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Ashland Inc. Reports Preliminary Results for September Quarter and Fiscal 2005

Posted on: Monday, 24 October 2005, 09:00 CDT

COVINGTON, Ky., Oct. 24 /PRNewswire-FirstCall/ -- Ashland Inc. today announced preliminary* results for the fiscal fourth quarter ended Sept. 30, 2005. Net income was $93 million, or $1.24 per share. As compared with the 2004 fourth quarter:

* Total Chemical Sector operating income reached $78 million for the quarter, up slightly -- Ashland Distribution operating income increased to a record $28 million, up 22 percent -- Ashland Specialty Chemical operating income grew to a record $29 million, up 21 percent -- Valvoline recorded operating income of $21 million for the quarter, down 30 percent * Transportation Construction Sector recorded operating income of $43 million, down 39 percent (Logo: http://www.newscom.com/cgi-bin/prnh/20040113/ASHLANDLOGO )

Net income for Ashland's fiscal fourth quarter, ended Sept. 30, 2005, amounted to $93 million as compared with $200 million in the prior-year quarter. Earnings per share amounted to $1.24 in the 2005 quarter versus $2.76 per share in the September 2004 quarter. The prior-year quarter included operating income of $146 million from Ashland's 38-percent interest in Marathon Ashland Petroleum LLC, our maleic anhydride business and 60 Valvoline Instant Oil Change units that were transferred to Marathon Oil Corp. in the June 2005 quarter (collectively referred to as the "MAP Transaction"). The September 2005 quarter benefited from a $33 million decline in net interest and other financial costs, resulting from the retirement of debt and other financings and the investment of the remaining proceeds from the MAP Transaction.

During the September 2005 quarter, Ashland recorded a pretax charge of $13 million for the estimated impact of hurricanes Katrina and Rita on future insurance premiums due Oil Insurance Limited (OIL), the energy-industry mutual insurance consortium in which Ashland participates. These estimates may change as additional information becomes available. Ashland has given notice to OIL that it will terminate its participation effective December 31, 2005. Also during the quarter, Ashland recorded $39 million in tax benefits unrelated to current-period operations. These benefits resulted primarily from a favorable settlement with the Internal Revenue Service for the 1996 - 1998 audit period and the reevaluation of income tax reserves related to other years. Operating income from ongoing businesses was $66 million in the September 2005 quarter as compared with $122 million in the same quarter of 2004.

For its fiscal year ended Sept. 30, 2005, Ashland recorded net income of $2.0 billion versus $378 million in fiscal 2004. The results for fiscal 2005 included a gain of $1.3 billion on the MAP Transaction and a loss of $145 million on the early retirement of debt. Operating income from ongoing businesses was $218 million in fiscal 2005 as compared with $256 million in fiscal 2004.

A detailed analysis of Ashland's earnings for fiscal 2005 appears on page 5 of the attached financial statements.

"Fiscal 2005 was an extraordinary year with our exit from the petroleum refining and marketing industry," said James J. O'Brien, Ashland chairman and chief executive officer. "The quarter, however, was challenging. Disruptions caused by hurricanes and escalating energy prices put pressure on operations in our two industry sectors, Chemical and Transportation Construction, and our results were mixed. As expected, results from our Valvoline and APAC businesses declined. I am encouraged, however, by the continued strong performances of our Specialty Chemical and Distribution businesses. We believe they are positioned to steer through changing economic conditions better than chemical industry norms."

For the fourth quarter, in the Chemical Sector, record performances by the Ashland Distribution and Ashland Specialty Chemical divisions were offset by weak results from Valvoline. As a result, operating income for the Chemical Sector amounted to $78 million, a slight improvement over the $77 million of operating income in the September 2004 quarter.

Ashland Specialty Chemical reported record operating income for the September 2005 quarter of $29 million, up 21 percent over a record fourth quarter established last year. Sales and operating revenues grew to $446 million for the quarter, a 21-percent increase over the fourth quarter last year. Revenue growth was driven by higher selling prices, as well as the contribution of sales from the DERAKANE(R) resins business acquired in December 2004. The increase in operating income reflected a combination of revenue and margin growth.

Ashland Distribution earned $28 million of operating income in the September 2005 quarter -- its seventh consecutive record quarter. Operating income increased by 22 percent compared with the previous quarter a year ago. Sales and operating revenues increased 11 percent versus the year-ago quarter to $972 million. The division has maintained operating margins by passing through rising raw material costs and by aggressively managing expenses. Volume declined by 3 percent compared to the prior-year quarter, primarily reflecting the disposition of the ingestible ingredients business (2 percent).

Valvoline's operating income for the September 2005 quarter was $21 million, down 30 percent from the September quarter a year ago, primarily due to the combination of a 13-percent decrease in lubricant sales volumes, including a 17-percent decline in North American branded volume, and higher raw material costs. Sales and operating revenues were $339 million for the quarter, 4 percent below the September 2004 quarter. Valvoline International reported a record quarter, mostly due to better earnings from operations in Europe and Latin America.

The Transportation Construction Sector, commercially known as Ashland Paving And Construction, Inc. (APAC), reported operating income of $43 million for the September 2005 quarter, compared to $70 million in the 2004 quarter. Results for the September 2005 quarter reflect work disruptions and rapid increases in raw material and energy costs due to the active hurricane and tropical storm season in the quarter. These increases in raw material and energy costs resulted in additional loss provisions for certain construction jobs awarded in prior periods. In total, the provision for job loss reserves was $6.4 million higher than that recorded in the September 2004 quarter. At Sept. 30, APAC's construction backlog, which consists of work awarded and funded but not yet performed, was $2.0 billion, up 17 percent from the same period last year.

Today at 5 p.m. (EDT), Ashland will provide a live webcast of its quarterly presentation to securities analysts. The webcast will be accessible through Ashland's website, http://www.ashland.com/. Following the live event, an archived version of the webcast will be available for 12 months at http://www.ashland.com/investors.

Ashland Inc. is a Fortune 500 chemical and transportation construction company providing products, services and customer solutions throughout the world. To learn more about Ashland, visit http://www.ashland.com/.

(R) Registered trademark, Ashland * Preliminary Results Financial results are preliminary until the Company's 2005 Annual Report on Form 10-K is filed with the U.S. Securities and Exchange Commission. This filing is expected to be made in December 2005. Forward-Looking Statements

This news release 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, with respect to Ashland's operating performance. These estimates are based upon a number of assumptions, including those mentioned within this news release. Such estimates are also 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). Although Ashland believes its expectations are based on reasonable assumptions, it cannot assure the expectations reflected herein will be achieved. This forward-looking information may prove to be inaccurate and actual results may differ significantly from those anticipated if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized or if other unexpected conditions or events occur. Other factors and risks affecting Ashland are contained in Ashland's Form 10-K, as amended, for the fiscal year ended Sept. 30, 2004. Ashland undertakes no obligation to subsequently update or revise the forward-looking statements made in this news release to reflect events or circumstances after the date of this release.

Ashland Inc. and Consolidated Subsidiaries STATEMENTS OF CONSOLIDATED INCOME (In millions except per share data - preliminary and unaudited) Three months ended Year ended September 30 September 30 2005 2004 2005 2004 REVENUES Sales and operating revenues $2,538 $2,334 $9,270 $8,301 Equity income 1 155 531 432 Other income 10 14 59 48 2,549 2,503 9,860 8,781 COSTS AND EXPENSES Cost of sales and operating expenses 2,145 1,946 7,823 6,948 Selling, general and administrative expenses 338 289 1,296 1,171 2,483 2,235 9,119 8,119 OPERATING INCOME 66 268 741 662 Gain on the MAP Transaction (a) (8) - 1,287 - Loss on early retirement of debt - - (145) - Net interest and other financial costs 7 (26) (82) (114) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 65 242 1,801 548 Income taxes 29 (39) 186 (150) INCOME FROM CONTINUING OPERATIONS 94 203 1,987 398 Results from discontinued operations (net of income taxes) (1) (3) (1) (20) NET INCOME $ 93 $ 200 $1,986 $ 378 DILUTED EARNINGS PER SHARE Income from continuing operations $ 1.25 $ 2.81 $26.62 $ 5.59 Results from discontinued operations (.01) (.05) (.01) (.28) Net income $ 1.24 $ 2.76 $26.61 $ 5.31 AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS 75 72 75 71 SALES AND OPERATING REVENUES APAC $ 826 $ 770 $2,539 $2,525 Ashland Distribution 972 873 3,810 3,199 Ashland Specialty Chemical 446 369 1,763 1,386 Valvoline 339 352 1,326 1,297 Intersegment sales (45) (30) (168) (106) $2,538 $2,334 $9,270 $8,301 OPERATING INCOME APAC $ 43 $ 70 $ 48 $ 111 Ashland Distribution 28 23 123 78 Ashland Specialty Chemical 29 24 134 87 Valvoline 21 30 90 105 Refining and Marketing (b) (2) 151 484 383 Corporate (53) (30) (138) (102) $ 66 $ 268 $ 741 $ 662 (a) "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. (b) Includes Ashland's equity income from MAP, amortization related to Ashland's excess investment in MAP, and other activities associated with refining and marketing. Ashland Inc. and Consolidated Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In millions - preliminary and unaudited) September 30 2005 2004 ASSETS Current assets Cash and cash equivalents $ 987 $ 243 Available-for-sale securities 403 - Accounts receivable 1,603 1,290 Inventories 527 458 Deferred income taxes 127 103 Other current assets 148 208 3,795 2,302 Investments and other assets Investment in Marathon Ashland Petroleum LLC (MAP) - 2,713 Goodwill 577 513 Asbestos insurance receivable (noncurrent portion) 370 399 Deferred income taxes 154 - Other noncurrent assets 480 319 1,581 3,944 Property, plant and equipment Cost 3,274 3,104 Accumulated depreciation, depletion and amortization (1,852) (1,848) 1,422 1,256 $ 6,798 $ 7,502 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Debt due within one year $ 12 $ 439 Trade and other payables 1,523 1,362 Income taxes 9 14 1,544 1,815 Noncurrent liabilities Long-term debt (less current portion) 82 1,109 Employee benefit obligations 358 428 Deferred income taxes - 367 Reserves of captive insurance companies 182 179 Asbestos litigation reserve (noncurrent portion) 521 568 Other long-term liabilities and deferred credits 390 330 1,533 2,981 Stockholders' equity 3,721 2,706 $ 6,798 $ 7,502 Ashland Inc. and Consolidated Subsidiaries STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions - preliminary and unaudited) Year ended September 30 2005 2004 CASH FLOWS FROM OPERATIONS Income from continuing operations $ 1,987 $ 398 Adjustments to reconcile to cash flows from operations Depreciation, depletion and amortization 193 193 Deferred income taxes (515) 125 Equity income from affiliates (531) (432) Distributions from equity affiliates 281 169 Gain on the MAP Transaction (1,287) - Loss on early retirement of debt 145 - Change in operating assets and liabilities (a) (228) (246) Other items (5) 2 40 209 CASH FLOWS FROM FINANCING Proceeds from issuance of common stock 115 108 Repayment of long-term debt (1,552) (100) Repurchase of common stock (100) - Increase (decrease) in short-term debt (40) 40 Cash dividends paid (79) (77) (1,656) (29) CASH FLOWS FROM INVESTMENT Additions to property, plant and equipment (b) (380) (210) Purchase of operations - net of cash acquired (156) (5) Cash proceeds from sale of operations (c) 3,306 48 Purchases of available-for-sale securities (402) - Proceeds from sales and maturities of available-for-sale securities 1 - Other - net 19 26 2,388 (141) CASH PROVIDED BY CONTINUING OPERATIONS 772 39 Cash used by discontinued operations (28) (19) INCREASE IN CASH AND CASH EQUIVALENTS $ 744 $ 20 DEPRECIATION, DEPLETION AND AMORTIZATION APAC $ 93 $ 95 Ashland Distribution 18 18 Ashland Specialty Chemical 44 41 Valvoline 27 27 Corporate 11 12 $ 193 $ 193 ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT APAC $ 200 $ 73 Ashland Distribution 26 10 Ashland Specialty Chemical 64 62 Valvoline 66 26 Corporate 24 39 $ 380 $ 210 (a) Excludes changes resulting from operations acquired or sold. Amount for 2005 includes a $150 million reduction in accounts receivable sold under a sale of receivables financing program. (b) Amount for 2005 includes $101 million for purchases of previously leased assets with proceeds from the MAP Transaction. (c) Amount for 2005 includes cash proceeds (net of expenses) of $3,290 million from the MAP Transaction. Ashland Inc. and Consolidated Subsidiaries OPERATING INFORMATION BY INDUSTRY SEGMENT (In millions - preliminary and unaudited) Three months Year ended ended September 30 September 30 2005 2004 2005 2004 APAC Construction backlog at September 30 (a) $ 2,038 $ 1,746 Net construction job revenues (b) $ 492 $ 451 $ 1,458 $ 1,433 Hot-mix asphalt production (tons) 10.3 10.7 31.3 33.4 Aggregate production (tons) 8.8 8.7 31.4 29.6 ASHLAND DISTRIBUTION (c) Sales per shipping day $ 15.2 $ 13.6 $ 15.1 $ 12.6 Gross profit as a percent of sales 9.3% 9.5% 9.7% 9.6% ASHLAND SPECIALTY CHEMICAL (c) Sales per shipping day $ 7.0 $ 5.8 $ 7.0 $ 5.4 Gross profit as a percent of sales 27.4% 25.5% 26.6% 27.9% VALVOLINE Lubricant sales (gallons) 44.0 50.3 175.4 191.6 Premium lubricants (percent of U.S. branded volumes) 23.1% 22.9% 23.4% 21.5% (a) Includes APAC's proportionate share of the backlog of unconsolidated joint ventures. (b) Total construction job revenues, less subcontract costs. (c) Sales are defined as sales and operating revenues. Gross profit is defined as sales and operating revenues, less cost of sales and operating expenses. Ashland Inc. and Consolidated Subsidiaries COMPONENTS OF NET INCOME (In millions except per share data - preliminary and unaudited) Year ended September 30, 2005 Impact of Businesses MAP Sold and Transaction Ongoing Interest and Debt Businesses Eliminated Repayments Total OPERATING INCOME APAC $ 48 $ $ $ 48 Ashland Distribution 123 123 Ashland Specialty Chemical 131 3 134 Valvoline 89 1 90 Refining and Marketing (35) 519 484 Corporate (138) (138) OPERATING INCOME 218 523 741 Gain on the MAP Transaction - 1,287 1,287 Loss on early retirement of debt - (145) (145) Net interest and other financial costs 4 (86) (82) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 222 437 1,142 1,801 Income taxes (25) (171) 382 186 INCOME FROM CONTINUING OPERATIONS 197 266 1,524 1,987 Results from discontinued operations (1) (1) NET INCOME $ 196 $ 266 $ 1,524 $ 1,986 DILUTED EARNINGS PER SHARE Income from continuing operations $ 2.64 $ 3.57 $ 20.41 $ 26.62 Results from discontinued operations (0.01) (0.01) Net income $ 2.63 $ 3.57 $ 20.41 $ 26.61

Photo: http://www.newscom.com/cgi-bin/prnh/20040113/ASHLANDLOGOAP Archive: http://photoarchive.ap.org/PRN Photo Desk,photodesk@prnewswire.com

Ashland Inc.

CONTACT: Media, Jim Vitak, +1-614-790-3715, jevitak@ashland.com, orInvestor, Daragh Porter, +1-859-815-3825, dlporter@ashland.com

Web site: http://www.ashland.com/

Company News On-Call: http://www.prnewswire.com/comp/065263.html

Source: PRNewswire-FirstCall

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