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Ashland Inc. Reports Record December Quarter Net Income

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Ashland Inc. Reports Record December Quarter Net Income

COVINGTON, Ky., Jan 25, 2005 /PRNewswire-FirstCall via COMTEX/ -- The following was issued today by Ashland Inc. (NYSE: ASH):

(Logo: )
Fiscal 2005: First quarter highlights
- Robust performance from refining and marketing contributes to record
December quarter net income.
- Chemical Sector performance improves 14 percent over the 2004 quarter:
- Ashland Distribution: operating income nearly doubles to achieve
all-time record quarter;
- Ashland Specialty Chemical: operating income declines 4 percent as
24-percent improvement in revenues is more than offset by higher
raw material costs;
- Valvoline: operating income down 10 percent due in part to a
6-percent decrease in lubricant sales volumes.
- Transportation Construction Sector performance hurt by adverse weather
conditions, which reduced working days, slowed production and increased
Quarter ended December 31
In millions except earnings per share 2004 2003
Operating income $ 193 $ 92
Income from continuing operations $ 101 $ 39
Net income $ 101 $ 34

Diluted earnings per share:
Income from continuing operations $ 1.39 $ .56
Net income $ 1.39 $ .49

Ashland Inc. today reported net income of $101 million, or $1.39 a share, for the quarter ended December 31, 2004, the first quarter of the company's 2005 fiscal year. These results compared to net income of $34 million, or 49 cents a share, for the first quarter of 2004. Ashland's income from continuing operations for the first quarter of 2005 amounted to $101 million, or $1.39 a share, compared to $39 million, or 56 cents a share, for the quarter a year ago.

"Our record net income during the December quarter resulted primarily from the dramatic improvement from refining and marketing," said James J. O'Brien, Ashland Inc. chairman and chief executive officer. "Results from our wholly- owned divisions were mixed. In order to improve performance in the future, we will need to more successfully address the impact of higher raw material costs. In addition, we will continue to focus on maintaining a low-cost structure and adopting common processes across divisions, which should foster consistent performance over time and facilitate Ashland's growth."

Review of operations

Commenting on operations, O'Brien noted that strong refining margins and falling crude oil prices created a favorable profit environment for Marathon Ashland Petroleum LLC (MAP). In addition, MAP was able to run more sour crudes during the period, taking advantage of substantial discounts on these feedstocks. Crude oil throughput was approximately 8 percent higher than in the fiscal 2004 quarter. Operating income from refining and marketing was $142 million, compared to $26 million in the quarter a year ago.

First quarter results from the Chemical Sector, which consists of the Ashland Distribution, Valvoline and Ashland Specialty Chemical divisions, improved 14 percent compared to the fiscal 2004 quarter. Ashland Distribution achieved all-time record operating income of $24 million, up 85 percent over the quarter a year ago. Sales volumes increased 5 percent, reflecting the division's continued focus on consistent improvement in customer service and on-time, accurate and complete product delivery. Ashland Distribution's results also reflect their success in implementing price increases, enabling the division to keep pace with higher raw material costs.

Ashland Specialty Chemical reported operating income of $22 million, compared to $23 million the previous year. Tightness in certain petrochemical markets caused raw material costs to escalate further. Although revenues were up 24 percent, margins declined nearly 6 percentage points compared to the quarter a year ago. In addition, December quarter results included approximately $4 million in net, non-recurring gains principally related to the termination of a product supply contract.

Operating income from the Valvoline division was $18 million. While profits were down 10 percent, this quarter was its second-best December quarter. Valvoline lubricant sales volumes were down 6 percent due in part from shifts in the timing of promotional programs. International results improved primarily due to higher lubricant sales volumes from operations in Australia and Asia.

The Transportation Construction Sector reported operating income of $7 million, compared to $30 million for the prior year's quarter. Ashland Paving And Construction, Inc., commercially known as APAC, struggled with a persistent mix of wet and cold conditions that started early in the quarter with Hurricane Ivan. These conditions adversely affected construction activity and increased operating costs throughout the quarter. Construction backlog, or jobs awarded but not yet completed, at December 31, 2004, was $1.73 billion, up 4 percent from a year ago.

"Overall, we remain committed to growing our businesses organically and supplementing that growth with acquisitions that complement our strategy," O'Brien said. During the quarter, Ashland purchased Dow Chemical's DERAKANE® 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.

O'Brien continued, "We have set the course for consistent improvement in both the Chemical and Transportation Construction Sectors. We are identifying the synergies between our businesses, which will improve operational efficiency and create a more agile organization. Our ability to respond quickly to changes in the marketplace will enable Ashland's future growth."

Update on the Proposed Transfer of Interest in MAP

On December 20, 2004, Ashland provided an update on the status of the proposed transaction to transfer Ashland's 38-percent interest in Marathon Ashland Petroleum LLC (MAP) to Marathon Oil Corporation. The update included information about the status of the tax rulings which are conditions to the closing of the proposed transaction. As described in that announcement, Ashland and Marathon are discussing issues related to the ruling request with the Internal Revenue Service.

Pursuant to the terms of the agreement entered into between Ashland and Marathon, MAP has not made its regular, quarterly cash distributions to Ashland since December 31, 2003. The final amount received by Ashland from the proposed transaction would be increased by an amount equal to 38 percent of the cash accumulated from operations during the period prior to closing. Ashland's share of excess cash at December 31, 2004, was $591 million. If the proposed transaction is terminated, MAP's cash distributions to Ashland and Marathon would resume.

Today at 10:00 a.m. (EST), Ashland will provide a live audio webcast of its quarterly conference call with securities analysts. The webcast will be accessible through Ashland's Investor Relations website, . Following the live event, an archived version of the webcast will be available on the Ashland website for 12 months. Minimum requirements to listen to the webcast include the free Windows MediaPlayer software and a 28.8 Kbps connection to the Internet.

Ashland Inc. (NYSE: ASH) is a Fortune 500 transportation construction, chemical and petroleum company providing products, services and customer solutions throughout the world. To learn more about Ashland, visit .

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. These statements include those that refer to Ashland's operating performance, earnings and expectations about 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 possibility that Ashland will be unable to fully realize the benefits anticipated from the MAP transaction; the possibility the transaction may not close including as a result of failure to receive a favorable ruling from the Internal Revenue Service or failure of Ashland to obtain the approval of its shareholders; the possibility that Ashland may be required to modify some aspect of the transaction to obtain regulatory approvals; 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 Ashland's Form 10-K for the fiscal year ended Sept. 30, 2004, filed with the SEC and available on Ashland's Investor Relations website at or the SEC's website at . 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 news release.

Additional Information about the MAP Transaction

In connection with the proposed transaction, Ashland filed a preliminary proxy statement on Schedule 14A with the SEC on June 21, 2004 and an amended preliminary proxy statement on Schedule 14A on August 31, 2004. ATB Holdings Inc. and New EXM Inc. filed a registration statement on Form S-4, which includes a further amended preliminary proxy statement/prospectus, with the SEC on October 12, 2004. Investors and security holders are urged to read those documents and any other relevant documents filed or that will be filed with the SEC, including the definitive proxy statement/prospectus regarding the proposed transaction as they become available, because they contain, or will contain, important information. The definitive proxy statement/prospectus will be filed with the SEC by Ashland, and security holders may obtain a free copy of the definitive proxy statement/prospectus when it becomes available, and other documents filed with the SEC by Ashland, including the preliminary proxy statement at the SEC's website at . The definitive proxy statement/prospectus, and other documents filed with the SEC by Ashland, including the preliminary proxy statement, may also be obtained for free in the SEC filings section on Ashland's Investor Relations website at , or by directing a request to Ashland at 50 E. RiverCenter Blvd., Covington, KY 41012. The respective directors and executive officers of Ashland and other persons may be deemed to be participants in solicitation of proxies in respect of the proposed transaction. Information regarding Ashland's directors and executive officers is available in its proxy statement filed with the SEC by Ashland on December 14, 2004. Investors may obtain information regarding the interests of participants in the solicitation of proxies in connection with the transaction referenced in the foregoing information by reading the definitive proxy statement/prospectus when it becomes available.

Ashland Inc. and Consolidated Subsidiaries
(In millions except per share data - unaudited)
Three months ended
December 31
2004 2003
Sales and operating revenues $2,177 $1,936
Equity income 152 38
Other income 17 13
2,346 1,987
Cost of sales and operating expenses 1,849 1,611
Selling, general and administrative
expenses 304 284
2,153 1,895
Net interest and other financial costs (32) (30)
Income taxes (60) (23)
Results from discontinued
operations (net of income taxes) - (5)
NET INCOME $101 $34
Income from continuing operations $1.39 $.56
Results from discontinued operations - (.07)
Net income $1.39 $.49
APAC $611 $650
Ashland Distribution 895 698
Ashland Specialty Chemical 400 322
Valvoline 309 290
Intersegment sales (38) (24)
$2,177 $1,936
APAC $7 $30
Ashland Distribution 24 13
Ashland Specialty Chemical 22 23
Valvoline 18 20
Refining and Marketing (a) 142 26
Corporate (20) (20)
$193 $92

(a) Includes Ashland's equity income from Marathon Ashland Petroleum LLC
(MAP), amortization related to Ashland's excess investment in MAP,
and other activities associated with refining and marketing.
Ashland Inc. and Consolidated Subsidiaries
(In millions - unaudited)
December 31
2004 2003
Current assets
Cash and cash equivalents $146 $201
Accounts receivable 1,212 1,045
Inventories 538 483
Deferred income taxes 95 110
Other current assets 106 103
2,097 1,942
Investments and other assets
Investment in Marathon Ashland
Petroleum LLC (MAP) 2,862 2,335
Goodwill 567 527
Asbestos insurance receivable
(noncurrent portion) 396 403
Other noncurrent assets 370 296
4,195 3,561
Property, plant and equipment
Cost 3,166 3,087
Accumulated depreciation,
depletion and amortization (1,889) (1,809)
1,277 1,278

$7,569 $6,781
Current liabilities
Debt due within one year $575 $145
Trade and other payables 1,197 1,123
Income taxes 69 56
1,841 1,324
Noncurrent liabilities
Long-term debt (less current portion) 1,087 1,429
Employee benefit obligations 438 399
Deferred income taxes 253 221
Reserves of captive insurance companies 177 173
Asbestos litigation reserve
(noncurrent portion) 553 562
Other long-term liabilities and
deferred credits 368 355
2,876 3,139

Common stockholders' equity 2,852 2,318

$7,569 $6,781
Ashland Inc. and Consolidated Subsidiaries
(In millions - unaudited)
Three months ended
December 31
2004 2003
Income from continuing operations $101 $39
Expense (income) not affecting cash
Depreciation, depletion and
amortization (a) 46 48
Deferred income taxes 22 21
Equity income from affiliates (152) (38)
Distributions from equity affiliates 1 148
Other items 3 -
Change in operating assets and
liabilities (b) (75) (150)
(54) 68
Proceeds from issuance of common stock 20 17
Repayment of long-term debt (98) (38)
Increase in short-term debt 211 -
Dividends paid (20) (19)
113 (40)
Additions to property, plant and
equipment (a) (55) (53)
Purchase of operations - net of
cash acquired (95) -
Other - net 2 9
(148) (44)
Cash used by discontinued operations (8) (6)

APAC $22 $25
Ashland Distribution 4 4
Ashland Specialty Chemical 11 10
Valvoline 6 6
Corporate 3 3
$46 $48
APAC $33 $5
Ashland Distribution 5 1
Ashland Specialty Chemical 11 10
Valvoline 5 3
Corporate 1 34
$55 $53
(a) Excludes amounts related to equity affiliates. Ashland's 38 percent
share of MAP's DD&A was $41 million in 2004 and $37 million in 2003,
and its share of MAP's capital expenditures was $138 million in 2004
and $109 million in 2003.
(b) Excludes changes resulting from operations acquired or sold.
Ashland Inc. and Consolidated Subsidiaries
Three months ended
December 31
2004 2003
Construction backlog at December 31
(millions) (a) $1,730 $1,659
Net construction job revenues
(millions) (b) $344 $366
Hot-mix asphalt production (million tons) 7.8 8.4
Aggregate production (million tons) 7.8 6.8
Sales per shipping day (millions) $14.4 $11.3
Gross profit as a percent of sales 9.6% 9.6%
Sales per shipping day (millions) $6.4 $5.2
Gross profit as a percent of sales 24.2% 29.8%
Lubricant sales (million gallons) 41.1 43.7
Premium lubricants (percent of U.S.
branded volumes) 21.8% 19.4%
Refinery runs (thousand barrels per day)
Crude oil refined 975 899
Other charge and blend stocks 200 184
Refined product yields (thousand
barrels per day)
Gasoline 644 612
Distillates 328 296
Asphalt 81 68
Other 140 116
Total 1,193 1,092
Refined product sales (thousand
barrels per day) (e) 1,414 1,355
Refining and wholesale marketing
margin (per barrel) (f) $4.03 $1.71
Speedway SuperAmerica (SSA)
Retail outlets at December 31 1,669 1,775
Gasoline and distillate sales
(million gallons) 793 806
Gross margin - gasoline and
distillates (per gallon) $.1219 $.1145
Merchandise sales (millions) $581 $547
Merchandise margin (as a percent
of sales) 24.9% 24.8%
(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.
(d) Amounts represent 100% of MAP's operations, in which Ashland owns a
38% interest.
(e) Total average daily volume of all refined product sales to MAP's
wholesale, branded and retail (SSA) customers.
(f) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.

SOURCE Ashland Inc.

Media, Jim Vitak, +1-614-790-3715, or , or Investors, Bill Henderson, +1-859-815-4454, or , both of Ashland Inc.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
Statements in this press release regarding Ashland's business which are not historical
facts are "forward-looking statements" that involve risks and uncertainties. For a
discussion of such risks and uncertainties, which could cause actual results to differ from
those contained in the forward-looking statements, see "Risk Factors" in the Company's
Annual Report or Form 10-K for the most recently ended fiscal year.