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

Years Ended September 30
<TABLE>
<CAPTION>
(In millions)                                                               2001                         2000               1999
<S>                                                                       <C>                          <C>                <C>
SALES AND OPERATING REVENUES
APAC                                                                      $2,624                       $2,505             $1,678
Ashland Distribution                                                       2,849                        3,214              2,925
Ashland Specialty Chemical                                                 1,248                        1,283              1,263
Valvoline                                                                  1,092                        1,077              1,059
Intersegment sales                                                           (94)                        (118)              (124)
                                                                        ---------------------------------------------------------
                                                                          $7,719                       $7,961             $6,801
                                                                        =========================================================
OPERATING INCOME (1)
APAC                                                                      $   55                       $  140             $  108
Ashland Distribution                                                          35                           70                 37
Ashland Specialty Chemical                                                    58                           95                107
Valvoline                                                                     81                           78                 74
Refining and Marketing(2)                                                    707                          361                323
Corporate                                                                    (85)                         (73)               (24)
                                                                        ---------------------------------------------------------
                                                                          $  851                       $  671             $  625
                                                                        =========================================================

OPERATING INFORMATION
APAC
    Construction backlog at September 30 (millions)                       $1,629                       $1,397             $  948
    Hot-mix asphalt production (million tons)                               36.7                         35.0               25.8
    Aggregate production (million tons)                                     28.7                         27.8               20.7
    Ready-mix concrete production (thousand cubic yards)                   2,262                        2,620              1,412
Ashland Distribution(3)
    Sales per shipping day (millions)                                     $ 11.2                       $ 12.8             $ 11.6
    Gross profit as a percent of sales                                      15.9%                        15.6%              16.0%
Ashland Specialty Chemical(3)
    Sales per shipping day (millions)                                     $  5.0                       $  5.1             $  5.0
    Gross profit as a percent of sales                                      33.8%                        34.7%              35.9%
Valvoline lubricant sales (thousand barrels per day)                        11.9                         12.3               12.6
Refining and Marketing(4)
    Crude oil refined (thousand barrels per day)                             912                          892                898
    Refined products sold (thousand barrels per day)(5)                    1,302                        1,309              1,231
    Refining and wholesale marketing margin (per barrel)(6)               $ 5.17                       $ 2.63             $ 1.57
    Speedway SuperAmerica (SSA)(7)
         Retail outlets at September 30                                    2,145                        2,288              2,178
         Gasoline and distillate sales (millions of gallons)               3,587                        3,742              3,604
         Gross margin - gasoline and distillates (per gallon)             $.1218                       $.1284             $.1346
         Merchandise sales (millions)                                     $2,186                       $2,143             $1,857
         Merchandise margin (as a percent of sales)                         23.3%                        24.5%              26.2%
                                                                        =========================================================


</TABLE>
(1)      See Page 29 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
         other activities associated with refining and marketing.
(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 MAP's operations,  in which Ashland owns
         a 38% interest.
(5)      Total average  daily volume of all refined  product sales to MAP's
         wholesale, branded and retail (SSA) customers.
(6)      Sales revenue less cost of refinery inputs, purchased products and
         manufacturing expenses, including depreciation.
(7)      Excludes  travel centers  contributed to Pilot Travel Centers LLC.
         Periods prior to September 1, 2001, have been restated.


/28/

<PAGE>


RESULTS OF OPERATIONS

Ashland's net income  amounted to $417 million in 2001, $70 million in 2000
and  $290  million  in 1999.  Such  earnings  include  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)                                   2001           2000             1999           2001          2000            1999
<S>                                             <C>            <C>              <C>            <C>           <C>             <C>
INCOME BEFORE UNUSUAL ITEMS                     $851           $671             $496           $406          $292            $217
Discontinued operations                            -              -                -             19          (218)             (1)
Reversal of inventory market valuation reserve     -              -              117              -             -              71
Environmental insurance recoveries                 -              -               43              -             -              26
Asset impairment charges                           -              -              (21)             -             -             (17)
Severance and relocation charges                   -              -              (10)             -             -              (6)
Extraordinary loss on early retirement
    of debt                                        -              -                -             (3)           (4)              -
Cumulative effect of accounting change             -              -                -             (5)            -               -
                                                ----------------------------------------------------------------------------------
INCOME AS REPORTED                              $851           $671             $625           $417          $ 70            $290
                                                ==================================================================================
</TABLE>
UNUSUAL ITEMS

During  2000,  Ashland  spun-off  the  majority  of its shares of Arch Coal
common  stock to  Ashland's  shareholders.  Ashland  subsequently  sold its
remaining  Arch Coal  shares in a public  offering  during  February  2001.
Accordingly,  net income (loss)  associated with Arch Coal (including costs
of the spin-off)  are shown as  discontinued  operations.  The loss of $218
million in 2000  associated with Arch Coal included $203 million related to
asset  impairment and  restructuring  costs. The net gain of $19 million in
2001  represents  an after tax gain of $33  million on the sale of the Arch
Coal shares, less after-tax charges of $14 million from reserves related to
other discontinued operations.

When Marathon Ashland Petroleum LLC (MAP) was formed,  MAP valued its crude
oil and  petroleum  product  inventories  at the  lower  of LIFO  (last-in,
first-out)  cost or market,  and  recorded an  inventory  market  valuation
reserve to reduce the LIFO carrying costs to their net  realizable  values.
MAP reviews its reserve and makes quarterly  adjustments as necessary based
on changes in the values of refined products. During 1999, MAP reversed its
remaining  reserve  resulting  in an increase of $117  million in Ashland's
equity  income.  No reserves  have been  required  since  1999,  as the net
realizable  values of MAP's  inventories  have been well in excess of their
carrying costs.

During 1999, Ashland entered into settlement agreements with certain of its
insurance  carriers over the coverage  provided under historical  insurance
policies   with   respect  to   environmental   liabilities.   Under  those
settlements,  the carriers paid lump sum amounts to Ashland in exchange for
releases  of  their  present  and  future   obligations   associated   with
environmental  liabilities.  As a  result  of  those  settlements,  Ashland
recorded pretax income of $43 million.

Ashland  recognized  impairment  charges of $21 million in 1999 principally
for  goodwill  write-downs  related to its European  plastics  distribution
operations.  Results from these operations consistently had been well below
the levels that were expected when they were  acquired,  necessitating  the
impairment review and resulting write-downs.

As discussed in Note G to the Consolidated Financial Statements,  Ashland's
early retirement of certain  long-term debt resulted in after tax losses of
$3  million in 2001 and $4 million in 2000.  In  addition,  the  cumulative
effect of the change in the method of  accounting  for  derivatives  by MAP
resulted  in an after tax charge for  Ashland of $5 million  (see Note A to
the Consolidated Financial Statements).

The following  table  compares  operating  income  before  unusual items by
segment for the three years ended September 30, 2001.
<TABLE>
<CAPTION>

(In millions)                                             2001                2000            1999
<S>                                                       <C>                 <C>             <C>
OPERATING INCOME BEFORE UNUSUAL ITEMS
APAC                                                       $55                $140            $108
Ashland Distribution                                        35                  70              58
Ashland Specialty Chemical                                  58                  95             107
Valvoline                                                   81                  78              74
Refining and Marketing                                     707                 361             216
Corporate                                                  (85)                (73)            (67)
                                                        -------------------------------------------
                                                          $851                $671            $496
                                                        ===========================================
</TABLE>

/29/
<PAGE>
APAC

Operating  income  from the APAC  construction  companies  amounted  to $55
million in 2001,  compared to $140  million in 2000.  The decline  resulted
principally  from  unusually  severe  winter  weather  in  most  of  APAC's
operating regions, weak construction margins and a charge of $18 million to
correct  improper  recognition  of  construction  contract  earnings at its
Manassas,  Virginia  division.  Net construction job revenue (total revenue
less subcontract costs) was about flat, while production of hot-mix asphalt
and  aggregate  were both up modestly.  The sale of certain  operations  in
September  2000  resulted  in a  decline  in the  production  of  ready-mix
concrete.  More  important  than the levels of  construction  activity  and
material production,  however, was that the conditions under which the work
took place  (extreme  cold and  precipitation)  made the  processes  highly
inefficient.  Construction  contract  margins  were also  depressed as many
low-margin  jobs  obtained  through  recent  acquisitions  worked their way
through the backlog,  and the level of higher-margin  private work declined
as a result of the economic slowdown.

During an internal investigation of financial activities at APAC's Manassas
division in the March 2001 quarter,  it was discovered  that the division's
earnings had been  intentionally  overstated,  and local  management of the
division  was  replaced.  Independent  investigations  confirmed  that  the
problems  related  primarily  to the improper  recognition  of revenues and
failure to  recognize  certain  costs over a period of about two years.  No
evidence of any impact on, or involvement by, outside parties, customers or
suppliers was  discovered.  APAC is  evaluating  and  implementing  various
recommendations for improvement in overall business  processes,  accounting
controls and procedures.

(APAC OPERATING INCOME BAR CHART)

APAC achieved record results in 2000 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 job revenue increased 52%. 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 reflected 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%.

ASHLAND DISTRIBUTION

Operating income from Ashland Distribution amounted to $35 million in 2001,
compared to $70 million in 2000.  Overall sales  declined 11%,  principally
reflecting  the  challenging  economic  environment  and a slowdown  in key
customer markets.  However, a "quality of business"  initiative designed to
either  improve  gross  profits or forgo  sales to marginal  accounts  also
contributed  to  the  reduction  in  revenues.   The  unfavorable  economic
conditions  also led to higher credit  losses,  particularly  for the North
American plastics distribution and energy services divisions.  However, the
effects of these  declines were partially  offset by expense  reduction and
various  margin  improvement  efforts,  such as the  "quality of  business"
initiative.   Such  efforts   resulted  in  higher   earnings   from  three
distribution  business units - industrial  chemicals,  fine ingredients and
European plastics  distribution.  Results of Ashland  Distribution for 2001
reflect a goodwill  write-off  of $6  million  and other  asset  impairment
charges, the combination of which was largely offset by the proceeds from a
favorable litigation settlement.

(ASHLAND DISTRIBUTION OPERATING INCOME BAR CHART)

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 reflected a gain of $3 million on the
sale of its plastics compounding business in Italy.

ASHLAND SPECIALTY CHEMICAL

Ashland  Specialty  Chemical's  operating income amounted to $58 million in
2001,  compared  to $95  million in 2000.  Earnings  from  marine and water
treatment  chemicals were up, but these  improvements were more than offset
by significant  declines in other business units that are more sensitive to
a weak economy,  including foundry products,  specialty  adhesives,  maleic
anhydride and polyester  resins.  Profits from  electronic  chemicals  also
deteriorated  sharply  as the year  progressed,  reflecting  the  worldwide
downturn in the semiconductor  manufacturing  industry.  Results of Ashland
Specialty Chemical for 2001 reflect a goodwill write-down of $4 million and
minor asset impairment charges.

(ASHLAND SPECIALTY CHEMICAL OPERATING INCOME BAR CHART)


/30/
<PAGE>
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.  Maleic  anhydride  also felt the adverse  effects on its margins
from  significant  increases  in the cost of  butane.  Results  of  Ashland
Specialty  Chemical for 2000 also included charges of $8 million associated
with the closing of two manufacturing facilities.

VALVOLINE

Valvoline's  operating  income  increased  from $78  million in 2000 to $81
million in 2001.  Results from the core  lubricants  business and Eagle One
were up, offsetting declines from other businesses. Although domestic sales
of  Valvoline  branded  motor oil were  comparable  to last year,  sales of
premium  motor oils,  such as MaxLife,  continued  to grow at a rapid rate.
Sales of Eagle One products were up 16%, and its operating  income amounted
to more than 10% of its  revenues.  Results from  international  operations
were down as sales  volumes  fell,  with  Europe  experiencing  the largest
decline.  Results from Valvoline  Instant Oil Change (VIOC) improved during
the September  2001 quarter,  but were down slightly from last year,  which
included  gains  on the  sale of  certain  company-owned  service  centers.
Earnings  from  automotive  chemicals  and  antifreeze  suffered from lower
margins.

(VALVOLINE OPERATING INCOME BAR CHART)

At September 30, 2001,  VIOC operated 364  company-owned  service  centers,
compared to 358 centers in 2000 and 377 centers in 1999.  The net reduction
since 1999 resulted from sales of company-owned centers to franchisees,  as
well as the closing of certain  unprofitable  centers. The VIOC franchising
program  continues to expand,  with 311 centers open at September 30, 2001,
compared  to 272  centers in 2000 and 207  centers in 1999.  VIOC's  future
growth  will  continue  to focus  principally  on  expanding  the number of
franchised rather than company-owned centers.

Operating  income from  Valvoline was $78 million in 2000,  compared to $74
million in 1999.  The  improvement  reflected  record results from VIOC and
significantly better results from international operations.  VIOC's results
reflected  increased  franchising  royalties,  better  car  counts,  higher
revenues per car  serviced  and gains on the sale of certain  company-owned
service  centers.   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 that  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.

REFINING AND MARKETING

Operating income from Refining and Marketing,  which consists  primarily of
equity income from Ashland's 38% ownership  interest in MAP,  amounted to a
record $707 million in 2001,  compared to $361  million in 2000.  Ashland's
equity income from MAP's refining and wholesale marketing operations was up
$404 million,  reflecting  the net effects of strong  refining  margins,  a
slight  reduction  in  refined  product  sales  and  higher  operating  and
administrative  expenses.  The increase of $2.54 a barrel in MAP's refining
and wholesale marketing margin reflected tight product supplies during much
of the year in its primary  Midwest  market.  However,  equity  income from
MAP's retail operations  declined by $40 million.  The decline  principally
reflects  lower  product  margins  and  volumes,   reduced   earnings  from
merchandise sales and higher operating expenses.

(REFINING AND MARKETING OPERATING INCOME BAR CHART)

Operating income from Refining and Marketing totaled $361 million for 2000,
compared to $216 million in 1999 before unusual  items.  MAP's refining and
wholesale marketing  operations were responsible for an improvement of $186
million in Ashland's equity income. MAP's refining margins improved $1.06 a
barrel from their depressed  levels in 1999.  However,  retail markets were
not nearly as favorable as retail  gasoline prices failed to keep pace with
the higher level of wholesale gasoline costs.  Ashland's equity income from
SSA  declined  $24  million,  reflecting  the net  effects of lower  retail
margins,  increased  product  sales and higher  earnings  from  merchandise
sales.  Merchandise sales were up 15%, in part reflecting MAP's acquisition
of certain Michigan retail properties in December 1999.

CORPORATE

Excluding unusual items,  Corporate  expenses were $85 million in 2001, $73
million  in  2000  and  $67  million  in  1999.  The  increase  since  1999
principally reflects higher incentive and deferred compensation costs.



/31/
<PAGE>
NET INTEREST AND OTHER FINANCIAL COSTS

Net interest and other  financial  costs  amounted to $170 million in 2001,
$188 million in 2000 and $140 million in 1999. The fluctuations in interest
costs resulted  principally from changes in debt levels over the three-year
period.  Debt levels  increased $380 million during 2000,  principally as a
result  of  the  indebtedness   associated  with  the  acquisition  of  the
construction  operations  of  Superfos.  Reflecting  strong cash flows from
operations, debt levels were reduced by $355 million during 2001.

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 has been used.  Under a shelf  registration,  Ashland  can
also issue an additional $600 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. While the
revolving  credit  agreements  contain a covenant  limiting new  borrowings
based  on its  stockholders'  equity,  Ashland  could  have  increased  its
borrowings  (including any borrowings under these agreements) by up to $1.5
billion at  September  30,  2001.  Additional  permissible  borrowings  are
increased  (decreased)  by 150% of any increases  (decreases)  in Ashland's
stockholders' equity.

Cash flows from operations, a major source of Ashland's liquidity, amounted
to $829  million in 2001,  $484  million in 2000 and $383  million in 1999.
Such amounts include after tax cash flows from Ashland's  investment in MAP
of $501  million in 2001,  $225  million in 2000 and $255  million in 1999.
Cash flows from operations for 2001 also include the favorable effects of a
reduction of $111 million in operating  assets and  liabilities,  while the
amount  for  2000  includes  an  increase  of $150  million  from  sales of
receivables  (reflected  as part of the  change  in  operating  assets  and
liabilities).  Those sales were under a program that  provides for the sale
of  up to a  $200  million  undivided  interest  in a  designated  pool  of
receivables. Since 1998, cash flows from operations have exceeded Ashland's
capital  requirements  for net property  additions  and dividends by nearly
$900  million,  providing  additional  funds  for  debt  repayments,  stock
purchases and acquisitions.

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 $1.1 billion in 2001,  $908 million in 2000 and $705 million in
1999.  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, 2001, working capital (excluding debt due within one year)
amounted to $801  million,  compared  to $759  million at the end of fiscal
2000.  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 $70 million at September 30, 2001, and $71 million at
September  30, 2000.  Liquid assets (cash,  cash  equivalents  and accounts
receivable)  amounted to 95% of current  liabilities at September 30, 2001,
compared to 77% at the end of fiscal 2000.

CAPITAL RESOURCES

Property additions amounted to $685 million during the last three years and
are summarized in the Information by Industry  Segment on Page 55. For that
period,  APAC accounted for 43% of Ashland's  capital  expenditures,  while
Ashland  Specialty  Chemical  accounted for an additional 31%. Capital used
for acquisitions (including assumed debt and companies acquired through the
issuance of common  stock)  amounted to $852 million  during the last three
years,  of which  $774  million  was  invested  in APAC and $78  million in
Ashland Specialty Chemical.  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)                                      2001                2000                 1999
<S>                                               <C>                 <C>                  <C>
CAPITAL EMPLOYED
APAC                                             $1,047              $1,156                 $663
Ashland Distribution                                470                 574                  527
Ashland Specialty Chemical                          612                 597                  566
Valvoline                                           389                 333                  346
Refining and Marketing                            1,654               1,679                1,646
                                                -------------------------------------------------
                                                 $4,172              $4,339               $3,748
                                                =================================================
</TABLE>
Capital  employed in APAC increased  considerably  since 1999, as Ashland's
acquisitions were principally focused in the construction business. Capital
employed in Ashland's  wholly owned  businesses  increased  from 56% of the
total at the end of fiscal 1999 to 60% at September 30, 2001.


/32/
<PAGE>
Long-term  borrowings provided cash flows of nearly $1.2 billion during the
last three years, including the issuance of $600 million in debt related to
the acquisition of the construction operations of Superfos and $552 million
of medium-term  notes.  The proceeds from these  long-term  borrowings were
used in part to retire $903 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.

Reflecting  strong cash flows from  operations,  Ashland  reduced its total
debt by $355 million to $1.9 billion at  September  30, 2001.  In addition,
stockholders'  equity  increased  by $261  million  during the year to $2.2
billion.  As a result,  debt as a percent of capital  employed  was reduced
from 53% at the end of fiscal 2000 to 46% at September 30, 2001.

At September 30, 2001,  Ashland's  long-term  debt included $139 million of
floating-rate  obligations,  and the interest  rates on an  additional  $60
million of  fixed-rate,  medium-term  notes were  effectively  converted to
floating  rates  through  interest  rate  swap  agreements.   In  addition,
Ashland's costs under its sale of receivables program and various operating
leases are based on the  floating-rate  interest  costs on $258  million of
third-party debt underlying those  transactions.  As a result,  Ashland was
exposed to  fluctuations  in short-term  interest  rates on $457 million of
debt obligations at September 30, 2001.

From time to time, Ashland's Board of Directors has authorized the purchase
of shares of Ashland  common  stock in the open market.  At  September  30,
2001,  Ashland  could  purchase  an  additional  3.9 million  shares  under
previous authorizations.  The number of shares ultimately purchased and the
prices  Ashland  will pay for its stock are subject to  periodic  review by
management.

During fiscal 2002,  Ashland expects capital  expenditures of approximately
$270  million,  with nearly 80% of the increase  over capital  expenditures
during  2001  invested  in APAC.  Ashland  anticipates  meeting its capital
requirements  during 2002 for property  additions,  dividends and scheduled
debt repayments of $85 million from internally  generated  funds.  However,
external  financing may be necessary to provide funds for  acquisitions  or
purchases of common stock.

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   remediation  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 remediation continues.

Ashland does not believe that any liability  resulting  from  environmental
matters, after taking into consideration expected recoveries from insurers,
contributions  by other  responsible  parties and amounts already  provided
for,  will have a material  adverse  effect on its  consolidated  financial
position, cash flows or liquidity. Although environmental remediation could
have a  material  effect on results  of  operations  if a series of adverse
developments  occurs  in a  particular  quarter  or  fiscal  year,  Ashland
believes that the chance of such developments occurring in the same quarter
or fiscal year is remote.

DERIVATIVE INSTRUMENTS

Ashland  regularly uses  commodity-based  and foreign  currency  derivative
instruments to manage its exposure to price  fluctuations  associated  with
the  purchase and sale of natural gas in its energy  services  business and
certain  transactions  denominated  in  foreign  currencies.  In  addition,
Ashland  opportunistically  enters into  petroleum  crackspread  futures to
economically  hedge or enhance its equity  earnings and cash  distributions
from Refining and Marketing. Although certain of these instruments could be
designated as qualifying for hedge  accounting  treatment,  Ashland has not
elected to do so. Therefore,  the fair value of the derivatives is recorded
on the  balance  sheet,  with the  offsetting  gain or loss  recognized  in
earnings   during  the  period  of  change.   The  potential  loss  from  a
hypothetical  10% adverse  change in commodity  prices or foreign  currency
rates on Ashland's open  commodity-based  and foreign  currency  derivative
instruments at September 30, 2001, would not significantly affect Ashland's
consolidated  financial  position,  results  of  operations,  cash flows or
liquidity.



/33/
<PAGE>
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's   intent  is  to  maintain  its
floating-rate  exposure  between  25%  and  45% of  total  interest-bearing
obligations.  At  September  30,  2001,  Ashland  had  interest  rate swaps
outstanding that effectively convert $60 million of fixed-rate, medium-term
notes to  floating  rates.  The swaps  have been  designated  as fair value
hedges,  and because the  critical  terms of the debt  instruments  and the
swaps  match,  the hedges are assumed to be perfectly  effective,  with the
changes in fair value of the debt and swaps offsetting.

MAP uses commodity-based futures, forwards, swaps and options to reduce the
effects of price  fluctuations  related to the  purchase  and sale of crude
oil,  natural gas and refined  products.  MAP has not elected to  designate
these derivative  instruments as qualifying for hedge accounting treatment.
As a result,  the changes in fair value of these derivatives are recognized
in earnings during the period of change,  impacting Ashland's equity income
from MAP accordingly.

OUTLOOK

Currently,  the  economic  and  energy  outlook  is  uncertain.  A  slowing
worldwide  economy has put downward  pressure on energy prices and the U.S.
economy has stalled. Although it is unlikely to match its record results of
2001, Ashland still expects its earnings for 2002 will be good.

At  September  30,  2001,  APAC's  construction  backlog  amounted  to $1.6
billion,  compared to $1.4 billion at the end of fiscal 2000.  Such backlog
includes a 21% increase in public sector work from $1.22 billion at the end
of last fiscal year to $1.48  billion at September  30, 2001.  In addition,
the public  funding  outlook is positive  because  infrastructure  spending
historically rises during economic downturns,  there is a well-demonstrated
need for infrastructure  construction and repair, and expected increases in
highway  travel should  generate  higher  dedicated  tax revenues.  Private
contract work in the backlog  declined from $179 million at the end of last
year to $149 million this year,  reflecting the weaker economy. On balance,
APAC is expected to have a much better year in 2002.  Many  low-margin jobs
obtained  through recent  acquisitions  have been working their way through
the backlog,  and the internal  restructuring  and improvement  initiatives
that are underway should result in improved margins. While the construction
business has many uncertainties due to factors such as weather,  energy and
asphalt costs,  competition  and economic  conditions,  APAC is expected to
generate  operating  income in the range of $150 million to $170 million in
2002.  This  estimate  includes  a $25  million  positive  impact  from the
adoption of Financial  Accounting  Standards  Board  Statement No. 142 (FAS
142),  "Goodwill and Other Intangible  Assets," under which amortization of
goodwill will be discontinued.

Earnings from Ashland  Distribution and Ashland  Specialty  Chemical should
rebound as the economy recovers. Although the outlook remains uncertain for
industrial  production,  the key driver for Ashland's chemical  businesses,
they are well positioned and improving their relative competitive strength.
Ashland   Distribution  is  consolidating   operations,   and  focusing  on
e-commerce  and  service-related  areas  that are less  capital  intensive.
Ashland Specialty Chemical is aggressively  seeking to develop new markets,
both  geographically  and in terms of product  applications,  for  existing
product lines. The acquisition  during 2001 of the former business of Neste
Polyester,  a producer of gelcoats that compliments the composite  polymers
business, was an example of that strategy.

Valvoline's profits should be comparable with or perhaps slightly below its
strong performance during 2001. Valvoline generated gross profit of roughly
$14 million in each of the last three years from sales of R-12 refrigerant.
Based on its  remaining  inventories,  Valvoline's  gross  profit from R-12
refrigerant is expected to be around half of that amount in 2002 before its
inventories are depleted.

While MAP should have another strong year in 2002,  Ashland does not expect
MAP's  earnings  to equal the record  results it  achieved  in 2001.  U. S.
petroleum demand is lower as a result of the slowing  economy,  and product
supply is currently  ample. As a result,  refining  margins are expected to
soften and  approximate the average levels  experienced  during the 1998 to
2000 timeframe.  However,  MAP should benefit from recent  profit-enhancing
projects,  including the October  start-up of a new coker at its Garyville,
Louisiana   refinery  and  the  travel  center  joint  venture  with  Pilot
Corporation  that was formed in  September.  The  combined  impact of these
projects should  contribute at least $100 million to MAP's operating income
in 2002.

Ashland  adopted FAS 142 as of October 1, 2001, the beginning of its fiscal
2002. Application of the nonamortization  provisions of FAS 142 is expected
to increase  Ashland's  operating  income in 2002 by about $43 million ($35
million  after  income  taxes).  Amortization  recognized  by  each  of the
divisions should be reduced to some extent, with expected reductions of $25
million  for APAC,  $1 million  for  Ashland  Distribution,  $6 million for
Ashland  Specialty  Chemical,  $1 million for Valvoline and $10 million for
Refining and Marketing.  Because most of the goodwill  amortization was not
deductible for income tax purposes,  Ashland's effective income tax rate is
expected  to decline  from an average of 40% during the last three years to
about 38.5% in 2002.  During  2002,  Ashland will also perform the first of
the required  impairment tests on goodwill as of October 1, 2001.  Although
those  tests and other  transitional  issues  have not yet been  finalized,
Ashland does not believe  that the initial  adoption of FAS 142 will have a
significant  effect on its  consolidated  financial  position or results of
operations.




/34/

<PAGE>

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 demand increases for
gasoline  during the summer  driving  season,  for propane  and  distillate
during the winter heating  season and for asphalt  during the  construction
season.  The following table compares operating income before unusual items
by quarter for the three years ended  September  30, 2001 (amounts for each
quarter do not necessarily total to results for the year due to rounding).
<TABLE>
<CAPTION>
(In millions)                                                           2001            2000         1999
<S>                                                                     <C>             <C>          <C>
QUARTERLY OPERATING INCOME BEFORE UNUSUAL ITEMS
December 31                                                             $144            $111         $109
March 31                                                                  87              90           44
June 30                                                                  369             268          173
September 30                                                             251             203          170
                                                                        =================================
</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  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 its
conversion to the Euro will be accomplished  successfully  and 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  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 sections entitled Capital Resources,  Derivative
Instruments,  Outlook and Conversion to the Euro. 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, 2001.
Ashland  undertakes no obligation  to  subsequently  update or revise these
forward-looking statements.



/35/


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME

Years Ended September 30
<TABLE>
<CAPTION>
(In millions except per share data)                                2001                     2000                       1999
<S>                                                              <C>                      <C>                        <C>
REVENUES
Sales and operating revenues                                     $7,719                   $7,961                     $6,801
Equity income - Note F                                              754                      394                        351
Other income                                                         74                       81                        101
                                                                ------------------------------------------------------------
                                                                  8,547                    8,436                      7,253
COSTS AND EXPENSES
Cost of sales and operating expenses                              6,319                    6,434                      5,346
Selling, general and administrative expenses                      1,127                    1,094                      1,054
Depreciation, depletion and amortization                            250                      237                        228
                                                                ------------------------------------------------------------
                                                                  7,696                    7,765                      6,628
                                                                ------------------------------------------------------------
OPERATING INCOME                                                    851                      671                        625
Net interest and other financial costs - Note G                    (170)                    (188)                      (140)
                                                                ------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES               681                      483                        485
Income taxes - Note E                                              (275)                    (191)                      (194)
                                                                ------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                   406                      292                        291
Results from discontinued operations
     (net of income taxes) - Note B                                  19                     (218)                        (1)
                                                                ------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS AND
     CUMULATIVE EFFECT OF ACCOUNTING CHANGE                         425                       74                        290
Extraordinary loss on early retirement of debt
     (net of income taxes) - Note G                                  (3)                      (4)                         -
Cumulative effect of accounting change
     (net of income taxes) - Note A                                  (5)                       -                          -
                                                                ------------------------------------------------------------
NET INCOME                                                      $   417                   $   70                     $  290
                                                                ============================================================
EARNINGS PER SHARE - NOTE A
Basic
       Income from continuing operations                        $  5.83                   $ 4.11                     $ 3.95
       Results from discontinued operations                         .27                    (3.07)                      (.01)
       Extraordinary loss                                          (.04)                    (.05)                         -
       Cumulative effect of accounting change                      (.07)                       -                          -
                                                                ------------------------------------------------------------
       Net income                                               $  5.99                   $  .99                     $ 3.94
                                                                ============================================================
Diluted
       Income from continuing operations                        $  5.77                   $ 4.10                     $ 3.90
       Results from discontinued operations                         .26                    (3.07)                      (.01)
       Extraordinary loss                                          (.04)                    (.05)                         -
       Cumulative effect of accounting change                      (.06)                       -                          -
                                                                ------------------------------------------------------------
       Net income                                               $  5.93                   $  .98                     $ 3.89
                                                                ============================================================

See Notes to Consolidated Financial Statements.
</TABLE>
/37/
<PAGE>

Ashland Inc. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS

September 30
<TABLE>
<CAPTION>

(In millions)                                                                     2001                            2000
<S>                                                                              <C>                             <C>

ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                       $  236                          $   67
Accounts receivable (less allowances for doubtful accounts of
      $34 million in 2001 and $25 million in 2000)                               1,185                           1,243
Inventories - Note A                                                               495                             488
Deferred income taxes - Note E                                                     126                             135
Other current assets                                                               171                             198
                                                                                ---------------------------------------
                                                                                 2,213                           2,131
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) - Note F                      2,387                           2,295
Goodwill (less accumulated amortization of $142 million in 2001
      and $101 million in 2000)                                                    528                             537
Investment in Arch Coal - discontinued operations - Note B                           -                              35
Other noncurrent assets                                                            377                             351
                                                                                ---------------------------------------
                                                                                 3,292                           3,218
PROPERTY, PLANT AND EQUIPMENT
Cost
      APAC                                                                       1,290                           1,220
      Ashland Distribution                                                         359                             356
      Ashland Specialty Chemical                                                   887                             835
      Valvoline                                                                    374                             354
      Corporate                                                                    120                             114
                                                                                ---------------------------------------
                                                                                 3,030                           2,879
Accumulated depreciation, depletion and amortization                            (1,590)                         (1,457)
                                                                                ---------------------------------------
                                                                                 1,440                           1,422
                                                                                ---------------------------------------
                                                                                $6,945                          $6,771
                                                                                =======================================
</TABLE>
See Notes to Consolidated Financial Statements.


/38/
<PAGE>

<TABLE>
<CAPTION>
(In millions)                                                                                    2001                    2000
<S>                                                                                             <C>                     <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year
     Notes payable to financial institutions                                                  $     -                 $   180
     Commercial paper                                                                               -                      65
     Current portion of long-term debt                                                             85                      82
Trade and other payables                                                                        1,392                   1,330
Income taxes                                                                                       20                      42
                                                                                            ----------------------------------
                                                                                                1,497                   1,699
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Note G                                                  1,786                   1,899
Employee benefit obligations - Note O                                                             412                     383
Deferred income taxes - Note E                                                                    440                     288
Reserves of captive insurance companies                                                           173                     179
Other long-term liabilities and deferred credits                                                  411                     358
Commitments and contingencies - Notes J and M
                                                                                            ----------------------------------
                                                                                                3,222                   3,107
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 - 69 million shares in 2001 and 70 million shares in 2000                           69                      70
     Paid-in capital                                                                              363                     388
     Retained earnings                                                                          1,920                   1,579
     Accumulated other comprehensive loss                                                        (126)                    (72)
                                                                                            ----------------------------------
                                                                                                2,226                   1,965
                                                                                            ----------------------------------
                                                                                               $6,945                  $6,771
                                                                                            ==================================
</TABLE>
/39/



<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, 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
Total comprehensive income(1)                                                              417                 (54)          363
Cash dividends, $1.10 per common share                                                     (76)                              (76)
Issued common stock under
    stock incentive plans                                  1               22                                                 23
Repurchase of common stock                                (2)             (47)                                               (49)
                                                        -------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2001                            $69             $363           $1,920               $(126)       $2,226
                                                        =========================================================================

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

(In millions)                                                          2001            2000             1999

NET INCOME                                                             $417             $70             $290
Minimum pension liability adjustment                                    (57)              2               13
    Related tax benefit (expense)                                        22              (1)              (5)
Unrealized translation losses                                           (21)            (37)             (11)
    Related tax benefit                                                   2              10                3
Unrealized losses on securities                                           -               -               (6)
    Related tax benefit                                                   -               -                2
                                                                     ---------------------------------------------
TOTAL COMPREHENSIVE INCOME                                             $363             $44             $286
                                                                     =============================================

</TABLE>

At September 30, 2001, the accumulated other comprehensive loss of $126
million (after tax) was comprised of net unrealized translation losses of
$83 million and a minimum pension liability of $43 million.

See Notes to Consolidated Financial Statements.

/40/
<PAGE>
Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30

(In millions)                                                               2001                2000               1999
<S>                                                                        <C>                 <C>                <C>

CASH FLOWS FROM OPERATIONS
Income from continuing operations                                           $406                $292              $ 291
Expense (income) not affecting cash
   Depreciation, depletion and amortization                                  250                 237                228
   Deferred income taxes                                                     152                 111                103
   Equity income from affiliates                                            (754)               (394)              (351)
   Distributions from equity affiliates                                      664                 282                339
   Other items                                                                 -                 (19)                (2)
Change in operating assets and liabilities(1)                                111                 (25)              (225)
                                                                            --------------------------------------------
                                                                             829                 484                383
CASH FLOWS FROM FINANCING
Proceeds from issuance of long-term debt                                      52                 988                150
Proceeds from issuance of common stock                                        15                   5                  4
Repayment of long-term debt                                                 (169)               (675)               (59)
Repurchase of common stock                                                   (49)                (89)              (228)
Increase (decrease) in short-term debt                                      (245)                 63                 98
Dividends paid                                                               (76)                (78)               (81)
                                                                            --------------------------------------------
                                                                            (472)                214               (116)
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment                                  (205)               (232)              (248)
Purchase of operations - net of cash acquired                                (91)               (590)               (67)
Proceeds from sale of operations                                               9                  50                 24
Other - net                                                                   13                  71                 98
                                                                            --------------------------------------------
                                                                            (274)               (701)              (193)
                                                                            --------------------------------------------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS                                 83                  (3)                74
Cash provided (used) by discontinued operations                               86                 (40)                 2
                                                                            --------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             169                 (43)                76
Cash and cash equivalents - beginning of year                                 67                 110                 34
                                                                            --------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR                                     $236                $ 67              $ 110
                                                                            ============================================
DECREASE (INCREASE) IN OPERATING ASSETS(1)
Accounts receivable                                                         $ 82                $ 68              $ (90)
Inventories                                                                    5                   -                (25)
Deferred income taxes                                                          5                 (25)                 1
Other current assets                                                          30                 (28)               (20)
Investments and other assets                                                 (55)               (101)               (53)
INCREASE (DECREASE) IN OPERATING LIABILITIES(1)
Trade and other payables                                                      43                 105                (79)
Income taxes                                                                   4                 (11)                 2
Noncurrent liabilities                                                        (3)                (33)                39
                                                                           ---------------------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES                                  $111                $(25)             $(225)
                                                                           =============================================
</TABLE>

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


See Notes to Consolidated Financial Statements.

/41/

<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  accounting  principles  generally  accepted in the United
States 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, self-insurance and litigation 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  APAC's
construction  activities  and MAP's sales  volumes of asphalt,  propane and
heating oil.

INVENTORIES
<TABLE>
<CAPTION>

(In millions)                                                                   2001           2000

<S>                                                                             <C>            <C>
Chemicals and plastics                                                          $374           $375
Construction materials                                                            74             80
Petroleum products                                                                54             52
Other products                                                                    57             45
Supplies                                                                           6              7
Excess of replacement costs over LIFO carrying values                            (70)           (71)
                                                                                --------------------
                                                                                $495           $488
                                                                                ====================
</TABLE>

Chemicals,  plastics,  petroleum  products and supplies  with a replacement
cost of $330 million at September  30, 2001,  and $327 million at September
30, 2000,  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.  Through September 30, 2001,
goodwill was amortized by the  straight-line  method over periods generally
ranging from 15 to 40 years,  with an average  remaining  life of 16 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 $42 million in 2001, $29 million in 2000
and $34 million in 1999.  Such amounts  included  charges of $10 million in
2001 and $19 million in 1999 for  goodwill  write-downs  related to certain
operations.  Results from these operations consistently had 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, 2001,  such excess  amounted to $359  million.  Straight-line
amortization of this excess, which includes a goodwill component,  amounted
to $26 million in 2001 and 2000 and $27 million in 1999.

In June 2001, the Financial Accounting Standards Board issued Statement No.
142 (FAS  142),  "Goodwill  and Other  Intangible  Assets."  Under FAS 142,
goodwill  and  intangible  assets with  indefinite  lives will no longer be
amortized but will be subject to annual impairment tests.  Other intangible
assets will continue to be amortized over their useful lives. As permitted,
Ashland  adopted the statement as of October 1, 2001, the beginnning of its
fiscal year.  Application of the  nonamortization  provisions of FAS 142 is
expected  to increase  Ashland's  net income by  approximately  $35 million
($.50 per share) each year. During 2002,  Ashland will perform the first of
the required



/42/

<PAGE>



impairment tests of goodwill and indefinite  lived intangible  assets as of
October 1, 2001.  Although those tests and other  transitional  issues have
not yet been finalized,  Ashland does not believe that the initial adoption
of FAS 142 will have a  significant  effect on its  consolidated  financial
position or results of operations.

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
continue.

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)                                                  2001              2000           1999
<S>                                                                                 <C>               <C>            <C>

NUMERATOR
Numerator for basic and diluted EPS - Income from
     continuing operations                                                         $  406             $ 292          $ 291
                                                                                =============================================
DENOMINATOR
Denominator for basic EPS - Weighted average
     common shares outstanding                                                         69                71             74
Common shares issuable upon
     exercise of stock options                                                          1                 -              1
                                                                                ---------------------------------------------
Denominator for diluted EPS - Adjusted weighted
     average shares and assumed conversions                                            70                71             75
                                                                                =============================================
BASIC EPS FROM CONTINUING OPERATIONS                                                $5.83             $4.11          $3.95
DILUTED EPS FROM CONTINUING OPERATIONS                                              $5.77             $4.10          $3.90
                                                                                =============================================
</TABLE>


DERIVATIVE INSTRUMENTS

In June 1998, the Financial Accounting Standards Board issued Statement No.
133  (FAS  133),   "Accounting  for  Derivative   Instruments  and  Hedging
Activities."  FAS 133 was amended by two other  statements and was 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  consolidated financial position or results of operations when it
was  adopted on October 1, 2000.  MAP's  adoption  of FAS 133 on January 1,
2001,  resulted in a $20 million pretax loss from the cumulative  effect of
this accounting  change.  Ashland's share of the pretax loss amounted to $8
million which, net of income tax benefits of $3 million, resulted in a loss
of $5 million from the cumulative effect of this accounting change.

In  accordance  with  FAS 133,  Ashland  recognizes  all of its  derivative
instruments as either current assets or current  liabilities on the balance
sheet at fair value.  The  accounting  for changes in the fair value (i.e.,
gains or losses) of a derivative  instrument depends on whether it has been
designated and qualifies as part of a hedging  relationship and further, on
the type of  hedging  relationship.  For  derivative  instruments  that are
designated and qualify as a fair value hedge (i.e., hedging the exposure to
changes in the fair value of an asset or liability that is  attributable to
a particular risk), the gain or loss on the derivative instrument,  as well
as the  offsetting  loss or gain on the  hedged  item  attributable  to the
hedged risk are  recognized in earnings  during the period of the change in
fair  values.   For  derivative   instruments  not  designated  as  hedging
instruments,  the gain or loss on the  derivative is recognized in earnings
during the period of change.

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's   intent  is  to  maintain  its
floating-rate  exposure  between  25%  and  45% of  total  interest-bearing
obligations.  In 2001,  Ashland  executed  two  interest  rate  swaps  that
effectively  convert  $60  million  of  fixed-rate,  medium-term  notes  to
floating rates based upon three-month LIBOR. The swaps have been designated
as fair value hedges,  and since the critical terms of the debt instruments
and the swaps match, the hedges are assumed to be perfectly effective, with
the changes in fair value of the debt and swaps offsetting.

Ashland  regularly uses  commodity-based  and foreign  currency  derivative
instruments to manage its exposure to price  fluctuations  associated  with
the  purchase and sale of natural gas in its energy  services  business and
certain  transactions  denominated  in  foreign  currencies.  In  addition,
Ashland  opportunistically  enters into  petroleum  crackspread  futures to
economically  hedge or enhance its equity  earnings and cash  distributions
from Refining and Marketing. Although certain of these instruments could be
designated as qualifying for hedge  accounting  treatment,  Ashland has not
elected to do so. Therefore,  the fair value of the derivatives is recorded
on the  balance  sheet,  with the  offsetting  gain or loss  recognized  in
earnings during the period of change.


/43/

<PAGE>
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DERIVATIVE INSTRUMENTS (CONTINUED)

MAP uses commodity-based futures, forwards, swaps and options to reduce the
effects of price  fluctuations  related to the  purchase  and sale of crude
oil,  natural gas and refined  products.  MAP has not elected to  designate
these derivative  instruments as qualifying for hedge accounting treatment.
As a result,  the changes in fair value of these derivatives are recognized
in earnings during the period of change,  impacting Ashland's equity income
from MAP accordingly.

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  ($36 million in
2001, $33 million in 2000 and $30 million in 1999).

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  2001
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.  Ashland sold its
remaining 4.7 million Arch Coal shares in a public offering during February
2001 for $86 million (after underwriting commissions). Ashland's net income
(loss)  associated  with Arch Coal and other  discontinued  operations  are
summarized in the following table.

<TABLE>
<CAPTION>

(In  millions)                                                                  2001          2000           1999
<S>                                                                            <C>           <C>            <C>

INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Arch Coal
     Equity loss                                                                $  -         $(246)(1)        $(2)
     Administrative expenses                                                       -            (1)            (1)
Reserves related to other discontinued operations                                (23)            -              -
GAIN (LOSS) ON DISPOSAL OF ARCH COAL
Gain on sale of stock                                                             49             -              -
Costs related to the spin-off                                                      -            (5)             -
                                                                                ----------------------------------
INCOME (LOSS) BEFORE INCOME TAXES                                                 26          (252)            (3)
INCOME TAXES
Income (loss) from discontinued operations                                         9            32              2
Gain (loss) on disposal of Arch Coal                                             (16)            2              -
                                                                                ----------------------------------
RESULTS FROM DISCONTINUED OPERATIONS                                             $19         $(218)           $(1)
                                                                                ==================================
</TABLE>

(1)      Includes 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.

/44/


<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 54 and 55.

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, foundry, merchant marine, paint, paper, plastics, semiconductor
fabrication, watercraft and water treatment 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  service centers 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 other  activities
associated  with refining and  marketing.  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, 91
light  products and asphalt  terminals in the Midwest and Southeast  United
States,  more  than  5,900  retail  marketing  outlets  in  18  states  and
significant  pipeline  holdings.  Ashland  accounts for its interest in MAP
using the equity method.

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

                                                                                      Property, plant
                                      Revenues from external customers                  and equipment
                                    ----------------------------------             ----------------------
(In millions)                          2001           2000        1999                2001          2000
<S>                                   <C>            <C>         <C>                 <C>           <C>

United States                        $7,526         $7,348      $6,185              $1,299        $1,300
Foreign                               1,021          1,088       1,068                 141           122
                                    ---------------------------------------------------------------------
                                     $8,547         $8,436      $7,253              $1,440        $1,422
                                    =====================================================================

</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, 2001,  Ashland's  sales to MAP amounted to $22 million,  its  purchases
from MAP amounted to $258 million, and its costs charged to MAP amounted to
$6 million.  Comparable amounts for the year ended September 30, 2000, were
$15 million, $261 million, and $8 million, and for the year ended September
30,  1999,  were $8  million,  $185  million,  and $16  million.  Ashland's
transactions   with  other   affiliates   and  related   parties  were  not
significant.

Ashland  has  entered  into  revolving  credit  agreements   providing  for
short-term loans, at Ashland's  discretion,  to and from MAP at competitive
rates. Under MAP's borrowing agreement, Ashland may loan up to $190 million
to MAP. Under Ashland's borrowing agreement,  MAP could invest up to 38% of
its surplus cash  balances with Ashland.  No loans were  outstanding  under
either agreement at September 30, 2001, and 2000.  Under these  agreements,
Ashland paid  interest  expense to MAP of $4 million in 2001, $5 million in
2000 and $3  million in 1999.  Interest  income  received  from MAP was not
significant.

/45/


<PAGE>
NOTE E - INCOME TAXES

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

(In millions)                      2001        2000           1999
<S>                               <C>         <C>            <C>

Current(1)
    Federal                        $ 90        $ 57           $ 63
    State                            14           6             17
    Foreign                          19          17             11
                                  ---------------------------------
                                    123          80             91
Deferred                            152         111            103
                                  ---------------------------------
                                   $275        $191           $194
                                  =================================
</TABLE>

(1)      Income tax payments amounted to $103 million in 2001, $114 million
         in 2000 and $142 million in 1999.

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)                                                        2001          2000
<S>                                                                  <C>           <C>

Employee benefit obligations                                         $177          $167
Environmental, self-insurance and litigation reserves                 148           140
Compensation accruals                                                  61            58
Uncollectible accounts receivable                                      20            13
Other items                                                            59            78
                                                                    ---------------------
Total deferred tax assets                                             465           456
                                                                    ---------------------
Property, plant and equipment                                         173           156
Investment in unconsolidated affiliates                               606           453
                                                                    ---------------------
Total deferred tax liabilities                                        779           609
                                                                    ---------------------
Net deferred tax liability                                           $314          $153
                                                                    =====================
</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)                                                        2001       2000         1999
<S>                                                                  <C>       <C>          <C>
Income from continuing operations before income taxes
   United States                                                     $617       $428         $461
   Foreign                                                             64         55           24
                                                                     -------------------------------
                                                                     $681       $483         $485
                                                                     ===============================
Income taxes computed at U.S. statutory rate (35%)                   $238       $169         $169
Increase (decrease) in amount computed resulting from
   State income taxes                                                  22         14           17
   Net impact of foreign results                                        3          -            6
   Nondeductible goodwill amortization                                 12          7            2
   Other items                                                          -          1            -
                                                                     -------------------------------
Income taxes                                                         $275       $191         $194
                                                                     ===============================
</TABLE>

/46/


<PAGE>


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  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  that will be  incurred  by its  parents.  At
September 30, 2001,  Ashland's  retained  earnings included $169 million of
undistributed earnings from unconsolidated  affiliates accounted for on the
equity method.

<TABLE>
<CAPTION>

                                                                                Other
(In millions)                                                  MAP         affiliates            Total
<S>                                                           <C>         <C>                    <C>

SEPTEMBER 30, 2001
Financial position
    Current assets                                         $ 3,485               $ 80
    Current liabilities                                     (2,214)               (55)
                                                          ----------------------------
    Working capital                                          1,271                 25
    Noncurrent assets                                        4,431                 77
    Noncurrent liabilities                                    (364)               (15)
                                                         -----------------------------
    Stockholders' equity                                   $ 5,338               $ 87
                                                         =============================
Results of operations
    Sales and operating revenues                           $28,865               $207
    Income from operations                                   2,042                 21
    Net income                                               2,022                 12
Amounts recorded by Ashland
    Investments and advances                                 2,387(1)              45           $2,432
    Equity income                                              749                  5              754
    Distributions received                                     658                  6              664
                                                         =============================================

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                 21
    Net income                                               1,092                 13
Amounts recorded by Ashland
    Investments and advances                                 2,295                 57           $2,352
    Equity income                                              389                  5              394
    Distributions received                                     279                  3              282
                                                          ============================================

SEPTEMBER 30, 1999
Results of operations
    Sales and operating revenues                           $18,965               $163
    Income from operations                                     976                 23
    Net income                                                 977                 13
Amounts recorded by Ashland
    Equity income                                              345                  6           $  351
    Distributions received                                     333                  6              339
                                                          ============================================
</TABLE>


(1)      At  September  30,  2001,   Ashland's   investment   exceeded  its
         underlying  equity  in the  net  assets  of MAP by  $359  million.
         Straight-line  amortization  of this excess  against equity income
         amounted  to $26 million in 2001 and 2000 and $27 million in 1999.
         Amortization of the portion of this excess  representing  goodwill
         (approximately  $10 million  annually)  ceased on October 1, 2001,
         when Ashland adopted FAS 142 (see Note A).



/47/


<PAGE>


NOTE G - LONG-TERM DEBT
<TABLE>
<CAPTION>

(In millions)                                                                              2001          2000
<S>                                                                                       <C>           <C>
Medium-term notes, due 2002-2025, interest at a weighted
    average rate of 7.6% at September 30, 2001 (3.2% to 10.4%)                           $  845        $  917
8.80% debentures, due 2012                                                                  250           250
7.83% medium-term notes, Series J, due 2005                                                 229           250
Pollution control and industrial revenue bonds, due
    2002-2022, interest at a weighted average rate of 5.8%
    at September 30, 2001 (2.2% to 7.2%)                                                    201           217
6.86% medium-term notes, Series H, due 2009                                                 150           150
6.625% senior notes, due 2008                                                               150           150
Other                                                                                        46            47
                                                                                        ---------------------
                                                                                          1,871         1,981
Current portion of long-term debt                                                           (85)          (82)
                                                                                        ---------------------

                                                                                         $1,786        $1,899
                                                                                        =====================
</TABLE>


Aggregate  maturities  of  long-term  debt are $85  million  in 2002,  $191
million in 2003, $68 million in 2004,  $396 million in 2005 and $60 million
in 2006.  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,  2002.  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 has been  used.  The  agreement
providing  for $250  million in  borrowings  expires  on June 2, 2004.  The
agreement providing for $175 million in borrowings expires on May 28, 2002.
Both  agreements  contain a  covenant  limiting  new  borrowings.  Based on
Ashland's financial position at September 30, 2001,  borrowings  (including
any  borrowings  under these  agreements)  could be increased by up to $1.5
billion.  Additional  permissible  borrowings are increased  (decreased) by
150% of any increases (decreases) in stockholders' equity.

Interest  payments on all  indebtedness  amounted to $167  million in 2001,
$189  million  in 2000  and $136  million  in 1999.  The  weighted  average
interest rate on short-term  borrowings  outstanding  was 6.8% at September
30, 2000. No short-term borrowings were outstanding at September 30, 2001.

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

(In millions)                                                                        2001              2000              1999
<S>                                                                                  <C>               <C>               <C>
Interest expense                                                                     $162              $191              $141
Expenses on sales of accounts receivable (see Note H)                                   8                 6                 -
Other financial costs                                                                   2                 1                 -
Interest income                                                                        (2)              (10)               (1)
                                                                                     ----------------------------------------
                                                                                     $170              $188              $140
                                                                                     ========================================
</TABLE>


EXTRAORDINARY LOSS

During 2001, Ashland repurchased $71 million of Series J medium-term notes.
The repurchase premium and write-off of unamortized  deferred debt issuance
expenses  resulted  in pretax  charges  totaling $5 million  which,  net of
income tax  benefits of $2 million,  resulted in an  extraordinary  loss on
early retirement of debt of $3 million.

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.


/48/


<PAGE>


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
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,  interests  totaling $150 million have been sold
on a continuous basis. The proceeds from the initial sale were reflected as
a reduction of accounts  receivable on Ashland's  balance sheet and as cash
flows  from  operations   (included  in  change  in  operating  assets  and
liabilities) on Ashland's cash flow statement. The costs of these sales are
based on the buyer's  short-term  borrowing rates and approximated  3.5% at
September 30, 2001, and 6.9% at September 30, 2000.

NOTE I - FINANCIAL INSTRUMENTS

DERIVATIVE INSTRUMENTS

Ashland uses interest rate swaps and  commodity-based  and foreign currency
derivative  instruments  as  described  in Note A. The  fair  value of open
contracts was not significant at September 30, 2001, and 2000.

FAIR VALUES

The  carrying  amounts and fair values of Ashland's  significant  financial
instruments  at September  30, 2001,  and 2000,  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>

                                                                         2001                                     2000
                                                          -------------------------------           -------------------------------
                                                           Carrying                 Fair               Carrying               Fair
(In millions)                                                amount                value                 amount              value
<S>                                                       <C>                     <C>                 <C>                   <C>
Assets
    Cash and cash equivalents                                $  236               $  236                 $   67             $   67
    Investments of captive insurance companies(1)                20                   20                     28                 28
Liabilities
    Notes payable to financial institutions                       -                    -                    180                180
    Commercial paper                                              -                    -                     65                 65
    Long-term debt (including current portion)                1,871                2,025                  1,981              2,014
                                                          =========================================================================
</TABLE>

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

NOTE J - 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, 2001,  and rental  expense under
operating leases follow.
<TABLE>
<CAPTION>

(In millions)

Future minimum rental payments                    Rental expense                  2001                  2000                1999
------------------------------------              -------------------------------------------------------------------------------
<C>                          <C>                  <C>                             <C>                   <C>                 <C>
2002                         $  46
2003                            40                Minimum rentals
2004                            32                  (including rentals under
2005                            28                  short-term leases)            $119                  $115                $103
2006                            21                Contingent rentals                 5                     5                   5
Later years                    103                Sublease rental income            (2)                   (2)                 (3)
------------------------------------              -------------------------------------------------------------------------------
                              $270                                                $122                  $118                 $105
====================================              ===============================================================================

</TABLE>
/49/


<PAGE>


NOTE K - CAPITAL STOCK

From time to time, Ashland's Board of Directors has authorized the purchase
of shares of Ashland  common stock in the open market.  As of September 30,
2001,  Ashland  could  purchase  an  additional  3.9 million  shares  under
previous authorizations.

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, 2001,  500,000  shares of cumulative  preferred  stock are
reserved for potential  issuance under the Shareholder  Rights Plan and 6.7
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>
                                                                      2001                2000              1999
<S>                                                                  <C>                <C>                <C>
Pro forma
   Net income (in millions)                                          $ 414               $  66             $ 286
   Basic earnings per share                                           5.94                 .93              3.88
   Diluted earnings per share                                         5.88                 .92              3.84
                                                                    --------------------------------------------
Weighted average fair value per share of options granted             $7.38               $7.26             $7.97
                                                                    --------------------------------------------
Assumptions (weighted average)
   Risk-free interest rate                                             4.1%                6.1%              6.0%
   Expected dividend yield                                             3.0%                3.3%              3.0%
   Expected volatility                                                24.4%               22.9%             21.0%
   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>
                                                   2001                       2000                          1999
                                         -----------------------      ---------------------       --------------------------
                                                   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)        6,380           $38.01        6,381        $38.34        4,965              $38.82
Granted                                   1,001            36.38          506         32.96        1,590               36.97
Exercised                                  (572)           30.06         (195)        30.75         (120)              34.55
Canceled                                    (74)           41.04         (312)        41.26          (54)              49.75
                                        ------------------------------------------------------------------------------------
Outstanding - end of year(1)              6,735           $38.41        6,380        $38.01        6,381              $38.34
                                        ====================================================================================
Exercisable - end of year                 4,803           $39.36        4,684        $38.53        4,348              $37.65
                                        ====================================================================================
</TABLE>


(1)      Shares of common stock  available  for future grants of options or
         awards  amounted to 4,812,000 at September 30, 2001, and 3,670,000
         at  September  30,  2000.  Exercise  prices per share for  options
         outstanding  at September  30, 2001,  ranged from $23.88 to $33.88
         for 1,745,000 shares,  from $35.88 to $43.13 for 3,704,000 shares,
         and from  $48.00 to $53.38  for  1,286,000  shares.  The  weighted
         average remaining contractual life of the options was 6.4 years.


/50/


<PAGE>


NOTE M - LITIGATION, CLAIMS AND CONTINGENCIES

Ashland is subject to various federal,  state and local  environmental laws
and  regulations  that  require  environmental  assessment  or  remediation
efforts (collectively  environmental remediation) at multiple locations. At
September 30, 2001, such locations  included 99 waste treatment or disposal
sites where Ashland has been identified as a potentially  responsible party
under Superfund or similar state laws, approximately 130 current and former
operating  facilities  (including certain operating  facilities conveyed to
MAP) and about 1,200 service  station  properties.  Ashland's  reserves for
environmental  remediation  amounted to $176 million at September 30, 2001,
and $163 million at  September  30, 2000.  Such amounts  reflect  Ashland's
estimates of the most likely  costs that will be incurred  over an extended
period  to  remediate  identified   conditions  for  which  the  costs  are
reasonably estimable, without regard to any third-party recoveries.

Environmental   remediation  reserves  are  subject  to  numerous  inherent
uncertainties  that affect  Ashland's  ability to estimate its share of the
ultimate  costs of the 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 remediation continues.

None of the remediation  locations is  individually  material to Ashland as
its  largest  reserve  for any  site is under  $10  million.  As a  result,
Ashland's  exposure to adverse  developments with respect to any individual
site is not expected to be material,  and these sites are in various stages
of the ongoing environmental  remediation process.  Although  environmental
remediation  could have a material  effect on  results of  operations  if a
series of adverse  developments  occurs in a  particular  quarter or fiscal
year,  Ashland believes that the chance of such  developments  occurring in
the same quarter or fiscal year is remote.

During 1999, Ashland entered into settlement agreements with certain of its
insurance  carriers over the coverage  provided under historical  insurance
policies   with   respect  to   environmental   liabilities.   Under  those
settlements,  the carriers paid lump sum amounts to Ashland in exchange for
releases  of  their  present  and  future   obligations   associated   with
environmental  liabilities.  As  a  result  of  those  agreements,  Ashland
recorded pretax income of $43 million.

In addition to the environmental matters described above, there are pending
or  threatened  against  Ashland and its  current  and former  subsidiaries
various claims, lawsuits and administrative  proceedings.  Such actions are
with  respect  to  commercial  matters,   product  liability,   toxic  tort
liability, numerous asbestos claims, and other environmental matters, which
seek remedies or damages some of which are for substantial  amounts.  While
these actions are being  contested,  their outcome is not predictable  with
assurance and could be material to results of operations in the period they
are  recognized.  However,  Ashland  does not  believe  that any  liability
resulting  from these actions and  environmental  remediation  after taking
into  consideration  expected  recoveries from insurers,  contributions  by
other  responsible  parties and amounts  already  provided for, will have a
material adverse effect on its consolidated financial position,  cash flows
or liquidity.

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, of which $315 million was assigned
to goodwill and was being amortized on a straight-line basis over a 20-year
period through  September 30, 2001. 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  2001,   Ashland  Specialty   Chemical  acquired  Neste  Polyester's
unsaturated  polyester  resins and gelcoats  business and assets from Dynea
Oy. Several  smaller  acquisitions  were also completed by APAC and Ashland
Specialty  Chemical in 2001.  During 1999,  APAC  acquired 14  construction
businesses,  six of which  included  the issuance of $79 million in Ashland
common stock.  These  acquisitions  were accounted for as purchases and did
not  have  a  significant  effect  on  Ashland's   consolidated   financial
statements.

DIVESTITURES

During  2001,  APAC  sold  certain   grading  and  utilities   construction
operations.  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.  None of these
divestitures had a significant effect on Ashland's  consolidated  financial
statements.


/51/


<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
                                            ------------------------------------------------------
                                                     2001                        2000                        Other postretirement
                                            ------------------------    --------------------------                 benefits
                                            Qualified   Nonqualified    Qualified    Nonqualified          -----------------------
(In millions)                                   plans          plans        plans           plans           2001             2000
<S>                                              <C>           <C>           <C>             <C>            <C>              <C>

CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at October 1                 $595           $ 87         $529             $88           $269             $262
Service cost                                       35              2           35               2             11                9
Interest cost                                      46              7           40               7             22               19
Retiree contributions                               -              -            -               -              7                5
Benefits paid                                     (28)            (5)         (24)             (7)           (28)             (25)
Other-primarily actuarial loss (gain)              67             12           15              (3)            52               (1)
                                            -------------------------------------------------------------------------------------
Benefit obligations at September 30              $715           $103         $595             $87           $333             $269
                                            =====================================================================================

CHANGE IN PLAN ASSETS
Value of plan assets at October 1                $506           $  -         $429             $ -           $  -             $  -
Actual return on plan assets                      (40)             -           50               -              -                -
Employer contributions                             76              5           46               7             21               20
Retiree contributions                               -              -            -               -              7                5
Benefits paid                                     (28)            (5)         (24)             (7)           (28)             (25)
Other                                               4              -            5               -              -                -
                                             ------------------------------------------------------------------------------------
Value of plan assets at September 30             $518           $  -         $506             $ -           $  -             $  -
                                             ====================================================================================

FUNDED STATUS OF THE PLANS
Under (over) funded accumulated
     obligation                                  $ 53           $ 91         $(29)            $73           $333             $269
Provision for future salary increases             144             12          118              14              -                -
                                             ------------------------------------------------------------------------------------
Excess of obligations over plan assets            197            103           89              87            333              269
Unrecognized actuarial loss                      (186)           (44)         (35)            (27)           (56)              (6)
Unrecognized prior service
     credit (cost)                                 (3)             -           (4)              -             24               31
                                             ------------------------------------------------------------------------------------
Net liability recognized                         $  8           $ 59          $50             $60           $301             $294
                                             ====================================================================================

BALANCE SHEET LIABILITIES (ASSETS)
Prepaid benefit costs                                   $ (4)                        $ (3)                  $  -             $  -
Accrued benefit liabilities                              144                          127                    301              294
Intangible assets                                         (2)                           -                      -                -
Accumulated other
     comprehensive loss                                  (71)                         (14)                     -                -
                                             ------------------------------------------------------------------------------------
Net liability recognized                                $ 67                         $110                   $301             $294
                                             ====================================================================================

ASSUMPTIONS AS OF SEPTEMBER 30
Discount rate                                           7.25%                        7.75%                  7.25%            7.75%
Rate of compensation increase                           5.00                         5.00                   5.00             5.00
Expected return on plan assets                          9.00                         9.00                      -                -
                                             ====================================================================================
</TABLE>



/52/


<PAGE>


The  following   table   details  the   components  of  pension  and  other
postretirement benefit costs.
<TABLE>
<CAPTION>
                                              Pension benefits                               Other postretirement benefits
                                      -----------------------------------               ---------------------------------------
(In millions)                          2001          2000           1999                2001              2000             1999
<S>                                   <C>           <C>            <C>                 <C>               <C>              <C>

Service cost                            $37           $37            $34                 $11               $ 9              $ 8
Interest cost                            53            47             41                  22                19               18
Expected return on plan assets          (48)          (39)           (34)                  -                 -                -
Other amortization and deferral           4             5              5                  (6)               (9)              (7)
                                       ------------------------------------------------------------------------------------------
                                        $46           $50            $46                 $27               $19              $19
                                       ==========================================================================================
</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, with the reduction  amortized to income over approximately 12 years.
The remaining  credit at September 30, 2001,  amounted to $22 million,  and
will be amortized over approximately  three years in declining amounts from
$8 million in 2002 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 $16 million in 2001 and $15 million in both 2000
and 1999.

NOTE P - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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

Quarters ended                                    December 31            March 31            June 30            September 30
                                               ----------------      ----------------   -----------------    ------------------
(In millions except per share data)              2000      1999        2001      2000     2001       2000      2001        2000
<S>                                            <C>       <C>         <C>       <C>      <C>        <C>       <C>         <C>
Sales and operating revenues                   $1,878    $1,897      $1,659    $1,822   $2,053     $2,103    $2,129      $2,140
Operating income                                  144       111          87        90      369        268       251         203

Income from continuing operations              $   59    $   40      $   26    $   25   $  197     $  129    $  125      $   97
Results from discontinued operations                -      (206)         25       (12)       -          -        (6)          -
Extraordinary loss                                  -         -           -        (2)       -          -        (3)         (1)
Cumulative effect of accounting change              -         -          (5)        -        -          -         -           -
                                               --------------------------------------------------------------------------------
Net income (loss)                              $   59    $ (166)     $   46    $   11   $  197     $  129    $  116      $   96

Basic earnings (loss) per share
    Continuing operations                      $  .84    $  .56      $  .37    $  .35   $ 2.82     $ 1.83    $ 1.79      $ 1.38
    Discontinued operations                         -     (2.88)        .35      (.16)       -          -      (.09)          -
    Extraordinary loss                              -         -           -      (.03)       -          -      (.04)       (.02)
    Cumulative effect of accounting change          -         -        (.06)        -        -          -         -           -
                                               --------------------------------------------------------------------------------
    Net income (loss)                          $  .84    $(2.32)     $  .66    $  .16   $ 2.82     $ 1.83    $ 1.66      $ 1.36

Diluted earnings (loss) per share
    Continuing operations                      $  .84    $  .55      $  .37    $  .35   $ 2.79     $ 1.83    $ 1.77      $ 1.38
    Discontinued operations                         -     (2.87)        .35      (.16)       -          -      (.09)          -
    Extraordinary loss                              -         -           -      (.03)       -          -      (.04)       (.02)
    Cumulative effect of accounting change          -         -        (.06)        -        -          -         -           -
                                               --------------------------------------------------------------------------------
    Net income (loss)                          $  .84    $(2.32)     $  .66    $  .16   $ 2.79     $ 1.83    $ 1.64      $ 1.36

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

Market price per common share
    High                                        36.24     35.94       41.35     35.63    44.25      37.06     44.05       37.19
    Low                                         30.63     30.31       34.39     28.63    37.15      31.19     35.53       31.44
                                               ================================================================================
</TABLE>



/53/


<PAGE>


Ashland Inc. and Consolidated Subsidiaries
INFORMATION BY INDUSTRY SEGMENT

Years Ended September 30
<TABLE>
<CAPTION>

(In millions)                                                        2001                    2000                   1999
<S>                                                                <C>                     <C>                    <C>
REVENUES
Sales and operating revenues
    APAC                                                           $2,624                  $2,505                 $1,678
    Ashland Distribution                                            2,849                   3,214                  2,925
    Ashland Specialty Chemical                                      1,248                   1,283                  1,263
    Valvoline                                                       1,092                   1,077                  1,059
    Intersegment sales(1)
        Ashland Distribution                                          (26)                    (38)                   (35)
        Ashland Specialty Chemical                                    (66)                    (78)                   (84)
        Valvoline                                                      (2)                     (2)                    (5)
                                                                   -----------------------------------------------------
                                                                    7,719                   7,961                  6,801
Equity income
    Ashland Specialty Chemical                                          4                       4                      5
    Valvoline                                                           1                       1                      1
    Refining and Marketing                                            749                     389                    345
                                                                   -----------------------------------------------------
                                                                      754                     394                    351
Other income
    APAC                                                               13                      21                     12
    Ashland Distribution                                               15                       9                      6
    Ashland Specialty Chemical                                         27                      30                     19
    Valvoline                                                           6                       7                      6
    Refining and Marketing                                              7                       6                      8
    Corporate                                                           6                       8                     50
                                                                   -----------------------------------------------------
                                                                       74                      81                    101
                                                                   -----------------------------------------------------
                                                                   $8,547                  $8,436                 $7,253
                                                                   =====================================================

OPERATING INCOME
APAC                                                               $   55                  $  140                 $  108
Ashland Distribution                                                   35                      70                     37 (2)
Ashland Specialty Chemical                                             58                      95                    107
Valvoline                                                              81                      78                     74
Refining and Marketing(3)                                             707                     361                    206 (4)
    Inventory valuation adjustments(5)                                  -                       -                    117
Corporate                                                             (85)                    (73)                   (24)(6)
                                                                   -----------------------------------------------------
                                                                   $  851                  $  671                 $  625
                                                                   =====================================================

ASSETS
APAC                                                               $1,574                  $1,654                 $  996
Ashland Distribution                                                  961                   1,047                    917
Ashland Specialty Chemical                                            944                     888                    878
Valvoline                                                             642                     573                    561
Refining and Marketing                                              2,452                   2,352                  2,229
Corporate(7)                                                          372                     257                    843
                                                                   -----------------------------------------------------
                                                                   $6,945                  $6,771                 $6,424
                                                                   =====================================================
</TABLE>
/54/
<PAGE>
<TABLE>
<CAPTION>
(In millions)                                                          2001                   2000                    1999
<S>                                                                   <C>                    <C>                     <C>

INVESTMENT IN EQUITY AFFILIATES
APAC                                                                 $    -                 $   10                  $   10
Ashland Specialty Chemical                                               36                     40                      33
Valvoline                                                                 9                      7                       6
Refining and Marketing                                                2,387                  2,295                   2,172
                                                                     -----------------------------------------------------
                                                                     $2,432                 $2,352                  $2,221
                                                                     =====================================================
EXPENSE (INCOME) NOT AFFECTING CASH
Depreciation, depletion and amortization
    APAC                                                             $  133                 $  129                  $   89
    Ashland Distribution                                                 27                     23                      44(8)
    Ashland Specialty Chemical                                           56                     49                      53
    Valvoline                                                            23                     23                      26
    Corporate                                                            11                     13                      16
                                                                     -----------------------------------------------------
                                                                        250                    237                     228
Other noncash items(9)
    APAC                                                                 14                      9                       -
    Ashland Distribution                                                 (1)                    (3)                     (6)
    Ashland Specialty Chemical                                            5                      3                       8
    Valvoline                                                             4                      -                      (1)
    Refining and Marketing                                               21                    (17)                     93
    Corporate                                                            19                    (12)                     (5)
                                                                     -----------------------------------------------------
                                                                         62                    (20)                     89
                                                                     -----------------------------------------------------
                                                                     $  312                 $  217                  $  317
                                                                     =====================================================
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
APAC                                                                 $   92                 $   98                  $  104
Ashland Distribution                                                     15                     18                      30
Ashland Specialty Chemical                                               57                     82                      70
Valvoline                                                                29                     25                      26
Corporate                                                                12                      9                      18
                                                                     -----------------------------------------------------
                                                                     $  205                 $  232                  $  248
                                                                     =====================================================
</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  Ashland's  equity  income  from  MAP,   amortization  of
         Ashland's   excess   investment  in  MAP,  and  other   activities
         associated with refining and marketing.
(4)      Includes  a $10  million  charge  for  severance  and other  costs
         related to the formation of MAP.
(5)      Represents Ashland's share of inventory adjustments due to 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.
(6)      Includes $43 million in environmental insurance recoveries.
(7)      Includes  principally  cash,  cash  equivalents,   investments  of
         captive   insurance   companies  and  investment  in  discontinued
         operations.
(8)      Includes a charge of $19 million to write down goodwill related to
         European plastics distribution operations.
(9)      Includes  deferred  taxes,  equity income from  affiliates  net of
         distributions, and other items not affecting cash.

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<PAGE>


Ashland Inc. and Consolidated Subsidiaries
FIVE-YEAR SELECTED FINANCIAL INFORMATION

Years Ended September 30
<TABLE>
<CAPTION>

(In millions except per share data)                         2001             2000               1999            1998           1997
<S>                                                       <C>               <C>                <C>             <C>            <C>
SUMMARY OF OPERATIONS
Revenues
     Sales and operating revenues
      (including excise taxes)                            $7,719           $7,961             $6,801          $6,534        $12,833
     Equity income                                           754              394                351             304             14
     Other income                                             74               81                101              70             89
Costs and expenses
     Cost of sales and operating expenses                 (6,319)          (6,434)            (5,346)         (5,299)        (9,810)
     Excise taxes on products and merchandise                  -                -                  -               -           (992)
     Selling, general and administrative expenses         (1,127)          (1,094)            (1,054)         (1,006)        (1,350)
     Depreciation, depletion and amortization               (250)            (237)              (228)           (181)          (348)
                                                          -------------------------------------------------------------------------
Operating income                                             851              671                625             422            436
Net interest and other financial costs                      (170)            (188)              (140)           (130)          (142)
                                                          -------------------------------------------------------------------------
Income from continuing operations
     before income taxes                                     681              483                485             292            294
Income taxes                                                (275)            (191)              (194)           (114)          (125)
                                                          -------------------------------------------------------------------------
Income from continuing operations                            406              292                291             178            169
Results from discontinued operations                          19             (218)                (1)             25            119
                                                          -------------------------------------------------------------------------
Income before extraordinary loss and
     cumulative effect of accounting change                  425               74                290             203            288
Extraordinary loss on early retirement of debt                (3)              (4)                 -               -             (9)
Cumulative effect of accounting change                        (5)               -                  -               -              -
                                                          -------------------------------------------------------------------------
Net income                                                $  417           $   70             $  290          $  203        $   279
                                                          =========================================================================
BALANCE SHEET INFORMATION
Working capital
     Current assets                                       $2,213           $2,131             $2,059          $1,828        $ 2,720
     Current liabilities                                   1,497            1,699              1,396           1,361          2,028
                                                          -------------------------------------------------------------------------
                                                          $  716           $  432             $  663          $  467        $   692
                                                          -------------------------------------------------------------------------
Total assets                                              $6,945           $6,771             $6,424          $6,082        $ 6,462
                                                          -------------------------------------------------------------------------
Capital employed
     Debt due within one year                             $   85           $  327             $  219          $  125        $    49
     Long-term debt (less current portion)                 1,786            1,899              1,627           1,507          1,356
     Stockholders' equity                                  2,226            1,965              2,200           2,137          2,024
                                                          -------------------------------------------------------------------------
                                                          $4,097           $4,191             $4,046          $3,769        $ 3,429
                                                          =========================================================================
CASH FLOW INFORMATION
Cash flows from operations                                $  829           $  484             $  383          $  354        $   552
Additions to property, plant and equipment                   205              232                248             274            356
Cash dividends                                                76               78                 81              84             86
                                                          =========================================================================
COMMON STOCK INFORMATION
Diluted earnings per share
     Income from continuing operations                    $ 5.77           $ 4.10             $ 3.90          $  2.31       $  2.23
     Net income                                             5.93              .98               3.89             2.63          3.64
Cash dividends per share                                    1.10             1.10               1.10             1.10          1.10
                                                          =========================================================================
</TABLE>



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