Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
Years Ended September 30
(In millions except per share data) 2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales and operating revenues $ 7,233 $ 6,731 $ 5,776 $ 5,165 $ 4,738
Equity income 11 525 412 292 181
Other income 33 39 26 46 35
----------- ----------- ---------- ---------- -----------
7,277 7,295 6,214 5,503 4,954
COSTS AND EXPENSES
Cost of sales and operating expenses 6,030 5,545 4,721 4,189 3,812
Selling, general and administrative expenses 1,077 1,079 968 1,031 964
----------- ----------- ---------- ---------- -----------
7,107 6,624 5,689 5,220 4,776
----------- ----------- ---------- ---------- -----------
OPERATING INCOME 170 671 525 283 178
(Loss) gain on the MAP Transaction (a) (5) 1,284 - - -
Loss on early retirement of debt - (145) - - -
Net interest and other financing income (costs) 47 (82) (114) (128) (137)
----------- ----------- ---------- ---------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 212 1,728 411 155 41
Income tax (expense) benefit (29) 230 (100) (52) (14)
----------- ----------- ---------- ---------- -----------
INCOME FROM CONTINUING OPERATIONS 183 1,958 311 103 27
Income from discontinued operations (net of income taxes) 224 46 67 (23) 101
----------- ----------- ---------- ---------- -----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 407 2,004 378 80 128
Cumulative effect of accounting changes (net of income taxes) - - - (5) (11)
----------- ----------- ---------- ---------- -----------
NET INCOME $ 407 $ 2,004 $ 378 $ 75 $ 117
=========== =========== ========== ========== ===========
EARNINGS PER SHARE
Basic
Income from continuing operations $ 2.57 $ 26.85 $ 4.44 $ 1.51 $ 0.39
Income from discontinued operations 3.16 .64 .97 (.33) 1.47
Cumulative effect of accounting changes - - - (.08) (.17)
----------- ----------- ---------- ---------- -----------
Net income $ 5.73 $ 27.49 $ 5.41 $ 1.10 $ 1.69
=========== =========== ========== ========== ===========
Diluted
Income from continuing operations $ 2.53 $ 26.23 $ 4.36 $ 1.50 $ 0.38
Income from discontinued operations 3.11 .62 .95 (.33) 1.45
Cumulative effect of accounting changes - - - (.07) (.16)
----------- ----------- ---------- ---------- -----------
Net income $ 5.64 $ 26.85 $ 5.31 $ 1.10 $ 1.67
=========== =========== ========== ========== ===========
(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.
Ashland Inc. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30
(In millions) 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 1,820 $ 985 $ 243 $ 223 $ 90
Available-for-sale securities 349 403 - - -
Accounts receivable 1,401 1,242 953 804 752
Inventories 532 439 383 371 384
Deferred income taxes 93 104 96 125 109
Other current assets 55 22 111 49 59
Current assets of discontinued operations - 562 516 513 528
---------- ---------- ---------- ---------- ----------
4,250 3,757 2,302 2,085 1,922
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) - - 2,713 2,448 2,350
Goodwill and other intangibles 310 235 116 109 107
Asbestos insurance receivable (noncurrent portion) 444 370 399 399 171
Deferred income taxes 186 228 - - -
Other noncurrent assets 450 419 286 252 238
Noncurrent assets of discontinued operations - 976 909 966 1,178
---------- ---------- ---------- ---------- ----------
1,390 2,228 4,423 4,174 4,044
PROPERTY, PLANT AND EQUIPMENT
Cost
Performance Materials 637 573 613 567 561
Distribution 407 378 355 357 383
Valvoline 489 488 466 452 406
Water Technologies 255 184 167 156 149
Unallocated and other 219 207 201 178 135
---------- ---------- ---------- ---------- ----------
2,007 1,830 1,802 1,710 1,634
Accumulated depreciation and amortization (1,057) (1,000) (1,025) (963) (878)
---------- ---------- ---------- ---------- ----------
950 830 777 747 756
---------- ---------- ---------- ---------- ----------
$ 6,590 $ 6,815 $ 7,502 $ 7,006 $ 6,722
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Debt due within one year
Short-term debt $ - $ - $ 40 $ - $ 10
Current portion of long-term debt 12 12 399 102 191
Dividends payable 674 - - - -
Trade and other payables 1,302 1,239 1,106 1,111 991
Income taxes 53 13 14 11 24
Current liabilities of discontinued operations - 281 256 260 292
---------- ---------- ---------- ---------- ----------
2,041 1,545 1,815 1,484 1,508
NONCURRENT LIABILITIES
Long-term debt (less current portion) 70 82 1,109 1,512 1,606
Employee benefit obligations 313 358 428 385 509
Deferred income taxes - - 286 215 177
Asbestos litigation reserve (noncurrent portion) 585 521 568 560 152
Other long-term liabilities and deferred credits 485 482 429 449 451
Noncurrent liabilities of discontinued operations - 88 161 148 146
---------- ---------- ---------- ---------- ----------
1,453 1,531 2,981 3,269 3,041
STOCKHOLDERS' EQUITY
Common stock 1 1 72 68 68
Paid-in capital 240 605 478 350 338
Retained earnings 2,899 3,251 2,262 1,961 1,961
Accumulated other comprehensive loss (44) (118) (106) (126) (194)
---------- ---------- ---------- ---------- ----------
3,096 3,739 2,706 2,253 2,173
---------- ---------- ---------- ---------- ----------
$ 6,590 $ 6,815 $ 7,502 $ 7,006 $ 6,722
========== ========== ========== ========== ==========
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended September 30
(In millions) 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Net income $ 407 $ 2,004 $ 378 $ 75 $ 117
Results from discontinued operations (net of income taxes) (224) (46) (67) 23 (101)
Cumulative effect of accounting changes - - - 5 11
Adjustments to reconcile income from continuing operations
to cash flows from operating activities
Depreciation and amortization 111 100 98 96 94
Deferred income taxes (1) (500) 104 66 (146)
Equity income from affiliates (11) (525) (412) (292) (181)
Distributions from equity affiliates 5 279 152 203 201
Loss (gain) on the MAP transaction 5 (1,284) - - -
Loss on early retirement of debt - 145 - - -
Change in operating assets and liabilities (a) (141) (232) (210) 25 (36)
Other items (3) (5) - - -
---------- ---------- ---------- ---------- ----------
148 (64) 43 201 (41)
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
Proceeds from issuance of long-term debt - - - - 55
Proceeds from issuance of common stock 18 115 108 2 11
Excess tax benefits related to share-based payments 6 20 3 - -
Repayment of long-term debt (13) (1,552) (100) (216) (140)
Repurchase of common stock (405) (100) - - (42)
(Decrease) increase in short-term debt - (40) 40 (10) 10
Cash dividends paid (78) (79) (77) (75) (76)
---------- ---------- ---------- ---------- ----------
(472) (1,636) (26) (299) (182)
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Additions to property, plant and equipment (175) (180) (137) (65) (71)
Purchase of operations - net of cash acquired (183) (135) (5) - (7)
Proceeds from sale of operations - 3,303 - - -
Purchases of available-for-sale securities (824) (402) - - -
Proceeds from sales and maturities of
available-for-sale securities 876 1 - - -
Purchase of accounts receivable - (150) - - -
Collections of accounts receivable purchased - 150 - - -
Other - net 20 9 23 (5) 21
---------- ---------- ---------- ---------- ----------
(286) 2,596 (119) (70) (57)
---------- ---------- ---------- ---------- ----------
CASH (USED) PROVIDED BY CONTINUING OPERATIONS (610) 896 (102) (168) (280)
Cash provided (used) by discontinued operations
Operating cash flows 197 53 143 41 256
Investing cash flows 1,248 (207) (21) 260 (122)
---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 835 742 20 133 (146)
Cash and cash equivalents - beginning of year 985 243 223 90 236
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,820 $ 985 $ 243 $ 223 $ 90
========== ========== ========== ========== ==========
(INCREASE) DECREASE IN OPERATING ASSETS (a)
Accounts receivable $ (76) $ (291) $ (149) $ (51) $ 64
Inventories (56) (72) (9) 13 6
Other current assets 21 94 (60) 31 39
Investments and other assets (32) (247) (15) 17 36
INCREASE (DECREASE) IN OPERATING LIABILITIES (a)
Trade and other payables 42 106 (3) 102 (58)
Other current liabilities (90) (27) (11) (45) (18)
Noncurrent liabilities 50 205 37 (42) (105)
---------- ---------- ---------- ---------- ----------
CHANGE IN OPERATING ASSETS AND LIABILITIES $ (141) $ (232) $ (210) $ 25 $ (36)
========== ========== ========== ========== ==========
(a) Excludes changes resulting from operations acquired or sold.
Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
(In millions) 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
REVENUES
Sales and operating revenues
Performance Materials $ 1,425 $ 1,369 $ 1,026 $ 875 $ 814
Distribution 4,070 3,810 3,199 2,810 2,541
Valvoline 1,409 1,326 1,297 1,235 1,152
Water Technologies 502 394 360 337 316
Intersegment sales (a)
Performance Materials (145) (143) (85) (68) (62)
Distribution (23) (22) (19) (21) (20)
Valvoline (3) (2) (1) (2) (2)
Water Technologies (2) (1) (1) (1) (1)
---------- ---------- ---------- ---------- ----------
7,233 6,731 5,776 5,165 4,738
Equity income
Performance Materials 10 7 7 7 4
Valvoline 1 1 - - 1
Refining and Marketing - 517 405 285 176
---------- ---------- ---------- ---------- ----------
11 525 412 292 181
Other income
Performance Materials 4 17 8 4 2
Distribution 4 7 9 19 17
Valvoline 7 6 4 5 7
Water Technologies 4 4 8 6 2
Refining and Marketing - 3 (6) 2 2
Unallocated and other 14 2 3 10 5
---------- ---------- ---------- ---------- ----------
33 39 26 46 35
---------- ---------- ---------- ---------- ----------
$ 7,277 $ 7,295 $ 6,214 $ 5,503 $ 4,954
========== ========== ========== ========== ==========
OPERATING INCOME
Performance Materials $ 112 $ 88 $ 42 $ (1) $ 34
Distribution 120 99 56 12 (15)
Valvoline (21) 59 77 61 56
Water Technologies 14 11 14 3 12
Refining and Marketing (b) - 486 383 263 143
Unallocated and other (55) (72) (47) (55) (52)
---------- ---------- ---------- ---------- ----------
$ 170 $ 671 $ 525 $ 283 $ 178
========== ========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION
Performance Materials $ 31 $ 31 $ 30 $ 30 $ 29
Distribution 21 18 18 19 21
Valvoline 28 27 27 26 24
Water Technologies 17 13 11 10 9
Unallocated and other 14 11 12 11 11
---------- ---------- ---------- ---------- ----------
$ 111 $ 100 $ 98 $ 96 $ 94
========== ========== ========== ========== ==========
(a) Intersegment sales are accounted for at prices that approximate
market value.
(b) Includes Ashland's equity income from MAP through June 30, 2005,
amortization related to Ashland's excess investment in MAP, and other
activities associated with refining and marketing.
Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
(In millions) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Performance Materials $ 841 $ 764 $ 640 $ 563 $ 551
Distribution 1,148 1,057 922 856 884
Valvoline 742 723 658 667 611
Water Technologies 468 233 202 186 179
Refining and Marketing - - 2,742 2,484 2,409
Discontinued operations - 1,569 1,428 1,481 1,709
Unallocated and other (a) 3,391 2,469 910 769 379
---------- ---------- ---------- ---------- ----------
$ 6,590 $ 6,815 $ 7,502 $ 7,006 $ 6,722
========== ========== ========== ========== ==========
CAPITAL EMPLOYED
Performance Materials $ 505 $ 466 $ 373 $ 335 $ 339
Distribution 564 513 449 418 459
Valvoline 489 483 388 399 343
Water Technologies 322 146 116 103 99
RETURN ON INVESTMENT (b)
Performance Materials 15.9% 10.8 (c) 8.0% (0.1)% 6.1%
Distribution 13.5% 12.0% 7.7% 1.4% (2.6)%
Valvoline (2.6)% 9.0% (c) 11.5% 9.9% 9.2%
Water Technologies 6.4% 7.6% 9.0% 3.5% 8.2%
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Performance Materials $ 58 $ 45 $ 45 $ 23 $ 20
Distribution 36 26 10 5 15
Valvoline 38 66 26 18 22
Water Technologies 23 19 17 11 7
Unallocated and other 20 24 39 8 7
---------- ---------- ---------- ---------- ----------
$ 175 $ 180 $ 137 $ 65 $ 71
========== ========== ========== ========== ==========
(a) Includes cash, cash equivalents and other unallocated assets.
(b) Calculated as income from continuing operations divided by average
quarterly capital employed.
(c) On June 30, 2005, Ashland transferred its 38-percent interest in
Marathon Ashland Petroleum LLC and two other businesses to Marathon
Oil Corporation (the "MAP Transaction"). Amounts for 2005 exclude the
respective portions of the net gain on the MAP transaction of $43
million for Performance Materials and $24 million for Valvoline. For
further information, see Note E of Notes to Consolidated Financial
Statements in Ashland's annual report of Form 10-K for the year ended
September 30, 2006. Including these amounts, the return on investment
would have been 20.3% for Performance Materials and 14.4% for
Valvoline.
Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30
(In millions) 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
Performance Materials (a)
Sales per shipping day $ 5.7 $ 5.4 $ 4.0 $ 3.5 $ 3.2
Pounds sold per shipping day 4.9 5.4 5.1 4.7 4.7
Gross profit as a percent of sales 22.5% 20.4% 20.4% 22.1% 25.8%
Distribution (a)
Sales per shipping day $ 16.2 $ 15.1 $ 12.6 $ 11.2 $ 10.1
Pounds sold per shipping day 18.9 19.2 19.4 18.2 17.3
Gross profit as a percent of sales 9.5% 9.7% 9.6% 9.9% 9.7%
Valvoline (a)
Lubricant sales (gallons) 168.7 175.4 191.6 193.5 199.0
Premium lubricants (percent of U.S. branded volumes) 23.1% 23.4% 21.5% 18.5% 16.1%
Gross profit as a percent of sales 19.9% 26.6% 28.2% 27.8% 27.3%
Water Technologies (a)
Sales per shipping day $ 2.0 $ 1.6 $ 1.4 $ 1.3 $ 1.3
Gross profit as a percent of sales 43.7% 47.8% 49.3% 50.4% 51.2%
- -----------------------------------------------------------------------------------------------------------------------------
(a) Sales are defined as sales and operating revenues. Gross profit is
defined as sales and operating revenues, less cost of sales and
operating expenses.
Ashland Inc. and Consolidated Subsidiaries
INTERNATIONAL OPERATIONS
Years Ended September 30
(In millions) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL ASSETS
Performance Materials $ 463 $ 396 $ 333 $ 269 $ 245
Distribution 264 216 184 152 125
Valvoline 158 146 132 121 101
Water Technologies 268 88 83 83 74
---------- ---------- ---------- ---------- -----------
1,153 846 732 625 545
INTERNATIONAL LIABILITIES
Performance Materials 130 102 94 71 66
Distribution 127 94 88 59 49
Valvoline 44 42 54 45 37
Water Technologies 89 31 34 33 33
---------- ---------- ---------- ---------- -----------
390 269 270 208 185
NET INTERNATIONAL INVESTMENT
Performance Materials 333 294 239 198 179
Distribution 137 122 96 93 76
Valvoline 114 104 78 76 64
Water Technologies 179 57 49 50 41
---------- ---------- ---------- ---------- -----------
$ 763 $ 577 $ 462 $ 417 $ 360
========== ========== ========== ========== ===========
INTERNATIONAL INCOME BEFORE INCOME TAXES (a)
Performance Materials $ 68 $ 64 $ 43 $ 30 $ 27
Distribution 12 17 14 8 6
Valvoline 19 26 20 16 9
Water Technologies 41 37 30 24 27
---------- ---------- ---------- ---------- -----------
$ 140 $ 144 $ 107 $ 78 $ 69
========== ========== ========== ========== ===========
INTERNATIONAL REVENUES (b)
Performance Materials $ 608 $ 601 $ 387 $ 307 $ 257
Distribution 729 663 537 432 360
Valvoline 310 287 249 208 177
Water Technologies 309 229 202 178 161
---------- ---------- ---------- ---------- -----------
$ 1,956 $ 1,780 $ 1,375 $ 1,125 $ 955
========== ========== ========== ========== ===========
(a) Amounts represent income recorded by international subsidiaries,
equity and dividend income from international affiliates, and
international source royalty and other income recorded by U.S.
subsidiaries. Amounts do not reflect intercompany items eliminated in
consolidation (e.g. interest) or any allocation of unallocated
expenses incurred in the U.S. (e.g., research and development,
advertising or administrative expenses) for the benefit of both U.S.
and international operations.
(b) Includes sales and operating revenues, equity income and other income.
Ashland Inc. and Consolidated Subsidiaries
INTERNATIONAL OPERATIONS
Years Ended September 30
(In millions) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL ASSETS
Europe $ 715 $ 499 $ 432 $ 372 $ 329
Canada 193 189 164 142 124
Asia 131 72 58 43 36
Australia and New Zealand 55 46 48 42 34
Other 59 40 30 26 22
---------- ---------- ---------- ---------- -----------
1,153 846 732 625 545
INTERNATIONAL LIABILITIES
Europe 287 181 180 138 129
Canada 48 48 52 40 32
Asia 22 9 11 10 8
Australia and New Zealand 19 17 17 11 10
Other 14 14 10 9 6
---------- ---------- ---------- ---------- -----------
390 269 270 208 185
NET INTERNATIONAL INVESTMENT
Europe 428 318 252 234 200
Canada 145 141 112 102 92
Asia 109 63 47 33 28
Australia and New Zealand 36 29 31 31 24
Other 45 26 20 17 16
---------- ---------- ---------- ---------- -----------
$ 763 $ 577 $ 462 $ 417 $ 360
========== ========== ========== ========== ===========
INTERNATIONAL INCOME BEFORE INCOME TAXES (a)
Europe $ 67 $ 61 $ 41 $ 24 $ 31
Canada 29 40 32 25 25
Asia 18 14 14 13 10
Australia and New Zealand 6 10 11 8 3
Other 20 19 9 8 -
---------- ---------- ---------- ---------- -----------
$ 140 $ 144 $ 107 $ 78 $ 69
========== ========== ========== ========== ===========
INTERNATIONAL REVENUES (b)
Europe $ 1,118 $ 999 $ 757 $ 626 $ 516
Canada 421 422 344 292 265
Asia 143 114 87 70 57
Australia and New Zealand 107 105 95 75 61
Other 167 140 92 62 56
---------- ---------- ---------- ---------- -----------
$ 1,956 $ 1,780 $ 1,375 $ 1,125 $ 955
========== ========== ========== ========== ===========
(a) Amounts represent income recorded by international subsidiaries,
equity and dividend income from international affiliates, and
international source royalty and other income recorded by U.S.
subsidiaries. Amounts do not reflect intercompany items eliminated in
consolidation (e.g. interest) or any allocation of unallocated
expenses incurred in the U.S. (e.g., research and development,
advertising or administrative expenses) for the benefit of both U.S.
and international operations.
(b) Includes sales and operating revenues, equity income and other
income.