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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, 2002
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, 2002, there were 69,385,711 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.
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PART I - FINANCIAL INFORMATION
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
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Three months ended Six months ended
March 31 March 31
---------------------- ------------------------
(In millions except per share data) 2002 2001 2002 2001
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REVENUES
Sales and operating revenues $ 1,598 $ 1,659 $ 3,410 $ 3,537
Equity income 9 102 61 223
Other income 18 17 37 31
--------- --------- --------- ----------
1,625 1,778 3,508 3,791
COSTS AND EXPENSES
Cost of sales and operating expenses 1,290 1,365 2,755 2,911
Selling, general and administrative expenses 282 267 550 532
Depreciation, depletion and amortization 54 59 106 117
--------- --------- --------- ----------
1,626 1,691 3,411 3,560
--------- --------- --------- ----------
OPERATING INCOME (LOSS) (1) 87 97 231
Net interest and other financial costs (34) (43) (70) (89)
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INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (35) 44 27 142
Income taxes 14 (18) (10) (57)
--------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (21) 26 17 85
Results from discontinued operations (net of income taxes) - 25 - 25
--------- ---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (21) 51 17 110
Cumulative effect of accounting change (net of income taxes) - (5) - (5)
--------- ---------- ---------- ----------
NET INCOME (LOSS) $ (21) $ 46 $ 17 $ 105
========= ========== ========== ==========
BASIC EARNINGS (LOSS) PER SHARE - Note A
Income (loss) from continuing operations $ (.31) $ .37 $ .24 $ 1.22
Results from discontinued operations - .35 - .35
Cumulative effect of accounting change - (.06) - (.07)
--------- ---------- ---------- ----------
Net income (loss) $ (.31) $ .66 $ .24 $ 1.50
========= ========== ========== ==========
DILUTED EARNINGS (LOSS) PER SHARE - Note A
Income (loss) from continuing operations $ (.31) $ .37 $ .24 $ 1.21
Results from discontinued operations - .35 - .35
Cumulative effect of accounting change - (.06) - (.07)
--------- ---------- ---------- ----------
Net income (loss) $ (.31) $ .66 $ .24 $ 1.49
========= ========== ========== ==========
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275 $ .55 $ .55
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31 September 30 March 31
(In millions) 2002 2001 2001
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ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 156 $ 236 $ 77
Accounts receivable 1,010 1,219 1,084
Allowance for doubtful accounts (38) (34) (29)
Inventories - Note A 475 495 503
Deferred income taxes 112 126 131
Other current assets 91 171 109
---------- ----------- ----------
1,806 2,213 1,875
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) 2,328 2,387 2,307
Goodwill 530 528 530
Other noncurrent assets 388 377 387
---------- ----------- ----------
3,246 3,292 3,224
PROPERTY, PLANT AND EQUIPMENT
Cost 3,063 3,030 2,941
Accumulated depreciation, depletion and amortization (1,639) (1,590) (1,529)
---------- ----------- ----------
1,424 1,440 1,412
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$ 6,476 $ 6,945 $ 6,511
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Debt due within one year $ 241 $ 85 $ 266
Trade and other payables 1,060 1,392 1,119
Income taxes 96 20 31
---------- ----------- ----------
1,397 1,497 1,416
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,625 1,786 1,889
Employee benefit obligations 448 412 375
Deferred income taxes 220 440 262
Reserves of captive insurance companies 183 173 185
Other long-term liabilities and deferred credits 388 411 369
Commitments and contingencies - Note D
---------- ----------- ----------
2,864 3,222 3,080
COMMON STOCKHOLDERS' EQUITY 2,215 2,226 2,015
---------- ----------- ----------
$ 6,476 $ 6,945 $ 6,511
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
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Accumulated
other
Common Paid-in Retained comprehensive
(In millions) stock capital earnings loss Total
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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
======== ======== ========= ============== ========
BALANCE AT OCTOBER 1, 2001 $ 69 $ 363 $ 1,920 $ (126) $ 2,226
Total comprehensive income (1) 17 (7) 10
Cash dividends (38) (38)
Issued common stock under
stock incentive plans 1 16 17
-------- -------- -------- -------------- --------
BALANCE AT MARCH 31, 2002 $ 70 $ 379 $ 1,899 $ (133) $ 2,215
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(1) Reconciliations of net income (loss) to total comprehensive income (loss) follow.
Three months ended Six months ended
March 31 March 31
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(In millions) 2002 2001 2002 2001
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Net income (loss) $ (21) $ 46 $ 17 $ 105
Unrealized translation adjustments (6) (9) (10) (19)
Related tax benefit 1 1 3 3
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Total comprehensive income (loss) $ (26) $ 38 $ 10 $ 89
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At March 31, 2002, the accumulated other comprehensive loss of $133
million (after tax) was comprised of net unrealized translation losses of
$90 million and a minimum pension liability of $43 million.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
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Six months ended
March 31
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(In millions) 2002 2001
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CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 17 $ 85
Expense (income) not affecting cash
Depreciation, depletion and amortization 106 117
Deferred income taxes (79) 23
Equity income from affiliates (61) (223)
Distributions from equity affiliates 119 212
Other items - 1
Change in operating assets and liabilities (1) (92) (65)
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10 150
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt - 52
Proceeds from issuance of common stock 11 6
Repayment of long-term debt (55) (73)
Repurchase of common stock - (11)
Increase (decrease) in short-term debt 50 (50)
Dividends paid (38) (38)
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(32) (114)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (92) (109)
Purchase of operations - net of cash acquired (8) (18)
Proceeds from sale of operations - 8
Other - net 20 7
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(80) (112)
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CASH USED BY CONTINUING OPERATIONS (102) (76)
Cash provided by discontinued operations - Note B 22 86
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (80) 10
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 236 67
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 156 $ 77
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(1) Excludes changes resulting from operations acquired or sold.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States 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, 2001. Results
of operations for the periods ended March 31, 2002, are not necessarily
indicative of results to be expected for the year ending September 30,
2002.
INVENTORIES
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March 31 September 30 March 31
(In millions) 2002 2001 2001
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Chemicals and plastics $ 339 $ 374 $ 373
Construction materials 84 74 83
Petroleum products 59 54 64
Other products 51 57 50
Supplies 5 6 7
Excess of replacement costs over LIFO carrying values (63) (70) (74)
------- ------- -------
$ 475 $ 495 $ 503
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EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (EPS) from continuing operations.
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Three months ended Six months ended
March 31 March 31
---------------------- -----------------------
(In millions except per share data) 2002 2001 2002 2001
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NUMERATOR
Numerator for basic and diluted EPS - Income (loss)
from continuing operations $ (21) $ 26 $ 17 $ 85
========== ========== ========= ===========
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 69 70 69 70
Common shares issuable upon exercise of stock options - - 1 -
---------- ---------- --------- -----------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 69 70 70 70
========== ========== ========= ===========
BASIC EPS FROM CONTINUING OPERATIONS $ (.31) $ .37 $ .24 $ 1.22
DILUTED EPS FROM CONTINUING OPERATIONS $ (.31) $ .37 $ .24 $ 1.21
ACCOUNTING CHANGE - FAS 142
In June 2001, the Financial Accounting Standards Board issued Statement No.
142 (FAS 142), "Goodwill and Other Intangible Assets." Under FAS 142,
goodwill and intangible assets with indefinite lives will no longer be
amortized but will be subject to annual impairment tests. Other intangible
assets will continue to
6
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTING CHANGE - FAS 142 (CONTINUED)
be amortized over their useful lives. As permitted, Ashland adopted the
statement as of October 1, 2001, the beginning of its fiscal year.
Ashland has no recorded intangible assets that are not subject to
amortization. Recorded intangible assets subject to amortization (included
in other noncurrent assets) and the related amortization expense are not
material to Ashland's consolidated financial position or results of
operations, respectively.
Under FAS 142, companies are required to perform an initial impairment test
of goodwill as of the date they adopt the Statement. The first step of that
test compares the fair value of a reporting unit with its carrying amount
to identify potential impairment. If the carrying value of a reporting unit
exceeds its fair value, the second step of the test is then performed to
measure the amount of any impairment. Ashland has completed the first step
of its initial impairment test of goodwill as of October 1, 2001. As a
result of that process, no potential impairments were identified, except
with respect to goodwill of $14 million recognized by Ashland Distribution.
The second step of the test related to the goodwill of Ashland Distribution
will be completed by September 30, 2002, and the impairment loss (if any)
will be recorded as a cumulative effect of accounting change as of the
beginning of fiscal 2002.
The nonamortization of goodwill has increased Ashland's net income and
earnings per share. Following are pro forma results assuming goodwill had
not been amortized prior to October 1, 2001.
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Three months ended Six months ended
March 31 March 31
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(In millions except per share data) 2002 2001 2002 2001
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Reported net income (loss) $ (21) $ 46 $ 17 $ 105
Add back: Goodwill amortization - 9 - 17
----------- ----------- ---------- ------------
Adjusted net income (loss) $ (21) $ 55 $ 17 $ 122
=========== =========== ========== ============
Basic EPS - as reported $ (.31) $ . 66 $ .24 $ 1.50
Add back: Goodwill amortization - .13 - .26
----------- ----------- ---------- ------------
Basic EPS - adjusted $ (.31) $ .79 $ .24 $ 1.76
=========== =========== ========== ============
Diluted EPS - as reported $ (.31) $ .66 $ .24 $ 1.49
Add back: Goodwill amortization - .12 - .25
Diluted EPS - adjusted $ (.31) $ .78 $ .24 $ 1.74
=========== =========== ========== ============
Following is a progression of goodwill by segment for the six months
ended March 31, 2002.
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Ashland
Ashland Specialty
(In millions) APAC Distribution Chemical Valvoline Total
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Balance at October 1, 2001 $ 419 $ 14 $ 92 $ 3 $ 528
Acquisitions - - 1 2 3
Currency translation adjustments - - (1) - (1)
----------- -------------- ------------ ------------ -----------
Balance at March 31, 2002 $ 419 $ 14 $ 92 $ 5 $ 530
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7
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE B - UNUSUAL ITEMS
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 provisions for
current and deferred income taxes). In the December 2001 quarter, Ashland
received $22 million in current tax benefits from capital loss carrybacks
generated by the sale, which are included in "Cash provided by discontinued
operations" on the Statements of Consolidated Cash Flows. Results for the
quarter ended March 31, 2001, also included accruals of $13 million ($8
million after income taxes) for estimated costs associated with other
operations previously discontinued.
ACCOUNTING CHANGE - FAS 133
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (FAS 133), "Accounting for Derivative Instruments and Hedging
Activities." FAS 133 was amended by two other statements and was 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. The adoption of FAS 133 by Marathon Ashland Petroleum
LLC (MAP) 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 $8 million which, net of income tax benefits of $3
million, resulted in a loss of $5 million from the cumulative effect of
this accounting change.
OTHER
MAP maintains an inventory valuation reserve to reduce the LIFO cost of its
inventories to their net realizable values. Adjustments in that reserve are
recognized quarterly based on changes in petroleum product prices, creating
non-cash charges or credits to Ashland's earnings. A pretax charge of $29
million was recognized in the December 2001 quarter and reversed in the
March 2002 quarter as a result of these adjustments. The following tables
show the effect of these unusual items on Ashland's operating income, net
income and diluted earnings per share.
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Three months ended Six months ended
March 31 March 31
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(In millions except per share data) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Operating income (loss) before unusual items $ (30) $ 87 $ 97 $ 231
MAP inventory valuation adjustments 29 - - -
----------- ----------- ------------ ------------
Operating income (loss) as reported $ (1) $ 87 $ 97 $ 231
=========== =========== ============ ============
Net income (loss) before unusual items $ (39) $ 26 $ 17 $ 85
MAP inventory valuation adjustments 18 - - -
Results of discontinued operations - 25 - 25
Cumulative effect of accounting change - (5) - (5)
----------- ----------- ------------ ------------
Net income (loss) as reported $ (21) $ 46 $ 17 $ 105
=========== =========== ============ ============
Diluted earnings (loss) per share before unusual items $ (.56) $ .37 $ .24 $ 1.21
Impact of unusual items .25 .29 - .28
----------- ----------- ------------ ------------
Diluted earnings (loss) per share as reported $ (.31) $ .66 $ .24 $ 1.49
=========== =========== ============ ============
8
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE C - 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). Financial statements for MAP for the year
ended December 31, 2001, were filed on a Form 10-K/A on March 14, 2002.
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, each parent is responsible for income
taxes applicable to its share of MAP's taxable income. The net income
reflected below for MAP does not include any provision for income taxes
that will be incurred by its parents.
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Three months ended Six months ended
March 31 March 31
----------------------- ---------------------------
(In millions) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Sales and operating revenues $ 5,306 $ 6,747 $ 11,048 $ 14,110
Income from operations 34 284 181 611
Income before cumulative effect of accounting change 32 283 176 613
Net income (loss)
Including inventory valuation adjustments 32 263 176 593
Excluding inventory valuation adjustments (45) 263 176 593
Ashland's equity income (loss)
Including inventory valuation adjustments 8 101 58 220
Excluding inventory valuation adjustments (21) 101 58 220
NOTE D - LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local environmental laws
and regulations that require environmental assessment or remediation
efforts (collectively environmental remediation) at multiple locations. At
March 31, 2002, such locations included 96 waste treatment or disposal
sites where Ashland has been identified as a potentially responsible party
under Superfund or similar state laws, approximately 130 current and former
operating facilities (including certain operating facilities conveyed to
MAP) and about 1,200 service station properties. Ashland's reserves for
environmental remediation amounted to $167 million at March 31, 2002. Such
amount reflects Ashland's estimate of the most likely costs that will be
incurred over an extended period to remediate identified conditions for
which the costs are reasonably estimable, without regard to any third-party
recoveries.
Environmental remediation reserves are subject to numerous inherent
uncertainties that affect Ashland's ability to estimate its share of the
ultimate costs of the 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 remediation continues.
9
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE D - LITIGATION, CLAIMS AND CONTINGENCIES (continued)
None of the remediation locations is individually material to Ashland as
its largest reserve for any site is under $10 million. As a result,
Ashland's exposure to adverse developments with respect to any individual
site is not expected to be material, and these sites are in various stages
of the ongoing environmental remediation process. Although environmental
remediation 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.
On May 13, 2002, Ashland entered into a plea agreement with the U.S.
government regarding a May 16, 1997, sewer fire that injured five employees
at the St. Paul Park, Minnesota, refinery now owned by MAP. As part of the
resolution, Ashland entered guilty pleas to two federal misdemeanors and
entered into a deferred prosecution agreement. Ashland also will pay a $3.5
million fine, pay approximately $3.5 million as restitution to the
employees injured in the fire, and fund approximately $4 million in
upgrades to the St. Paul Park refinery's process sewers, junction boxes and
drains. As a result of the resolution, Ashland will record an after-tax
charge of approximately $5 million in the June 2002 quarter. For additional
information regarding this matter, see the "Legal Proceedings" section of
this Form 10-Q.
In addition to the environmental matters described above, there are pending
or threatened against Ashland and its current and former subsidiaries
various claims, lawsuits and administrative proceedings. Such actions are
with respect to commercial matters, product liability, toxic tort
liability, numerous asbestos claims, and other environmental matters, which
seek remedies or damages some of which are for substantial amounts. While
these actions are being contested, their outcome is not predictable with
assurance and could be material to results of operations in the period they
are recognized. However, Ashland does not believe that any liability
resulting from these actions and environmental remediation after taking
into consideration expected recoveries from insurers, 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.
10
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
----------------------------- ----------------------------
(In millions) 2002 2001 2002 2001
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REVENUES
Sales and operating revenues
APAC $ 424 $ 384 $ 1,105 $ 1,005
Ashland Distribution 621 726 1,205 1,457
Ashland Specialty Chemical 300 304 612 615
Valvoline 273 267 528 508
Intersegment sales
Ashland Distribution (5) (7) (9) (14)
Ashland Specialty Chemical (15) (15) (30) (33)
Valvoline - - (1) (1)
------------ ------------ ------------ -----------
1,598 1,659 3,410 3,537
Equity income
Ashland Specialty Chemical 1 1 2 3
Valvoline - - 1 -
Refining and Marketing 8 101 58 220
------------- ------------ ------------ -----------
9 102 61 223
Other income
APAC 6 3 6 5
Ashland Distribution 3 2 12 4
Ashland Specialty Chemical 7 8 12 15
Valvoline 1 2 2 3
Refining and Marketing - - 2 -
Corporate 1 2 3 4
------------ ------------ ------------ -----------
18 17 37 31
------------ ------------ ------------ -----------
$ 1,625 $ 1,778 $ 3,508 $ 3,791
============ ============ ============ ===========
OPERATING INCOME (LOSS)
APAC $ (14) $ (38) $ 22 $ (25)
Ashland Distribution (4) 14 5 24
Ashland Specialty Chemical 18 17 34 36
Valvoline 17 19 28 29
Refining and Marketing (1) - 96 45 204
Corporate (18) (21) (37) (37)
------------ ------------ ------------ -----------
$ (1) $ 87 $ 97 $ 231
============ ============ ============ ===========
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(1) Includes Ashland's equity income from MAP, amortization of a portion of
Ashland's excess investment in MAP, and other activities associated with
refining and marketing.
11
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
March 31 March 31
---------------------------- ----------------------------
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
APAC
Construction backlog at March 31 (millions) $ 1,658 $ 1,856
Hot-mix asphalt production (million tons) 4.6 4.1 13.9 12.6
Aggregate production (million tons) 5.9 5.5 13.8 11.4
Ready-mix concrete production (thousand cubic yards) 443 460 972 983
Ashland Distribution (1)
Sales per shipping day (millions) $ 10.0 $ 11.3 $ 9.7 $ 11.7
Gross profit as a percent of sales 15.9% 16.5% 16.2% 16.0%
Ashland Specialty Chemical (1)
Sales per shipping day (millions) $ 4.8 $ 4.8 $ 4.9 $ 4.9
Gross profit as a percent of sales 36.2% 34.0% 35.3% 34.0%
Valvoline lubricant sales (thousand barrels per day) 12.7 11.6 11.9 11.0
Refining and Marketing (2)
Crude oil refined (thousand barrels per day) 891 870 908 863
Refined products sold (thousand barrels per day) (3) 1,228 1,253 1,273 1,281
Refining and wholesale marketing margin (per barrel) (4) $ 0.68 $ 3.63 $ 1.74 $ 3.69
Speedway SuperAmerica (SSA) (5)
Retail outlets at March 31 2,097 2,088
Gasoline and distillate sales (millions of gallons) 852 848 1,768 1,778
Gross margin - gasoline and distillates (per gallon) $ .0827 $ .1068 $ .0989 $ .1128
Merchandise sales (millions) $ 540 $ 488 $ 1,124 $ 1,006
Merchandise margin (as a percent of sales) 24.0% 23.3% 24.0% 23.6%
- ------------------------------------------------------------------------------------------------------------------------------------
(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 MAP's operations, in which Ashland owns a
38 percent interest.
(3) Total average daily 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.
(5) Periods prior to September 1, 2001, have been restated to exclude travel
centers contributed to Pilot Travel Centers LLC.
12
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
CURRENT QUARTER - For the quarter ended March 31, 2002, Ashland recorded a
net loss of $21 million, compared to net income of $46 million for the
quarter ended March 31, 2001. Excluding unusual items described in Note B
to the Condensed Consolidated Financial Statements, Ashland had a net loss
of $39 million for the March 2002 quarter, compared to net income of $26
million for the March 2001 quarter. The decline was the result of very
challenging conditions in petroleum products markets, as well as continued
weakness in the U.S. economy. In addition, several of Ashland's wholly
owned businesses are typically affected by seasonal dips in the March
quarter, which limited their ability to offset the downturn in Refining and
Marketing.
YEAR-TO-DATE - For the six months ended March 31, 2002, Ashland recorded
net income of $17 million, compared to $105 million for the six months
ended March 31, 2001. Excluding unusual items, net income amounted to $17
million in the 2002 period, compared to $85 million in the 2001 period.
Operating income declined $134 million from the record level recorded in
the 2001 period, primarily as a result of reduced margins for Refining and
Marketing.
As described in Note A to the Condensed Consolidated Financial Statements,
Ashland adopted FAS 142 effective October 1, 2001, which caused
amortization of goodwill to cease. Goodwill amortization reduced operating
income by $21 million and net income by $17 million for the six months
ended March 31, 2001. The reductions in operating income by segment were
$12 million for APAC, $1 million for Ashland Distribution, $2 million for
Ashland Specialty Chemical, $1 million for Valvoline and $5 million for
Refining and Marketing.
APAC
CURRENT QUARTER - APAC's construction operations recorded an operating loss
of $14 million for the March 2002 quarter, compared to an operating loss of
$38 million for the March 2001 quarter, which included a charge of $15
million to correct improper recognition of construction contract earnings
at APAC's Manassas, Virginia, division. The improved results reflect more
favorable weather conditions compared to last year's extremely cold, wet
weather. Total profitability in APAC's asphalt plants and construction jobs
increased from last year's levels, reflecting higher production volumes and
lower costs for liquid asphalt, fuel and power. Net construction job
revenue (total revenue less subcontract costs) increased 12% from the prior
year period. Production of hot-mix asphalt increased 12%, while aggregate
production increased 7%. In addition, nonamortization of goodwill increased
APAC's operating income by $6 million, compared to the March 2001 quarter.
The construction backlog at March 31, 2002, remained strong at $1.7
billion, though down 11% from the prior year, reflecting increased work
during the winter period and less subcontract backlog. Implementation has
begun in the following areas of APAC's business process redesign initiative
(Project PASS): financial process standardization, strategic sourcing,
equipment management and performance management. Costs of Project PASS
amounted to $3 million in the March 2002 quarter.
YEAR-TO-DATE - For the six months ended March 31, 2002, APAC reported
operating income of $22 million, compared to an operating loss of $25
million for the same period of 2001, which included the $15 million charge
for the Manassas division described above. The improvement generally
reflects the same factors described in the current quarter comparison. Net
construction job revenue increased 5%, hot-mix asphalt production was up
10% and aggregate production was 21% higher. Nonamortization of goodwill
increased operating income by $12 million compared to the prior year
period, while costs of Project PASS were $4 million in the current year
period.
13
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
ASHLAND DISTRIBUTION
CURRENT QUARTER - Ashland Distribution reported an operating loss of $4
million for the quarter ended March 31, 2002, compared to operating income
of $14 million for the quarter ended March 31, 2001. The decline reflects
continued economic weakness and issues related to the ongoing
implementation of a new enterprise resource planning system. Of all of
Ashland's businesses, Ashland Distribution is the most sensitive to
industrial output, which remains soft in comparison to prior years. Sales
revenues are down 14% reflecting decreased sales volumes.
YEAR-TO-DATE - For the six months ended March 31, 2002, Ashland
Distribution reported operating income of $5 million, compared to $24
million for the same period of 2001. The decline reflects the same factors
described in the current quarter comparison. The 2002 period results
include income of $7 million from the settlement of a sorbate class action
antitrust suit.
ASHLAND SPECIALTY CHEMICAL
CURRENT QUARTER - For the quarter ended March 31, 2002, Ashland Specialty
Chemical reported operating income of $18 million, compared to $17 million
for the March 2001 quarter. Results from five of Ashland's seven specialty
chemical businesses improved reflecting better sales volumes and/or margins
compared to last year. The largest improvement came in composite polymers,
where operating income nearly doubled reflecting increased sales volumes
resulting from the April 2001 acquisition of Neste Polyester, and improved
margins attributed to lower raw material costs. However, those improvements
were nearly offset by reduced earnings from electronic and marine
chemicals. Results for electronic chemicals continue to reflect the
worldwide slowdown in the semiconductor industry.
YEAR-TO-DATE - For the six months ended March 31, 2002, Ashland Specialty
Chemical reported operating income of $34 million, compared to $36 million
for the first six months of 2001. 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, 2002, Valvoline reported
operating income of $17 million, compared to $19 million for the March 2001
quarter. The decrease was due to minimal sales volumes of R-12 automotive
refrigerant in the March 2002 quarter. As a result, Valvoline now expects
gross profit from sales of R-12 to be in the range of $3 million to $4
million for fiscal 2002, compared to roughly $14 million in each of the
last three years. The March 2002 quarter benefited from strong results from
the core lubricants business, record performances by Valvoline Instant Oil
Change and Eagle One appearance products, and across-the-board increases in
international operations and automotive chemicals.
YEAR-TO-DATE - For the six months ended March 31, 2002, Valvoline reported
operating income of $28 million, compared to $29 million for the same
period of 2001. The same factors described in the current quarter
comparison are responsible for the decline in the year-to-date results.
14
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
REFINING AND MARKETING
CURRENT QUARTER - Refining and Marketing, which consists primarily of
equity income from Ashland's 38% ownership interest in Marathon Ashland
Petroleum (MAP), reported an operating loss of $29 million for the quarter
ended March 31, 2002, excluding $29 million in favorable inventory
valuation adjustments described in Note B to the Condensed Consolidated
Financial Statements. Operating income for the quarter ended March 31,
2001, amounted to $96 million. The loss for the current quarter reflects
the first quarterly loss in the history of the MAP joint venture, which
began operations on January 1, 1998. For much of the quarter, refining
margins were severely compressed as crude oil costs increased more quickly
than refined product prices. In addition, the differential between sweet
and sour crude oil prices narrowed. Because MAP's refineries generally
process a higher percentage of sour crudes, the narrow differential had an
adverse impact on profits. As a result, MAP's refining and wholesale
marketing margin decreased $2.95 per barrel, which was the primary factor
in the $128 million decline in Ashland's equity income from MAP's refining
and wholesale marketing operations.
YEAR-TO-DATE - Operating income from Refining and Marketing amounted to $45
million for the six months ended March 31, 2002, compared to $204 million
for the six months ended March 31, 2001. Ashland's equity income from MAP's
refining and wholesale marketing operations declined $165 million,
reflecting a $1.95 per barrel reduction in MAP's refining and wholesale
marketing margin.
CORPORATE
Corporate expenses amounted to $18 million in the quarter ended March 31,
2002, compared to $21 million for the quarter ended March 31, 2001.
Corporate expenses on a year-to-date basis amounted to $37 million in both
the 2002 and 2001 periods. The lower level of expenses in the quarterly
comparison reflects decreased incentive and deferred compensation costs.
NET INTEREST AND OTHER FINANCIAL COSTS
For the quarter ended March 31, 2002, net interest and other financial
costs totaled $34 million, compared to $43 million for the March 2001
quarter. For the year-to-date, net interest and other financial costs
amounted to $70 million in the 2002 period, compared to $89 million in the
2001 period. Reflecting strong cash flows from operations in the second
half of fiscal 2001, total debt outstanding at March 31, 2002, is down $289
million compared to March 31, 2001. In addition, interest rates on floating
rate obligations have declined.
DISCONTINUED OPERATIONS
As described in Note B to the Condensed Consolidated Financial Statements,
results for the March 2001 quarter included an after-tax gain of $33
million on the sale of Ashland's remaining shares in Arch Coal and an $8
million after-tax charge for estimated costs associated with other
operations previously discontinued.
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.
15
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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 has been used. Under a shelf registration, Ashland can
also issue an additional $600 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. While the
revolving credit agreements contain a covenant limiting new borrowings
based on its stockholders' equity, Ashland could have increased its
borrowings (including any borrowings under these agreements) by up to $1.5
billion at March 31, 2002. Additional permissible borrowings are increased
(decreased) by 150% of any increases (decreases) in Ashland's stockholders'
equity.
Cash flows from operations, a major source of Ashland's liquidity, amounted
to $10 million for the six months ended March 31, 2002, compared to $150
million for the six months ended March 31, 2001. The decrease principally
reflects decreased cash distributions from MAP ($119 million in 2002,
compared to $210 million in 2001). In addition, the 2002 period included
the negative effects of a $92 million increase in operating assets and
liabilities versus a $65 million increase in the 2001 period. Ashland's
capital requirements for net property additions and dividends exceeded cash
flows from operations by $113 million for the six months ended March 31,
2002, and were funded with cash equivalents and short-term debt.
Earnings before interest, taxes, depreciation and amortization (EBITDA) is
a widely accepted financial indicator of a company's ability to incur and
service debt. Ashland's EBITDA, which represents operating income plus
depreciation, depletion and amortization (each excluding unusual items),
amounted to $203 million for the six months ended March 31, 2002, compared
to $348 million for the six months ended March 31, 2001. EBITDA should not
be considered in isolation or as an alternative to net income, operating
income, cash flows from operations, or a measure of a company's
profitability, liquidity or performance under generally accepted accounting
principles.
At March 31, 2002, working capital (excluding debt due within one year)
amounted to $650 million, compared to $801 million at September 30, 2001,
and $725 million at March 31, 2001. Ashland's working capital is affected
by its use of the LIFO method of inventory valuation. That method valued
inventories below their replacement costs by $63 million at March 31, 2002,
$70 million at September 30, 2001, and $74 million at March 31, 2001.
Liquid assets (cash, cash equivalents and accounts receivable) amounted to
81% of current liabilities at March 31, 2002, compared to 95% at September
30, 2001, and 80% at March 31, 2001.
16
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
CAPITAL RESOURCES
For the six months ended March 31, 2002, property additions amounted to $92
million, compared to $109 million for the same period last year. Property
additions and cash dividends for the remainder of fiscal 2002 are estimated
at $164 million and $38 million. At March 31, 2002, Ashland had remaining
authority to purchase 3.9 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 2002 capital requirements for
property additions, dividends and scheduled debt repayments of $30 million
from internally generated funds. However, external financing may be
necessary to provide funds for acquisitions or purchases of common stock.
At March 31, 2002, Ashland's debt level amounted to $1.9 billion, compared
to $1.9 billion at September 30, 2001, and $2.2 billion at March 31, 2001.
Debt as a percent of capital employed amounted to 46% at March 31, 2002,
compared to 46% at September 30, 2001, and 52% at March 31, 2001. At March
31, 2002, Ashland's long-term debt included $141 million of floating-rate
obligations, and the interest rates on an additional $153 million of
fixed-rate, medium-term notes were effectively converted to floating rates
through interest rate swap agreements. In addition, Ashland's costs under
its sale of receivables program and various operating leases are based on
the floating-rate interest costs on $261 million of third-party debt
underlying those transactions. As a result, Ashland was exposed to
fluctuations in short-term interest rates on $555 million of debt
obligations at March 31, 2002.
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 D 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
remediation continues.
Ashland does not believe that any liability resulting from environmental
matters, after taking into consideration expected recoveries from insurers,
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. Although environmental remediation 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.
17
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
OUTLOOK
Looking ahead to the second half of fiscal 2002, MAP consistently has been
a leader in adjusted profit per barrel of crude oil refined, and Ashland
expects it to perform moderately well in the spring and summer months,
although well below levels achieved in fiscal 2001. However, world crude
oil markets remain extremely volatile, and refining margins are subject to
significant, unpredictable swings. Valvoline continues to perform on
target, and its operating income is expected to be comparable with or
perhaps slightly below its strong performance during 2001. At APAC,
operating income for the year is now expected to range between $120 million
and $140 million. This estimate reflects costs associated with Project
PASS. Improvements in Ashland's chemical businesses are tied to economic
recovery. Looking at Ashland as a whole, the profit environment has been
more challenging than originally anticipated, which will likely lead to
earnings in fiscal 2002 that are significantly lower than the record
earnings achieved in 2001.
CONVERSION TO THE EURO
Beginning January 1, 2002, certain member countries of the European
Economic and Monetary Union began conducting all non-cash transactions in
Euros and circulation of Euro notes and coins for cash transactions
commenced. National notes and coins were no longer acceptable as legal
tender generally after February 28, 2002. Ashland conducts business in most
of the participating countries and successfully converted to the Euro
without any material effect on its 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 and
Outlook 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. 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 2001 Annual Report and in Ashland's Form 10-K, as amended for the
fiscal year ended September 30, 2001. Ashland undertakes no obligation to
subsequently update or revise these forward-looking statements.
18
PART II - OTHER INFORMATION
- ---------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - (1) As of March 31, 2002, 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 96
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.
The ultimate costs are not predictable with assurance and could be material.
However, 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 flows or liquidity. For
additional information regarding environmental matters and reserves, see
"Management's Discussion and Analysis - Environmental Matters" and Note D of
Notes to Condensed Consolidated Financial Statements.
(2) On May 13, 2002, Ashland entered into a plea agreement with the United
States Attorney's Office for the District of Minnesota and the Environmental
Crimes Section of the United States Department of Justice regarding a May 16,
1997 sewer fire at the St. Paul Park, Minnesota refinery now owned by Marathon
Ashland Petroleum LLC, a joint venture company of Marathon Oil Company and
Ashland. As part of the plea agreement, Ashland entered guilty pleas to two
federal misdemeanors, will pay a $3.5 million fine related to violations of the
Clean Air Act, will pay approximately $3.5 million as restitution to the
employees injured in the fire and will fund approximately $4.0 million in
upgrades to the St. Paul Park refinery's process sewers, junction boxes and
drains. In addition, as part of the plea agreement, Ashland entered into a
deferred prosecution agreement with regard to a separate count charging it with
violating Subpart QQQ of the New Source Performance Standards of the Clean Air
Act. The deferred prosecution agreement provides that so long as Ashland
satisfies the terms and conditions of the plea agreement, the United States will
dismiss with prejudice that count.
OTHER PROCEEDINGS - In addition to the environmental matters described
above, there are pending or threatened against Ashland and its current and
former subsidiaries various claims, lawsuits and administrative proceedings.
Such actions are with respect to commercial matters, product liability, toxic
tort liability, numerous asbestos claims, and other environmental matters, which
seek remedies or damages some of which are for substantial amounts. While these
actions are being contested, their outcome is not predictable with assurance and
could be material to results of operations in the period they are recognized.
However, Ashland does not believe that any liability resulting from these
actions after taking into consideration expected recoveries from insurers,
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.
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
12 Ashland Inc. Computation of Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended
March 31, 2002.
20
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 13, 2002 /s/ Kenneth L. Aulen
----------------------------------
Kenneth L. Aulen
Administrative Vice President
and Controller
(Chief Accounting Officer)
Date: May 13, 2002 /s/ David L. Hausrath
----------------------------------
David L. Hausrath
Vice President and General Counsel
EXHIBIT INDEX
Exhibit
No. Description
- ------ -------------------------------------------------------------------
12 Ashland Inc. 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
------------------------------------------------------------- --------------------
1997 1998 1999 2000 2001 2001 2002
---------- ---------- ----------- ---------- ---------- ---------- --------
EARNINGS
Income from continuing operations $ 169 $ 178 $ 291 $ 292 $ 406 $ 85 $ 17
Income taxes 125 114 193 191 275 57 10
Interest expense 148 133 141 189 160 84 68
Interest portion of rental expense 48 40 35 39 41 19 18
Amortization of deferred debt expense 1 1 1 2 2 1 1
Undistributed earnings of
unconsolidated affiliates (6) (62) (11) (112) (90) (11) 58
Earnings of significant affiliates* 7 - - - - - -
---------- ---------- ----------- ---------- ---------- ---------- --------
$ 492 $ 404 $ 650 $ 601 $ 794 $ 235 $ 172
========== ========== =========== ========== ========== ========== ========
FIXED CHARGES
Interest expense $ 148 $ 133 $ 141 $ 189 $ 160 $ 84 $ 68
Interest portion of rental expense 48 40 35 39 41 19 18
Amortization of deferred debt expense 1 1 1 2 2 1 1
Capitalized interest 1 - - - - - -
Fixed charges of significant affiliates* 5 - - - - - -
---------- ---------- ----------- ---------- ---------- ---------- --------
$ 203 $ 174 $ 177 $ 230 $ 203 $ 104 $ 87
========== ========== =========== ========== ========== ========== ========
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Preferred dividend requirements $ 9 $ - $ - $ - $ - $ - $ -
Ratio of pretax to net income** 1.74 - - - - - -
---------- ---------- ----------- ---------- ---------- ---------- --------
Preferred dividends on a pretax basis 17 - - - - - -
Fixed charges 203 174 177 230 203 104 87
---------- ---------- ----------- ---------- ---------- ---------- --------
$ 220 $ 174 $ 177 $ 230 $ 203 $ 104 $ 87
========== ========== =========== ========== ========== ========== ========
RATIO OF EARNINGS TO
FIXED CHARGES 2.42 2.32 3.67 2.61 3.91 2.26 1.99
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS 2.24 2.32 3.67 2.61 3.91 2.26 1.99
* 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.