Letter from Jim O'Brien
Ashland CEO
TO: Ashland Retiree Club Presidents
FROM: Jim O'Brien
DATE: January 23, 2003
RE: Helping Explain Our Earning Release
With all of the information included in the earnings release that we issued today, I thought it would be helpful to provide you with some thoughts and messages for your club members to help them better understand our corporate performance as well as issues relating to our asbestos liability.
The key points we made in our announcement were:
· First quarter performance was disappointing
o We were hampered by higher crude oil prices for MAP
o APAC was fraught with an extended stretch of bad weather in its key markets
· We are seeing signs of improvement in several of our businesses
o Ashland Distribution has increased daily sales volumes
o Ashland Specialty Chemical improved operating profit in four of its six businesses, with strong increases
from casting solutions, specialty polymers & adhesives and electronic chemicals
o Valvoline continues to post strong results
· Most importantly, we are making progress toward our goals of becoming a more efficient, more processed-
centered organization
Many of the specifics are available in the actual press release, which is attached to this document.
Indeed another important aspect of this particular earnings release was our treatment of asbestos. First, we recorded a pre-tax charge of $390 million to increase our asbestos reserves to cover estimated claims over the next 10 years. That move led to the net loss we reported of $92 million for the quarter.
We increased our asbestos reserve after completing extensive studies of both our liabilities and the insurance coverage that we have in place to cover much of that exposure. Two leading consulting firms provide the analysis and methodologies that we employed.
The key points we made on asbestos are:
· We have successfully managed this issue for more than 17 years
· Our estimates of future asbestos claims and probable insurance recoveries were developed with the assistance of nationally recognized experts
· We have an effective case management strategy that we believe will continue to serve us well for the foreseeable future
While I do not want to minimize the impact of this issue on the minds of retirees, I do want to reassure them on several issues relative to asbestos, namely:
· It is a manageable issue that does not affect day-to-day corporate performance
· Jobs and career development are not impacted
· We continue to grow our businesses, service our customers and enjoy good relationships with our vendors
· Our stock price has been impacted by many issues, including, but not limited to asbestos. The steps we are
taking to enhance corporate performance overall, are being done in order to improve shareholder value.
· Pensions are not at all affected as they are federally insured
As you play an important link in communicating with our retiree population, I wanted to share with you a short question and answer document we've given our benefit counselors to help them respond to callers inquiring about the impact of the asbestos issue on their pensions, jobs, benefits and stock. They include:
Q1: If Ashland continues to add to its reserves for asbestos, will there be less funds available for health benefits and retirement programs?
A1: Ashland is continually reassessing its benefits programs to assure that we offer a competitive and comprehensive package that enables us to attract and retain employees. We see no reason to change our benefit programs as a result of our asbestos situation at this time.
Q2: Will my pension payments be affected by the $390 million charge?
A2: No. Our pension funds are fully funded and insured by the federal government.
Q3: Will this announcement lead to a further reduction in our stock price?
A3: We cannot answer that question for you, but would suggest that you contact your financial advisor to assist you in dealing with questions such as this.
Q4: Many other companies with asbestos liabilities have filed for Chapter 11 protection and people have lost benefits and stock value. Will that happen at Ashland?
A4: We have been successfully managing this issue for more than 17 years. Our estimates of future asbestos claims and probable insurance recoveries were developed with the assistance of nationally recognized experts and we have an effective case management strategy that we believe will continue to serve us well for the foreseeable future. We are not considering a Chapter 11 filing as a result of what we know about our liability today.
As always, thanks in advance for your support, commitment and dedication to our company.
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