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): January 25, 2005
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
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On January 25, 2005, Ashland Inc. reported its first quarter 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.
Item 9.01. Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release dated January 25, 2005
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: January 25, 2005 /s/ J. Marvin Quin
--------------------------------------------
Name: J. Marvin Quin
Title: Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
99.1 Press Release dated January 25, 2005
EXHIBIT 99.1
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
January 25, 2005
ASHLAND INC. REPORTS RECORD
DECEMBER QUARTER NET INCOME
Covington, Ky. - The following was issued today by Ashland Inc. (NYSE:ASH):
FISCAL 2005: FIRST QUARTER HIGHLIGHTS
o Robust performance from refining and marketing contributes to record
December quarter net income.
o Chemical Sector performance improves 14 percent over the 2004 quarter:
- Ashland Distribution: operating income nearly doubles to achieve
all-time record quarter;
- Ashland Specialty Chemical: operating income declines 4 percent as
24-percent improvement in revenues is more than offset by higher
raw material costs;
- Valvoline: operating income down 10 percent due in part to a
6-percent decrease in lubricant sales volumes.
o Transportation Construction Sector performance hurt by adverse weather
conditions, which reduced working days, slowed production and
increased costs.
Quarter ended December 31
In millions except earnings per share 2004 2003
- -----------------------------------------------------------------------------------------------------------
Operating income $ 193 $ 92
Income from continuing operations $ 101 $ 39
Net income $ 101 $ 34
Diluted earnings per share:
Income from continuing operations $ 1.39 $ .56
Net income $ 1.39 $.49
Ashland Inc. today reported net income of $101 million, or $1.39 a
share, for the quarter ended December 31, 2004, the first quarter of the
company's 2005 fiscal year. These results compared to net
-more-
Ashland Inc. reports record December quarter net income, page 2
income of $34 million, or 49 cents a share, for the first quarter of 2004.
Ashland's income from continuing operations for the first quarter of 2005
amounted to $101 million, or $1.39 a share, compared to $39 million, or 56
cents a share, for the quarter a year ago.
"Our record net income during the December quarter resulted primarily
from the dramatic improvement from refining and marketing," said James J.
O'Brien, Ashland Inc. chairman and chief executive officer. "Results from
our wholly-owned divisions were mixed. In order to improve performance in
the future, we will need to more successfully address the impact of higher
raw material costs. In addition, we will continue to focus on maintaining a
low-cost structure and adopting common processes across divisions, which
should foster consistent performance over time and facilitate Ashland's
growth."
REVIEW OF OPERATIONS
Commenting on operations, O'Brien noted that strong refining margins
and falling crude oil prices created a favorable profit environment for
Marathon Ashland Petroleum LLC (MAP). In addition, MAP was able to run more
sour crudes during the period, taking advantage of substantial discounts on
these feedstocks. Crude oil throughput was approximately 8 percent higher
than in the fiscal 2004 quarter. Operating income from refining and
marketing was $142 million, compared to $26 million in the quarter a year
ago.
First quarter results from the Chemical Sector, which consists of the
Ashland Distribution, Valvoline and Ashland Specialty Chemical divisions,
improved 14 percent compared to the fiscal 2004 quarter. Ashland
Distribution achieved all-time record operating income of $24 million, up
85 percent over the quarter a year ago. Sales volumes increased 5 percent,
reflecting the division's continued focus on consistent improvement in
customer service and on-time, accurate and complete product delivery.
Ashland Distribution's results also reflect their success in implementing
price increases, enabling the division to keep pace with higher raw
material costs.
Ashland Specialty Chemical reported operating income of $22 million,
compared to $23 million the previous year. Tightness in certain
petrochemical markets caused raw material costs to escalate further.
Although revenues were up 24 percent, margins declined nearly 6 percentage
points compared to the quarter a year ago. In addition, December quarter
results included approximately $4 million in net, non-recurring gains
principally related to the termination of a product supply contract.
Operating income from the Valvoline division was $18 million. While
profits were down 10 percent, this quarter was its second-best December
quarter. Valvoline lubricant sales volumes were down 6 percent due in part
from shifts in the timing of promotional programs. International results
improved primarily due to higher lubricant sales volumes from operations in
Australia and Asia.
-more-
Ashland Inc. reports record December quarter net income, page 3
The Transportation Construction Sector reported operating income of $7
million, compared to $30 million for the prior year's quarter. Ashland
Paving And Construction, Inc., commercially known as APAC, struggled with a
persistent mix of wet and cold conditions that started early in the quarter
with Hurricane Ivan. These conditions adversely affected construction
activity and increased operating costs throughout the quarter. Construction
backlog, or jobs awarded but not yet completed, at December 31, 2004, was
$1.73 billion, up 4 percent from a year ago.
"Overall, we remain committed to growing our businesses organically
and supplementing that growth with acquisitions that complement our
strategy," O'Brien said. During the quarter, Ashland purchased Dow
Chemical's DERAKANE(R) epoxy vinyl ester resins business for approximately
$90 million. With this acquisition, Ashland Specialty Chemical's composite
polymers business continues to build its innovative line of resin
chemistries for composite manufacturing.
O'Brien continued, "We have set the course for consistent improvement
in both the Chemical and Transportation Construction Sectors. We are
identifying the synergies between our businesses, which will improve
operational efficiency and create a more agile organization. Our ability to
respond quickly to changes in the marketplace will enable Ashland's future
growth."
UPDATE ON THE PROPOSED TRANSFER OF INTEREST IN MAP
On December 20, 2004, Ashland provided an update on the status of the
proposed transaction to transfer Ashland's 38-percent interest in Marathon
Ashland Petroleum LLC (MAP) to Marathon Oil Corporation. The update
included information about the status of the tax rulings which are
conditions to the closing of the proposed transaction. As described in that
announcement, Ashland and Marathon are discussing issues related to the
ruling request with the Internal Revenue Service.
Pursuant to the terms of the agreement entered into between Ashland
and Marathon, MAP has not made its regular, quarterly cash distributions to
Ashland since December 31, 2003. The final amount received by Ashland from
the proposed transaction would be increased by an amount equal to 38
percent of the cash accumulated from operations during the period prior to
closing. Ashland's share of excess cash at December 31, 2004, was $591
million. If the proposed transaction is terminated, MAP's cash
distributions to Ashland and Marathon would resume.
Today at 10:00 a.m. (EST), Ashland will provide a live audio webcast
of its quarterly conference call with securities analysts. The webcast will
be accessible through Ashland's Investor Relations website,
www.ashland.com/investors. Following the live event, an archived version of
the webcast will be available on the Ashland website for 12 months. Minimum
requirements to listen to the webcast include the free Windows MediaPlayer
software and a 28.8 Kbps connection to the Internet.
-more-
Ashland Inc. reports record December quarter net income, page 4
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.
- 0 -
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include those that refer
to Ashland's operating performance, earnings and expectations about the MAP
transaction. Although Ashland believes its expectations are based on
reasonable assumptions, it cannot assure the expectations reflected herein
will be achieved. These forward-looking statements are based upon internal
forecasts and analyses of current and future market conditions and trends,
management plans and strategies, weather, operating efficiencies and
economic conditions, such as prices, supply and demand, cost of raw
materials, and legal proceedings and claims (including environmental and
asbestos matters) and are subject to a number of risks, uncertainties, and
assumptions that could cause actual results to differ materially from those
we describe in the forward-looking statements. The risks, uncertainties,
and assumptions include the possibility that Ashland will be unable to
fully realize the benefits anticipated from the MAP transaction; the
possibility the transaction may not close including as a result of failure
to receive a favorable ruling from the Internal Revenue Service or failure
of Ashland to obtain the approval of its shareholders; the possibility that
Ashland may be required to modify some aspect of the transaction to obtain
regulatory approvals; and other risks that are described from time to time
in the Securities and Exchange Commission (SEC) reports of Ashland. Other
factors and risks affecting Ashland are contained in Ashland's Form 10-K
for the fiscal year ended Sept. 30, 2004, filed with the SEC and available
on Ashland's Investor Relations website at 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 and an
amended preliminary proxy statement on Schedule 14A on August 31, 2004. ATB
Holdings Inc. and New EXM Inc. filed a registration statement on Form S-4,
which includes a further amended preliminary proxy statement/prospectus,
with the SEC on October 12, 2004. Investors and security holders are urged
to read those documents and any other relevant documents filed or that will
be filed with the SEC, including the definitive proxy statement/prospectus
regarding the proposed transaction as they become available, because they
contain, or will contain, important information. The definitive proxy
statement/prospectus will be filed with the SEC by Ashland, and security
holders may obtain a free copy of the definitive proxy statement/prospectus
when it becomes available, and other documents filed with the SEC by
Ashland, including the preliminary proxy statement at the SEC's website at
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 14, 2004. Investors may obtain information regarding
the interests of participants in the solicitation of proxies in connection
with the transaction referenced in the foregoing information by reading the
definitive proxy statement/prospectus when it becomes available.
Ashland Inc. and Consolidated Subsidiaries Page 1
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data - unaudited)
Three months ended
December 31
-------------------------
2004 2003
----------- -----------
REVENUES
Sales and operating revenues $ 2,177 $ 1,936
Equity income 152 38
Other income 17 13
----------- -----------
2,346 1,987
COSTS AND EXPENSES
Cost of sales and operating expenses 1,849 1,611
Selling, general and administrative expenses 304 284
----------- -----------
2,153 1,895
----------- -----------
OPERATING INCOME 193 92
Net interest and other financial costs (32) (30)
----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 161 62
Income taxes (60) (23)
----------- -----------
INCOME FROM CONTINUING OPERATIONS 101 39
Results from discontinued operations (net of income taxes) - (5)
----------- -----------
NET INCOME $ 101 $ 34
=========== ===========
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 1.39 $ .56
Results from discontinued operations - (.07)
----------- -----------
Net income $ 1.39 $ .49
=========== ===========
AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS 73 69
SALES AND OPERATING REVENUES
APAC $ 611 $ 650
Ashland Distribution 895 698
Ashland Specialty Chemical 400 322
Valvoline 309 290
Intersegment sales (38) (24)
----------- -----------
$ 2,177 $ 1,936
=========== ===========
OPERATING INCOME
APAC $ 7 $ 30
Ashland Distribution 24 13
Ashland Specialty Chemical 22 23
Valvoline 18 20
Refining and Marketing (a) 142 26
Corporate (20) (20)
----------- -----------
$ 193 $ 92
=========== ===========
- ----------
(a) Includes Ashland's equity income from Marathon Ashland Petroleum LLC (MAP),
amortization related to Ashland's excess investment in MAP, and other
activities associated with refining and marketing.
Ashland Inc. and Consolidated Subsidiaries Page 2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited)
December 31
-------------------------
2004 2003
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 146 $ 201
Accounts receivable 1,212 1,045
Inventories 538 483
Deferred income taxes 95 110
Other current assets 106 103
----------- -----------
2,097 1,942
Investments and other assets
Investment in Marathon Ashland Petroleum LLC (MAP) 2,862 2,335
Goodwill 567 527
Asbestos insurance receivable (noncurrent portion) 396 403
Other noncurrent assets 370 296
----------- -----------
4,195 3,561
Property, plant and equipment
Cost 3,166 3,087
Accumulated depreciation, depletion and amortization (1,889) (1,809)
----------- -----------
1,277 1,278
----------- -----------
$ 7,569 $ 6,781
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 575 $ 145
Trade and other payables 1,197 1,123
Income taxes 69 56
----------- -----------
1,841 1,324
Noncurrent liabilities
Long-term debt (less current portion) 1,087 1,429
Employee benefit obligations 438 399
Deferred income taxes 253 221
Reserves of captive insurance companies 177 173
Asbestos litigation reserve (noncurrent portion) 553 562
Other long-term liabilities and deferred credits 368 355
----------- -----------
2,876 3,139
Common stockholders' equity 2,852 2,318
----------- -----------
$ 7,569 $ 6,781
=========== ===========
Ashland Inc. and Consolidated Subsidiaries Page 3
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - unaudited)
Three months ended
December 31
-------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 101 $ 39
Expense (income) not affecting cash
Depreciation, depletion and amortization (a) 46 48
Deferred income taxes 22 21
Equity income from affiliates (152) (38)
Distributions from equity affiliates 1 148
Other items 3 -
Change in operating assets and liabilities (b) (75) (150)
----------- -----------
(54) 68
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 20 17
Repayment of long-term debt (98) (38)
Increase in short-term debt 211 -
Dividends paid (20) (19)
----------- -----------
113 (40)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (a) (55) (53)
Purchase of operations - net of cash acquired (95) -
Other - net 2 9
----------- -----------
(148) (44)
----------- -----------
CASH USED BY CONTINUING OPERATIONS (89) (16)
Cash used by discontinued operations (8) (6)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS $ (97) $ (22)
=========== ===========
DEPRECIATION, DEPLETION AND AMORTIZATION
APAC $ 22 $ 25
Ashland Distribution 4 4
Ashland Specialty Chemical 11 10
Valvoline 6 6
Corporate 3 3
----------- -----------
$ 46 $ 48
=========== ===========
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC $ 33 $ 5
Ashland Distribution 5 1
Ashland Specialty Chemical 11 10
Valvoline 5 3
Corporate 1 34
----------- -----------
$ 55 $ 53
=========== ===========
- ----------
(a) Excludes amounts related to equity affiliates. Ashland's 38 percent share
of MAP's DD&A was $41 million in 2004 and $37 million in 2003, and its
share of MAP's capital expenditures was $138 million in 2004 and $109
million in 2003.
(b) Excludes changes resulting from operations acquired or sold.
Ashland Inc. and Consolidated Subsidiaries Page 4
OPERATING INFORMATION BY INDUSTRY SEGMENT
(Unaudited)
Three months ended
December 31
--------------------------
2004 2003
----------- -----------
APAC
Construction backlog at December 31 (millions) (a) $ 1,730 $ 1,659
Net construction job revenues (millions) (b) $ 344 $ 366
Hot-mix asphalt production (million tons) 7.8 8.4
Aggregate production (million tons) 7.8 6.8
ASHLAND DISTRIBUTION (c)
Sales per shipping day (millions) $ 14.4 $ 11.3
Gross profit as a percent of sales 9.6% 9.6%
ASHLAND SPECIALTY CHEMICAL (c)
Sales per shipping day (millions) $ 6.4 $ 5.2
Gross profit as a percent of sales 24.2% 29.8%
VALVOLINE
Lubricant sales (million gallons) 41.1 43.7
Premium lubricants (percent of U.S. branded volumes) 21.8% 19.4%
REFINING AND MARKETING (d)
Refinery runs (thousand barrels per day)
Crude oil refined 975 899
Other charge and blend stocks 200 184
Refined product yields (thousand barrels per day)
Gasoline 644 612
Distillates 328 296
Asphalt 81 68
Other 140 116
----------- -----------
Total 1,193 1,092
Refined product sales (thousand barrels per day) (e) 1,414 1,355
Refining and wholesale marketing margin (per barrel) (f) $ 4.03 $ 1.71
Speedway SuperAmerica (SSA)
Retail outlets at December 31 1,669 1,775
Gasoline and distillate sales (million gallons) 793 806
Gross margin - gasoline and distillates (per gallon) $ .1219 $ .1145
Merchandise sales (millions) $ 581 $ 547
Merchandise margin (as a percent of sales) 24.9% 24.8%
- ----------
(a) Includes APAC's proportionate share of the backlog of unconsolidated joint
ventures.
(b) Total construction job revenues, less subcontract costs.
(c) Sales are defined as sales and operating revenues. Gross profit is defined
as sales and operating revenues, less cost of sales and operating expenses.
(d) Amounts represent 100% of MAP's operations, in which Ashland owns a 38%
interest.
(e) Total average daily volume of all refined product sales to MAP's wholesale,
branded and retail (SSA) customers.
(f) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.