Good day ladies and gentlemen and welcome to the Ashland Inc. Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded. I would now like to turn the conference over to David Neuberger, Director of Investor Relations. Please begin.

Thank you, Lithia. Good morning and welcome Ashland second quarter fiscal 2012 conference call and webcast. We released results for the quarter ended March 31, 2012 at approximately 6 a.m. Eastern Time today, and this presentation should be viewed in conjunction with the earnings release. These results are preliminary until we file our 10-Q in May. On the call today are Ashland’s Chairman and Chief Executive Officer, Jim O’Brien; Lamar Chambers, Senior Vice President and Chief Financial Officer; and Sam Mitchell, President of Ashland Consumer Markets. Before we get started, let me note that as shown on Slide 2, our remarks today will include forward-looking statements as that term is defined in securities laws. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please also note that during this presentation, we will be discussing adjusted and pro forma results. We believe these adjusted and pro forma results enhance understanding of our performance by more accurately reflecting our ongoing business. In addition, we are providing ISPs historical financial contribution representing Ashland’s best estimate of the appropriate cost allocation and shared resource cost. Reporting results in this manner has inherent limitations, and we do not represent that these financial results were calculated using the same methodology used by ISP. Please turn to Slide 3 for our second quarter highlights. Reported earnings per share from continuing operations were $1.13 in the March 2012 quarter. When adjusted for key items which I will cover shortly, EPS was $1.52 as compared with $0.97 in a year ago quarter. Let me note that the $0.97 in the prior year does not include the results of ISP or the related financing cost. This is the only time this morning that we will present data in this manner.…

As expected Consumer Markets achieved improved performance sequentially due to the combination of higher volumes, increased pricing and lower cost. Lubricant volumes rose 11% sequentially in line with normal seasonal trends but declined 9% from the prior March quarter. Roughly one-third of the volume decline versus the prior year is attributable to the previously disclosed loss of a low margin tolling account. I will discuss the remaining volume decline shortly. Sales increased 6% over the prior year quarter and rose 9% sequentially. Our gross profit was down 290 basis points versus the prior year and improved 110 basis points sequentially to 26.4% of sales. During our first quarter earnings call, we noted that January’s gross profit was running at 28%. However, as we moved through the quarter the combination of higher trade promotion activity and reduced volumes in our higher margin DIY channel negatively affected gross profit. Trade promotion typically refers to reduced pricing offered in support of short-term retail activities, this practice is common throughout the industry and takes place at selected times throughout the year to drive volume and increased brand awareness. However, in the second quarter many retailers were focused on reducing inventory thus negating the volume risk we would have expected. SG&A was even with prior year, but up 8% sequentially in line with normal seasonal trends ahead of the summer driving season. Overall Consumer Markets generated EBITDA of $66 million with an EBITDA margin of 12.7% for the March 2012 quarter. Now please turn to Slide 10 for Consumer Markets EBITDA Bridge. Our bridge shows that higher margins were more than offset by reduced volumes lead into the decline in EBITDA versus the year ago quarter. The reduced volumes led to $13 million of the EBITDA decline. These volume effects were concentrated in North America…

Thank you, Sam. Good morning everyone. Specialty Ingredients had another strong quarter, but each of our business units doing very well. We achieved particularly impressive results in our energy, construction, and specialty performance businesses. Including ISP, volumes were up 2% over the prior year, affecting this comparison versus the prior year is a demand trend toward more concentrated forms of our liquid products. We are seeing increased interest in these higher priced products from customers who like the [convene] us, ease of use and lower shipping cost. Adjusting for these effects volume would have been up 4% on a more comparable basis. Going forward and beginning with the April business fundamentals we will be using this for wise methodology for reporting volumes. Volumes improved 15% sequentially due to normal seasonal trends. Sales of $723 million were up 11% over the prior year with significant pricing across all of our business units. These pricing actions has enabled us which will recover increased raw material cost but also to maintain margins at the historical levels. Actions such as these has historically made Specialty Ingredients our most consistent and most predictable commercial unit, the strong sales growth and extremely stable margins. Gross profit was 33.5% in the March 2012 quarter consistent between all periods. SG&A of $123 million was in line with our expectations but up versus a prior year. Overall EBITDA grew 12% over the prior year to $186 million. EBITDA as a percent of sales was 25.7%. Slide 14 shows Specialty Ingredients EBITDA Bridge. Improved volumes and mix were the primary drivers of the year-over-year increase in EBITDA. Volume gains related by another strong quarter in the construction and energy markets. Energy has benefited significantly from increased demand for hydraulic fracturing (inaudible) continue to gain share in construction markets. We are…

(Operator Instructions) Our first question is from David Begleiter of Deutsche Bank. Your line is open.

Jim just in Valvoline, can you comment on some of the trends you are seeing in motor oil and any potential secular structural decline in volume trends in North America? Jim O’Brien: Go ahead Sam.

Yes, regarding North America, we have reported that the category demand has been soft this past year. We saw that drive 2011 with declines of about 5% and yet we don’t see it getting any worse, it's tracked closely to miles driven being off, and as we look at our outlook for the next six months and the forecast, the business is holding up pretty well despite cash prices approaching $4. And one particular area I look at is Valvoline with no change where our car counts have actually improved over the last one to two months. So, we see some good signs there. When I look at do-it-yourself market, we have a strong promotional slate moving forward, and so I think as we look forward we are not going to see overall category demand worsen and hopefully it can perform quite well for us. I think the consumer is beginning to adjust to the higher gas prices and hopefully we are seeing a peak right now in the $4 range.

And Sam, are you still confident in your 2014 margin targets in this segment?

We reported our margin targets in the high 20%, and EBITDA in the 14 to 15% range and we are confident in those forecast.

And lastly Jim, in 2014 now what percent will Specialty Ingredients fee of that $1.7 billion in EBITDA in 2014? Jim O’Brien: It's about 50%, if you work through the math for 2014.

Right and as we tell you work on the growth aspects and we look at our invested capital, I’d expect that Specialty Ingredients overtime will become a larger percent into the mix. So, the basis of the assumption is 50%, but I’d expect to buy 40 to be much higher than that.

Thank you. Our next question is from Laurence Alexander of Jefferies. Your line is open.

First can you discuss how you think pricing will do versus raw materials excluding consumer markets in the back half of the year? Jim O’Brien: When you look at the pricing activities in Europe, Specialty Ingredients done very well with their pricing because types of activities are participating which are more around the consumption of middle class products, hair care, oil care and skin care and the like. So they've been very successful in passing things through because a lot of what they are introducing a new products may have the opportunity to reposition pricing at that time. Our Performance Materials their activity has been the strongest in Eastern Europe so really the activity that they want in Europe is not really western in nature it's more Eastern Europe. Where they had more success so that’s really mitigated some of the effects that you read in the paper about Western Europe and the issues that they are having although it's not a much cleaner in Eastern Europe but at least they're growing and construction is doing much better there. So, they’ve had success in that area. Water has been the most challenged because it's more heavily centered in Western Europe and I’d say that the challenge is there reflected the environment that you read about. So, I’d say water has been the most challenged and then of course Valvoline with their TNK announcement in growth and other aspects of the market there. They have done very well, despite weakening European market. So, as you look at our forecast going into next quarter and the rest of the year, water is the one is probably the most challenged here in the rest of them, we fully expect to meet their objectives and meet their pricing needs.

And within consumers markets, the issue was with do-it-yourself market. Are you seeing any signs yet of consumers pushing back on your own price increases?

No our pricing and promotion and the volume that they are delivering is held up well. In fact based on the point of sale that we have believe our market share has actually improved in the recent months. The one area of softness that we had is in our premium mix where our [Max Life] sales have been softer and we would like and that have to do with the price increases that we did take in 2011. The price gap versus conventional oils grew and that’s something that we are addressing with our promotion strategy moving forward because [Max Life] we feel so has a lot of room for growth.

Thank you. Our next question is from Mike Sison of Keybanc. Your line is open.

Can you give us a little bit of feel in Specialty Ingredients, how the Aqualon businesses versus ISP performed? Were they pretty much in line in terms of the growth and possibly the improvement that you saw in the quarter? Jim O’Brien: When you look at Specialty Ingredients probably the strongest growth was in the energy piece, so the guar-based materials and things that were around down hole fracturing and down hole drilling on horizontal drilling did very, very well. We anticipate the next six months to be no different even though the wells that are being tapped are fewer the horizontal drilling that we really participate in are advancing. So, that part is doing very well, we expect it to continue. When you compare the historical ISP products against the cellulosics business both did well, and in the construction side of the cellulosics, it's done extraordinary well compared to what it did going 18 months ago. We reposition that business and worked hard on getting into the right markets and especially Eastern Europe, China continues to perform well, and the paints and coatings business did well for us. So, as we look at that all aspects of ASI they all seem to be running on target and as expected with limited weakness. So, I’m really even pleased with how the two teams come together and how they focused on markets together, and that’s the other aspect that’s working well. The top line synergies that we have hoped for bringing aspects of the cellulosics with the other products that ISP had to our customer mix seem to be being received well and we have received some opportunities that we otherwise being have garnered without this combination. So, everything that I have seen about the new ASI is as advertised in and that team is performing very, very well. And John Panichello as its leader is working very hard and putting a lot of time and effort into it it's paying off.

Okay. Sam in terms of Valvoline as I recall when you look at the 2014 goals, I think the plan there was to grow sales mid to high single-digit something to that degree. Given where you are seeing the markets, do you still think that’s a reasonable outlook as we move on to the next couple of years?

It is, we are expecting to see a lot of our growth from the international side of the business and that’s where we continue to make excellent progress in building our channels to market. We are expecting Valvoline it's no change to be a major contributed to those targets too, and our quick lube business continues to perform well. Our same-store sales continue to be up this year and longer-term we expect to add more units as noted by the acquisition it was made by one of our largest franchisees, so that’s going to create some good opportunities. And the do-it-yourself market where we have seen the softness recently in 2011, we do see some signs of stabilization as we move through 2012 and the biggest part of our growth strategy there is to grow our market share and so we believe we have got good plans in place to drive share growth over this time period too, but the do-it-yourself market certainly an important market for us and it's one that we are going to keep a close eye on, but that share growth and stabilization in demand is going to be key to our success there.

Okay. And one quick one for Lamar, if this tax rate that you guided for the rest of ‘12 likely the same rate we will see in ‘13 and ‘14.

On a book basis we would expect maybe our book tax rate will longer term to be gravitating down, based on some of the planning actions we have underway now. I would want to give you a specific 2013 and ’14 target at this point at this point I we will have time but it's reasonable to expect 2 to 3% decrease in our book effective rate, and we go into other way our tax rate right now we are enjoying a rather low tax rate in the 18 to 20% range. It will gravitate up by 2 to 3 percentage points based on our best estimate. So, that’s how that longer term outlook is for taxes.

Thank you. Our next question is from Jeff Zekauskas of J.P. Morgan. Your line is open.

Can you talk about the effects of TNK-BP vintage, so if you will sell through 15,000 outlets in Russia. What’s that mean in terms of gallonage and how much does quote of motor oil sell for in Russia?

Comparative basis answering that last question regarding price in Russia, the prices are actually higher on a per unit basis in Russia than we would experience in North America. As far as the forecast for the business, we are excited about this new partnership, it's substantially strengthens our distribution in Russia. And we have a partner in TNK-BP that really understands that local market too, so we are going to be working very close to with them to develop those marketing plans for not only getting distribution but then driving sales. So, at this point we are not ready to share any of our targets, but we do think it creates good upside for our European business and it's part of our overall international strategy which is just strengthening in our distribution partners throughout the world and especially in developing markets like Russia.

Okay. When do you start to ship to BP?

That will start in the fourth quarter shipping to TNK-BP.

Can you talk about your Specialty Ingredients volumes in China and in the U.S. that is what were the rates of growth. And given your prospective on China, how do you see that market evolving for you this year? Jim O’Brien: I’ll speak to the last part of your question let Dave give you the actual numbers. But China has been challenging for many companies and ours included because of the shift in focus. But the area of ASI’s participation is not is effected by the government plans as per se like Performance Materials of the wind blade market that was impacted highly in the first half and is just not picking up in the second half. Because we are really focused on the middle class primarily with the ASI products it's around construction, painting and in the skin care and oil care and the middle class consumer type products which have not been affected highly by the government growth programs, so as the consumer continues to evolve their and consumption rose, our businesses have done very, very well. So, ASI as a team advanced it's products and advanced it's sales in that area.

North America was up a couple of points per volume in terms of sales versus prior year it was up a little over 20%. Asia was down slightly but there we have done some product rationalization as well, but likely drove those declines. I think if you excluded that you’d be relatively flat.

And then lastly for Lamar. Are you really going to reach 300 million in CapEx given that you have got two quarters to go, and [100] a quarter seems a lot?

If you look back historically at our spending patterns on CapEx, you will find we are more heavily weighted towards the end of the year, just way this project roll in and checks are actually written. So, we think the $300 million range is a pretty solid estimate at this stage. We have pulled that back some as you may recall our initial guidance on this year’s spending was expected to pick up 350 million and with the refinement of timing on similar projects as well as the cancellation of some one of which we talked about today in North China. We think $300 million is a pretty middle of the road estimate.

And then lastly in your tax rate, where exactly is your tax rate going down, which geography and which business what did you do?

Well, it's really a result of our global planning efforts around with ISP now in the portfolio better leveraging the opportunity to combine legal entities, locate our businesses and attractive tax rate jurisdictions and really as appose to any particular country contributing heavily to the decrease is more of the global realignment and repositioning of our entities.

Thank you. Our next question is from John McNulty of Credit Suisse. Your line is open.

Just a few quick questions. First of all with regard to your water business, it sounds like the shifting over to the distributable, I think you said would can save you about $6 million that would be 3 to 4%, it looks like on a margin impact in terms of on an annual basis. When does that effectively hit, is it hitting kind of immediately now or does it kind of gradually trickle in, like when should we see that margin impact?

That comment was around the SG&A load and it will save somewhere around that $6 million range. I’d say you should see a piece of that next quarter and then the majority of it during Q4, just because the run rate type basis. But bear in mind you are also losing $15 million of annual sales with reasonable gross profit across that part of the business. So, I’d say it's a net effect at the EBITDA line or the earnings line is going to be relatively neutral for that. So, more as you heard from Jim, that’s about refocusing that business and some of the higher margin opportunities.

And then the Valvoline, I believe you said it was a $3 million hit in the third quarter ties to the price hike or the raw material hike. How is the math working that, what are the puts and takes, it seems like with 48 million gallons or 46 million gallons a $0.25 hike will be higher than that?

The calculation it has to do with the timing in which it's going to hit us, so that’s primarily the difference and probably using a little bit lower volumes too, this is primarily first a North American market where we behave with this.

So, will some of this drag into their fourth quarter as well in terms of how we should be modeling this out?

Not so fully hit us during the third quarter, and the fourth quarter then the price increases will begin to take effect.

And then just the last question, Jim maybe this is for you, with regard to your 2014 target, you clearly have a lot of revenue growth baked in and I guess when we see a quarter like this where the revenue growth is relatively modest. And that you are claiming is still on track. I guess how should we think about the volumes and the revenue growth over the next year and half or so, and what do you view is some of the major levers that will get you to your target? Jim O’Brien: The area that we really have most control over is some of the organic growth that we see in the projects we see in ASI. So, we still anticipate to fund those projects going into the next two years as the consumer continues to evolve and grow throughout the world. We see that as a trend that those volumes will be there and that growth will be sustained and we will be able to feed into that with our investment strategy to continue to grow ASI. To your point on Valvoline and Performance Materials and water, that’s going to be more tied to industrial production and the growth in Europe and Asia and South America. And right now that appears to have stalled to some extent. So if that continues to stall and be difficult over the period that’s going to have downward pressure on those estimates. And there is no question we cannot fight through a trend that is going to be that series of a headwind. So, as we sit here and communicate today, we think our earnings growth will continue this year and we will be able to meet our expectations for the pricing and maintaining volumes that we see, because we are going through a seasonal growth pattern that we always have more volume will come through this third quarter for us that’s significant just by the weather patterns of the world, we are going into northern hemisphere this summer. We always have a much better seasonal pattern, and we fully expect to have that again this year despite some of the headwinds in the economies. So, that’s going to help us get through this year and as we go in the next we anticipate that these problems will be resolved and growth will resume to some extent over that period. If it doesn’t it's going to be more difficult.

Just one thing to add to that on the sales growth commentary. While reported GAAP sales growth was 2% when you exclude some of the recent divestitures when you adjust for currency would have been up closer to 5%. So, a little bit higher sales growth when you exclude for some of the unusual.

Thank you. And our next question is from Mike Harrison of First Analysis. Your line is open.

I had a few questions around the energy or oil field side of Specialty Ingredients. My understanding is that there is greater need for guar in oily shell as compared to gas shells. With the shift that’s occurred in drilling, are you guys able to get all the guar that you need right now in order to meet that demand? Jim O’Brien: That’s our biggest problem, we have more orders than we have supply. So, right now we are off trying to have contracts and to acquire as much guars we can, and that’s been part of our working capital issue as we have maintained extensive inventories of this because of the backlog of demand and plus the price of this material is more than doubled over the last six months. So, the pricing effect this has had on our inventories has been impactful as well. So, your question is a good one and that gets us confidence because the orders that we have we are desperately trying to find more of this product to process for that market because we can sell all we can find.

Have you been able to pass n those higher cost to the customer and to some extent are you able to use this as an opportunity to maybe shift some customers toward other cellulosics or other is modifiers that might be higher margin for you, but a better value to the customer, (inaudible) the only thing that works in this application? Jim O’Brien: There are other cellulosics they can work, they do carry actually a higher price compared against and the effectiveness that you have with guar. So, you are kind of approaching that equilibrium point where people can have this substitution perhaps. And they are interested in that only because they are looking for more material. It's not so much that they are looking for substitute because of price, looking for a substitute because they just can’t meet the demand. So, we are looking at trying to create some substitution that you are using some of our products, but primarily it's still a guar demand products and that’s where kind of sits right now.

And you have been able to pass through the higher guar cost to the customer? Jim O’Brien: Yes, matter of fact we have shorten the time of pricing sometimes we are on a weekly pricing on this is that the price is going up so dramatically so quickly, you really can’t hold your price it's pretty much order to order as far as that the prices for this product.

Okay Jim, on the ISP synergies you said that you are running ahead of schedule in terms of this $50 million target. Given that how much higher could be eventual cost synergies be, I know for example when you acquire Hercules, you heavily overshot your target. Is a $100 million a more reasonable target when all is said and done here? Jim O’Brien: I think we will be able to give a more reasonable expectation once we get into the Global One launch and that’s going to take effect next year and right it's either going to be April-May or June-July timeframe, we are still working on when we can actually get it done. One or more after we launch Global One to see some of these back room synergies that we can bring to the efficiency of that systems and processes that we put in place. That’s where we gained a lot of when we put Hercules and Ashland first time as we get them on the same systems. And then we learned a lot how we could run the company differently. So, I’d like to hope that we could do better and the number you are throwing out I have no idea we can reach that number. We are going to squeeze out as much as we can to make the company as efficient as possible.

Thank you. Our next question is from Dmitry Silversteyn of Longbow Research. Your line is open.

Just trying to understand, and I don’t mean to spend a lot of time on Valvoline but you talked about getting pricing, have you announced price increases and when is the effective date in the price increases you announced in Valvoline? Jim O’Brien: We have announced price increases to the market and they will take effect primarily in the fourth quarter.

Okay. So you announced at the beginning of the third and there is about a quarter lag that’s the way to think about that? Jim O’Brien: Yes, the lag varies depending on the channel. So, on the longer side it takes about 90 days for full pricing implementation, some of our channels we can implement faster than that.

Okay. And far as raw materials base oil price increases. I mean those announcements all came during the March quarter effective dates, either March or April. So, if I’m thinking about sequential raw material increases you are probably not going to see a lot of increases in pricing until you really get into the fourth quarter as well, right? Jim O’Brien: That’s right.

Okay. Secondly just, can you provide a little bit more detail, I mean you talked about at the beginning of the presentation but the Chinese plant that you have decided to close in 2008 or suspend a construction in 2008 and have decided to go elsewhere. What are you going to do with that, I mean was that a leased properties, is there a way to recapture some of the value through land sales or through equipment sales or is this a site that can be developed for one of your other businesses? Jim O’Brien: The site that we relinquished was government owned site, like all the land is in China and you basis by an option on these sites. And you get a lease of 90 years whatever the lease period is, and the decision that we had, we terminated the site this quarter but we suspended it back in 2008 during the financial crisis. And as we continue to evaluate how we would develop that land, and look at how we would position ourselves in China. We felt that we had better opportunities and other parts particularly in ASI to deploy their capital. So, their decision was to take the financial hit on walking away from this opportunity and preserve about $36 million on future opportunities that we think we have that we could earn returns greater than 20%. And this site has designed going back to 2008 with the opportunities we had for the corporation at that time was well below 20%. So, we thought that the best decision for deployment of our capital was to forego this opportunity and redeploy the future opportunities at higher returns.

And what was the target for this plant, which business was it going to be supporting? Jim O’Brien: Well it was going to support primarily water and performance and these returns are probably closer to the 14% return.

And then just a final question on Water Technologies, I mean it's a business that sounds like it's going to take years as appose to quarters to really bring it up to standard that I show you half way in terms of margin and in terms of growth. Can you talk about between now and 2014, what are some of the concrete steps that you are talking that we can hang our head on in believing that this business can improve materially over the next couple of years assuming the economic environment doesn’t change significantly? Jim O’Brien: Right. I think the way to hold it accountable to this business is the focus we have had the teams like forever, I know for you all. But I think we are getting toward the end of the forever, and it's taking out a lot of the distractions that this business had in it. we had a lot of low margin business that was difficult to manage to the standard that we wanted, so we have been now moving that business out and trying to get it down to a core level where at least the markets that we are in and the customers that we serve, the efficiency of the customer of the sales person in that account, we can get a much higher return. Now we have a volume problem, now if you take a volume out of the business to build that volume back and that where the focus is, you just can’t go to back at low margins, you got to build back higher margins. That takes some time. So, the focus is in the paper side, I think we are winning in pulp or winning in tissue and towel. So, that part I think is going to continue…

So, if I can summarize, I mean you are going through or you are about to complete your weeding out process of in which you are talking about taking care of distractions which is removing the low margin business, so the focus is going forward will be to replace the lower margin with the business that a margin that you actually like to see if we can get the overall reported margin moving in the right direction. Jim O’Brien: Right. I think we have a good business mix right now, we have enough of it. So, we have to win some new business. And so we stripped out the low margin business so that’s why you see the sales decline, and that hurts the business in the near-term, but it's a type of medicine you have to give the business saying, you are not going to participate here. So, now you don’t have this business any longer, now go out and get this other business. So I think we have a good platform, we also have a good funnel of business going through, we just have to close it. So, we work on a lot of different things, we have a lot of opportunities, now the closure rates got to pick up. And that goes back to sales efficiencies and our sales force how good are they. And we are going to soon find out.

There are no further questions in the queue at this time.

Thank you for your time this morning and for your interest in Ashland. If you have any additional question please feel free to give me a call at 859-815-3527. Thank you.

Ladies and gentlemen, this concludes today’s program, you may now disconnect. Good day.