SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 26, 2004
ASHLAND INC.
(Exact name of registrant as specified in its charter)
Kentucky
(State or other jurisdiction of incorporation)
1-2918 61-0122250
(Commission File Number) (I.R.S. Employer
Identification No.)
50 E. RiverCenter Boulevard, Covington, Kentucky 41012-0391
(Address of principal executive offices) (Zip Code)
P.O. Box 391, Covington, Kentucky 41012-0391
(Mailing Address) (Zip Code)
Registrant's telephone number, including area code (859) 815-3333
Item 7. Financial Statements and Exhibits
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(c) Exhibits
99.1 Press Release dated July 26, 2004
Item 12. Results of Operations and Financial Condition
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On July 26, 2004, Ashland Inc. reported its third quarter fiscal 2004
results, which are discussed in more detail in the press release attached
hereto as Exhibit 99.1. This information is furnished in accordance with
Securities and Exchange Commission Release No. 33-8216.
SIGNATURES
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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: July 26, 2004 /s/ J. Marvin Quin
-----------------------------------
Name: J. Marvin Quin
Title: Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
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99.1 Press Release dated July 26, 2004
FOR FURTHER INFORMATION:
Media Relations: Investor Relations:
Jim Vitak Bill Henderson
(614) 790-3715 (859) 815-4454
jevitak@ashland.com wehenderson@ashland.com
FOR IMMEDIATE RELEASE
July 26, 2004
ASHLAND INC. REPORTS
JUNE QUARTER EARNINGS
Covington, Ky. - The following was issued today by Ashland Inc. (NYSE:ASH):
FISCAL 2004: THIRD QUARTER HIGHLIGHTS
o Consistent top-line growth, an improved cost structure and a
healthier economy contributed to strong performance from the
Chemical Sector:
- Ashland Distribution achieved an all-time record for quarterly
profit, with sales dollars up 14 percent;
- Valvoline's premium product strategy contributed to a
7-percent increase in sales dollars;
- Ashland Specialty Chemical improved sales dollars by 15
percent.
o The Transportation Construction Sector's profit recovery
continued.
o Strong demand, favorable refining margins and improved throughput
resulted in significantly higher profits from refining and
marketing.
Quarter ended June 30 Nine months ended June 30
In millions except earnings per share 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income $ 292 $ 138 $ 394 $ 147
Income from continuing operations $ 167 $ 71 $ 195 $ 33
Net income (loss) $ 161 $ 70 $ 179 $ ( 61)
Diluted earnings (loss) per share:
Income from continuing operations $ 2.35 $ 1.03 $ 2.75 $ .48
Net income (loss) $ 2.26 $ 1.01 $ 2.53 $ (.89)
Ashland Inc. today reported net income of $161 million, or $2.26 a
share, for the quarter ended June 30, 2004, the third quarter of the company's
2004 fiscal year. These results compared to net income of $70 million, or $1.01
a share, for the third quarter of 2003. Ashland's income from continuing
operations for the third quarter of 2004 amounted to $167 million, or $2.35 a
share, compared to
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ASHLAND INC. REPORTS JUNE QUARTER EARNINGS, PAGE 2
income of $71 million, or $1.03 a share, for the quarter a year ago. As
previously disclosed, the difference between net income and income from
continuing operations relates principally to ongoing quarterly charges of
nearly $5 million for asbestos liabilities.
For the nine months ended June 30, 2004, Ashland reported net income
of $179 million, or $2.53 a share, compared to a net loss of $61 million,
or 89 cents a share, for the same period last year. Ashland's income from
continuing operations was $195 million, or $2.75 a share, for the 2004
period, compared to income of $33 million, or 48 cents a share, for the
2003 period.
Performance from the Chemical Sector, which consists of the Ashland
Distribution, Valvoline and Ashland Specialty Chemical divisions, improved
compared to the June quarter in 2003. Operating income for the sector
increased 97 percent to $75 million.
Ashland Distribution achieved a record quarter with operating income
of $23 million, compared to $11 million in the prior year's quarter. Sales
volumes grew by 10 percent due to a healthier economy and strong customer
satisfaction. Ashland Distribution has continued to build on its leadership
positions in logistics and operational excellence. These factors, coupled
with the division's low-cost operational model, have contributed to its
dramatic recovery.
Valvoline continues to build momentum through its focus on premium
products. Operating income grew to $30 million, a 25-percent increase
compared to the June 2003 quarter. Valvoline's core lubricant business
improved on the strength of a 7-percent increase in branded lubricant sales
volumes including a 19-percent increase in premium lubricant product sales
volumes. International operations achieved a record June quarter, due
mostly to a 9-percent increase in lubricant sales volumes and stronger
foreign currencies.
Operating income from Ashland Specialty Chemical was $22 million
compared to $3 million for the same period last year. The 2003 quarter
included an impairment charge of $10 million for a mothballed maleic
anhydride production facility in Neville Island, Pa. Growth initiatives
combined with an improved cost structure enabled Ashland Specialty Chemical
to improve June quarter results despite continued, higher raw materials
costs. Sales revenues in the thermoset resins and water technologies
businesses grew 18 percent and 6 percent, respectively.
The Transportation Construction Sector, commercially known as Ashland
Paving And Construction, Inc. (APAC), improved operating income for the
June quarter to $43 million, compared to $17 million for the 2003 period.
APAC's lower cost structure has contributed significantly to its continued
turnaround. During the quarter, APAC sold a significant portion of its
ready-mix operations for $38 million, realizing a pre-tax gain of $9
million. At June 30, APAC's construction backlog, which consists of work
awarded and funded but not yet performed, was $1.87 billion, a record for
the June quarter and up slightly over the same period in 2003.
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ASHLAND INC. REPORTS JUNE QUARTER EARNINGS, PAGE 3
"The recovery of earnings growth in our wholly-owned businesses
demonstrates across-the-board commitment to reaching top-quartile
performance," said James J. O'Brien, chairman and chief executive officer
of Ashland Inc. "The Chemical Sector continues to increase sales volumes by
focusing on organic growth and operational excellence. The Transportation
Construction Sector is building momentum, and I am encouraged by its
commitment to improve results. However, APAC must continue to improve
performance in order to reach our goals."
Operating income from refining and marketing was $205 million compared
to $100 million for the June 2003 quarter. Marathon Ashland Petroleum (MAP)
achieved the second-highest level of quarterly operating income in the
joint venture's history. High demand in the spring driving season, strong
refining margins, and record throughput at MAP's refineries contributed to
this excellent performance. Crude oil throughput during the June quarter
was a record 1.013 million barrels per day, up 7 percent over the 2003
period.
During the quarter, Ashland filed a preliminary proxy statement with
the Securities and Exchange Commission related to the previously disclosed
MAP transaction, through which Ashland would transfer its 38-percent
ownership of MAP to Marathon Oil Corporation. The transaction is subject to
several previously disclosed conditions, including approval by Ashland's
shareholders, consent from public debt holders and receipt of a favorable
private letter ruling from the Internal Revenue Service with respect to the
tax treatment. While there is meaningful risk that the transaction will not
receive the favorable ruling from the IRS, in which case the transaction
would not close, Ashland believes it is more likely than not that this
transaction will receive a favorable ruling. If the conditions are met, the
transaction is expected to close by the end of the 2004 calendar year. As
part of the transfer agreement, MAP has not made its regular, quarterly
cash distributions to Ashland since December 31, 2003. The final amount
received by Ashland from the transaction would be increased by an amount
equal to 38 percent of the cash accumulated from operations during the
period prior to closing.
"I am pleased by our performance for the first nine months of 2004,"
said O'Brien. "We are committed to our drive toward top-quartile
performance through strategic alignment and process improvement. We have
established aggressive performance goals, setting us on the right track to
produce consistent and predictable earnings. Overall, we are optimistic
that 2004 may be among our best fiscal years."
Today at 10:00 a.m. (EDT), Ashland will provide a live audio webcast
of its quarterly conference call with securities analysts. The webcast will
be accessible through Ashland's website,
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ASHLAND INC. REPORTS JUNE QUARTER EARNINGS, PAGE 4
www.ashland.com. Following the live event, an archived version of the
webcast will be available at www.ashland.com/investors 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
www.ashland.com.
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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 of failing to receive a favorable ruling
from the Internal Revenue Service; the possibility that Ashland fails to
obtain the approval of its shareholders; the possibility that the
transaction may not close or 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 reports of Ashland. Other factors and risks affecting Ashland
are contained in Ashland's Form 10-K for the fiscal year ended Sept. 30,
2003, as amended, filed with the Securities and Exchange Commission (SEC)
and available on Ashland's Investor Relations website at
www.ashland.com/investors or the SEC's website at www.sec.gov. 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. Investors
and security holders are urged to read that document 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 www.sec.gov. 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 www.
ashland.com/investors, 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 8, 2003. 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 Page 1
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data - unaudited)
Three months ended Nine months ended
June 30 June 30
----------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ----------- ----------
REVENUES
Sales and operating revenues $ 2,192 $ 2,006 $ 5,928 $ 5,388
Equity income 221 104 277 169
Other income 12 15 34 43
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2,425 2,125 6,239 5,600
COSTS AND EXPENSES
Cost of sales and operating expenses 1,756 1,602 4,727 4,296
Selling, general and administrative expenses 330 336 974 1,004
Depreciation, depletion and amortization 47 49 144 153
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2,133 1,987 5,845 5,453
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OPERATING INCOME 292 138 394 147
Net interest and other financial costs (29) (31) (88) (97)
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 263 107 306 50
Income taxes (96) (36) (111) (17)
---------- ---------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS 167 71 195 33
Results from discontinued operations (net of income taxes) (6) (1) (16) (94)
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NET INCOME (LOSS) $ 161 $ 70 $ 179 $ (61)
========== ========== =========== ==========
DILUTED EARNINGS (LOSS) PER SHARE
Income from continuing operations $ 2.35 $ 1.03 $ 2.75 $ .48
Results from discontinued operations (.09) (.02) (.22) (1.37)
---------- ---------- ----------- ----------
Net income (loss) $ 2.26 $ 1.01 $ 2.53 $ (.89)
========== ========== =========== ==========
AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS 71 69 71 69
SALES AND OPERATING REVENUES
APAC $ 698 $ 683 $ 1,755 $ 1,615
Ashland Distribution 838 733 2,320 2,081
Ashland Specialty Chemical 354 308 983 870
Valvoline 330 307 945 889
Intersegment sales (28) (25) (75) (67)
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$ 2,192 $ 2,006 $ 5,928 $ 5,388
========== ========== =========== ==========
OPERATING INCOME
APAC $ 43 $ 17 $ 41 $ (39)
Ashland Distribution 23 11 56 27
Ashland Specialty Chemical 22 3 63 21
Valvoline 30 24 75 56
Refining and Marketing (a) 205 100 232 145
Corporate (31) (17) (73) (63)
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$ 292 $ 138 $ 394 $ 147
========== ========== =========== ==========
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(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 Page 2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited)
June 30
---------------------------
2004 2003
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ASSETS
Current assets
Cash and cash equivalents $ 183 $ 112
Accounts receivable 1,217 1,045
Inventories 510 512
Deferred income taxes 115 98
Assets of discontinued operations held for sale - 198
Other current assets 204 186
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2,229 2,151
Investments and other assets
Investment in Marathon Ashland Petroleum LLC (MAP) 2,568 2,401
Goodwill 513 519
Asbestos insurance receivable (noncurrent portion) 400 398
Other noncurrent assets 393 345
----------- ------------
3,874 3,663
Property, plant and equipment
Cost 2,955 2,949
Accumulated depreciation, depletion and amortization (1,791) (1,725)
----------- ------------
1,164 1,224
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$ 7,267 $ 7,038
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 204 $ 296
Trade and other payables 1,384 1,235
Liabilities of discontinued operations held for sale - 28
Income taxes 15 16
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1,603 1,575
Noncurrent liabilities
Long-term debt (less current portion) 1,338 1,564
Employee benefit obligations 394 493
Deferred income taxes 313 201
Reserves of captive insurance companies 196 184
Asbestos litigation reserve (noncurrent portion) 565 535
Other long-term liabilities and deferred credits 358 346
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3,164 3,323
Common stockholders' equity 2,500 2,140
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$ 7,267 $ 7,038
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Ashland Inc. and Consolidated Subsidiaries Page 3
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - unaudited)
Nine months ended
June 30
--------------------------
2004 2003
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CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 195 $ 33
Expense (income) not affecting cash
Depreciation, depletion and amortization (a) 144 153
Deferred income taxes 70 43
Equity income from affiliates (277) (169)
Distributions from equity affiliates 156 114
Other items 2 (1)
Change in operating assets and liabilities (b) (213) (62)
----------- -----------
77 111
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 86 1
Repayment of long-term debt (75) (191)
Increase in short-term debt 8 243
Dividends paid (57) (56)
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(38) (3)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (a) (121) (84)
Purchase of operations - net of cash acquired (5) (5)
Proceeds from sale of operations 48 5
Other - net 13 (6)
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(65) (90)
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CASH PROVIDED (USED) BY CONTINUING OPERATIONS (26) 18
Cash provided (used) by discontinued operations (14) 4
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (40) $ 22
=========== ===========
DEPRECIATION, DEPLETION AND AMORTIZATION
APAC $ 71 $ 82
Ashland Distribution 13 15
Ashland Specialty Chemical 31 30
Valvoline 20 19
Corporate 9 7
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$ 144 $ 153
=========== ===========
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC $ 29 $ 39
Ashland Distribution 5 3
Ashland Specialty Chemical 33 22
Valvoline 13 12
Corporate 41 8
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$ 121 $ 84
=========== ===========
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(a) Excludes amounts related to equity affiliates. Ashland's 38
percent share of MAP's DD&A was $113 million in 2004 and $104
million in 2003, and its share of MAP's capital expenditures was
$209 million in 2004 and $224 million in 2003.
(b) Excludes changes resulting from operations acquired or sold.
Ashland Inc. and Consolidated Subsidiaries Page 4
OPERATING INFORMATION BY INDUSTRY SEGMENT
(Unaudited)
Three months ended Nine months ended
June 30 June 30
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
APAC
Construction backlog at June 30 (millions) (a) $ 1,869 $ 1,824
Net construction job revenues (millions) (b) $ 409 $ 402 $ 982 $ 904
Hot-mix asphalt production (million tons) 9.9 9.8 22.7 21.0
Aggregate production (million tons) 8.1 7.6 21.0 19.7
Ready-mix concrete production (million cubic yards) 0.4 0.6 1.4 1.5
ASHLAND DISTRIBUTION (c)
Sales per shipping day (millions) $ 13.3 $ 11.6 $ 12.3 $ 11.1
Gross profit as a percent of sales 14.4% 15.1% 14.6% 15.3%
ASHLAND SPECIALTY CHEMICAL (c)
Sales per shipping day (millions) $ 5.6 $ 4.9 $ 5.1 $ 4.6
Gross profit as a percent of sales 30.7% 33.1% 32.3% 33.8%
VALVOLINE
Lubricant sales (million gallons) 50.0 49.2 141.3 142.2
Premium lubricants (percent of U.S. branded volumes) 22.0% 19.8% 21.0% 18.5%
REFINING AND MARKETING (d)
Refinery runs (thousand barrels per day)
Crude oil refined 1,013 951 900 878
Other charge and blend stocks 142 129 174 130
Refined product yields (thousand barrels per day)
Gasoline 623 582 596 544
Distillates 323 292 285 276
Asphalt 85 76 70 69
Other 138 138 136 123
----------- ----------- ----------- -----------
Total 1,169 1,088 1,087 1,012
Refined product sales (thousand barrels per day) (e) 1,440 1,346 1,367 1,311
Refining and wholesale marketing margin (per barrel) (f) $ 5.27 $ 2.94 $ 2.87 $ 2.21
Speedway SuperAmerica (SSA)
Retail outlets at June 30 1,746 1,802
Gasoline and distillate sales (million gallons) 802 882 2,371 2,608
Gross margin - gasoline and distillates (per gallon) $ .1192 $ .1229 $ .1161 $ .1134
Merchandise sales (millions) (g) $ 600 $ 590 $ 1,668 $ 1,695
Merchandise margin (as a percent of sales) 23.4% 23.9% 24.4% 24.4%
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(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, and depreciation and amortization relative to
manufacturing assets.
(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.
(g) Effective January 1, 2003, SSA adopted EITF 02-16, "Accounting by
a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor," which requires rebates from vendors to be
recorded as reductions to cost of sales. Rebates from vendors
recorded in SSA merchandise sales for periods prior to January 1,
2003 have not been restated and included $46 million in the nine
months ended June 30, 2003.