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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 JUNE 30, 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 July 31, 2002, there were 68,962,958 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 Nine months ended
June 30 June 30
----------------------- -----------------------
(In millions except per share data) 2002 2001 2002 2001
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REVENUES
Sales and operating revenues $ 2,047 $ 2,053 $ 5,457 $ 5,590
Equity income 80 314 141 537
Other income 12 20 50 51
---------- ---------- ---------- ----------
2,139 2,387 5,648 6,178
COSTS AND EXPENSES
Cost of sales and operating expenses 1,637 1,675 4,392 4,586
Selling, general and administrative expenses 311 283 861 814
Depreciation, depletion and amortization 54 60 161 178
---------- ---------- ---------- ----------
2,002 2,018 5,414 5,578
---------- ---------- ---------- ----------
OPERATING INCOME 137 369 234 600
Net interest and other financial costs (33) (42) (103) (132)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 104 327 131 468
Income taxes (39) (130) (49) (187)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 65 197 82 281
Results from discontinued operations (net of income taxes) - - - 25
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 65 197 82 306
Cumulative effect of accounting changes (net of income taxes) - - (12) (4)
---------- ---------- ---------- ----------
NET INCOME $ 65 $ 197 $ 70 $ 302
========== ========== ========== ==========
BASIC EARNINGS PER SHARE - Note A
Income from continuing operations $ .94 $ 2.82 $ 1.18 $ 4.04
Results from discontinued operations - - - .35
Cumulative effect of accounting changes - - (.16) (.06)
---------- ---------- ---------- ----------
Net income $ .94 $ 2.82 $ 1.02 $ 4.33
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE - Note A
Income from continuing operations $ .93 $ 2.79 $ 1.16 $ 3.99
Results from discontinued operations - - - .35
Cumulative effect of accounting changes - - (.16) (.06)
---------- ---------- ---------- ----------
Net income $ .93 $ 2.79 $ 1.00 $ 4.28
========== ========== ========== ==========
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275 $ .825 $ .825
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
June 30 September 30 June 30
(In millions) 2002 2001 2001
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ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 101 $ 236 $ 70
Accounts receivable 1,126 1,219 1,190
Allowance for doubtful accounts (37) (34) (29)
Inventories - Note A 493 495 507
Deferred income taxes 123 126 124
Other current assets 129 171 176
--------- ---------- ---------
1,935 2,213 2,038
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) 2,406 2,387 2,377
Goodwill 518 528 547
Other noncurrent assets 392 377 406
--------- ---------- ---------
3,316 3,292 3,330
PROPERTY, PLANT AND EQUIPMENT
Cost 3,101 3,030 2,984
Accumulated depreciation, depletion and amortization (1,669) (1,590) (1,559)
--------- ---------- ---------
1,432 1,440 1,425
--------- ---------- ---------
$ 6,683 $ 6,945 $ 6,793
========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Debt due within one year $ 302 $ 85 $ 115
Trade and other payables 1,203 1,392 1,282
Income taxes 54 20 18
--------- ---------- ---------
1,559 1,497 1,415
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,600 1,786 1,881
Employee benefit obligations 400 412 346
Deferred income taxes 272 440 377
Reserves of captive insurance companies 182 173 184
Other long-term liabilities and deferred credits 408 411 404
Commitments and contingencies - Note D
--------- ---------- ---------
2,862 3,222 3,192
COMMON STOCKHOLDERS' EQUITY 2,262 2,226 2,186
--------- ---------- ---------
$ 6,683 $ 6,945 $ 6,793
========= ========== =========
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
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 1, 2000 $ 70 $ 388 $ 1,579 $ (72) $1,965
Total comprehensive income (1) 302 (23) 279
Cash dividends (57) (57)
Issued common stock under
stock incentive plans 17 17
Repurchase of common stock (1) (17) (18)
-------- --------- --------- ------------- -------
BALANCE AT JUNE 30, 2001 $ 69 $ 388 $ 1,824 $ (95) $2,186
======== ========= ========= ============= =======
BALANCE AT OCTOBER 1, 2001 $ 69 $ 363 $ 1,920 $ (126) $2,226
Total comprehensive income (1) 70 18 88
Cash dividends (57) (57)
Issued common stock under
stock incentive plans 16 16
Repurchase of common stock (11) (11)
-------- --------- --------- ------------- -------
BALANCE AT JUNE 30, 2002 $ 69 $ 368 $ 1,933 $ (108) $2,262
======== ========= ========= ============= =======
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(1) Reconciliations of net income to total comprehensive income follow.
Three months ended Nine months ended
June 30 June 30
--------------------------- ---------------------------
(In millions) 2002 2001 2002 2001
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Net income $ 65 $ 197 $ 70 $ 302
Unrealized translation adjustments 26 (7) 17 (26)
Related tax benefit (expense) (2) - 1 3
----------- ----------- ----------- -----------
Total comprehensive income $ 89 $ 190 $ 88 $ 279
=========== =========== =========== ===========
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At June 30, 2002, the accumulated other comprehensive loss of $108
million (after tax) was comprised of net unrealized translation losses
of $65 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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Nine months ended
June 30
----------------------------
(In millions) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 82 $ 281
Expense (income) not affecting cash
Depreciation, depletion and amortization 161 178
Deferred income taxes (102) 106
Equity income from affiliates (141) (537)
Distributions from equity affiliates 121 454
Change in operating assets and liabilities (1) (100) (50)
----------- -----------
21 432
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt - 52
Proceeds from issuance of common stock 11 11
Repayment of long-term debt (58) (90)
Repurchase of common stock (11) (18)
Increase (decrease) in short-term debt 85 (190)
Dividends paid (57) (57)
----------- -----------
(30) (292)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (138) (144)
Purchase of operations - net of cash acquired (12) (82)
Proceeds from sale of operations - 9
Other - net 2 (6)
----------- -----------
(148) (223)
----------- -----------
CASH USED BY CONTINUING OPERATIONS (157) (83)
Cash provided by discontinued operations - Note C 22 86
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (135) 3
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 236 67
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 101 $ 70
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
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 June 30, 2002, are not necessarily
indicative of results to be expected for the year ending September 30,
2002.
INVENTORIES
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June 30 September 30 June 30
(In millions) 2002 2001 2001
- --------------------------------------------------------------------------------------------------------------------
Chemicals and plastics $ 361 $ 374 $ 369
Construction materials 82 74 81
Petroleum products 55 54 60
Other products 53 57 64
Supplies 6 6 6
Excess of replacement costs over LIFO carrying values (64) (70) (73)
------ ------- ------
$ 493 $ 495 $ 507
====== ======= ======
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (EPS) from continuing operations.
- ---------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
----------------------- -------------------------
(In millions except per share data) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
NUMERATOR
Numerator for basic and diluted EPS - Income
from continuing operations $ 65 $ 197 $ 82 $ 281
========== ========== =========== ===========
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 69 70 69 70
Common shares issuable upon exercise of stock options 1 1 1 -
---------- ---------- ----------- -----------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 70 71 70 70
========== ========== =========== ===========
BASIC EPS FROM CONTINUING OPERATIONS $ .94 $ 2.82 $ 1.18 $ 4.04
DILUTED EPS FROM CONTINUING OPERATIONS $ .93 $ 2.79 $ 1.16 $ 3.99
6
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
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 $7 million which, net of income tax benefits of $3
million, resulted in a loss of $4 million from the cumulative effect of
this accounting change.
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 be amortized over their useful lives. As permitted,
Ashland adopted the statement as of October 1, 2001, the beginning of its
fiscal year.
All of Ashland's recorded intangible assets are subject to amortization.
These recorded intangible assets (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, a company is required to perform an initial impairment test
of goodwill as of the date it adopts 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. In the March 2002 quarter, Ashland
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 was completed in the June 2002 quarter. The test
indicated that the goodwill of Ashland Distribution was fully impaired and
an impairment loss of $14 million ($12 million net of income taxes) was
recorded as a cumulative effect of accounting change as of the beginning of
fiscal 2002.
Following is a progression of goodwill by segment for the nine months ended
June 30, 2002.
- --------------------------------------------------------------------------------------------------------------------
Ashland
Ashland Specialty
(In millions) APAC Distribution Chemical Valvoline Total
- --------------------------------------------------------------------------------------------------------------------
Balance at October 1, 2001 $ 419 $ 14 $ 92 $ 3 $ 528
Goodwill acquired - - 1 2 3
Impairment losses - (14) - - (14)
Currency translation adjustments - - 1 - 1
--------- --------------- ------------ ------------ ----------
Balance at June 30, 2002 $ 419 $ - $ 94 $ 5 $ 518
========= =============== ============ ============ ==========
7
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
- -----------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
-------------------------- ---------------------------
(In millions except per share data) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Reported income before cumulative effect
of accounting changes $ 65 $ 197 $ 82 $ 306
Add back: Goodwill amortization - 9 - 26
----------- ----------- ------------ ------------
Adjusted income before cumulative effect
of accounting changes $ 65 $ 206 $ 82 $ 332
=========== =========== ============ ============
Basic EPS before cumulative effect
of accounting changes - as reported $ .94 $ 2.82 $ 1.18 $ 4.39
Add back: Goodwill amortization - .13 - .38
----------- ----------- ------------ ------------
Basic EPS before cumulative effect
of accounting changes - adjusted $ .94 $ 2.95 $ 1.18 $ 4.77
=========== =========== ============ ============
Diluted EPS before cumulative effect
of accounting changes - as reported $ .93 $ 2.79 $ 1.16 $ 4.34
Add back: Goodwill amortization - .13 - .38
----------- ----------- ------------ ------------
Diluted EPS before cumulative effect
of accounting changes - adjusted $ .93 $ 2.92 $ 1.16 $ 4.72
=========== =========== ============ ============
NOTE B - 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.
- ------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
June 30 June 30
---------------------------- -------------------------
(In millions) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Sales and operating revenues $ 6,775 $ 7,542 $ 17,823 $ 21,653
Income from operations 217 846 398 1,457
Income before cumulative effect of accounting change 214 843 391 1,456
Net income 214 843 391 1,436
Ashland's equity income 78 313 137 533
8
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE C - 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.
NOTE D - LITIGATION, CLAIMS AND CONTINGENCIES
ENVIRONMENTAL PROCEEDINGS
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
June 30, 2002, such locations included nearly 100 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 $164 million
at June 30, 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.
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.
ASBESTOS-RELATED LITIGATION
Ashland is subject to liabilities related to a significant number of claims
alleging personal injury resulting from exposure to asbestos, primarily as
a result of indemnification obligations relating to the 1990 sale of Riley
Stoker Corporation, a former subsidiary. This former subsidiary had
manufactured boilers using components that contained asbestos.
9
- --------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE D - LITIGATION, CLAIMS AND CONTINGENCIES (continued)
ASBESTOS-RELATED LITIGATION (continued)
A summary of claims activity during the nine months ended June 30, 2002,
and each of the fiscal years ended September 30, 2001, 2000, and 1999 is as
follows:
Nine months
ended Years ended September 30
------------- ------------------------------------
(In thousands) June 30,2002 2001 2000 1999
------------- --------- --------- ---------
Open claims - beginning
of period 167 118 93 78
New claims 34 52 37 24
Claims settled or dismissed (47) (3) (12) (9)
------------- -------- --------- ---------
Open claims - end of period 154 167 118 93
============= ======== ========= =========
Prior to insurance recoveries, the amounts spent on litigation defense and
claim settlement totaled $34 million during the nine months ended June 30,
2002, and $15 million, $11 million, and $11 million during the fiscal years
ended September 30, 2001, 2000, and 1999, respectively. Ashland expects to
be reimbursed by insurance carriers for most of the litigation defense and
claim settlement costs that have been or will be incurred for open claims.
During the nine months ended June 30, 2002, Ashland recognized expense of
$5 million related to asbestos claims. Ashland has coverage-in-place
agreements with respect to the asbestos-related claims involving the former
subsidiary with most of the insurance carriers that Ashland has identified
as providing coverage, and pursuant to these agreements Ashland has
received substantial payments to date. At June 30, 2002, Ashland has
reserves of $28 million for asbestos liabilities that it does not expect to
recover from its insurance carriers on open claims.
GENERAL
In addition to the 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, 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.
The uncertainties of asbestos claim litigation make it difficult to
accurately predict the results of the ultimate resolution of asbestos
claims. However, considering the foregoing and amounts already provided
for, and given our historical litigation experience on resolved asbestos
claims, the substantial amount of insurance coverage that Ashland has
available from its insurance carriers and expected contributions from other
responsible parties, Ashland does not believe that any liability resulting
from environmental remediation, open asbestos-related claims or other legal
proceedings 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 Nine months ended
June 30 June 30
----------------------------- ----------------------------
(In millions) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales and operating revenues
APAC $ 756 $ 745 $ 1,861 $ 1,750
Ashland Distribution 670 737 1,875 2,194
Ashland Specialty Chemical 340 318 952 933
Valvoline 305 276 833 784
Intersegment sales
Ashland Distribution (6) (7) (15) (21)
Ashland Specialty Chemical (18) (16) (48) (49)
Valvoline - - (1) (1)
------------ ------------ ------------ -----------
2,047 2,053 5,457 5,590
Equity income
Ashland Specialty Chemical 1 1 3 3
Valvoline 1 - 1 1
Refining and Marketing 78 313 137 533
------------ ------------ ------------ -----------
80 314 141 537
Other income
APAC 2 7 8 12
Ashland Distribution 2 1 14 5
Ashland Specialty Chemical 5 5 17 20
Valvoline 2 1 4 4
Refining and Marketing - 5 2 5
Corporate 1 1 5 5
------------ ------------ ------------ -----------
12 20 50 51
------------ ------------ ------------ -----------
$ 2,139 $ 2,387 $ 5,648 $ 6,178
============ ============ ============ ===========
OPERATING INCOME
APAC $ 42 $ 37 $ 64 $ 12
Ashland Distribution 3 13 8 37
Ashland Specialty Chemical 25 19 59 55
Valvoline 25 22 53 51
Refining and Marketing (1) 66 302 111 506
Corporate (24) (24) (61) (61)
------------ ------------ ------------ -----------
$ 137 $ 369 $ 234 $ 600
============ ============ ============ ===========
- ------------------------------------------------------------------------------------------------------------------------------------
(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 Nine months ended
June 30 June 30
---------------------------- ----------------------------
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
APAC
Construction backlog at June 30 (millions) (1) $ 1,797 $ 1,746
Hot-mix asphalt production (million tons) 11.4 11.1 25.3 23.7
Aggregate production (million tons) 8.5 8.1 22.2 19.5
Ready-mix concrete production (thousand cubic yards) 565 607 1,537 1,590
Ashland Distribution (2)
Sales per shipping day (millions) $ 10.5 $ 11.0 $ 10.0 $ 11.4
Gross profit as a percent of sales 15.8% 15.5% 16.0% 15.9%
Ashland Specialty Chemical (2)
Sales per shipping day (millions) $ 5.3 $ 5.1 $ 5.1 $ 5.0
Gross profit as a percent of sales 37.1% 34.0% 36.0% 34.0%
Valvoline lubricant sales (million gallons) 52.5 44.6 142.0 128.8
Refining and Marketing (3)
Crude oil refined (thousand barrels per day) 973 958 930 895
Refined products sold (thousand barrels per day) (4) 1,351 1,303 1,299 1,288
Refining and wholesale marketing margin (per barrel) (5) $ 2.18 $ 7.72 $ 1.89 $ 5.05
Speedway SuperAmerica (SSA) (6)
Retail outlets at June 30 2,081 2,177
Gasoline and distillate sales (million gallons) 911 893 2,679 2,671
Gross margin - gasoline and distillates (per gallon) $ .1116 $ .1280 $ .1032 $ .1179
Merchandise sales (millions) $ 612 $ 574 $ 1,736 $ 1,580
Merchandise margin (as a percent of sales) 25.5% 23.7% 24.5% 23.6%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes APAC's proportionate share of the backlog of
unconsolidated joint ventures.
(2) 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.
(3) Amounts represent 100 percent of MAP's operations, in which
Ashland owns a 38 percent interest.
(4) Total average daily volume of all refined product sales to MAP's
wholesale, branded and retail (SSA) customers.
(5) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.
(6) Periods prior to September 1, 2001, have been restated to exclude
amounts related to the 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 June 30, 2002, Ashland recorded net
income of $65 million, compared to $197 million for the quarter ended June
30, 2001. The most significant factor affecting the comparison was a sharp
decline in operating income from refining and marketing compared to the
record level of 2001. However, operating income from Ashland's wholly owned
businesses was up slightly despite challenging conditions in many of our
markets. APAC, Ashland Specialty Chemical and Valvoline all showed
improvements, while Ashland Distribution continued to grapple with a
difficult business climate.
YEAR-TO-DATE - For the nine months ended June 30, 2002, Ashland recorded
net income of $70 million, compared to $302 million for the nine months
ended June 30, 2001. Both periods included the cumulative effect of
accounting changes and the 2001 period included results from discontinued
operations as described in Notes A and C to the Condensed Consolidated
Financial Statements. Income from continuing operations amounted to $82
million in the 2002 period, compared to $281 million in the 2001 period.
Operating income declined $366 million from the record level recorded in
the 2001 period, reflecting the same factors described in the current
quarter comparison.
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 $32 million and net income by $26 million for the nine months
ended June 30, 2001. The reductions in operating income by segment were $19
million for APAC, $1 million for Ashland Distribution, $4 million for
Ashland Specialty Chemical, $1 million for Valvoline and $7 million for
Refining and Marketing.
APAC
CURRENT QUARTER - APAC's construction operations reported operating income
of $42 million for the June 2002 quarter, compared to $37 million for the
June 2001 quarter, which included a charge of $3 million to correct
improper recognition of construction contract earnings at APAC's division
in Manassas, Virginia. The improvement reflects higher earnings on
construction jobs and increased profitability in APAC's asphalt plants. Net
construction job revenue (total revenue less subcontract costs) increased
3% from the prior year period, while job margins averaged 6.6% in the June
2002 quarter compared to 5.2% in the 2001 period. Production of hot-mix
asphalt increased 3%, while lower costs for production labor, fuel and
power more than offset a slight increase in liquid asphalt costs.
Nonamortization of goodwill increased APAC's operating income by $6
million, compared to the June 2001 quarter, but the benefit was more than
offset by $7 million in expenses related to APAC's business process
redesign initiative (Project PASS). APAC's construction backlog increased
slightly to a June 30 record of $1.8 billion.
YEAR-TO-DATE - For the nine months ended June 30, 2002, APAC reported
operating income of $64 million, compared to $12 million for the same
period of 2001, which included $18 million in charges for the Manassas
division described above. The improved results reflect more favorable
weather conditions in the winter and spring periods 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 increased 4%, hot-mix asphalt production was up 7%
and aggregate production increased 14%. Nonamortization of goodwill
increased operating income by $19 million compared to the prior year
period, while costs of Project PASS were $11 million in the current year
period.
13
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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ASHLAND DISTRIBUTION
CURRENT QUARTER - Ashland Distribution reported operating income of $3
million for the quarter ended June 30, 2002, compared to $13 million for
the quarter ended June 30, 2001. Sales revenues declined 9% reflecting
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.
However, on the positive side, monthly average sales per shipping day
increased steadily during the quarter, reflecting a division-wide
profitability enhancement program and vigorous efforts to improve service.
YEAR-TO-DATE - For the nine months ended June 30, 2002, Ashland
Distribution reported operating income of $8 million, compared to $37
million for the same period of 2001. Sales revenues declined 15% reflecting
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 June 30, 2002, Ashland Specialty
Chemical reported operating income of $25 million, compared to $19 million
for the June 2001 quarter. The 32% increase reflects improved results from
six of Ashland's seven specialty chemical businesses. The largest
improvement came in composite polymers, which continues to benefit from
last year's Neste acquisition. Foundry products, specialty polymers &
adhesives, and electronic chemicals also showed significant improvements.
Electronic chemicals continues to improve as the semiconductor industry
recovers from the worldwide downturn which began to adversely affect
results in last year's June quarter.
YEAR-TO-DATE - For the nine months ended June 30, 2002, Ashland Specialty
Chemical reported operating income of $59 million, compared to $55 million
for the first nine months of 2001. Again, six of the seven businesses are
ahead of last year's results, with electronic chemicals being the
exception. Composite polymers showed the largest improvement, followed by
petrochemicals, specialty polymers & adhesives, and foundry products.
VALVOLINE
CURRENT QUARTER - For the quarter ended June 30, 2002, Valvoline reported
operating income of $25 million, compared to $22 million for the June 2001
quarter. The 14% increase reflected healthy fundamentals in the core
lubricants business, where volumes were good and sales of premium products,
including MaxLife, were robust. Valvoline Instant Oil Change had a strong
quarter, and results from international operations improved. R-12 sales
were minimal during the quarter, reflecting reduced demand for this
automotive refrigerant. Earnings from the sale of antifreeze suffered due
to lower margins.
YEAR-TO-DATE - For the nine months ended June 30, 2002, Valvoline reported
operating income of $53 million, compared to $51 million for the same
period of 2001. The same factors described in the current quarter
comparison are responsible for the improvement in the year-to-date results.
Gross profit from sales of R-12 is down $12 million from last year. As a
result, Valvoline now expects R-12 gross profit to be in the range of $1
million for fiscal 2002, compared to roughly $14 million in each of the
last three years.
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 operating income of $66 million for the quarter
ended June 30, 2002, compared to $302 million for the June 2001 quarter.
The $236 million decline reflects reduced refining margins compared to the
exceptionally high level in the June 2001 quarter, which produced Ashland's
best-ever quarter from Refining and Marketing. In this year's quarter,
margins were squeezed by soft industry demand, particularly for diesel
fuel, and high crude oil prices, especially for the type of heavier, sour
crude oils that make up approximately 60% of MAP's crude oil slate. As a
result, MAP's refining and wholesale marketing margin decreased $5.54 per
barrel, which was the primary factor in the $243 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
$111 million for the nine months ended June 30, 2002, compared to the
record-level $506 million for the nine months ended June 30, 2001.
Ashland's equity income from MAP's refining and wholesale marketing
operations declined $408 million, reflecting a $3.16 per barrel reduction
in MAP's refining and wholesale marketing margin. Ashland's equity income
from MAP's retail operations, including Speedway SuperAmerica and MAP's 50%
interest in the Pilot Travel Center joint venture, increased $5 million
reflecting increased merchandise volumes and margins.
CORPORATE
Corporate expenses were essentially unchanged from last year for both the
quarter and year-to-date periods.
NET INTEREST AND OTHER FINANCIAL COSTS
For the quarter ended June 30, 2002, net interest and other financial costs
totaled $33 million, compared to $42 million for the June 2001 quarter. For
the year-to-date, net interest and other financial costs amounted to $103
million in the 2002 period, compared to $132 million in the 2001 period.
The decline reflects lower average debt levels and, to a lesser extent,
reduced interest rates on floating rate obligations.
DISCONTINUED OPERATIONS
As described in Note C 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 CHANGES
In the March 2001 quarter, Ashland recognized an after-tax loss of $4
million from MAP's adoption of FAS 133. In the December 2001 quarter,
Ashland recognized an after-tax loss of $12 million from its adoption of
FAS 142. See Note A to the Condensed Consolidated Financial Statements for
descriptions of these two accounting changes.
15
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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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, at June 30,
2002, Ashland could also issue an additional $600 million in debt and
equity securities should future opportunities or needs arise. On August 1,
2002, Ashland issued $55 million in medium-term notes under this shelf
registration, thereby reducing the remaining capacity to $545 million.
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 June 30, 2002. Additional permissible
borrowings are increased (decreased) by 150% of any increase (decrease) in
Ashland's stockholders' equity.
Cash flows from operations, a major source of Ashland's liquidity, amounted
to $21 million for the nine months ended June 30, 2002, compared to $432
million for the nine months ended June 30, 2001. The decrease principally
reflects decreased cash distributions from MAP ($119 million in 2002,
compared to $451 million in 2001). In addition, the 2002 period included
the negative effects of a $100 million increase in operating assets and
liabilities versus a $50 million increase in the 2001 period. Ashland's
capital requirements for net property additions and dividends exceeded cash
flows from operations by $177 million for the nine months ended June 30,
2002, and were funded with cash equivalents and short-term borrowings.
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 $395 million for the nine months ended June 30, 2002, compared
to $778 million for the nine months ended June 30, 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 June 30, 2002, working capital (excluding debt due within one year)
amounted to $678 million, compared to $801 million at September 30, 2001,
and $738 million at June 30, 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 $64 million at June 30, 2002,
$70 million at September 30, 2001, and $73 million at June 30, 2001. Liquid
assets (cash, cash equivalents and accounts receivable) amounted to 76% of
current liabilities at June 30, 2002, compared to 95% at September 30,
2001, and 87% at June 30, 2001.
CAPITAL RESOURCES
For the nine months ended June 30, 2002, property additions amounted to
$138 million, compared to $144 million for the same period last year.
Property additions and cash dividends for the remainder of fiscal 2002 are
estimated at $97 million and $19 million. At June 30, 2002, Ashland had
remaining authority to purchase 3.6 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 the majority of its remaining 2002
capital requirements for property additions,
16
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
CAPITAL RESOURCES (continued)
dividends and scheduled debt repayments of $27 million from internally
generated funds. However, external financing may be necessary to supplement
these needs or provide funds for acquisitions or purchases of common stock.
At June 30, 2002, Ashland's debt level amounted to $1.9 billion, compared
to $1.9 billion at September 30, 2001, and $2 billion at June 30, 2001.
Debt as a percent of capital employed amounted to 46% at June 30, 2002,
compared to 46% at September 30, 2001, and 48% at June 30, 2001. At June
30, 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 $263 million of third-party debt
underlying those transactions. As a result, Ashland was exposed to
fluctuations in short-term interest rates on $557 million of debt
obligations at June 30, 2002.
ENVIRONMENTAL AND ASBESTOS-RELATED 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 is subject to liabilities related to a significant number of claims
alleging personal injury resulting from exposure to asbestos, primarily as
a result of indemnification obligations relating to the 1990 sale of Riley
Stoker Corporation, a former subsidiary. This former subsidiary had
manufactured boilers using components that contained asbestos. See Note D
to the Condensed Consolidated Financial Statements for information about
asbestos reserves, the number of claims, and litigation defense and claim
settlement costs.
The uncertainties of asbestos claim litigation make it difficult to
accurately predict the results of the ultimate resolution of asbestos
claims. However, considering the foregoing and amounts already provided
for, and given our historical litigation experience on resolved asbestos
claims, the substantial amount of insurance coverage that Ashland has
available from its insurance carriers and expected contributions from other
responsible parties, Ashland does not believe that any liability resulting
from environmental
17
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
ENVIRONMENTAL AND ASBESTOS-RELATED MATTERS (continued)
remediation, open asbestos-related claims or other legal proceedings will
have a material adverse effect on its consolidated financial position, cash
flows or liquidity.
OUTLOOK
Looking ahead to the remainder of fiscal 2002, MAP is a solid performer in
excellent competitive position. Its results should improve as market
conditions strengthen, although results for the September 2002 quarter are
expected to be well below the record level achieved in fiscal 2001.
However, world crude oil markets remain extremely volatile, and refining
margins are subject to significant, unpredictable swings. While most of its
operations are performing well, Valvoline's operating income in fiscal 2002
should be slightly less than 2001 due to weak R-12 refrigerant sales.
Although operating income from APAC will likely be below the $120 million
to $140 million range projected earlier, results for the year are expected
to roughly double the severely depressed level of 2001, when APAC's
operating income amounted to $55 million. Improvements in Ashland's
chemical businesses, particularly in the distribution business, are tied to
economic recovery. Although 2002 earnings from Ashland Specialty Chemical
should be up substantially compared to last year, the decline in operating
income from Ashland Distribution will likely more than offset this gain.
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
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ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - As of June 30, 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 97 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. 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
its 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.
ASBESTOS-RELATED LITIGATION - Ashland is subject to liabilities
related to a significant number of claims alleging personal injury
resulting from exposure to asbestos, primarily as a result of
indemnification obligations relating to the 1990 sale of Riley Stoker
Corporation, a former subsidiary. This former subsidiary had manufactured
boilers using components that contained asbestos.
A summary of claims activity during the nine months ended June 30,
2002, and each of the fiscal years ended September 30, 2001, 2000, and 1999
is as follows:
Nine months
ended Years ended September 30
------------- --------------------------------
(In thousands) June 30, 2002 2001 2000 1999
------------- -------- -------- --------
Open claims -
beginning of period 167 118 93 78
New claims 34 52 37 24
Claims settled or dismissed (47) (3) (12) (9)
------------- -------- -------- --------
Open claims - end of period 154 167 118 93
============= ======== ======== ========
Prior to insurance recoveries, the amounts spent on litigation defense
and claim settlement totaled $34 million during the nine months ended June
30, 2002, and $15 million, $11 million, and $11 million during the fiscal
years ended September 30, 2001, 2000, and 1999, respectively. Ashland
expects to be reimbursed by insurance carriers for most of the litigation
defense and claim settlement costs that have been or will be incurred for
open claims. During the nine months ended June 30, 2002, Ashland recognized
expense of $5 million related to asbestos claims. Ashland has
coverage-in-place agreements with respect to the asbestos-related claims
involving the former subsidiary with most of the insurance carriers that
Ashland has identified as providing coverage, and pursuant to these
agreements Ashland has received substantial payments to date.
At June 30, 2002, Ashland has reserves of $28 million for asbestos
liabilities that it does not expect to recover from its insurance carriers
on open claims. The uncertainties of asbestos claim litigation make it
difficult to accurately predict the results of the ultimate resolution of
asbestos claims. However, considering the foregoing and given our
historical litigation experience on resolved asbestos claims and the
substantial amount of insurance coverage that Ashland has available from
its insurance carriers,
19
Ashland does not believe that its pending and reasonably anticipated
liabilities in connection with open asbestos-related claims will have a
material adverse effect on its consolidated financial position, cash flows
or liquidity.
OTHER PROCEEDINGS - In addition to the 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, 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. 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.
ITEM 5. OTHER INFORMATION
On August 2, 2002, Ashland announced that Paul W. Chellgren, Chairman
and Chief Executive Officer, has elected to retire effective November 15,
2002. Mr. Chellgren and Ashland's Board of Directors mutually agreed that
he would retire because of a violation of a company human resources policy.
The policy was not related in any way to the financial affairs or
operations of Ashland. The Board felt it was in the best interest of
Ashland for Mr. Chellgren to retire in November to allow for a smooth and
orderly transition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Third Restated Articles of Incorporation of Ashland Inc.
12 Ashland Inc. Computation of Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed Charges
and Preferred Stock Dividends
99.1 Certificate of Paul W. Chellgren, Chief Executive Officer
of Ashland Inc.
99.2 Certificate of J. Marvin Quin, Chief Financial Officer
of Ashland Inc.
(b) Reports on Form 8-K
-------------------
A report on Form 8-K was filed on August 2, 2002 to report that Paul W.
Chellgren, Chief Executive Officer and Chairman of the Board of Ashland,
has elected to retire effective November 15, 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: August 7, 2002 /s/ J. Marvin Quin
------------------------------
J. Marvin Quin
Senior Vice President and
Chief Financial Officer
(on behalf of the Registrant and
as principal financial officer)
EXHIBIT INDEX
Exhibit
No. Description
------ -----------------------------------------------------------------
3(i) Third Restated Articles of Incorporation of Ashland Inc.
12 Ashland Inc. Computation of Ratios of Earnings to Fixed Charges
and Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
99.1 Certificate of Paul W. Chellgren, Chief Executive Officer of
Ashland Inc.
99.2 Certificate of J. Marvin Quin, Chief Financial Officer of
Ashland Inc.