Good day, ladies and gentlemen, and welcome to the Ashland Inc. First Quarter Earnings Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference over to your host for today, Mr. Jason Thompson, Director of Investor Relations. Sir, you may begin.

Thank you, Ben. Good morning, and welcome to Ashland’s first quarter fiscal 2013 conference call and webcast. We released results for the quarter ended December 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-K. 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 John Panichella, Senior Vice President and Group Operating Officer responsible for Ashland Specialty Ingredients and Ashland Water Technologies. 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 results. We believe this will enhance understanding of our performance by more accurately reflecting our ongoing business. Please turn to slide 3 for our first quarter highlights. In the December 2012 quarter, we reported earnings of $1.27 per share from continuing operations. On adjusted for key items, EPS was $1.12 as compared with $1.20 in the year ago quarter. We acquired ISP on August 23, 2011 and the prior year includes a full quarter of the ISP results and related financing. Sales during the quarter were $1.9 billion. When we normalize for currency and adjust for divestitures and joint ventures, sales would have flat with the prior year quarter. I will note that our fiscal first quarter is our seasonally weakest, coupled with this typical seasonality was a very soft month of December impacting Specialty Ingredients. Our adjusted EBITDA was $268 million which was a 11% below the prior year. During the quarter,…

Thank you, Jason, good morning everyone. Our fiscal first quarter results did not meet our expectations, this underperformance was due to a volume issue not a margin issue. We experienced lower than expected volumes in our energy, coatings, and construction businesses, particularly during the last two weeks of December. In addition, we had a higher than anticipated loss on straight guar for the quarter, we will go into detail on guar and energy in a few minutes. Specialty ingredients sales decreased 1% to $622 million versus the prior year, there were several factors contributing to this sales decline. Coatings and construction sale and volumes were both down year over year. Both businesses experienced destocking among several large distributors and customers, primarily within emerging markets. We typically see modest declines in these businesses at this time of the year; however this year was significantly lower as a result of year end order patterns. We also saw sales decline in our intermediates and solvents business, primarily in emerging markets. The drop in sales was due to pricing and is consistent with what we have communicated on previous earnings calls. In addition the year ago quarter includes $6 million in sales from a facility in Jinmen, China, that we closed during the year. We are disappointed with the overall results during the quarter which were below our growth expectations. On a positive note we saw year over year sales and gross profits increases in our pharmaceutical, oral and hair care, non-energy, non-guar energy and specialties businesses. Gross profits as a percent of sales was 27.5%, 590 basis points below the prior year. This year over year drop is due almost exclusively to loss on straight guar and intermediates and solvents pricing. SG&A was $121 million in the quarter which is down sequentially by…

Thank you John and good morning everyone. Whilst still weak versus the prior year, Water Technologies performance slightly improved over the September quarter. Volumes were down 1% versus the prior year and sales $421 million were down 6% from the prior year. Normalizing for currency effect divestitures of sales and volumes would have been roughly flat year over year. Gross product increased 100 basis point from the prior quarter due to strong pricing and mix. SG&A of $125 million was essentially flat for the September quarter. At $34 million, EBITDA increased 3% sequentially but was down 15% versus the prior year. EBITDA as a percent of sales was 8.1%. In total, (inaudible) performance and Water Technology has stabilized. Geographically, Latin America remains strong and all other regions remain soft. We have new leadership in place and actions are being taken today to improve this business. Among these are improving sales efficiency, increasing focus on large multinational customers, incorporating strict contract management procedures and pricing management. We expect to see benefits from these actions over the next few quarters. The new management in place were examining our longer term strategy including our operating model and cost structure and we expect to share a more details during our March quarter earnings presentation. Now let`s turn to the bridge on slide 14. Excluding divestitures volumes were slightly higher versus prior year. Margin was a tail wind in the quarter driven by price and normalized for currency; higher SG&A expenses more than offset this benefit. Currency translation negatively affected EBITDA by $2 million. The other consists of our divested North American moves and commercial businesses. In total, EBITDA decreased $6 million from the year ago quarter. Please turn to slide 15. Performance Materials reported volume of sales were both down 9% from the year…

(Operator Instructions) Our first question comes from line of John McNulty from Credit Suisse. Your line is open, please go ahead.

A few questions on a the Specialty Ingredients business. I know you don’t normally give overly specific guidance on the business, but just because of all the moving parts, I am trying to think about the base for the second quarter or how we should be thinking about that. in terms of earnings or EBITDA, you didn’t, 116 in first quarter, it looks like about 33-34 million and that was kind of onetime whether it’s write downs or Sandy, so that kind of moves you to a 150 run rate and then it looks like, if I heard you right, you’re looking for flat volumes year-over-year so that’s up call it $80 million. So, should we be thinking about the base for the second quarter in terms of EBITDA in that kind of 170 to 180 range is that kind of right ball park to be thinking about growth going forward?

We’ll not give you a specific number John; I think that the way you’re thinking about is directionally right. The guidance that John gave in you in his presentation was that we expect the second quarter to be in line with last year's second quarter. Now the mix is going to be different because there was a lot of guar in that number and obviously as we said, there won’t be any guar in the second quarter as far as straight guar. Now the derivatized guar will pretty much be in line what we expect for that period. So, overall the growth that we’re going to get will be in the pharmaceuticals, the hair care and the personal care and as John also stated, we’re expecting the HEC market for coatings to still be a little weak because they haven’t kicked in to the construction season and also we’re seeing some weakness in the emerging markets. So, as those continue to strengthen, we think that we’re here in the second half or open up, fix up but if you’re going to set your expectations for ASI, I would use last year's second quarter as your first guide.

Okay. And with regard to the destocking that you saw in the segment. Do you have much color as to where the inventories are at your customers and if there is at any point a need for a restocking phase or are the inventory just too fast to start within they’ve just got them back down to more normal levels. How should we think about that?

Yes, that’s why we commented on January sales. So we were a little bit surprised by the last two weeks of December. We’ve gone out and talked to our top 80 distributors and understand where the inventory levels are. And as Jim said, we’re cautiously optimistic, January looks to be tracking where we expected it and their buying patterns have returned to normal.

Okay, fair enough. And then just one last question on the raw material front. It look likes you’ve got a number of moving pieces, on Valvoline coming down a reasonable amount. On the water tech side, you should be seeing propelling, I guess pushing higher. So, can you give us a little color as to how we should think about the incremental hits and benefits on these and how they all together may net out?

I think on (inaudible), what you’re seeing as far as the margin expansion because of the pricing is pretty much in line because you have to give some of that back as it rolls through year your own numbers to the market and that’s pretty much takes place. On the propelling side, as moves through what the pricing actions recover that. So if the (inaudible) does move, as you stated, then the only avenue we have for recovery will be to move it through the market and that only gives us about a one month lag, to get that done. So overall though as we look at products based on crude oil, we're concerned that they crude continues to move that's going to improve upward pricing pressure. But at the same time, it seems to be trading with a certain range, so I really can't predict what we'll see in the second quarter. But if we do a deep sea increases, what they are passing through.

Thank you, our next question comes from the line of Laurette Alexander of Jefferies, your line is open please go ahead.

Two questions on Specialty Ingredients. First, were you surprised by the degree of cyclicality or volume lumpiness in the cyclical parts of the business?

We predicted the specialty solvents decline. So we weren't very surprised by that. So what we were more surprised by is the coatings construction weakness that we saw towards the last couple of weeks of December. So, the specialty solvents we had anticipated and it was pretty much in line with what we have expected. It's down year over year but pretty much what we had expected.

And then just to clarify the prior comments. So when you say that we should be thinking about Specialty Ingredients as being flat with Q2 last year, that's on the profit level, not just the sales level, is that right?

That's correct, that was the statement that I made.

And then with Valvoline, given the trends that you have been seeing in the last few quarters, what's your sense of your possible peak margins in that business and what kind of conditions would you need to see to get back there?

I think to see peak margins to get back, you need a couple of things, one is a continually falling base stock markets which we don't anticipate. So with that I wouldn't forecast that and at the same time you don't need a strength in consumption, which consumption is staying pretty steady so you don't see a tremendous amount of increasing assumption. Although, our international business is certainly getting additional share in growing with the market. So that's good to see. But when you look at peak margins, it's really driven by a dramatic fall and a base stock and we have not seen that. We only had a couple of price decreases which is difficult of the growth of the base stock of material market but I would not say that we're in line to have a real big large surge of margin at this point.

Thank you. Our next question is from the line of Jeff Zekauskas from JPMorgan. Your line is open, please go ahead.

Your adjusted tax rate in the first quarter was a little bit more than 24% though you are expecting 26% to 28% for the year. Why was the first quarter adjusted tax rate lower than your expectation for your annual tax rate?

Because as we look at our model for the estimate of our effective tax rate, there is certain, somewhat discreet items that you book in the period that they occur that’s incorporated in that total year estimate. As that happened a couple of significant of those discreet items did occur in the first quarter. So that was built into our expectation around the full year tax guidance in the 26% - 28% range but we benefited from that in the first quarter. So what you should expect to see is the rest of the year will be a little above the first quarter to average out to that mid 20% range.

These were not prior period adjustments, were they?

No-no, these are typical adjustments to various tax reserves domestically and internationally and certain credits that flow through on a discreet basis. So nothing non-recurring I guess I should say but still booked in the discreet period.

Okay and in terms of intermediates and solvents prices, can you give us an idea of sort of where Butadiene prices are and whether the comparisons appear to get worse or they get better as we go into the second quarter.

Yes so I think we said that sales dropped about $9 million primarily due to pricing and going forward in to Q2 we see that about the same. Maybe I would say that you ought to figure on something pretty similar for Q2. We don’t think it will be any worse.

Okay and then lastly you have a very aggressive capital expenditure targets for 2013 though not really very much has been spent this year so far. Does the increase in capital expenditures have any effect on your margins on Specialty Ingredients or is it really completely independent?

Just as a reminder, our total CapEx expectations for this year is $385 million and about just over 50 million in the first quarter. That’s not usual for our typical timing. We usual spend a little not quite on an annual run rate in the first two to three quarters actually of the year. In terms of the impact on margins as we roll in those new projects, it should have very-very minimal impact, nothing really significant enough I don’t think that would impact your models. Jim O’Brien: Yes Jeff this is Jim. I will just expand a bit on that question. The expenditures we're making both for '13 and first part of '14 is to help build towards our expectations for our '14 plan. So those are critical expansions in our growth markets so that we can beat the demand as we see it going in to '14. So these expenditures are really the lynchpin of how we plan to get to our '14 goal.

Thank you. Our next question comes from the line of David Begleiter from Deutsche Bank. Your line is open, please go ahead.

Thank you. Jim and John you mentioned that Water Technology are some of the actions underway including improved self-efficiencies. What exactly is that?

So what we're doing is we're refocusing the business in some of the key markets we think we can grow and we are trying to optimize the resources so we have a pretty big commercial team there and so we are trying to optimize those resources around the model to have them focus on the right segments and really optimize our cost structure around those segments.

And John can you (inaudible) your near mid-term margin goals in that segment?

So our ‘14 margin goals are I think 10% something like that.

Very good. And just John, just in the ATC market, anything structural has occurred there to underpin the weakness or is that just some yearend activity?

We saw some really significant declines around the couple large customers and primarily in emerging regions. Now, there has been some consolidations around some large costumers. Sherwin-Williams buying Comex, PPG acquiring Akzo's business, some distributors that brought out some large competitors that have interrupted some of our orders due to the supply restocking on their part. So, we have those kinds of issues but generally some weak performance in Asia that we don’t anticipate will hold for the remainder of the year. We think that will get better.

And just lastly on stock buyback given the drop in today's share price, would you be opportunistic at all in the year medium term on share buybacks?

Well as we stated in our call that we look at every month at ways to improve shareholder value and we do have a stock buyback authorization from the board and that’s something that we consider with the board from time to time and our primary focus is getting our debt down but if we need to do something else, we could always make a different decision.

Thank you. Our next question is from Mike Sison from KeyBanc. Your line is open. Please go ahead.

Hey John when you think about the outlook that you had for fiscal 2013 for Specialty Ingredients heading into the year given the start to the first quarter, how far are you off and given that delta, you know what you need to do to hit sort of the long term growth goal in 2014?

Yes so we feel pretty good about what we talked about in December. We talked about four really primary things that drive the growth. Growth was our large multinational customers. We are pretty on track there. Growth with our new products we're in pretty good shape there. We were surprised by growth in emerging region although we don’t think that’s a long term trend. We do think that the growth in these emerging regions will return. We just did not have that perform as we wanted in the quarter. And then we had you know our segment growth and we discussed in the call today that we had a couple of segments that were weaker than normal and coatings and construction we saw weakness. We are somewhat worried about that short term but I don’t think longer term we see any structural issues that will prevent those businesses from growing. So I think the four key things we talked to you about on growth while we did not get the expectation or get the results we expected in the quarter. We think we are pretty much on track on those key initiatives and that they will return over the midterm to kind of the targets we discussed.

So in the second half of 2013, the growth in Specialty Ingredients should sort of mirror the optimism that you had thought you would have and then in 2014 we should be back on track as well potentially in terms of year over year growth.

Yes, that's what we're thinking and you got a lot to get through the second quarter as we discussed on the energy, guar, straight guar situation once that kind of plays out, we're thinking the third and fourth quarter, net of energy should be pretty consistent with what we've talked about.

Okay, and Lamar I think you noted in Valvoline that there is some competitor pricing that is flowing in, but given the price declines in Basil in January as well as November, would the $19 million plus that you saw in margins sort of expand in the coming quarters?

I think what we would try to guide you to or least share with you our thoughts around return to more of a long term expectations on GP percent which we sized in the high 20% range. So in this past quarter we were slightly above that. But you know in that 28-29% range is more our long term expectation, normal volume levels and that's what we would suggest you'd be thinking about.

And that assumes this competitive pricing pressure?

Yes it does.

Thank you, our next question is from the line of Mike Harrison from First Analysis, your line is open, please go ahead.

John I was hoping you could discuss what you see in terms of underlying oil field demand and it sounds like the actions that you're taking in guar to mitigate the risks there, suggest that you think you can manage that straight guar business. Can you talk a little bit about whether it’s still an option to exit the straight guar business and just focus on derivitized guar?

Yes, so, speaking about derivitized guar, we're in a pretty good position there. Those products are very differentiated and we think demand for those products will continue to grow as we anticipated. So we think that that's a pretty good situation and we don't think that will change much. So our expectation is that, that volume will grow and obviously there's been a big change in the raw material cost itself, but our margins will remain healthy in derivitized guar and our volumes should grow. In straight guar as we talked about, we have taken a lot of steps to mitigate our risks. There's still a lot of volatility in the market and we’re not sure, what's going to happen there as customers look at what options they have there around the product and the volatility and the way they buy it. So that’s still a little bit unclear based on the strategy we've taken the mitigate our risk, I think in the next quarter or so that will play out.

Jim, I was hoping you could discuss kind of broadly what you are seeing in terms of demand trends. You mentioned emerging from a soft December, may be some additional details on where you have seen improvement in January. In particular I was hoping that may be you could address what you are seeing in construction-related markets and the leverage that Ashland might have to a US housing recovery? Jim O’Brien: Right, when you take a look at the month of December, two things I think really drove the results. One is the guar write-off was larger than we have hoped. so net standpoint point guar has been written down to the market price is behind us and as John described, we have sales already in place for these remaining inventories so by the end of February, all that inventory should be gone. So that probably behind us 100%. And then you look at the third quarter, the second quarter, the accounting year, that’s when we'll start selling straight guar product again and those profits will start being accrued into our estimates. So, that’s one point. The second is construction market. The other surprise for us in December was the stocking that took place, the last two weeks of December. and that was primarily in emerging markets like Latin America, the Middle East, Africa, not area that we would primarily have a focus but as a big distributor market for us and basically we got no sales. I mean it just totally got shut off. So as we now look into January, we are seeing those sales come back to more normal pace. So for whatever reason, December they either did it because of their own working capital requirements or whatever reasons they had, but in January we started to…

All right, and then last question I had is on Water Technologies. It sounds like your categorized demand as strong in Latin America and sort of weakish elsewhere. Just curious for some more detail on what you are seeing in the paper market in Asia particularly packaging in China which seems like it can be a little bit of a leading indicator. Any signs of improvement there, anything you are willing to hang your head on in terms of pick up in China.

This is John. We have a very small share of that packaging segment in Asia and so we have it as a targeted area. We didn’t see huge growth in the market nor our sales in that category but we do think that it’s upside for us within Water Technology just due to our low share in the segment.

Thank you. Our next question is from the line of Dimitri Silverstein of Longbow Research. Your line is open, please go ahead.

A lot of my questions has been answered already but I just like kind of reviews a couple of things. Water Technology is part of the business, the reduction in SG&A and all of these strategy around focusing on global customers and doing better job in how you structure contracts and how quickly you best your pricing. What would be by the end of 2014 or 2013 however, whatever timeframe this business has to show you that it can improve, what would be an acceptable level of results from your point of view whether you are talking about EBITDA margins or top line growth or SG&A level. How do we think about the successes and failures of that business as it progress through the year?

The one thing that we have seen in this quarter, when Louis came on board, he has focused really on the team at this stage and how they really built a better sales team to try to drive the top line. We have had a couple of critical hires that he has made from the industry which I was pleased to see, so I think that from the senior team we’re starting to see and rebuilt the senior team, I think in a manner that will be (inaudible). From my standpoint, what I have to see this year is an inflection in the top line. I think they worked very hard on their margins. I think they have a descent mix. They have to drive volume. So the whole focus from my standpoint is, can we grow this business, can we get additional share, and can we drive it in a manner that creates profitability. Now that’s always a very difficult thing to achieve and the only way you can do that is by building a team at a higher performance level to deliver that. So I think that’s being done now. So as I look at the next quarter before that I have to see increase in top line growth.

Okay so top line growth it sounds like a particularly volume growth as well as success in getting pricing, sounds to me like that’s sort of the margin that we have to look at?

Yeah that is the measure.

Second question, what was your end of quarter share count on the fully diluted basis?

Yeah just 80 million shares. 80.2 to be more precise.

So slightly higher but that's probably just because of the stocks doing so well. Then finally, you had, I think $50 million unallocated and other benefit, if you will, in the quarter. That's been a pretty volatile number to try to get our hands around. How should we think about that line item going forward? Can you go through a couple of pieces that were a large part of that line item and help us track that a little bit better?

The single biggest piece there with our pension income had reside in the unallocated in other. that was about $19 million. so that reflects the recurrent on our pension assets and that’s in excess of the interest cost was driven by the discount rate, so that’s spread is kind of reset annually by some actuarial updates and so that part is very predictable to the rest of the year. The other kinds of things that flow though that unallocated and other tend to be legacy related items such as occasionally we’ll have some environmental charges et cetera associated with discontinued businesses where we retained obligations and those are a little less predictable frankly, but you should expect to see continued income at the unallocated other level, based on primarily on the pension results.

But is it going to be to the tune of, say, $19 million a quarter benefit, or is that going to diminish?

No, that pension pace will be consistent through the year.

Thank you, and this does conclude our Q&A session, I would like to turn the conference back over to Mr. Jason Thompson for any final remarks.

I'd just like to thank you for your time this morning and for your interest in Ashland, if you have additional questions please give me a call at 859-815-3527 thank you.

Ladies and gentlemen thank you for your participation in today's conference, this does conclude the program and you may all disconnect, have a great rest of the day.