COVINGTON, Ky. - Ashland Inc. (NYSE: ASH), a global leader in specialty chemical solutions for consumer and industrial markets, today announced preliminary(1) results for the quarter ended Sept. 30, 2011, the fourth quarter of its 2011 fiscal year. Ashland acquired International Specialty Products Inc. (ISP) on Aug. 23, 2011, and ISP's results for the five weeks of Ashland's ownership are included in the September 2011 quarter.
Quarterly Highlights
| (in millions except per-share amounts) | | Quarter Ended Sept. 30, |
| | | | 2011 | | | 2010 |
| Operating income (loss) | | $ | (370) | | $ | (180) |
| Key items* | | | 507 | | | 285 |
| Adjusted operating income* | | $ | 137 | | $ | 105 |
| | | | | | | |
| Adjusted EBITDA* | | $ | 221 | | $ | 170 |
| | | | | | | |
| Diluted earnings per share (EPS) | | | | | | |
| From net income | | $ | (3.38) | | $ | (1.79) |
| | | | | | | |
| From continuing operations | | $ | (3.50) | | $ | (1.53) |
| Key items* | | |
4.51 | | | 2.37 |
| Adjusted EPS from continuing operations* | | $ | 1.01 | | $ | 0.84 |
| | | | | | | |
Cash flows provided by operating activities
from continuing operations | | $ | 154 | | $ | 208 |
| Free cash flow* | | | 35 | | | 102 |
| | | | | | | |
| * See Tables 5, 6 and 7 for definitions and U.S. GAAP reconciliations. | | | |
GAAP(2) Results
For its 2011 fourth quarter, Ashland reported sales of $1,846 million, an operating loss of $370 million, a loss from continuing operations of $273 million ($3.50 per share) and a net loss of $263 million (
$3.38 per share). Earnings per share were negatively affected by a noncash charge of $3.51 related to an actuarial loss on pension. This, combined with other key items, resulted in a total charge for key items of $4.51 for the quarter. Cash flows from operating activities from continuing operations amounted to $154 million.
Adjusted Results
Ashland's adjusted EPS was $1.01 for the September 2011 quarter, up 20 percent over the prior year. Adjusting for the impact of key items in both the current and prior-year quarters and excluding the results of ISP, Ashland's results for the September 2011 quarter as compared with the September 2010 quarter were as follows:
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sales grew 8 percent to $1,641 million;
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adjusted operating income rose 10 percent to $116 million; and
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adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 6 percent to $181 million.
During the five weeks of Ashland's ownership, ISP generated $205 million of sales; $21 million of adjusted operating income, which included $13 million of stepped-up depreciation and amortization; and adjusted EBITDA of $40 million.
Key Items
In total, six key items had a net unfavorable EPS impact on continuing operations of $4.51 in the
September 2011 quarter:
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a $275 million ($3.51 negative EPS impact) noncash aftertax charge related to an actuarial loss on pension and other postemployment benefits, as a result of unfavorable asset returns and a reduction in the discount rate, such gains and losses now being recognized in the year they occur, consistent with the change in pension accounting method described in Ashland's Form 8-K dated Sept. 9, 2011;
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a $25 million (32 cents negative EPS impact) aftertax charge for severance expense primarily related to corporate cost-reduction programs and restructuring within Ashland Water Technologies;
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an $11 million (14
cents negative EPS impact) aftertax charge for adjustments to environmental reserves and asset impairments associated with legacy sites unrelated to ongoing operations;
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a $10 million (13 cents negative EPS impact) aftertax charge for stepped-up inventory values related to the acquisition of ISP;
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a $21 million (27 cents negative EPS impact) aftertax charge related to acquisitions and divestitures, due to transaction costs incurred with the purchase of ISP and a tax adjustment related to the former Marathon Ashland Petroleum joint venture; and
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a net $11 million (14 cents negative EPS impact) charge, related to various discrete tax adjustments.
In the year-ago quarter, three key items had a net unfavorable EPS impact of $2.37. Refer to Table 5 of the accompanying financial statements for details of key items in both periods.
Performance Summary
Commenting on the company's achievements, Ashland Chairman and Chief Executive Officer James J. O'Brien said, "Certainly the highlight of the September quarter and Ashland's fiscal year was the acquisition of ISP for $3.2 billion in cash. With strong positions in key growth markets, including personal care and pharmaceutical, ISP is a perfect strategic fit with our Ashland Aqualon Functional Ingredients commercial unit. Today, the combined business is known as Ashland Specialty Ingredients, and on a full-year pro forma basis, this new commercial unit
would have generated roughly half of Ashland's $1.2 billion of fiscal 2011 EBITDA."
Commenting on Ashland's September 2011 quarterly performance, O'Brien continued, "Even excluding the contribution from ISP, Ashland achieved 6-percent EBITDA growth and 8-percent sales growth versus the prior-year quarter, with another strong quarter from the former Functional Ingredients business."
Business Performance
In 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. As a reminder, five weeks of ISP's results are included in the September 2011 quarterly performance. The majority of ISP's results are
included within the Specialty Ingredients commercial unit, with the results of ISP's elastomers business included within Ashland Performance Materials. A small amount of corporate expenses from ISP is included within the Unallocated and Other line item within Ashland's segment reporting.
Ashland Specialty Ingredients recorded sales of $467 million and EBITDA of $114 million for the September 2011 quarter. EBITDA as a percent of sales was 24.4 percent as compared with 18.8 percent in the prior September quarter.
Excluding ISP, Specialty Ingredients' sales increased 30 percent over the year-ago quarter to $310 million, on strong volume growth and pricing. On this same basis, gross profit was 32.5 percent, up 380 basis points over the prior-year quarter. While raw material costs have
increased significantly over the prior year, ongoing pricing efforts have been effective at restoring more normalized margin levels. Selling, general and administrative and research-and-development (SG&A) expenses were relatively even at $50 million. In total and excluding ISP, Specialty Ingredients' EBITDA rose $30 million to $75 million in the September 2011 quarter.
During Ashland's five weeks of ownership, ISP contributed $157 million of sales, $27 million of SG&A and $39 million of EBITDA to Specialty Ingredients.
Ashland Water Technologies' sales were $491 million in the September 2011 quarter, up 6 percent over the year-ago quarter and up slightly sequentially. Gross profit as a percent of sales of 31.4
percent was 30 basis points below the year-ago quarter, but up 170 basis points sequentially. Due to ongoing pricing efforts, Water Technologies has covered its raw-material cost increases as compared with the prior-year quarter, but has yet to fully push through sufficient pricing to improve margins. SG&A expenses were essentially even with the prior year and sequentially. In total, Water Technologies' EBITDA of $50 million was up 14 percent over the prior-year quarter and 11 percent sequentially. EBITDA amounted to 10.2 percent of sales in the September 2011 quarter, as compared with 9.5 percent in the prior-year quarter and 9.2 percent sequentially.
Ashland Performance Materials' results for the September 2011 quarter include five weeks of results from the elastomers business acquired with ISP. Sales of $371
million for the September 2011 quarter were 5 percent above the year-ago quarter. Year-over-year results were affected by the December 2010 formation of the global ASK Chemicals joint venture, to which Performance Materials contributed its former Casting Solutions business unit. Excluding the effects of this transaction and the elastomers business, sales were up 13 percent over the prior year. On this same basis, volume per shipping day was essentially flat versus the year-ago quarter. Gross profit as a percent of sales of 13.2 percent was 440 basis points below the September 2010 quarter. Higher manufacturing expense, raw-material cost increases and the negative mix effect attributable to the ASK Chemicals joint venture caused the majority of this decline. SG&A was $36 million for the September 2011
quarter. Excluding the effects of the elastomers business and ASK Chemicals joint venture, SG&A declined 8 percent from the prior year. For the September 2011 quarter, Performance Materials reported EBITDA of $24 million, including $7 million from the elastomers business, and EBITDA as a percent of sales was 6.5 percent.
Ashland Consumer Markets' sales of $517 million increased 12 percent over the year-ago September quarter, despite a 6-percent decline in lubricant volume. Sequentially, sales were off 1 percent, and lubricant volume declined 7 percent. The majority of the volume decline is attributable to the loss of a low-margin tolling account. Excluding this, volume was off approximately 2 percent versus the prior-year quarter, generally in line with overall market trends. These trends are likely
attributable to fewer miles driven during the quarter and reduced consumer spending on routine vehicle maintenance. Gross profit as a percent of sales declined to 23.0 percent in the September 2011 quarter, 590 basis points below the year-ago quarter and down 360 basis points sequentially, due to continuing raw-material cost escalation during the quarter. Consumer Markets has successfully implemented three separate price increases since the start of the calendar year, recovering more than $160 million of annualized cost increases. Given a 50-cent-per-gallon increase in base oil that became effective July 1, Consumer Markets announced additional pricing, which should be fully implemented by the end of the calendar year. SG&A increased $10 million over the prior year, with more than two-thirds of the increase
attributable to a greater investment in advertising and promotion. In total, Consumer Markets' EBITDA of $39 million was approximately 38 percent below both the September 2010 and June 2011 quarters. The EBITDA margin was 7.5 percent for the September 2011 quarter, 610 basis points below the prior year and down 440 basis points sequentially.
After excluding the effects from key items, Ashland's effective tax rate for the September 2011 quarter was 22 percent, benefiting from higher relative income in lower-tax-rate regions of the world. This brings the effective tax rate to 28 percent for fiscal 2011.
Outlook
Commenting on Ashland's outlook, O'Brien said, "I am very enthusiastic about the expanded opportunities offered by
acquiring ISP. This defining transaction has positioned Ashland as one of the leading specialty chemical companies in the world. The integration process is going very well. We have acquired a great set of assets and market positions and a strong group of employees who have been instrumental to ISP's success."
O'Brien concluded, "The company we have today has been several years in the making, and I'm pleased with what we've accomplished. Over this period, our corporate focus has been on transforming our business portfolio and positioning Ashland for sustainable growth. We have completely reinvented the company. Now, we are shifting our emphasis to focused growth and earnings expansion, and I believe we have all the necessary elements to achieve long-term success."
Conference Call Webcast
At 9 a.m.
EST Wednesday, Nov. 9, Ashland will provide a live webcast of its fourth-quarter conference call with securities analysts. The webcast and supporting materials will be accessible through Ashland's website at http://investor.ashland.com. Following the live event, an archived version of the webcast and supporting materials will be available for 12 months.
Use of Non-GAAP Measures
This 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 with this news release.
About Ashland
In 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, food and beverage, personal care, pharmaceutical, tissue and towel, and water treatment. Visit www.ashland.com to see the innovations we offer through our four commercial units - Ashland
Specialty Ingredients, Ashland Water Technologies, Ashland Performance Materials and Ashland Consumer Markets (Valvoline).
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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. In addition, Ashland may from time to time make forward-looking statements in its other filings with the Securities and Exchange Commission (SEC), news releases and other written and oral communications. These forward-looking statements are based on Ashland's expectations and assumptions, as of the date such statements are made, regarding Ashland's future operating
performance and financial condition, the economy and other future events or circumstances. Ashland's expectations and assumptions include, without limitation, internal forecasts and analyses of current and future market conditions and trends, management plans and strategies, operating efficiencies and economic conditions (such as prices, supply and demand, cost of raw materials, and the ability to recover raw-material cost increases through price increases), and risks and uncertainties associated with the following: the possibility that the benefits anticipated from the acquisition of International Specialty Products Inc. (ISP) will not be fully realized, the substantial indebtedness Ashland has incurred to finance the acquisition of ISP (including the possibility that such debt and related restrictive covenants may adversely affect
Ashland's future cash flows, results of operations, financial condition and its ability to repay debt), severe weather, natural disasters, and legal proceedings and claims (including environmental and asbestos matters). Various risks and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements, including, without limitation, risks and uncertainties affecting Ashland that are described in its most recent Form 10-K (including Item 1A Risk Factors) and Forms 10-Q filed with the SEC, which are available on Ashland's website at http://investor.ashland.com or on the SEC's website at www.sec.gov. Ashland believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected
herein will be achieved. Ashland undertakes no obligation to subsequently update any forward-looking statements made in this news release or otherwise except as required by securities or other applicable law.
(1) Preliminary Results
Financial results are preliminary until Ashland's annual report on Form 10-K for the fiscal year ended Sept. 30, 2011, is filed with the U.S. Securities and Exchange Commission.
(2) Generally accepted accounting principles (U.S.)
FOR ADDITIONAL INFORMATION:
Media Relations:
Jim Vitak
(614) 790-3715jevitak@ashland.com
Investor Relations:
David Neuberger
(859) 815-4454
daneuberger@ashland.com
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(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Ashland Inc. via Thomson Reuters ONE
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