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): October 25, 2004
ASHLAND INC.
(Exact name of registrant as specified in its charter)
Kentucky
(State or other jurisdiction of incorporation)
1-2918 61-0122250
(Commission File Number) (I.R.S. Employer
Identification No.)
50 E. RiverCenter Boulevard, Covington, Kentucky 41012-0391
(Address of principal executive offices) (Zip Code)
P.O. Box 391, Covington, Kentucky 41012-0391
(Mailing Address) (Zip Code)
Registrant's telephone number, including area code (859) 815-3333
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 2230.425)
[ ] 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 October 25, 2004, Ashland Inc. reported its fourth quarter and
fiscal 2004 results, which are discussed in more detail in the press
release attached hereto as Exhibit 99.1. This information is furnished in
accordance with Securities and Exchange Commission Release No. 33-8216.
Item 9.01. Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release dated October 25, 2004
-2-
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: October 25, 2004 /s/ J. Marvin Quin
-----------------------------------
Name: J. Marvin Quin
Title: Senior Vice President
and Chief Financial Officer
-3-
EXHIBIT INDEX
99.1 Press Release dated October 25, 2004
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
October 25, 2004
Ashland Inc. reports record
fourth quarter earnings
Covington, Ky. - The following was issued today by Ashland Inc. (NYSE:ASH):
Fiscal 2004 Highlights
o September quarter operating income rose 125 percent on strength of
wholly owned divisions.
o Growth of sales volumes and lower costs drove continued improvement in
the Chemical Sector:
- Ashland Distribution: Record fourth quarter operating income
contributed to a record year;
- Valvoline: Premium product sales volumes up 18 percent in the
September quarter, contributing to record fiscal year operating
income;
- Ashland Specialty Chemical: Improved economy contributes to
significantly higher sales volumes and operating income.
o Improved margins contributed to sharp rebound in the Transportation
Construction Sector.
o Refining and marketing profits remain strong as industry continues to
operate at effective capacity.
Quarter ended September 30 Year ended September 30
In millions except earnings per share 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Operating income $ 268 $ 119 $ 662 $ 266
Income from continuing operations $ 203 $ 61 $ 398 $ 94
Net income $ 200 $ 137 $ 378 $ 75
Diluted earnings per share:
Income from continuing operations $ 2.81 $ .89 $ 5.59 $ 1.37
Net income $ 2.76 $ 1.99 $ 5.31 $ 1.10
Ashland Inc. today reported record net income of $200 million, or
$2.76 a share, for the quarter ended September 30, the fourth quarter of
the company's 2004 fiscal year. Net income for the 2003 September quarter
was $137 million, or $1.99 a share. Income from continuing operations for
the 2004 quarter amounted to $203 million, or $2.81 a share, compared to
$61 million, or 89 cents a share,
-more-
Ashland Inc. reports record fourth quarter earnings, page 2
for the quarter a year ago. The difference between net income and income
from continuing operations relates principally to a gain on the sale of the
Electronic Chemicals business in the 2003 September quarter and quarterly
charges of nearly $5 million for asbestos liabilities.
For the year ended September 30, 2004, Ashland reported net income of
$378 million, or $5.31 a share, compared to net income of $75 million, or
$1.10 a share last year. Ashland's income from continuing operations for
2004 totaled $398 million, or $5.59 a share, compared to $94 million, or
$1.37 a share, for 2003.
"Overall, our fourth quarter results demonstrate our ability to
leverage opportunities in an improving economy and to grow our businesses
organically while lowering our costs," said James J. O'Brien, Ashland Inc.
chairman and chief executive officer. "Positive results from the
Transportation Construction Sector's business improvement efforts are
beginning to occur, including the ability to perform successfully even
during a devastating hurricane season. The Chemical Sector continued to
improve everything from how it acquires and maintains customers to supply
chain efficiency. Each of the businesses within this Sector is realizing
the benefits of earlier cost-reduction initiatives."
A solid performance from the Chemical Sector, which consists of the
Ashland Distribution, Valvoline and Ashland Specialty Chemical divisions,
was due in part to strengthening economic conditions. Higher sales volumes
contributed to operating income for the September quarter of $77 million
compared to $46 million in the 2003 period. The 2003 September quarter
included $11 million in charges and expenses related to the company's
Top-Quartile Cost Structure initiative.
Ashland Distribution's operating income for the September quarter
reached a record $23 million. Demonstrating its commitment to growth,
Ashland Distribution achieved revenues for the quarter of $873 million, a
21-percent increase compared to the 2003 quarter. Sales volumes accounted
for eight percentage points of this increase. The division's ongoing
business transformation has resulted in improved customer satisfaction,
lower costs and stronger overall performance. Ashland Distribution
delivered an all-time record fiscal year with operating income of $78
million.
Valvoline reported September quarter operating income of $30 million.
While branded lubricant sales volumes declined consistent with the market,
premium lubricant product sales volumes grew 18 percent. Valvoline Instant
Oil Change reported record September quarter earnings due in part to
increases in non-oil change revenues. Valvoline's premium product strategy
contributed to record operating income of $105 million in 2004.
Operating income from Ashland Specialty Chemical was $24 million for the
September quarter. This division has improved consistently despite the
impact of rapidly increasing raw material costs. Sales revenues for the
quarter were $369 million, a 19-percent increase compared to the 2003
quarter. Revenues from the Thermoset Resins businesses were up 29 percent
compared to the 2003 period,
-more-
Ashland Inc. reports record fourth quarter earnings, page 3
reflecting a 15-percent increase in volumes. Revenues from the Water
Technologies businesses were up eight percent compared to the 2003 quarter.
During the quarter, the division sold a parcel of land and fixed assets in
Plaquemine, La. for $9 million, realizing a pre-tax gain of $6 million. The
division's increased revenues reflect its strategy to develop innovative
new products, provide superior technical service and expand globally.
Ashland Specialty Chemical's operating income for the 2004 fiscal year was
$87 million.
The Transportation Construction Sector, commercially known as Ashland
Paving And Construction, Inc. (APAC), continues its recovery. Operating
income for the September quarter was a record $70 million. These results
benefited from several items, including a $5 million reversal of a
previously established job loss reserve for a large highway project in
Virginia. APAC continues to transform its business with sustained focus on
cost control and expansion of its core capabilities. At September 30,
APAC's $1.7 billion construction backlog, which consists of work awarded
and funded but not yet performed, was equivalent to the record set in the
2003 September quarter. APAC's operating income for the 2004 fiscal year
was $111 million.
Operating income from refining and marketing was $151 million for the
September quarter, increasing 28 percent over the 2003 period. Marathon
Ashland Petroleum (MAP) performed well despite higher crude oil costs and
the impact these higher prices have had on demand in MAP's primary Midwest
market. During the quarter, MAP processed more than 1.1 million barrels per
day of crude oil and other feedstocks. Fiscal year operating income from
refining and marketing increased 46 percent to $383 million. Cash
distributions from MAP have been suspended pending the transfer of the
company's interest in the joint venture to Marathon Oil Corporation. If the
proposed transaction closes, Ashland would receive proceeds equal to 38
percent of MAP's distributable cash at the time of closing. If the
transaction does not close, Ashland would receive its share of these funds
as part of its normal distributions. Ashland's share on September 30 was
$203 million.
The company continues to work on the previously disclosed MAP
transaction, through which Ashland would transfer its 38-percent interest
in MAP to Marathon Oil. The transaction is subject to several previously
disclosed conditions, including approval by Ashland's shareholders, consent
from public debt holders and receipt of a favorable private letter ruling
from the Internal Revenue Service (IRS) with respect to the tax treatment.
Ashland has filed registration statements and proxy materials with the
Securities and Exchange Commission (SEC) and is responding to comments. In
addition, Ashland submitted a request to the IRS for a private letter
ruling on the tax-free status of the proposed transaction. The company
continues to discuss the complex tax issues related to this transaction
with the IRS. Ashland has not resolved all issues with the IRS and is
exploring alternatives for the resolution of these issues.
-more-
Ashland Inc. reports record fourth quarter earnings, page 4
While there is still meaningful risk, Ashland continues to believe it
is more likely than not that the transaction will close. With respect to
the timing of closing, it is possible that the transaction will close by
calendar year-end, but it is more likely that the transaction will close in
the first calendar quarter of 2005.
Ashland's 16-percent effective income tax rate for the September
quarter was unusually low due to the recording of $48 million in tax
benefits related to prior years. Ashland reached resolution with the
Internal Revenue Service on a number of open tax issues that resulted in
the reversal of $33 million of contingency reserves. In addition, a review
of prior year research and development costs was completed, resulting in a
claim for additional credits valued at $15 million.
"In summary, we remain steadfast in our drive toward top-quartile
performance," O'Brien said. "As a result, we are entering the new fiscal
year in a stronger competitive position. We believe we will be able to
build on the progress we made in fiscal 2004 as we continue our focus on
growth and operational efficiency."
Today at 9:30 a.m. (EDT), Ashland will provide a live audio webcast of
its quarterly conference call with securities analysts. The webcast will be
accessible through Ashland's website, www.ashland.com. Following the live
event, an archived version of the webcast will be available at
www.ashland.com/investors for 12 months. Minimum requirements to listen to
the webcast include the free Windows MediaPlayer software and a 28.8 Kbps
connection to the Internet.
Ashland Inc. (NYSE: ASH) is a Fortune 500 transportation construction,
chemical and petroleum company providing products, services and customer
solutions throughout the world. To learn more about Ashland, visit
www.ashland.com.
-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 of failing to receive a favorable ruling from the Internal
Revenue Service; the possibility that Ashland fails to obtain the approval
of its shareholders; the possibility that the transaction may not close or
that Ashland may be required to modify some aspect of the transaction to
obtain regulatory approvals; and other risks that are described from time
to time in the Securities and Exchange Commission (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, 2003, as amended, 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. Ashland
filed an amended, preliminary proxy statement on Schedule 14A with the SEC
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 these 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
Ashland Inc. reports record fourth quarter earnings, page 5
they contain, or will contain, important information. The definitive proxy
statement/prospectus will be filed with the SEC by ATB Holdings Inc. and
New EXM Inc., 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, 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, ATB Holdings Inc. and New
EXM Inc., including the preliminary proxy statement, may also be obtained
for free in the SEC filings section on Ashland's Investor Relations website
at www.ashland.com/investors, or by directing a request to Ashland at 50 E.
RiverCenter Blvd., Covington, KY 41012. The respective directors and
executive officers of Ashland and other persons may be deemed to be
participants in solicitation of proxies in respect of the proposed
transaction. Information regarding Ashland's directors and executive
officers is available in its proxy statement filed with the SEC by Ashland
on December 8, 2003. Investors may obtain information regarding the
interests of participants in the solicitation of proxies in connection with
the transaction referenced in the foregoing information by reading the
definitive proxy statement/prospectus when it becomes available.
Ashland Inc. and Consolidated Subsidiaries Page 1
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data - unaudited)
Three months ended Year ended
September 30 September 30
----------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ----------- ----------
REVENUES
Sales and operating revenues $ 2,334 $ 2,142 $ 8,301 $ 7,566
Equity income 155 133 432 301
Other income 14 2 48 45
---------- ---------- ----------- ----------
2,503 2,277 8,781 7,912
COSTS AND EXPENSES
Cost of sales and operating expenses 1,946 1,817 6,948 6,390
Selling, general and administrative expenses 289 341 1,171 1,256
---------- ---------- ----------- ----------
2,235 2,158 8,119 7,646
---------- ---------- ----------- ----------
OPERATING INCOME 268 119 662 266
Net interest and other financial costs (26) (32) (114) (128)
---------- ---------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 242 87 548 138
Income taxes (39) (26) (150) (44)
---------- ---------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS 203 61 398 94
Results from discontinued operations (net of income taxes) (3) 81 (20) (14)
---------- ---------- ----------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 200 142 378 80
Cumulative effect of accounting change (net of income taxes) - (5) - (5)
---------- ---------- ----------- ----------
NET INCOME $ 200 $ 137 $ 378 $ 75
========== ========== =========== ==========
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 2.81 $ .89 $ 5.59 $ 1.37
Results from discontinued operations (.05) 1.18 (.28) (.19)
Cumulative effect of accounting change - (.08) - (.08)
---------- ---------- ----------- ----------
Net income $ 2.76 $ 1.99 $ 5.31 $ 1.10
========== ========== =========== ==========
AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS 72 69 71 69
SALES AND OPERATING REVENUES
APAC $ 770 $ 785 $ 2,525 $ 2,400
Ashland Distribution 873 724 3,199 2,811
Ashland Specialty Chemical 369 311 1,386 1,212
Valvoline 352 346 1,297 1,235
Intersegment sales (30) (24) (106) (92)
---------- ---------- ----------- ----------
$ 2,334 $ 2,142 $ 8,301 $ 7,566
========== ========== =========== ==========
OPERATING INCOME
APAC $ 70 $ (3) $ 111 $ (42)
Ashland Distribution 23 5 78 32
Ashland Specialty Chemical 24 10 87 31
Valvoline 30 31 105 87
Refining and Marketing (a) 151 118 383 263
Corporate (30) (42) (102) (105)
---------- ---------- ----------- ----------
$ 268 $ 119 $ 662 $ 266
========== ========== =========== ==========
- ----------
(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)
September 30
---------------------------
2004 2003
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 243 $ 223
Accounts receivable 1,290 1,135
Inventories 458 441
Deferred income taxes 103 142
Other current assets 208 144
----------- ------------
2,302 2,085
Investments and other assets
Investment in Marathon Ashland Petroleum LLC (MAP) 2,713 2,448
Goodwill 513 523
Asbestos insurance receivable (noncurrent portion) 399 399
Other noncurrent assets 319 279
----------- ------------
3,944 3,649
Property, plant and equipment
Cost 3,104 3,047
Accumulated depreciation, depletion and amortization (1,848) (1,775)
----------- ------------
1,256 1,272
----------- ------------
$ 7,502 $ 7,006
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 439 $ 102
Trade and other payables 1,362 1,371
Income taxes 14 11
----------- ------------
1,815 1,484
Noncurrent liabilities
Long-term debt (less current portion) 1,109 1,512
Employee benefit obligations 428 385
Deferred income taxes 367 291
Reserves of captive insurance companies 179 168
Asbestos litigation reserve (noncurrent portion) 568 560
Other long-term liabilities and deferred credits 330 353
----------- ------------
2,981 3,269
Common stockholders' equity 2,706 2,253
----------- ------------
$ 7,502 $ 7,006
=========== ============
Ashland Inc. and Consolidated Subsidiaries Page 3
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - unaudited)
Year ended
September 30
--------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 398 $ 94
Expense (income) not affecting cash
Depreciation, depletion and amortization (a) 193 204
Deferred income taxes 125 49
Equity income from affiliates (432) (301)
Distributions from equity affiliates 169 203
Other items 2 1
Change in operating assets and liabilities (b) (246) (8)
----------- -----------
209 242
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 108 2
Repayment of long-term debt (100) (216)
Increase (decrease) in short-term debt 40 (10)
Dividends paid (77) (75)
----------- -----------
(29) (299)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (a) (210) (112)
Purchase of operations - net of cash acquired (5) (5)
Proceeds from sale of operations 48 7
Other - net 26 13
----------- -----------
(141) (97)
----------- -----------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS 39 (154)
Cash provided (used) by discontinued operations (19) 287
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS $ 20 $ 133
=========== ===========
DEPRECIATION, DEPLETION AND AMORTIZATION
APAC $ 95 $ 108
Ashland Distribution 18 19
Ashland Specialty Chemical 41 40
Valvoline 27 26
Corporate 12 11
----------- -----------
$ 193 $ 204
=========== ===========
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC $ 73 $ 47
Ashland Distribution 10 5
Ashland Specialty Chemical 62 34
Valvoline 26 18
Corporate 39 8
----------- -----------
$ 210 $ 112
=========== ===========
- ----------
(a) Excludes amounts related to equity affiliates. Ashland's 38 percent share
of MAP's DD&A was $153 million in 2004 and $139 million in 2003, and its
share of MAP's capital expenditures was $264 million in 2004 and $296
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 Year ended
September 30 September 30
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
APAC
Construction backlog at September 30 (millions) (a) $ 1,746 $ 1,745
Net construction job revenues (millions) (b) $ 451 $ 457 $ 1,433 $ 1,361
Hot-mix asphalt production (million tons) 10.7 11.5 33.4 32.5
Aggregate production (million tons) 8.7 9.0 29.6 28.7
Ready-mix concrete production (million cubic yards) 0.3 0.5 1.7 2.0
ASHLAND DISTRIBUTION (c)
Sales per shipping day (millions) $ 13.6 $ 11.3 $ 12.6 $ 11.2
Gross profit as a percent of sales 9.5% 10.1% 9.6% 9.9%
ASHLAND SPECIALTY CHEMICAL (c)
Sales per shipping day (millions) $ 5.8 $ 4.9 $ 5.4 $ 4.8
Gross profit as a percent of sales 25.5% 29.7% 27.9% 29.9%
VALVOLINE
Lubricant sales (million gallons) 50.3 51.3 191.6 193.5
Premium lubricants (percent of U.S. branded volumes) 22.9% 18.6% 21.5% 18.5%
REFINING AND MARKETING (d)
Refinery runs (thousand barrels per day)
Crude oil refined 977 966 920 900
Other charge and blend stocks 146 142 167 133
Refined product yields (thousand barrels per day)
Gasoline 610 590 600 554
Distillates 312 290 291 278
Asphalt 86 77 74 71
Other 130 157 135 131
----------- ----------- ----------- -----------
Total 1,138 1,114 1,100 1,034
Refined product sales (thousand barrels per day) (e) 1,436 1,445 1,385 1,345
Refining and wholesale marketing margin (per barrel) (f) $ 3.78 $ 3.61 $ 3.11 $ 2.59
Speedway SuperAmerica (SSA)
Retail outlets at September 30 1,685 1,791
Gasoline and distillate sales (million gallons) 794 815 3,165 3,423
Gross margin - gasoline and distillates (per gallon) $ .1185 $ .1375 $ .1167 $ .1191
Merchandise sales (millions) (g) $ 632 $ 586 $ 2,301 $ 2,281
Merchandise margin (as a percent of sales) 24.4% 24.7% 24.4% 24.5%
- ----------
(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.
(g) Effective January 1, 2003, SSA adopted EITF 02-16, "Accounting by a
Customer (Including a Reseller) for Certain Consideration Received
from a Vendor," which requires rebates from vendors to be recorded as
reductions to cost of sales. Rebates from vendors recorded in SSA
merchandise sales for periods prior to January 1, 2003 have not been
restated and included $46 million in the year ended September 30,
2003.