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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
50 E. RiverCenter Boulevard
P. O. Box 391
Covington, Kentucky 41012-0391
Telephone Number: (606) 815-3333
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
At July 31, 1999, there were 72,176,670 shares of
Registrant's Common Stock outstanding. One Right to purchase
one-thousandth of a share of Series A Participating
Cumulative Preferred Stock accompanies each outstanding share
of Registrant's Common Stock.
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
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Three months ended Nine months ended
June 30 June 30
-------------------------- ----------------------
(In millions except per share data) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues $ 1,796 $ 1,705 $ 4,945 $ 4,777
Equity income 108 159 208 265
Other income 15 13 54 58
------------ ---------- ----------- -----------
1,919 1,877 5,207 5,100
COSTS AND EXPENSES
Cost of sales and operating expenses 1,408 1,368 3,884 3,877
Selling, general and administrative expenses 264 238 782 673
Depreciation, depletion and amortization 50 45 153 129
------------ ---------- ----------- -----------
1,722 1,651 4,819 4,679
------------ ---------- ----------- -----------
OPERATING INCOME 197 226 388 421
Interest expense (net of interest income) (36) (33) (102) (96)
------------ ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 161 193 286 325
Income taxes (61) (70) (110) (122)
------------ ---------- ----------- -----------
NET INCOME $ 100 $ 123 $ 176 $ 203
=========== =========== ============ ===========
EARNINGS PER SHARE - Note A
Basic $ 1.36 $ 1.61 $ 2.37 $ 2.69
Diluted $ 1.35 $ 1.59 $ 2.35 $ 2.64
DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275 $ .825 $ .825
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
</TABLE>
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<TABLE>
<CAPTION>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30 September 30 June 30
(In millions) 1999 1998 1998
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ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 81 $ 34 $ 44
Accounts receivable 1,152 1,129 1,050
Allowance for doubtful accounts (23) (19) (20)
Inventories - Note A 491 440 486
Deferred income taxes 118 104 90
Other current assets 209 140 145
---------- ---------- ---------
2,028 1,828 1,795
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) 2,098 2,102 2,119
Investment in Arch Coal 422 422 426
Cost in excess of net assets of companies acquired 216 207 179
Other noncurrent assets 335 362 369
---------- ---------- ---------
3,071 3,093 3,093
PROPERTY, PLANT AND EQUIPMENT
Cost 2,594 2,413 2,315
Accumulated depreciation, depletion and amortization (1,340) (1,252) (1,225)
---------- ---------- ---------
1,254 1,161 1,090
---------- ---------- ---------
$ 6,353 $ 6,082 $ 5,978
========== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $ 357 $ 125 $ 230
Trade and other payables 1,108 1,199 1,032
Income taxes 30 37 63
---------- ---------- ---------
1,495 1,361 1,325
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,627 1,507 1,509
Employee benefit obligations 416 458 436
Reserves of captive insurance companies 183 165 178
Other long-term liabilities and deferred credits 527 454 356
Commitments and contingencies - Note E
---------- ---------- ---------
2,753 2,584 2,479
COMMON STOCKHOLDERS' EQUITY 2,105 2,137 2,174
---------- ---------- ---------
$ 6,353 $ 6,082 $ 5,978
========== ========== =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
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Accumulated
other
Common Paid-in Retained comprehensive
(In millions) stock capital earnings income Total
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<S> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1997 $ 75 $ 605 $ 1,379 $ (35) $ 2,024
Total comprehensive income (1) 203 (10) 193
Dividends (62) (62)
Issued common stock under
Stock incentive plans 13 13
Acquisitions of other companies 1 1 7 9
Other changes (3) (3)
--------- --------- ---------- ---------------- --------
BALANCE AT JUNE 30, 1998 $ 76 $ 616 $ 1,527 $ (45) $ 2,174
========= ========= ========== ================ ========
BALANCE AT OCTOBER 1, 1998 $ 76 $ 602 $ 1,501 $ (42) $ 2,137
Total comprehensive income (1) 176 (16) 160
Dividends (61) (61)
Issued common stock under
Stock incentive plans 6 6
Acquisitions of other companies 1 47 48
Repurchase of common stock (4) (181) (185)
--------- --------- ---------- ---------------- --------
BALANCE AT JUNE 30, 1999 $ 73 $ 474 $ 1,616 $ (58) $ 2,105
========= ========= ========== ================ ========
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(1) Reconciliations of net income to total comprehensive income follow.
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30 June 30
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(In millions) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net income $ 100 $ 123 $ 176 $ 203
Unrealized translation adjustments (3) (2) (14) (10)
Related tax benefit 1 - 3 -
Unrealized gains (losses) on securities (3) 1 (6) 4
Related tax benefit (expense) 1 - 2 (2)
Gains on securities included in net income - - (2) (3)
Related tax expense - - 1 1
----------- ---------- ----------- ----------
Total comprehensive income $ 96 $ 122 $ 160 $ 193
=========== =========== =========== ==========
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</TABLE>
At June 30, 1999, accumulated other comprehensive income was a loss
of $58 million comprised of net unrealized translation losses of $39
million, a minimum pension liability of $18 million and unrealized
losses on securities of $1 million.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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<CAPTION>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
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Nine months ended
June 30
--------------------------------
(In millions) 1999 1998
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<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Net income $ 176 $ 203
Expense (income) not affecting cash
Depreciation, depletion and amortization 153 129
Deferred income taxes 92 27
Equity income from affiliates (208) (265)
Distributions from equity affiliates 218 155
Other items (1) (6)
Change in operating assets and liabilities (1) (294) (175)
----------- -----------
136 68
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt 150 150
Proceeds from issuance of capital stock 4 8
Repayment of long-term debt (50) (47)
Repurchase of capital stock (185) -
Increase in short-term debt 236 171
Dividends paid (61) (62)
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94 220
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (158) (177)
Purchase of leased assets associated with the formation of MAP - (254)
Purchase of operations - net of cash acquired (2) (45) (147)
Investment purchases (3) (82) (174)
Investment sales and maturities (3) 99 272
Other - net 3 45
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(183) (435)
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CASH PROVIDED (USED) BY CONTINUING OPERATIONS 47 (147)
Cash used by discontinued operations - (59)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 47 (206)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 34 250
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 81 $ 44
=========== ===========
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</TABLE>
(1) Excludes changes resulting from operations acquired or sold.
(2) Amounts exclude acquisitions through the issuance of common stock, which
amounted to $48 million in 1999 and $41 million in 1998.
(3) Represents primarily investment transactions of captive insurance
companies.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and
Securities and Exchange Commission regulations. Although such
statements are subject to any year-end audit adjustments which may
be necessary, in the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. These financial statements
should be read in conjunction with Ashland's Annual Report on Form
10-K for the fiscal year ended September 30, 1998. Results of
operations for the periods ended June 30, 1999, are not
necessarily indicative of results to be expected for the year
ending September 30, 1999.
<TABLE>
<CAPTION>
INVENTORIES
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June 30 September 30 June 30
(In millions) 1999 1998 1998
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<S> <C> <C> <C>
Chemicals and plastics $ 376 $ 352 $ 388
Petroleum products 53 48 50
Construction materials 55 39 41
Other products 51 49 55
Supplies 8 9 10
Excess of replacement costs over LIFO carrying values (52) (57) (58)
-------- ------- -------
$ 491 $ 440 $ 486
======== ======= =======
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (EPS).
</TABLE>
<TABLE>
<CAPTION>
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Three months ended Nine months ended
June 30 June 30
----------------------- -----------------------
(In millions except per share data) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
NUMERATOR
Numerator for basic and diluted EPS - Net income $ 100 $ 123 $ 176 $ 203
========== ========== ========= ==========
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 73 76 74 76
Common shares issuable upon exercise of stock options 1 1 1 1
---------- ---------- ---------- ----------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 74 77 75 77
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 1.36 $ 1.61 $ 2.37 $ 2.69
DILUTED EARNINGS PER SHARE $ 1.35 $ 1.59 $ 2.35 $ 2.64
</TABLE>
6
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE B - INFORMATION BY INDUSTRY SEGMENT
During the quarter ended March 31, 1999, Ashland took steps to
provide greater market focus and definition for its former Ashland
Chemical operations with the creation of two new divisions -
Ashland Distribution Company and Ashland Specialty Chemical
Company. These divisions replace Ashland Chemical Company. The
Information By Industry Segment on Page 10 has been presented
showing these two new segments, with prior periods restated for
comparison purposes. In addition, the following table shows total
assets and capital employed for each of the new segments at June
30, 1999, and restated as of September 30, 1998.
<TABLE>
<CAPTION>
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Total assets Capital employed
-------------------------------- --------------------------------
June 30 September 30 June 30 September 30
(In millions) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Ashland Distribution $ 935 $ 915 $ 575 $ 477
Ashland Specialty Chemical 872 861 585 557
</TABLE>
NOTE C - UNUSUAL ITEMS
Marathon Ashland Petroleum LLC (MAP) maintains an inventory
valuation reserve to reduce the LIFO cost of its inventories to
their net realizable values. Adjustments in that reserve are
recognized quarterly based on changes in petroleum product prices,
creating non-cash charges or credits to Ashland's earnings. In
addition, during the nine months ended June 30, 1998, Ashland
recorded a gain on the sale of its 23% interest in Melamine
Chemicals. The following tables show the effects of these unusual
items on Ashland's operating income, net income and diluted
earnings per share for the periods ended June 30, 1999, and 1998.
<TABLE>
<CAPTION>
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Three months ended Nine months ended
June 30 June 30
-------------------------- ---------------------------
(In millions except per share data) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Operating income before unusual items $ 173 $ 225 $ 325 $ 402
MAP inventory valuation adjustments 24 1 63 5
Ashland Specialty Chemical gain on sale
of Melamine Chemicals - - - 14
----------- ----------- ------------ ------------
Operating income as reported $ 197 $ 226 $ 388 $ 421
=========== =========== ============ ============
Net income before unusual items $ 85 $ 122 $ 137 $ 194
MAP inventory valuation adjustments 15 1 39 3
Ashland Specialty Chemical gain on sale
of Melamine Chemicals - - - 6
----------- ----------- ------------ ------------
Net income as reported $ 100 $ 123 $ 176 $ 203
=========== =========== ============ ============
Diluted earnings per share before unusual items $ 1.15 $ 1.58 $ 1.83 $ 2.52
Impact of unusual items .20 .01 .52 .12
----------- ----------- ------------ ------------
Diluted earnings per share as reported $ 1.35 $ 1.59 $ 2.35 $ 2.64
=========== =========== ============ ============
</TABLE>
7
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE D - UNCONSOLIDATED AFFILIATES
Ashland is required by Rule 3-09 of Regulation S-X to file
separate financial statements for its two significant
unconsolidated affiliates, Marathon Ashland Petroleum LLC (MAP)
and Arch Coal, Inc. Such financial statements for the year ended
December 31, 1998, were filed on a Form 10-K/A on March 17, 1999.
Unaudited income statement information for these companies is
shown below.
Since MAP commenced operations on January 1, 1998, its
year-to-date information for last year represents its results for
the six months ended June 30, 1998. MAP is organized as a limited
liability company (LLC) that has elected to be taxed as a
partnership. Therefore, the parents are responsible for income
taxes applicable to their share of MAP's taxable income. The net
income reflected below for MAP does not include any provision for
income taxes which will be incurred by its parents.
<TABLE>
<CAPTION>
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Three months ended Nine months ended
June 30 June 30
------------------------------- ------------------------------
(In millions) 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAP
Sales and operating revenues $ 4,639 $ 4,920 $ 13,521 $ 9,522
Income from operations 299 409 591 547
Net income
Including inventory valuation adjustments 296 417 589 558
Excluding inventory valuation adjustments 233 414 422 546
Ashland's equity income
Including inventory valuation adjustments 106 151 203 198
Excluding inventory valuation adjustments 82 150 140 193
Arch Coal
Sales and operating revenues $ 380 $ 342 $ 1,179 $ 970
Income from operations 21 27 49 80
Net income 2 14 4 50
Ashland's equity income 1 7 - 25
</TABLE>
NOTE E - LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local
environmental laws and regulations that require remediation
efforts at multiple locations, including current operating
facilities, operating facilities conveyed to MAP, previously owned
or operated facilities, and Superfund or other waste sites. For
information regarding environmental capital expenditures and
reserves, see the "Miscellaneous - Environmental Matters" section
of Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
that affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites.
8
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
NOTE E - LITIGATION, CLAIMS AND CONTINGENCIES (continued)
Ashland is a defendant in a series of cases involving more than
600 former workers at the Lockheed aircraft manufacturing facility
in Burbank, California. The plaintiffs allege personal injury
resulting from exposure to chemicals sold to Lockheed by Ashland,
and inadequate labeling of such chemicals. The cases are being
tried in the Superior Court of the State of California for the
County of Los Angeles. To date, five trials involving
approximately 130 plaintiffs have resulted in total verdicts
adverse to Ashland of approximately $80 million (approximately $75
million of which is punitive damages). The damage awards have been
appealed. Ashland believes that there is a substantial probability
that the damage awards will be reversed or reduced substantially.
In addition to these matters, Ashland and its subsidiaries are
parties to numerous other claims and lawsuits, some of which are
also for substantial amounts. While these actions are being
contested, the outcome of individual matters is not predictable
with assurance.
Ashland does not believe that any liability resulting from any of
the above matters, after taking into consideration its insurance
coverages and amounts already provided for, will have a material
adverse effect on its consolidated financial position, cash flows
or liquidity. However, such matters could have a material effect
on Ashland's results of operations in a particular quarter or
fiscal year as they develop or as new issues are identified.
NOTE F - ACQUISITIONS
During the nine months ended June 30, 1999, APAC acquired ten
construction businesses, five of which included the issuance of
$48 million in Ashland common stock. In addition, Ashland
Specialty Chemical made an acquisition in its Composite Polymers
division. These acquisitions were accounted for as purchases and
did not have a significant effect on Ashland's consolidated
financial statements.
On August 9, 1999, Ashland Inc. announced that it has commenced an
unsolicited tender offer to purchase all outstanding shares of
Superfos a/s at a price of $21 per share. A total of 30,890,220
shares of Superfos are listed on the Copenhagen Stock Exchange,
which Superfos has publicly reported includes approximately 1.6
million shares held directly or indirectly by it.
The tender offer is conditioned upon acceptance by shareholders
representing more than 90% of the total share capital of Superfos,
receipt of regulatory approvals in the United States and Europe
and certain other conditions. The tender offer is scheduled to
expire on September 20, 1999. The transaction will be financed
entirely with debt using new credit facilities.
Superfos is active in four business areas: (1) asphalt production
and road construction in five states in the southern part of the
United States, (2) production and distribution of plastics
packaging in Europe, (3) contract filling and distribution of
aerosols in Europe, and (4) distribution of chemical products in
the Nordic region.
See Exhibit 99.1 for the complete text of the press release
announcing the tender offer.
9
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<CAPTION>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
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Three months ended Nine months ended
June 30 June 30
----------------------------- ----------------------------
(In millions except as noted) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues
Ashland Distribution $ 754 $ 752 $ 2,175 $ 2,218
Ashland Specialty Chemical 322 292 935 938
APAC 458 428 1,149 963
Valvoline 289 260 773 749
Intersegment sales
Ashland Distribution (8) (6) (25) (20)
Ashland Specialty Chemical (18) (18) (58) (62)
Valvoline (1) (3) (4) (9)
------------ ------------ ------------- -----------
1,796 1,705 4,945 4,777
Equity income
Ashland Specialty Chemical 1 1 4 5
Valvoline - - 1 -
Refining and Marketing 106 151 203 235
Arch Coal 1 7 - 25
------------ ------------ ---------- -----------
108 159 208 265
Other income
Ashland Distribution 2 2 5 5
Ashland Specialty Chemical 4 6 13 31
APAC 2 2 7 6
Valvoline 2 2 5 6
Refining and Marketing 3 2 15 3
Corporate 2 (1) 9 7
------------ ------------ ------------- -----------
15 13 54 58
------------ ------------ ------------- -----------
$ 1,919 $ 1,877 $ 5,207 $ 5,100
============ ============ ============= ===========
OPERATING INCOME
Ashland Distribution $ 17 $ 17 $ 42 $ 45
Ashland Specialty Chemical 33 25 82 87
APAC 35 31 63 50
Valvoline 24 17 48 34
Refining and Marketing (1) 78 147 136 224
Inventory valuation adjustments (2) 24 1 63 5
Arch Coal - 7 (1) 25
Corporate (14) (19) (45) (49)
------------ ------------ ------------- -----------
$ 197 $ 226 $ 388 $ 421
============ ============ ============= ===========
OPERATING INFORMATION
APAC
Construction backlog at June 30 (millions) $ 912 $ 875
Hot mix asphalt production (million tons) 7.2 7.2 17.1 14.8
Aggregate production (million tons) 5.3 5.9 14.6 14.2
Valvoline lubricant sales (thousand barrels per day) 17.7 17.6 16.6 16.2
Refining and Marketing (3)
Refined products sold (thousand barrels per day) 1,259 1,179 1,207 1,161
Crude oil refined (thousand barrels per day) 939 923 883 914
Arch Coal (3)
Tons sold (millions) 27.0 16.8 81.2 41.4
Tons produced (millions) 27.4 15.8 78.4 38.0
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</TABLE>
(1) Effective January 1, 1998, includes Ashland's equity income from MAP,
amortization of Ashland's excess investment in MAP, and certain
retained refining and marketing activities.
(2) Represents Ashland's share of changes in MAP's inventory market
valuation reserve. The reserve reflects the excess of the LIFO cost of
MAP's crude oil and refined product inventories over their net
realizable values.
(3) Amounts represent 100% of the volumes of MAP or Arch Coal. MAP
commenced operations January 1, 1998.
10
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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RESULTS OF OPERATIONS
CURRENT QUARTER - Ashland's net income was $100 million for the
quarter ended June 30, 1999, compared to $123 million for the
quarter ended June 30, 1998. Excluding unusual items described in
Note C to the Condensed Consolidated Financial Statements, net
income amounted to $85 million in the 1999 period, compared to
$122 million in the 1998 period. The decline was due to weakness
in refining margins and coal prices, which affected Ashland's
equity investments. However, combined operating income from
Ashland's wholly owned businesses was up 20%, as APAC, Ashland
Specialty Chemical, and Valvoline reported excellent quarters,
while Ashland Distribution matched prior year earnings.
YEAR-TO-DATE - For the nine months ended June 30, 1999, Ashland
recorded net income of $176 million, compared to $203 million for
the nine months ended June 30, 1998. Excluding unusual items, net
income amounted to $137 million in the 1999 period, compared to
$194 million in the 1998 period. The decline was generally due to
the same factors described in the current quarter comparison
above. The wholly owned businesses reported a 17% increase, but
these results were more than offset by the effects of weak
refining margins and coal prices. On June 22, Ashland announced
that it had retained the investment banking firm of Goldman Sachs
to help Ashland explore strategic alternatives for its investment
in Arch Coal.
ASHLAND DISTRIBUTION
CURRENT QUARTER - Ashland Distribution reported operating income
of $17 million for the quarter ended June 30, 1999, even with
results for last year's June quarter. General Polymers and FRP
Supply reported record quarterly operating income on the strength
of improved sales volumes and margins. Industrial Chemicals &
Solvents showed strong improvement, reflecting higher gross profit
margins. These improvements, however, were offset by declines in
Fine Ingredients and Ashland Plastics Europe. The Fine Ingredients
business has endured significant margin erosion due in part to
increased imports. In Europe, weakness in commodity chemical
markets has resulted in declining prices for key thermoplastic
product lines. However, prices are beginning to stabilize in both
areas.
YEAR-TO-DATE - For the nine months ended June 30, 1999, Ashland
Distribution reported operating income of $42 million, compared to
$45 million for the same period of 1998. Solid improvements in
Industrial Chemicals & Solvents and FRP Supply were offset by
declines in the other divisions. All divisions within Ashland
Distribution have experienced price deflation, which has adversely
affected gross profit. FRP Supply has benefited from acquisitions
made during the latter part of fiscal 1998.
ASHLAND SPECIALTY CHEMICAL
CURRENT QUARTER - For the quarter ended June 30, 1999, Ashland
Specialty Chemical reported operating income of $33 million, a 32%
improvement compared to $25 million reported for the June 1998
quarter. Composite Polymers and Specialty Polymers & Adhesives set
all time quarterly profit records on the strength of record sales
volumes, and Drew Industrial reported record third quarter
profits. Results for Petrochemicals increased due to higher
margins for maleic anhydride. These improvements were partially
offset by a decline in Drew Marine where sales were down due to
reduced marine traffic worldwide.
11
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
ASHLAND SPECIALTY CHEMICAL (continued)
YEAR-TO-DATE - For the nine months ended June 30, 1999, Ashland
Specialty Chemical reported operating income of $82 million.
Results for the first nine months of 1998 amounted to $73 million,
excluding a $14 million pretax gain on the sale of Ashland's 23%
interest in Melamine Chemicals. Improvements in Composite
Polymers, Specialty Polymers & Adhesives, Petrochemicals and Drew
Industrial more than offset declines in Electronic Chemicals and
Drew Marine. The same factors discussed in the current quarter
comparison above affected the year-to-date comparison. Electronic
Chemicals, while down considerably from a year ago, continues to
show signs of recovery in sales volumes and margins.
APAC
CURRENT QUARTER - For the third quarter of fiscal 1999, APAC's
construction operations reported record June quarter operating
income of $35 million, compared to $31 million for the June 1998
quarter. Conditions in APAC's southeastern and midwestern markets
are quite positive due to a strong construction economy. Net
revenue (total revenue less subcontract work) increased 6%;
however, production of hot mix asphalt was essentially even and
crushed aggregate production declined 11%, reflecting extremely
wet weather in Oklahoma and Arkansas.
YEAR-TO-DATE - For the nine months ended June 30, 1999, APAC
reported operating income of $63 million, a 26% improvement
compared to $50 million for the same period of 1998. Net revenue
increased 19%, while production of hot mix asphalt was up 15% and
crushed aggregate was up 2% from the 1998 period. The construction
backlog at June 30, 1999, amounted to $912 million, an all-time
record, representing a 4% improvement over the June 1998 level.
Industry consolidation continues to create opportunities for APAC.
In keeping with Ashland's strategy to grow higher return
businesses, four transactions, which expand APAC's market position
in North Carolina, Texas and Arkansas, were closed during the June
quarter. Ten acquisitions have been completed since the beginning
of the fiscal year for a total cost of $83 million.
Valvoline
CURRENT QUARTER - For the quarter ended June 30, 1999, Valvoline
reported operating income of $24 million, a 38% increase compared
to $17 million for the June 1998 quarter. The increase was
primarily the result of higher R-12 refrigerant sales volumes,
improvements in automotive chemicals, including antifreeze, and
record June quarter earnings from Valvoline Instant Oil Change,
reflecting higher car counts. Earnings from the core lubricant
business remained strong. Revenues from Valvoline's newest product
lines - Synpower automotive chemicals and Eagle One car care
products - continue to rapidly grow on the strength of broad
market penetration and customer acceptance. Partially offsetting
these improvements were lower earnings from Valvoline
International operations in Europe.
YEAR-TO-DATE - For the nine months ended June 30, 1999, Valvoline
reported operating income of $48 million, compared to $34 million
for the same period of 1998, a 40% improvement. The increase was
generally due to the same factors described in the current quarter
comparison above.
12
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
REFINING AND MARKETING
CURRENT QUARTER - Operating income from Refining and Marketing
(excluding $24 million in favorable inventory market valuation
adjustments) amounted to $78 million for the quarter ended June
30, 1999. This compares to $147 million for the quarter ended June
30, 1998 (excluding $1 million in favorable inventory market
valuation adjustments). Results for both periods include Ashland's
38% share of MAP's earnings, amortization of Ashland's excess
investment in MAP, and results of certain retained refining and
marketing activities. The decline in operating income was
primarily due to weak refining margins, as prices of refined
products did not keep pace with increases in crude oil prices.
Results from retail marketing operations increased on the strength
of improved merchandise sales volumes and higher retail gasoline
margins.
YEAR-TO-DATE - Operating income from Refining and Marketing
(excluding $63 million in favorable inventory market valuation
adjustments) amounted to $136 million for the nine months ended
June 30, 1999. This compares to $224 million for the nine months
ended June 30, 1998 (excluding $5 million in favorable inventory
market valuation adjustments). Results for the prior year's period
include the operating income of the former Ashland Petroleum and
SuperAmerica divisions for the December 1997 quarter. MAP was
formed January 1, 1998, when Ashland combined its refining and
marketing operations with those of the USX-Marathon Group. The
decrease in operating income generally reflects reduced refining
margins, partially offset by increased merchandise sales volumes
and higher retail gasoline margins. The impact of decreased
refining margins has been partially mitigated by substantial
efficiency improvements resulting from the combined operations of
MAP. In its first year of existence, MAP captured approximately
$150 million in annual, repeatable, pretax savings and established
itself as an industry leader in earnings per barrel of crude oil
throughput. An additional $100 million in efficiencies are
targeted for calendar 1999.
During the June 1999 quarter, MAP announced plans to build a coker
at its Garyville, La., refinery supported by a crude oil supply
agreement with Pemex. In addition, MAP signed an agreement with
Ultramar Diamond Shamrock to purchase marketing and distribution
assets located in Michigan.
ARCH COAL
CURRENT QUARTER - Ashland recorded breakeven results from its
investment in Arch Coal for the quarter ended June 30, 1999,
compared to operating income of $7 million for the quarter ended
June 30, 1998. The decline was due to ongoing challenges at
several mining operations and weakness in the eastern coal market.
At the Black Thunder mine in Wyoming, Arch made good progress in
its expansion program, but did not get water-related challenges at
the site fully under control until late in the quarter. Longwall
moves at the SUFCO and Skyline mines in Utah, along with geologic
difficulties at Skyline, led to a small equity loss from Arch's
65%-owned Canyon Fuel Company. Because of mild winter weather,
utility stockpiles remained high throughout the quarter,
depressing prices for Arch's eastern operations. The Dal-Tex mine
in Logan County, West Virginia, closed as scheduled on July 23 as
a result of continuing delays in obtaining a permit for additional
reserves at the site.
13
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
ARCH COAL (continued)
YEAR-TO-DATE - For the nine months ended June 30, 1999, Ashland
recorded an operating loss of $1 million from its investment in
Arch, compared to operating income of $25 million for the same
period of 1998. In addition to the factors described in the
current quarter comparison above, results for the December 1998
quarter were impacted by inadequate rail service and
higher-than-expected operating costs at Arch's West Elk mine in
Colorado, as well as bitterly cold weather that hindered both
equipment and rail performance of Western operations. Eastern
operations were adversely affected by losses incurred at Dal-Tex
while the permitting was being delayed, as well as the costs of
idling those facilities.
CORPORATE
Corporate expenses amounted to $14 million in the quarter ended
June 30, 1999, compared to $19 million for the quarter ended June
30, 1998. On a year-to-date basis, corporate expenses amounted to
$45 million for the 1999 period, versus $49 million for the 1998
period. The declines in both comparisons reflect reduced deferred
compensation costs and a gain from the sale of a company airplane.
INTEREST EXPENSE (NET OF INTEREST INCOME)
For the three months ended June 30, 1999, interest expense (net of
interest income) totaled $36 million, compared to $33 million for
the June 1998 quarter. For the year-to-date, interest expense (net
of interest income) amounted to $102 million in the 1999 period,
compared to $96 million in the 1998 period. The increase reflects
increased debt levels resulting primarily from $254 million in
purchases of leased assets in December 1997 and January 1998
associated with the formation of MAP, from common stock
repurchases and from acquisitions.
FINANCIAL POSITION
LIQUIDITY
Ashland's financial position has enabled it to obtain capital for
its financing needs and to maintain investment grade ratings on
its senior debt of Baa2 from Moody's and BBB from Standard &
Poor's. Ashland has revolving credit agreements providing for up
to $400 million in borrowings, none of which were in use at June
30, 1999. The agreement providing for $250 million in borrowings
expires on June 2, 2004. The agreement providing for $150 million
in borrowings expires on May 31, 2000. At June 30, 1999, under a
shelf registration, Ashland could also issue an additional $450
million in debt, equity or convertible securities should future
opportunities or needs arise. Furthermore, Ashland has access to
various uncommitted lines of credit and commercial paper markets,
under which $320 million of short-term borrowings were outstanding
at June 30, 1999.
Cash flows from continuing operations, a major source of Ashland's
liquidity, amounted to $136 million for the nine months ended June
30, 1999, compared to $68 million for the nine months ended June
30, 1998. The increase primarily reflects a higher level of cash
distributions from MAP. Ashland's capital requirements for net
property additions and dividends exceeded cash flows from
operations by $81 million for the nine months ended June 30, 1999.
14
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
LIQUIDITY (CONTINUED)
Operating working capital (accounts receivable and inventories,
less trade and other payables) at June 30, 1999, was $512 million,
compared to $351 million at September 30, 1998, and $484 million
at June 30, 1998. Liquid assets (cash, cash equivalents and
accounts receivable) amounted to 81% of current liabilities at
June 30, 1999, compared to 84% at September 30, 1998, and 81% at
June 30, 1998. Ashland's working capital is affected by its use of
the LIFO method of inventory valuation, which valued inventories
$52 million below their replacement costs at June 30, 1999.
CAPITAL RESOURCES
For the nine months ended June 30, 1999, property additions
amounted to $158 million, compared to $177 million for the same
period last year. Property additions and cash dividends for the
remainder of fiscal 1999 are estimated at $90 million and $20
million. Under Ashland's share repurchase program initiated in
August 1998, Ashland had repurchased 5.1 million shares through
June 30, 1999, with remaining authority to repurchase an
additional 1.3 million shares. The timing and exact number of
shares to be repurchased will be dependent on market conditions.
Ashland anticipates meeting its remaining 1999 capital
requirements for property additions, debt repayments and dividends
from internally generated funds. However, external financing may
be necessary to fund common stock repurchases and acquisitions.
At June 30, 1999, Ashland's debt level amounted to $2.0 billion,
compared to $1.6 billion at September 30, 1998. Debt as a percent
of capital employed amounted to 49% at June 30, 1999, compared to
43% at September 30, 1998. During the quarter ended December 31,
1998, Ashland liquidated $200 million of its interest rate swap
agreements, which had converted fixed-rate debt to floating rates
at September 30, 1998. The final reset on the remaining $25
million floating-rate swap agreement was set on July 6, 1999. As a
result, Ashland's exposure to short-term interest rate
fluctuations for the remainder of 1999 will be limited to $38
million in floating-rate debt outstanding at June 30, 1999, and
any short-term notes and commercial paper outstanding.
ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations relating to the
protection of the environment have resulted in higher operating
costs and capital investments by the industries in which Ashland
operates. Because of the continuing trends toward greater
environmental awareness and ever increasing regulations, Ashland
believes that expenditures for environmental compliance will
continue to have a significant effect on its businesses. Although
it cannot accurately predict how such trends will affect future
operations and earnings, Ashland believes the nature and
significance of its ongoing compliance costs will be comparable to
those of its competitors. For information on certain specific
environmental proceedings and investigations, see the "Legal
Proceedings" section of this Form 10-Q. For information regarding
environmental capital expenditures and reserves, see the
"Miscellaneous Environmental Matters" section of Ashland's Form
10-K.
Environmental reserves are subject to considerable uncertainties
that affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites.
15
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
ENVIRONMENTAL MATTERS (continued)
Ashland does not believe that any liability resulting from
environmental matters, after taking into consideration its
insurance coverage and amounts already provided for, will have a
material adverse effect on its consolidated financial position,
cash flows or liquidity. However, such matters could have a
material effect on Ashland's results of operations in a particular
quarter or fiscal year as they develop or as new issues are
identified.
YEAR 2000 READINESS
Ashland, like most other companies, is faced with the Year 2000
issue and began developing plans in 1994 to address the possible
exposures. Project teams are responsible for coordinating the
assessment, remediation and testing of the necessary modifications
to Ashland's computer applications, including both internal
information systems and embedded systems, as well as assessing the
Year 2000 readiness of its major vendors and developing
contingency plans. The team's progress is regularly monitored by
Ashland's senior management and periodically reported to the Audit
Committee of Ashland's Board of Directors.
Ashland has completed the assessment phase related to its internal
information systems, and is resolving identified issues through
system modifications or replacement. Although testing will
continue, Ashland believes that about 97% of its significant
systems are currently Year 2000 compliant, with the remainder of
its remediation efforts expected to be completed by late summer.
In addition, Ashland has obtained the services of an independent
third party to perform a verification of its code remediation
efforts.
Ashland has essentially completed the assessment of its embedded
systems that operate such items as its manufacturing systems,
laboratory processes and security systems. Ashland believes that
about 96% of these embedded systems are currently Year 2000
compliant, and that the remaining systems will be remediated or
replaced as necessary by late summer or as part of scheduled
shutdowns that will occur later in 1999. The quality of the
responses received from the manufacturers of such equipment, the
estimated effect of the individual system on Ashland, and the
ability of Ashland to perform meaningful tests determines whether
independent testing of remediated embedded systems is conducted.
Formal communications have been conducted with major vendors to
assess the potential exposure to Ashland from their failure to
remediate their own Year 2000 issues. A failure by any of these
vendors could become a significant challenge to Ashland's ability
to operate its facilities at affected locations. Vendors contacted
include Ashland's suppliers, financial institutions and companies
providing utilities (electric, telephone and water). Alternate
providers of products and services will be established, if deemed
necessary. Although Ashland has no means of ensuring the Year 2000
readiness of such vendors, it will continue to gather information
and monitor their compliance. Based on the representations
provided by these vendors to date, Ashland has no reason to
believe that these vendors are not addressing their Year 2000
issues adequately.
Ashland has developed contingency plans related to the Year 2000
issue, addressing various scenarios and alternatives. Among other
things, such plans include replacing electronic applications with
manual processes, identifying alternate vendors, adjusting
staffing requirements, and increasing raw material inventory
levels, as deemed necessary. Contingency plans will be regularly
updated as current issues develop or new issues are identified.
16
<PAGE>
- ------------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------------------------------
YEAR 2000 READINESS (continued)
Ashland estimates that its fiscal 1999 costs related to Year 2000
issues will not exceed $15 million, and will be minimal
thereafter. Such amount is based on various assumptions, including
the expected availability and costs of internal and external
resources and the complexity of the necessary changes. Such
estimate does not include any costs of new systems for which the
principal justification is improved business functionality, rather
than Year 2000 compliance. Since Ashland's Year 2000 compliance
program was initiated several years ago and has been integrated
with other system enhancements, Ashland's total costs of
remediating Year 2000 issues are not readily discernible.
Ashland believes it has an effective program to resolve
significant Year 2000 issues in a timely manner. However, certain
phases of that program have not yet been completed and some
exposures are outside Ashland's direct control. If Ashland is
unsuccessful in identifying or remediating Year 2000 issues in its
significant systems, is affected by major vendors or customers not
being Year 2000 compliant, or is affected by general economic
disruptions resulting from Year 2000 issues, its consolidated
financial position or results of operations could be materially
adversely affected.
MAP and Arch Coal also have prepared their own programs to deal
with Year 2000 issues. Arch Coal's program is outlined in the
Management's Discussion and Analysis section of its latest Annual
Report on Form 10-K and Quarterly Report on Form 10-Q. MAP's
program is covered in the Management's Discussion and Analysis
section for the Marathon Group in USX Corporation's latest Annual
Report on Form 10-K and Quarterly Report on Form 10-Q. These
documents are on file with the Securities and Exchange Commission.
FORWARD LOOKING STATEMENTS
This Form 10-Q 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. Estimates as to operating
performance are based upon a number of assumptions, including
(among others) prices, supply and demand, market conditions and
operating efficiencies. Although Ashland believes that its
expectations are based on reasonable assumptions, it cannot assure
that 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. Other
factors and risks affecting Ashland are contained in Ashland's
Form 10-K for the fiscal year ended September 30, 1998.
17
<PAGE>
PART II - OTHER INFORMATION
- ------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - As of June 30, 1999, Ashland had been
identified as a "potentially responsible party" ("PRP") under Superfund or
similar state laws for potential joint and several liability for clean-up
costs in connection with alleged releases of hazardous substances in
connection with 89 waste treatment or disposal sites. These sites are
currently subject to ongoing investigation and remedial activities,
overseen by the United States Environmental Protection Agency ("EPA") or a
state agency, in which Ashland is typically participating as a member of a
PRP group. Generally, the type of relief sought includes remediation of
contaminated soil and/or groundwater, reimbursement for past costs of site
clean-up and administrative oversight, and/or long-term monitoring of
environmental conditions at the sites. Ashland carefully monitors the
investigatory and remedial activity at many of these sites. Based on its
experience with site remediation, its familiarity with current
environmental laws and regulations, its analysis of the specific hazardous
substances at issue, the existence of other financially viable PRPs and its
current estimates of investigatory, clean-up and monitoring costs at each
site, Ashland believes that its liability at these sites, either
individually or in the aggregate, after taking into account its insurance
coverage and established reserves, will not have a material adverse effect
on Ashland's consolidated financial position, cash flow or liquidity.
However, such matters could have a material effect on Ashland's results of
operations in a particular quarter or fiscal year as they develop or as new
issues are identified. Estimated costs for these matters are recognized in
accordance with generally accepted accounting principles governing the
likelihood that costs will be incurred and Ashland's ability to reasonably
estimate future costs.
LOCKHEED LITIGATION - Ashland is a defendant in a series of cases involving
more than 600 former workers at the Lockheed aircraft manufacturing
facility in Burbank, California. The plaintiffs allege personal injuries
resulting from exposure to chemicals sold to Lockheed by Ashland, and
inadequate labeling of such chemicals. The cases are being tried in the
Superior Court of the State of California for the County of Los Angeles. To
date, five trials involving approximately 130 plaintiffs have resulted in
total verdicts adverse to Ashland of approximately $80 million
(approximately $75 million of which is punitive damages). The damage awards
have been appealed. Ashland believes that there is a substantial
probability that the damage awards will be reversed or substantially
further reduced, and that, after taking into account probable recoveries
under insurance policies, these cases will not have a material adverse
effect on Ashland's consolidated financial position, cash flow or
liquidity. In addition, Ashland filed an action in Kentucky against
approximately 44 insurance carriers to confirm coverage for liabilities
under the Lockheed cases. One of the insurance carriers in turn filed an
action in California seeking to deny insurance coverage for liabilities in
these cases.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1999, Ashland issued 106,809 shares of
its Common Stock, par value $1.00 per share in connection with the
acquisition of F. H. Necessary & Son Construction Company which closed on
April 14, 1999. The shares were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and the regulations thereunder.
18
<PAGE>
ITEM 5. OTHER INFORMATION
On August 9, 1999, Ashland Inc. announced that it has commenced an
unsolicited tender offer to purchase all outstanding shares of Superfos a/s
at a price of $21 per share. A total of 30,890,220 shares of Superfos are
listed on the Copenhagen Stock Exchange, which Superfos has publicly
reported includes approximately 1.6 million shares held directly or
indirectly by it.
The tender offer is conditioned upon acceptance by shareholders
representing more than 90% of the total share capital of Superfos, receipt
of regulatory approvals in the United States and Europe and certain other
conditions. The tender offer is scheduled to expire on September 20, 1999.
The transaction will be financed entirely with debt using new credit
facilities.
Superfos is active in four business areas: (1) asphalt production and road
construction in five states in the southern part of the United States, (2)
production and distribution of plastics packaging in Europe, (3) contract
filling and distribution of aerosols in Europe, and (4) distribution of
chemical products in the Nordic region.
The foregoing summary of the attached press release is qualified in its
entirety by the complete text of such document, a copy of which is attached
hereto as Exhibit 99.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99.1 Press Release dated August 9, 1999
(b) Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ashland Inc.
(Registrant)
Date: August 9, 1999 /s/ Kenneth L. Aulen
--------------------------
Kenneth L. Aulen
Administrative Vice President and
Controller
(Chief Accounting Officer)
Date: August 9, 1999 /s/ David L. Hausrath
---------------------------
David L. Hausrath
Vice President and General Counsel
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S 3RD QUARTER 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 81
<SECURITIES> 0
<RECEIVABLES> 1,152
<ALLOWANCES> 23
<INVENTORY> 491
<CURRENT-ASSETS> 2,028
<PP&E> 2,594
<DEPRECIATION> 1,340
<TOTAL-ASSETS> 6,353
<CURRENT-LIABILITIES> 1,495
<BONDS> 1,627
<COMMON> 73
0
0
<OTHER-SE> 2,032
<TOTAL-LIABILITY-AND-EQUITY> 6,353
<SALES> 4,945
<TOTAL-REVENUES> 5,207
<CGS> 4,037
<TOTAL-COSTS> 4,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 286
<INCOME-TAX> 110
<INCOME-CONTINUING> 176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176
<EPS-BASIC> 2.37
<EPS-DILUTED> 2.35
</TABLE>
FOR FURTHER INFORMATION:
Media Relations:
Stan Lampe
(606) 329-4061
FOR IMMEDIATE RELEASE
August 9, 1999
Ashland Inc. makes
tender offer for Superfos
Copenhagen - Ashland Inc. (NYSE:ASH) today delivered an official offer to
buy all shares from the current shareholders of Superfos Inc., a
Copenhagen-based industrial company with large U.S. road construction
holdings.
Ashland has offered to pay $21 per share in cash, which is
equivalent to a premium of 43 percent compared to Superfos' share price on
July 13, the last trading day prior to a news release from Superfos that
another company had notified Superfos of its intent to make a tender offer.
Compared to Superfos' average share price for the three months ended July
13, Ashland's offer is equivalent to a 51 percent premium.
"Our offer to the shareholders is based on the long-term value
creation opportunities we see in operating and further developing those
Superfos activities that complement our current businesses," said Ashland
Chairman and Chief Executive Officer Paul W. Chellgren. "Our primary
interest is Superfos' U.S. road-building and asphalt paving activities,
which are an excellent match with our APAC highway construction group, the
largest highway contractor in the United States. Combining Superfos' U.S.
road-building operations with APAC would result in stronger, more efficient
operations."
Chellgren added that, as noted in the official tender offer,
Superfos' packaging division does not fall within any of Ashland's six
focus areas. Ashland will investigate the possibilities of having this
division merged with or sold to a company who would be better positioned to
grow the packaging business.
"Superfos' chemical and aerosol divisions might be included in our
existing European specialty chemicals, distribution and Valvoline
businesses, or sold to or merged with another company within these
industries," Chellgren said. "We are primarily interested in the U.S. road
construction business, which accounted for just over half of Superfos' 1998
revenue, according to its most recent annual report."
Based in Dothan, Alabama, Superfos' U.S. road construction
operations have 80 production facilities in five American states: Alabama,
Florida, Georgia, Kansas and Oklahoma.
Ashland's financial adviser is Carnegie Bank in Copenhagen. The
tender offer ends September 20 and is subject to acceptance by shareholders
representing more than 90 percent of the total share capital and other
conditions.
Superfos operates in Denmark and internationally, employing about
5,000 people in 16 countries, with 85 percent of its activities based
outside Denmark. Superfos has four business areas: construction, packaging,
chemicals and aerosols.
Ashland Inc. (NYSE:ASH) is an international multi-industry company
with four wholly owned businesses, which occupy leading positions within
their respective markets in the United States or around the world.
Ashland-owned APAC, Inc., is the largest highway contractor in America.
Ashland Specialty Chemical is a leading worldwide producer of performance
chemicals for a variety of industrial applications. Ashland Distribution is
the largest distributor of chemicals, plastics and fiber reinforcements in
North America and the largest pan-European plastics distributor. Valvoline
is a leading U.S. motor oil marketer with a growing international presence.
Ashland also has a 38-percent equity interest in Marathon Ashland Petroleum
LLC, the fourth largest U.S. refiner, and a 58-percent equity interest in
Arch Coal, Inc. (NYSE:ACI), America's No. 2 coal producer. More information
is available on Ashland's internet website at http://www.ashland.com.
