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Ashland Inc. Reports Preliminary Q2 Results: $1.20 EPS From Continuing Operations; Adjusted EPS of 86 Cents Excluding Key Items

Tuesday, April 26, 2011

Ashland Inc. Reports Preliminary Q2 Results: $1.20 EPS From Continuing Operations; Adjusted EPS of 86 Cents Excluding Key Items06:00 EDT Tuesday, April 26, 2011COVINGTON, Ky., April 26, 2011 /PRNewswire/ -- Ashland Inc. (NYSE: ASH) today announced preliminary(1) results for the quarter ended March 31, 2011, the second quarter of its 2011 fiscal year.(Logo: )Quarterly Highlights(in millions except per-share amounts)Quarter Ended March 31,20112010Operating income$         122$         132Key items*6-Adjusted operating income*$         128$         132Adjusted EBITDA*$         192$         199Diluted earnings per share (EPS)From net income$        4.39$        0.27From continuing operations$        1.20$        0.07Key items*(0.34)0.77      Adjusted EPS from continuing operations*$        0.86$        0.84Cash flows provided by operating activities    from continuing operations$         114$         193Free cash flow*72149* See Tables 5, 6 and 7 for definitions and U.S. GAAP reconciliations. Fiscal Second-Quarter GAAP(2) ResultsFor its 2011 second quarter, Ashland reported sales of $1,557 million, operating income of $122 million, income from continuing operations of $96 million ($1.20 per share) and net income of $353 million ($4.39 per share). Net income included income from discontinued operations of $257 million aftertax ($3.19 per share), primarily related to the sale of Ashland Distribution, which closed on March 31, 2011. Cash flows from operating activities from continuing operations amounted to $114 million.Adjusted ResultsAshland Distribution's results have been excluded from continuing operations; however, certain costs previously allocated to Distribution remain in continuing operating income for all periods and are classified within Ashland's selling, general and administrative expenses. On this basis and adjusting for the impact of key items in both the current and prior-year quarters, Ashland's results for the March 2011 quarter as compared with the March 2010 quarter were as follows:sales increased 9 percent to $1,557 million;adjusted operating income was $128 million versus $132 million in the prior year;adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $192 million versus $199 million a year ago; andadjusted EPS from continuing operations increased 2 percent to 86 cents.Key ItemsIn total, three key items had a net favorable EPS impact on continuing operations of 34 cents in the March 2011 quarter:a $5 million (6 cents negative EPS impact) aftertax expense for accelerated depreciation related to capacity reductions at Ashland Performance Materials;a $7 million (9 cents negative EPS impact) aftertax expense related to accelerated amortization of debt-issuance costs due primarily to the payoff of Ashland?s Term Loan A facility; anda $39 million (49 cents positive EPS impact) net tax benefit resulting from the release of certain state deferred-tax valuation allowances and the expected repatriation of offshore proceeds from the sale of Ashland Distribution.In the year-ago quarter, two key items had a net unfavorable EPS impact of 77 cents. Refer to Table 5 of the accompanying financial statements for details of key items in both periods.Performance SummaryCommenting on Ashland's second-quarter results, Chairman and Chief Executive Officer James J. O'Brien said, "I am encouraged by our progress in two key areas. First, volumes and sales grew by 5 percent and 9 percent, respectively, over the prior-year quarter. Second, our pricing actions enabled us to maintain overall margins sequentially despite a significant increase in raw material costs. Due to the general success of our ongoing pricing efforts against these headwinds, we were able to generate $192 million of EBITDA and $72 million of free cash flow during the March 2011 quarter."Business PerformanceIn order to aid understanding of Ashland's ongoing business performance, the results of Ashland's business segments are presented on an adjusted basis and EBITDA is reconciled to operating income in Table 7 of this news release.Ashland Aqualon Functional Ingredients recorded sales of $270 million in the March 2011 quarter. Excluding amounts associated with the Pinova business divested in January 2010, sales improved 17 percent and volumes grew 7 percent over the prior March quarter, reflecting growth in all end markets. Sequentially, sales and volumes grew 25 percent and 11 percent, respectively. Gross profit as a percent of sales was 33.7 percent in the March 2011 quarter versus 34.9 percent in the year-ago quarter. However, gross profit as a percent of sales increased by 250 basis points sequentially, due to strong volume gains and ongoing pricing actions. These actions generated a nearly $20 million increase in selling prices during the March quarter. Selling, general and administrative and research-and-development (SG&A) expenses were up only 2 percent over the prior-year quarter, despite the significant growth in volume and sales. In total, Functional Ingredients' EBITDA in the March 2011 quarter increased 10 percent over the prior-year quarter, to $64 million, and was up nearly 50 percent sequentially. EBITDA for the March 2011 quarter equaled 23.7 percent of sales as compared with 24.2 percent in the prior March quarter and 19.9 percent in the December 2010 quarter.Ashland Hercules Water Technologies' sales were $471 million in the March 2011 quarter, up 5 percent over the year-ago quarter and up 4 percent sequentially. Gross profit as a percent of sales of 31.3 percent was 320 basis points below the year-ago quarter, but down only 30 basis points sequentially despite a sizeable increase in raw material costs. Water Technologies continues to implement price increases in order to restore previously lost margins. SG&A expenses declined 2 percent versus the prior-year quarter, but were up 3 percent sequentially. In total, Water Technologies' EBITDA of $47 million was 10 percent below the prior-year quarter, but increased 4 percent sequentially. EBITDA amounted to 10.0 percent of sales in the March 2011 quarter, as compared with 11.6 percent in the prior-year quarter and 10.0 percent in the December 2010 quarter.Ashland Performance Materials achieved sales growth of 7 percent over the year-ago March quarter, to $325 million. Two recent transactions affect comparisons between periods: the April 2010 purchase of Ashland's partner's 50-percent interest in Ara Quimica and the December 2010 formation of the global ASK Chemicals joint venture. Excluding the effects of these transactions, sales were up 23 percent over the prior year. On this same basis, volume increased 12 percent over the year-ago quarter and 14 percent sequentially, in excess of normal seasonality. Gross profit as a percent of sales of 13.9 percent, which excludes key items, declined versus both the March and December 2010 quarters. The gross margin decrease partially reflects the effects of the joint venture, as well as higher raw material costs in the March 2011 quarter. Pricing actions continue to be announced in order to restore compressed margins. Overall, Performance Materials' EBITDA of $20 million grew 11 percent over the prior-year quarter, but was down 23 percent sequentially. EBITDA as a percent of sales was 6.2 percent, a 30-basis-point improvement over the year-ago quarter, but a 180-basis-point decline sequentially.Ashland Consumer Markets' sales of $491 million increased 14 percent over the year-ago March quarter on 3-percent growth in lubricant volume and ongoing pricing efforts. All market channels showed solid sales growth over the prior year. Sequentially, sales grew 12 percent and lubricant volume increased 11 percent, in line with normal seasonality. Gross profit as a percent of sales fell 370 basis points versus the March 2010 quarter and 160 basis points sequentially to 29.3 percent, due to increased raw material costs during the quarter. Consumer Markets announced an 8-percent price increase in January that did not begin to take effect until late in the March quarter. SG&A expenses rose 10 percent over the year-ago quarter and 13 percent sequentially, partially due to a larger investment in advertising and promotion. In total, Consumer Markets' March 2011 quarter EBITDA was $71 million, 9 percent below the year-ago quarter and 4 percent below the December 2010 quarter. The EBITDA margin was 14.5 percent for the March 2011 quarter, 360 basis points below the prior year and down 230 basis points sequentially.After excluding key items, Ashland's effective tax rate for the March 2011 quarter was 32 percent.OutlookCommenting on Ashland's outlook, O'Brien said, "Three of our four commercial units have been repeatedly successful in recovering raw material costs, and we expect this to continue. While Water Technologies has lagged in its cost recovery, several changes were made during the quarter that will enable improved performance going forward. This includes a more rigid pricing process, as well as improved tools for price and cost analysis.?Noting the recent actions by Ashland?s board of directors, O?Brien continued, ?The board authorized a $400 million stock repurchase program at its March meeting. Purchasing under this program began in April. In addition, the board indicated its intention to increase the dividend by 10 cents per share annually, a roughly 17-percent increase over the current level. We expect this to occur with the June dividend payment.?In summary, O?Brien said, ?We have made great strides in accomplishing our transformation to a specialty chemical company. We completed the sale of Ashland Distribution at the end of March, bringing this important strategic step for Ashland to a successful conclusion. We now have four businesses with strong market positions that are performing reasonably well under difficult conditions. Given our strong cash-generating capabilities, significant liquidity and debt capacity, we are well-positioned to take advantage of the most value-creating opportunities for our shareholders."Conference Call WebcastToday at 9 a.m. EDT, Ashland will provide a live webcast of its second-quarter conference call with securities analysts. The webcast and supporting materials will be accessible through Ashland's website at Following the live event, an archived version of the webcast and supporting materials will be available for 12 months.Use of Non-GAAP MeasuresThis news release includes certain non-GAAP measures. Such measurements are not prepared in accordance with GAAP and should not be construed as an alternative to reported results determined in accordance with GAAP. Management believes the use of such non-GAAP measures assists investors in understanding the ongoing operating performance of the company and its segments. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP amounts have been reconciled with reported GAAP results in Tables 5, 6 and 7 of the financial statements provided below.About AshlandIn more than 100 countries, the people of Ashland Inc. (NYSE: ASH) provide the specialty chemicals, technologies and insights to help customers create new and improved products for today and sustainable solutions for tomorrow. Our chemistry is at work every day in a wide variety of markets and applications, including architectural coatings, automotive, construction, energy, personal care, pharmaceutical, tissue and towel, and water treatment. Visit to see the innovations we offer through our four commercial units ? Ashland Aqualon Functional Ingredients, Ashland Hercules Water Technologies, Ashland Performance Materials and Ashland Consumer Markets (Valvoline).Forward-Looking StatementsThis news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon a number of assumptions, including those mentioned within this news release. Performance estimates are also based upon internal forecasts and analyses of current and future market conditions and trends (including the ability to recover raw-material cost increases through price increases); management plans and strategies; operating efficiencies and economic conditions; and legal proceedings and claims (including environmental and asbestos matters). Other risks and uncertainties include those that are described in filings made by Ashland with the Securities and Exchange Commission, including its most recent Forms 10-K and 10-Q, which are available on Ashland's website at or at Ashland believes its expectations are reasonable, but cannot assure they will be achieved. Forward-looking information may prove to be inaccurate, and actual results may differ significantly from those anticipated. Ashland is not obligated to subsequently update or revise the forward-looking statements made in this news release.(1) Preliminary ResultsFinancial results are preliminary until Ashland's quarterly report on Form 10-Q for the quarterly period ended March 31, 2011, is filed with the U.S. Securities and Exchange Commission.(2) Generally accepted accounting principles (U.S.)Ashland Inc. and Consolidated Subsidiaries Table 1STATEMENTS OF CONSOLIDATED INCOME(In millions except per share data - preliminary and unaudited)Three months endedSix months endedMarch 31March 312011201020112010SALES$1,557$1,423$2,989$2,748COSTS AND EXPENSESCost of sales1,1359922,1741,899Selling, general and administrative expense 292293577577Research and development expense 222043401,4491,3052,7942,516EQUITY AND OTHER INCOME14142627OPERATING INCOME122132221259Net interest and other financing expense (a) (39)(103)(66)(145)Net gain (loss) on acquisitions and divestitures-(5)21(5)Other income---1INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES8324176110Income tax benefit (expense)13(18)(18)(40)INCOME FROM CONTINUING OPERATIONS96615870Income from discontinued operations (net of income taxes) (b)2571628238NET INCOME $353$22$440$108DILUTED EARNINGS PER SHARE Income from continuing operations$1.20$.07$1.97$.88Income from discontinued operations3. income $4.39$.27$5.47$1.37AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS80808079SALESFunctional Ingredients$270$240$486$450Water Technologies471449921892Performance Materials325304650576Consumer Markets491430932830$1,557$1,423$2,989$2,748OPERATING INCOME (LOSS)Functional Ingredients$41$34$59$61Water Technologies27315070Performance Materials36914Consumer Markets6269127136Unallocated and other(11)(8)(24)(22)$122$132$221$259(a)  The three and six months ended March 31, 2011 and 2010 include a $12 million and $66 million charge, respectively, related to the refinancing and significant extinguishment of debt completed during these periods.   (b)  Includes income of $23 million and $46 million for the three and six months ended March 31, 2011, respectively, and $14 million and $25 million for the three and six months ended March 31, 2010, respectively, related to direct results of the Distribution business.  Due to its sale, the direct results of this business have been presented as discontinued operations for each period presented in accordance with U.S. GAAP.  In addition, the three and six months ended March 31, 2011 include a gain of $231 million related to Ashland's sale of its Distribution business.   Ashland Inc. and Consolidated Subsidiaries  Table 2CONDENSED CONSOLIDATED BALANCE SHEETS            (In millions - preliminary and unaudited)         March 31September 30 2011 2010ASSETSCurrent assetsCash and cash equivalents$    1,129$      417Accounts receivable 1,1421,115Inventories534447Deferred income taxes112112Other assets5749Held for sale (a) -6932,9742,833Noncurrent assetsAuction rate securities2222Goodwill 2,1422,148Intangibles1,0881,111Asbestos insurance receivable 440459Deferred income taxes336336Other assets640514Held for sale (a) 22704,6704,860Property, plant and equipmentCost3,0793,096Accumulated depreciation and amortization(1,311)(1,258)1,7681,838Total assets$    9,412$    9,531LIABILITIES AND STOCKHOLDERS? EQUITYCurrent liabilitiesShort-term debt$          42$          71Current portion of long-term debt1945Trade and other payables708727Accrued expenses and other liabilities541523Held for sale (a) -3211,3101,687Noncurrent liabilitiesLong-term debt (noncurrent portion)8461,108Employee benefit obligations1,1911,372Asbestos litigation reserve (noncurrent portion)       813841Deferred income taxes173145Other liabilities 5825753,6054,041Stockholders? equity4,4973,803Total liabilities and stockholders' equity$     9,412$    9,531(a)  September 30, 2010 primarily relates to assets and liabilities of the Distribution business that qualified for held for sale classification in accordance with U.S. GAAP.Ashland Inc. and Consolidated Subsidiaries Table 3STATEMENTS OF CONSOLIDATED CASH FLOWS(In millions - preliminary and unaudited)Six months endedMarch 3120112010CASH FLOWS (USED) PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONSNet income$440$108Income from discontinued operations (net of income taxes)(282)(38)Adjustments to reconcile income from continuing operations to  cash flows from operating activitiesDepreciation and amortization 143141Debt issuance cost amortization1974Deferred income taxes(34)54Equity income from affiliates(7)(12)Distributions from equity affiliates36Gain from sale of property and equipment(2)(3)Stock based compensation expense97Stock contributions to qualified savings plans1313Net (gain) loss on acquisitions and divestitures(21)5Loss on early retirement of debt-4Gain on auction rate securities-(1)Change in operating assets and liabilities (a)(204)(110)77248CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES FROM CONTINUING OPERATIONSAdditions to property, plant and equipment(52)(59)Proceeds from disposal of property, plant and equipment411Purchase of operations - net of cash acquired(5)-Proceeds from sale of operations or equity investments4060Proceeds from sales and maturities of available-for-sale securities-85(13)97CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONSProceeds from issuance of long-term debt11300Repayment of long-term debt(299)(773)(Repayment of)/proceeds from short-term debt(29)317Debt issuance costs-(12)Cash dividends paid(24)(12)Proceeds from exercise of stock options24Excess tax benefits related to share-based payments11(338)(175)CASH (USED) PROVIDED BY CONTINUING OPERATIONS(274)170Cash (used) provided by discontinued operationsOperating cash flows5(17)Investing cash flows979(4)Effect of currency exchange rate changes on cash and cash equivalents2(2)INCREASE IN CASH AND CASH EQUIVALENTS712147Cash and cash equivalents - beginning of year417352CASH AND CASH EQUIVALENTS - END OF PERIOD$1,129$499DEPRECIATION AND AMORTIZATIONFunctional Ingredients$47$51Water Technologies4146Performance Materials3524Consumer Markets1818Unallocated and other22$143$141ADDITIONS TO PROPERTY, PLANT AND EQUIPMENTFunctional Ingredients$19$25Water Technologies1411Performance Materials67Consumer Markets89Unallocated and other57$52$59(a)  Excludes changes resulting from operations acquired or sold.   Ashland Inc. and Consolidated Subsidiaries Table 4INFORMATION BY INDUSTRY SEGMENT(In millions - preliminary and unaudited)Three months endedSix months endedMarch 31March 312011201020112010FUNCTIONAL INGREDIENTS (a)Sales per shipping day $4.3$3.8$3.9$3.6Metric tons sold (thousands) 42.841.981.379.3Gross profit as a percent of sales 33.7%34.9%32.6%34.3%WATER TECHNOLOGIES (a) Sales per shipping day $7.5$7.1$7.4$7.1Gross profit as a percent of sales 31.3%34.5%31.5%35.5%PERFORMANCE MATERIALS (a)Sales per shipping day $5.2$4.8$5.2$4.6Pounds sold per shipping day4. profit as a percent of sales12.0%16.5%13.3%17.4%CONSUMER MARKETS (a) Lubricant sales (gallons)44.843.785.383.9Premium lubricants (percent of U.S. branded volumes)32.5%29.6%31.4%29.0%Gross profit as a percent of sales29.3%33.0%30.0%33.4%(a)  Gross profit as a percent of sales is defined as sales, less cost of sales divided by sales.     Ashland Inc. and Consolidated Subsidiaries Table 5RECONCILIATION OF NON-GAAP DATA - INCOME (LOSS) FROM CONTINUING OPERATIONS(In millions - preliminary and unaudited)Three Months Ended March 31, 2011FunctionalWaterPerformanceConsumerUnallocatedIngredientsTechnologiesMaterialsMarkets& OtherTotalOPERATING INCOME (LOSS)Accelerated depreciation$-$-$(6)$-$-$(6)All other operating income4127962(11)128Operating income4127362(11)122NET INTEREST AND OTHER FINANCING EXPENSEAccelerated amortization of debt issuance costs(12)(12)All other net interest and other financing expense(27)(27)(39)(39)INCOME TAX (EXPENSE) BENEFITRelease of valuation allowances4545Repatriation of proceeds from AD sale(6)(6)Other key items66All other income tax expense(32)(32)1313INCOME (LOSS) FROM CONTINUING OPERATIONS$41$27$3$62$(37)$96Three Months Ended March 31, 2010FunctionalWaterPerformanceConsumerUnallocatedIngredientsTechnologiesMaterialsMarkets& OtherTotalOPERATING INCOME (LOSS)$34$31$6$69$(8)$132NET INTEREST AND OTHER FINANCING EXPENSE      Accelerated amortization of debt issuance costs(62)(62)Loss on early debt retirement(4)(4)All other net interest and other financing expense(37)(37)(103)(103)NET LOSS ON DIVESTITURESMedicare Part D accrual for MAP retirees(5)(5)INCOME TAX EXPENSEMedicare Part D deferred tax accrual(14)(14)All other income tax expense(4)(4)(18)(18)INCOME (LOSS) FROM CONTINUING OPERATIONS$34$31$6$69$(134)$6Ashland Inc. and Consolidated Subsidiaries  Table 6RECONCILIATION OF NON-GAAP DATA - FREE CASH FLOW (In millions - preliminary and unaudited)Three months endedSix months endedMarch 31March 31Free cash flow2011201020112010Total cash flows provided by operating activities from continuing operations$114$193$77$248Less:Additions to property, plant and equipment(30)(38)(52)(59)Cash dividends paid(12)(6)(24)(12)Free cash flows$72$149$1$177Ashland Inc. and Consolidated Subsidiaries Table 7RECONCILIATION OF NON-GAAP DATA - ADJUSTED EBITDA(In millions - preliminary and unaudited)Three months endedMarch 31Adjusted EBITDA - Ashland Inc.    2011    2010Operating income$122$132Add:Depreciation and amortization (a)6467Key items (see Table 5)6-Adjusted EBITDA$192$199Adjusted EBITDA - Ashland Aqualon Functional IngredientsOperating income$41$34Add:Depreciation and amortization2324Key items (see Table 5)--Adjusted EBITDA$64$58Adjusted EBITDA - Water TechnologiesOperating income$27$31Add:Depreciation and amortization2021Key items (see Table 5)--Adjusted EBITDA$47$52Adjusted EBITDA - Performance MaterialsOperating income$3$6Add:Depreciation and amortization (a)1112Key items (see Table 5)6-Adjusted EBITDA$20$18Adjusted EBITDA - Consumer MarketsOperating income$62$69Add:Depreciation and amortization99Key items (see Table 5)--Adjusted EBITDA$71$78(a)  Depreciation and amortization for the three months ended March 31, 2011 excludes $6 million of accelerated depreciation, which is displayed as a key item within this table.      SOURCE Ashland Inc.For further information: Media Relations: Jim Vitak, +1-614-790-3715,, or Investor Relations: David Neuberger, +1-859-815-4454,