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 22, 2003
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 22, 2003
Item 9. Regulation FD Disclosure
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(Information Furnished Under Item 12 -
Results of Operations and Financial Condition)
On July 22, 2003, Ashland Inc. reported its fiscal 2003 third quarter
results, which are discussed in more detail in the press release attached
hereto as Exhibit 99.1. The information, furnished under "Item 9.
Regulation FD Disclosure," is intended to be furnished under "Item 12.
Results of Operations and Financial Condition," in accordance with
Securities and Exchange Commission Release No. 33-8216.
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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.
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(Registrant)
Date: July 22, 2003 /s/ J. Marvin Quin
-------------------------
Name: J. Marvin Quin
Title: Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
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99.1 Press Release dated July 22, 2003
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Exhibit 99.1
FOR FURTHER INFORMATION:
Media Relations: Investor Relations:
Margaret Thomson Bill Henderson
(859) 815-3039 (859) 815-4454
mrthomson@ashland.com wehenderson@ashland.com
FOR IMMEDIATE RELEASE
July 22, 2003
ASHLAND INC. REPORTS
JUNE QUARTER EARNINGS
Covington, Ky. - The following was issued today by Ashland Inc. (NYSE:ASH):
FISCAL 2003: THIRD QUARTER HIGHLIGHTS
o Refining and marketing results improved despite high crude prices
and weak economy
o Ashland Distribution recovery continues
o APAC results down, reflecting continued above-normal precipitation
levels
o Ashland Specialty Chemical results off due to weak demand and
plant write-down
o Valvoline performing well
Quarter ended June 30 Nine months ended June 30
In millions except earnings per share 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income $ 138 $ 132 $ 147 $ 225
Income from continuing operations $ 71 $ 61 $ 33 $ 75
Net income (loss) $ 70 $ 65 $ (61) $ 70
Diluted earnings (loss) per share:
Income from continuing operations $ 1.03 $ .87 $ .48 $ 1.06
Net income (loss) $ 1.01 $ .93 $ (.89) $ 1.00
Ashland Inc. today reported net income of $70 million, or $1.01 a
share, for the quarter ended June 30, the third quarter of the company's
2003 fiscal year. These results compared to net income of $65 million, or
93 cents a share, for the June 2002 quarter. Ashland's income from
continuing operations for the June 2003 quarter amounted to $71 million, or
$1.03 a share, compared to $61 million, or 87 cents a share, for the
quarter a year ago. A loss of $1 million from discontinued operations for
the quarter just ended included the results of the
-more-
Electronic Chemicals business group and an after-tax charge of $5 million
for future asbestos liabilities less probable insurance recoveries. As
previously announced, quarterly charges are being recognized to maintain
asbestos reserves at a level adequate to cover estimated future payments
over a rolling 10-year period.
"The June quarter was very challenging," O'Brien said. "We continued
to struggle with high energy costs, a sluggish economy, and poor weather
conditions. However, we're doing the work now that will set the course for
a successful future. There's a lot of change occurring at Ashland, and I
believe it's only a matter of time before we start seeing solid results."
For the nine months ended June 30, 2003, Ashland reported a net loss
of $61 million, or 89 cents a share, compared to net income of $70 million,
or $1.00 a share for the same period last year. Ashland's income from
continuing operations for the 2003 period totaled $33 million, or 48 cents
a share, which compared to $75 million, or $1.06 a share, for the 2002
period. An after-tax charge of $104 million associated with estimated
future asbestos liabilities less probable insurance recoveries, is
reflected in discontinued operations for the 2003 period, along with the
results of the Electronic Chemicals business group, which Ashland has
agreed to sell to Air Products for approximately $300 million.
REVIEW OF OPERATIONS
Commenting on operations, O'Brien noted that results from refining and
marketing improved significantly over the previous year. Operating income
totaled $100 million, compared to $66 million in the June 2002 quarter.
Demand for petroleum products was soft in the quarter due to high crude oil
prices and a weak industrial economy. However, MAP refineries operated
well, and refining margins improved over last year.
Operating income from APAC was $17 million, compared to $42 million in
last year's June quarter. APAC continues to suffer from adverse weather
that has significantly hampered construction activity. Twelve of the 14
states in APAC's operating area experienced much higher than normal
rainfall for the quarter, continuing the pattern that has persisted
throughout this fiscal year. Construction backlog, which consists of work
awarded and funded but not yet performed, continues to grow and was at a
record high for the June quarter of $1.8 billion.
APAC also has completed its strategic reorganization, reducing the
number of operating units to 24 from 38 and decreasing field overhead expenses
by approximately $8 million per
-more-
year. Additionally, financial shared services were implemented for four
more operating units during the quarter, bringing to 11 the total number
sharing financial services. This centralization of resources, resulting
from the Project PASS business redesign effort, advances APAC's competitive
position as a low-cost, operationally efficient organization.
Results from Ashland Distribution improved, with much stronger
earnings compared to the previous year. Operating income for the June
quarter was $11 million compared to $3 million in the 2002 quarter. Ashland
Distribution continues to revitalize its business and to improve service to
customers by aggressively implementing quality initiatives. As a result,
unit sales volumes have increased 5 percent for the first nine months of
the fiscal year, while revenues are up 11 percent for the same period.
Operating income for Ashland Specialty Chemical was $3 million in the
June quarter and included an impairment charge of $10 million for a
mothballed maleic anhydride production facility in Neville Island, Pa.
These results compared to operating income of $20 million in the 2002
quarter. Demand for durable goods dipped by a combined 2.7 percent in April
and May, adversely affecting sales volumes; however, volumes improved in
June. In addition, Ashland Specialty Chemical's margins improved in June as
previously announced price increases took effect. This trend should benefit
profits going into the September quarter.
Commenting on the announced sale of Ashland Specialty Chemical's
electronic chemicals business group to Air Products, O'Brien noted that
this divestiture is an example of Ashland's strategic repositioning. "While
this business is an excellent competitor, the semiconductor industry is not
one of our major core markets. Consequently, we decided to monetize this
asset and redeploy the proceeds elsewhere, in this case to strengthen our
balance sheet." The Electronic Chemicals business has annual sales revenues
of approximately $200 million. On July 16, Honeywell International filed
suit in a Delaware state court seeking to enjoin this transaction.
Honeywell claims the transaction would violate the strategic alliance
agreement between Air Products and GEM Microelectronic Materials, a joint
venture of Honeywell and Texas Ultrapure Inc. Ashland will join Air
Products in contesting this action and expects the divestiture to be
completed.
Valvoline continues to perform well. Operating income of $24 million
in the June quarter nearly equaled the $25 million of a year ago. Although
overall sales volumes declined,
-more-
Valvoline increased share in a very soft market. Premium product sales
volumes increased 7 percent. Valvoline Instant Oil Change had a record June
quarter, due in part to a 20 percent increase in non-oil change revenues.
In addition, results from Valvoline International improved due to better
volumes in key markets and strengthening foreign currencies.
"Looking ahead, our goal is to be a top quartile performer versus our
peers, and we are doing the work that will set the course for our
continued, long-term success," O'Brien said. "We are focused on furthering
the profitability plan I announced last October. We are becoming more
operationally efficient, more strategically focused and more financially
disciplined. The eventual result will be a much stronger company that
better serves our owners and our customers."
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 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.
Ashland Inc. (NYSE:ASH) is a Fortune 500 company providing products,
services, and customer solutions throughout the world. Our businesses
include road construction, specialty chemicals, lubricants, car-care
products, chemical and plastics distribution and transportation fuels.
Through the dedication of our employees, we are "The Who In How Things
Work(TM)." Find us at www.ashland.com.
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This news release contains forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, with respect to Ashland's operating
performance, earnings, and scope and effect of asbestos liabilities. These
estimates are based upon a number of assumptions, including those mentioned
within this news release. Such estimates are also based upon internal
forecasts and analyses of current and future market conditions and trends,
management plans and strategies, weather, operating efficiencies and
economic conditions, such as prices, supply and demand, cost of raw
materials, and legal proceedings and claims (including environmental and
asbestos matters). Although Ashland believes its expectations are based on
reasonable assumptions, it cannot assure the expectations reflected herein
will be achieved. This forward-looking information may prove to be
inaccurate and actual results may differ significantly from those
anticipated if one or more of the underlying assumptions or expectations
proves to be inaccurate or is unrealized or if other unexpected conditions
or events occur. Other factors and risks affecting Ashland are contained in
Ashland's Form 10-K for the fiscal year ended Sept. 30, 2002, as amended.
Ashland undertakes no obligation to subsequently update or revise the
forward-looking statements made in this news release to reflect events or
circumstances after the date of this release.
(TM)Trademark, Ashland Inc.
Page 1
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data - unaudited)
Three months ended Nine months ended
June 30 June 30
----------------------- ------------------------
2003 2002 2003 2002
---------- ---------- ----------- ----------
REVENUES
Sales and operating revenues $ 2,006 $ 1,997 $ 5,388 $ 5,315
Equity income 104 80 169 141
Other income 15 7 43 35
---------- ---------- ----------- ----------
2,125 2,084 5,600 5,491
COSTS AND EXPENSES
Cost of sales and operating expenses 1,648 1,602 4,430 4,285
Selling, general and administrative expenses 290 298 870 828
Depreciation, depletion and amortization 49 52 153 153
---------- ---------- ----------- ----------
1,987 1,952 5,453 5,266
---------- ---------- ----------- ----------
OPERATING INCOME 138 132 147 225
Net interest and other financial costs (31) (33) (97) (103)
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 107 99 50 122
Income taxes (36) (38) (17) (47)
---------- ---------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS 71 61 33 75
Results from discontinued operations (net of income taxes) (1) 4 (94) 7
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 70 65 (61) 82
Cumulative effect of accounting change (net of income taxes) - - - (12)
---------- ---------- ----------- ----------
NET INCOME (LOSS) $ 70 $ 65 $ (61) $ 70
========== ========== =========== ==========
DILUTED EARNINGS (LOSS) PER SHARE
Income from continuing operations $ 1.03 $ .87 $ .48 $ 1.06
Results from discontinued operations (.02) .06 (1.37) .10
Cumulative effect of accounting change - - - (.16)
---------- ---------- ----------- ----------
Net income (loss) $ 1.01 $ .93 $ (.89) $ 1.00
========== ========== =========== ==========
AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS 69 70 69 70
SALES AND OPERATING REVENUES
APAC $ 683 $ 756 $ 1,615 $ 1,861
Ashland Distribution 733 670 2,081 1,875
Ashland Specialty Chemical 308 290 870 809
Valvoline 307 305 889 833
Intersegment sales (25) (24) (67) (63)
---------- ---------- ----------- ----------
$ 2,006 $ 1,997 $ 5,388 $ 5,315
========== ========== =========== ==========
OPERATING INCOME
APAC $ 17 $ 42 $ (39) $ 64
Ashland Distribution 11 3 27 8
Ashland Specialty Chemical 3 20 21 50
Valvoline 24 25 56 53
Refining and Marketing (a) 100 66 145 111
Corporate (17) (24) (63) (61)
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$ 138 $ 132 $ 147 $ 225
========== ========== =========== ==========
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(a) Includes Ashland's equity income from Marathon Ashland Petroluem
LLC (MAP), amortization related to Ashland's excess investment in
MAP, and other activities associated with refining and marketing.
Page 2
Ashland Inc. and Consolidated Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited)
June 30
---------------------------
2003 2002
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ASSETS
Current assets
Cash and cash equivalents $ 112 $ 101
Accounts receivable 1,045 1,053
Inventories 512 469
Deferred income taxes 98 130
Current assets of discontinued operations held for sale 198 60
Other current assets 186 128
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2,151 1,941
Investments and other assets
Investment in Marathon Ashland Petroleum LLC (MAP) 2,401 2,406
Goodwill 519 507
Asbestos insurance receivable (noncurrent portion) 398 168
Noncurrent assets of discontinued operations held for sale - 146
Other noncurrent assets 345 380
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3,663 3,607
Property, plant and equipment
Cost 2,949 2,912
Accumulated depreciation, depletion and amortization (1,725) (1,603)
----------- ------------
1,224 1,309
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$ 7,038 $ 6,857
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 296 $ 302
Trade and other payables 1,235 1,225
Current liabilities of discontinued operations held for sale 28 23
Income taxes 16 53
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1,575 1,603
Noncurrent liabilities
Long-term debt (less current portion) 1,564 1,600
Employee benefit obligations 493 400
Deferred income taxes 201 271
Reserves of captive insurance companies 184 182
Asbestos litigation reserve (noncurrent portion) 535 148
Noncurrent liabilities of discontinued operations held for sale - 13
Other long-term liabilities and deferred credits 346 378
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3,323 2,992
Common stockholders' equity 2,140 2,262
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$ 7,038 $ 6,857
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Page 3
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - unaudited)
Nine months ended
June 30
--------------------------
2003 2002
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CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 33 $ 75
Expense (income) not affecting cash
Depreciation, depletion and amortization (a) 153 153
Deferred income taxes 43 (104)
Equity income from affiliates (169) (141)
Distributions from equity affiliates 114 120
Other items (1) -
Change in operating assets and liabilities (b) (62) (96)
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111 7
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 1 11
Repayment of long-term debt (191) (58)
Repurchase of common stock - (11)
Increase in short-term debt 243 85
Dividends paid (56) (57)
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(3) (30)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (a) (84) (130)
Purchase of operations - net of cash acquired (5) (12)
Proceeds from sale of operations 5 -
Other - net (6) 1
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(90) (141)
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CASH PROVIDED (USED) BY CONTINUING OPERATIONS 18 (164)
Cash provided by discontinued operations 4 29
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 22 $ (135)
=========== ===========
DEPRECIATION, DEPLETION AND AMORTIZATION
APAC $ 82 $ 83
Ashland Distribution 15 16
Ashland Specialty Chemical 30 28
Valvoline 19 18
Corporate 7 8
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$ 153 $ 153
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ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC $ 39 $ 86
Ashland Distribution 3 9
Ashland Specialty Chemical 22 16
Valvoline 12 13
Corporate 8 6
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$ 84 $ 130
=========== ===========
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(a) Excludes amounts related to equity affiliates. Ashland's 38
percent share of MAP's DD&A was $104 million in 2003 and $103
million in 2002, and its share of MAP's capital expenditures was
$224 million in 2003 and $154 million in 2002.
(b) Excludes changes resulting from operations acquired or sold.
Page 4
Ashland Inc. and Consolidated Subsidiaries
OPERATING INFORMATION BY INDUSTRY SEGMENT
(Unaudited)
Three months ended Nine months ended
June 30 June 30
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
APAC
Construction backlog at June 30 (millions) (a) $ 1,824 $ 1,797
Hot-mix asphalt production (million tons) 9.8 11.4 21.0 25.3
Aggregate production (million tons) 8.1 8.5 20.5 22.2
Ready-mix concrete production (million cubic yards) 0.6 0.6 1.5 1.5
ASHLAND DISTRIBUTION (b)
Sales per shipping day (millions) $ 11.6 $ 10.5 $ 11.1 $ 10.0
Gross profit as a percent of sales 15.1% 15.6% 15.3% 16.3%
ASHLAND SPECIALTY CHEMICAL (b)
Sales per shipping day (millions) $ 4.9 $ 4.5 $ 4.6 $ 4.3
Gross profit as a percent of sales 33.1% 38.0% 33.8% 37.2%
VALVOLINE
Lubricant sales (million gallons) 49.2 53.7 142.2 145.5
Premium lubricants (percent of U.S. branded volumes) 19.8% 17.2% 18.5% 15.7%
REFINING AND MARKETING (c)
Refinery runs (thousand barrels per day)
Crude oil refined 951 973 878 930
Other charge and blend stocks 129 134 130 156
Refined product yields (thousand barrels per day)
Gasoline 582 598 544 602
Distillates 292 308 276 298
Asphalt 76 77 69 71
Other 138 131 123 122
----------- ----------- ----------- -----------
Total 1,088 1,114 1,012 1,093
Refined product sales (thousand barrels per day) (d) 1,346 1,351 1,311 1,299
Refining and wholesale marketing margin (per barrel) (e) $ 2.94 $ 2.18 $ 2.21 $ 1.89
Speedway SuperAmerica (SSA)
Retail outlets at June 30 1,802 2,081
Gasoline and distillate sales (million gallons) 882 911 2,608 2,679
Gross margin - gasoline and distillates (per gallon) $ .1229 $ .1116 $ .1134 $ .1032
Merchandise sales (millions) (f) $ 590 $ 612 $ 1,695 $ 1,736
Merchandise margin (as a percent of sales) 23.9% 25.5% 24.4% 24.5%
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(a) Includes APAC's proportionate share of the backlog of
unconsolidated joint ventures.
(b) 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.
(c) Amounts represent 100% of MAP's operations, in which Ashland owns
a 38% interest.
(d) Total average daily volume of all refined product sales to MAP's
wholesale, branded and retail (SSA) customers.
(e) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.
(f) 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 $38 million in the three
months ended June 30, 2002; $46 million in the nine months ended
June 30, 2003; and $129 million in the nine months ended June 30,
2002.