ASHLAND INC - 10-Q Quarterly Report

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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 DECEMBER 31, 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

Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No

At January 31, 2003, there were 68,253,157 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
------------------------------

ITEM 1. FINANCIAL STATEMENTS

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME

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Three months ended
December 31
------------------------
(In millions except per share data) 2002 2001
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REVENUES
Sales and operating revenues $ 1,787 $ 1,812
Equity income 35 52
Other income 24 19
----------- ----------
1,846 1,883
COSTS AND EXPENSES
Cost of sales and operating expenses 1,450 1,464
Selling, general and administrative expenses 304 268
Depreciation, depletion and amortization 55 53
----------- ----------
1,809 1,785
----------- ----------
OPERATING INCOME 37 98
Net interest and other financial costs (33) (36)
----------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4 62
Income taxes (1) (24)
----------- ----------
INCOME FROM CONTINUING OPERATIONS 3 38
Results from discontinued operations (net of income taxes) - Note B (95) -
----------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (92) 38
Cumulative effect of accounting change (net of income taxes) - Note B - (11)
----------- ----------
NET INCOME (LOSS) $ (92) $ 27
=========== ==========

BASIC EARNINGS (LOSS) PER SHARE - Note A
Income from continuing operations $ .04 $ .55
Results from discontinued operations (1.39) -
Cumulative effect of accounting change - (.17)
----------- ----------
Net income (loss) $ (1.35) $ .38
=========== ==========

DILUTED EARNINGS (LOSS) PER SHARE - Note A
Income from continuing operations $ .04 $ .54
Results from discontinued operations (1.39) -
Cumulative effect of accounting change - (.16)
----------- ----------
Net income (loss) $ (1.35) $ .38
=========== ==========

DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

2

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

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December 31 September 30 December 31
(In millions) 2002 2002 2001
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ASSETS
------

CURRENT ASSETS
Cash and cash equivalents $ 119 $ 90 $ 264
Accounts receivable 1,003 1,124 1,060
Allowance for doubtful accounts (37) (35) (33)
Inventories - Note A 500 485 495
Deferred income taxes 87 122 122
Other current assets 89 139 85
------------ ------------- -------------
1,761 1,925 1,993
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) 2,300 2,350 2,319
Goodwill 522 521 515
Asbestos insurance receivable (noncurrent portion) 402 171 166
Other noncurrent assets 340 341 378
------------ ------------- -------------
3,564 3,383 3,378
PROPERTY, PLANT AND EQUIPMENT
Cost 3,116 3,118 3,046
Accumulated depreciation, depletion and amortization (1,728) (1,701) (1,616)
------------ ------------- -------------
1,388 1,417 1,430
------------ ------------- -------------

$ 6,713 $ 6,725 $ 6,801
============ ============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES
Debt due within one year $ 228 $ 201 $ 105
Trade and other payables 1,046 1,285 1,105
Income taxes 22 25 249
------------ ------------- -------------
1,296 1,511 1,459
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,598 1,606 1,740
Employee benefit obligations 518 509 430
Deferred income taxes 161 256 210
Reserves of captive insurance companies 174 166 176
Asbestos litigation reserve (noncurrent portion) 525 152 162
Other long-term liabilities and deferred credits 366 352 385
Commitments and contingencis - Notes D and E
------------ ------------- -------------
3,342 3,041 3,103

COMMON STOCKHOLDERS' EQUITY 2,075 2,173 2,239
------------ ------------- -------------

$ 6,713 $ 6,725 $ 6,801
============ ============= =============

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
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BALANCE AT OCTOBER 1, 2001 $ 69 $ 363 $ 1,920 $ (126) $ 2,226
Total comprehensive income (1) 27 (2) 25
Cash dividends (19) (19)
Issued common stock under
stock incentive plans 7 7
---------- ---------- ------------ ------------ ----------
BALANCE AT DECEMBER 31, 2001 $ 69 $ 370 $ 1,928 $ (128) $ 2,239
========== ========== ============ ============ ==========

BALANCE AT OCTOBER 1, 2002 $ 68 $ 338 $ 1,961 $ (194) $ 2,173
Total comprehensive loss (1) (92) 8 (84)
Cash dividends (19) (19)
Issued common stock under
stock incentive plans 5 5
---------- ---------- ------------ ------------ -----------
BALANCE AT DECEMBER 31, 2002 $ 68 $ 343 $ 1,850 $ (186) $ 2,075
========== ========== ============ ============ ===========

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(1) Reconciliations of net income (loss) to total comprehensive income (loss) follow.

Three months ended
December 31
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(In millions) 2002 2001
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Net income (loss) $ (92) $ 27
Unrealized translation adjustments 7 (4)
Related tax benefits 1 2
--------- --------------
Total comprehensive income (loss) $ (84) $ 25
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At December 31, 2002, the accumulated other comprehensive loss of $186 million
(after tax) was comprised of net unrealized translation losses of $55 million
and a minimum pension liability of $131 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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Three months ended
December 31
-----------------------
(In millions) 2002 2001
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CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 3 $ 38
Expense (income) not affecting cash
Depreciation, depletion and amortization 55 53
Deferred income taxes 15 (36)
Equity income from affiliates (35) (52)
Distributions from equity affiliates 82 119
Other items (1) -
Change in operating assets and liabilities (1) (54) (32)
--------- ----------
65 90
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 1 4
Repayment of long-term debt (45) (25)
Increase in short-term debt 64 -
Dividends paid (19) (19)
--------- ----------
1 (40)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (24) (44)
Purchase of operations - net of cash acquired (5) (5)
Proceeds from sale of operations 5 -
Other - net - 5
--------- ----------
(24) (44)
--------- ----------
CASH PROVIDED BY CONTINUING OPERATIONS 42 6
Cash provided (used) by discontinued operations (13) 22
--------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 29 28

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 90 236
--------- ----------

CASH AND CASH EQUIVALENTS - END OF PERIOD $ 119 $ 264
========= ==========

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(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

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NOTE A - SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL REPORTING

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
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, 2002. Results of operations for the
period ended December 31, 2002, are not necessarily indicative of results
to be expected for the year ending September 30, 2003.

INVENTORIES

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December 31 September 30 December 31
(In millions) 2002 2002 2001
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Chemicals and plastics $ 380 $ 367 $ 368
Construction materials 70 68 70
Petroleum products 63 58 59
Other products 48 51 59
Supplies 6 6 6
Excess of replacement costs over LIFO carrying values (67) (65) (67)
------------ -------------- ------------
$ 500 $ 485 $ 495
============ ============== ============

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share (EPS) from continuing operations.

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Three months ended
December 31
-------------------
(In millions except per share data) 2002 2001
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NUMERATOR
Numerator for basic and diluted EPS - Income
from continuing operations $ 3 $ 38
====== =======
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 68 69
Common shares issuable upon exercise of stock options - 1
------ -------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 68 70
====== =======

BASIC EPS $ .04 $ .55
DILUTED EPS $ .04 $ .54

PRODUCT WARRANTIES

Ashland's products are not generally sold with any extended warranties;
therefore, liabilities for product warranties are insignificant. Costs of
product warranties are generally recorded as incurred.

6

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK INCENTIVE PLANS

As of October 1, 2002, Ashland began expensing employee stock options in
accordance with the fair value recognition provisions of Financial
Accounting Standards Board (FASB) Statement No. 123 (FAS 123), "Accounting
for Stock-Based Compensation." Ashland elected the modified prospective
method of adoption allowed under FASB Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." Under this method,
compensation cost recognized in the quarter ended December 31, 2002, is the
same as that which would have been recognized had the recognition
provisions of FAS 123 been applied from its original effective date.
Results for prior periods have not been restated. Prior to October 1, 2002,
Ashland had accounted for its stock options using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," and related Interpretations,
which resulted in no expense recognition for Ashland. In addition to stock
options, Ashland grants nonvested stock awards to key employees and
directors, which are expensed over their vesting period under either APB 25
or FAS 123. The following table illustrates the effect on net income and
earnings per share if the fair value based method had been applied to all
outstanding and unvested awards in each period.

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Three months ended
December 31
--------------------
(In millions except per share data) 2002 2001
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Net income (loss) as reported $ (92) $ 27
Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects 1 -
Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effects (1) (1)
---------- -------
Pro forma net income (loss) $ (92) $ 26
========== =======

Earnings (loss) per share:
Basic - as reported $ (1.35) $ .38
Basic - pro forma $ (1.35) $ .37

Diluted - as reported $ (1.35) $ .38
Diluted - pro forma $ (1.35) $ .36

NOTE B - UNUSUAL ITEMS

ACCOUNTING CHANGE - GOODWILL

As of October 1, 2001, Ashland adopted FASB Statement No. 142 (FAS 142),
"Goodwill and Other Intangible Assets." Under FAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are
subject to annual impairment tests. As a result of the adoption of FAS 142,
it was determined that the goodwill of Ashland Distribution was impaired.
Accordingly, an impairment loss of $14 million ($11 million net of income
taxes) was recorded as a cumulative effect of accounting change as of
October 1, 2001. The December 2001 quarter has been restated to include
this loss.

7

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE B - UNUSUAL ITEMS (CONTINUED)

DISCONTINUED OPERATIONS

Ashland is subject to liabilities from claims alleging personal injury
caused by exposure to asbestos. During the quarter ended December 31, 2002,
Ashland increased its reserve for asbestos claims by $390 million to cover
litigation defense and claim settlement costs expected to be paid during
the next ten years. Because insurance provides reimbursements for most of
these costs and coverage-in-place agreements exist with the insurance
companies that provide substantially all of the coverage currently being
accessed, the majority of the increase in the asbestos reserve is expected
to be offset by probable insurance recoveries valued at $235 million. The
resulting $155 million pretax charge to income (net of deferred income tax
benefits of $60 million) is reflected as an after-tax loss from
discontinued operations of $95 million in the Statements of Consolidated
Income. See Note E for further discussion of Ashland's asbestos-related
litigation.

MAP INVENTORY VALUATION ADJUSTMENTS

Marathon Ashland Petroleum LLC (MAP) maintains an inventory valuation
reserve to reduce the LIFO cost of its inventories to their net realizable
values. Adjustments in that reserve are recognized quarterly based on
changes in petroleum product prices, creating non-cash charges or credits
to Ashland's earnings.

The following tables show the effect of unusual items on Ashland's
operating income, net income (loss) and diluted earnings (loss) per share.

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Three months ended
December 31
-----------------------
(In millions except per share data) 2002 2001
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Operating income before unusual items $ 37 $ 127
MAP inventory valuation adjustments - (29)
---------- ----------
Operating income as reported $ 37 $ 98
========== ==========

Net income before unusual items $ 3 $ 56
MAP inventory valuation adjustments - (18)
Results of discontinued operations (95) -
Cumulative effect of accounting change - (11)
---------- ----------
Net income (loss) as reported $ (92) $ 27
========== ==========

Diluted earnings per share before unusual items $ .04 $ .80
Impact of unusual items (1.39) (.42)
---------- ----------
Diluted earnings (loss) per share as reported $ (1.35) $ .38
========== ==========

NOTE C - 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.
Financial statements for MAP for the year ended December 31, 2002, will be
filed by means of a Form 10-K/A on or before March 31, 2003. Unaudited
income statement information for MAP is shown below.

8

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE C - UNCONSOLIDATED AFFILIATES (CONTINUED)

MAP is organized as a limited liability company that has elected to be
taxed as a partnership. Therefore, the parents are responsible for income
taxes applicable to their 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.

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Three months ended
December 31
-----------------------
(In millions) 2002 2001
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Sales and operating revenues $ 7,078 $ 5,743
Income from operations 94 147
Net income
Including inventory valuation adjustments 92 144
Excluding inventory valuation adjustments 92 221
Ashland's equity income
Including inventory valuation adjustments 31 50
Excluding inventory valuation adjustments 31 79

NOTE D - LEASES AND OTHER COMMITMENTS

LEASES

Under various operating leases, Ashland has guaranteed the residual value
of the underlying leased property that had an unamortized cost totaling
$162 million at December 31, 2002. If Ashland had cancelled those leases at
that date, its maximum obligations under the residual value guarantees
would have amounted to $140 million. Ashland does not expect to incur any
significant charge to earnings under these guarantees, $74 million of which
relates to real estate. These lease agreements are with unrelated third
party lessors and Ashland has no additional contractual or other
commitments to any party relative to these leases.

FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
Entities," was issued in January 2003. Under FIN 46 certain of the lessor
entities as currently structured would require consolidation in Ashland's
financial statements. However, it is Ashland's intent to restructure those
leases before the effective date of the consolidation provisions for
existing entities under FIN 46.

FASB Interpretation No. 45 (FIN 45), "Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others," was issued in November 2002. Upon entering new lease agreements
with residual value guarantees after December 31, 2002, Ashland will be
required to record the fair value at inception of these guarantee
obligations in accordance with FIN 45. Ashland cannot currently estimate
the ultimate value of the obligations that will be recorded. However, the
liability is generally expected to be offset with an asset (prepaid rent),
and both the asset and liability will be amortized over the life of the
lease, with no impact on results of operations.

OTHER COMMITMENTS

Ashland has guaranteed 38% of MAP's payments for certain crude oil
purchases, up to a maximum guarantee of $95 million. At December 31, 2002,
Ashland's contingent liability under this guarantee amounted to the full
$95 million. Ashland has not made and does not expect to make any payments
under this guarantee.

9

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE E- LITIGATION, CLAIMS AND CONTINGENCIES

ASBESTOS-RELATED LITIGATION

Ashland is subject to liabilities from claims alleging personal injury
caused by exposure to asbestos. Virtually all of those liabilities result
from indemnification obligations undertaken in 1990 in connection with the
sale of Riley Stoker Corporation (Riley), a former subsidiary. Although
Riley was neither a producer nor a manufacturer of asbestos, its industrial
boilers contained some asbestos-containing components provided by other
companies.

A summary of asbestos claims activity follows. Because claims are
frequently filed and settled in large groups, the amount and timing of
settlements, as well as the number of open claims, can fluctuate
significantly from period to period. Claims filed in Mississippi amounted
to 65% of the total in the quarter ended December 31, 2002, compared to 35%
during the last three years. Ashland believes the increase in the
Mississippi percentage and the higher claim-filing rate resulted from tort
reform legislation in that state that became effective on January 1, 2003.

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Three months ended
December 31 Years ended September 30
-------------------- -----------------------------------------------
(In thousands) 2002 2002 2001 2000
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Open claims - beginning of period 160 167 118 93
New claims filed 22 45 52 37
Claims settled (3) (15) (2) (9)
Claims dismissed (8) (37) (1) (3)
--------------------- ------------- ------------- -----------
Open claims - end of period 171 160 167 118
===================== ============= ============= ===========

Since October 1, 1999, Riley has been dismissed as a defendant in 63% of
the resolved claims. Amounts spent on litigation defense and claim
settlements totaled $17 million for the quarter ended December 31, 2002,
compared to annual costs of $38 million in 2002, $15 million in 2001 and
$11 million in 2000.

During the December 2002 quarter, Ashland increased its reserve for
asbestos claims by $390 million to cover the litigation defense and claim
settlement costs expected to be paid during the next ten years. Prior to
December 31, 2002, the asbestos reserve was based on the estimated costs
that would be incurred to settle open claims. The estimates of future
asbestos claims and related costs were developed with the assistance of
Hamilton, Rabinovitz & Alschuler, Inc. (HR&A), nationally recognized
experts in that field. Reflecting the additional provision, Ashland's
reserve for asbestos claims on an undiscounted basis amounted to $575
million at December 31, 2002, compared to $203 million at December 31,
2001.

The methodology used by HR&A to project future asbestos costs was based
largely on Ashland's recent experience, including claim-filing and
settlement rates, disease mix, open claims, and litigation defense and
claim settlement costs. Ashland's claim experience was compared to the
results of previously conducted epidemiological studies estimating the
number of people likely to develop asbestos-related diseases. Those studies
were undertaken in connection with national analyses of the population
expected to have been exposed to asbestos. Using that information, HR&A
estimated the number of future claims that would be filed, as well as the
related costs that would be incurred in resolving those claims.

10

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE E- LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

However, projecting future asbestos costs is subject to numerous variables
that are extremely difficult to predict. In addition to the significant
uncertainties surrounding the number of claims that might be received,
other variables include the type and severity of the disease alleged by
each claimant, the long latency period associated with asbestos exposure,
dismissal rates, costs of medical treatment, the impact of bankruptcies of
other companies that are co-defendants in claims, uncertainties surrounding
the litigation process from jurisdiction to jurisdiction and from case to
case, and the impact of potential changes in legislative or judicial
standards. Furthermore, any predictions with respect to these variables are
subject to even greater uncertainty as the projection period lengthens. In
light of these inherent uncertainties, Ashland believes that ten years is
the most reasonable period for recognizing a reserve for future costs, and
that costs that might be incurred after that period are not reasonably
estimable.

Because insurance provides reimbursements for most of these costs and
coverage-in-place agreements exist with the insurance companies that
provide substantially all of the coverage currently being accessed, the
majority of the increase in the asbestos reserve is expected to be offset
by probable insurance recoveries valued at $235 million. At December 31,
2002, Ashland's receivable for recoveries of such costs from its insurers
amounted to $427 million, of which $35 million relates to costs previously
paid. Receivables from insurance companies amounted to $184 million at
December 31, 2001.

Ashland retained the services of Tillinghast-Towers Perrin to assist
management in the estimation of probable insurance recoveries at December
31, 2002. Such recoveries are based on assumptions and estimates
surrounding the available insurance coverage, including the continued
viability of all solvent insurance carriers. About 36% of the estimated
receivables from insurance companies at December 31, 2002, are expected to
be due from Equitas Limited (Equitas) and other London companies. Of the
remainder, around 93% is expected to come from companies or groups that are
rated A or higher by A. M. Best.

Although coverage limits are resolved in the coverage-in-place agreement
with Equitas and other London companies, there is a disagreement with these
companies over the timing of recoveries. The resolution of this
disagreement could have a material effect on the value of insurance
recoveries from those companies. In estimating the value of future
recoveries at December 31, 2002, Ashland used the least favorable
interpretation of this agreement and will continue to do so until such time
as the disagreement is resolved.

ENVIRONMENTAL REMEDIATION

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
December 31, 2002, such locations included 98 waste treatment or disposal
sites where Ashland has been identified as a potentially responsible party
under Superfund or similar state laws, approximately 140 current and former
operating facilities (including certain facilities conveyed to MAP) and
about 1,220 service station properties. Ashland's reserves for
environmental remediation amounted to $175 million at December 31, 2002,
and reflect its estimates 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. Engineering studies, probability techniques, historical
experience and other factors are used to identify and evaluate remediation
alternatives and their related costs in determining the estimated reserves
for environmental remediation.

11

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE E- LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

Environmental remediation reserves are subject to numerous inherent
uncertainties that affect Ashland's ability to estimate its share of the
costs. 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. Ashland regularly adjusts its reserves as environmental remediation
continues.

None of the remediation locations is individually material to Ashland as
its largest reserve for any site is less than $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 ongoing remediation. Although environmental remediation could have a
material effect on results of operations if a series of adverse
developments occurs in a particular quarter or fiscal year, Ashland
believes that the chance of such developments occurring in the same quarter
or fiscal year is remote.

OTHER LEGAL 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.

12

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT

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Three months ended
December 31
---------------------
(In millions) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------

REVENUES
Sales and operating revenues
APAC $ 558 $ 681
Ashland Distribution 636 584
Ashland Specialty Chemical 333 312
Valvoline 281 255
Intersegment sales
Ashland Distribution (5) (5)
Ashland Specialty Chemical (16) (15)
-------- ---------
1,787 1,812
Equity income
APAC 2 -
Ashland Specialty Chemical 2 1
Valvoline - 1
Refining and Marketing 31 50
-------- ---------
35 52
Other income
APAC 4 1
Ashland Distribution 10 9
Ashland Specialty Chemical 8 5
Valvoline 1 1
Refining and Marketing - 2
Corporate 1 1
-------- ---------
24 19
-------- ---------
$ 1,846 $ 1,883
======== =========
OPERATING INCOME
APAC $ - $ 36
Ashland Distribution 9 9
Ashland Specialty Chemical 18 16
Valvoline 15 11
Refining and Marketing (1) 24 45
Corporate (29) (19)
-------- ---------
$ 37 $ 98
======== =========

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(1) Includes Ashland's equity income from MAP, amortization related to
Ashland's excess investment in MAP, and other activities associated with
refining and marketing.

13

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT

- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended
December 31
---------------------
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------

OPERATING INFORMATION
APAC
Construction backlog at December 31 (millions) (1) $ 1,697 $ 1,546
Hot-mix asphalt production (million tons) 7.1 9.3
Aggregate production (million tons) 7.1 7.9
Ready-mix concrete production (million cubic yards) .5 .5
Ashland Distribution (2)
Sales per shipping day (millions) $ 10.3 $ 9.4
Gross profit as a percent of sales 16.0% 16.5%
Ashland Specialty Chemical (2)
Sales per shipping day (millions) $ 5.4 $ 5.0
Gross profit as a percent of sales 34.7% 34.5%
Valvoline lubricant sales (million gallons) 42.8 41.6
Refining and Marketing (3)
Crude oil refined (thousand barrels per day) 831 925
Refined products sold (thousand barrels per day) (4) 1,306 1,317
Refining and wholesale marketing margin (per barrel) (5) $ 1.93 $ 2.70
Speedway SuperAmerica (SSA)
Retail outlets at December 31 2,006 2,104
Gasoline and distillate sales (million gallons) 897 916
Gross margin - gasoline and distillates (per gallon) $ .1010 $ .1139
Merchandise sales (millions) $ 583 $ 584
Merchandise margin (as a percent of sales) 24.1% 24.0%

- ------------------------------------------------------------------------------------------------------------------------------------

(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, and depreciation and amortization relative to
manufacturing assets.

(3) Amounts represent 100% of MAP's operations, in which Ashland owns
a 38% 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.

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

- --------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

- --------------------------------------------------------------------------------

RESULTS OF OPERATIONS

Ashland recorded a net loss of $92 million for the quarter ended December
31, 2002, compared to net income of $27 million for the quarter ended
December 31, 2001. Both periods included unusual items as described in Note
B to the Condensed Consolidated Financial Statements. The December 2002
quarter included a $95 million after-tax loss from discontinued operations
associated with estimated future asbestos liabilities less probable
insurance recoveries. The December 2001 quarter included an $18 million
after-tax charge for inventory valuation adjustments for Marathon Ashland
Petroleum (MAP) and an $11 million after-tax charge for the cumulative
effect of an accounting change for goodwill. Excluding these unusual items,
net income amounted to $3 million in the 2002 period, compared to $56
million in the 2001 period. Operating income excluding unusual items
amounted to $37 million in the December 2002 quarter compared to $127
million for the December 2001 quarter. Higher crude oil prices and
abnormally high rainfall negatively affected operating income for MAP and
APAC, respectively. Valvoline and Ashland Specialty Chemical reported
improved results, while Ashland Distribution was comparable to the prior
year.

APAC

APAC's construction operations reported near break-even results for the
December 2002 quarter, compared to operating income of $36 million for the
December 2001 quarter. The reduced results reflected higher than usual
precipitation throughout the quarter in much of APAC's operating area.
According to the National Oceanic and Atmospheric Administration, rainfall
in October was among the highest levels on record in nine of the 14 states
in which APAC operates. The months of November and December also posted
above-average precipitation in most of APAC's geographic markets. Net
construction job revenue (total revenue less subcontract costs) decreased
21% from the prior year period, while net job margins declined from 7.6% to
7.1%. Production of hot-mix asphalt declined 24%, and aggregate production
dropped 10%.

APAC expects to report a loss for the March 2003 quarter that will be
substantially larger than the $14 million loss reported in the March 2002
quarter. As a result, fiscal 2003 operating income may not equal the $122
million reported in 2002. However, APAC's backlog of $1.7 billion at
December 31 was 10% higher than a year ago, and Ashland remains optimistic
that APAC will have a strong second half of fiscal 2003. APAC remains on
track to earn a 10% after-tax return on investment by fiscal 2004.
Initiatives to transform APAC's business processes and restructure its
organization are on schedule, and results from those efforts are expected
to be seen in the second half of fiscal 2003.

ASHLAND DISTRIBUTION

Operating income of $9 million from Ashland Distribution was comparable to
last year's December quarter. Most of the profits for both quarters ($6
million in 2002 and $7 million in 2001) came from litigation settlements
and asset sales. Ashland Distribution continues to be affected by the weak
economy and is still experiencing higher general and administrative
expenses associated with the reorganization of this business. This
initiative is beginning to have an impact. For example, daily sales volumes
were up by 10% compared to the same period last year.

15

- --------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

- --------------------------------------------------------------------------------

ASHLAND SPECIALTY CHEMICAL

Ashland Specialty Chemical reported operating income of $18 million for the
December 2002 quarter, compared to $16 million for the December 2001
quarter, reflecting improved results from four of the six lines of
business. Electronic chemicals, casting solutions, and specialty polymers &
adhesives all reported substantially higher results, reflecting increased
sales volumes due to market improvements. Composite Polymers and Drew
Marine declined as a result of margin compression.

VALVOLINE

For the quarter ended December 31, 2002, Valvoline reported operating
income of $15 million, up 36% from the $11 million reported for the
December 2001 quarter. The outstanding quarter reflected stronger results
from the "do-it-yourself" and "do-it-for-me" segments of the U.S. market,
as well as from international operations. Higher volumes from the core
lubricants business and the success of Valvoline's ongoing premium product
strategy contributed to the improvement. Valvoline Instant Oil Change
reported record December quarter results. The sale of nearly all of
Valvoline's remaining R-12 refrigerant inventory added modestly to
operating profit. The strategy to emphasize new product development and
premium brands has resulted in operating income that has successfully
replaced former contributions from R-12.

REFINING AND MARKETING

Operating income from Refining and Marketing, which consists primarily of
equity income from Ashland's 38% ownership interest in MAP, amounted to $24
million for the quarter ended December 31, 2002. This reflects a 68%
decline compared to $74 million for the December 2001 quarter, which
excludes $29 million in unfavorable inventory valuation adjustments
described in Note B to the Condensed Consolidated Financial Statements.
Equity income from MAP's refining and wholesale marketing operations was
down $46 million, reflecting a decline of 77 cents per barrel in MAP's
refining and wholesale marketing margin and a 10% reduction in crude oil
throughput. During the quarter, crude oil prices were extremely volatile
due to the labor strike affecting oil production in Venezuela and
continuing uncertainty over Iraq. As a result, crude oil prices escalated
rapidly in December, squeezing product margins. MAP also experienced a
heavy maintenance schedule which reduced crude oil throughput and
production of refined products. Equity income from MAP's retail operations
(Speedway SuperAmerica and a 50% interest in the Pilot Travel Centers joint
venture) declined $3 million, reflecting decreased product volumes and
margins. Although MAP had a difficult December quarter, it has been the
industry leader in profit per barrel of crude oil refined, and profits
should improve as markets stabilize. MAP also remains a strong cash
generator and provided an $82 million cash distribution to Ashland during
the quarter.

CORPORATE

Corporate expenses amounted to $29 million in the quarter ended December
31, 2002, compared to $19 million for the quarter ended December 31, 2001.
The increase reflects an $8 million charge for severance and other
transition costs related to Ashland's program to reduce general and
administrative costs by $25 million per year, as well as the decision to
begin expensing stock options as of October 1, 2002. Savings from the G&A
cost reduction program will be substantially realized by the second half of
fiscal 2003.

NET INTEREST AND OTHER FINANCIAL COSTS

For the quarter ended December 31, 2002, net interest and other financial
costs totaled $33 million, compared to $36 million for the December 2001
quarter. The decline reflects lower interest rates and a reduction in the
average level of debt outstanding.

16

- --------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

- --------------------------------------------------------------------------------

DISCONTINUED OPERATIONS

As described in Notes B and E to the Condensed Consolidated Financial
Statements, the December 2002 quarter included a $95 million after-tax loss
from discontinued operations associated with estimated future asbestos
liabilities less probable insurance recoveries.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE

As described in Note B to the Condensed Consolidated Financial Statements,
as a result of the adoption of FAS 142 in the December 2001 quarter,
Ashland recognized an impairment loss of $11 million after income taxes
related to the goodwill of Ashland Distribution.

FINANCIAL POSITION

LIQUIDITY

Cash flows from operations, a major source of Ashland's liquidity, amounted
to $65 million for the three months ended December 31, 2002, compared to
$90 million for the three months ended December 31, 2001. Ashland's cash
flows from operations exceeded its capital requirements for net property
additions and dividends by $24 million for the three months ended December
31, 2002.

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, Ashland can
also issue an additional $545 million in debt and equity securities should
future opportunities or needs arise. Furthermore, Ashland has access to the
commercial paper markets and various uncommitted lines of credit. While the
revolving credit agreements contain a covenant limiting new borrowings
based on Ashland's stockholders' equity, these agreements would have
permitted an additional $1.2 billion of borrowings at December 31, 2002.
Additional permissible borrowings are increased (decreased) by 150% of any
increase (decrease) in stockholders' equity.

At December 31, 2002, working capital (excluding debt due within one year)
amounted to $693 million, compared to $615 million at September 30, 2002,
and $639 million at December 31, 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 $67 million at December
31, 2002, $65 million at September 30, 2002, and $67 million at December
31, 2001. Liquid assets (cash, cash equivalents and accounts receivable)
amounted to 84% of current liabilities at December 31, 2002, compared to
78% at September 30, 2002, and 88% at December 31, 2001.

CAPITAL RESOURCES

For the three months ended December 31, 2002, property additions amounted
to $24 million, compared to $44 million for the same period last year.
Property additions and cash dividends for the remainder of fiscal 2003 are
estimated at $135 million and $56 million, respectively. Ashland
anticipates meeting its remaining 2003 capital requirements for property
additions, dividends and scheduled debt repayments of $146 million from
internally generated funds.

17

- --------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

- --------------------------------------------------------------------------------

CAPITAL RESOURCES (CONTINUED)

Ashland's debt level amounted to $1.8 billion at December 31, 2002,
September 30, 2002, and December 31, 2001. Debt as a percent of capital
employed amounted to 46.8% at December 31, 2002, compared to 45.4% at
September 30, 2002, and 45.2% at December 31, 2001. At December 31, 2002,
Ashland's debt included $215 million of floating-rate obligations,
including $74 million of short-term commercial paper and $141 million of
long-term debt, 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 $267 million of third-party debt
underlying those transactions. As a result, Ashland was exposed to
fluctuations in short-term interest rates on $635 million of debt
obligations at December 31, 2002.

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 $92 million for the quarter ended December 31, 2002, compared
to $180 million for the quarter ended December 31, 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.

ASBESTOS-RELATED LITIGATION AND ENVIRONMENTAL REMEDIATION

For a discussion of Ashland's asbestos-related litigation and environmental
remediation matters, see Note E to the Condensed Consolidated Financial
Statements.

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,
Asbestos-Related Litigation and Environmental Remediation sections of this
MD&A. Estimates as to operating performance, earnings, and scope and effect
of asbestos and environmental liabilities 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,
cost of raw materials, and legal proceedings and claims (including asbestos
and environmental matters). 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 2002 Annual Report and in
Ashland's Form 10-K for the fiscal year ended September 30, 2002. Ashland
undertakes no obligation to subsequently update or revise these
forward-looking statements.

18

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Ashland's market risk exposure at December 31, 2002 is consistent with, and
not greater than, the types and amounts of market risk exposures presented
in Ashland's Form 10-K for the fiscal year ended September 30, 2002.

ITEM 4. CONTROLS AND PROCEDURES

(a) Ashland's Chief Executive Officer and its Chief Financial Officer,
after evaluating the effectiveness of Ashland's disclosure
controls and procedures as of a date within 90 days of the filing
date of this Form 10-Q, have concluded that the disclosure
controls and procedures were effective to ensure that material
information relating to Ashland and its consolidated subsidiaries
was made known to them by others within those entities.

(b) There were no significant changes in Ashland's internal controls
or in other factors that could significantly affect these controls
or procedures subsequent to the date of Ashland's evaluation, nor
were there any significant deficiencies or material weaknesses in
Ashland's internal controls. As a result, no corrective actions
were required or undertaken.

19

PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------

ITEM 1. LEGAL PROCEEDINGS

ENVIRONMENTAL PROCEEDINGS - (1) As of December 31, 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 98 waste treatment or disposal sites. These
sites are currently subject to ongoing investigation and remedial
activities, overseen by the United States Environmental Protection Agency
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. For additional information regarding
environmental matters and reserves, see Note E to the Condensed
Consolidated Financial Statements.

(2) As previously reported in Ashland's Form 10-Q for the quarter
ended March 31, 2002, on May 13, 2002, Ashland entered into a plea
agreement with the United States Attorney's Office for the District of
Minnesota and the Environmental Crimes Section of the United States
Department of Justice regarding a May 16, 1997 sewer fire at the St. Paul
Park, Minnesota refinery now owned by Marathon Ashland Petroleum LLC, a
joint venture company of Marathon Oil Company and Ashland. As part of the
plea agreement, Ashland entered guilty pleas to two federal misdemeanors,
paid a $3.5 million fine related to violations of the Clean Air Act, paid
$3.55 million as restitution to the employees injured in the fire, paid
$200 thousand as restitution to the responding rescue units, and is funding
approximately $4.0 million in upgrades to the St. Paul Park refinery's
process sewers, junction boxes and drains. In addition, as part of the plea
agreement, Ashland entered into a deferred prosecution agreement with
regard to a separate count charging it with violating Subpart QQQ of the
New Source Performance Standards of the Clean Air Act. The deferred
prosecution agreement provided that so long as Ashland satisfied the terms
and conditions of the plea agreement, the United States would dismiss with
prejudice that count. On December 23, 2002, the United States District
Court for the District of Minnesota imposed all conditions of the plea
agreement except Ashland paid a fine of $5.4 million for violations of the
Clean Air Act instead of the proposed $3.5 million. The court also placed
Ashland on probation for a period of five years.

ASBESTOS-RELATED LITIGATION - Ashland is subject to liabilities from
claims alleging personal injury caused by exposure to asbestos. For
additional information regarding liabilities arising from asbestos-related
litigation, see Note E to the Condensed Consolidated Financial Statements.

SHAREHOLDER DERIVATIVE LITIGATION - On August 16, 2002, Central
Laborers' Pension Fund, derivatively as a shareholder of Ashland,
instituted an action in the Circuit Court of Kentucky in Kenton County
against Ashland's then-serving Board of Directors. On motion of Ashland and
the other defendants, the case was removed to the United States District
Court, Eastern District of Kentucky, Covington Division. Plaintiff has
moved to remand the case to the state court. The action is purportedly
filed on behalf of Ashland, and asserts the following causes of action
against the Directors: breach of fiduciary duty, abuse of control, gross
mismanagement, and waste of corporate assets. The suit also names Paul W.
Chellgren, the then-serving Chief Executive Officer and Chairman of the
Board, and James R. Boyd, former Senior Vice President and Group Operating
Officer, as individual defendants, and it seeks to recover an unstated sum
from them individually alleging unjust enrichment from various transactions
completed during their tenure with Ashland. The suit further seeks an
unspecified sum from Mr. Chellgren individually based upon alleged
usurpation of corporate opportunities. The suit also names Mr. J. Marvin
Quin, Ashland's Chief Financial Officer, as well as three former employees
of Ashland's wholly-owned subsidiary, APAC, as individual defendants and
alleges that they participated in the preparation and filing of false
financial statements during fiscal years 1999 - 2001. The suit further

20

names Ernst & Young LLP ("E&Y"), as a defendant, alleging professional
accounting malpractice and negligence in the conduct of its audit of
Ashland's 1999 and 2000 financial statements, respectively, as well as
alleging that E&Y aided and abetted the individual defendants in their
alleged breach of duties. The complaint seeks to recover, jointly and
severally, from defendants an unstated sum of compensatory and punitive
damages. The complaint seeks equitable and/or injunctive relief to avoid
continuing harm from alleged ongoing illegal acts, and seeks a disgorgement
of defendants' alleged insider-trading gains, in addition to the reasonable
cost and expenses incurred in bringing the complaint, including attorneys'
and experts' fees.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) Ashland's Annual Meeting of Shareholders was held on January 30,
2003 at the Metropolitan Club, 50 E. RiverCenter Boulevard,
Covington, Kentucky at 10:30 a.m.

(b) Ashland's shareholders at said meeting elected four directors
(Roger W. Hale, Patrick F. Noonan, Jane C. Pfeiffer and George A.
Schaefer, Jr.) to serve a three-year term.

Votes
Affirmative Withheld

Roger W. Hale 55,794,640 7,113,669
Patrick F. Noonan 55,804,765 7,103,544
Jane C. Pfeiffer 61,156,360 1,751,949
George A. Schaefer, Jr. 61,259,349 1,648,960

Directors who continued in office: Ernest H. Drew, Bernadine P. Healy,
M.D., Mannie L. Jackson, James J. O'Brien, W. L. Rouse, Theodore M. Solso
and Michael J. Ward.

(c) Ashland's shareholders at said meeting ratified the appointment of
Ernst & Young LLP as independent auditors for fiscal year 2003 by
a vote of 55,143,390 affirmative, to 7,208,100 negative and
556,819 abstention votes.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

12 Computation of Ratio of Earnings to Fixed Charges.

99.1 Certificate of James J. O'Brien, Chief Executive Officer of
Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.

99.2 Certificate of J. Marvin Quin, Chief Financial Officer of Ashland,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350.

(b) REPORTS ON FORM 8-K

No reports on Form 8-K have been filed during the quarter ended
December 31, 2002.

21

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: February 13, 2003 /s/ J. Marvin Quin
-------------------------------
J. Marvin Quin
Senior Vice President and Chief Financial
Officer (on behalf of the Registrant and
as principal financial officer)

CERTIFICATION

Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Chief Executive Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings.

I, James J. O'Brien, Chief Executive Officer of Ashland Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Ashland
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant, and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):

22

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: February 13, 2003

/s/ James J. O'Brien
-------------------------
Chief Executive Officer

CERTIFICATION

Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Chief Financial Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings.

I, J. Marvin Quin, Chief Financial Officer of Ashland Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Ashland
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant, and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):

23

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: February 13, 2003
/s/ J. Marvin Quin
-------------------------
Chief Financial Officer

24

EXHIBIT INDEX

Exhibit
No. Description
- ------ ------------------------------------------------------------------

12 Computation of Ratio of Earnings to Fixed Charges.

99.1 Certificate of James J. O'Brien, Chief Executive Officer of
Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.

99.2 Certificate of J. Marvin Quin, Chief Financial Officer of Ashland,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350.

25