Ashland Inc. Reports June Quarter Earnings

COVINGTON, Ky., July 22 -- The following was issued today by Ashland Inc. :

                  Fiscal 2003: Third quarter highlights

  * Refining and marketing results improved despite high crude prices and
    weak economy
  * Ashland Distribution recovery continues
  * APAC results down, reflecting continued above-normal precipitation
    levels
  * Ashland Specialty Chemical results off due to weak demand and plant
    write-down
  * Valvoline performing well

                                        Quarter ended  Nine months ended
                                          June 30           June 30
  In millions except earnings per share 2003     2002     2003     2002

  Operating income                    $  138   $  132   $  147   $  225
  Income from continuing operations    $  71   $   61   $   33    $  75
  Net income (loss)                    $  70    $  65   $  (61)   $  70
  Diluted earnings (loss) per share:
   Income from continuing operations $  1.03   $  .87   $  .48  $  1.06
   Net income (loss)                 $  1.01   $  .93  $  (.89) $  1.00

Ashland Inc. today reported net income of $70 million, or $1.01 a share, for the quarter ended June 30, the third quarter of the company's 2003 fiscal year. These results compared to net income of $65 million, or 93 cents a share, for the June 2002 quarter. Ashland's income from continuing operations for the June 2003 quarter amounted to $71 million, or $1.03 a share, compared to $61 million, or 87 cents a share, for the quarter a year ago. A loss of $1 million from discontinued operations for the quarter just ended included the results of the Electronic Chemicals business group and an after-tax charge of $5 million for future asbestos liabilities less probable insurance recoveries. As previously announced, quarterly charges are being recognized to maintain asbestos reserves at a level adequate to cover estimated future payments over a rolling 10-year period.

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"The June quarter was very challenging," O'Brien said. "We continued to struggle with high energy costs, a sluggish economy, and poor weather conditions. However, we're doing the work now that will set the course for a successful future. There's a lot of change occurring at Ashland, and I believe it's only a matter of time before we start seeing solid results."

For the nine months ended June 30, 2003, Ashland reported a net loss of $61 million, or 89 cents a share, compared to net income of $70 million, or $1.00 a share for the same period last year. Ashland's income from continuing operations for the 2003 period totaled $33 million, or 48 cents a share, which compared to $75 million, or $1.06 a share, for the 2002 period. An after-tax charge of $104 million associated with estimated future asbestos liabilities less probable insurance recoveries, is reflected in discontinued operations for the 2003 period, along with the results of the Electronic Chemicals business group, which Ashland has agreed to sell to Air Products for approximately $300 million.

Review of operations

Commenting on operations, O'Brien noted that results from refining and marketing improved significantly over the previous year. Operating income totaled $100 million, compared to $66 million in the June 2002 quarter. Demand for petroleum products was soft in the quarter due to high crude oil prices and a weak industrial economy. However, MAP refineries operated well, and refining margins improved over last year.

Operating income from APAC was $17 million, compared to $42 million in last year's June quarter. APAC continues to suffer from adverse weather that has significantly hampered construction activity. Twelve of the 14 states in APAC's operating area experienced much higher than normal rainfall for the quarter, continuing the pattern that has persisted throughout this fiscal year. Construction backlog, which consists of work awarded and funded but not yet performed, continues to grow and was at a record high for the June quarter of $1.8 billion.

APAC also has completed its strategic reorganization, reducing the number of operating units to 24 from 38 and decreasing field overhead expenses by approximately $8 million per year. Additionally, financial shared services were implemented for four more operating units during the quarter, bringing to 11 the total number sharing financial services. This centralization of resources, resulting from the Project PASS business redesign effort, advances APAC's competitive position as a low-cost, operationally efficient organization.

Results from Ashland Distribution improved, with much stronger earnings compared to the previous year. Operating income for the June quarter was $11 million compared to $3 million in the 2002 quarter. Ashland Distribution continues to revitalize its business and to improve service to customers by aggressively implementing quality initiatives. As a result, unit sales volumes have increased 5 percent for the first nine months of the fiscal year, while revenues are up 11 percent for the same period.

Operating income for Ashland Specialty Chemical was $3 million in the June quarter and included an impairment charge of $10 million for a mothballed maleic anhydride production facility in Neville Island, Pa. These results compared to operating income of $20 million in the 2002 quarter. Demand for durable goods dipped by a combined 2.7 percent in April and May, adversely affecting sales volumes; however, volumes improved in June. In addition, Ashland Specialty Chemical's margins improved in June as previously announced price increases took effect. This trend should benefit profits going into the September quarter.

Commenting on the announced sale of Ashland Specialty Chemical's electronic chemicals business group to Air Products, O'Brien noted that this divestiture is an example of Ashland's strategic repositioning. "While this business is an excellent competitor, the semiconductor industry is not one of our major core markets. Consequently, we decided to monetize this asset and redeploy the proceeds elsewhere, in this case to strengthen our balance sheet." The Electronic Chemicals business has annual sales revenues of approximately $200 million. On July 16, Honeywell International filed suit in a Delaware state court seeking to enjoin this transaction. Honeywell claims the transaction would violate the strategic alliance agreement between Air Products and GEM Microelectronic Materials, a joint venture of Honeywell and Texas Ultrapure Inc. Ashland will join Air Products in contesting this action and expects the divestiture to be completed.

Valvoline continues to perform well. Operating income of $24 million in the June quarter nearly equaled the $25 million of a year ago. Although overall sales volumes declined, Valvoline increased share in a very soft market. Premium product sales volumes increased 7 percent. Valvoline Instant Oil Change had a record June quarter, due in part to a 20 percent increase in non-oil change revenues. In addition, results from Valvoline International improved due to better volumes in key markets and strengthening foreign currencies.

"Looking ahead, our goal is to be a top quartile performer versus our peers, and we are doing the work that will set the course for our continued, long-term success," O'Brien said. "We are focused on furthering the profitability plan I announced last October. We are becoming more operationally efficient, more strategically focused and more financially disciplined. The eventual result will be a much stronger company that better serves our owners and our customers."

Today at 10:00 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 for 12 months. Minimum requirements to listen to the webcast include the free Windows MediaPlayer software and a 28.8 Kbps connection to the Internet.

Ashland Inc. 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(TM)." 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.

  (TM) Trademark, Ashland Inc.

  Ashland Inc. and Consolidated Subsidiaries
  STATEMENTS OF CONSOLIDATED INCOME
  (In millions except per share data - unaudited)

                                        Three months ended Nine months ended
                                               June 30           June 30
                                            2003     2002     2003     2002
  REVENUES
    Sales and operating revenues         $ 2,006  $ 1,997  $ 5,388  $ 5,315
    Equity income                            104       80      169      141
    Other income                              15        7       43       35
                                           2,125    2,084    5,600    5,491
  COSTS AND EXPENSES
    Cost of sales and operating expenses   1,648    1,602    4,430    4,285
    Selling, general and administrative
     expenses                                290      298      870      828
    Depreciation, depletion and
     amortization                             49       52      153      153
                                           1,987    1,952    5,453    5,266
  OPERATING INCOME                           138      132      147      225
    Net interest and other financial
     costs                                   (31)     (33)     (97)    (103)
  INCOME FROM CONTINUING OPERATIONS
    BEFORE INCOME TAXES                      107       99       50      122
    Income taxes                             (36)     (38)     (17)     (47)
  INCOME FROM CONTINUING OPERATIONS           71       61       33       75
    Results from discontinued operations
     (net of income taxes)                    (1)       4      (94)       7
  INCOME (LOSS) BEFORE CUMULATIVE EFFECT
    OF ACCOUNTING CHANGE                      70       65      (61)      82
    Cumulative effect of accounting
     change (net of income taxes)             --       --       --      (12)
  NET INCOME (LOSS)                      $    70  $    65  $   (61) $    70

  DILUTED EARNINGS (LOSS) PER SHARE
    Income from continuing operations    $  1.03  $   .87  $   .48  $  1.06
    Results from discontinued operations    (.02)     .06    (1.37)     .10
    Cumulative effect of accounting
     change                                   --       --       --     (.16)
    Net income (loss)                    $  1.01  $   .93  $  (.89) $  1.00

  AVERAGE COMMON SHARES AND ASSUMED
   CONVERSIONS                                69       70       69       70

  SALES AND OPERATING REVENUES
    APAC                                 $   683  $   756  $ 1,615  $ 1,861
    Ashland Distribution                     733      670    2,081    1,875
    Ashland Specialty Chemical               308      290      870      809
    Valvoline                                307      305      889      833
    Intersegment sales                       (25)     (24)     (67)     (63)
                                         $ 2,006  $ 1,997  $ 5,388  $ 5,315
  OPERATING INCOME
    APAC                                 $    17  $    42  $   (39) $    64
    Ashland Distribution                      11        3       27        8
    Ashland Specialty Chemical                 3       20       21       50
    Valvoline                                 24       25       56       53
    Refining and Marketing (a)               100       66      145      111
    Corporate                                (17)     (24)     (63)     (61)
                                         $   138  $   132  $   147  $   225

  (a) Includes Ashland's equity income from Marathon Ashland Petroleum LLC
      (MAP), amortization related to Ashland's excess investment in MAP, and
      other activities associated with refining and marketing.

  Ashland Inc. and Consolidated Subsidiaries
  CONDENSED CONSOLIDATED BALANCE SHEETS
  (In millions - unaudited)

                                                           June 30
                                                   2003              2002
  ASSETS
    Current assets
      Cash and cash equivalents                  $   112           $   101
      Accounts receivable                          1,045             1,053
      Inventories                                    512               469
      Deferred income taxes                           98               130
      Current assets of discontinued
       operations held for sale                      198                60
      Other current assets                           186               128
                                                   2,151             1,941

    Investments and other assets
      Investment in Marathon Ashland
       Petroleum LLC (MAP)                         2,401             2,406
      Goodwill                                       519               507
      Asbestos insurance receivable
       (noncurrent portion)                          398               168
      Noncurrent assets of discontinued
       operations held for sale                       --               146
      Other noncurrent assets                        345               380
                                                   3,663             3,607

    Property, plant and equipment
      Cost                                         2,949             2,912
      Accumulated depreciation,
       depletion and amortization                 (1,725)           (1,603)
                                                   1,224             1,309

                                                 $ 7,038           $ 6,857

  LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
      Debt due within one year                   $   296           $   302
      Trade and other payables                     1,235             1,225
      Current liabilities of discontinued
       operations held for sale                       28                23
      Income taxes                                    16                53
                                                   1,575             1,603

    Noncurrent liabilities
      Long-term debt (less current
       portion)                                    1,564             1,600
      Employee benefit obligations                   493               400
      Deferred income taxes                          201               271
      Reserves of captive insurance
       companies                                     184               182
      Asbestos litigation reserve
       (noncurrent portion)                          535               148
      Noncurrent liabilities of discontinued
       operations held for sale                       --                13
      Other long-term liabilities and
       deferred credits                              346               378
                                                   3,323             2,992

    Common stockholders' equity                    2,140             2,262

                                                 $ 7,038           $ 6,857

  Ashland Inc. and Consolidated Subsidiaries
  STATEMENTS OF CONSOLIDATED CASH FLOWS
  (In millions - unaudited)
                                                       Nine months ended
                                                            June 30
                                                    2003              2002
  CASH FLOWS FROM OPERATIONS
    Income from continuing operations            $    33           $    75
    Expense (income) not affecting cash
      Depreciation, depletion and
       amortization (a)                              153               153
      Deferred income taxes                           43              (104)
      Equity income from affiliates                 (169)             (141)
      Distributions from equity
       affiliates                                    114               120
      Other items                                     (1)               --
    Change in operating assets and
     liabilities (b)                                 (62)              (96)
                                                     111                 7
  CASH FLOWS FROM FINANCING
    Proceeds from issuance of common
     stock                                             1                11
    Repayment of long-term debt                     (191)              (58)
    Repurchase of common stock                        --               (11)
    Increase in short-term debt                      243                85
    Dividends paid                                   (56)              (57)
                                                      (3)              (30)
  CASH FLOWS FROM INVESTMENT
    Additions to property, plant and
     equipment (a)                                   (84)             (130)
    Purchase of operations - net of cash
     acquired                                         (5)              (12)
    Proceeds from sale of operations                   5                --
    Other - net                                       (6)                1
                                                     (90)             (141)
  CASH PROVIDED (USED) BY CONTINUING
   OPERATIONS                                         18              (164)
    Cash provided by discontinued
     operations                                        4                29
  INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                   $    22           $  (135)

  DEPRECIATION, DEPLETION AND
   AMORTIZATION
    APAC                                         $    82           $    83
    Ashland Distribution                              15                16
    Ashland Specialty Chemical                        30                28
    Valvoline                                         19                18
    Corporate                                          7                 8
                                                 $   153           $   153
  ADDITIONS TO PROPERTY, PLANT AND
   EQUIPMENT
    APAC                                         $    39           $    86
    Ashland Distribution                               3                 9
    Ashland Specialty Chemical                        22                16
    Valvoline                                         12                13
    Corporate                                          8                 6
                                                 $    84           $   130

  (a) Excludes amounts related to equity affiliates. Ashland's 38 percent
      share of MAP's DD&A was $104 million in 2003 and $103 million in 2002,
      and its share of MAP's capital expenditures was $224 million in 2003
      and $154 million in 2002.
  (b) Excludes changes resulting from operations acquired or sold.

  Ashland Inc. and Consolidated Subsidiaries
  OPERATING INFORMATION BY INDUSTRY SEGMENT
  (Unaudited)
                                        Three months ended Nine months ended
                                               June 30           June 30
                                            2003     2002     2003     2002
  APAC
    Construction backlog at June 30
     (millions) (a)                                        $ 1,824  $ 1,797
    Hot-mix asphalt production (million
     tons)                                   9.8     11.4     21.0     25.3
    Aggregate production (million tons)      8.1      8.5     20.5     22.2
    Ready-mix concrete production
     (million cubic yards)                   0.6      0.6      1.5      1.5
  ASHLAND DISTRIBUTION (b)
    Sales per shipping day (millions)    $  11.6  $  10.5  $  11.1  $  10.0
    Gross profit as a percent of sales      15.1%    15.6%    15.3%    16.3%
  ASHLAND SPECIALTY CHEMICAL (b)
    Sales per shipping day (millions)    $   4.9  $   4.5  $   4.6  $   4.3
    Gross profit as a percent of sales      33.1%    38.0%    33.8%    37.2%
  VALVOLINE
    Lubricant sales (million gallons)       49.2     53.7    142.2    145.5
    Premium lubricants (percent of U.S.
     branded volumes)                       19.8%    17.2%    18.5%    15.7%
  REFINING AND MARKETING (c)
    Refinery runs (thousand barrels per
     day)
      Crude oil refined                      951      973      878      930
      Other charge and blend stocks          129      134      130      156
    Refined product yields (thousand
     barrels per day)
      Gasoline                               582      598      544      602
      Distillates                            292      308      276      298
      Asphalt                                 76       77       69       71
      Other                                  138      131      123      122
      Total                                1,088    1,114    1,012    1,093
    Refined product sales (thousand
     barrels per day) (d)                  1,346    1,351    1,311    1,299
    Refining and wholesale marketing
     margin (per barrel) (e)             $  2.94  $  2.18  $  2.21  $  1.89
    Speedway SuperAmerica (SSA)
      Retail outlets at June 30                              1,802    2,081
      Gasoline and distillate sales
       (million gallons)                     882      911    2,608    2,679
      Gross margin - gasoline and
       distillates (per gallon)          $ .1229  $ .1116  $ .1134  $ .1032
      Merchandise sales (millions) (f)   $   590  $   612  $ 1,695  $ 1,736
      Merchandise margin (as a percent of
       sales)                               23.9%    25.5%    24.4%    24.5%

  (a) Includes APAC's proportionate share of the backlog of unconsolidated
      joint ventures.
  (b) Sales are defined as sales and operating revenues. Gross profit is
      defined as sales and operating revenues, less cost of sales and
      operating expenses, and depreciation and amortization relative to
      manufacturing assets.
  (c) Amounts represent 100% of MAP's operations, in which Ashland owns a
      38% interest.
  (d) Total average daily volume of all refined product sales to MAP's
      wholesale, branded and retail (SSA) customers.
  (e) Sales revenue less cost of refinery inputs, purchased products and
      manufacturing expenses, including depreciation.
  (f) Effective January 1, 2003, SSA adopted EITF 02-16, "Accounting by a
      Customer (Including a Reseller) for Certain Consideration Received
      from a Vendor," which requires rebates from vendors to be recorded as
      reductions to cost of sales. Rebates from vendors recorded in SSA
      merchandise sales for periods prior to January 1, 2003 have not been
      restated and included $38 million in the three months ended June 30,
      2002; $46 million in the nine months ended June 30, 2003; and $129
      million in the nine months ended June 30, 2002.

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