Exhibit 99.2
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed consolidated pro forma financial statements are based upon the historical financial statements of Ashland and its consolidated subsidiaries, adjusted to reflect the disposition of Ashland Paving And Construction, Inc. (name changed to APAC Holdings, Inc. on August 22, 2006) (together with its wholly owned subsidiaries, “APAC”). The following unaudited condensed consolidated pro forma financial statements of Ashland should be read in conjunction with the related notes and with the historical consolidated financial statements of Ashland and the related notes included in previous filings with the Securities and Exchange Commission. The unaudited condensed pro forma consolidated balance sheet reflects the disposition of APAC as if it occurred on June 30, 2006, while the unaudited condensed pro forma statements of consolidated income give effect to the disposition as if it occurred at the beginning of each fiscal period presented. The pro forma adjustments, described in the related notes, are based on the best available information and certain assumptions that Ashland management believes are reasonable.
The unaudited condensed consolidated pro forma financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the disposition of APAC closed on June 30, 2006 for the unaudited condensed pro forma consolidated balance sheet or at the beginning of each fiscal period presented for the unaudited condensed pro forma statements of consolidated income. For example, these financial statements do not reflect any potential earnings or other impacts from the use of the proceeds from the disposition or cost reductions of previously allocated corporate costs and potential subsequent restructuring charges. Readers should not rely on the unaudited condensed consolidated pro forma financial statements as being indicative of the historical operating results that Ashland would have achieved or any future operating results or financial position that it will experience after the transaction closes.
Ashland Inc. and Consolidated Subsidiaries
Unaudited Condensed Pro Forma Consolidated Balance Sheet
June 30, 2006
| | | | | | | (a) | | | | |
| (In millions except per share data) | | | Historical | | | Sale of APAC | | | Pro Forma | |
| | | | | | | | | | | |
ASSETS | | | | | | | | | | |
| | | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | | |
| Cash and cash equivalents | | $ | 363 | | $ | 1,335 | | $ | 1,698 | |
| Available-for-sale securities | | | 621 | | | - | | | 621 | |
| Accounts receivable | | | 1,805 | | | (374 | ) | | 1,431 | |
| Allowance for doubtful accounts | | | (46 | ) | | 9 | | | (37 | ) |
| Inventories | | | 625 | | | (106 | ) | | 519 | |
| Deferred income taxes | | | 96 | | | (14 | ) | | 82 | |
| Other current assets | | | 153 | | | (95 | ) | | 58 | |
| | | | 3,617 | | | 755 | | | 4,372 | |
INVESTMENTS AND OTHER ASSETS | | | | | | | | | | |
| Goodwill and other intangibles | | | 710 | | | (411 | ) | | 299 | |
| Asbestos insurance receivable (noncurrent portion) | | | 446 | | | - | | | 446 | |
| Deferred income taxes | | | 182 | | | 56 | | | 238 | |
| Other noncurrent assets | | | 464 | | | (21 | ) | | 443 | |
| | | | 1,802 | | | (376 | ) | | 1,426 | |
PROPERTY, PLANT AND EQUIPMENT | | | | | | | | | | |
| Cost | | | 3,463 | | | (1,470 | ) | | 1,993 | |
| Accumulated depreciation, depletion and amortization | | | (1,949 | ) | | 888 | | | (1,061 | ) |
| | | | 1,514 | | | (582 | ) | | 932 | |
| | | | | | | | | | | |
| | | $ | 6,933 | | $ | (203 | ) | $ | 6,730 | |
| | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
| | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | |
| Debt due within one year | | $ | 18 | | $ | - | | $ | 18 | |
| Trade and other payables | | | 1,420 | | | (249 | ) | | 1,171 | |
| Income taxes | | | 48 | | | 53 | | | 101 | |
| | | | 1,486 | | | (196 | ) | | 1,290 | |
NONCURRENT LIABILITIES | | | | | | | | | | |
| Long-term debt (less current portion) | | | 70 | | | - | | | 70 | |
| Employee benefit obligations | | | 417 | | | (36 | ) | | 381 | |
| Reserves of captive insurance companies | | | 182 | | | - | | | 182 | |
| Asbestos litigation reserve (noncurrent portion) | | | 592 | | | - | | | 592 | |
| Other long-term liabilities and deferred credits | | | 385 | | | (75 | ) | | 310 | |
| | | | 1,646 | | | (111 | ) | | 1,535 | |
| | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | 3,801 | | | 104 | | | 3,905 | |
| | | | | | | | | | | |
| | | $ | 6,933 | | $ | (203 | ) | $ | 6,730 | |
| | | | | | | | | | | |
Common Shares Outstanding (in thousands) | | | 71,094 | | | | | | 71,094 | |
Book Value Per Common Share Outstanding | | $ | 53.47 | | | | | $ | 54.93 | |
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
Ashland Inc. and Consolidated Subsidiaries
Unaudited Condensed Pro Forma Statement of Consolidated Income
Nine Months Ended June 30, 2006
| | | | | | | (b) | | | | |
| (In millions except share and per share data) | | | Historical | | | Sale of APAC | | | Pro Forma | |
| | | | | | | | | | | |
Revenues | | | | | | | | | | |
| Sales and operating revenues | | $ | 7,378 | | $ | (2,053 | ) | $ | 5,325 | |
| Equity income | | | 9 | | | (1 | ) | | 8 | |
| Other income | | | 49 | | | (30 | ) | | 19 | |
| | | | 7,436 | | | (2,084 | ) | | 5,352 | |
Costs and expenses | | | | | | | | | | |
| Cost of sales and operating expenses | | | 6,217 | | | (1,798 | ) | | 4,419 | |
| Selling, general and administrative expenses | | | 948 | | | (157 | ) | | 791 | |
| | | | 7,165 | | | (1,955 | ) | | 5,210 | |
Operating income | | | 271 | | | (129 | ) | | 142 | |
| Loss on the MAP Transaction | | | (2 | ) | | - | | | (2 | ) |
| Net interest and other financing income | | | 29 | | | - | | | 29 | |
Income from continuing operations before income taxes | | | 298 | | | (129 | ) | | 169 | |
| Income tax (expense) benefit | | | (90 | ) | | 48 | | | (42 | ) |
Income from continuing operations | | $ | 208 | | $ | (81 | ) | $ | 127 | |
| | | | | | | | | | | |
Earnings per share from continuing operations | | | | | | | | | | |
| Basic | | $ | 2.91 | | | | | $ | 1.77 | |
| Diluted | | $ | 2.87 | | | | | $ | 1.75 | |
| | | | | | | | | | | |
Average common shares outstanding (in thousands) | | | | | | | | | | |
| Basic | | | 71,426 | | | | | | 71,426 | |
| Diluted | | | 72,433 | | | | | | 72,433 | |
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
Ashland Inc. and Consolidated Subsidiaries
Unaudited Condensed Pro Forma Statement of Consolidated Income
Year Ended September 30, 2005
| | | | | | | (b) | | | | |
| (In millions except share and per share data) | | | Historical | | | Sale of APAC | | | Pro Forma | |
| | | | | | | | | | | |
Revenues | | | | | | | | | | |
| Sales and operating revenues | | $ | 9,270 | | $ | (2,539 | ) | $ | 6,731 | |
| Equity income | | | 531 | | | (6 | ) | | 525 | |
| Other income | | | 59 | | | (20 | ) | | 39 | |
| | | | 9,860 | | | (2,565 | ) | | 7,295 | |
Costs and expenses | | | | | | | | | | |
| Cost of sales and operating expenses | | | 7,823 | | | (2,278 | ) | | 5,545 | |
| Selling, general and administrative expenses | | | 1,291 | | | (212 | ) | | 1,079 | |
| | | | 9,114 | | | (2,490 | ) | | 6,624 | |
Operating income | | | 746 | | | (75 | ) | | 671 | |
| Gain on the MAP Transaction (c) | | | 1,284 | | | - | | | 1,284 | |
| Loss on early retirement of debt (c) | | | (145 | ) | | - | | | (145 | ) |
| Net interest and other financial costs | | | (82 | ) | | - | | | (82 | ) |
Income from continuing operations before income taxes | | | 1,803 | | | (75 | ) | | 1,728 | |
| Income tax benefit (c) | | | 202 | | | 28 | | | 230 | |
Income from continuing operations | | $ | 2,005 | | $ | (47 | ) | $ | 1,958 | |
| | | | | | | | | | | |
Earnings per share from continuing operations | | | | | | | | | | |
| Basic | | $ | 27.50 | | | | | $ | 26.85 | |
| Diluted | | $ | 26.86 | | | | | $ | 26.23 | |
| | | | | | | | | | | |
Average common shares outstanding (in thousands) | | | | | | | | | | |
| Basic | | | 72,922 | | | | | | 72,922 | |
| Diluted | | | 74,652 | | | | | | 74,652 | |
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
Ashland Inc. and Consolidated Subsidiaries
Unaudited Condensed Pro Forma Statement of Consolidated Income
Year Ended September 30, 2004
| | | | | | | (b) | | | | |
| (In millions except share and per share data) | | | Historical | | | Sale of APAC | | | Pro Forma | |
| | | | | | | | | | | |
Revenues | | | | | | | | | | |
| Sales and operating revenues | | $ | 8,301 | | $ | (2,525 | ) | $ | 5,776 | |
| Equity income | | | 432 | | | (19 | ) | | 413 | |
| Other income | | | 48 | | | (22 | ) | | 26 | |
| | | | 8,781 | | | (2,566 | ) | | 6,215 | |
Costs and expenses | | | | | | | | | | |
| Cost of sales and operating expenses | | | 6,948 | | | (2,227 | ) | | 4,721 | |
| Selling, general and administrative expenses | | | 1,171 | | | (203 | ) | | 968 | |
| | | | 8,119 | | | (2,430 | ) | | 5,689 | |
Operating income | | | 662 | | | (136 | ) | | 526 | |
| Net interest and other financial costs | | | (114 | ) | | - | | | (114 | ) |
Income from continuing operations before income taxes | | | 548 | | | (136 | ) | | 412 | |
| Income tax (expense) benefit | | | (150 | ) | | 49 | | | (101 | ) |
Income from continuing operations | | $ | 398 | | $ | (87 | ) | $ | 311 | |
| | | | | | | | | | | |
Earnings per share from continuing operations | | | | | | | | | | |
| Basic | | $ | 5.69 | | | | | $ | 4.44 | |
| Diluted | | $ | 5.59 | | | | | $ | 4.36 | |
| | | | | | | | | | | |
Average common shares outstanding (in thousands) | | | | | | | | | | |
| Basic | | | 69,938 | | | | | | 69,938 | |
| Diluted | | | 71,217 | | | | | | 71,217 | |
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
Ashland Inc. and Consolidated Subsidiaries
Unaudited Condensed Pro Forma Statement of Consolidated Income
Year Ended September 30, 2003
| | | | | | | (b) | | | | |
| (In millions except share and per share data) | | | Historical | | | Sale of APAC | | | Pro Forma | |
| | | | | | | | | | | |
Revenues | | | | | | | | | | |
| Sales and operating revenues | | $ | 7,566 | | $ | (2,400 | ) | $ | 5,166 | |
| Equity income | | | 301 | | | (9 | ) | | 292 | |
| Other income | | | 45 | | | - | | | 45 | |
| | | | 7,912 | | | (2,409 | ) | | 5,503 | |
Costs and expenses | | | | | | | | | | |
| Cost of sales and operating expenses | | | 6,390 | | | (2,201 | ) | | 4,189 | |
| Selling, general and administrative expenses | | | 1,256 | | | (225 | ) | | 1,031 | |
| | | | 7,646 | | | (2,426 | ) | | 5,220 | |
Operating income | | | 266 | | | 17 | | | 283 | |
| Net interest and other financial costs | | | (128 | ) | | - | | | (128 | ) |
Income from continuing operations before income taxes | | | 138 | | | 17 | | | 155 | |
| Income tax expense | | | (44 | ) | | (8 | ) | | (52 | ) |
Income from continuing operations | | $ | 94 | | $ | 9 | | $ | 103 | |
| | | | | | | | | | | |
Earnings per share from continuing operations | | | | | | | | | | |
| Basic | | $ | 1.37 | | | | | $ | 1.51 | |
| Diluted | | $ | 1.37 | | | | | $ | 1.50 | |
| | | | | | | | | | | |
Average common shares outstanding (in thousands) | | | | | | | | | | |
| Basic | | | 68,422 | | | | | | 68,422 | |
| Diluted | | | 68,680 | | | | | | 68,680 | |
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(a) These adjustments reflect the disposition of APAC for $1.3 billion, plus estimated additional proceeds of $35 million for changes in specified balance sheet items (primarily working captial accounts), the final amount of which will be determined subsequent to closing. The adjustments also reflect the accrual of estimated income taxes payable of $53 million and fees of $12 million related to the disposition, the retention of certain employee benefit and variable pay liabilities by Ashland, an estimated net $22 million after-tax gain on the associated pension and postretirement welfare plan curtailment, and the reversal of net deferred tax liabilities, resulting in a net gain of $104 million.
(b) These adjustments eliminate the operating results of APAC as if the transaction occurred at the beginning of the fiscal period presented. The amounts eliminated do not include allocations of corporate expenses included in Selling, General and Administrative Expenses and the related combined 39% U.S. federal (35%) and state (4%, net of federal deductions) statutory income tax benefits of such expenses. These corporate expenses were $34 million, $45 million, $42 million and $40 million for the nine months ended June 30, 2006 and the fiscal years ended September 30, 2005, September 30, 2004 and September 30, 2003, respectively. In accordance with a consensus of the Emerging Issues Task Force (EITF 87-24), allocations of general corporate overhead may not be allocated to discontinued operations for financial statement presentation.
(c) “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. Ashland used a substantial portion of the proceeds of the MAP Transaction to retire most of its debt and certain other financial obligations. The gain on the MAP Transaction and the loss on early retirement of debt, net of their respective tax effects, increased net income by $1,531 million, or $20.51 per share, for the year ended September 30, 2005.
