Ashland Inc. Reports Sharp Increase in Fiscal Third-Quarter Earnings Per Share
Press Release
Ashland Inc. Reports Sharp Increase in Fiscal Third-Quarter Earnings Per Share
For the June 2007 quarter, discontinued operations included a net favorable adjustment to asbestos reserves and related insurance receivables of $16 million, resulting from Ashland's ongoing assessment of these matters. In the year-ago June quarter, discontinued operations included income of $51 million from the operating results of the company's former Ashland Paving And Construction, Inc. (APAC) subsidiary, which was sold in August 2006.
Operating income, before taxes, for the June 2007 quarter totaled $91 million, which includes a favorable adjustment of $10.8 million related to lower than expected pension and other benefit costs. Operating income for the quarter also benefited from an adjustment of $7.0 million to environmental reserves, reflecting both updated estimates of future costs for identified sites and improvements to the environmental remediation assessment process.
For the June 2006 quarter, operating income was $47 million and included a $7.6 million currency hedge gain related to an acquisition by Ashland Water Technologies, $12.1 million of APAC costs that were retained within continuing operations as required by GAAP, and an unfavorable adjustment to environmental reserves of $7.1 million.
Operating income totaled $73 million for the June 2007 quarter, excluding the environmental reserve and employee benefit adjustments of $18 million, as compared with operating income of $58 million for the 2006 quarter, which excludes $11 million of unfavorable adjustments previously mentioned. Ashland believes the use of these adjusted operating incomes is appropriate to enhance understanding of its current and future performance. (See page 5 of Ashland's financial tables following the text of this release for a presentation of selected operating income components.)
Net interest and other financing income for both the June 2007 and 2006 quarters amounted to $9 million. Income taxes for the June 2007 quarter of $15 million compare with $14 million in the prior-year quarter. The effective tax rate was 15 percent for the 2007 quarter versus 25 percent for the 2006 quarter. The lower effective tax rate for the 2007 quarter reflects both updated estimates of taxable income for the full year and favorable developments with respect to settlements of certain tax matters. For the fourth fiscal quarter, Ashland estimates an effective tax rate of about 21 percent and for the full year, 23 percent.
"Our quarterly results continued to be driven by the strong performance of Valvoline," said James J. O'Brien, chairman and chief executive officer. "Ashland Performance Materials produced its second-best quarterly operating income ever, exceeded only by the all-time record set in last year's third quarter. Water Technologies achieved better quarter-versus-quarter operating performance, excluding the currency hedge gain recorded in the June 2006 quarter. Ashland Distribution continued to experience unfavorable market conditions, while realigning its plastics supplier base, resulting in lower operating income."
Performance Materials earned operating income of $33.3 million for the June 2007 quarter, 19 percent below the record $40.9 million earned in the prior-year June quarter. Growth in international business partially offset the weakness in Performance Materials' key North American markets. While volume was flat as compared with the June 2006 quarter, revenue of $400 million increased 8 percent. Excluding acquisitions, volume declined 2 percent and revenue grew 5 percent.
Distribution's operating income declined to $11.6 million for the June 2007 quarter as compared with $30.1 million in the same year-ago quarter. Gross profit as a percent of sales declined to 7.1 percent from 9.3 percent in the prior-year quarter. Distribution's performance reflects the weak U.S. manufacturing economy, rapid cost increases in commodity chemicals, and the impact of the termination of a significant North American plastics-supply contract in the March 2007 quarter. Revenue decreased 2 percent from $1,050 million in the June 2006 quarter to $1,026 million in the 2007 quarter, and volume declined 2 percent.
Valvoline achieved third-quarter operating income of $27.9 million as compared with an operating loss of $9.7 million in the year-ago quarter. Revenue of $407 million increased 11 percent over the June 2006 quarter. While lubricant volume declined 4 percent, the decline was primarily in Valvoline's lower-margin private-label business. Overall, due to a more stable base-oil- cost environment, margin improvement enabled Valvoline to record its best third quarter since 1997. Margins as a percent of sales, however, remain below historical levels. Finally, improved results from the Valvoline Instant Oil Change® business versus the prior-year third quarter also contributed to Valvoline's strong performance.
Water Technologies reported operating income of $6.0 million for the June 2007 quarter as compared with $8.9 million in the prior-year quarter. Operating income in the 2006 quarter includes the $7.6 million currency hedge gain on the acquisition of the Environmental and Process Solutions (E&PS) business. Excluding this gain, operating results in 2007 benefited from increased earnings in each of the Water Technologies businesses. Revenue increased from $113 million in the June 2006 quarter to $201 million for the 2007 quarter, reflecting the addition of the E&PS business.
Commenting on the outlook for the remainder of the fiscal year, O'Brien said, "We expect Valvoline to report record operating income for the full year. However, recent increases in base-lube-stock costs will likely temper Valvoline's results in the fourth quarter.
"Performance Materials' results for 2007, as we've previously stated, will likely reflect continued weakness in the North American automotive, marine and residential housing markets and the resultant margin pressure. That said, Performance Materials should end the year roughly in line with the prior year's fourth quarter.
"Distribution's fourth-quarter performance should continue to reflect the margin challenges presented by the weak North American manufacturing economy, and to a lesser extent, the plastics supply realignment. Under current conditions, we expect Distribution to produce operating income closer to that of the third quarter as opposed to the September 2006 quarter. Our work to transition customers to new plastics manufacturers has resulted in some initial successes, and we are confident we will replace additional volume over time.
"During the final quarter of fiscal 2007, Water Technologies should see operating income approximate that earned in the 2007 third quarter. Implementation of the redesigned business model has begun, and we are optimistic that the Water Technologies business will continue to improve."
Today at 8:30 a.m. (EDT), Ashland will provide a live webcast of its third-quarter conference call with securities analysts. The webcast will be accessible through Ashland's website, www.ashland.com. Following the live event, an archived version of the webcast will be available for 12 months at www.ashland.com/investors.
Ashland Inc. (NYSE: ASH), a diversified, global chemical company, provides quality products, services and solutions to customers in more than 100 countries. A FORTUNE 500 company, it operates through four divisions: Ashland Performance Materials, Ashland Distribution, Valvoline and Ashland Water Technologies. To learn more about Ashland, visit www.ashland.com.
(R) Registered trademark, Ashland
FORTUNE 500 is a registered trademark of Time Inc.
* Preliminary Results
Financial results are preliminary until Ashland's quarterly report on Form 10-Q is filed with the U.S. Securities and Exchange Commission.
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 for the fiscal year ended Sept. 30, 2006. 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 (Page 1)
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data - preliminary and unaudited)
Three months Nine months
ended ended
June 30 June 30
---------------- ----------------
2007 2006 2007 2006
------- ------- ------- -------
REVENUES
Sales and operating revenues $1,983 $1,853 $5,700 $5,325
Equity income 5 3 12 8
Other income 5 6 19 19
------- ------- ------- -------
1,993 1,862 5,731 5,352
COSTS AND EXPENSES
Cost of sales and operating expenses 1,643 1,538 4,707 4,419
Selling, general and administrative
expenses (a) 259 277 834 792
------- ------- ------- -------
1,902 1,815 5,541 5,211
------- ------- ------- -------
OPERATING INCOME 91 47 190 141
Gain (loss) on the MAP Transaction (b) 1 - (3) (2)
Net interest and other financing
income 9 9 34 29
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 101 56 221 168
Income taxes (15) (14) (52) (42)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS 86 42 169 126
Income from discontinued operations
(net of income taxes) (c) 14 51 29 81
------- ------- ------- -------
NET INCOME $100 $93 $198 $207
======= ======= ======= =======
DILUTED EARNINGS PER SHARE
Income from continuing operations $1.35 $.59 $2.64 $1.75
Income from discontinued operations .23 .70 .45 1.11
------- ------- ------- -------
Net income $1.58 $1.29 $3.09 $2.86
======= ======= ======= =======
AVERAGE COMMON SHARES AND ASSUMED
CONVERSIONS 63 72 64 72
SALES AND OPERATING REVENUES
Performance Materials $400 $370 $1,142 $1,068
Distribution 1,026 1,050 2,982 3,046
Valvoline 407 366 1,141 1,030
Water Technologies 201 113 569 310
Intersegment sales (51) (46) (134) (129)
------- ------- ------- -------
$1,983 $1,853 $5,700 $5,325
======= ======= ======= =======
OPERATING INCOME
Performance Materials $33 $41 $81 $94
Distribution 12 30 46 95
Valvoline 28 (10) 68 (6)
Water Technologies 6 9 18 9
Unallocated and other (a) (d) 12 (23) (23) (51)
------- ------- ------- -------
$91 $47 $190 $141
======= ======= ======= =======
(a) The nine months ended June 30, 2007 includes a $25 million charge for
costs associated with Ashland's voluntary severance offer.
(b) "MAP Transaction" refers to the June 30, 2005 transfer of Ashland's
38% interest in Marathon Ashland Petroleum LLC (MAP) and two other
businesses to Marathon Oil Corporation. The gain (loss) for the
periods presented reflects adjustments in the recorded receivable for
future estimated tax deductions related primarily to environmental and
other postretirement liabilities.
(c) The three and nine months ended June 30, 2007 includes after-tax
income of $16 million and $34 million, respectively, from the increase
of Ashland's asbestos insurance receivable. The prior periods
primarily include after-tax operating results of APAC (excluding
previously allocated corporate costs - see note (d) below) as a result
of APAC's sale to Oldcastle Materials, Inc. in August 2006 for
approximately $1.3 billion.
(d) Includes corporate costs classified within the selling, general and
administrative expense caption previously allocated to APAC of $12
million for the three months ended June 30, 2006 and $34 million for
the nine months ended June 30, 2006.
Ashland Inc. and Consolidated Subsidiaries (Page 2)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - preliminary and unaudited)
June 30
------------------------
2007 2006
------ ------
ASSETS
Current assets
Cash and cash equivalents $848 $363
Available-for-sale securities 141 621
Accounts receivable 1,466 1,394
Inventories 587 519
Deferred income taxes 78 83
Other current assets 72 58
Current assets of discontinued operations - 579
------- -------
3,192 3,617
Investments and other assets
Goodwill and other intangibles 373 300
Asbestos insurance receivable
(noncurrent portion) 460 446
Deferred income taxes 181 237
Other noncurrent assets 437 442
Noncurrent assets of discontinued operations - 956
------- -------
1,451 2,381
Property, plant and equipment
Cost 2,074 1,998
Accumulated depreciation and amortization (1,105) (1,063)
------- -------
969 935
------- -------
$5,612 $6,933
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $5 $18
Trade and other payables 1,138 1,159
Income taxes 4 48
Current liabilities of
discontinued operations - 261
------- -------
1,147 1,486
Noncurrent liabilities
Long-term debt (less current portion) 65 70
Employee benefit obligations 294 417
Asbestos litigation reserve
(noncurrent portion) 567 592
Other long-term liabilities and
deferred credits 501 470
Noncurrent liabilities of
discontinued operations - 97
------- -------
1,427 1,646
Stockholders' equity 3,038 3,801
------- -------
$5,612 $6,933
======= =======
Ashland Inc. and Consolidated Subsidiaries (Page 3)
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - preliminary and unaudited)
Nine months ended
June 30
-----------------------
2007 2006
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
FROM CONTINUING OPERATIONS
Net income $198 $207
Income from discontinued operations
(net of income taxes) (29) (81)
Adjustments to reconcile income from
continuing operations to cash flows
from operating activities
Depreciation and amortization 83 80
Deferred income taxes 15 (5)
Equity income from affiliates (12) (8)
Distributions from equity affiliates 8 5
Loss on the MAP Transaction 3 2
Change in operating assets and
liabilities (a) (258) (213)
------- -------
8 (13)
CASH FLOWS FROM FINANCING ACTIVITIES
FROM CONTINUING OPERATIONS
Proceeds from issuance of common stock 17 17
Excess tax benefits related to
share-based payments 8 6
Repayment of long-term debt (12) (7)
Repurchase of common stock (288) (138)
Cash dividends paid (726) (59)
------- -------
(1,001) (181)
CASH FLOWS FROM INVESTING ACTIVITIES
FROM CONTINUING OPERATIONS
Additions to property, plant and equipment (102) (114)
Purchase of operations - net of cash acquired (73) (177)
Proceeds from sale of operations 1 -
Purchases of available-for-sale securities (357) (645)
Proceeds from sales and maturities
of available-for-sale securities 566 437
Other - net 20 7
------- -------
55 (492)
------- -------
CASH USED BY CONTINUING OPERATIONS (938) (686)
Cash (used) provided by discontinued
operations
Operating cash flows (5) 123
Investing cash flows (29) (59)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS $(972) $(622)
======= =======
DEPRECIATION AND AMORTIZATION
Performance Materials $25 $22
Distribution 15 16
Valvoline 23 21
Water Technologies 8 10
Unallocated and other 12 11
------- -------
$83 $80
======= =======
ADDITIONS TO PROPERTY, PLANT AND
EQUIPMENT
Performance Materials $36 $31
Distribution 19 26
Valvoline 16 27
Water Technologies 16 16
Unallocated and other 15 14
------- -------
$102 $114
======= =======
(a) Excludes changes resulting from operations acquired or sold.
Ashland Inc. and Consolidated Subsidiaries (Page 4)
INFORMATION BY INDUSTRY SEGMENT
(In millions - preliminary and unaudited)
Three months ended Nine months ended
June 30 June 30
------------------ -----------------
2007 2006 2007 2006
------ ------ ------ ------
PERFORMANCE MATERIALS (a)
Sales per shipping day $6.3 $5.9 $6.1 $5.7
Pounds sold per shipping day 5.1 5.1 4.9 5.0
Gross profit as a percent of sales 21.9% 25.0% 21.2% 23.2%
DISTRIBUTION (a)
Sales per shipping day $16.3 $16.7 $15.9 $16.2
Pounds sold per shipping day 20.1 20.6 19.6 20.5
Gross profit as a percent of sales 7.1% 9.3% 8.2% 9.7%
VALVOLINE (a)
Lubricant sales (gallons) 43.4 45.1 123.8 127.8
Premium lubricants (percent of U.S.
branded volumes) 24.4% 22.4% 23.2% 23.2%
Gross profit as a percent of sales 25.1% 20.2% 24.8% 21.4%
WATER TECHNOLOGIES (a)
Sales per shipping day $3.2 $1.8 $3.0 $1.6
Gross profit as a percent of sales 38.2% 45.5% 39.1% 47.0%
(a) 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 (Page 5)
COMPONENTS OF OPERATING INCOME
(In millions - preliminary and unaudited)
Three Months Ended June 30, 2007
---------------------------------------------
Perfor-
mance Water Unallo-
Mater- Distri- Valvo- Techno- cated
ials bution line logies & Other Total
------ ------- ------ ------ ------- -----
OPERATING INCOME
Environmental reserve
adjustment $(0.4) $(2.3) $(0.3) $(0.1) $10.1 $7.0
Employee benefit
adjustment 2.1 2.3 1.4 0.7 4.3 10.8
All other operating
income 31.6 11.6 26.8 5.4 (2.5) 72.9
------ ------ ------ ------ ------ ------
$33.3 $11.6 $27.9 $6.0 $11.9 $90.7
====== ====== ====== ====== ====== ======
Three Months Ended June 30, 2006
---------------------------------------------
Perfor-
mance Water Unallo-
Mater- Distri- Valvo- Techno- cated
ials bution line logies & Other Total
------ ------- ------ ------ ------- -----
OPERATING INCOME
Environmental reserve
adjustment $(1.2) $(1.5) $- $(0.3) $(4.1) $(7.1)
Employee benefit
adjustment 0.2 0.2 0.1 - 0.1 0.6
Acquisition hedge - - - 7.6 - 7.6
Corporate costs
previously charged to
APAC - - - - (12.1) (12.1)
All other operating
income 41.9 31.4 (9.8) 1.6 (7.2) 57.9
------ ------ ------ ------ ------ ------
$40.9 $30.1 $(9.7) $8.9 $(23.3) $46.9
====== ====== ====== ====== ====== ======
SOURCE Ashland Inc.
CONTACT: Media Relations, Jim Vitak, +1-614-790-3715,
jevitak@ashland.com; Investor Relations, Dean Doza, +1-859-815-4454,
lddoza@ashland.com, both of Ashland Inc./
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| "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. |