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Ashland Inc. Reports Operating Results (10-Q)

May 05, 2010 | About:
10qk

10qk

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Ashland Inc. (ASH) filed Quarterly Report for the period ended 2010-03-31.

Ashland Inc. has a market cap of $4.61 billion; its shares were traded at around $59.09 with a P/E ratio of 15.3 and P/S ratio of 0.6. The dividend yield of Ashland Inc. stocks is 0.5%.ASH is in the portfolios of John Keeley of Keeley Fund Management, Jim Simons of Renaissance Technologies LLC, Bruce Kovner of Caxton Associates, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC, Charles Brandes of Brandes Investment, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Combined with previous operational redesigns (2008 program) completed during 2009, Ashland has achieved run rate cost reductions of $418 million through March 31, 2010, an increase of $63 million from the September 30, 2009 run rate cost reductions achieved, which exceeds the targeted run rate cost savings of $400 million estimated for these cost reduction initiatives. The cumulative effect of these restructuring activities has resulted in the elimination of approximately 1,925 employee positions and ten permanent facility closings through the end of the March 2010 quarter and in total is currently expected to reduce the global workforce by over 2,000 employees, or approximately 13% by the end of 2010. The total restructuring cost incurred under the cost-structure efficiency programs for the three and six months ended March 31, 2010 was $1 million and $3 million, respectively, and was classified within the selling, general and administrative expenses caption. The total restructuring cost incurred under the cost-structure efficiency programs for the three and six months ended March 31, 2009 was $13 million and $55 million, respectively, of which $7 million and $33 million, respectively, was classified within the selling, general and administrative expenses caption and $4 million was charged to the cost of sales and operating expense caption. For the three and six months ended March 31, 2009, the remaining cost of $2 million and $18 million, respectively, related to established severance reserves associated with Hercules personnel which qualified for purchase method of accounting in accordance with U.S. GAAP, and had no effect on the

Current Quarter – Ashland recorded net income of $22 million, or $.27 per diluted earnings per share, for the three months ended March 31, 2010 as compared to a net income of $48 million, or $.65 per diluted earnings per share, for the three months ended March 31, 2009. Included in net income for the current period is an additional $43 million ($66 million pretax), or $.54 per diluted earnings per share, of accelerated amortization for deferred debt issuance costs and prepayment penalties associated with the senior credit facility refinancing during the March 2010 quarter. In addition, the recent U.S. federal government s passage of the Patient Protection and Affordable Care Act resulted in a $19 million charge, or $.23 per diluted earnings per share, to net income for the current period.

Ashland s net income is primarily affected by results within operating income, but is also affected by net interest and other financing expense, income taxes and discontinued operations. Operating income was $151 million for the current quarter as compared to operating income of $112 million in the prior quarter. Prior period operating results included a $16 million nonrecurring purchase accounting adjustment related to the Hercules acquisition for inventory and $11 million in severance, asset impairment and accelerated depreciation charges for the ongoing integration and reorganization from the Hercules acquisition and other cost reduction programs. These charges were partially offset by a currency gain on an intracompany loan of $5 million in the prior period. Excluding the key items above in the prior period, operating results improved from the prior period as a result of an increase in product demand as well as Ashland s focus on aggressive cost reductions and price management over the past year. Compared to the prior period and sequentially, volumes increased substantially as demand improvements were experienced in all business segments, after excluding the effect of acquisitions and divestitures.

Operating income for the March 2010 and 2009 quarters included depreciation and amortization of $73 million and $93 million (which includes $6 million of asset impairment and accelerated depreciation charges for the ongoing integration and reorganization from the Hercules acquisition and other cost reduction programs), respectively. EBITDA totaled $224 million for the March 2010 quarter as compared to $205 million for the March 2009 quarter. As a result of certain key items in the prior year quarter, adjusted EBITDA results in the table below have been prepared to illustrate the exclusion of these charges. The inventory fair value adjustment of $16 million in the prior March quarter relates to a charge required by U.S. GAAP upon acquisition of a company s inventory, which will no longer occur for this inventory purchased.

Ashland incurred net interest and other financing expense of $103 million for the March 2010 quarter, as compared to $54 million in the prior quarter. The current quarter increase in expense is a result of an additional $66 million of accelerated amortization for deferred debt issuance costs and prepayment penalties associated with the senior credit facility refinancing during the March 2010 quarter. Excluding this accelerated amortization charge, interest expense decreased by $17 million during the quarter, primarily due to the approximate $800 million decline in debt outstanding compared to the prior year. Net loss on divestitures was $5 million for the current quarter as compared to $1 million in the prior year, as both periods reflected adjustments to Ashland s recorded receivable associated with the 2005 transfer of Ashland s 38% interest in Marathon Ashland Petroleum LLC (MAP). Ashland s effective tax rate was 53.5% for the three months ended March 31, 2010 as compared to 15.8% for the prior period as both periods were significantly affected by a number of discrete items discussed further in the income tax discussion within the Management s Discussion and Analysis. Income from discontinued operations of $2 million, net of tax, within the current quarter was related to various adjustments to previously recorded divestitures.

Year-to-Date – Ashland recorded net income of $108 million, or $1.37 per diluted earnings per share, for the six months ended March 31, 2010 as compared to a net loss of $71 million, or ($1.00) per diluted earnings per share, for the six months ended March 31, 2009. Included in net income for the current period is an additional $66 million, or $.54 per diluted earnings per share, of accelerated amortization for deferred debt issuance costs and prepayment penalties associated with the senior credit facility refinancing during the March 2010 quarter. In addition, the recent U.S. government s passage of the Patient Protection and Affordable Care Act resulted in a $19 million, or $.23 per diluted earnings per share, charge to net income for the current period. Included in the net loss of the prior period were two significant nonrecurring charges totaling $86 million, or $.96 per diluted earnings per share, reported below operating income within the other expense caption of the Statement of Consolidated Income as well as two additional charges totaling $78 million, or $.71 per diluted earnings per share, that affected operating income discussed further below.

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