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                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549
                             -----------------
                                 FORM 10-K
                |X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF 
                      THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005
                                     OR
                |_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from _________ to ___________

                       Commission file number 1-32532

                                ASHLAND INC.
            Kentucky                                   20-0865835
  (State or other jurisdiction          (I.R.S. Employer Identification No.)
      of incorporation or
         organization)
                        50 E. RiverCenter Boulevard
                                P.O. Box 391
                       Covington, Kentucky 41012-0391
                      Telephone Number (859) 815-3333

         Securities Registered Pursuant to Section 12(b) of the Act:

                                                 Name of each exchange
            Title of each class                  on which registered
            -------------------                  -------------------
Common Stock, par value $.01 per share          New York Stock Exchange
                                               and Chicago Stock Exchange
Rights to purchase Series A Participating       New York Stock Exchange
     Cumulative Preferred Stock                and Chicago Stock Exchange

      Securities Registered Pursuant to Section 12(g) of the Act: None

     Indicate  by check mark if the  Registrant  is a  well-known  seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes |X| No |_|
     Indicate  by check  mark if the  Registrant  is not  required  to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|
     Indicate  by check  mark  whether  the  Registrant  (1) has  filed all
reports  required  to be filed  by  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934 during the  preceding  12 months (or for such shorter
period that the Registrant was required to file such reports),  and (2) has
been subject to such filing  requirements  for the past 90 days. Yes |X| No
|_|
     Indicate by check mark if disclosure of delinquent  filers pursuant to
Item  405 of  Regulation  S-K is not  contained  herein,  and  will  not be
contained,  to the best of Registrant's  knowledge,  in definitive proxy or
information  statements  incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. |_|
     Indicate by check mark whether the Registrant is an accelerated  filer
(as defined in Rule 12b-2 of the Act). Yes |X| No |_|
     Indicate by check mark whether the  Registrant  is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
     At March 31, 2005, the aggregate  market value of voting stock held by
non-affiliates  of the  Registrant  was  approximately  $4,905,417,887.  In
determining this amount,  the Registrant has assumed that its directors and
executive  officers are  affiliates.  Such  assumption  shall not be deemed
conclusive for any other purpose.
     At November 30, 2005,  there  were 71,769,255  shares of  Registrant's
common stock outstanding.
                    DOCUMENTS INCORPORATED BY REFERENCE
     Portions  of  Registrant's  definitive  Proxy  Statement  (the  "Proxy
Statement")  for its January 26, 2006 Annual  Meeting of  Shareholders  are
incorporated by reference into Part III.





                             TABLE OF CONTENTS



                                                                                              
                                                                                                      Page
         PART I
                       Item 1.      Business.......................................................     1

                                      Corporate Developments.......................................     2

                                      APAC.........................................................     2

                                      Ashland Distribution.........................................     3

                                      Ashland Specialty Chemical...................................     3

                                      Valvoline....................................................     4

                                      Refining and Marketing.......................................     5

                                      Miscellaneous................................................     6

                       Item 1A.     Risk Factors...................................................     9

                       Item 1B.     Unresolved Staff Comments......................................    11

                       Item 2.      Properties.....................................................    11

                       Item 3.      Legal Proceedings..............................................    12

                       Item 4.      Submission of Matters to a Vote of Security Holders............    14

                       Item X.      Executive Officers of Ashland .................................    14


         PART II
                       Item 5.      Market for Registrant's Common Equity, Related Stockholder
                                       Matters and Issuer Purchases of Equity Securities...........    15

                       Item 6.      Selected Financial Data........................................    15

                       Item 7.      Management's Discussion and Analysis of Financial
                                       Condition and Results of Operations.........................    15

                       Item 7A.     Quantitative and Qualitative Disclosures about Market Risk.....    15

                       Item 8.      Financial Statements and Supplementary Data....................    15

                       Item 9.      Changes in and Disagreements with Accountants
                                       on Accounting and Financial Disclosure......................    16

                       Item 9A.     Controls and Procedures........................................    16

                       Item 9B.     Other Information..............................................    16


         PART III
                       Item 10.     Directors and Executive Officers of the Registrant.............    16

                       Item 11.     Executive Compensation.........................................    16

                       Item 12.     Security Ownership of Certain Beneficial Owners
                                       and Management and Related Stockholder Matters..............    16

                       Item 13.     Certain Relationships and Related Transactions.................    17

                       Item 14.     Principal Accountant Fees and Services.........................    17


         PART IV
                       Item 15.     Exhibits and Financial Statement Schedules.....................    18



                                   PART I


ITEM 1. BUSINESS

     Ashland Inc. is a Kentucky  corporation,  with its principal executive
offices located at 50 E. RiverCenter Boulevard,  Covington,  Kentucky 41011
(Mailing Address:  50 E. RiverCenter  Boulevard,  P.O. Box 391,  Covington,
Kentucky  41012-0391)   (Telephone:   (859)  815-3333).   The  Company  was
originally  organized  on March  15,  2004,  as New EXM Inc.,  an  indirect
wholly-owned  subsidiary  of  Ashland  Inc.  ("Old  Ashland"),  a  Kentucky
corporation  organized on October 22, 1936.  On June 30, 2005,  Old Ashland
transferred its 38% interest in Marathon  Ashland  Petroleum LLC, now known
as Marathon  Petroleum  Company LLC ("MAP"),  a former  joint  venture with
Marathon Oil  Corporation  ("Marathon")  to  Marathon.  As a result of this
transaction,  which is  described  in more  detail in "Item 1.  Business  -
Corporate Developments," the Company changed its name to "Ashland Inc." and
the existing  businesses of Old Ashland,  other than those  transferred  to
Marathon,  are owned by the Company, the successor to Old Ashland through a
series of  mergers.  The  accompanying  consolidated  financial  statements
reflect  Ashland  Inc.  and its  subsidiaries  as the  continuation  of the
consolidated  enterprise.  The terms  "Ashland"  and the  "Company" as used
herein  include  Ashland  Inc.,  its   predecessors  and  its  consolidated
subsidiaries, except where the context indicates otherwise.

     Ashland's  businesses  are  managed  as  two  sectors:  the  "Chemical
Sector", comprised of the Ashland Distribution,  Ashland Specialty Chemical
and  Valvoline  segments,  and the  "Transportation  Construction  Sector",
comprised  of the APAC  segment.  Ashland  also held a 38% interest in MAP,
which was the primary  component  of its  refining  and  marketing  segment
through June 30, 2005.  Financial  information about these segments for the
three fiscal years ended September 30, 2005, is set forth on pages F-30 and
F-31 of this annual report on Form 10-K.

     APAC  performs  asphalt  and  concrete  contract   construction  work,
including  highway  paving and  repair,  excavation  and grading and bridge
construction,  and produces asphaltic and ready-mix concrete, crushed stone
and other aggregate in the southern and mid-continent United States.

     Ashland  Distribution  distributes  chemicals,  plastics and resins in
North America and plastics in Europe.  Ashland  Distribution  also provides
environmental services.

     Ashland  Specialty  Chemical  is  focused on two  primary  businesses:
performance materials and water technologies. It is a worldwide supplier of
specialty  chemicals  and  customized  services  for  industries  including
building  and  construction;   metal  casting;  packaging  and  converting;
chemical   processing;   power  generation;   automotive,   commercial  and
institutional facility management; food processing; mining; pulp and paper;
paint   and   coatings;    merchant   marine;   recreational   marine   and
transportation.

     Valvoline is a producer and marketer of premium packaged motor oil and
automotive chemicals,  including appearance products,  antifreeze,  filters
and automotive fragrances.  In addition,  Valvoline is engaged in the "fast
oil change" business through outlets  operating under the Valvoline Instant
Oil Change(R) name.

     Ashland's  Refining and Marketing  operations  consisted  primarily of
equity income from  Ashland's  38% interest in MAP,  which  operates  seven
refineries with a total crude oil refining  capacity of 948,000 barrels per
day.  As  described  in more  detail  in  "Item  1.  Business  -  Corporate
Developments,"  Ashland  transferred its 38% interest in MAP to Marathon on
June 30, 2005.

     At September 30, 2005,  Ashland and its consolidated  subsidiaries had
approximately 20,900 employees (excluding contract employees).

     Available    Information    -    Ashland's    Internet    address   is
http://www.ashland.com. There, Ashland makes available, free of charge, its
annual  reports on Form  10-K,  quarterly  reports  on Form  10-Q,  current
reports  on Form 8-K and any  amendments  to those  reports  as well as any
beneficial ownership reports of officers and directors filed electronically
on  Forms  3, 4 and 5.  All  such  reports  will  be  available  as soon as
reasonably  practicable  after Ashland  electronically  files such material
with, or furnishes such material to, the Securities and Exchange Commission
("SEC").  Ashland also makes  available free of charge on its website,  its
Corporate  Governance  Guidelines;   Board  Committee  Charters;   Director
Independence Standards; and its code of business conduct entitled "Business
Responsibilities  of  an  Ashland  Employee"  which  applies  to  Ashland's
directors,  officers and employees.  These  documents are also available in
print to any  shareholder  who  requests  them.  Information  contained  on
Ashland's website is not part of this annual report on Form 10-K and is not
incorporated by reference in this document.



                           CORPORATE DEVELOPMENTS


     On June 30, 2005, Ashland completed its previously announced agreement
with  Marathon  to  transfer  Ashland's  38%  interest in MAP and two other
businesses  to  Marathon  in a  transaction  valued at  approximately  $3.7
billion (the "MAP  Transaction").  The two other  businesses were Ashland's
maleic  anhydride  business and 60 Valvoline  Instant Oil Change centers in
Michigan and northwest Ohio.

     As a result of the transaction,  Old Ashland shareholders of record as
of the close of business on June 30, 2005,  received .2364 Marathon  shares
and one Ashland share per Old Ashland share.

     Additionally,  the transaction resulted in Ashland's receipt of $2,679
million in cash and MAP accounts receivable of $913 million,  which totaled
$3,592  million.  This amount  included  $518  million of cash and accounts
receivable representing 38% of MAP's deferred distribution.

                                    APAC

     The Ashland Paving And Construction,  Inc. group of companies ("APAC")
is one of the nation's largest transportation  construction contractors and
is a major supplier of construction  materials.  APAC performs construction
work,  such  as  paving,  repairing  and  resurfacing  highways,   streets,
airports, residential and commercial developments, sidewalks and driveways,
and grading and base work.  In  addition,  it performs a number of services
such as excavation  and site work for the  construction  of bridges,  other
structures,  drainage  facilities and underground  utilities for public and
private  projects.  APAC  conducts its business  through 25  market-focused
business  units and a Major  Projects  Group  operating  in 14 southern and
mid-continent  states. These business units provide  construction  services
and materials throughout the regions in which they operate.

     APAC currently has 92 aggregate  production  facilities,  including 41
permanent  operating quarry locations;  24 ready-mix  concrete plants;  227
hot-mix asphalt plants;  and a fleet of over 13,000 mobile equipment units,
including construction  equipment,  on-highway  construction support assets
and vehicles.  In certain market areas, APAC is vertically  integrated with
asphalt, aggregate and ready-mix operations, all complementing each other.

     Raw  materials  and  aggregate  generally  consist  of  sand,  gravel,
granite,  limestone and sandstone.  About 30% of the aggregate  produced by
APAC is used in APAC's own contract construction work and the production of
various processed  construction  materials.  The remainder is sold to third
parties. APAC also purchases  substantial  quantities of raw aggregate from
other  producers  whose  proximity to the job site renders these  purchases
economically  attractive.  Most other  materials,  such as liquid  asphalt,
Portland cement and reinforcing steel, are purchased from third parties.

     Approximately   77%  of  APAC's  sales  and  operating   revenues  are
construction  revenues,  with  the  remaining  23%  coming  from  sales  of
construction  materials.  Approximately 82% of APAC's construction revenues
are derived directly from highway and other public sector sources, with the
remaining 18% coming from  industrial and commercial  customers and private
developers.

     Climate and weather  significantly  affect revenues and margins in the
construction  business.  Due  to  its  location,  APAC  tends  to  enjoy  a
relatively long  construction  season.  Most of APAC's  operating income is
generated during the construction period of May to October.

     Total backlog at September 30, 2005, was $2,038  million,  compared to
$1,746 million at September 30, 2004. APAC includes a construction  project
in its backlog when a contract is awarded or a firm letter of commitment is
obtained  and funding is in place.  The backlog at September  30, 2005,  is
considered  firm,  and a major  portion of the  backlog is  expected  to be
completed during fiscal 2006.

OTHER MATTERS

     For  information  on APAC and  federal,  state and local  statutes and
regulations governing releases into, or protection of, the environment, see
"Item 1. Business -  Miscellaneous  -  Environmental  Matters" and "Item 3.
Legal  Proceedings -  Environmental  Proceedings"  in this annual report on
Form 10-K.

                                     2


                            ASHLAND DISTRIBUTION

     Ashland  Distribution  distributes  chemicals,  plastics and resins in
North America and plastics in Europe. Suppliers include many of the world's
leading  chemical  manufacturers.   Ashland  Distribution   specializes  in
providing mixed truckloads and less-than-truckload  quantities to customers
in a wide range of industries. Deliveries are facilitated through a network
of owned or leased  facilities  including 126  locations in North  America.
Distribution of thermoplastic resins in Europe is conducted in 13 countries
primarily  through  17  third-party  warehouses  and one  owned  warehouse.
Ashland Distribution operates in the following major market segments:

     Chemicals - Ashland Distribution  distributes specialty and industrial
chemicals, additives and solvents to industrial users in the United States,
Canada,  Mexico and Puerto Rico as well as some export operations.  Markets
served  include the paint and coatings,  personal  care,  inks,  adhesives,
polymer,  rubber,  industrial and  institutional  compounding,  automotive,
appliance and paper industries.

     Plastics - Ashland  Distribution offers a broad range of thermoplastic
resins and specialties to processors in the United States,  Canada,  Mexico
and  Puerto  Rico as well as some  export  operations.  Processors  include
injection molders,  extruders, blow molders and rotational molders. Ashland
Distribution also provides plastic material transfer and packaging services
and    less-than-truckload    quantities   of   packaged    thermoplastics.
Additionally,  Ashland Distribution markets a broad range of thermoplastics
to  processors  in Europe via  distribution  centers  located  in  Belgium,
Denmark,   England,   Finland,   France,   Germany,   Ireland,  Italy,  the
Netherlands, Norway, Poland, Portugal, Spain and Sweden.

     Composites  -  Ashland  Distribution   supplies  mixed  truckload  and
less-than-truckload  quantities of polyester  thermoset resins,  fiberglass
and other  specialty  reinforcements,  catalysts  and  allied  products  to
customers in the reinforced plastics and cultured marble industries through
distribution facilities located throughout North America.

     Environmental  Services - Working in  cooperation  with chemical waste
service companies, Ashland Distribution provides customers with collection,
disposal and  recycling  of  hazardous  and  non-hazardous  waste  streams.
Services  are  offered  through a North  American  network  of more than 30
distribution centers,  including 10 storage facilities that have been fully
permitted by the United States Environmental Protection Agency ("USEPA").

     Ashland Distribution sold its U.S. ingestibles line of business, which
included  food  and  beverage  additives  and  pharmaceutical  actives  and
excipients,  in January 2005. The Canadian ingestibles business was sold in
May 2005.

OTHER MATTERS

     For information on Ashland  Distribution and federal,  state and local
statutes and  regulations  governing  releases  into, or protection of, the
environment, see "Item 1. Business - Miscellaneous - Environmental Matters"
and "Item 3. Legal Proceedings - Environmental  Proceedings" in this annual
report on Form 10-K.

                         ASHLAND SPECIALTY CHEMICAL

     Ashland  Specialty  Chemical  is  focused on two  primary  businesses:
performance materials and water technologies. It is a worldwide supplier of
specialty  chemicals  and  customized  services  for  industries  including
building  and  construction;   metal  casting;  packaging  and  converting;
chemical   processing;   power  generation;   automotive,   commercial  and
institutional facility management; food processing; mining; pulp and paper;
paint   and   coatings;    merchant   marine;   recreational   marine   and
transportation.   Ashland   Specialty   Chemical   owns  and   operates  38
manufacturing   facilities  and  participates  in  12  manufacturing  joint
ventures in 19 countries.

PERFORMANCE MATERIALS

     Composite  Polymers - This  business  group  manufactures  and sells a
broad range of  corrosion-resistant,  fire-retardant,  general-purpose  and
high-performance  marine  grades of  unsaturated  polyester and vinyl ester
resins and  gelcoats  for the  reinforced  plastics  industry.  Key markets
include  the  transportation,  construction  and  marine  industries.  This
business group has  manufacturing  plants in  Jacksonville  and Fort Smith,
Arkansas;  Los  Angeles,   California;   Bartow,  Florida;  Pittsburgh  and
Philadelphia,  Pennsylvania;  Johnson Creek,  Wisconsin;  Kelowna,  British
Columbia,  Canada; Kunshan,  China; Porvoo and Lahti, Finland;  Sauveterre,
France;  Miszewo,  Poland;  Benicarlo,  Spain;  and, through separate joint
ventures has manufacturing  plants in Sao Paolo,  Brazil and Jeddah,  Saudi
Arabia.  This business group also  manufactures  products  through  Ashland
Specialty Chemical facilities located 


                                     3


in Mississauga, Ontario, Canada and Changzhou, China. On December 29, 2004,
Ashland  purchased  Dow  Chemical's  DERAKANE(TM)  epoxy  vinyl ester resin
business (which includes the DERAKANE  MOMENTUM(TM)  product line) from The
Dow Chemical  Company in a cash  transaction  valued at  approximately  $90
million.  That  business  is now part of the  Composite  Polymers  business
group. In June 2005,  Composite  Polymers'  maleic  anhydride  business was
transferred  to  Marathon  as  part  of  the  MAP  Transaction   previously
described.

     Casting  Solutions - This business group  manufactures and sells metal
casting  chemicals   worldwide,   including   sand-binding  resin  systems,
refractory  coatings,  release agents,  engineered sand additives and riser
sleeves.  This group also provides  casting process  modeling,  core making
process modeling and rapid prototyping services. This business group serves
the  global   metal   casting   industry   from  nine  owned  and  operated
manufacturing  sites  located in Campinas,  Brazil;  Mississauga,  Ontario,
Canada;   Changzhou,   China;  Milan,  Italy;  Alava,   Cantabria,   Spain;
Kidderminster, England and Cleveland East and Cleveland West, Ohio. Casting
Solutions also has eight joint venture manufacturing  facilities located in
Vienna,  Austria;  Pons  and Le  Goulet,  France;  Bendorf  and  Wuelfrath,
Germany; Ulsan, South Korea; Alvsjo, Sweden and St. Gallen, Switzerland.

     Specialty  Polymers and Adhesives - This business  group  manufactures
and  sells   adhesive   solutions  to  the   building   and   construction,
transportation and packaging and converting  markets.  Key technologies and
markets include:  emulsion polymer isocyanate adhesives for structural wood
bonding;  elastomeric  polymer adhesives and butyl rubber roofing tapes for
commercial   roofing   applications;   polyurethane  and  epoxy  structural
adhesives  for  bonding   fiberglass   reinforced   plastics,   composites,
thermoplastics  and  metals  in  automotive,  recreational  and  industrial
applications; specialty phenolic resins for paper impregnation and friction
material bonding;  induction  bonding systems for thermoplastic  materials;
acrylic polymers for pressure-sensitive  adhesives;  urethane adhesives for
flexible  packaging  applications;  and  hot  melt  adhesives  for  various
packaging  applications.  It has  manufacturing  plants  in  Calumet  City,
Illinois; Norwood and Totowa, New Jersey; Ashland and Columbus, Ohio; White
City, Oregon; and Kidderminster, England.

WATER TECHNOLOGIES

     Drew Industrial - This business group provides  specialized  chemicals
and consulting  services for the treatment of boiler water,  cooling water,
steam,  fuel and waste  streams.  It also  supplies  process  chemicals and
technical  services to the pulp and paper,  food and mining  industries and
additives  to  manufacturers  of paint and latex.  It  conducts  operations
throughout  North  America,  Europe and the Far East and has  manufacturing
plants in Kearny,  New  Jersey;  Houston,  Texas;  Ajax,  Ontario,  Canada;
Viiala,  Finland;   Somercotes,   England;  Chester  Hill,  Australia;  and
Singapore;  and, through separate joint ventures, has production facilities
in Seoul, South Korea and Navi Mumbai, India.

     Drew Marine - This  business  group  provides  technical  products and
shipboard  services for the world's  merchant  marine fleet.  Comprehensive
programs   include  water  and  fuel  treatment;   maintenance,   including
specialized  cleaners,  welding and refrigerant products and sealants,  and
fire fighting, safety and rescue products and services.

OTHER MATTERS

     For information on Ashland Specialty  Chemical and federal,  state and
local statutes and regulations  governing  releases into, or protection of,
the  environment,  see "Item 1. Business -  Miscellaneous  -  Environmental
Matters" and "Item 3. Legal  Proceedings -  Environmental  Proceedings"  in
this annual report on Form 10-K.

                                 VALVOLINE

     Valvoline is a marketer of  premium-branded  automotive and commercial
lubricants,   automotive  chemicals,  automotive  appearance  products  and
automotive   services,   with  sales  in  more  than  100  countries.   The
Valvoline(R)  trademark was federally  registered in 1873 and is the oldest
trademark for lubricating oil in the United States.

     Valvoline markets the following key brands of products and services to
the private passenger car, light truck and heavy duty markets. Valvoline(R)
lubricants;   Valvoline   Professional   Series(R)  automotive   chemicals;
EagleOne(R) automotive appearance products;  AroMetrics(TM)  automotive air
freshening products;  Zerex(R) antifreeze;  Pyroil(R) automotive chemicals;
MaxLife(R)  automotive products for vehicles with 75,000 miles or more; Car
Brite(R)  automotive  reconditioning  products;  Premium Blue(R) commercial
lubricants and Valvoline Instant Oil Change(R) automotive services.


                                     4

     In North America,  Valvoline is comprised of the following  three core
business groups:

     Do It  Yourself  ("DIY")  - The DIY  business  group  sells  Valvoline
products to consumers who perform their own auto maintenance through retail
auto parts stores, mass merchandisers and warehouse  distributors and their
affiliated jobber stores such as NAPA and Carquest.

     Do It For Me ("DIFM") - The DIFM business unit sells branded  products
and  services to  installers  (such as car dealers and quick  lubes) and to
auto  auctions   through  a  network  of   independent   distributors   and
company-owned and operated "direct market"  operations.  This business also
includes  distribution to quick lubes branded  "Valvoline Express Care(R),"
which consists of 383  independently  owned and operated  stores.  The DIFM
business group also has a strategic alliance with Cummins Inc.  ("Cummins")
to distribute heavy duty lubricants to the commercial market.

     Valvoline  Instant Oil Change(R)  Chain  ("VIOC")-  VIOC is one of the
largest  competitors  in the  U.S.  "fast  oil  change"  service  business,
providing Valvoline with a significant  presence in the DIFM segment of the
passenger  car and light truck motor oil market.  As of September 30, 2005,
300 company-owned  and 473 franchised  service centers were operating in 40
states.  In June 2005,  60  company-owned  VIOC  locations  in Michigan and
northwest Ohio were  transferred to Marathon as part of the MAP Transaction
previously  described.  VIOC has continued its customer service  innovation
through its upgraded and enhanced  preventive  maintenance  tracking system
for consumers and fleet  operators.  This  computer-based  system maintains
service  records on all  customer  vehicles and contains a database on most
car   models,   which   allows   service   technicians   to  make   service
recommendations based primarily on manufacturer's recommendations.

     Outside  North  America,  Valvoline is comprised of one core  business
group:

     Valvoline  International - Valvoline  International  markets Valvoline
and EagleOne  branded  products  through  wholly-owned   affiliates,  joint
ventures,   licensees  and  independent   distributors  in  more  than  100
countries.  The profitability of the business is dispersed  geographically,
with more than half of the profit coming from mature  markets in Europe and
Australia.  There are smaller,  rapidly growing  businesses in the emerging
markets of China,  India and Mexico,  including joint ventures with Cummins
in India and China. During 2005,  Valvoline  International opened its first
"fast  oil  change"  outlet in  Shanghai,  China.  Valvoline  International
markets  lubricants  for  consumer  vehicles  and heavy  duty  engines  and
equipment  and is served by  company-owned  plants  in the  United  States,
Australia and the Netherlands and by toll manufacturers.

OTHER MATTERS

     For information on Valvoline and federal, state and local statutes and
regulations governing releases into, or protection of, the environment, see
"Item 1. Business -  Miscellaneous  -  Environmental  Matters" and "Item 3.
Legal  Proceedings -  Environmental  Proceedings"  in this annual report on
Form 10-K.

                           REFINING AND MARKETING

     Ashland's  equity income from its Refining and  Marketing  operations,
which were primarily  conducted by MAP and its  subsidiaries,  ceased as of
June 30, 2005, upon the transfer of its 38% interest in MAP to Marathon. As
described  in  Note  D  to  the  Consolidated  Financial  Statements,   the
disposition of Ashland's  interest in MAP does not qualify for discontinued
operations presentation in the financial statements.  Because MAP qualified
for segment  reporting  and was  presented  in all segment  disclosures  in
accordance with applicable  accounting  guidance in prior periods,  Ashland
will continue to include MAP's financial  results through June 30, 2005, in
the Refining and Marketing  segment for the year ended  September 30, 2005.
For  information  on the  transfer  of  Ashland's  38%  interest  in MAP to
Marathon,  see "Item 1. Business - Corporate  Developments"  in this annual
report on Form 10-K.

     Refining - Until June 30, 2005, the Refining and Marketing  operations
included   MAP's  seven   refineries   located  at  Garyville,   Louisiana;
Catlettsburg,  Kentucky;  Robinson,  Illinois;  Detroit,  Michigan; Canton,
Ohio; Texas City, Texas; and St. Paul Park, Minnesota. These refineries had
an aggregate refining capacity of 948,000 barrels of crude oil per calendar
day  (1  barrel  =  42  United  States  gallons)  and  included  crude  oil
atmospheric and vacuum  distillation,  fluid catalytic cracking,  catalytic
reforming,  desulfurization  and sulfur  recovery  units.  In  addition  to
typical   refinery   products,   including   reformulated   gasoline,   the
Catlettsburg  refinery,  an ISO-9000 certified facility,  manufactured base
lube oil  stocks and a wide range of  petrochemicals.  For the period  from
October 1, 2004 to June 30, 2005, 12% of MAP's base lube oil production was
purchased  by  Valvoline  and  Ashland  Distribution,   and  37%  of  MAP's
petrochemical  production  (excluding  propylene)  was purchased by Ashland
Distribution.


                                     5



     Marketing - Until June 30, 2005, the Refining and Marketing operations
included MAP's  principal  marketing  areas for gasoline and distillates in
the Midwest,  the upper Great Plains and the  southeastern  United  States.
Gasoline  and  distillates  were sold in 21  states.  Gasoline  was sold at
wholesale primarily to independent  marketers,  jobbers and chain retailers
who resold these products through several thousand retail outlets. MAP also
supplied  more than  3,900  jobber-dealer,  open-dealer  and  lessee-dealer
locations using the Marathon(R) and Ashland(R) brand names.

     Gasoline,   distillates  and  aviation  products  were  also  sold  to
utilities,  railroads, river towing companies,  commercial fleet operators,
airlines and  governmental  agencies.  About  one-half of MAP's propane was
sold  into the home  heating  markets  and the  balance  was  purchased  by
industrial  consumers.   Propylene  and  petrochemicals  were  marketed  to
customers in the chemical  industry.  Base lube oils, slack wax and extract
are sold throughout the United States.

     Retail  sales of  gasoline  and diesel  fuel were made  through  MAP's
wholly-owned subsidiary,  Speedway SuperAmerica LLC ("SSA"). As of June 30,
2005,  SSA had over 1,600  retail  outlets in 9 states in the Midwest  that
sold petroleum  products and convenience store merchandise  primarily under
the brand names  Speedway(R) and  SuperAmerica(R).  Several  locations also
have on-premises brand-name restaurants.

     Pilot  Travel  Centers  LLC  ("PTC"),   a  joint  venture  with  Pilot
Corporation  ("Pilot"),  is the largest  operator of travel  centers in the
United States with  approximately  255  locations in 37 states.  The travel
centers  offer  diesel  fuel,  gasoline  and a  variety  of other  services
associated   with  such   locations,   including   on-premises   brand-name
restaurants. Pilot and MAP each own a 50% interest in PTC.

     Supply  and  Transportation  - Until  June 30,  2005,  the  crude  oil
processed in MAP's  refineries  was obtained from  negotiated  contract and
spot  purchases or  exchanges.  For the period from October 1, 2004 to June
30, 2005, MAP's  negotiated  contract and spot purchases for refinery input
of crude oil produced in the United  States  averaged  435,900  barrels per
day,  including  an average of 13,400 net  barrels  per day  acquired  from
Marathon. During the same period, MAP's foreign crude oil requirements were
met largely through  purchases from various foreign national oil companies,
producing companies and traders. Purchases of foreign crude oil represented
55% of MAP's crude oil requirements for the period.

     MAP's  ownership  or  interest  in  domestic  pipeline  systems in its
refining and  marketing  areas was  significant  as of June 30, 2005. As of
that date,  MAP owned,  leased or had an  ownership  interest in over 6,600
miles of pipelines in 13 states.  This  network  transported  crude oil and
refined products to and from terminals,  refineries and other pipelines and
included  2,774  miles of crude oil trunk  lines and 3,850 miles of refined
product lines.

OTHER MATTERS

     For information on Refining and Marketing and federal, state and local
statutes and  regulations  governing  releases  into, or protection of, the
environment, see "Item 1. Business - Miscellaneous - Environmental Matters"
and "Item 3. Legal Proceedings - Environmental  Proceedings" in this annual
report on Form 10-K.

                               MISCELLANEOUS

ENVIRONMENTAL MATTERS

     Ashland has implemented a companywide environmental policy overseen by
the  Environmental,  Health  and Safety  Committee  of  Ashland's  Board of
Directors.  Ashland's Environmental,  Health and Safety ("EH&S") department
has the responsibility to ensure that Ashland's  operating groups worldwide
maintain  environmental  compliance in accordance  with applicable laws and
regulations.  This  responsibility is carried out via training;  widespread
communication  of  EH&S  policies;   information  and  regulatory  updates;
formulation of relevant policies, procedures and work practices; design and
implementation  of  EH&S  management  systems;   internal  auditing  by  an
independent  auditing  group  within  the EH&S  department;  monitoring  of
legislative  and  regulatory   developments   that  may  affect   Ashland's
operations; assistance to the operating divisions in identifying compliance
issues and opportunities  for voluntary actions that go beyond  compliance;
and incident response planning and implementation.

     Federal,  state  and  local  laws  and  regulations  relating  to  the
protection  of the  environment  have a  significant  impact on how Ashland
conducts its businesses. Ashland's operations outside the United States are
subject  to the  environmental  laws of the  countries  in  which  they are
located.   These  laws  include  regulation  of  air  emissions  and  water
discharges,      waste      handling,      remediation      and     product
inventory/registration/regulation.   New  laws  are   being   enacted   and
regulations are being adopted by various regulatory agencies globally,  and
the costs of compliance  with 


                                     6



these new rules cannot be estimated  until the manner in which they will be
implemented has been more precisely defined.

     At  September   30,  2005,   Ashland's   reserves  for   environmental
remediation amounted to $178 million, reflecting Ashland's estimates of the
most  likely  costs  that  will be  incurred  over an  extended  period  to
remediate  identified   conditions  for  which  the  costs  are  reasonably
estimable,  without  regard  to  any  third-party  recoveries.  Engineering
studies,  probability  techniques,  historical experience and other factors
are used to  identify  and  evaluate  remediation  alternatives  and  their
related  costs in  determining  the  estimated  reserves for  environmental
remediation.  Environmental  remediation  reserves  are subject to numerous
inherent  uncertainties that affect Ashland's ability to estimate its share
of  the  costs.  Such  uncertainties  involve  the  nature  and  extent  of
contamination  at each site, the extent of required  cleanup  efforts under
existing  environmental  regulations,  widely  varying  costs of  alternate
cleanup methods, changes in environmental regulations, the potential effect
of continuing  improvements in remediation  technology,  and the number and
financial strength of other potentially  responsible  parties at multiparty
sites. Ashland regularly adjusts its reserves as environmental  remediation
continues.  Environmental  remediation  expense  amounted to $47 million in
2005, $2 million in 2004 and $22 million in 2003. No individual remediation
location is material to Ashland as its largest reserve for any site is less
than 10% of the total remediation reserve. As a result,  Ashland's exposure
to adverse developments with respect to any individual site is not expected
to  be  material,  and  these  sites  are  in  various  stages  of  ongoing
remediation.  Although  environmental  remediation  could  have a  material
effect on results of operations if a series of adverse  developments occurs
in a particular quarter or fiscal year, Ashland believes that the chance of
such developments occurring in the same quarter or fiscal year is remote.

     In  connection  with the  formation of MAP,  Marathon and Ashland each
retained  responsibility  for certain  environmental  costs  arising out of
their   respective   prior   ownership  and  operation  of  the  facilities
transferred to MAP (the "Transferred Assets"). In connection with Ashland's
transfer of its 38%  interest in MAP to Marathon,  the parties  agreed that
Ashland  would  not  be  liable  for  environmental  costs  related  to the
Transferred  Assets  incurred on or after  January 1, 2004 in excess of $50
million.  In  certain  situations,   various  threshold  provisions  apply,
eliminating or reducing  Ashland's  financial  responsibility in connection
with the Transferred  Assets until certain levels of expenditures have been
reached.  In other  situations,  sunset provisions  gradually  diminish the
level of Ashland's financial responsibility over time.

     Air - In the  United  States,  the Clean Air Act (the  "CAA")  imposes
stringent  limits  on  air  emissions,  establishes  a  federally  mandated
operating  permit  program,  and allows for civil and criminal  enforcement
actions.  Additionally, it establishes air quality attainment deadlines and
control  requirements  based on the  severity of air  pollution  in a given
geographical area. Various state clean air acts implement,  complement and,
in  some  instances,  add  to the  requirements  of the  federal  CAA.  The
requirements  of the CAA  and its  state  counterparts  have a  significant
impact on the daily  operation of Ashland's  businesses and, in many cases,
on  product  formulation  and other  long-term  business  decisions.  Other
countries where Ashland operates also have laws and regulations relating to
air quality.  Ashland's  businesses  maintain  numerous permits pursuant to
these  clean  air laws and  have  systems  to  oversee  ongoing  compliance
efforts.

     The USEPA has begun to implement more stringent  ozone and particulate
matters standards,  and is requiring state and local air agencies to submit
their plans to meet the ozone and particulate matters standards by 2007 and
2008,  respectively.  Until the state and local air agencies determine what
strategies  they will use to meet these  standards,  it is not  possible to
estimate any potential financial impact that the revised standards may have
on Ashland's operations.  Ashland has systems to oversee compliance efforts
when these standards are eventually implemented.

     Water - Ashland's  businesses  maintain numerous discharge permits. In
the United States,  such permits may be required by the National  Pollutant
Discharge  Elimination  System of the Clean  Water  Act and  similar  state
programs.  Other  countries  have  similar laws and  regulations  requiring
permits  and  controls.  Ashland's  businesses  have  systems  to  maintain
compliance with these permits and control regulations.

     Solid Waste - Ashland's  businesses are subject to various laws around
the world  relating to and  establishing  standards  for the  management of
hazardous and solid waste. In the United States, the Resource  Conservation
and Recovery Act ("RCRA") applies.  While many U.S.  facilities are subject
to  the  RCRA  rules  governing  generators  of  hazardous  waste,  certain
facilities  also  have  hazardous  waste  storage   permits.   Ashland  has
implemented  systems to oversee  compliance with the RCRA  regulations and,
where  applicable,  permit  conditions.  In addition to regulating  current
waste disposal practices,  RCRA also addresses the environmental effects of
certain past waste  disposal  


                                     7



operations, the recycling of wastes and the storage of regulated substances
in underground tanks. Other countries where Ashland operates also have laws
and regulations relating to hazardous and solid waste. Ashland's businesses
have systems to oversee compliance with waste management regulations in the
jurisdictions where they operate.

     Remediation  -  Ashland  currently  operates,  and  in  the  past  has
operated,  various facilities where,  during the normal course of business,
releases of hazardous  substances  have  occurred.  Federal and state laws,
including  but not limited to RCRA and various  remediation  laws,  require
that  contamination  caused by such releases be assessed and, if necessary,
remediated to meet applicable standards.  Laws in other jurisdictions where
Ashland  operates  require that  contamination  caused by such  releases at
these sites be assessed  and, if necessary,  remediated to meet  applicable
standards.

     Product  Control,  Registration  and  Inventory  - Many  of  Ashland's
products  and  operations  in the United  States  are  subject to the Toxic
Substance  Control  Act,  the Food,  Drug and  Cosmetics  Act, the Chemical
Diversion and Trafficking  Act, the Chemical  Weapons  Convention and other
product-related  regulations.  Other countries have similar laws. Ashland's
businesses  have systems to oversee  compliance with these various laws and
regulations.

RESEARCH

     Ashland  conducts a program of research and  development to invent and
improve  products and processes and to improve  environmental  controls for
its existing facilities.  It maintains research facilities in Dublin, Ohio;
Lexington,  Kentucky;  Boonton, New Jersey; and Atlanta,  Georgia. Research
and  development  costs are  expensed as they are  incurred and totaled $45
million  in fiscal  2005 ($43  million  in fiscal  2004 and $36  million in
2003).

COMPETITION

     In  all  its  current  operations,   Ashland  is  subject  to  intense
competition  both from companies in the industries in which it operates and
from products of companies in other industries.

     The majority of the  business  for which APAC  competes is obtained by
competitive  bidding.  There are a substantial number of competitors in the
markets in which APAC  operates  and, as a result,  all of APAC's goods and
services are marketed under highly  competitive  conditions.  Factors which
influence APAC's  competitiveness  are price,  reputation for quality,  the
availability of aggregate materials,  the geographic location of plants and
aggregate  materials,  machinery and  equipment,  knowledge of local market
conditions and estimating abilities.

     Each of Ashland Distribution's lines of business (chemicals, plastics,
composites and environmental services) competes with national, regional and
local  companies  throughout  North  America.  The  plastics   distribution
business also competes in Europe.  Competition within each line of business
is based primarily on price and reliability of supply.

     Ashland Specialty  Chemical's  businesses compete globally in selected
niche markets,  largely on the basis of technology and service.  The number
of competitors in the specialty  chemical  business  varies from product to
product,  and it is not practical to identify such  competitors  because of
the broad range of products and markets served by those products.  However,
many  of  Ashland   Specialty   Chemical's   businesses  hold   proprietary
technology, and Ashland believes it has a leading or strong market position
in many of its specialty chemical products.

     Valvoline competes in the highly competitive automotive lubricants and
consumer products car care businesses, principally through offering premium
products and services, coupled with a focused brand strategy,  advertising,
sales promotion and superior distribution  capabilities.  Some of the major
brands of motor oils and  lubricants  Valvoline  competes with globally are
Havoline(R),  Castrol(R), Pennzoil(R) and Quaker State(R). In the "fast oil
change" business,  Valvoline  competes with other leading  independent fast
lube  chains on a national,  regional or local basis as well as  automobile
dealers and service stations.  Important  competitive factors for Valvoline
in the "fast oil change"  market  include  Valvoline's  brand  recognition;
maintaining  market presence  through  Valvoline  Instant Oil Change(R) and
Valvoline  Express Care(R) outlets;  as well as quality of service,  speed,
location, convenience and sales promotion.

FORWARD-LOOKING STATEMENTS

     This annual  report on Form 10-K 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.  Words such as  "anticipates,"
"believes," "estimates," "expects," "is likely," "predicts," and variations
of such  words and  similar  expressions  are  intended  to  identify  such
forward-looking statements. Although Ashland believes that its expectations
are based on 


                                     8



reasonable assumptions, it cannot assure that the expectations contained in
such statements will be achieved. Important factors that could cause actual
results to differ  materially  from those  contained in such statements are
discussed under "Use of estimates,  risks and  uncertainties"  in Note A of
"Notes to Consolidated  Financial Statements" in this annual report on Form
10-K.  For a  discussion  of other  factors and risks  affecting  Ashland's
operations see "Item 1A. Risk Factors" in this annual report on Form 10-K.

ITEM 1A. RISK FACTORS


     Set forth below are the most significant risks and uncertainties  that
affect Ashland and its businesses:

ASHLAND  MAY NOT BE ABLE TO  SUCCESSFULLY  EMPLOY THE  PROCEEDS  OF THE MAP
TRANSACTION  IN A MANNER  THAT  WOULD  REPLACE  THE CASH FLOW AND THE VALUE
PROVIDED BY THE ASSETS THAT WERE TRANSFERRED TO MARATHON.

     Ashland may not  successfully  identify  uses for the MAP  Transaction
proceeds  that will  generate  value for Ashland and its  shareholders.  In
addition, those uses may not generate the cash flow previously generated by
Ashland's  interest  in the  assets  that  were  transferred  to  Marathon.
Distributions  from MAP in the  nine-month  period ended June 30, 2005, and
the two full fiscal  years prior to this  fiscal  year have  represented  a
majority of Ashland's operating cash flow. If Ashland's use of the proceeds
of the MAP  Transaction  does not generate  cash flow in an amount equal to
the cash flow from the assets that were transferred to Marathon, this could
have an adverse impact on Ashland's valuation or long-term liquidity.

     To the extent that the  proceeds of the MAP  Transaction  are used for
future  business   acquisitions,   the  process  of  integrating   acquired
operations  into  Ashland's  existing  operations  may result in unforeseen
difficulties.  Those difficulties might reduce Ashland's  profitability and
delay the expected benefits of integrating any acquisition.

SEVERAL OF  ASHLAND'S  BUSINESSES  ARE  CYCLICAL  IN NATURE,  AND  ECONOMIC
DOWNTURNS  OR DECLINES IN DEMAND FOR CERTAIN  DURABLE  GOODS MAY REDUCE ITS
PROFITABILITY AND LIMIT ITS ABILITY TO GENERATE REVENUES.

     The profitability of Ashland's  businesses is susceptible to downturns
in the economy,  particularly downturns in the segments of the U.S. economy
related to the purchase and sale of durable  goods,  including the housing,
construction,  automotive  and marine  industries.  Both overall demand for
Ashland's  products  and services  and its  profitability  may decline as a
direct result of an economic recession, inflation, changes in the prices of
hydrocarbons and other raw materials,  consumer confidence,  interest rates
or governmental fiscal policies.

ADVERSE CHANGES IN PREVAILING  CLIMATE OR WEATHER MAY NEGATIVELY AFFECT THE
PERFORMANCE OF SOME OF ASHLAND'S  OPERATIONS,  WHICH COULD REDUCE ASHLAND'S
RESULTS OF OPERATIONS AND PROFITABILITY.

     Extreme  variations  from  normal  climatic  conditions  could  have a
significant  effect  on  the  operating  results  of  APAC's   construction
operations.  In particular,  unfavorable weather conditions could delay the
completion of  construction  projects and may require the use of additional
resources.  In  addition,  certain of the products  sold by  Valvoline  are
seasonal in nature,  and thus demand for those  products may decline due to
significant  changes in prevailing  climate and weather  conditions such as
floods, frozen rivers and hurricanes.

FAILURE TO SUCCESSFULLY  IMPLEMENT  ASHLAND'S  CHEMICAL SECTOR SUPPLY CHAIN
OPTIMIZATION PROJECT COULD ADVERSELY IMPACT ASHLAND'S RESULTS OF OPERATIONS
AND CASH FLOWS.

     Ashland is undergoing a major process initiative  designed to optimize
the supply chain function in Ashland's  Chemical Sector. By integrating the
supply chain function of the Chemical  Sector's business units and creating
more efficient,  customer  responsive  processes  including  source-to-pay,
plan-to-deliver   and   order-to-cash,   Ashland  can  lower  costs,  while
increasing  service  levels  and  customer  satisfaction.  While  extensive
planning is underway to support the  optimization of the Chemical  Sector's
Supply  Chain,  such   implementations   carry  substantial  project  risk,
including the potential for business  interruption  and associated  adverse
impacts on operating results.

ASHLAND'S IMPLEMENTATION OF ITS SAP(TM) ENTERPRISE RESOURCE PLANNING ("ERP")
PROJECT HAS THE POTENTIAL FOR BUSINESS  INTERRUPTION AND ASSOCIATED ADVERSE
IMPACT ON OPERATING RESULTS.

     In 2004,  Ashland  initiated a multi-year ERP project that is expected
to be implemented worldwide across the Chemical Sector to achieve increased
efficiency and effectiveness in supply chain,  financial and environmental,
health  and  safety  processes.   In  October  2005,  Ashland  successfully
completed the implementation of the ERP 


                                     9



system in Canada.  While extensive planning is underway to support a smooth
implementation  of the ERP system  worldwide,  such  implementations  carry
substantial project risk, including the potential for business interruption
and associated adverse impacts on operating results.

ASHLAND IS RESPONSIBLE FOR, AND HAS FINANCIAL EXPOSURE TO, LIABILITIES FROM
PENDING AND THREATENED  CLAIMS,  INCLUDING  THOSE ALLEGING  PERSONAL INJURY
CAUSED BY EXPOSURE TO ASBESTOS, WHICH COULD REDUCE ASHLAND'S CASH FLOWS AND
PROFITABILITY AND COULD IMPAIR ITS FINANCIAL CONDITION.

     There are various  claims,  lawsuits  and  administrative  proceedings
pending  or  threatened   against   Ashland  and  its  current  and  former
subsidiaries.  Such actions are with respect to commercial matters, product
liability,  toxic tort liability and other environmental  matter which seek
remedies or damages, some of which are for substantial amounts. While these
actions are being contested, their outcome is not predictable.

     In addition,  Ashland is subject to liabilities  from claims  alleging
personal  injury  caused  by  exposure  to  asbestos.  Such  claims  result
primarily from indemnification obligations undertaken in 1990 in connection
with the sale of Riley Stoker Corporation ("Riley"), a former subsidiary of
Ashland.  Although  Riley was  neither a  producer  nor a  manufacturer  of
asbestos,   its  industrial  boilers  contained  some   asbestos-containing
components  provided by other companies.  As a result of the  transactions,
Ashland  is  responsible   for,  and  has  financial   exposure  to,  these
liabilities,  which could reduce Ashland's cash flows and profitability and
impair its financial condition.

ASHLAND HAS INCURRED AND WILL INCUR SUBSTANTIAL OPERATING COSTS AND CAPITAL
EXPENDITURES AS A RESULT OF ENVIRONMENTAL AND HEALTH AND SAFETY LIABILITIES
AND REQUIREMENTS, PARTICULARLY RELATING TO ITS CHEMICAL SECTOR, WHICH COULD
REDUCE ASHLAND'S RESULTS OF OPERATIONS AND PROFITABILITY.

     Ashland is subject to various U.S.  and foreign  laws and  regulations
relating to  environmental  protection and worker health and safety.  These
laws and  regulations  regulate  discharges of pollutants  into the air and
water, the management and disposal of hazardous  substances and the cleanup
of  contaminated  properties.  The costs of  complying  with these laws and
regulations can be substantial and may increase as applicable  requirements
become more stringent and new rules are  implemented.  If Ashland  violates
the  requirements  of these laws and  regulations,  it may be forced to pay
substantial fines, to complete additional costly projects,  or to modify or
curtail its operations to limit contaminant emissions.

     Ashland  is   responsible   for,  and  has   financial   exposure  to,
substantially all of the environmental liabilities and other liabilities of
Ashland  and  its  subsidiaries.  However,  in  connection  with  Ashland's
transfer of its 38%  interest in MAP to Marathon,  the parties  agreed that
Ashland  would  not  be  liable  for  environmental  costs  related  to the
Transferred  Assets  incurred on or after  January 1, 2004 in excess of $50
million.  Ashland has  investigated  and remediated a number of its current
and  former  properties.   Engineering  studies,   probability  techniques,
historical  experience  and other factors are used to identify and evaluate
remediation  alternatives  and  their  related  costs  in  determining  the
estimated reserves for environmental remediation. Environmental remediation
reserves  are  subject  to  numerous  inherent  uncertainties  that  affect
Ashland's  ability to estimate its share of the costs.  Such  uncertainties
involve the nature and extent of  contamination at each site, the extent of
required cleanup efforts under existing environmental  regulations,  widely
varying  costs of  alternate  cleanup  methods,  changes  in  environmental
regulations, the potential effect of continuing improvements in remediation
technology,  and the number and  financial  strength  of other  potentially
responsible  parties at multiparty  sites.  Ashland  regularly  adjusts its
reserves as remediation continues.

ASHLAND HAS LIMITED USE OF THE  PROCEEDS  FROM THE MAP  TRANSACTION  TO PAY
DIVIDENDS  OR  REPURCHASE  SHARES  WHICH  COULD HAVE AN  ADVERSE  IMPACT ON
ASHLAND'S STOCK PRICE.

     Ashland has made certain  representations of its intent with regard to
the use of the proceeds from the MAP  Transaction  to the Internal  Revenue
Service and to Marathon.  These  representations  include one to the effect
that  Ashland  intends to comply  with  Internal  Revenue  Service  Revenue
Procedure 96-30,  which generally requires that (i) any share repurchase be
done in the open market and (ii) Ashland does not intend to repurchase more
than 20% of its outstanding  shares.  Ashland's limited use of the proceeds
from the MAP  Transaction  could have an adverse impact on Ashland's  stock
price.


                                    10



THE AVAILABILITY  AND COSTS OF FINANCINGS MAY BE ADVERSELY  IMPACTED BY THE
MAP TRANSACTION DUE TO CONCURRENT OR SUBSEQUENT REDUCTIONS IN DEBT RATINGS.

     Concurrent with the closing of the MAP Transaction,  Moody's Investors
Service  reduced  Ashland's long term debt rating to Ba1, a  non-investment
grade rating.  On September 22, 2005,  Standard & Poor's reduced  Ashland's
long term debt rating to BBB- with a negative outlook.  Ashland's access to
debt  markets at times may be limited  due to these  reduced  ratings,  and
Ashland is likely to incur higher costs for debt financings.

PROVISIONS OF ASHLAND'S  ARTICLES OF INCORPORATION AND BY-LAWS,  ITS RIGHTS
AGREEMENT  AND  KENTUCKY  LAW  COULD  DETER  TAKEOVER  ATTEMPTS  THAT  SOME
SHAREHOLDERS MAY CONSIDER DESIRABLE, WHICH COULD ADVERSELY AFFECT ASHLAND'S
STOCK PRICE.

     Provisions  of Ashland's  articles of  incorporation  and by-laws make
acquiring  control of Ashland without the support of its Board of Directors
difficult  for a third  party,  even if the  change  of  control  might  be
beneficial to Ashland shareholders. Ashland's articles of incorporation and
by-laws contain:

     -     provisions  relating  to  the  classification,   nomination  and
           removal of its directors;

     -     provisions  limiting the right of  shareholders  to call special
           meetings of its Board of Directors and shareholders; 

     -     provisions  regulating the ability of its  shareholders to bring
           matters for action at annual meetings of its  shareholders;  and

     -     the  authorization  given  to its Board of Directors to issue and 
           set the terms of preferred stock.

     In  addition,  Ashland's  shareholder  rights  agreement  could  cause
extreme  dilution  to any  person  or  group  who  attempts  to  acquire  a
significant  interest in Ashland without  advance  approval of its Board of
Directors.  Ashland's  articles of  incorporation  and the laws of Kentucky
impose some restrictions on mergers and other business combinations between
Ashland and any beneficial  owner of 10% or more of the voting power of its
outstanding  common stock.  The existence of these  provisions  may deprive
shareholders  of any opportunity to sell their shares at a premium over the
prevailing  market price for Ashland common stock. The potential  inability
of Ashland  shareholders to obtain a control premium could adversely affect
the market price for its common stock.

ASHLAND MAY ISSUE PREFERRED  STOCK WHOSE TERMS COULD  ADVERSELY  AFFECT THE
VOTING POWER OR VALUE OF ITS COMMON STOCK.

     Ashland's  articles of incorporation  authorizes it to issue,  without
the  approval  of its  shareholders,  one or  more  classes  or  series  of
preferred   stock   having   such   preferences,   powers   and   relative,
participating,  optional and other rights,  including  preferences over its
common  stock  respecting  dividends  and  distributions,  as its  Board of
Directors  generally  may  determine.  The terms of one or more  classes or
series of preferred stock could adversely  impact the voting power or value
of Ashland's  common  stock.  For example,  Ashland  could grant holders of
preferred  stock the right to elect  some  number of its  directors  in all
events  or on the  happening  of  specified  events  or the  right  to veto
specified transactions.  Similarly,  the repurchase or redemption rights or
liquidation  preferences Ashland could assign to holders of preferred stock
could affect the residual value of its common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     Ashland's  corporate  headquarters,  which is  leased,  is  located in
Covington,  Kentucky.  Principal  offices  of other  major  operations  are
located in Atlanta,  Georgia (APAC); Dublin, Ohio (Ashland Distribution and
Ashland  Specialty  Chemical);   Boonton,  New  Jersey  (Ashland  Specialty
Chemical);   Lexington,   Kentucky  (Valvoline);   and  Russell,   Kentucky
(Administrative  Services). All of these offices are leased, except for the
Russell  office  and two  buildings  in  Dublin,  Ohio,  which  are  owned.
Principal manufacturing,  marketing and other materially important physical
properties  of  Ashland  and  its  subsidiaries  are  described  under  the
appropriate  segment  under  "Item 1" in this  annual  report on Form 10-K.
Additional  information concerning certain leases may be found in Note H of
"Notes to Consolidated  Financial Statements" in this annual report on Form
10-K.


                                    11

ITEM 3. LEGAL PROCEEDINGS

     Asbestos-Related  Litigation - Ashland is subject to liabilities  from
claims alleging personal injury caused by exposure to asbestos. Such claims
result  primarily from  indemnification  obligations  undertaken in 1990 in
connection with the sale of Riley Stoker  Corporation  ("Riley"),  a former
subsidiary.  Although  Riley was neither a producer nor a  manufacturer  of
asbestos,   its  industrial  boilers  contained  some   asbestos-containing
components provided by other companies.

     The  majority  of  lawsuits  filed  involve  multiple  plaintiffs  and
multiple defendants,  with the number of defendants in many cases exceeding
100. The monetary  damages sought in the  asbestos-related  complaints that
have  been  filed  in  state  or  federal   courts  vary  as  a  result  of
jurisdictional  requirements  and  practices,  though the vast  majority of
these  complaints  either do not specify  monetary damages sought or merely
recite  that the  monetary  damages  sought  meet or  exceed  the  required
jurisdictional  minimum in which the complaint was filed.  Plaintiffs  have
asserted  specific  dollar  claims for damages in  approximately  5% of the
51,900  active  lawsuits  pending as of September 30, 2005. In these active
lawsuits,  less than 0.2% of the active lawsuits  involve claims between $0
and $100,000;  approximately  1.6% of the active  lawsuits  involve  claims
between  $100,000  and $1  million;  less  than 1% of the  active  lawsuits
involve  claims  between $1 million and $5  million;  less than 0.2% of the
active  lawsuits  involve  claims  between  $5  million  and  $10  million;
approximately  2% of the active lawsuits involve claims between $10 million
and $15 million;  and less than 0.2% of the active lawsuits  involve claims
between $15 million and $100 million. The variability of requested damages,
coupled with the actual  experience  of  resolving  claims over an extended
period,  demonstrates that damages  requested in any particular  lawsuit or
complaint bear little or no relevance to the merits or disposition value of
a particular case. Rather, the amount potentially recoverable by a specific
plaintiff or group of  plaintiffs  is  determined  by other factors such as
product  identification  or lack  thereof,  the  type and  severity  of the
disease alleged, the number and culpability of other defendants, the impact
of  bankruptcies  of other  companies  that are  co-defendants  in  claims,
specific  defenses  available  to  certain   defendants,   other  potential
causative factors and the specific jurisdiction in which the claim is made.


     For  additional   information   regarding   liabilities  arising  from
asbestos-related  litigation,  see "Management's  Discussion and Analysis -
Application of Critical Accounting Policies - Asbestos-related  litigation"
and Note O of "Notes to Consolidated  Financial  Statements" in this annual
report on Form 10-K.


     U.S. Department of Justice ("USDOJ") Antitrust Division  Investigation
- In November 2003,  Ashland received a subpoena from the USDOJ relating to
a foundry resins grand jury investigation.  Ashland has cooperated with the
USDOJ by providing all documents and access to all witnesses requested.  As
is frequently the case when such  investigations are in progress,  a number
of civil actions have since been filed in multiple  jurisdictions,  most of
which are seeking  class action  status for classes of customers of foundry
resins.  These cases have been  consolidated  for pretrial  purposes in the
United  States  District  Court,  Southern  District of Ohio.  Ashland will
vigorously defend the actions.

     Environmental  Proceedings  -  (1)  Under  the  federal  Comprehensive
Environmental  Response  Compensation  and  Liability  Act (as amended) and
similar state laws,  Ashland may be subject to joint and several  liability
for  clean-up  costs in  connection  with  alleged  releases  of  hazardous
substances  at  sites  where  it  has  been  identified  as a  "potentially
responsible  party"  ("PRP").  As of September  30, 2005,  Ashland had been
named a PRP at 102 waste  treatment  or  disposal  sites.  These  sites are
currently  subject  to  ongoing   investigation  and  remedial  activities,
overseen  by the USEPA or a state  agency,  in which  Ashland is  typically
participating  as a member of a PRP  group.  Generally,  the type of relief
sought  includes  remediation  of  contaminated  soil  and/or  groundwater,
reimbursement for past costs of site clean-up and administrative  oversight
and/or long-term  monitoring of environmental  conditions at the sites. The
ultimate  costs  are  not  predictable   with  assurance.   For  additional
information regarding environmental matters and reserves, see "Management's
Discussion  and Analysis - Application  of Critical  Accounting  Policies -
Environmental  remediation" and Note O of "Notes to Consolidated  Financial
Statements" in this annual report on Form 10-K.

     (2) On May 13, 2002,  Ashland  entered into a plea  agreement with the
U.S.  Attorney's  Office  for the  District  of  Minnesota  and  the  USDOJ
regarding  a May 16,  1997,  sewer  fire at the St.  Paul  Park,  Minnesota
refinery,  which is now  owned  and  operated  by MAP.  As part of the plea
agreement,  Ashland entered guilty pleas to two  misdemeanors,  paid a $3.5
million  fine  related to  violations  of the CAA,  paid  $3.55  million as
restitution  to the  employees  injured in the fire,  and paid  $200,000 as
restitution to the responding rescue units. Ashland also agreed to complete
certain upgrades to the St. Paul Park refinery's  process sewers,  junction
boxes and drains to meet  standards  


                                    12



established by Subpart QQQ of the New Source  Performance  Standards of the
CAA (the "Refinery  Upgrades").  The Refinery Upgrades,  completed in 2004,
have been acknowledged and accepted by the appropriate agencies. As part of
the plea  agreement,  Ashland  entered  into and  satisfied  the  terms and
conditions  of a  deferred  prosecution  agreement,  and  as a  result  the
deferred prosecution was dismissed by the court on February 22, 2005.

     As part of its  sentence,  Ashland  was placed on  probation  for five
years.  The primary  condition of probation is an obligation  not to commit
future federal,  state,  or local crimes.  If Ashland were to commit such a
crime,  not only would it be subject to prosecution for that new violation,
but the  government  could  also seek to revoke  Ashland's  probation.  The
probation  office has retained an independent  environmental  consultant to
review and  monitor  Ashland's  compliance  with  applicable  environmental
requirements  and the terms and  conditions  of  probation.  The court also
included  other  customary  terms  and  restrictions  of  probation  in its
probation order.

     (3) In 1990,  contamination of groundwater at Ashland's former Canton,
Ohio  refinery  (now  owned and operated by MAP) was first  identified  and
reported to Ohio's  Environmental  Protection  Agency ("OEPA").  Since that
time,  Ashland has  voluntarily  conducted  investigation  and  remediation
activities  and regularly  communicated  with OEPA  regarding  this matter.
Ashland and the State of Ohio have exchanged  Consent Order drafts and have
met to negotiate the terms of such an order. The state filed a complaint in
February  2004,  but  simultaneously  expressed  an interest in  continuing
Consent  Order  settlement   discussions.   Following  the  filing  of  the
complaint,  Ashland,  OEPA and Ohio's  Office of the Attorney  General have
continued to work to finalize a Consent  Order.  The state has advised that
it will assess a penalty as part of the overall  settlement and has made an
initial request for $650,000.

     Class Action  Lawsuit  Related to MAP  Transaction - On April 8, 2005,
Shiva Singh filed a complaint in the Supreme Court of the State of New York
in  New  York  County,  individually  and on  behalf  of  others  similarly
situated,  against Ashland and the individual members of Ashland's Board of
Directors.  The complaint also names Marathon,  MAP and Credit Suisse First
Boston  LLC  ("CSFB")  as  defendants.  On May 19,  2005,  Ashland  and the
director  defendants removed the action to the United States District Court
for the  Southern  District of New York.  The lawsuit  arose out of the MAP
Transaction,  which was  announced  on March 19,  2004,  and was  valued at
approximately $3 billion.  The complaint alleged breach of fiduciary duties
against Ashland, its directors,  Marathon and MAP as well as negligence and
breach of fiduciary  duties against CSFB. The complaint also alleged aiding
and abetting breach of fiduciary duties and/or  negligence  against each of
the defendants.

     The plaintiff sought to recover from defendants an unspecified  amount
of damages.  The plaintiff  also sought to enjoin the proposed  transaction
between Ashland and Marathon (and any related shareholder vote); to require
defendants to make a full and fair  disclosure of all material facts before
completion  of the  transaction;  and to  require  defendants  to  obtain a
current,  independent  fairness opinion concerning the transaction.  In the
event that the proposed  transaction was consummated  prior to the entry of
the court's final judgment,  an event that has now occurred,  the plaintiff
sought to rescind the  transaction  as well as damages.  The plaintiff also
sought  reimbursement  of  its  costs  and  disbursements  in  the  action,
including  reasonable  fees  and  expenses  of  plaintiff's  attorneys  and
experts. Ashland believes the lawsuit was without merit.

     On April 27, 2005,  Ashland  signed an  amendment to its  agreement to
transfer  its 38%  interest in MAP and two other  businesses  to  Marathon.
Under the amended  agreement,  Ashland's  interest in these  businesses was
valued  at  approximately  $3.7  billion  (compared  to $3  billion  in the
original proposed transaction).  As noted  in "Item 1. Business - Corporate
Developments" to this annual report on Form 10-K,  Ashland  transferred its
38% interest in MAP and two other businesses to Marathon on June 30, 2005.

     On September 20, 2005,  the federal judge entered an order  dismissing
plaintiff's  negligence  claims  against  CSFB and the aiding and  abetting
claims  against all  defendants  and  directed the court clerk to "mark the
case  closed".  As of that date the  action is no  longer  pending  against
Ashland,  the  individual  members of  Ashland's  Board of Directors or any
other defendant.

     Other Legal  Proceedings - In addition to the matters described above,
there are various claims,  lawsuits and administrative  proceedings pending
or threatened against Ashland and its current and former subsidiaries. Such
actions are with respect to commercial  matters,  product liability,  toxic
tort  liability  and other  environmental  matters,  which seek remedies or
damages, some of which are for substantial amounts. While these actions are
being contested, their outcome is not predictable.


                                    13

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security  holders,  through the
solicitation  of proxies or otherwise,  during the quarter ended  September
30, 2005.

ITEM X. EXECUTIVE OFFICERS OF ASHLAND

     The following is a list of Ashland's  executive  officers,  their ages
and  their  positions  and  offices  during  the last  five  years  (listed
alphabetically  after the Chief Executive  Officer as to current members of
Ashland's Executive Committee and other executive officers).

     JAMES J.  O'BRIEN (age 51) is Chairman of the Board,  Chief  Executive
Officer and Director of Ashland,  and has served in such  capacities  since
2002.  During the past five years,  he has also served as President,  Chief
Operating  Officer,  Senior Vice President and Group  Operating  Officer of
Ashland, and as President of Valvoline.

     GARY A.  CAPPELINE  (age 56) is Senior Vice  President  of Ashland and
President and Chief Operating  Officer,  Chemical Sector, and has served in
such capacities since 2004.  During the past five years, he has also served
as Group  Operating  Officer and Vice President of Ashland and President of
Ashland Specialty Chemical Company,  as a chemical industry partner at Bear
Stearns Merchant Bank and as President of AlliedSignal Specialty Chemicals.

     DAVID L. HAUSRATH (age 53) is Senior Vice  President,  General Counsel
and Secretary of Ashland and has served in such capacities since 2004, 1999
and 2004,  respectively.  During the past five years, he has also served as
Vice President of Ashland.

     J. MARVIN QUIN (age 58) is Senior Vice  President and Chief  Financial
Officer of Ashland and has served in such capacities since 1992.

     GARRY M.  HIGDEM  (age  52) was  Senior  Vice  President  of  Ashland,
President and Chief Operating Officer,  Transportation Construction Sector,
and President of Ashland Paving And  Construction,  Inc. and served in such
capacities  since 2004.  During the past five years,  he has also served as
Vice President for Granite  Construction  Incorporated,  Heavy Construction
Division. Mr. Higdem resigned from Ashland effective September 14, 2005.

     LAMAR M. CHAMBERS (age 50) is Vice President and Controller of Ashland
and has served in such capacities  since 2004.  During the past five years,
he has also served as Senior Vice President - Finance &  Administration  of
Ashland Paving And Construction, Inc., and Auditor of Ashland.

     SUSAN B. ESLER (age 44) is Vice President - Human Resources of Ashland
and has served in such capacity since 2004. During the past five years, she
has also served as Vice  President - Human  Resources  Programs & Services,
Director of Corporate Human Resources and Manager of Executive Compensation
of Ashland.

     SAMUEL J. MITCHELL (age 44) is Vice President of Ashland and President
of Valvoline and has served in such capacities since 2002.  During the past
five years,  he has also served as Vice  President  and General  Manager of
Retail Business and Vice President of Marketing.

     R. KIRK RANDOLPH  (age 42) is Vice  President of Ashland and President
of Ashland Paving And Construction, Inc., and has served in such capacities
since  September  2005.  During the past five years,  he has also served as
Vice President - Design/Build,  Vice President of Operations  Support,  and
Regional Vice President of Ashland Paving And Construction, Inc.

     FRANK L. WATERS (age 44) is Vice President of Ashland and President of
Ashland  Distribution Company and has served in such capacities since 2002.
During  the past  five  years,  he has also  served as Vice  President  and
General Manager of Ashland Plastics - Europe.

     Each executive officer is elected by the Board of Directors of Ashland
to a term of one year, or until a successor is duly elected,  at the annual
meeting  of the Board of  Directors,  except in those  instances  where the
officer  is  elected  other  than at an  annual  meeting  of the  Board  of
Directors,  in which case his or her tenure  will expire at the next annual
meeting of the Board of Directors unless the officer is re-elected.


                                    14

                                  PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

     For information relating to equity compensation plans required by Item
201(d) of Regulation S-K, see Item 12 in this annual report on Form 10-K.

     See  Quarterly  Financial  Information  on page  F-32 for  information
relating to market price and dividends of Ashland's Common Stock.

     At November  21,  2005,  there were  approximately  14,700  holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and  Chicago  stock  exchanges  (ticker  symbol  ASH) and has  trading
privileges on the Boston,  National  (formerly  Cincinnati Stock Exchange),
Pacific and Philadelphia stock exchanges.

     There were no sales of unregistered securities required to be reported
under Item 701 of Regulation S-K.

     The following  table  summarizes  information  regarding  purchases of
Ashland Common Stock by Ashland during the fourth quarter of fiscal 2005.

                 Issuer Purchases of Equity Securities (1)



                                                                                                    Maximum number
                                                                                                   (or approximate
                                                                              Total number of      dollar value) of
                                                                             shares purchased      shares that may
                                                        Average price       as part of publicly    yet be purchased
                                 Total number of       paid per share,        announced plans      under the plans
Period                          shares purchased    including commission        or programs          or programs
----------                      -----------------   ---------------------   -------------------    -----------------
                                       (a)                   (b)                    (c)                  (d)

                                                                                         
July 1 - July 31                      18,100               $59.98                   18,100           $268,914,312
August 1 - August 31                 344,100               $59.35                  344,100           $248,493,634
September 1 - September 30         1,406,400               $55.37                1,406,400           $170,622,063
                                   ---------               ------                ---------           ------------
     Total                         1,768,600               $56.19                1,768,600           $170,622,063
                                   =========               ======                =========           ============


(1) On July 21,  2005,  Ashland's  Board of  Directors  authorized  a share
repurchase program in an amount up to $270 million.

ITEM 6. SELECTED FINANCIAL DATA

     See Five-Year Selected Financial Information on page F-33.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS

     See  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations on pages M-1 through M-13.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     See Quantitative and Qualitative Disclosures about Market Risk  on page 
M-13.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  consolidated  financial  statements  and  financial  schedule  of
Ashland  presented  in this  annual  report on Form 10-K are  listed in the
index on page F-1.



                                    15



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     Disclosure  Controls  and  Procedures  - As  of  September  30,  2005,
Ashland,  under the  supervision  and with the  participation  of Ashland's
management, including Ashland's Chief Executive Officer and Chief Financial
Officer,  evaluated the effectiveness of Ashland's  disclosure controls and
procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e).  Based
upon that  evaluation,  the Chief  Executive  Officer  and Chief  Financial
Officer  concluded  that  the  disclosure   controls  and  procedures  were
effective  in timely  alerting  them to  material  information  relating to
Ashland  and its  consolidated  subsidiaries  required  to be  included  in
Ashland's periodic SEC filings on Forms 10-K and 10-Q.

     Changes in Internal Control Over Financial  Reporting - There has been
no change in Ashland's internal control over financial reporting during the
quarter  ended  September 30, 2005,  that has  materially  affected,  or is
reasonably  likely to materially  affect,  Ashland's  internal control over
financial reporting.

     Internal  Control -  See Management's  Report on Internal Control Over
Financial Reporting on page F-2.

ITEM 9B. OTHER INFORMATION

     None.

                                  PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     There is hereby  incorporated  by reference the  information to appear
under the captions  "Election of Directors"  and  "Miscellaneous  - Section
16(a) Beneficial  Ownership Reporting  Compliance" in Ashland's  definitive
Proxy  Statement,  which  will be filed  with the SEC within 120 days after
September 30, 2005. See also the list of Ashland's  executive  officers and
related  information under "Executive Officers of Ashland" in Part I - Item
X in this annual report on Form 10-K.

     There is hereby  incorporated  by reference the  information to appear
under the  caption  "Audit  Committee  Report"  regarding  Ashland's  audit
committee financial experts, as defined under Item 401 of Regulation S-K of
the  Securities  Exchange  Act of 1934,  as  amended,  in  Ashland's  Proxy
Statement.

     There is hereby  incorporated  by reference the  information to appear
under the  caption  "Corporate  Governance  -  Shareholder  Nominations  of
Directors" in Ashland's Proxy Statement.

     There is hereby  incorporated  by reference the  information to appear
under  the  caption  "Corporate  Governance  -  Governance  Principles"  in
Ashland's Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     There is hereby  incorporated  by reference the  information to appear
under the captions  "Executive  Compensation,"  "Compensation of Directors"
and "Corporate Governance - Personnel and Compensation Committee Interlocks
and Insider Participation" in Ashland's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT AND 
RELATED STOCKHOLDER MATTERS

     There is hereby  incorporated  by reference the  information to appear
under the captions "Ashland Common Stock Ownership of Directors and Certain
Officers  of  Ashland"  and  "Ashland  Common  Stock  Ownership  of Certain
Beneficial Owners" in Ashland's Proxy Statement.


                                    16

     The following  table  summarizes the equity  compensation  plans under
which Ashland  Common Stock may be issued as of September 30, 2005.  Except
as disclosed  in the  narrative  to the table,  all plans were  approved by
shareholders of Ashland.



                                           Equity Compensation Plans

                                                              Equity Compensation Plan Information
                                        --------------------------------------------------------------------------------
                                                                                                Number of securities
                                           Number of securities                              remaining available for
                                            to be issued upon          Weighted-average         future issuance under
                                                exercise              exercise price of       equity compensation plans
                                         of outstanding options,     outstanding options,       (excluding securities
Plan Category                              warrants and rights       warrants and rights      reflected in column (a))
-------------                           -------------------------    --------------------     --------------------------
                                                   (a)                       (b)                         (c)
                                                                                             

Equity compensation plans approved by
     security holders..............              3,224,516                  $39.88                    1,307,327 (2)
Equity compensation plans
     not approved by security holders               38,076 (1)              $26.99                    1,000,000 (3)
                                               -----------                  ------                    ---------
             Total.................             3,262,592                   $39.72                    2,307,327
                                                =========                   ======                    =========


(1)  The Ashland Inc. Stock Option Plan for Employees of Joint Ventures was
     not  approved by  Ashland's  shareholders.  This plan was  approved by
     Ashland's   Board  of  Directors  on  September  17,  1998,   and  was
     specifically  designed to grant stock options and/or SARs to employees
     of  joint  ventures  in  which  Ashland  has an  interest.  There  are
     currently no shares  reserved for future issuance under this plan. The
     Board of Directors  authorized  the issuance of the shares at the time
     the stock  options were  granted.  A recipient  of such stock  options
     and/or SARs has the right to purchase  Ashland Common Stock at a price
     and on terms specified by the Personnel and Compensation  Committee of
     Ashland's  Board of Directors.  The stock options  listed in the table
     above were granted to certain MAP employees and were  registered  with
     the SEC. All stock options and SARs granted under this plan expired on
     November 19, 2005.

(2)  Includes  495,679 shares  available for issuance under the Amended and
     Restated  Ashland Inc.  Incentive Plan,  434,790 shares  available for
     issuance  under the  Deferred  Compensation  Plan for  Employees,  and
     376,858 shares available for issuance under the Deferred  Compensation
     Plan for Non-Employee Directors.

(3)  Includes  500,000  shares  available  for issuance  under the Deferred
     Compensation  Plan for Employees  (2005) and 500,000 shares  available
     for issuance  under the Deferred  Compensation  Plan for  Non-Employee
     Directors  (2005).  Because  these  plans are not equity  compensation
     plans as defined by the rules of the New York Stock Exchange,  neither
     plan  required  approval  by  Ashland's  shareholders.  The plans were
     approved by  Ashland's  Board of  Directors  on November 4, 2004,  and
     became effective  January 1, 2005. The plans provide an opportunity to
     defer amounts of specified  types of compensation as a means of saving
     for retirement and other purposes.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     There is hereby incorporated by reference the information with respect
to  principal  accountant  fees and  services to appear  under the captions
"Ratification of Auditors" and "Audit Committee  Report" in Ashland's Proxy
Statement.

     Ernst & Young LLP ("E&Y"),  Ashland's  independent  registered  public
accounting  firm,  has advised the Audit  Committee  of Ashland that it has
identified two  independence  issues in connection with certain  prohibited
income tax  compliance  and other  services  performed by E&Y affiliates in
Denmark and South Africa.  These services involved holding  value-added tax
funds of a de  minimis  amount  and  making  payment  of such  funds to the
applicable tax authority in Denmark in respect of an Ashland  subsidiary in
the   Netherlands   and  serving  as  the   registered   office   receiving
communications  and  holding  statutory  records  (e.g.,  minutes,   books,
registers of shareholders, directors and officers) in respect of an Ashland
subsidiary  in South  Africa.  These actions by affiliates of E&Y have been
discontinued.  Custody  of the assets of an audit  client is not  permitted
under  the  AICPA  auditor  independence  rules as well as the SEC  auditor
independence  rules.  The  Audit  Committee  and E&Y have  discussed  E&Y's
independence  with respect to Ashland in light of the foregoing facts. Both
the Ashland  Audit  Committee and E&Y have  considered  the impact that the
holding and paying of these funds and the receiving of  correspondence  and
holding of  documents  may have had on E&Y's  independence  with respect to
Ashland  and have  each  independently  concluded  that  there  has been no
impairment of E&Y's independence.  In making this determination,  the Audit
Committee and E&Y considered, among other matters, the de minimis amount of
funds  involved,  the  ministerial  nature  of the  actions,  and  that the
subsidiaries  involved  are  not  material  to the  consolidated  financial
statements of Ashland.


                                    17

                                  PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (A) DOCUMENTS FILED AS PART OF THIS REPORT

     (1) and (2) Financial Statements and Financial Schedule

     (3) See Item 15(b) in this annual report on Form 10-K

     The  consolidated  financial  statements  and  financial  schedule  of
Ashland  presented  in this  annual  report on Form 10-K are  listed in the
index on page F-1.

     (B) DOCUMENTS REQUIRED BY ITEM 601 OF REGULATION S-K
         3.1    -     Second  Restated   Articles  of  Incorporation  of
                      Ashland  effective  July 21,  2005  (filed as Exhibit
                      3(i) to  Ashland's  Form 10-Q for the  quarter  ended
                      June 30, 2005, and incorporated herein by reference).
         3.2    -     By-laws of Ashland,  effective  as of June 30, 2005
                      (filed as Exhibit  3(ii) to  Ashland's  Form 10-Q for
                      the quarter  ended June 30,  2005,  and  incorporated
                      herein by reference).
         4.1    -     Ashland  agrees to provide the SEC,  upon  request,
                      copies of instruments  defining the rights of holders
                      of   long-term   debt  of  Ashland  and  all  of  its
                      subsidiaries for which consolidated or unconsolidated
                      financial  statements  are  required to be filed with
                      the SEC.
         4.2    -     Indenture,  dated as of August 15, 1989, as amended
                      and restated as of August 15, 1990,  between  Ashland
                      and Citibank,  N.A., as Trustee (filed as Exhibit 4.2
                      to  Ashland's  annual  report  on Form  10-K  for the
                      fiscal   year   ended   September   30,   2001,   and
                      incorporated herein by reference).
         4.3    -     Rights Agreement, dated as of May 16, 1996, between
                      Ashland Inc. and the Rights Agent, together with Form
                      of  Right  Certificate   (filed  as  Exhibit  4.4  to
                      Ashland's  annual  report on Form 10-K for the fiscal
                      year  ended  September  30,  2001,  and  incorporated
                      herein by reference).
         4.4    -     Amendment  No. 1 dated as of March  18,  2004,  to
                      Rights  Agreement  dated as of May 16, 1996,  between
                      Ashland  Inc. and Rights Agent (filed as Exhibit 4 to
                      Ashland's  Form 10-Q for the quarter  ended March 31,
                      2004, and incorporated herein by reference).
         4.5    -     Amendment  No. 2 dated as of April  27,  2005,  to
                      Rights  Agreement  dated as of May 16, 1996,  between
                      Ashland  Inc.  and Rights Agent (filed as Exhibit 4.7
                      to  Ashland's   Form   S-4/A   on   May  2,  2005, and  
                      incorporated herein by reference).

     The   following   Exhibits   10.1  through   10.17  are  contracts  or
compensatory  plans or arrangements or management  contracts required to be
filed   as    exhibits    pursuant   to   Items    601(b)(10)(ii)(A)    and
601(b)(10)(iii)(A) and (B) of Regulation S-K.
        10.1    -     Ashland  Inc.   Deferred   Compensation  Plan  for
                      Non-Employee  Directors  (filed  as  Exhibit  10.5 to
                      Ashland's  Form 10-Q for the quarter  ended  December
                      31, 2004, and incorporated herein by reference).
        10.2    -     Ashland Inc.  Deferred  Compensation Plan (filed as
                      Exhibit 10.3 to  Ashland's  Form 10-Q for the quarter
                      ended December 31, 2004, and  incorporated  herein by
                      reference).
        10.3    -     Ashland  Inc.   Deferred   Compensation  Plan  for
                      Employees  (2005)  (filed as Exhibit 10 to  Ashland's
                      Form 10-Q for the quarter  ended March 31, 2005,  and
                      incorporated herein by reference).
        10.4    -     Amendment   No.  1  to  Ashland   Inc.   Deferred
                      Compensation  Plan for Employees (2005) dated October
                      28, 2005.
        10.5    -     Ashland  Inc.   Deferred   Compensation  Plan  for
                      Non-Employee  Directors (2005) (filed as Exhibit 10.6
                      to Ashland's Form 10-Q for the quarter ended December
                      31, 2004, and incorporated herein by reference).


                                    18



        10.6    -     Eleventh   Amended  and   Restated   Ashland  Inc.
                      Supplemental   Early   Retirement  Plan  for  Certain
                      Employees  (filed as Exhibit 10.2 to  Ashland's  Form
                      10-Q for the quarter  ended  December 31,  2004,  and
                      incorporated herein by reference).
        10.7    -     Amendment  No. 1 to Eleventh  Amended and  Restated
                      Ashland Inc.  Supplemental  Early Retirement Plan for
                      Certain Employees dated December 20, 2004.
        10.8    -     Ashland  Inc.  Salary  Continuation  Plan (filed as
                      Exhibit 10.5 to Ashland's  annual report on Form 10-K
                      for the fiscal year ended  September  30,  2002,  and
                      incorporated herein by reference).
        10.9    -     Form of Ashland Inc. Executive  Employment Contract
                      between  Ashland  Inc.  and  certain   executives  of
                      Ashland  (filed as Exhibit 10.6 to  Ashland's  annual
                      report  on  Form  10-K  for  the  fiscal  year  ended
                      September  30,  2002,  and  incorporated   herein  by
                      reference).
        10.10   -     Form of  Indemnification  Agreement between Ashland
                      Inc. and members of its Board of Directors.
        10.11   -     Ashland Inc.  Nonqualified  Excess Benefit  Pension
                      Plan - 2003  Restatement  (filed as  Exhibit  10.1 to
                      Ashland's  Form 10-Q for the quarter  ended  December
                      31, 2004, and incorporated herein by reference).
        10.12   -     Ashland Inc.  Directors'  Charitable  Award Program
                      (filed as Exhibit 10.11 to Ashland's annual report on
                      Form 10-K for the  fiscal  year ended  September  30,
                      2002, and incorporated herein by reference).
        10.13   -     Ashland Inc.  1993 Stock  Incentive  Plan (filed as
                      Exhibit 10.11 to Ashland's annual report on Form 10-K
                      for the fiscal year ended  September  30,  2000,  and
                      incorporated herein by reference).
        10.14   -     Ashland Inc.  1997 Stock  Incentive  Plan (filed as
                      Exhibit 10.14 to Ashland's annual report on Form 10-K
                      for the fiscal year ended  September  30,  2002,  and
                      incorporated herein by reference).
        10.15   -     Amended and Restated  Ashland Inc.  Incentive  Plan
                      (filed as Exhibit 10.1 to Ashland's Form 10-Q for the
                      quarter ended June 30, 2004, and incorporated  herein
                      by reference).
        10.16   -     Forms of Notice granting Stock Appreciation  Rights
                      Awards.
        10.17   -     Form of Notice granting Restricted Stock Awards.
        10.18   -     Form of Notice granting  Nonqualified  Stock Option
                      Awards.
        10.19   -     Five-Year,  $350 Million Revolving Credit Agreement
                      dated as of March 21, 2005 (filed as Exhibit  10.1 to
                      Ashland's  Form  8-K  filed  on  March  24, 2005, and 
                      incorporated herein by reference).
        10.20*  -     Master  Agreement  dated as of March 18, 2004,  and
                      Amendment  No. 1 dated as of April  27,  2005,  among
                      Ashland  Inc.,  ATB Holdings  Inc.,  EXM LLC, New EXM
                      Inc., Marathon Oil Corporation, Marathon Oil Company,
                      Marathon  Domestic LLC and Marathon Ashland Petroleum
                      LLC (filed as  Exhibit  2.1 to  Ashland's  Form S-4/A
                      dated and filed May 19, 2005, and incorporated herein
                      by reference).
        10.21*  -     Amended and  Restated Tax Matters  Agreement  dated
                      April 27,  2005,  among  Ashland  Inc.,  ATB Holdings
                      Inc.,   EXM  LLC,   New  EXM   Inc.,   Marathon   Oil
                      Corporation,  Marathon Oil Company, Marathon Domestic
                      LLC and  Marathon  Ashland  Petroleum  LLC  (filed as
                      Annex B to  Ashland's  Form S-4/A dated and filed May
                      19, 2005, and incorporated herein by reference).
        10.22*  -     Assignment and Assumption  Agreement (VIOC Centers)
                      dated as of March 18, 2004,  between Ashland Inc. and
                      ATB Holdings Inc. (filed as Annex D to Ashland's Form
                      S-4/A dated and filed May 19, 2005, and  incorporated
                      herein by reference).
        10.23*  -     Assignment   and  Assumption   Agreement   (Maleic
                      Business) dated as of March 18, 2004, between Ashland
                      Inc.  and ATB  Holdings  Inc.  (filed  as  Annex C to
                      Ashland's  Form S-4/A  dated and filed May 19,  2005,
                      and incorporated herein by reference).


                                    19

        10.24*  -     Amendment  No. 2 dated as of March 18,  2004,  and
                      Amendment  No. 3 dated as of April 27,  2005,  to the
                      Amended  and  Restated  Limited   Liability   Company
                      Agreement  dated as of December 31, 1998, of Marathon
                      Ashland  Petroleum  LLC, by and between  Ashland Inc.
                      and  Marathon  Oil  Company  (filed  as  Annex  E  to
                      Ashland's  Form S-4/A  dated and filed May 19,  2005,
                      and incorporated herein by reference).
        10.25** -     Amendment  No. 1 dated as of March 17,  2004,  to the
                      Amended  and  Restated  Limited   Liability   Company
                      Agreement  dated as of December 31, 1998, of Marathon
                      Ashland  Petroleum  LLC  (filed  as  Exhibit  10.2 to
                      Ashland's  Form 10-Q for the quarter  ended March 31,
                      2004, and incorporated herein by reference).
        10.26*  -     Amendment  No. 2 dated as of March 17, 2004, to the
                      Put/Call Registration Rights and Standstill Agreement
                      dated as of  January  1,  1998,  among  Marathon  Oil
                      Company,  USX Corporation,  Ashland Inc. and Marathon
                      Ashland  Petroleum  LLC  (filed  as  Exhibit  10.1 to
                      Ashland's  Form 10-Q for the quarter  ended March 31,
                      2004, and incorporated herein by reference).
        11      -     Computation  of Earnings Per Share  (appearing  on
                      page F-12 of this annual report on Form 10-K).
        12      -     Computation of Ratio of Earnings to Fixed Charges.
        21      -     List of Subsidiaries.
        23.1    -     Consent of Independent Registered Public Accounting
                      Firm.
        23.2    -     Consent of Tillinghast-Towers Perrin.
        23.3    -     Consent of Hamilton, Rabinovitz & Alschuler, Inc.
        24      -     Power of  Attorney,  including  resolutions  of the
                      Board of Directors.
        31.1    -     Certification of James J. O'Brien,  Chief Executive
                      Officer of  Ashland,  pursuant  to Section 302 of the
                      Sarbanes-Oxley Act of 2002.
        31.2    -     Certification  of J. Marvin Quin,  Chief Financial
                      Officer of  Ashland,  pursuant  to Section 302 of the
                      Sarbanes-Oxley Act of 2002.
        32      -     Certification of James J. O'Brien,  Chief Executive
                      Officer  of  Ashland,   and  J.  Marvin  Quin,  Chief
                      Financial Officer of Ashland, pursuant to Section 906
                      of the Sarbanes-Oxley Act of 2002.

     *Ashland  agrees to  supplement  this filing and furnish a copy of any
     omitted  schedule  to  the  United  States   Securities  and  Exchange
     Commission upon request.

     **Portions of this document have received confidential treatment.

     Upon written or oral  request,  a copy of the above  exhibits  will be
furnished at cost.


                                    2O



                                 SIGNATURES

     Pursuant to the  requirements of Section 13 or 15(d) 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)
                                        By:
                                        /s/ J. Marvin Quin               
                                        ---------------------------------
                                        J. Marvin Quin
                                        Senior Vice President and Chief
                                        Financial Officer
                                        Date:  December 9, 2005

     Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant, in the capacities indicated, on December 9, 2005.



               SIGNATURES                                                       CAPACITY
               ----------                                                       --------

                                                  
               /S/ JAMES J. O'BRIEN                  Chairman of the Board, Chief Executive Officer and Director
--------------------------------------------
                 JAMES J. O'BRIEN

                /S/ J. MARVIN QUIN                   Senior Vice President and Chief Financial Officer
--------------------------------------------
                  J. MARVIN QUIN

               /S/ LAMAR M. CHAMBERS                 Vice President, Controller and Principal Accounting Officer
--------------------------------------------
                 LAMAR M. CHAMBERS

                         *                           Director
--------------------------------------------
                  ERNEST H. DREW

                         *                           Director
--------------------------------------------
                   ROGER W. HALE

                         *                           Director
--------------------------------------------
                BERNADINE P. HEALY

                         *                           Director
--------------------------------------------
                 MANNIE L. JACKSON

                         *                           Director
--------------------------------------------
                 KATHLEEN LIGOCKI

                         *                           Director
--------------------------------------------
                 PATRICK F. NOONAN

                         *                           Director
--------------------------------------------
               GEORGE A. SCHAEFER, JR.

                         *                           Director
--------------------------------------------
                 THEODORE M. SOLSO

                         *                           Director
--------------------------------------------
                  MICHAEL J. WARD


*By:     /s/ David L. Hausrath
         David L. Hausrath
         Attorney-in-Fact
Date:    December 9, 2005


                                    21


ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

     The following  table shows  revenues,  operating  income and operating
information  by  industry  segment  for each of the last three  years ended
September 30.



(In millions)                                                                        2005         2004         2003
--------------------------------------------------------------------------------------------------------------------
                                                                                                 
SALES AND OPERATING REVENUES
APAC                                                                            $   2,539    $   2,525    $   2,400
Ashland Distribution                                                                3,810        3,199        2,811
Ashland Specialty Chemical                                                          1,763        1,386        1,212
Valvoline                                                                           1,326        1,297        1,235
Intersegment sales                                                                   (168)        (106)         (92)
                                                                                ----------   ----------   ----------
                                                                                $   9,270    $   8,301    $   7,566
                                                                                ==========   ==========   ==========
OPERATING INCOME
APAC                                                                            $      48    $     111    $     (42)
Ashland Distribution                                                                  123           78           32
Ashland Specialty Chemical                                                            134           87           31
Valvoline                                                                              90          105           87
Refining and Marketing (a)                                                            486          383          263
Corporate                                                                            (135)        (102)        (105)
                                                                                ----------   ----------   ----------
                                                                                $     746    $     662    $     266
                                                                                ==========   ==========   ==========
OPERATING INFORMATION
APAC
      Construction backlog at September 30 (millions) (b)                       $   2,038    $   1,746    $   1,745
      Net construction job revenues (millions) (c)                              $   1,458    $   1,433    $   1,361
      Hot-mix asphalt production (million tons)                                      31.3         33.4         32.5
      Aggregate production (million tons)                                            31.4         29.6         28.7
Ashland Distribution (d)
      Sales per shipping day (millions)                                         $    15.1    $    12.6    $    11.2
      Gross profit as a percent of sales                                              9.7%         9.6%         9.9%
Ashland Specialty Chemical (d)
      Sales per shipping day (millions)                                         $     7.0    $     5.4    $     4.8
      Gross profit as a percent of sales                                             26.6%        27.9%        29.9%
Valvoline
      Lubricant sales (million gallons)                                             175.4        191.6        193.5
      Premium lubricants (percent of U.S. branded volumes)                           23.4%        21.5%        18.5%
Refining and Marketing (e)
      Refinery runs (thousand barrels per day)
        Crude oil refined                                                             970          920          900
        Other charge and blend stocks                                                 182          167          133
      Refined product sales (thousand barrels per day) (f)                          1,421        1,385        1,345
      Refining and wholesale marketing margin (per barrel) (g)                  $    4.58    $    3.11    $    2.59
--------------------------------------------------------------------------------------------------------------------


(a)  Includes  Ashland's equity income from Marathon Ashland  Petroleum LLC
     (MAP) through June 30, 2005,  amortization related to Ashland's excess
     investment in MAP, and other  activities  associated with refining and
     marketing.
(b)  Includes APAC's  proportionate  share of the backlog of unconsolidated
     joint ventures. 
(c)  Total construction job revenues, less subcontract costs. 
(d)  Sales are defined as sales and  operating  revenues.  Gross  profit is
     defined  as sales  and  operating  revenues,  less  cost of sales  and
     operating expenses.
(e)  Amounts represent 100% of MAP's  operations.  Amounts for 2005 are for
     the nine months  ended June 30, 2005,  when  Ashland's  38%  ownership
     ceased.
(f)  Total  average  daily  volume of all  refined  product  sales to MAP's
     wholesale, branded and retail (SSA) customers.
(g)  Sales  revenue less cost of refinery  inputs,  purchased  products and
     manufacturing expenses, including depreciation.


                                    M-1

RESULTS OF OPERATIONS

     Ashland's net income  amounted to $2,004 million in 2005, $378 million
in 2004 and $75 million in 2003.  Income from continuing  operations (which
excludes  discontinued  operations and the cumulative  effect of accounting
changes)  amounted to $2,005 million in 2005,  $398 million in 2004 and $94
million in 2003.  Results  for 2005  included a net gain of $1,531  million
from the MAP  Transaction  and a related  loss on the early  retirement  of
debt, as described in Note D of Notes to Consolidated Financial Statements.
Ashland's  results  from  discontinued  operations,  consisting  of charges
associated  with  estimated  future  asbestos   liabilities  less  probable
insurance  recoveries,   as  well  as  net  income  from  the  discontinued
operations of its Electronic Chemicals business,  along with the cumulative
effect of accounting changes adopted in 2003,  accounted for the difference
in net income and income from continuing operations.

     Chemical Sector (consisting of Ashland Distribution, Ashland Specialty
Chemical  and  Valvoline)  operating  income  totaled $347 million in 2005,
compared  to $270  million  in 2004  and  $150  million  in  2003.  Ashland
Distribution   and  Ashland   Specialty   Chemical  both  reported   record
performances  for 2005 on the  strength of  increased  sales and  operating
revenues,   while  Valvoline's   results  declined  from  the  record  2004
performance,   reflecting  a  decrease  in  lubricant  sales  volumes.  The
Transportation  Construction  Sector,  commercially known as Ashland Paving
And Construction,  Inc. (APAC), recorded operating income of $48 million in
2005,  compared to income of $111 million in 2004 and a loss of $42 million
in 2003.  APAC's decline in 2005 reflected an active hurricane and tropical
storm  season,  which caused work  disruptions  and rapid  increases in raw
material and energy costs. Refining and Marketing operating income was $486
million in 2005, compared to $383 million in 2004 and $263 million in 2003.
The 2005 results  reflect nine months of equity  income from  Ashland's 38%
ownership  interest in MAP through June 30, 2005, when Ashland  transferred
its  interest  in MAP to  Marathon  (as  described  in Note D of  Notes  to
Consolidated  Financial  Statements).  An analysis of  operating  income by
industry segment follows.

APAC

     Operating  income from APAC  totaled $48 million in 2005,  compared to
$111 million in 2004. Weather delays due to the highly active hurricane and
tropical storm season affected APAC's key summer  construction  season, and
hot-mix asphalt production, a key source of profits, declined 6% versus the
prior year. Given the fixed nature of many of APAC's costs, volume declines
disproportionately  reduce  earnings.  In  addition,   rapidly  rising  raw
material and energy costs  throughout the year outpaced price increases and
affected  profits on fixed-price  contracts.  Equity income from an Atlanta
airport runway project declined by $13 million as that job was completed in
2005,  while gains on asset sales were $9 million  lower in 2005.  In 2004,
APAC  reversed  into  income a $5 million  reserve for  liquidated  damages
established  in 2003  related to a large  highway  construction  project in
Virginia.  In addition,  the provision for job loss reserves was $7 million
higher in 2005 versus  2004,  partially  as a result of higher raw material
and  energy  costs in  fixed  price  backlog.  Partially  offsetting  these
negative  effects was an $8 million increase in gains on hedges of gasoline
and diesel  fuel costs.  As of  September  30,  2005,  APAC's  construction
backlog,  which  consists  of  contracts  awarded  and  funded  but not yet
performed, was $2.0 billion, up 17% compared to 2004.

     Operating income from APAC totaled $111 million in 2004, compared with
an operating loss of $42 million in 2003.  Higher  margins on  construction
work,  driven  primarily  by  reduced  operating  costs,  was  the  primary
contributor  to the earnings  improvement.  Income also  increased from the
sale of hot-mix asphalt and  aggregates,  reflecting  improved  pricing and
margins as well as slightly  higher sales volumes in both areas.  Operating
efficiency  increased  as a  result  of  broad-based  business  improvement
programs  implemented  between 2002 and 2004,  and somewhat  better weather
conditions  for 2004  overall,  compared with the record levels of rainfall
experienced  in 2003.  APAC reversed  into income a $5 million  reserve for
liquidated  damages   established  in  2003  related  to  a  large  highway
construction project in Virginia.  Also contributing to 2004 earnings, APAC
sold a significant portion of its ready-mix concrete operations in the June
quarter,  realizing  proceeds net of selling  expenses of $38 million and a
pretax gain of $9 million.  Costs related to Project PASS,  APAC's  process
redesign initiative completed during 2004, amounted to $10 million in 2004,
compared with $20 million in 2003.

ASHLAND DISTRIBUTION

     Ashland Distribution  reported record operating income of $123 million
in 2005, a 58%  improvement  compared with $78 million in 2004.  During the
September  2005  quarter,   Ashland  Distribution   delivered  its  seventh
consecutive  quarter of record operating income and 16th consecutive record
sales month. Sales and operating revenues increased 19% compared with 2004,
reflecting  increased  selling prices,  as total volumes declined 1% due to
one less  shipping day and the  disposition  of the  ingestibles  business.
Adjusting for the  ingestibles  disposition,  sales volumes were up 1% on a
per day basis. Gross profit as a percent of sales increased slightly,  from
9.6% to 

                                    M-2


9.7%,  demonstrating  the division's  success in passing through rising raw
material  costs  and  by  aggressively  managing  expenses.   Environmental
remediation expenses increased $5 million compared to 2004.

     Ashland  Distribution  generated  operating  income of $78  million in
2004,  compared with $32 million in 2003. Sales increased 14% compared with
2003,  due to a 7%  increase  in unit  volumes and a 7% increase in selling
prices. Gross profit as a percent of sales declined slightly,  from 9.9% to
9.6%,  attributable primarily to lower margins within the chemicals product
category.  Selling,  general  and  administrative  expenses  declined  10%,
reflecting   cost-cutting  and  efficiency  improvements  achieved  through
Ashland's  Top-Quartile  Cost Structure  (TQCS) program that began in 2003.
Income in 2004 increased from all regions, both domestically and in Europe.

ASHLAND SPECIALTY CHEMICAL

     Operating income from Ashland Specialty Chemical increased to a record
$134  million in 2005, a 54%  improvement  compared to $87 million in 2004.
Sales and operating revenues increased 27%, while gross profit as a percent
of sales declined from 27.9% to 26.6%, as raw material costs escalated at a
faster  pace than could be  recovered  through  increased  selling  prices.
Revenues from the  performance  materials  businesses  (Casting  Solutions,
Composite  Polymers  and  Specialty  Polymers & Adhesives)  increased  33%,
reflecting higher selling prices and increased volumes resulting  primarily
from the December 2004  acquisition  of the  DERAKANE(R)  resins  business.
Revenues from the water  technologies  businesses (Drew Industrial and Drew
Marine) increased 9%, reflecting increased sales volumes.  Results for 2005
included  approximately $4 million in net,  non-recurring gains principally
related to the  termination of a product  supply  contract and a $7 million
pretax gain on the sale of an idle plant in Plaquemine,  Louisiana. Results
for 2004 included a $6 million  pretax gain on the sale of a parcel of land
and other  fixed  assets at the same  location.  Environmental  remediation
expenses were $5 million higher in 2005 compared to 2004.

     Operating  income from  Ashland  Specialty  Chemical  increased to $87
million  in  2004,  compared  to  $31  million  in  2003.  Sales  from  the
performance  materials businesses increased 17%, reflecting an 11% increase
in unit sales volumes and a 6% increase in selling prices.  The increase in
sales was partially  offset by a decline in gross profit  percentage due to
the inability to fully recover persistently rising raw materials costs. The
water  technologies  businesses  achieved higher income as a result of a 7%
increase in revenues.  Ashland Specialty  Chemical's  selling,  general and
administrative  expenses were reduced in 2004,  reflecting  cost reductions
achieved through Ashland's TQCS program. Adding to income in 2004, a parcel
of land  and  fixed  assets  in  Plaquemine,  Louisiana  were  sold for net
proceeds of $9 million,  resulting in a pretax gain of $6 million.  Results
for  2003  included  an  impairment  charge  of $10  million  for a  maleic
anhydride production facility,  as well as a charge of $5 million for staff
reductions under the TQCS program.

VALVOLINE

     Valvoline  reported  operating  income of $90  million in 2005,  a 14%
decline  compared  with the  record  $105  million  reported  in 2004.  The
reduction  in earnings  resulted  from an 8% decrease  in  lubricant  sales
volumes,  reflecting deep competitive discounting and a decline in the U.S.
branded lubricant market,  and rapidly rising raw material costs.  Earnings
from Valvoline  Instant Oil Change (VIOC)  decreased 16% due to the sale of
60 VIOC centers to Marathon in the MAP  Transaction on June 30, 2005, and a
decrease in the number of oil changes. Partially offsetting these decreases
were  record  results  from  Valvoline's  international  operations,  which
increased  38%  compared to 2004 on the  strength  of  improved  results in
Europe  and Latin  America.  At  September  30,  2005,  VIOC  operated  300
company-owned  service  centers,  compared  to 360  centers in 2004 and 357
centers in 2003. The VIOC franchising program continues to expand, with 473
centers open at September 30, 2005, compared to 397 centers in 2004 and 372
centers in 2003.

     Valvoline  generated  record operating income of $105 million in 2004,
compared with $87 million in 2003.  Lubricant  sales  volumes  decreased 1%
from 2003, but unit sales of  higher-margin  premium  lubricants  (MaxLife,
Durablend  and  SynPower)  increased  15%.  VIOC reported its third year of
record earnings due in part to a 3% increase in non-oil change revenues and
a 2% increase in premium oil changes,  contributing to a 6% increase in the
average  sale per  customer  visit.  Valvoline's  international  operations
posted  record  operating  income in 2004,  mostly due to a 6%  increase in
lubricant sales volumes and strengthening foreign currencies.

REFINING AND MARKETING

     Operating   income  from  Refining  and  Marketing,   which  consisted
primarily of equity income from  Ashland's  38%  ownership  interest in MAP
through June 30, 2005,  amounted to $486 million in 2005,  compared to $383
million in 2004. Equity income from MAP's refining and marketing operations
for the nine months  ended 


                                    M-3

June 30, 2005 was $114 million  higher than for all of 2004,  reflecting an
increase  of $1.47  per  barrel in its  refining  and  wholesale  marketing
margin.  Equity income from MAP's retail operations (Speedway  SuperAmerica
and a 50% interest in the Pilot Travel  Centers joint venture) for the nine
months  ended  June 30,  2005 was $4 million  higher  than for all of 2004,
reflecting   higher   merchandise   margins.   Equity   income  from  MAP's
transportation  operations  for the nine months  ended June 30, 2005 was $8
million  lower than for all of 2004,  reflecting  the three less  months of
operations  during Ashland's period of ownership.  Ashland's  environmental
remediation  expenses for former  refining and marketing  sites,  including
those conveyed to MAP for which Ashland retained  remediation  obligations,
amounted  to $23  million  in 2005,  versus  income of $6  million  in 2004
resulting from reductions in estimated reserves.

     Operating income from Refining and Marketing was $383 million in 2004,
compared to $263  million in 2003.  Equity  income from MAP's  refining and
marketing operations  increased $127 million,  reflecting an increase of 52
cents per barrel in its  refining and  wholesale  marketing  margin.  MAP's
refineries processed approximately 1.1 million barrels per day of crude oil
and other  feedstocks  during  2004,  an increase  of 5% from 2003.  Equity
income  from MAP's  retail  operations  declined  $6  million  due to an $8
million  gain on the sale of  Speedway  SuperAmerica's  southern  stores in
2003.

CORPORATE

     Corporate expenses were $135 million in 2005, $102 million in 2004 and
$105 million in 2003. The increase in 2005 reflected $20 million in charges
for estimated  future insurance  premiums due Oil Insurance  Limited (OIL),
the   energy-industry   mutual   insurance   consortium  in  which  Ashland
participates.  The  increase in future  premiums was the result of a higher
level of losses than  anticipated  for the members of OIL, due primarily to
the effects of hurricanes and tropical storms.  Ashland has given notice to
OIL that it will terminate its participation  effective  December 31, 2005,
and the increased  premiums will be payable upon withdrawal from OIL. These
estimates may change as additional  information  becomes  available and OIL
calculates the final withdrawal premium.  Also contributing to the increase
in corporate  expenses for 2005 was a $6 million  increase in environmental
remediation  expenses  primarily  related to former  businesses  other than
chemical and refining and marketing operations.  In addition,  accruals for
performance-based  employee  incentive plans and stock incentive plans were
$5 million  higher in 2005.  The  reduction in corporate  expenses for 2004
compared to 2003  reflected  an increase in 2004 of $16 million  related to
performance-based  employee  incentive plans, which was more than offset by
the  inclusion  in 2003 of $19 million in  severance  and other  transition
costs related to Ashland's TQCS and other cost reduction programs.

GAIN ON THE MAP TRANSACTION

     See  Note  D of  Notes  to  Consolidated  Financial  Statements  for a
discussion of the MAP Transaction  and the resulting  pretax gain of $1,284
million recorded in 2005.

LOSS ON EARLY RETIREMENT OF DEBT

     See  Note  D of  Notes  to  Consolidated  Financial  Statements  for a
discussion  of the  early  retirement  of  debt  associated  with  the  MAP
Transaction,  which  resulted in a pretax loss of $145 million  recorded in
2005.

NET INTEREST AND OTHER FINANCIAL COSTS

     The  following  table  summarizes  the  components of net interest and
other financial costs.

(In millions)                                   2005         2004         2003
-------------------------------------------------------------------------------
Net interest and other financial costs
Interest expense                            $     90     $    114     $    123
Expenses on sales of accounts receivable           4            3            3
Other financial costs                              3            3            3
Interest income                                  (15)          (6)          (1)
                                            ----------   ----------   ---------
                                            $     82     $    114     $    128
                                            ==========   ==========   =========

     Ashland's  long-term  debt declined from $1.8 billion at September 30,
2002 to $94 million at the end of fiscal 2005,  accounting  for a reduction
in interest  expense of $9 million in 2004 and an additional $24 million in
2005. As described in Note D of Notes to Consolidated Financial Statements,
Ashland  repaid most of its  outstanding  debt and certain other  financial
obligations  with the proceeds of the MAP  Transaction.  Interest and other
financial  costs of 


                                    M-4

$86 million in 2005 will not be incurred in future  periods  because of the
repayments. Interest income increased $5 million in 2004, with most of that
increase due to the recognition of interest  income  associated with income
tax refunds claimed for prior years.  Interest income  increased $9 million
in 2005,  primarily  reflecting  the  investment of remaining cash proceeds
from the MAP Transaction in the September 2005 quarter.

INCOME TAXES

     As described in Note D of Notes to Consolidated  Financial Statements,
Ashland's  income tax benefit for 2005  included a benefit of $335  million
associated  with  the MAP  Transaction,  resulting  from  the  reversal  of
deferred tax  liabilities.  Also as described in Note D, the pretax gain of
$1,284 million was non-taxable to Ashland. Ashland's income tax benefit for
2005 also  included  $39 million in tax  benefits  related to prior  years.
These  benefits  resulted  primarily from a favorable  settlement  with the
Internal  Revenue  Service  (IRS) for the  1996-1998  audit  period and the
reevaluation of income tax reserves related to other years.

     Ashland's  income tax  expense  for 2004  included  $48 million in tax
benefits  related  to  prior  years.   During  the  year,  Ashland  reached
resolution  with the IRS on several  open tax  matters  from  prior  years,
resulting  in a tax benefit of $33 million as a result of the  reduction of
amounts  previously  provided as contingent tax  liabilities.  In addition,
Ashland recognized federal income tax benefits  associated with a claim for
additional research and development tax credits valued at $15 million.

     Excluding these identified  items,  Ashland's  adjusted  effective tax
rate was 33.1% in 2005,  compared  to 36.1% in 2004 and 31.9% in 2003.  The
overall  effective  rate  was  lower  in 2003  than in 2004 and 2005 due to
Ashland's lower level of earnings in 2003 and the resulting larger relative
portion of those earnings  derived from income taxed at less than full U.S.
statutory rates.

DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES

     Results of Ashland's discontinued operations are summarized below. See
Note P of Notes to Consolidated  Financial Statements for an explanation of
these amounts.



(In millions)                                                      2005         2004         2003
--------------------------------------------------------------------------------------------------
                                                                                      
Income (loss) from discontinued operations (net of tax)
Asbestos-related litigation reserves and expenses             $      (1)   $     (18)  $     (109)
Electronic Chemicals
      Results of operations                                           -            -           14
      Gain (loss) on sale of operations                               -           (3)          81
Resolution of tax contingency issues                                  -            1            -
                                                              ----------   ----------  -----------
                                                              $      (1)   $     (20)  $      (14)
                                                              ==========   ==========  ===========


     As discussed in Note A of Notes to Consolidated  Financial Statements,
as of July 1, 2003,  Ashland  consolidated a lessor entity in its financial
statements under FIN 46, and doing so resulted in an after-tax charge of $5
million  to  adjust  the  depreciation  included  in the  cumulative  lease
payments to conform to Ashland's depreciation methods.

FINANCIAL POSITION

LIQUIDITY

     Cash flows from  operations,  a major source of  Ashland's  liquidity,
amounted to $37 million in 2005,  $209  million in 2004 and $242 million in
2003. Such amounts include cash  distributions  from MAP of $272 million in
2005, $146 million in 2004 and $197 million in 2003.  During 2005,  Ashland
paid income taxes of $299  million,  compared  with $84 million in 2004 and
$24 million in 2003. Ashland also contributed $121 million to its qualified
pension  plans in 2005,  compared with $137 million in 2004 and $61 million
in  2003.  Reflected  in  cash  flows  from  operations  for  2005  was the
repurchase  of $150 million of accounts  receivable  previously  sold under
Ashland's sale of receivables  facility.  Cash flows from operations during
2005 were supplemented by $3.3 billion in proceeds from the MAP Transaction
and $115 million in proceeds  from the  issuance of common stock  resulting
from stock option  exercises.  Cash flows from operations  during 2004 were
supplemented  by $108 million in proceeds from the issuance of common stock
resulting from stock option exercises, as well as $48 million from the sale
of certain APAC  operations.  After using a portion of the MAP  Transaction
proceeds  to  retire  most  of  its  debt  and  certain   other   financial
obligations,  Ashland  had $1.4  billion  of  cash,  cash  equivalents  and
available-for-sale securities at September 30, 2005.


                                    M-5

     Ashland's  financial position has enabled it to obtain capital for its
financing needs.  Following  shareholder approval of the MAP Transaction in
June 2005,  Moody's lowered  Ashland's senior debt rating from Baa2 to Ba1,
their  highest  non-investment  grade  rating,  and also lowered  Ashland's
commercial paper rating from P-3 to N-P (Not-Prime), citing the annual cash
flow lost from the operations  sold. In September  2005,  Standard & Poor's
lowered  Ashland's  senior  debt  rating  from  BBB  to  BBB-,  its  lowest
investment grade rating, and lowered Ashland's commercial paper rating from
A-2 to A-3. Ratings  downgrades  below  investment grade can  significantly
increase a  company's  borrowing  costs.  Ashland  has a  revolving  credit
agreement  that  expires on March 21, 2010,  which  provides for up to $350
million in  borrowings.  The  borrowing  capacity  under this  facility was
reduced by $102 million of letters of credit  outstanding  at September 30,
2005. While the revolving credit agreement contains a covenant limiting new
borrowings  based on Ashland's  stockholders'  equity,  the agreement would
have  permitted an  additional  $5.5 billion of borrowings at September 30,
2005. Additional  permissible  borrowings are increased (decreased) by 150%
of any increase (decrease) in stockholders' equity.

     At September 30, 2005,  working capital (excluding debt due within one
year)  amounted to $2,224  million,  compared to $926 million at the end of
2004.  Ashland's  working capital is affected by its use of the LIFO method
of  inventory  valuation.   That  method  valued  inventories  below  their
replacement  costs by $126 million at September 30, 2005 and $95 million at
September   30,   2004.    Liquid   assets   (cash,    cash    equivalents,
available-for-sale  securities and accounts receivable) amounted to 193% of
current  liabilities  at September 30, 2005,  compared to 84% at the end of
2004.  These  increases  reflect the cash proceeds from the MAP Transaction
net of debt repayments.

CAPITAL RESOURCES

     On July 21, 2005, Ashland's Board of Directors authorized the purchase
of $270  million  of  Ashland  common  stock  in the open  market.  Through
September 30, 2005, Ashland had repurchased 1.8 million shares at a cost of
$100 million.

     Property  additions  amounted  to $702  million  during the last three
years and are  summarized in the  Information  by Industry  Segment on page
F-31.  Property  additions  included  buyouts of  operating  leases of $101
million in 2005 and $33  million in 2004.  For the past three  years,  APAC
accounted  for  46%  of  Ashland's  capital  expenditures,   while  Ashland
Specialty  Chemical  accounted  for 23% and  Valvoline  accounted  for 16%.
Capital  used for  acquisitions  amounted to $166  million  during the last
three  years,  of which $31  million was  invested in APAC,  $16 million in
Ashland  Distribution,  $91 million in Ashland  Specialty  Chemical and $28
million  in  Valvoline.  A summary of the  capital  employed  in  Ashland's
operations  follows.  The  decrease in capital  employed  in  Refining  and
Marketing in 2005 reflects the MAP Transaction.


(In millions)                                 2005         2004         2003
-----------------------------------------------------------------------------
Capital employed
  APAC                                   $   1,133    $     959    $   1,014
  Ashland Distribution                         513          449          418
  Ashland Specialty Chemical                   612          490          438
  Valvoline                                    483          388          399
  Refining and Marketing                      (107)       2,053        1,866

     During 2005,  Ashland  reduced its total debt by $1,454 million to $94
million  and  stockholders'  equity  increased  by $1,033  million  to $3.7
billion,  both  primarily  as a result  of the MAP  Transaction.  Increases
resulting from $2,004 million of net income,  $156 million from issuance of
common  shares under stock  incentive  and other plans,  and $19 million of
translation gains associated with foreign  operations were partially offset
by the  distribution  of Marathon  shares from the MAP  Transaction of $936
million,  common stock  repurchases of $100 million,  cash dividends of $79
million,  a $30 million  increase in the minimum  pension  liability and $1
million  in  unrealized  losses on cash flow  hedges.  Debt as a percent of
capital  employed  was  reduced  from  36.4%  at the end of 2004 to 2.5% at
September 30, 2005.

     During 2006,  Ashland  expects capital  expenditures of  approximately
$300  million  compared  with $380  million in 2005.  The decline  reflects
decreases for APAC and  Valvoline,  which included most of the $101 million
in lease  buyouts in 2005,  and  increases  for  Ashland  Distribution  and
Ashland  Specialty  Chemical.  In 2004,  Ashland initiated a multi-year SAP
enterprise   resource  planning  (ERP)  project  that  is  expected  to  be
implemented   world-wide  across  Ashland's   Chemical  Sector  to  achieve
increased  efficiency and  effectiveness  in supply chain,  financial,  and
environmental,  health and safety processes. Overall costs for this project
through 2007 are  expected to total  approximately  $90  million,  of which
approximately  $80 million will be  capitalized,  including  $25 million of


                                    M-6

capitalized costs expected to be spent in 2006. While extensive planning is
underway  to  support  a  smooth  implementation  of the ERP  system,  such
implementations carry substantial project risk, including the potential for
business interruption and associated adverse impacts on operating results.

     The following table  aggregates  Ashland's  commitments to make future
payments under existing  contracts at September 30, 2005.  Contractual cash
obligations  for which the  ultimate  settlement  amounts are not fixed and
determinable have been excluded.



                                                                                 2007-        2009-      Later
(In millions)                                          Total         2006        2008         2010       Years
----------------------------------------------------------------------------------------------------------------
                                                                                             
Contractual obligations
Obligations to construction subcontractors         $     583   $      525   $      58    $       -    $       -
Raw material purchase obligations                        183           76          82           21            4
Employee benefit obligations (a)                         459          177          64           62          156
Operating lease obligations                              246           50          77           47           72
Long-term debt (b)                                       135           19          28           32           56
                                                   ----------  -----------  ----------   ----------   ----------
Total contractual obligations                      $   1,606   $      847   $     309    $     162    $     288
                                                   ==========  ===========  ==========   ==========   ==========



(a)  Includes  estimated  funding of Ashland's  qualified U.S. and non-U.S.
     pension plans for 2006, as well as projected  benefit payments through
     2015   under   Ashland's   nonqualified   pension   plans   and  other
     postretirement  benefit  plans.  See Note Q of  Notes to  Consolidated
     Financial Statements for additional information.
(b)  Includes   principal   and  interest   payments.   Capitalized   lease
     obligations are not significant and are included in long-term debt.

OFF-BALANCE SHEET ARRANGEMENTS

     Ashland and its subsidiaries are lessees of office  buildings,  retail
outlets, transportation and off-road construction equipment, warehouses and
storage  facilities,  and other equipment,  facilities and properties under
leasing  agreements  that  expire  at  various  dates.   Capitalized  lease
obligations are not significant and are included in long-term debt.

     In June 2005,  Ashland used $101 million of the proceeds  from the MAP
Transaction to purchase assets (primarily APAC  construction  equipment and
VIOC stores) formerly leased under operating leases.  Future minimum rental
payments were not affected by this purchase.

     On March 15, 2000, Ashland entered into a five-year agreement to sell,
on an ongoing basis with limited  recourse,  up to a $200 million undivided
interest in a designated  pool of accounts  receivable.  Under the terms of
the  agreement,  new  receivables  were  added to the pool and  collections
reduced the pool.  Ashland retained a credit interest in these  receivables
and addressed  its risk of loss on this retained  interest in its allowance
for doubtful  accounts.  Receivables  sold excluded  defaulted  accounts or
concentrations  over  certain  limits with any one  customer.  On March 15,
2005, this agreement was extended for a period of one year and the capacity
was increased to $250 million.  The agreement was  terminated by Ashland on
July 27, 2005.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

     The  preparation  of  Ashland's   consolidated   financial  statements
requires  management  to make  estimates  and  assumptions  that affect the
reported  amounts of assets,  liabilities,  revenues and expenses,  and the
disclosures of contingent  assets and liabilities.  Significant  items that
are subject to such estimates and assumptions  include  long-lived  assets,
employee  benefit  obligations,   income  taxes,  reserves  and  associated
receivables for asbestos litigation,  environmental remediation, and income
recognized  under  construction  contracts.  Although  management bases its
estimates on historical  experience and various other  assumptions that are
believed to be reasonable  under the  circumstances,  actual  results could
differ  significantly  from the estimates  under  different  assumptions or
conditions.  Management  has reviewed the estimates  affecting  these items
with the Audit Committee of Ashland's Board of Directors.

LONG-LIVED ASSETS

     The cost of plant and equipment is  depreciated  by the  straight-line
method over the  estimated  useful  lives of the assets.  Useful  lives are
based on  historical  experience  and are adjusted  when changes in planned
use,  technological  advances or other  factors show that a different  life
would  be more  appropriate.  Such  costs  are  periodically  reviewed  for
recoverability  when  impairment  indicators are present.  Such  indicators
include,  among other factors,  operating


                                    M-7

losses,   unused   capacity,   market  value  declines  and   technological
obsolescence. Recorded values of property, plant and equipment that are not
expected to be  recovered  through  undiscounted  future net cash flows are
written down to current fair value,  which  generally  is  determined  from
estimated  discounted  future net cash flows  (assets  held for use) or net
realizable value (assets held for sale). During 2003, Ashland recognized an
impairment charge of $10 million for a maleic anhydride production facility
that is shut  down and not  likely to reopen  based on  internal  analyses.
Although  circumstances can change  considerably over time,  Ashland is not
aware of any impairment  indicators that would necessitate periodic reviews
on any significant asset within property,  plant and equipment at September
30, 2005.

     Intangible   assets  with  indefinite  lives  are  subject  to  annual
impairment tests.  Such tests are completed  separately with respect to the
goodwill  of  each  of  Ashland's  reporting  units,  which  generally  are
synonymous with its industry segments.  However,  the individual  operating
divisions of Ashland Specialty Chemical are also considered reporting units
under FAS 142.  Since market  prices of Ashland's  reporting  units are not
readily  available,  management makes various  estimates and assumptions in
determining the estimated fair values of those units. Fair values are based
principally on EBITDA (earnings before  interest,  taxes,  depreciation and
amortization) multiples of peer group companies for each of these reporting
units.  Ashland recognized  impairment charges of $9 million in 2003 and $2
million in 2004 for goodwill  associated with  non-strategic  businesses of
APAC identified for sale. Ashland did not recognize any goodwill impairment
during 2005.  The most recent annual  impairment  tests  indicated that the
fair values of each of Ashland's reporting units with significant  goodwill
were  in  excess  of  their  carrying  values  by at  least  17%,  and  the
consolidated fair values exceeded carrying values by more than 30%. Despite
that  excess,  however,  impairment  charges  could  still be required if a
divestiture  decision  were  made with  respect  to a  particular  business
included in one of the reporting units.

EMPLOYEE BENEFIT OBLIGATIONS

     Ashland and its subsidiaries  sponsor contributory and noncontributory
qualified  and  non-qualified  defined  benefit  pension  plans  that cover
substantially  all  employees in the United States and in a number of other
countries.  Benefits  under these plans  generally  are based on employees'
years of service and compensation  during the years  immediately  preceding
their  retirement.   In  addition,  the  companies  also  sponsor  unfunded
postretirement  benefit plans, which provide health care and life insurance
benefits  for  eligible  employees  who  retire  or are  disabled.  Retiree
contributions to Ashland's health care plans are adjusted periodically, and
the plans contain other  cost-sharing  features,  such as  deductibles  and
coinsurance. Life insurance plans generally are noncontributory.

     As of September 30, 2005,  Ashland  revised certain of its demographic
assumptions used to determine its pension and other postretirement  benefit
costs.  The  mortality  assumption  was changed from the 1983 Group Annuity
Mortality  Table for Males (set back six years for  females)  to the RP2000
Table for Healthy Lives in order to reflect  longer life  expectancies.  In
addition, the turnover assumption was changed to rates based on actual plan
experience  for  the  years  1996  through  2000.  The  previous   turnover
assumption was based on actual plan experience  through 1990. These changes
are effective as of September 30, 2005 for disclosure purposes and for 2006
expense.  Current retirement rates based on actual plan experience were not
revised.  The  assumption  study  recently  performed  indicated  that  the
assumption was appropriate.

     The principal economic assumptions used to determine Ashland's pension
and other  postretirement  benefit costs are the discount rate, the rate of
compensation  increase  and the expected  long-term  rate of return on plan
assets.  Because  Ashland's  retiree health care plans contain various caps
that  limit  Ashland's  contributions  and  because  medical  inflation  is
expected to  continue  at a rate in excess of these caps for the  immediate
future, the health care cost trend rate has no material impact on Ashland's
postretirement health care benefit costs.

     Beginning September 30, 2005, Ashland developed the discount rate used
to determine the present value of its  obligations  under the U.S.  pension
and postretirement  health and life plans by matching the stream of benefit
payments from the plans to the Citigroup Pension Discount Curve Spot Rates.
Ashland  changed to this approach to better reflect the specific cash flows
of these  plans  in  determining  the  discount  rate.  The  discount  rate
determined  as of September  30, 2005 was 5.48% for the U.S.  pension plans
and 5.33% for the postretirement  health and life plans.  Non-U.S.  pension
plans  followed  a similar  process  based on  financial  markets  in those
countries   where  Ashland   provides  a  defined   benefit  pension  plan.
Previously,  the  discount  rate for U.S.  pension  plans  was based on the
Moody's Aa  Corporate  Bond Index,  adjusted  for longer  durations  of the
pension  plans as compared to the shorter  duration of the index,  and also
adjusted  to  convert  the  semi-annual  coupons  in the index to an annual
discount rate.  This adjusted rate was then rounded to the nearest 25 basis
points, which resulted in a discount rate of 6.0% as of September 30, 2004.
Ashland's  expense under these plans is determined  using the discount rate
as of the beginning of the fiscal year, which amounted to 6.0% for 2005 for
the pension  plans,  6.0% for the first seven months of the fiscal year for
the  postretirement  health plans and 5.5% for the final five months of the
fiscal  year as a result of the 


                                    M-8

May 1, 2005 remeasurement reflecting the amendment to the prescription drug
benefit  of  the  health  care  plans  for   retirees   age  65  or  older.
Historically,  the discount  rates used for expense were 6.25% for 2004 and
6.75% for 2003.  The 2006 expense for the pension  plans will be based on a
discount  rate of 5.48%,  while  5.33% will be used for the  postretirement
health and life plans.

     The rate of compensation increase assumptions were 4.5% for 2005, 4.5%
for 2004 and 5.0% for 2003. The long-term expected rate of return on assets
was assumed to be 8.5% in 2005,  8.5% in 2004 and 9.0% in 2003.  The return
on plan assets is subject to wide  year-to-year  variances.  For 2005,  the
pension plan assets generated an actual return of 14.0%,  compared to 11.8%
in 2004 and 19.1% in 2003.  However,  the expected return on plan assets is
designed to be a long-term  assumption,  and actual returns will be subject
to considerable  year-to-year  variances.  Ashland has generated compounded
annual investment  returns of 5.3% and 8.2% on its pension plan assets over
the last  five-year  and ten-year  periods.  Shown below are the  estimated
increases in pension and  postretirement  expense that would have  resulted
from a 1%  change  in each of the  assumptions  for each of the last  three
years.



(In millions)                                                  2005         2004         2003
----------------------------------------------------------------------------------------------
                                                                                 
Increase in pensions costs from
  Decrease in the discount rate                           $      22    $      21    $      20
  Increase in the salary adjustment rate                          9            9            9
  Decrease in the expected return on plan assets                  9            7            6
Increase in other postretirement costs from
  Decrease in the discount rate                                   2            2            2


INCOME TAXES

     Ashland is subject to income  taxes in the United  States and numerous
foreign  jurisdictions.  Significant  judgment is  required in  determining
Ashland's   provision   for  income  taxes  and  the  related   assets  and
liabilities.  In the ordinary course of Ashland's business,  there are many
transactions  and  calculations  where the  ultimate tax  determination  is
uncertain.  Ashland is regularly under audit by tax  authorities.  Accruals
for tax  contingencies are provided for in accordance with the requirements
of FASB Statement No. 5, "Accounting for Contingencies."

     Although Ashland believes it has appropriate support for the positions
taken on tax  returns,  a  liability  has  been  recorded  that  represents
Ashland's best estimate of the probable loss on certain of these positions.
Ashland  believes that the recorded  accruals for all known tax liabilities
are adequate for all open years,  based on the  assessment  of many factors
including  past  experience and  interpretations  of tax law applied to the
facts of each matter.  Although  Ashland  believes the recorded  assets and
liabilities are reasonable,  tax regulations are subject to  interpretation
and  tax   litigation  is  inherently   uncertain.   Therefore,   Ashland's
assessments  can involve  both a series of complex  judgments  about future
events and rely  heavily on estimates  and  assumptions.  Although  Ashland
believes that the estimates and assumptions  supporting its assessments are
reasonable,   the  final  determination  of  tax  audits  and  any  related
litigation  could be materially  different  than that which is reflected in
historical income tax provisions and recorded assets and liabilities. Based
on the results of an audit or  litigation,  a material  effect on Ashland's
income tax provision,  net income, or cash flows could result in the period
such a determination  is made. Due to the complexity  involved,  Ashland is
not able to estimate the range of reasonably  possible  losses in excess of
amounts recorded.

ASBESTOS-RELATED LITIGATION

     Ashland is subject to liabilities from claims alleging personal injury
caused  by  exposure  to  asbestos.   Such  claims  result  primarily  from
indemnification  obligations undertaken in 1990 in connection with the sale
of Riley Stoker Corporation  (Riley),  a former subsidiary.  Although Riley
was neither a producer  nor a  manufacturer  of  asbestos,  its  industrial
boilers  contained some  asbestos-containing  components  provided by other
companies.

     During the December  2002 quarter,  Ashland  increased its reserve for
asbestos  claims by $390 million to cover the litigation  defense and claim
settlement  costs for probable and  reasonably  estimable  future  payments
related to existing  open claims,  as well as an estimate of those that may
be filed in the future.  Prior to December 31, 2002,  the asbestos  reserve
was based on the estimated  costs that would be incurred to settle existing
open claims.  A range of estimates  of future  asbestos  claims and related
costs using  various  assumptions  was  developed  with the  assistance  of
Hamilton, Rabinovitz & Alschuler, Inc. (HR&A). The methodology used by HR&A
to project  future  asbestos  costs was based  largely on Ashland's  recent
experience,  including claim-filing and settlement rates, disease mix, open
claims, and litigation defense and claim settlement costs.  Ashland's claim
experience   was   compared   to  the  results  of   previously   conducted
epidemiological  studies  estimating the number of people likely to develop
asbestos-related 


                                    M-9

diseases.  Those  studies  were  undertaken  in  connection  with  national
analyses of the population expected to have been exposed to asbestos. Using
that  information,  HR&A  estimated a range of the number of future  claims
that may be filed,  as well as the  related  costs that may be  incurred in
resolving those claims.

     From the range of estimates,  Ashland  recorded the amount it believed
to be the best  estimate,  which  represented  the  expected  payments  for
litigation  defense and claim  settlement  costs during the next ten years.
Subsequent  updates to this estimate have been made, with the assistance of
HR&A,  based on a combination  of a number of factors  including the actual
volume  of new  claims,  recent  settlement  costs,  changes  in the mix of
alleged  disease,   enacted  legislative  changes  and  other  developments
impacting  Ashland's  estimate of future  payments.  Ashland's  reserve for
asbestos  claims on an  undiscounted  basis  amounted  to $571  million  at
September 30, 2005, compared to $618 million at September 30, 2004.

     Projecting future asbestos costs is subject to numerous variables that
are  extremely  difficult  to  predict.  In  addition  to  the  significant
uncertainties  surrounding  the number of claims  that  might be  received,
other  variables  include the type and  severity of the disease  alleged by
each claimant,  the long latency period associated with asbestos  exposure,
dismissal rates,  costs  of medical  treatment,  the impact of bankruptcies
of  other   companies  that  are  co-defendants  in  claims,  uncertainties
surrounding the litigation  process from  jurisdiction to jurisdiction  and
from case to case,  and the impact of potential  changes in  legislative or
judicial  standards.  Furthermore,  any  predictions  with respect to these
variables are subject to even greater  uncertainty as the projection period
lengthens. In light of these inherent  uncertainties,  Ashland believes its
asbestos  reserve  represents the best estimate  within a range of possible
outcomes. As a part of the process to develop Ashland's estimates of future
asbestos  costs, a range of long-term cost models is developed that assumes
a run-out  of claims  through  2056.  These  models  are based on  national
studies   that   predict   the   number   of  people   likely  to   develop
asbestos-related   diseases  and  are  heavily  influenced  by  assumptions
regarding  long-term  inflation  rates  for  indemnity  payments  and legal
defense costs, as well as other variables mentioned  previously.  The total
future  litigation  defense and claim  settlement  costs on an undiscounted
basis has been estimated within a reasonably possible range of $400 million
to $1.9  billion,  depending  on the number of years those costs extend and
other combinations of assumptions  selected.  If actual experience is worse
than  projected  relative to the number of claims  filed,  the  severity of
alleged  disease  associated with those claims or costs incurred to resolve
those  claims,  Ashland may need to increase  further the  estimates of the
costs associated with asbestos claims and these increases could potentially
be material over time.

     Ashland has insurance  coverage for most of the litigation defense and
claim settlement costs incurred in connection with its asbestos claims, and
coverage-in-place  agreements  exist  with  the  insurance  companies  that
provide  substantially all of the coverage  currently being accessed.  As a
result,  increases  in the asbestos  reserve  have been  largely  offset by
probable insurance  recoveries.  The amounts not recoverable  generally are
due from insurers that are insolvent,  rather than as a result of uninsured
claims or the exhaustion of Ashland's insurance coverage.

     Ashland retained the services of  Tillinghast-Towers  Perrin to assist
management  in  estimating  the  value  of  reasonably  possible  insurance
recoveries  associated with Ashland's estimate of its asbestos liabilities.
Such  recoveries  are  based  on  management's  assumptions  and  estimates
surrounding  the  available  or  applicable  insurance  coverage.  One such
assumption is that all solvent insurance carriers remain solvent.  Although
coverage  limits  are  resolved  in the  coverage-in-place  agreement  with
Equitas Limited  (Equitas) and other London companies,  which  collectively
provide a significant  portion of Ashland's insurance coverage for asbestos
claims,  there is a  disagreement  with these  companies over the timing of
recoveries.  The  resolution  of this  disagreement  could  have a material
effect  on the value of  insurance  recoveries  from  those  companies.  In
estimating  the  value of  future  recoveries,  Ashland  has used the least
favorable  interpretation  of  this  agreement  under  which  the  ultimate
recoveries are extended for many years, resulting in a significant discount
being  applied to value those  recoveries.  Ashland will  continue to apply
this methodology  until such time as the disagreement is resolved.  On July
21, 2004,  Ashland  filed a demand for  arbitration  to resolve the dispute
concerning the interpretation of this agreement.

     At  September  30,  2005,   Ashland's  receivable  for  recoveries  of
litigation defense and claim settlement costs from its insurers amounted to
$400  million,  of which $64  million  relates  to costs  previously  paid.
Receivables from insurance  companies amounted to $435 million at September
30, 2004.  Approximately  40% of the estimated  receivables  from insurance
companies  at  September  30, 2005 are  expected to be due from Equitas and
other London companies. Of the remainder,  approximately 90% is expected to
come from companies or groups that are rated A or higher by A. M. Best.

ENVIRONMENTAL REMEDIATION

     Ashland is subject to various federal,  state and local  environmental
laws and regulations that require  environmental  assessment or remediation
efforts (collectively  environmental remediation) at multiple locations. At


                                   M-10

September 30, 2005, such locations included 102 waste treatment or disposal
sites where Ashland has been identified as a potentially  responsible party
under  Superfund  or similar  state laws,  94 current and former  operating
facilities  (including  certain operating  facilities  conveyed to MAP) and
about 1,220 service  station  properties,  of which 214 are being  actively
remediated.  Ashland's reserves for environmental  remediation  amounted to
$178 million at September  30, 2005 and $152 million at September 30, 2004,
of which $145 million at  September  30, 2005 and $119 million at September
30, 2004 were  classified in  noncurrent  liabilities  on the  Consolidated
Balance Sheets.  The total reserves for environmental  remediation  reflect
Ashland's  estimates of the most likely costs that will be incurred over an
extended period to remediate identified  conditions for which the costs are
reasonably  estimable,   without  regard  to  any  third-party  recoveries.
Engineering  studies,  probability  techniques,  historical  experience and
other  factors are used to identify and evaluate  remediation  alternatives
and  their  related  costs  in  determining  the  estimated   reserves  for
environmental remediation.

     Environmental  remediation  reserves are subject to numerous  inherent
uncertainties  that affect  Ashland's  ability to estimate its share of the
costs. Such uncertainties involve the nature and extent of contamination at
each  site,  the  extent  of  required   cleanup   efforts  under  existing
environmental  regulations,  widely  varying  costs  of  alternate  cleanup
methods,  changes in  environmental  regulations,  the potential  effect of
continuing  improvements  in  remediation  technology,  and the  number and
financial strength of other potentially  responsible  parties at multiparty
sites. Ashland regularly adjusts its reserves as environmental  remediation
continues.  Environmental  remediation  expense  amounted to $47 million in
2005, $2 million in 2004 and $22 million in 2003.

     No  individual  remediation  location  is  material  to Ashland as its
largest reserve for any site is less than 10% of the  remediation  reserve.
As a result, Ashland's exposure to adverse developments with respect to any
individual  site is not  expected  to be  material,  and these sites are in
various stages of ongoing remediation.  Although environmental  remediation
could  have a  material  effect on  results  of  operations  if a series of
adverse developments occurs in a particular quarter or fiscal year, Ashland
believes that the chance of such developments occurring in the same quarter
or fiscal year is remote.

CONSTRUCTION CONTRACTS

     Income related to  construction  contracts  generally is recognized by
the   units-of-production   method,   which   is   a   variation   of   the
percentage-of-completion method. Construction jobs by their very nature are
subject to numerous risks that could create  variances  from  expectations.
Such risks include changes in raw material and other costs, adverse weather
conditions and the performance of subcontractors and other entities. Income
is only certain after a job is completed,  and the extent of completion can
be difficult to assess in certain circumstances.

     The extent of completion  for each  production  phase is determined by
reference to material quantities,  labor hours,  subcontract costs or other
factors that are believed to be most  indicative of the progress made under
each phase of a project.  Revenues  earned are computed by reference to the
contract or detailed  analyses of revenues and expenses by production phase
that  supported the related  construction  contract or bid proposal.  These
detailed   analyses  also  serve  as  early  indicators  as  to  whether  a
construction   contract  may   ultimately  be  completed  at  a  loss.  Any
anticipated losses on such contracts are charged against operations as soon
as such  losses are  determined  to be  probable  and  estimable.  In 2003,
reserves of $14 million were  established for job losses related to a large
highway construction project in Virginia,  reflecting  weather-related cost
increases and construction delays resulting from record levels of rainfall.
In 2004,  $5 million of that  reserve,  which was the amount  that had been
provided for potential liquidated damages, was reversed into income when it
was determined that those damages would not apply.

     Assumptions concerning the extent of completion can have a significant
effect on the income  recognized on an individual  construction  project in
any  period.  However,  the  effects of  individual  assumptions  on APAC's
reported results are mitigated to some extent by the significant  number of
jobs in various stages of completion at any point in time.

OUTLOOK

     Ashland  has four  primary  goals in fiscal  2006:  to  integrate  the
Chemical  Sector,   to  improve  the  performance  of  the   Transportation
Construction  Sector,  to employ the proceeds from the MAP Transaction in a
value-creating manner and to generate cash flow.

     To  achieve  sustained   profitable  growth,   Ashland  must  leverage
efficiencies  throughout  its chemical  businesses  and across its range of
customers and suppliers.  Therefore, Ashland's supply chain must be global,
highly   adaptive  and   technology-enabled.   In  October  2005,   Ashland
successfully  launched the first phase of its enterprise  resource planning
system, GlobalOne, in Canada. GlobalOne is intended to provide the Chemical
Sector with uniformity,  


                                   M-11

transparency  and  leverage  across  the  supply  chain,  thereby  reducing
administrative and transit costs and working capital. Most important,  this
common system should enable seamless, efficient and effective processing of
customer  orders  for  any  Chemical  Sector  product.   The  objective  of
GlobalOne's  implementation  is to provide superior  customer service while
increasing   efficiencies   in  purchasing,   manufacturing   and  delivery
processes.

     To be successful, APAC must achieve operational excellence in both the
construction   services  and  construction   materials  components  of  its
business.  The  ability to schedule  properly,  manage  project  costs from
initiation  to completion  and optimize the use of material,  equipment and
personnel will drive construction services profits. In addition,  APAC must
manage its asphalt and aggregate plants more efficiently and achieve higher
production levels.  Finally,  APAC is carefully analyzing the profitability
of each of its markets and assessing  their future  potential.  The primary
objective is to grow APAC's bottom line,  even if this results in a smaller
construction business.

     At September 30, 2005, APAC's backlog of work awarded and funded,  but
not yet  performed,  totaled  $2.0  billion,  17% ahead of 2004.  The Major
Projects  Group  won  three  significant  projects  in  2005,  representing
approximately  9% of the total backlog.  A hedging program was initiated in
March 2005, partially protecting APAC's backlog against escalating gasoline
and  diesel  fuel  costs on a  go-forward  basis.  Steps have been taken to
establish  consistent,  effective  processes  that  should  make  APAC more
efficient.

     Key  improvement  areas  have  been  identified  for  APAC.  Focus  is
increasing  on selling  aggregates  and hot-mix  asphalt to third  parties.
Also,  when these  construction  materials are used in APAC's  construction
jobs,  the focus is on capturing  their  market  value in the  construction
bids.  Finally,  APAC is reflecting rising energy and raw material costs in
its  pricing  models.  Ultimately,  in a  business  driven by being the low
bidder, APAC must be operationally  excellent to keep projects on track and
finish  on time -  safely,  under  budget  and with  high  quality  for its
customers.

     The MAP Transaction put Ashland in a solid  financial  position.  With
the proceeds,  most of Ashland's debt was retired creating a strong balance
sheet.  Ashland is now carefully  considering  opportunities  to deploy the
proceeds in value-creating ways. As acquisitions are considered,  teams are
identifying  different markets,  channels and customers - all with the goal
of strengthening Ashland's core businesses, leveraging its capabilities and
achieving its financial objectives.  Ashland is looking beyond U.S. borders
to emerging growth markets.

     An important  determinant of the value of a business is its ability to
generate cash flow over time.  Ashland's goal is to drive  sustainable cash
flow from its portfolio  across an economic cycle. The goal will be pursued
by driving profit growth from Ashland's businesses and improving efficiency
from its capital assets.

     Ashland's  sales  and  operating  revenues  are  normally  subject  to
seasonal  variations.  Although  APAC  normally  enjoys a  relatively  long
construction  season,  most of its operating income is generated during the
construction  period of May through  October.  The following table compares
operating  income by quarter for the three years ended  September 30, 2005,
excluding Refining and Marketing  operations,  to illustrate the historical
seasonality of Ashland's  remaining four wholly-owned  businesses.  Amounts
for each  quarter do not  necessarily  total to results for the year due to
rounding.

(In millions)                                2005         2004         2003
----------------------------------------------------------------------------
Quarterly operating income (loss)
December 31                             $      44    $      66    $       8
March 31                                       25            8          (45)
June 30                                       120           87           38
September 30                                   70          117            1


EFFECTS OF INFLATION AND CHANGING PRICES

     Ashland's  financial  statements are prepared on the  historical  cost
method of  accounting  and,  as a result,  do not  reflect  changes  in the
purchasing power of the U.S.  dollar.  Although annual inflation rates have
been low in recent  years,  Ashland's  results  are still  affected  by the
cumulative inflationary trend from prior years.

     Certain   of  the   industries   in   which   Ashland   operates   are
capital-intensive,  and  replacement  costs  for its  plant  and  equipment
generally would exceed their historical costs.  Accordingly,  depreciation,
depletion  and  amortization  expense  would be greater if it were based on
current  replacement  costs.  However,  since replacement  facilities would
reflect technological improvements and changes in business strategies, such
facilities   would  be  expected  to  be  more   productive  than  existing
facilities, mitigating part of the increased expense.


                                   M-12

     Ashland  uses the LIFO  method to value a  substantial  portion of its
inventories  to provide a better  matching of revenues with current  costs.
However, LIFO values such inventories below their replacement costs.

     Monetary  assets  (such  as  cash,   cash   equivalents  and  accounts
receivable) lose purchasing power as a result of inflation,  while monetary
liabilities (such as accounts payable and  indebtedness)  result in a gain,
because they can be settled with dollars of  diminished  purchasing  power.
Ashland's monetary assets now exceed its monetary  liabilities,  leaving it
more exposed to the effects of future inflation than in the past, when that
relationship was reversed.

FORWARD-LOOKING STATEMENTS

     Management's  Discussion and Analysis (MD&A) 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 MD&A. 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 Risks and  Uncertainties  in Note A of
Notes to  Consolidated  Financial  Statements and in Item 1A of this annual
report on Form 10-K.  Ashland  undertakes  no  obligation  to  subsequently
update or revise these forward-looking statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Ashland   regularly  uses   commodity-based   and  foreign   currency
derivative  instruments  to  manage  its  exposure  to  price  fluctuations
associated  with the  purchase  of  diesel  fuel and  gasoline,  as well as
certain  transactions  denominated  in foreign  currencies.  All derivative
instruments  are  recognized as either assets or liabilities on the balance
sheet and are  measured  at fair  value.  Changes  in the fair value of all
derivatives  are  recognized  immediately  in income unless the  derivative
qualifies  as a hedge of future cash flows.  Gains and losses  related to a
hedge are either  recognized  in income  immediately  to offset the gain or
loss on the hedged  item,  or deferred  and  recorded in the  stockholders'
equity  section of the  Consolidated  Balance Sheet as a component of total
comprehensive  income and  subsequently  recognized  in net income when the
hedged item affects net income.  The  ineffective  portion of the change in
fair value of a hedge is  recognized  in income  immediately.  Ashland  has
designated  a  limited  portion  of its  foreign  currency  derivatives  as
qualifying  for  hedge  accounting  treatment,  but  their  impact  on  the
consolidated  financial  statements is not significant.  Credit risks arise
from the possible  inability of  counterparties  to meet the terms of their
contracts,  but  exposure  is  limited  to  the  replacement  value  of the
contracts.  Ashland  further  minimizes  this credit risk through  internal
monitoring   procedures  and  as  of  September  30,  2005  does  not  have
significant  credit risk on open derivative  contracts.  The potential loss
from a  hypothetical  10%  adverse  change in  commodity  prices or foreign
currency  rates on  Ashland's  open  commodity-based  and foreign  currency
derivative instruments at September 30, 2005 would not significantly affect
Ashland's  consolidated  financial  position,  results of operations,  cash
flows or liquidity.


                                   M-13

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE



                                                                                 PAGE
                                                                            ----------
                                                                         
Management's report on internal control over financial reporting .........        F-2
Reports of independent registered public accounting firm .................   F-3, F-4
Consolidated financial statements:
     Statements of consolidated income ...................................        F-5
     Consolidated balance sheets .........................................        F-6
     Statements of consolidated stockholders' equity .....................        F-7
     Statements of consolidated cash flows ...............................        F-8
     Notes to consolidated financial statements ..........................        F-9
Information by industry segment ..........................................       F-30
Quarterly financial information ..........................................       F-32
Consolidated financial schedule:
     Schedule II - Valuation and qualifying accounts .....................       F-32
Five-year selected financial information .................................       F-33



     Schedules  other than that listed above have been  omitted  because of
the absence of the conditions  under which they are required or because the
information  required is shown in the consolidated  financial statements or
the notes thereto.  Separate financial  statements for MAP required by Rule
3-09 of Regulation  S-X will be filed as an amendment to this annual report
on Form 10-K  within  90 days  after the end of MAP's  fiscal  year  ending
December 31, 2005.  Separate financial  statements of other  unconsolidated
affiliates  are  omitted   because  each  company  does  not  constitute  a
significant  subsidiary  using the 20% tests when considered  individually.
Summarized financial information for such affiliates is disclosed in Note E
of Notes to Consolidated Financial Statements.


                                    F-1

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management is  responsible  for the  preparation  and integrity of the
consolidated  financial statements and other financial information included
in this annual report on Form 10-K. Such financial  statements are prepared
in  accordance  with  U.S.   generally  accepted   accounting   principles.
Accounting principles are selected and information is reported which, using
management's   best  judgment  and  estimates,   present  fairly  Ashland's
consolidated financial position,  results of operations and cash flows. The
other  financial  information  in  this  annual  report  on  Form  10-K  is
consistent with the consolidated financial statements.

     Ashland's  management is responsible for  establishing and maintaining
adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f).  Ashland's  internal control
over  financial  reporting  is  designed  to provide  reasonable  assurance
regarding the  reliability  of financial  reporting and the  preparation of
Ashland's  consolidated  financial  statements.  Ashland's internal control
over  financial  reporting  is  supported  by a code  of  business  conduct
entitled   "Business   Responsibilities   of  an  Ashland  Employee"  which
summarizes  our guiding  values  such as obeying the law,  adhering to high
ethical  standards  and acting as  responsible  members of the  communities
where we operate.  Compliance  with that Code forms the  foundation  of our
internal  control  systems,   which  are  designed  to  provide  reasonable
assurance that Ashland's assets are safeguarded and its records reflect, in
all  material  respects,   transactions  in  accordance  with  management's
authorization.  The  concept  of  reasonable  assurance  is  based  on  the
recognition that the cost of a system of internal control should not exceed
the related benefits.  Management  believes that adequate internal controls
are maintained by the selection and training of qualified personnel,  by an
appropriate division of responsibility in all organizational  arrangements,
by the establishment and communication of accounting and business policies,
and by internal audits.

     Because of its inherent  limitations,  internal control over financial
reporting may not prevent or detect  misstatements and even when determined
to be  effective,  can only provide  reasonable  assurance  with respect to
financial statement preparation and presentation.  Also, projections of any
evaluation of effectiveness to future periods are subject to the risks that
controls may become  inadequate  because of changes in conditions,  or that
the degree of compliance with the policies or procedures may deteriorate.

     The Board,  subject to stockholder  ratification,  selects and engages
the  independent   auditors  based  on  the  recommendation  of  the  Audit
Committee.  The Audit Committee,  composed of directors who are not members
of management,  reviews the adequacy of Ashland's policies,  procedures and
controls,  the  scope of  auditing  and  other  services  performed  by the
independent  auditors,  and the scope of the internal audit  function.  The
Committee  holds meetings with Ashland's  internal  auditor and independent
auditors,  with and without management  present, to discuss the findings of
their  audits,  the overall  quality of Ashland's  financial  reporting and
their evaluation of Ashland's  internal  controls.  The report of Ashland's
Audit Committee can be found in the Company's 2005 Proxy Statement.

     Management  assessed the  effectiveness of Ashland's  internal control
over financial reporting as of September 30, 2005. Management conducted its
assessment   utilizing  the  framework  described  in  Internal  Control  -
Integrated Framework issued by the Committee of Sponsoring Organizations of
the  Treadway  Commission  (COSO).  Based  on this  assessment,  management
believes that Ashland maintained  effective internal control over financial
reporting as of September 30, 2005.

     Ernst & Young LLP, an independent  registered  public accounting firm,
has  audited and  reported  on the  consolidated  financial  statements  of
Ashland Inc. and consolidated subsidiaries,  management's assessment of the
effectiveness of Ashland's  internal  control over financial  reporting and
the effectiveness of Ashland's  internal control over financial  reporting.
The  reports of the  independent  auditors  are  contained  in this  Annual
Report.





/s/ James J. O'Brien                                      /s/ J. Marvin Quin
James J. O'Brien                                              J. Marvin Quin
Chairman of the Board and                          Senior Vice President and
Chief Executive Officer                              Chief Financial Officer


November 30, 2005


                                    F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Ashland Inc. and consolidated subsidiaries

     We have  audited  the  accompanying  consolidated  balance  sheets  of
Ashland Inc. and  consolidated  subsidiaries  as of September  30, 2005 and
2004,  and the related  consolidated  statements  of income,  stockholders'
equity,  and cash  flows for each of the three  years in the  period  ended
September  30,  2005.  Our audits also  included  the  financial  statement
schedule listed in the Index at Item 15(a). These financial  statements and
schedule  are  the  responsibility  of  Ashland  Inc.'s   management.   Our
responsibility  is to express an opinion on these financial  statements and
schedule based on our audits.

     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform  the audit to obtain  reasonable  assurance  about
whether the  financial  statements  are free of material  misstatement.  An
audit includes examining,  on a test basis, evidence supporting the amounts
and  disclosures  in the  financial  statements.  An  audit  also  includes
assessing the accounting  principles used and significant estimates made by
management,   as  well  as  evaluating  the  overall  financial   statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

     In our opinion,  the financial statements referred to above (appearing
on pages F-5 to F-31 of this annual report on Form 10-K) present fairly, in
all material respects,  the consolidated financial position of Ashland Inc.
and  consolidated  subsidiaries  at  September  30, 2005 and 2004,  and the
consolidated  results of their  operations and their cash flows for each of
the three years in the period ended  September 30, 2005, in conformity with
U.S. generally accepted accounting  principles.  Also, in our opinion,  the
related financial  statement  schedule,  when considered in relation to the
basic  financial  statements  taken  as a  whole,  presents  fairly  in all
material respects the information set forth therein.

     As discussed in Note A to the  financial  statements,  in 2003 Ashland
Inc. changed its method of accounting for employee stock based compensation
and variable interest entities.

     We also have audited,  in accordance  with the standards of the Public
Company  Accounting  Oversight Board (United States),  the effectiveness of
Ashland Inc.'s  internal  control over financial  reporting as of September
30, 2005,  based on criteria  established in Internal  Control - Integrated
Framework  issued  by the  Committee  of  Sponsoring  Organizations  of the
Treadway  Commission  and our report dated  November 30, 2005  expressed an
unqualified opinion thereon.

                                                      /s/ Ernst & Young LLP
Cincinnati, Ohio
November 30, 2005


                                    F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Ashland Inc. and consolidated subsidiaries

     We have audited management's assessment,  included in the accompanying
Management's  Report on Internal  Control Over  Financial  Reporting,  that
Ashland Inc. and consolidated  subsidiaries  maintained  effective internal
control  over  financial  reporting  as of  September  30,  2005,  based on
criteria  established in Internal Control - Integrated  Framework issued by
the Committee of Sponsoring  Organizations of the Treadway  Commission (the
COSO  criteria).  Ashland Inc.'s  management is responsible for maintaining
effective internal control over financial  reporting and for its assessment
of the  effectiveness  of internal  control over financial  reporting.  Our
responsibility  is to express an opinion on management's  assessment and an
opinion  on  the  effectiveness  of the  company's  internal  control  over
financial reporting based on our audit.

     We conducted our audit in accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform  the audit to obtain  reasonable  assurance  about
whether effective internal control over financial  reporting was maintained
in all material respects.  Our audit included obtaining an understanding of
internal  control  over  financial   reporting,   evaluating   management's
assessment,  testing and evaluating the design and operating  effectiveness
of internal control,  and performing such other procedures as we considered
necessary  in the  circumstances.  We  believe  that our audit  provides  a
reasonable basis for our opinion.

     A company's  internal  control over  financial  reporting is a process
designed to provide  reasonable  assurance  regarding  the  reliability  of
financial  reporting  and  the  preparation  of  financial  statements  for
external  purposes  in  accordance  with  generally   accepted   accounting
principles.  A company's internal control over financial reporting includes
those  policies  and  procedures  that (1)  pertain to the  maintenance  of
records that,  in  reasonable  detail,  accurately  and fairly  reflect the
transactions  and  dispositions  of the assets of the company;  (2) provide
reasonable  assurance that transactions are recorded as necessary to permit
preparation of financial  statements in accordance with generally  accepted
accounting  principles,  and that receipts and  expenditures of the company
are being made only in accordance  with  authorizations  of management  and
directors of the company;  and (3) provide reasonable  assurance  regarding
prevention  or  timely  detection  of  unauthorized  acquisition,  use,  or
disposition  of the company's  assets that could have a material  effect on
the financial statements.

     Because of its inherent  limitations,  internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of  effectiveness to future periods are subject to the risk that
controls may become  inadequate  because of changes in conditions,  or that
the degree of compliance with the policies or procedures may deteriorate.

     In  our  opinion,   management's  assessment  that  Ashland  Inc.  and
consolidated   subsidiaries  maintained  effective  internal  control  over
financial  reporting as of September  30, 2005,  is fairly  stated,  in all
material  respects,  based  on the COSO  criteria.  Also,  in our  opinion,
Ashland  Inc. and  consolidated  subsidiaries  maintained,  in all material
respects,  effective  internal  control  over  financial  reporting  as  of
September 30, 2005, based on the COSO criteria.

     We also have audited,  in accordance  with the standards of the Public
Company  Accounting  Oversight  Board  (United  States),  the  consolidated
balance  sheets  of  Ashland  Inc.  and  consolidated  subsidiaries  as  of
September  30, 2005 and 2004,  and the related  consolidated  statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended  September 30, 2005 and our report dated November 30, 2005
expressed an unqualified opinion thereon.

                                                      /s/ Ernst & Young LLP
Cincinnati, Ohio
November 30, 2005


                                    F-4



Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
Years Ended September 30

(In millions except per share data)                                                   2005         2004         2003
---------------------------------------------------------------------------------------------------------------------
                                                                                                 
Revenues
Sales and operating revenues                                                    $    9,270   $    8,301   $    7,566
Equity income - Note E                                                                 531          432          301
Other income                                                                            59           48           45
                                                                                -----------  -----------  -----------
                                                                                     9,860        8,781        7,912
Costs and expenses
Cost of sales and operating expenses                                                 7,823        6,948        6,390
Selling, general and administrative expenses                                         1,291        1,171        1,256
                                                                                -----------  -----------  -----------
                                                                                     9,114        8,119        7,646
                                                                                -----------  -----------  -----------
Operating income                                                                       746          662          266
Gain on the MAP Transaction - Note D  (a)                                            1,284            -            -
Loss on early retirement of debt - Note D                                             (145)           -            -
Net interest and other financial costs - Note G                                        (82)        (114)        (128)
                                                                                -----------  -----------  -----------
Income from continuing operations before income taxes                                1,803          548          138
Income taxes - Note L                                                                  202         (150)         (44)
                                                                                -----------  -----------  -----------
Income from continuing operations                                                    2,005          398           94
Results from discontinued operations (net of income taxes) - Note P                     (1)         (20)         (14)
                                                                                -----------  -----------  -----------
Income before cumulative effect of accounting changes                                2,004          378           80
Cumulative effect of accounting changes (net of income taxes) - Note A                   -            -           (5)
                                                                                -----------  -----------  -----------
Net income                                                                      $    2,004   $      378   $       75
                                                                                ===========  ===========  ===========

Earnings per share - Note A
Basic
      Income from continuing operations                                         $    27.50   $     5.69   $     1.37
      Results from discontinued operations                                            (.01)        (.28)        (.19)
      Cumulative effect of accounting changes                                            -            -         (.08)
                                                                                -----------  -----------  -----------
      Net income                                                                $    27.49   $     5.41   $     1.10
                                                                                ===========  ===========  ===========
Diluted
      Income from continuing operations                                         $    26.86   $     5.59   $     1.37
      Results from discontinued operations                                            (.01)        (.28)        (.19)
      Cumulative effect of accounting changes                                            -            -         (.08)
                                                                                -----------  -----------  -----------
      Net income                                                                $    26.85   $     5.31   $     1.10
                                                                                ===========  ===========  ===========


(a)  "MAP  Transaction"  refers to the June 30, 2005  transfer of Ashland's
     38% interest in Marathon Ashland Petroleum LLC (MAP), Ashland's maleic
     anhydride  business  and 60  Valvoline  Instant Oil Change  centers in
     Michigan  and  northwest  Ohio  to  Marathon  Oil   Corporation  in  a
     transaction  valued  at  approximately  $3.7  billion.  See Note D for
     further information.


See Notes to Consolidated Financial Statements.


                                    F-5



Ashland Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets
September 30

(In millions)                                                                                        2005         2004
-----------------------------------------------------------------------------------------------------------------------
                                                                                                       
ASSETS
Current assets
Cash and cash equivalents                                                                      $      985    $     243
Available-for-sale securities - Note J                                                                403            -
Accounts receivable (less allowances for doubtful accounts of
      $43 million in 2005 and $41 million in 2004)                                                  1,599        1,290
Inventories - Note A                                                                                  527          458
Deferred income taxes - Note L                                                                        122          103
Other current assets                                                                                  121          208
                                                                                               -----------   ----------
                                                                                                    3,757        2,302
Investments and other assets
Investment in Marathon Ashland Petroleum LLC (MAP) - Notes D and E                                      -        2,713
Goodwill and other intangibles - Note F                                                               650          529
Asbestos insurance receivable (noncurrent portion) - Note O                                           370          399
Deferred income taxes - Note L                                                                        175            -
Other noncurrent assets                                                                               441          303
                                                                                               -----------   ----------
                                                                                                    1,636        3,944
Property, plant and equipment
Cost
      Land                                                                                            122          123
      Mineral rights and land improvements                                                             77           47
      Buildings                                                                                       545          534
      Machinery and equipment                                                                       2,402        2,332
      Construction in progress                                                                        128           68
                                                                                               -----------   ----------
                                                                                                    3,274        3,104
Accumulated depreciation, depletion and amortization                                               (1,852)      (1,848)
                                                                                               -----------   ----------
                                                                                                    1,422        1,256
                                                                                               -----------   ----------
                                                                                               $    6,815    $   7,502
                                                                                               ===========   ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year
      Revolving credit facility                                                                $        -    $      40
      Current portion of long-term debt                                                                12          399
Trade and other payables                                                                            1,520        1,362
Income taxes                                                                                           13           14
                                                                                               -----------   ----------
                                                                                                    1,545        1,815
Noncurrent liabilities
Long-term debt (less current portion) - Note G                                                         82        1,109
Employee benefit obligations - Note Q                                                                 358          428
Deferred income taxes - Note L                                                                          -          367
Reserves of captive insurance companies                                                               182          179
Asbestos litigation reserve (noncurrent portion) - Note O                                             521          568
Other long-term liabilities and deferred credits                                                      388          330
                                                                                               -----------   ----------
                                                                                                    1,531        2,981
Stockholders' equity - Notes M and N
Preferred stock, no par value, 30 million shares authorized                                             -            -
Common stock, par value $.01 per share in 2005 and $1.00 per share in 2004
      200 million shares authorized in 2005 and 300 million shares authorized in 2004
      Issued - 73 million shares in 2005 and 72 million shares in 2004                                  1           72
Paid-in capital                                                                                       605          478
Retained earnings                                                                                   3,251        2,262
Accumulated other comprehensive loss                                                                 (118)        (106)
                                                                                               -----------   ----------
                                                                                                    3,739        2,706
                                                                                               -----------   ----------
                                                                                               $    6,815    $   7,502
                                                                                               ===========   ==========

See Notes to Consolidated Financial Statements.


                                    F-6



Ashland Inc. and Consolidated Subsidiaries
Statements of Consolidated Stockholders' Equity
                                                                                               Accumulated
                                                                                                     other
                                                       Common       Paid-in      Retained    comprehensive
(In millions)                                           stock       capital      earnings             loss         Total
-------------------------------------------------------------------------------------------------------------------------
                                                                                               
Balance at September 30, 2002                       $      68     $     338     $   1,961       $     (194)   $    2,173
Total comprehensive income (a)                                                         75               68           143
Cash dividends, $1.10 per common share                                                (75)                           (75)
Issued 81,698 common shares under
      stock incentive and other plans (b)                                12                                           12
                                                    ----------    ----------    ----------      -----------   -----------
Balance at September 30, 2003                              68           350         1,961             (126)        2,253
Total comprehensive income (a)                                                        378               20           398
Cash dividends, $1.10 per common share                                                (77)                           (77)
Issued 3,310,204 common shares under
      stock incentive and other plans (b)                   4           128                                          132
                                                    ----------    ----------    ----------      -----------   -----------
Balance at September 30, 2004                              72           478         2,262             (106)        2,706
Total comprehensive income (a)                                                      2,004              (12)        1,992
Cash dividends, $1.10 per common share                                                (79)                           (79)
Distribution of Marathon shares from the
      MAP Transaction - Note D                                                       (936)                          (936)
Change in par value of common stock - Note M              (74)           74                                            -
Issued 3,055,082 common shares under
      stock incentive and other plans (b)                   3           153                                          156
Repurchase of 1,768,600 common shares                                  (100)                                        (100)
                                                    ----------    ----------    ----------      -----------   -----------
Balance at September 30, 2005 (c)                   $       1     $     605     $   3,251       $     (118)   $    3,739
                                                    ==========    ==========    ==========      ===========   ===========

(a) Reconciliations of net income to total comprehensive income follow.

      (In millions)                                      2005          2004          2003
      ------------------------------------------------------------------------------------
      Net income                                    $   2,004     $     378     $      75
      Minimum pension liability adjustment                (49)          (21)           24
           Related tax benefit (expense)                   19             8            (9)
      Unrealized translation gains                         19            32            53
           Related tax benefit                              -             1             -
      Unrealized losses on cash flow hedges                (1)            -             -
                                                    ----------    ----------    ----------
      Total comprehensive income                    $   1,992     $     398     $     143
                                                    ==========    ==========    ==========



(b)  Includes  income tax  benefits  resulting  from the  exercise of stock
     options of $34 million in 2005 and $16 million in 2004.  The amount in
     2003 was not significant.
(c)  At September 30, 2005, the  accumulated  other  comprehensive  loss of
     $118 million (after tax) was comprised of a minimum pension  liability
     of $160 million, net unrealized  translation gains of $43 million, and
     net unrealized losses on cash flow hedges of $1 million.


See Notes to Consolidated Financial Statements.


                                    F-7




Ashland Inc. and Consolidated Subsidiaries
Statements of Consolidated Cash Flows
Years Ended September 30

(In millions)                                                                   2005         2004         2003
---------------------------------------------------------------------------------------------------------------
                                                                                           
Cash flows from operations
Income from continuing operations                                         $    2,005   $      398   $       94
Adjustments to reconcile to cash flows from operations
      Depreciation, depletion and amortization                                   193          193          204
      Deferred income taxes                                                     (532)         125           49
      Equity income from affiliates                                             (531)        (432)        (301)
      Distributions from equity affiliates                                       281          169          203
      Gain on the MAP Transaction - Note D                                    (1,284)           -            -
      Loss on early retirement of debt - Note D                                  145            -            -
      Change in operating assets and liabilities (a)                            (235)        (246)          (8)
      Other items                                                                 (5)           2            1
                                                                          -----------  -----------  -----------
                                                                                  37          209          242
Cash flows from financing
Proceeds from issuance of common stock                                           115          108            2
Repayment of long-term debt                                                   (1,552)        (100)        (216)
Repurchase of common stock                                                      (100)           -            -
Increase (decrease) in short-term debt                                           (40)          40          (10)
Cash dividends paid                                                              (79)         (77)         (75)
                                                                          -----------  -----------  -----------
                                                                              (1,656)         (29)        (299)
Cash flows from investment
Additions to property, plant and equipment                                      (380)        (210)        (112)
Purchase of operations - net of cash acquired                                   (156)          (5)          (5)
Proceeds from sale of operations                                               3,306           48            7
Purchases of available-for-sale securities                                      (402)           -            -
Proceeds from sales and maturities of available-for-sale securities                1            -            -
Other - net                                                                       19           26           13
                                                                          -----------  -----------  -----------
                                                                               2,388         (141)         (97)
                                                                          -----------  -----------  -----------
Cash provided (used) by continuing operations                                    769           39         (154)
Cash provided (used) by discontinued operations                                  (27)         (19)         287
                                                                          -----------  -----------  -----------
Increase in cash and cash equivalents                                            742           20          133
Cash and cash equivalents - beginning of year                                    243          223           90
                                                                          -----------  -----------  -----------
Cash and cash equivalents - end of year                                   $      985   $      243   $      223
                                                                          ===========  ===========  ===========

Decrease (increase) in operating assets (a)
Accounts receivable                                                       $     (312)  $     (157)  $      (79)
Inventories                                                                      (82)         (14)          15
Deferred income taxes                                                             (3)           2           22
Other current assets                                                              94          (64)          (5)
Investments and other assets                                                    (245)         (15)           7
Increase (decrease) in operating liabilities (a)
Trade and other payables                                                         150          (15)         115
Income taxes                                                                      (3)         (19)         (50)
Noncurrent liabilities                                                           166           36          (33)
                                                                          -----------  -----------  -----------
Change in operating assets and liabilities                                $     (235)  $     (246)  $       (8)
                                                                          ===========  ===========  ===========

(a) Excludes changes resulting from operations acquired or sold.

Supplemental disclosures
Cash payments for
      Interest                                                            $      119   $      116   $      125
      Income taxes                                                               299           84           24
Non-cash distribution of Marathon stock                                          936            -            -




See Notes to Consolidated Financial Statements.


                                    F-8

Ashland Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

     The consolidated  financial statements include the accounts of Ashland
and its majority owned subsidiaries.  Investments in joint ventures and 20%
to 50% owned affiliates are accounted for by the equity method.  In January
2003,  the  Financial   Accounting   Standards  Board  (FASB)  issued  FASB
Interpretation  No.  46  (FIN  46),  "Consolidation  of  Variable  Interest
Entities."  Beginning  July 1, 2003,  the lessor entity in one of Ashland's
lease programs was consolidated in Ashland's financial statements under FIN
46,  resulting  in a pretax  charge of $8 million ($5 million net of income
taxes) for the cumulative effect of this accounting change. Property, plant
and equipment  increased by $27 million and long-term debt increased by $35
million  as a result of the  consolidation  of the lessor  entity.  Ashland
canceled  the lease and  purchased  the  assets  from the lessor in October
2003.  All  material  intercompany  transactions  and  balances  have  been
eliminated.  Certain  prior  period  data  has  been  reclassified  in  the
consolidated  financial statements and accompanying footnotes to conform to
current period presentation.


USE OF ESTIMATES, RISKS AND UNCERTAINTIES

     The  preparation  of  Ashland's   consolidated   financial  statements
requires  management  to make  estimates  and  assumptions  that affect the
reported  amounts of assets,  liabilities,  revenues and expenses,  and the
disclosures of contingent  assets and liabilities.  Significant  items that
are subject to such estimates and assumptions  include  long-lived  assets,
employee  benefit  obligations,   income  taxes,  reserves  and  associated
receivables for asbestos litigation,  environmental remediation, and income
recognized  under  construction  contracts.  Although  management bases its
estimates on historical  experience and various other  assumptions that are
believed to be reasonable  under the  circumstances,  actual  results could
differ  significantly  from the estimates  under  different  assumptions or
conditions.

     Ashland's results are affected by domestic and international economic,
political,  legislative,  regulatory and legal actions,  as well as weather
conditions.  Economic conditions,  such as recessionary trends,  inflation,
interest  and  monetary  exchange  rates,  and  changes  in the  prices  of
hydrocarbon-based  products,  can have a significant  effect on operations.
Political  actions may include changes in the policies of the  Organization
of  Petroleum  Exporting  Countries  or  other  developments  involving  or
affecting oil-producing countries,  including military conflict, embargoes,
internal  instability  or actions or  reactions of the U.S.  government  in
anticipation of, or in response to, such actions.  While Ashland  maintains
reserves  for  anticipated   liabilities  and  carries  various  levels  of
insurance,  Ashland  could be affected by civil,  criminal,  regulatory  or
administrative   actions,  claims  or  proceedings  relating  to  asbestos,
environmental  remediation  or other  matters.  In  addition,  climate  and
weather can  significantly  affect  Ashland's  results  from certain of its
operations, including APAC's construction activities.


CASH AND CASH EQUIVALENTS

     Cash  equivalents  include highly liquid  investments  maturing within
three months after purchase.


AVAILABLE-FOR-SALE SECURITIES

     Securities are classified as held-to-maturity or available-for-sale on
the date of purchase.  Available-for-sale  securities  are reported at fair
value with  unrealized  gains and losses,  net of related  deferred  income
taxes,  included in accumulated other comprehensive  income, a component of
stockholders'  equity.  The fair value of a security is determined based on
quoted market prices.  Interest and dividends  along with realized gains or
losses are reported  within the net interest and other financial costs line
in the Statements of  Consolidated  Income.  The cost of securities sold is
based on the specific  identification  method.  All securities are reviewed
quarterly for possible other-than-temporary impairment. The review includes
an analysis of the facts and  circumstances  of each individual  investment
such as the  severity  of loss,  the length of time the fair value has been
below  cost,  the  expectation  for  that   security's   performance,   the
creditworthiness of the issuer and Ashland's intent and ability to hold the
security. A decline in value that is considered to be  other-than-temporary
is recorded as a loss within the net  interest  and other  financial  costs
line in the Statements of Consolidated Income.


                                    F-9

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     Ashland records an allowance for doubtful  accounts as a best estimate
of the amount of probable credit losses for accounts receivable. Each month
Ashland  reviews  this  allowance  and  considers  factors such as customer
credit,  past transaction history with the customer and changes in customer
payment terms when  determining  whether the  collection of a receivable is
reasonably  assured.  Past due  balances  over 90 days and over a specified
amount  are  reviewed  individually  for  collectibility.  Receivables  are
charged off against the allowance for doubtful accounts when it is probable
a receivable will not be recovered.


INVENTORIES

(In millions)                                                2005         2004
-------------------------------------------------------------------------------
Chemicals and plastics                                  $     429    $     370
Construction materials                                         80           71
Lubricants                                                     68           61
Other products                                                 67           45
Supplies                                                        9            6
Excess of replacement costs over LIFO carrying values        (126)         (95)
                                                        ----------   ----------
                                                        $     527    $     458
                                                        ==========   ==========


     Inventories  are  carried at the lower of cost or  market.  Chemicals,
plastics  and  lubricants  with a  replacement  cost  of  $337  million  at
September 30, 2005,  and $286 million at September 30, 2004,  are valued at
cost using the last-in,  first-out (LIFO) method. The remaining inventories
are stated at cost using the first-in,  first-out  (FIFO) method or average
cost method (which approximates FIFO).

     In  November  2004,  the FASB  issued  Statement  No.  151 (FAS  151),
"Inventory  Costs."  FAS 151 amends the  guidance  in  Accounting  Research
Bulletin No. 43, Chapter 4, "Inventory  Pricing," to clarify the accounting
for abnormal amounts of idle facility expense,  freight, handling costs and
wasted material (spoilage). FAS 151 will be effective for Ashland in fiscal
2006 and is expected to have an  immaterial  effect on Ashland's  financial
position, results of operations and cash flows.


PROPERTY, PLANT AND EQUIPMENT

     The cost of  property,  plant  and  equipment  is  depreciated  by the
straight-line  method over the  estimated  useful lives of the assets.  The
cost  of  mineral  rights  is  depleted  principally  over  5 to 50  years,
buildings are  depreciated  over 25 to 35 years and machinery and equipment
principally over 4 to 15 years.  Such costs are  periodically  reviewed for
recoverability  when  impairment  indicators are present.  Such  indicators
include,  among other factors,  operating losses,  unused capacity,  market
value declines and technological obsolescence. Recorded values of property,
plant  and  equipment  that  are  not  expected  to  be  recovered  through
undiscounted  future net cash flows are written down to current fair value,
which  generally is determined  from estimated  discounted  future net cash
flows (assets held for use) or net realizable value (assets held for sale).
During 2003,  Ashland  recognized an impairment charge of $10 million for a
maleic  anhydride  production  facility  that is shutdown and not likely to
reopen based on internal  analyses.  Impairment  charges  recognized during
2005 and 2004 were not significant.


DERIVATIVE INSTRUMENTS

      Ashland   regularly  uses   commodity-based   and  foreign   currency
derivative  instruments  to  manage  its  exposure  to  price  fluctuations
associated  with the  purchase  of  diesel  fuel and  gasoline,  as well as
certain  transactions  denominated  in foreign  currencies.  All derivative
instruments  are  recognized as either assets or liabilities on the balance
sheet and are  measured  at fair  value.  Changes  in the fair value of all
derivatives  are  recognized  immediately  in income unless the  derivative
qualifies  as a hedge of future cash flows.  Gains and losses  related to a
hedge are either  recognized  in income  immediately  to offset the gain or
loss on the hedged  item,  or deferred  and  recorded in the  stockholders'
equity  section of the  Consolidated  Balance Sheet as a component of total
comprehensive  income and  subsequently  recognized  in net income when the
hedged item affects net income.  The  ineffective  portion of the change in
fair value of a hedge is  recognized  in income  immediately.  Ashland  has
designated a limited portion of its


                                    F-10

foreign currency derivatives as qualifying for hedge accounting  treatment,
but  their  impact  on  the  consolidated   financial   statements  is  not
significant.   Credit   risks  arise  from  the   possible   inability   of
counterparties  to meet the  terms  of their  contracts,  but  exposure  is
limited  to  the  replacement  value  of  the  contracts.  Ashland  further
minimizes this credit risk through internal monitoring procedures and as of
September 30, 2005 does not have significant credit risk on open derivative
contracts.


REVENUE RECOGNITION

     Income related to  construction  contracts  generally is recognized by
the   units-of-production   method,   which   is   a   variation   of   the
percentage-of-completion  method.  Any anticipated losses on such contracts
are charged against  operations as soon as such losses are determined to be
probable and  estimable.  Other  revenues  generally  are  recognized  when
products are shipped or services are provided to customers, the sales price
is fixed or determinable and  collectibility is reasonably  assured.  Costs
associated  with  revenues,  including  shipping  and handling  costs,  are
recorded in cost of sales and operating expenses.


EXPENSE RECOGNITION

     Because  Ashland's  products  generally  are sold without any extended
warranties,  liabilities for product warranties are insignificant. Costs of
product  warranties  generally are expensed as incurred.  Advertising costs
($69  million in 2005,  $78  million  in 2004 and $77  million in 2003) and
research and  development  costs ($45 million in 2005,  $43 million in 2004
and $36 million in 2003) are expensed as incurred.


INCOME TAXES

     Ashland is subject to income  taxes in the United  States and numerous
foreign  jurisdictions.  Significant  judgment is  required in  determining
Ashland's   provision   for  income  taxes  and  the  related   assets  and
liabilities.  In the ordinary course of Ashland's business,  there are many
transactions  and  calculations  where the  ultimate tax  determination  is
uncertain.  Ashland is regularly under audit by tax  authorities.  Accruals
for tax  contingencies are provided for in accordance with the requirements
of FASB Statement No. 5, "Accounting for Contingencies."

     Although Ashland believes it has appropriate support for the positions
taken on tax  returns,  a  liability  has  been  recorded  that  represents
Ashland's best estimate of the probable loss on certain of these positions.
Ashland  believes that the recorded  accruals for all known tax liabilities
are adequate for all open years,  based on the  assessment  of many factors
including  past  experience and  interpretations  of tax law applied to the
facts of each matter.  Although  Ashland  believes the recorded  assets and
liabilities are reasonable,  tax regulations are subject to  interpretation
and  tax   litigation  is  inherently   uncertain.   Therefore,   Ashland's
assessments  can involve  both a series of complex  judgments  about future
events and rely  heavily on estimates  and  assumptions.  Although  Ashland
believes that the estimates and assumptions  supporting its assessments are
reasonable,   the  final  determination  of  tax  audits  and  any  related
litigation  could be materially  different  than that which is reflected in
historical income tax provisions and recorded assets and liabilities. Based
on the results of an audit or  litigation,  a material  effect on Ashland's
income tax provision,  net income, or cash flows could result in the period
such a determination  is made. Due to the complexity  involved,  Ashland is
not able to estimate the range of reasonably  possible  losses in excess of
amounts recorded.


ENVIRONMENTAL COSTS

     Accruals for environmental  costs are recognized when it is probable a
liability  has  been  incurred  and the  amount  of that  liability  can be
reasonably  estimated.  Such costs are charged to expense if they relate to
the remediation of conditions caused by past operations or are not expected
to mitigate or prevent  contamination from future  operations.  Liabilities
are recorded at undiscounted  amounts based on experience,  assessments and
current  technology,  without regard to any third-party  recoveries and are
regularly  adjusted as  environmental  assessments and remediation  efforts
continue.


FOREIGN CURRENCY TRANSLATION

     Operations  outside  the United  States are  measured  using the local
currency as the functional  currency.  Upon  consolidation,  the results of
operations of the subsidiaries and affiliates whose functional  currency is
other than the U.S. dollar are translated into U.S.  dollars at the average
exchange  rates for the year and assets and  liabilities  are translated at
year end exchange  rates.  Adjustments to translate  assets and liabilities
into U.S. dollars are recorded in


                                    F-11

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the  stockholders'  equity section of the  Consolidated  Balance Sheet as a
component  of total  comprehensive  income and are included in net earnings
only upon sale or  liquidation  of the  underlying  foreign  subsidiary  or
affiliated company.


STOCK INCENTIVE PLANS

     As of October 1, 2002,  Ashland began expensing employee stock options
in  accordance  with FASB  Statement  No.  123 (FAS 123),  "Accounting  for
Stock-Based Compensation," and its related amendments.  Ashland elected the
modified  prospective  method of adoption,  under which  compensation costs
recorded in the year ended  September  30, 2003 were the same as that which
would have been  recorded had the  recognition  provisions  of FAS 123 been
applied from its original  effective  date.  Results for prior periods were
not restated. Prior to October 1, 2002, Ashland accounted for stock options
under Accounting  Principles Board Opinion No. 25 (APB 25), "Accounting for
Stock Issued to Employees," and related Interpretations, and no expense was
recorded. In 2004, Ashland began granting  stock-settled stock appreciation
rights (SARs), which are expensed like stock options in accordance with FAS
123. In addition to stock options and SARs,  Ashland grants nonvested stock
awards to key  employees  and  directors,  which are  expensed  over  their
vesting period under either APB 25 or FAS 123.


EARNINGS PER SHARE

     Following is the  computation of basic and diluted  earnings per share
(EPS) from continuing operations.



(In millions except per share data)                               2005         2004          2003
--------------------------------------------------------------------------------------------------
                                                                              
Numerator
Numerator for basic and diluted EPS -
      Income from continuing operations                      $   2,005    $     398    $       94
                                                             ==========   ==========   ===========

Denominator
Denominator for basic EPS - Weighted average
      common shares outstanding                                     73           70            68
Common shares issuable upon exercise of stock options
        and stock appreciation rights                                2            1             1
                                                             ----------   ----------   -----------
Denominator for diluted EPS - Adjusted weighted
      average shares and assumed conversions                        75           71            69
                                                             ==========   ==========   ===========
EPS from continuing operations
Basic                                                        $   27.50    $    5.69    $     1.37
Diluted                                                          26.86         5.59          1.37



NOTE B - INFORMATION BY INDUSTRY SEGMENT

     Ashland's  businesses are managed along four industry segments:  APAC,
Ashland  Distribution,  Ashland Specialty  Chemical and Valvoline.  Ashland
also held a 38% interest in Marathon Ashland Petroleum LLC (MAP), which was
the primary component of its Refining and Marketing  segment,  through June
30, 2005. Information by industry segment is shown on pages F-30 and F-31.

     The APAC group of companies performs contract  construction work, such
as  paving,   repairing  and  resurfacing  highways,   streets,   airports,
residential and commercial developments,  sidewalks and driveways;  grading
and base  work.  In  addition,  it  performs a number of  services  such as
excavation and site work for the construction of bridges, other structures,
drainage  facilities  and  underground  utilities  for public  and  private
projects.  APAC conducts its business  through 25  market-focused  business
units and a Major Projects Group operating in 14 southern and mid-continent
states.  These business units provide  construction  services and materials
throughout the regions in which they operate.

     Ashland Distribution  distributes chemicals,  plastics, and composites
in North  America  and  plastics  in  Europe,  and  provides  environmental
services  throughout  North America.  Ashland  Distribution  specializes in
providing mixed truckloads and less-than-truckload  quantities to customers
in a wide range of industries. Deliveries are facilitated through a network
of owned or leased  facilities  including 126  locations in North  America.
Distribution of


                                    F-12


thermoplastic  resins in  Europe is  conducted  in 13  countries  primarily
through 17 third-party warehouses and one owned warehouse.

     Ashland  Specialty  Chemical  is  focused on two  primary  businesses:
performance materials and water technologies. It is a worldwide supplier of
specialty  chemicals  and  customized  services  for  industries  including
building  and  construction;   metal  casting;  packaging  and  converting;
chemical   processing;   power  generation;   automotive,   commercial  and
institutional facility management; food processing; mining; pulp and paper;
paint   and   coatings;    merchant   marine;   recreational   marine   and
transportation.   Ashland   Specialty   Chemical   owns  and   operates  38
manufacturing   facilities  and  participates  in  12  manufacturing  joint
ventures in 19 countries.

     Valvoline is a marketer of  premium-branded  automotive and commercial
oils, automotive  chemicals,  automotive appearance products and automotive
services,  with sales in more than 100  countries.  Valvoline is engaged in
the "fast oil change" business through owned and franchised service centers
operating under the Valvoline Instant Oil Change (VIOC) name.

     Ashland's  Refining and Marketing  operations  consisted  primarily of
equity  income from  Ashland's  38% interest in MAP, a former joint venture
with Marathon Oil Corporation  (Marathon),  which operates seven refineries
with a total crude oil  refining  capacity  of 948,000  barrels per day. On
June 30, 2005,  Ashland  completed  the transfer of its 38% interest in MAP
and  two  other   businesses  to  Marathon  in  a  transaction   valued  at
approximately $3.7 billion. For further information on this transaction see
Note D.

     Information  about  Ashland's  domestic and  international  operations
follows. Ashland has no material operations in any individual international
country  and no  single  customer  represents  more  than 10% of sales  and
operating revenues in 2005, 2004 or 2003.




                                Revenues from                                                    Property, plant
                              external customers                      Net assets                  and equipment
                     -------------------------------------      -----------------------       ----------------------
(In millions)              2005         2004         2003            2005         2004             2005        2004
--------------------------------------------------------------------------------------------------------------------
                                                                                     
United States        $    8,080   $    7,406   $    6,787       $   3,162    $   2,244        $   1,260   $   1,105
International             1,780        1,375        1,125             577          462              162         151
                     -----------  -----------  -----------      ----------   ----------       ----------  ----------
                     $    9,860   $    8,781   $    7,912       $   3,739    $   2,706        $   1,422   $   1,256
                     ===========  ===========  ===========      ==========   ==========       ==========  ==========



NOTE C - RELATED PARTY TRANSACTIONS

     Ashland sells chemicals and lubricants to MAP and purchases  petroleum
products from MAP. Such transactions are in the ordinary course of business
at  negotiated  prices  comparable  to those  of  transactions  with  other
customers  and  suppliers.  In  addition,  Ashland and MAP provide  certain
administrative  services  to each  other,  the net amounts of which are not
significant  and are  included  in the  sales  amounts  below.  As  further
described in Note D, Ashland  transferred its remaining  interest in MAP to
Marathon on June 30, 2005.  The  following  table  indicates the amounts of
these  transactions  for the nine months ended June 30, 2005 and the fiscal
years ended September 30, 2004 and 2003. Ashland's  transactions with other
affiliates and related parties were not significant.


(In millions)                                   2005         2004         2003
-------------------------------------------------------------------------------
Ashland's sales to MAP                    $       19   $       22   $       25
Ashland's purchases from MAP                     192          274          247


NOTE D - MAP TRANSACTION

     On June 30, 2005, Ashland completed its previously announced agreement
with  Marathon  to  transfer  Ashland's  38%  interest in MAP and two other
businesses  to  Marathon  in a  transaction  valued at  approximately  $3.7
billion (the "MAP  Transaction").  The two other  businesses were Ashland's
maleic  anhydride  business and 60 Valvoline  Instant Oil Change centers in
Michigan and northwest Ohio.

     As a result of the transaction,  Old Ashland shareholders of record as
of the close of business on June 30, 2005 received  .2364  Marathon  shares
and  one  Ashland  share  per  Old  Ashland  share.  In  total,   Ashland's
shareholders  received  17,538,815  shares of Marathon common stock with an
aggregate  value of $936  million  based upon the June 30 closing  price of
Marathon stock. Additionally, the transaction resulted in Ashland's receipt
of $2.4 billion in


                                    F-13

NOTE D - MAP TRANSACTION (CONTINUED)

cash and MAP  accounts  receivable  of $913  million,  which  totaled  $3.3
billion.  This amount was  comprised  of $2.8  billion of cash and accounts
receivable,  which  amount was  included  in the $3.7  billion  transaction
value,  and  $518  million  of  additional  cash  and  accounts  receivable
representing 38% of MAP's  distributable  cash and other  adjustments as of
June  30,  2005.  As of  September  30,  2005,  substantially  all  of  the
receivables had been collected.

     Proceeds net of expenses of $28 million  exceeded the book  investment
and resulted in a pretax gain of $1,284  million.  Even though the Marathon
common  stock  distribution  went  directly  to Ashland  shareholders,  for
financial  reporting  purposes the Marathon  stock is reflected as non-cash
proceeds from the transaction,  included in the gain computation,  and then
shown  as a  distribution  to  shareholders  out of  retained  earnings  in
Ashland's  stockholders' equity progression.  The pretax gain is shown on a
separate  line  caption on the  Statements  of  Consolidated  Income  below
operating income and labeled "Gain on the MAP Transaction." Because none of
the businesses qualify as discontinued  operations under FASB Statement No.
144 (FAS 144),  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets," the gain is reported in income from continuing operations, with no
restatement of prior results.

     The MAP Transaction was structured to be generally tax-free to Ashland
shareholders  and  tax-efficient  to Ashland.  Ashland and Marathon entered
into a closing  agreement  with the  Internal  Revenue  Service  (IRS) with
respect to various tax consequences of the  transaction.  Pursuant to a Tax
Matters Agreement (TMA) with Marathon, any tax payable under Section 355(e)
of the Internal  Revenue Code on the transaction up to $200 million will be
borne by Marathon,  with the next $175 million being borne by Ashland,  and
any tax over $375 million being split equally between the two companies. An
estimate  of the 355(e)  tax due of $9  million  was filed with the IRS and
paid in the  September  2005  quarter,  the  cost of  which  was  borne  by
Marathon.

     Due to the structure of the  transaction,  Marathon is entitled to the
tax  deductions  for  Ashland's  future  payments  of  certain   contingent
liabilities  related to previously  owned  businesses of Ashland.  However,
pursuant to the terms of the TMA, Marathon has agreed to compensate Ashland
for these tax deductions.  Ashland recorded a discounted  receivable of $62
million  for the  estimated  present  value  of  probable  recoveries  from
Marathon  for the  portion  of these  future  tax  deductions  which is not
dependent  upon  Marathon's  ability  to  utilize  these  deductions.  This
receivable is included in the $1,284 million pretax gain on the transaction
and is included in other  noncurrent  assets on Ashland's  balance sheet at
September  30,  2005.  Deferred  tax assets  previously  recorded  on these
contingent  liabilities  were reversed through the income tax provision for
the  transaction.  Going forward,  adjustments to the receivable  resulting
from changes in the liability estimates will go through the Gain on the MAP
Transaction  line caption on the income  statement,  while the accretion of
the discount will be reflected in interest income.

     Net  deferred tax  liabilities  totaling  $335  million were  reversed
through  the income tax  provision  for the  transaction.  The  reversal of
deferred  taxes,  including  those  deferred  tax  assets  related  to  the
contingent  liabilities  discussed  above,  reflects the fact that Marathon
assumes  Ashland's  tax  basis in these  net  assets as a result of the MAP
Transaction.

     Ashland  used a  substantial  portion  of  the  proceeds  of  the  MAP
Transaction  to  retire  most  of its  debt  and  certain  other  financial
obligations.  In  addition  to the payoff of $250  million  of  receivables
financing  and the  purchase of $101  million of assets that were  formerly
leased under operating leases,  Ashland retired  approximately $1.6 billion
of balance  sheet debt as of September  30, 2005 and incurred a loss on the
early  retirement  of debt of $145  million.  The  loss  consisted  of debt
repayment  premiums  of $139  million,  a tender fee of $3 million  and the
write-off of deferred debt issuance  costs of $3 million.  A tax benefit of
$57 million was recorded for the loss on early retirement of debt.  Ashland
expects  to retire  additional  debt and  other  financial  obligations  in
subsequent quarters.

     The gain on the MAP  Transaction  and the loss on early  retirement of
debt, net of their  respective tax effects,  increased net income by $1,531
million, or $20.51 per share, for the year ended September 30, 2005. Due to
the  continuing  nature of certain tax issues,  the gain may continue to be
adjusted in future  periods and is expected to be primarily in the tax area
due  to  the  unique  and  complicated  tax  aspects  of  the  transaction.
Adjustments  to the  gain  will  be  reflected  in  the  quarter  they  are
determined.


NOTE E - UNCONSOLIDATED AFFILIATES

     Summarized  financial  information reported by MAP and other companies
accounted  for on the equity  method is presented in the  following  table,
along with a summary of the  amounts  recorded  in  Ashland's  consolidated
financial  statements.  As further discussed in Note D, Ashland transferred
its  remaining  interest  in  MAP to  Marathon  on  June  30,  2005.  MAP's
summarized financial  information as presented below is for the nine months
ended June 30,


                                    F-14

2005.  The  summarized  financial   information  for  all  other  companies
accounted  for on the  equity  method by  Ashland is as of and for the year
ended  September 30, 2005.  Since MAP was organized as a limited  liability
company  that  elected  to be  taxed as a  partnership,  the  parents  were
responsible  for income taxes  applicable  to their share of MAP's  taxable
income.  The net income of MAP  reflected in the  following  table does not
include  any  provision  for  income  taxes  incurred  by its  parents.  At
September 30, 2005,  Ashland's  retained  earnings  included $30 million of
undistributed earnings from unconsolidated  affiliates accounted for on the
equity method.




                                                                    Other
(In millions)                                   MAP             affiliates        Total
----------------------------------------------------------------------------------------
                                                                    
September 30, 2005
Financial position
      Current assets                                            $     162
      Current liabilities                                             (89)
                                                                ----------
      Working capital                                                  73
      Noncurrent assets                                                62
      Noncurrent liabilities                                          (12)
                                                                ----------
      Stockholders' equity                                      $     123
                                                                ==========
Results of operations
      Sales and operating revenues        $  38,195 (a)         $     402
      Income from operations                  1,408 (a)                33
      Net income                              1,396 (a)                23
Amounts recorded by Ashland
      Investments and advances            $       -             $      61    $       61
      Equity income                             517                    14           531
      Distributions received                    272                     9           281
September 30, 2004
Financial position
      Current assets                      $   5,265             $     160
      Current liabilities                    (3,436)                  (87)
                                         -----------            ----------
      Working capital                         1,829                    73
      Noncurrent assets                       5,219                    78
      Noncurrent liabilities                   (724)                  (14)
                                         -----------            ----------
      Stockholders' equity               $    6,324             $     137
                                         ===========            ==========
Results of operations
      Sales and operating revenues       $   40,672             $     409
      Income from operations                  1,129                    51
      Net income                              1,118                    44
Amounts recorded by Ashland
      Investments and advances                2,713                    54    $    2,767
      Equity income                             405                    27           432
      Distributions received                    146                    23           169
September 30, 2003
Results of operations
      Sales and operating revenues       $   32,034             $     336
      Income from operations                    810                    41
      Net income                                795                    34
Amounts recorded by Ashland
      Equity income                             285                    16    $      301
      Distributions received                    197                     6           203


(a)  Amounts are for the nine months  ended June 30,  2005.  See Note D for
     further information.


                                    F-15

NOTE F - GOODWILL AND OTHER INTANGIBLES

     In accordance  with FASB  Statement  No. 142 (FAS 142),  "Goodwill and
Other  Intangible   Assets,"  Ashland  has  discontinued  the  practice  of
amortizing goodwill and indefinite lived intangible assets and initiated an
annual review for impairment.  Impairment is to be examined more frequently
if certain  indicators  are  encountered.  Ashland has  completed  its most
recent annual  goodwill  impairment  test required by FAS 142 as of July 1,
2005 and has determined that no impairment exists.

     The  following is a  progression  of goodwill by segment for the years
ended September 30, 2005 and 2004.



                                                                                  Ashland
                                                                     Ashland    Specialty
(In millions)                                           APAC    Distribution     Chemical    Valvoline        Total
--------------------------------------------------------------------------------------------------------------------
                                                                                           
Balance at September 30, 2003                     $      426      $        -    $      91    $       6    $     523
Goodwill assigned to sold businesses                     (13)              -            -            -          (13)
Impairment losses                                         (2)              -            -            -           (2)
Currency translation adjustments                           -               -            5            -            5
                                                  -----------     -----------   ----------   ----------   ----------
Balance at September 30, 2004                            411               -           96            6          513
Goodwill assigned to sold businesses                      (1)              -            -            -           (1)
Acquisitions                                               3               1           43           18           65
                                                  -----------     -----------   ----------   ----------   ----------
Balance at September 30, 2005                     $      413      $        1    $     139    $      24    $     577
                                                  ===========     ===========   ==========   ==========   ==========



     Intangible  assets  consist  of  trademarks,   patents  and  licenses,
non-compete  agreements,  sale contracts,  customer lists and  intellectual
property.  Intangibles  are amortized on a  straight-line  basis over their
estimated  useful lives.  The cost of  trademarks is amortized  principally
over 10 to 25 years and patents and other  intangibles  over 3 to 17 years.
Ashland reviews intangible assets for possible  impairment  whenever events
or changes in  circumstances  indicate  that  carrying  amounts  may not be
recoverable.

     Intangible  assets were comprised of the following as of September 30,
2005 and 2004.



                                                     2005                                       2004
                                 -----------------------------------------  -----------------------------------------
                                      Gross                           Net        Gross                           Net
                                   carrying     Accumulated      carrying     carrying     Accumulated      carrying
(In millions)                        amount    amortization        amount       amount    amortization        amount
--------------------------------------------------------------------------  -----------------------------------------
                                                                                       
Trademarks                       $       56   $         (18)  $        38   $       23   $         (16)  $         7
Patents and other intangibles            49             (14)           35           24             (15)            9
                                 -----------  --------------  ------------  -----------  --------------  ------------
Total intangible assets          $      105   $         (32)  $        73   $       47   $         (31)  $        16
                                 ===========  ==============  ============  ===========  ==============  ============


     Amortization  expense  recognized on intangible  assets was $4 million
for 2005,  $3 million for 2004 and $3 million for 2003. As of September 30,
2005,  all of Ashland's  intangible  assets that had a carrying  value were
being amortized.  Estimated  amortization  expense for future periods is $5
million in 2006, $4 million in 2007, $4 million in 2008, $3 million in 2009
and $3 million in 2010.


                                    F-16

NOTE G - DEBT




(In millions)                                                                        2005         2004
-------------------------------------------------------------------------------------------------------
                                                                                      
Medium-term notes, due 2005-2019, interest at a weighted
      average rate of 7.9% at September 30, 2005 (7.1% to 9.4%)                $       42   $      524
8.80% debentures, due 2012                                                             20          250
7.83% medium-term notes, Series J, due 2005                                             -          229
Pollution control and industrial revenue bonds, due
      2005-2022, interest at a weighted average rate of 5.7%
      at September 30, 2004 (1.7% to 7.1%)                                              -          168
6.86% medium-term notes, Series H, due 2009                                            17          150
6.625% senior notes, due 2008                                                           3          150
Other                                                                                  12           37
                                                                               -----------  -----------
Total long-term debt                                                                   94        1,508
Current portion of long-term debt                                                     (12)        (399)
                                                                               -----------  -----------
Long-term debt (less current portion)                                          $       82   $    1,109
                                                                               ===========  ===========



     Aggregate  maturities of long-term  debt are $12 million in 2006,  $12
million in 2007, $5 million in 2008,  $20 million in 2009 and $3 million in
2010.  The  weighted  average   interest  rate  on  short-term   borrowings
outstanding  was 2.7% at September 30, 2004. No short-term  borrowings were
outstanding at September 30, 2005.

     Ashland has a revolving  credit  agreement  that  expires on March 21,
2010,  which provides for up to $350 million in  borrowings.  The borrowing
capacity  under this  facility  was  reduced by $102  million of letters of
credit  outstanding  at September  30,  2005.  While the  revolving  credit
agreement  contains a covenant  limiting new borrowings  based on Ashland's
stockholders' equity, the agreement would have permitted an additional $5.5
billion  of  borrowings  at  September  30,  2005.  Additional  permissible
borrowings are increased  (decreased) by 150% of any increase (decrease) in
stockholders' equity.


NET INTEREST AND OTHER FINANCIAL COSTS




(In millions)                                                     2005         2004          2003
--------------------------------------------------------------------------------------------------
                                                                              
Interest expense                                             $      90    $     114    $      123
Expenses on sales of accounts receivable (see Note I)                4            3             3
Other financial costs                                                3            3             3
Interest income                                                    (15)          (6)           (1)
                                                             ----------   ----------   -----------
                                                             $      82    $     114    $      128
                                                             ==========   ==========   ===========



NOTE H - LEASES

     Ashland and its subsidiaries are lessees of office  buildings,  retail
outlets, transportation and off-road construction equipment, warehouses and
storage  facilities,  and other equipment,  facilities and properties under
leasing  agreements  that  expire  at  various  dates.   Capitalized  lease
obligations are not significant and are included in long-term debt.

     In June 2005,  Ashland used $101 million of the proceeds  from the MAP
Transaction to purchase assets (primarily APAC  construction  equipment and
VIOC stores) formerly leased under operating leases.  Future minimum rental
payments were not affected by this purchase. Future minimum rental payments
at September 30, 2005 and rental expense under operating leases follow.


                                    F-17



NOTE H - LEASES (CONTINUED)




(In millions)
Future minimum rental payments                 Rental expense                         2005         2004         2003
---------------------------------------------------------------------------------------------------------------------
                                                                                           
2006                      $      50            Minimum rentals
2007                             42               (including rentals under
2008                             35               short-term leases)            $      112   $      104   $       98
2009                             27            Contingent rentals                        3            3            3
2010                             20            Sublease rental income                   (2)          (2)          (2)
                                                                                -----------  -----------  -----------
Later years                      72                                             $      113   $      105   $       99
                          ----------                                            ===========  ===========  ===========
                          $     246
                          ==========



NOTE I - SALE OF ACCOUNTS RECEIVABLE

     On March 15, 2000, Ashland entered into a five-year agreement to sell,
on an ongoing basis with limited  recourse,  up to a $200 million undivided
interest in a designated  pool of accounts  receivable.  Under the terms of
the  agreement,  new  receivables  were  added to the pool and  collections
reduced the pool.  Ashland retained a credit interest in these  receivables
and addressed  its risk of loss on this retained  interest in its allowance
for doubtful  accounts.  Receivables  sold excluded  defaulted  accounts or
concentrations  over  certain  limits with any one  customer.  On March 15,
2005, this agreement was extended for a period of one year and the capacity
was increased to $250 million.  The agreement was  terminated by Ashland on
July 27, 2005.


NOTE J - SECURITIES AND FINANCIAL INSTRUMENTS

DERIVATIVE INSTRUMENTS

     Ashland  uses   commodity-based   and  foreign   currency   derivative
instruments as described in Note A. Open contracts were not  significant at
September 30, 2005 and 2004.


FAIR VALUES

     The  carrying  amounts  and  fair  values  of  Ashland's   significant
financial  instruments at September 30, 2005 and 2004 are shown below.  The
fair values of cash and cash  equivalents,  available-for-sale  securities,
investments  of  captive  insurance  companies  and  the  revolving  credit
facility  approximate their carrying amounts.  The fair values of long-term
debt are based on  quoted  market  prices  or,  if  market  prices  are not
available,  the present values of the underlying  cash flows  discounted at
Ashland's incremental borrowing rates.




                                                                       2005                            2004
                                                             -----------------------         ------------------------
                                                              Carrying         Fair            Carrying         Fair
(In millions)                                                   amount        value              amount        value
---------------------------------------------------------------------------------------------------------------------
                                                                                              
Assets
      Cash and cash equivalents                              $     985    $     985          $      243   $      243
      Available-for-sale securities                                403          403                   -            -
      Investments of captive insurance companies (a)                14           14                  13           13
Liabilities
      Revolving credit facility                                      -            -                  40           40
      Long-term debt (including current portion)                    94          106               1,508        1,675


(a) Included in other noncurrent assets in the Consolidated Balance Sheets.


                                    F-18

AVAILABLE-FOR-SALE SECURITIES

     The  following  table  provides  a summary  of the  available-for-sale
securities   portfolio   as  of  September   30,  2005.   Ashland  held  no
available-for-sale securities in 2004.




                                                Amortized   Unrealized   Unrealized          Fair
(In millions)                                        cost         gain         loss         value
--------------------------------------------------------------------------------------------------
                                                                           
U.S. Treasury and government agencies           $     122    $       -    $       -    $      122
Corporate debt securities                             281            -            -           281
                                                ----------   ----------   ----------   -----------
Total                                           $     403    $       -    $       -    $      403
                                                ==========   ==========   ==========   ===========



     The net unrealized loss on  available-for-sale  securities included in
other comprehensive income as of September 30, 2005 was not significant. No
available-for-sale  securities  were sold  during  fiscal year 2005 and all
available-for-sale security holdings had a maturity of 12 months or less as
of  September  30,  2005.  Actual  maturities  may differ from  contractual
maturities when there exists a right to call or prepay  obligations with or
without call or prepayment penalties.


NOTE K - ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

     In November  2004,  Ashland  Composite  Polymers,  a business  unit of
Ashland Specialty Chemical, acquired Dow Chemical's DERAKANE(R) epoxy vinyl
ester resins business for approximately $90 million. DERAKANE(R) technology
is used in fiber  reinforced  plastic  applications  requiring  outstanding
corrosion resistance and structural strength,  which complements  Ashland's
existing product portfolio of thermoset  resins.  The purchase included all
technology and intellectual property assets associated with the DERAKANE(R)
resins business. No physical assets were transferred to Ashland.

     In June 2005,  Valvoline  acquired  Car Brite,  a leading  marketer of
products for the U.S. professional automotive reconditioning industry whose
products  include a broad array of interior  and exterior  cleaners,  paint
restorers  and  protectants  and final detail  dressings,  paints and dyes.
Several other  acquisitions were completed by APAC,  Ashland  Distribution,
Ashland  Specialty  Chemical  and  Valvoline  during the three  years ended
September 30, 2005. These acquisitions,  individually and in the aggregate,
did not have a  significant  effect  on  Ashland's  consolidated  financial
statements.

     All  acquisitions  are  accounted  for  under the  purchase  method of
accounting. Ashland is currently in the process of finalizing its valuation
of the assets acquired and liabilities assumed for several  acquisitions to
assist  it in  allocating  the  purchase  price  to the  individual  assets
acquired and liabilities  assumed.  The preliminary  allocation of purchase
price  included in the current  period  balance sheet is based on Ashland's
current  best   estimate  and  is  subject  to  revision   based  on  final
determination of fair value.  Ashland  anticipates that the valuations will
be completed prior to the first anniversary of the acquisitions.


DIVESTITURES

     On June 30, 2005,  Ashland  completed the transfer of its 38% interest
in MAP as well as its maleic  anhydride  business and 60 Valvoline  Instant
Oil  Change  centers  in  Michigan  and  northwest  Ohio  to  Marathon  Oil
Corporation in a transaction valued at approximately $3.7 billion. See Note
D for further  information on this transaction.  Also during 2005,  Ashland
Distribution  sold  its  ingestibles  business  and  APAC  made  one  small
divestiture,  neither  of  which  had a  significant  effect  on  Ashland's
consolidated financial statements.

     During 2004, APAC sold much of its remaining ready-mix  operations and
certain  other  operations.  During  2003,  APAC  sold  the  assets  of its
Nashville  division and certain ready-mix  operations in Missouri.  None of
these  divestitures  had a  significant  effect on  Ashland's  consolidated
financial statements.

     On August 29, 2003,  Ashland Specialty Chemical sold the net assets of
its Electronic  Chemicals  business and certain  related  subsidiaries in a
transaction valued at approximately $300 million before tax. See Note P for
information on this transaction.


                                    F-19

NOTE L - INCOME TAXES

     A summary of the  provision  for income  taxes  related to  continuing
operations follows.


(In millions)                     2005         2004         2003
-----------------------------------------------------------------
Current
      Federal               $      267   $       (6)  $      (17)
      State                         35            6           (3)
      Foreign                       28           25           15
                            -----------  -----------  -----------
                                   330           25           (5)
Deferred                          (532)         125           49
                            -----------  -----------  -----------
                            $     (202)  $      150   $       44
                            ===========  ===========  ===========


     Deferred  income  taxes are  provided  for  income and  expense  items
recognized  in different  years for tax and financial  reporting  purposes.
Ashland  has  not  recorded  deferred  income  taxes  on the  undistributed
earnings  of certain  foreign  subsidiaries  and  foreign  corporate  joint
ventures.  Management intends to indefinitely reinvest such earnings, which
amounted to $188 million at  September  30,  2005.  Because of  significant
foreign tax credits,  it is  estimated  that U.S.  federal  income taxes of
approximately  $16  million  would  be  incurred  if  those  earnings  were
distributed.  Foreign net operating loss carryforwards  primarily relate to
certain   European   operations  and  generally  may  be  carried   forward
indefinitely.  Temporary differences that give rise to significant deferred
tax assets and liabilities follow.




(In millions)                                                                            2005         2004
-----------------------------------------------------------------------------------------------------------
                                                                                          
Employee benefit obligations                                                       $      192   $      201
Environmental, self-insurance and litigation reserves (net of receivables)                112          183
Compensation accruals                                                                      86           74
Uncollectible accounts receivable                                                          15           15
Foreign net operating loss carryforwards                                                   18           12
Other items                                                                                42           37
Valuation allowances                                                                      (18)         (12)
                                                                                   -----------  -----------
Total deferred tax assets                                                                 447          510
                                                                                   -----------  -----------
Property, plant and equipment                                                             147          182
Investment in unconsolidated affiliates                                                     3          592
                                                                                   -----------  -----------
Total deferred tax liabilities                                                            150          774
                                                                                   -----------  -----------
Net deferred tax (asset) liability                                                 $     (297)  $      264
                                                                                   ===========  ===========



     As described in Note D, Ashland's income tax benefit for 2005 included
a benefit of $335 million  associated with the MAP  Transaction,  resulting
from the reversal of deferred tax liabilities. Ashland's income tax benefit
for 2005 also included $39 million in tax benefits  related to prior years.
These  benefits  resulted  primarily from a favorable  settlement  with the
Internal  Revenue  Service  for  the  1996  - 1998  audit  period  and  the
reevaluation of income tax reserves related to other years.

     Ashland's  income tax  expense  for 2004  included  $48 million in tax
benefits  related  to  prior  years.   During  the  year,  Ashland  reached
resolution  with the Internal  Revenue  Service on several open tax matters
from prior years,  resulting in a tax benefit of $33 million as a result of
the reduction of amounts previously provided as contingent tax liabilities.
In addition, Ashland recognized federal income tax benefits associated with
a claim for additional  research and  development tax credits valued at $15
million.

     The U.S. and foreign  components of income from continuing  operations
before income taxes and a  reconciliation  of the statutory  federal income
tax with the provision for income taxes follow.


                                    F-20




(In millions)                                                                         2005         2004         2003
---------------------------------------------------------------------------------------------------------------------
                                                                                                 
Income from continuing operations before income taxes
      United States                                                             $    1,659   $      441   $       60
      Foreign                                                                          144          107           78
                                                                                -----------  -----------  -----------
                                                                                $    1,803   $      548   $      138
                                                                                ===========  ===========  ===========

Income taxes computed at U.S. statutory rate (35%)                              $      631   $      192   $       48
Increase (decrease) in amount computed resulting from
      Tax free gain on MAP Transaction                                                (450)           -            -
      Reversal of deferred tax liabilities due to the MAP Transaction                 (335)           -            -
      Resolution and reevaluation of prior-year contingency issues                     (39)         (33)           -
      Claim for prior-year research and development credits                             (1)         (15)           -
      State income taxes                                                                 9           18            3
      Net impact of foreign results                                                      2            -           (2)
      Business meals and entertainment                                                   2            2            3
      Deductible dividends under employee stock ownership plan                          (2)          (2)          (2)
      Life insurance income                                                             (3)          (2)          (2)
      Other items                                                                      (16)         (10)          (4)
                                                                                -----------  -----------  -----------
Income taxes                                                                    $     (202)  $      150   $       44
                                                                                ===========  ===========  ===========



NOTE M - CAPITAL STOCK

     On July 21, 2005, Ashland's Board of Directors authorized the purchase
of $270  million  of  Ashland  common  stock  in the open  market.  Through
September 30, 2005, Ashland had repurchased 1.8 million shares at a cost of
$100 million.

     In addition to other consideration received in connection with the MAP
Transaction,  Ashland  shareholders  received  one share of Ashland  common
stock, par value $0.01 per share, in exchange for each share of Old Ashland
common stock, par value $1.00 per share.

     Under  Ashland's   Shareholder  Rights  Plan,  each  common  share  is
accompanied  by one right to  purchase  one-thousandth  share of  preferred
stock  for $140.  Each  one-thousandth  share of  preferred  stock  will be
entitled to dividends  and to vote on an  equivalent  basis with one common
share. The rights are neither exercisable nor separately  transferable from
the common shares  unless a party  acquires or tenders for more than 15% of
Ashland's  common stock.  If any party  acquires more than 15% of Ashland's
common  stock or  acquires  Ashland in a business  combination,  each right
(other than those held by the  acquiring  party) will entitle the holder to
purchase  preferred  stock  of  Ashland  or  the  acquiring  company  at  a
substantial discount. The rights expire on May 16, 2006 and Ashland's Board
of Directors can amend certain  provisions of the Plan or redeem the rights
at any time prior to their  becoming  exercisable.  At September  30, 2005,
500,000  shares of  cumulative  preferred  stock are reserved for potential
issuance  under the  Shareholder  Rights Plan and 5.6 million common shares
are reserved for issuance under stock  incentive and deferred  compensation
plans.


                                    F-21

NOTE N - STOCK INCENTIVE PLANS

     Ashland  has  stock  incentive  plans  under  which key  employees  or
directors  are granted  stock  options,  stock-settled  stock  appreciation
rights (SARs) or nonvested stock awards. Stock options and SARs are granted
to  employees at a price equal to the fair market value of the stock on the
date of grant and become  exercisable  over  periods of one to three years.
Unexercised  options  and  SARs  lapse 10 years  after  the date of  grant.
Nonvested  stock awards  entitle  employees or directors to vote the shares
and to receive any dividends thereon.  However,  such shares are subject to
forfeiture  upon  termination  of service  before the vesting  period ends.
During 2005,  Ashland granted 22,500 nonvested stock awards with a weighted
average  fair value of $60.30  per  share.  During  2004,  Ashland  granted
216,900 nonvested stock awards with a weighted average fair value of $40.87
per share. Nonvested stock awards in 2003 were not significant.

     As discussed in Note A, Ashland began expensing employee stock options
and SARs in accordance  with FAS 123 during fiscal year 2003. The following
table illustrates the fair value per share of options or SARs granted using
the Black-Scholes option pricing model with the indicated assumptions.




(In millions except per share data)                                       2005         2004         2003
-----------------------------------------------------------------------------------------------------------
                                                                                      
Weighted average fair value per share of options or SARs granted     $   14.37    $   12.65    $    6.71
Assumptions (weighted average)
      Risk-free interest rate                                              4.0%         3.4%         3.1%
      Expected dividend yield                                              1.9%         2.0%         3.3%
      Expected volatility                                                 25.9%        25.9%        27.3%
      Expected life (in years)                                             5.0          5.0          5.0



     A progression  of activity and various other  information  relative to
stock options and SARs is presented in the following table.




                                                 2005                            2004                          2003
                                     ---------------------------     ----------------------------  ---------------------------
                                        Number        Weighted                          Weighted                     Weighted
                                            of          average                          average                      average
(In thousands except                    common   exercise price         Common    exercise price       Common  exercise price
 per share data)                        shares        per share         shares         per share       shares       per share
------------------------------------------------------------------------------------------------------------------------------
                                                                                                  
Outstanding-beginning of year (a)        5,165       $    40.37          7,807        $    37.17        7,482       $   37.28
Granted                                    688            58.73            603             54.65          537           33.42
Exercised                               (3,048)           37.93         (3,100)            35.29         (103)          27.96
Canceled                                   (83)           38.63           (145)            36.04         (109)          35.27
MAP Transaction adjustment (b)             552                -              -                 -            -               -
                                     ----------                      ----------                    -----------
Outstanding-end of year (a)              3,274            39.74 (b)      5,165             40.37        7,807           37.17
                                     ==========                      ==========                    ===========
Exercisable-end of year                  2,170            34.30          4,067             39.37        6,491           38.25


(a)  Shares of common  stock  available  for  future  grants of  options or
     awards  amounted to 496,000 at  September  30, 2005 and  1,098,000  at
     September  30,  2004.  Exercise  prices per share for options and SARs
     outstanding  at  September  30,  2005 ranged from $22.45 to $28.04 for
     805,000 shares,  from $30.00 to $39.58 for 859,000 shares, from $43.50
     to $45.19 for  917,000  shares,  and from $50.02 to $58.50 for 693,000
     shares. The weighted average remaining contractual life of the options
     and SARs was 6.9 years.

(b)  As described in Note D, Ashland shareholders  received $936 million of
     Marathon shares as a result of the MAP  Transaction.  Adjustments were
     made to outstanding grants of stock options and SARs to maintain their
     intrinsic  values.  The number of shares was  increased by a factor of
     1.2129 and the  exercise  prices were  decreased  by the same  factor.
     These  adjustments  did not result in an increase in the fair value of
     outstanding grants or any adjustment to expense recognition.


                                    F-22

NOTE O - LITIGATION, CLAIMS AND CONTINGENCIES

ASBESTOS-RELATED LITIGATION

     Ashland is subject to liabilities from claims alleging personal injury
caused  by  exposure  to  asbestos.   Such  claims  result  primarily  from
indemnification  obligations undertaken in 1990 in connection with the sale
of Riley Stoker Corporation  (Riley),  a former subsidiary.  Although Riley
was neither a producer  nor a  manufacturer  of  asbestos,  its  industrial
boilers  contained some  asbestos-containing  components  provided by other
companies.

     A summary of asbestos  claims  activity  follows.  Because  claims are
frequently  filed and  settled  in large  groups,  the amount and timing of
settlements  and number of open  claims can  fluctuate  significantly  from
period to period.


(In thousands)                                 2005         2004         2003
------------------------------------------------------------------------------
Open claims - beginning of year                 196          198          160
New claims filed                                 12           29           66
Claims settled                                   (6)          (7)          (7)
Claims dismissed                                (18)         (24)         (21)
                                          ----------   ----------   ----------
Open claims - end of year                       184          196          198
                                          ==========   ==========   ==========


     Since October 1, 2002,  Riley has been dismissed as a defendant in 76%
of the  resolved  claims.  Amounts  spent on  litigation  defense and claim
settlements  averaged $1,985 per claim resolved in 2005, compared to $1,655
in 2004 and $1,610 in 2003.  A  progression  of  activity  in the  asbestos
reserve is presented in the following table.


(In millions)                                   2005         2004         2003
-------------------------------------------------------------------------------
Asbestos reserve - beginning of period     $     618    $     610    $     202
Expense incurred                                   -           59          453
Amounts paid                                     (47)         (51)         (45)
                                           ----------   ----------   ----------
Asbestos reserve - end of period           $     571    $     618    $     610
                                           ==========   ==========   ==========


     During the December  2002 quarter,  Ashland  increased its reserve for
asbestos  claims by $390 million to cover the litigation  defense and claim
settlement  costs for probable and  reasonably  estimable  future  payments
related to existing  open claims,  as well as an estimate of those that may
be filed in the future.  Prior to December 31, 2002,  the asbestos  reserve
was based on the estimated  costs that would be incurred to settle existing
open claims.  A range of estimates  of future  asbestos  claims and related
costs using  various  assumptions  was  developed  with the  assistance  of
Hamilton, Rabinovitz & Alschuler, Inc. (HR&A). The methodology used by HR&A
to project  future  asbestos  costs was based  largely on Ashland's  recent
experience,  including claim-filing and settlement rates, disease mix, open
claims, and litigation defense and claim settlement costs.  Ashland's claim
experience   was   compared   to  the  results  of   previously   conducted
epidemiological  studies  estimating the number of people likely to develop
asbestos-related diseases. Those studies were undertaken in connection with
national  analyses  of the  population  expected  to have been  exposed  to
asbestos.  Using that information,  HR&A estimated a range of the number of
future  claims that may be filed,  as well as the related costs that may be
incurred in resolving those claims.

     From the range of estimates,  Ashland  recorded the amount it believed
to be the best  estimate,  which  represented  the  expected  payments  for
litigation  defense and claim  settlement  costs during the next ten years.
Subsequent  updates to this estimate have been made, with the assistance of
HR&A,  based on a combination  of a number of factors  including the actual
volume  of new  claims,  recent  settlement  costs,  changes  in the mix of
alleged  disease,   enacted  legislative  changes  and  other  developments
impacting  Ashland's  estimate of future  payments.  Ashland's  reserve for
asbestos  claims on an  undiscounted  basis  amounted  to $571  million  at
September 30, 2005, compared to $618 million at September 30, 2004.

     Projecting future asbestos costs is subject to numerous variables that
are  extremely  difficult  to  predict.  In  addition  to  the  significant
uncertainties  surrounding  the number of claims  that  might be  received,
other  variables  include the type and  severity of the disease  alleged by
each claimant,  the long latency period associated with asbestos  exposure,
dismissal rates,  costs  of medical  treatment,  the impact of bankruptcies
of other   companies  that  are  co-defendants  in  claims,   uncertainties
surrounding the litigation  process from  jurisdiction to jurisdiction  and
from case to case,  and the impact of potential  changes in  legislative or
judicial  standards.  Furthermore,  any  predictions  with respect to these
variables are subject to even greater  uncertainty as the projection period
lengthens. In light of these


                                    F-23

NOTE O - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

inherent  uncertainties,  Ashland believes its asbestos reserve  represents
the best  estimate  within a range of possible  outcomes.  As a part of the
process to develop Ashland's estimates of future asbestos costs, a range of
long-term cost models is developed that assumes a run-out of claims through
2056. These models are based on national studies that predict the number of
people  likely  to  develop  asbestos-related   diseases  and  are  heavily
influenced by assumptions regarding long-term inflation rates for indemnity
payments and legal  defense  costs,  as well as other  variables  mentioned
previously.  The total future litigation defense and claim settlement costs
on an undiscounted  basis has been estimated  within a reasonably  possible
range of $400  million to $1.9  billion,  depending  on the number of years
those costs  extend and other  combinations  of  assumptions  selected.  If
actual experience is worse than projected  relative to the number of claims
filed,  the  severity of alleged  disease  associated  with those claims or
costs  incurred  to resolve  those  claims,  Ashland  may need to  increase
further the  estimates of the costs  associated  with  asbestos  claims and
these increases could potentially be material over time.

     Ashland has insurance  coverage for most of the litigation defense and
claim settlement costs incurred in connection with its asbestos claims, and
coverage-in-place  agreements  exist  with  the  insurance  companies  that
provide  substantially all of the coverage  currently being accessed.  As a
result,  increases  in the asbestos  reserve  have been  largely  offset by
probable insurance  recoveries.  The amounts not recoverable  generally are
due from insurers that are insolvent,  rather than as a result of uninsured
claims or the exhaustion of Ashland's insurance coverage.

     Ashland retained the services of  Tillinghast-Towers  Perrin to assist
management  in  estimating  the  value  of  reasonably  possible  insurance
recoveries  associated with Ashland's estimate of its asbestos liabilities.
Such  recoveries  are  based  on  management's  assumptions  and  estimates
surrounding  the  available  or  applicable  insurance  coverage.  One such
assumption is that all solvent insurance carriers remain solvent.  Although
coverage  limits  are  resolved  in the  coverage-in-place  agreement  with
Equitas Limited  (Equitas) and other London companies,  which  collectively
provide a significant  portion of Ashland's insurance coverage for asbestos
claims,  there is a  disagreement  with these  companies over the timing of
recoveries.  The  resolution  of this  disagreement  could  have a material
effect  on the value of  insurance  recoveries  from  those  companies.  In
estimating  the  value of  future  recoveries,  Ashland  has used the least
favorable  interpretation  of  this  agreement  under  which  the  ultimate
recoveries are extended for many years, resulting in a significant discount
being  applied to value those  recoveries.  Ashland will  continue to apply
this methodology  until such time as the disagreement is resolved.  On July
21, 2004,  Ashland  filed a demand for  arbitration  to resolve the dispute
concerning the interpretation of this agreement.

     At  September  30,  2005,   Ashland's  receivable  for  recoveries  of
litigation defense and claim settlement costs from its insurers amounted to
$400  million,  of which $64  million  relates  to costs  previously  paid.
Receivables from insurance  companies amounted to $435 million at September
30, 2004.  Approximately  40% of the estimated  receivables  from insurance
companies  at  September  30, 2005 are  expected to be due from Equitas and
other London companies. Of the remainder,  approximately 90% is expected to
come from companies or groups that are rated A or higher by A. M. Best.


ENVIRONMENTAL REMEDIATION

     Ashland is subject to various federal,  state and local  environmental
laws and regulations that require  environmental  assessment or remediation
efforts (collectively  environmental remediation) at multiple locations. At
September 30, 2005, such locations included 102 waste treatment or disposal
sites where Ashland has been identified as a potentially  responsible party
under  Superfund  or similar  state laws,  94 current and former  operating
facilities  (including  certain operating  facilities  conveyed to MAP) and
about 1,220 service  station  properties,  of which 214 are being  actively
remediated.  Ashland's reserves for environmental  remediation  amounted to
$178 million at September  30, 2005 and $152 million at September 30, 2004,
of which $145 million at  September  30, 2005 and $119 million at September
30, 2004 were  classified in  noncurrent  liabilities  on the  Consolidated
Balance Sheets.  The total reserves for environmental  remediation  reflect
Ashland's  estimates of the most likely costs that will be incurred over an
extended period to remediate identified  conditions for which the costs are
reasonably  estimable,   without  regard  to  any  third-party  recoveries.
Engineering  studies,  probability  techniques,  historical  experience and
other  factors are used to identify and evaluate  remediation  alternatives
and  their  related  costs  in  determining  the  estimated   reserves  for
environmental remediation.

     Environmental  remediation  reserves are subject to numerous  inherent
uncertainties  that affect  Ashland's  ability to estimate its share of the
costs. Such uncertainties involve the nature and extent of contamination at
each  site,  the  extent  of  required   cleanup   efforts  under  existing
environmental  regulations,  widely  varying  costs  of  alternate  cleanup
methods,  changes in  environmental  regulations,  the potential  effect of
continuing improvements in remediation


                                    F-24

technology,  and the number and  financial  strength  of other  potentially
responsible  parties at multiparty  sites.  Ashland  regularly  adjusts its
reserves as environmental remediation continues.  Environmental remediation
expense amounted to $47 million in 2005, $2 million in 2004 and $22 million
in 2003.

     No  individual  remediation  location  is  material  to Ashland as its
largest reserve for any site is less than 10% of the  remediation  reserve.
As a result, Ashland's exposure to adverse developments with respect to any
individual  site is not  expected  to be  material,  and these sites are in
various stages of ongoing remediation.  Although environmental  remediation
could  have a  material  effect on  results  of  operations  if a series of
adverse developments occurs in a particular quarter or fiscal year, Ashland
believes that the chance of such developments occurring in the same quarter
or fiscal year is remote.


OTHER LEGAL PROCEEDINGS

     In addition to the matters described above,  there are various claims,
lawsuits  and  administrative  proceedings  pending or  threatened  against
Ashland  and its  current and former  subsidiaries.  Such  actions are with
respect to commercial matters, product liability, toxic tort liability, and
other environmental  matters, which seek remedies or damages, some of which
are for substantial amounts. While these actions are being contested, their
outcome or cost is not predictable.


NOTE P - DISCONTINUED OPERATIONS

     Ashland is subject to liabilities from claims alleging personal injury
caused  by  exposure  to  asbestos.   Such  claims  result  primarily  from
indemnification  obligations undertaken in 1990 in connection with the sale
of Riley Stoker Corporation, a former subsidiary.  During the quarter ended
December 31, 2002,  Ashland  increased  its reserve for asbestos  claims by
$390  million  to cover  litigation  defense  and  claim  settlement  costs
expected to be paid  through  December  2012.  Because  insurance  provides
reimbursements  for most of these  costs and  coverage-in-place  agreements
exist with the insurance  companies that provide  substantially  all of the
coverage being accessed, the increase in the asbestos reserve was offset in
part by probable insurance recoveries valued at $235 million. The resulting
$155 million pretax charge to income,  net of deferred  income tax benefits
of $60  million,  was  reflected  as an  after-tax  loss from  discontinued
operations of $95 million in the Statement of  Consolidated  Income for the
three months ended December 31, 2002.  Additional reserves were recorded in
2003 and 2004 to reflect  updates to these  estimates.  No  increase to the
asbestos reserve or insurance  receivable was recorded during 2005,  though
minor   unreserved   expenses  were  incurred   associated   with  asbestos
liabilities.   See   Note   O   for   further   discussion   of   Ashland's
asbestos-related litigation.

     On August 29,  2003,  Ashland  sold the net  assets of its  Electronic
Chemicals business and certain related subsidiaries in a transaction valued
at approximately $300 million before tax.  Electronic  Chemicals was a part
of Ashland  Specialty  Chemical,  providing  ultra pure chemicals and other
products  and  services  to  the  worldwide  semiconductor  industry,  with
revenues of $215 million in 2003. The sale reflects  Ashland's  strategy to
optimize  its  business mix and focus  greater  attention on the  remaining
chemical and  transportation  construction  operations where it can achieve
strategic  advantage.  Ashland's  after-tax proceeds were used primarily to
reduce debt. During 2004, Ashland recorded certain minor adjustments to the
gain reported in 2003.

     During 2004,  Ashland  reached  resolution  with the Internal  Revenue
Service on several  open tax  matters  from prior  years.  In  addition  to
amounts reported in income from continuing operations, favorable resolution
was  also  reached  on  matters  associated  with  previously  discontinued
businesses,  resulting  in a $1 million  tax  benefit  from the  associated
reduction in contingent tax liabilities previously recorded.

     Components of amounts  reflected in the income  statements  related to
discontinued operations are presented in the following table.


                                    F-25

NOTE P - DISCONTINUED OPERATIONS (CONTINUED)




(In millions)                                                        2005         2004         2003
----------------------------------------------------------------------------------------------------
                                                                                 
Income (loss) from discontinued operations
Asbestos-related litigation reserves and expenses               $      (1)   $     (29)   $    (178)
Electronic Chemicals                                                    -            -           17
Gain (loss) on disposal of discontinued operations
Electronic Chemicals                                                    -           (2)         101
                                                                ----------   ----------   ----------
Loss before income taxes                                               (1)         (31)         (60)
Income tax benefit (expense)
Income (loss) from discontinued operations
      Asbestos-related litigation reserves and expenses                 -           11           69
      Electronic Chemicals                                              -            -           (3)
Gain (loss) on disposal of discontinued operations                      -           (1)         (20)
Resolution of tax contingency issues                                    -            1            -
                                                                ----------   ----------   ----------
Results from discontinued operations                            $      (1)   $     (20)   $     (14)
                                                                ==========   ==========   ==========



NOTE Q - EMPLOYEE BENEFIT PLANS

PENSION PLANS

     Ashland and its subsidiaries  sponsor contributory and noncontributory
qualified  and  non-qualified  defined  benefit  pension  plans  that cover
substantially  all  employees in the United States and in a number of other
countries. Included in the following pension plan disclosures for the first
time in 2004 are amounts  related to employees in the United  Kingdom,  the
Netherlands and Canada.  Amounts for prior years have not been restated, as
the impact on Ashland's  financial position and results of operations would
not be material.

     Ashland's  funding  policy is to fully  fund the  accumulated  benefit
obligations  of its qualified  U.S.  plans with the level of  contributions
being determined annually to achieve that objective over time. In addition,
Ashland has non-qualified unfunded pension plans which provide supplemental
defined  benefits to those  employees  whose  benefits  under the qualified
pension plans are limited by the Employee Retirement Income Security Act of
1974  and the  Internal  Revenue  Code.  Ashland  funds  the  costs  of the
non-qualified  plans as the  benefits  are paid.  Pension  obligations  for
employees  of  non-U.S.  consolidated  subsidiaries  are  provided  for  by
depositing funds with trustees or by book reserves in accordance with local
practices and regulations of the respective countries.

     Prior to July 1, 2003,  benefits under  Ashland's  U.S.  pension plans
generally were based on employees' years of service and compensation during
the years immediately preceding their retirement.  Although certain changes
were  implemented on that date,  the pension  benefits of employees with at
least ten years of  service  were not  affected.  As of July 1,  2003,  the
pension  benefits of affected  employees  were  converted  to cash  balance
accounts.  Such employees  received an initial account balance equal to the
present  value of their  accrued  benefits  under the previous plan on that
date.  Pension  benefits for these  employees  are based on the balances in
their accounts upon retirement.


OTHER POSTRETIREMENT BENEFIT PLANS

     Ashland and its  subsidiaries  sponsor  healthcare  and life insurance
plans for eligible employees who retire or are disabled.  Ashland's retiree
life insurance plans are noncontributory, while Ashland shares the costs of
providing  healthcare coverage with its retired employees through premiums,
deductibles  and  coinsurance  provisions.  Ashland  funds its share of the
costs of the postretirement benefit plans as the benefits are paid.

     On December 8, 2003, the Medicare  Prescription Drug,  Improvement and
Modernization  Act of 2003  (the Act) was  signed  into  law.  Among  other
things, the Act will expand Medicare to include an outpatient  prescription
drug benefit  beginning in 2006,  as well as provide a subsidy for sponsors
of  retiree  health  care  plans  that  provide a benefit  that is at least
actuarially  equivalent to the Medicare Act benefits. In May 2004, the FASB
issued  Staff  Position  (FSP) No. FAS 106-2,  "Accounting  and  Disclosure
Requirements  Related to the Medicare  Prescription  Drug,  Improvement and
Modernization  Act of 2003." The FSP provides  accounting  guidance for the
effects  of the Act to a sponsor  of a  postretirement  health  care  plan.
Regulations  implementing  major  provisions  of  the  Act,  including  the
determination  of  actuarial  equivalency,  were  issued in  January  2005.
Effective  May 1, 2005,  Ashland  amended its health care plan for retirees
age 65 or older so that the company will always qualify for the subsidy and
remeasured


                                    F-26

its  postretirement  benefit  obligation as of that date. The remeasurement
reduced the  postretirement  benefit  obligation by $58 million and reduced
postretirement  benefit  costs by $3 million  over the last five  months of
fiscal year 2005.

     On July 1, 2003, Ashland  implemented changes in the way it shares the
cost of  healthcare  coverage with future  retirees.  These changes did not
affect the  previous  cost-sharing  program for  retirees or for  employees
meeting certain  qualifications  at that date.  However,  Ashland did amend
that program to limit its annual per capita  costs to an amount  equivalent
to base year per capita costs, plus annual increases of up to 1.5% per year
for costs incurred after January 1, 2004. Under a previous amendment,  base
year costs were  limited  to the  amounts  incurred  in 1992,  plus  annual
increases of up to 4.5% per year thereafter.  As a result, health care cost
trend  rates have no  significant  effect on the amounts  reported  for the
health care plans.  Premiums for retiree healthcare coverage are equivalent
to the excess of the  estimated  per capita costs over the amounts borne by
Ashland.

     Employees  who were  employed  on June  30,  2003 who did not meet the
required  qualifications  were allocated notional accounts that can only be
used to pay all or part of the  premiums for retiree  healthcare  coverage.
Such premiums represent the full costs of providing that coverage,  without
any subsidy from Ashland.  Employees  must meet certain  requirements  upon
separation  in order to have access to their  notional  accounts.  Retirees
will  continue to have  access to Ashland  coverage  after  their  notional
accounts are exhausted,  but they will be  responsible  for paying the full
premiums.  New hires  after June 30,  2003 will have  access to any retiree
health  coverage  that may be  provided,  but will  have no  company  funds
available to help pay for such coverage.


COMPONENTS OF NET PERIODIC BENEFIT COSTS

     The plan amendments in 2003 and 1992 previously  discussed under other
postretirement  benefit plans reduced Ashland's  accrued  obligations under
those plans,  and the reductions are being  amortized to income over future
periods. Such amortization reduced Ashland's net periodic benefit costs for
other  postretirement  benefits by $9 million in 2005,  $15 million in 2004
and $10 million in 2003. At September 30, 2005, the remaining  unrecognized
prior service credit  resulting  from the changes  amounted to $76 million,
and will reduce  future  costs by $8 million in 2006 and  approximately  $8
million annually thereafter through 2014.

     The following  table  summarizes  the  components of pension and other
postretirement  benefit costs,  and the  assumptions  used to determine net
periodic  benefit  costs  for  U.S.  plans.  Non-U.S.   pension  plans  use
assumptions generally consistent with those of U.S. plans.




                                                Pension benefits                   Other postretirement benefits
                                       ------------------------------------      -----------------------------------
(In millions)                                2005        2004         2003            2005         2004        2003
--------------------------------------------------------------------------------------------------------------------
                                                                                        
Net periodic benefit costs
Service cost                           $       53   $      51   $       43       $       9   $        9   $      11
Interest cost                                  78          73           65              16           17          22
Expected return on plan assets                (78)        (66)         (51)              -            -           -
Amortization of prior service credit            -           -            -              (9)         (15)        (10)
Amortization of net actuarial loss             33          29           30               3            5           3
                                       -----------  ----------  -----------      ----------  -----------  ----------
                                       $       86   $      87   $       87       $      19   $       16   $      26
                                       ===========  ==========  ===========      ==========  ===========  ==========
U.S. plan assumptions
Discount rate                                6.00%       6.25%        6.75%           6.00%        6.25%       6.75%
Rate of compensation increase                4.50%       4.50%        5.00%              -            -           -
Expected long-term rate of
      return on plan assets                  8.50%       8.50%        9.00%              -            -           -



OBLIGATIONS AND FUNDED STATUS

     Ashland uses a measurement date of September 30 for all of its pension
and postretirement  benefit plans.  Actuarial  valuations are performed for
the pension, postemployment and postretirement plans to determine Ashland's
obligation for each plan.  Summaries of the change in benefit  obligations,
plan assets,  funded status of the plans, amounts recognized in the balance
sheet, and assumptions used to determine the U.S. plan benefit  obligations
for 2005 and 2004 follow. Non-U.S.  pension plans use assumptions generally
consistent with those of U.S. plans.


                                    F-27

NOTE Q - EMPLOYEE BENEFIT PLANS (CONTINUED)




                                                                                              Other postretirement
                                                                 Pension plans                    benefit plans
                                                             -----------------------         ------------------------
(In millions)                                                     2005         2004                2005         2004
---------------------------------------------------------------------------------------------------------------------
                                                                                               
Change in benefit obligations
Benefit obligations at October 1                             $   1,330    $   1,192 (a)      $      298    $     296
Service cost                                                        53           51                   9            9
Interest cost                                                       78           73                  16           17
Participant contributions                                            1            1                   9           11
Benefits paid                                                      (56)         (48)                (31)         (31)
Medicare Part D Act                                                  -            -                 (58)           -
Changes in assumptions                                             160           44                   4            7
Foreign currency exchange rate changes                               2            8                   -            -
Other-net                                                          (10)           9                  (1)         (11)
                                                             ----------   ----------         -----------   ----------
Benefit obligations at September 30                          $   1,558    $   1,330          $      246    $     298
                                                             ==========   ==========         ===========   ==========
Change in plan assets
Value of plan assets at October 1                            $     932    $     740 (a)      $        -    $       -
Actual return on plan assets                                       131           86                   -            -
Employer contributions                                             121          137                  22           20
Participant contributions                                            1            1                   9           11
Benefits paid                                                      (50)         (43)                (31)         (31)
Foreign currency exchange rate changes                               1            5                   -            -
Other                                                                7            6                   -            -
                                                             ----------   ----------         -----------   ----------
Value of plan assets at September 30                         $   1,143    $     932          $        -    $       -
                                                             ==========   ==========         ===========   ==========
Funded status of the plans
Unfunded benefit obligation                                  $    (415)   $    (398)         $     (246)   $    (298)
Unrecognized net actuarial loss                                    480          422 (a)              19           77
Unrecognized prior service credit                                    -           (2)                (76)         (85)
                                                             ----------   ----------         -----------   ----------
Net amount recognized                                        $      65    $      22          $     (303)   $    (306)
                                                             ==========   ==========         ===========   ==========
Amounts recognized in the balance sheet
Accrued benefit liabilities                                  $    (199)   $    (191)         $     (303)   $    (306)
Intangible assets                                                    2            1                   -            -
Accumulated other comprehensive loss                               262          212                   -            -
                                                             ----------   ----------         -----------   ----------
Net amount recognized                                        $      65    $      22          $     (303)   $    (306)
                                                             ==========   ==========         ===========   ==========
U.S. plan assumptions
Discount rate                                                     5.48%        6.00%               5.33%        6.00%
Rate of compensation increase                                     4.50%        4.50%                  -            -


(a)  Beginning  balances  have been  adjusted  to  include  $91  million of
     benefit  obligations,  $60 million of plan assets,  and $31 million of
     unrecognized net actuarial loss for certain non-U.S. pension plans.

     The  accumulated  benefit  obligation for all pension plans was $1,345
million at September  30, 2005 and $1,118  million at  September  30, 2004.
Information  for pension plans with an  accumulated  benefit  obligation in
excess of plan assets follows.




                                                        2005                                    2004
                                          ----------------------------------      -----------------------------------
                                                            Non-                                   Non-
                                          Qualified    qualified                  Qualified   qualified
(In millions)                              plans (b)       plans      Total        plans (b)       plans       Total
---------------------------------------------------------------------------------------------------------------------
                                                                                         
Projected benefit obligation              $   1,355   $      118   $  1,473       $   1,195    $     110   $   1,305
Accumulated benefit obligation                1,171          106      1,277           1,000           98       1,098
Fair value of plan assets                     1,069            -      1,069             908            -         908


(b) Includes qualified U.S. and non-U.S. pension plans.


                                    F-28


PLAN ASSETS

     The expected  long-term rate of return on U.S. pension plan assets for
2005 of 8.5% was  based on an  assumed  real  rate of  return of 5.5% and a
projected  long-term  inflation rate of 3%. The basis for  determining  the
expected  long-term  rate of  return  is a  combination  of  future  return
assumptions  for various asset classes in Ashland's  investment  portfolio,
historical analysis of previous returns, market indices and a projection of
inflation.

     Ashland's U.S.  pension plan assets are managed by outside  investment
managers,  which are monitored monthly against investment return benchmarks
and  Ashland's  established   investment  strategy.   Ashland's  investment
strategy is designed to promote  diversification to moderate volatility and
to balance the expected  long-term  rate of return with an acceptable  risk
level.  Investment  managers  are  selected  based on an analysis of, among
other things,  their investment  process,  historical  investment  results,
frequency  of  management   turnover,   cost  structure  and  assets  under
management. Assets are periodically reallocated between investment managers
to maintain an appropriate asset mix, diversification of investments and to
maximize returns.

     Ashland's  investment  strategy and management  practices  relative to
plan assets of non-U.S.  plans generally are consistent with those for U.S.
plans,  except  in those  countries  where  investment  of plan  assets  is
dictated by applicable regulations.

     The  target   allocation   for  2005  by  asset  category  and  actual
allocations at September 30, 2005 and 2004 follow.



                              Target           Actual at September 30
                             --------        ------------------------
(In millions)                   2005            2005            2004
---------------------------------------------------------------------
Plan assets allocation
Equity securities                70%             71%             68%
Debt securities                  30%             27%             30%
Other                               -             2%              2%
                             --------        --------        --------
                                100%            100%            100%
                             ========        ========        ========


CASH FLOWS

     In fiscal 2006, Ashland expects to contribute $135 million to its U.S.
pension plans and $6 million to its non-U.S.  pension plans.  The following
benefit payments,  which reflect future service, are expected to be paid in
each of the next five years and in aggregate for five years thereafter.




                                                  Other postretirement benefits
                                          --------------------------------------------
                         Pension             With Medicare           Without Medicare
(In millions)           benefits            Part D subsidy             Part D subsidy
--------------------------------------------------------------------------------------
                                                               
2006                  $       66              $         20              $          23
2007                          63                        20                         23
2008                          73                        20                         24
2009                          72                        20                         24
2010                          83                        20                         25
2011-2015                    490                       110                        138



OTHER PLANS

     Certain union employees are covered under multiemployer  pension plans
administered  by  unions.  Amounts  contributed  annually  to the  plans by
Ashland  and  charged  to  expense  amounted  to $6  million in 2005 and $5
million in 2004 and 2003.

     Ashland sponsors  qualified savings plans to assist eligible employees
in  providing  for  retirement  or other  future  needs.  Under such plans,
company contributions  amounted to $24 million in 2005, $23 million in 2004
and $19 million in 2003.


                                    F-29



Ashland Inc. and Consolidated Subsidiaries
Information by Industry Segment
Years Ended September 30

(In millions)                                                         2005         2004         2003
-----------------------------------------------------------------------------------------------------
                                                                                  
Revenues
Sales and operating revenues
      APAC                                                       $   2,539    $   2,525    $   2,400
      Ashland Distribution                                           3,810        3,199        2,811
      Ashland Specialty Chemical                                     1,763        1,386        1,212
      Valvoline                                                      1,326        1,297        1,235
      Intersegment sales (a)
        Ashland Distribution                                           (22)         (19)         (21)
        Ashland Specialty Chemical                                    (144)         (86)         (69)
        Valvoline                                                       (2)          (1)          (2)
                                                                 ----------   ----------   ----------
                                                                     9,270        8,301        7,566
Equity income
      APAC                                                               6           19            9
      Ashland Specialty Chemical                                         8            8            7
      Refining and Marketing                                           517          405          285
                                                                 ----------   ----------   ----------
                                                                       531          432          301
Other income
      APAC                                                              20           22            -
      Ashland Distribution                                               7            9           18
      Ashland Specialty Chemical                                        21           16           10
      Valvoline                                                          6            4            5
      Refining and Marketing                                             3           (6)           2
      Corporate                                                          2            3           10
                                                                 ----------   ----------   ----------
                                                                        59           48           45
                                                                 ----------   ----------   ----------
                                                                 $   9,860    $   8,781    $   7,912
                                                                 ==========   ==========   ==========
Operating income
APAC                                                             $      48    $     111    $     (42)
Ashland Distribution                                                   123           78           32
Ashland Specialty Chemical                                             134           87           31
Valvoline                                                               90          105           87
Refining and Marketing (b)                                             486          383          263
Corporate                                                             (135)        (102)        (105)
                                                                 ----------   ----------   ----------
                                                                 $     746    $     662    $     266
                                                                 ==========   ==========   ==========
Assets
APAC                                                             $   1,569    $   1,428    $   1,481
Ashland Distribution                                                 1,057          922          856
Ashland Specialty Chemical                                             997          842          749
Valvoline                                                              723          658          667
Refining and Marketing                                                  85        2,742        2,484
Corporate (c)                                                        2,384          910          769
                                                                 ----------   ----------   ----------
                                                                 $   6,815    $   7,502    $   7,006
                                                                 ==========   ==========   ==========



                                    F-30



(In millions)                                                               2005         2004         2003
-----------------------------------------------------------------------------------------------------------
                                                                                        
Investment in equity affiliates
APAC                                                                  $       10    $       6    $       4
Ashland Specialty Chemical                                                    42           40           35
Valvoline                                                                      7            7            8
Refining and Marketing                                                         -        2,713        2,448
Corporate                                                                      2            1            -
                                                                      -----------   ----------   ----------
                                                                      $       61    $   2,767    $   2,495
                                                                      ===========   ==========   ==========
Expense (income) not affecting cash
Depreciation, depletion and amortization
      APAC                                                            $       93    $      95    $     108
      Ashland Distribution                                                    18           18           19
      Ashland Specialty Chemical                                              44           41           40
      Valvoline                                                               27           27           26
      Corporate                                                               11           12           11
                                                                      -----------   ----------   ----------
                                                                             193          193          204
Other noncash items (d)
      APAC                                                                   (36)          20          (25)
      Ashland Distribution                                                    (6)           3            3
      Ashland Specialty Chemical                                             (48)(e)        8           (2)
      Valvoline                                                              (31)(e)        2            4
      Refining and Marketing                                              (2,005)(e)     (181)           2
      Corporate                                                              200 (e)       12          (30)
                                                                      -----------   ----------   ----------
                                                                          (1,926)        (136)         (48)
                                                                      -----------   ----------   ----------
                                                                      $   (1,733)   $      57    $     156
                                                                      ===========   ==========   ==========
Property, plant and equipment - net
APAC                                                                  $      592    $     478    $     525
Ashland Distribution                                                         176          166          174
Ashland Specialty Chemical                                                   318          309          282
Valvoline                                                                    236          215          221
Corporate                                                                    100           88           70
                                                                      -----------   ----------   ----------
                                                                      $    1,422    $   1,256    $   1,272
                                                                      ===========   ==========   ==========
Additions to property, plant and equipment
APAC                                                                  $      200    $      73    $      47
Ashland Distribution                                                          26           10            5
Ashland Specialty Chemical                                                    64           62           34
Valvoline                                                                     66           26           18
Corporate                                                                     24           39            8
                                                                      -----------   ----------   ----------
                                                                      $      380    $     210    $     112
                                                                      ===========   ==========   ==========



(a)  Intersegment sales are accounted for at prices that approximate market
     value.
(b)  Includes  Ashland's  equity  income  from MAP through  June 30,  2005,
     amortization  related to Ashland's excess investment in MAP, and other
     activities associated with refining and marketing.
(c)  Includes cash,  cash  equivalents,  available-for-sale  securities and
     other unallocated assets.
(d)  Includes  deferred income taxes,  equity income from affiliates net of
     distributions and other items not affecting cash.
(e)  Includes  a  $1,531  million   reduction  to  income  from  continuing
     operations to arrive at cash flows from operations for the gain on the
     MAP Transaction and the loss on early retirement of debt, net of their
     respective  tax  effects.  This  amount  was  recorded  by  segment as
     follows:  $(43) million for Ashland Specialty Chemical,  $(24) million
     for Valvoline,  $(1,625) million for Refining and Marketing,  and $161
     million for Corporate.


                                    F-31

QUARTERLY FINANCIAL INFORMATION


     The following table presents quarterly  financial  information and per
share data relative to Ashland's common stock.




Quarters ended                        December 31            March 31             June 30           September 30
                                   ------------------   -------------------  -------------------  ------------------
(In millions except per share data)   2004      2003        2005      2004      2005(a)    2004      2005(b)   2004
--------------------------------------------------------------------------------------------------------------------
                                                                                    
Sales and operating revenues       $ 2,177   $ 1,936    $  2,062  $  1,825   $ 2,492   $  2,206   $ 2,538   $ 2,334
Operating income                       180        92          86        10       410        292        70       268
Income (loss) from
      continuing operations             94        39          33       (11)    1,767        167       112       203
Net income (loss)                       94        34          33       (16)    1,767        161       111       200

Basic earnings (loss) per share
      Continuing operations        $  1.30   $   .56    $    .45  $   (.16)  $ 24.13   $   2.38   $  1.51   $  2.86
      Net income (loss)               1.30       .49         .45      (.23)    24.13       2.29      1.50      2.81

Diluted earnings (loss) per share
      Continuing operations        $  1.28   $   .56    $    .44  $   (.16)  $ 23.65   $   2.35   $  1.49   $  2.81
      Net income (loss)               1.28       .49         .44      (.23)    23.65       2.26      1.48      2.76

Common cash dividends per share    $  .275   $  .275    $   .275  $   .275   $  .275   $   .275   $  .275   $  .275

Market price per common share
      High                         $ 60.17   $ 44.55    $  68.85  $  52.20   $ 72.20   $  53.35   $ 65.25   $ 56.71
      Low                            53.80     33.19       54.72     43.73     61.45      44.25     50.45     48.40


(a)  On June 30, 2005,  Ashland  completed the transfer of its 38% interest
     in MAP as well  as its  maleic  anhydride  business  and 60  Valvoline
     Instant Oil Change  centers in Michigan and northwest Ohio to Marathon
     in  a  transaction  valued  at  approximately  $3.7  billion.  Ashland
     recorded a gain of $1,295  million  during the  quarter as a result of
     this transaction. See Note D for further information.

(b)  During the  quarter,  Ashland  recorded  $39  million in tax  benefits
     related to prior  years.  These  benefits  resulted  primarily  from a
     favorable  settlement with the Internal Revenue Service for the 1996 -
     1998 audit period and the  reevaluation of income tax reserves related
     to other years.




Ashland Inc. and Consolidated Subsidiaries
Schedule II - Valuation and Qualifying Accounts

                                                  Balance at     Provisions                                  Balance
                                                   beginning     charged to      Reserves        Other        at end
(In millions)                                        of year       earnings      utilized      changes       of year
---------------------------------------------------------------------------------------------------------------------
                                                                                            
Year ended September 30, 2005
Reserves deducted from asset accounts
      Accounts receivable                           $     41     $       15    $      (13)   $       -     $      43
      Inventories                                         10              3            (2)           -            11
---------------------------------------------------------------------------------------------------------------------
Year ended September 30, 2004
Reserves deducted from asset accounts
      Accounts receivable                           $     35     $       20    $      (16)   $       2     $      41
      Inventories                                          9              2            (1)           -            10
---------------------------------------------------------------------------------------------------------------------
Year ended September 30, 2003
Reserves deducted from asset accounts
      Accounts receivable                           $     34     $       18    $      (18)   $       1     $      35
      Inventories                                         12              2            (5)           -             9
---------------------------------------------------------------------------------------------------------------------




                                    F-32

Ashland Inc. and Consolidated Subsidiaries
FIVE-YEAR SELECTED FINANCIAL INFORMATION
Years Ended September 30



(In millions except per share data)                        2005         2004          2003         2002         2001
---------------------------------------------------------------------------------------------------------------------
                                                                                                  
SUMMARY OF OPERATIONS
Revenues
      Sales and operating revenues                    $   9,270    $   8,301    $    7,566   $    7,390   $    7,544
      Equity income                                         531          432           301          181          755
      Other income                                           59           48            45           46           53
Costs and expenses
      Cost of sales and operating expenses               (7,823)      (6,948)       (6,390)      (6,115)      (6,358)
      Selling, general and administrative expenses       (1,291)      (1,171)       (1,256)      (1,181)      (1,163)
                                                      ----------   ----------   -----------  -----------  -----------
Operating income                                            746          662           266          321          831
Gain on the MAP Transaction                               1,284            -             -            -            -
Loss on early retirement of debt                           (145)           -             -            -            -
Net interest and other financial costs                      (82)        (114)         (128)        (138)        (175)
                                                      ----------   ----------   -----------  -----------  -----------
Income from continuing operations
      before income taxes                                 1,803          548           138          183          656
Income taxes                                                202         (150)          (44)         (68)        (266)
                                                      ----------   ----------   -----------  -----------  -----------
Income from continuing operations                         2,005          398            94          115          390
Results from discontinued operations                         (1)         (20)          (14)          13           32
                                                      ----------   ----------   -----------  -----------  -----------
Income before cumulative effect
      of accounting changes                               2,004          378            80          128          422
Cumulative effect of accounting changes                       -            -            (5)         (11)          (5)
                                                      ----------   ----------   -----------  -----------  -----------
Net income                                            $   2,004    $     378    $       75   $      117   $      417
                                                      ==========   ==========   ===========  ===========  ===========
BALANCE SHEET INFORMATION
Current assets                                        $   3,757    $   2,302    $    2,085   $    2,071   $    2,233
Current liabilities                                       1,545        1,815         1,484        1,520        1,530
                                                      ----------   ----------   -----------  -----------  -----------
Working capital                                       $   2,212    $     487    $      601   $      551   $      703
                                                      ==========   ==========   ===========  ===========  ===========

Total assets                                          $   6,815    $   7,502    $    7,006   $    6,722   $    7,128

Short-term debt                                       $       -    $      40    $        -   $       10   $        -
Long-term debt (including current portion)                   94        1,508         1,614        1,797        1,871
Stockholders' equity                                      3,739        2,706         2,253        2,173        2,226
                                                      ----------   ----------   -----------  -----------  -----------
Capital employed                                      $   3,833    $   4,254    $    3,867   $    3,980   $    4,097
                                                      ==========   ==========   ===========  ===========  ===========
CASH FLOW INFORMATION
Cash flows from operations                            $      37    $     209    $      242   $      168   $      814
Additions to property, plant and equipment                  380          210           112          178          214
Cash dividends                                               79           77            75           76           76
COMMON STOCK INFORMATION
Diluted earnings per share
      Income from continuing operations               $   26.86    $    5.59    $     1.37   $     1.64   $     5.54
      Net income                                          26.85         5.31          1.10         1.67         5.93
Cash dividends per share                                   1.10         1.10          1.10         1.10         1.10




                                   F-33


                               EXHIBIT INDEX


                                                 
       Exhibit 
         No.                                Description
       -------        ------------------------------------------------------- 

        10.4    -     Amendment   No.  1  to  Ashland   Inc.   Deferred
                      Compensation  Plan for Employees (2005) dated October
                      28, 2005.
        10.7    -     Amendment  No. 1 to Eleventh  Amended and  Restated
                      Ashland Inc.  Supplemental  Early Retirement Plan for
                      Certain Employees dated December 20, 2004.
        10.10   -     Form of  Indemnification  Agreement between Ashland
                      Inc. and members of its Board of Directors.
        10.16   -     Forms of Notice granting Stock Appreciation  Rights
                      Awards.
        10.17   -     Form of Notice granting Restricted Stock Awards.
        10.18   -     Form of Notice granting  Nonqualified  Stock Option
                      Awards.
        12      -     Computation of Ratio of Earnings to Fixed Charges.
        21      -     List of Subsidiaries.
        23.1    -     Consent of Independent Registered Public Accounting
                      Firm.
        23.2    -     Consent of Tillinghast-Towers Perrin.
        23.3    -     Consent of Hamilton, Rabinovitz & Alschuler, Inc.
        24      -     Power of  Attorney,  including  resolutions  of the
                      Board of Directors.
        31.1    -     Certification of James J. O'Brien,  Chief Executive
                      Officer of  Ashland,  pursuant  to Section 302 of the
                      Sarbanes-Oxley Act of 2002.
        31.2    -     Certification  of J. Marvin Quin,  Chief Financial
                      Officer of  Ashland,  pursuant  to Section 302 of the
                      Sarbanes-Oxley Act of 2002.
        32      -     Certification of James J. O'Brien,  Chief Executive
                      Officer  of  Ashland,   and  J.  Marvin  Quin,  Chief
                      Financial Officer of Ashland, pursuant to Section 906
                      of the Sarbanes-Oxley Act of 2002.