Ashland Inc. reports fiscal fourth quarter preliminary income of 79 cents per share from continuing operations
Press Release
Ashland Inc. reports fiscal fourth quarter preliminary income of 79 cents per share from continuing operations
"I'm generally pleased with our September quarter results," said James J. O'Brien, chairman and chief executive officer. "While there are many items that impacted our results, our businesses performed well with the exception of Valvoline." (See page 5 of financial information for details of the impact of each of these significant items on operating income for each of the businesses.)
"During the fourth quarter, Ashland Distribution and Ashland Performance Materials delivered strong results, with improvements in revenues and operating income," said O'Brien. "I'm also pleased to report that Ashland Water Technologies posted significantly improved results. Valvoline, however, recorded an operating loss due to continued margin compression and charges for asset impairments and severance costs."
Ashland sold Ashland Paving And Construction, Inc. (APAC), during the quarter for $1.3 billion and now expects net proceeds after taxes and fees to be $1.23 billion. The company is returning those net proceeds to shareholders through a special dividend of $10.20 per share that was paid to shareholders on Oct. 25, 2006, and an ongoing stock buyback program. According to generally accepted accounting principles, APAC is now a discontinued operation, and Ashland's prior-period results reflect this presentation.
"The sale of APAC represents an important strategic step in our transformation into a diversified chemical company," O'Brien continued. "It also enabled us to return value to shareholders in the form of the special dividend paid last week and the share buyback underway. More important, we are in a strong financial position and sharply focused on our growth, both organically and through acquisitions."
Performance Materials increased its operating income to $17.8 million for the September 2006 quarter, 19 percent above the year-ago quarter's income of $15.0 million. Operating income for the 2006 quarter included charges of $7.1 million for environmental remediation and severance costs, partially offset by $2.7 million of income from favorable insurance settlements. In comparison, the prior-year quarter included charges for environmental remediation and asset impairments of $1.5 million. Lower overall selling, general and administrative expenses accounted for the increased earnings during the 2006 quarter. Sales and operating revenues were $358 million for the September 2006 quarter, 5 percent above the September 2005 quarter, while unit volume was unchanged.
Distribution continued its strong operating performance during the September 2006 quarter with record earnings of $25.6 million, up 33 percent over the year-ago quarter. Operating income for the 2006 quarter was unfavorably impacted by environmental remediation expense and severance costs totaling $10.7 million, partially offset by $3.5 million of income from insurance settlements. Expenses for environmental remediation and asset impairments totaled $2.2 million in the September 2005 quarter. As compared with the year-ago quarter, sales and operating revenues increased 5 percent to $1,024 million for the September 2006 quarter, while volume declined 3 percent. Revenue growth was driven by higher selling prices as Distribution was able to pass through cost increases to the marketplace. Higher unit margins, coupled with excellent cost controls, drove income growth.
Valvoline recorded an operating loss of $14.6 million for the September 2006 quarter as compared with operating income of $10.3 million in the year- ago quarter. Valvoline's sales and operating revenues increased 12 percent over the September 2005 quarter to $379 million, as price increases began to take effect in the marketplace. Valvoline's results for the 2006 quarter included charges of $4.4 million for asset impairments, primarily related to the closing of 33 Valvoline Instant Oil Change® stores, and $1.7 million for severance costs. The 2005 quarter included charges of $1.2 million for severance costs and environmental remediation. Volumes declined 7 percent versus the year-ago quarter. Valvoline's performance for the quarter reflected lower margins, as persistent high costs for base lube oil, additives and packaging were not fully offset by price increases in the marketplace.
Water Technologies reported operating income of $4.9 million for the September 2006 quarter as compared with $2.0 million for the prior-year quarter. Operating income for the September 2006 quarter includes charges of $6.1 million for severance costs and $2.0 million for environmental remediation and income of $0.9 million from insurance settlements. The 2005 quarter included $0.3 million in environmental charges. Sales and operating revenues increased from $105 million in the September 2005 quarter to $191 million for the 2006 quarter. Both operating income and revenues benefited from a full quarter of activity from the Environmental and Process Solutions business acquired from Degussa AG at the end of May. Operating income also reflects significantly improved performance from Ashland's other water businesses.
Unallocated and Other for the September 2006 quarter includes $7.5 million in expenses for July and August previously allocated to APAC, $6.3 million in environmental remediation expense and income of $10.8 million from insurance settlements. Generally accepted accounting principles require that corporate costs previously allocated to APAC continue to be included in results of continuing operations rather than be reported with APAC in discontinued operations.
During the September 2006 quarter, the company favorably resolved certain open tax issues and reevaluated other open tax matters, which resulted in a tax benefit for the quarter. Taxes contributed $13 million to income in the quarter as compared with $63 million in the prior-year quarter, which also benefited from favorable adjustments. In addition, net interest income was $19 million in the September 2006 quarter as compared with $7 million in the prior-year quarter.
Commenting on the outlook for fiscal 2007, O'Brien concluded, "Performance Materials should benefit from continued global economic growth. Although facing softness in the U.S. residential construction and transportation markets, several specialty applications continue to expand, and the electrical, power and infrastructure markets remain strong. Distribution's performance will be largely determined by the growth of the North American economy. We're encouraged by recent developments in Valvoline's marketplace. While there is still work to do, our price increases, recent reductions in the cost of base lube oil and our cost-cutting efforts are beginning to take hold. As a result, we expect Valvoline to return to profitability for the December quarter. We expect Water Technologies to produce a solid year in 2007, benefiting from its business model redesign, cost reductions and the addition of the Environmental and Process Solutions business."
Today at 4 p.m. (EST), Ashland will provide a live webcast of its fourth- quarter presentation to securities analysts. The webcast will be accessible through Ashland's website, http://www.ashland.com. Following the live event, an archived version of the webcast will be available for 12 months at http://www.ashland.com/investors.
Ashland Inc. (NYSE: ASH), a diversified, global chemical company, provides quality products, services and solutions to customers in more than 100 countries. A FORTUNE 500 company, it operates through four wholly owned divisions: Ashland Performance Materials, Ashland Distribution, Valvoline and Ashland Water Technologies. To learn more about Ashland, visit http://www.ashland.com.
FORTUNE 500 is a registered trademark of Time Inc.
* Preliminary Results
Financial results are preliminary until the Company's Annual Report on Form 10-K is filed with the U.S. Securities and Exchange Commission.
Forward-Looking Statements
This news release contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, with respect to Ashland's operating performance. These estimates are based upon a number of assumptions, including those mentioned within this news release. Such estimates are also based upon internal forecasts and analyses of current and future market conditions and trends, management plans and strategies, weather, operating efficiencies and economic conditions, such as prices, supply and demand, cost of raw materials, and legal proceedings and claims (including environmental and asbestos matters). Although Ashland believes its expectations are based on reasonable assumptions, it cannot assure the expectations reflected herein will be achieved. This forward-looking information may prove to be inaccurate and actual results may differ significantly from those anticipated if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized or if other unexpected conditions or events occur. Other factors and risks affecting Ashland are contained in Ashland's Form 10-K, as amended, for the fiscal year ended Sept. 30, 2005. Ashland undertakes no obligation to subsequently update or revise the forward-looking statements made in this news release to reflect events or circumstances after the date of this release.
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data -
preliminary and unaudited)
Three months ended Year ended
September 30 September 30
2006 2005 2006 2005
REVENUES
Sales and operating revenues $1,908 $1,712 $7,233 $6,731
Equity income 4 1 11 525
Other income 13 1 33 39
1,925 1,714 7,277 7,295
COSTS AND EXPENSES
Cost of sales and operating expenses 1,612 1,415 6,030 5,545
Selling, general and administrative
expenses 285 278 1,077 1,079
1,897 1,693 7,107 6,624
OPERATING INCOME 28 21 170 671
(Loss) gain on the MAP Transaction (a) (4) (10) (5) 1,284
Loss on early retirement of debt - - - (145)
Net interest and other financing
income (costs) 19 7 47 (82)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 43 18 212 1,728
Income tax benefit (expense) 13 63 (29) 230
INCOME FROM CONTINUING OPERATIONS 56 81 183 1,958
Income from discontinued operations
(net of income taxes) (b) 144 30 224 46
NET INCOME $200 $111 $407 $2,004
DILUTED EARNINGS PER SHARE
Income from continuing operations $0.79 $1.08 $2.53 $26.23
Income from discontinued operations 2.03 0.40 3.11 0.62
Net income $2.82 $1.48 $5.64 $26.85
AVERAGE COMMON SHARES AND ASSUMED
CONVERSIONS 71 75 72 75
SALES AND OPERATING REVENUES
Performance Materials (c) $358 $341 $1,425 $1,369
Distribution 1,024 972 4,070 3,810
Valvoline 379 339 1,409 1,326
Water Technologies (c) 191 105 502 394
Intersegment sales (44) (45) (173) (168)
$1,908 $1,712 $7,233 $6,731
OPERATING INCOME
Performance Materials (c) $18 $15 $112 $88
Distribution 26 19 120 99
Valvoline (15) 10 (21) 59
Water Technologies (c) 5 2 14 11
Refining and Marketing (d) - - - 486
Unallocated and other (e) (6) (25) (55) (72)
$28 $21 $170 $671
(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.
(b) Ashland sold APAC to Oldcastle Materials, Inc. in August 2006 for
approximately $1.3 billion, recording an after-tax gain on sale of
discontinued operations of $110 million. After-tax operating results
of APAC (excluding previously allocated corporate costs - see note
(e) below) are reflected in discontinued operations, with prior
periods restated.
(c) In June 2006, Ashland redefined its reporting segments as it
continues to evolve into a diversified chemical company. Performance
Materials and Water Technologies, formerly combined under Ashland
Specialty Chemical, have now been separately disclosed. Prior
periods have been conformed to the current period presentation.
(d) 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.
(e) Includes corporate costs previously allocated to APAC of $8 million
and $13 million for the three months ended September 30, 2006 and
2005, respectively, and $41 million and $45 million for the years
ended September 30, 2006 and 2005, respectively.
Ashland Inc. and Consolidated Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - preliminary and unaudited)
September 30
2006 2005
ASSETS
Current assets
Cash and cash equivalents $1,820 $985
Available-for-sale securities 349 403
Accounts receivable 1,401 1,242
Inventories 532 439
Deferred income taxes 93 104
Other current assets 55 22
Current assets of discontinued
operations - 562
4,250 3,757
Investments and other assets
Goodwill and other intangibles 310 235
Asbestos insurance receivable
(noncurrent portion) 444 370
Deferred income taxes 186 228
Other noncurrent assets 450 419
Noncurrent assets of discontinued
operations - 976
1,390 2,228
Property, plant and equipment
Cost 2,007 1,830
Accumulated depreciation and
amortization (1,057) (1,000)
950 830
$6,590 $6,815
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $12 $12
Dividends payable 674 -
Trade and other payables 1,302 1,239
Income taxes 53 13
Current liabilities of
discontinued operations - 281
2,041 1,545
Noncurrent liabilities
Long-term debt (less current
portion) 70 82
Employee benefit obligations 313 358
Reserves of captive insurance
companies 175 182
Asbestos litigation reserve
(noncurrent portion) 585 521
Other long-term liabilities and
deferred credits 310 309
Noncurrent liabilities of
discontinued operations - 79
1,453 1,531
Stockholders' equity 3,096 3,739
$6,590 $6,815
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - preliminary and unaudited)
Year ended
September 30
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES
FROM CONTINUING OPERATIONS
Net Income $407 $2,004
Results from discontinued operations
(net of income taxes) (224) (46)
Adjustments to reconcile income from
continuing operations to cash flows
from operating activities
Depreciation and amortization 111 100
Deferred income taxes (1) (500)
Equity income from affiliates (11) (525)
Distributions from equity
affiliates 5 279
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)
Other items (3) (5)
148 (64)
CASH FLOWS FROM FINANCING ACTIVITIES
FROM CONTINUING OPERATIONS
Proceeds from issuance of common
stock 18 115
Excess tax benefits related to
share-based payments 6 20
Repayment of long-term debt (13) (1,552)
Repurchase of common stock (405) (100)
Decrease in short-term debt - (40)
Cash dividends paid (78) (79)
(472) (1,636)
CASH FLOWS FROM INVESTING ACTIVITIES
FROM CONTINUING OPERATIONS
Additions to property, plant and
equipment (175) (180)
Purchase of operations - net of cash
acquired (183) (135)
Proceeds from sale of operations (b) - 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
(286) 2,596
CASH (USED) PROVIDED BY CONTINUING
OPERATIONS (610) 896
Cash provided (used) by discontinued
operations
Operating cash flows 197 53
Investing cash flows 1,248 (207)
INCREASE IN CASH AND CASH EQUIVALENTS $835 $742
DEPRECIATION AND AMORTIZATION
Performance Materials (c) $31 $31
Distribution 21 18
Valvoline 28 27
Water Technologies (c) 17 13
Unallocated and other 14 11
$111 $100
ADDITIONS TO PROPERTY, PLANT AND
EQUIPMENT
Performance Materials (c) $58 $45
Distribution 36 26
Valvoline 38 66
Water Technologies (c) 23 19
Unallocated and other 20 24
$175 $180
(a) Excludes changes resulting from operations acquired or sold.
(b) Amount for 2005 includes cash proceeds (net of expenses) of $3,290
million from the MAP Transaction.
(c) In June 2006, Ashland redefined its reporting segments as it
continues to evolve into a diversified chemical company. Performance
Materials and Water Technologies, formerly combined under Ashland
Specialty Chemical, have now been separately disclosed. Prior
periods have been conformed to the current period presentation.
Ashland Inc. and Consolidated Subsidiaries
OPERATING INFORMATION BY INDUSTRY SEGMENT
(In millions - preliminary and unaudited)
Three months ended Year ended
September 30 September 30
2006 2005 2006 2005
PERFORMANCE MATERIALS (a) (b)
Sales per shipping day $5.7 $5.3 $5.7 $5.4
Pounds sold per shipping day 4.9 4.9 4.9 5.4
Gross profit as a percent of sales 20.3% 21.3% 22.5% 20.4%
DISTRIBUTION (a)
Sales per shipping day $16.3 $15.2 $16.2 $15.1
Pounds sold per shipping day 18.6 19.1 18.9 19.2
Gross profit as a percent of sales 8.8% 9.3% 9.5% 9.7%
VALVOLINE (a)
Lubricant sales (gallons) 41.1 44.0 168.7 175.4
Premium lubricants (percent of U.S.
branded volumes) 22.3% 23.1% 23.1% 23.4%
Gross profit as a percent of sales 16.0% 25.4% 19.9% 26.6%
WATER TECHNOLOGIES (a) (b)
Sales per shipping day $3.0 $1.6 $2.0 $1.6
Gross profit as a percent of sales 38.4% 47.2% 43.7% 47.8%
(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.
(a) In June 2006, Ashland redefined its reporting segments as it
continues to evolve into a diversified chemical company. Performance
Materials and Water Technologies, formerly combined under Ashland
Specialty Chemical, have now been separately disclosed. Prior
periods have been conformed to the current period presentation.
Ashland Inc. and Consolidated Subsidiaries
COMPONENTS OF OPERATING INCOME
(In millions)
Three Months Ended September 30, 2006
Water Unallo-
Per- Tech- cated
formance Distri- Valvo- nolo- &
Materials bution line gies Other Total
OPERATING INCOME
Environmental
remediation expense $(6.7) $(8.7) $0.3 $(2.0) $(6.3) $(23.4)
Severance costs (0.4) (2.0) (1.7) (6.1) (0.4) (10.6)
Insurance settlements 2.7 3.5 - 0.9 10.8 17.9
Asset impairments - - (4.4) (0.1) - (4.5)
Corporate costs
previously charged to
APAC - - - - (7.5) (7.5)
All other operating
income 22.2 32.8 (8.8) 12.2 (2.1) 56.3
$17.8 $25.6 $(14.6) $4.9 $(5.5) $28.2
Three Months Ended September 30, 2005
Water Unallo-
Per- Tech- cated
formance Distri- Valvo- nolo- &
Materials bution line gies Other Total
OPERATING INCOME
Environmental
remediation expense $(1.0) $(1.4) $(0.1) $(0.3) $(0.1) $(2.9)
Severance costs - - (1.1) - - (1.1)
Insurance settlements - - - - (13.2) (13.2)
Asset impairments (0.5) (0.8) - - - (1.3)
Corporate costs
previously charged to
APAC - - - - (13.0) (13.0)
All other operating
income 16.5 21.5 11.5 2.3 1.5 53.3
$15.0 $19.3 $10.3 $2.0 $(24.8) $21.8
SOURCE Ashland Inc.
CONTACT: Media Relations, Jim Vitak, +1-614-790-3715, or
jevitak@ashland.com, or Investor Relations, Dean Doza, +1-859-815-4454, or
lddoza@ashland.com, both of Ashland Inc.
/Web site: http://www.ashland.com
(ASH)