UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 1-32532
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 20-0865835
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 checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |X| No |_|
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
At December 31, 2005, there were 71,265,118 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.
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) 2005 2004
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REVENUES
Sales and operating revenues $ 2,412 $ 2,177
Equity income 2 146
Other income 15 17
---------- -----------
2,429 2,340
COSTS AND EXPENSES
Cost of sales and operating expenses 2,029 1,849
Selling, general and administrative expenses 305 311
---------- -----------
2,334 2,160
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OPERATING INCOME 95 180
Gain on the MAP Transaction (a) 2 -
Loss on early retirement of debt - (2)
Net interest and other financial costs 10 (29)
---------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 107 149
Income taxes (40) (55)
---------- -----------
INCOME FROM CONTINUING OPERATIONS 67 94
Results from discontinued operations (net of income taxes) (1) -
---------- -----------
NET INCOME $ 66 $ 94
========== ===========
BASIC EARNINGS PER SHARE - Note F
Income from continuing operations $ .92 $ 1.30
Results from discontinued operations - -
---------- -----------
Net income $ .92 $ 1.30
========== ===========
DILUTED EARNINGS PER SHARE - Note F
Income from continuing operations $ .91 $ 1.28
Results from discontinued operations - -
---------- -----------
Net income $ .91 $ 1.28
========== ===========
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275
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(a) "MAP Transaction" refers to the June 30, 2005 transfer of Ashland's 38% interest in Marathon Ashland Petroleum LLC (MAP), Ashland's maleic anhydride business and 60 Valvoline Instant Oil Change centers in Michigan and northwest Ohio to Marathon Oil Corporation in a transaction valued at approximately $3.7 billion.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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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) 2005 2005 2004
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ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 601 $ 985 $ 146
Available-for-sale securities 479 403 -
Accounts receivable 1,559 1,642 1,252
Allowance for doubtful accounts (45) (43) (40)
Inventories - Note D 582 527 538
Deferred income taxes 78 122 95
Other current assets 156 121 106
-------------- -------------- --------------
3,410 3,757 2,097
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) - - 2,856
Goodwill and other intangibles 643 650 624
Asbestos insurance receivable (noncurrent portion) 363 370 396
Deferred income taxes 164 175 -
Other noncurrent assets 499 441 313
-------------- -------------- --------------
1,669 1,636 4,189
PROPERTY, PLANT AND EQUIPMENT
Cost 3,254 3,274 3,166
Accumulated depreciation, depletion and amortization (1,851) (1,852) (1,889)
-------------- -------------- --------------
1,403 1,422 1,277
-------------- -------------- --------------
$ 6,482 $ 6,815 $ 7,563
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Debt due within one year $ 12 $ 12 $ 575
Trade and other payables 1,228 1,520 1,197
Income taxes 2 13 69
-------------- -------------- --------------
1,242 1,545 1,841
NONCURRENT LIABILITIES
Long-term debt (less current portion) 77 82 1,087
Employee benefit obligations 394 358 438
Deferred income taxes - - 248
Reserves of captive insurance companies 183 182 177
Asbestos litigation reserve (noncurrent portion) 512 521 553
Other long-term liabilities and deferred credits 388 388 375
-------------- -------------- --------------
1,554 1,531 2,878
STOCKHOLDERS' EQUITY 3,686 3,739 2,844
-------------- -------------- --------------
$ 6,482 $ 6,815 $ 7,563
============== ============== ==============
|
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED 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 SEPTEMBER 30, 2004 $ 72 $ 478 $ 2,262 $ (106) $ 2,706
Total comprehensive income (a) 94 39 133
Cash dividends (20) (20)
Issued 505,385 common shares under
stock incentive and other plans 25 25
------------- ------------- -------------- ------------- --------------
BALANCE AT DECEMBER 31, 2004 $ 72 $ 503 $ 2,336 $ (67) $ 2,844
============= ============= ============== ============= ==============
BALANCE AT SEPTEMBER 30, 2005 $ 1 $ 605 $ 3,251 $ (118) $ 3,739
Total comprehensive income (a) 66 (12) 54
Cash dividends (20) (20)
Issued 164,203 common shares under
stock incentive and other plans 9 9
Repurchase of 1,764,730 common shares (96) (96)
------------- ------------- -------------- ------------- --------------
BALANCE AT DECEMBER 31, 2005 $ 1 $ 518 $ 3,297 $ (130) $ 3,686
============= ============= ============== ============= ==============
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(a) Reconciliations of net income to total comprehensive income follow.
|
Three months ended
December 31
----------------------------
(In millions) 2005 2004
-------------------------------------------------------------------------------------------------------------------
Net income $ 66 $ 94
Unrealized translation adjustments (11) 35
Related tax benefits - 2
Net unrealized gains (losses) on cash flow hedges (1) 2
------------- --------------
Total comprehensive income $ 54 $ 133
============= ==============
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At December 31, 2005, the accumulated other comprehensive loss of $130
million (after tax) was comprised of net unrealized translation gains
of $31 million, a minimum pension liability of $160 million and net
unrealized losses on cash flow hedges of $1 million.
|
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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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) 2005 2004
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CASH FLOWS FROM OPERATIONS
Income from continuing operations $ 67 $ 94
Adjustments to reconcile to cash flows from operations
Depreciation, depletion and amortization 51 46
Deferred income taxes 54 17
Equity income from affiliates (2) (146)
Distributions from equity affiliates 1 1
Change in operating assets and liabilities (a) (312) (70)
Other items (3) 2
---------- ----------
(144) (56)
CASH FLOWS FROM FINANCING
Proceeds from issuance of common stock 4 20
Excess tax benefits related to share-based payments 1 2
Repayment of long-term debt (5) (98)
Repurchase of common stock (96) -
Increase in short-term debt - 211
Cash dividends paid (20) (20)
---------- ----------
(116) 115
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (50) (55)
Purchase of operations - net of cash acquired - (95)
Purchases of available-for-sale securities (227) -
Proceeds from sales and maturities of available-for-sale securities 152 -
Other - net 3 2
---------- ----------
(122) (148)
---------- ----------
CASH USED BY CONTINUING OPERATIONS (382) (89)
Cash used by discontinued operations (2) (8)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (384) (97)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 985 243
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 601 $ 146
========== ==========
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|
(a) Excludes changes resulting from operations acquired or sold.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
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, 2005. Results of operations for the period ended December 31, 2005, are not necessarily indicative of results to be expected for the year ending September 30, 2006. Certain prior period data has been reclassified in the consolidated financial statements and accompanying footnotes to conform to current period presentation.
The preparation of Ashland's condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include long-lived assets, employee benefit obligations, income taxes, reserves and associated receivables for asbestos litigation, environmental remediation, and income recognized under construction contracts. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.
NOTE B - NEW ACCOUNTING STANDARD
In December 2004, the Financial Accounting Standards Board issued Statement No. 123R (FAS 123R), which revised FAS 123, "Accounting for Stock-Based Compensation," by requiring the expensing of share-based compensation based on the grant-date fair value of the award. FAS 123 had provided companies the option of expensing such awards or merely disclosing the pro forma effects of such expensing in the notes to financial statements. As of October 1, 2002, Ashland began expensing employee stock options in accordance with FAS 123 and its related amendments. Ashland elected the modified prospective method of adoption, under which compensation costs recorded in the year ended September 30, 2003 were the same as that which would have been recorded had the recognition provisions of FAS 123 been applied from its original effective date. Results for prior periods were not restated. FAS 123R also required an additional caption in the financing section of the Statements of Consolidated Cash Flows to present separately the excess tax benefits related to share based-payments. The adoption of FAS 123R during the December 2005 quarter did not have a material effect on Ashland's financial position, results of operations or cash flows.
NOTE C - DEBT DEFEASANCE
During the December 2005 quarter Ashland entered into an in-substance defeasance of approximately $49 million to repay current and long-term debt that had a carrying value of $44 million on the balance sheet as of December 31, 2005. Because the transaction was not a legal defeasance the investment has been placed into a trust and will be exclusively restricted to future obligations and repayments related to these debt instruments. The investments have been classified on the balance sheet as other current assets or other noncurrent assets based on the contractual debt repayment schedule.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - INVENTORIES
Inventories are carried at the lower of cost or market. Certain
chemicals, plastics and lubricants are valued at cost using the
last-in, first-out (LIFO) method. The remaining inventories are
stated at cost using the first-in, first-out (FIFO) method or
average cost method (which approximates FIFO). The following table
summarizes Ashland's inventories as of the reported balance sheet
dates.
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December 31 September 30 December 31
(In millions) 2005 2005 2004
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Chemicals and plastics $ 497 $ 429 $ 449
Construction materials 75 80 69
Lubricants 88 68 69
Other products 55 67 53
Supplies 9 9 6
Excess of replacement costs over LIFO carrying values (142) (126) (108)
-------------- -------------- --------------
$ 582 $ 527 $ 538
============== ============== ==============
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NOTE E - UNCONSOLIDATED AFFILIATES
On June 30, 2005, Ashland completed the transfer of its 38% interest in MAP as well as its maleic anhydride business and 60 Valvoline Instant Oil Change centers in Michigan and northwest Ohio to Marathon in a transaction valued at approximately $3.7 billion (the "MAP Transaction"). For further detailed information on this transaction see Note D of Notes to Consolidated Financial Statements in Ashland's Annual Report on Form 10-K for the fiscal year ended September 30, 2005. Separate financial statements for MAP required by Rule 3-09 of Regulation S-X will be filed as an amendment to Ashland's Annual Report on Form 10-K within 90 days after the end of MAP's fiscal year, which ended December 31, 2005. Unaudited income statement information for MAP during the period of ownership is shown below.
MAP was organized as a limited liability company that had elected to be taxed as a partnership. Therefore, the parents were responsible for income taxes applicable to their share of MAP's taxable income. The net income reflected below for MAP did not include any provision for income taxes that would have been incurred by its parents.
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Three months ended
December 31
------------------------
(In millions) 2005 2004
-------------------------------------------------------------------------------------------------------------
Sales and operating revenues $ - $ 12,516
Income from operations - 380
Net income - 386
Ashland's equity income - 142
|
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (EPS).
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Three months ended
December 31
------------------------
(In millions except per share data) 2005 2004
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Numerator
Numerator for basic and diluted EPS - Income
from continuing operations $ 67 $ 94
=========== ==========
Denominator
Denominator for basic EPS - Weighted average
common shares outstanding 72 72
Common shares issuable upon exercise of stock options 1 1
----------- ----------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 73 73
=========== ==========
Earnings per share
Basic $ .92 $ 1.30
Diluted $ .91 $ 1.28
|
NOTE G - EMPLOYEE BENEFIT PLANS
Presently, Ashland anticipates contributing $126 million to its U.S. pension plans and $6 million to its non-U.S. pension plans during fiscal 2006. As of December 31, 2005, contributions of $75 million have been made to the U.S. plans and $1 million to the non-U.S. plans. The following table details the components of pension and other postretirement benefit costs.
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Other postretirement
Pension benefits benefits
------------------------- -------------------------
(In millions) 2005 2004 2005 2004
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Three months ended December 31
Service cost $ 15 $ 13 $ 2 $ 2
Interest cost 21 20 3 5
Expected return on plan assets (25) (19) - -
Amortization of prior service credit - - (2) (2)
Amortization of net actuarial loss 10 8 - 1
---------- ----------- ----------- -----------
$ 21 $ 22 $ 3 $ 6
========== =========== =========== ===========
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NOTE H - LITIGATION, CLAIMS AND CONTINGENCIES
ASBESTOS-RELATED LITIGATION
Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result primarily 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.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)
A summary of asbestos claims activity follows. Because claims are frequently filed and settled in large groups, the amount and timing of settlements and number of open claims can fluctuate significantly from period to period.
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Three months ended
December 31 Years ended September 30
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(In thousands) 2005 2004 2005 2004 2003
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Open claims - beginning of period 184 196 196 198 160
New claims filed 2 3 12 29 66
Claims settled (1) (3) (6) (7) (7)
Claims dismissed (4) (6) (18) (24) (21)
----------- ----------- ----------- ----------- -----------
Open claims - end of period 181 190 184 196 198
=========== =========== =========== =========== ===========
|
Since October 1, 2002, Riley has been dismissed as a defendant in 76% of the resolved claims. Amounts spent on litigation defense and claim settlements averaged $1,961 per claim resolved in the three months ended December 31, 2005, compared to $1,723 in the three months ended December 31, 2004, and annual averages of $1,985 in 2005, $1,655 in 2004 and $1,610 in 2003. A progression of activity in the asbestos reserve is presented in the following table.
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Three months ended
December 31 Years ended September 30
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(In millions) 2005 2004 2005 2004 2003
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Asbestos reserve - beginning of period $ 571 $ 618 $ 618 $ 610 $ 202
Expense incurred - - - 59 453
Amounts paid (9) (15) (47) (51) (45)
----------- ----------- ----------- ----------- ------------
Asbestos reserve - end of period $ 562 $ 603 $ 571 $ 618 $ 610
=========== =========== =========== =========== ============
|
During the December 2002 quarter, Ashland increased its reserve for asbestos claims by $390 million to cover the litigation defense and claim settlement costs for probable and reasonably estimable future payments related to existing open claims, as well as an estimate of those that may be filed in the future. Prior to December 31, 2002, the asbestos reserve was based on the estimated costs that would be incurred to settle existing open claims. A range of estimates of future asbestos claims and related costs using various assumptions was developed with the assistance of Hamilton, Rabinovitz & Alschuler, Inc. (HR&A). 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 a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims.
From the range of estimates, Ashland recorded the amount it believed to be the best estimate, which represented the expected payments for litigation defense and claim settlement costs during the next ten years. Subsequent updates to this estimate have been made, with the assistance of HR&A, based on a combination of a number of factors including the actual volume of new claims, recent settlement costs, changes in the mix of alleged disease, enacted legislative changes and other developments impacting
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)
Ashland's estimate of future payments. Ashland's reserve for asbestos claims on an undiscounted basis amounted to $562 million at December 31, 2005, compared to $571 million at September 30, 2005 and $603 million at December 31, 2004.
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 its asbestos reserve represents the best estimate within a range of possible outcomes. As a part of the process to develop Ashland's estimates of future asbestos costs, a range of long-term cost models is developed that assumes a run-out of claims through 2056. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. The total future litigation defense and claim settlement costs on an undiscounted basis has been estimated within a reasonably possible range of $400 million to $1.9 billion, depending on the number of years those costs extend and other combinations of assumptions selected. If actual experience is worse than projected relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, Ashland may need to increase further the estimates of the costs associated with asbestos claims and these increases could potentially be material over time.
Ashland has insurance coverage for most of the litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage currently being accessed. As a result, increases in the asbestos reserve have been largely offset by probable insurance recoveries. The amounts not recoverable generally are due from insurers that are insolvent, rather than as a result of uninsured claims or the exhaustion of Ashland's insurance coverage.
Ashland's management has estimated the value of reasonably possible insurance recoveries associated with Ashland's estimate of its asbestos liabilities. Such recoveries are based on management's assumptions and estimates surrounding the available or applicable insurance coverage. One such assumption is that all solvent insurance carriers remain solvent. Although coverage limits are resolved in the coverage-in-place agreement with Equitas Limited (Equitas) and other London companies, which collectively provide a significant portion of Ashland's insurance coverage for asbestos claims, 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, Ashland has used the least favorable interpretation of this agreement under which the ultimate recoveries are extended for many years, resulting in a significant discount being applied to value those recoveries. Ashland will continue to apply this methodology until such time as the disagreement is resolved. On July 21, 2004, Ashland filed a demand for arbitration to resolve the dispute concerning the interpretation of this agreement.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)
At December 31, 2005, Ashland's receivable for recoveries of litigation defense and claim settlement costs from its insurers amounted to $393 million, of which $65 million relates to costs previously paid. Receivables from insurance companies amounted to $400 million at September 30, 2005 and $432 million at December 31, 2004. About 40% of the estimated receivables from insurance companies at December 31, 2005 are expected to be due from Equitas and other London companies. Of the remainder, approximately 90% is expected to come from companies or groups that are rated A or higher by A. M. Best.
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, 2005, such locations included 97 waste treatment or disposal sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, 96 current and former operating facilities (including certain operating facilities conveyed to MAP) and about 1,220 service station properties, of which 214 are being actively remediated. Ashland's reserves for environmental remediation amounted to $179 million at December 31, 2005, compared to $178 million at September 30, 2005 and $155 million at December 31, 2004, of which $147 million at December 31, 2005, $145 million at September 30, 2005 and $123 million at December 31, 2004 were classified in noncurrent liabilities on the Condensed Consolidated Balance Sheets. The total reserves for environmental remediation reflect Ashland's 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.
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. Environmental remediation expense amounted to $8 million for the three months ended December 31, 2005, compared to $7 million for the three months ended December 31, 2004, and annual expense of $47 million in 2005, $2 million in 2004 and $22 million in 2003.
No individual remediation location is material to Ashland, as its largest reserve for any site is less than 10% of the remediation reserve. 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 various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries. 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.
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
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Three months ended
December 31
------------------------
(In millions) 2005 2004
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REVENUES
Sales and operating revenues
APAC $ 726 $ 611
Ashland Distribution 967 895
Ashland Specialty Chemical 449 400
Valvoline 310 309
Intersegment sales
Ashland Distribution (6) (6)
Ashland Specialty Chemical (33) (32)
Valvoline (1) -
---------- -----------
2,412 2,177
Equity income
APAC - 2
Ashland Specialty Chemical 2 2
Refining and Marketing - 142
---------- -----------
2 146
Other income
APAC 7 1
Ashland Distribution 1 2
Ashland Specialty Chemical 2 9
Valvoline 3 2
Refining and Marketing - 2
Unallocated and other 2 1
---------- -----------
15 17
---------- -----------
$ 2,429 $ 2,340
========== ===========
OPERATING INCOME (a)
APAC $ 39 $ 4
Ashland Distribution 34 20
Ashland Specialty Chemical 27 16
Valvoline 1 13
Refining and Marketing (b) - 136
Unallocated and other (6) (9)
---------- -----------
$ 95 $ 180
========== ===========
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|
(a) In October 2005, Ashland refined its segment reporting to allocate
substantially all corporate expenses to Ashland's four operating
divisions, with the exception of certain legacy costs or items clearly
not associated with the operating divisions. Prior periods have been
conformed to the current period presentation.
(b) Includes Ashland's equity income from MAP, amortization related to
Ashland's excess investment in MAP and other activities associated
with refining and marketing through June 30, 2005.
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
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Three months ended
December 31
--------------------------
(In millions) 2005 2004
------------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
APAC
Construction backlog at December 31 (a) $ 1,941 $ 1,730
Net construction job revenues (b) $ 423 $ 344
Hot-mix asphalt production (tons) 7.8 7.8
Aggregate production (tons) 8.1 7.8
Ashland Distribution (c)
Sales per shipping day $ 15.9 $ 14.4
Gross profit as a percent of sales 10.2% 9.6%
Ashland Specialty Chemical (c)
Sales per shipping day $ 7.4 $ 6.4
Gross profit as a percent of sales 27.4% 24.2%
Valvoline
Lubricant sales (gallons) 38.5 41.1
Premium lubricants (percent of U.S. branded volumes) 22.9% 21.8%
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|
(a) Includes APAC's proportionate share of the backlog of unconsolidated
joint ventures.
(b) Total construction job revenues, less subcontract costs.
(c) Sales are defined as sales and operating revenues. Gross profit is
defined as sales and operating revenues, less cost of sales and
operating expenses.
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 reported net income of $66 million for the quarter ended December 31, 2005, compared to $94 million for the quarter ended December 31, 2004. The comparison is affected by the June 2005 transfer of Ashland's former 38-percent interest in Marathon Ashland Petroleum LLC (MAP) to Marathon Oil Corporation (Marathon), the retirement of most of Ashland's debt and the investment of the remaining proceeds. Net income in the 2004 quarter included $83 million of net income from the former Refining and Marketing segment (which consisted primarily of Ashland's equity income from MAP), as well as net, after-tax interest expense of $18 million, for a net benefit of $65 million. The 2005 quarter included $6 million of net, after-tax interest income.
Three of Ashland's four businesses performed well during the December 2005 quarter. The continued excellent performances of Ashland Specialty Chemical and Ashland Distribution drove results in the Chemical Sector. These businesses increased revenues and expanded their profit margins in an environment of rising costs. The quarter was disappointing for Valvoline, however, as declining demand in the motor oil market, rising raw materials costs and competitive price discounting adversely affected results. The Transportation Construction Sector, commercially known as Ashland Paving And Construction, Inc. (APAC), benefited from margin improvement due to its efforts to incorporate higher material values and energy costs into its bids, as well as more favorable weather conditions in the quarter. An analysis of operating income by industry segment follows.
Segment operating results reflect new methodology adopted in October 2005 for allocating substantially all corporate expenses to Ashland's four operating businesses, with the exception of certain legacy costs or items clearly not associated with the operating divisions. Accordingly, an additional $21 million was allocated to the divisions for the December 2005 quarter. The remaining $6 million expense is classified as "Unallocated and other" in Ashland's segment reporting. Results for previously reported periods have been reclassified to conform with the new allocation methodology.
APAC
APAC reported operating income of $39 million for the December 2005 quarter, compared to $4 million for the December 2004 quarter. Results for the December 2005 quarter reflect APAC's continuing focus on incorporating increases in raw material and energy costs into its sales prices and more favorable weather conditions. Results for the December 2005 quarter also included a $10 million gain from the transfer of property subject to eminent domain, as well as a $4 million loss on fuel hedges. APAC reported sales and operating revenues of $726 million in the December 2005 quarter, a 19% increase over the $611 million recorded in the December 2004 quarter. Net construction job revenues (total construction job revenues, less subcontract costs) increased 23%. Hot-mix asphalt production was even at 7.8 million tons, while aggregate production increased 4% to 8.1 million tons. Margin improvement reflected the efforts to incorporate higher construction material values and energy costs into APAC's bids. In addition, APAC continued to roll off older, fixed-price contracts which contained substantially lower energy and raw material estimated costs. While national weather data showed rainfall was average for the December 2005 quarter, the precipitation patterns were favorable for APAC, with rain occurring later in the quarter, providing more dry, temperate days for production. At December 31, 2005, APAC's construction backlog, which consists of work awarded and funded but not yet performed, was $1.9 billion, up 12% over the same period last year.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
ASHLAND DISTRIBUTION
Ashland Distribution achieved its eighth consecutive record quarter, with operating income of $34 million in the December 2005 quarter, up 70% over the $20 million reported for the December 2004 quarter. Sales and operating revenues increased to $967 million, an 8% increase over the December 2004 quarter. The division's performance reflects its ability to expand margins despite rising costs of chemicals and plastics, by increasing prices and managing expenses. Gross profit as a percent of sales increased from 9.6% to 10.2%. Daily sales volume declined 4%, a result of the sale of the ingestibles business in the March 2005 quarter and supply disruptions from hurricanes Katrina and Rita.
ASHLAND SPECIALTY CHEMICAL
Ashland Specialty Chemical achieved record operating income for the December 2005 quarter of $27 million, up 69% over the $16 million reported in the prior-year quarter. The December 2004 quarter included approximately $4 million in net nonrecurring gains, primarily from the termination of a product supply contract. Sales and operating revenues grew to $449 million for the December 2005 quarter, a 12% increase over the December 2004 quarter. Sales from the DERAKANE(R) resins business acquired in December 2004 contributed approximately half of the growth, with the remainder mainly attributable to higher selling prices. The increase in operating income reflected a combination of revenue and margin growth. Gross profit as a percent of sales increased from 24.2% to 27.4%. Operating income from Composite Polymers, the largest of the three Performance Materials business groups, increased four-fold versus the year-ago quarter, while Casting Solutions and Specialty Polymers and Adhesives, combined to achieve a 26% increase in operating income. The Water Technologies business reported weaker profits for the quarter, due in large part to its investment in growth initiatives.
VALVOLINE
Valvoline reported operating income of $1 million in the December 2005 quarter, compared to $13 million in the December 2004 quarter. Declining demand in the motor oil market, rising raw materials costs and competitive pricing adversely affected results for Valvoline. Valvoline's lubricant sales volumes declined 6%, reflecting a decline in demand for U.S. passenger-car motor oil across the lubricant market. Higher energy prices, combined with higher absolute product costs, have had a dampening effect on consumers' spending for automotive preventive maintenance. The rapid increase in material costs eroded Valvoline's margins due to the lag in passing price increases into the marketplace. Valvoline's ability to capture its full costs was hampered by the competitive environment. Sales and operating revenues were $310 million for the quarter, essentially even with $309 million of revenues in the December 2004 quarter.
REFINING AND MARKETING
On June 30, 2005, Ashland completed the transfer of its 38% interest in MAP as well as its maleic anhydride business and 60 Valvoline Instant Oil Change centers in Michigan and northwest Ohio to Marathon in a transaction valued at approximately $3.7 billion (the "MAP Transaction"). For further detailed information on this transaction see Note D of Notes to Consolidated Financial Statements in Ashland's Annual Report on Form 10-K for the fiscal year ended September 30, 2005. Operating income from Refining and Marketing, which consisted primarily of equity income from MAP, amounted to $136 million for the December 2004 quarter.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNALLOCATED AND OTHER
Unallocated and other costs, consisting of certain legacy costs or items clearly not associated with the operating divisions, amounted to $6 million in the December 2005 quarter, compared to $9 million in the December 2004 quarter. The December 2005 quarter included a $3 million increase in environmental remediation reserves (net of estimated insurance recoveries) related to a formerly-owned business. The December 2004 quarter included a $7 million charge for estimated future insurance premiums due Oil Insurance Limited (OIL), the energy-industry mutual insurance consortium in which Ashland participated. Ashland terminated its participation in OIL effective December 31, 2005.
GAIN ON THE MAP TRANSACTION
Ashland recorded an increase in the gain on the MAP Transaction of $2 million in the December 2005 quarter as a result of an increase in the discounted receivable from Marathon for the estimated present value of future tax deductions. See Note D in Ashland's Annual Report on Form 10-K for the fiscal year ended September 30, 2005, for further explanation of this receivable.
LOSS ON EARLY RETIREMENT OF DEBT
In the December 2004 quarter, Ashland recorded a loss of $2 million on the early retirement of a capitalized lease obligation.
NET INTEREST AND OTHER FINANCIAL COSTS
Net interest and other financial costs amounted to income of $10 million in the December 2005 quarter, compared to expense of $29 million in the December 2004 quarter. The comparison reflects the retirement of most of Ashland's debt from the proceeds of the MAP Transaction in June 2005 and the investment of the remaining proceeds in short-term, available-for-sale securities.
INCOME TAXES
Ashland's effective income tax rate of 37.4% for the December 2005 quarter was comparable to the effective rate of 36.9% for the December 2004 quarter. The interim rate is reflective of Ashland's estimated effective rate for the entire fiscal year.
DISCONTINUED OPERATIONS
Results of discontinued operations for the December 2005 quarter included minor unreserved expenses of $1 million (net of income taxes) associated with asbestos liabilities.
FINANCIAL POSITION
LIQUIDITY
Cash flows from operations, a major source of Ashland's liquidity, amounted to a deficit of $144 million for the three months ended December 31, 2005, compared to a deficit of $56 million for the three months ended December 31, 2004. The deficit in the December 2005 quarter reflects a $312 million cash outflow resulting from a net increase in operating assets and liabilities. The largest component of this change was a $292 million decrease in trade and other payables, which reflects a $75 million contribution to Ashland's
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY (CONTINUED)
pension plan and a seasonal decline in accounts payable. Ashland typically accelerates payments to vendors at the end of December to coincide with their fiscal year-ends, versus delaying some payments at the end of September. The December 2004 quarter had a similar seasonal decline in accounts payable.
Ashland's financial position has enabled it to obtain capital for its financing needs. Following shareholder approval of the MAP Transaction in June 2005, Moody's lowered Ashland's senior debt rating from Baa2 to Ba1, their highest non-investment grade rating, and also lowered Ashland's commercial paper rating from P-3 to N-P (Not-Prime), citing the annual cash flow lost from the operations sold. In September 2005, Standard & Poor's lowered Ashland's senior debt rating from BBB to BBB-, its lowest investment grade rating, and lowered Ashland's commercial paper rating from A-2 to A-3. Ratings downgrades below investment grade can significantly increase a company's borrowing costs. Ashland has a revolving credit agreement that expires on March 21, 2010, which provides for up to $350 million in borrowings. The borrowing capacity under this facility was reduced by $103 million of letters of credit outstanding at December 31, 2005. While the revolving credit agreement contains a covenant limiting new borrowings based on Ashland's stockholders' equity, the agreement would have permitted an additional $5.4 billion of borrowings at December 31, 2005. Additional permissible borrowings are increased (decreased) by 150% of any increase (decrease) in stockholders' equity.
At December 31, 2005, working capital (excluding debt due within one year) amounted to $2,158 million, compared to $2,224 million at September 30, 2005 and $831 million at December 31, 2004. 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 $142 million at December 31, 2005, compared to $126 million at September 30, 2005 and $108 million at December 31, 2004. Liquid assets (cash, cash equivalents, available-for-sale securities and accounts receivable) amounted to 209% of current liabilities at December 31, 2005, compared to 193% at September 30, 2005 and 74% at December 31, 2004. The increases in liquidity since December 2004 reflect the cash proceeds from the MAP Transaction net of debt retirements.
CAPITAL RESOURCES
On July 21, 2005, Ashland's Board of Directors authorized the purchase of $270 million of Ashland common stock in the open market. During the December 2005 quarter, Ashland repurchased 1.8 million shares for $96 million. Through December 31, 2005, Ashland had repurchased 3.5 million shares at a cost of $196 million. On January 25, 2006, Ashland's Board of Directors increased the remaining authorization to $250 million, an increase of $176 million.
For the three months ended December 31, 2005, property additions amounted to $50 million, compared to $55 million for the same period last year. Ashland anticipates meeting its remaining 2006 capital requirements for property additions and dividends from internally generated funds.
Ashland's debt level amounted to $89 million at December 31, 2005, compared to $94 million at September 30, 2005, and $1.66 billion at December 31, 2004. Debt as a percent of capital employed amounted to 2.4% at December 31, 2005, compared to 2.5% at September 30, 2005, and 36.9% at December 31, 2004. The decline from December 31, 2004 reflects the retirement of most of Ashland's debt with the proceeds from the MAP Transaction.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
APPLICATION OF CRITICAL ACCOUNTING POLICIES
There have been no material changes in the critical accounting policies described in Management's Discussion and Analysis (MD&A) in Ashland's Annual Report on Form 10-K for the fiscal year ended September 30, 2005. For a discussion of Ashland's asbestos-related litigation and environmental remediation matters, see Note H to the Condensed Consolidated Financial Statements.
OUTLOOK
APAC continues to implement its five-part improvement program. It is making progress on capturing margin on materials, whether through third-party sales or through intra-company sales to its own construction services. A variety of ongoing programs are improving the bidding and estimating process. APAC continues to manage hydrocarbon exposure through a risk-analysis-driven hedging program. Further, APAC continually strives to be a low-cost competitor in its markets. As older, less profitable jobs roll off, they are being replaced by contracts with better margins. Approximately 73% of the current backlog has been awarded since October 1, 2004. However, APAC typically operates at a loss during the second quarter of the fiscal year--the winter quarter. Excluding any unusual and unexpected events, a loss is expected for the March 2006 quarter. The extent of the loss should be primarily determined by the level of operations, especially in March.
APAC continues to evaluate its operations market by market. In January, APAC sold its Richmond, Virginia, and Shawnee, Oklahoma, market areas and will report a small book gain in the March quarter. Both of these businesses were unprofitable in 2005. APAC's so-called "fix or exit" team's analysis of 75 markets will be completed in the March 2006 quarter. While no other decisions have been made, APAC is likely to exit several more markets this year.
In the Chemical Sector, Ashland continues to make good progress on its GlobalOne enterprise resource planning (ERP) system. Ashland's Canadian operations are running under this system, and key learnings from the "go live" in Canada are being applied to the implementation in the United States and Mexico now planned for the December 2006 quarter. The scope of GlobalOne is being expanded to include new, additional functionalities in customer management and pricing management. Because of this additional functionality, the total cost of the project is expected to increase by approximately $25 million, bringing the total planned expenditures for GlobalOne to $115 million.
Both Ashland Distribution and Ashland Specialty Chemical's profitability is a function of economic growth and their ability to manage material cost increases. Ashland Distribution and the Performance Materials business of Ashland Specialty Chemical continue to focus on passing through rising costs and managing expenses. In contrast, the Water Technologies business is focusing on growth, not near-term profits. Sales engineers are being hired and trained to sell Ashland's innovative Sonoxide ultrasound technology and PathGuard pathogen control systems. As of December 31, there were 390 Sonoxide and more than 80 PathGuard units in place around the world.
The market conditions that led to Valvoline's poor performance in the December quarter continue. While Ashland is optimistic about Valvoline's long-term prospects, profitability recovery is unlikely to occur in the March quarter. Gradual improvement should materialize in the latter half of this fiscal year moving into the prime car-care months as marketing and pricing programs begin to take effect.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. These statements include those that refer to Ashland's operating performance, earnings, and benefits expected to be obtained through the GlobalOne ERP implementation. These estimates are based upon a number of assumptions, including those mentioned within 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 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 its Annual Report on Form 10-K for the fiscal year ended September 30, 2005. Ashland undertakes no obligation to subsequently update or revise these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Ashland's market risk exposure at December 31, 2005 is generally consistent with the types and amounts of market risk exposures presented in Ashland's Annual Report on Form 10-K for the fiscal year ended September 30, 2005.
ITEM 4. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this quarterly report, Ashland, under the supervision and with the participation of its management, including Ashland's Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of Ashland's disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective.
(b) There were no significant changes in Ashland's internal control over financial reporting, or in other factors, that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, Ashland's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Asbestos-Related Litigation - Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result primarily 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.
The majority of lawsuits filed involve multiple plaintiffs and
multiple defendants, with the number of defendants in many cases exceeding
100. The monetary damages sought in the asbestos-related complaints that
have been filed in state or federal courts vary as a result of
jurisdictional requirements and practices, though the vast majority of
these complaints either do not specify monetary damages sought or merely
recite that the monetary damages sought meet or exceed the required
jurisdictional minimum in which the complaint was filed. Plaintiffs have
asserted specific dollar claims for damages in approximately 5% of the
51,600 active lawsuits pending as of December 31, 2005. In these active
lawsuits, less than 0.3% of the active lawsuits involve claims between $0
and $100,000; approximately 1.6% of the active lawsuits involve claims
between $100,000 and $1 million; less than 1% of the active lawsuits
involve claims between $1 million and $5 million; less than 0.2% of the
active lawsuits involve claims between $5 million and $10 million;
approximately 2% of the active lawsuits involve claims between $10 million
and $15 million; and less than .02% of the active lawsuits involve claims
between $15 million and $100 million. The variability of requested damages,
coupled with the actual experience of resolving claims over an extended
period, demonstrates that damages requested in any particular lawsuit or
complaint bear little or no relevance to the merits or disposition value of
a particular case. Rather, the amount potentially recoverable by a specific
plaintiff or group of plaintiffs is determined by other factors such as
product identification or lack thereof, the type and severity of the
disease alleged, the number and culpability of other defendants, the impact
of bankruptcies of other companies that are co-defendants in claims,
specific defenses available to certain defendants, other potential
causative factors and the specific jurisdiction in which the claim is made.
For additional information regarding liabilities arising from asbestos-related litigation, see Note H of "Notes to Condensed Consolidated Financial Statements" in this quarterly report on Form 10-Q.
U.S. Department of Justice ("USDOJ") Antitrust Division Investigation
- In November 2003, Ashland received a subpoena from the USDOJ relating to
a foundry resins grand jury investigation. Ashland received a letter dated
January 18, 2006 from USDOJ advising it that this investigation has now
been closed. As is frequently the case when such investigations have been
initiated, a number of civil actions have been filed in multiple
jurisdictions, most of which are seeking class action status for classes of
customers of foundry resins. These cases have been consolidated for
pretrial purposes in the United States District Court, Southern District of
Ohio. Ashland will vigorously defend the actions.
Environmental Proceedings - (1) Under the federal Comprehensive Environmental Response Compensation and Liability Act (as amended) and similar state laws, Ashland may be subject to joint and several liability for clean-up costs in connection with alleged releases of hazardous substances at sites where it has been identified as a "potentially responsible party" ("PRP"). As of December 31, 2005, Ashland had been named a PRP at 97 waste treatment or disposal sites. These sites are currently subject to ongoing investigation and remedial activities, overseen by the USEPA 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.
(2) St. Paul Park Criminal Investigation - The United States Attorney in Minnesota conducted a criminal investigation of the May 16, 1997 fire at the St. Paul Park refinery. The Assistant United States Attorney ("AUSA") in charge alleged that the refinery sewer system was subject to and not in compliance with Subpart QQQ of the regulations under the Clean Air Act. He further alleged that the non-compliance was the cause of the fire that severely burned employee Randy Danielson. The AUSA has stated that he believed there were five separate criminal violations.
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 the May 16, 1997 sewer fire at the St. Paul Park refinery. As part of the plea agreement, Ashland entered guilty
pleas to two federal misdemeanors, has paid a $5.4 million fine related to violations of the Clean Air Act, has paid approximately $3.9 million as restitution to the employees injured in the fire and other costs, and funded approximately $9.4 million in upgrades to the St. Paul Park refinery. The upgrade has been completed and was finished 2 1/2 years earlier than required by the Court. In addition, as part of the plea agreement, Ashland entered into a deferred prosecution agreement with regard to a separate count charging Ashland with violating Subpart QQQ of the New Source Performance Standards of the Clean Air Act. Ashland satisfied the terms and conditions of the deferred prosecution agreement so that the deferred prosecution was dismissed by the court on February 22, 2005. Ashland has paid the majority of the costs and has a reserve of $0.5 million to cover the remaining costs. Ashland was placed on five years probation from December 23, 2002. On December 15, 2005, Ashland filed a motion for Order for Early Release from Probation. On December 30, 2005, the Judge stated that he would sign the order releasing Ashland from probation on June 30, 2006, assuming Ashland remains in compliance with the terms of probation.
(3) In 1990, contamination of groundwater at Ashland's former Canton, Ohio refinery (now owned and operated by MAP) was first identified and reported to Ohio's Environmental Protection Agency ("OEPA"). Since that time, Ashland has voluntarily conducted investigation and remediation activities and regularly communicated with OEPA regarding this matter. Ashland and the State of Ohio have exchanged Consent Order drafts and have met to negotiate the terms of such an order. The state filed a complaint in February 2004, but simultaneously expressed an interest in continuing Consent Order settlement discussions. Following the filing of the complaint, Ashland, OEPA and Ohio's Office of the Attorney General have continued to work to finalize a Consent Order. The state has advised that it will assess a penalty as part of the overall settlement making an initial request for $650,000.
For additional information regarding environmental matters and reserves, see Note H of "Notes to Condensed Consolidated Financial Statements" in this quarterly report on Form 10-Q.
Other Legal Proceedings - In addition to the matters described above, there are various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries. 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.
ITEM 1A. RISK FACTORS
During the period covered by this report, there were no material changes from the risk factors previously disclosed in Ashland's Form 10-K for the year ended September 30, 2005.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes information regarding purchases of Ashland Common Stock by Ashland during the first quarter of fiscal 2006.
Issuer Purchases of Equity Securities (1)
Maximum number (or
approximate dollar
value) of shares
Average price Total number of shares that may yet be
paid per share, purchased as part of purchased under
Total number of including publicly announced the plans or
Period shares purchased commission plans or programs programs
-------- ---------------- --------------- ---------------------- -------------------
(a) (b) (c) (d)
October 1 - October 31 250,000 $52.61 250,000 $ 157,470,148
November 1 - November 30 937,700 $53.91 937,700 $ 106,916,493
December 1 - December 31 577,030 $56.74 577,030 $ 74,174,251
---------- --------- ---------- ------------------
Total 1,764,730 $54.65 1,764,730 $ 74,174,251
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(1) The stock repurchase program was originally authorized in July 2005 in the amount of $270 million. Through December 31, 2005, $196 million of Ashland shares had been repurchased under the original authorization. On January 25, 2006, the authorization was increased by an additional $176 million to a total of $250 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 26, 2006, Ashland's Annual Meeting of Shareholders was held at the Metropolitan Club, 50 E. RiverCenter Boulevard, Covington, Kentucky at 10:30 a.m. The following are the results of the shareholder vote at the meeting:
1) Roger W. Hale, Patrick F. Noonan and George A. Schaefer, Jr. were elected to a three-year term as directors with the vote totals referenced below.
Votes
---------------------------
Affirmative Withheld
------------ -----------
Roger W. Hale 65,381,428 1,163,386
Patrick F. Noonan 64,623,970 1,920,844
George A. Schaefer, Jr. 64,128,926 2,415,888
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Ernest H. Drew, Mannie L. Jackson, Theodore M. Solso, Michael J. Ward, Bernadine P. Healy, M.D., Kathleen Ligocki and James J. O'Brien continue to serve as directors.
2) The appointment of Ernst & Young LLP as independent auditors for fiscal year ending September 30, 2006, was ratified by a vote of 65,556,830 shares voting for, 521,902 shares voting against, and 466,082 shares abstaining.
3) The 2006 Ashland Inc. Incentive Plan was approved by a vote of 41,947,266 shares voting for, 13,719,500 shares voting against, and 912,233 shares abstaining.
ITEM 6. EXHIBITS
10 2006 Ashland Inc. Incentive Plan.
12 Computation of Ratio of Earnings to Fixed Charges.
31.1 Certificate of James J. O'Brien, Chief Executive Officer of Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certificate of J. Marvin Quin, Chief Financial Officer of Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certificate of James J. O'Brien, Chief Executive Officer of Ashland, and J. Marvin Quin, Chief Financial Officer of Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURE
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.
Date: February 8, 2006 /s/ J. Marvin Quin
---------------------------------------
J. Marvin Quin
Senior Vice President and Chief Financial
Officer (on behalf of the Registrant and
as principal financial officer)
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EXHIBIT INDEX
Exhibit
No. Description
--------- -------------------------------------------------------------
10 2006 Ashland Inc. Incentive Plan.
12 Computation of Ratio of Earnings to Fixed Charges.
31.1 Certificate of James J. O'Brien, Chief Executive Officer of
Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certificate of J. Marvin Quin, Chief Financial Officer of
Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certificate of James J. O'Brien, Chief Executive Officer of
Ashland, and J. Marvin Quin, Chief Financial Officer of
Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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EXHIBIT 10
2006 ASHLAND INC. INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the 2006 Ashland Inc. Incentive Plan is to promote the interests of Ashland Inc. and its shareholders by providing incentives to its directors, officers and employees. Accordingly, the Company may grant to selected officers and employees Option Awards, Stock Appreciation Rights Awards, Restricted Stock Awards, Incentive Awards, Performance Unit Awards and Merit Awards in an effort to attract and retain in its employ qualified individuals and to provide such individuals with incentives to continue service with the Company, devote their best efforts to the Company and improve the Company's economic performance, thus enhancing the value of the Company for the benefit of shareholders. This Plan also provides an incentive for qualified persons, who are not officers or employees of the Company, to serve on the Board of Directors of the Company and to continue to work for the best interests of the Company by rewarding such persons with an automatic Restricted Stock Award and with discretionary Option Awards.
SECTION 2. DEFINITIONS
(A) "Agreement" shall mean a written agreement setting forth the terms of an Award, to be entered into at the Company's discretion.
(B) "Attestation" means the delivery to the Company of a completed attestation form prescribed by the Company setting forth the whole shares of Common Stock owned by the Recipient which the Recipient wishes to utilize to pay the Exercise Price. The Common Stock listed on the attestation form must have been owned by the Recipient six months or longer, and not have been used to effect an Option exercise within the preceding six months, unless the Committees specifically provide otherwise.
(C) "Award" shall mean an Option Award, a Stock Appreciation Right Award, an Incentive Award, a Performance Unit Award, a Restricted Stock Award or a Merit Award, in each case granted under this Plan.
(D) "Beneficiary" shall mean the person, persons, trust or trusts designated by a Recipient or if no designation has been made, the person, persons, trust, or trusts entitled by will or the laws of descent and distribution to receive the benefits specified under this Plan in the event of a Recipient's death.
(E) "Board" shall mean the Board of Directors of the Company or its designee.
(F) "Cashless Exercise" shall mean the procedure by which a broker provides the funds to a Recipient to effect an Option exercise. At the direction of the Recipient, the broker will either: (i) sell all of the shares received when the Option is exercised and pay the Recipient the proceeds of the sale (minus the Exercise Price, withholding taxes and any fees due to the broker); or (ii) sell enough of the shares received upon exercise of the Option to cover the Exercise Price, withholding taxes and any fees due the broker and deliver to the Recipient (either directly or through the Company) a stock certificate for the remaining shares.
(G) "Change in Control" shall be deemed to occur (1) upon approval of
the shareholders of the Company (or if such approval is not required, upon
the approval of the Board) of (A) any consolidation or merger of the
Company, other than a consolidation or merger of the Company into or with a
direct or indirect wholly-owned subsidiary, in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other property other than
a merger in which the holders of Common Stock immediately prior to the
merger will have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company,
provided, however, that no sale, lease, exchange or other transfer of all
or substantially all the assets of the Company shall be deemed to occur
unless assets constituting 80% of the total assets of the Company are
transferred pursuant to such sale, lease, exchange or other transfer, or
(C) adoption of any plan or proposal for the liquidation or dissolution of
the Company, (2) when any person (as defined in Section 3(a)(9) or 13(d) of
the Exchange Act), other than the Company or any Subsidiary or employee
benefit plan or trust maintained by the Company, shall become the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 15% of the Company's Common Stock outstanding at the time, without the approval of the Board, or (3) at any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company's shareholders of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(I) "Committees" shall refer to the P&C Committee as it relates to Awards to Participants and to the G&N Committee as it relates to Awards to Outside Directors.
(J) "Common Stock" shall mean the Common Stock of the Company ($.01 par value), subject to adjustment pursuant to Section 14 hereof.
(K) "Company" shall mean, collectively, Ashland Inc. and its Subsidiaries.
(L) "Disability" shall mean, (i) in the case of a Participant, he or she becomes unable to perform the functions required by his or her regular job due to physical or mental illness and, in connection with the grant of an Incentive Stock Option shall be disabled if he or she falls within the meaning of that term as provided in Section 22(e)(3) of the Code and (ii) in the case of an Outside Director, when he or she is unable to attend to his or her duties and responsibilities as a member of the Board because of incapacity due to physical or mental illness.
(M) "Exercise Price" shall mean, with respect to each share of Common Stock subject to an Option or Stock Appreciation Right, the price fixed by the Committees at which such share may be purchased from the Company pursuant to the exercise of such Option or Stock Appreciation Right, which price at no time may be less than 100% of the Fair Market Value of the Common Stock on the date the Option or Stock Appreciation Right is granted.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(O) "Fair Market Value" shall mean the price of the Common Stock as reported on the Composite Tape of the New York Stock Exchange on the date and at the time selected by the Committees or as otherwise provided in this Plan.
(P) "G&N Committee" shall mean the Governance and Nominating Committee of the Board, as from time to time constituted, or any successor committee of the Board with similar functions, or its designee.
(Q) "Incentive Award" shall mean an Award made pursuant to Section 7 hereof, the payment of which is contingent upon the achievement of the Performance Goals for the particular Performance Period.
(R) "Incentive Stock Option" or "ISO" shall mean an Option that is intended by the Committees to meet the requirements of Section 422 of the Code or any successor provision.
(S) "ISO Award" shall mean an Award of an Incentive Stock Option pursuant to Section 10 hereof.
(T) "Merit Award" shall mean an Award of Common Stock issued pursuant to Section 9 hereof.
(U) "Non-Employee Director" shall mean a non-employee director within the meaning of applicable regulatory requirements, including those promulgated under Section 16 of the Exchange Act.
(V) "Nonqualified Stock Option" or "NQSO" shall mean an Option granted pursuant to this Plan which does not qualify as an Incentive Stock Option. Notwithstanding anything to the contrary contained herein, a Nonqualified Stock Option may not be coupled with a right to defer any income attributable to an exercise thereof to a taxable year of the holder after the taxable year in which such Option was exercised.
(W) "Notice of Grant" shall mean a written notice setting forth the terms of an Option or SAR Award, to be entered into at the Company's discretion.
(X) "Option" shall mean the right to purchase Common Stock at a price to be specified and upon terms to be designated by the Committees or otherwise determined pursuant to this Plan. The Committees shall designate an Option as a Nonqualified Stock Option or an Incentive Stock Option.
(Y) "Option Award" shall mean an Award of an Option pursuant to
Section 10 hereof.
(Z) "Outside Director" shall mean a director of the Company who is not also an employee of the Company as selected by the G&N Committee to receive an Award under this Plan.
(AA) "P&C Committee" shall mean the Personnel and Compensation Committee of the Board, as from time to time constituted, or any successor committee of the Board with similar functions, which shall consist of three or more members, each of whom shall be a Non-Employee Director and an outside director as defined in the regulations issued under Section 162(m) of the Code, or its designee.
(BB) "Participant" shall mean a regular, full-time or part-time employee of the Company as selected by the P&C Committee to receive an Award under this Plan.
(CC) "Performance Goals" shall mean performance goals as may be established in writing by the P&C Committee which may be based on earnings, stock price, return on equity, return on investment, total return to shareholders, economic profit, debt rating or achievement of business, financial or operational goals. Such goals may be absolute in their terms or measured against or in relation to other companies comparably or otherwise situated. Such performance goals may be particular to a Participant or the division or other unit in which the Participant works and/or may be based on the performance of the Company generally.
(DD) "Performance Period" shall mean the period designated by the P&C Committee during which the performance objectives shall be measured.
(EE) "Performance Unit Award" shall mean an Award made pursuant to
Section 8 hereof, the payment of which is contingent upon the achievement
of the Performance Goals for the particular Performance Period.
(FF) "Personal Representative" shall mean the person or persons who, upon the Disability or incompetence of a Recipient, shall have acquired on behalf of the Recipient by legal proceeding or otherwise the right to receive the benefits specified in this Plan.
(GG) "Plan" shall mean this 2006 Ashland Inc. Incentive Plan.
(HH) "Recipients" shall mean a Participant or an Outside Director, as appropriate.
(II) "Restricted Period" shall mean the period designated during which Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered, which period in the case of Participants shall not be less than one year from the date of grant (unless otherwise directed by the P&C Committee), and in the case of Outside Directors is the period set forth in Section 6(B) hereof.
(JJ) "Restricted Stock" shall mean those shares of Common Stock issued pursuant to a Restricted Stock Award which are subject to the restrictions, terms, and conditions set forth in the related Agreement, if any.
(KK) "Restricted Stock Award" shall mean an Award of Restricted Stock pursuant to Section 6 hereof.
(LL) "Retained Distributions" shall mean any securities or other property (other than regular cash dividends) distributed by the Company in respect of Restricted Stock during any Restricted Period.
(MM) "Retirement" shall mean, (a) in the case of a Participant, retirement from the employ of the Company at any time as described in the Ashland Inc. and Affiliates Pension Plan or in any successor pension plan, as from time to time in effect, and (b) in the case of an Outside Director, retirement from the Board at age 70 or at any other age as the Board may from time to time determine.
(NN) "Stock Appreciation Right" or "SAR" shall mean the right of the holder to receive the appreciation in the Fair Market Value of shares of Common Stock upon terms to be designated by the Committees or otherwise determined pursuant to this Plan. The holder of an exercisable SAR may elect to surrender the SAR and receive in exchange therefore an amount equal to the excess of the Fair Market Value of the Common Stock on the date the election to surrender is received by the Company over the Exercise Price specified in such SAR multiplied by the number of shares of Common Stock covered by such SAR, or portion thereof, which is so surrendered. Such amount shall be paid to the holder in shares of Common Stock the number of which shall be determined by dividing such amount by the Fair Market Value of the Common Stock at the close of business on the date the holder makes an effective exercise of the right to receive such amount. A SAR may be granted only singly and may not be granted in tandem with an Option. A SAR shall be exercisable upon any additional terms and conditions which may be determined as provided in this Plan.. Notwithstanding anything to the contrary contained herein, no SAR may be coupled with a right to defer any income attributable to an exercise thereof to a taxable year of the holder after the taxable year in which the SAR was exercised.
(OO) "Stock Appreciation Right Award" or "SAR Award" shall mean an Award of a Stock Appreciation Right pursuant to Section 10 hereof.
(PP) "Subsidiary" shall mean any present or future subsidiary corporations, as defined in Section 424 of the Code, of the Company.
(QQ) "Tax Date" shall mean the date the withholding tax obligation arises with respect to an Award.
SECTION 3. STOCK SUBJECT TO THIS PLAN
There will be reserved for issuance under this Plan an aggregate of 4,000,000 shares of Common Stock, par value $.01 per share; provided, however, that of such shares only 1,000,000 shares in the aggregate shall be available for Restricted Stock Awards, Merit Awards, ISO Awards and Performance Unit Awards. Such shares shall be authorized but unissued shares of Common Stock. If any Award under this Plan shall expire or terminate for any reason without having been earned or vested in full, or if any Award shall be forfeited or deferred, the shares subject to the unearned, forfeited or deferred portion of such Award shall again be available for the purposes of this Plan. No Participant shall be granted more than a total of 250,000 Option or SAR Awards annually and no Outside Director shall be granted more than a total of 10,000 Option or SAR Awards annually.
SECTION 4. ADMINISTRATION
The P&C Committee shall have the exclusive authority to administer this Plan for Participants. The G&N Committee shall have the exclusive authority to administer this Plan for Outside Directors.
In addition to any implied powers and duties that may be needed to carry out the provisions hereof, the Committees, acting individually, shall have all the powers vested in them by the terms hereof, including exclusive authority to select the Recipients, to determine the type, size and terms of the Awards to be made to each Recipient, to determine the time when Awards will be granted, and to prescribe the form of the Agreement or Notice of Grant embodying Awards made under this Plan. The Committees shall be authorized to interpret this Plan and the Awards granted under this Plan, to establish, amend and rescind any rules and regulations relating to this Plan, to make any other determinations which they believe necessary or advisable for the administration hereof, and to correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committees deem desirable to carry it into effect. Any decision of the Committees in the administration of this Plan, as described herein, shall be final and conclusive.
It is intended that this Plan, Awards granted hereunder, and the administration of this Plan comply with the provisions of Section 409A of the Code, and all provisions of this Plan and Awards granted hereunder shall be construed and interpreted in a manner consistent with Section 409A of the Code.
SECTION 5. ELIGIBILITY
Awards may only be granted (i) to regular full-time or part-time employees of the Company, or (ii) as expressly provided in Sections 6(B) and 10 hereof, to Outside Directors of the Company.
SECTION 6. RESTRICTED STOCK AWARDS
(A) Awards to Employees
The P&C Committee may make a Restricted Stock Award to selected Participants, which Restricted Stock Awards may, at the Company's discretion and as directed by the P&C Committee, be evidenced by an Agreement which shall contain such terms and conditions as the P&C Committee, in its sole discretion, may determine. The amount of each Restricted Stock Award and the respective terms and conditions of such Award (which terms and conditions need not be the same in each case) shall be determined by the P&C Committee in its sole discretion; provided, however, that a Restricted Stock Award may not be coupled with an arrangement to defer the recognition of income attributable to such Award beyond the taxable year of the Participant in which such Restricted Stock Award becomes vested or is otherwise no longer subject to a substantial risk of forfeiture, unless permitted under Section 409A of the Code. Subject to the terms and conditions of each Restricted Stock Award, the Participant, as the owner of the Common Stock issued as Restricted Stock, shall have all rights of a shareholder including, but not limited to, voting rights as to such Common Stock and the right to receive dividends thereon when, as and if paid.
Unless otherwise determined and directed by the P&C Committee, in the event that a Restricted Stock Award has been made to a Participant whose employment or service is subsequently terminated for any reason prior to the lapse of all restrictions thereon, such Restricted Stock will be forfeited in its entirety by such Participant.
(B) Awards to Outside Directors
During the term of this Plan, each person who is hereafter duly appointed or elected as an Outside Director shall be granted, effective on the date of his or her appointment or election to the Board, a Restricted Stock Award of 1,000 shares. All Awards under this subsection (B) are subject to the limitation on the number of shares of Common Stock available pursuant to Section 3 hereof and to the terms and conditions set forth in this subsection (B) and subsection (C) below.
Upon the granting of the Restricted Stock Award, such Outside Director shall be entitled to all rights incident to ownership of Common Stock of the Company with respect to his or her Restricted Stock, including, but not limited to, the right to vote such shares of Restricted Stock and to receive dividends thereon when, as and if paid; provided, however, that subject to subsection (C) hereof, in no case may any shares of Restricted Stock granted to an Outside Director be sold, assigned, transferred, pledged, or otherwise encumbered during the Restricted Period which shall not lapse until the earlier to occur of the following: (i) Retirement, (ii) the death or Disability of such Outside Director, (iii) a 50% change in the beneficial ownership of the Company as defined in Rule 13d-3 under the Exchange Act, or (iv) voluntary early retirement to take a position in governmental service. No Restricted Stock Award hereunder may include an arrangement that would defer the recognition of income attributable to such Award beyond the taxable year in which the Restricted Period lapses and the Restricted Stock Award is no longer subject to a substantial risk of forfeiture, unless permitted under Section 409A of the Code. Unless otherwise determined and directed by the G&N Committee, in the case of voluntary resignation or other termination of service of an Outside Director prior to the occurrence of any of the events described in the preceding sentence, any Restricted Stock Award made pursuant to this subsection will be forfeited by such Outside Director.
(C) Transferability
Subject to Section 16(B) hereof, Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered during a Restricted Period, which, in the case of Participants, shall be determined by the P&C Committee and, unless otherwise determined by the P&C Committee, shall not be less than one year from the date of the Restricted Stock Award, and, in the case of Outside Directors, shall be determined in accordance with subsection (B) of this Section. The P&C Committee may, at any time, reduce the Restricted Period with respect to any outstanding shares of a Restricted Stock Award, but, unless otherwise determined by the P&C Committee, such Restricted Period shall not be less than one year.
During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the Recipient's
name and bear a restrictive legend to the effect that ownership of such
Restricted Stock (and any such Retained Distributions), and the enjoyment
of all rights appurtenant thereto are subject to the restrictions, terms,
and conditions provided in this Plan and the applicable Agreement, if any.
Such certificates shall be deposited by the Recipient with the Company,
together with stock powers or other instruments of assignment, each
endorsed in blank, which will permit transfer to the Company of all or any
portion of the Restricted Stock and any securities constituting Retained
Distributions which shall be forfeited in accordance with this Plan and the
applicable Agreement, if any. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes, with the
exception that: (i) the Recipient will not be entitled to delivery of the
stock certificates representing such Restricted Stock until the
restrictions applicable thereto shall have expired; (ii) the Company will
retain custody of all Retained Distributions made or declared with respect
to the Restricted Stock (and such Retained Distributions will be subject to
the same restrictions, terms and conditions as are applicable to the
Restricted Stock) until such time, if ever, as the Restricted Stock with
respect to which such Retained Distributions shall have been made, paid, or
declared shall have become vested, and such Retained Distributions shall
not bear interest or be segregated in separate accounts; (iii) subject to
Section 16(B) hereof, the Recipient may not sell, assign, transfer, pledge,
exchange, encumber, or dispose of the Restricted Stock or any Retained
Distributions during the Restricted Period; and (iv) unless otherwise
determined and directed by the Committees, a breach of any restrictions,
terms, or conditions provided in this Plan or established by the Committees
with respect to any Restricted Stock or Retained Distributions will cause a
forfeiture of such Restricted Stock and any Retained Distributions with
respect thereto.
SECTION 7. INCENTIVE AWARDS
(A) Any Participant may receive one or more Incentive Awards, as the P&C Committee shall from time to time determine.
(B) No later than 120 days (90 days for those Participants subject to the limitations of Code Section 162(m)) after the commencement of each Performance Period, the P&C Committee shall establish in writing one or more Performance Goals that must be reached by a Participant in order to receive an Incentive Award for such Performance Period. Except with respect to Participants subject to the limitations of Code Section 162(m), the P&C Committee shall have the discretion to later revise the Performance Goals and the amount to be paid out upon the attainment of these goals for any reason including the reflection of promotions, transfers or other changes in a Participant's employment so long as such changes are consistent with the Performance Goals established for other Participants in the same or similar positions. Performance Goals established for Participants subject to Code Section 162(m) may only be adjusted to reduce or eliminate the amount of compensation otherwise payable upon attainment of the Performance Goals.
(C) The target Incentive Award is a fixed percentage of the Participant's Base Salary paid during the year. The maximum Incentive Award is 150% of the target Incentive Award. No Incentive Award shall exceed three million dollars ($3,000,000).
(D) Payment of Incentive Awards shall be made on a date or dates fixed by the P&C Committee. Payment may be made in one or more installments and may be made wholly in cash, wholly in shares of Common Stock or a combination thereof as determined by the P&C Committee. Payments shall in all events not be made later than seventy-five days after the later of (i) the end of the tax year of the Participant in which the Performance Period ends; and (ii) the end of the tax year of the Company in which the Performance Period ends.
If payment of an Incentive Award shall be made all or partially in shares of Common Stock, the number of shares of Common Stock to be delivered to a Participant on any payment date shall be determined by dividing (x) the original dollar amount to be paid on the payment date (or the part thereof determined by the P&C Committee to be delivered in shares of such Incentive Award) by (y) the Fair Market Value on the date the Board approves the P&C Committee's decision to pay an Incentive Award or such other date as the Board shall determine.
(E) Unless otherwise determined and directed by the P&C Committee, an Incentive Award shall terminate if the Participant does not remain continuously employed and in good standing with the Company until the date of payment of such Award. Unless otherwise determined and directed by the P&C Committee, in the event a Participant's employment is terminated because of death, Disability or Retirement, the Participant (or his or her beneficiaries or estate) shall receive the prorated portion of the payment of an Incentive Award for which the Participant would have otherwise been eligible based upon the portion of the Performance Period during which he or she was so employed so long as the Performance Goals are subsequently achieved.
SECTION 8. PERFORMANCE UNIT AWARDS
(A) Any Participant may receive one or more Performance Unit Awards, as the P&C Committee shall from time to time determine.
(B) The Performance Goals and Performance Period applicable to a Performance Unit Award shall be set forth in writing by the P&C Committee no later than 120 days (90 days for those Participants subject to the limitations imposed by Section 162(m) of the Code) after the commencement of the Performance Period. Except with respect to Participants subject to the limitations of Section 162(m) of the Code, the P&C Committee shall have the discretion to later revise the Performance Goals and the amount to be paid out upon the attainment of these goals for any reason including the reflection of promotions, transfers or other changes in a Participant's employment so long as such changes are consistent with the Performance Goals established for other Participants in the same or similar positions. Goals established for Participants subject to Section 162(m) of the Code may only be adjusted to reduce or eliminate the amount of compensation otherwise payable upon attainment of the Performance Goals.
(C) Each Performance Unit Award shall be established in dollars or shares of Common Stock, or a combination of both, as determined by the P&C Committee. The original amount of any Performance Unit Award shall not exceed 400% of the Participant's then annual base salary and the original amount of any Performance Unit Award shall not exceed five million dollars ($5,000,000). In determining the amount of any Performance Unit Award made, in whole or in part, in shares of Common Stock, the value thereof shall be based on the Fair Market Value on the first day of the Performance Period or on such other date as the Board shall determine.
(D) Unless otherwise determined and directed by the P&C Committee, a Performance Unit Award shall terminate for all purposes if the Participant does not remain continuously employed and in good standing with the Company until payment of such Performance Unit Award. Unless otherwise determined and directed by the P&C Committee, a Participant (or his or her beneficiaries or estate) whose employment was terminated because of death, Disability or Retirement will receive a prorated portion of the payment of his or her Award based upon the portion of the Performance Period during which he or she was so employed so long as the Performance Goals are subsequently achieved.
(E) Payment with respect to Performance Unit Awards will be made to Participants on a date or dates fixed by the P&C Committee. The amount of such payment shall be determined by the P&C Committee and shall be based on the original amount of such Performance Unit Award adjusted to reflect the attainment of the Performance Goals during the Performance Period. Payment may be made in one or more installments and may be made wholly in cash, wholly in shares of Common Stock or a combination thereof as determined by the P&C Committee. Payments shall in all events not be made later than seventy-five days after the later of (i) the end of the tax year of the Participant in which the Performance Period ends; and (ii) the end of the tax year of the Company in which the Performance Period ends.
If payment of a Performance Unit Award established in dollars is to be made in shares of Common Stock or partly in such shares, the number of shares of Common Stock to be delivered to a Participant on any payment date
shall be determined by dividing (x) the amount payable by (y) the Fair Market Value on the date the Board approves the P&C Committee's decision to pay the Performance Unit Award or on such other date as the Board shall determine.
If payment of a Performance Unit Award established in shares of Common Stock is to be made in cash or partly in cash, the amount of cash to be paid to a Participant on any payment date shall be determined by multiplying (x) the number of shares of Common Stock to be paid in cash on such payment date with respect to such Performance Unit Award, by (y) the Fair Market Value on the date the Board approves the P&C Committee's decision to pay the Performance Unit Award or on such other date as the Board shall determine. Any payment may be subject to such restrictions and conditions as the P&C Committee may determine.
SECTION 9. MERIT AWARDS
Any Participant may receive a Merit Award of Common Stock under this Plan for such reasons and in such amounts as the P&C Committee may from time to time determine A Merit Award of Common Stock for any calendar year may not be distributed later than seventy-five days after the end of such calendar year.
SECTION 10. OPTION AND SAR AWARDS
(A) Any Recipient may receive one or more Option or SAR Awards, as the Committees shall from time to time determine.
(B) Designation and Price
(1) Any Option granted under this Plan may be granted as an Incentive Stock Option or as, a Nonqualified Stock Option as shall be designated by the Committees at the time of the grant of such Option. Only Participants may be granted ISOs. Each Option and SAR shall, at the discretion of the Company and as directed by the Committees, be evidenced by a Notice of Grant, which Notice of Grant shall specify the designation of the Option as an ISO or a NQSO, as the case may be, and shall contain such terms and conditions as the Committees, in their sole discretion, may determine in accordance with this Plan.
(2) Every ISO shall provide for a fixed expiration date of not later than ten years from the date such ISO is granted. Every NQSO and SAR shall provide for a fixed expiration date of not later than ten years and one month from the date such NQSO or SAR is granted.
(3) The Exercise Price of Common Stock issued pursuant to each Option or SAR shall be fixed by the Committees at the time of the granting of the Option or SAR; provided, however, that such Exercise Price shall in no event ever be less than 100% of the Fair Market Value of the Common Stock on the date such Option is granted, subject to adjustment as provided in Section 14.
(C) Exercise
The Committees may, in their sole discretion, provide for Options or
SARs granted under this Plan to be exercisable in whole or in part;
provided, however, that no Option or SAR shall be exercisable prior to the
first anniversary of the date of its grant, except as provided in Section
12 hereof or as the Committees otherwise determine in accordance with this
Plan, and in no case may an Option or SAR be exercised at any time for
fewer than 50 shares (or the total remaining shares covered by the Option
or SAR if fewer than 50 shares) during the term of the Option or SAR. The
specified number of shares will be issued upon receipt by the Company of
(i) notice from the holder thereof of the exercise of an Option or SAR, and
(ii) payment to the Company (as provided in subsection (D) of this
Section), of the Exercise Price for the number of shares with respect to
which the Option is exercised. Each such notice and payment shall be
delivered or mailed to the Company at such place and in such manner as the
Company may designate from time to time.
(D) Payment for Shares
Except as otherwise provided in this Section, the Exercise Price for the Common Stock shall be paid in full when the Option is exercised. Subject to such rules as the Committees may impose, the Exercise Price may be paid in whole or in part: (i) in cash; (ii) in whole shares of Common Stock owned by the Recipient and evidenced by negotiable certificates, valued at their Fair Market Value (which shares of Common Stock must have been owned by the Recipient six months or longer, and not used to effect an Option exercise within the preceding six months, unless the Committees specifically provide otherwise); (iii) by Attestation; (iv) by a combination of such methods of payment; or (v) by such other consideration as shall constitute lawful consideration for the issuance of Common Stock and be approved by the Committees (including, without limitation, effecting a Cashless Exercise of the Option with a broker).
(E) Continued Employment, Agreement to Serve and Exercise Period
(1) Participants
(a) Subject to the provisions of Section 12(D) hereof, every Option and SAR shall provide that it may not be exercised in whole or in part for a period of one year after the date of granting such Option or SAR (unless otherwise determined by the P&C Committee) and if the employment of the Participant shall terminate prior to the end of such one year period (or such other period determined by the P&C Committee), the Option or SAR granted to such Participant shall immediately terminate.
(b) Every Option and SAR shall provide that in the event the Participant dies (i) while employed by the Company, (ii) during the periods in which Options or SARs may be exercised by a Participant determined to be Disabled, or (iii) after Retirement, such Option or SAR shall be exercisable, at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR, by the Beneficiaries of the decedent for the number of shares which the Participant could have acquired under the Option or SAR immediately prior to the Participant's death.
(c) Every Option and SAR shall provide that in the event the employment of any Participant shall cease by reason of Disability, as determined by the P&C Committee at any time during the term of the Option or SAR, such Option or SAR shall be exercisable, at any time or from time to time prior to the fixed termination date set forth in the Option or SAR by such Participant for the number of shares which the Participant could have acquired under the Option or SAR immediately prior to the Participant's Disability. The determination by the P&C Committee of any question involving Disability of a Participant shall be conclusive and binding.
(d) Every Option and SAR shall provide that in the event the employment of any Participant shall cease by reason of Retirement, such Option or SAR may be exercised at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR for the number of shares which the Participant could have acquired under the Option or SAR immediately prior to such Retirement.
(e) Notwithstanding any provision of this Plan to the contrary, any Option or SAR, may, in the discretion of the P&C Committee or as provided in the relevant Notice of Grant (if any), become exercisable, at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR for the full number of awarded shares or any part thereof, less such number as may have been theretofore acquired under the Option or SAR from and after the time the Participant ceases to be an employee of the Company as a result of the sale or other disposition by the Company of assets or property (including shares of any Subsidiary) in respect of which such Participant had theretofore been employed or as a result of which such Participant's continued employment with the Company is no longer required.
(f) Except as provided in sub-subsections (b), (c), (d),
(e) and (g) of this Section 10(E) and Section 12(D) hereof, every Option
and SAR shall provide that it shall terminate on the earlier to occur of
the fixed termination date set forth in the Option or SAR or thirty (30)
days after cessation of the Participant's employment for any cause in
respect of the number of shares which the Participant could have acquired
under the Option or SAR immediately prior to such cessation of employment;
provided, however, that no Option or SAR may be exercised after the fixed
termination date set forth in the Option or SAR.
(g) Notwithstanding any provision of this Section to the contrary, in the event the P&C Committee determines, in its sole and absolute discretion, that the employment of any Participant has terminated for a reason or in a manner adversely affecting the Company (which may include, without limitation, taking other employment or rendering service to others without the consent of the Company), then the P&C Committee may direct that such Participant forfeit any and all Options or SARs that he or she could otherwise have exercised pursuant to the terms of this Plan.
(h) Each Participant granted an Award under this Plan shall agree by his or her acceptance of such Award to remain in the service of the Company for a period of at least one year from the date of the Notice of Grant respecting the Award (or, if no Notice of Grant is given, at least one year from the date of the Award). Such service shall, subject to the terms of any contract between the Company and such Participant, be at the pleasure of the Company and at such compensation as the Company shall reasonably determine from time to time. Nothing in this Plan, or in any Award granted pursuant to this Plan, shall confer on any individual any right to continue in the employment of or service to the Company or interfere in any way with the right of the Company to terminate the Participant's employment at any time.
(i) Notwithstanding anything to the contrary herein, any Option that is an ISO shall be exercisable not later than three (3) months following the date that the employment of a Participant terminated.
(2) Outside Directors
If an Outside Director's service on the Board terminates by reason of (i) Retirement, (ii) the death or Disability of such Outside Director, (iii) a 50% change in the beneficial ownership of the Company as defined in Rule 13d-3 under the Exchange Act, or (iv) voluntary early retirement to take a position in governmental service, any Option or SAR held by such Outside Director may thereafter be exercised by the Outside Director, or in the event of death, by his or her Beneficiary to the extent it was vested and exercisable at the time of such termination (i) for a period equal to the number of years of completed Board service as of the date of such termination of the Outside Director on whose behalf the Option or SAR is exercised, or (ii) until the expiration of the stated term of such Option or SAR, whichever period is the shorter. In the event of termination for any reason other than those set forth above, any Option or SAR held by such Outside Director may thereafter be exercised by the Outside Director to the extent it was vested and exercisable at the time of termination (i) for a period of one year from the date of such termination or (ii) until the expiration of the stated term of such Option or SAR, whichever period is the shorter, unless otherwise determined by the G&N Committee.
SECTION 11. CONTINUED EMPLOYMENT
Nothing in this Plan, or in any Award granted pursuant to this Plan, shall confer on any individual any right to continue in the employment of, or service to, the Company or interfere in any way with the right of the Company to terminate the Participant's employment at any time.
SECTION 12. CHANGE IN CONTROL
(A) Upon a Change in Control, any Restricted Stock Award shall be free of all restrictions for the full number of awarded shares less such number as may have been theretofore acquired under the Restricted Stock Award.
(B) Upon a Change in Control, there shall be an acceleration of any Performance Period relating to any Incentive Award, and payment of any Incentive Award shall be made in cash as soon as practicable after such Change in Control (and in no event later than seventy-five days from the last day of the Company's fiscal year in which the Change in Control occurs) based upon achievement of the Performance Goals applicable to such Award up to the date of the Change in Control. Further, the Company's obligation with respect to such Incentive Award shall be assumed, or new obligations substituted therefor, by the acquiring or surviving corporation after such Change in Control. In addition, prior to the date of such Change in Control, the P&C Committee, in its sole judgment, may make adjustments to any Incentive Award as may be appropriate to reflect such Change in Control.
(C) Upon a Change in Control, there shall be an acceleration of any Performance Period relating to any Performance Unit Award, and payment of any Performance Unit Award shall be made in cash as soon as practicable after such Change in Control (and in no event later than seventy-five days from the last day of the Company's fiscal year in which the Change in Control occurs) based upon achievement of the Performance Goals applicable to such Performance Unit Award up to the date of the Change in Control. If such Performance Unit Award was established in shares of Common Stock, the amount of cash to be paid to a Participant with respect to the Performance Unit Award shall be determined by multiplying (x) the number of shares of Common Stock relating to such Performance Unit Award, by (y) the Fair Market Value on the date of the Change in Control. Further, the Company's obligation with respect to such Performance Unit Award shall be assumed, or new obligations substituted therefor, by the acquiring or surviving corporation after such Change in Control. In addition, prior to the date of such Change in Control, the P&C Committee, in its sole judgment, may make adjustments to any Performance Unit Award as may be appropriate to reflect such Change in Control.
(D) Upon a Change in Control, any Option Award or SAR Award shall become immediately exercisable for the full number of awarded shares or any part thereof, less such numbers as may have been theretofore acquired under the Option Award or SAR Award from and after the date of such Change in Control, unless otherwise provided in the Notice of Grant.
SECTION 13. WITHHOLDING TAXES
Federal, state or local law may require the withholding of taxes applicable to gains resulting from the payment or vesting of an Award. Unless otherwise prohibited by the P&C Committee, each Participant may satisfy any such tax withholding obligation by any of the following means, or by a combination of such means: (i) a cash payment; (ii) authorizing the Company to withhold from the shares of Common Stock otherwise issuable to the Participant pursuant to the vesting of an Award a number of shares having a Fair Market Value, as of the Tax Date, which will satisfy the amount of the withholding tax obligation; or (iii) by delivery to the Company of a number of shares of Common Stock having a Fair Market Value as of the Tax Date which will satisfy the amount of the withholding tax obligation arising from the vesting of an Award. A Participant's election to pay the withholding tax obligation by (ii) or (iii) above must be made on or before the Tax Date, is irrevocable, is subject to such rules as the P&C Committee may adopt, and may be disapproved by the P&C Committee. If the amount requested is not paid, the P&C Committee may refuse to issue Common Stock under this Plan.
SECTION 14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding Common Stock of the Company by reason of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, split-up, split-off, spin-off, liquidation or other similar change in capitalization, or any distribution to common stockholders other than cash dividends, the number or kind of shares that may be issued under this Plan pursuant to Section 3 hereof and the number or kind of shares subject to, or the price per share under any outstanding Award shall be automatically adjusted so that the proportionate interest of the Recipient shall be maintained as before the occurrence of such event. Such adjustment shall be conclusive and binding for all purposes hereof. In adjusting Awards pursuant to this Section 14, the Committees shall take all reasonable steps to ensure that any adjustment of Options and SARs complies with the requirements of Section 409A of the Code and, as applicable, Section 424 of the Code.
SECTION 15. AMENDMENT AND TERMINATIONS
The Committees may amend, alter or terminate this Plan at any time
without the prior approval of the Board; provided, however, that: (i) the
Committees may not, without approval by the Board and the shareholders, (a)
materially increase the benefits provided to Recipients under this Plan or
(b) provide for the re-pricing of Options; and (ii) any amendment with
respect to Restricted Stock granted to Outside Directors must be approved
by the full Board. Notwithstanding anything to the contrary herein, the
Company may make necessary amendments to this Plan and, any Award granted
hereunder to avoid imposition of penalties and additional taxes under Code
Section 409A(except to the extent an outstanding award agreement restricts
the ability to amend the agreement and/or the Plan in a way adverse to the
Participant)
Termination of this Plan shall not affect any Awards made hereunder which are outstanding on the date of termination and such Awards shall continue to be subject to the terms of this Plan notwithstanding its termination.
SECTION 16. MISCELLANEOUS PROVISIONS
(A) Except as to Awards of Restricted Stock to Outside Directors, no Participant or other person shall have any claim or right to be granted an Award under this Plan.
(B) A Recipient's rights and interest under this Plan may not be assigned or transferred in whole or in part, either directly or by operation of law or otherwise (except in the event of a Recipient's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any Recipient in this Plan shall be subject to any obligation or liability of such individual; provided, however, that a Recipient's rights and interest under this Plan may, subject to the discretion and direction of the Committees, be made transferable by such Recipient during his or her lifetime. Except as specified in Section 6 hereof, the holder of an Award shall have none of the rights of a shareholder until the shares subject thereto shall have been registered in the name of the person receiving or person or persons exercising the Award on the transfer books of the Company.
(C) No Common Stock shall be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable Federal, state, and other securities laws.
(D) The expenses of this Plan shall be borne by the Company.
(E) By accepting any Award under this Plan, each Recipient and each Personal Representative or Beneficiary claiming under or through him or her shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under this Plan by the Company, the Board, and the Committees.
(F) Awards granted under this Plan shall be binding upon the Company, its successors, and assigns.
(G) Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required.
(H) Each Recipient shall be deemed to have been granted any Award on the date the Committees took action to grant such Award under this Plan or such date as the Committees in their sole discretion shall determine at the time such grant is authorized.
SECTION 17. EFFECTIVENESS OF THIS PLAN
This Plan shall be submitted to the shareholders of the Company for their approval and adoption on January 26, 2006, or such other date fixed for the next meeting of shareholders or any adjournment or postponement thereof. No Awards shall be made under the Plan unless and until the Plan has been approved and adopted at a meeting of the Company's shareholders.
SECTION 18. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in accordance with the laws of the Commonwealth of Kentucky.
EXHIBIT 12
ASHLAND INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
Three months ended
Years ended September 30 December 31
--------------------------------------------------------- ----------------------
2001 2002 2003 2004 2005 2004 2005
---------- --------- --------- ---------- ---------- --------- ----------
EARNINGS
Income from continuing operations $ 390 $ 115 $ 94 $ 398 $ 2,005 $ 94 $ 67
Income taxes 266 68 44 150 (202) 55 40
Interest expense 160 133 121 112 87 28 2
Interest portion of rental expense 40 35 33 35 38 9 9
Amortization of deferred debt expense 2 2 2 2 3 - 1
Distributions in excess of (less than) earnings
of unconsolidated affiliates (91) 20 (98) (263) (250) (145) (2)
---------- --------- --------- ---------- ---------- --------- ----------
$ 767 $ 373 $ 196 $ 434 $ 1,681 $ 41 $ 117
========== ========= ========= ========== ========== ========= ==========
FIXED CHARGES
Interest expense $ 160 $ 133 $ 121 $ 112 $ 87 $ 28 $ 2
Interest portion of rental expense 40 35 33 35 38 9 9
Amortization of deferred debt expense 2 2 2 2 3 - 1
---------- --------- --------- ---------- ---------- --------- ----------
$ 202 $ 170 $ 156 $ 149 $ 128 $ 37 $ 12
========== ========= ========= ========== ========== ========= ==========
RATIO OF EARNINGS TO FIXED CHARGES 3.80 2.19 1.26 2.91 13.13 1.11 9.75
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EXHIBIT 31.1
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 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February ___, 2006
/s/ James J. O'Brien
-----------------------------------------
Chief Executive Officer
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EXHIBIT 31.2
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 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February ___, 2006
/s/ J. Marvin Quin
--------------------------------------
Chief Financial Officer
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EXHIBIT 32
ASHLAND INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ashland Inc. (the "Company") on Form 10-Q for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, James J. O'Brien, Chief Executive Officer of the Company, and J. Marvin Quin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies, in all material respects, with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the report.
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not intended to be used or relied upon for any other purpose.
/s/ James J. O'Brien ---------------------------------------------------------- James J. O'Brien Chief Executive Officer February ___, 2006 /s/ J. Marvin Quin ---------------------------------------------------------- J. Marvin Quin Chief Financial Officer February ___, 2006 |
A signed original of this written statement required by Section 906 has been provided to Ashland Inc. and will be retained by Ashland Inc. and furnished to the Securities and Exchange Commission or staff upon request.