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): April 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 April 22, 2003
Item 9. Regulation FD Disclosure
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On April 22, 2003, Ashland Inc. reported its fiscal 2003 second
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.
------------------------------------
(Registrant)
Date: April 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 April 22, 2003
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Exhibit 99.1
FOR FURTHER INFORMATION:
Media Relations: Investor Relations:
Stan Lampe Bill Henderson
(859) 653-6242 (859) 815-4454
shlampe@ashland.com wehenderson@ashland.com
FOR IMMEDIATE RELEASE
April 22, 2003
ASHLAND INC. ANNOUNCES MARCH QUARTER RESULTS
Covington, Ky. - The following was issued today by Ashland Inc. (NYSE:ASH):
FISCAL 2003: SECOND QUARTER HIGHLIGHTS
o Ashland reports net loss due to a sluggish economy and seasonality
of businesses
o Road construction operations report large operating loss,
reflecting the harsh winter and higher energy prices
o Operating profits from refining and marketing up from prior-year
quarter
o Specialty Chemical down; Distribution results improve
o Solid performance from Valvoline
Quarter ended March 31 Six months ended March 31
In millions except earnings per share 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ (21) $ (1) $ 16 $ 97
Income (loss) from continuing
operations $ (34) $ (21) $ (32) $ 17
Net income (loss) $ (39) $ (21) $ (131) $ 5
Diluted earnings (loss) per share:
Income (loss) from continuing
operations $ (.50) $ (.31) $ (.46) $ .24
Net income (loss) $ (.57) $ (.31) $ (1.91) $ .08
Ashland Inc. today reported a net loss of $39 million, or 57 cents a
share, for the quarter ended March 31, the second quarter of the company's
2003 fiscal year. Ashland had a loss from continuing operations of $34
million, or 50 cents a share, for the March 2003 quarter. These results
compared to a loss of $21 million, or 31 cents a share, for the same
quarter last year. Results from continuing operations in the quarter a year
ago included an $18 million after-tax, non-cash gain, equal to 25 cents a
share, to adjust the carrying value of Marathon
-more-
Ashland Petroleum (MAP) inventories to the lower of cost or market value.
(Ashland owns 38 percent of MAP, a petroleum refining and marketing joint
venture with Marathon Oil Corporation.) An after-tax charge of $5 million,
equal to 7 cents a share, is reflected in discontinued operations in the
March 2003 quarter for future asbestos liabilities less probable insurance
recoveries. Overall activity related to asbestos litigation remained
consistent with previously established reserves. Additional quarterly
charges are being recognized to maintain reserves at a level adequate to
cover future payments over a rolling 10-year period.
For the six months ended March 31, 2003, Ashland reported a net loss
of $131 million, or $1.91 a share, compared to net income of $5 million, or
8 cents a share for the same period last year. Ashland had a loss from
continuing operations of $32 million, or 46 cents a share, for the 2003
period, compared to income of $17 million, or 24 cents a share, for the
2002 period. An after-tax charge of $99 million, equal to $1.45 a share,
associated with estimated future asbestos liabilities less probable
insurance recoveries, is reflected in discontinued operations for the 2003
period.
"Normal seasonality makes the March quarter our most difficult
earnings period," said James J. O'Brien, Ashland Inc. chairman and chief
executive officer. "This quarter has been even tougher than usual because
of volatile crude oil markets, a harsh winter and continued economic
weakness."
REVIEW OF OPERATIONS
Commenting on operations, O'Brien noted that results from refining and
marketing improved over the quarter last year due to stronger margins and
wider differentials between sweet and sour crude oil prices. These
improvements were partially offset by a 10% drop in refinery throughputs
due to planned and unplanned maintenance at MAP refineries, as well as
higher maintenance and natural gas costs.
APAC reported an operating loss of $57 million, compared with a loss
of $14 million in last year's quarter. APAC continues to suffer from
adverse construction weather and high hydrocarbon costs. Asphaltic mix and
aggregate production were down 11% and 10%, respectively, compared to the
same period last year. Operating expenses included higher costs for liquid
asphalt and the fuels used to operate plants and equipment. APAC also
continues to incur implementation costs associated with its business
process re-design initiative, Project PASS.
"We typically experience a slowdown in the second quarter, but this
year has been markedly slower," O'Brien explained. "Heavier than normal
precipitation in the December quarter continued through most of the March
period, while temperatures have been colder than usual in about half of our
operating area. These factors severely limited paving
-more-
operations and the sale of construction materials." During the quarter,
APAC won more than 400 job awards of more than $100,000 each, raising its
backlog to a record $1.8 billion.
Looking forward, APAC's ability to achieve its previously announced
target of 10% return on investment in fiscal 2004 is subject to a number of
factors, including: successfully achieving internally generated cost
savings - which are on track, adequate governmental funding of highway
construction programs, normal weather conditions and reasonable energy
costs.
Results from Ashland's chemical businesses were mixed. Operating
income from Ashland Specialty Chemical was $8 million, down from $18
million earned during the March quarter of last year. Sales per shipping
day increased by 8%, despite weak industrial output. However, rising raw
material prices were the primary factor contributing to the decline in
profits. The composite polymers, maleic anhydride, and specialty polymers
and adhesives businesses were hardest hit by the rising costs,
necessitating price increases that went into effect April 1, 2003.
Ashland Distribution had operating income of $7 million in the
quarter, compared to a $4 million operating loss a year ago. "Margins have
been under some pressure as a result of hydrocarbon-driven cost increases
for chemicals and plastics," O'Brien said. "However, sales per shipping day
increased by 13% compared to the same period last year, which indicates
that we're doing a better job of satisfying our customers. While we are
pleased with this progress, Ashland Distribution's sales levels have not
yet returned to their historical peak."
Valvoline continued to perform well. Operating income was $18 million
in the March quarter compared to $17 million in the same period last year.
Overall sales revenues increased 10% over last year's quarter. The
improvement reflects higher branded lubricant sales volumes and improved
international sales. Additionally, an increase in the average ticket price
from Valvoline Instant Oil Change contributed to its record March quarter
earnings. The most significant contributor to Valvoline's profits is
continued success in the premium products category. While our total U.S.
branded lubricant volumes were up 6% this quarter, premium product volumes
were up 25%.
OUTLOOK
"In summary, the March quarter was disappointing. However, we are
optimistic about the second half of our fiscal year, when we typically earn
most of our income," O'Brien said. "We know our work is cut out for us. To
a large extent, our earnings are dependent on three factors: the weather in
APAC's operating area, refining and marketing margins, and the health of
the U.S. economy. While we cannot predict the weather, we're seeing
encouraging signs in refining and marketing, and the domestic economy
appears to be recovering.
"Our goal is to become a top quartile performer within each of the
industries in which we operate, and we are moving aggressively to take
necessary actions to achieve that goal. As
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these actions are fully implemented, we expect them to result in greater
profitability for the corporation." O'Brien added that the company is
making good progress in the way it goes to market, serves customers and
operates its businesses.
Today at 11:00 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. 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.
(R)Registered trademark, Ashland Inc.
(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 Six months ended
March 31 March 31
----------------------- ------------------------
2003 2002 2003 2002
---------- ---------- ----------- ----------
REVENUES
Sales and operating revenues $ 1,692 $ 1,598 $ 3,479 $ 3,410
Equity income 29 9 64 61
Other income 15 18 38 37
---------- ---------- ----------- ----------
1,736 1,625 3,581 3,508
COSTS AND EXPENSES
Cost of sales and operating expenses 1,402 1,290 2,852 2,755
Selling, general and administrative expenses 300 282 604 550
Depreciation, depletion and amortization 55 54 109 106
---------- ---------- ----------- ----------
1,757 1,626 3,565 3,411
---------- ---------- ----------- ----------
OPERATING INCOME (LOSS) (21) (1) 16 97
Net interest and other financial costs (32) (34) (65) (70)
---------- ---------- ----------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (53) (35) (49) 27
Income taxes 19 14 17 (10)
---------- ---------- ----------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (34) (21) (32) 17
Results from discontinued operations (net of income taxes) (5) - (99) -
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (39) (21) (131) 17
Cumulative effect of accounting change (net of income taxes) - - - (12)
---------- ---------- ----------- ----------
NET INCOME (LOSS) $ (39) $ (21) $ (131) $ 5
========== ========== =========== ==========
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) from continuing operations $ (.50) $ (.31) $ (.46) $ .24
Results from discontinued operations (.07) - (1.45) -
Cumulative effect of accounting change - - - (.16)
---------- ---------- ----------- ----------
Net income (loss) $ (.57) $ (.31) $ (1.91) $ .08
========== ========== =========== ==========
AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS 68 69 68 70
SALES AND OPERATING REVENUES
APAC $ 374 $ 424 $ 932 $ 1,105
Ashland Distribution 712 621 1,348 1,205
Ashland Specialty Chemical 326 300 659 612
Valvoline 301 273 582 528
Intersegment sales (21) (20) (42) (40)
---------- ---------- ----------- ----------
$ 1,692 $ 1,598 $ 3,479 $ 3,410
========== ========== =========== ==========
OPERATING INCOME (LOSS)
APAC $ (57) $ (14) $ (56) $ 22
Ashland Distribution 7 (4) 15 5
Ashland Specialty Chemical 8 18 26 34
Valvoline 18 17 32 28
Refining and Marketing (a) 21 - (b) 45 45
Corporate (18) (18) (46) (37)
---------- ---------- ----------- ----------
$ (21) $ (1) $ 16 $ 97
========== ========== =========== ==========
- ----------
(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.
(b) Includes Ashland's share of income ($29 million pretax, $18
million after tax, $.25 per share) from adjustments to MAP's
inventory market valuation (IMV) reserve. The reserve reflects the
excess of the LIFO cost of MAP's crude oil and refined product
inventories over their net realizable values.
Page 2
Ashland Inc. and Consolidated Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited)
March 31
---------------------------
2003 2002
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ASSETS
Current assets
Cash and cash equivalents $ 106 $ 156
Accounts receivable 1,061 992
Inventories 509 475
Deferred income taxes 89 121
Other current assets 146 91
----------- ------------
1,911 1,835
Investments and other assets
Investment in Marathon Ashland Petroleum LLC (MAP) 2,315 2,328
Goodwill 525 515
Asbestos insurance receivable (noncurrent portion) 394 170
Other noncurrent assets 358 388
----------- ------------
3,592 3,401
Property, plant and equipment
Cost 3,128 3,063
Accumulated depreciation, depletion and amortization (1,758) (1,639)
----------- ------------
1,370 1,424
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$ 6,873 $ 6,660
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 243 $ 241
Trade and other payables 1,260 1,104
Income taxes 16 96
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1,519 1,441
Noncurrent liabilities
Long-term debt (less current portion) 1,568 1,625
Employee benefit obligations 480 448
Deferred income taxes 181 226
Reserves of captive insurance companies 186 183
Asbestos litigation reserve (noncurrent portion) 530 157
Other long-term liabilities and deferred credits 353 377
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3,298 3,016
Common stockholders' equity 2,056 2,203
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$ 6,873 $ 6,660
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Page 3
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - unaudited)
Six months ended
March 31
--------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATIONS
Income (loss) from continuing operations $ (32) $ 17
Expense (income) not affecting cash
Depreciation, depletion and amortization (a) 109 106
Deferred income taxes 22 (79)
Equity income from affiliates (64) (61)
Distributions from equity affiliates 98 119
Change in operating assets and liabilities (b) (21) (92)
----------- -----------
112 10
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 1 11
Repayment of long-term debt (161) (55)
Increase in short-term debt 165 50
Dividends paid (37) (38)
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(32) (32)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (a) (55) (92)
Purchase of operations - net of cash acquired (5) (8)
Proceeds from sale of operations 6 -
Other - net (6) 20
----------- -----------
(60) (80)
----------- -----------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS 20 (102)
Cash provided (used) by discontinued operations (4) 22
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 16 $ (80)
=========== ===========
DEPRECIATION, DEPLETION AND AMORTIZATION
APAC $ 55 $ 56
Ashland Distribution 10 10
Ashland Specialty Chemical 26 24
Valvoline 13 11
Corporate 5 5
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$ 109 $ 106
=========== ===========
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC $ 22 $ 57
Ashland Distribution 3 7
Ashland Specialty Chemical 17 14
Valvoline 7 11
Corporate 6 3
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$ 55 $ 92
=========== ===========
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(a) Excludes amounts related to equity affiliates. Ashland's 38
percent share of MAP's DD&A was $69 million in 2003 and $68
million in 2002, and its share of MAP's capital expenditures was
$166 million in 2003 and $111 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 Six months ended
March 31 March 31
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
APAC
Construction backlog at March 31 (millions) (a) $ 1,800 $ 1,658
Hot-mix asphalt production (million tons) 4.1 4.6 11.2 13.9
Aggregate production (million tons) 5.3 5.9 12.4 13.8
Ready-mix concrete production (million cubic yards) 0.4 0.4 0.9 1.0
ASHLAND DISTRIBUTION (b)
Sales per shipping day (millions) $ 11.3 $ 10.0 $ 10.8 $ 9.7
Gross profit as a percent of sales 15.6% 15.9% 15.8% 16.2%
ASHLAND SPECIALTY CHEMICAL (b)
Sales per shipping day (millions) $ 5.2 $ 4.8 $ 5.3 $ 4.9
Gross profit as a percent of sales 33.3% 36.2% 33.9% 35.3%
VALVOLINE
Lubricant sales (million gallons) 48.6 48.6 92.9 91.8
Premium lubricants (percent of U.S. branded volumes) 18.7% 15.6% 17.8% 14.8%
REFINING AND MARKETING (c)
Refinery runs (thousand barrels per day)
Crude oil refined 853 891 842 908
Other charge and blend stocks 96 160 130 168
Refined product yields (thousand barrels per day)
Gasoline 483 591 525 604
Distillates 257 278 268 293
Asphalt 66 65 65 68
Other 143 123 115 117
----------- ----------- ----------- -----------
Total 949 1,057 973 1,082
Refining and wholesale marketing margin (per barrel) (d) $ 1.71 $ 0.68 $ 1.82 $ 1.74
Speedway SuperAmerica (SSA)
Gasoline and distillate sales (million gallons) 829 852 1,726 1,768
Gross margin - gasoline and distillates (per gallon) $ .1166 $ .0827 $ .1085 $ .0989
- ----------
(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) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.