COVINGTON, Ky., April 29 /PRNewswire-FirstCall/ -- Ashland Inc. (NYSE:
ASH) today announced preliminary* net income for the quarter ended March
31, 2008, the second quarter of its fiscal year, of $72 million, or $1.13
per share. In the prior-year quarter, net income was $49 million, or 77
cents per share. Net income in the March 2008 quarter benefited from a gain
of $23 million, or 37 cents per share, from the partial resolution with
Marathon Oil Corp. of certain tax matters related to the MAP Transaction.
Discontinued operations in the March 2007 quarter benefited from net income
of $18 million, or 28 cents per share, reflecting the improved credit
quality of a significant portion of Ashland's asbestos insurance
receivable. Also in the March 2007 quarter, net income was reduced by an
after-tax charge of $15 million, or 24 cents per share, for costs
associated with Ashland's voluntary severance offer (VSO).
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Operating income for the March 2008 quarter totaled $52 million, or $56
million when excluding a $4.5 million write-off related to a joint venture
project to manufacture bio-based propylene glycol. Operating income for the
March 2007 quarter was $41 million, or $66 million when adjusted to exclude
the $25 million pre-tax charge related to the VSO. Ashland believes the use
of these adjusted operating income figures enhances understanding of its
performance.
Business Summary
Commenting on Ashland's second-quarter results, Chairman and Chief
Executive Officer James J. O'Brien said, "Valvoline continued to perform
well and achieved record second-quarter and first-half operating income,
despite some pressure on margins. While operating income was below prior
year for our Ashland Distribution and Ashland Performance Materials
businesses, we're encouraged that both divisions showed strongly improved
earnings on a sequential basis versus the prior period. These improvements
more than offset a $2.0 million loss in our Ashland Water Technologies
business, which experienced both higher selling, general and administrative
costs and contracting margins during the quarter."
Business Performance
Performance Materials' operating income of $19.5 million compares with
$22.7 million for the March 2007 quarter, a 14-percent decline. Sales and
operating revenues of $398 million increased 6 percent, and volume per day
increased 2 percent, both as compared with the March 2007 quarter. Revenue
and volume growth were aided by the elimination of a one-month non-North
American- entity reporting lag in the fourth fiscal quarter last year, but
reduced by the transfer of certain sales from Performance Materials to
Water Technologies. Excluding these effects and the impact of currency
translation, volume per day would have declined by 1 percent, and revenue
would have declined 2 percent. Performance Materials' results versus the
prior year largely reflect weak margins in the Specialty Polymers and
Adhesives business unit.
Distribution's operating income declined to $13.1 million for the March
2008 quarter as compared with $20.1 million in the same prior-year quarter.
Volume per day declined 5 percent, while sales and operating revenues
increased 7 percent versus the prior-year quarter to $1,082 million. The
volume decline reflects primarily the combination of a maintenance shutdown
at a major supplier; last year's termination of the Dow North American
plastics supply agreement; and the decision to forego certain low-margin
business. Gross profit as a percent of sales declined to 7.7 percent from
9.0 percent in the prior-year quarter, while average unit selling price
increased by 14 percent.
Valvoline achieved record second-quarter operating income of $24.1
million as compared with $22.4 million in the year-ago quarter. Sales and
operating revenues of $401 million increased 5 percent over the March 2007
quarter, due primarily to price increases. Strong profit growth from both
the Valvoline Instant Oil Change(R) business and Valvoline International
drove results for the quarter. Valvoline's total lubricant volume increased
1 percent, essentially all from private-label business, which carries a
lower margin. In addition, raw material cost increases received in November
impacted the entire second quarter, whereas the benefit of price increases
to customers was not fully realized in the quarter. As a result, gross
profit as a percent of sales declined 1.2 percentage points versus the 2007
March quarter.
Water Technologies reported an operating loss of $2.0 million for the
March 2008 quarter as compared with operating income of $6.2 million in the
prior-year quarter. Sales and operating revenues of $217 million increased
14 percent over the 2007 March quarter. Excluding the effect of currency
translation, the elimination of the non-North American reporting lag and
the impact of the transfer of certain sales from Performance Materials,
revenues increased by 2 percent. Gross profit as a percent of sales
declined by 1.5 percentage points versus the year-ago quarter. The margin
decline primarily reflects rising costs for hydrocarbon and derivative
materials, along with the impact of serving a global market from production
facilities situated in the strong Euro-currency region. Significant
selling, general and administrative expense increases were another major
contributor to the earnings decline.
Other Items
For the 2008 second quarter, Unallocated and Other was a net expense of
$3.1 million. This amount includes the $4.5 million write-off related to
the bio-based propylene glycol joint venture project. Due to persistently
high glycerine input costs, this project has been suspended for the time
being. Unallocated and Other in the 2007 March quarter was a net expense of
$30.5 million, which included the $25 million charge related to the VSO.
Net interest income was $8 million in the March 2008 quarter as
compared with $9 million in the same prior-year-quarter. During the 2008
second quarter, favorable developments regarding a certain foreign tax
matter reduced Ashland's tax expense by $10 million. The effective tax rate
for the second quarter was 12.3 percent. Excluding the effects of this
foreign tax matter and the previously mentioned tax-related settlement with
Marathon, the effective tax rate for the quarter was 33 percent.
Outlook
Commenting on the outlook for the remainder of fiscal 2008, O'Brien
said, "While we are reasonably pleased with Ashland's progress in a
difficult economic environment, we are obviously disappointed with Water
Technologies' results.
"We started making changes in the Water Technologies business over a
year ago and the progress has been slower than we would like. We are
focused on improvements in several key areas, including pricing, cost to
serve and product line profitability. This will require substantial work,
but I believe this is essential to get the business turned around. This
business provides significant upside potential once these improvements are
made.
"Performance Materials' results will continue to reflect the softness
in the North American construction and transportation markets. Our European
and Asian sales remain strong. We received some significant raw material
cost increases this month and have countered with price increases in our
Composite Polymers business effective May 1. In addition, as part of a
broader examination of all of our businesses for opportunities to optimize
pricing and cost structures, we have already taken steps to reduce selling,
general and administrative costs in our Specialty Polymers and Adhesives
business. The June quarter is historically Performance Materials' strongest
quarter. That said, our optimism for the June quarter is tempered by
uncertainty in our end markets.
"While Distribution's third-quarter performance will likely continue to
be affected by weakness in North American industrial output, the business
also traditionally benefits from seasonality. Distribution has made
significant strides in pricing discipline and inventory reductions. Our
focus on gross profit yielded an increase of 0.2 percentage point over the
December 2007 quarter and 0.7 percentage point over the September quarter.
While rising chemical and plastics costs remain a concern, we continue to
be focused on achieving both margin improvement and volume growth and are
positioned well within the distribution marketplace. In addition, the
discontinuance of the Dow North American plastics supply agreement, which
occurred March 1 a year ago, will no longer impact subsequent quarterly
comparisons.
"As the summer driving season commences, we are entering Valvoline's
traditionally stronger half, but we face some headwinds in the form of raw
material cost increases relative to our announced price increases. Even so,
we expect our Valvoline Instant Oil Change and Valvoline International
segments to continue the positive trends of the first half, and we remain
generally positive about the outlook for Valvoline.
"Our continued focus on working capital management produced tangible
benefits in the quarter. While revenues increased 8 percent versus the
December 2007 quarter, we were able to reduce working capital employed in
the business by $57 million. We are pleased with this progress, but we
still have much work to do to achieve our goals."
Concluding his comments, O'Brien said, "Although we face a challenging
economic environment, we believe our businesses are generally
well-positioned to compete. We are taking decisive action to improve Water
Technologies and Performance Materials. Our solid balance sheet enables us
to strengthen our competitive position in the quarters ahead, and we look
to the remainder of the year with measured optimism."
Conference Call Webcast
Today at 10 a.m. (EDT), Ashland will provide a live webcast of its
second- quarter conference call with securities analysts. The webcast will
be accessible through Ashland's website, http://www.ashland.com. Following the
live event, an archived version of the webcast will be available for 12
months at http://www.ashland.com/investors.
Ashland Inc. (NYSE: ASH), a diversified, global chemical company,
provides quality products, services and solutions to customers in more than
100 countries. A FORTUNE 500 company, it operates through four divisions:
Ashland Performance Materials, Ashland Distribution, Valvoline and Ashland
Water Technologies. To learn more about Ashland, visit http://www.ashland.com.
(R) Registered trademark, Ashland Inc.
FORTUNE 500 is a registered trademark of Time Inc.
* Preliminary Results Financial results are preliminary until Ashland's
quarterly report on Form 10-Q is filed with the U.S. Securities and
Exchange Commission.
Forward-Looking Statements This news release contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, with respect to
Ashland's operating performance. These estimates are based upon a number of
assumptions, including those mentioned within this news release. Such
estimates are also based upon internal forecasts and analyses of current
and future market conditions and trends, management plans and strategies,
weather, operating efficiencies and economic conditions, such as prices,
supply and demand, cost of raw materials, and legal proceedings and claims
(including environmental and asbestos matters). Although Ashland believes
its expectations are based on reasonable assumptions, it cannot assure the
expectations reflected herein will be achieved. This forward-looking
information may prove to be inaccurate and actual results may differ
significantly from those anticipated if one or more of the underlying
assumptions or expectations proves to be inaccurate or is unrealized or if
other unexpected conditions or events occur. Other factors and risks
affecting Ashland are contained in Ashland's Form 10-K for the fiscal year
ended Sept. 30, 2007. Ashland undertakes no obligation to subsequently
update or revise the forward-looking statements made in this news release
to reflect events or circumstances after the date of this release.
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data - preliminary and unaudited)
Three months ended Six months ended
March 31 March 31
-------------------- ------------------
2008 2007 2008 2007
------- ------- ------- -------
SALES AND OPERATING REVENUES $ 2,059 $ 1,915 $ 3,964 $ 3,717
COSTS AND EXPENSES
Cost of sales and operating
expenses 1,725 1,575 3,314 3,064
Selling, general and
administrative expenses (a) 292 309 573 574
------- ------- ------- -------
2,017 1,884 3,887 3,638
EQUITY AND OTHER INCOME 10 10 21 20
------- ------- ------- -------
OPERATING INCOME 52 41 98 99
Gain (loss) on the MAP
Transaction (b) 22 (4) 22 (4)
Net interest and other financing
income 8 9 21 25
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 82 46 141 120
Income tax expense 10 15 31 36
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS 72 31 110 84
Income (loss) from discontinued
operations (net of income taxes)
(c) - 18 (5) 14
------- ------- ------- -------
NET INCOME $ 72 $ 49 $ 105 $ 98
======= ======= ======= =======
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 1.13 $ .49 $ 1.74 $ 1.30
Income (loss) from discontinued
operations - .28 (.09) .22
------- ------- ------- -------
Net income $ 1.13 $ .77 $ 1.65 $ 1.52
======= ======= ======= =======
AVERAGE COMMON SHARES AND ASSUMED
CONVERSIONS 63 64 63 64
SALES AND OPERATING REVENUES
Performance Materials $ 398 $ 376 $ 769 $ 742
Distribution 1,082 1,008 2,072 1,956
Valvoline 401 382 781 734
Water Technologies 217 190 423 368
Intersegment sales (39) (41) (81) (83)
------- ------- ------- -------
$ 2,059 $ 1,915 $ 3,964 $ 3,717
======= ======= ======= =======
OPERATING INCOME
Performance Materials $ 20 $ 23 $ 31 $ 48
Distribution 13 20 19 34
Valvoline 24 22 44 40
Water Technologies (2) 6 3 12
Unallocated and other (a) (3) (30) 1 (35)
------- ------- ------- -------
$ 52 $ 41 $ 98 $ 99
======= ======= ======= =======
(a) The three and six months ended March 31, 2007 includes a $25 million
charge for costs associated with Ashland's voluntary severance offer.
(b) "MAP Transaction" refers to the June 30, 2005 transfer of Ashland's
38% interest in Marathon Ashland Petroleum LLC (MAP) and two other
businesses to Marathon Oil Corporation. The income for the current
periods presented is primarily due to a $23 million gain associated
with a tax settlement agreement entered into with Marathon Oil
Corporation, relating to four specific tax areas, that supplement the
original Tax Matters Agreement from the initial MAP Transaction. The
loss in the prior periods presented reflects adjustments in the
recorded receivable for future estimated tax deductions related
primarily to environmental and other postretirement reserves.
(c) The three and six months ended March 31, 2007 includes income of $18
million, net of income taxes, from an increase in Ashland's asbestos
insurance receivable.
Ashland Inc. and Consolidated Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - preliminary and unaudited)
March 31
-------------------
2008 2007
------- -------
ASSETS
Current assets
Cash and cash equivalents $ 847 $ 584
Available-for-sale securities 74 371
Accounts receivable 1,498 1,448
Inventories 545 576
Deferred income taxes 68 86
Other current assets 83 79
------- -------
3,115 3,144
Investments and other assets
Auction rate securities 254 -
Goodwill and other intangibles 385 375
Asbestos insurance receivable (noncurrent portion) 443 449
Deferred income taxes 145 194
Other noncurrent assets 421 438
------- -------
1,648 1,456
Property, plant and equipment
Cost 2,178 2,045
Accumulated depreciation and amortization (1,163) (1,088)
------- -------
1,015 957
------- -------
$ 5,778 $ 5,557
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 3 $ 10
Trade and other payables 1,129 1,143
Income taxes 4 22
------- -------
1,136 1,175
Noncurrent liabilities
Long-term debt (less current portion) 64 67
Employee benefit obligations 259 318
Asbestos litigation reserve (noncurrent portion) 539 569
Other noncurrent liabilities and deferred credits 484 507
------- -------
1,346 1,461
Stockholders' equity 3,296 2,921
------- -------
$ 5,778 $ 5,557
======= =======
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - preliminary and unaudited)
Six months ended
March 31
-------------------
2008 2007
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES FROM
CONTINUING OPERATIONS
Net income $ 105 $ 98
Loss (income) from discontinued operations
(net of income taxes) 5 (14)
Adjustments to reconcile income from continuing
operations to cash flows from operating activities
Depreciation and amortization 71 57
Deferred income taxes 13 (1)
Equity income from affiliates (11) (6)
Distributions from equity affiliates 5 3
(Gain) loss on the MAP Transaction (22) 4
Change in operating assets and liabilities (a) 60 (223)
Other items - (1)
------- -------
226 (83)
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING
OPERATIONS
Proceeds from issuance of common stock 2 17
Excess tax benefits related to share-based payments 1 8
Repayment of long-term debt (3) (5)
Repurchase of common stock - (288)
Cash dividends paid (35) (709)
------- -------
(35) (977)
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING
OPERATIONS
Additions to property, plant and equipment (85) (66)
Purchase of operations - net of cash acquired (4) (73)
Proceeds from sale of operations 26 1
Purchases of available-for-sale securities (435) (306)
Proceeds from sales and maturities of available
-for-sale securities 255 286
Other items 7 12
------- -------
(236) (146)
------- -------
CASH USED BY CONTINUING OPERATIONS (45) (1,206)
Cash used by discontinued operations
Operating cash flows (5) (2)
Investing cash flows - (28)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS $ (50) $(1,236)
======= =======
DEPRECIATION AND AMORTIZATION
Performance Materials $ 19 $ 16
Distribution 12 10
Valvoline 16 15
Water Technologies 13 9
Unallocated and other 11 7
------- -------
$ 71 $ 57
======= =======
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Performance Materials $ 30 $ 19
Distribution 15 13
Valvoline 12 14
Water Technologies 9 12
Unallocated and other 19 8
------- -------
$ 85 $ 66
======= =======
(a) Excludes changes resulting from operations acquired or sold.
Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
(In millions - preliminary and unaudited)
Three months ended Six months ended
March 31 March 31
------------------ -----------------
2008 2007 2008 2007
------ ------ ------ ------
PERFORMANCE MATERIALS (a)
Sales per shipping day $ 6.3 $ 5.9 $ 6.2 $ 5.9
Pounds sold per shipping day 4.8 4.7 4.7 4.8
Gross profit as a percent of sales 18.1% 20.5% 18.1% 20.8%
DISTRIBUTION (a)
Sales per shipping day $ 17.2 $ 15.7 $ 16.6 $ 15.6
Pounds sold per shipping day 18.9 19.8 18.8 19.4
Gross profit as a percent of sales 7.7% 9.0% 7.6% 8.8%
VALVOLINE (a)
Lubricant sales (gallons) 42.1 41.8 81.9 80.4
Premium lubricants (percent of U.S.
branded volumes) 25.7% 23.3% 24.4% 22.5%
Gross profit as a percent of sales 24.4% 25.6% 24.6% 24.7%
WATER TECHNOLOGIES (a)
Sales per shipping day $ 3.5 $ 3.0 $ 3.4 $ 3.0
Gross profit as a percent of sales 37.3% 38.8% 38.3% 39.5%
(a) Sales are defined as sales and operating revenues. Gross profit is
defined as sales and operating revenues, less cost of sales and
operating expenses.
SOURCE Ashland Inc.
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CONTACT:
Media Relations: Jim Vitak, +1-614-790-3715,
jevitak@ashland.com, Investor Relations: Eric Boni,
+1-859-815-4454, enboni@ashland.com, both of Ashland Inc.
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