Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended September 30
<TABLE>
<CAPTION>

(In millions)                                                           2000                     1999                      1998

--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                     <C>                       <C>
SALES AND OPERATING REVENUES
APAC                                                                   $2,505                  $1,678                     $1,444
Ashland Distribution                                                    3,214                   2,925                      2,941
Ashland Specialty Chemical                                              1,283                   1,263                      1,244
Valvoline                                                               1,077                   1,059                      1,023
Intersegment sales                                                       (118)                   (124)                      (118)
--------------------------------------------------------------------------------------------------------------------------------
                                                                       $7,961                  $6,801                     $6,534
--------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME(1)
APAC                                                                   $  140                  $  108                     $   90
Ashland Distribution                                                       70                      37                         57
Ashland Specialty Chemical                                                 95                     107                        101
Valvoline                                                                  78                      74                         53
Refining and Marketing(2)                                                 361                     323                        239
Corporate                                                                 (73)                    (24)                      (118)
--------------------------------------------------------------------------------------------------------------------------------
                                                                        $ 671                  $  625                     $  422
--------------------------------------------------------------------------------------------------------------------------------
OPERATING INFORMATION
APAC
     Construction backlog at September 30 (millions)                   $1,397                    $948                       $838
     Hot mix asphalt production (million tons)                           35.0                    25.8                       23.1
     Aggregate production (million tons)                                 27.8                    20.7                       20.3
     Ready-mix concrete production (thousand cubic yards)               2,620                   1,412                      1,151
Ashland Distribution(3)
     Sales per shipping day (millions)                                 $ 12.8                  $ 11.6                     $ 11.7
     Gross profit as a percent of sales                                  15.6%                   16.0%                      14.8%
Ashland Specialty Chemical(3)
     Sales per shipping day (millions)                                 $  5.1                    $5.0                       $4.9
     Gross profit as a percent of sales                                  34.7%                   35.9%                      35.2%
Valvoline lubricant sales (thousand barrels per day)                     12.3                    12.6                       12.8
Refining and Marketing(4)
     Refined products sold (thousand barrels per day)                   1,309                   1,231                      1,184
     Crude oil refined (thousand barrels per day)                         892                     898                        905
     Merchandise sales (millions)                                      $2,329                  $2,031                     $1,386
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  See Page 23 for a discussion of unusual items.
(2)  Includes  Ashland's equity income from Marathon Ashland  Petroleum LLC
     (MAP), amortization of Ashland's excess investment in MAP, and certain
     retained refining and marketing activities.
(3)  Sales are defined as sales and  operating  revenues.  Gross  profit is
     defined  as sales  and  operating  revenues,  less  cost of sales  and
     operating  expenses,  less  depreciation and amortization  relative to
     manufacturing  assets.
(4)  Amounts  represent  100% of the volumes of MAP, in which  Ashland owns
     a 38% interest.  MAP commenced  operations January 1, 1998.

                                    22


<PAGE>


RESULTS OF OPERATIONS

Ashland's net income  amounted to $70 million in 2000, $290 million in 1999
and $203 million in 1998. Such earnings  include various unusual items that
significantly affected year-to-year comparisons.  The following table shows
the effects of unusual items on Ashland's operating and net income for each
of the last three years.
<TABLE>
<CAPTION>

                                                                Operating income                 Net income
                                                       -------------------------    -----------------------
(In millions)                                          2000       1999     1998     2000     1999     1998
-----------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>      <C>      <C>      <C>      <C>
INCOME BEFORE UNUSUAL ITEMS                            $671       $496     $516     $292     $217     $238
      Environmental reserves                              -          -      (38)       -        -      (23)
      Severance and relocation charges                    -        (10)      (5)       -       (6)      (3)
      G&A restructuring and headquarters move             -          -      (50)       -        -      (31)
      Discontinued operations                             -          -        -     (218)      (1)      25
      Adjustments to inventory market valuation reserve   -        117      (15)       -       71       (9)
      Gain on sale of Melamine Chemicals                  -          -       14        -        -        6
      Environmental insurance recoveries                  -         43        -        -       26        -
      Asset impairment charges                            -       (21)        -        -      (17)       -
      Extraordinary loss on early retirement of debt      -          -        -       (4)       -        -
-----------------------------------------------------------------------------------------------------------
INCOME AS REPORTED                                     $671       $625     $422      $70     $290     $203
-----------------------------------------------------------------------------------------------------------
</TABLE>

UNUSUAL ITEMS

In December 1996, Ashland announced a major profitability  improvement plan
including  initiatives to  restructure  its assets to emphasize its highest
return  businesses  and  cost  efficiency.  Certain  of the  unusual  items
reported  during the last three years have been  directly  associated  with
these initiatives, as indicated below.

o        Ashland and Marathon Oil Company formed Marathon Ashland Petroleum
         LLC (MAP) in January 1998. Under the formation agreements, Ashland
         was   contractually   committed  to  complete  certain   voluntary
         environmental remediation efforts in progress at various operating
         locations  conveyed to MAP, as well as retain the costs associated
         with  issues  addressed  in an  inspection  of the former  Ashland
         refineries by the Environmental  Protection  Agency.  Ashland also
         decided to close a landfill  near the  refinery  at  Catlettsburg,
         Kentucky.  Charges  associated  with these  environmental  matters
         amounted to $38 million.  An additional $15 million ($5 million in
         1998 and $10 million in 1999) was provided for severance and other
         costs  associated with the formation of MAP and the  consolidation
         of its retail marketing headquarters.

o        Ashland  restructured  its  corporate  general and  administrative
         functions  and  decided to move its  headquarters  in 1998.  Costs
         associated with these actions amounted to $50 million.

o        During 2000,  Ashland  spun-off the majority of its shares of Arch
         Coal common stock to Ashland's shareholders.  In addition, Ashland
         intends to dispose of its  remaining  shares in a  transaction  or
         transactions  that  qualify  as a  sale  for  federal  income  tax
         purposes by March 2001.  Accordingly,  results  from the Arch Coal
         segment   (including   costs  of  the   spin-off)   are  shown  as
         discontinued operations, with prior periods restated.

When it was formed,  MAP recorded an inventory market valuation  reserve to
reduce  the  carrying  costs  of  its  crude  oil  and  petroleum   product
inventories  to their net  realizable  values.  MAP  adjusts  this  reserve
quarterly for changes in the values of refined products, and no reserve was
required after September 30, 1999.  Reserve  adjustments prior to that date
resulted in an increase of $117 million in Ashland's equity income from MAP
in 1999, compared to a reduction of $15 million in 1998.

Other unusual items  recognized  during the three years ended September 30,
2000, included the following.

o        Ashland sold its 23%  interest in Melamine  Chemicals in 1998 at a
         gain of $14 million.

o        Settlements  were  reached  in  1999  with  certain  of  Ashland's
         insurance   carriers  related  to  the  coverage   provided  under
         historical  policies  with  respect to  environmental  remediation
         liabilities, resulting in a gain of $43 million.

o        Ashland  recognized  impairment  charges  of $21  million  in 1999
         principally  related to the  write-down  of goodwill on certain of
         its European plastics distribution operations.  Results from those
         operations  had been well below the levels that were expected when
         they were acquired,  requiring the  impairment  review and related
         charges.

o        Ashland's early  retirement of certain  long-term debt resulted in
         an after tax loss of $4 million in 2000.


                                    23


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS

The following  table  compares  operating  income  before  unusual items by
segment for the three years ended September 30, 2000.
<TABLE>
<CAPTION>

(In millions)                                                 2000                  1999                1998
------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                   <C>                  <C>
OPERATING INCOME BEFORE UNUSUAL ITEMS
APAC                                                          $140                  $108                 $90
Ashland Distribution                                            70                    58                  57
Ashland Specialty Chemical                                      95                   107                  87
Valvoline                                                       78                    74                  53
Refining and Marketing                                         361                   216                 297
Corporate                                                      (73)                  (67)                (68)
-------------------------------------------------------------------------------------------------------------
                                                              $671                  $496                $516
-------------------------------------------------------------------------------------------------------------
</TABLE>

APAC

The APAC  construction  companies  achieved  record results in 2000 for the
third straight year with operating income of $140 million, compared to $108
million  in  1999.  Reflecting  the  acquired  construction  operations  of
Superfos,  as well as  significant  growth  in its  prior  operations,  net
construction  revenue (total revenue less subcontract costs) increased 49%.
Similarly,  APAC's production of construction materials continued to expand
with increases in hot mix asphalt (up 36%),  crushed aggregate (up 34%) and
ready-mix  concrete (up 86%).  The  improvement  in  operating  income also
reflects a $21 million  reduction in  depreciation  expense  resulting from
changes  in the  estimated  useful  lives  and  salvage  values  of  APAC's
construction  equipment,  as well as a gain of $7  million  on the  sale of
certain  concrete block  operations.  Operating  income for 2000 would have
been even greater if it had not been for the significantly  higher costs of
liquid asphalt,  fuel and power that APAC incurred during the year.  APAC's
costs of liquid asphalt  increased from $117 a ton in 1999 to $156 a ton in
2000, while its fuel and power costs were up 14%.

Operating  income from APAC  amounted to $108 million in 1999,  compared to
$90  million  in  1998.  Net  construction   revenue   increased  17%  with
improvements  coming  from all  geographic  regions.  In  addition,  APAC's
production of construction materials reflected increases in hot mix asphalt
(up 12%), crushed aggregate (up 2%) and ready-mix concrete (up 23%).

ASHLAND DISTRIBUTION

Ashland Distribution generated operating income of $70 million during 2000,
compared to $58 million in 1999,  excluding  unusual items. The improvement
was led by better results from the European plastics  distribution business
and higher sales of fiber-reinforced  plastics and fine ingredients.  These
improvements  more than  offset a decline  from the  chemical  distribution
business, which was adversely affected by rising hydrocarbon costs. Results
of Ashland  Distribution  for 2000 also reflect a gain of $3 million on the
sale of the plastics compounding business in Italy.

Excluding unusual items,  overall operating income of Ashland  Distribution
for 1999 was  comparable  to its  results  for  1998.  The  North  American
thermoplastics  and  fiber-reinforced   plastics  distribution   businesses
achieved  record  earnings as a result of stronger  fundamentals in end-use
markets, and the chemical  distribution  business was also up. However, the
favorable  effects were largely offset by profit  declines  within the fine
ingredients  and  European  plastics  distribution  businesses,  which were
adversely affected by price deflation and weak markets.

ASHLAND SPECIALTY CHEMICAL

Operating income from Ashland Specialty Chemical declined from $107 million
in 1999 to $95 million in 2000. Stronger fundamentals led to record results
from electronic chemicals, adhesives and the water treatment businesses, as
well as higher  earnings  from  marine  chemicals.  However,  significantly
higher  styrene and other raw material  costs led to margin  compression in
the polyester  resins  business,  which is the largest  specialty  chemical
business unit.  Petrochemicals also felt the adverse effects of significant
increases in butane costs,  which reduced its margins for maleic anhydride.
Results of Ashland  Specialty  Chemical for 2000 also include charges of $8
million associated with the closing of two manufacturing facilities.

Operating  income from Ashland  Specialty  Chemical  increased  24% to $107
million in 1999, compared to $87 million in 1998, excluding the gain on the
sale of Melamine  Chemicals.  Robust market  conditions,  including  volume
increases, led to improved results for polymers and adhesives.  Results for
petrochemicals  also  increased due to higher sales volumes and margins for
maleic anhydride.  In addition,  operating income from electronic chemicals
was up slightly as it continued to recover from the depths of

                                    24


<PAGE>


the Asian crisis in 1998. Such  improvements were partially offset by lower
earnings  from  marine  chemicals,  where  sales  reflected  the  worldwide
reduction in marine traffic.

VALVOLINE

Operating  income from  Valvoline was $78 million in 2000,  compared to $74
million in 1999.  The  improvement  reflects  record results from Valvoline
Instant  Oil  Change   (VIOC)  and   significantly   better   results  from
international  operations.  VIOC's results  reflect  increased  franchising
royalties, better car counts, higher revenues per car serviced and gains on
the sale of certain company-owned units. The lubricant operations performed
well despite a difficult  market.  Multiple base stock cost  increases were
incurred  that  were  difficult  to  pass  through,   resulting  in  margin
compression.  However,  the adverse effects of the margin  compression were
largely offset by stringent  controls over  advertising and other costs. In
addition,  antifreeze  margins  suffered  from a price  spike  in  ethylene
glycol, the chief raw material in antifreeze.

At September 30, 2000, VIOC operated 358 company-owned  units,  compared to
377 units in 1999 and 391 units in 1998. The reductions since 1998 resulted
from sales of company-owned units to franchisees and the closing of certain
unprofitable  units. The VIOC franchising program continues to expand, with
272  units  open in 2000,  compared  to 207  units in 1999 and 183 units in
1998.  VIOC's future growth will focus  principally on expanding the number
of franchised rather than company-owned units.

Valvoline's operating income increased 40% to $74 million in 1999, compared
to $53 million in 1998.  Contributing to the improved results were stronger
volumes for branded lubricants,  R-12 automotive refrigerant and automotive
chemicals,  as well as improved antifreeze results and record earnings from
VIOC.  These  improvements  were  partially  offset by lower  earnings from
Valvoline  International,  reflecting  reduced sales volumes and margins in
Europe  and higher  expenses  in Latin  America.  VIOC's  operating  income
reflected better car counts,  higher revenues per car serviced and gains on
the sale of certain company-owned units.

REFINING AND MARKETING

Operating  income from  Ashland's  refining and  marketing  segment,  which
consists  primarily  of equity  income from MAP,  totaled  $361 million for
2000, compared to $216 million in 1999 before unusual items. MAP's refining
margins improved significantly from last year's depressed levels.  However,
retail markets were not as accommodating as pump prices failed to keep pace
with the higher level of wholesale  gasoline costs.  Merchandise sales were
up 15%, in part  reflecting  MAP's  acquisition of certain  Michigan retail
properties from Ultramar Diamond Shamrock in December 1999.

Excluding  unusual  items,  operating  income from  Refining and  Marketing
amounted to $216  million in 1999,  compared to $297  million in 1998.  The
reduction in earnings resulted  principally from depressed refining margins
during  most of  fiscal  1999,  as  crude  oil  prices  escalated  rapidly.
Wholesale  refined  product  prices were slow to respond and failed to keep
pace overall with the  increased  crude  prices.  The adverse  effects were
partially  offset by strong  retail  gasoline  margins in the December 1998
quarter and improved merchandise sales.

CORPORATE

Excluding unusual items,  Corporate  expenses were $73 million in 2000, $67
million in 1999 and $68  million in 1998.  The  increase  in 2000  reflects
higher incentive and deferred compensation costs.

NET INTEREST AND OTHER FINANCIAL COSTS

Net interest and other  financial  costs  amounted to $188 million in 2000,
$140 million in 1999 and $130 million in 1998.  The  increased  costs since
1998  generally   relate  to  higher  debt  levels,   including   increased
indebtedness associated with the acquisition of the construction operations
of Superfos in 2000. The costs for 2000 also reflect higher  interest rates
on short-term  borrowings,  as well as $6 million in costs  associated with
the sale of receivables under a new program.

DISCONTINUED OPERATIONS

Ashland  spun-off  the  majority of its shares of Arch Coal common stock to
Ashland's  shareholders  during  2000.  Accordingly,  results from the Arch
segment  are now  shown as  discontinued  operations,  with  prior  periods
restated.  Ashland's share of Arch's results prior to the spin-off amounted
to equity losses of $215 million in 2000 and $1 million in 1999, and equity
income of $25  million in 1998.  The  equity  loss for 2000  included  $203
million related to asset impairment and restructuring costs, largely due to
the write-down of assets at Arch's  Dal-Tex and Hobet 21 mining  operations
and certain  coal  reserves in central  Appalachia.  In  addition,  Ashland
incurred $5 million of costs ($3 million  net of tax  benefits)  related to
the spin-off in 2000.

                                    25


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS

EXTRAORDINARY LOSS

During 2000,  Ashland  prepaid $600 million of  floating-rate  debt used to
fund  the  acquisition  of the  construction  operations  of  Superfos  and
refunded $36 million of pollution  control revenue bonds.  The write-off of
unamortized  debt issuance  expenses and a redemption  premium on the bonds
resulted in an extraordinary loss on early retirement of debt of $6 million
($4 million net of tax benefits).

FINANCIAL POSITION

LIQUIDITY

Ashland's  financial  position  has  enabled it to obtain  capital  for its
financing needs and to maintain investment grade ratings on its senior debt
of Baa2  from  Moody's  and BBB from  Standard  & Poor's.  Ashland  has two
revolving credit agreements providing for up to $425 million in borrowings,
neither of which was used during 2000. Under a shelf registration,  Ashland
can also issue an  additional  $350  million in debt and equity  securities
should future opportunities or needs arise. Furthermore, Ashland has access
to various uncommitted lines of credit and commercial paper markets,  under
which  short-term  borrowings of $245 million were outstanding at September
30, 2000. While the revolving credit agreements contain a covenant limiting
new borrowings,  Ashland could have increased its borrowings (including any
borrowings  under these  agreements) by up to $722 million at September 30,
2000.  Additional  permissible  borrowings  are  reduced  by  150%  of  any
reductions in stockholders' equity.

Cash  flows  from  continuing  operations,  a  major  source  of  Ashland's
liquidity,  amounted to $484 million in 2000, $383 million in 1999 and $354
million in 1998.  Cash flows from  operations for 2000 include $150 million
from sales of receivables (reflected as part of the net change in operating
assets and liabilities). Those sales were under a new program that provides
for the sale of up to $200 million of  designated  receivables.  Cash flows
from operations  exceeded  Ashland's capital  requirements for net property
additions  and  dividends  since  1997 by nearly  $350  million,  providing
additional funds for debt repayment and acquisitions.

Property additions amounted to $754 million during the last three years and
are summarized in the Information by Industry  Segment on Page 49. APAC and
Ashland Specialty  Chemical  accounted for 75% of the capital  expenditures
(excluding Corporate),  with Ashland Distribution and Valvoline sharing the
remainder about equally.  Capital used for acquisitions  (including assumed
debt and companies  acquired through the issuance of common stock) amounted
to $1.01  billion  during the last three  years,  of which $887 million was
invested in APAC, $81 million in Ashland Specialty Chemical, $26 million in
Valvoline and $16 million in Ashland Distribution. A summary of the capital
employed in Ashland's  continuing  operations  at the end of the last three
fiscal years follows.
<TABLE>
<CAPTION>

(In millions)                                                 2000         1999            1998
------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>            <C>
CAPITAL EMPLOYED
Wholly owned businesses
      APAC                                                  $1,156        $  663         $  452
      Ashland Distribution                                     574           527            477
      Ashland Specialty Chemical                               597           566            557
      Valvoline                                                333           346            357
Refining and Marketing                                       1,679         1,646          1,729
------------------------------------------------------------------------------------------------
                                                            $4,339        $3,748         $3,572
------------------------------------------------------------------------------------------------
</TABLE>

Capital  employed in APAC increased  considerably  since 1997, as Ashland's
acquisitions were principally focused in the construction business. Capital
employed in Ashland's  wholly owned  businesses  increased  from 50% of the
total at the end of fiscal 1997 to 61% at September 30, 2000.

Long-term  borrowings provided cash flows of nearly $1.3 billion during the
last three years, including the issuance of $600 million in debt related to
the acquisition of the construction operations of Superfos, $502 million of
medium-term notes and $150 million in senior notes. The proceeds from these
long-term  borrowings were used in part to retire $787 million of long-term
debt, including the $600 million of Superfos-related debt. Debt retirements
included  scheduled  maturities,  as well as  prepayments  or refundings to
reduce  interest  costs.  Cash flows were  supplemented as necessary by the
issuance of short-term notes and commercial paper.

At September 30, 2000, working capital (excluding debt due within one year)
amounted to $759  million,  compared  to $882  million at the end of fiscal
1999.  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

                                    26


<PAGE>


$71 million at September  30, 2000,  and $54 million at September 30, 1999.
Liquid assets (cash, cash equivalents and accounts  receivable) amounted to
77% of current  liabilities  at September 30, 2000,  compared to 95% at the
end of fiscal 1999.

CAPITAL RESOURCES

Ashland's  Board of Directors has  authorized  the purchase of 11.5 million
shares of Ashland  common stock in the open market.  Through  September 30,
2000,  Ashland had purchased 8.9 million  shares at a cost of $363 million.
The number of shares  ultimately  purchased and the prices Ashland will pay
for its stock are subject to periodic review by management.

Ashland's  total debt  amounted  to $2.2  billion at  September  30,  2000,
compared to $1.8 billion at the end of fiscal 1999.  The increase  reflects
the acquisition of the construction  operations of Superfos, as well as the
share  purchase  program.  Common  stockholders'  equity  decreased by $235
million during 2000 to $2 billion, principally due to Ashland's equity loss
of $215 million from Arch Coal, the spin-off of the Arch common stock,  and
purchases of Ashland  common  stock.  Although debt as a percent of capital
employed amounted to 53% at September 30, 2000,  compared to 46% at the end
of fiscal 1999, it was reduced from the  quarterly  high point of 58% after
the acquisition of Superfos.

Earnings before interest,  taxes, depreciation and amortization (EBITDA) is
a widely accepted  financial  indicator of a company's ability to incur and
service debt.  Ashland's  EBITDA,  which  represents  operating income plus
depreciation,  depletion and amortization  (each excluding  unusual items),
amounted to $908 million in 2000,  $705 million in 1999 and $697 million in
1998.  EBITDA should not be considered in isolation or as an alternative to
net income, operating income, cash flows from operations, or a measure of a
company's profitability,  liquidity or performance under generally accepted
accounting principles.

At  September   30,  2000,   Ashland's   debt   included  $384  million  of
floating-rate obligations,  including $245 million of short-term borrowings
and $139 million of long-term debt. In addition,  Ashland's costs under its
sale of receivables  program and various  operating leases are based on the
floating-rate interest costs on $253 million of third-party debt underlying
those  transactions.  As a result,  Ashland was exposed to  fluctuations in
short-term  interest rates on $637 million of debt obligations at September
30, 2000.

During fiscal 2001,  Ashland expects capital  expenditures of approximately
$250 million.  Ashland anticipates meeting its capital  requirements during
2001 for property additions, dividends and scheduled debt repayments of $82
million from internally generated funds. However, external financing may be
necessary to provide funds for acquisitions or purchases of common stock.

Ashland intends to dispose of its remaining 4.7 million shares of Arch Coal
common stock in a transaction  or  transactions  that qualify as a sale for
federal income tax purposes by March 2001. On September 6, 2000, Arch filed
a  registration  statement  for the sale of these  shares by  Ashland  in a
secondary offering.

ENVIRONMENTAL MATTERS

Federal, state and local laws and regulations relating to the protection of
the  environment  have  resulted  in higher  operating  costs  and  capital
investments  by the  industries in which Ashland  operates.  Because of the
continuing   trends  toward  greater   environmental   awareness  and  ever
increasing   regulations,    Ashland   believes   that   expenditures   for
environmental  compliance will continue to have a significant effect on its
businesses.  Although  it cannot  accurately  predict  how such trends will
affect  future  operations  and earnings,  Ashland  believes the nature and
significance of its ongoing compliance costs will be comparable to those of
its competitors.

Environmental  reserves are subject to numerous inherent uncertainties that
affect  Ashland's  ability to estimate its share of the  ultimate  costs of
required  remediation  efforts.  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.  Reserves are  regularly  adjusted as  environmental
assessments and remediation efforts proceed.

Ashland does not believe that any liability  resulting  from  environmental
matters, after taking into consideration its insurance coverage and amounts
already   provided  for,  will  have  a  material  adverse  effect  on  its
consolidated  financial position,  cash flows or liquidity.  However,  such
matters  could  have a  material  effect  on  results  of  operations  in a
particular  quarter  or fiscal  year as they  develop  or as new issues are
identified.

DERIVATIVE INSTRUMENTS

Ashland uses  derivatives  to reduce its exposure to certain risks inherent
within its businesses in accordance with established policies. Ashland does
not enter into derivative instruments for trading purposes.

                                    27


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS

From time to time,  Ashland uses commodity futures contracts or derivatives
to manage  its  exposure  to price  fluctuations  for  natural  gas used by
Ashland's manufacturing facilities.  These financial products are also used
to hedge fixed price natural gas purchase or sales  contracts  entered into
under Ashland's energy management  program for its suppliers and customers.
Ashland also uses forward  exchange  contracts  to hedge  foreign  currency
transaction exposures of its operations. However, the potential loss from a
hypothetical  10% adverse  change in commodity  prices or foreign  currency
rates on Ashland's open commodity futures and forward exchange contracts at
September 30, 2000, would not significantly  affect Ashland's  consolidated
financial position, results of operations, cash flows or liquidity.

Ashland  selectively  uses  unleveraged  interest  rate swap  agreements to
obtain greater access to the lower  borrowing  costs normally  available on
floating-rate debt, while minimizing refunding risk through the issuance of
long-term,  fixed-rate  debt.  However,  Ashland  did  not  have  any  swap
agreements outstanding at September 30, 2000.

In June 1998, the Financial Accounting Standards Board issued Statement No.
133  (FAS  133),   "Accounting  for  Derivative   Instruments  and  Hedging
Activities." FAS 133 was  subsequently  amended by two other statements and
is required to be adopted in years beginning  after June 15, 2000.  Because
of Ashland's minimal use of derivatives, FAS 133 did not have a significant
effect on Ashland's financial position or results of operations when it was
adopted on October 1, 2000.  MAP will adopt FAS 133 on January 1, 2001, and
cannot reasonably estimate the effect of adoption on its financial position
or results of operations.

OUTLOOK

Ashland expects generally improving margins for its wholly owned businesses
in  2001  compared  to  2000,  with  operating  income  growth  in a  range
consistent  with the  rate of the past  several  years.  Excluding  unusual
items,  Ashland's  operating  income from wholly owned businesses grew at a
compound  annual growth rate of 11 percent from 1990 through 2000.  Ashland
also expects  continued  strong refining margins during 2001, but without a
repeat of the very high margins experienced in the June 2000 quarter, which
boosted  results for 2000. Such  expectations  assume a stable economy with
more moderate growth and stable to softening crude oil prices.

At  September  30,  2000,  APAC's  construction  backlog  amounted  to $1.4
billion,  compared  to $948  million at the end of fiscal  1999,  including
increases  in the  backlog of public  projects,  as well as private  sector
work.  Because  most of the backlog  was bid taking the  current  levels of
liquid  asphalt and other  costs into  consideration,  APAC's  construction
margins should be healthier in 2001.

Ashland  Distribution and Ashland  Specialty  Chemical are both focusing on
improving   returns.   Ashland   Distribution  is  growing   revenues  from
non-traditional   businesses   through  offering  new  services,   such  as
environmental and energy services, and new products to its current customer
base.  The  fundamentals  of Ashland  Specialty  Chemical's  businesses are
sound.  While higher  hydrocarbon costs pose challenges  especially for the
unsaturated  polyester resins business,  other specialty chemical lines are
performing well and should continue to do so.

Valvoline  generated gross profit of around $14 million in each of the last
two years from sales of R-12 refrigerant.  Based on demand in recent years,
Valvoline's  earnings from R-12 are expected to be at a comparable level in
2001, but sales thereafter will probably be minimal.  Valvoline's  strategy
is to grow other product lines, such as premium  lubricants,  Eagle One car
care products, and SynPower chemicals,  to offset the loss of earnings from
R-12 sales after 2001.

Ashland  believes  that  refining  industry  returns  will  on  average  be
significantly  higher in the foreseeable future than in the 1990s. While it
is  uncertain  how  product  changes,  such as reduced  levels of sulfur in
gasoline and diesel fuel,  may affect the  industry,  none of these changes
are  expected to lead to greater  supply of  petroleum  products.  Based on
industry estimates, MAP projects it will spend $600 to $700 million between
2003 and 2005 for desulfurization of gasoline and diesel fuel. However, MAP
does not expect this to hinder the overall  profitability  of its business.
Furthermore,  differentiation of products for individual geographic regions
and tighter product  specifications are expected to continue,  which should
result in more isolated markets.

Ashland's  sales and  operating  revenues are normally  subject to seasonal
variations.  Although  APAC tends to enjoy a relatively  long  construction
season,  most of its operating  income is generated during the construction
period of May to October. In addition, MAP experiences increased demand for
gasoline  during the summer  driving  season,  higher demand for distillate
during the winter heating season and increased  demand for asphalt from the
road paving industry during the construction season. The

                                    28


<PAGE>


following table compares  operating  income before unusual items by quarter
for the three years ended  September  30, 2000 (amounts for each quarter do
not necessarily total to results for the year due to rounding).
<TABLE>
<CAPTION>
(In millions)                                                                2000            1999              1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>             <C>              <C>
QUARTERLY OPERATING INCOME BEFORE UNUSUAL ITEMS
December 31                                                                  $111            $109             $  89
March 31                                                                       90              44                69
June 30                                                                       268             173               218
September 30                                                                  203             170               139
---------------------------------------------------------------------------------------------------------------------
</TABLE>

CONVERSION TO THE EURO

On January 1, 1999,  certain members of the European  Economic and Monetary
Union (EMU)  established  fixed  conversion  rates between  their  existing
currencies  and the  EMU's  common  currency,  the  Euro.  Entities  in the
participating  countries  can conduct their  business  operations in either
their existing  currencies or the Euro until December 31, 2001.  After that
date, all non-cash  transactions will be conducted in Euros and circulation
of Euro notes and coins for cash transactions will commence. National notes
and coins will be withdrawn no later than June 30, 2002.

Ashland  conducts  business in most of the  participating  countries and is
addressing the issues  associated with the Euro. The more important  issues
include converting information technology systems and processing accounting
and tax records.  Based on the progress to date,  Ashland believes that the
use of the Euro will not have a  significant  impact on the manner in which
it does business and processes its accounting records. Accordingly, the use
of the  Euro  is not  expected  to  have a  material  effect  on  Ashland's
consolidated  financial  position,  results  of  operations,  cash flows or
liquidity.

EFFECTS OF INFLATION AND CHANGING PRICES

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

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

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

Monetary  assets (such as cash, cash  equivalents and accounts  receivable)
lose purchasing power as a result of inflation,  while monetary liabilities
(such as accounts payable and indebtedness)  result in a gain, because they
can be settled  with  dollars of  diminished  purchasing  power.  Ashland's
monetary  liabilities  exceed its  monetary  assets,  which  results in net
purchasing  power gains and provides a hedge  against the effects of future
inflation.

FORWARD-LOOKING STATEMENTS

Management's  Discussion  and  Analysis  (MD&A)  contains   forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the  Securities  Exchange  Act of 1934,  with respect to
various  information  in the  Capital  Resources,  Derivative  Instruments,
Outlook and  Conversion to the Euro sections of this MD&A.  Estimates as to
operating  performance  and earnings are based on a number of  assumptions,
including  those  mentioned  in 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 and cost of raw
materials.   Although  Ashland  believes  its  expectations  are  based  on
reasonable assumptions, it cannot assure the expectations reflected in MD&A
will  be  achieved.  This  forward-looking  information  may  prove  to  be
inaccurate  and  actual  results  may  differ   significantly   from  those
anticipated  if one or more of the underlying  assumptions or  expectations
proves to be inaccurate or is unrealized or if other unexpected  conditions
or events occur. Other factors and risks affecting Ashland are contained in
Risks and Uncertainties in Note A to the Consolidated  Financial Statements
and in Ashland's Form 10-K for the fiscal year ended September 30, 2000.

                                    29


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
Years Ended September 30
<TABLE>
<CAPTION>

(In millions except per share data)                                               2000                 1999                   1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>                    <C>
REVENUES
Sales and operating revenues                                                    $7,961               $6,801                 $6,534
Equity income - Note F                                                             394                  351                    304
Other income                                                                        81                  101                     70
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                 8,436                7,253                  6,908
COSTS AND EXPENSES
Cost of sales and operating expenses                                             6,434                5,346                  5,299
Selling, general and administrative expenses                                     1,094                1,054                  1,006
Depreciation, depletion and amortization                                           237                  228                    181
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                 7,765                6,628                  6,486
-----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                                   671                  625                    422
Net interest and other financial costs - Note G                                   (188)                (140)                  (130)
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                              483                  485                    292
Income taxes - Note E                                                             (191)                (194)                  (114)
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                                  292                  291                    178
Income (loss) from discontinued operations (net of income taxes) - Note B         (215)                  (1)                    25
Costs of spin-off of discontinued operations (net of income taxes) - Note B         (3)                   -                      -
-----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS                                                    74                  290                    203
Extraordinary loss on early retirement of debt (net of income taxes) - Note G       (4)                   -                      -
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                                      $   70               $  290                 $  203
-----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - Note A
Basic
      Income from continuing operations                                         $ 4.11               $ 3.95                 $ 2.35
      Income (loss) from discontinued operations                                 (3.03)                (.01)                   .33
      Costs of spin-off of discontinued operations                                (.04)                   -                      -
      Extraordinary loss                                                          (.05)                   -                      -
                                                                                ---------------------------------------------------
      Net income                                                                $  .99               $ 3.94                 $ 2.68
Diluted
      Income from continuing operations                                         $ 4.10               $ 3.90                 $ 2.31
      Income (loss) from discontinued operations                                 (3.03)                (.01)                   .32
      Costs of spin-off of discontinued operations                                (.04)                   -                      -
      Extraordinary loss                                                          (.05)                   -                      -
-----------------------------------------------------------------------------------------------------------------------------------
      Net income                                                                $  .98               $ 3.89                 $ 2.63
-----------------------------------------------------------------------------------------------------------------------------------


</TABLE>

See Notes to Consolidated Financial Statements.

                                    31


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30

<TABLE>
<CAPTION>
(In millions)                                                                    2000                        1999
------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                        <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                      $   67                      $  110
Accounts receivable (less allowances for doubtful accounts of
    $25 million in 2000 and $23 million in 1999)                                1,243                       1,219
Inventories - Note A                                                              488                         464
Deferred income taxes - Note E                                                    135                         107
Other current assets                                                              198                         159
------------------------------------------------------------------------------------------------------------------
                                                                                2,131                       2,059

INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) - Note F                     2,295                       2,172
Cost in excess of net assets of companies acquired (less accumulated
      amortization of $101 million in 2000 and $98 million in 1999)               537                         220
Investment in Arch Coal - discontinued operations - Note B                         35                         417
Other noncurrent assets                                                           351                         264
------------------------------------------------------------------------------------------------------------------
                                                                                3,218                       3,073

PROPERTY, PLANT AND EQUIPMENT
Cost
      APAC                                                                      1,220                         990
      Ashland Distribution                                                        356                         352
      Ashland Specialty Chemical                                                  835                         768
      Valvoline                                                                   354                         348
      Corporate                                                                   114                         191
------------------------------------------------------------------------------------------------------------------
                                                                                2,879                       2,649
Accumulated depreciation, depletion and amortization                           (1,457)                     (1,357)
------------------------------------------------------------------------------------------------------------------
                                                                                1,422                       1,292
------------------------------------------------------------------------------------------------------------------
                                                                               $6,771                      $6,424
------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                    32


<PAGE>

<TABLE>
<CAPTION>

(In millions)                                                                          2000                     1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                       <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
      Notes payable to financial institutions                                       $  180                    $  182
      Commercial paper                                                                  65                         -
      Current portion of long-term debt                                                 82                        37
Trade and other payables                                                             1,330                     1,135
Income taxes                                                                            42                        42
----------------------------------------------------------------------------------------------------------------------
                                                                                     1,699                     1,396

NONCURRENT LIABILITIES

Long-term debt (less current portion) - Notes G and I                                1,899                     1,627
Employee benefit obligations - Note O                                                  383                       418
Deferred income taxes - Note E                                                         288                       226
Reserves of captive insurance companies                                                179                       175
Other long-term liabilities and deferred credits                                       358                       382
Commitments and contingencies - Notes J and M
----------------------------------------------------------------------------------------------------------------------
                                                                                     3,107                     2,828

STOCKHOLDERS' EQUITY - Notes G, K AND L
Preferred  stock, no par value, 30 million shares authorized
Common stockholders' equity
      Common stock, par value $1.00 per share
         Authorized - 300 million shares
         Issued - 70 million shares in 2000 and 72 million shares in 1999               70                        72
      Paid-in capital                                                                  388                       464
      Retained earnings                                                              1,579                     1,710
      Accumulated other comprehensive loss                                             (72)                      (46)
----------------------------------------------------------------------------------------------------------------------
                                                                                     1,965                     2,200
----------------------------------------------------------------------------------------------------------------------
                                                                                    $6,771                    $6,424
----------------------------------------------------------------------------------------------------------------------

</TABLE>


                                    33


<PAGE>



Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                                 Accumulated
                                                                                                       other
                                                    Common          Paid-in        Retained    comprehensive
(In millions)                                        stock          capital        earnings             loss               Total

----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>           <C>               <C>               <C>
BALANCE AT OCTOBER 1, 1997                             $75             $605          $1,379             $(35)             $2,024
Total comprehensive income(1)                                                           203               (7)                196
Cash dividends, $1.10 per common share                                                  (84)                                 (84)
Issued common stock under
     Stock incentive plans                               1               15                                                   16
     Acquisitions of other companies                     1               29               3                                   33
Repurchase of common stock                              (1)             (45)                                                 (46)
Other changes                                                            (2)                                                  (2)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998                           76              602           1,501              (42)              2,137
Total comprehensive income(1)                                                           290               (4)                286
Cash dividends, $1.10 per common share                                                  (81)                                 (81)
Issued common stock under
     Stock incentive plans                                                7                                                    7
     Acquisitions of other companies                     2               77                                                   79
Repurchase of common stock                              (6)            (222)                                                (228)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999                           72              464           1,710              (46)              2,200
Total comprehensive income(1)                                                            70              (26)                 44
Dividends
     Cash, $1.10 per common share                                                       (78)                                 (78)
     Spin-off of Arch Coal shares                                                      (123)                                (123)
Issued common stock under
     Stock incentive plans                                                8                                                    8
     Acquisitions of other companies                                      3                                                    3
Repurchase of common stock                              (2)             (87)                                                 (89)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000                          $70             $388          $1,579             $(72)             $1,965
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Reconciliations of net income to total comprehensive income follow.
<TABLE>
<CAPTION>

(In millions)                                                                           2000             1999               1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>             <C>                <C>
NET INCOME                                                                               $70             $290               $203
Minimum pension liability adjustment                                                       2               13                 (6)
     Related tax benefit (expense)                                                        (1)              (5)                 2
Unrealized translation adjustments                                                       (37)             (11)                (7)
     Related tax benefit                                                                  10                3                  1
Unrealized gains (losses) on securities                                                    -               (6)                 8
     Related tax benefit (expense)                                                         -                2                 (3)
Losses (gains) on securities included in net income                                        -                -                 (3)
     Related tax expense                                                                   -                -                  1
---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME                                                               $44             $286               $196
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

At September 30, 2000,  the  accumulated  other  comprehensive  loss of $72
million (after tax) was comprised of net unrealized  translation  losses of
$64 million and a minimum pension liability of $8 million.

See Notes to Consolidated Financial Statements.

                                    34


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended September 30
<TABLE>
<CAPTION>

(In millions)                                                        2000                  1999                1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                  <C>                 <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Income from continuing operations                                    $292                 $ 291               $178
Expense (income) not affecting cash
      Depreciation, depletion and amortization                        237                   228                181
      Deferred income taxes                                           111                   103                 60
      Equity income from affiliates                                  (394)                 (351)              (304)
      Distributions from equity affiliates                            282                   339                242
      Other items                                                     (19)                   (2)                (6)
Change in operating assets and liabilities(1)                         (25)                 (225)                 3
--------------------------------------------------------------------------------------------------------------------
                                                                      484                   383                354
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt                              988                   150                150
Proceeds from issuance of common stock                                  5                     4                 10
Repayment of long-term debt                                          (675)                  (59)               (53)
Repurchase of common stock                                            (89)                 (228)               (46)
Increase in short-term debt                                            63                    98                 81
Dividends paid                                                        (78)                  (81)               (84)
--------------------------------------------------------------------------------------------------------------------
                                                                      214                  (116)                58
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment                           (232)                 (248)              (274)
Purchase of leased assets associated with the formation of MAP          -                     -               (254)
Purchase of operations - net of cash acquired                        (590)                  (67)              (187)
Proceeds from sale of operations                                       50                    24                 26
Other - net                                                            71                    98                111
--------------------------------------------------------------------------------------------------------------------
                                                                     (701)                 (193)              (578)
--------------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS                          (3)                   74               (166)
Cash provided (used) by discontinued operations - Note B              (40)                    2                (50)
--------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (43)                   76               (216)
Cash and cash equivalents - beginning of year                         110                    34                250
--------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR                             $  67                 $ 110              $  34
--------------------------------------------------------------------------------------------------------------------
DECREASE (INCREASE) IN OPERATING ASSETS(1)
Accounts receivable                                                 $  68                 $ (90)             $ (54)
Inventories                                                             -                   (25)               (21)
Deferred income taxes                                                 (25)                    1                (17)
Other current assets                                                  (28)                  (20)               (36)
Investments and other assets                                         (101)                  (53)               (22)
INCREASE (DECREASE) IN OPERATING LIABILITIES(1)
Trade and other payables                                              105                   (79)                33
Income taxes                                                          (11)                    2                 (1)
Noncurrent liabilities                                                (33)                   39                121
--------------------------------------------------------------------------------------------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES                          $ (25)                $(225)             $   3
--------------------------------------------------------------------------------------------------------------------
</TABLE>

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

See Notes to Consolidated Financial Statements.

                                    35


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements include the accounts of Ashland and
its majority owned  subsidiaries.  Investments in joint ventures and 20% to
50% owned affiliates are accounted for on the equity method.

RISKS AND UNCERTAINTIES

The  preparation  of  Ashland's   consolidated   financial   statements  in
conformity with generally accepted accounting principles requires Ashland's
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 subject to such
estimates and  assumptions  include the carrying  value of  long-lived  and
intangible   assets,   inventory  and  receivable   valuation   allowances,
environmental  reserves,  employee benefit  obligations,  income recognized
under construction contracts,  and the ultimate realization of deferred tax
assets.  Actual  results could differ from the  estimates  and  assumptions
used.

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

INVENTORIES
<TABLE>
<CAPTION>

(In millions)                                               2000                        1999
---------------------------------------------------------------------------------------------
<S>                                                         <C>                         <C>
Chemicals and plastics                                      $375                        $358
Construction materials                                        80                          55
Petroleum products                                            52                          45
Other products                                                45                          55
Supplies                                                       7                           5
Excess of replacement costs over LIFO carrying values        (71)                        (54)
---------------------------------------------------------------------------------------------
                                                            $488                        $464
---------------------------------------------------------------------------------------------
</TABLE>

Chemicals,  plastics,  petroleum  products and supplies  with a replacement
cost of $327 million at September  30, 2000,  and $302 million at September
30, 1999,  are valued  using the  last-in,  first-out  (LIFO)  method.  The
remaining  inventories are stated generally at the lower of cost (using the
first-in, first-out [FIFO] or average cost method) or market.

LONG-LIVED AND INTANGIBLE ASSETS

The cost of plant and equipment is depreciated by the straight-line  method
over the  estimated  useful  lives of the  assets.  Costs in  excess of net
assets of companies acquired are amortized by the straight-line method over
periods  generally  ranging from 15 to 40 years,  with an average remaining
life  of 17  years.  Long-lived  and  intangible  assets  are  periodically
reviewed  for  recoverability  when  impairment   indicators  are  present.
Recorded values that are not expected to be recovered through  undiscounted
future  cash  flows  are  written  down to  current  fair  value,  which is
generally  determined  from  estimated  discounted  future  net cash  flows
(assets held for use) or net realizable value (assets held for sale).

Goodwill  amortization amounted to $29 million in 2000, $34 million in 1999
and $14 million in 1998. The 1999 amount  included  unusual  charges of $19
million for goodwill  write-downs  related to certain European  operations.
Results from these operations had  consistently  been well below the levels
that were expected when they were  acquired,  necessitating  the impairment
review and  resulting  write-downs.  In addition to these  amounts,  equity
income includes the amortization of the excess of Ashland's investment over
its underlying equity in the net assets of MAP. At September 30, 2000, such
excess  amounted to $374 million and is being  amortized on a straight-line
basis ($26 million in 2000, $27 million in 1999 and $21 million in 1998).

                                       36


<PAGE>


ENVIRONMENTAL COSTS

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

EARNINGS PER SHARE

The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share (EPS) from continuing operations.
<TABLE>
<CAPTION>

(In millions except per share data)                         2000            1999            1998
-------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>             <C>
NUMERATOR
Numerator for basic and diluted EPS - Income from
       continuing operations                              $  292           $ 291           $ 178
-------------------------------------------------------------------------------------------------
DENOMINATOR
Denominator for basic EPS - Weighted average
       common shares outstanding                              71              74              76
Common shares issuable upon
       exercise of stock options                               -               1               1
-------------------------------------------------------------------------------------------------
Denominator for diluted EPS - Adjusted weighted
       average shares and assumed conversions                 71              75              77
-------------------------------------------------------------------------------------------------
BASIC EPS FROM CONTINUING OPERATIONS                       $4.11           $3.95           $2.35
DILUTED EPS FROM CONTINUING OPERATIONS                     $4.10           $3.90           $2.31
-------------------------------------------------------------------------------------------------
</TABLE>

DERIVATIVE INSTRUMENTS

From time to time,  Ashland uses commodity futures contracts or derivatives
to manage  its  exposure  to price  fluctuations  for  natural  gas used by
Ashland's manufacturing facilities.  These financial products are also used
to hedge fixed price natural gas purchase or sales  contracts  entered into
under Ashland's energy management  program for its suppliers and customers.
Realized gains and losses on these  contracts are included in cost of sales
in the delivery month, with amounts paid or received on early  terminations
deferred on the balance  sheet in other  current  assets or trade and other
payables (the deferral method).

Ashland  uses  forward   exchange   contracts  to  hedge  foreign  currency
transaction   exposures   of   its   operations.    These   contracts   are
marked-to-market each month and included in trade and other payables,  with
the  offsetting  gain or loss  included  in other  income  (the fair  value
method).

Ashland  selectively  uses  unleveraged  interest  rate swap  agreements to
obtain greater access to the lower  borrowing  costs normally  available on
floating-rate debt, while minimizing refunding risk through the issuance of
long-term, fixed-rate debt. Each interest rate swap agreement is designated
with all or a portion of the principal  balance and term of a specific debt
obligation.  These  agreements  involve the exchange of amounts  based on a
fixed  interest rate for amounts based on variable  interest rates over the
life of the  agreement,  without an  exchange of the  notional  amount upon
which the payments are based.  The  differential  to be paid or received as
interest  rates  change is  accrued  and  recognized  as an  adjustment  of
interest  expense (the accrual  method).  The related  amount payable to or
receivable from counterparties is included in trade and other payables. The
fair values of the swap  agreements  are not  recognized  in the  financial
statements.  Gains and losses on early  terminations  of interest rate swap
agreements   are  deferred  on  the  balance  sheet  (in  other   long-term
liabilities)  and amortized as an  adjustment to interest  expense over the
remaining  term  of the  original  contract  life  of the  terminated  swap
agreement.

In June 1998, the Financial Accounting Standards Board issued Statement No.
133  (FAS  133),   "Accounting  for  Derivative   Instruments  and  Hedging
Activities." FAS 133 was  subsequently  amended by two other statements and
is required to be adopted in years beginning  after June 15, 2000.  Because
of Ashland's minimal use of derivatives, FAS 133 did not have a significant
effect on Ashland's financial position or results of operations when it was
adopted on October 1, 2000.  MAP will adopt FAS 133 on January 1, 2001, and
cannot reasonably estimate the effect of adoption on its financial position
or results of operations.

                                    37


<PAGE>


NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK INCENTIVE PLANS

Ashland  accounts for its stock options  using the  intrinsic  value method
prescribed  by  Accounting  Principles  Board  Opinion  No.  25  (APB  25),
"Accounting  for Stock Issued to Employees,"  and related  Interpretations.
The  disclosure   requirements  of  Financial  Accounting  Standards  Board
Statement No. 123 (FAS 123), "Accounting for Stock-Based Compensation," are
included in Note L.

OTHER

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

Income  related to  construction  contracts is generally  recognized by the
units-of-production    method,    which    is   a    variation    of    the
percentage-of-completion  method.  Any anticipated losses on such contracts
are charged against operations as soon as such losses are estimable.

Research and  development  costs are  expensed as incurred  ($33 million in
2000, $30 million in 1999 and $28 million in 1998).

Effective  October 1, 1999,  APAC  changed the  estimated  useful lives and
salvage values for its construction  equipment,  resulting in a decrease in
depreciation expense of approximately $21 million in 2000.

Certain  prior year  amounts  have been  reclassified  in the  consolidated
financial   statements  and   accompanying   notes  to  conform  with  2000
classifications.

NOTE B - DISCONTINUED OPERATIONS

On March 16, 2000, Ashland's Board of Directors approved a spin-off of 17.4
million shares of its Arch Coal Common Stock to Ashland's  shareholders  of
record on March 24,  2000,  in the form of a taxable  dividend.  The shares
were  distributed  on the basis of .246097 of a share of Arch Coal for each
Ashland share  outstanding.  The spin-off  resulted in a charge to retained
earnings of $123 million, with no gain or loss recorded.  However,  Ashland
incurred $5 million of costs related to the spin-off and an offsetting  tax
benefit of $2  million.  Ashland  intends to dispose of its  remaining  4.7
million Arch shares in a transaction or transactions that qualify as a sale
for federal  income tax purposes by March 2001. On September 6, 2000,  Arch
filed a registration statement for the sale of these shares by Ashland in a
secondary  offering.  Results  from  the Arch  Coal  segment  are  shown as
discontinued operations with prior periods restated.  Components of amounts
reflected  in income and cash flow are  presented in the  following  table.
Ashland's  equity  income for 2000 shown below  included a net loss of $203
million related to asset impairment and restructuring costs, largely due to
the write-down of assets at Arch's  Dal-Tex and Hobet 21 mining  operations
and certain coal reserves in central Appalachia.

On May 6, 1998,  Ashland  completed  its  withdrawal  from the  exploration
business  through the sale of its exploration and production  operations in
Nigeria with no significant  gain or loss. The 1998 column in the following
table also includes the cash flow  components  of the Nigerian  operations,
including the sales proceeds.
<TABLE>
<CAPTION>

(In millions)                                                  2000                1999             1998
----------------------------------------------------------------------------------------------------------
<S>                                                           <C>                  <C>              <C>
INCOME STATEMENT DATA
Revenues - Equity income (loss)                               $(246)               $(2)             $ 25
Costs and expenses - SG&A expenses                               (1)                (1)                -
----------------------------------------------------------------------------------------------------------
Operating income (loss)                                        (247)                (3)               25
Income tax benefit                                               32                  2                 -
----------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations                    $(215)               $(1)             $ 25
----------------------------------------------------------------------------------------------------------
CASH FLOW DATA
Cash flows from operations                                    $ (40)               $ 7              $(69)
Cash flows from investment (including sales proceeds)             -                 (5)               19
----------------------------------------------------------------------------------------------------------
Cash provided (used) by discontinued operations               $ (40)               $ 2              $(50)
----------------------------------------------------------------------------------------------------------

</TABLE>



                                    38


<PAGE>


NOTE C - INFORMATION BY INDUSTRY SEGMENT

Ashland's  operations are conducted  primarily in the United States and are
managed along industry segments,  which include APAC, Ashland Distribution,
Ashland  Specialty  Chemical,   Valvoline,   and  Refining  and  Marketing.
Information by industry segment is shown on Pages 48 and 49.

The APAC group of companies  performs contract  construction  work, such as
paving, repairing and resurfacing highways, streets, airports,  residential
and commercial  developments,  sidewalks,  and driveways;  grading and base
work; and excavation and related  activities in the construction of bridges
and  structures,  drainage  facilities  and  underground  utilities  in  14
southern and midwestern  states.  APAC also produces and sells construction
materials,  such as hot-mix asphalt and ready-mix  concrete,  crushed stone
and other aggregate.

Ashland Distribution distributes chemicals,  plastics, fiber reinforcements
and fine ingredients in North America and plastics in Europe.

Ashland Specialty  Chemical  manufactures and supplies  specialty  chemical
products and services to industries  including the  adhesives,  automotive,
composites,  construction, foundry, merchant marine, paint, paper, plastics
and semiconductor fabrication industries.

Valvoline is a marketer of premium-branded  automotive and industrial oils,
automotive chemicals,  appearance products and services, with sales in more
than 140 countries.  Valvoline is engaged in the "fast oil change" business
through owned and franchised  outlets operating under the Valvoline Instant
Oil Change name.

The  Refining  and  Marketing  segment  includes  Ashland's  38%  ownership
interest  in Marathon  Ashland  Petroleum  LLC (MAP) and  certain  retained
refining  and  marketing  activities.  MAP  was  formed  January  1,  1998,
combining the major elements of the refining,  marketing and transportation
operations  of Ashland and Marathon Oil Company.  MAP has seven  refineries
with a combined crude oil refining  capacity of 935,000 barrels per day, 93
light  products and asphalt  terminals in the Midwest and Southeast  United
States,  more  than  6,000  retail  marketing  outlets  in  21  states  and
significant  pipeline  holdings.  Ashland  accounts for its interest in MAP
using the equity method.

As  described  in Note B, the  spin-off  of Arch Coal  shares to  Ashland's
shareholders in 2000 and the planned sale of Ashland's  remaining  interest
in  Arch  resulted  in  the  presentation  of  the  Arch  Coal  segment  as
discontinued operations, with prior years restated.

Information  about  Ashland's  domestic  and  foreign  operations  follows.
Ashland has no material operations in any individual foreign country.
<TABLE>
<CAPTION>

                                              Revenues from external customers                            Long-lived assets
                                        -----------------------------------------------            ------------------------------
(In millions)                           2000                1999                  1998                 2000                 1999
---------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                   <C>                  <C>                  <C>
United States                         $7,348              $6,185                $5,855               $1,300               $1,181
Foreign                                1,088               1,068                 1,053                  122                  111
---------------------------------------------------------------------------------------------------------------------------------
                                      $8,436              $7,253                $6,908               $1,422               $1,292
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE D - RELATED PARTY TRANSACTIONS

Ashland sells  chemicals and lubricants to Marathon  Ashland  Petroleum LLC
(MAP) and purchases  petroleum  products from MAP. Such transactions are in
the ordinary course of business at negotiated prices comparable to those of
transactions  with other  customers  and  suppliers.  In addition,  Ashland
leases  certain  facilities  to  MAP,  and  provides  certain   information
technology and administrative services to MAP. For the year ended September
30, 2000,  Ashland's  sales to MAP amounted to $15 million,  its  purchases
from MAP amounted to $261 million, and its costs charged to MAP amounted to
$8 million.  Comparable amounts for the year ended September 30, 1999, were
$8 million,  $185 million,  and $16 million,  and for the nine months ended
September  30,  1998,  were $17  million,  $147  million,  and $21 million.
Ashland's  transactions  with other affiliates and related parties were not
significant.

Ashland  and  Marathon  have  entered  into a  revolving  credit  agreement
providing  for  loans  up to $500  million  to  MAP.  Ashland  may,  at its
discretion,  choose  to  fund  up to 38%  of any  loans  to MAP  under  the
agreement.  At September  30,  2000,  no loans were  outstanding  under the
agreement.

                                    39


<PAGE>


NOTE E - INCOME TAXES

A  summary  of  the  provision  for  income  taxes  related  to  continuing
operations follows.
<TABLE>
<CAPTION>

(In millions)                                                                 2000                 1999                1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>                 <C>
Current(1)
      Federal                                                                 $ 57                 $ 63                $ 42
      State                                                                      6                   17                  (1)
      Foreign                                                                   17                   11                  13
----------------------------------------------------------------------------------------------------------------------------
                                                                                80                   91                  54
Deferred                                                                       111                  103                  60
----------------------------------------------------------------------------------------------------------------------------
                                                                              $191                 $194                $114
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Income tax payments  amounted to $114 million in 2000,  $142 million in
1999 and $109 million in 1998.

Deferred income taxes are provided for income and expense items  recognized
in different  years for tax and  financial  reporting  purposes.  Temporary
differences  that  give  rise  to  significant   deferred  tax  assets  and
liabilities follow.
<TABLE>
<CAPTION>

(In millions)                                                                                      2000                1999
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>                 <C>
Employee benefit obligations                                                                       $167                $174
Environmental, insurance and litigation reserves                                                    140                 123
Compensation accruals                                                                                57                  44
Uncollectible accounts receivable                                                                    13                  11
Other items                                                                                          79                  76
----------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets                                                                           456                 428
----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment                                                                       156                  95
Investment in unconsolidated affiliates                                                             453                 452
----------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities                                                                      609                 547
----------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability                                                                         $153                $119
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(In millions)                                                                 2000                 1999                1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>                 <C>
Income from continuing operations before income taxes
      United States                                                           $418                 $461                $249
      Foreign                                                                   65                   24                  43
----------------------------------------------------------------------------------------------------------------------------
                                                                              $483                 $485                $292
----------------------------------------------------------------------------------------------------------------------------
Income taxes computed at U.S. statutory rates                                 $169                 $169                $102
Increase (decrease) in amount computed resulting from
      State income taxes                                                        14                   17                   5
      Net impact of foreign results                                              -                    6                   5
      Nondeductible goodwill amortization                                        7                    2                   2
      Other items                                                                1                    -                   -
----------------------------------------------------------------------------------------------------------------------------
Income taxes                                                                  $191                 $194                $114
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE F - UNCONSOLIDATED AFFILIATES

Affiliated  companies  accounted for on the equity method include  Marathon
Ashland  Petroleum LLC (MAP) and various other companies.  See Note C for a
description  of MAP.  Summarized  financial  information  reported by these
affiliates and a summary of the amounts recorded in Ashland's  consolidated
financial  statements  follow.  MAP is  organized  as a  limited  liability
company (LLC) that has elected to be taxed as a partnership. Therefore, the
parents are responsible for income taxes applicable to their share of MAP's
taxable income. The net income reflected below for MAP does not include any
provision for income taxes incurred by its parents.  At September 30, 2000,
Ashland's retained earnings included $120 million of undistributed earnings
from unconsolidated affiliates accounted for on the equity method.

                                    40


<PAGE>


<TABLE>
<CAPTION>
                                                                                  Other
(In millions)                                              MAP               affiliates                       Total
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                          <C>                        <C>
SEPTEMBER 30, 2000
Financial position
      Current assets                                   $ 3,641                     $ 82
      Current liabilities                               (2,249)                     (48)
                                                      ----------------------------------
      Working capital                                    1,392                       34
      Noncurrent assets                                  3,974                       92
      Noncurrent liabilities                              (310)                     (22)
                                                      ----------------------------------
      Stockholders' equity                             $ 5,056                     $104
                                                      ----------------------------------
Results of operations
      Sales and operating revenues                     $27,657                     $181
      Income from operations                             1,084                       25
      Net income                                         1,092                       13
Amounts recorded by Ashland

      Investments and advances                           2,295(1)                    57                       $2,352
      Equity income                                        389                        5                          394
      Distributions received                               279                        3                          282
---------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999
Financial position
      Current assets                                  $  3,220                     $ 84
      Current liabilities                               (1,895)                     (46)
                                                      ----------------------------------
      Working capital                                    1,325                       38
      Noncurrent assets                                  3,611                       72
      Noncurrent liabilities                              (271)                     (19)
                                                      ----------------------------------
      Stockholders' equity                            $  4,665                     $ 91
                                                      ----------------------------------
Results of operations
      Sales and operating revenues                    $ 18,965                     $163
      Income from operations                               976                       23
      Net income                                           977                       13
Amounts recorded by Ashland
      Investments and advances                           2,172                       49                       $2,221
      Equity income                                        345                        6                          351
      Distributions received                               333                        6                          339
---------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Results of operations
      Sales and operating revenues                    $ 14,588(2)                  $165
      Income from operations                               729(2)                    45
      Net income                                           742(2)                    13
Amounts recorded by Ashland
      Equity income                                        298(3)                     6                       $  304
      Distributions received                               233(3)                     9                          242
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      At  September  30,  2000,   Ashland's   investment   exceeded  its
         underlying  equity in the net assets of MAP by $374 million.  Such
         excess is being amortized against equity income on a straight-line
         basis ($26 million in 2000, $27 million in 1999 and $21 million in
         1998).
(2)      Amounts  represent  results  of  operations  for MAP for the  nine
         months ended  September 30, 1998,  since MAP was formed on January
         1, 1998.
(3)      Includes $36 million of equity income and $61 million in cash flow
         from Ashland's  former  Refining and Marketing  operations for the
         quarter ended December 31, 1997, prior to the formation of MAP.

                                    41


<PAGE>


NOTE G - LONG-TERM DEBT

<TABLE>
<CAPTION>
(In millions)                                                                 2000                   1999
-----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                     <C>
Medium-term notes, due 2001-2025, interest at a weighted average rate
      of 8.1% at September 30, 2000 (6.8% to 10.4%)                        $   917                 $  849
8.80% debentures, due 2012                                                     250                    250
7.83% medium-term notes, Series J, due 2005                                    250                      -
Pollution control and industrial revenue bonds, due
      2001-2022, interest at a weighted average rate of 6.4%
      at September 30, 2000 (5.3% to 7.2%)                                     217                    217
6.86% medium-term notes, Series H, due 2009                                    150                    150
6.625% senior notes, due 2008                                                  150                    150
Other                                                                           47                     48
-----------------------------------------------------------------------------------------------------------
                                                                             1,981                  1,664
Current portion of long-term debt                                              (82)                   (37)
-----------------------------------------------------------------------------------------------------------
                                                                            $1,899                 $1,627
-----------------------------------------------------------------------------------------------------------
</TABLE>

Aggregate maturities of long-term debt are $82 million in 2001, $84 million
in 2002,  $191  million in 2003,  $67  million in 2004 and $417  million in
2005. Certain floating-rate  pollution control and industrial revenue bonds
amounting to $38 million are subject to early  redemptions  at the holders'
option,  but not before  October 1, 2001.  These bonds are due between 2003
and 2009, and are included in maturities based on their ultimate due date.

Ashland  has  two  revolving  credit  agreements  providing  for up to $425
million in borrowings, neither of which was used during 2000. The agreement
providing  for $250  million in  borrowings  expires  on June 2, 2004.  The
agreement providing for $175 million in borrowings expires on May 29, 2001.
Both  agreements  contain a  covenant  limiting  new  borrowings.  Based on
Ashland's financial position at September 30, 2000,  borrowings  (including
any  borrowings  under these  agreements)  could be increased by up to $722
million.  Additional  permissible  borrowings  are  reduced  by 150% of any
reductions in stockholders' equity.

Interest  payments on all  indebtedness  amounted to $189  million in 2000,
$136  million  in 1999  and $132  million  in 1998.  The  weighted  average
interest rate on short-term  borrowings  outstanding  was 6.8% at September
30, 2000, and 5.7% at September 30, 1999.

NET INTEREST AND OTHER FINANCIAL COSTS
<TABLE>
<CAPTION>

(In millions)                                               2000                 1999                   1998
-------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>                    <C>
Interest expense                                            $191                 $141                   $133
Expenses on sales of accounts receivable (see Note H)          6                    -                      -
Other financial costs                                          1                    -                      -
Interest income                                              (10)                  (1)                    (3)
-------------------------------------------------------------------------------------------------------------
                                                            $188                 $140                   $130
-------------------------------------------------------------------------------------------------------------
</TABLE>

EXTRAORDINARY LOSS

During 2000,  Ashland  refunded $36 million of  pollution  control  revenue
bonds and  prepaid  $600  million  of  floating-rate  debt used to fund the
acquisition  of the U.S.  construction  operations  of  Superfos  a/s.  The
write-off of unamortized  deferred debt issuance  expenses and a redemption
premium on the bonds resulted in pretax charges  totaling $6 million which,
net of income tax benefits of $2 million, resulted in an extraordinary loss
on early retirement of debt of $4 million.

NOTE H - SALE OF ACCOUNTS RECEIVABLE

On March 15, 2000,  Ashland  entered into a five year agreement to sell, on
an ongoing  basis and  without  recourse,  up to a $200  million  undivided
fractional  ownership interest in a designated pool of accounts receivable.
Under the terms of the agreement, new receivables are added to the pool and
collections  reduce  the  pool.  Since  inception,   undivided   fractional
ownership  interests  totaling  $150 million have been sold on a continuous
basis.  The  proceeds  from sale were  reflected as a reduction of accounts
receivable  on  Ashland's  balance  sheet and as  operating  cash  flows on
Ashland's  cash flow  statement.  The costs of these sales are based on the
buyer's  short-term  borrowing rates and approximated 6.9% at September 30,
2000.

                                    42


<PAGE>


NOTE I - FINANCIAL INSTRUMENTS

COMMODITY AND FOREIGN CURRENCY HEDGES

Ashland uses commodity futures contracts and forward exchange  contracts to
reduce its exposure to certain  risks  inherent  within its  businesses  as
described in Note A. The fair value of open commodity and foreign  exchange
contracts was not significant at September 30, 2000, and 1999.

INTEREST RATE SWAPS

Ashland  selectively  uses  unleveraged  interest  rate swap  agreements to
obtain greater access to the lower  borrowing  costs normally  available on
floating-rate debt, while minimizing refunding risk through the issuance of
long-term,  fixed-rate debt. Ashland had no swap agreements  outstanding at
September 30, 2000, and only one $25 million  floating-rate  swap agreement
outstanding at September 30, 1999.

FAIR VALUES

The  carrying  amounts and fair values of Ashland's  significant  financial
instruments  at September  30, 2000,  and 1999,  are shown below.  The fair
values  of cash and cash  equivalents,  investments  of  captive  insurance
companies,  notes payable to financial  institutions  and commercial  paper
approximate their carrying  amounts.  The fair values of long-term debt are
based on quoted market prices or, if market prices are not  available,  the
present  values  of the  underlying  cash  flows  discounted  at  Ashland's
incremental borrowing rates.
<TABLE>
<CAPTION>

                                                                                     2000                                  1999
                                                          -------------------------------           ----------------------------
                                                          Carrying                   Fair           Carrying               Fair
(In millions)                                               amount                  value             amount              value
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                <C>                 <C>                <C>
Assets
      Cash and cash equivalents                             $   67                $    67             $  110             $  110
      Investments of captive insurance companies(1)             28                     28                 16                 16
Liabilities
      Notes payable to financial institutions                  180                    180                182                182
      Commercial paper                                          65                     65                  -                  -
      Long-term debt (including current portion)             1,981                  2,014              1,664              1,732
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

NOTE J - LEASES AND OTHER COMMITMENTS

LEASES

Ashland  and  its  subsidiaries   are  lessees  in  noncancelable   leasing
agreements  for office  buildings,  warehouses,  transportation  equipment,
storage  facilities,  retail  outlets,  manufacturing  facilities and other
equipment and properties which expire at various dates.  Capitalized  lease
obligations are not significant and are included in long-term debt.  Future
minimum  rental  payments at September 30, 2000,  and rental  expense under
operating leases follow.
<TABLE>
<CAPTION>

(In millions)
------------------------------------------------------------------------------------------------------------------
Future minimum rental payments              Rental expense                  2000              1999           1998
----------------------------------------    ----------------------------------------------------------------------
<C>                               <C>       <C>                             <C>               <C>            <C>
2001                              $ 47
2002                                40      Minimum rentals
2003                                35       (including rentals under
2004                                28         short-term leases)           $115              $103           $119
2005                                23      Contingent rentals                 5                 5              8
Later years                        114      Sublease rental income            (2)               (3)            (6)
----------------------------------------    ----------------------------------------------------------------------
                                  $287                                      $118              $105           $121
------------------------------------------------------------------------------------------------------------------
</TABLE>

OTHER COMMITMENTS

To obtain  mining  permits,  Arch Coal must post surety bonds  guaranteeing
that it will perform any required  reclamation upon closure of a mine. Such
bonds have been included in Ashland's  corporate  surety bond program which
includes  its  wholly  owned  subsidiaries,  primarily  the  APAC  group of
construction  companies.  Since Ashland has indemnity  agreements  with its
surety  companies,  Ashland was guarantor for reclamation and various other
bonds posted by Arch Coal totaling $204 million at September 30, 2000. Arch
is replacing these bonds with other sources as they expire.

                                    43


<PAGE>


NOTE K - CAPITAL STOCK

Ashland's  Board of Directors has  authorized  the purchase of 11.5 million
shares of Ashland  common stock in the open market.  Through  September 30,
2000, Ashland had purchased 8.9 million shares at a cost of $363 million.

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

At September 30, 2000,  500,000  shares of cumulative  preferred  stock are
reserved for potential  issuance under the Shareholder  Rights Plan and 6.4
million  common shares are reserved for issuance  under  outstanding  stock
options.

NOTE L - STOCK INCENTIVE PLANS

Ashland has stock  incentive  plans under which key  employees or directors
can purchase shares of common stock under stock options or restricted stock
awards. Stock options are granted to employees at a price equal to the fair
market value of the stock on the date of grant and become  exercisable over
periods of one to four years.  Unexercised options lapse 10 years after the
date of grant.  Restricted  stock awards entitle  employees or directors to
purchase  shares at a nominal  cost, to vote such shares and to receive any
dividends  thereon.  However,  such shares are subject to  forfeiture  upon
termination of service before the restriction period ends.

As discussed in Note A, Ashland  accounts for its stock  incentive plans in
accordance with APB 25. Ashland has not recognized compensation expense for
stock options,  because the exercise price of the options equals the market
price  of  the  underlying  stock  on  the  date  of  grant,  which  is the
measurement  date.  If the  alternative  method  of  accounting  for  stock
incentive  plans  prescribed  by FAS 123 had been  followed,  Ashland's net
income and  earnings  per share  would  have been  reduced to the pro forma
amounts shown in the following  table.  The weighted  average fair value of
options granted was determined using the Black-Scholes option pricing model
with the indicated assumptions.
<TABLE>
<CAPTION>

                                                               2000                        1999                     1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                          <C>                     <C>
Pro forma
      Net income (in millions)                                $  66                       $ 286                    $  199
      Basic earnings per share                                  .93                        3.88                      2.63
      Diluted earnings per share                                .92                        3.84                      2.58
-------------------------------------------------------------------------------------------------------------------------
Weighted average fair value per share of options granted      $7.26                       $7.97                    $11.45
-------------------------------------------------------------------------------------------------------------------------
Assumptions (weighted average)
      Risk-free interest rate                                   6.1%                        6.0%                      4.7%
      Expected dividend yield                                   3.3%                        3.0%                      2.0%
      Expected volatility                                      22.9%                       21.0%                     23.8%
      Expected life (in years)                                  5.0                         5.0                       5.0
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

A progression of activity and various other  information  relative to stock
options is presented in the following table.
<TABLE>
<CAPTION>

                                                         2000                        1999                         1998
                                        ---------------------   -------------------------    --------------------------
                                                Weighted avg.               Weighted avg.                Weighted avg.
                                       Common    option price    Common      option price    Common       option price
(In thousands except per share data)   shares       per share    shares         per share    shares          per share
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>        <C>              <C>        <C>               <C>
Outstanding - beginning of year(1)      6,381          $38.34     4,965            $38.82     4,718             $37.52
Granted                                   506           32.96     1,590             36.97       580              48.07
Exercised                                (195)          30.75      (120)            34.55      (282)             34.85
Canceled                                 (312)          41.26       (54)            49.75       (51)             45.78
-----------------------------------------------------------------------------------------------------------------------
Outstanding - end of year(1)            6,380          $38.01     6,381            $38.34     4,965             $38.82
-----------------------------------------------------------------------------------------------------------------------
Exercisable - end of year               4,684          $38.53     4,348            $37.65     3,836             $35.93
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Shares of common stock  available  for future grants of options or
         awards  amounted to  3,670,000 at  September  30, 2000,  and 1999.
         Exercise prices per share for options outstanding at September 30,
         2000,  ranged from  $23.88 to $33.88 for  2,281,000  shares,  from
         $35.88 to $43.13 for 2,789,000  shares,  and from $48.00 to $53.38
         for 1,310,000 shares.  The weighted average remaining  contractual
         life of the options was 6.3 years.

                                    44


<PAGE>


NOTE M - LITIGATION, CLAIMS AND CONTINGENCIES

Ashland is subject to various federal,  state and local  environmental laws
and regulations  that require  remediation  efforts at multiple  locations,
including current operating  facilities,  operating  facilities conveyed to
Marathon  Ashland  Petroleum  LLC  (MAP),   previously  owned  or  operated
facilities,  and  Superfund  or other waste  sites.  During  1998,  Ashland
provided  additional  environmental  reserves  of  $38  million  associated
principally with the completion of certain voluntary efforts in progress at
various operating  facilities conveyed to MAP and the closing of a landfill
near Ashland's former Catlettsburg,  Kentucky refinery. Consistent with its
accounting  policy  for  environmental   costs,   Ashland's   reserves  for
environmental  assessments and remediation efforts amounted to $163 million
at September 30, 2000, and $166 million at September 30, 1999. Such amounts
reflect Ashland's estimates of the most likely costs which will be incurred
over an extended period to remediate  identified  environmental  conditions
for  which  the  costs  are  reasonably  estimable,  without  regard to any
third-party recoveries.

Environmental  reserves are subject to numerous inherent uncertainties that
affect  Ashland's  ability to estimate its share of the  ultimate  costs of
required  remediation  efforts.  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.  Reserves are  regularly  adjusted as  environmental
assessments and remediation efforts proceed.

During 1999, as part of a comprehensive  environmental  insurance  recovery
project,  Ashland  entered into  settlement  agreements with certain of its
insurance  carriers in exchange  for  releases of their  present and future
liabilities to Ashland under its historical liability policies. As a result
of these agreements, Ashland recorded pretax income of $43 million.

In addition to  environmental  matters,  Ashland and its  subsidiaries  are
parties  to  numerous  other  claims  and  lawsuits,  some of which are for
substantial amounts.  While these actions are being contested,  the outcome
of individual  matters is not predictable with assurance.  Ashland does not
believe that any liability  resulting from any of the above matters,  after
taking into  consideration  its  insurance  coverage  and  amounts  already
provided  for,  will have a  material  adverse  effect on its  consolidated
financial position,  cash flows or liquidity.  However,  such matters could
have a material effect on results of operations in a particular  quarter or
fiscal year as they develop or as new issues are identified.

NOTE N - ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

In October  1999,  Ashland  completed  its tender offer for Superfos a/s, a
Denmark  based  industrial  company.  In  November  1999,  in a  series  of
transactions,  Ashland sold the businesses of Superfos, other than its U.S.
construction operations,  to a unit of Industri Kapital, a European private
equity  fund.  Ashland's  net cost for the U.S.  construction  business  of
Superfos was approximately  $533 million.  Prior to Ashland's  acquisition,
these operations generated sales and operating revenues of $557 million and
operating  income of $30 million during the year ended  September 30, 1999.
In addition,  several  smaller  acquisitions  were made by APAC and Ashland
Specialty  Chemical  in 2000,  two of which  included  the  issuance  of $3
million in Ashland common stock.

During  1999,  APAC  acquired  14  construction  businesses,  six of  which
included the issuance of $79 million in Ashland common stock.  During 1998,
APAC  acquired 10  Missouri-based  companies  known as the  Masters-Jackson
group, and Ashland  Distribution and Ashland  Specialty  Chemical  acquired
Gwil Industries'  Plastics  Division.  In addition,  Valvoline acquired the
Eagle One brand of premium automotive  appearance  products.  Eagle One and
four smaller APAC  acquisitions were acquired by the issuance of a total of
$61 million in Ashland common stock, and certain of these acquisitions were
accounted  for as poolings of  interests.  Prior periods were not restated,
since the effects would have been insignificant. The other acquisitions, as
well as several smaller acquisitions completed during the last three years,
were  accounted for as purchases  and did not have a significant  effect on
Ashland's consolidated financial statements.

DIVESTITURES

During  2000,  APAC sold  certain  concrete  and block  plants and  Ashland
Distribution  sold its  plastics  compounding  business in Italy.  In 1999,
Valvoline sold its used oil collection business.  In 1998, Ashland sold its
23% interest in Melamine  Chemicals for $26 million,  resulting in a pretax
gain of $14 million ($6 million after tax). Also in 1998, Ashland completed
its  withdrawal  from  the  exploration  business  through  the sale of its
exploration  and production  operations in Nigeria.  See Note B for further
information on this  transaction  and its impact on Ashland's  consolidated
financial statements.

                                    45


<PAGE>


NOTE O - EMPLOYEE BENEFIT PLANS

PENSION AND OTHER POSTRETIREMENT PLANS

Ashland  and its  subsidiaries  sponsor  noncontributory,  defined  benefit
pension plans that cover substantially all employees.  Benefits under these
plans are generally based on employees'  years of service and  compensation
during the years immediately preceding their retirement. For certain plans,
50% of employees'  leveraged employee stock ownership plan (LESOP) accounts
are  coordinated  with and used to fund  their  pension  benefits.  Ashland
determines  the level of  contributions  to its pension plans  annually and
contributes  amounts  within the  limitations  imposed by Internal  Revenue
Service regulations.

Ashland and its subsidiaries also sponsor unfunded  postretirement  benefit
plans,  which provide health care and life insurance  benefits for eligible
employees who retire or are disabled.  Retiree  contributions  to Ashland's
health care plans are adjusted  periodically,  and the plans  contain other
cost-sharing features, such as deductibles and coinsurance.  Life insurance
plans are  generally  noncontributory  for base level  coverage,  and fully
contributory  for any  additional  coverage  elected by employees.  Ashland
funds the costs of benefits as they are paid.

Summaries  of the  changes  in the  benefit  obligations  and  plan  assets
(primarily  listed stocks and debt  securities) and of the funded status of
the plans follow.
<TABLE>
<CAPTION>

                                                      Pension benefits
                                      ----------------------------------------------------
                                               2000                       1999              Other postretirement
                                      -------------------------   ------------------------         benefits
                                     Qualified     Nonqualified   Qualified   Nonqualified   ---------------------
(In millions)                            plans            plans       plans          plans   2000            1999
------------------------------------------------------------------------------------------------------------------
<S>                                      <C>               <C>        <C>             <C>    <C>            <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at October 1         $529              $88        $505            $98    $262           $262
Service cost                               35                2          33              1       9              8
Interest cost                              40                7          35              6      19             18
Retiree contributions                       -                -           -              -       5              4
Benefits paid                             (24)              (7)        (17)            (3)    (25)           (23)
Other-primarily actuarial loss (gain)      15               (3)        (27)           (14)     (1)            (7)
------------------------------------------------------------------------------------------------------------------
Benefit obligations at September 30      $595              $87        $529            $88    $269           $262
------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Value of plan assets at October 1        $429              $ -        $369            $ -    $  -           $  -
Actual return on plan assets               50                -          31              -       -              -
Employer contributions                     46                7          42              3      20             19
Retiree contributions                       -                -           -              -       5              4
Benefits paid                             (24)              (7)        (17)            (3)    (25)           (23)
Other                                       5                -           4              -       -              -
------------------------------------------------------------------------------------------------------------------
Value of plan assets at September 30     $506              $ -        $429            $ -     $ -        $     -
------------------------------------------------------------------------------------------------------------------
FUNDED STATUS OF THE PLANS
Under (over) funded accumulated
   obligation                            $(29)             $73        $(14)           $73    $269           $262
Provision for future salary increases     118               14         114             15       -              -
------------------------------------------------------------------------------------------------------------------
Excess of obligations over plan assets     89               87         100             88     269            262
Unrecognized actuarial loss               (35)             (27)        (36)           (26)     (6)            (7)
Unrecognized transition gain (loss)         -                -           -             (1)      -              -
Unrecognized prior service credit (cost)   (4)               -          (5)             -      31             39
------------------------------------------------------------------------------------------------------------------
Net liability recognized                 $ 50              $60        $ 59            $61    $294           $294
------------------------------------------------------------------------------------------------------------------
BALANCE SHEET LIABILITIES (ASSETS)
Prepaid benefit costs                              $ (3)                      $ (2)          $  -           $  -
Accrued benefit liabilities                         127                        139            294            294
Intangible assets                                     -                         (1)             -              -
Accumulated other comprehensive loss                (14)                       (16)             -              -
------------------------------------------------------------------------------------------------------------------
Net liability recognized                           $110                       $120           $294           $294
------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS AS OF SEPTEMBER 30
Discount rate                                      7.75%                      7.75%          7.75%          7.75%
Rate of compensation increase                      5.00                       5.00           5.00           5.00
Expected return on plan assets                     9.00                       9.00              -              -
------------------------------------------------------------------------------------------------------------------

</TABLE>


                                    46


<PAGE>


The  following   table   details  the   components  of  pension  and  other
postretirement benefit costs.
<TABLE>
<CAPTION>

                                                    Pension benefits                         Other postretirement benefits
                                          -----------------------------------            -----------------------------------------
(In millions)                              2000           1999          1998             2000              1999              1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>           <C>             <C>               <C>               <C>
Service cost                                $37            $34           $28              $ 9               $ 8               $ 8
Interest cost                                47             41            34               19                18                16
Expected return on plan assets              (39)           (34)          (30)               -                 -                 -
Other amortization and deferral               5              5             8               (9)               (7)              (10)
----------------------------------------------------------------------------------------------------------------------------------
                                            $50            $46           $40              $19               $19               $14
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Ashland  amended  nearly all of its  retiree  health  care plans in 1992 to
place a cap on its contributions  and to adopt a cost-sharing  method based
upon years of service. The cap limits Ashland's  contributions to base year
per capita  costs,  plus  annual  increases  of up to 4.5% per year.  These
amendments  reduced  Ashland's  obligations  under its retiree  health care
plans at that time by $197  million,  which was being  amortized  to income
over  approximately 12 years.  During 1998,  Marathon Ashland Petroleum LLC
(MAP) assumed certain of Ashland's postretirement benefit obligations,  and
$38 million of the unrecognized credit from this plan amendment was applied
against the carrying  value of Ashland's  investment  in MAP. The remaining
credit  at  September  30,  2000,  amounted  to $31  million,  and  will be
amortized  over  approximately  four  years in  declining  amounts  from $9
million in 2001 to $6 million in 2004.

OTHER PLANS

Ashland sponsors a qualified  savings plan to assist eligible  employees in
providing for  retirement or other future needs.  Under that plan,  Ashland
contributes  up to 4.2% of a  participating  employee's  earnings.  Company
contributions amounted to $15 million in each of the last three years.

NOTE P - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents quarterly financial  information and per share
data relative to Ashland's common stock.  Amounts for the quarters prior to
March  2000  have  been  restated  to  present  Arch  Coal as  discontinued
operations (see Note B).
<TABLE>
<CAPTION>

Quarters ended                                      December 31           March 31            June 30              September 30
-------------------------------------------------------------------  -------------------  -----------------     ------------------
(In millions except per share data)             1999          1998      2000        1999     2000      1999       2000       1999
----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>       <C>         <C>      <C>       <C>        <C>        <C>
Sales and operating revenues                  $1,897        $1,646    $1,822      $1,503   $2,103    $1,796     $2,140     $1,856
Operating income                                 111            17        90         176      268       197        203        235

Income (loss) from continuing operations      $   40        $  (10)   $   25      $   87   $  129    $   99     $   97     $  115
Income (loss) from discontinued operations      (206)           (1)      (12)          -        -         1          -         (1)
Extraordinary loss                                 -             -        (2)          -        -         -         (1)         -
                                         -----------------------------------------------------------------------------------------
Net income (loss)                             $ (166)       $  (11)   $   11      $   87   $  129    $  100     $   96     $  114

Basic earnings (loss) per share
      Continuing operations                   $  .56        $ (.13)   $  .35      $ 1.17   $ 1.83    $ 1.35     $ 1.38     $ 1.60
      Discontinued operations                  (2.88)         (.01)     (.16)          -        -       .01          -       (.02)
      Extraordinary loss                           -             -      (.03)          -        -         -       (.02)         -
                                         -----------------------------------------------------------------------------------------
      Net income (loss)                       $(2.32)       $ (.14)   $  .16      $ 1.17   $ 1.83    $ 1.36     $ 1.36     $ 1.58

Diluted earnings (loss) per share
      Continuing operations                   $  .55        $ (.13)   $  .35      $ 1.16   $ 1.83    $ 1.34     $ 1.38     $ 1.59
      Discontinued operations                  (2.87)         (.01)     (.16)          -        -       .01          -       (.02)
      Extraordinary loss                           -             -      (.03)          -        -         -       (.02)         -
                                         -----------------------------------------------------------------------------------------
      Net income (loss)                       $(2.32)       $ (.14)   $  .16      $ 1.16   $ 1.83    $ 1.35     $ 1.36     $ 1.57

Excluding unusual items(1)
      Operating income                        $  111        $  109    $   90      $   44   $  268    $  173     $  203     $  170
      Net income                                  40            46        25           6      129        84         97         80
      Basic earnings per share                   .56           .62       .35         .08     1.83      1.15       1.38       1.11
      Diluted earnings per share                 .55           .62       .35         .08     1.83      1.14       1.38       1.11

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

Market price per common share
      High                                     35.94         52.50     35.63       50.63    37.06     44.50      37.19      43.56
      Low                                      30.31         42.25     28.63       40.75    31.19     39.25      31.44      33.63
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) See  Management's  Discussion and Analysis and  Information by Industry
Segment for a discussion of unusual items.

                                    47


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT
Years Ended September 30

<TABLE>
<CAPTION>

(In millions)                                           2000                1999                1998
---------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                 <C>                 <C>
REVENUES
Sales and operating revenues
      APAC                                            $2,505              $1,678              $1,444
      Ashland Distribution                             3,214               2,925               2,941
      Ashland Specialty Chemical                       1,283               1,263               1,244
      Valvoline                                        1,077               1,059               1,023
      Intersegment sales(1)
           Ashland Distribution                          (38)                (35)                (27)
           Ashland Specialty Chemical                    (78)                (84)                (80)
           Valvoline                                      (2)                 (5)                (11)
---------------------------------------------------------------------------------------------------------------
                                                       7,961               6,801               6,534
Equity income
      Ashland Specialty Chemical                           4                   5                   6
      Valvoline                                            1                   1                   -
      Refining and Marketing                             389                 345                 298
---------------------------------------------------------------------------------------------------------------
                                                         394                 351                 304
Other income
      APAC                                                21                  12                   8
      Ashland Distribution                                 9                   6                   6
      Ashland Specialty Chemical                          30                  19                  37
      Valvoline                                            7                   6                   6
      Refining and Marketing                               6                   8                   4
      Corporate                                            8                  50                   9
---------------------------------------------------------------------------------------------------------------
                                                          81                 101                  70
---------------------------------------------------------------------------------------------------------------
                                                      $8,436              $7,253              $6,908
---------------------------------------------------------------------------------------------------------------
OPERATING INCOME
APAC                                                  $  140              $  108              $   90
Ashland Distribution                                      70                  37(2)               57
Ashland Specialty Chemical                                95                 107                 101(3)
Valvoline                                                 78                  74                  53
Refining and Marketing(4)                                361                 206(5)              254(6)
      Inventory valuation adjustments(7)                   -                 117                 (15)
Corporate                                                (73)                (24)(8)            (118)(9)
---------------------------------------------------------------------------------------------------------------
                                                      $  671              $  625             $   422
---------------------------------------------------------------------------------------------------------------
ASSETS
APAC                                                  $1,654              $  996             $   757
Ashland Distribution                                   1,047                 917                 915
Ashland Specialty Chemical                               888                 878                 861
Valvoline                                                573                 561                 581
Refining and Marketing                                 2,352               2,229               2,189
Corporate(10)                                            257                 843                 779
---------------------------------------------------------------------------------------------------------------
                                                      $6,771              $6,424              $6,082
---------------------------------------------------------------------------------------------------------------

</TABLE>


                                    48


<PAGE>

<TABLE>
<CAPTION>

(In millions)                                                 2000                   1999                  1998
-----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                    <C>                     <C>
INVESTMENT IN EQUITY AFFILIATES
APAC                                                       $    10                $    10                 $   10
Ashland Specialty Chemical                                      40                     33                     30
Valvoline                                                        7                      6                      5
Refining and Marketing                                       2,295                  2,172                  2,102
-----------------------------------------------------------------------------------------------------------------
                                                           $ 2,352                $ 2,221                 $2,147
-----------------------------------------------------------------------------------------------------------------
EXPENSE (INCOME) NOT AFFECTING CASH
Depreciation, depletion and amortization
      APAC                                                 $   129                $    89                 $   64
      Ashland Distribution                                      23                     44(11)                 27
      Ashland Specialty Chemical                                49                     53                     52
      Valvoline                                                 23                     26                     24
      Corporate                                                 13                     16                     14
-----------------------------------------------------------------------------------------------------------------
                                                               237                    228                    181
Other noncash items(12)
      APAC                                                       9                      -                      3
      Ashland Distribution                                      (3)                    (6)                    (2)
      Ashland Specialty Chemical                                 3                      8                     (2)
      Valvoline                                                  -                     (1)                    (1)
      Refining and Marketing                                   (17)                    93                     36
      Corporate                                                (12)                    (5)                   (42)
-----------------------------------------------------------------------------------------------------------------
                                                               (20)                    89                     (8)
-----------------------------------------------------------------------------------------------------------------
                                                           $   217                $   317                 $  173
-----------------------------------------------------------------------------------------------------------------
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC                                                       $    98                $   104                 $   81
Ashland Distribution                                            18                     30                     47
Ashland Specialty Chemical                                      82                     70                     94
Valvoline                                                       25                     26                     32
Corporate                                                        9                     18                     20
-----------------------------------------------------------------------------------------------------------------
                                                           $   232                $   248                 $  274
-----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Intersegment  sales are accounted  for at prices that  approximate
         market value.
(2)      Includes  a $21  million  charge for asset  impairment  related to
         European plastics distribution operations.
(3)      Includes  a gain  of $14  million  on the  sale of  Ashland's  23%
         interest in Melamine Chemicals, Inc.
(4)      Includes  Ashland's  equity  income  from  MAP,   amortization  of
         Ashland's excess  investment in MAP, and certain retained refining
         and marketing activities.
(5)      Includes  a $10  million  charge  for  severance  and other  costs
         related to the formation of MAP.
(6)      Includes   charges  of  $43  million  for  reserves  for  retained
         environmental  issues  associated with properties  conveyed to MAP
         and for certain severance costs.
(7)      Represents  Ashland's  share of inventory  adjustments  associated
         with the  formation of MAP and changes in MAP's  inventory  market
         valuation  reserve.  The reserve  reflects  the excess of the LIFO
         cost of MAP's crude oil and refined product inventories over their
         net realizable values.
(8)      Includes $43 million in environmental insurance recoveries.
(9)      Includes  charges of $50  million  related to a  restructuring  of
         corporate G&A  functions  and the move of Ashland's  headquarters.
         The  charge  includes  severance  costs  to be paid to  terminated
         employees,   reserves   for  excess   leased  real   estate,   and
         contributions  of cash  and  other  real  estate  committed  to be
         conveyed  to  Ashland-area  charitable  and  economic  development
         organizations.
(10)     Includes  principally  cash,  cash  equivalents,   investments  of
         captive   insurance   companies  and  investment  in  discontinued
         operations.
(11)     Includes a charge of $19 million to write down goodwill related to
         European plastics distribution operations.
(12)     Includes  deferred  taxes,  equity income from  affiliates  net of
         distributions, and other items not afecting cash.

                                    49


<PAGE>


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

(In millions except per share data)                            2000          1999              1998          1997           1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>               <C>          <C>            <C>
SUMMARY OF OPERATIONS
Revenues
       Sales and operating revenues (including excise
          taxes)                                             $7,961        $6,801            $6,534       $12,833        $12,313
       Equity income                                            394           351               304            14             11
       Other income                                              81           101                70            89             66
Costs and expenses
       Cost of sales and operating expenses                  (6,434)       (5,346)           (5,299)       (9,810)        (9,512)
       Excise taxes on products and merchandise                   -             -                 -          (992)          (985)
       Selling, general and administrative expenses          (1,094)       (1,054)           (1,006)       (1,350)        (1,257)
       Depreciation, depletion and amortization                (237)         (228)             (181)         (348)          (299)
-----------------------------------------------------------------------------------------------------------------------------------
Operating income                                                671           625               422           436            337
Net interest and other financial costs                         (188)         (140)             (130)         (142)          (151)
-----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes           483           485               292           294            186
Income taxes                                                   (191)         (194)             (114)         (125)           (71)
-----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations                               292           291               178           169            115
Income (loss) from discontinued operations                     (215)           (1)               25            48             96
Gain (loss) on disposition of discontinued operations            (3)            -                 -            71              -
-----------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss                                 74           290               203           288            211
Extraordinary loss on early retirement of debt                   (4)            -                 -            (9)             -
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                   $   70        $  290            $  203       $   279         $  211
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET INFORMATION
Working capital
       Current assets                                        $2,131        $2,059            $1,828       $ 2,720         $ 2,539
       Current liabilities                                    1,699         1,396             1,361         2,028           2,067
-----------------------------------------------------------------------------------------------------------------------------------
                                                             $  432        $  663            $  467       $   692         $   472
-----------------------------------------------------------------------------------------------------------------------------------
Total assets                                                 $6,771        $6,424            $6,082       $ 6,462         $ 6,496
-----------------------------------------------------------------------------------------------------------------------------------
Capital employed
       Debt due within one year                              $  327        $  219            $  125       $    49         $   127
       Long-term debt (less current portion)                  1,899         1,627             1,507         1,356           1,653
       Convertible preferred stock                                -             -                 -             -             293
       Common stockholders' equity                            1,965         2,200             2,137         2,024           1,521
-----------------------------------------------------------------------------------------------------------------------------------
                                                             $4,191        $4,046            $3,769       $ 3,429         $ 3,594
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOW INFORMATION
Cash flows from continuing operations                        $  484        $  383            $  354       $   552         $   536
Additions to property, plant and equipment                      232           248               274           356             372
Cash dividends                                                   78            81                84            86              89
-----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION
Diluted earnings per share
       Income from continuing operations                     $ 4.10        $ 3.90            $ 2.31       $  2.23         $  1.48
       Net income                                               .98          3.89              2.63          3.64            2.96
Dividends per share                                            1.10          1.10              1.10          1.10            1.10
-----------------------------------------------------------------------------------------------------------------------------------


</TABLE>