8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

______________

FORM 8-K

______________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  July 25, 2007

ASHLAND INC.

(Exact name of registrant as specified in its charter)

Kentucky

(State or other jurisdiction of incorporation)

1-32532	20-0865835
(Commission File Number)	(I.R.S. Employer Identification No.)

50 E. RiverCenter Boulevard, Covington, Kentucky  41011

(Address of principal executive offices)   (Zip Code)

P.O. Box 391, Covington, Kentucky  41012-0391

(Mailing Address)   (Zip Code)

Registrant’s telephone number, including area code (859) 815-3333

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Item 2.02.  Results of Operations and Financial Condition

On July 25, 2007, Ashland Inc. (“Ashland”) reported its third quarter results, which are discussed in more detail in the press release attached hereto as Exhibit 99.1, which is incorporated by reference into this Item 2.02.

The information in this report, being furnished pursuant to Item 2.02 of Form 8-K, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, and is not incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 9.01.  Financial Statements and Exhibits

(d) Exhibits

99.1 Press Release dated July 25, 2007.

2

 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)

July 25, 2007	/s/ J. Marvin Quin
	J. Marvin Quin
	Senior Vice President
	and Chief Financial Officer

3

 EXHIBIT INDEX

99.1 Press Release dated July 25, 2007.

4

EX-99.1

News Release 

FOR ADDITIONAL INFORMATION:
	Media Relations:	Investor Relations:
	Jim Vitak	Dean Doza
	(614) 790-3715	(859) 815-4454
	jevitak@ashland.com	lddoza@ashland.com
FOR IMMEDIATE RELEASE
July 25, 2007

Ashland Inc. reports sharp increase
in fiscal third-quarter earnings per share

COVINGTON, Ky. – Ashland Inc. (NYSE: ASH) today announced preliminary* income from continuing operations, after taxes, of $86 million, or $1.35 per share, for the quarter ended June 30, 2007, the third quarter of Ashland’s fiscal year. This compares with income from continuing operations of $42 million, or 59 cents per share, in the same prior-year quarter. Net income for the June 2007 quarter was $100 million, or $1.58 per share, as compared with $93 million, or $1.29 per share, in the year-ago quarter. Net income for both periods included income from discontinued operations.

For the June 2007 quarter, discontinued operations included a net favorable adjustment to asbestos reserves and related insurance receivables of $16 million, resulting from Ashland’s ongoing assessment of these matters. In the year-ago June quarter, discontinued operations included income of $51 million from the operating results of the company’s former Ashland Paving And Construction, Inc. (APAC) subsidiary, which was sold in August 2006.

Operating income, before taxes, for the June 2007 quarter totaled $91 million, which includes a favorable adjustment of $10.8 million related to lower than expected pension and other benefit costs. Operating income for the quarter also benefited from an adjustment of $7.0 million to environmental reserves, reflecting both updated estimates of future costs for identified sites and improvements to the environmental remediation assessment process.

For the June 2006 quarter, operating income was $47 million and included a $7.6 million currency hedge gain related to an acquisition by Ashland Water Technologies, $12.1 million of APAC costs that were retained within continuing operations as required by GAAP, and an unfavorable adjustment to environmental reserves of $7.1 million.

Operating income totaled $73 million for the June 2007 quarter, excluding the environmental reserve and employee benefit adjustments of $18 million, as compared with operating income of $58 million for the 2006 quarter, which excludes $11 million of unfavorable adjustments previously mentioned. Ashland believes the use of these adjusted operating incomes is appropriate to enhance understanding of its current and future performance. (See page 5 of Ashland’s financial tables following the text of this release for a presentation of selected operating income components.)

Net interest and other financing income for both the June 2007 and 2006 quarters amounted to $9 million. Income taxes for the June 2007 quarter of $15 million compare with $14 million in the prior-year quarter. The effective tax rate was 15 percent for the 2007 quarter versus 25 percent for the 2006 quarter. The lower effective tax rate for the 2007 quarter reflects both updated estimates of taxable income for the full year and favorable developments with respect to settlements of certain tax matters. For the fourth fiscal quarter, Ashland estimates an effective tax rate of about 21 percent and for the full year, 23 percent.

“Our quarterly results continued to be driven by the strong performance of Valvoline,” said James J. O’Brien, chairman and chief executive officer. “Ashland Performance Materials produced its second-best quarterly operating income ever, exceeded only by the all-time record set in last year’s third quarter. Water Technologies achieved better quarter-versus-quarter operating performance, excluding the currency hedge gain recorded in the June 2006 quarter. Ashland Distribution continued to experience unfavorable market conditions, while realigning its plastics supplier base, resulting in lower operating income.”

Performance Materials earned operating income of $33.3 million for the June 2007 quarter, 19 percent below the record $40.9 million earned in the prior-year June quarter. Growth in international business partially offset the weakness in Performance Materials’ key North American markets. While volume was flat as compared with the June 2006 quarter, revenue of $400 million increased 8 percent. Excluding acquisitions, volume declined 2 percent and revenue grew 5 percent.

Distribution’s operating income declined to $11.6 million for the June 2007 quarter as compared with $30.1 million in the same year-ago quarter. Gross profit as a percent of sales declined to 7.1 percent from 9.3 percent in the prior-year quarter. Distribution’s performance reflects the weak U.S. manufacturing economy, rapid cost increases in commodity chemicals, and the impact of the termination of a significant North American plastics-supply contract in the March 2007 quarter. Revenue decreased 2 percent from $1,050 million in the June 2006 quarter to $1,026 million in the 2007 quarter, and volume declined 2 percent.

Valvoline achieved third-quarter operating income of $27.9 million as compared with an operating loss of $9.7 million in the year-ago quarter. Revenue of $407 million increased 11 percent over the June 2006 quarter. While lubricant volume declined 4 percent, the decline was primarily in Valvoline’s lower-margin private-label business. Overall, due to a more stable base-oil-cost environment, margin improvement enabled Valvoline to record its best third quarter since 1997. Margins as a percent of sales, however, remain below historical levels. Finally, improved results from the Valvoline Instant Oil Change^® business versus the prior-year third quarter also contributed to Valvoline’s strong performance.

Water Technologies reported operating income of $6.0 million for the June 2007 quarter as compared with $8.9 million in the prior-year quarter. Operating income in the 2006 quarter includes the $7.6 million currency hedge gain on the acquisition of the Environmental and Process Solutions (E&PS) business. Excluding this gain, operating results in 2007 benefited from increased earnings in each of the Water Technologies businesses. Revenue increased from $113 million in the June 2006 quarter to $201 million for the 2007 quarter, reflecting the addition of the E&PS business.

Commenting on the outlook for the remainder of the fiscal year, O’Brien said, “We expect Valvoline to report record operating income for the full year. However, recent increases in base-lube-stock costs will likely temper Valvoline’s results in the fourth quarter.

“Performance Materials’ results for 2007, as we’ve previously stated, will likely reflect continued weakness in the North American automotive, marine and residential housing markets and the resultant margin pressure. That said, Performance Materials should end the year roughly in line with the prior year’s fourth quarter.

“Distribution’s fourth-quarter performance should continue to reflect the margin challenges presented by the weak North American manufacturing economy, and to a lesser extent, the plastics supply realignment. Under current conditions, we expect Distribution to produce operating income closer to that of the third quarter as opposed to the September 2006 quarter. Our work to transition customers to new plastics manufacturers has resulted in some initial successes, and we are confident we will replace additional volume over time.

“During the final quarter of fiscal 2007, Water Technologies should see operating income approximate that earned in the 2007 third quarter. Implementation of the redesigned business model has begun, and we are optimistic that the Water Technologies business will continue to improve.”

Today at 8:30 a.m. (EDT), Ashland will provide a live webcast of its third-quarter conference call with securities analysts. The webcast will be accessible through Ashland’s website, www.ashland.com. Following the live event, an archived version of the webcast will be available for 12 months at www.ashland.com/investors.

Ashland Inc. (NYSE: ASH), a diversified, global chemical company, provides quality products, services and solutions to customers in more than 100 countries. A FORTUNE 500 company, it operates through four divisions: Ashland Performance Materials, Ashland Distribution, Valvoline and Ashland Water Technologies. To learn more about Ashland, visit www.ashland.com.

– 0 –

^® Registered trademark, Ashland

FORTUNE 500 is a registered trademark of Time Inc.

* Preliminary Results

Financial results are preliminary until Ashland’s quarterly report on Form 10-Q is filed with the U.S. Securities and Exchange Commission.

Forward-Looking Statements

This news release contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, with respect to Ashland’s operating performance. 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, 2006. 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.

Page 1

Ashland Inc. and Consolidated Subsidiaries

STATEMENTS OF CONSOLIDATED INCOME

(In millions except per share data - preliminary and unaudited)

		Three months ended							Nine months ended
			June 30							June 30
			2007			2006				2007			2006
REVENUES
	Sales and operating revenues		$	1,983		$	1,853			$	5,700		$	5,325
	Equity income			5			3				12			8
	Other income			5			6				19			19
				1,993			1,862				5,731			5,352
COSTS AND EXPENSES
	Cost of sales and operating expenses			1,643			1,538				4,707			4,419
	Selling, general and administrative expenses (a)			259			277				834			792
				1,902			1,815				5,541			5,211
OPERATING INCOME				91			47				190			141
	Gain (loss) on the MAP Transaction (b)			1			-				(3	)		(2	)
	Net interest and other financing income			9			9				34			29
INCOME FROM CONTINUING OPERATIONS
	BEFORE INCOME TAXES			101			56				221			168
	Income taxes			(15	)		(14	)			(52	)		(42	)
INCOME FROM CONTINUING OPERATIONS				86			42				169			126
	Income from discontinued operations (net of income taxes) (c)			14			51				29			81
NET INCOME			$	100		$	93			$	198		$	207
DILUTED EARNINGS PER SHARE
	Income from continuing operations		$	1.35		$	.59			$	2.64		$	1.75
	Income from discontinued operations			.23			.70				.45			1.11
	Net income		$	1.58		$	1.29			$	3.09		$	2.86
AVERAGE COMMON SHARES AND ASSUMED CONVERSIONS				63			72				64			72
SALES AND OPERATING REVENUES
	Performance Materials		$	400		$	370			$	1,142		$	1,068
	Distribution			1,026			1,050				2,982			3,046
	Valvoline			407			366				1,141			1,030
	Water Technologies			201			113				569			310
	Intersegment sales			(51	)		(46	)			(134	)		(129	)
			$	1,983		$	1,853			$	5,700		$	5,325
OPERATING INCOME
	Performance Materials		$	33		$	41			$	81		$	94
	Distribution			12			30				46			95
	Valvoline			28			(10	)			68			(6	)
	Water Technologies			6			9				18			9
	Unallocated and other (a) (d)			12			(23	)			(23	)		(51	)
			$	91		$	47			$	190		$	141
(a)	The nine months ended June 30, 2007 includes a $25 million charge for costs associated with Ashland's voluntary severance offer.
(b)	“MAP Transaction” refers to the June 30, 2005 transfer of Ashland’s 38% interest in Marathon Ashland Petroleum LLC (MAP) and two other businesses to Marathon Oil Corporation. The gain (loss) for the periods presented reflects adjustments in the recorded receivable for future estimated tax deductions related primarily to environmental and other postretirement liabilities.
(c)	The three and nine months ended June 30, 2007 includes after-tax income of $16 million and $34 million, respectively, from the increase of Ashland's asbestos insurance receivable. The prior periods primarily include after-tax operating results of APAC (excluding previously allocated corporate costs - see note (d) below) as a result of APAC's sale to Oldcastle Materials, Inc. in August 2006 for approximately $1.3 billion.
(d)	Includes corporate costs classified within the selling, general and administrative expense caption previously allocated to APAC of $12 million for the three months ended June 30, 2006 and $34 million for the nine months ended June 30, 2006.

 

Page 2

Ashland Inc. and Consolidated Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions - preliminary and unaudited)

	June 30
			2007			2006
ASSETS
Current assets
Cash and cash equivalents		$	848		$	363
Available-for-sale securities			141			621
Accounts receivable			1,466			1,394
Inventories			587			519
Deferred income taxes			78			83
Other current assets			72			58
Current assets of discontinued operations			-			579
			3,192			3,617
Investments and other assets
Goodwill and other intangibles			373			300
Asbestos insurance receivable (noncurrent portion)			460			446
Deferred income taxes			181			237
Other noncurrent assets			437			442
Noncurrent assets of discontinued operations			-			956
			1,451			2,381
Property, plant and equipment
Cost			2,074			1,998
Accumulated depreciation and amortization			(1,105	)		(1,063	)
			969			935
		$	5,612		$	6,933
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt		$	5		$	18
Trade and other payables			1,138			1,159
Income taxes			4			48
Current liabilities of discontinued operations			-			261
			1,147			1,486
Noncurrent liabilities
Long-term debt (less current portion)			65			70
Employee benefit obligations			294			417
Asbestos litigation reserve (noncurrent portion)			567			592
Other long-term liabilities and deferred credits			501			470
Noncurrent liabilities of discontinued operations			-			97
			1,427			1,646
Stockholders’ equity			3,038			3,801
		$	5,612		$	6,933

Page 3

Ashland Inc. and Consolidated Subsidiaries

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions - preliminary and unaudited)

		Nine months ended
		June 30
		2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
	Net income	$	198		$	207
	Income from discontinued operations (net of income taxes)		(29	)		(81	)
	Adjustments to reconcile income from continuing operations to
	cash flows from operating activities
	Depreciation and amortization		83			80
	Deferred income taxes		15			(5	)
	Equity income from affiliates		(12	)		(8	)
	Distributions from equity affiliates		8			5
	Loss on the MAP Transaction		3			2
	Change in operating assets and liabilities (a)		(258	)		(213	)
			8			(13	)
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
	Proceeds from issuance of common stock		17			17
	Excess tax benefits related to share-based payments		8			6
	Repayment of long-term debt		(12	)		(7	)
	Repurchase of common stock		(288	)		(138	)
	Cash dividends paid		(726	)		(59	)
			(1,001	)		(181	)
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
	Additions to property, plant and equipment		(102	)		(114	)
	Purchase of operations - net of cash acquired		(73	)		(177	)
	Proceeds from sale of operations		1			-
	Purchases of available-for-sale securities		(357	)		(645	)
	Proceeds from sales and maturities of available-for-sale securities		566			437
	Other - net		20			7
			55			(492	)
CASH USED BY CONTINUING OPERATIONS			(938	)		(686	)
	Cash (used) provided by discontinued operations
	Operating cash flows		(5	)		123
	Investing cash flows		(29	)		(59	)
DECREASE IN CASH AND CASH EQUIVALENTS		$	(972	)	$	(622	)
DEPRECIATION AND AMORTIZATION
	Performance Materials	$	25		$	22
	Distribution		15			16
	Valvoline		23			21
	Water Technologies		8			10
	Unallocated and other		12			11
		$	83		$	80
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
	Performance Materials	$	36		$	31
	Distribution		19			26
	Valvoline		16			27
	Water Technologies		16			16
	Unallocated and other		15			14
		$	102		$	114
(a)	Excludes changes resulting from operations acquired or sold.

Page 4

Ashland Inc. and Consolidated Subsidiaries

INFORMATION BY INDUSTRY SEGMENT

(In millions - preliminary and unaudited) 

	Three months ended June 30						Nine months ended June 30
	2007			2006			2007			2006
PERFORMANCE MATERIALS (a)
Sales per shipping day	$	6.3		$	5.9		$	6.1		$	5.7
Pounds sold per shipping day		5.1			5.1			4.9			5.0
Gross profit as a percent of sales		21.9	%		25.0	%		21.2	%		23.2	%
DISTRIBUTION (a)
Sales per shipping day	$	16.3		$	16.7		$	15.9		$	16.2
Pounds sold per shipping day		20.1			20.6			19.6			20.5
Gross profit as a percent of sales		7.1	%		9.3	%		8.2	%		9.7	%
VALVOLINE (a)
Lubricant sales (gallons)		43.4			45.1			123.8			127.8
Premium lubricants (percent of U.S. branded volumes)		24.4	%		22.4	%		23.2	%		23.2	%
Gross profit as a percent of sales		25.1	%		20.2	%		24.8	%		21.4	%
WATER TECHNOLOGIES (a)
Sales per shipping day	$	3.2		$	1.8		$	3.0		$	1.6
Gross profit as a percent of sales		38.2	%		45.5	%		39.1	%		47.0	%

(a) Sales are defined as sales and operating revenues.  Gross profit is defined as sales and operating revenues, less cost of sales and operating expenses.

Page 5

Ashland Inc. and Consolidated Subsidiaries

COMPONENTS OF OPERATING INCOME

(In millions - preliminary and unaudited) 

	Three Months Ended June 30, 2007
	Performance									Water			Unallocated
	Materials			Distribution			Valvoline			Technologies			& Other			Total
OPERATING INCOME
Environmental reserve adjustment	$	(0.4	)	$	(2.3	)	$	(0.3	)	$	(0.1	)	$	10.1		$	7.0
Employee benefit adjustment		2.1			2.3			1.4			0.7			4.3			10.8
All other operating income		31.6			11.6			26.8			5.4			(2.5	)		72.9
	$	33.3		$	11.6		$	27.9		$	6.0		$	11.9		$	90.7

	Three Months Ended June 30, 2006
	Performance									Water			Unallocated
	Materials			Distribution			Valvoline			Technologies			& Other			Total
OPERATING INCOME
Environmental reserve adjustment	$	(1.2	)	$	(1.5	)	$	-		$	(0.3	)	$	(4.1	)	$	(7.1	)
Employee benefit adjustment		0.2			0.2			0.1			-			0.1			0.6
Acquisition hedge		-			-			-			7.6			-			7.6
Corporate costs previously charged    to APAC		-			-			-			-			(12.1	)		(12.1	)
All other operating income		41.9			31.4			(9.8	)		1.6			(7.2	)		57.9
	$	40.9		$	30.1		$	(9.7	)	$	8.9		$	(23.3 )		$	46.9