Good day, ladies and gentlemen, and welcome to the First Quarter 2008 Ashland Earnings Conference Call. My name is Natasha and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instruction]. I would now like to turn the call over to Mr. Eric Boni, Director of Investor Relations. Please proceed.

Thank you, Natasha. Good morning and welcome to Ashland's first quarter, fiscal 2008 conference call and webcast. We released our first-quarter results at eight O'clock eastern time today. These results are preliminary until we file our 10-K in February. With me here today are Jim O'Brien, Ashland's Chairman and Chief Executive Officer; Marvin Quin, Senior Vice President and CFO; Ted Harris, President of Ashland Distribution and Michael Meade, Assistant Controller, External Financial Reporting. Now let me give you an outline for the call. I will review our financial results, Marvin will discuss our business performance, Ted will cover Distribution in a little more depth and then Jim will close with our current focus and outlook for the remainder of the year. After that, we will be happy to take your questions. Before we get started, let me review our cautionary language regarding forward-looking statements on slide two. Statements may be made during the course of this presentation that constitute forward-looking statements as that term is defined in relevant securities laws. If such statements are made, they will be based on a number of assumptions, such as price, supply and demand, market conditions and operating efficiencies. Ashland believes that its expectations regarding operating performance are based on reasonable assumptions, but it cannot assure that those expectations will be achieved. Therefore any forward-looking statements may prove to be inaccurate. Let's go to slide three to review the highlights of the first fiscal quarter. As you can see on this slide, there were both positive and negative aspects to our performance in the December quarter. The declines in our operating income and earnings per share versus the year-ago quarter were substantial. These declines were primarily due to our Ashland Performance Materials and Ashland Distribution businesses. Volume per shipping day declined 8% in our…

Thank you, Eric, and good morning everyone. As shown on Ashland's income bridge, the primary driver for operating income declined between the first quarters of 2007 and 2008, was reduced gross margin. Now, while gross margin dollars rose in the December quarter versus the September quarter as Eric noted, they fell $9.7 million versus the prior year December quarter. This occurred in three of our four businesses with the exception being Valvoline. Net SG&A increases of $4.9 million, reflect among other factors an additional two months of normal expenses for Northwest Coatings, which we acquired in December of 2006 as well as higher advertising expenses for Valvoline. These increases were partially offset by the favorable effect of the reduction in stock-based employee expense, which Eric mentioned earlier. You can see here, we are now breaking up the impact of foreign currency translation on operating income. This reflects the fact that our larger global footprint, we will have more foreign exchange volatility as noted here. The foreign currency impact on earnings has been slightly positive versus the prior quarter, largely benefiting the Performance Materials business. Slide 11 summarizes Performance Materials results, which were down substantially versus the prior year. Our sales and operating revenues were up 1% over the year-ago quarter, our volume declined 8%. The elimination of the one-month lag for reporting non-North American operations, which Eric mentioned did adversely affect revenues. This reduced revenues by about $9 million and if we had not made the change, the sales and operating income growth would have been 3% not 1%. During the calendar year 2007, the domestic EPR [ph] market appeared to have a decline greater than 10%. Our U.S. business was impacted by a similar percentage. Clients in the transportation market, particularly the heavy truck market, continued to negatively affect…

Thank you, Marvin and good morning. I appreciate this opportunity to give you a more in-depth view of the Distribution business, starting with slide 17. Approximately 85% of Ashland Distribution’s business is in the U.S. Thus it goes without saying that conditions in the U.S. market whether good or bad affect Distribution. As you have heard you say over the past several quarters, our primary markets for Distribution include, building and construction and transportation, which comprise roughly 50% of our domestic revenues. Given the weak conditions in these markets in the U.S., many of our customers are experiencing production and sales decline. Meanwhile the European and Asian markets continue to be relatively strong, boosting overseas demands from many chemicals and plastics. As a result of this demand, coupled with the weak U.S. dollar, manufactures of the products we buy are often able to sell products at a better price and profit internationally, that can be achieved in the United States. Given our current dependence on U.S. markets, this puts pressure on Air margins, as Air customers buy less but we have to pay more, as we are competing with export opportunities for access to the product. As Ashland and our competitors fight for the remaining U.S. business, there appears to be some downward pressure on pricing to maintain volume. How do we choose to compete in this marketplace? First let me note that our volume remains relatively flat versus prior year despite the conditions in the U.S. market. While most of our sales make a positive profit contribution, not all have, so in some situations we are forgoing business and recovering our investment and accounts receivable. In order to improve profitability we're developing further rigor and discipline around our pricing process. This will better enable Ashland to manage differences in…

Thank you, Ted. Good morning. Slide 23 shows the main areas of focus for Ashland in 2008. First is compliance, that takes [ph] responsible care. If we don't do these things right then nothing else matters. We work hard to create safe work environments and operate responsibly in our communities. We require not only compliance but also require employees maintain high ethics in all matters, and we practice environmental stewardship throughout the life cycle of our products. These are the right things to do and they are also a good business. We have long said that we have a long-term goal of an 8% operating income margin over an economic cycle, excluding our Distribution businesses. Due to its nature as a high volume, low margin business, Distribution's long-term goal is for that metric is 2% to 4%. Over the past several years, a great deal of energy has been absorbed by the implementation of our GlobalOne SAP platform. With most of our businesses now on GlobalOne, we could shift our full attention to improving our business fundamentals. This means improving growth by emphasizing service and customer relationships, focusing on markets rather than products and identifying segments where we can generate greater returns. We continue to build our presence globally and as our performances past quarter demonstrates, our international operations were showing solid growth. Cost containment continues to be a focus. In our business units, resource group leaders are developing specific plans to optimize our cost spending and with such focus such as travel and entertainment being one of those. A key emphasis for Ashland is cash flow. As you heard me state during our last presentation, every employee's incentive compensation, mine included, rise on improving our cash flow and working capital efficiency. Totally 40% of our variable pay weighted [ph]…

Operator: Thank you. [Operator Instructions]. And your first question comes from the line of Laurence Alexander with Jefferies. Please proceed. Laurence Alexander - Jefferies & Company: Good morning.

Good morning. Laurence Alexander - Jefferies & Company: I guess first of all on the Performance Material segment, do you feel you have the right mix in that segment? I don't mean in terms of bolt-ons, but in terms of... are any of the assets there look weak... structurally weaker than they were last cycle?

When we take a look at the Performance Materials side of our business, as we mentioned in the prepared remarks, our commodity piece is less than it was for the last cycle. So we still have a big impact with commodities, both our specialty side through DERAKANE and also looking at more worldwide markets has improved dramatically. So as we look at our sell-through this cycle, we are going to be impacted by the boat business, we are going to be impacted by the transportation business, but there are new environmental businesses which did not exist through the life cycle that we are participating in, such as windmill blades and inserts for few liners [ph] for coal burning power plants. Businesses like this are starting to take off in much greater quantities and we have expectations that they will help dampen the effects as we go in through this next cycle. Laurence Alexander - Jefferies & Company: And with respect to raw materials, if you look back over the last 12, 18 months what is roughly the cumulative gap between the rise in raw materials and your pricing, or to put it another way, how much do you expect to recoup over the next 12 to 18 months if raw materials stabilize?

One of the issues that we tried to demonstrate in the slides was if you just look at strictly raw material costs, we for the most part have recovered those as just a total cost of raw materials, but as we all know, you have to capture more than the actual raw material to maintain your margin. So, the real impact here has been our ability to maintain gross profit percentages, which would imply that we have to continue to increase pricing and particularly look at the segments that we compete in and to assure ourselves that we are getting the full value of the service that we are providing to several customers. So, as we look at our challenge this quarter, our managers are significantly paying attention to the segmentation of their markets with the real raw material cost are in this particular segments and re-evaluating their pricing strategies and models to assure that we can get the maximum price that the market will avail in those segments. So, we are not satisfied yet with our recovery of that and we are pushing very hard and trying to get pricing up. Marvin?

Yeah, Laurence, let me give you some few facts. If you look at our business fundamentals, we show the gross profits for each of our businesses there. And if you go to the Performance Materials growth profit page, you will see that for the quarter just ended, our gross profit percent was 18.2%. Last year, at this time, it was 21%. So, we certainly expect perhaps the higher prices, if they stay as high, we don't go up to 21%, but certainly well above the 18%. Laurence Alexander - Jefferies & Company: And lastly, on the M&A environment, can you discuss both the pipeline that you might be seeing and also some color in terms of your preference for all cash versus mixed payments?

As we look at the M&A opportunities that may or may not come to us, we have focused on several opportunities we think would be value creating for our shareholders and we continue to evaluate that in light of the alternatives, which is return cash to shareholders via a stock buyback or special dividend. So, all these various opportunities for deployment of the cash in our balance sheet are always being evaluated and considered. And as we look at the opportunities, we think that the pricing of some of these may have come down, but this economic downturn hasn't had enough time yet for people to level set their expectations as far as what they may or may not want for certain properties. So, while we are very active as far as evaluating what we think would be excellent opportunities for us. We still don't believe at this stage that the opportunities we made available at a price that would create the value that we think is necessary to create that value for our shareholders. Laurence Alexander - Jefferies & Company: Thank you.

Thanks Laurence.

Next question comes from the line of Jeff Zekauskas of J.P. Morgan. Please proceed.

Hi good morning.

Good morning.

Just a couple of short questions. Your corporate expense was an income of $3 million versus expense of $5 million last year. Why is that?

It is primarily to do with the compensation element that is tied to Ashland's stock price. So it’s primarily focused on that area that was almost all of that change… compensation.

Let me give you… Jeff, an example might be, our long-term incentive program is denominated in stock.

Yeah.

It goes down the liability we have proven in our books goes down. We also have deferred compensation that people like ourselves [ph] invest in National Stock through to the extent that stock price goes down, the liability of the company goes down.

So is that a one-time corrective or is that, so long as Ashland's, so if Ashland's stock stays where it is in the next quarter, are you going to book income as well?

If it stayed where it is, this would be a neutral item, if our stock rises this will be a cost item... there as we always have in this other category, there are a number of small items in there which might... we could actually have a rising stock price and still that item could be positive just again from what other adjustments flow through.

Okay. The second question is your SG&A was up about 5.5%, your SG&A expense was up about 5.5% from $266 million to $281 million, are you satisfied with that? Doesn't that seem rather fast given that you've got a relatively soft operating environment?

There is two things that impacted it through this quarter. We finished the European Go Live in the October, November time frame and we had many people traveling over there, so that we had a lot of expense associated with European, Go Live. That was one impact. The other is that we've had several growth initiatives that we put in place which I believe are starting to bear some fruit as far as our research and how we've done our market segmentation work on trying to identify future opportunities. So that was an investment we made and the other area that we made some investment is in our China and European marketplace. We've added some people in the area. That being said, those were the investments we've made and we're starting to take a harder look now of the benefits of GlobalOne. And what GlobalOne should do for us, is in a couple of areas. One is going to help us with our management of our working capital, which I think Ted gave you some specific examples of how he is using GlobalOne, to manage those receivables and inventory. So that's one benefit, the other is around efficiency and also transparency of our markets and how we do our segmentation work. I think it should help us with our pricing and also should help us with the numbers of people that we have to do certain work, so all of our Presidents have a challenge to them this quarter to look at how we move up our margin basically as a net margin at 8% for the specialty side and 3% for the Distribution side. How to make significant improvements in doing that? It's going to be a combination of both pricing and also cost containment. So, your observation is correct, we understand some of those effects and we are working on it.

The other thing to keep in mind as well is there is a large foreign exchange, foreign translation component to that increase as well and we believe roughly two thirds of that increase has to do with foreign exchange.

Yes. Jeff, that SG&A, if you exclude with part of that Eric is talking about the currency, it was less than $5 million and when you look at the higher advertising expense we had in Valvoline, the additional two months of expenses from having Northwest Coatings two more months, you know that's a pretty modest increase. What we're doing is finding some of these growth initiatives Jim is talking about, at the same time reducing corporate and other costs. All that being said, we still have a very strict eye on it and we want to have some impact and through this year and so it's something that we have talked about in the past with the GlobalOne, what benefit it was going to bring. We're going to bring in some of those benefits through this year.

That's helpful. Lastly, are your acquisition efforts now really, I guess put on hold and that your stock price is down, call it 35% over the past three to six months. And so, and so far as you measure acquisitions as relatively attractive versus buying back your own company. I would think that your own company would be much more appealing? Now I realize that you are frozen because of some tax reasons but again doesn't this change your acquisition strategy a little bit or no?

It doesn't really because our strategy always has been to find the opportunities that are the highest value creating for our shareholders. So, we've always had in our mix, the opportunity to have acquisitions as far as buy another divisions, companies, whatever as an alternative. We also have the opportunity to buy back stock and we also have the opportunity to have a special dividend. I think, our past behaviors demonstrated that, we take that very seriously as we make our decisions, because up to this point, we have made acquisitions, we have given back stock, we have bought back stock, we have given back a dividend. So, we've kind of used all those levers through the past and as we continue to evaluate the future, these will have to be taken into account and the environment will somewhat dictate, what is the most value-creating one to take that into consideration.

Okay. Thank you very much.

Next question comes from the line of John Mcnulty with Credit Suisse. Please proceed.

Yes. Good morning. Two quick questions. The first one, with regard to your Performance Materials business and the heavy truck opportunities there, can you give us some color as to how much of a lead you have in terms of when you sell your product to the major truck manufacturers versus when they're actually delivering them themselves? Just if we can get a feel for how we should be thinking about the 2010 environmental or truck change and standard changes and when you're going to start to really feel them?

Yes. Ted used to run Performance Materials on the commodity side and also specialty. I will let him comment on his experience.

The lean time is probably shorter than you might think. From the time that we sell products to the time that the part is made and then on a truck. We really are talking something like three to six months from my recollection. So, it's relatively short supply chain.

Okay. So, assuming 2009 becomes a big truck buying year, you're really not going to see until the second half of 2008 and arguably maybe a little bit later then that, is that fair?

I think that's probably a fair assessment. Yes.

Okay. Great. And then, just on the acquisition side of things with a lot of kind of major assets having come down on price as well as some of the smaller ones but maybe not quite as much on the small side. Has your appetite for larger acquisitions, would you say changed at all either gotten more aggressive, less aggressive or is that roughly the same?

Well, I think in the past, we have always stated that our target was 100 to 500. That hasn't changed. If a large acquisition would create a tremendous amount of shareholder value that we believe would benefit some sort of merger whatever we consider it. But, where we stand right now with our stock price and also with the conditions at the marketplace. I would anticipate that, 100 to 500 is still the target range that we would find available opportunities.

Okay. And then, just the last question, with regard to the IRS reviewing the '05, I guess, the tax status of your refinery sale, I know you were hoping to get the... their kind of review back, or their kind of blessing, if you will, back by the end of December, and it seems like its dragged down a little bit. Can you just give us an update on where that stands and when you might be thinking about getting it back?

Sure John. We actually had discussions last week with the IRS and your point about it having dragged on is indeed accurate. My guess is that where we are today, it's possible we could get it done in the March quarter, but it... I would say it's a higher probability that it will slide over to the next quarter. It's a… no particular issues or it just… it's a matter of priorities within the IRS, the team that's working on it and it’s just... as you say its dragging on and but there is nothing, no particular issue that is creating some concern on our part.

Okay, great. Thanks a lot.

[Operator Instructions] Your next question comes from the line of Steve Schuman [ph] with Ashland. Please proceed.

Hi, good morning guys.

Good morning.

On... the comment on your Distribution business, why is that primarily construction and building driven? I would imagine that's more consumer products, your sort of commodity polymers if you will?

We're very strong in the coatings market, and so… and primarily are an important part of coating certainly is residential or architectural coatings. So that is a big part of our chemicals business. But we also, in our composites distribution business, a significant amount of what we supply goes into building and construction as well as in our plastics business, with pipes and parts for electrical circuit breaker boxes and things like that, a significant amount of all three of our product lines, chemicals, composites and plastics go into building and construction.

Okay. So that's not going to be as recession proof as some of the consumer product lines going forward. On the Water side, you did mention your Water Technologies, is somewhat recession resistance... resistant. We don't have data going back that far from the last recession, but percentage wise how does that business typically swing, and which part is it, is it the original Ashland Water Technologies or is it the Degussa purchase?

When you look at the Water business, whether it be municipal water treatment or if you look at plants that may run at lower rates. They still have to run their cooling towers and run their performance side of their business. So, as we look at the business, of course the Marine is doing very, very well with trade still continuing to be at a high rate. That business has enough exposure to various parts of markets and worldwide markets that it is somewhat tempered by the U.S. manufacturing segment, and that's what makes it so much more recession proof, it's more its breath of worldwide market and breath of commercial real estate plans and it’s just so broad in what it touches that it is in so many different markets it just doesn't have as much cyclicality to it.

On a percentage basis, is it, plus or minus, 15%, 20%, 15%?

From trough to… no, I would say it's fairly steady. It's more like Valvoline where it's going to... behaves more like a consumer product, I guess and it does an industrial product.

Okay.

Let me also add, it’s one of the factors driving its profitability on a short-term period will be what's happening to raw material prices and should propylene derivatives decline in price that would be very beneficial, conversely when prices are going up quite a bit that's a drag. So I'd say we are probably driven more in the short-term by what has happened in raw materials than we are by ultimate demand or the economy.

Okay. And a final question for you. The Degussa purchase probably is not going as well as you had expected. I actually missed your comments on Northwest Coatings, but you are going to have some money at some point this year, do you feel your business leaders have sort of earned the right to go out and do acquisitions or do they need to cleanup their own house first?

There is no question that we... always our primary focus is to have the current business that we are operating to perform at its highest level. So there is always pressure put on the commercial unit leaders to… that is their foremost, the primary responsibility is to get assets they are currently managing at the highest possible performance. That goes without saying. The acquisitions, the Degussa acquisition is done very well and we're very pleased with it and the position in the marketplace and how that business is performed and the cash being thrown for that business has been very, very good. So I'm very pleased with that personally and in that business this is going to be expanded over time in my estimation. When you look at other opportunities the decision to acquire is one that is strategic and opportunistic. One you must have a strategic reason that to be in this business we must strengthen either assets we have or other ideas we have moving forward how we want to develop in certain marketplaces. And then the business that have been acquired has to be a good strong business in its own right. So as we acquire it that its performance can be enhanced by our management of it versus the attracted firm. So, as I look at our decision it is how we make our decisions and I think types of acquisitions we've made over the last four years have demonstrated our ability to do that well and I'm very pleased what we've done.

Fair enough. Thank you.

I show no further questions in the queue. I would now like to turn the call over for any closing remarks.

I think that I appreciate everybody being on the call today and although this has been a challenging quarter, as we have tried to demonstrate in the remarks, sequentially I think we are making some improvements in some very difficult markets that we are facing. So as we go into the next quarter we can't give you any type of forecast what our expectations would be, but certainly over the last three months we've made improvements.

Thanks everyone for participating.

This concludes the presentation. You may all now disconnect. Good day.