Ashland says liability small

Stock plunges, but company says asbestos claims insured

By James McNair, Cincinnati Enquirer

A day after Ashland Inc. lost $421 million in market value over concerns about asbestos claims, company officials said Friday the reaction was overblown and that most of its asbestos payouts are covered by insurance.

Ashland, based in Covington, provided a first-ever look at its asbestos claims and payouts Thursday in a filing with the Securities and Exchange Commission. The disclosure caused investors to panic, and Ashland shares plummeted 17 percent, or $6.11 a share, to close at $30. The stock bottomed out Friday at a nine-year low of $28 before settling at $30.08, up eight cents. Volume Friday was more than 5 million shares - roughly 10 times higher than normal.

Ashland hasn't been in the asbestos business since 1990, when it sold a unit named Riley Stoker Corp., a maker of boilers that contained asbestos. But, sharing the experience of other companies that divested or mothballed asbestos interests years ago, Ashland has been hit hard by personal injury lawsuits filed by people with health claims they say were caused by exposure to the Riley Stoker boilers.

In the SEC filing, Ashland revealed that 47,000 asbestos claims were settled out of court or dismissed - 32,000 were dismissed - during the nine months ended June 30, leaving the company with 154,000 claims at the end of the quarter. Ashland had 167,000 claims at the end of its 2001 fiscal year. Plaintiffs have filed 34,000 new claims against Ashland during the first nine months of 2002, compared with 52,000 in all of 2001.

In terms of cost, Ashland said asbestos payouts and legal expenses totaled $34 million in the nine months through June 30, a rate that will exceed the $37 million incurred in the years 2001, 2000 and 1999 combined.

The disclosures were enough to persuade two brokerage firms, Goldman, Sachs & Co. and Banc of America Securities, to cut their ratings on Ashland shares.

In a conference call with analysts Friday, Ashland officials said most of its asbestos-related costs are being borne by its insurers.

"We believe that 85 percent of the cost of both our legal defense and the payout of claims will be reimbursed by our insurance companies," said Marvin Quin, Ashland's chief financial officer. "And we believe we have adequate insurance coverage. In other words, the average caps won't come into play."

Ashland said the "vast majority" of the Riley Stoker boilers are out of operation. It added that no asbestos lawsuits have resulted in jury verdicts, nor are there any trials underway.

The drop in share price afforded Ashland an opportunity to buy back its shares "heavily" at what the company believed were bargain prices.

"At these prices," Mr. Quin said, "we are likely to buy at high levels."

Goldman, Sachs analyst Argun Murti said he lowered his rating on Ashland to "market performer" because of the asbestos liabilities and the uncertain succession plan for retiring chairman and CEO Paul Chellgren.

Mr. Chellgren is retiring in November for having had an affair with a former Ashland secretary in violation of company policies. The chairman was not on Friday's conference call.

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