==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
50 E. RiverCenter Boulevard
P. O. Box 391
Covington, Kentucky 41012-0391
Telephone Number: (859) 815-3333
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
At April 30, 2001, there were 69,787,134 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.
==============================================================================
PART I - FINANCIAL INFORMATION
----------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
---------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
----------------------- -----------------------
(In millions except per share data) 2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales and operating revenues $ 1,659 $ 1,822 $ 3,537 $ 3,718
Equity income 102 51 223 88
Other income 17 22 31 36
---------- ---------- ---------- ---------
1,778 1,895 3,791 3,842
COSTS AND EXPENSES
Cost of sales and operating expenses 1,365 1,460 2,911 2,996
Selling, general and administrative expenses 267 287 532 531
Depreciation, depletion and amortization 59 58 117 115
---------- ---------- ---------- ---------
1,691 1,805 3,560 3,642
---------- ---------- ---------- ---------
OPERATING INCOME 87 90 231 200
Net interest and other financial costs (43) (45) (89) (88)
---------- ---------- ---------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 44 45 142 112
Income taxes (18) (20) (57) (47)
---------- ---------- ---------- ---------
INCOME FROM CONTINUING OPERATIONS 26 25 85 65
Loss from discontinued operations (net of income taxes) (8) (9) (8) (215)
Gain (loss) on disposal of discontinued operations (net of income taxes) 33 (3) 33 (3)
---------- ---------- ---------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 51 13 110 (153)
Extraordinary loss on early retirement of debt (net of income taxes) - (2) - (2)
Cumulative effect of accounting change (net of income taxes) (5) - (5) -
---------- ---------- ---------- ---------
NET INCOME (LOSS) $ 46 $ 11 $ 105 $ (155)
========== ========== ========== =========
BASIC EARNINGS (LOSS) PER SHARE - Note A
Income from continuing operations $ .37 $ .35 $ 1.22 $ .91
Loss from discontinued operations (.11) (.12) (.11) (3.01)
Gain (loss) on disposal of discontinued operations .46 (.04) .46 (.04)
Extraordinary loss on early retirement of debt - (.03) - (.03)
Cumulative effect of accounting change (.06) - (.07) -
---------- ---------- ---------- ---------
Net income (loss) $ .66 $ .16 $ 1.50 $ (2.17)
========== ========== ========== =========
DILUTED EARNINGS (LOSS) PER SHARE - Note A
Income from continuing operations $ .37 $ .35 $ 1.21 $ .91
Loss from discontinued operations (.11) (.12) (.11) (3.01)
Gain (loss) on disposal of discontinued operations .46 (.04) .46 (.04)
Extraordinary loss on early retirement of debt - (.03) - (.03)
Cumulative effect of accounting change (.06) - (.07) -
---------- ---------- ---------- ---------
Net income (loss) $ .66 $ .16 $ 1.49 $ (2.17)
========== ========== ========== =========
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275 $ .55 $ .55
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
- -----------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------------
March 31 September 30 March 31
(In millions) 2001 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 77 $ 67 $ 64
Accounts receivable 1,084 1,268 1,179
Allowance for doubtful accounts (29) (25) (21)
Inventories - Note A 503 488 519
Deferred income taxes 131 135 104
Other current assets 109 198 145
---------- ---------- ---------
1,875 2,131 1,990
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) 2,307 2,295 2,189
Cost in excess of net assets of companies acquired 530 537 484
Investment in Arch Coal - discontinued operations - 35 36
Other noncurrent assets 387 351 308
---------- ---------- ---------
3,224 3,218 3,017
PROPERTY, PLANT AND EQUIPMENT
Cost 2,941 2,879 2,935
Accumulated depreciation, depletion and amortization (1,529) (1,457) (1,417)
---------- ---------- ---------
1,412 1,422 1,518
---------- ---------- ---------
$ 6,511 $ 6,771 $ 6,525
========== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $ 266 $ 327 $ 413
Trade and other payables 1,119 1,330 1,196
Income taxes 31 42 103
---------- ---------- ---------
1,416 1,699 1,712
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,889 1,899 1,947
Employee benefit obligations 375 383 415
Deferred income taxes 262 288 87
Reserves of captive insurance companies 185 179 194
Other long-term liabilities and deferred credits 369 358 346
Commitments and contingencies - Note E
---------- ---------- ---------
3,080 3,107 2,989
COMMON STOCKHOLDERS' EQUITY 2,015 1,965 1,824
---------- ---------- ---------
$ 6,511 $ 6,771 $ 6,525
========== ========== =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
----------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
Common Paid-in Retained comprehensive
(In millions) stock capital earnings loss Total
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 1, 1999 $ 72 $ 464 $ 1,710 $ (46) $ 2,200
Total comprehensive income (loss) (1) (155) (8) (163)
Dividends
Cash (39) (39)
Spin-off of Arch Coal shares (123) (123)
Issued common stock for
acquisitions of other companies 1 1
Repurchase of common stock (2) (50) (52)
--------- --------- ---------- ---------------- --------
BALANCE AT MARCH 31, 2000 $ 70 $ 415 $ 1,393 $ (54) $ 1,824
========= ========= ========== ================ ========
BALANCE AT OCTOBER 1, 2000 $ 70 $ 388 $ 1,579 $ (72) $ 1,965
Total comprehensive income (1) 105 (16) 89
Cash dividends (38) (38)
Issued common stock under
stock incentive plans 10 10
Repurchase of common stock (11) (11)
--------- --------- ---------- ---------------- --------
BALANCE AT MARCH 31, 2001 $ 70 $ 387 $ 1,646 $ (88) $ 2,015
========= ========= ========== ================ ========
----------------------------------------------------------------------------------------------------------------------------------
(1) Reconciliations of net income (loss) to total comprehensive income (loss) follow.
Three months ended Six months ended
March 31 March 31
--------------------------- ---------------------------
(In millions) 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 46 $ 11 $ 105 $ (155)
Unrealized translation adjustments (9) (4) (19) (14)
Related tax benefit 1 2 3 6
----------- ----------- ----------- -----------
Total comprehensive income (loss) $ 38 $ 9 $ 89 $ (163)
=========== =========== =========== ===========
-----------------------------------------------------------------------------------------------------------------------
At March 31, 2001, the accumulated other comprehensive loss was
comprised of net unrealized translation losses of $80 million and a
minimum pension liability of $8 million.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
- ---------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
Six months ended
March 31
--------------------------------
(In millions) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM CONTINUING OPERATIONS
Income from continuing operations $ 85 $ 65
Expense (income) not affecting cash
Depreciation, depletion and amortization 117 115
Deferred income taxes 23 (24)
Equity income from affiliates (223) (88)
Distributions from equity affiliates 212 68
Other items 1 -
Change in operating assets and liabilities (1) (65) 64
----------- -----------
150 200
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 52 737
Proceeds from issuance of common stock 6 -
Repayment of long-term debt (73) (356)
Repurchase of common stock (11) (52)
Increase (decrease) in short-term debt (50) 129
Dividends paid (2) (38) (39)
----------- -----------
(114) 419
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (109) (136)
Purchase of operations - net of cash acquired (3) (18) (550)
Proceeds from sale of operations 8 -
Other - net 7 19
----------- -----------
(112) (667)
----------- -----------
CASH USED BY CONTINUING OPERATIONS (76) (48)
Cash provided by discontinued operations 86 2
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10 (46)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 67 110
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 77 $ 64
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Excludes changes resulting from operations acquired or sold.
(2) The 2000 amount excludes the dividend of Arch Coal shares to Ashland
shareholders which resulted in a $123 million charge to retained earnings.
(3) Amounts exclude acquisitions through the issuance of common stock of
$1 million in 2000.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
- -----------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
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 for the fiscal year ended September 30, 2000. Results of
operations for the periods ended March 31, 2001, are not
necessarily indicative of results to be expected for the year
ending September 30, 2001.
INVENTORIES
--------------------------------------------------------------------------------------------------------------------
March 31 September 30 March 31
(In millions) 2001 2000 2000
--------------------------------------------------------------------------------------------------------------------
Chemicals and plastics $ 373 $ 375 $ 385
Construction materials 83 80 79
Petroleum products 64 52 56
Other products 50 45 54
Supplies 7 7 7
Excess of replacement costs over LIFO carrying values (74) (71) (62)
-------- ------- -------
$ 503 $ 488 $ 519
======== ======= =======
EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share (EPS) from continuing operations.
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
----------------------- -----------------------
(In millions except per share data) 2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------------------
NUMERATOR
Numerator for basic and diluted EPS - Income from
continuing operations $ 26 $ 25 $ 85 $ 65
========== ========== =========== ==========
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 70 71 70 71
Common shares issuable upon exercise of stock options - - - -
---------- ---------- ----------- ----------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 70 71 70 71
========== ========== =========== ==========
BASIC EPS FROM CONTINUING OPERATIONS $ .37 $ .35 $ 1.22 $ .91
DILUTED EPS FROM CONTINUING OPERATIONS $ .37 $ .35 $ 1.21 $ .91
6
- -----------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTING CHANGE
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 was subsequently
amended by two other statements and is required to be adopted in
years beginning after June 15, 2000. Because of Ashland's minimal
use of derivatives, FAS 133 did not have a significant effect on
Ashland's financial position or results of operations when it was
adopted on October 1, 2000. MAP's adoption of FAS 133 on January
1, 2001, resulted in a $20 million pretax loss from the cumulative
effect of this accounting change. Ashland's share of the pretax
loss amounted to $7 million which, net of income tax benefits of
$2 million, resulted in a loss of $5 million from the cumulative
effect of this accounting change.
NOTE B - DISCONTINUED OPERATIONS
In March 2000, Ashland distributed 17.4 million shares of its Arch
Coal Common Stock to Ashland's shareholders. Ashland sold its
remaining 4.7 million Arch Coal shares in February 2001 for $86
million (after underwriting commissions). Such sale resulted in a
pretax gain on disposal of discontinued operations of $49 million
($33 million after income taxes). In the March 2000 quarter,
Ashland accrued $5 million of costs related to the spin-off and an
offsetting tax benefit of $2 million.
Results from Arch Coal through March 2000 are shown as
discontinued operations. Components of the loss from discontinued
operations are presented in the following table. Results for the
quarter ended March 31, 2001, also included accruals of $13
million for estimated costs associated with other operations
previously discontinued. Results for the six months ended March
31, 2000, included a net loss of $203 million related to asset
impairment and restructuring costs, largely due to the write-down
of assets at Arch's Dal-Tex and Hobet 21 mining operations and
certain coal reserves in central Appalachia.
----------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
-------------------------- ---------------------------
(In millions) 2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------------
Revenues - Equity loss $ - $ (9) $ - $ (246)
Costs and expenses - SG&A expenses (13) (1) (13) (1)
----------- ----------- ------------ ------------
Operating loss (13) (10) (13) (247)
Income tax benefit 5 1 5 32
----------- ----------- ------------ ------------
Loss from discontinued operations $ (8) $ (9) $ (8) $ (215)
=========== =========== ============ ============
NOTE C - EXTRAORDINARY LOSS
During the quarter ended March 31, 2000, Ashland refunded $36
million of pollution control revenue bonds and prepaid $285
million of the $600 million floating-rate debt used to fund the
acquisition of the U.S. construction operations of Superfos a/s.
The write-off of unamortized deferred debt issuance expenses and a
redemption premium on the bonds resulted in pretax charges
totaling $3 million which, net of income tax benefits of $1
million, resulted in an extraordinary loss on early retirement of
debt of $2 million.
NOTE D- UNCONSOLIDATED AFFILIATES
Ashland is required by Rule 3-09 of Regulation S-X to file
separate financial statements for its significant unconsolidated
affiliate, Marathon Ashland Petroleum LLC (MAP). Ashland's
ownership position in Arch
7
- -----------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE D- UNCONSOLIDATED AFFILIATES (continued)
Coal, Inc. met those same filing requirements prior to the
spin-off and sale described in Note B. Financial statements for
MAP and Arch Coal for the year ended December 31, 2000, were filed
on a Form 10-K/A on March 30, 2001. 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 incurred by its parents.
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
---------------------------- ---------------------------
(In millions) 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------------
Sales and operating revenues $ 6,747 $ 6,448 $ 14,110 $ 12,372
Income from operations 284 147 611 253
Income before cumulative effect of accounting change 283 146 613 257
Net income 263 146 593 257
Ashland's equity income 101 49 220 85
NOTE E- LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local
environmental laws and regulations that require remediation
efforts at multiple locations. At March 31, 2001, such locations
included 90 waste treatment or disposal sites where Ashland has
been identified as a potentially responsible party under Superfund
or similar state laws, approximately 100 current and former
operating facilities (including certain operating facilities
conveyed to MAP) and numerous service station properties.
Consistent with its accounting policy for environmental costs,
Ashland's reserves for environmental assessments and remediation
efforts amounted to $154 million at March 31, 2001. None of the
remediation sites is individually material as the largest reserve
for any identified site is under $10 million. Such amounts reflect
Ashland's estimates of the most likely costs which will be
incurred over an extended period to remediate identified
environmental conditions for which the costs are reasonably
estimable, without regard to any third-party recoveries.
Environmental reserves are subject to numerous inherent
uncertainties that affect Ashland's ability to estimate its share
of the ultimate costs of required remediation efforts. Such
uncertainties involve the nature and extent of contamination at
each site, the extent of required cleanup efforts under existing
environmental regulations, widely varying costs of alternate
cleanup methods, changes in environmental regulations, the
potential effect of continuing improvements in remediation
technology, and the number and financial strength of other
potentially responsible parties at multiparty sites. Reserves are
regularly adjusted as environmental assessments and remediation
efforts proceed.
Ashland and its subsidiaries are parties to numerous actions,
including claims, lawsuits and environmental matters, some of
which are for substantial amounts. While these actions are being
contested, their outcome is not predictable with assurance and
could be material. However, Ashland does not believe that any
liability resulting from the above actions, after taking into
consideration its insurance coverage, contributions by other
responsible parties and amounts already provided for, will have a
material adverse effect on its consolidated financial position,
cash flows or liquidity. Ashland's exposure to adverse
developments with respect to any individual matter is not expected
to be material, and these matters are in various stages of the
ongoing assessment process. Although such actions 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.
8
- ------------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
----------------------------- ------------------------------
(In millions) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales and operating revenues
APAC $ 384 $ 431 $ 1,005 $ 1,036
Ashland Distribution 726 812 1,457 1,580
Ashland Specialty Chemical 304 323 615 637
Valvoline 267 286 508 524
Intersegment sales
Ashland Distribution (7) (9) (14) (19)
Ashland Specialty Chemical (15) (20) (33) (39)
Valvoline - (1) (1) (1)
------------ ------------ ------------ ------------
1,659 1,822 3,537 3,718
Equity income
Ashland Specialty Chemical 1 1 3 2
Valvoline - 1 - 1
Refining and Marketing 101 49 220 85
------------ ------------ ------------ ------------
102 51 223 88
Other income
APAC 3 5 5 6
Ashland Distribution 2 3 4 5
Ashland Specialty Chemical 8 7 15 13
Valvoline 2 2 3 3
Refining and Marketing - 2 - 5
Corporate 2 3 4 4
------------ ------------ ------------ ------------
17 22 31 36
------------ ------------ ------------ ------------
$ 1,778 $ 1,895 $ 3,791 $ 3,842
============ ============ ============ ============
OPERATING INCOME
APAC $ (38) $ 1 $ (25) $ 38
Ashland Distribution 14 14 24 27
Ashland Specialty Chemical 17 24 36 53
Valvoline 19 23 29 34
Refining and Marketing (1) 96 45 204 78
Corporate (21) (17) (37) (30)
------------ ------------ ------------ ------------
$ 87 $ 90 $ 231 $ 200
============ ============ ============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes Ashland's equity income from MAP, amortization of Ashland's
excess investment in MAP, and certain retained refining and marketing
activities.
9
- ------------------------------------------------------------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
---------------------------- -----------------------------
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
APAC
Construction backlog at March 31 (millions) $ 1,856 $ 1,388
Hot mix asphalt production (million tons) 4.1 5.2 12.6 14.0
Aggregate production (million tons) 5.5 5.5 11.4 11.9
Ready-mix concrete production (thousand cubic yards) 460 629 983 1,226
Ashland Distribution (1)
Sales per shipping day (millions) $ 11.3 $ 12.5 $ 11.7 $ 12.5
Gross profit as a percent of sales 16.4% 15.5% 16.0% 15.6%
Ashland Specialty Chemical (1)
Sales per shipping day (millions) $ 4.8 $ 5.0 $ 4.9 $ 5.1
Gross profit as a percent of sales 34.0% 34.4% 34.0% 35.2%
Valvoline lubricant sales (thousand barrels per day) 11.6 13.3 11.0 12.3
Refining and Marketing (2)
Crude oil refined (thousand barrels per day) 869.9 851.4 863.3 837.8
Consolidated refined products sold (thousand barrels per day) (3) 1,253.0 1,218.6 1,280.9 1,269.6
Refining and wholesale marketing margin (per barrel) (4) $ 3.63 $ 1.84 $ 3.69 $ 1.43
Speedway SuperAmerica (SSA) retail outlets at March 31 2,183 2,420
SSA gasoline and distillate sales (millions of gallons) 1,054 1,113 2,186 2,247
SSA gross margin - gasoline and distillates (per gallon) $ 0.0958 $ 0.1079 $ 0.1021 $ 0.1122
SSA merchandise sales (millions) $ 528 $ 533 $ 1,086 $ 1,063
SSA merchandise margin (as a percent of sales) 24.5% 24.3% 24.7% 26.1%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sales are defined as sales and operating revenues. Gross profit is
defined as sales and operating revenues, less cost of sales and
operating expenses, less depreciation and amortization relative to
manufacturing assets.
(2) Amounts represent 100 percent of the volumes of MAP, in which Ashland
owns a 38 percent interest.
(3) Total volume of all refined product sales to MAP's wholesale, branded
and retail (SSA) customers.
(4) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.
10
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Current Quarter - Ashland's income from continuing operations was
$26 million for the quarter ended March 31, 2001, compared to $25
million for the quarter ended March 31, 2000. The impact of
improved refining margins for Marathon Ashland Petroleum (MAP),
was largely offset by a decline in operating income from Ashland's
wholly owned businesses.
Year-to-Date - For the six months ended March 31, 2001, Ashland
recorded income from continuing operations of $85 million,
compared to $65 million for the six months ended March 31, 2000.
Record operating income of $231 million for the 2001 period
reflects improved refining margins for MAP, partially offset by a
decline in operating income from each of Ashland's wholly owned
businesses.
APAC
Current Quarter - APAC's construction operations recorded an
operating loss of $38 million for the March 2001 quarter, compared
to operating income of $1 million for the March 2000 quarter.
Included in the current quarter's results is a charge of $15
million to correct improper recognition of construction contract
earnings at one of APAC's 46 divisions. During a recent internal
investigation of financial activities at the Manassas, Virginia
division, it was discovered that its earnings had been
intentionally overstated. Preliminary indications are that the
problems relate primarily to the recognition of revenues and
failure to recognize certain costs over a period of two to three
years. There is no current evidence of any impact on outside
parties, customers or suppliers. Ashland is taking appropriate
steps to address this issue and will take whatever further actions
are necessary based on the results of a comprehensive
investigation. Ashland has retained Deloitte & Touche to conduct
an independent review of this matter, as well as APAC's overall
business processes, financial accounting controls and
opportunities for improvement. Local management of the Manassas
division has been replaced.
Poor weather was also a major factor in APAC's operating loss.
Road construction activity levels were materially lower than usual
for the March quarter. Net revenue (total revenue less subcontract
costs) declined 19% from the prior year period, while production
of hot mix asphalt declined 21% and ready-mix concrete production
declined 27%. The weather conditions under which the construction
materials were produced (extreme cold and precipitation) made the
production process inefficient, with crews starting and stopping
in response to weather conditions. Earnings from the asphalt
plants were also adversely affected as increased costs for liquid
asphalt, fuel and power were not fully recovered in APAC's hot mix
asphalt prices. Work interrupted by poor weather remains under
contract and is a factor in the 34% increase in APAC's
construction backlog to $1.9 billion at March 31, 2001.
Year-to-Date - For the six months ended March 31, 2001, APAC
reported an operating loss of $25 million, compared to operating
income of $38 million for the same period of 2000. The decrease
reflects the $15 million charge for the Manassas division
described above, unusually severe weather since November 2000, and
increased costs for liquid asphalt, fuel and power. Despite
several acquisitions and significant growth in APAC's other
operations, net revenues declined 11%, production of hot mix
asphalt declined 10%, crushed aggregate production declined 4%,
and ready-mix concrete production declined 20% from the 2000
period.
11
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
ASHLAND DISTRIBUTION
Current Quarter - Ashland Distribution's operating income of $14
million was even with last year's March quarter, despite unit
volume declines resulting from the weak economy. Margin
improvement and cost reduction initiatives successfully
counteracted much of the impact of lower demand and contributed to
improved performance from chemical and European thermoplastics
distribution. Environmental services' results also improved.
Offsetting these improvements were lower demand-driven volumes and
reduced prices in North American commodity product lines,
impacting the thermoplastics and fiber-reinforced plastics
businesses.
Year-to-Date - For the six months ended March 31, 2001, Ashland
Distribution reported operating income of $24 million, compared to
$27 million for the same period of 2000. Improvements in chemical
and European thermoplastics distribution were more than offset by
declines in North American thermoplastics and fiber-reinforced
plastics, with the same factors described in the current quarter
comparison accounting for the fluctuations.
ASHLAND SPECIALTY CHEMICAL
Current Quarter - For the quarter ended March 31, 2001, Ashland
Specialty Chemical reported operating income of $17 million,
compared to $24 million reported for the March 2000 quarter.
Sluggish demand in transportation and construction markets
continues to adversely affect results from four of Ashland's
specialty chemical businesses. Unit volumes and margins were down
for unsaturated polyester resins, foundry chemicals, specialty
adhesives and maleic anhydride. On the positive side, earnings
from electronic chemicals, industrial water treatment and marine
chemicals were up. Sales volumes increased for all three units,
and electronic chemicals and marine chemicals are also benefiting
from higher margins.
In keeping with its strategy to pursue selected acquisitions,
Ashland completed the purchase of Neste Polyester's business and
assets from Dynea Oy, formerly Norkemi Oy, effective April 30.
This acquisition will advance Ashland to a worldwide market
leadership position in unsaturated polyester resins and gelcoats.
Year-to-Date - For the six months ended March 31, 2001, Ashland
Specialty Chemical reported operating income of $36 million,
compared to $53 million for the first six months of 2000. The same
factors described in the current quarter comparison are
responsible for the decline in the year-to-date results.
VALVOLINE
Current Quarter - For the quarter ended March 31, 2001, Valvoline
reported operating income of $19 million, compared to $23 million
for the March 2000 quarter. The decrease was primarily the result
of lower sales volumes of R-12 automotive refrigerant during the
March 2001 quarter. Last year, Valvoline experienced unusually
strong early season sales of R-12, while this year volumes have
been more in line with normal trends. This decline is expected to
be temporary, as R-12 sales are expected to improve in the June
quarter. In addition, higher raw materials costs led to margin
compression for antifreeze and automotive chemicals. Earnings from
the core North American lubricants business and Eagle One
improved, while results from Valvoline Instant Oil change (VIOC)
declined, reflecting reduced car counts in this year's results and
gains on the sale of certain service centers reported in last
year's results.
12
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
VALVOLINE (CONTINUED)
Year-to-Date - For the six months ended March 31, 2001, Valvoline
reported operating income of $29 million, compared to $34 million
for the same period of 2000. The same factors described in the
current quarter comparison are responsible for the decline in the
year-to-date results.
REFINING AND MARKETING
Current Quarter - Operating income from Refining and Marketing
amounted to $96 million for the quarter ended March 31, 2001,
compared to $45 million for the quarter ended March 31, 2000.
Results for both periods include Ashland's 38% share of MAP's
earnings, amortization of Ashland's excess investment in MAP, and
results of certain retained refining and marketing activities. MAP
experienced strong refining margins for much of the quarter,
offsetting the impact of compressed retail margins and higher
operating and administrative expenses, including costs related to
MAP's variable pay plan. Increased demand from utilities and
home-heating oil customers spurred distillate values. At the same
time, Midwest gasoline markets tightened on concerns that demand
in the upcoming driving season will again exceed supplies. MAP's
refining and wholesale marketing margin increased $1.79 per
barrel, accounting for a $76 million improvement in Ashland's
operating income. However, gasoline and distillate gross margins
for MAP's Speedway SuperAmerica (SSA) retail marketing group
declined 1.21 cents per gallon, reducing Ashland's operating
income by $7 million.
During the quarter, MAP announced two transactions that will
strengthen its retail marketing operations. The planned
acquisition of convenience stores from Welsh Inc. will expand
coverage in northwestern Indiana and southwestern Michigan. MAP
also signed a letter of intent with Pilot Corporation to form a
joint venture involving each company's travel center/truck stop
operations. The new company, of which MAP would own 50 percent,
would initially operate a nationwide chain of about 250 travel
centers.
Year-to-Date - Operating income from Refining and Marketing
amounted to $204 million for the six months ended March 31, 2001,
compared to $78 million for the six months ended March 31, 2000.
The increase reflects strong refining margins, partially offset by
compressed retail margins and higher operating and administrative
expenses, including costs related to MAP's variable pay plan.
MAP's refining and wholesale marketing margin increased $2.26 per
barrel, accounting for a $197 million increase in Ashland's
operating income. SSA's gasoline and distillate gross margin
declined 1.01 cents per gallon, reducing Ashland's operating
income by $11 million, while a decline in SSA's merchandise
margins accounted for a $4 million reduction. These reductions
were partially offset by a gain on the sale of 134 SSA non-core
stores, which added $7 million to Ashland's operating income.
CORPORATE
Corporate expenses amounted to $21 million in the quarter ended
March 31, 2001, compared to $17 million for the quarter ended
March 31, 2000. Corporate expenses on a year-to-date basis
amounted to $37 million in the 2001 period, compared to $30
million in the 2000 period. The higher level of expenses reflects
increased deferred compensation costs in the current year periods,
as well as environmental insurance recoveries included in the
December 1999 quarter.
13
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
NET INTEREST AND OTHER FINANCIAL COSTS
For the quarter ended March 31, 2001, net interest and other
financial costs totaled $43 million, compared to $45 million for
the March 2000 quarter. For the year-to-date, net interest and
other financial costs amounted to $89 million in the 2001 period,
compared to $88 million in the 2000 period. Interest costs are
down $8 million for the quarter and $12 million for the six
months, reflecting reduced debt levels. Interest income is down $3
million for the quarter and $7 million for the six months,
reflecting interest income in the 2000 periods on the note
receivable from Industri Kapital that was received in the series
of transactions associated with the acquisition of the U.S.
construction operations of Superfos. Other financial costs are up
$3 million in the quarter and $6 million for the six months,
reflecting costs associated with the sale of $150 million of
receivables under a program initiated in March 2000.
DISCONTINUED OPERATIONS
As described in Note B to the Condensed Consolidated Financial
Statements, Ashland distributed to Ashland shareholders the major
portion of its common shares of Arch Coal in March 2000. The
spin-off resulted in no gain or loss, but Ashland accrued $3
million in after-tax costs related to the transaction. In February
2001, Ashland sold its remaining shares in Arch Coal resulting in
an after-tax gain of $33 million. Results for Arch Coal through
March 2000 are shown as discontinued operations.
Current Quarter - Results for the quarter ended March 31, 2001,
included after-tax accruals of $8 million for estimated costs
associated with other operations previously discontinued. The
operations of Arch Coal resulted in a net loss to Ashland of $9
million in the quarter ended March 31, 2000. The loss reflected
continued weakness in U.S. coal markets and losses from Arch's
West Elk mine in Colorado, which was idled January 28, 2000, when
higher than normal levels of combustion-related gases were
detected in the mine.
Year-to-Date - Results for the six months ended March 31, 2001,
included after-tax accruals of $8 million for estimated costs
associated with other operations previously discontinued. For the
six months ended March 31, 2000, Ashland recorded a net loss of
$215 million from its investment in Arch Coal. The loss included a
$203 million net charge in the December 1999 quarter related to
asset impairment and restructuring costs. The charge was largely
due to the write-down of assets at Arch's Dal-Tex and Hobet 21
mining operations and certain coal reserves in central Appalachia.
EXTRAORDINARY LOSS
During the quarter ended March 31, 2000, Ashland refunded $36
million of pollution control revenue bonds and prepaid $285
million of the $600 million floating-rate debt used to fund the
acquisition of the U.S. construction operations of Superfos a/s.
The write-off of unamortized deferred debt issuance expenses and a
redemption premium on the bonds resulted in pretax charges
totaling $3 million which, net of income tax benefits of $1
million, resulted in an extraordinary loss on early retirement of
debt of $2 million.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
As described in Note A to the Condensed Consolidated Financial
Statements, in the March 2001 quarter Ashland recognized an
after-tax loss of $5 million from MAP's adoption of FAS 133.
14
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
FINANCIAL POSITION
LIQUIDITY
Ashland's financial position has enabled it to obtain capital for
its financing needs and to maintain investment grade ratings on
its senior debt of Baa2 from Moody's and BBB from Standard &
Poor's. Ashland has two revolving credit agreements providing for
up to $425 million in borrowings, neither of which was used during
the six months ended March 31, 2001. Under a shelf registration,
Ashland can also issue an additional $300 million in debt and
equity securities should future opportunities or needs arise.
Furthermore, Ashland has access to various uncommitted lines of
credit and commercial paper markets, under which $195 million of
short-term borrowings were outstanding at March 31, 2001. While
the revolving credit agreements contain a covenant limiting new
borrowings, Ashland could have increased its borrowings (including
any borrowings under these agreements) by up to $868 million at
March 31, 2001. Additional permissible borrowings are increased or
decreased by 150% of any increases or decreases in stockholders'
equity.
Cash flows from continuing operations, a major source of Ashland's
liquidity, amounted to $150 million for the six months ended March
31, 2001, compared to $200 million for the six months ended March
31, 2000. The 2000 period included $150 million from sales of
receivables (reflected as part of the net change in operating
assets and liabilities) under the new program initiated in March
2000. Partially offsetting the resulting period-to-period decline
were increased cash distributions from MAP ($210 million in 2001,
compared to $68 million in 2000). Ashland's cash flows from
continuing operations exceeded its capital requirements for net
property additions and dividends by $7 million for the six months
ended March 31, 2001.
Operating working capital (accounts receivable and inventories,
less trade and other payables) at March 31, 2001, was $439
million, compared to $401 million at September 30, 2000, and $481
million at March 31, 2000. Liquid assets (cash, cash equivalents
and accounts receivable) amounted to 80% of current liabilities at
March 31, 2001, compared to 77% at September 30, 2000, and 71% at
March 31, 2000. Ashland's working capital is affected by its use
of the LIFO method of inventory valuation, which valued
inventories $74 million below their replacement costs at March 31,
2001.
CAPITAL RESOURCES
For the six months ended March 31, 2001, property additions
amounted to $109 million, compared to $136 million for the same
period last year. Property additions and cash dividends for the
remainder of fiscal 2001 are estimated at $115 million and $38
million. At March 31, 2001, Ashland had remaining authority to
purchase 2.3 million shares of its common stock in the open
market. The number of shares ultimately purchased and the prices
Ashland will pay for its stock are subject to periodic review by
management. Ashland anticipates meeting its remaining 2001 capital
requirements for property additions, dividends and scheduled debt
repayments of $20 million from internally generated funds.
However, external financing may be necessary to provide funds for
acquisitions or purchases of common stock.
At March 31, 2001, Ashland's debt level amounted to $2.2 billion,
essentially the same as the level at September 30, 2000. Debt as a
percent of capital employed was 52% at March 31, 2001, compared to
53% at the end of fiscal 2000. At March 31, 2001, Ashland's debt
included $334 million of floating-rate obligations, including $195
million of short-term borrowings and $139 million of long-term
debt. In
15
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
CAPITAL RESOURCES (CONTINUED)
addition, Ashland's costs under its sale of receivables program
and various operating leases are based on the floating-rate
interest costs on $255 million of third-party debt underlying
those transactions. As a result, Ashland was exposed to
fluctuations in short-term interest rates on $589 million of debt
obligations at March 31, 2001.
OUTLOOK
Looking ahead to the second half of fiscal 2001, supply and demand
fundamentals for Midwest petroleum markets continue to suggest a
strong performance for refining and marketing. However, the
outlook for Ashland's wholly owned businesses remains mixed. APAC
is off to a slow start, and its results will likely fall well
short of those achieved last year. Weakness in the manufacturing
sector of the economy continues to adversely affect the volumes
and margins for certain parts of Ashland Specialty Chemical. The
same is true of Ashland Distribution, although realizing the
benefits of margin improvement initiatives will mitigate some of
the impact. Valvoline's performance continues to be on track with
Ashland's expectations. For the full year, combined profits from
Ashland's wholly owned businesses are likely to be lower than last
year's results. But given the excellent outlook for MAP, Ashland
is quite optimistic about its prospects for the balance of fiscal
2001.
ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations relating to the
protection of the environment have resulted in higher operating
costs and capital investments by the industries in which Ashland
operates. Because of the continuing trends toward greater
environmental awareness and ever increasing regulations, Ashland
believes that expenditures for environmental compliance will
continue to have a significant effect on its businesses. Although
it cannot accurately predict how such trends will affect future
operations and earnings, Ashland believes the nature and
significance of its ongoing compliance costs will be comparable to
those of its competitors. For information on certain specific
environmental proceedings and investigations, see the "Legal
Proceedings" section of this Form 10-Q. For information regarding
environmental reserves, see Note E to the Condensed Consolidated
Financial Statements.
Environmental reserves are subject to numerous inherent
uncertainties that affect Ashland's ability to estimate its share
of the ultimate costs of required remediation efforts. Such
uncertainties involve the nature and extent of contamination at
each site, the extent of required cleanup efforts under existing
environmental regulations, widely varying costs of alternate
cleanup methods, changes in environmental regulations, the
potential effect of continuing improvements in remediation
technology, and the number and financial strength of other
potentially responsible parties at multiparty sites. Reserves are
regularly adjusted as environmental assessments and remediation
efforts proceed.
While the ultimate costs are not predictable with assurance and
could be material, Ashland does not believe that any liability
resulting from environmental matters, after taking into
consideration its insurance coverage, contributions by other
responsible parties and amounts already provided for, will have a
material adverse effect on its consolidated financial position,
cash flows or liquidity. Ashland's exposure to adverse
developments with respect to any individual matter is not expected
to be material, and these matters are in various stages of the
ongoing assessment process. Although such matters could have a
material effect on results of operations if a series of adverse
developments occurs in a particular quarter or fiscal year,
16
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
ENVIRONMENTAL MATTERS (CONTINUED)
Ashland believes that the chance of such developments occurring in
the same quarter or fiscal year is remote.
CONVERSION TO THE EURO
On January 1, 1999, certain member countries of the European
Economic and Monetary Union (EMU) established fixed conversion
rates between their existing currencies and the EMU's common
currency, the Euro. Entities in the participating countries can
conduct their business operations in either their existing
currencies or the Euro until December 31, 2001. After that date,
all non-cash transactions will be conducted in Euros and
circulation of Euro notes and coins for cash transactions will
commence. National notes and coins will be withdrawn no later than
June 30, 2002.
Ashland conducts business in most of the participating countries
and is addressing the issues associated with the Euro. The more
important issues include converting information technology systems
and processing accounting and tax records. Based on the progress
to date, Ashland believes that the use of the Euro will not have a
significant impact on the manner in which it does business and
processes its accounting records. Accordingly, the use of the Euro
is not expected to have a material effect on Ashland's
consolidated financial position, results of operations, cash flows
or liquidity.
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis (MD&A) 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 various information in the
Results of Operations, Capital Resources, Outlook and Conversion
to the Euro sections of this MD&A. Estimates as to operating
performance and earnings are based upon a number of assumptions,
including those mentioned in MD&A. 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 and cost of raw materials. Successful completion
of the transactions mentioned in MD&A may be impacted by the
required receipt of government and third party approvals, the
completion of due diligence, and the execution and performance of
definitive agreements. Although Ashland believes its expectations
are based on reasonable assumptions, it cannot assure the
expectations reflected in MD&A 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 Risks and Uncertainties in Note A to the Consolidated
Financial Statements in Ashland's 2000 Annual Report and in
Ashland's Form 10-K for the fiscal year ended September 30, 2000.
17
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - (1) As of March 31, 2001, Ashland has been
identified as a "potentially responsible party" ("PRP") under Superfund or
similar state laws for potential joint and several liability for clean-up
costs in connection with alleged releases of hazardous substances
associated with 90 waste treatment or disposal sites. These sites are
currently subject to ongoing investigation and remedial activities,
overseen by the EPA or a state agency, in which Ashland is typically
participating as a member of a PRP group. Generally, the type of relief
sought includes remediation of contaminated soil and/or groundwater,
reimbursement for past costs of site clean-up and administrative oversight,
and/or long-term monitoring of environmental conditions at the sites. While
the ultimate costs are not predictable with assurance and could be
material, based on its experience with site remediation, its analysis of
the specific hazardous substances at issue, the existence of other
financially viable PRPs and its current estimates of investigatory,
clean-up and monitoring costs at each site, Ashland does not believe that
any liability at these sites, either individually or in the aggregate, will
have a material adverse effect on Ashland's consolidated financial
position, cash flow or liquidity. For additional information regarding
environmental matters and reserves, see Management's Discussion and
Analysis - Environmental Matters and Note E to the Condensed Consolidated
Financial Statements.
(2) As a result of a United States Environmental Protection Agency
("EPA") enforcement initiative wherein information, including financial
data, permit status and operational results, relating to construction
projects conducted within refineries since 1980 are reviewed for compliance
with specific provisions of the Clean Air Act, Marathon Ashland Petroleum
LLC ("MAP"), as well as several other refiners, entered into negotiations
with EPA and the Justice Department. MAP recently executed a settlement
agreement with the EPA which includes MAP's commitment to spend
approximately $263 million in environmental capital expenditures and
improvements to MAP's refineries to install specific control technologies
over a period of eight years that are consistent with MAP's current capital
spending plans. In addition, MAP's settlement provides for payment of a
civil penalty in the amount of $3.8 million and the performance of $6.5
million in supplemental environmental projects for which Ashland has agreed
to reimburse MAP a total of $1 million.
OTHER PROCEEDINGS - On March 20, 1998, Perenco Nigeria Limited
("Perenco") instituted an action in the Southern District of Texas against
Ashland, Blazer Energy Corp., et al. The complaint alleged breach of
contract, fraud and negligent misrepresentation stemming from Ashland's
termination of its Stock Purchase Agreement with Perenco to purchase
Ashland's interests and operating assets in Nigeria. Perenco sought damages
in excess of $300,000,000, as well as attorneys' fees, interest and costs.
In the legal proceedings, the District Court granted Ashland's motion for
summary judgment and denied Perenco's motion for reconsideration of that
decision. Perenco appealed to the U.S. 5th Circuit Court of Appeals and the
Circuit Court affirmed the District Court's summary judgment and on April
10, 2001 denied Perenco's motion for reconsideration. Perenco has ninety
(90) days to file a writ of certiorari to the U.S. Supreme Court.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Computation of Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
(b) Reports on Form 8-K
A report on Form 8-K was filed on February 22, 2001 to report that
Ashland had sold its remaining 4.7 million shares of Arch Coal
Common Stock in an underwritten public offering.
A report on Form 8-K was filed on April 25, 2001 to report
Ashland's 2001 second quarter results.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Ashland Inc.
------------------------------
(Registrant)
Date: May 15, 2001 /s/ Kenneth L. Aulen
--------------------------------------
Kenneth L. Aulen
Administrative Vice President and Controller
(Chief Accounting Officer)
Date: May 15, 2001 /s/ David L. Hausrath
---------------------------------------
David L. Hausrath
Vice President and General Counsel
19
EXHIBIT INDEX
Exhibit
No. Description
-------- ---------------------------------------------------------
12 Computation of Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
EXHIBIT 12
ASHLAND INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(In millions)
Six Months Ended
Years Ended September 30 March 31
------------------------------------------------------------- -----------------------
1996 1997 1998 1999 2000 2000 2001
---------- ---------- ----------- ---------- ---------- ---------- -----------
EARNINGS
Income from continuing operations $ 115 $ 169 $ 178 $ 291 $ 292 $ 65 $ 85
Income taxes 71 125 114 193 191 47 57
Interest expense 154 148 133 141 189 96 84
Interest portion of rental expense 44 48 40 35 39 18 19
Amortization of deferred debt expense 1 1 1 1 2 1 1
Undistributed earnings of
unconsolidated affiliates (3) (6) (62) (11) (112) (20) (11)
Earnings of significant affiliates* 7 7 - - - - -
---------- ---------- ----------- ---------- ---------- ---------- -----------
$ 389 $ 492 $ 404 $ 650 $ 601 $ 207 $ 235
========== ========== =========== ========== ========== ========== ===========
FIXED CHARGES
Interest expense $ 154 $ 148 $ 133 $ 141 $ 189 $ 96 $ 84
Interest portion of rental expense 44 48 40 35 39 18 19
Amortization of deferred debt expense 1 1 1 1 2 1 1
Capitalized interest - 1 - - - - -
Fixed charges of significant affiliates* 6 5 - - - - -
---------- ---------- ----------- ---------- ---------- ---------- -----------
$ 205 $ 203 $ 174 $ 177 $ 230 $ 115 $ 104
========== ========== =========== ========== ========== ========== ===========
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Preferred dividend requirements $ 19 $ 9 $ - $ - $ - $ - $ -
Ratio of pretax to net income** 1.61 1.74 - - - - -
---------- ---------- ----------- ---------- ---------- ---------- -----------
Preferred dividends on a pretax basis 30 17 - - - - -
Fixed charges 205 203 174 177 230 115 104
---------- ---------- ----------- ---------- ---------- ---------- -----------
$ 235 $ 220 $ 174 $ 177 $ 230 $ 115 $ 104
========== ========== =========== ========== ========== ========== ===========
RATIO OF EARNINGS TO
FIXED CHARGES 1.90 2.42 2.32 3.67 2.61 1.79 2.26
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS 1.66 2.24 2.32 3.67 2.61 1.79 2.26
* Significant affiliates are companies accounted for on the equity
method that are 50% or greater owned or whose indebtedness has been
directly or indirectly guaranteed by Ashland or its consolidated
subsidiaries.
** Computed as income from continuing operations before income taxes
divided by income from continuing operations, which adjusts dividends
on preferred stock to a pretax basis.