=============================================================================



                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549


                           ---------------------


                                 FORM 10-Q





    (Mark One)
    |X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

              FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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.

                          (a Kentucky corporation)
                           I.R.S. No. 20-0865835

                        50 E. RiverCenter Boulevard
                                P.O. Box 391
                       Covington, Kentucky 41012-0391
                      Telephone Number (859) 815-3333






     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 checkmark  whether the Registrant is an accelerated  filer
(as defined in Rule 12b-2 of the Act). Yes |X| No |_|

     Indicate by checkmark  whether the  Registrant  is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

     At December 31, 2005,  there were  71,265,118  shares of  Registrant's
Common Stock outstanding.  One Right to purchase  one-thousandth of a share
of Series A  Participating  Cumulative  Preferred  Stock  accompanies  each
outstanding share of Registrant's Common Stock.


=============================================================================



                       PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS



---------------------------------------------------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME

---------------------------------------------------------------------------------------------------------------------------
                                                                                                     Three months ended
                                                                                                         December 31
                                                                                                   ------------------------
(In millions except per share data)                                                                     2005          2004
---------------------------------------------------------------------------------------------------------------------------

                                                                                                          
REVENUES
      Sales and operating revenues                                                                 $   2,412    $    2,177
      Equity income                                                                                        2           146
      Other income                                                                                        15            17
                                                                                                   ----------   -----------
                                                                                                       2,429         2,340
COSTS AND EXPENSES
      Cost of sales and operating expenses                                                             2,029         1,849
      Selling, general and administrative expenses                                                       305           311
                                                                                                   ----------   -----------
                                                                                                       2,334         2,160
                                                                                                   ----------   -----------
OPERATING INCOME                                                                                          95           180
      Gain on the MAP Transaction (a)                                                                      2             -
      Loss on early retirement of debt                                                                     -            (2)
      Net interest and other financial costs                                                              10           (29)
                                                                                                   ----------   -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                                    107           149
      Income taxes                                                                                       (40)          (55)
                                                                                                   ----------   -----------
INCOME FROM CONTINUING OPERATIONS                                                                         67            94
      Results from discontinued operations (net of income taxes)                                          (1)            -
                                                                                                   ----------   -----------
NET INCOME                                                                                         $      66    $       94
                                                                                                   ==========   ===========

BASIC EARNINGS PER SHARE - Note F
      Income from continuing operations                                                            $     .92    $     1.30
      Results from discontinued operations                                                                 -             -
                                                                                                   ----------   -----------
      Net income                                                                                   $     .92    $     1.30
                                                                                                   ==========   ===========

DILUTED EARNINGS PER SHARE - Note F
      Income from continuing operations                                                            $     .91    $     1.28
      Results from discontinued operations                                                                 -             -
                                                                                                   ----------   -----------
      Net income                                                                                   $     .91    $     1.28
                                                                                                   ==========   ===========

DIVIDENDS PAID PER COMMON SHARE                                                                    $    .275    $     .275

---------------------------------------------------------------------------------------------------------------------------

(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 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                     2




--------------------------------------------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------------------------------------------------
                                                                   December 31       September 30       December 31
(In millions)                                                             2005               2005              2004
--------------------------------------------------------------------------------------------------------------------

                             ASSETS
                             ------
                                                                                             
CURRENT ASSETS
      Cash and cash equivalents                                  $         601      $         985     $         146
      Available-for-sale securities                                        479                403                 -
      Accounts receivable                                                1,559              1,642             1,252
      Allowance for doubtful accounts                                      (45)               (43)              (40)
      Inventories - Note D                                                 582                527               538
      Deferred income taxes                                                 78                122                95
      Other current assets                                                 156                121               106
                                                                 --------------     --------------    --------------
                                                                         3,410              3,757             2,097
INVESTMENTS AND OTHER ASSETS
      Investment in Marathon Ashland Petroleum LLC (MAP)                     -                  -             2,856
      Goodwill and other intangibles                                       643                650               624
      Asbestos insurance receivable (noncurrent portion)                   363                370               396
      Deferred income taxes                                                164                175                 -
      Other noncurrent assets                                              499                441               313
                                                                 --------------     --------------    --------------
                                                                         1,669              1,636             4,189
PROPERTY, PLANT AND EQUIPMENT
      Cost                                                               3,254              3,274             3,166
      Accumulated depreciation, depletion and amortization              (1,851)            (1,852)           (1,889)
                                                                 --------------     --------------    --------------
                                                                         1,403              1,422             1,277
                                                                 --------------     --------------    --------------

                                                                 $       6,482      $       6,815     $       7,563
                                                                 ==============     ==============    ==============

              LIABILITIES AND STOCKHOLDERS' EQUITY
              ------------------------------------

CURRENT LIABILITIES
      Debt due within one year                                   $          12      $          12     $         575
      Trade and other payables                                           1,228              1,520             1,197
      Income taxes                                                           2                 13                69
                                                                 --------------     --------------    --------------
                                                                         1,242              1,545             1,841
NONCURRENT LIABILITIES
      Long-term debt (less current portion)                                 77                 82             1,087
      Employee benefit obligations                                         394                358               438
      Deferred income taxes                                                  -                  -               248
      Reserves of captive insurance companies                              183                182               177
      Asbestos litigation reserve (noncurrent portion)                     512                521               553
      Other long-term liabilities and deferred credits                     388                388               375
                                                                 --------------     --------------    --------------
                                                                         1,554              1,531             2,878

STOCKHOLDERS' EQUITY                                                     3,686              3,739             2,844
                                                                 --------------     --------------    --------------

                                                                 $       6,482      $       6,815     $       7,563
                                                                 ==============     ==============    ==============



SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     3



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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, 2004                   $         72   $        478  $       2,262   $       (106) $       2,706
      Total comprehensive income (a)                                                    94             39            133
      Cash dividends                                                                   (20)                          (20)
      Issued 505,385 common shares under
        stock incentive and other plans                                  25                                           25
                                                -------------  ------------- --------------  ------------- --------------
BALANCE AT DECEMBER 31, 2004                    $         72   $        503  $       2,336   $        (67) $       2,844
                                                =============  ============= ==============  ============= ==============


BALANCE AT SEPTEMBER 30, 2005                   $          1   $        605  $       3,251   $       (118) $       3,739
      Total comprehensive income (a)                                                    66            (12)            54
      Cash dividends                                                                   (20)                          (20)
      Issued 164,203 common shares under
        stock incentive and other plans                                   9                                            9
      Repurchase of 1,764,730 common shares                             (96)                                         (96)
                                                -------------  ------------- --------------  ------------- --------------
BALANCE AT DECEMBER 31, 2005                    $          1   $        518  $       3,297   $       (130) $       3,686
                                                =============  ============= ==============  ============= ==============

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


                                                                                                   Three months ended
                                                                                                      December 31
                                                                                             ----------------------------
      (In millions)                                                                                  2005           2004
      -------------------------------------------------------------------------------------------------------------------

                                                                                                     
      Net income                                                                             $         66  $          94
      Unrealized translation adjustments                                                              (11)            35
          Related tax benefits                                                                          -              2
      Net unrealized gains (losses) on cash flow hedges                                                (1)             2
                                                                                             ------------- --------------
      Total comprehensive income                                                             $         54  $         133
                                                                                             ============= ==============

     --------------------------------------------------------------------------------------------------------------------
     At December 31, 2005, the accumulated other comprehensive loss of $130
     million (after tax) was comprised of net unrealized  translation gains
     of $31 million,  a minimum  pension  liability of $160 million and net
     unrealized losses on cash flow hedges of $1 million.


SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                     4




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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS

---------------------------------------------------------------------------------------------------------------------------
                                                                                                       Three months ended
                                                                                                          December 31
                                                                                                    -----------------------
(In millions)                                                                                            2005         2004
---------------------------------------------------------------------------------------------------------------------------

                                                                                                           
CASH FLOWS FROM OPERATIONS
      Income from continuing operations                                                             $      67    $      94
      Adjustments to reconcile to cash flows from operations
          Depreciation, depletion and amortization                                                         51           46
          Deferred income taxes                                                                            54           17
          Equity income from affiliates                                                                    (2)        (146)
          Distributions from equity affiliates                                                              1            1
          Change in operating assets and liabilities (a)                                                 (312)         (70)
          Other items                                                                                      (3)           2
                                                                                                    ----------   ----------
                                                                                                         (144)         (56)
CASH FLOWS FROM FINANCING
      Proceeds from issuance of common stock                                                                4           20
      Excess tax benefits related to share-based payments                                                   1            2
      Repayment of long-term debt                                                                          (5)         (98)
      Repurchase of common stock                                                                          (96)           -
      Increase in short-term debt                                                                           -          211
      Cash dividends paid                                                                                 (20)         (20)
                                                                                                    ----------   ----------
                                                                                                         (116)         115
CASH FLOWS FROM INVESTMENT
      Additions to property, plant and equipment                                                          (50)         (55)
      Purchase of operations - net of cash acquired                                                         -          (95)
      Purchases of available-for-sale securities                                                         (227)           -
      Proceeds from sales and maturities of available-for-sale securities                                 152            -
      Other - net                                                                                           3            2
                                                                                                    ----------   ----------
                                                                                                         (122)        (148)
                                                                                                    ----------   ----------
CASH USED BY CONTINUING OPERATIONS                                                                       (382)         (89)
      Cash used by discontinued operations                                                                 (2)          (8)
                                                                                                    ----------   ----------
DECREASE IN CASH AND CASH EQUIVALENTS                                                                    (384)         (97)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                                           985          243
                                                                                                    ----------   ----------

CASH AND CASH EQUIVALENTS - END OF PERIOD                                                           $     601    $     146
                                                                                                    ==========   ==========

---------------------------------------------------------------------------------------------------------------------------

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



SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                     5

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE A - BASIS OF PRESENTATION

         The  accompanying   unaudited  condensed   consolidated  financial
         statements   have  been  prepared  in  accordance  with  generally
         accepted accounting principles for interim financial reporting and
         Securities  and Exchange  Commission  regulations.  Although  such
         statements are subject to any year-end audit adjustments which may
         be  necessary,  in the  opinion  of  management,  all  adjustments
         (consisting of normal recurring accruals) considered necessary for
         a fair presentation have been included. These financial statements
         should be read in conjunction with Ashland's Annual Report on Form
         10-K for the fiscal  year ended  September  30,  2005.  Results of
         operations  for  the  period  ended  December  31,  2005,  are not
         necessarily  indicative  of  results to be  expected  for the year
         ending  September  30,  2006.  Certain  prior period data has been
         reclassified  in  the   consolidated   financial   statements  and
         accompanying footnotes to conform to current period presentation.

         The  preparation  of Ashland's  condensed  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.

NOTE B - NEW ACCOUNTING STANDARD

         In December 2004, the Financial  Accounting Standards Board issued
         Statement No. 123R (FAS 123R), which revised FAS 123,  "Accounting
         for  Stock-Based  Compensation,"  by  requiring  the  expensing of
         share-based compensation based on the grant-date fair value of the
         award. FAS 123 had provided companies the option of expensing such
         awards  or  merely  disclosing  the  pro  forma  effects  of  such
         expensing in the notes to financial  statements.  As of October 1,
         2002, Ashland began expensing employee stock options in accordance
         with  FAS 123 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.  FAS 123R also
         required an  additional  caption in the  financing  section of the
         Statements of  Consolidated  Cash Flows to present  separately the
         excess tax benefits related to share based-payments.  The adoption
         of FAS  123R  during  the  December  2005  quarter  did not have a
         material  effect  on  Ashland's  financial  position,  results  of
         operations or cash flows.

NOTE C - DEBT DEFEASANCE

         During  the  December  2005  quarter   Ashland   entered  into  an
         in-substance  defeasance  of  approximately  $49  million to repay
         current  and  long-term  debt  that  had a  carrying  value of $44
         million on the balance sheet as of December 31, 2005.  Because the
         transaction  was not a legal  defeasance  the  investment has been
         placed into a trust and will be  exclusively  restricted to future
         obligations and repayments related to these debt instruments.  The
         investments  have been  classified  on the balance  sheet as other
         current assets or other noncurrent assets based on the contractual
         debt repayment schedule.



                                     6

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------

NOTE D - INVENTORIES

         Inventories  are  carried at the lower of cost or market.  Certain
         chemicals,  plastics and  lubricants  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). The following table
         summarizes Ashland's  inventories as of the reported balance sheet
         dates.



         -------------------------------------------------------------------------------------------------------------
                                                                      December 31      September 30       December 31
         (In millions)                                                       2005              2005              2004
         -------------------------------------------------------------------------------------------------------------
                                                                                               
         Chemicals and plastics                                     $         497     $         429     $         449
         Construction materials                                                75                80                69
         Lubricants                                                            88                68                69
         Other products                                                        55                67                53
         Supplies                                                               9                 9                 6
         Excess of replacement costs over LIFO carrying values               (142)             (126)             (108)
                                                                    --------------    --------------    --------------
                                                                    $         582     $         527     $         538
                                                                    ==============    ==============    ==============



NOTE E - UNCONSOLIDATED AFFILIATES

         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 (the "MAP Transaction").  For further detailed information
         on this transaction see Note D of Notes to Consolidated  Financial
         Statements in Ashland's  Annual Report on Form 10-K for the fiscal
         year ended September 30, 2005.  Separate financial  statements for
         MAP  required by Rule 3-09 of  Regulation  S-X will be filed as an
         amendment to Ashland's  Annual  Report on Form 10-K within 90 days
         after the end of MAP's fiscal year, which ended December 31, 2005.
         Unaudited income  statement  information for MAP during the period
         of ownership is shown below.

         MAP was organized as a limited  liability company that had elected
         to  be  taxed  as  a  partnership.  Therefore,  the  parents  were
         responsible  for income taxes  applicable  to their share of MAP's
         taxable  income.  The net income  reflected  below for MAP did not
         include  any  provision  for  income  taxes  that  would have been
         incurred by its parents.


         -------------------------------------------------------------------------------------------------------------
                                                                                                  Three months ended
                                                                                                       December 31
                                                                                              ------------------------
         (In millions)                                                                              2005         2004
         -------------------------------------------------------------------------------------------------------------
                                                                                                      
         Sales and operating revenues                                                         $        -    $  12,516
         Income from operations                                                                        -          380
         Net income                                                                                    -          386
         Ashland's equity income                                                                       -          142


                                     7



-------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------

NOTE F - EARNINGS PER SHARE

         The  following  table  sets  forth  the  computation  of basic and
         diluted earnings per share (EPS).



         ------------------------------------------------------------------------------------------------------------------------
                                                                                                           Three months ended
                                                                                                               December 31
                                                                                                         ------------------------
         (In millions except per share data)                                                                   2005         2004
         ------------------------------------------------------------------------------------------------------------------------
                                                                                                                 
         Numerator
         Numerator for basic and diluted EPS - Income
            from continuing operations                                                                   $       67    $      94
                                                                                                         ===========   ==========
         Denominator
         Denominator for basic EPS - Weighted average
               common shares outstanding                                                                         72           72
         Common shares issuable upon exercise of stock options                                                    1            1
                                                                                                         -----------   ----------
         Denominator for diluted EPS - Adjusted weighted
               average shares and assumed conversions                                                            73           73
                                                                                                         ===========   ==========

         Earnings per share
               Basic                                                                                     $      .92    $    1.30
               Diluted                                                                                   $      .91    $    1.28



NOTE G - EMPLOYEE BENEFIT PLANS

         Presently,  Ashland  anticipates  contributing $126 million to its
         U.S.  pension  plans and $6 million to its non-U.S.  pension plans
         during fiscal 2006. As of December 31, 2005,  contributions of $75
         million  have been made to the U.S.  plans and $1  million  to the
         non-U.S.  plans.  The following  table  details the  components of
         pension and other postretirement benefit costs.



         ------------------------------------------------------------------------------------------------------------------------
                                                                                                          Other postretirement
                                                                                 Pension benefits               benefits
                                                                             -------------------------  -------------------------
         (In millions)                                                            2005           2004         2005          2004
         ------------------------------------------------------------------------------------------------------------------------
                                                                                                          
         Three months ended December 31
         Service cost                                                        $      15     $       13   $        2    $        2
         Interest cost                                                              21             20            3             5
         Expected return on plan assets                                            (25)           (19)           -             -
         Amortization of prior service credit                                        -              -           (2)           (2)
         Amortization of net actuarial loss                                         10              8            -             1
                                                                             ----------    -----------  -----------   -----------
                                                                             $      21     $       22   $        3    $        6
                                                                             ==========    ===========  ===========   ===========


NOTE H - 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.


                                     8

-------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------

NOTE H - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

         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.



         -----------------------------------------------------------------------------------------------------------------------
                                                          Three months ended
                                                             December 31                      Years ended September 30
                                                      ---------------------------     ------------------------------------------
         (In thousands)                                     2005            2004            2005           2004            2003
         -----------------------------------------------------------------------------------------------------------------------
                                                                                                      
         Open claims - beginning of period                   184             196             196            198             160
         New claims filed                                      2               3              12             29              66
         Claims settled                                       (1)             (3)             (6)            (7)             (7)
         Claims dismissed                                     (4)             (6)            (18)           (24)            (21)
                                                      -----------     -----------     -----------    -----------     -----------
         Open claims - end of period                         181             190             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  $1,961 per claim resolved in the
         three  months ended  December 31, 2005,  compared to $1,723 in the
         three months  ended  December  31,  2004,  and annual  averages of
         $1,985 in 2005,  $1,655 in 2004 and $1,610 in 2003. A  progression
         of activity in the asbestos  reserve is presented in the following
         table.



         -----------------------------------------------------------------------------------------------------------------------
                                                          Three months ended
                                                             December 31                      Years ended September 30
                                                      ---------------------------    -------------------------------------------
         (In millions)                                      2005            2004           2005            2004            2003
         -----------------------------------------------------------------------------------------------------------------------
                                                                                                     
         Asbestos reserve - beginning of period       $      571      $      618     $      618      $      610     $       202
         Expense incurred                                      -               -              -              59             453
         Amounts paid                                         (9)            (15)           (47)            (51)            (45)
                                                      -----------     -----------    -----------     -----------    ------------
         Asbestos reserve - end of period             $      562      $      603     $      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


                                     9

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------

NOTE H - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

         Ashland's  estimate  of future  payments.  Ashland's  reserve  for
         asbestos claims on an undiscounted  basis amounted to $562 million
         at December  31, 2005,  compared to $571 million at September  30,
         2005 and $603 million at December 31, 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's   management  has  estimated  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.


                                     10

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------

NOTE H - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

         At December 31,  2005,  Ashland's  receivable  for  recoveries  of
         litigation  defense and claim  settlement  costs from its insurers
         amounted to $393  million,  of which $65 million  relates to costs
         previously paid.  Receivables from insurance companies amounted to
         $400  million at  September  30, 2005 and $432 million at December
         31, 2004.  About 40% of the estimated  receivables  from insurance
         companies at December 31, 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 December 31, 2005,  such
         locations  included 97 waste  treatment  or  disposal  sites where
         Ashland has been  identified  as a potentially  responsible  party
         under  Superfund  or similar  state  laws,  96 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 $179 million at December 31,
         2005,  compared  to $178  million at  September  30, 2005 and $155
         million at December  31,  2004,  of which $147 million at December
         31, 2005,  $145 million at September  30, 2005 and $123 million at
         December 31, 2004 were classified in noncurrent liabilities on the
         Condensed  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 $8 million for the three months ended December
         31,  2005,  compared  to $7  million  for the three  months  ended
         December 31, 2004,  and annual  expense of $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 is not predictable.



                                     11



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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT

-------------------------------------------------------------------------------------------------------------------------
                                                                                                   Three months ended
                                                                                                       December 31
                                                                                                 ------------------------
(In millions)                                                                                         2005          2004
-------------------------------------------------------------------------------------------------------------------------

                                                                                                        
REVENUES
    Sales and operating revenues
       APAC                                                                                      $     726    $      611
       Ashland Distribution                                                                            967           895
       Ashland Specialty Chemical                                                                      449           400
       Valvoline                                                                                       310           309
       Intersegment sales
          Ashland Distribution                                                                          (6)           (6)
          Ashland Specialty Chemical                                                                   (33)          (32)
          Valvoline                                                                                     (1)            -
                                                                                                 ----------   -----------
                                                                                                     2,412         2,177
    Equity income
       APAC                                                                                              -             2
       Ashland Specialty Chemical                                                                        2             2
       Refining and Marketing                                                                            -           142
                                                                                                 ----------   -----------
                                                                                                         2           146
    Other income
       APAC                                                                                              7             1
       Ashland Distribution                                                                              1             2
       Ashland Specialty Chemical                                                                        2             9
       Valvoline                                                                                         3             2
       Refining and Marketing                                                                            -             2
       Unallocated and other                                                                             2             1
                                                                                                 ----------   -----------
                                                                                                        15            17
                                                                                                 ----------   -----------
                                                                                                 $   2,429    $    2,340
                                                                                                 ==========   ===========
OPERATING INCOME (a)
    APAC                                                                                         $      39    $        4
    Ashland Distribution                                                                                34            20
    Ashland Specialty Chemical                                                                          27            16
    Valvoline                                                                                            1            13
    Refining and Marketing (b)                                                                           -           136
    Unallocated and other                                                                               (6)           (9)
                                                                                                 ----------   -----------
                                                                                                 $      95    $      180
                                                                                                 ==========   ===========

-------------------------------------------------------------------------------------------------------------------------

(a)  In October  2005,  Ashland  refined its segment  reporting to allocate
     substantially  all  corporate  expenses to  Ashland's  four  operating
     divisions, with the exception of certain legacy costs or items clearly
     not associated with the operating  divisions.  Prior periods have been
     conformed to the current period presentation.
(b)  Includes  Ashland's  equity income from MAP,  amortization  related to
     Ashland's  excess  investment in MAP and other  activities  associated
     with refining and marketing through June 30, 2005.



                                     12




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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT

------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Three months ended
                                                                                                            December 31
                                                                                                    --------------------------
(In millions)                                                                                             2005         2004
------------------------------------------------------------------------------------------------------------------------------

                                                                                                            
OPERATING INFORMATION
APAC
    Construction backlog at December 31 (a)                                                         $    1,941    $   1,730
    Net construction job revenues (b)                                                               $      423    $     344
    Hot-mix asphalt production (tons)                                                                      7.8          7.8
    Aggregate production (tons)                                                                            8.1          7.8
Ashland Distribution (c)
    Sales per shipping day                                                                          $     15.9    $    14.4
    Gross profit as a percent of sales                                                                    10.2%         9.6%
Ashland Specialty Chemical (c)
    Sales per shipping day                                                                          $      7.4    $     6.4
    Gross profit as a percent of sales                                                                    27.4%        24.2%
Valvoline
    Lubricant sales (gallons)                                                                             38.5         41.1
    Premium lubricants (percent of U.S. branded volumes)                                                  22.9%        21.8%

------------------------------------------------------------------------------------------------------------------------------

(a)  Includes APAC's  proportionate  share of the backlog of unconsolidated
     joint ventures.
(b)  Total construction job revenues, less subcontract costs.
(c)  Sales are defined as sales and  operating  revenues.  Gross  profit is
     defined  as sales  and  operating  revenues,  less  cost of sales  and
     operating expenses.


                                     13

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

-------------------------------------------------------------------------------

RESULTS OF OPERATIONS

         Ashland  reported net income of $66 million for the quarter  ended
         December 31, 2005,  compared to $94 million for the quarter  ended
         December 31,  2004.  The  comparison  is affected by the June 2005
         transfer  of  Ashland's  former  38-percent  interest  in Marathon
         Ashland   Petroleum   LLC  (MAP)  to  Marathon   Oil   Corporation
         (Marathon),  the  retirement  of most of  Ashland's  debt  and the
         investment  of the  remaining  proceeds.  Net  income  in the 2004
         quarter  included  $83  million  of net  income  from  the  former
         Refining  and  Marketing  segment  (which  consisted  primarily of
         Ashland's  equity  income  from  MAP),  as well as net,  after-tax
         interest expense of $18 million, for a net benefit of $65 million.
         The 2005 quarter  included $6 million of net,  after-tax  interest
         income.

         Three of  Ashland's  four  businesses  performed  well  during the
         December 2005 quarter.  The continued  excellent  performances  of
         Ashland Specialty Chemical and Ashland  Distribution drove results
         in the Chemical Sector.  These businesses  increased  revenues and
         expanded  their profit  margins in an environment of rising costs.
         The quarter was disappointing for Valvoline, however, as declining
         demand in the motor oil  market,  rising raw  materials  costs and
         competitive price  discounting  adversely  affected  results.  The
         Transportation  Construction Sector, commercially known as Ashland
         Paving  And  Construction,  Inc.  (APAC),  benefited  from  margin
         improvement  due to its  efforts to  incorporate  higher  material
         values and energy costs into its bids,  as well as more  favorable
         weather conditions in the quarter. An analysis of operating income
         by industry segment follows.

         Segment  operating  results  reflect  new  methodology  adopted in
         October 2005 for allocating  substantially all corporate  expenses
         to Ashland's  four  operating  businesses,  with the  exception of
         certain  legacy  costs or items  clearly not  associated  with the
         operating  divisions.  Accordingly,  an additional $21 million was
         allocated to the  divisions  for the December  2005  quarter.  The
         remaining $6 million  expense is  classified as  "Unallocated  and
         other" in  Ashland's  segment  reporting.  Results for  previously
         reported  periods have been  reclassified  to conform with the new
         allocation methodology.

         APAC

         APAC  reported  operating  income of $39 million for the  December
         2005  quarter,  compared  to $4  million  for  the  December  2004
         quarter.  Results for the  December  2005 quarter  reflect  APAC's
         continuing  focus on  incorporating  increases in raw material and
         energy  costs  into its sales  prices and more  favorable  weather
         conditions.  Results for the December 2005 quarter also included a
         $10 million gain from the transfer of property  subject to eminent
         domain, as well as a $4 million loss on fuel hedges. APAC reported
         sales and operating  revenues of $726 million in the December 2005
         quarter,  a 19%  increase  over the $611  million  recorded in the
         December  2004  quarter.  Net  construction  job  revenues  (total
         construction job revenues,  less subcontract costs) increased 23%.
         Hot-mix  asphalt  production  was even at 7.8 million tons,  while
         aggregate  production  increased  4% to 8.1 million  tons.  Margin
         improvement   reflected   the   efforts  to   incorporate   higher
         construction material values and energy costs into APAC's bids. In
         addition, APAC continued to roll off older,  fixed-price contracts
         which  contained  substantially  lower  energy  and  raw  material
         estimated  costs.  While national weather data showed rainfall was
         average for the December 2005 quarter, the precipitation  patterns
         were favorable for APAC, with rain occurring later in the quarter,
         providing more dry, temperate days for production. At December 31,
         2005, APAC's construction backlog,  which consists of work awarded
         and funded but not yet  performed,  was $1.9 billion,  up 12% over
         the same period last year.




                                     14

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

-------------------------------------------------------------------------------

         ASHLAND DISTRIBUTION

         Ashland  Distribution   achieved  its  eighth  consecutive  record
         quarter, with operating income of $34 million in the December 2005
         quarter,  up 70% over the $20 million  reported  for the  December
         2004  quarter.  Sales and  operating  revenues  increased  to $967
         million,  an 8%  increase  over the  December  2004  quarter.  The
         division's  performance  reflects  its  ability to expand  margins
         despite  rising costs of chemicals  and  plastics,  by  increasing
         prices and managing  expenses.  Gross profit as a percent of sales
         increased  from 9.6% to 10.2%.  Daily sales volume  declined 4%, a
         result of the sale of the  ingestibles  business in the March 2005
         quarter and supply disruptions from hurricanes Katrina and Rita.

         ASHLAND SPECIALTY CHEMICAL

         Ashland  Specialty  Chemical  achieved record operating income for
         the  December  2005  quarter of $27  million,  up 69% over the $16
         million  reported in the  prior-year  quarter.  The December  2004
         quarter  included  approximately  $4 million  in net  nonrecurring
         gains,   primarily  from  the  termination  of  a  product  supply
         contract.  Sales and  operating  revenues grew to $449 million for
         the December 2005  quarter,  a 12% increase over the December 2004
         quarter.  Sales from the DERAKANE(R)  resins business  acquired in
         December 2004 contributed  approximately half of the growth,  with
         the remainder  mainly  attributable to higher selling prices.  The
         increase in operating  income  reflected a combination  of revenue
         and margin  growth.  Gross profit as a percent of sales  increased
         from 24.2% to 27.4%. Operating income from Composite Polymers, the
         largest  of  the  three  Performance  Materials  business  groups,
         increased  four-fold  versus the year-ago  quarter,  while Casting
         Solutions  and  Specialty  Polymers  and  Adhesives,  combined  to
         achieve a 26% increase in operating income. The Water Technologies
         business  reported  weaker  profits for the quarter,  due in large
         part to its investment in growth initiatives.

         VALVOLINE

         Valvoline  reported operating income of $1 million in the December
         2005  quarter,  compared  to  $13  million  in the  December  2004
         quarter.  Declining  demand in the motor oil  market,  rising  raw
         materials costs and competitive pricing adversely affected results
         for Valvoline.  Valvoline's  lubricant sales volumes  declined 6%,
         reflecting  a decline in demand for U.S.  passenger-car  motor oil
         across the lubricant market.  Higher energy prices,  combined with
         higher  absolute  product  costs,  have had a dampening  effect on
         consumers'  spending for automotive  preventive  maintenance.  The
         rapid increase in material costs eroded Valvoline's margins due to
         the  lag  in  passing  price   increases  into  the   marketplace.
         Valvoline's  ability to capture its full costs was hampered by the
         competitive  environment.  Sales and operating  revenues were $310
         million for the  quarter,  essentially  even with $309  million of
         revenues in the December 2004 quarter.

         REFINING AND MARKETING

         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 (the "MAP Transaction").  For further detailed information
         on this transaction see Note D of Notes to Consolidated  Financial
         Statements in Ashland's  Annual Report on Form 10-K for the fiscal
         year ended September 30, 2005.  Operating income from Refining and
         Marketing,  which  consisted  primarily of equity income from MAP,
         amounted to $136 million for the December 2004 quarter.




                                     15

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

-------------------------------------------------------------------------------

         UNALLOCATED AND OTHER

         Unallocated and other costs, consisting of certain legacy costs or
         items  clearly  not  associated  with  the  operating   divisions,
         amounted to $6 million in the December 2005  quarter,  compared to
         $9 million in the December 2004 quarter. The December 2005 quarter
         included  a  $3  million  increase  in  environmental  remediation
         reserves  (net of  estimated  insurance  recoveries)  related to a
         formerly-owned  business.  The December 2004 quarter included a $7
         million  charge for estimated  future  insurance  premiums due Oil
         Insurance  Limited (OIL),  the  energy-industry  mutual  insurance
         consortium in which Ashland  participated.  Ashland terminated its
         participation in OIL effective December 31, 2005.

         GAIN ON THE MAP TRANSACTION

         Ashland recorded an increase in the gain on the MAP Transaction of
         $2 million in the December 2005 quarter as a result of an increase
         in the  discounted  receivable  from  Marathon  for the  estimated
         present  value of future tax  deductions.  See Note D in Ashland's
         Annual Report on Form 10-K for the fiscal year ended September 30,
         2005, for further explanation of this receivable.

         LOSS ON EARLY RETIREMENT OF DEBT

         In the  December  2004  quarter,  Ashland  recorded  a loss  of $2
         million on the early retirement of a capitalized lease obligation.

         NET INTEREST AND OTHER FINANCIAL COSTS

         Net interest and other  financial  costs amounted to income of $10
         million in the December 2005  quarter,  compared to expense of $29
         million in the December 2004 quarter.  The comparison reflects the
         retirement of most of Ashland's  debt from the proceeds of the MAP
         Transaction  in June  2005  and the  investment  of the  remaining
         proceeds in short-term, available-for-sale securities.

         INCOME TAXES

         Ashland's effective income tax rate of 37.4% for the December 2005
         quarter  was  comparable  to the  effective  rate of 36.9% for the
         December 2004 quarter. The interim rate is reflective of Ashland's
         estimated effective rate for the entire fiscal year.

         DISCONTINUED OPERATIONS

         Results of  discontinued  operations for the December 2005 quarter
         included  minor  unreserved  expenses of $1 million (net of income
         taxes) associated with asbestos liabilities.


FINANCIAL POSITION

         LIQUIDITY

         Cash flows from operations, a major source of Ashland's liquidity,
         amounted to a deficit of $144  million for the three  months ended
         December  31,  2005,  compared to a deficit of $56 million for the
         three months ended  December 31, 2004. The deficit in the December
         2005 quarter reflects a $312 million cash outflow resulting from a
         net  increase in  operating  assets and  liabilities.  The largest
         component of this change was a $292 million  decrease in trade and
         other  payables,  which  reflects a $75  million  contribution  to
         Ashland's





                                     16

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

-------------------------------------------------------------------------------

         LIQUIDITY (CONTINUED)

         pension plan and a seasonal decline in accounts  payable.  Ashland
         typically  accelerates  payments to vendors at the end of December
         to coincide  with their fiscal  year-ends,  versus  delaying  some
         payments at the end of September.  The December 2004 quarter had a
         similar seasonal decline in accounts payable.

         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 $103  million of
         letters of credit  outstanding  at December  31,  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  $5.4 billion of borrowings at
         December 31, 2005. Additional permissible borrowings are increased
         (decreased)  by 150% of any increase  (decrease) in  stockholders'
         equity.

         At December 31, 2005,  working capital  (excluding debt due within
         one year) amounted to $2,158  million,  compared to $2,224 million
         at  September  30,  2005 and $831  million at December  31,  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 $142  million at  December  31,
         2005,  compared  to $126  million at  September  30, 2005 and $108
         million  at  December  31,  2004.   Liquid  assets   (cash,   cash
         equivalents,    available-for-sale    securities    and   accounts
         receivable)  amounted to 209% of current  liabilities  at December
         31,  2005,  compared  to 193% at  September  30,  2005  and 74% at
         December 31, 2004. The increases in liquidity  since December 2004
         reflect the cash  proceeds  from the MAP  Transaction  net of debt
         retirements.

         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. During the December 2005 quarter,  Ashland repurchased 1.8
         million shares for $96 million. Through December 31, 2005, Ashland
         had repurchased  3.5 million shares at a cost of $196 million.  On
         January 25,  2006,  Ashland's  Board of  Directors  increased  the
         remaining  authorization  to $250  million,  an  increase  of $176
         million.

         For the three months ended December 31, 2005,  property  additions
         amounted  to $50  million,  compared  to $55  million for the same
         period last year. Ashland  anticipates  meeting its remaining 2006
         capital  requirements  for property  additions and dividends  from
         internally generated funds.

         Ashland's debt level amounted to $89 million at December 31, 2005,
         compared to $94 million at September  30, 2005,  and $1.66 billion
         at  December  31,  2004.  Debt as a percent  of  capital  employed
         amounted  to  2.4%  at  December  31,  2005,  compared  to 2.5% at
         September  30, 2005,  and 36.9% at December 31, 2004.  The decline
         from  December  31,  2004  reflects  the  retirement  of  most  of
         Ashland's debt with the proceeds from the MAP Transaction.





                                     17

-------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

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APPLICATION OF CRITICAL ACCOUNTING POLICIES

         There have been no  material  changes in the  critical  accounting
         policies described in Management's  Discussion and Analysis (MD&A)
         in Ashland's  Annual Report on Form 10-K for the fiscal year ended
         September 30, 2005. For a discussion of Ashland's asbestos-related
         litigation and environmental  remediation  matters,  see Note H to
         the Condensed Consolidated Financial Statements.


OUTLOOK

         APAC continues to implement its five-part  improvement program. It
         is making  progress  on  capturing  margin on  materials,  whether
         through  third-party sales or through  intra-company  sales to its
         own  construction  services.  A variety  of ongoing  programs  are
         improving the bidding and  estimating  process.  APAC continues to
         manage hydrocarbon exposure through a risk-analysis-driven hedging
         program.  Further,  APAC  continually  strives  to  be a  low-cost
         competitor in its markets.  As older,  less  profitable  jobs roll
         off,  they are being  replaced by contracts  with better  margins.
         Approximately  73% of the current  backlog has been awarded  since
         October 1, 2004. However, APAC typically operates at a loss during
         the  second  quarter  of  the  fiscal  year--the  winter  quarter.
         Excluding any unusual and  unexpected  events,  a loss is expected
         for the March  2006  quarter.  The  extent  of the loss  should be
         primarily  determined  by the level of  operations,  especially in
         March.

         APAC  continues to evaluate its  operations  market by market.  In
         January, APAC sold its Richmond,  Virginia, and Shawnee, Oklahoma,
         market  areas  and will  report  a small  book  gain in the  March
         quarter.  Both of  these  businesses  were  unprofitable  in 2005.
         APAC's  so-called "fix or exit" team's analysis of 75 markets will
         be completed in the March 2006 quarter.  While no other  decisions
         have been made,  APAC is likely to exit  several more markets this
         year.

         In the Chemical Sector, Ashland continues to make good progress on
         its GlobalOne enterprise resource planning (ERP) system. Ashland's
         Canadian  operations  are  running  under  this  system,  and  key
         learnings  from the "go live" in Canada  are being  applied to the
         implementation in the United States and Mexico now planned for the
         December 2006 quarter. The scope of GlobalOne is being expanded to
         include new, additional functionalities in customer management and
         pricing management. Because of this additional functionality,  the
         total cost of the project is expected to increase by approximately
         $25 million, bringing the total planned expenditures for GlobalOne
         to $115 million.

         Both  Ashland   Distribution  and  Ashland  Specialty   Chemical's
         profitability  is a function of economic  growth and their ability
         to manage material cost increases.  Ashland  Distribution  and the
         Performance  Materials  business  of  Ashland  Specialty  Chemical
         continue to focus on passing  through  rising  costs and  managing
         expenses. In contrast, the Water Technologies business is focusing
         on growth, not near-term profits.  Sales engineers are being hired
         and  trained  to sell  Ashland's  innovative  Sonoxide  ultrasound
         technology and PathGuard pathogen control systems.  As of December
         31, there were 390  Sonoxide  and more than 80 PathGuard  units in
         place around the world.

         The market  conditions that led to Valvoline's poor performance in
         the December quarter  continue.  While Ashland is optimistic about
         Valvoline's   long-term  prospects,   profitability   recovery  is
         unlikely to occur in the March quarter. Gradual improvement should
         materialize in the latter half of this fiscal year moving into the
         prime car-care  months as marketing and pricing  programs begin to
         take effect.




                                     18

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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

-------------------------------------------------------------------------------

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. These statements include those that refer to
         Ashland's operating  performance,  earnings, and benefits expected
         to be obtained  through the  GlobalOne ERP  implementation.  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 its Annual  Report on Form 10-K for the
         fiscal  year ended  September  30,  2005.  Ashland  undertakes  no
         obligation to subsequently update or revise these  forward-looking
         statements.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Ashland's  market risk  exposure at December 31, 2005 is generally
         consistent  with the types and  amounts of market  risk  exposures
         presented in Ashland's  Annual  Report on Form 10-K for the fiscal
         year ended September 30, 2005.


ITEM 4.  CONTROLS AND PROCEDURES

         (a)      As of the end of the  period  covered  by this  quarterly
                  report,  Ashland,  under  the  supervision  and  with the
                  participation  of  its  management,  including  Ashland's
                  Chief Executive Officer and its Chief Financial  Officer,
                  evaluated  the  effectiveness  of  Ashland's   disclosure
                  controls and  procedures  pursuant to Rule  13a-15(b) and
                  15d-15(b)  promulgated under the Securities  Exchange Act
                  of 1934,  as  amended.  Based upon that  evaluation,  the
                  Chief Executive  Officer and Chief Financial Officer have
                  concluded  that the  disclosure  controls and  procedures
                  were effective.

         (b)      There were no significant  changes in Ashland's  internal
                  control over  financial  reporting,  or in other factors,
                  that occurred during the period covered by this quarterly
                  report that have materially  affected,  or are reasonably
                  likely to materially  affect,  Ashland's internal control
                  over financial reporting.



                                     19

                        PART II - OTHER INFORMATION

ITEM 1.  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
51,600  active  lawsuits  pending as of December 31, 2005.  In these active
lawsuits,  less than 0.3% 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 .02% 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 Note H of "Notes to Condensed Consolidated
Financial Statements" in this quarterly report on Form 10-Q.

     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 received a letter dated
January 18, 2006 from USDOJ  advising  it that this  investigation  has now
been closed. As is frequently the case when such  investigations  have been
initiated,   a  number  of  civil  actions  have  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 December 31, 2005, Ashland had been named
a PRP at 97 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.

      (2) St. Paul Park Criminal Investigation - The United States Attorney
in Minnesota conducted a criminal investigation of the May 16, 1997 fire at
the St. Paul Park refinery.  The Assistant United States Attorney  ("AUSA")
in charge  alleged that the refinery sewer system was subject to and not in
compliance with Subpart QQQ of the regulations  under the Clean Air Act. He
further  alleged  that the  non-compliance  was the  cause of the fire that
severely  burned  employee  Randy  Danielson.  The AUSA has stated  that he
believed there were five separate criminal violations.

     On May 13, 2002, Ashland entered into a plea agreement with the United
States   Attorney's   Office  for  the  District  of   Minnesota   and  the
Environmental  Crimes  Section of the United  States  Department of Justice
regarding  the May 16,  1997 sewer fire at the St. Paul Park  refinery.  As
part of the plea agreement, Ashland entered guilty


                                     20


pleas to two federal misdemeanors,  has paid a $5.4 million fine related to
violations  of the Clean Air Act,  has paid  approximately  $3.9 million as
restitution  to the  employees  injured  in the fire and other  costs,  and
funded  approximately  $9.4  million  in  upgrades  to the  St.  Paul  Park
refinery.  The  upgrade  has been  completed  and was finished  2 1/2 years
earlier  than  required  by the  Court.  In  addition,  as part of the plea
agreement,  Ashland  entered  into a deferred  prosecution  agreement  with
regard to a separate count charging  Ashland with violating  Subpart QQQ of
the  New  Source  Performance  Standards  of the  Clean  Air  Act.  Ashland
satisfied the terms and conditions of the deferred prosecution agreement so
that the deferred  prosecution  was  dismissed by the court on February 22,
2005.  Ashland has paid the majority of the costs and has a reserve of $0.5
million  to cover the  remaining  costs.  Ashland  was placed on five years
probation  from  December 23, 2002.  On December 15, 2005,  Ashland filed a
motion for Order for Early  Release from  Probation.  On December 30, 2005,
the Judge  stated  that he would  sign the  order  releasing  Ashland  from
probation on June 30, 2006, assuming Ashland remains in compliance with the
terms of probation.

     (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  making  an
initial request for $650,000.

     For  additional   information  regarding   environmental  matters  and
reserves,  see  Note  H  of  "Notes  to  Condensed  Consolidated  Financial
Statements" in this quarterly report on Form 10-Q.

     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.

ITEM 1A.  RISK FACTORS

     During  the  period  covered by this  report,  there were no  material
changes from the risk factors  previously  disclosed in Ashland's Form 10-K
for the year ended September 30, 2005.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     The following  table  summarizes  information  regarding  purchases of
Ashland Common Stock by Ashland during the first quarter of fiscal 2006.



                                      Issuer Purchases of Equity Securities (1)
                                                                                                  Maximum number (or
                                                                                                  approximate dollar
                                                                                                   value) of shares
                                                       Average price     Total number of shares     that may yet be
                                                      paid per share,     purchased as part of      purchased under
                                   Total number of       including         publicly announced        the plans or
Period                            shares purchased       commission         plans or programs          programs
--------                          ----------------    ---------------    ----------------------   -------------------
                                                                                        
                                         (a)                (b)                    (c)                    (d)
October 1 - October 31                  250,000           $52.61                  250,000           $    157,470,148
November 1 - November 30                937,700           $53.91                  937,700           $    106,916,493
December 1 - December 31                577,030           $56.74                  577,030           $     74,174,251
                                      ----------         ---------              ----------         ------------------
Total                                 1,764,730           $54.65                1,764,730           $     74,174,251


(1)     The stock repurchase program was originally authorized in July 2005
        in the amount of $270  million.  Through  December 31,  2005,  $196
        million of Ashland shares had been  repurchased  under the original
        authorization. On January 25, 2006, the authorization was increased
        by an additional $176 million to a total of $250 million.




                                     21

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

     On January 26, 2006, Ashland's Annual Meeting of Shareholders was held
at the Metropolitan Club, 50 E. RiverCenter Boulevard,  Covington, Kentucky
at 10:30 a.m. The following are the results of the shareholder  vote at the
meeting:

     1)  Roger W. Hale, Patrick F. Noonan and George A. Schaefer,  Jr. were
         elected to a  three-year  term as  directors  with the vote totals
         referenced below.
                                                               Votes
                                                    ---------------------------
                                                     Affirmative      Withheld
                                                    ------------    -----------
                 Roger W. Hale                        65,381,428      1,163,386
                 Patrick F. Noonan                    64,623,970      1,920,844
                 George A. Schaefer, Jr.              64,128,926      2,415,888

         Ernest H. Drew, Mannie L. Jackson,  Theodore M. Solso,  Michael J.
         Ward,  Bernadine  P. Healy,  M.D.,  Kathleen  Ligocki and James J.
         O'Brien continue to serve as directors.

     2)  The  appointment of Ernst & Young LLP as independent  auditors for
         fiscal year ending  September 30, 2006,  was ratified by a vote of
         65,556,830  shares voting for, 521,902 shares voting against,  and
         466,082 shares abstaining.

     3)  The 2006  Ashland  Inc.  Incentive  Plan was approved by a vote of
         41,947,266  shares voting for,  13,719,500  shares voting against,
         and 912,233 shares abstaining.

ITEM 6.  EXHIBITS

(a)      Exhibits
         --------

         10      2006 Ashland Inc. Incentive Plan.

         12      Computation of Ratio of Earnings to Fixed Charges.

         31.1    Certificate of James J. O'Brien,  Chief Executive  Officer
                 of Ashland  pursuant to Section 302 of the  Sarbanes-Oxley
                 Act of 2002.

         31.2    Certificate of J. Marvin Quin, Chief Financial  Officer of
                 Ashland pursuant to Section 302 of the  Sarbanes-Oxley Act
                 of 2002.

         32      Certificate 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.


                                     22

                                 SIGNATURE

     Pursuant to the  requirements 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)


Date:  February 8, 2006              /s/ J. Marvin Quin
                                     ---------------------------------------
                                      J. Marvin Quin
                                      Senior Vice President and Chief Financial
                                      Officer (on behalf of the Registrant and
                                      as principal financial officer)



                                     23

                               EXHIBIT INDEX


Exhibit
   No.                            Description
---------      -------------------------------------------------------------
10             2006 Ashland Inc. Incentive Plan.

12             Computation of Ratio of Earnings to Fixed Charges.

31.1           Certificate of James J. O'Brien,  Chief Executive Officer of
               Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of
               2002.

31.2           Certificate of J. Marvin Quin,  Chief  Financial  Officer of
               Ashland pursuant to Section 302 of the Sarbanes-Oxley Act of
               2002.

32             Certificate 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.




                                     24