The following was issued today by Ashland Inc. (NYSE:ASH):

Fiscal 2003: Second quarter highlights

• Ashland reports net loss due to a sluggish economy and seasonality of businesses
• Road construction operations report large operating loss, reflecting the harsh winter and higher energy prices
• Operating profits from refining and marketing up from prior-year quarter
• Specialty Chemical down; Distribution results improve
• Solid performance from Valvoline

Ashland Inc. today reported a net loss of $39 million, or 57 cents a share, for the quarter ended March 31, the second quarter of the company’s 2003 fiscal year. Ashland had a loss from continuing operations of $34 million, or 50 cents a share, for the March 2003 quarter. These results compared to a loss of $21 million, or 31 cents a share, for the same quarter last year. Results from continuing operations in the quarter a year ago included an $18 million after-tax, non-cash gain, equal to 25 cents a share, to adjust the carrying value of Marathon Ashland Petroleum (MAP) inventories to the lower of cost or market value. (Ashland owns 38 percent of MAP, a petroleum refining and marketing joint venture with Marathon Oil Corporation.) An after-tax charge of $5 million, equal to 7 cents a share, is reflected in discontinued operations in the March 2003 quarter for future asbestos liabilities less probable insurance recoveries. Overall activity related to asbestos litigation remained consistent with previously established reserves. Additional quarterly charges are being recognized to maintain reserves at a level adequate to cover future payments over a rolling 10-year period.

For the six months ended March 31, 2003, Ashland reported a net loss of $131 million, or $1.91 a share, compared to net income of $5 million, or 8 cents a share for the same period last year. Ashland had a loss from continuing operations of $32 million, or 46 cents a share, for the 2003 period, compared to income of $17 million, or 24 cents a share, for the 2002 period. An after-tax charge of $99 million, equal to $1.45 a share, associated with estimated future asbestos liabilities less probable insurance recoveries, is reflected in discontinued operations for the 2003 period.

“Normal seasonality makes the March quarter our most difficult earnings period,” said James J. O’Brien, Ashland Inc. chairman and chief executive officer. “This quarter has been even tougher than usual because of volatile crude oil markets, a harsh winter and continued economic weakness.”

Review of operations
Commenting on operations, O’Brien noted that results from refining and marketing improved over the quarter last year due to stronger margins and wider differentials between sweet and sour crude oil prices. These improvements were partially offset by a 10% drop in refinery throughputs due to planned and unplanned maintenance at MAP refineries, as well as higher maintenance and natural gas costs.
APAC reported an operating loss of $57 million, compared with a loss of $14 million in last year’s quarter. APAC continues to suffer from adverse construction weather and high hydrocarbon costs. Asphaltic mix and aggregate production were down 11% and 10%, respectively, compared to the same period last year. Operating expenses included higher costs for liquid asphalt and the fuels used to operate plants and equipment. APAC also continues to incur implementation costs associated with its business process re-design initiative, Project PASS.

“We typically experience a slowdown in the second quarter, but this year has been markedly slower,” O’Brien explained. “Heavier than normal precipitation in the December quarter continued through most of the March period, while temperatures have been colder than usual in about half of our operating area. These factors severely limited paving operations and the sale of construction materials.” During the quarter, APAC won more than 400 job awards of more than $100,000 each, raising its backlog to a record $1.8 billion.
Looking forward, APAC’s ability to achieve its previously announced target of 10% return on investment in fiscal 2004 is subject to a number of factors, including: successfully achieving internally generated cost savings – which are on track, adequate governmental funding of highway construction programs, normal weather conditions and reasonable energy costs.

Results from Ashland’s chemical businesses were mixed. Operating income from Ashland Specialty Chemical was $8 million, down from $18 million earned during the March quarter of last year. Sales per shipping day increased by 8%, despite weak industrial output. However, rising raw material prices were the primary factor contributing to the decline in profits. The composite polymers, maleic anhydride, and specialty polymers and adhesives businesses were hardest hit by the rising costs, necessitating price increases that went into effect April 1, 2003.

Ashland Distribution had operating income of $7 million in the quarter, compared to a $4 million operating loss a year ago. “Margins have been under some pressure as a result of hydrocarbon-driven cost increases for chemicals and plastics,” O’Brien said. “However, sales per shipping day increased by 13% compared to the same period last year, which indicates that we’re doing a better job of satisfying our customers. While we are pleased with this progress, Ashland Distribution’s sales levels have not yet returned to their historical peak.”

Valvoline continued to perform well. Operating income was $18 million in the March quarter compared to $17 million in the same period last year. Overall sales revenues increased 10% over last year’s quarter. The improvement reflects higher branded lubricant sales volumes and improved international sales. Additionally, an increase in the average ticket price from Valvoline Instant Oil Change contributed to its record March quarter earnings. The most significant contributor to Valvoline’s profits is continued success in the premium products category. While our total U.S. branded lubricant volumes were up 6% this quarter, premium product volumes were up 25%.

Outlook
“In summary, the March quarter was disappointing. However, we are optimistic about the second half of our fiscal year, when we typically earn most of our income,” O'Brien said. “We know our work is cut out for us. To a large extent, our earnings are dependent on three factors: the weather in APAC’s operating area, refining and marketing margins, and the health of the U.S. economy. While we cannot predict the weather, we’re seeing encouraging signs in refining and marketing, and the domestic economy appears to be recovering.

“Our goal is to become a top quartile performer within each of the industries in which we operate, and we are moving aggressively to take necessary actions to achieve that goal. As these actions are fully implemented, we expect them to result in greater profitability for the corporation.” O'Brien added that the company is making good progress in the way it goes to market, serves customers and operates its businesses.
Today at 11:00 a.m. (EDT), Ashland will provide a live audio webcast of its quarterly conference call with securities analysts. The webcast will be accessible through Ashland’s Investor Relations website, www.ashland.com/investors. Following the live event, an archived version of the webcast will be available on the Ashland website. Minimum requirements to listen to the webcast include the free Windows MediaPlayer software and a 28.8 Kbps connection to the Internet.

Ashland Inc. (NYSE:ASH) is a Fortune 500 company providing products, services, and customer solutions throughout the world. Our businesses include road construction, specialty chemicals, lubricants, car-care products, chemical and plastics distribution and transportation fuels. Through the dedication of our employees, we are “The Who In How Things Work™.” Find us at www.ashland.com.

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, earnings, and scope and effect of asbestos liabilities. 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 for the fiscal year ended Sept. 30, 2002, as amended. 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.

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