprehensive
(In millions) stock capital earnings loss Total
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BALANCE AT OCTOBER 1, 2003 $ 68 $ 350 $ 1,961 $ (126) $ 2,253
Total comprehensive income (1) 179 22 201
Cash dividends (57) (57)
Issued 2,698,722 common shares under
stock incentive and other plans 3 100 103
-------------- -------------- -------------- -------------- --------------
BALANCE AT JUNE 30, 2004 $ 71 $ 450 $ 2,083 $ (104) $ 2,500
============== ============== ============== ============== ==============
BALANCE AT OCTOBER 1, 2004 $ 72 $ 478 $ 2,262 $ (106) $ 2,706
Total comprehensive income (1) 1,893 11 1,904
Cash dividends (60) (60)
Distribution of Marathon shares
from the MAP Transaction - Note D (936) (936)
Issued 2,620,653 common shares under
stock incentive and other plans 2 131 133
-------------- -------------- -------------- -------------- --------------
BALANCE AT JUNE 30, 2005 $ 74 $ 609 $ 3,159 $ (95) $ 3,747
============== ============== ============== ============== ==============
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(1) Reconciliations of net income to total comprehensive income follow.
Three months ended Nine months ended
June 30 June 30
------------------------------- -------------------------------
(In millions) 2005 2004 2005 2004
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Net income $ 1,767 $ 161 $ 1,893 $ 179
Unrealized translation adjustments (27) (12) 11 22
Related tax benefit (expense) (1) - 1 -
Net unrealized gains (losses) on cash flow hedges (2) - (1) -
-------------- -------------- -------------- --------------
Total comprehensive income $ 1,737 $ 149 $ 1,904 $ 201
============== ============== ============== ==============
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At June 30, 2005, the accumulated other comprehensive loss of $95
million (after tax) was comprised of net unrealized translation gains
of $35 million, a minimum pension liability of $129 million and net
unrealized losses on cash flow hedges of $1 million.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
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Nine months ended
June 30
------------------------
(In millions) 2005 2004
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CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 1,893 $ 195
Adjustments to reconcile to cash flows from operations
Depreciation, depletion and amortization 141 144
Deferred income taxes (515) 70
Equity income from affiliates (530) (277)
Distributions from equity affiliates 277 156
Gain on the MAP Transaction - Note D (1,295) -
Loss on early retirement of debt - Note D 145 -
Change in operating assets and liabilities (1) (128) (213)
Other items (5) 2
---------- -----------
(17) 77
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 100 86
Repayment of long-term debt (1,477) (75)
Increase (decrease) in short-term debt (40) 8
Cash dividends paid (60) (57)
---------- -----------
(1,477) (38)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (285) (121)
Purchase of operations - net of cash acquired - Note E (152) (5)
Proceeds from sale of operations - Notes D and E 2,397 48
Other - net 9 13
---------- -----------
1,969 (65)
---------- -----------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS 475 (26)
Cash used by discontinued operations (26) (14)
---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 449 (40)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 243 223
---------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 692 $ 183
========== ===========
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(1) Excludes changes resulting from operations acquired or sold.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and
Securities and Exchange Commission regulations. Although such
statements are subject to any year-end audit adjustments which may
be necessary, in the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. These financial statements
should be read in conjunction with Ashland's annual report on Form
10-K, as amended, for the fiscal year ended September 30, 2004.
Results of operations for the periods ended June 30, 2005, are not
necessarily indicative of results to be expected for the year
ending September 30, 2005.
INVENTORIES
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June 30 September 30 June 30
(In millions) 2005 2004 2004
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Chemicals and plastics $ 449 $ 370 $ 390
Construction materials 85 71 76
Petroleum products 76 61 73
Other products 70 45 50
Supplies 8 6 6
Excess of replacement costs over LIFO carrying values (121) (95) (85)
-------------- -------------- --------------
$ 567 $ 458 $ 510
============== ============== ==============
EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share (EPS) from continuing operations.
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Three months ended Nine months ended
June 30 June 30
------------------------ ------------------------
(In millions except per share data) 2005 2004 2005 2004
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Numerator
Numerator for basic and diluted EPS - Income
from continuing operations $ 1,767 $ 167 $ 1,893 $ 195
=========== ========== ========== ===========
Denominator
Denominator for basic EPS - Weighted average
common shares outstanding 73 70 72 70
Common shares issuable upon exercise of stock options 2 1 2 1
----------- ---------- ---------- -----------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 75 71 74 71
=========== ========== ========== ===========
Earnings per share from continuing operations
Basic $ 24.13 $ 2.38 $ 26.11 $ 2.80
Diluted $ 23.65 $ 2.35 $ 25.48 $ 2.75
6
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE B - DISCONTINUED OPERATIONS
Ashland is subject to liabilities from claims alleging personal
injury caused by exposure to asbestos. Such claims result
primarily from indemnification obligations undertaken in 1990 in
connection with the sale of Riley Stoker Corporation, a former
subsidiary. During the nine months ended June 30, 2004, Ashland
recorded charges of $44 million to increase its reserve for
asbestos claims, the effect of which was partially offset by
credits of $22 million to increase its asbestos insurance
receivable. The resulting $22 million pretax charge to income, net
of deferred income tax benefits of $9 million, was reflected as an
after-tax loss from discontinued operations of $13 million in the
Statement of Consolidated Income for the nine months ended June
30, 2004. No increases to the asbestos reserve or insurance
receivable were recorded in the nine months ended June 30, 2005.
See Note G for further discussion of Ashland's asbestos-related
litigation. Also during the nine months ended June 30, 2004,
Ashland recorded a $3 million decrease to the gain recorded in
2003 on the sale of its Electronic Chemicals business.
Components of amounts reflected in the income statements related
to discontinued operations are presented in the following table.
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Three months ended Nine months ended
June 30 June 30
----------------------- ------------------------
(In millions) 2005 2004 2005 2004
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Pretax loss from discontinued operations
Reserves for asbestos-related litigation $ - $ (7) $ - $ (22)
Loss on disposal of Electronic Chemicals - (2) - (3)
Income taxes
Reserves for asbestos-related litigation - 3 - 9
Loss on disposal of Electronic Chemicals - - - -
---------- ---------- ---------- ----------
Results from discontinued operations (net of income taxes) $ - $ (6) $ - $ (16)
========== ========== ========== ==========
NOTE C - UNCONSOLIDATED AFFILIATES
Under Rule 3-09 of Regulation S-X, Ashland filed audited financial
statements for Marathon Ashland Petroleum LLC (MAP) for the year
ended December 31, 2004, on a Form 10-K/A on March 15, 2005.
Unaudited income statement information for MAP is shown below.
MAP is organized as a limited liability company that has elected
to be taxed as a partnership. Therefore, the parents are
responsible for income taxes applicable to their share of MAP's
taxable income. The net income reflected below for MAP does not
include any provision for income taxes that will be incurred by
its parents.
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Three months ended Nine months ended
June 30 June 30
------------------------ ------------------------
(In millions) 2005 2004 2005 2004
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Sales and operating revenues $ 14,282 $ 11,155 $ 38,195 $ 29,773
Income from operations 823 585 1,408 734
Net income 823 583 1,396 725
Ashland's equity income 309 216 518 261
7
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE D - MAP TRANSACTION
On June 30, 2005, Ashland completed the transfer of its 38%
interest in MAP and two other businesses to Marathon Oil
Corporation in a transaction valued at approximately $3.7 billion.
The two other businesses were Ashland's maleic anhydride business
and 60 Valvoline Instant Oil Change (VIOC) centers in Michigan and
northwest Ohio. This transaction is being referred to in this
document as the "MAP Transaction." As a result of this transaction
Ashland shareholders of record as of the close of business on June
30, 2005, received .2364 Marathon shares per Ashland share. In
total, Ashland's shareholders received 17,538,815 shares of
Marathon common stock with an aggregate value of $936 million
based upon the June 30 closing price of Marathon stock. Ashland
received cash of $2,407 million and MAP trade accounts receivable
of $913 million. These amounts include approximately $2.8 billion
of cash and accounts receivable included in the $3.7 billion
transaction value, and $518 million of cash and accounts
receivable representing 38% of MAP's distributable cash and other
adjustments as of June 30, 2005.
Proceeds net of expenses of $26 million exceeded the book
investment and resulted in a pretax gain of $1,295 million. Even
though the Marathon common stock distribution went directly to
Ashland shareholders, for financial reporting purposes the
Marathon stock is reflected as non-cash proceeds from the
transaction, included in the gain computation, and then shown as a
distribution to shareholders out of retained earnings in Ashland's
stockholders' equity progression. The pretax gain is shown on a
separate line caption on the income statement below Operating
Income and labeled Gain on the MAP Transaction. Because none of
the businesses qualify as discontinued operations under FASB
Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the gain is reported in Income from Continuing
Operations, with no restatement of prior results.
The MAP Transaction was structured to be generally tax-free to
Ashland shareholders and tax-efficient to Ashland. Ashland and
Marathon entered into a closing agreement with the Internal
Revenue Service (IRS) with respect to various tax consequences of
the transaction. Pursuant to a Tax Matters Agreement (TMA) with
Marathon, any tax payable under Section 355(e) of the Internal
Revenue Code on the transaction up to $200 million will be borne
by Marathon, with the next $175 million being borne by Ashland,
and any tax over $375 million being split equally between the two
companies. Current estimates of the tax due are approximately $96
million, so Ashland has recorded no tax due as part of the
transaction.
Due to the structure of the transaction, Marathon is entitled to
the tax deductions for Ashland's future payments of certain
contingent liabilities related to previously owned businesses of
Ashland. However, pursuant to the terms of the TMA, Marathon has
agreed to compensate Ashland for these tax deductions. Ashland
recorded a discounted receivable of $65 million for the estimated
present value of probable recoveries from Marathon for the portion
of these future tax deductions which is not dependent upon
Marathon's ability to utilize these deductions. The receivable is
included in the $1,295 million pretax gain on the transaction and
is included in other noncurrent assets on Ashland's balance sheet
at June 30, 2005. Deferred tax assets previously recorded on these
contingent liabilities were reversed through the income tax
provision for the transaction. Going forward, adjustments to the
receivable resulting from changes in the liability estimates will
go through the Gain on the MAP Transaction line caption on the
income statement, while the accretion of the discount will be
reflected in interest income.
Net deferred tax liabilities totaling $328 million were reversed
through the income tax provision for the transaction. The reversal
of deferred taxes, including those deferred tax assets related to
the contingent liabilities discussed above, reflects the fact that
Marathon assumes Ashland's tax basis in these net assets as a
result of the MAP Transaction.
8
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE D - MAP TRANSACTION (CONTINUED)
Ashland used a substantial portion of the proceeds of the MAP
Transaction to retire most of its debt and certain other financial
obligations. In addition to the payoff of $250 million of
receivables financing and the purchase of $101 million of assets
that were formerly leased under operating leases, Ashland retired
approximately $1.54 billion of balance sheet debt as of June 30,
2005 and incurred a loss on the early retirement of debt of $143
million. The loss consisted of debt repayment premiums of $137
million, a tender fee of $3 million and the write-off of deferred
debt issuance costs of $3 million. On a year-to-date basis, an
additional $2 million loss on the early retirement of a
capitalized lease in the December 2004 quarter was added to the
Loss on Early Retirement of Debt line caption on the income
statement. A tax benefit of $56 million in the quarter and $57
million for the nine months ended June 30, 2005 was recorded for
the loss on early retirement of debt. Ashland expects to retire
additional debt and other financial obligations in the September
and December 2005 quarters.
The gain on the MAP Transaction and the loss on early retirement
of debt, net of their respective tax effects, increased net income
by $1,536 million, or $20.56 per share, for the three months and
$1,535 million, or $20.66 per share, for the nine months ended
June 30, 2005. As additional refinements to the gain are
determined, expected to be primarily in the tax area due to the
unique and complicated tax aspects of the transaction, adjustments
to the gain will be reflected in the quarter they are determined.
Due to the continuing nature of certain tax issues, the gain will
continue to be adjusted in future periods.
NOTE E - ACQUISITIONS AND OTHER DIVESTITURES
During the nine months ended June 30, 2005, Ashland Specialty
Chemical acquired Dow Chemical's DERAKANE(R) epoxy vinyl ester
resins business for approximately $90 million. With this
acquisition, Ashland Specialty Chemical's composite polymers
business continues to build its innovative line of resin
chemistries for composite manufacturing. The purchase included all
technology and intellectual property assets associated with the
DERAKANE resin business. No physical assets were transferred to
Ashland. Also during the period, Valvoline acquired Car Brite, a
leading marketer of products for the U.S. professional automotive
reconditioning industry. In addition, Ashland Distribution
acquired the North American distribution business of Albis
Plastics and sold its ingestibles business, while APAC made four
small acquisitions and one small divestiture. Following is a
progression of goodwill by segment for the nine months ended June
30, 2005, which reflects Ashland's preliminary allocation of
purchase price.
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Ashland
Ashland Specialty
(In millions) APAC Distribution Chemical Valvoline Total
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Balance at October 1, 2004 $ 411 $ - $ 96 $ 6 $ 513
Goodwill acquired 2 1 43 17 63
Currency translation adjustments - - - - -
---------- ---------- ---------- ---------- -----------
Balance at June 30, 2005 $ 413 $ 1 $ 139 $ 23 $ 576
========== ========== ========== ========== ===========
NOTE F - EMPLOYEE BENEFIT PLANS
On December 8, 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) was signed into law. Among
other things, the Act will expand Medicare to include an
outpatient prescription drug benefit beginning in 2006, as well as
provide a subsidy for sponsors of retiree health care plans that
provide a benefit that is at least actuarially equivalent to the
Medicare Act benefits. In May 2004, the Financial Accounting
Standards Board issued Staff Position No. FAS 106-2, "Accounting
and
9
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE F - EMPLOYEE BENEFIT PLANS (CONTINUED)
Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003." Regulations
implementing major provisions of the Act, including the
determination of actuarial equivalency, were issued in January
2005. Effective May 1, 2005, Ashland amended its health care plan
for retirees age 65 or older so that the company will always
qualify for the subsidy and remeasured its postretirement benefit
obligation as of that date. The remeasurement reduced the
postretirement benefit obligation by $58 million and will reduce
postretirement benefit costs by $3 million over the last five
months of the fiscal year 2005.
Presently, Ashland anticipates contributing $86 million to its
U.S. pension plans and $33 million to its non-U.S. pension plans
during fiscal 2005. As of June 30, 2005, contributions of $25
million have been made to the U.S. plans and $8 million to the
non-U.S. plans. In addition to the remaining contributions to be
made during the last quarter of fiscal 2005, Ashland plans on
contributing an additional $75 million to its U.S. plans around
October 1, 2005.
The following table details the components of pension and other
postretirement benefit costs.
----------------------------------------------------------------------------------------------------------------------
Other postretirement
Pension benefits benefits
------------------------- ------------------------
(In millions) 2005 2004 2005 2004
----------------------------------------------------------------------------------------------------------------------
Three months ended June 30
Service cost $ 13 $ 13 $ 2 $ 1
Interest cost 20 20 4 4
Expected return on plan assets (21) (19) - -
Amortization of prior service credit - - (2) (3)
Amortization of net actuarial loss 8 9 - 1
----------- ----------- ----------- ----------
$ 20 $ 23 $ 4 $ 3
=========== =========== =========== ==========
Nine months ended June 30
Service cost $ 40 $ 38 $ 7 $ 8
Interest cost 59 55 12 15
Expected return on plan assets (59) (51) - -
Amortization of prior service credit - - (7) (14)
Amortization of net actuarial loss 24 25 3 4
----------- ----------- ----------- ----------
$ 64 $ 67 $ 15 $ 13
=========== =========== =========== ==========
NOTE G - LITIGATION, CLAIMS AND CONTINGENCIES
ASBESTOS-RELATED LITIGATION
Ashland is subject to liabilities from claims alleging personal
injury caused by exposure to asbestos. Such claims result
primarily from indemnification obligations undertaken in 1990 in
connection with the sale of Riley Stoker Corporation (Riley), a
former subsidiary. Although Riley was neither a producer nor a
manufacturer of asbestos, its industrial boilers contained some
asbestos-containing components provided by other companies.
10
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE G - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)
A summary of asbestos claims activity follows. Because claims are
frequently filed and settled in large groups, the amount and
timing of settlements and number of open claims can fluctuate
significantly from period to period.
---------------------------------------------------------------------------------------------------------------------
Nine months ended
June 30 Years ended September 30
--------------------------- ------------------------------------------
(In thousands) 2005 2004 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------
Open claims - beginning of period 196 198 198 160 167
New claims filed 10 24 29 66 45
Claims settled (5) (6) (7) (7) (15)
Claims dismissed (16) (17) (24) (21) (37)
----------- ----------- ----------- ----------- -----------
Open claims - end of period 185 199 196 198 160
=========== =========== =========== =========== ===========
Since October 1, 2001, Riley has been dismissed as a defendant in
74% of the resolved claims. Amounts spent on litigation defense
and claim settlements averaged $1,675 per claim resolved in the
nine months ended June 30, 2005, compared to $1,736 in the nine
months ended June 30, 2004, and annual averages of $1,655 in 2004,
$1,610 in 2003 and $723 in 2002. A progression of activity in the
asbestos reserve is presented in the following table.
---------------------------------------------------------------------------------------------------------------------
Nine months ended
June 30 Years ended September 30
--------------------------- ------------------------------------------
(In millions) 2005 2004 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------
Asbestos reserve - beginning of period $ 618 $ 610 $ 610 $ 202 $ 199
Expense incurred - 44 59 453 41
Amounts paid (34) (39) (51) (45) (38)
------------ ----------- ----------- ----------- -----------
Asbestos reserve - end of period $ 584 $ 615 $ 618 $ 610 $ 202
============ =========== =========== =========== ===========
During the December 2002 quarter, Ashland increased its reserve
for asbestos claims by $390 million to cover the litigation
defense and claim settlement costs for probable and reasonably
estimable future payments related to existing open claims, as well
as an estimate of those that may be filed in the future. Prior to
December 31, 2002, the asbestos reserve was based on the estimated
costs that would be incurred to settle existing open claims. A
range of estimates of future asbestos claims and related costs
using various assumptions was developed with the assistance of
Hamilton, Rabinovitz & Alschuler, Inc. (HR&A). The methodology
used by HR&A to project future asbestos costs was based largely on
Ashland's recent experience, including claim-filing and settlement
rates, disease mix, open claims, and litigation defense and claim
settlement costs. Ashland's claim experience was compared to the
results of previously conducted epidemiological studies estimating
the number of people likely to develop asbestos-related diseases.
Those studies were undertaken in connection with national analyses
of the population expected to have been exposed to asbestos. Using
that information, HR&A estimated a range of the number of future
claims that may be filed, as well as the related costs that may be
incurred in resolving those claims.
From the range of estimates, Ashland recorded the amount it
believed to be the best estimate, which represented the expected
payments for litigation defense and claim settlement costs during
the next ten years. Subsequent updates to this estimate have been
made, with the assistance of HR&A, based on a combination of a
number of factors including the actual volume of new claims,
recent settlement costs,
11
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE G - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)
changes in the mix of alleged disease, enacted legislative changes
and other developments impacting Ashland's estimate of future
payments. Ashland's reserve for asbestos claims on an undiscounted
basis amounted to $584 million at June 30, 2005, compared to $618
million at September 30, 2004 and $615 million at June 30, 2004.
Projecting future asbestos costs is subject to numerous variables
that are extremely difficult to predict. In addition to the
significant uncertainties surrounding the number of claims that
might be received, other variables include the type and severity
of the disease alleged by each claimant, the long latency period
associated with asbestos exposure, dismissal rates, costs of
medical treatment, the impact of bankruptcies of other companies
that are co-defendants in claims, uncertainties surrounding the
litigation process from jurisdiction to jurisdiction and from case
to case, and the impact of potential changes in legislative or
judicial standards. Furthermore, any predictions with respect to
these variables are subject to even greater uncertainty as the
projection period lengthens. In light of these inherent
uncertainties, Ashland believes its asbestos reserve represents
the best estimate within a range of possible outcomes. As a part
of the process to develop Ashland's estimates of future asbestos
costs, a range of long-term cost models is developed that assumes
a run-out of claims through 2056. These models are based on
national studies that predict the number of people likely to
develop asbestos-related diseases and are heavily influenced by
assumptions regarding long-term inflation rates for indemnity
payments and legal defense costs, as well as other variables
mentioned previously. The total future litigation defense and
claim settlement costs on an undiscounted basis has been estimated
within a reasonably possible range of $400 million to $1.9
billion, depending on the number of years those costs extend and
other combinations of assumptions selected. If actual experience
is worse than projected relative to the number of claims filed,
the severity of alleged disease associated with those claims or
costs incurred to resolve those claims, Ashland may need to
increase further the estimates of the costs associated with
asbestos claims and these increases could potentially be material
over time.
Ashland has insurance coverage for most of the litigation defense
and claim settlement costs incurred in connection with its
asbestos claims, and coverage-in-place agreements exist with the
insurance companies that provide substantially all of the coverage
currently being accessed. As a result, increases in the asbestos
reserve have been largely offset by probable insurance recoveries.
The amounts not recoverable generally are due from insurers that
are insolvent, rather than as a result of uninsured claims or the
exhaustion of Ashland's insurance coverage.
Ashland retained the services of Tillinghast-Towers Perrin to
assist management in estimating the value of probable insurance
recoveries associated with Ashland's estimate of its asbestos
liabilities. Such recoveries are based on management's assumptions
and estimates surrounding the available or applicable insurance
coverage. One such assumption is that all solvent insurance
carriers remain solvent. Although coverage limits are resolved in
the coverage-in-place agreement with Equitas Limited (Equitas) and
other London companies, which collectively provide a significant
portion of Ashland's insurance coverage for asbestos claims, there
is a disagreement with these companies over the timing of
recoveries. The resolution of this disagreement could have a
material effect on the value of insurance recoveries from those
companies. In estimating the value of future recoveries, Ashland
has used the least favorable interpretation of this agreement
under which the ultimate recoveries are extended for many years,
resulting in a significant discount being applied to value those
recoveries. Ashland will continue to apply this methodology until
such time as the disagreement is resolved. On July 21, 2004,
Ashland filed a demand for arbitration to resolve the dispute
concerning the interpretation of this agreement.
12
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE G - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)
At June 30, 2005, Ashland's receivable for recoveries of
litigation defense and claim settlement costs from its insurers
amounted to $404 million, of which $57 million relates to costs
previously paid. Receivables from insurance companies amounted to
$435 million at September 30, 2004 and $430 million at June 30,
2004. About 35% of the estimated receivables from insurance
companies at June 30, 2005, are expected to be due from Equitas
and other London companies. Of the remainder, approximately 90% is
expected to come from companies or groups that are rated A or
higher by A. M. Best.
ENVIRONMENTAL PROCEEDINGS
Ashland is subject to various federal, state and local
environmental laws and regulations that require environmental
assessment or remediation efforts (collectively environmental
remediation) at multiple locations. At June 30, 2005, such
locations included 102 waste treatment or disposal sites where
Ashland has been identified as a potentially responsible party
under Superfund or similar state laws, approximately 130 current
and former operating facilities (including certain operating
facilities conveyed to MAP) and about 1,220 service station
properties. Ashland's reserves for environmental remediation
amounted to $177 million at June 30, 2005, compared to $152
million at September 30, 2004 and $169 million at June 30, 2004.
Such amounts reflect Ashland's estimates of the most likely costs
that will be incurred over an extended period to remediate
identified conditions for which the costs are reasonably
estimable, without regard to any third-party recoveries.
Engineering studies, probability techniques, historical experience
and other factors are used to identify and evaluate remediation
alternatives and their related costs in determining the estimated
reserves for environmental remediation.
Environmental remediation reserves are subject to numerous
inherent uncertainties that affect Ashland's ability to estimate
its share of the costs. Such uncertainties involve the nature and
extent of contamination at each site, the extent of required
cleanup efforts under existing environmental regulations, widely
varying costs of alternate cleanup methods, changes in
environmental regulations, the potential effect of continuing
improvements in remediation technology, and the number and
financial strength of other potentially responsible parties at
multiparty sites. Ashland regularly adjusts its reserves as
environmental remediation continues. Environmental remediation
expense amounted to $39 million for the nine months ended June 30,
2005, compared to $16 million for the nine months ended June 30,
2004, and annual expense of $2 million in 2004, $22 million in
2003 and $30 million in 2002.
No individual remediation location is material to Ashland, as its
largest reserve for any site is less than 10% of the remediation
reserve. As a result, Ashland's exposure to adverse developments
with respect to any individual site is not expected to be
material, and these sites are in various stages of ongoing
remediation. Although environmental remediation could have a
material effect on results of operations if a series of adverse
developments occurs in a particular quarter or fiscal year,
Ashland believes that the chance of such developments occurring in
the same quarter or fiscal year is remote.
OTHER LEGAL PROCEEDINGS
In addition to the matters described above, there are various
claims, lawsuits and administrative proceedings pending or
threatened against Ashland and its current and former
subsidiaries. Such actions are with respect to commercial matters,
product liability, toxic tort liability, 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.
13
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
-----------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
------------------------ ------------------------
(In millions) 2005 2004 2005 2004
-----------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales and operating revenues
APAC $ 713 $ 698 $ 1,713 $ 1,755
Ashland Distribution 987 840 2,837 2,326
Ashland Specialty Chemical 484 366 1,318 1,017
Valvoline 354 330 987 945
Intersegment sales
Ashland Distribution (5) (5) (17) (14)
Ashland Specialty Chemical (40) (23) (106) (61)
Valvoline (1) - (1) (1)
----------- ---------- ---------- -----------
2,492 2,206 6,731 5,967
Equity income
APAC 3 3 6 11
Ashland Specialty Chemical 2 2 6 5
Valvoline 1 - - -
Refining and Marketing 309 216 518 261
----------- ---------- ---------- -----------
315 221 530 277
Other income
APAC 7 9 11 20
Ashland Distribution 2 1 7 8
Ashland Specialty Chemical 2 3 20 8
Valvoline 2 2 5 3
Refining and Marketing - (2) 2 (7)
Corporate 1 (1) 4 2
----------- ---------- ---------- -----------
14 12 49 34
----------- ---------- ---------- -----------
$ 2,821 $ 2,439 $ 7,310 $ 6,278
=========== ========== ========== ===========
OPERATING INCOME
APAC $ 46 $ 43 $ 6 $ 41
Ashland Distribution 36 23 95 56
Ashland Specialty Chemical 43 22 104 63
Valvoline 26 30 69 75
Refining and Marketing (1) 290 205 486 232
Corporate (31) (31) (85) (73)
----------- ---------- ---------- -----------
$ 410 $ 292 $ 675 $ 394
=========== ========== ========== ===========
June 30 Sept. 30 June 30
2005 2004 2004
--------------------------------------
ASSETS
APAC $ 1,517 $ 1,428 $ 1,424
Ashland Distribution 1,058 922 933
Ashland Specialty Chemical 1,004 842 824
Valvoline 707 658 656
Refining and Marketing 89 2,742 2,599
Corporate (2) 2,546 910 831
---------- ---------- -----------
$ 6,921 $ 7,502 $ 7,267
========== ========== ===========
-----------------------------------------------------------------------------------------------------------------------------
(1) Includes Ashland's equity income from MAP, amortization related to
Ashland's excess investment in MAP, and other activities associated
with refining and marketing.
(2) Includes cash, cash equivalents, accounts receivable proceeds from
the MAP Transaction and other unallocated assets.
14
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
----------------------- ------------------------
2005 2004 2005 2004
------------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
APAC
Construction backlog at June 30 (millions) (1) $ 2,100 $ 1,869
Net construction job revenues (millions) (2) $ 424 $ 409 $ 966 $ 982
Hot-mix asphalt production (million tons) 9.5 9.9 21.0 22.7
Aggregate production (million tons) 8.3 8.1 22.6 21.0
Ashland Distribution (3)
Sales per shipping day (millions) $ 15.4 $ 13.3 $ 15.1 $ 12.3
Gross profit as a percent of sales 10.0% 9.8% 9.8% 9.7%
Ashland Specialty Chemical (3)
Sales per shipping day (millions) $ 7.6 $ 5.8 $ 7.0 $ 5.3
Gross profit as a percent of sales 27.6% 27.3% 26.3% 28.8%
Valvoline
Lubricant sales (million gallons) 48.1 50.0 131.4 141.3
Premium lubricants (percent of U.S. branded volumes) 24.3% 22.0% 23.5% 21.0%
Refining and Marketing (4)
Refinery runs (thousand barrels per day)
Crude oil refined 1,012 1,013 970 900
Other charge and blend stocks 175 142 182 174
Refined product yields (thousand barrels per day)
Gasoline 636 623 619 596
Distillates 328 323 316 285
Asphalt 97 85 83 70
Other 140 138 150 136
-------- -------- -------- --------
Total 1,201 1,169 1,168 1,087
Refined product sales (thousand barrels per day) (5) 1,477 1,440 1,421 1,367
Refining and wholesale marketing margin (per barrel) (6) $ 6.69 $ 5.27 $ 4.58 $ 2.87
Speedway SuperAmerica (SSA)
Retail outlets at June 30 1,647 1,746
Gasoline and distillate sales (million gallons) 822 802 2,360 2,371
Gross margin - gasoline and distillates (per gallon) $ .1211 $ .1192 $ .1165 $ .1161
Merchandise sales (millions) $ 645 $ 600 $ 1,786 $ 1,668
Merchandise margin (as a percent of sales) 25.2% 23.4% 25.2% 24.4%
------------------------------------------------------------------------------------------------------------------------------
(1) Includes APAC's proportionate share of the backlog of unconsolidated
joint ventures.
(2) Total construction job revenues, less subcontract costs.
(3) Sales are defined as sales and operating revenues. Gross profit is
defined as sales and operating revenues, less cost of sales and
operating expenses.
(4) Amounts represent 100% of MAP's operations, in which Ashland owned a
38% interest until June 30, 2005.
(5) Total average daily volume of all refined product sales to MAP's
wholesale, branded and retail (SSA) customers.
(6) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
RESULTS OF OPERATIONS
Current Quarter - Ashland reported net income and income from
continuing operations of $1,767 million for the quarter ended June
30, 2005, including a net gain of $1,536 million from the MAP
Transaction and a related loss on the early retirement of debt, as
described in Note D to the Condensed Consolidated Financial
Statements. For the quarter ended June 30, 2004, Ashland reported
net income of $161 million and income from continuing operations
of $167 million. Results from discontinued operations, consisting
primarily of charges for asbestos liabilities, accounted for the
difference in net income and income from continuing operations for
the 2004 period.
In addition to the gain on the MAP Transaction, the improved
results reflect a 41% increase in operating income from refining
and marketing and a 40% increase in operating income from the
Chemical Sector, which consists of the Ashland Distribution,
Ashland Specialty Chemical, and Valvoline divisions. In addition,
the Transportation Construction Sector, which consists of Ashland
Paving And Construction, Inc. (commercially known as APAC),
recorded a 7% increase in operating income to a record $46
million, in spite of higher energy prices.
Year-to-Date - Ashland reported net income and income from
continuing operations of $1,893 million for the nine months ended
June 30, 2005, including a net gain of $1,535 million from the MAP
Transaction and a related loss on the early retirement of debt, as
described in Note D to the Condensed Consolidated Financial
Statements. For the nine months ended June 30, 2004, Ashland
reported net income of $179 million and income from continuing
operations of $195 million. Results from discontinued operations,
consisting primarily of charges for asbestos liabilities,
accounted for the difference in net income and income from
continuing operations for the 2004 period.
In addition to the gain on the MAP Transaction, the improved
results reflect a 109% increase in operating income from refining
and marketing and a 38% increase in operating income from the
Chemical Sector. However, the Transportation Construction Sector
experienced an 85% decrease in operating income due to lower
production resulting from poor weather conditions during the first
six months of the fiscal year, and higher hydrocarbon costs. An
analysis of operating income by industry segment follows.
APAC
Current Quarter - APAC reported record operating income of $46
million for the June 2005 quarter, compared to $43 million for the
June 2004 quarter, despite rising hydrocarbon costs. Net
construction job revenues (total construction job revenues less
subcontract costs) increased 4% from the prior year period.
Production of hot-mix asphalt decreased 4%, while aggregate
production increased 2%. Energy-related costs for liquid asphalt
and fuel increased 10%. At June 30, 2005, APAC's construction
backlog, which consists of work awarded and funded but not yet
performed, was $2.1 billion, up 12% from June 30, 2004.
16
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
APAC (CONTINUED)
Year-to-Date - APAC reported operating income of $6 million for
the nine months ended June 30, 2005, compared to $41 million for
the nine months ended June 30, 2004. The decline reflects reduced
production of hot-mix asphalt and increased hydrocarbon costs. Net
construction job revenues decreased 2% from the prior year period.
Production of hot-mix asphalt decreased 7%, while aggregate
production increased 8%. Energy-related costs for liquid asphalt
and fuel increased 7%. Equity income from APAC's joint venture
project at Atlanta's Hartsfield Airport declined $5 million as
that project nears completion.
ASHLAND DISTRIBUTION
Current Quarter - Ashland Distribution achieved its sixth
consecutive record quarter, with operating income of $36 million
for the June 2005 quarter, up 57% over the $23 million reported
for the June 2004 quarter. Record sales revenues were up 18% due
to the division's ability to pass through price increases. Gross
profit as a percent of sales improved to 10.0%, compared to 9.8%
in the prior year quarter. Ashland Distribution has sustained its
exceptional performance by maintaining margins in the face of
rising raw material costs, managing expenses and aggressively
expanding its sales reach. Margin improvement more than offset a
volume decline of 4%.
Year-to-Date - Ashland Distribution achieved all-time record
operating income of $95 million for the nine months ended June 30,
2005, up 70% over the $56 million reported for the same period a
year ago. The increase reflects the same factors described in the
current quarter comparison. Sales revenues increased 22% and gross
profit as a percent of sales increased to 9.8%, compared to 9.7%
for the prior year period. Volumes declined 1% reflecting the sale
of Ashland Distribution's ingestibles business in January 2005.
ASHLAND SPECIALTY CHEMICAL
Current Quarter - Ashland Specialty Chemical achieved an all-time
record quarter, with operating income of $43 million for the June
2005 quarter, up 95% over the $22 million reported for the June
2004 quarter. Strong performance resulted from better margins
coupled with a 6% increase in thermoset resins volumes. Margin
improvement reflects rising prices and partial abatement of rising
raw material costs. Operating income from the thermoset resins
businesses increased $23 million, or 152%, due to a strong
performance from Composite Polymers, which has benefited from the
acquisition of Dow Chemical's DERAKANE(R) epoxy vinyl ester resins
business.
Year-to-Date - Ashland Specialty Chemical reported operating
income of $104 million for the nine months ended June 30, 2005, a
65% improvement compared to $63 million for the nine months ended
June 30, 2004. Operating income from the thermoset resins
businesses increased $43 million, or 90%, reflecting a strong
performance from Composite Polymers. In addition, the 2005 period
included approximately $4 million in net, non-recurring gains
principally related to the termination of a product supply
contract in the December 2004 quarter, in addition to a $7 million
pretax gain on the sale of an idle plant in Plaquemine, La., in
the March 2005 quarter. Although Ashland Specialty Chemical's
sales and operating revenues were up 30%, reflecting in part a 7%
increase in sales volumes for the thermoset resins businesses,
gross profit as a percent of sales declined from 28.8% to 26.3%.
Tightness in certain petrochemical markets caused raw material
costs to escalate at a faster pace than could be recovered through
increased selling prices.
17
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
VALVOLINE
Current Quarter - Operating income from the Valvoline division was
$26 million in the June 2005 quarter, a 13% decline compared to
$30 million for the June 2004 quarter. The decline was primarily
due to the combination of a 4% decrease in lubricant sales volumes
in a soft motor oil market and higher raw material costs.
Valvoline International reported a record quarter, with operating
income improving by 31% due mainly to better earnings from
operations in Europe. During the quarter, Valvoline acquired Car
Brite, a leading marketer of professional automotive
reconditioning products. Car Brite's product line includes a broad
array of interior and exterior cleaners, paint restorers and
protectants, and detail dressings.
Year-to-Date - Operating income from the Valvoline division was
$69 million for the nine months ended June 30, 2005, an 8% decline
compared to $75 million for the nine months ended June 30, 2004.
The decline was primarily due to a 7% decrease in lubricant sales
volumes due to a soft motor oil market. Partially offsetting this
decrease was a 28% improvement in international results, primarily
in Europe and Latin America.
REFINING AND MARKETING
Current Quarter - Operating income from Refining and Marketing,
which consisted primarily of equity income from Ashland's 38%
ownership interest in MAP through June 30, 2005, amounted to $290
million for the June 2005 quarter, a 41% improvement compared to
$205 million for the June 2004 quarter. Equity income from MAP's
refining and wholesale marketing operations increased $79 million,
reflecting a $1.42 per barrel increase in MAP's refining and
wholesale marketing margin. Equity income from MAP's retail
operations (Speedway SuperAmerica and a 50% interest in the Pilot
Travel Centers joint venture) increased $8 million, reflecting
higher product and merchandise sales volumes and margins for SSA.
Equity income from MAP's transportation operations increased $3
million, reflecting increased revenues. Ashland's administrative
and other costs related to Refining and Marketing amounted to $20
million for the June 2005 quarter, compared to $11 million for the
June 2004 quarter. The June 2005 quarter included increases in
environmental reserves of $16 million, while the June 2004 quarter
included losses of $2 million on margin hedges and costs
associated with the MAP Transaction of $5 million.
Year-to-Date - Operating income from Refining and Marketing
amounted to $486 million for the nine months ended June 30, 2005,
a 109% improvement compared to $232 million for the nine months
ended June 30, 2004. Equity income from MAP's refining and
wholesale marketing operations increased $232 million. MAP's
refining and wholesale marketing margin increased $1.71 per barrel
and crude oil throughput increased 8% compared to the prior year
period. Equity income from MAP's retail operations increased $22
million, reflecting higher merchandise sales volumes and margins
for SSA, and higher distillate sales volumes and margins and
higher merchandise sales volumes for PTC. Equity income from MAP's
transportation operations increased $7 million, reflecting
increased revenues. Ashland's administrative and other costs
related to Refining and Marketing amounted to $32 million for the
2005 period, compared to $29 million for the 2004 period. The 2005
period included increases in environmental reserves of $20
million, while the 2004 period included increases in environmental
reserves of $2 million, losses of $7 million on margin hedges and
costs associated with the MAP Transaction of $8 million.
As described in Note D to the Condensed Consolidated Financial
Statements, Ashland transferred its 38% interest in MAP to
Marathon on June 30, 2005. Ashland retains certain costs
associated with its former Refining and Marketing activities
discussed in the current quarter and year-to-date comparisons
above.
18
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
CORPORATE
Corporate expenses amounted to $31 million in both the June 2005
and June 2004 quarters. Corporate expenses amounted to $85 million
for the nine months ended June 30, 2005, compared to $73 million
for the nine months ended June 30, 2004. The increase for the
year-to-date period reflects a $5 million loss recognized in the
March 2005 quarter on a foreign-currency-denominated prepaid
royalty payment received in 2002 and a $7 million charge in the
December 2004 quarter for estimated future obligations to make
certain insurance premium payments related to past loss
experience.
GAIN ON THE MAP TRANSACTION
See Note D to the Condensed Consolidated Financial Statements for
a discussion of the MAP Transaction and the resulting pretax gain
of $1,295 million recorded in the June 2005 quarter.
LOSS ON EARLY RETIREMENT OF DEBT
See Note D to the Condensed Consolidated Financial Statements for
a discussion of the early retirement of debt associated with the
MAP Transaction, which resulted in a pretax loss of $143 million
recorded in the June 2005 quarter and $145 million for the nine
months ended June 30, 2005.
NET INTEREST AND OTHER FINANCIAL COSTS
Net interest and other financial costs amounted to $31 million in
the June 2005 quarter, compared to $29 million in the June 2004
quarter. For the nine months ended June 30, 2005, net interest and
other financial costs amounted to $89 million, compared to $88
million for the nine months ended June 30, 2004. The increases in
both periods reflected increased short-term borrowings during the
period when distributions from MAP were suspended due to the
pending closing of the MAP Transaction. As described in Note D to
the Condensed Consolidated Financial Statements, Ashland repaid
most of its outstanding debt and certain other financial
obligations with the proceeds of the MAP Transaction. Interest and
other financial costs of $28 million in the June 2005 quarter and
$82 million in the nine months ended June 30, 2005, will not be
incurred in future periods because of these repayments. In
addition, Ashland will receive increased interest income from the
investment of remaining cash proceeds from the transaction.
INCOME TAXES
As discussed in Note D to the Condensed Consolidated Financial
Statements, the MAP Transaction resulted in the reversal of $328
million of net deferred tax liabilities through the income tax
provision that distorts the normal relationship of income taxes to
pretax income. Excluding the pretax gain and the associated
deferred tax benefit, the effective tax rate for the nine months
ended June 30, 2005 was 38.8%, which is essentially equal to a
combined U.S. federal and state statutory rate.
DISCONTINUED OPERATIONS
As described in Notes B and G to the Condensed Consolidated
Financial Statements, Ashland's results from discontinued
operations for the quarter and nine months ended June 30, 2004,
include charges associated with estimated future asbestos
liabilities less probable insurance recoveries, as well as
negative adjustments to the gain recorded in fiscal 2003 on the
disposal of Ashland's discontinued Electronic Chemicals business.
Such amounts are summarized below.
19
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
DISCONTINUED OPERATIONS (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
----------------------- ------------------------
(In millions) 2005 2004 2005 2004
------------------------------------------------------------------------------------------------------------------------
Pretax loss from discontinued operations
Reserves for asbestos-related litigation $ - $ (7) $ - $ (22)
Loss on disposal of Electronic Chemicals - (2) - (3)
Income taxes
Reserves for asbestos-related litigation - 3 - 9
Loss on disposal of Electronic Chemicals - - - -
---------- ---------- ---------- ----------
Results from discontinued operations (net of income taxes) $ - $ (6) $ - $ (16)
========== ========== ========== ==========
FINANCIAL POSITION
LIQUIDITY
Cash flows from operations, a major source of Ashland's liquidity,
amounted to a deficit of $17 million for the nine months ended
June 30, 2005, compared to positive cash flows of $77 million for
the nine months ended June 30, 2004. As a part of the repayment of
debt and other financial obligations associated with the MAP
Transaction, Ashland repurchased accounts receivable previously
sold under its sale of receivables facility, which reduced cash
flows from operations by $150 million in the nine months ended
June 30, 2005. Ashland received cash distributions from MAP of
$271 million in the 2005 period, compared to distributions of $146
million in the 2004 period. Ashland has made $173 million in net
federal tax payments in the 2005 period, compared to $42 million
in the 2004 period. Pension contributions amounted to $33 million
in the 2005 period compared to $89 million in the 2004 period.
Ashland's financial position has enabled it to obtain capital for
its financing needs. As anticipated, on June 29, 2005, following
shareholder approval of the MAP Transaction, Moody's cut Ashland's
senior debt rating to Ba1, the highest non-investment grade
rating, and cut Ashland's commercial paper rating to N-P
(Not-Prime). Ratings downgrades below investment grade can
significantly increase a company's borrowing costs. Standard &
Poor's maintained its investment grade rating of BBB on Ashland's
senior debt and A-2 on its commercial paper. Ashland has two
revolving credit agreements providing for up to $650 million in
borrowings. The agreement providing for up to $350 million in
borrowings expires on March 21, 2010. The agreement providing for
up to $300 million in borrowings expires on March 20, 2006. Though
Ashland utilized the latter facility to fund maturing long-term
debt, the early retirement of a capital lease, and certain other
lease payments prior to the completion of the MAP Transaction, no
borrowings were outstanding under either facility at June 30,
2005. The borrowing capacity under the $350 million facility is
reduced by $15 million of letters of credit outstanding at June
30, 2005. While the revolving credit agreements contain covenants
limiting new borrowings based on Ashland's stockholders' equity,
these agreements would have permitted an additional $5.5 billion
of borrowings at June 30, 2005. Additional permissible borrowings
are increased (decreased) by 150% of any increase (decrease) in
stockholders' equity.
At June 30, 2005, working capital (excluding debt due within one
year) amounted to $2,501 million, compared to $926 million at
September 30, 2004, and $830 million at June 30, 2004. Ashland's
working capital is affected by its use of the LIFO method of
inventory valuation. That method valued inventories
20
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
LIQUIDITY (CONTINUED)
below their replacement costs by $121 million at June 30, 2005,
compared to $95 million at September 30, 2004, and $85 million at
June 30, 2004. Liquid assets (cash, cash equivalents and accounts
receivable) amounted to 207% of current liabilities at June 30,
2005, compared to 84% at September 30, 2004, and 87% at June 30,
2004. The increase in working capital and liquidity reflects the
remaining cash and accounts receivable proceeds from the MAP
Transaction after retirement of most of Ashland's debt, certain
operating leases and repayment of its accounts receivable
financing facility. Ashland intends to retire additional debt and
possibly additional operating leases, as well as make additional
contributions to its pension plans in the next three to six
months. Remaining proceeds will be invested in held-to-maturity
marketable securities and cash equivalents.
CAPITAL RESOURCES
For the nine months ended June 30, 2005, property additions
amounted to $285 million, including $101 million in purchases of
previously leased assets with proceeds of the MAP Transaction.
This compares with property additions of $121 million for the same
period last year. Ashland anticipates meeting its remaining 2005
capital requirements for property additions of approximately $70
million, excluding any additional buyouts of current leases, and
dividends of approximately $20 million, from internally generated
funds, supplemented by proceeds from the MAP transaction as
necessary.
In 2004, Ashland initiated a multi-year SAP enterprise resource
planning (ERP) project that is expected to be implemented
world-wide across Ashland's Chemical Sector to achieve increased
efficiency and effectiveness in supply chain, financial, and
environmental, health and safety processes. Overall costs for this
project through 2007 are expected to total approximately $90
million, of which approximately $80 million will be capitalized,
including $25 million of capitalized costs expected to be spent in
2005. While extensive planning is underway to support a smooth
implementation of the ERP system, such implementations carry
substantial project risk, including the potential for business
interruption and associated adverse impacts on operating results.
Ashland's debt level amounted to $168 million at June 30, 2005,
compared to $1,548 million at September 30, 2004, and $1,542
million at June 30, 2004. Debt as a percent of capital employed
amounted to 4.3% at June 30, 2005, compared to 36.4% at September
30, 2004, and 38.1% at June 30, 2004. At June 30, 2005, Ashland's
debt included $29 million of floating-rate obligations.
On July 25, 2005, Ashland's board of directors authorized the
purchase of its common shares in an amount up to $270 million. The
stock repurchase program is designed to purchase shares from time
to time in the open market in compliance with contractual, IRS and
other applicable restrictions.
ASBESTOS-RELATED LITIGATION AND ENVIRONMENTAL REMEDIATION
For a discussion of Ashland's asbestos-related litigation and
environmental remediation matters, see Note G to the Condensed
Consolidated Financial Statements.
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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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. These statements include those that refer to Ashland's
operating performance, earnings, benefits expected to be obtained
through the SAP ERP implementation and expectations about the use
of proceeds from the MAP Transaction. Although Ashland believes
its expectations are based on reasonable assumptions, it cannot
assure the expectations reflected herein will be achieved. These
forward-looking statements are based upon internal forecasts and
analyses of current and future market conditions and trends,
management plans and strategies, weather, operating efficiencies
and economic conditions, such as prices, supply and demand, cost
of raw materials, and legal proceedings and claims (including
environmental and asbestos matters) and are subject to a number of
risks, uncertainties, and assumptions that could cause actual
results to differ materially from those we describe in the
forward-looking statements. The risks, uncertainties, and
assumptions include the risks associated with the ERP
implementation, including the potential for business interruption
and associated adverse impacts on operating results; and other
risks that are described from time to time in the Securities and
Exchange Commission (SEC) reports of Ashland. Other factors and
risks affecting Ashland are contained in Risks and Uncertainties
in Note A to the Consolidated Financial Statements in Ashland's
annual report on Form 10-K, as amended, for the fiscal year ended
September 30, 2004. Ashland undertakes no obligation to
subsequently update or revise these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Ashland's market risk exposure at June 30, 2005 is generally
consistent with the types and amounts of market risk exposures
presented in Ashland's annual report on Form 10-K, as amended, for
the fiscal year ended September 30, 2004.
ITEM 4. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this quarterly
report, Ashland, under the supervision and with the
participation of its management, including Ashland's
Chief Executive Officer and its Chief Financial Officer,
evaluated the effectiveness of Ashland's disclosure
controls and procedures pursuant to Rule 13a-15(b) and
15d-15(b) promulgated under the Securities Exchange Act
of 1934, as amended. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have
concluded that the disclosure controls and procedures
were effective.
(b) There were no significant changes in Ashland's internal
control over financial reporting, or in other factors,
that occurred during the period covered by this quarterly
report that have materially affected, or are reasonably
likely to materially affect, Ashland's internal control
over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Asbestos-Related Litigation - Ashland is subject to liabilities from
claims alleging personal injury caused by exposure to asbestos. Such claims
result primarily from indemnification obligations undertaken in 1990 in
connection with the sale of Riley Stoker Corporation ("Riley"), a former
subsidiary. Although Riley was neither a producer nor a manufacturer of
asbestos, its industrial boilers contained some asbestos-containing
components provided by other companies.
The majority of lawsuits filed involve multiple plaintiffs and
multiple defendants, with the number of defendants in many cases exceeding
100. The monetary damages sought in the asbestos-related complaints that
have been filed in state or federal courts vary as a result of
jurisdictional requirements and practices, though the vast majority of
these complaints either do not specify monetary damages sought or merely
recite that the monetary damages sought meet or exceed the required
jurisdictional minimum in which the complaint was filed. Plaintiffs have
asserted specific dollar claims for damages in approximately 5% of the
52,100 active lawsuits pending as of June 30, 2005. In these active
lawsuits, less than 0.2% of the active lawsuits involve claims between $0
and $100,000; approximately 1.5% of the active lawsuits involve claims
between $100,000 and $1 million; less than 1% of the active lawsuits
involve claims between $1 million and $5 million; less than 0.2% of the
active lawsuits involve claims between $5 million and $10 million;
approximately 2% of the active lawsuits involve claims between $10 million
and $15 million; and less than 0.02% of the active lawsuits involve claims
between $15 million and $100 million. The variability of requested damages,
coupled with the actual experience of resolving claims over an extended
period, demonstrates that damages requested in any particular lawsuit or
complaint bear little or no relevance to the merits or disposition value of
a particular case. Rather, the amount potentially recoverable by a specific
plaintiff or group of plaintiffs is determined by other factors such as
product identification or lack thereof, the type and severity of the
disease alleged, the number and culpability of other defendants, the impact
of bankruptcies of other companies that are co-defendants in claims,
specific defenses available to certain defendants, other potential
causative factors and the specific jurisdiction in which the claim is made.
For additional information regarding liabilities arising from
asbestos-related litigation, see Note G of "Notes to Condensed Consolidated
Financial Statements" in this quarterly report on Form 10-Q.
U.S. Department of Justice ("USDOJ") Antitrust Division Investigation
- In November 2003, Ashland received a subpoena from the USDOJ relating to
a foundry resins grand jury investigation. Ashland has provided responsive
records to the subpoena. As is frequently the case when such investigations
are in progress, a number of civil actions have since been filed in
multiple jurisdictions, most of which are seeking class action status for
classes of customers of foundry resins. These cases have been consolidated
for pretrial purposes in the United States District Court, Southern
District of Ohio. Ashland will vigorously defend the actions.
Environmental Proceedings - (1) Under the federal Comprehensive
Environmental Response Compensation and Liability Act (as amended) and
similar state laws, Ashland may be subject to joint and several liability
for clean-up costs in connection with alleged releases of hazardous
substances at sites where it has been identified as a "potentially
responsible party" ("PRP"). As of June 30, 2005, Ashland had been named a
PRP at 102 waste treatment or disposal sites. These sites are currently
subject to ongoing investigation and remedial activities, overseen by the
United States Environmental Protection Agency (the "USEPA") 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.
For additional information regarding environmental matters and
reserves, see Note G of "Notes to Condensed Consolidated Financial
Statements" in this quarterly report on Form 10-Q.
(2) On May 13, 2002, Ashland entered into a plea agreement with the
U.S. Attorney's Office for the District of Minnesota and the U.S.
Department of Justice regarding a May 16, 1997, sewer fire at the St. Paul
Park, Minnesota refinery, which is now owned by MAP. As part of the plea
agreement, Ashland entered guilty pleas to two misdemeanors, paid a $3.5
million fine related to violations of the Clean Air Act ("CAA"), paid $3.55
million as restitution to the employees injured in the fire, and paid
$200,000 as restitution to the responding rescue units. Ashland also agreed
to complete certain upgrades to the St. Paul Park refinery's process
sewers, junction boxes and
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drains to meet standards established by Subpart QQQ of the New Source
Performance Standards of the CAA (the "Refinery Upgrades"). The Refinery
Upgrades, completed in 2004, have been acknowledged and accepted by the
appropriate agencies. As part of the plea agreement, Ashland entered into
and satisfied the terms and conditions of a deferred prosecution agreement
so that the deferred prosecution was dismissed by the court on February 22,
2005.
As part of its sentence, Ashland was placed on probation for five
years. The primary condition of probation is an obligation not to commit
future federal, state, or local crimes. If Ashland were to commit such a
crime, it would be subject not only to prosecution for that new violation,
but the government could also seek to revoke Ashland's probation. The
probation office has retained an independent environmental consultant to
review and monitor Ashland's compliance with applicable environmental
requirements and the terms and conditions of probation. The court also
included other customary terms and restrictions of probation in its
probation order
(3) In 1990, contamination of groundwater at Ashland's former Canton,
Ohio, refinery (now owned and operated by MAP) was first identified and
reported to Ohio's Environmental Protection Agency ("OEPA"). Since that
time, Ashland has voluntarily conducted investigation and remediation
activities and regularly communicated with OEPA regarding this matter.
Ashland and the state of Ohio have exchanged Consent Order drafts and have
met to negotiate the terms of such an order. The state filed a complaint in
February 2004, but simultaneously expressed an interest in continuing
Consent Order settlement discussions. Following the filing of the
complaint, Ashland, OEPA and Ohio's Office of the Attorney General have
continued to work to finalize a Consent Order. The state has advised that
it will assess a penalty as part of the overall settlement and has made an
initial request for $650,000.
Class Action Lawsuit Related to MAP Transaction - On April 8, 2005,
Shiva Singh filed a complaint in the Supreme Court of the State of New York
in New York County, individually and on behalf of others similarly
situated, against Ashland and the individual members of Ashland's Board of
Directors. The complaint also names Marathon Oil Corporation ("Marathon"),
MAP and Credit Suisse First Boston LLC ("CSFB") as defendants. On May 19,
2005, Ashland removed the action to the United States District Court for
the Southern District of New York. The action arose out of a proposed
transaction, which was announced on March 19, 2004, in which Ashland was to
transfer its entire 38% interest in MAP as well as certain other businesses
to Marathon. The proposed transaction was valued at approximately $3
billion. The complaint alleges breach of fiduciary duties against Ashland,
its directors, Marathon and MAP as well as negligence and breach of
fiduciary duties against CSFB. The complaint also alleges aiding and
abetting breach of fiduciary duties and/or negligence against each of the
defendants.
The plaintiff seeks to recover from defendants an unspecified amount
of damages. The plaintiff also seeks to enjoin the proposed transaction
between Ashland and Marathon (and any related shareholder vote); to require
defendants to make a full and fair disclosure of all material facts before
completion of the proposed transaction; and to require defendants to obtain
a current, independent fairness opinion concerning the proposed
transaction. In the event that the proposed transaction is consummated
prior to the entry of the court's final judgment, the plaintiff seeks
rescission of the proposed transaction as well as damages. The plaintiff
also seeks the costs and disbursements of the action, including reasonable
fees and expenses of plaintiff's attorneys and expert.
Ashland believes the lawsuit is without merit. As stated in its May 2,
2005 Form 8-K, on April 27, 2005, Ashland signed an amendment to its
agreement to transfer its 38% interest in MAP and two other businesses to
Marathon. Under the amended agreement, Ashland's interest in these
businesses was valued at approximately $3.7 billion (compared to $3 billion
in the original proposed transaction). As noted in Item 5 to this quarterly
report on Form 10-Q, Ashland transferred its 38% interest in MAP and two
other businesses to Marathon on June 30, 2005. On July 8, 2005, Ashland
moved to dismiss the complaint. CSFB joined Ashland's motion to dismiss
and, on July 8, 2005, Marathon filed a separate motion to dismiss the
complaint.
Other Legal Proceedings - In addition to the matters described above,
there are various claims, lawsuits and administrative proceedings pending
or threatened against Ashland and its current and former subsidiaries. Such
actions are with respect to commercial matters, product liability, toxic
tort liability, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Ashland's Special Meeting of Shareholders was held on June 29,
2005 at the Metropolitan Club, 50 E. RiverCenter Boulevard,
Covington, Kentucky at 10:30 a.m.
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(b) Ashland's shareholders at said meeting approved the previously
announced agreement to transfer Ashland's 38-percent interest in
MAP and two other businesses to Marathon by a vote of 57,529,512
affirmative to 1,022,090 negative and 450,666 abstention votes.
ITEM 5. OTHER INFORMATION
On June 30, 2005, Ashland completed its previously announced agreement
with Marathon to transfer Ashland's 38-percent interest in MAP and two
other businesses to Marathon in a transaction valued at approximately $3.7
billion. The two other businesses were Ashland's maleic anhydride business
and 60 Valvoline Instant Oil Change centers in Michigan and northwest Ohio.
As a result of the transaction, Ashland shareholders of record as of
the close of business on June 30, 2005, received .2364 Marathon shares per
Ashland share. In total, Ashland's shareholders received 17,538,815 shares
of Marathon common stock with an aggregate value of $936 million based upon
the June 30 closing price of Marathon stock.
Additionally, the transaction resulted in Ashland's receipt of $2,407
million in cash and MAP accounts receivable of $913 million. These amounts
included approximately $2.8 billion of cash and accounts receivable
included in the $3.7 billion transaction value, and $518 million of cash
and accounts receivable representing 38 percent of MAP's distributable cash
and other adjustments as of June 30, 2005.
For additional information regarding the MAP Transaction, see Note D
of "Notes to Condensed Consolidated Financial Statements" in this quarterly
report on Form 10-Q.
ITEM 6. EXHIBITS
(a) Exhibits
3(i) Second Restated Articles of Incorporation of Ashland,
effective July 21, 2005.
3(ii) By-laws of Ashland, effective June 30, 2005.
12 Computation of Ratio of Earnings to Fixed Charges.
31.1 Certificate of James J. O'Brien, Chief Executive Officer
of Ashland pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certificate of J. Marvin Quin, Chief Financial Officer of
Ashland pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Certificate of James J. O'Brien, Chief Executive Officer
of Ashland, and J. Marvin Quin, Chief Financial Officer
of Ashland, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Ashland Inc.
------------------------------------
(Registrant)
Date: August 8, 2005 /s/ J. Marvin Quin
-------------------------------------
J. Marvin Quin
Senior Vice President and Chief Financial
Officer (on behalf of the Registrant and
as principal financial officer)
26
EXHIBIT INDEX
Exhibit
No. Description
-------- --------------------------------------------------------------
3(i) Second Restated Articles of Incorporation of Ashland,
effective July 21, 2005.
3(ii) By-laws of Ashland, effective June 30, 2005.
12 Computation of Ratio of Earnings to Fixed Charges.
31.1 Certificate of James J. O'Brien, Chief Executive Officer of
Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certificate of J. Marvin Quin, Chief Financial Officer of
Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certificate of James J. O'Brien, Chief Executive Officer of
Ashland, and J. Marvin Quin, Chief Financial Officer of
Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
27