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                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549
                             -----------------
                                 FORM 10-K

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

               For the fiscal year ended September 30, 2006
                                     OR

|_| TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
    EXCHANGE ACT OF 1934

          For the transition period from _________ to ___________
                       Commission file number 1-32532

                                ASHLAND INC.

          Kentucky                                      20-0865835
(State or other jurisdiction           (I.R.S. Employer Identification No.)
    of incorporation or
       organization)

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

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

                                                   Name of each exchange
         Title of each class                        on which registered
--------------------------------------         ----------------------------
Common Stock, par value $.01 per share         New York Stock Exchange
                                                 and Chicago Stock Exchange

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

   Indicate  by  check  mark if the  Registrant  is a  well-known  seasoned
issuer, as defined in Rule 405 of the Securities Act.        Yes |X| No |_|

   Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.          Yes |_| No |X|

   Indicate by check mark whether the  Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities  Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports),  and (2) has been subject to
such filing requirements for the past 90 days.               Yes |X| No |_|

   Indicate by check mark if disclosure of  delinquent  filers  pursuant to
Item  405 of  Regulation  S-K is not  contained  herein,  and  will  not be
contained,  to the best of Registrant's  knowledge,  in definitive proxy or
information  statements  incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. |X|

   Indicate by check mark  whether the  Registrant  is a large  accelerated
filer, an accelerated filer, or a non-accelerated  filer. See definition of
"accelerated  filer  and  large  accelerated  filer"  in Rule  12b-2 of the
Exchange Act. (Check one):

Large Accelerated Filer |X| Accelerated Filer |_| Non-Accelerated Filer |_|

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

   At March 31, 2006,  the  aggregate  market value of voting stock held by
non-affiliates  of the  Registrant  was  approximately  $5,033,392,163.  In
determining this amount,  the Registrant has assumed that its directors and
executive  officers are  affiliates.  Such  assumption  shall not be deemed
conclusive for any other purpose.

   At October 31, 2006, there were 64,238,433 shares of Registrant's common
stock outstanding.

                    Documents Incorporated by Reference

   Portions  of  Registrant's   definitive   Proxy  Statement  (the  "Proxy
Statement")  for its January 25, 2007 Annual  Meeting of  Shareholders  are
incorporated  by reference into Part III of this annual report on Form 10-K
to the extent described herein.





                             TABLE OF CONTENTS



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

                      General......................................................     1

                      Corporate Developments.......................................     1

                      Ashland Performance Materials................................     2

                      Ashland Distribution.........................................     2

                      Valvoline....................................................     3

                      Ashland Water Technologies...................................     4

                      APAC.........................................................     4

                      Miscellaneous................................................     4

          Item 1A.  Risk Factors...................................................     6

          Item 1B.  Unresolved Staff Comments......................................     8

          Item 2.   Properties.....................................................     8

          Item 3.   Legal Proceedings..............................................     8

          Item 4.   Submission of Matters to a Vote of Security Holders............     9

          Item X.   Executive Officers of Ashland .................................    10

PART II
          Item 5.   Market for Registrant's Common Equity, Related Stockholder
                       Matters and Issuer Purchases of Equity Securities...........    11

          Item 6.   Selected Financial Data........................................    11

          Item 7.   Management's Discussion and Analysis of Financial
                       Condition and Results of Operations.........................    11

          Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.....    11

          Item 8.   Financial Statements and Supplementary Data....................    12

          Item 9.   Changes in and Disagreements with Accountants
                       on Accounting and Financial Disclosure......................    12

          Item 9A.  Controls and Procedures........................................    12

          Item 9B.  Other Information..............................................    12

PART III
          Item 10.  Directors and Executive Officers of the Registrant.............    12

          Item 11.  Executive Compensation.........................................    12

          Item 12.  Security Ownership of Certain Beneficial Owners
                       and Management and Related Stockholder Matters..............    13

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

          Item 14.  Principal Accountant Fees and Services.........................    13

PART IV
          Item 15.  Exhibits and Financial Statement Schedules.....................    14




                                   PART I

ITEM 1. BUSINESS
                                  GENERAL

     Ashland Inc. is a Kentucky  corporation,  with its principal executive
offices located at 50 E. RiverCenter Boulevard,  Covington,  Kentucky 41011
(Mailing Address:  50 E. RiverCenter  Boulevard,  P.O. Box 391,  Covington,
Kentucky 41012-0391) (Telephone:  (859) 815-3333). Ashland was organized in
2004 as the successor to a Kentucky  corporation of the same name organized
on October 22, 1936.  The terms  "Ashland" and the "Company" as used herein
include Ashland Inc., its predecessors  and its consolidated  subsidiaries,
except where the context indicates otherwise.

     Ashland's  businesses  consist of four wholly owned segments:  Ashland
Performance  Materials,  Ashland Distribution,  Valvoline and Ashland Water
Technologies.  Financial  information  about these  segments  for the three
fiscal years ended  September 30, 2006, is set forth on pages F-31 and F-32
of this annual report on Form 10-K.

     Ashland Performance Materials is a worldwide manufacturer and supplier
of  specialty  chemicals  and  customized  services  to  the  building  and
construction,  packaging and converting,  transportation,  marine and metal
casting industries.  It is a technology leader in metal casting consumables
and design  services;  unsaturated  polyester  and vinyl  ester  resins and
gelcoats; and high-performance adhesives and specialty resins.

     Ashland  Distribution  distributes  chemicals,  plastics and resins in
North America and plastics in Europe.  Ashland  Distribution  also provides
environmental  services.  Suppliers  include  many of the  world's  leading
chemical manufacturers. Ashland Distribution specializes in providing mixed
truckloads and less-than-truckload  quantities to customers in a wide range
of industries.

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

     Ashland Water  Technologies is a supplier of chemical and non-chemical
water  treatment   solutions  for  industrial,   municipal  and  commercial
facilities.  It provides  industrial,  commercial and  institutional  water
treatments,  wastewater  treatment,  pathogen  control,  paint and  coating
additives,  pulp and paper processing and mining chemistries.  In addition,
it also provides boiler and cooling water treatments.

     At September 30, 2006,  Ashland and its consolidated  subsidiaries had
approximately 11,700 employees (excluding contract employees).

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

                           CORPORATE DEVELOPMENTS

     Ashland's  transportation and construction operations consisted of its
wholly owned subsidiary  Ashland Paving And  Construction,  Inc.  (together
with  its  subsidiaries,  "APAC").  APAC  performed  asphalt  and  concrete
contract construction work, including highway paving and repair, excavation
and grading and bridge  construction,  and produced asphaltic and ready-mix
concrete,   crushed   stone  and  other   aggregate  in  the  southern  and
mid-continent United States. On August 28, 2006, Ashland completed the sale
of  APAC  to   Oldcastle   Materials,   Inc.   ("Oldcastle")   (the   "APAC
Transaction").  The  purchase  price  for  APAC  as  of  the  date  of  the
transaction was $1.30 billion in cash,  which is subject to adjustment upon
the final determination of certain closing balance sheet amounts.  Expected
net proceeds after taxes and fees is $1.23 billion,  also subject to change
based on the  determination of the final adjusted purchase price and income
tax effects.  For additional  information about the APAC  Transaction,  see
Note D of "Notes  to  Consolidated  Financial  Statements"  in this  annual
report on Form 10-K.

                                     1

     On June 30, 2005,  Ashland  completed the transfer of its 38% interest
in Marathon  Ashland  Petroleum  LLC ("MAP"),  a former joint  venture with
Marathon Oil Corporation ("Marathon"),  and two other Ashland businesses to
Marathon (the "MAP Transaction").  For additional information about the MAP
Transaction,  see Note E of "Notes to Consolidated Financial Statements" in
this annual report on Form 10-K.

                   ASHLAND PERFORMANCE MATERIALS

     Ashland Performance Materials is a worldwide manufacturer and supplier
of  specialty  chemicals  and  customized  services  to  the  building  and
construction,  packaging and converting,  transportation,  marine and metal
casting industries.  It is a technology leader in metal casting consumables
and design  services;  unsaturated  polyester  and vinyl  ester  resins and
gelcoats;  and  high-performance  adhesives and specialty  resins.  Ashland
Performance  Materials  owns and operates 29  manufacturing  facilities and
participates in 10  manufacturing  joint ventures in 15 countries.  Ashland
Performance  Materials'  businesses  compete  globally  in  selected  niche
markets,  largely on the basis of  technology  and  service.  The number of
competitors  in the  specialty  chemical  business  varies from  product to
product,  and it is not practical to identify such  competitors  because of
the broad range of products and markets served by those products.  However,
many  of  Ashland  Performance   Materials'   businesses  hold  proprietary
technology, and Ashland believes it has a leading or strong market position
in many of its specialty chemical products.

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

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

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

                       ASHLAND DISTRIBUTION

     Ashland Distribution distributes chemicals, plastics and composite raw
materials  in  North  America  and  plastics  in  Europe.   Deliveries  are
facilitated at locations in North America  through a network of 68 owned or
leased  facilities,  59  third-party  warehouses,  rail  terminals and tank
terminals and 13 locations that perform contract  packaging  activities for
Ashland  Distribution.  Distribution of  thermoplastic  resins in Europe is
conducted in 13 countries  primarily through 17 third-party  warehouses and
one owned  warehouse.  Each of  Ashland  Distribution's  lines of  business
(chemicals,  plastics, composites and environmental services) competes with
national,  regional  and local  companies  throughout  North  America.  The
plastics distribution business also competes in Europe.  Competition within
each  line of  business  is based  primarily  on price and  reliability  of
supply.  Ashland  Distribution  operates  in  the  following  major  market
segments:

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

                                     2

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

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

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

                                 VALVOLINE

     Valvoline is a marketer of  premium-branded  automotive and commercial
lubricants,   automotive  chemicals,  automotive  appearance  products  and
automotive   services,   with  sales  in  more  than  100  countries.   The
Valvoline(R)  trademark was federally  registered in 1873 and is the oldest
trademark for lubricating oil in the United States.  Valvoline  competes in
the highly competitive automotive lubricants and consumer products car care
businesses,  principally  through  offering  premium products and services,
coupled with a focused brand  strategy,  advertising,  sales  promotion and
superior distribution capabilities.  Some of the major brands of motor oils
and lubricants  Valvoline  competes globally with Havoline(R),  Castrol(R),
Pennzoil(R)  and  Quaker  State(R).  In the  "fast  oil  change"  business,
Valvoline  competes  with other leading  independent  fast lube chains on a
national, regional or local basis as well as automobile dealers and service
stations.  Important  competitive  factors for  Valvoline  in the "fast oil
change" market include  Valvoline's brand  recognition;  maintaining market
presence  through  Valvoline  Instant Oil Change(R)  and Valvoline  Express
Care(R)  outlets;  as  well  as  quality  of  service,   speed,   location,
convenience and sales promotion.

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

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

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

     Do It For Me ("DIFM") - The DIFM business group consists of two units,
Distribution  Sales and  Valvoline  Instant  Oil  Change(R)  ("VIOC").  The
Distribution  Sales  business unit sells  branded  products and services to
installers (such as car dealers,  general repair shops and quick lubes) and
to  auto  auctions  through  a  network  of  independent  distributors  and
company-owned and operated "direct market"  operations.  This business also
includes  distribution to quick lubes branded  "Valvoline Express Care(R),"
which consists of 401  independently  owned and operated  stores.  The DIFM
business group also has a strategic alliance with Cummins Inc.  ("Cummins")
to distribute  heavy duty  lubricants to the  commercial  market.  The VIOC
chain is one of the  largest  competitors  in the U.S.  "fast  oil  change"
service business,  providing  Valvoline with a significant  presence in the
DIFM segment of the passenger  car and light truck motor oil market.  As of
September  30, 2006,  287  company-owned  and 482  independently  owned and
operated franchise centers were operating in 39 states.  VIOC has continued
its  customer  service   innovation   through  its  upgraded  and  enhanced
preventive  maintenance  tracking system for consumers and fleet operators.
This  computer-based  system  maintains  service  records  on all  customer
vehicles and contains a database on most car models,  which allows  service
technicians   to  make   service   recommendations   based   primarily   on
manufacturer's recommendations.

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

     Valvoline  International - Valvoline  International  markets Valvoline
and  EagleOne  branded  products  through  wholly-owned  affiliates,  joint
ventures,   licensees  and  independent   distributors  in  more  than  100
countries.  The profitability of the business is dispersed  geographically,
with more than half of the profit coming from mature  markets in Europe and
Australia.  There are smaller,  rapidly growing  businesses in the emerging
markets of China,  India and Mexico,  including joint ventures

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with Cummins in India and China. Valvoline International markets lubricants
for consumer vehicles and heavy duty engines and equipment and is served by
company-owned  plants in the United States,  Australia and the  Netherlands
and by toll manufacturers.

                    ASHLAND WATER TECHNOLOGIES

     Ashland Water  Technologies is a supplier of chemical and non-chemical
water  treatment   solutions  for  industrial,   municipal  and  commercial
facilities.  It provides  industrial,  commercial and  institutional  water
treatments,  wastewater  treatment,  pathogen  control,  paint and  coating
additives,  pulp and paper processing and mining chemistries.  In addition,
it also provides  boiler and cooling  water  treatments;  fuel  treatments;
welding,  refrigerant and sealing products;  and fire-fighting,  safety and
rescue  products and services for the  merchant  marine  industry.  Ashland
Water  Technologies  owns and operates 13  manufacturing  facilities  in 12
countries  and   participates  in  four  joint   ventures.   Ashland  Water
Technologies'  diverse  spectrum  of  products  competes  globally in niche
markets.  The number of  competitors  varies  from  product to product  and
markets served.

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

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

     Environmental  and Process  Solutions - This business group was formed
in May 2006 when Ashland  acquired the water treatment  business of Degussa
A.G.  The group offers  specialty  chemicals  that provide  environmentally
friendly,  high-performance dispersion and flocculation for applications in
many industries,  including  municipal or industrial waste water treatment;
chemical;  and paper, mining and petroleum  industries.  The business group
markets under the following brands: PRAESTOL(R) flocculants,  POLYSTABIL(R)
and TALLOFIN(R)  dispersants and antiscalants,  ANTISPUMIN(R) defoamers and
PRAESTARET(R)  retention  systems.  This business  group has  manufacturing
facilities in  Greensboro,  North  Carolina;  Americana,  Brazil;  Beijing,
China; Krefeld, Germany; and Perm, Russia.

                                    APAC

     Ashland's  transportation  and  construction  operations  ceased as of
August  28,  2006,  upon  the  sale of APAC to  Oldcastle.  For  additional
information about the APAC Transaction,  including its accounting treatment
as a discontinued operation, see Note D to "Notes to Consolidated Financial
Statements" in this annual report on Form 10-K.

     Under Ashland's ownership,  the APAC group of companies was one of the
nation's  largest  transportation  construction  contractors  and  a  major
supplier of construction materials.  APAC performed construction work, such
as  paving,   repairing  and  resurfacing  highways,   streets,   airports,
residential  and  commercial  developments,  sidewalks and  driveways,  and
grading and base work. In addition,  it performed a number of services such
as  excavation  and  site  work  for the  construction  of  bridges,  other
structures,  drainage  facilities and underground  utilities for public and
private  projects.  APAC conducted its business  through 25  market-focused
business  units and a Major  Projects  Group  operating  in 14 southern and
mid-continent  states. These business units provided  construction services
and materials throughout the regions in which they operated.

     Prior to the APAC  Transaction,  approximately 76% of APAC's sales and
operating  revenues  were  construction  revenues,  with the  remaining 24%
coming from sales of construction  materials.  Approximately  83% of APAC's
construction  revenues were derived  directly from highway and other public
sector  sources,   with  the  remaining  17%  coming  from  industrial  and
commercial customers and private developers.

                               MISCELLANEOUS

ENVIRONMENTAL MATTERS

     Ashland has implemented a companywide environmental policy overseen by
the  Environmental,  Health  and Safety  Committee  of  Ashland's  Board of
Directors.  Ashland's Environmental,  Health and Safety ("EH&S") department
has the responsibility to ensure that Ashland's  operating groups worldwide
maintain  environmental  compliance in accordance  with applicable laws and
regulations.  This  responsibility is carried out via training;  widespread
communication  of  EH&S  policies;   information  and  regulatory  updates;
formulation of relevant policies, procedures and work practices; design and

                                     4


implementation  of  EH&S  management  systems;   internal  auditing  by  an
independent  auditing  group;  monitoring  of  legislative  and  regulatory
developments  that  may  affect  Ashland's  operations;  assistance  to the
operating divisions in identifying  compliance issues and opportunities for
voluntary actions that go beyond compliance; and incident response planning
and implementation.

     Federal,  state  and  local  laws  and  regulations  relating  to  the
protection  of the  environment  have a  significant  impact on how Ashland
conducts its businesses. Ashland's operations outside the United States are
subject  to the  environmental  laws of the  countries  in  which  they are
located.   These  laws  include  regulation  of  air  emissions  and  water
discharges,      waste      handling,      remediation      and     product
inventory/registration/regulation.   New  laws  are   being   enacted   and
regulations are being adopted by various regulatory agencies globally,  and
the costs of compliance  with these new rules cannot be estimated until the
manner in which they will be implemented has been more precisely defined.

     At  September   30,  2006,   Ashland's   reserves  for   environmental
remediation amounted to $199 million, reflecting Ashland's estimates of the
most  likely  costs  that  will be  incurred  over an  extended  period  to
remediate  identified   conditions  for  which  the  costs  are  reasonably
estimable,  without  regard  to  any  third-party  recoveries.  Engineering
studies,  probability  techniques,  historical experience and other factors
are used to  identify  and  evaluate  remediation  alternatives  and  their
related  costs in  determining  the  estimated  reserves for  environmental
remediation.  Environmental  remediation  reserves  are subject to numerous
inherent  uncertainties that affect Ashland's ability to estimate its share
of  the  costs.  Such  uncertainties  involve  the  nature  and  extent  of
contamination  at each site, the extent of required  cleanup  efforts under
existing  environmental  regulations,  widely  varying  costs of  alternate
cleanup methods, changes in environmental regulations, the potential effect
of continuing  improvements in remediation  technology,  and the number and
financial strength of other potentially  responsible  parties at multiparty
sites.  Although it is not possible to predict with  certainty the ultimate
costs of environmental  remediation,  Ashland currently  estimates that the
upper end of the  reasonably  possible range of future costs for identified
sites could be as high as  approximately  $310  million.  Ashland  does not
believe  that any current  individual  remediation  location is material to
Ashland,  as its largest reserve for any site is less than 10% of Ashland's
total  remediation  reserve.  Ashland  regularly  adjusts  its  reserves as
environmental  remediation  continues.  Environmental  remediation  expense
amounted  to $57  million in 2006,  compared  to $52 million in 2005 and $7
million in 2004.

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

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

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

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

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

                                     5


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

RESEARCH

     Ashland  conducts a program of research and  development to invent and
improve  products and processes and to improve  environmental  controls for
its existing  facilities.  Research and  development  costs are expensed as
they are  incurred and totaled $48 million in 2006 ($45 million in 2005 and
$43 million in 2004).

FORWARD-LOOKING STATEMENTS

     This annual  report on Form 10-K contains  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities  Exchange Act of 1934.  Words such as  "anticipates,"
"believes," "estimates," "expects," "is likely," "predicts," and variations
of such  words and  similar  expressions  are  intended  to  identify  such
forward-looking statements. Although Ashland believes that its expectations
are based on reasonable assumptions, it cannot assure that the expectations
contained in such statements will be achieved. Important factors that could
cause  actual  results to differ  materially  from those  contained in such
statements are discussed under "Use of estimates,  risks and uncertainties"
in Note A of "Notes to  Consolidated  Financial  Statements" in this annual
report on Form 10-K. For a discussion of other factors and risks  affecting
Ashland's operations,  see "Item 1A. Risk Factors" in this annual report on
Form 10-K.

ITEM 1A. RISK FACTORS

     The  following  discussion  of  "risk  factors"  identifies  the  most
significant  factors that may adversely  affect our  business,  operations,
financial position or future financial performance. This information should
be read in conjunction with Management's Discussion and Analysis (MD&A) and
the  consolidated  financial  statements and related notes  incorporated by
reference  into  this  report.  The  following  discussion  of risks is not
all-inclusive,  but is designed to highlight  what we believe are important
factors to consider when evaluating our  expectations.  These factors could
cause our future results to differ from those in forward-looking statements
and from historical trends.

SEVERAL OF  ASHLAND'S  BUSINESSES  ARE  CYCLICAL  IN NATURE,  AND  ECONOMIC
DOWNTURNS OR DECLINES IN DEMAND,  PARTICULARLY  FOR CERTAIN  DURABLE GOODS,
MAY NEGATIVELY IMPACT ITS REVENUES AND PROFITABILITY.

     The  profitability  of  Ashland is  susceptible  to  downturns  in the
economy, particularly in those segments related to durable goods, including
the housing,  construction,  automotive and marine industries. Both overall
demand for  Ashland's  products  and services  and its  profitability  will
likely  change as a direct  result  of an  economic  recession,  inflation,
changes  in  hydrocarbon  (and its  derivatives)  and other  raw  materials
prices, or changes in governmental monetary or fiscal policies.

ASHLAND MAY NOT BE ABLE TO  SUCCESSFULLY  REDEPLOY  THE PROCEEDS OF THE MAP
TRANSACTION IN A VALUE-CREATING MANNER.

     Ashland may not be able to  successfully  redeploy the MAP Transaction
proceeds in a manner that will generate value for its shareholders.  To the
extent  that the  proceeds  of the MAP  Transaction  are used for  business
acquisitions,  there is a risk that the  acquisition  will fail to  provide
expected  returns to Ashland's  shareholders.  In addition,  the process of
integrating  acquired  operations  into Ashland's  existing  operations may
result  in  unforeseen   difficulties.   Those  difficulties  might  reduce
Ashland's  profitability and delay the expected benefits of integrating any
acquisition.

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

     In 2004,  Ashland  initiated a multi-year ERP project that is expected
to be  implemented  domestically  and in most  international  locations  to
achieve increased  efficiency and effectiveness in supply chain,  financial
and  environmental,  health and safety processes.  In October 2005, Ashland
successfully  completed the  implementation of the ERP system in Canada. In
October 2006, this ERP system was successfully  implemented for Valvoline's
U.S. operations and certain corporate  functions.  While extensive planning
is underway  to support a smooth  implementation  of the ERP  system,  such
implementations   carry  substantial  risk,  including  the  potential  for
business interruption and associated adverse impacts on operating results.

                                     6


FAILURE OF ASHLAND TO SUCCESSFULLY  COMPLETE  IMPLEMENTATION  OF ITS SUPPLY
CHAIN  OPTIMIZATION  PROJECT COULD ADVERSELY  IMPACT  ASHLAND'S  RESULTS OF
OPERATIONS AND CASH FLOWS.

     Ashland has been  undergoing a major  process  initiative  designed to
optimize  its supply  chain  function.  By  integrating  the  supply  chain
function  and  creating  more  efficient,   customer  responsive  processes
including  source-to-pay,  plan-to-deliver  and order-to-cash,  Ashland can
lower costs, while increasing service levels and customer satisfaction. The
Supply  Chain  Optimization   Project  is,  in  part,  dependent  upon  the
successful  execution of the ERP project  discussed in the  preceding  risk
factor. The  implementation of the Supply Chain  Optimization  Project also
carries substantial risk, including the potential for business interruption
and associated adverse impacts on operating results.

ASHLAND MAY NOT BE ABLE TO PASS THROUGH  INCREASES  IN RAW MATERIAL  COSTS,
WHICH MAY IMPAIR ITS COMPETITIVE POSITION AND REDUCE ITS PROFITABILITY.

     Rising  and  volatile  raw  material   prices,   especially  those  of
hydrocarbon derivatives,  may negatively impact Ashland's costs. Ashland is
not always able to raise prices in response to such  increased  costs,  and
its ability to pass on the costs of such price  increases is dependent upon
market  conditions.   Therefore,  such  increases  in  costs  could  impair
Ashland's   competitive   position  in  certain   markets  and  reduce  its
profitability.

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

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

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

ASHLAND HAS INCURRED AND MAY INCUR SUBSTANTIAL  OPERATING COSTS AND CAPITAL
EXPENDITURES AS A RESULT OF ENVIRONMENTAL AND HEALTH AND SAFETY LIABILITIES
AND REQUIREMENTS, WHICH COULD REDUCE ASHLAND'S PROFITABILITY.

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

     Ashland  is   responsible   for,  and  has   financial   exposure  to,
substantially all of the environmental liabilities and other liabilities of
Ashland and its  subsidiaries.  Ashland has  investigated  and remediated a
number  of  its  current  and  former  properties.   Engineering   studies,
historical  experience  and other factors are used to identify and evaluate
remediation  alternatives  and  their  related  costs  in  determining  the
estimated reserves for environmental remediation. Environmental remediation
reserves  are  subject  to  numerous  inherent  uncertainties  that  affect
Ashland's  ability to estimate its share of the costs.  Such  uncertainties
involve the nature and extent of  contamination at each site, the extent of
required cleanup efforts under existing environmental  regulations,  widely
varying  costs of  alternate  cleanup  methods,  changes  in  environmental
regulations, the potential effect of continuing improvements in remediation
technology,  and the number and  financial  strength  of other  potentially
responsible parties at multiparty sites.

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

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

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

                                     7


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

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

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

     Ashland's  articles of  incorporation  and the laws of Kentucky impose
some  restrictions  on  mergers  and other  business  combinations  between
Ashland and any beneficial  owner of 10% or more of the voting power of its
outstanding  common stock.  The existence of these  provisions  may deprive
shareholders  of any opportunity to sell their shares at a premium over the
prevailing  market price for Ashland common stock. The potential  inability
of Ashland  shareholders to obtain a control premium could adversely affect
the market price for its common stock.

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

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

ITEM 3. LEGAL PROCEEDINGS

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

     The  majority  of  lawsuits  filed  involve  multiple  plaintiffs  and
multiple defendants,  with the number of defendants in many cases exceeding
100. The monetary  damages sought in the  asbestos-related  complaints that
have  been  filed  in  state  or  federal   courts  vary  as  a  result  of
jurisdictional  requirements  and  practices,  though the vast  majority of
these  complaints  either do not specify  monetary damages sought or merely
recite  that the  monetary  damages  sought  meet or  exceed  the  required
jurisdictional  minimum in which the complaint was filed.  Plaintiffs  have
asserted  specific  dollar  claims for damages in  approximately  5% of the
49,800  active  lawsuits  pending as of September 30, 2006. In these active
lawsuits,  approximately 0.4% of the active lawsuits involve claims between
$0 and $100,000;  approximately  1.6% of the active lawsuits involve claims
between  $100,000  and $1  million;  less  than 1% of the  active  lawsuits
involve  claims  between $1 million and $5  million;  less than 0.2% of the
active  lawsuits  involve claims  between $5 million and $10 million;  less
than 2% of the active  lawsuits  involve claims between $10 million and $15
million;  and less than .02% of the active lawsuits  involve claims between
$15 million and $100 million. The variability of requested damages, coupled
with the actual  experience  of resolving  claims over an extended  period,
demonstrates that damages requested in any particular  lawsuit or complaint
bear  little  or no  relevance  to the  merits  or  disposition  value of a
particular case. Rather,  the amount potentially  recoverable by a specific
plaintiff or group of  plaintiffs  is  determined  by other factors such as
product  identification  or lack  thereof,  the  type and  severity  of the
disease alleged, the number and culpability of other defendants, the impact
of bankruptcies of other

                                     8


companies that are co-defendants in claims,  specific defenses available to
certain  defendants,  other  potential  causative  factors and the specific
jurisdiction in which the claim is made.

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

     Foundry Class Action - In response to an  investigation  by the United
States  Department  of Justice that was closed in 2006 without  criminal or
civil allegations being made by the government, several foundry owners have
filed  lawsuits  seeking  class  action  status for classes of customers of
foundry  resins  manufacturers  such as  Ashland.  These  cases  have  been
consolidated  for pretrial  purposes in the United States  District  Court,
Southern  District of Ohio.  Ashland  will  vigorously  defend  these civil
actions.

     Environmental   Proceedings   -  Under   the   federal   Comprehensive
Environmental  Response  Compensation  and  Liability  Act (as amended) and
similar state laws,  Ashland may be subject to joint and several  liability
for  clean-up  costs in  connection  with  alleged  releases  of  hazardous
substances  at  sites  where  it  has  been  identified  as a  "potentially
responsible  party"  ("PRP").  As of September  30, 2006,  Ashland had been
named a PRP at 72 waste  treatment  or  disposal  sites.  These  sites  are
currently  subject  to  ongoing   investigation  and  remedial  activities,
overseen by the United States Environmental  Protection Agency ("USEPA") or
a state agency, in which Ashland is typically  participating as a member of
a PRP group.  Generally,  the type of relief sought includes remediation of
contaminated soil and/or groundwater,  reimbursement for past costs of site
clean-up  and  administrative  oversight  and/or  long-term  monitoring  of
environmental   conditions  at  the  sites.  The  ultimate  costs  are  not
predictable with assurance.

     For  additional   information  regarding   environmental  matters  and
reserves,  see  "Management's  Discussion  and  Analysis -  Application  of
Critical  Accounting  Policies - Environmental  remediation"  and Note P of
"Notes to Consolidated  Financial Statements" in this annual report on Form
10-K.

     Securities  and  Exchange  Commission  ("Commission")  Settlement - On
October 10, 2006,  Ashland  entered into a settlement of an  administrative
proceeding  with  the   Commission,   concluding  an   investigation   into
adjustments that reduced Ashland's  environmental  remediation reserves for
certain  sites for the fiscal  years 1999 and 2000.  These  adjustments  to
environmental  reserves  totaled $12.2 million in 1999 and $12.6 million in
2000.  Pursuant to the  settlement,  Ashland  agreed as part of a cease and
desist order,  without  admitting or denying any liability,  not to violate
certain  provisions  of the federal  securities  laws and to  establish  or
continue   various   policies  and   procedures  in  connection   with  the
determination of its environmental  reserves.  The settlement is subject to
approval by the Commission.

     MTBE  Litigation  - Ashland  is a  defendant  along  with  many  other
companies in  approximately 30 cases alleging methyl  tertiary-butyl  ether
("MTBE")  contamination  in  groundwater.  All of  these  cases  have  been
consolidated in a multi-district litigation in the Southern District of New
York for  preliminary  proceedings.  The  plaintiffs  generally  are  water
providers  or  governmental  authorities  and they  allege  that  refiners,
manufacturers  and  sellers  of  gasoline  containing  MTBE are  liable for
manufacturing  a defective  product and that owners and operators of retail
gasoline  sites have allowed MTBE to be  discharged  into the  groundwater.
Ashland's potential liability relates to gasoline containing MTBE allegedly
produced and sold by Ashland,  or one or more of its  subsidiaries,  in the
period  prior  to the  formation  of the  Marathon  Ashland  Petroleum  LLC
("MAP").  Ashland only  distributed  MTBE or gasoline  containing MTBE in a
limited  number of states  and has been  dismissed  in a number of cases in
which it was  established  that  Ashland  did not market  MTBE or  gasoline
containing  MTBE in the state or region at issue.  Many MTBE  cases  allege
class action  status and seek  punitive  damages or treble  damages under a
variety of statutes and theories.  The potential  impact of these cases and
any future similar cases is uncertain. Ashland will vigorously defend these
actions.

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

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

     No matters were submitted to a vote of security  holders,  through the
solicitation  of proxies or otherwise,  during the quarter ended  September
30, 2006.

                                     9


ITEM X. EXECUTIVE OFFICERS OF ASHLAND

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

     JAMES J.  O'BRIEN (age 52) is Chairman of the Board,  Chief  Executive
Officer and Director of Ashland,  and has served in such  capacities  since
2002.  During the past five years,  he has also served as President,  Chief
Operating  Officer,  Senior Vice President and Group  Operating  Officer of
Ashland, and as President of Valvoline.

     DAVID L.  HAUSRATH  (age 54) is  Senior  Vice  President  and  General
Counsel   and  has  served  in  such   capacities   since  2004  and  1999,
respectively.  During the past five years,  he has also served as Secretary
and Vice President of Ashland.

     J. MARVIN QUIN (age 59) is Senior Vice  President and Chief  Financial
Officer of Ashland and has served in such capacities since 1992.

     GARY A  CAPPELINE*  (age 57) was Senior Vice  President of Ashland and
served in such capacity  from February 2004 until October 2006.  During the
past five  years,  he has also  served  as  President  and Chief  Operating
Officer,  Chemical  Sector,  Group Operating  Officer and Vice President of
Ashland; President of Ashland Specialty Chemical Company; and as a chemical
industry  partner at Bear Stearns Merchant Bank. Mr. Cappeline ceased to be
an executive officer of Ashland effective October 9, 2006.

     LAMAR M. CHAMBERS (age 51) is Vice President and Controller of Ashland
and has served in such capacities  since 2004.  During the past five years,
he has also served as Senior Vice President - Finance &  Administration  of
APAC.

     SUSAN  B.  ESLER  (age 45) is Vice  President  - Human  Resources  and
Communications  of Ashland and has served in such  capacity  since  October
2006.  During the past five years,  she has also served as Vice President -
Human Resources, and Director of Corporate Human Resources of Ashland.

     THEODORE L. HARRIS (age 41) is Vice President of Ashland and President
of Ashland  Distribution  and has served in such  capacities  since October
2006.  During the past five years, he has also served as Vice President and
General  Manager  of the  Composite  Polymers  Division,  and as a  general
manager, food ingredients division for FMC Corporation.

     SAMUEL J.  MITCHELL,  JR.  (age 45) is Vice  President  of Ashland and
President  of Ashland  Consumer  Markets and has served in such  capacities
since 2002.  During the past five years, he has also served as President of
Valvoline  and Vice  President  and  General  Manager of  Valvoline  Retail
Business.

     R. KIRK RANDOLPH* (age 43) was Vice President of Ashland and President
of APAC,  and served in such  capacities  from  September 2005 until August
2006.  During the past five years,  he has also served as Vice  President -
Design/Build,  Vice  President of  Operations  Support,  and Regional  Vice
President of APAC. Mr. Randolph  resigned from Ashland effective August 28,
2006, as a result of the APAC Transaction.

     PETER H.  RIJNEVELDSHOEK  (age 54) is Vice  President  of Ashland  and
President of Ashland Europe and has served in such capacities since October
2006.  During  the past five  years,  he has also  served  as  Senior  Vice
President,   Performance   Materials  (formerly  Thermoset  Resins),   Vice
President Europe, Asia and Africa, Drew Industrial  Division,  and Director
European Shared Business Services.

     MICHAEL J. SHANNON (age 46) is Vice President of Ashland and President
of Ashland  Global  Supply  Chain and has served in such  capacities  since
January and October 2006, respectively.  During the past five years, he has
also served as Executive Vice President,  Global Supply Chain,  Senior Vice
President,  Performance  Materials  (formerly  Thermoset  Resins)  and Vice
President  and  General  Manager  of the  Petrochemical  Division  and  the
Engineering Department.

     WALTER H. SOLOMON (age 46) is Vice  President and Chief Growth Officer
of Ashland and has served in such  capacities  since 2005.  During the past
five  years,  he has also  served  as Senior  Vice  President  and  General
Manager, Retail Business of Valvoline, and as President and Chief Executive
Officer of Connectmail, Ltd.

     FRANK L. WATERS (age 45) is Vice President of Ashland and President of
Ashland Water Technologies and Ashland Performance Materials and has served
in such capacities  since 2002 and October 2006,  respectively.  During the
past five years,  he has also served as President  of Ashland  Distribution
and Vice President and General Manager of Ashland Plastics - Europe.

     *Messrs.  Cappeline  and Randolph were  executive  officers of Ashland
during the fiscal  year ended  September  30,  2006;  however,  they are no
longer serving as executive officers of Ashland.

     Each executive officer is elected by the Board of Directors of Ashland
to a term of one year, or until a successor is duly elected,  at the annual
meeting  of the Board of  Directors,  except in those  instances  where the
officer  is  elected  other  than at an

                                     10


annual  meeting of the Board of Directors,  in which case his or her tenure
will expire at the next annual meeting of the Board of Directors unless the
officer is re-elected.


                                  PART II

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

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

     See  Quarterly  Financial  Information  on page  F-33 for  information
relating to market price and dividends of Ashland's Common Stock.

     At November  20,  2006,  there were  approximately  14,400  holders of
record of Ashland's Common Stock. Ashland Common Stock is listed on the New
York and  Chicago  stock  exchanges  (ticker  symbol  ASH) and has  trading
privileges on the Boston,  National  (formerly  Cincinnati Stock Exchange),
Pacific and Philadelphia stock exchanges.

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

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

                 Issuer Purchases of Equity Securities (1)



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

                                                                                    
July 1 - July 31                              0              0                      0             $209,068,589
August 1 - August 31                  1,190,200         $63.18              1,190,200             $133,866,021
September 1 - September 30            3,078,700         $62.52              3,078,700           6,069,800 shares
                                      ---------         ------              ---------           ----------------
     Total                            4,268,900         $62.70              4,268,900           6,069,800 shares
                                      =========         ======              =========           ================


(1) During the quarter ended September 30, 2006, Ashland repurchased shares
    of Ashland Common Stock (the "Shares")  pursuant to publicly  announced
    programs. Prior to September 14, 2006, Shares were repurchased pursuant
    to a stock repurchase program originally announced on July 21, 2005, in
    an amount of $270 million.  After  repurchasing  $196 million in Shares
    under the  original  authorization,  Ashland  announced  on January 25,
    2006, that the  authorization  had been increased by an additional $176
    million,  to a total of $250 million at that time.  As of September 14,
    2006,  Ashland  had  completed  all  repurchases  to be made under that
    program.

    On September 14, 2006,  Ashland  announced a new program under which it
    is  authorized  to  repurchase  a total  of 7  million  Shares.  Shares
    repurchased  by Ashland  between  September 15 and  September 30, 2006,
    were made pursuant to this new program.

ITEM 6. SELECTED FINANCIAL DATA

     See Five-Year Selected Financial Information on page F-34.

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

     See  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations on pages M-1 through M-11.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     See Quantitative and Qualitative Disclosures about Market Risk on page
M-12.

                                     11


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     Disclosure  Controls  and  Procedures  - As  of  September  30,  2006,
Ashland,  under the  supervision  and with the  participation  of Ashland's
management, including Ashland's Chief Executive Officer and Chief Financial
Officer,  evaluated the effectiveness of Ashland's  disclosure controls and
procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e).  Based
upon that  evaluation,  the Chief  Executive  Officer  and Chief  Financial
Officer  concluded  that  the  disclosure   controls  and  procedures  were
effective as of September 30, 2006.

     Internal  Control - See  Management's  Report on Internal Control Over
Financial Reporting on page F-2 and Report of Independent Registered Public
Accounting Firm on page F-3.

     Changes in Internal Control Over Financial  Reporting - There has been
no change in Ashland's internal control over financial reporting during the
quarter  ended  September 30, 2006,  that has  materially  affected,  or is
reasonably  likely to materially  affect,  Ashland's  internal control over
financial reporting.

ITEM 9B. OTHER INFORMATION

     None.


                                  PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     There is hereby  incorporated  by reference the  information to appear
under the captions  "Election of Directors"  and  "Miscellaneous  - Section
16(a) Beneficial  Ownership Reporting  Compliance" in Ashland's  definitive
Proxy  Statement,  which  will be filed  with the SEC within 120 days after
September 30, 2006. See also the list of Ashland's  executive  officers and
related  information under "Executive Officers of Ashland" in Part I - Item
X in this annual report on Form 10-K.

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

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

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

ITEM 11. EXECUTIVE COMPENSATION

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

                                     12


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

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

     The following  table  summarizes the equity  compensation  plans under
which Ashland  Common Stock may be issued as of September 30, 2006.  Except
as disclosed  in the  narrative  to the table,  all plans were  approved by
shareholders of Ashland.




                                             Equity Compensation Plans

                                                              Equity Compensation Plan Information
                                         ----------------------------------------------------------------------------
                                                                                               Number of securities
                                          Number of securities                                remaining available for
                                            to be issued upon         Weighted-average        future issuance under
                                                exercise             exercise price of      equity compensation plans
                                         of outstanding options,    outstanding options,      (excluding securities
Plan Category                              warrants and rights      warrants and rights      reflected in column (a))
-------------------------------------    -----------------------    --------------------    -------------------------
                                                   (a)                       (b)                         (c)
                                                                                           
Equity compensation plans approved by
     security holders......................     2,600,732                  $41.56                   4,761,679 (2)
Equity compensation plans
     not approved by security holders......           909 (1)              $39.58                   1,000,000 (3)
                                                ---------                  ------                   ---------
             Total.........................     2,601,641                  $41.56                   5,761,679
                                                =========                  ======                   =========


(1) The Ashland Inc.  Stock Option Plan for Employees of Joint Ventures was
    not  approved  by  Ashland's  shareholders.  This plan was  approved by
    Ashland's   Board  of  Directors  on  September   17,  1998,   and  was
    specifically  designed to grant stock options  and/or SARs to employees
    of joint ventures in which Ashland has an interest. There are currently
    no shares  reserved for future  issuance  under this plan. The Board of
    Directors  authorized  the issuance of the shares at the time the stock
    options were granted.  The stock options listed in the table above were
    granted to certain MAP  employees.  All stock  options and SARs granted
    under this plan expired on November 19, 2005, except for grants made to
    employees who have been reemployed by Ashland.

(2) Includes 3,992,500 shares available for issuance under the 2006 Ashland
    Inc.  Incentive Plan,  403,229 shares  available for issuance under the
    Deferred Compensation Plan for Employees,  and 365,950 shares available
    for issuance  under the  Deferred  Compensation  Plan for  Non-Employee
    Directors.

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

                                     13

                                  PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (A) DOCUMENTS FILED AS PART OF THIS REPORT

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

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

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

     (B) DOCUMENTS REQUIRED BY ITEM 601 OF REGULATION S-K

         3.1    - Third  Restated  Articles  of  Incorporation  of  Ashland
                  effective   May  17,  2006  (filed  as  Exhibit  3(i)  to
                  Ashland's  Form 10-Q for the quarter ended June 30, 2006,
                  and incorporated herein by reference).

         3.2    - By-laws of Ashland,  effective as of June 30, 2005 (filed
                  as Exhibit  3(ii) to Ashland's  Form 10-Q for the quarter
                  ended  June  30,  2005,   and   incorporated   herein  by
                  reference).

         4.1    - Ashland  agrees to provide the SEC, upon request,  copies
                  of   instruments   defining  the  rights  of  holders  of
                  long-term debt of Ashland and all of its subsidiaries for
                  which consolidated or unconsolidated financial statements
                  are required to be filed with the SEC.

         4.2    - Indenture,  dated as of August 15,  1989,  as amended and
                  restated  as of August  15,  1990,  between  Ashland  and
                  Citibank,  N.A.,  as  Trustee  (filed as  Exhibit  4.2 to
                  Ashland's  annual report on Form 10-K for the fiscal year
                  ended  September  30, 2001,  and  incorporated  herein by
                  reference).

     The   following   Exhibits   10.1  through   10.20  are  contracts  or
compensatory  plans or arrangements or management  contracts required to be
filed   as    exhibits    pursuant   to   Items    601(b)(10)(ii)(A)    and
601(b)(10)(iii)(A) and (B) of Regulation S-K.

         10.1   - Ashland Inc. Deferred  Compensation Plan for Non-Employee
                  Directors  (filed as Exhibit 10.5 to Ashland's  Form 10-Q
                  for the quarter ended December 31, 2004, and incorporated
                  herein by reference).

         10.2   - Ashland Inc. Deferred Compensation Plan (filed as Exhibit
                  10.3  to  Ashland's  Form  10-Q  for  the  quarter  ended
                  December 31, 2004, and incorporated herein by reference).

         10.3   - Ashland Inc.  Deferred  Compensation  Plan for  Employees
                  (2005)  (filed as Exhibit 10 to  Ashland's  Form 10-Q for
                  the quarter ended March 31, 2005, and incorporated herein
                  by reference).

         10.4   - Amendment  No. 1 to Ashland  Inc.  Deferred  Compensation
                  Plan for  Employees  (2005)  (filed  as  Exhibit  10.4 to
                  Ashland's  annual  report  on Form 10-K for  fiscal  year
                  ended  September  30, 2005,  and  incorporated  herein by
                  reference).

         10.5   - Ashland Inc. Deferred  Compensation Plan for Non-Employee
                  Directors (2005) (filed as Exhibit 10.6 to Ashland's Form
                  10-Q  for  the  quarter  ended  December  31,  2004,  and
                  incorporated herein by reference).

         10.6   - Eleventh Amended and Restated  Ashland Inc.  Supplemental
                  Early  Retirement  Plan for Certain  Employees  (filed as
                  Exhibit 10.2 to Ashland's Form 10-Q for the quarter ended
                  December 31, 2004, and incorporated herein by reference).

         10.7   - Amendment No. 1 to Eleventh  Amended and Restated Ashland
                  Inc.  Supplemental  Early  Retirement  Plan  for  Certain
                  Employees  (filed as  Exhibit  10.7 to  Ashland's  annual
                  report on Form 10-K for fiscal year ended  September  30,
                  2005, and incorporated herein by reference).

         10.8   - Ashland Inc. Salary  Continuation  Plan (filed as Exhibit
                  10.5 to  Ashland's  annual  report  on Form  10-K for the
                  fiscal year ended  September 30, 2002,  and  incorporated
                  herein by reference).

         10.9   -  Form  of  Ashland  Inc.  Executive  Employment  Contract
                  between  Ashland Inc. and certain  executives  of Ashland
                  (filed as  Exhibit  10.1 to  Ashland's  Form 8-K filed on
                  September   25,   2006,   and   incorporated   herein  by
                  reference).

         10.10  - Form of  Indemnification  Agreement  between Ashland Inc.
                  and members of its Board of  Directors  (filed as Exhibit
                  10.10 to Ashland's  annual report on Form 10-K for fiscal
                  year ended September 30, 2005, and incorporated herein by
                  reference).

         10.11  - Ashland Inc.  Nonqualified  Excess Benefit Pension Plan -
                  2003 Restatement (filed as Exhibit 10.1 to Ashland's Form
                  10-Q  for  the  quarter  ended  December  31,  2004,  and
                  incorporated herein by reference).

                                     14


         10.12  - Ashland Inc.  Directors'  Charitable Award Program (filed
                  as Exhibit 10.11 to Ashland's  annual report on Form 10-K
                  for  the  fiscal  year  ended  September  30,  2002,  and
                  incorporated herein by reference).

         10.13  - Ashland Inc. 1993 Stock  Incentive Plan (filed as Exhibit
                  10.11 to  Ashland's  annual  report  on Form 10-K for the
                  fiscal year ended  September 30, 2000,  and  incorporated
                  herein by reference).

         10.14  - Ashland Inc. 1997 Stock Incentive  Plan (filed as Exhibit
                  10.14 to  Ashland's  annual  report  on Form 10-K for the
                  fiscal year ended  September 30, 2002,  and  incorporated
                  herein by reference).

         10.15  - Amended  and Restated Ashland Inc. Incentive Plan  (filed
                  as Exhibit  10.1 to  Ashland's  Form 10-Q for the quarter
                  ended  June  30,  2004,   and   incorporated   herein  by
                  reference).

         10.16  - 2006 Ashland Inc.  Incentive Plan (filed as Exhibit 10 to
                  Ashland's  Form 10-Q for the quarter  ended  December 31,
                  2005, and incorporated herein by reference).

         10.17  - Forms  of  Notice  granting  Stock  Appreciation  Rights
                  Awards.

         10.18  - Form of Notice granting Restricted Stock Awards.

         10.19  - Form of Notice granting Nonqualified Stock Option Awards.

         10.20  -  Letter  Agreement  between  Ashland  Inc.  and  Gary  A.
                  Cappeline regarding severance.

         10.21  - Five-Year,  $350 Million Revolving Credit Agreement dated
                  as of March 21, 2005 (filed as Exhibit  10.1 to Ashland's
                  Form 8-K filed on March 24, 2005, and incorporated herein
                  by reference).

         10.22* - Master   Agreement  dated  as  of  March  18,  2004,  and
                  Amendment No. 1 dated as of April 27, 2005, among Ashland
                  Inc., ATB Holdings Inc., EXM LLC, New EXM Inc.,  Marathon
                  Oil Corporation,  Marathon Oil Company, Marathon Domestic
                  LLC and Marathon Ashland  Petroleum LLC (filed as Exhibit
                  2.1 to Ashland's Form S-4/A dated and filed May 19, 2005,
                  and incorporated herein by reference).

         10.23* - Amended and  Restated Tax Matters  Agreement  dated April
                  27, 2005, among Ashland Inc., ATB Holdings Inc., EXM LLC,
                  New EXM Inc.,  Marathon  Oil  Corporation,  Marathon  Oil
                  Company,  Marathon  Domestic  LLC  and  Marathon  Ashland
                  Petroleum  LLC (filed as Annex B to Ashland's  Form S-4/A
                  dated and filed May 19, 2005, and incorporated  herein by
                  reference).

         10.24* - Amendment No. 2 dated as of March 18, 2004, and Amendment
                  No. 3 dated as of April  27,  2005,  to the  Amended  and
                  Restated Limited  Liability Company Agreement dated as of
                  December 31, 1998, of Marathon Ashland  Petroleum LLC, by
                  and between  Ashland Inc. and Marathon Oil Company (filed
                  as Annex E to  Ashland's  Form S-4/A  dated and filed May
                  19, 2005, and incorporated herein by reference).

         10.25  - Stock   Purchase   Agreement  between  Ashland  Inc.  and
                  Oldcastle  Materials,  Inc., dated August 19, 2006 (filed
                  as Exhibit 10.1 to Ashland's Form 8-K filed on August 28,
                  2006, and incorporated herein by reference).

         10.26  - Amended and Restated  Stock Trading Plan between  Ashland
                  Inc.  and  Credit  Suisse   Securities  (USA)  LLC, dated
                  September 20, 2006.

         11     - Computation of Earnings Per Share (appearing on page F-12
                  of this annual report on Form 10-K).

         12     - Computation of Ratio of Earnings to Fixed Charges.

         21     - List of Subsidiaries.

         23.1   - Consent of Independent Registered Public Accounting Firm.

         23.2   - Consent of Hamilton, Rabinovitz & Alschuler, Inc.

         24     - Power of Attorney,  including resolutions of the Board of
                  Directors.

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

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

         32     - Certification   of  James  J.  O'Brien,  Chief  Executive
                  Officer of Ashland,  and J. Marvin Quin,  Chief Financial
                  Officer  of  Ashland,  pursuant  to  Section  906  of the
                  Sarbanes-Oxley Act of 2002.

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

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

                                     15



                                 SIGNATURES

     Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  the  Registrant  has duly  caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                              ASHLAND INC.
                              (Registrant)
                              By:
                              /s/ J. Marvin Quin
                              -------------------------------------------------
                              J. Marvin Quin
                              Senior Vice President and Chief Financial Officer
                              Date:  November 28, 2006

     Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant,  in the capacities indicated,  on November 28, 2006.

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

/s/ James J. O'Brien         Chairman of the Board, Chief Executive Officer
-----------------------      and Director
James J. O'Brien

/s/ J. Marvin Quin           Senior Vice President and Chief Financial Officer
-----------------------
 J. Marvin Quin

/s/ Lamar M. Chambers        Vice President and Controller
-----------------------
Lamar M. Chambers

           *                 Director
-----------------------
Ernest H. Drew

           *                 Director
-----------------------
Roger W. Hale

           *                 Director
-----------------------
Bernadine P. Healy

           *                 Director
-----------------------
Mannie L. Jackson

           *                 Director
-----------------------
Kathleen Ligocki

           *                 Director
-----------------------
Patrick F. Noonan

           *                 Director
-----------------------
George A. Schaefer, Jr.

           *                 Director
-----------------------
Theodore M. Solso

           *                 Director
-----------------------
Michael J. Ward


*By:     /s/ David L. Hausrath
         -----------------------------------
         David L. Hausrath
         Attorney-in-Fact

Date:    November 28, 2006

                                    16


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

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




(In millions)                                                   2006         2005         2004
-----------------------------------------------------------------------------------------------
                                                                            
SALES AND OPERATING REVENUES
Performance Materials (a)                                  $   1,425    $   1,369    $   1,026
Distribution                                                   4,070        3,810        3,199
Valvoline                                                      1,409        1,326        1,297
Water Technologies (a)                                           502          394          360
Intersegment sales                                              (173)        (168)        (106)
                                                           ----------   ----------   ----------
                                                           $   7,233    $   6,731    $   5,776
                                                           ==========   ==========   ==========
OPERATING INCOME
Performance Materials (a)                                  $     112    $      88    $      42
Distribution                                                     120           99           56
Valvoline                                                        (21)          59           77
Water Technologies (a)                                            14           11           14
Refining and Marketing (b)                                         -          486          383
Unallocated and other (c)                                        (55)         (72)         (47)
                                                           ----------   ----------   ----------
                                                           $     170    $     671    $     525
                                                           ==========   ==========   ==========
OPERATING INFORMATION
Performance Materials (d)
   Sales per shipping day                                  $     5.7    $     5.4    $     4.0
   Pounds sold per shipping day                                  4.9          5.4          5.1
   Gross profit as a percent of sales                           22.5%        20.4%        20.4%
Distribution (d)
   Sales per shipping day                                  $    16.2    $    15.1    $    12.6
   Pounds sold per shipping day                                 18.9         19.2         19.4
   Gross profit as a percent of sales                            9.5%         9.7%         9.6%
Valvoline (d)
   Lubricant sales gallons                                     168.7        175.4        191.6
   Premium lubricants (percent of U.S. branded volumes)         23.1%        23.4%        21.5%
   Gross profit as a percent of sales                           19.9%        26.6%        28.2%
Water Technologies (d)
   Sales per shipping day                                  $     2.0    $     1.6    $     1.4
   Gross profit as a percent of sales                           43.7%        47.8%        49.3%

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


(a) In the June 2006 quarter,  Ashland redefined its reporting  segments as
    it continues to evolve into a diversified chemical company. Performance
    Materials and Water  Technologies  were formerly combined under Ashland
    Specialty  Chemical.  Prior periods have been  conformed to the current
    period presentation.
(b) Includes  Ashland's equity income from Marathon  Ashland  Petroleum LLC
    (MAP) through June 30, 2005,  amortization  related to Ashland's excess
    investment in MAP, and other  activities  associated  with refining and
    marketing.
(c) Includes corporate costs previously allocated to APAC of $41 million in
    2006, $45 million in 2005 and $42 million in 2004.
(d) Sales are  defined as sales and  operating  revenues.  Gross  profit is
    defined  as sales  and  operating  revenues,  less  cost of  sales  and
    operating expenses.

                                    M-1


RESULTS OF OPERATIONS

     Ashland's net income amounted to $407 million in 2006,  $2,004 million
in 2005 and  $378  million  in  2004.  Income  from  continuing  operations
amounted to $183 million in 2006,  $1,958  million in 2005 and $311 million
in 2004.  Results for 2005  included a net gain of $1,531  million from the
MAP  Transaction  and a related loss on the early  retirement  of debt,  as
described  in  Note  E  of  Notes  to  Consolidated  Financial  Statements.
Ashland's results from discontinued  operations  included an after-tax gain
on the sale of APAC of $110  million in 2006,  net income from APAC of $115
million in 2006, $47 million in 2005 and $87 million in 2004, and after-tax
charges associated with estimated future asbestos liabilities less probable
insurance  recoveries  of $1  million  in 2006,  $1 million in 2005 and $18
million in 2004.

     Ashland's  operating  income  amounted to $170  million in 2006,  $671
million in 2005 and $525  million  in 2004.  Included  in these  amounts is
Refining and  Marketing  operating  income of $486 million in 2005 and $383
million in 2004. The 2005 results reflect nine months of equity income from
Ashland's 38% ownership interest in MAP through June 30, 2005, when Ashland
transferred  its  interest in MAP to Marathon  (as  described  in Note E of
Notes to  Consolidated  Financial  Statements),  while 2004 includes a full
year of equity income from MAP. An analysis of operating income by industry
segment follows.

     During 2006,  Ashland redefined its reporting segments as it continues
to  evolve  into  a  diversified,   global  chemical  company.  Performance
Materials and Water Technologies, formerly combined under Ashland Specialty
Chemical,  have now been separately  disclosed since these businesses serve
different markets and recent  acquisitions  have made Water  Technologies a
much larger and more distinct part of Ashland.

     Segment operating  results reflect new methodology  adopted in October
2005 for  allocating  substantially  all  corporate  expenses to  Ashland's
operating  businesses,  with the exception of certain legacy costs or items
clearly not associated with the operating  divisions.  Additional corporate
expenses  allocated to Ashland's four remaining  operating  divisions under
this new  methodology  amounted to $70 million in 2006, $89 million in 2005
and $81 million in 2004.  However,  the sale of APAC in August 2006 and the
reclassification of APAC's results as discontinued operations impacted this
methodology  change.   Under  generally  accepted  accounting   principles,
allocations  of  general  corporate   overhead  may  not  be  allocated  to
discontinued operations for financial statement presentation.  As a result,
the  "Unallocated  and  other"  component  of  operating  income  primarily
represents  corporate  overhead  previously  allocated to APAC. Results for
prior  periods  have been  reclassified  to conform  to the new  allocation
methodology.

PERFORMANCE MATERIALS

     Performance Materials reported record operating income of $112 million
for 2006,  a 27%  increase  compared  to $88  million  for 2005.  Sales and
operating  revenues  increased  4%, from $1,369  million for 2005 to $1,425
million for 2006,  reflecting  increased  prices.  The gross profit  margin
increased to 22.5% from 20.4% in 2005,  resulting in a $56 million increase
in operating income.  Pounds per shipping day decreased 9% from 5.4 million
pounds for 2005 to 4.9 million pounds for 2006, resulting in an $18 million
decline in operating income. When these volumes are adjusted for the maleic
anhydride  business  transferred to Marathon as part of the MAP Transaction
in 2005 the volumes  decreased  2%.  Selling,  general  and  administrative
(SG&A)  expenses  increased $4 million in the 2006 period,  reflecting a $3
million  increase in  environmental  remediation  expenses,  while the 2005
period included $11 million in gains from the sale of an idle plant and the
termination of a product supply contract.

     Performance  Materials  reported  operating  income of $88 million for
2005,  a 110%  improvement  compared  to $42  million  for 2004.  Sales and
operating  revenues  increased  33%, from $1,026 million for 2004 to $1,369
million for 2005,  reflecting  increased prices and increased  volumes from
the December 2004 acquisition of the DERAKANE(R) resins business. The gross
profit margin was unchanged at 20.4%,  resulting in a $48 million  increase
in  operating  income on the  increased  sales.  Pounds  per  shipping  day
increased  6% from 5.1 million  pounds for 2004 to 5.4  million  pounds for
2005,  resulting  in a $16  million  increase  in  operating  income.  SG&A
expenses  increased  $27  million  in  the  2005  period,   reflecting  the
DERAKANE(R)   acquisition  and  a  $3  million  increase  in  environmental
remediation expenses. In addition,  the 2005 period included $11 million in
gains  from the sale of an idle  plant  and the  termination  of a  product
supply  contract,  while the 2004 period  included a $6 million gain on the
sale of some idle land.

DISTRIBUTION

     Distribution  reported  record  operating  income of $120  million for
2006, a 21% increase  compared to $99 million for 2005. Sales and operating
revenues were a record $4,070  million for 2006, a 7% increase  compared to
$3,810 million for 2005.  Gross profit as a percent of sales decreased from
9.7% for 2005 to 9.5% for 2006,  but  increased on a cents per pound basis,
resulting  in a $24  million  increase  in  operating  income.  Pounds  per
shipping day  declined 2% from 19.2 million  pounds in 2006 to 18.9 million
pounds in 2005, reducing operating income by $7 million. A disciplined cost
structure  resulted in a decline in SG&A expenses of $7 million,  despite a
$4 million increase in environmental remediation expenses.

                                    M-2


     Distribution  reported operating income of $99 million for 2005, a 77%
improvement  compared to $56 million for 2004. Sales and operating revenues
increased  19% from  $3,199  million  in 2004 to  $3,810  million  in 2005,
reflecting increased selling prices, as pounds per shipping day declined 1%
due to the  disposition  of the  ingestibles  business.  Adjusting  for the
ingestibles disposition, pounds per shipping day increased 1%. Gross profit
as a percent of sales increased slightly, from 9.6% to 9.7%,  demonstrating
the  division's  success in passing  through  rising raw material costs and
aggressively managing expenses.  The slight margin increase on higher sales
dollars  resulted in a $64  million  increase  in gross  profit,  partially
offset  by a $4  million  decline  due  to  lower  volumes.  SG&A  expenses
increased  $15 million,  including a $5 million  increase in  environmental
remediation expenses.

VALVOLINE

     Valvoline reported an operating loss of $21 million for 2006, compared
to  operating  income  of $59  million  for  2005.  The  decline  primarily
reflected  rapidly  rising raw material costs which eroded the gross profit
margin as it decreased from 26.6% in 2005 to 19.9% in 2006,  resulting in a
$57  million  decline  in  operating  income.  The lower  margin  reflected
increases in material costs, which were not fully offset by price increases
in the marketplace. Lubricant sales volumes declined 4%, from 175.4 million
gallons  in 2005 to  168.7  million  gallons  in  2006,  reflecting  a weak
consumer market. The net impact of volume fluctuations in all product lines
resulted in an $11 million decrease in operating  income.  Also included in
2006  results  was an  impairment  charge of $4 million  related to certain
Valvoline  Instant Oil Change  (VIOC)  locations.  International  operating
income  declined  40%  primarily  due to higher raw  material  costs.  SG&A
expenses  increased  $10 million  compared  to the prior  year,  reflecting
higher costs related to GlobalOne, litigation issues and severance.

     Valvoline reported operating income of $59 million for 2005,  compared
to $77 million for 2004. The decline primarily  reflected an 8% decrease in
lubricant sales volumes from 191.6 million gallons in 2004 to 175.4 million
gallons in 2005,  resulting in a $14 million decrease in gross profit. SG&A
expenses,  including GlobalOne and allocated corporate expenses,  increased
$7 million compared to the prior year. Earnings from VIOC decreased 16% due
to the sale of 60 VIOC centers to Marathon in the MAP  Transaction  on June
30, 2005, and a decrease in the number of oil changes. Partially offsetting
these  decreases  were  record  results  from   Valvoline's   international
operations,  which  increased  38%  compared  to  2004 on the  strength  of
improved results in Europe and Latin America.

WATER TECHNOLOGIES

     Water  Technologies  reported operating income of $14 million for 2006
compared to $11 million for 2005.  Results for 2006  included an $8 million
foreign  currency  hedge  gain on the May  2006  acquisition  of the  water
treatment  business  of  Degussa  AG and a $1  million  gain  on  insurance
settlements,  partially  offset by a $6 million charge for severance  costs
due to restructuring the business.  The operations  acquired in the Degussa
acquisition,  now  operating  as the  Environmental  and Process  Solutions
(E&PS)  group  within  Water  Technologies,  added $5 million to  operating
income.  Excluding the impact of these items,  operating income declined $5
million.  Sales and  operating  revenues  increased  27% to $502 million in
2006, compared to $394 million in 2005. The E&PS business accounted for $82
million,  or 21%, of the increase.  The gross profit margin  decreased from
47.8% in 2005 to 43.7% in 2006, as price increases could not keep pace with
rising raw material  costs.  This  decrease also reflects the acquired E&PS
business,  which has a lower gross profit  percentage  than Ashland's other
water businesses.

     Water  Technologies  reported operating income of $11 million for 2005
compared to $14 million for 2004. Sales and operating revenues increased 9%
to $394  million  for 2005  compared to $360  million  for 2004.  The gross
profit margin  decreased from 49.3% in 2004 to 47.8% in 2005, as rising raw
material costs could not be fully recovered through price increases.

REFINING AND MARKETING

     Operating   income  from  Refining  and  Marketing,   which  consisted
primarily of equity income from  Ashland's  38%  ownership  interest in MAP
through June 30, 2005,  amounted to $486 million in 2005,  compared to $383
million in 2004. Equity income from MAP's refining and marketing operations
for the nine months  ended June 30, 2005 was $114  million  higher than for
all of 2004, reflecting an increase of $1.47 per barrel in its refining and
wholesale  marketing  margin.  Equity  income from MAP's retail  operations
(Speedway SuperAmerica and a 50% interest in the Pilot Travel Centers joint
venture) for the nine months ended June 30, 2005 was $4 million higher than
for all of 2004, reflecting higher merchandise margins.  Equity income from
MAP's transportation operations for the nine months ended June 30, 2005 was
$8 million lower than for all of 2004,  reflecting the three less months of
operations  during Ashland's period of ownership.  Ashland's  environmental
remediation  expenses for former  refining and marketing  sites,  including
those conveyed to MAP for which Ashland retained remediation obligations up
to a maximum of $50 million for costs incurred on or after January 1, 2004,
amounted  to $23  million  in 2005,  versus  income of $6  million  in 2004
resulting from reductions in estimated reserves.

                                    M-3


UNALLOCATED AND OTHER

     Unallocated  and other costs,  consisting  of certain  legacy costs or
items clearly not associated with the operating divisions, were $55 million
in 2006,  $72 million in 2005 and $47 million in 2004. As described on page
M-2,  these  amounts  included  costs  previously  allocated to APAC of $41
million in 2006,  $45 million in 2005 and $42 million in 2004.  In addition
to the ongoing  costs that  typically  occur each year  related to formerly
owned  businesses,  2006 included $17 million in environmental  remediation
expenses, income of $11 million from an insurance claim recovery and income
of $5 million from the  favorable  adjustment to the  previously  estimated
withdrawal  premium due Oil Insurance  Limited (OIL),  the  energy-industry
mutual insurance  consortium in which Ashland  terminated its participation
effective  December 31, 2005.  Included in 2005 were $20 million in charges
for estimated  future  premiums due OIL,  resulting  from a higher level of
losses  than  anticipated  for the  members of OIL,  due  primarily  to the
effects of a highly active hurricane season during 2005.

(LOSS) GAIN ON THE MAP TRANSACTION

     See  Note  E of  Notes  to  Consolidated  Financial  Statements  for a
discussion of the MAP Transaction  and the resulting  pretax gain of $1,284
million recorded in 2005. Ashland recorded a loss on the MAP Transaction of
$5 million in 2006, as a result of a decrease in the discounted  receivable
from Marathon for the estimated present value of future tax deductions. The
loss resulted primarily from a $4 million  reclassification  of certain tax
benefits related to previously owned businesses of Ashland.  The offsetting
benefit was recorded in income taxes as deferred tax benefits.

LOSS ON EARLY RETIREMENT OF DEBT

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

NET INTERERST AND OTHER FINANCING INCOME (COSTS)

     The  following  table  summarizes  the  components of net interest and
other financing income (costs).




(In millions)                                         2006         2005         2004
-------------------------------------------------------------------------------------
                                                                  
NET INTEREST AND OTHER FINANCING INCOME (COSTS)
Interest income                                  $      59    $      15   $        6
Interest expense                                        (8)         (90)        (114)
Expenses on sales of accounts receivable                 -           (4)          (3)
Other financing costs                                   (4)          (3)          (3)
                                                 ----------   ----------  -----------
                                                 $      47    $     (82)  $     (114)
                                                 ==========   ==========  ===========


     The decrease in interest  expense and increase in interest  income for
2006 and 2005 reflect the  retirement  of most of  Ashland's  debt from the
proceeds  of the MAP  Transaction  in June 2005 as  described  in Note E of
Notes to Consolidated Financial Statements, and the temporary investment of
the   remaining    proceeds   in   cash    equivalents    and   short-term,
available-for-sale securities.

INCOME TAX (EXPENSE) BENEFIT

     Ashland's  income tax  expense  for 2006  included  $32 million in tax
benefits  unrelated  to pretax  earnings  for 2006.  During  2006,  Ashland
recognized  $16 million in tax benefits  resulting  from the  resolution of
domestic  and  foreign  tax  matters  and the  reevaluation  of income  tax
reserves  related to prior  years.  Also  during  2006,  $16 million in tax
benefits  were recorded to adjust the 2005 income tax provision to the 2005
tax returns as ultimately filed.

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

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

                                    M-4


     Excluding these identified  items,  Ashland's  adjusted  effective tax
rate was 28.8% in 2006,  compared  to 32.4% in 2005 and 36.0% in 2004.  The
overall  effective  rate  was  lower  in 2006  than in 2005 and 2004 due to
Ashland's lower level of pretax income from  continuing  operations in 2006
and the resulting  larger relative  portion of those earnings  derived from
income taxed at less than full U.S. statutory rates. See Note M of Notes to
Consolidated  Financial  Statements for the reconciliation of Ashland's tax
provision for the last three years to the 35% U.S. statutory rate.

INCOME FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)

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




(In millions)                                                   2006         2005         2004
-----------------------------------------------------------------------------------------------
                                                                            
INCOME FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)
APAC
  Results of operations                                    $     115    $      47    $      87
  Gain on sale of operations                                     110            -            -
Asbestos-related litigation reserves and expenses                 (1)          (1)         (18)
Electronic Chemicals - loss on sale of operations                  -            -           (2)
                                                           ----------   ----------   ----------
                                                           $     224    $      46    $      67
                                                           ==========   ==========   ==========


     Ashland recorded an after-tax gain on the sale of APAC of $110 million
in 2006. Net income from the results of operations of APAC amounted to $115
million in 2006,  $47 million in 2005 and $87 million in 2004. The increase
from 2005 to 2006  reflected  improved  margins  on  construction  jobs and
material  sales  and  favorable  weather.  The  decline  from  2004 to 2005
reflected  weather  delays due to the highly active  hurricane and tropical
storm season in 2005 and rapidly rising raw material and energy costs.

FINANCIAL POSITION

LIQUIDITY

     Cash flows from operating  activities  from continuing  operations,  a
major  source of  Ashland's  liquidity,  amounted  to a cash inflow of $148
million in 2006, a cash outflow of $64 million in 2005 and a cash inflow of
$43 million in 2004. Such amounts included cash  distributions  from MAP of
$272  million in 2005 and $146 million in 2004.  During 2006,  Ashland paid
income taxes of $140  million,  compared  with $299 million in 2005 and $84
million in 2004. Ashland  contributed $105 million to its qualified pension
plans in 2006, compared with $121 million in 2005 and $137 million in 2004.
Cash  payments for interest  expense  amounted to $9 million in 2006,  $119
million  in 2005 and  $116  million  in 2004.  Cash  flows  from  operating
activities  of  discontinued   operations,   consisting  primarily  of  the
operating cash flows from APAC, amounted to cash inflows of $197 million in
2006, $53 million in 2005 and $143 million in 2004.

     Ashland's  financial position has enabled it to obtain capital for its
financing needs.  Following  shareholder approval of the MAP Transaction in
June 2005,  Moody's lowered  Ashland's senior debt rating from Baa2 to Ba1,
their  highest  non-investment  grade  rating,  and also lowered  Ashland's
commercial paper rating from P-3 to N-P (Not-Prime), citing the annual cash
flow lost from the  operations  sold.  In August  2006,  Standard  & Poor's
lowered  Ashland's  senior  debt  rating  from BBB- to BB+,  their  highest
non-investment  grade rating, and lowered Ashland's commercial paper rating
from A-3 to B, citing  Ashland's  intention to distribute the APAC proceeds
to  shareholders  instead of using the proceeds  for  business  investment.
Ashland has a revolving  credit  agreement  that expires on March 21, 2010,
which provides for up to $350 million in borrowings. The borrowing capacity
under  this  facility  was  reduced  by $108  million  of letters of credit
outstanding at September 30, 2006. The revolving credit agreement  contains
a covenant  limiting the total debt Ashland may incur from all sources as a
function of Ashland's stockholders' equity. The covenant's terms would have
permitted Ashland to borrow $4.6 billion at September 30, 2006, in addition
to the actual total debt incurred at that time.  Permissible  total Ashland
debt under the  covenant's  terms  increases (or  decreases) by 150% of any
increase (or decrease) in stockholders' equity.

     At September 30, 2006,  working capital (excluding debt due within one
year) amounted to $2,221 million,  compared to $2,224 million at the end of
2005.  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 $147 million at September 30, 2006 and $127 million at
September   30,   2005.    Liquid   assets   (cash,    cash    equivalents,
available-for-sale  securities and accounts receivable) amounted to 175% of
current  liabilities  at September 30, 2006,  compared to 170% at September
30, 2005.

CAPITAL RESOURCES

     On September  14, 2006  Ashland's  Board of Directors  authorized  the
distribution  of a substantial  portion of the proceeds of the sale of APAC
to the Ashland Common Stock  shareholders as a one-time  special  dividend.
Each shareholder of record

                                    M-5


as of October  10,  2006,  received  $10.20 per share,  for a total of $674
million.  This amount is accrued as dividends  payable in the  Consolidated
Balance  Sheet at September  30, 2006.  Substantially  all of the remaining
proceeds  were directed to be used to  repurchase  Ashland  Common Stock in
accordance with the terms  authorized by Ashland's Board of Directors.  See
Note N of Notes to Consolidated  Financial  Statements for a description of
Ashland's share repurchase programs.

     Ashland  repurchased 6.7 million shares for $405 million during fiscal
year 2006.  Since the  inception of the first  described  share  repurchase
program  on  July  21,  2005  through  September  30,  2006,   Ashland  had
repurchased  a total  of 8.4  million  shares  at a cost  of $505  million.
Following the completion of the current share  repurchase  program  Ashland
estimates  it  will  have  purchased   approximately   18%  of  the  shares
outstanding on June 30, 2005. The stock  repurchase  actions are consistent
with certain representations of intent made to the Internal Revenue Service
with respect to the transfer of MAP.

     Property   additions   (excluding   the  property   additions  of  the
discontinued  operations of APAC)  amounted to $492 million during the last
three years and are summarized in the  Information  by Industry  Segment on
page F-32. For the past three years,  Performance  Materials  accounted for
30% of Ashland's capital  expenditures,  while  Distribution  accounted for
15%, Valvoline accounted for 26% and Water Technologies  accounted for 12%.
Capital  used for  acquisitions  amounted to $323  million  during the last
three years,  of which $103 million was invested in Performance  Materials,
$16 million in  Distribution,  $36 million in Valvoline and $168 million in
Water Technologies.  A summary of the capital employed in Ashland's current
operations as of the end of the last three years follows.




(In millions)                        2006         2005         2004
-------------------------------------------------------------------
                                                
CAPITAL EMPLOYED
  Performance Materials        $      505   $      466   $      373
  Distribution                        564          513          449
  Valvoline                           489          483          388
  Water Technologies                  322          146          116



     During  2006,  Ashland  reduced  its total debt by $12  million to $82
million and stockholders' equity decreased by $643 million to $3.1 billion.
Increases  in  stockholders'  equity  resulting  from $407  million  of net
income,  $33 million from issuance of common  shares under stock  incentive
and other plans, a $47 million  decrease in the minimum  pension  liability
and $28 million of translation  gains  associated  with foreign  operations
were more than offset by decreases  resulting from common stock repurchases
of $405 million,  the special cash dividend of $674 million  related to the
APAC divestiture,  regular cash dividends of $78 million, and $1 million in
unrealized  losses  on cash  flow  hedges.  Debt as a  percent  of  capital
employed was 2.6% at September  30, 2006  compared to 2.5% at September 30,
2005.

     During 2007,  Ashland  expects capital  expenditures of  approximately
$193 million compared with $175 million in 2006. The budgeted  expenditures
for 2007  include  $20  million  for  compliance  matters,  $54 million for
maintenance of capabilities,  $62 million for productivity enhancements and
cost  reductions,  and $57 million for growth  projects.  In 2004,  Ashland
initiated a multi-year SAP enterprise  resource planning (ERP) project that
is expected to  increase  efficiency  and  effectiveness  in supply  chain,
financial,   and   environmental,   health   and  safety   processes.   The
implementation  of the ERP system in the U.S.  began in October  2006,  and
while early indications are that the initial implementation was successful,
such  implementations  carry substantial risk,  including the potential for
business  interruption and associated adverse impacts on operating results.
The scope of the project was  expanded in 2006 to include  new,  additional
functionality  and the overall costs for this project  through 2008 are now
expected to total  approximately $140 million,  of which approximately $110
million  will  be  capitalized.  Costs  for  2007  are  expected  to  total
approximately  $30  million,  of which  approximately  $25 million  will be
capitalized.

     The following table  aggregates  Ashland's  commitments to make future
payments under existing  contracts at September 30, 2006.  Contractual cash
obligations  for which the  ultimate  settlement  amounts are not fixed and
determinable have been excluded.



                                                                    2008-        2010-       Later
(In millions)                            Total         2007         2009         2011        Years
---------------------------------------------------------------------------------------------------
                                                                          
CONTRACTUAL OBLIGATIONS
Raw material purchase obligations    $     108    $      62    $      42    $       4    $       -
Employee benefit obligations (a)           372           88           58           64          162
Operating lease obligations                197           40           64           34           59
Long-term debt (b)                         116           18           36           10           52
                                     ----------   ----------   ----------   ----------   ----------
Total contractual obligations        $     793    $     208    $     200    $     112    $     273
                                     ==========   ==========   ==========   ==========   ==========


(a) Includes  estimated  funding of Ashland's  qualified  U.S. and non-U.S.
    pension plans for 2007, as well as projected  benefit  payments through
    2016   under   Ashland's   nonqualified   pension   plans   and   other
    postretirement  benefit  plans.  See Note Q of  Notes  to  Consolidated
    Financial Statements for additional information.
(b) Includes principal and interest payments. Capitalized lease obligations
    are not significant and are included in long-term debt.

                                    M-6


OFF-BALANCE SHEET ARRANGEMENTS

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

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

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

LONG-LIVED ASSETS

     The cost of plant and equipment is  depreciated  by the  straight-line
method over the  estimated  useful  lives of the assets.  Useful  lives are
based on  historical  experience  and are adjusted  when changes in planned
use,  technological  advances or other  factors show that a different  life
would  be more  appropriate.  Such  costs  are  periodically  reviewed  for
recoverability  when  impairment  indicators are present.  Such  indicators
include,  among other factors,  operating losses,  unused capacity,  market
value declines and technological obsolescence. Recorded values of property,
plant  and  equipment  that  are  not  expected  to  be  recovered  through
undiscounted  future net cash flows are written down to current fair value,
which  generally is determined  from estimated  discounted  future net cash
flows (assets held for use) or net realizable value (assets held for sale).
Asset  impairment  charges were $6 million in 2006 and were not significant
in 2005 and 2004. Although circumstances can change considerably over time,
Ashland is not aware of any impairment  indicators  that would  necessitate
periodic  reviews  on any  significant  asset  within  property,  plant and
equipment at September 30, 2006.

     Intangible   assets  with  indefinite  lives  are  subject  to  annual
impairment tests.  Such tests are completed  separately with respect to the
goodwill  of  each  of  Ashland's  reporting  units,  which  generally  are
synonymous with its industry segments.  However,  the individual  operating
divisions  of  Performance   Materials  and  Water  Technologies  are  also
considered  reporting units under FAS 142. Since market prices of Ashland's
reporting  units  are  not  readily  available,  management  makes  various
estimates and assumptions in determining the estimated fair values of those
units.  Fair  values  are  based  principally  on EBITDA  (earnings  before
interest,  taxes,  depreciation and  amortization)  multiples of peer group
companies for each of these reporting units.  Ashland did not recognize any
goodwill impairment during 2006 and 2005, and the amount recognized in 2004
was not significant. The most recent annual impairment tests indicated that
the fair  values of each of  Ashland's  reporting  units  with  significant
goodwill  were in excess of their  carrying  values by at least 21% (except
for the E&PS business of Water Technologies  acquired in May 2006), and the
consolidated  fair values exceeded  carrying values by  approximately  40%.
Despite that excess, however, impairment charges could still be required if
a  divestiture  decision  were made with respect to a  particular  business
included in one of the reporting units.

EMPLOYEE BENEFIT OBLIGATIONS

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

                                    M-7


plans are adjusted  periodically,  and the plans contain other cost-sharing
features,  such  as  deductibles  and  coinsurance.  Life  insurance  plans
generally are noncontributory.

     As  of  September  30,  2006,  Ashland  revised  certain   demographic
assumptions used to determine its pension and other postretirement  benefit
costs.  The  mortality  assumption  was changed  from the RP2000  Table for
Healthy Lives to the RP2000 Combined  Mortality Table for Males and Females
- Healthy Lives projected to 2006 using Scale AA. In addition, the rates of
turnover were revised for current active members based on actual experience
of plan  participants  for the period 2003 through 2005. The previous rates
of turnover  assumption  were based on actual plan experience for the years
1996  through  2000.   Current  retirement  rates  are  based  upon  actual
experience.  These  changes were  effective  as of  September  30, 2006 for
disclosure purposes and for 2007 expense.

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

     Beginning September 30, 2005, Ashland developed the discount rate used
to determine the present value of its  obligations  under the U.S.  pension
and postretirement  health and life plans by matching the stream of benefit
payments from the plans to the Citigroup Pension Discount Curve Spot Rates.
Ashland  changed to this approach to better reflect the specific cash flows
of these  plans  in  determining  the  discount  rate.  The  discount  rate
determined  as of September  30, 2006 was 5.77% for the U.S.  pension plans
and 5.64% for the postretirement  health and life plans.  Non-U.S.  pension
plans  followed  a similar  process  based on  financial  markets  in those
countries  where  Ashland  provides a defined  benefit  pension  plan.  The
weighted-average  discount  rate for  Ashland's  U.S. and non-U.S.  pension
plans combined was 5.66% as of September 30, 2006. Previously, the discount
rate for U.S.  pension  plans was based on the  Moody's Aa  Corporate  Bond
Index,  adjusted for longer  durations of the pension  plans as compared to
the  shorter  duration  of the index,  and also  adjusted  to  convert  the
semi-annual  coupons  in the index to an annual  discount  rate.  Ashland's
expense under both U.S. and non-U.S.  pension plans is determined using the
discount rate as of the beginning of the fiscal year,  which  amounted to a
weighted-average rate of 5.42% for 2006, 5.98% for 2005 and 6.20% for 2004.
The rates used for the postretirement  health and life plans were 5.33% for
2006,  6.00% for 2005 and 6.25% for 2004.  The 2007 expense for the pension
plans will be based on a  weighted-average  discount  rate of 5.66%,  while
5.64% will be used for the postretirement health and life plans.

     The  weighted-average  rate of compensation  increase assumptions were
4.46% for 2006,  4.43% for 2005 and 4.43% for 2004,  reflecting a 4.5% rate
for the U.S.  plans for all three  years.  The  weighted-average  long-term
expected rate of return on assets was assumed to be 8.26% in 2006, 8.35% in
2005 and 8.35% in 2004,  reflecting an 8.5% rate for the U.S. plans for all
three  years.  The return on plan  assets is  subject to wide  year-to-year
variances.  For 2006,  the U.S.  pension  plan assets  generated  an actual
return of 8.8%, compared to 14.0% in 2005 and 11.8% in 2004.  However,  the
expected  return on plan assets is  designed to be a long-term  assumption,
and actual returns will be subject to considerable  year-to-year variances.
Ashland has generated compounded annual investment returns of 8.8% and 8.0%
on its U.S.  pension  plan  assets  over the last  five-year  and  ten-year
periods.  The rate of compensation  increase  assumption for the U.S. plans
will be reduced to 3.75% and the expected  return on U.S.  plan assets will
be reduced to 7.75% in determining  Ashland's pension costs for 2007. Shown
below are the  estimated  increases in pension and  postretirement  expense
that would have  resulted from a 1% change in each of the  assumptions  for
each of the last three years.



(In millions)                                           2006         2005         2004
---------------------------------------------------------------------------------------
                                                                   
INCREASE IN PENSION COSTS FROM
  Decrease in the discount rate                    $      25    $      22   $       21
  Increase in the salary adjustment rate                  11            9            9
  Decrease in the expected return on plan assets          11            9            7
INCREASE IN OTHER POSTRETIREMENT COSTS FROM
  Decrease in the discount rate                            2            2            2



INCOME TAXES

     Ashland is subject to income  taxes in the United  States and numerous
foreign  jurisdictions.  Significant  judgment is  required in  determining
Ashland's   provision   for  income  taxes  and  the  related   assets  and
liabilities.  Income taxes are accounted  for under FASB  Statement No. 109
(FAS 109),  "Accounting  for Income  Taxes." The provision for income taxes
includes  income taxes paid,  currently  payable or  receivable,  and those
deferred. Under FAS 109, deferred tax assets and liabilities are determined
based on differences  between  financial  reporting and tax basis of assets
and liabilities, and are measured using enacted tax rates and laws that are
expected to be in effect when the differences reverse.  Deferred tax assets
are  also  recognized  for  the  estimated   future  effects  of  tax  loss
carryforwards. The effect on deferred taxes of changes in tax

                                    M-8


rates is  recognized  in the period in which the  enactment  date  changes.
Valuation  allowances are  established  when necessary on a  jurisdictional
basis to reduce deferred tax assets to the amounts expected to be realized.

     In  the  ordinary  course  of  Ashland's  business,   there  are  many
transactions  and  calculations  where the  ultimate tax  determination  is
uncertain.  Ashland is regularly under audit by tax  authorities.  Accruals
for tax  contingencies are provided for in accordance with the requirements
of FASB Statement No. 5, "Accounting for  Contingencies."  Although Ashland
believes it has appropriate support for the positions taken on tax returns,
a liability has been recorded that  represents  Ashland's  best estimate of
the probable loss on certain of these positions.  Ashland believes that the
recorded  accruals for all known tax  liabilities are adequate for all open
years,  based on the assessment of many factors  including past  experience
and  interpretations  of tax law  applied  to the  facts  of  each  matter.
Although   Ashland   believes  the  recorded  assets  and  liabilities  are
reasonable,   tax  regulations  are  subject  to  interpretation   and  tax
litigation is inherently  uncertain.  Therefore,  Ashland's assessments can
involve both a series of complex  judgments  about  future  events and rely
heavily on estimates and  assumptions.  Although  Ashland believes that the
estimates and assumptions  supporting its  assessments are reasonable,  the
final  determination  of tax audits  and any  related  litigation  could be
materially  different than that which is reflected in historical income tax
provisions and recorded assets and liabilities.  Based on the results of an
audit or litigation,  a material effect on Ashland's  income tax provision,
net income,  or cash flows could result in the period such a  determination
is made.  Due to the complexity  involved,  Ashland is not able to estimate
the range of reasonably possible losses in excess of amounts recorded.

ASBESTOS-RELATED LITIGATION

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

     Ashland  retained  Hamilton,  Rabinovitz & Alschuler,  Inc.  (HR&A) to
assist in developing and  periodically  updating  independent  and accurate
reserve  estimates  for future  asbestos  claims and  related  costs  given
various  assumptions.  The  methodology  used  by HR&A  to  project  future
asbestos costs is based largely on Ashland's recent  experience,  including
claim-filing and settlement rates, disease mix, enacted  legislation,  open
claims, and litigation defense and claim settlement costs.  Ashland's claim
experience   is   compared   to  the   results  of   previously   conducted
epidemiological  studies  estimating the number of people likely to develop
asbestos-related diseases. Those studies were undertaken in connection with
national  analyses  of the  population  expected  to have been  exposed  to
asbestos.  Using that information,  HR&A estimates a range of the number of
future  claims that may be filed,  as well as the related costs that may be
incurred in resolving those claims.

     From the range of estimates, Ashland records the amount it believes to
be the best estimate of future  payments for  litigation  defense and claim
settlement costs.  During the most recent update of this estimate completed
during 2006, it was determined that the reserves for asbestos claims should
be increased by $104  million.  This  increase in the reserves was based on
the results of a non-inflated,  non-discounted 51-year model developed with
the  assistance  of HR&A.  This  increase  resulted in total  reserves  for
asbestos  claims of $635  million at September  30, 2006,  compared to $571
million at September 30, 2005.

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

     Ashland has insurance  coverage for most of the litigation defense and
claim settlement costs incurred in connection with its asbestos claims, and
coverage-in-place  agreements  exist  with  the  insurance  companies  that
provide  substantially all of the coverage  currently being accessed.  As a
result,  increases  in the asbestos  reserve  have been  largely  offset by
probable

                                    M-9


insurance  recoveries.  The amounts not recoverable  generally are due from
insurers that are insolvent, rather than as a result of uninsured claims or
the exhaustion of Ashland's insurance coverage.

     Ashland  has  estimated  the value of  probable  insurance  recoveries
associated  with  Ashland's  estimate  of its  asbestos  liabilities.  Such
recoveries are based on management's  assumptions and estimates surrounding
the available or applicable insurance coverage. One such assumption is that
all solvent insurance carriers remain solvent. Although coverage limits are
resolved in the coverage-in-place  agreement with Equitas Limited (Equitas)
and other  London  companies,  which  collectively  provide  a  significant
portion of Ashland's  insurance  coverage for asbestos claims,  there was a
disagreement  with  these  companies  over the  timing  of  recoveries.  In
estimating the value of future  recoveries,  Ashland has historically  used
the  least  favorable  interpretation  of this  agreement  under  which the
ultimate recoveries are extended for many years, resulting in a significant
discount  being  applied to value  those  recoveries.  On June 16,  2006 an
arbitrator reached a decision  essentially  confirming that interpretation.
Ashland will continue to apply this  methodology  based on this arbitration
decision.

     At  September  30,  2006,   Ashland's  receivable  for  recoveries  of
litigation  defense and claim  settlement  costs from insurers  amounted to
$474  million,  of which $65  million  relates  to costs  previously  paid.
Receivables  from insurers  amounted to $400 million at September 30, 2005.
The receivable  was increased by $104 million  during 2006,  reflecting the
updated model used for purposes of valuing the reserve described above, and
its impact on the valuation of future  recoveries from insurers.  About 31%
of the estimated receivables from insurance companies at September 30, 2006
are  expected to be due from  Equitas and other  London  companies.  Of the
remainder,  approximately  97% is expected to come from companies or groups
that are rated A or higher by A. M. Best.

ENVIRONMENTAL REMEDIATION

     Ashland is subject to various federal,  state and local  environmental
laws and regulations that require  environmental  assessment or remediation
efforts (collectively  environmental remediation) at multiple locations. At
September 30, 2006, such locations  included 72 waste treatment or disposal
sites where Ashland has been identified as a potentially  responsible party
under  Superfund or similar  state laws,  110 current and former  operating
facilities  (including  certain operating  facilities  conveyed to MAP) and
about 1,230 service  station  properties,  of which 218 are being  actively
remediated.  Ashland's reserves for environmental  remediation  amounted to
$199 million at September  30, 2006 and $176 million at September 30, 2005,
of which $168 million at  September  30, 2006 and $145 million at September
30, 2005 were  classified in  noncurrent  liabilities  on the  Consolidated
Balance Sheets.  The total reserves for environmental  remediation  reflect
Ashland's  estimates of the most likely costs that will be incurred over an
extended period to remediate identified  conditions for which the costs are
reasonably  estimable,   without  regard  to  any  third-party  recoveries.
Engineering  studies,  probability  techniques,  historical  experience and
other  factors are used to identify and evaluate  remediation  alternatives
and  their  related  costs  in  determining  the  estimated   reserves  for
environmental  remediation.  Ashland  regularly  adjusts  its  reserves  as
environmental  remediation  continues.  Environmental  remediation  expense
amounted  to $57  million  in 2006,  $52  million in 2005 and $7 million in
2004.

     Environmental  remediation  reserves are subject to numerous  inherent
uncertainties  that affect  Ashland's  ability to estimate its share of the
costs. Such uncertainties involve the nature and extent of contamination at
each  site,  the  extent  of  required   cleanup   efforts  under  existing
environmental  regulations,  widely  varying  costs  of  alternate  cleanup
methods,  changes in  environmental  regulations,  the potential  effect of
continuing  improvements  in  remediation  technology,  and the  number and
financial strength of other potentially  responsible  parties at multiparty
sites.  Although it is not possible to predict with  certainty the ultimate
costs of environmental  remediation,  Ashland currently  estimates that the
upper end of the  reasonably  possible range of future costs for identified
sites  could  be as high  as  approximately  $310  million.  No  individual
remediation location is material to Ashland, as its largest reserve for any
site is less than 10% of the remediation reserve.

OUTLOOK

     Ashland  is  focused on  growing  as a  diversified,  global  chemical
company--organically  and through acquisitions.  Ashland's strong financial
position  and  balanced  approach  to growth  should  create  value for its
investors and deliver needed solutions to its customers.

     Performance  Materials  should benefit from continued  global economic
growth. In the Composite Polymers business, North America, Europe and China
are the three major,  worldwide  markets for  unsaturated-polyester-resins.
Although this business faces softness in the North American  market,  about
40% of Ashland's  revenues in this  business are  generated  outside  North
America.  The European  market has returned to growth after a slow 2005 and
China  is  showing  good  growth.  Within  the  U.S.  market,   traditional
applications  in the  marine  and  residential  construction  segments  are
slowing.  Certain  applications,  such  as  composite  windows  and  doors,
continue  to thrive,  primarily  as a result of material  substitution.  In
addition,  several other market segments remain  strong--specifically,  the
electrical, power, and infrastructure segments.

     Distribution's performance will be largely determined by growth of the
North American  economy.  Ashland's focus will be on continued cost control
and efforts to grow  volume.  Distribution  benefited  early in fiscal 2006
from temporary supply

                                    M-10


disruptions,  and the resultant pricing volatility that followed Hurricanes
Katrina  and Rita.  Distribution's  ability to execute  well should help it
navigate through changing economic conditions.

     Recent  developments  in  Valvoline's  market  place are  encouraging.
Ashland's price increases and recent  reductions in base lube oil costs are
beginning  to have a  positive  impact  on  margins.  In  addition,  recent
cost-cutting  efforts have eliminated $17 million of costs from Valvoline's
2007 budget.  Valvoline should return to  profitability  beginning with the
December 2006 quarter.

     The strong  performance  of Water  Technologies  in the September 2006
quarter is also encouraging.  Recent  cost-cutting  efforts have eliminated
$10 million of costs from this business for fiscal 2007. In addition, Water
Technologies  should benefit from its business model  redesign,  as well as
the E&PS business acquired at the end of May 2006.

     Ashland's  sales  and  operating  revenues  are  normally  subject  to
seasonal  variations.  The following  table  compares  operating  income by
quarter for the three years ended  September 30, 2006,  excluding  Refining
and Marketing  operations,  to illustrate  the  historical  seasonality  of
Ashland's remaining four wholly-owned businesses.  Amounts for each quarter
do not necessarily total to results for the year due to rounding.

(In millions)                       2006         2005         2004
-------------------------------------------------------------------
QUARTERLY OPERATING INCOME
December 31                    $      46    $      31   $       28
March 31                              49           65           35
June 30                               47           67           37
September 30                          28           21           41

EFFECTS OF INFLATION AND CHANGING PRICES

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

     Certain   of  the   industries   in   which   Ashland   operates   are
capital-intensive,  and  replacement  costs  for its  plant  and  equipment
generally would exceed their historical  costs.  Accordingly,  depreciation
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 assets now exceed its monetary  liabilities,  leaving it
more exposed to the effects of future inflation than in the past, when that
relationship was reversed.

FORWARD-LOOKING STATEMENTS

     Management's  Discussion and Analysis (MD&A) contains  forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the  Securities  Exchange  Act of 1934,  with respect to
Ashland's operating performance. These estimates are based upon a number of
assumptions, including those mentioned within MD&A. Such estimates are also
based upon  internal  forecasts  and analyses of current and future  market
conditions and trends, management plans and strategies,  weather, operating
efficiencies and economic  conditions,  such as prices,  supply and demand,
cost  of  raw  materials,  and  legal  proceedings  and  claims  (including
environmental  and  asbestos   matters).   Although  Ashland  believes  its
expectations  are based on  reasonable  assumptions,  it cannot  assure the
expectations  reflected  herein  will  be  achieved.  This  forward-looking
information  may prove to be  inaccurate  and  actual  results  may  differ
significantly  from  those  anticipated  if one or more  of the  underlying
assumptions or expectations  proves to be inaccurate or is unrealized or if
other  unexpected  conditions  or events  occur.  Other  factors  and risks
affecting  Ashland are  contained in Risks and  Uncertainties  in Note A of
Notes to  Consolidated  Financial  Statements and in Item 1A of this annual
report on Form 10-K.  Ashland  undertakes  no  obligation  to  subsequently
update or revise these forward-looking statements.

                                    M-11


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Ashland regularly uses commodity-based and foreign currency derivative
instruments to manage its exposure to price  fluctuations  associated  with
the  purchase  of butane and natural  gas, as well as certain  transactions
denominated  in  foreign   currencies.   All  derivative   instruments  are
recognized  as either  assets or  liabilities  on the balance sheet and are
measured at fair value.  Changes in the fair value of all  derivatives  are
recognized immediately in income unless the derivative qualifies as a hedge
of future  cash  flows.  Gains and  losses  related  to a hedge are  either
recognized in income  immediately  to offset the gain or loss on the hedged
item, or deferred and recorded in the  stockholders'  equity section of the
Consolidated Balance Sheet as a component of total comprehensive income and
subsequently  recognized in the Statements of Consolidated  Income when the
hedged item affects net income.  The  ineffective  portion of the change in
fair value of a hedge is  recognized  in income  immediately.  Ashland  has
designated  a  limited  portion  of its  foreign  currency  derivatives  as
qualifying  for  hedge  accounting  treatment,  but  their  impact  on  the
consolidated  financial  statements is not significant.  Credit risks arise
from the possible  inability of  counterparties  to meet the terms of their
contracts,  but  exposure  is  limited  to  the  replacement  value  of the
contracts.  Ashland  further  minimizes  this credit risk through  internal
monitoring   procedures  and  as  of  September  30,  2006  does  not  have
significant  credit risk on open derivative  contracts.  The potential loss
from a  hypothetical  10%  adverse  change in  commodity  prices or foreign
currency  rates on  Ashland's  open  commodity-based  and foreign  currency
derivative instruments at September 30, 2006 would not significantly affect
Ashland's  consolidated  financial  position,  results of operations,  cash
flows or liquidity.

                                    M-12


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE

                                                                          PAGE
                                                                     ----------

Management's report on internal control over financial reporting ...       F-2

Reports of independent registered public accounting firm ...........  F-3, F-4

Consolidated financial statements:

   Statements of consolidated income ...............................       F-5

   Consolidated balance sheets .....................................       F-6

   Statements of consolidated stockholders' equity .................       F-7

   Statements of consolidated cash flows ...........................       F-8

   Notes to consolidated financial statements ......................       F-9

Information by industry segment ....................................      F-31

Quarterly financial information ....................................      F-33

Consolidated financial schedule:

   Schedule II - Valuation and qualifying accounts .................      F-33

Five-year selected financial information ...........................      F-34

     Schedules  other than that listed above have been  omitted  because of
the absence of the conditions  under which they are required or because the
information  required is shown in the consolidated  financial statements or
the  notes  thereto.   Separate  financial   statements  of  unconsolidated
affiliates  are  omitted   because  each  company  does  not  constitute  a
significant  subsidiary  using the 20% tests when considered  individually.
Summarized financial information for such affiliates is disclosed in Note F
of Notes to Consolidated Financial Statements.

                                    F-1


MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

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

     The Board,  subject to stockholder  ratification,  selects and engages
the  independent   auditors  based  on  the  recommendation  of  the  Audit
Committee.  The Audit Committee,  composed of directors who are not members
of  management,  reviews the  adequacy of Ashland's  policies,  procedures,
controls and risk  management  strategies,  the scope of auditing and other
services  performed  by the  independent  auditors,  and the  scope  of the
internal  audit  function.  The Committee  holds  meetings  with  Ashland's
internal  auditor and  independent  auditors,  with and without  management
present,  to discuss the findings of their audits,  the overall  quality of
Ashland's  financial  reporting and their evaluation of Ashland's  internal
controls.  The  report of  Ashland's  Audit  Committee  can be found in the
Company's 2006 Proxy Statement.

     Management  assessed the  effectiveness of Ashland's  internal control
over financial reporting as of September 30, 2006. Management conducted its
assessment   utilizing  the  framework  described  in  Internal  Control  -
Integrated Framework issued by the Committee of Sponsoring Organizations of
the  Treadway  Commission  (COSO).  Based  on this  assessment,  management
believes that Ashland maintained  effective internal control over financial
reporting as of September 30, 2006.

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





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



November 20, 2006

                                    F-2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

     We have  audited  the  accompanying  consolidated  balance  sheets  of
Ashland Inc. and  consolidated  subsidiaries  as of September  30, 2006 and
2005,  and the related  consolidated  statements  of income,  stockholders'
equity,  and cash  flows for each of the three  years in the  period  ended
September  30,  2006.  Our audits also  included  the  financial  statement
schedule listed in the Index at Item 15(a). These financial  statements and
schedule  are  the   responsibility   of  Ashland  Inc.  and   consolidated
subsidiaries'  management.  Our  responsibility is to express an opinion on
these financial statements and schedule based on our audits.

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

     In our opinion,  the financial statements referred to above (appearing
on pages F-5 to F-32 of this annual report on Form 10-K) present fairly, in
all material respects,  the consolidated financial position of Ashland Inc.
and  consolidated  subsidiaries  at  September  30, 2006 and 2005,  and the
consolidated  results of their  operations and their cash flows for each of
the three years in the period ended  September 30, 2006, in conformity with
U.S. generally accepted accounting  principles.  Also, in our opinion,  the
related financial  statement  schedule,  when considered in relation to the
basic  financial  statements  taken  as a  whole,  presents  fairly  in all
material respects the information set forth therein.

     We also have audited,  in accordance  with the standards of the Public
Company  Accounting  Oversight Board (United States),  the effectiveness of
Ashland Inc. and consolidated subsidiaries' internal control over financial
reporting  as of  September  30,  2006,  based on criteria  established  in
Internal  Control  -  Integrated  Framework  issued  by  the  Committee  of
Sponsoring  Organizations  of the Treadway  Commission and our report dated
November 20, 2006 expressed an unqualified opinion thereon.

                                                      /s/ Ernst & Young LLP
Cincinnati, Ohio
November 20, 2006

                                    F-3


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

     We have audited management's assessment,  included in the accompanying
Management's  Report on Internal  Control Over  Financial  Reporting,  that
Ashland Inc. and consolidated  subsidiaries  maintained  effective internal
control  over  financial  reporting  as of  September  30,  2006,  based on
criteria  established in Internal Control - Integrated  Framework issued by
the Committee of Sponsoring  Organizations of the Treadway  Commission (the
COSO criteria).  Ashland Inc. and consolidated  subsidiaries' management is
responsible  for  maintaining  effective  internal  control over  financial
reporting and for its assessment of the  effectiveness  of internal control
over financial  reporting.  Our  responsibility is to express an opinion on
management's  assessment  and  an  opinion  on  the  effectiveness  of  the
Company's internal control over financial reporting based on our audit.

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

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

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

     In  our  opinion,   management's  assessment  that  Ashland  Inc.  and
consolidated   subsidiaries  maintained  effective  internal  control  over
financial  reporting as of September  30, 2006,  is fairly  stated,  in all
material  respects,  based  on the COSO  criteria.  Also,  in our  opinion,
Ashland  Inc. and  consolidated  subsidiaries  maintained,  in all material
respects,  effective  internal  control  over  financial  reporting  as  of
September 30, 2006, based on the COSO criteria.

     We also have audited,  in accordance  with the standards of the Public
Company  Accounting  Oversight  Board  (United  States),  the  consolidated
balance  sheets  of  Ashland  Inc.  and  consolidated  subsidiaries  as  of
September  30, 2006 and 2005,  and the related  consolidated  statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended  September 30, 2006 and our report dated November 20, 2006
expressed an unqualified opinion thereon.

                                                      /s/ Ernst & Young LLP
Cincinnati, Ohio
November 20, 2006

                                    F-4


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




(In millions except per share data)                                        2006         2005         2004
----------------------------------------------------------------------------------------------------------
                                                                                       
REVENUES
Sales and operating revenues                                          $   7,233    $   6,731    $   5,776
Equity income - Note F                                                       11          525          412
Other income                                                                 33           39           26
                                                                      ----------   ----------   ----------
                                                                          7,277        7,295        6,214
COSTS AND EXPENSES
Cost of sales and operating expenses                                      6,030        5,545        4,721
Selling, general and administrative expenses                              1,077        1,079          968
                                                                      ----------   ----------   ----------
                                                                          7,107        6,624        5,689
                                                                      ----------   ----------   ----------
OPERATING INCOME                                                            170          671          525
(Loss) gain on the MAP Transaction - Note E  (a)                             (5)       1,284            -
Loss on early retirement of debt - Note E                                     -         (145)           -
Net interest and other financing income (costs) - Note H                     47          (82)        (114)
                                                                      ----------   ----------   ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                       212        1,728          411
Income tax (expense) benefit - Note M                                       (29)         230         (100)
                                                                      ----------   ----------   ----------
INCOME FROM CONTINUING OPERATIONS                                           183        1,958          311
Income from discontinued operations (net of income taxes) - Note D          224           46           67
                                                                      ----------   ----------   ----------
NET INCOME                                                            $     407    $   2,004    $     378
                                                                      ==========   ==========   ==========

EARNINGS PER SHARE - NOTE A
Basic
   Income from continuing operations                                  $    2.57    $   26.85    $    4.44
   Income from discontinued operations                                     3.16         0.64         0.97
                                                                      ----------   ----------   ----------
   Net income                                                         $    5.73    $   27.49    $    5.41
                                                                      ==========   ==========   ==========
Diluted
   Income from continuing operations                                  $    2.53    $   26.23    $    4.36
   Income from discontinued operations                                     3.11         0.62         0.95
                                                                      ----------   ----------   ----------
   Net income                                                         $    5.64    $   26.85    $    5.31
                                                                      ==========   ==========   ==========


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

See Notes to Consolidated Financial Statements.

                                    F-5


Ashland Inc. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30



(In millions)                                                                 2006         2005
------------------------------------------------------------------------------------------------
                                                                                
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents                                                $   1,820    $     985
Available-for-sale securities - Note K                                         349          403
Accounts receivable (less allowances for doubtful accounts of
   $40 million in 2006 and $33 million in 2005)                              1,401        1,242
Inventories - Note A                                                           532          439
Deferred income taxes - Note M                                                  93          104
Other current assets                                                            55           22
Current assets of discontinued operations - Note D                               -          562
                                                                          ---------   ----------
                                                                             4,250        3,757
INVESTMENTS AND OTHER ASSETS
Goodwill and other intangibles - Note G                                        310          235
Asbestos insurance receivable (noncurrent portion) - Note P                    444          370
Deferred income taxes - Note M                                                 186          228
Other noncurrent assets                                                        450          419
Noncurrent assets of discontinued operations - Note D                            -          976
                                                                         ----------   ----------
                                                                             1,390        2,228
PROPERTY, PLANT AND EQUIPMENT - Note A
Cost
   Land                                                                         82           79
   Buildings                                                                   522          495
   Machinery and equipment                                                   1,260        1,137
   Construction in progress                                                    143          119
                                                                         ----------   ----------
                                                                             2,007        1,830
Accumulated depreciation and amortization                                   (1,057)      (1,000)
                                                                         ----------   ----------
                                                                               950          830
                                                                         ----------   ----------
                                                                         $   6,590    $   6,815
                                                                         ==========   ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt - Note H                               $      12    $      12
Dividends payable                                                              674            -
Trade and other payables                                                     1,302        1,239
Income taxes                                                                    53           13
Current liabilities of discontinued operations - Note D                          -          281
                                                                         ----------   ----------
                                                                             2,041        1,545
NONCURRENT LIABILITIES
Long-term debt (less current portion) - Note H                                  70           82
Employee benefit obligations - Note Q                                          313          358
Asbestos litigation reserve (noncurrent portion) - Note P                      585          521
Other long-term liabilities and deferred credits                               485          482
Noncurrent liabilities of discontinued operations - Note D                       -           88
                                                                         ----------   ----------
                                                                             1,453        1,531
STOCKHOLDERS' EQUITY - Notes N & O
Common stock, par value $.01 per share, 200 million shares authorized
   Issued - 67 million shares in 2006 and 73 million shares in 2005              1            1
Paid-in capital                                                                240          605
Retained earnings                                                            2,899        3,251
Accumulated other comprehensive loss                                           (44)        (118)
                                                                         ----------   ----------
                                                                             3,096        3,739
                                                                         ----------   ----------
                                                                         $   6,590    $   6,815
                                                                         ==========   ==========


See Notes to Consolidated Financial Statements.

                                    F-6


Ashland Inc. and Consolidated Subsidiaries
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY



                                                                                              Accumulated
                                                                                                    other
                                                        Common      Paid-in      Retained   comprehensive
(In millions)                                            stock      capital      earnings            loss (a)     Total
------------------------------------------------------------------------------------------------------------------------
                                                                                               
BALANCE AT SEPTEMBER 30, 2003                       $       68    $     350    $    1,961       $    (126)    $   2,253
Total comprehensive income (b)                                                        378              20           398
Regular dividends, $1.10 per common share                                             (77)                          (77)
Issued 3,310,204 common shares under
   stock incentive and other plans (c)                       4          128                                         132
                                                    -----------   ----------   -----------      ----------    ----------
BALANCE AT SEPTEMBER 30, 2004                               72          478         2,262            (106)        2,706
Total comprehensive income (b)                                                      2,004             (12)        1,992
Regular dividends, $1.10 per common share                                             (79)                          (79)
Distribution of Marathon shares from the
   MAP Transaction - Note E                                                          (936)                         (936)
Change in par value of common stock - Note N               (74)          74                                           -
Issued 3,055,082 common shares under
   stock incentive and other plans (c)                       3          153                                         156
Repurchase of 1,768,600 common shares                                  (100)                                       (100)
                                                    -----------   ----------   -----------      ----------    ----------
BALANCE AT SEPTEMBER 30, 2005                                1          605         3,251            (118)        3,739
Total comprehensive income (b)                                                        407              74           481
Regular dividends, $1.10 per common share                                 2           (80)                          (78)
Special dividend, $10.20 per common share - Note N                        5          (679)                         (674)
Issued 662,451 common shares under
   stock incentive and other plans (c)                                   33                                          33
Repurchase of 6,670,930 common shares                                  (405)                                       (405)
                                                    -----------   ----------   -----------      ----------    ----------
BALANCE AT SEPTEMBER 30, 2006                       $        1    $     240    $    2,899       $     (44)    $   3,096
                                                    ===========   ==========   ===========      ==========    ==========


(a) At September 30, 2006 and 2005,  the  accumulated  other  comprehensive
    loss (after tax) of $44 million for 2006 and $118  million for 2005 was
    comprised of a minimum  pension  liability of $113 million for 2006 and
    $160 million for 2005, net unrealized  translation gains of $71 million
    for 2006 and $43 million for 2005,  and net  unrealized  losses on cash
    flow hedges of $2 million for 2006 and $1 million for 2005.

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




    (In millions)                                         2006         2005          2004
    --------------------------------------------------------------------------------------
                                                                      
    Net income                                      $      407    $   2,004    $      378
    Minimum pension liability adjustment                    76          (49)          (21)
       Related tax (expense) benefit                       (29)          19             8
    Unrealized translation gains                            27           19            32
       Related tax benefit                                   1            -             1
    Unrealized losses on cash flow hedges                   (1)          (1)            -
                                                    -----------   ----------   -----------
    Total comprehensive income                      $      481    $   1,992    $      398
                                                    ===========   ==========   ===========


(c) Includes  income tax  benefits  resulting  from the  exercise  of stock
    options of $7 million in 2006,  $34  million in 2005 and $16 million in
    2004.


See Notes to Consolidated Financial Statements.

                                    F-7


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



(In millions)                                                                  2006         2005         2004
--------------------------------------------------------------------------------------------------------------
                                                                                           
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Net income                                                                $     407    $   2,004    $     378
Results from discontinued operations (net of income taxes)                     (224)         (46)         (67)
Adjustments to reconcile income from continuing operations
  to cash flows from operating activities
     Depreciation and amortization                                              111          100           98
     Deferred income taxes                                                       (1)        (500)         104
     Equity income from affiliates                                              (11)        (525)        (412)
     Distributions from equity affiliates                                         5          279          152
     Loss (gain) on the MAP Transaction - Note E                                  5       (1,284)           -
     Loss on early retirement of debt - Note E                                    -          145            -
     Change in operating assets and liabilities (a)                            (141)        (232)        (210)
     Other items                                                                 (3)          (5)           -
                                                                          ----------   ----------   ----------
                                                                                148          (64)          43
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
Proceeds from issuance of common stock                                           18          115          108
Excess tax benefits related to share-based payments - Note A                      6           20            3
Repayment of long-term debt                                                     (13)      (1,552)        (100)
Repurchase of common stock                                                     (405)        (100)           -
(Decrease) increase in short-term debt                                            -          (40)          40
Cash dividends paid                                                             (78)         (79)         (77)
                                                                          ----------   ----------   ----------
                                                                               (472)      (1,636)         (26)
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Additions to property, plant and equipment                                     (175)        (180)        (137)
Purchase of operations - net of cash acquired                                  (183)        (135)          (5)
Proceeds from sale of operations                                                  -        3,303            -
Purchases of available-for-sale securities                                     (824)        (402)           -
Proceeds from sales and maturities of available-for-sale securities             876            1            -
Purchase of accounts receivable (revised - see Note A)                            -         (150)           -
Collections of accounts receivable purchased (revised - see Note A)               -          150            -
Other - net                                                                      20            9           23
                                                                          ----------   ----------   ----------
                                                                               (286)       2,596         (119)
                                                                          ----------   ----------   ----------
CASH (USED) PROVIDED BY CONTINUING OPERATIONS                                  (610)         896         (102)
Cash provided (used) by discontinued operations (revised - see Note A)
   Operating cash flows                                                         197           53          143
   Investing cash flows                                                       1,248         (207)         (21)
                                                                          ----------   ----------   ----------
INCREASE IN CASH AND CASH EQUIVALENTS                                           835          742           20
Cash and cash equivalents - beginning of year                                   985          243          223
                                                                          ----------   ----------   ----------
CASH AND CASH EQUIVALENTS - END OF YEAR                                   $   1,820    $     985    $     243
                                                                          ==========   ==========   ==========
(INCREASE) DECREASE IN OPERATING ASSETS (a)
Accounts receivable                                                       $     (76)   $    (291)   $    (149)
Inventories                                                                     (56)         (72)          (9)
Other current assets                                                             21           94          (60)
Investments and other assets                                                    (32)        (247)         (15)
INCREASE (DECREASE) IN OPERATING LIABILITIES (a)
Trade and other payables                                                         42          106           (3)
Other current liabilities                                                       (90)         (27)         (11)
Noncurrent liabilities                                                           50          205           37
                                                                          ----------   ----------   ----------
CHANGE IN OPERATING ASSETS AND LIABILITIES                                $    (141)   $    (232)   $    (210)
                                                                          ==========   ==========   ==========
SUPPLEMENTAL DISCLOSURES
Interest paid                                                             $       9    $     119    $     116
Income taxes paid                                                               140          299           84
Non-cash distribution of Marathon stock                                           -          936            -



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

See Notes to Consolidated Financial Statements.

                                    F-8


Ashland Inc. and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

     The consolidated  financial statements include the accounts of Ashland
and its majority owned subsidiaries.  Investments in joint ventures and 20%
to 50% owned affiliates where Ashland has the ability to exert  significant
influence are accounted for by the equity method. All material intercompany
transactions and balances have been  eliminated.  Certain prior period data
has  been  reclassified  in  the  consolidated   financial  statements  and
accompanying notes to conform to current period presentation.

     Ashland has  separately  disclosed in the  Statements of  Consolidated
Cash  Flows  the  operating  and  investing   portion  of  the  cash  flows
attributable to its  discontinued  operations,  which in prior periods were
reported on a combined  basis as a single  amount.  There were no financing
cash flows related to discontinued  operations for the reported periods. In
addition,  for the year ended  September  30, 2005,  the company  added two
captions  in  the  Investment   section  entitled   "purchase  of  accounts
receivable"  and  "collections  of accounts  receivable  purchased" of $150
million each. These new captions  disclose the cash paid for the previously
disclosed repurchase of accounts receivable previously sold under Ashland's
sale  of  receivables  facility  and the  subsequent  collection  of  those
repurchased receivables.

     On August 28,  2006,  Ashland  completed  the sale of the stock of its
wholly owned subsidiary,  Ashland Paving And Construction,  Inc. (APAC), to
Oldcastle Materials, Inc. (Oldcastle). The operating results and assets and
liabilities related to APAC have been reflected as discontinued  operations
in the consolidated financial statements for all periods presented.  Unless
otherwise  noted,   amounts  in  these  Notes  to  Consolidated   Financial
Statements exclude amounts attributable to discontinued operations.

     During 2006,  Ashland redefined its reporting segments as it continues
to  evolve  into  a  diversified,   global  chemical  company.  Performance
Materials and Water Technologies, formerly combined under Ashland Specialty
Chemical,  have now been separately  disclosed since these businesses serve
different markets and recent  acquisitions  have made Water  Technologies a
much  larger  and more  distinct  part of  Ashland.  Performance  Materials
includes  three  related  business  groups:  Composite  Polymers,   Casting
Solutions,  and Specialty  Polymers and Adhesives.  Water Technologies also
includes three related business groups:  Drew Industrial,  Drew Marine, and
Environmental  and Process  Solutions (which is the business  acquired from
Degussa  AG in  May  2006).  Disclosing  Performance  Materials  and  Water
Technologies  separately  provides greater visibility to Ashland's strategy
of expanding its products,  services and  geographical  reach in key market
segments  where  it  competes.  For  further  information  on this  revised
disclosure see "Information by Industry Segment" immediately  following the
Notes to Consolidated  Financial  Statements on pages F-31 and F-32 of this
document.

USE OF ESTIMATES, RISKS AND UNCERTAINTIES

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

     Ashland's results are affected by domestic and international economic,
political, legislative,  regulatory and legal actions. Economic conditions,
such as  recessionary  trends,  inflation,  interest and monetary  exchange
rates,   government   fiscal  policies,   and  changes  in  the  prices  of
hydrocarbon-based  products and other raw materials, can have a significant
effect on  operations.  While Ashland  maintains  reserves for  anticipated
liabilities  and carries  various  levels of  insurance,  Ashland  could be
affected by civil, criminal,  regulatory or administrative  actions, claims
or  proceedings  relating to asbestos,  environmental  remediation or other
matters.

CASH AND CASH EQUIVALENTS

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

                                    F-9


NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AVAILABLE-FOR-SALE SECURITIES

     Securities are classified as held-to-maturity or available-for-sale on
the date of purchase.  Ashland did not have any  securities  classified  as
held-to-maturity  as of  September  30,  2006 and 2005.  Available-for-sale
securities are reported at fair value with unrealized gains and losses, net
of  related   deferred   income  taxes,   included  in  accumulated   other
comprehensive loss, a component of stockholders'  equity. The fair value of
a security  is  determined  based on quoted  market  prices.  Interest  and
dividends  along  with  realized  gains or losses are  reported  within the
caption "net interest and other financing income (costs)" in the Statements
of  Consolidated  Income.  The  cost of  securities  sold is  based  on the
specific  identification  method. All securities are reviewed quarterly for
possible  other-than-temporary  impairment. The review includes an analysis
of the facts and  circumstances  of each individual  investment such as the
severity  of loss,  the length of time the fair value has been below  cost,
the expectation for that security's  performance,  the  creditworthiness of
the issuer and Ashland's intent and ability to hold the security. A decline
in value that is  considered  to be  other-than-temporary  is recorded as a
loss within the caption "net interest and other  financing  income (costs)"
in the Statements of Consolidated Income.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

INVENTORIES

(In millions)                                               2006         2005
------------------------------------------------------------------------------
Chemicals and plastics                                 $     540    $     429
Lubricants                                                    84           68
Other products and supplies                                   55           69
Excess of replacement costs over LIFO carrying values       (147)        (127)
                                                       ----------   ----------
                                                       $     532    $     439
                                                       ==========   ==========

     Inventories  are  carried at the lower of cost or  market.  Chemicals,
plastics  and  lubricants  with a  replacement  cost  of  $393  million  at
September 30, 2006,  and $337 million at September 30, 2005,  are valued at
cost using the last-in,  first-out (LIFO) method. The remaining inventories
are stated at cost using the first-in,  first-out  (FIFO) method or average
cost method (which approximates FIFO).

PROPERTY, PLANT AND EQUIPMENT

     The cost of  property,  plant  and  equipment  is  depreciated  by the
straight-line  method  over  the  estimated  useful  lives  of the  assets.
Buildings are  depreciated  over 25 to 35 years and machinery and equipment
principally over 4 to 15 years.  Such costs are  periodically  reviewed for
recoverability  when  impairment  indicators are present.  Such  indicators
include,  among other factors,  operating losses,  unused capacity,  market
value declines and technological obsolescence. Recorded values of property,
plant  and  equipment  that  are  not  expected  to  be  recovered  through
undiscounted  future net cash flows are written down to current fair value,
which  generally is determined  from estimated  discounted  future net cash
flows (assets held for use) or net realizable value (assets held for sale).
Asset  impairment  charges were $6 million in 2006 and were not significant
in 2005 and 2004.

     In March 2005, the Financial  Accounting Standards Board (FASB) issued
Interpretation   No.  47  (FIN  47),   "Accounting  for  Conditional  Asset
Retirement  Obligations,"  an  interpretation  of FASB  Statement  No. 143,
"Accounting  for Asset  Retirement  Obligations."  FIN 47  requires  that a
liability be  established  for all legal  obligations  associated  with the
retirement of a tangible long-lived asset that result from the acquisition,
construction,  or development and (or) the normal operation of a long-lived
asset.  The  adoption  of FIN 47  during  the  current  year did not have a
material effect on Ashland's financial  position,  results of operations or
cash flows.

                                    F-10


DERIVATIVE INSTRUMENTS

     Ashland regularly uses commodity-based and foreign currency derivative
instruments to manage its exposure to price  fluctuations  associated  with
the  purchase  of butane and natural  gas, as well as certain  transactions
denominated  in  foreign   currencies.   All  derivative   instruments  are
recognized  as either  assets or  liabilities  on the balance sheet and are
measured at fair value.  Changes in the fair value of all  derivatives  are
recognized immediately in income unless the derivative qualifies as a hedge
of future  cash  flows.  Gains and  losses  related  to a hedge are  either
recognized in income  immediately  to offset the gain or loss on the hedged
item, or deferred and recorded in the  stockholders'  equity section of the
Consolidated Balance Sheet as a component of total comprehensive income and
subsequently  recognized in the Statements of Consolidated  Income when the
hedged item affects net income.  The  ineffective  portion of the change in
fair value of a hedge is  recognized  in income  immediately.  Ashland  has
designated  a  limited  portion  of its  foreign  currency  derivatives  as
qualifying  for  hedge  accounting  treatment,  but  their  impact  on  the
consolidated  financial  statements is not significant.  Credit risks arise
from the possible  inability of  counterparties  to meet the terms of their
contracts,  but  exposure  is  limited  to  the  replacement  value  of the
contracts.  Ashland  further  minimizes  this credit risk through  internal
monitoring   procedures  and  as  of  September  30,  2006  does  not  have
significant credit risk on open derivative contracts.

REVENUE RECOGNITION

     Revenues  generally  are  recognized  when  persuasive  evidence of an
arrangement  exists,  products  are  shipped or  services  are  provided to
customers,  the sales price is fixed or determinable and  collectibility is
reasonably assured.

EXPENSE RECOGNITION

     Cost of sales and operating  expenses  include material and production
costs, as well as the costs of inbound and outbound freight, purchasing and
receiving,  inspection,  warehousing,  internal  transfers,  and all  other
distribution network costs.  Selling,  general and administrative  expenses
include sales and marketing costs,  advertising,  research and development,
customer support,  environmental remediation,  and corporate and divisional
administrative costs.

     Because  Ashland's  products  generally  are sold without any extended
warranties,  liabilities for product warranties are insignificant. Costs of
product  warranties  generally are expensed as incurred.  Advertising costs
($68  million in 2006,  $69  million  in 2005 and $78  million in 2004) and
research and  development  costs ($48 million in 2006,  $45 million in 2005
and $43 million in 2004) are expensed as incurred.

INCOME TAXES

     Ashland is subject to income  taxes in the United  States and numerous
foreign  jurisdictions.  Significant  judgment is  required in  determining
Ashland's   provision   for  income  taxes  and  the  related   assets  and
liabilities.  Income taxes are accounted  for under FASB  Statement No. 109
(FAS 109),  "Accounting  for Income  Taxes." The provision for income taxes
includes  income taxes paid,  currently  payable or  receivable,  and those
deferred. Under FAS 109, deferred tax assets and liabilities are determined
based on differences  between  financial  reporting and tax basis of assets
and liabilities, and are measured using enacted tax rates and laws that are
expected to be in effect when the differences reverse.  Deferred tax assets
are  also  recognized  for  the  estimated   future  effects  of  tax  loss
carryforwards.  The  effect on  deferred  taxes of  changes in tax rates is
recognized  in the period in which the enactment  date  changes.  Valuation
allowances  are  established  when necessary on a  jurisdictional  basis to
reduce deferred tax assets to the amounts expected to be realized.

     In  the  ordinary  course  of  Ashland's  business,   there  are  many
transactions  and  calculations  where the  ultimate tax  determination  is
uncertain.  Ashland is regularly under audit by tax  authorities.  Accruals
for tax  contingencies are provided for in accordance with the requirements
of FASB Statement No. 5, "Accounting for  Contingencies."  Although Ashland
believes it has appropriate support for the positions taken on tax returns,
a liability has been recorded that  represents  Ashland's  best estimate of
the probable loss on certain of these positions.  Ashland believes that the
recorded  accruals for all known tax  liabilities are adequate for all open
years,  based on the assessment of many factors  including past  experience
and  interpretations  of tax law  applied  to the  facts  of  each  matter.
Although   Ashland   believes  the  recorded  assets  and  liabilities  are
reasonable,   tax  regulations  are  subject  to  interpretation   and  tax
litigation is inherently  uncertain.  Therefore,  Ashland's assessments can
involve both a series of complex  judgments  about  future  events and rely
heavily on estimates and  assumptions.  Although  Ashland believes that the
estimates and assumptions  supporting its  assessments are reasonable,  the
final  determination  of tax audits  and any  related  litigation  could be
materially  different than that which is reflected in historical income tax
provisions and recorded assets and liabilities.  Based on the results of an
audit or litigation,  a material effect on Ashland's  income tax provision,
net income,  or cash flows could result in the period such a  determination
is made.  Due to the complexity  involved,  Ashland is not able to estimate
the range of reasonably possible losses in excess of amounts recorded.

                                    F-11


NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     In June  2006,  the  FASB  issued  Interpretation  No.  48  (FIN  48),
"Accounting  for  Uncertainty in Income Taxes," an  interpretation  of FASB
Statement  No. 109,  "Accounting  for Income  Taxes." FIN 48  prescribes  a
minimum recognition  threshold and measurement  attribute for the financial
statement  recognition of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and  penalties,  accounting in interim  periods,  disclosure,  and
transition for tax related positions.  FIN 48 becomes effective for Ashland
on October 1, 2007.  Ashland has not  determined  the effect,  if any,  the
adoption of FIN 48 will have on the consolidated financial statements.

ENVIRONMENTAL COSTS

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

FOREIGN CURRENCY TRANSLATION

     Operations  outside  the United  States are  measured  using the local
currency as the functional  currency.  Upon  consolidation,  the results of
operations of the subsidiaries and affiliates whose functional  currency is
other than the U.S. dollar are translated into U.S.  dollars at the average
exchange  rates for the year and assets and  liabilities  are translated at
year-end  exchange rates.  Adjustments to translate  assets and liabilities
into U.S. dollars are recorded in the  stockholders'  equity section of the
Consolidated   Balance   Sheet  as  a  component   of   accumulated   other
comprehensive  loss and are  included  in net  earnings  only  upon sale or
liquidation of the underlying foreign subsidiary or affiliated company.

STOCK INCENTIVE PLANS

     In December 2004, the FASB issued Statement No. 123R (FAS 123R), which
revised FAS 123,  "Accounting for Stock-Based  Compensation,"  by requiring
the expensing of  share-based  compensation  over the vesting period of the
award based on the grant-date fair value of the award. FAS 123 had provided
companies the option of expensing  such awards or disclosing  the pro forma
effects  of such  expensing  in the notes to  financial  statements.  As of
October  1,  2002,  Ashland  began  expensing  employee  stock  options  in
accordance  with FAS 123 and its related  amendments.  Ashland  elected the
modified  prospective  method of adoption,  under which  compensation costs
recorded in the year ended  September  30, 2003 were the same as that which
would have been  recorded had the  recognition  provisions  of FAS 123 been
applied from its original  effective  date.  Results for prior periods were
not restated. FAS 123R also required an additional caption in the financing
section of the Statement of Consolidated  Cash Flows to present  separately
the excess tax benefits from share-based payment arrangements. The adoption
of FAS 123R  during  2006  did not  have a  material  effect  on  Ashland's
financial  position,  results of operations or cash flows. In 2004, Ashland
began granting  stock-settled stock appreciation  rights (SARs),  which are
expensed  like stock  options in  accordance  with FAS 123R. In addition to
stock  options  and SARs,  Ashland  grants  nonvested  stock  awards to key
employees and directors, which are expensed over their vesting period.

EARNINGS PER SHARE

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




(In millions except per share data)                         2006         2005         2004
-------------------------------------------------------------------------------------------
                                                                        
NUMERATOR
Numerator for basic and diluted EPS -
   Income from continuing operations                   $     183    $   1,958    $     311
                                                       ==========   ==========   ==========

DENOMINATOR
Denominator for basic EPS - Weighted average
   common shares outstanding                                  71           73           70
Common shares issuable upon exercise of stock options
   and stock appreciation rights                               1            2            1
                                                       ----------   ----------   ----------
Denominator for diluted EPS - Adjusted weighted
   average shares and assumed conversions                     72           75           71
                                                       ==========   ==========   ==========
EPS FROM CONTINUING OPERATIONS
Basic                                                  $    2.57    $   26.85    $    4.44
Diluted                                                     2.53        26.23         4.36

                                    F-12


NOTE B - INFORMATION BY INDUSTRY SEGMENT

     Ashland's   businesses  are  managed  along  four  industry  segments:
Performance  Materials,  Distribution,  Valvoline  and Water  Technologies.
Previously,  Ashland  operated  its wholly  owned  subsidiary,  APAC,  as a
separate  industry  segment  before it was  divested  on August  28,  2006.
Ashland  also held,  through  June 30,  2005,  a 38%  interest  in Marathon
Ashland  Petroleum  LLC  (MAP),  which  was the  primary  component  of its
Refining and Marketing segment. Information by industry segment is shown on
pages F-31 and F-32.

     Performance  Materials  is a worldwide  manufacturer  and  supplier of
specialty   chemicals   and   customized   services  to  the  building  and
construction,  packaging and converting,  transportation,  marine and metal
casting industries.  It is a technology leader in metal casting consumables
and design  services;  unsaturated  polyester  and vinyl  ester  resins and
gelcoats; and high-performance  adhesives and specialty resins. Performance
Materials owns and operates 29 manufacturing facilities and participates in
10 manufacturing joint ventures in 15 countries.

     Distribution   distributes  chemicals,   plastics  and  composite  raw
materials  in  North  America  and  plastics  in  Europe.   Deliveries  are
facilitated at locations in North America  through a network of 68 owned or
leased  facilities,  59  third-party  warehouses,  rail  terminals and tank
terminals and 13 locations that perform contract  packaging  activities for
Distribution.  Distribution of thermoplastic  resins in Europe is conducted
in 13 countries  primarily through 17 third-party  warehouses and one owned
warehouse.

     Valvoline is a marketer of  premium-branded  automotive and commercial
oils, automotive  chemicals,  automotive appearance products and automotive
services, with sales in more than 100 countries. The Valvoline(R) trademark
was  federally   registered  in  1873  and  is  the  oldest  trademark  for
lubricating oil in the United States. Valvoline is engaged in the "fast oil
change"  business  through owned and franchised  service centers  operating
under the Valvoline Instant Oil Change (VIOC) name.

     Water  Technologies is a supplier of chemical and  non-chemical  water
treatment solutions for industrial, municipal and commercial facilities. It
provides   industrial,   commercial  and  institutional  water  treatments,
wastewater treatment,  pathogen control, paint and coating additives,  pulp
and paper processing and mining chemistries.  In addition, it also provides
boiler and cooling water treatments; fuel treatments;  welding, refrigerant
and sealing  products;  and  fire-fighting,  safety and rescue products and
services for the merchant  marine  industry.  Water  Technologies  owns and
operates 13  manufacturing  facilities in 12 countries and  participates in
four joint  ventures.  Water  Technologies'  diverse  spectrum  of products
competes globally in niche markets.

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

     Information  about  Ashland's  domestic and  international  operations
follows. Ashland has no material operations in any individual international
country  and no  single  customer  represented  more  than 10% of sales and
operating revenues in 2006, 2005 or 2004.



                            Revenues from                                                 Property, plant
                          external customers                     Net assets                and equipment
                 -------------------------------------     ----------------------     -----------------------
(In millions)          2006         2005         2004           2006        2005            2006        2005
-------------------------------------------------------------------------------------------------------------
                                                                              
United States    $    5,321   $    5,515   $    4,839      $   2,333   $   3,162      $      721   $     668
International         1,956        1,780        1,375            763         577             229         162
                 -----------  -----------  -----------     ----------  ----------     -----------  ----------
                 $    7,277   $    7,295   $    6,214      $   3,096   $   3,739      $      950   $     830
                 ===========  ===========  ===========     ==========  ==========     ===========  ==========


NOTE C - RELATED PARTY TRANSACTIONS

     Ashland sold chemicals and  lubricants to MAP and purchased  petroleum
products  from  MAP.  Such  transactions  were in the  ordinary  course  of
business at  negotiated  prices  comparable to those of  transactions  with
other  customers  and  suppliers.  In  addition,  Ashland and MAP  provided
certain  administrative  services to each  other,  the net amounts of which
were not  significant  and are  included  in the sales  amounts  below.  As
further described in Note E, Ashland transferred its remaining

                                    F-13


NOTE C - RELATED PARTY TRANSACTIONS (CONTINUED)

interest in MAP to Marathon on June 30, 2005. The following table indicates
the amounts of these  transactions  for the nine months ended June 30, 2005
and the fiscal year ended  September 30, 2004.  During 2006,  2005 and 2004
Ashland incurred customary  third-party purchase and sale activity from its
various joint venture  investments  and other related parties in the normal
course of business.  These  transactions  were not  significant for each of
these fiscal years.

(In millions)                         2005         2004
--------------------------------------------------------
Ashland's sales to MAP           $      19    $      22
Ashland's purchases from MAP           153          229

NOTE D - DISCONTINUED OPERATIONS

APAC

     On August 28,  2006,  Ashland  completed  the sale of the stock of its
wholly  owned  subsidiary,  APAC,  to  Oldcastle.  The sale  price of $1.30
billion  was  subject to  adjustments  for  changes in working  capital and
certain  other  accounts from  September 30, 2005,  until the closing date.
Oldcastle  paid $34  million at closing as a  preliminary  estimate  of the
working capital adjustment that was subsequently  calculated at $5 million.
Per the  agreement,  Oldcastle has a certain  period of time to review this
working capital calculation,  therefore,  future adjustments to the gain on
this sale are possible until final approval is received. Ashland's Board of
Directors  authorized  that a  substantial  portion  of the  $1.23  billion
estimated  after-tax  proceeds  of the sale of APAC be  distributed  to the
shareholders of Ashland as a one-time  special  dividend with any remaining
proceeds  being  used  to  continue  to  support  Ashland's  current  share
repurchase  program.  For further  information on the special  dividend and
current share repurchase program see Note N.

     Proceeds  net of expenses of  approximately  $11 million  exceeded the
book investment and resulted in a pretax gain of $128 million.  The sale of
APAC was a taxable  transaction that resulted in $66 million being recorded
for the combined federal and state income tax obligation.  Net deferred tax
liabilities  totaling  $27  million  were  reversed  through the income tax
provision  and included in the gain  computation  of the  transaction.  The
reversal  of  deferred  taxes  reflects  the fact  that  Oldcastle  assumed
Ashland's tax basis in these net assets as a result of this divestiture. In
addition,  the sale of APAC  resulted in a pretax  curtailment  gain of $34
million,   or  $21   million   after-tax,   related  to  the   pension  and
postretirement  plans and is  included  as a  component  of the total  gain
recorded  as  a  result  of  the  sale.  For  further  information  on  the
curtailment  gain and its impact on the  pension  and  postretirement  plan
obligations  see Note Q. The total gain on the sale of APAC,  including the
curtailment  gain,  amounted  to  $162  million  pretax  and  $110  million
after-tax.  As part of the agreement with Oldcastle,  Ashland also retained
$78  million  in  net  liabilities   related  to  APAC's  employee  benefit
obligations and incentive compensation.

     APAC qualifies as discontinued operations under FASB Statement No. 144
(FAS  144),  "Accounting  for the  Impairment  or  Disposal  of  Long-Lived
Assets."  Accordingly,  the operating  results,  net of tax, and assets and
liabilities  of  discontinued   operations  are  presented   separately  in
Ashland's  consolidated  financial statements and the Notes to Consolidated
Financial Statements have been adjusted to exclude discontinued operations.
The  amounts   eliminated  from  continuing   operations  did  not  include
allocations  of corporate  expenses  included in the  selling,  general and
administrative  expenses  caption in the Statements of Consolidated  Income
and the  related  combined  39% U.S.  federal  (35%) and state (4%,  net of
federal deductions)  statutory income tax benefits of such expenses.  These
corporate  expenses  were $41 million in 2006,  $45 million in 2005 and $42
million in 2004. In accordance with a consensus of the Emerging Issues Task
Force (EITF 87-24),  allocations of general  corporate  overhead may not be
allocated to discontinued operations for financial statement presentation.

OTHER

     Ashland is subject to liabilities from claims alleging personal injury
caused  by  exposure  to  asbestos.   Such  claims  result  primarily  from
indemnification  obligations undertaken in 1990 in connection with the sale
of Riley Stoker Corporation, a former subsidiary.  Additional reserves were
recorded  in 2004 and  2006 to  reflect  updates  to  these  estimates.  No
increase to the  asbestos  reserve or  insurance  receivable  was  recorded
during 2005, though minor unreserved expenses were incurred associated with
asbestos  liabilities.  See Note P for  further  information  on  Ashland's
asbestos-related litigation.

     Ashland  recorded an after-tax  charge of $2 million in 2004 to adjust
the gain on the sale of the discontinued operations of Ashland's Electronic
Chemicals business sold in 2003.

                                    F-14


     Components of amounts reflected in the September 30, 2005 Consolidated
Balance Sheet related to  discontinued  operations of APAC are presented in
the following table.

(In millions)                                             2005
---------------------------------------------------------------
ASSETS
Accounts receivable                                 $      358
Inventories                                                 87
Deferred income taxes                                       18
Other current assets                                        99
                                                    -----------
Current assets of discontinued operations                  562

Goodwill and other intangibles                             413
Deferred income taxes                                      (54)
Property, plant and equipment                              592
Other noncurrent assets                                     25
                                                    -----------
Noncurrent assets of discontinued operations               976
                                                    -----------
TOTAL ASSETS OF DISCONTINUED OPERATIONS             $    1,538
                                                    ===========
LIABILITIES
Trade and other payables                            $      281
                                                    -----------
Current liabilities of discontinued operations             281

Other noncurrent liabilities                                88
                                                    -----------
Noncurrent liabilities of discontinued operations           88
                                                    -----------
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS        $      369
                                                    ===========

     Components  of amounts  reflected in the  Statements  of  Consolidated
Income  related to  discontinued  operations are presented in the following
table for each of the years ended September 30.




(In millions)                                                                    2006         2005         2004
----------------------------------------------------------------------------------------------------------------
                                                                                            
REVENUES FROM DISCONTINUED OPERATIONS
APAC (a)                                                                    $   2,730    $   2,565   $    2,567
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
APAC                                                                              176           75          137
Asbestos-related litigation reserves and expenses                                  (2)          (1)         (29)
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS
APAC                                                                              162            -            -
Electronic Chemicals                                                                -            -           (2)
                                                                            ----------   ----------  -----------
INCOME BEFORE INCOME TAXES                                                        336           74          106
INCOME TAX (EXPENSE) BENEFIT
Benefit (expense) related to income (loss) from discontinued operations
   APAC                                                                           (61)         (28)         (50)
   Asbestos-related litigation reserves and expenses                                1            -           11
Expense related to gain (loss) on disposal of discontinued operations
   APAC                                                                           (52)           -            -
                                                                            ----------   ----------  -----------
INCOME FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)                   $     224    $      46   $       67
                                                                            ==========   ==========  ===========


(a) APAC  revenues  for 2006 were for the eleven  months  ended  August 28,
2006.

                                    F-15


NOTE E - MAP TRANSACTION

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

     As a result of the transaction,  Old Ashland shareholders of record as
of the close of business on June 30, 2005,  received .2364 Marathon  shares
and  one  Ashland  share  per  Old  Ashland  share.  In  total,   Ashland's
shareholders  received  17,538,815  shares of Marathon common stock with an
aggregate  value of $936 million based upon the June 30, 2005 closing price
of Marathon  stock.  Additionally,  the  transaction  resulted in Ashland's
receipt  of $2.4  billion  in  cash  and MAP  accounts  receivable  of $913
million,  which  totaled $3.3  billion.  This amount was  comprised of $2.8
billion of cash and accounts  receivable,  which amount was included in the
$3.7 billion  transaction  value,  and $518 million of additional  cash and
accounts receivable  representing 38% of MAP's distributable cash and other
adjustments as of June 30, 2005.

     Proceeds net of expenses of $28 million  exceeded the book  investment
and  resulted in a pretax  gain of $1,284  million  recorded in 2005.  Even
though the Marathon  common  stock  distribution  went  directly to Ashland
shareholders,  for  financial  reporting  purposes the  Marathon  stock was
reflected as non-cash  proceeds from the transaction,  included in the gain
computation,  and  then  shown as a  distribution  to  shareholders  out of
retained earnings in Ashland's stockholders' equity progression. The pretax
gain was shown on a separate line caption on the Statements of Consolidated
Income below  operating  income and labeled "Gain on the MAP  Transaction."
Because none of the businesses  qualified as discontinued  operations under
FAS 144, the gain was reported in income from continuing  operations,  with
no restatement of prior results.

     The MAP Transaction was structured to be generally tax-free to Ashland
shareholders  and  tax-efficient  to Ashland.  Ashland and Marathon entered
into a closing  agreement  with the  Internal  Revenue  Service  (IRS) with
respect to various tax consequences of the  transaction.  Pursuant to a Tax
Matters Agreement (TMA) with Marathon, any tax payable under Section 355(e)
of the Internal  Revenue Code on the transaction up to $200 million will be
borne by Marathon,  with the next $175 million being borne by Ashland,  and
any tax over $375 million  being split equally  between the two  companies.
Ashland has incurred  approximately $14 million of Section 355(e) tax which
has been borne by Marathon.

     Due to the structure of the  transaction,  Marathon is entitled to the
tax  deductions  for  Ashland's  future  payments  of  certain   contingent
liabilities  related to previously  owned  businesses of Ashland.  However,
pursuant to the terms of the TMA, Marathon has agreed to compensate Ashland
for these tax deductions.  Ashland recorded a discounted receivable for the
estimated  present  value of  probable  recoveries  from  Marathon  for the
portion  of  these  future  tax  deductions  which  is not  dependent  upon
Marathon's  ability  to  utilize  these  deductions.  This  receivable  was
included in the total pretax gain on the  transaction.  Deferred tax assets
previously  recorded on these contingent  liabilities were reversed through
the income tax provision for the transaction. Adjustments to the receivable
resulting  from  changes  in the  liability  estimates  have  been and will
continue to be recorded in the "Gain on the MAP  Transaction"  line caption
on the  income  statement,  while the  accretion  of the  discount  will be
reflected in interest  income.  At September 30, 2006,  this receivable had
been reduced to $55 million and is included in other current and noncurrent
assets on Ashland's Consolidated Balance Sheets.

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

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

     The gain on the MAP  Transaction  and the loss on early  retirement of
debt, net of their  respective tax effects,  increased net income by $1,531
million, or $20.51 per share, for the year ended September 30, 2005. Due to
the continuing nature of certain tax issues,  the gain has been adjusted in
2006, and may continue to be adjusted in future periods. Adjustments to the
gain in  subsequent  periods  will be  reflected  in the  quarter  they are
determined.

                                    F-16


NOTE F - UNCONSOLIDATED AFFILIATES

     Summarized  financial  information reported by MAP and other companies
accounted  for on the equity  method is presented in the  following  table,
along with a summary of the  amounts  recorded  in  Ashland's  consolidated
financial  statements.  As further discussed in Note E, Ashland transferred
its  remaining  interest in MAP to Marathon  on June 30,  2005.  MAP's 2005
summarized financial  information as presented below is for the nine months
ended June 30, 2005. The  summarized  financial  information  for all other
companies  accounted  for on the equity  method by Ashland is as of and for
the year ended September 30, 2006, 2005 and 2004,  respectively.  Since MAP
was organized as a limited  liability company that elected to be taxed as a
partnership,  the parents were  responsible for income taxes  applicable to
their share of MAP's taxable income. The net income of MAP reflected in the
following table does not include any provision for income taxes incurred by
its parents.  At September 30, 2006,  Ashland's  retained earnings included
$29  million  of  undistributed  earnings  from  unconsolidated  affiliates
accounted for on the equity method.



                                                              Other
(In millions)                                MAP         affiliates          Total
-----------------------------------------------------------------------------------
                                                             
SEPTEMBER 30, 2006
Financial position
   Current assets                                         $     170
   Current liabilities                                          (82)
                                                          ----------
   Working capital                                               88
   Noncurrent assets                                             67
   Noncurrent liabilities                                       (13)
                                                          ----------
   Stockholders' equity                                   $     142
                                                          ==========
Results of operations
   Sales and operating revenues                           $     426
   Income from operations                                        40
   Net income                                                    27
Amounts recorded by Ashland
   Investments and advances                               $      61
   Equity income                                                 11
   Distributions received                                         5
SEPTEMBER 30, 2005
Financial position
   Current assets                                         $     154
   Current liabilities                                          (87)
                                                          ----------
   Working capital                                               67
   Noncurrent assets                                             61
   Noncurrent liabilities                                        (9)
                                                          ----------
   Stockholders' equity                                   $     119
                                                          ==========
Results of operations
   Sales and operating revenues       $   38,195 (a)      $     384
   Income from operations                  1,408 (a)             31
   Net income                              1,396 (a)             19
Amounts recorded by Ashland
   Investments and advances           $        -          $      51     $       51
   Equity income                             517                  8            525
   Distributions received                    272                  7            279
SEPTEMBER 30, 2004
Results of operations
   Sales and operating revenues       $   40,672          $     306
   Income from operations                  1,129                 27
   Net income                              1,118                 18
Amounts recorded by Ashland
   Equity income                      $      405          $       7     $      412
   Distributions received                    146                  6            152


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

                                    F-17


NOTE G - GOODWILL AND OTHER INTANGIBLES

     In accordance  with FASB  Statement  No. 142 (FAS 142),  "Goodwill and
Other Intangible Assets," Ashland conducts an annual review for impairment.
Impairment is to be examined  more  frequently  if certain  indicators  are
encountered.  In accordance  with FAS 142,  Ashland  reviewed  goodwill for
impairment  based on  reporting  units,  which  are  defined  as  operating
segments or groupings of businesses  one level below the operating  segment
level.  Ashland has completed its most recent  annual  goodwill  impairment
test  required  by FAS 142 as of July 1,  2006 and has  determined  that no
impairment exists.

     The  following is a  progression  of goodwill by segment for the years
ended September 30, 2006 and 2005.



                                   Performance                                       Water
(In millions)                        Materials   Distribution     Valvoline   Technologies         Total
--------------------------------------------------------------------------------------------------------
                                                                                
Balance at September 30, 2004       $       57     $        -     $       6      $      39     $     102
Acquisitions                                43              1            18              -            62
                                    -----------    -----------    ----------     ----------    ----------
Balance at September 30, 2005              100              1            24             39           164
Acquisitions                                 6              -             5             31            42
Currency translation adjustment              4              -             -              -             4
                                    -----------    -----------    ----------     ----------    ----------
Balance at September 30, 2006       $      110     $        1     $      29      $      70     $     210
                                    ===========    ===========    ==========     ==========    ==========


     Intangible  assets consist of trademarks and trade names,  patents and
licenses,  non-compete  agreements,  sale  contracts,  customer  lists  and
intellectual  property.  Intangibles are amortized on a straight-line basis
over their estimated  useful lives.  The cost of trademarks and trade names
is amortized principally over 10 to 25 years,  intellectual property over 5
to 17 years  and other  intangibles  over 3 to 20  years.  Ashland  reviews
intangible  assets for possible  impairment  whenever  events or changes in
circumstances indicate that carrying amounts may not be recoverable.

     Intangible  assets were comprised of the following as of September 30,
2006 and 2005.



                                               2006                                        2005
                             ----------------------------------------    -----------------------------------------
                                  Gross                          Net           Gross                          Net
                               carrying     Accumulated     carrying        carrying     Accumulated     carrying
(In millions)                    amount    amortization       amount          amount    amortization       amount
---------------------------------------------------------------------    -----------------------------------------
                                                                                    
Trademarks and trade names   $       54  $          (20) $        34     $        56  $          (18) $        38
Intellectual property                32              (6)          26              19              (4)          15
Other intangibles                    49              (9)          40              25              (7)          18
                             ----------- --------------- ------------    ------------ --------------- ------------
Total intangible assets      $      135  $          (35) $       100     $       100  $          (29) $        71
                             =========== =============== ============    ============ =============== ============


     Amortization  expense  recognized on intangible  assets was $6 million
for 2006,  $4 million for 2005 and $2 million for 2004. As of September 30,
2006,  all of Ashland's  intangible  assets that had a carrying  value were
being  amortized  except  for  certain  trademarks  and  trade  names  that
currently have been determined to have indefinite lives. These assets had a
balance  of $32  million as of  September  30,  2006 and $23  million as of
September 30, 2005. In accordance with FAS 142,  Ashland  annually  reviews
these  assets to determine  whether  events and  circumstances  continue to
support the  indefinite  useful life.  Estimated  amortization  expense for
future  periods is $8 million  in 2007,  $8 million in 2008,  $7 million in
2009, $6 million in 2010 and $5 million in 2011.

NOTE H - DEBT



(In millions)                                                       2006         2005
--------------------------------------------------------------------------------------
                                                                      
Medium-term notes, due 2006-2019, interest at a weighted
   average rate of 8.1% at September 30, 2006 (7.2% to 9.4%)   $      32    $      42
8.80% debentures, due 2012                                            20           20
6.86% medium-term notes, Series H, due 2009                           17           17
6.625% senior notes, due 2008                                          3            3
Other                                                                 10           12
                                                               ----------   ----------
Total long-term debt                                                  82           94
Current portion of long-term debt                                    (12)         (12)
                                                               ----------   ----------
Long-term debt (less current portion)                          $      70    $      82
                                                               ==========   ==========

                                    F-18


     Aggregate  maturities  of long-term  debt are $12 million in 2007,  $5
million in 2008,  $20 million in 2009, $3 million in 2010 and less than one
million in 2011. No short-term borrowings were outstanding at September 30,
2006 and 2005.

     During  2006  Ashland  entered  into  an  in-substance  defeasance  of
approximately  $49 million to repay current and  long-term  debt that had a
carrying value of $44 million on the balance sheet. Because the transaction
was not a legal  defeasance the investment has been placed into a trust and
will be exclusively restricted to future obligations and repayments related
to these debt  instruments.  The  investments  have been  classified on the
balance sheet as other current assets or other  noncurrent  assets based on
the  contractual  debt  repayment  schedule.  At September  30,  2006,  the
carrying  value  of  the  investments  to  defease  debt,  including  other
defeasements that occurred in fiscal 2005, was $51 million and the carrying
value of the debt was $44 million.

     Ashland has a revolving  credit  agreement  that  expires on March 21,
2010,  which provides for up to $350 million in  borrowings.  The borrowing
capacity  under this  facility  was  reduced by $108  million of letters of
credit  outstanding at September 30, 2006. The revolving  credit  agreement
contains a covenant  limiting  the total  debt  Ashland  may incur from all
sources as a function of Ashland's  stockholders'  equity.  The  covenant's
terms would have permitted  Ashland to borrow $4.6 billion at September 30,
2006,  in  addition  to the  actual  total  debt  incurred  at  that  time.
Permissible  total Ashland debt under the  covenant's  terms  increases (or
decreases) by 150% of any increase (or decrease) in stockholders' equity.

NET INTEREST AND OTHER FINANCIAL INCOME (COSTS)



(In millions)                                               2006         2005         2004
-------------------------------------------------------------------------------------------
                                                                        
Interest income                                        $      59    $      15    $       6
Interest expense                                              (8)         (90)        (114)
Expenses on sales of accounts receivable - Note J              -           (4)          (3)
Other financing costs                                         (4)          (3)          (3)
                                                       ----------   ----------   ----------
                                                       $      47    $     (82)   $    (114)
                                                       ==========   ==========   ==========


NOTE I - LEASES

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

     In June 2005,  Ashland used $101 million of the proceeds  from the MAP
Transaction to purchase assets (primarily APAC  construction  equipment and
VIOC stores) formerly leased under operating leases.  Future minimum rental
payments were not affected by this purchase. Future minimum rental payments
at September 30, 2006 and rental expense under operating leases follow.



(In millions)
Future minimum rental payments              Rental expense                        2006         2005         2004
-----------------------------------------------------------------------------------------------------------------
                                                                                        
2007                 $      40              Minimum rentals
2008                        35                 (including rentals under
2009                        29                 short-term leases)            $      53    $      59    $      58
2010                        18              Contingent rentals                       3            3            3
2011                        16              Sublease rental income                  (2)          (2)          (2)
                                                                             ----------   ----------   ----------
Later years                 59                                               $      54    $      60    $      59
                     ----------                                              ==========   ==========   ==========
                     $     197
                     ==========


NOTE J - SALE OF ACCOUNTS RECEIVABLE

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

                                    F-19


NOTE K - SECURITIES AND FINANCIAL INSTRUMENTS

DERIVATIVE INSTRUMENTS

     Ashland  uses   commodity-based   and  foreign   currency   derivative
instruments  as described in Note A. The fair value of open  contracts  was
not significant at September 30, 2006 and 2005.

FAIR VALUES

     The  carrying  amounts  and  fair  values  of  Ashland's   significant
financial  instruments at September 30, 2006 and 2005 are shown below.  The
fair values of cash and cash equivalents, available-for-sale securities and
investments  of captive  insurance  companies  approximate  their  carrying
amounts based on quoted market  prices.  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.



                                                               2006                             2005
                                                     ------------------------         -----------------------
                                                       Carrying         Fair           Carrying         Fair
(In millions)                                            amount        value             amount        value
-------------------------------------------------------------------------------------------------------------
                                                                                       
Assets
   Cash and cash equivalents                         $    1,820   $    1,820          $     985    $     985
   Available-for-sale securities                            349          349                403          403
   Investments of captive insurance companies (a)            32           32                 14           14
Liabilities
   Long-term debt (including current portion)                82           90                 94          106


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


AVAILABLE-FOR-SALE SECURITIES

     The  following  table  provides  a summary  of the  available-for-sale
securities portfolio as of September 30, 2006 and 2005.



(In millions)                                         Amortized   Unrealized   Unrealized         Fair
As of  September 30, 2006                                  cost         gain         loss        value
-------------------------------------------------------------------------------------------------------
                                                                                 
U.S. Treasury and government agencies                 $      60    $       -    $       -    $      60
Corporate debt securities                                   202            -            -          202
Other securities                                             87            -            -           87
                                                      ----------   ----------   ----------   ----------
Total                                                 $     349    $       -    $       -    $     349
                                                      ==========   ==========   ==========   ==========

(In millions)                                         Amortized   Unrealized   Unrealized         Fair
As of  September 30, 2006                                  cost         gain         loss        value
-------------------------------------------------------------------------------------------------------
U.S. Treasury and government agencies                 $     122    $       -    $       -    $     122
Corporate debt securities                                   281            -            -          281
                                                      ----------   ----------   ----------   ----------
Total                                                 $     403    $       -    $       -    $     403
                                                      ==========   ==========   ==========   ==========


     The  net  unrealized  gain/(loss)  on  available-for-sale   securities
included in other  comprehensive  income as of September  30, 2006 and 2005
was not  significant.  Ashland  sold  $876  million  of  available-for-sale
securities  during  fiscal  year 2006 and  realized  gross gains and losses
accompanying  these  sales  were  not  significant.  No  available-for-sale
securities  were sold during  fiscal  year 2005 and all  available-for-sale
security  holdings had a maturity of 12 months or less as of September  30,
2006 and 2005.  Actual  maturities may differ from  contractual  maturities
when  there  exists a right to call or prepay  obligations  with or without
call or prepayment penalties.

                                    F-20


NOTE L - ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

     In May 2006,  Ashland acquired the water treatment business of Degussa
AG (Degussa),  branded under the Stockhausen name, with five  manufacturing
facilities  operating  in  Germany,  China,  Brazil,  Russia and the United
States.  The acquisition  allows  Ashland's Water  Technologies  segment to
expand  its  technology  base,   product  line  and  service  levels  while
continuing to develop its presence in key emerging  international  markets.
For its fiscal year ended  December 31, 2005,  Degussa  reported  sales and
operating  revenues  (translated  to  U.S.  dollars)  of $258  million  and
operating income of $10 million. The transaction, denominated in Euros, was
valued at $162  million at the  exchange  rate on the  acquisition  date. A
summary of the purchase price allocation follows.


                                                            Assets
        (In millions)                                 (liabilities)
        -----------------------------------------------------------
        Accounts receivable                             $       57
        Inventories                                             33
        Property, plant and equipment                           56
        Goodwill and other intangibles                          59
        Trade and other payables                               (21)
        Other noncurrent assets (liabilities) - net            (22)
                                                        -----------
                                                        $      162
                                                        ===========

     In June 2005,  Valvoline  acquired  Car Brite,  a leading  marketer of
products for the U.S. professional automotive reconditioning industry whose
products  include a broad array of interior  and exterior  cleaners,  paint
restorers and protectants and final detail dressings, paints and dyes.

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

     Several other  acquisitions  were completed by Performance  Materials,
Distribution, Valvoline and Water Technologies during the three years ended
September 30, 2006. These acquisitions,  individually and in the aggregate,
did not have a  significant  effect  on  Ashland's  consolidated  financial
statements.

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

DIVESTITURES

     On August 28,  2006,  Ashland  completed  the sale of the stock of its
wholly owned  subsidiary,  APAC, to Oldcastle.  For further  information on
this sale see Note D. On June 30, 2005,  Ashland  completed the transfer of
its 38%  interest in MAP as well as its maleic  anhydride  business  and 60
Valvoline  Instant Oil Change  centers in Michigan  and  northwest  Ohio to
Marathon Oil  Corporation  in a transaction  valued at  approximately  $3.7
billion.  See Note E for  further  information  on this  transaction.  Also
during 2005, Distribution sold its ingestibles business, which did not have
a significant effect on Ashland's consolidated financial statements.

                                    F-21


NOTE M - INCOME TAXES

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

(In millions)                         2006         2005         2004
---------------------------------------------------------------------
Current
   Federal                       $      (5)   $     214    $     (30)
   State                                 -           28            2
   Foreign                              35           28           25
                                 ----------   ----------   ----------
                                        30          270           (3)
Deferred                                (1)        (500)         103
                                 ----------   ----------   ----------
Income tax expense (benefit)     $      29    $    (230)   $     100
                                 ==========   ==========   ==========

     Deferred  income  taxes are  provided  for  income and  expense  items
recognized  in different  years for tax and financial  reporting  purposes.
Ashland  has  not  recorded  deferred  income  taxes  on the  undistributed
earnings  of certain  foreign  subsidiaries  and  foreign  corporate  joint
ventures.  Management intends to indefinitely reinvest such earnings, which
amounted to $247 million at  September  30,  2006.  Because of  significant
foreign tax credits,  it is  estimated  that U.S.  federal  income taxes of
approximately  $24  million  would  be  incurred  if  those  earnings  were
distributed.  Foreign net operating loss carryforwards  primarily relate to
certain   European   operations  and  generally  may  be  carried   forward
indefinitely.  Temporary differences that give rise to significant deferred
tax assets and liabilities follow.



(In millions)                                                                    2006         2005
---------------------------------------------------------------------------------------------------
                                                                                   
DEFERRED TAX ASSETS
Employee benefit obligations                                                $     134    $     189
Environmental, self-insurance and litigation reserves (net of receivables)         91           82
Compensation accruals                                                              83           84
Uncollectible accounts receivable                                                  10           10
Foreign net operating loss carryforwards                                           17           31
Other items                                                                        18           23
Valuation allowances                                                              (17)         (31)
                                                                            ----------   ----------
Total deferred tax assets                                                         336          388
                                                                            ----------   ----------
DEFERRED TAX LIABILITIES
Property, plant and equipment                                                      53           53
Investment in unconsolidated affiliates                                             4            3
                                                                            ----------   ----------
Total deferred tax liabilities                                                     57           56
                                                                            ----------   ----------
Net deferred tax asset                                                      $     279    $     332
                                                                            ==========   ==========


     Ashland's  income tax  expense  for 2006  included  $16 million in tax
benefits related to prior years. These benefits resulted primarily from the
resolution  of domestic  and foreign  tax matters and the  reevaluation  of
income tax reserves related to prior years.

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

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

                                    F-22


     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.



(In millions)                                                                2006         2005         2004
-------------------------------------------------------------------------------------------------------------
                                                                                         
Income from continuing operations before income taxes
   United States                                                        $      72    $   1,584    $     304
   Foreign                                                                    140          144          107
                                                                        ----------   ----------   ----------
                                                                        $     212    $   1,728    $     411
                                                                        ==========   ==========   ==========
Income taxes computed at U.S. statutory rate (35%)                      $      74    $     605    $     144
Increase (decrease) in amount computed resulting from
   Tax free gain on MAP Transaction                                             -         (450)           -
   Reversal of net deferred tax liabilities due to the MAP Transaction          -         (335)           -
   Resolution and reevaluation of prior-year contingency issues               (16)         (39)         (33)
   Adjustment of prior year provision to return as filed                      (16)          (3)          (3)
   Claim for prior-year research and development credits                       (1)          (1)         (15)
   State income taxes                                                           -            6           14
   Net impact of foreign results                                               (5)           2            -
   Business meals and entertainment                                             1            2            2
   Deductible dividends under employee stock ownership plan                    (2)          (2)          (2)
   Life insurance income                                                       (4)          (3)          (2)
   Other items                                                                 (2)         (12)          (5)
                                                                        ----------   ----------   ----------
Income tax expense (benefit)                                            $      29    $    (230)   $     100
                                                                        ==========   ==========   ==========


NOTE N - CAPITAL STOCK

     On September  14, 2006  Ashland's  Board of Directors  authorized  the
distribution  of a substantial  portion of the proceeds of the sale of APAC
to the Ashland Common Stock  shareholders as a one-time  special  dividend.
Each  shareholder  of record as of October 10,  2006,  received  $10.20 per
share,  for a total of $674  million.  This amount is accrued as  dividends
payable  in  the   Consolidated   Balance  Sheet  at  September  30,  2006.
Substantially  all of the  remaining  proceeds  were directed to be used to
repurchase  Ashland Common Stock in accordance with the terms authorized by
Ashland's Board of Directors and as further described below.

     The stock  repurchases  were made pursuant to two  different  programs
authorized by Ashland's Board of Directors.  The first program,  originally
approved on July 21,  2005,  authorized  the  purchase  of $270  million of
Ashland common stock in the open market. After 3.5 million shares at a cost
of $196  million had been  purchased  under the initial  authorization,  on
January 25, 2006,  Ashland's  Board of Directors  increased  the  remaining
authorization  by $176 million to $250  million.  As of September 14, 2006,
Ashland had completed all repurchases to be made under this program.

     The second program was  authorized by Ashland's  Board of Directors on
September 14, 2006,  employing proceeds from the sale of APAC to repurchase
up to an  additional  7  million  shares.  To  facilitate  this  repurchase
program,  Ashland  entered  into a stock  trading  plan with Credit  Suisse
Securities (USA) LLC (Credit Suisse).  The stock trading plan,  amended and
restated  on  September  20,  2006,  allows  Credit  Suisse  to make  daily
repurchases  of stock  starting on October 2, 2006, in accordance  with the
instructions  set forth in the filed plan and within the safe  harbor  from
insider trading liability provided under Exchange Act Rule 10b5-1.

     Ashland  repurchased 6.7 million shares for $405 million during fiscal
year 2006.  Since the  inception of the first  described  share  repurchase
program  on  July  21,  2005  through  September  30,  2006,   Ashland  had
repurchased  a total  of 8.4  million  shares  at a cost  of $505  million.
Following the completion of the current share  repurchase  program  Ashland
estimates  it  will  have  purchased   approximately   18%  of  the  shares
outstanding on June 30, 2005. The stock  repurchase  actions are consistent
with certain representations of intent made to the Internal Revenue Service
with respect to the transfer of MAP.

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

     The  Ashland  Inc.  Shareholder  Rights  Plan dated May 16,  1996 (the
"Rights  Plan")  expired  pursuant to its terms at the close of business on
May 16, 2006.  The former Rights Plan  provided  that one  Preferred  Stock
Purchase  Right  to  purchase   one-thousandth  of  a  share  of  Series  A
Participating  Cumulative  Preferred  Stock (a  "Right")  accompanied  each
outstanding  share of Ashland's  Common Stock.  Since the expiration of the
Rights Plan, Ashland's Common Stock has not been

                                    F-23


NOTE N - CAPITAL STOCK (CONTINUED)

accompanied by a Right. In a related  action,  Ashland's Board of Directors
authorized amendments to Ashland's articles of incorporation, effective May
17, 2006,  to eliminate  the  designation  of, and all  references  to, the
Series A Participating  Cumulative  Preferred  Stock from the Articles.  At
September  30, 2006,  8.4 million  common  shares are reserved for issuance
under stock incentive and deferred compensation plans.

NOTE O - STOCK INCENTIVE PLANS

     Ashland  has  stock  incentive  plans  under  which key  employees  or
directors  are granted  stock  options,  stock-settled  stock  appreciation
rights (SARs) or nonvested stock awards. Stock options and SARs are granted
to  employees at a price equal to the fair market value of the stock on the
date of grant and become  exercisable  over  periods of one to three years.
Unexercised  options  and SARs  lapse  ten  years  after the date of grant.
Nonvested  stock awards  entitle  employees or directors to vote the shares
and to receive any dividends thereon.  However,  such shares are subject to
forfeiture  upon  termination  of service  before the vesting  period ends.
Nonvested  stock  awards  generally  vest over a four to seven year period.
During 2006,  Ashland granted 35,000 nonvested stock awards with a weighted
average fair value of $63.68 per share. During 2005, Ashland granted 22,500
nonvested  stock  awards with a weighted  average  fair value of $60.30 per
share.  During 2004,  Ashland granted 216,900 nonvested stock awards with a
weighted  average fair value of $40.87 per share. As of September 30, 2006,
there was $6 million of total  unrecognized  compensation  costs related to
nonvested  stock  awards.  That cost is  expected to be  recognized  over a
weighted average period of 2.6 years.

     The following table illustrates the fair value per share of options or
SARs  granted  using  the  Black-Scholes  option  pricing  model  with  the
indicated assumptions.  The dividend yield reflects the assumption that the
current  dividend payout will continue with no anticipated  increases.  The
expected  life of the  options  is  based  on  historical  data  and is not
necessarily indicative of exercise patterns that may occur.



(In millions except per share data)                                         2006         2005         2004
-----------------------------------------------------------------------------------------------------------
                                                                                        
Weighted average fair value per share of options or SARs granted       $   17.24    $   14.37    $   12.65
Assumptions (weighted average)
   Risk-free interest rate                                                   4.4%         4.0%         3.4%
   Expected dividend yield                                                   1.7%         1.9%         2.0%
   Expected volatility                                                      26.3%        25.9%        25.9%
   Expected life (in years)                                                  5.0          5.0          5.0


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



                                                 2006                          2005                          2004
                                      --------------------------    --------------------------    --------------------------
                                         Number        Weighted        Number        Weighted        Number        Weighted
                                             of         average            of         average            of         average
(In thousands except                     common  exercise price        common  exercise price        common  exercise price
 per share data)                         shares       per share        shares       per share        shares       per share
----------------------------------------------------------------------------------------------------------------------------
                                                                                                
Outstanding - beginning of year (a)       3,274     $     39.74         5,165       $   40.37         7,807       $   37.17
Granted                                      23           65.48           688           58.73           603           54.65
Exercised                                  (678)          33.37        (3,048)          37.93        (3,100)          35.29
Forfeitures and expirations                 (17)          48.30           (83)          38.63          (145)          36.04
MAP Transaction adjustment (b)                -               -           552               -             -               -
                                      ----------                    ----------                    ----------
Outstanding - end of year (a)             2,602           41.56         3,274           39.74 (b)     5,165           40.37
                                      ==========                    ==========                    ==========
Exercisable - end of year                 2,181           39.21         2,170           34.30         4,067           39.37


(a) Shares of common stock available for future grants of options or awards
    amounted to 4.0 million at September  30, 2006 and 496,000 at September
    30, 2005. Exercise prices per share for options and SARs outstanding at
    September  30, 2006  ranged  from $22.45 to $28.04 for 530,000  shares,
    from  $30.00 to $39.58 for  638,000  shares,  from $43.50 to $45.19 for
    740,000  shares,  and from  $50.02 to $65.40 for  694,000  shares.  The
    weighted average remaining contractual life of the options and SARs was
    6.4 years.
(b) As described in Note E, Ashland  shareholders  received $936 million of
    Marathon shares as a result of the MAP  Transaction.  Adjustments  were
    made to outstanding  grants of stock options and SARs to maintain their
    intrinsic  values.  The number of shares was  increased  by a factor of
    1.2129 and the exercise prices were decreased by the same factor. These
    adjustments  did  not  result  in an  increase  in the  fair  value  of
    outstanding grants or any adjustment to expense recognition.

                                    F-24


     The components of Ashland's pretax  stock-based  compensation  expense
(net of forfeitures) and associated income tax benefits are as follows:

(In millions)                      2006         2005         2004
------------------------------------------------------------------
Stock options                $        1    $       3    $       3
SARs                                  7            4            -
Nonvested stock awards                4            3            4
                             -----------   ----------   ----------
                             $       12    $      10    $       7
                             ===========   ==========   ==========
Income tax benefit           $        5    $       4    $       3
                             ===========   ==========   ==========

NOTE P - LITIGATION, CLAIMS AND CONTINGENCIES

ASBESTOS-RELATED LITIGATION

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

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

(In thousands)                          2006         2005         2004
-----------------------------------------------------------------------
Open claims - beginning of year          184          196          198
New claims filed                           6           12           29
Claims settled                            (3)          (6)          (7)
Claims dismissed                         (25)         (18)         (24)
                                   ----------   ----------   ----------
Open claims - end of year                162          184          196
                                   ==========   ==========   ==========

     Since October 1, 2003,  Riley has been dismissed as a defendant in 80%
of the  resolved  claims.  Amounts  spent on  litigation  defense and claim
settlements  averaged $1,428 per claim resolved in 2006, compared to $1,985
in 2005 and $1,655 in 2004.  A  progression  of  activity  in the  asbestos
reserve is presented in the following table.

(In millions)                                  2006         2005         2004
------------------------------------------------------------------------------
Asbestos reserve - beginning of period    $     571    $     618    $     610
Expense incurred                                104            -           59
Amounts paid                                    (40)         (47)         (51)
                                          ----------   ----------   ----------
Asbestos reserve - end of period          $     635    $     571    $     618
                                          ==========   ==========   ==========

     Ashland  retained  Hamilton,  Rabinovitz & Alschuler,  Inc.  (HR&A) to
assist in developing and  periodically  updating  independent  and accurate
reserve  estimates  for future  asbestos  claims and  related  costs  given
various  assumptions.  The  methodology  used  by HR&A  to  project  future
asbestos costs is based largely on Ashland's recent  experience,  including
claim-filing and settlement rates, disease mix, enacted  legislation,  open
claims, and litigation defense and claim settlement costs.  Ashland's claim
experience   is   compared   to  the   results  of   previously   conducted
epidemiological  studies  estimating the number of people likely to develop
asbestos-related diseases. Those studies were undertaken in connection with
national  analyses  of the  population  expected  to have been  exposed  to
asbestos.  Using that information,  HR&A estimates a range of the number of
future  claims that may be filed,  as well as the related costs that may be
incurred in resolving those claims.

     From the range of estimates, Ashland records the amount it believes to
be the best estimate of future  payments for  litigation  defense and claim
settlement costs.  During the most recent update of this estimate completed
during 2006, it was determined that the reserves for asbestos claims should
be increased by $104  million.  This  increase in the reserves was based on
the results of a non-inflated,  non-discounted 51-year model developed with
the  assistance  of HR&A.  This  increase  resulted in total  reserves  for
asbestos  claims of $635  million at September  30, 2006,  compared to $571
million at September 30, 2005.

     Projecting future asbestos costs is subject to numerous variables that
are  extremely  difficult  to  predict.  In  addition  to  the  significant
uncertainties  surrounding  the number of claims  that  might be  received,
other  variables  include the type and  severity of the disease  alleged by
each claimant,  the long latency period associated with asbestos  exposure,
dismissal rates,

                                    F-25


NOTE P - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

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

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

     Ashland  has  estimated  the value of  probable  insurance  recoveries
associated  with  Ashland's  estimate  of its  asbestos  liabilities.  Such
recoveries are based on management's  assumptions and estimates surrounding
the available or applicable insurance coverage. One such assumption is that
all solvent insurance carriers remain solvent. Although coverage limits are
resolved in the coverage-in-place  agreement with Equitas Limited (Equitas)
and other  London  companies,  which  collectively  provide  a  significant
portion of Ashland's  insurance  coverage for asbestos claims,  there was a
disagreement  with  these  companies  over the  timing  of  recoveries.  In
estimating the value of future  recoveries,  Ashland has historically  used
the  least  favorable  interpretation  of this  agreement  under  which the
ultimate recoveries are extended for many years, resulting in a significant
discount  being  applied to value  those  recoveries.  On June 16,  2006 an
arbitrator reached a decision  essentially  confirming that interpretation.
Ashland will continue to apply this  methodology  based on this arbitration
decision.

     At  September  30,  2006,   Ashland's  receivable  for  recoveries  of
litigation  defense and claim  settlement  costs from insurers  amounted to
$474  million,  of which $65  million  relates  to costs  previously  paid.
Receivables  from insurers  amounted to $400 million at September 30, 2005.
The receivable  was increased by $104 million  during 2006,  reflecting the
updated model used for purposes of valuing the reserve described above, and
its impact on the valuation of future  recoveries from insurers.  About 31%
of the estimated receivables from insurance companies at September 30, 2006
are  expected to be due from  Equitas and other  London  companies.  Of the
remainder,  approximately  97% is expected to come from companies or groups
that are rated A or higher by A. M. Best.

ENVIRONMENTAL REMEDIATION

     Ashland is subject to various federal,  state and local  environmental
laws and regulations that require  environmental  assessment or remediation
efforts (collectively  environmental remediation) at multiple locations. At
September 30, 2006, such locations  included 72 waste treatment or disposal
sites where Ashland has been identified as a potentially  responsible party
under  Superfund or similar  state laws,  110 current and former  operating
facilities  (including  certain operating  facilities  conveyed to MAP) and
about 1,230 service  station  properties,  of which 218 are being  actively
remediated.  Ashland's reserves for environmental  remediation  amounted to
$199 million at September  30, 2006 and $176 million at September 30, 2005,
of which $168 million at  September  30, 2006 and $145 million at September
30, 2005 were  classified in  noncurrent  liabilities  on the  Consolidated
Balance Sheets.  The total reserves for environmental  remediation  reflect
Ashland's  estimates of the most likely costs that will be incurred over an
extended period to remediate identified  conditions for which the costs are
reasonably  estimable,   without  regard  to  any  third-party  recoveries.
Engineering  studies,  probability  techniques,  historical  experience and
other  factors are used to identify and evaluate  remediation  alternatives
and  their  related  costs  in  determining  the  estimated   reserves  for
environmental  remediation.  Ashland  regularly  adjusts  its  reserves  as
environmental  remediation  continues.  Environmental  remediation  expense
amounted  to $57  million  in 2006,  $52  million in 2005 and $7 million in
2004.

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

                                    F-26


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.
Although it is not possible to predict with certainty the ultimate costs of
environmental  remediation,  Ashland currently estimates that the upper end
of the reasonably possible range of future costs for identified sites could
be as  high  as  approximately  $310  million.  No  individual  remediation
location is material  to  Ashland,  as its largest  reserve for any site is
less than 10% of the remediation reserve.

OTHER LEGAL PROCEEDINGS

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

NOTE Q - EMPLOYEE BENEFIT PLANS

PENSION PLANS

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

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

     In September 2006, the FASB issued Financial  Accounting  Standard No.
158 (FAS 158), "Employers' Accounting for Defined Benefit Pension and Other
Postretirement   Plans,"  which  requires  an  employer  to  recognize  the
overfunded  or  underfunded  status of a defined  benefit  pension or other
postretirement  plan  (other  than a  multiemployer  plan)  as an  asset or
liability in its  Consolidated  Balance  Sheet and to recognize  changes in
that  funded  status  in the  year  in  which  the  changes  occur  through
comprehensive income, which is a component of stockholders' equity. FAS 158
also  requires  additional  disclosures  in  the  notes  to  the  financial
statements about certain effects on net periodic benefit costs for the next
fiscal  year that arise from  delayed  recognition  of the gains or losses,
prior service costs or credits, and transition asset or obligation. FAS 158
is effective  for Ashland on September 30, 2007 and will not have an impact
on  the  Statement  of  Consolidated  Income,  but  will  affect  Ashland's
Consolidated  Balance  Sheet.  If Ashland had adopted this  statement as of
September 30, 2006, it would have increased accrued benefit  liabilities by
$117  million  with a  corresponding  deferred  tax asset  increase  of $46
million and an additional reduction in comprehensive income of $71 million.

OTHER POSTRETIREMENT BENEFIT PLANS

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

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

                                    F-27


NOTE Q - EMPLOYEE BENEFIT PLANS (CONTINUED)

reduced the  postretirement  benefit  obligation by $58 million and reduced
postretirement  benefit  costs by $3 million  over the last five  months of
fiscal year 2005.

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

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

COMPONENTS OF NET PERIODIC BENEFIT COSTS

     The plan amendments in 2003 and 1992 previously  discussed under other
postretirement  benefit plans reduced Ashland's  accrued  obligations under
those plans,  and the reductions are being  amortized to income over future
periods. Such amortization reduced Ashland's net periodic benefit costs for
other postretirement benefits by $8 million in 2006, $9 million in 2005 and
$15 million in 2004.  At September  30, 2006,  the  remaining  unrecognized
prior service credit  resulting  from the changes  amounted to $33 million,
and will reduce  future  costs by $4 million in 2007 and  approximately  $4
million annually  thereafter  through 2014. As a result of the sale of APAC
to Oldcastle  during 2006, a  curtailment  gain of $34 million ($21 million
after-tax) was recognized to account for this  divestiture's  impact on the
plans.

     The following  table  summarizes  the  components of pension and other
postretirement  benefit costs,  and the  assumptions  used to determine net
periodic benefit costs for the plans.



                                                         Pension benefits                  Other postretirement benefits
                                               -----------------------------------      -----------------------------------
(In millions)                                       2006         2005        2004            2006         2005        2004
---------------------------------------------------------------------------------------------------------------------------
                                                                                               
NET PERIODIC BENEFIT COSTS
Service cost                                   $      57   $       53   $      51       $       7    $       9   $       9
Interest cost                                         84           78          73              12           16          17
Curtailment                                           (1)           -           -             (33)           -           -
Expected return on plan assets                       (99)         (78)        (66)              -            -           -
Amortization of prior service credit                   -            -           -              (8)          (9)        (15)
Amortization of net actuarial loss                    40           33          29               1            3           5
                                               ----------  -----------  ----------      ----------   ----------  ----------
                                               $      81   $       86   $      87       $     (21)   $      19   $      16
                                               ==========  ===========  ==========      ==========   ==========  ==========
WEIGHTED AVERAGE PLAN ASSUMPTIONS (a)
Discount rate                                       5.42%        5.98%       6.20%           5.33%        6.00%       6.25%
Rate of compensation increase                       4.46%        4.43%       4.43%              -            -           -
Expected long-term rate of
      return on plan assets                         8.26%        8.35%       8.35%              -            -           -


(a) The plan assumptions  disclosed are a blended weighted average rate for
    Ashland's  U.S.  and  non-U.S.  pension  plans.  The U.S.  pension plan
    represented  approximately 88% of the projected  benefit  obligation at
    September 30, 2006.  Non-U.S.  pension plans use assumptions  generally
    consistent with those of U.S. plans. Other postretirement benefit plans
    are all U.S. plans.

OBLIGATIONS AND FUNDED STATUS

     Ashland uses a measurement date of September 30 for all of its pension
and postretirement  benefit plans.  Actuarial  valuations are performed for
the pension, postemployment and postretirement plans to determine Ashland's
obligation for each plan.  Summaries of the change in benefit  obligations,
plan assets,  funded status of the plans, amounts recognized in the balance
sheet, and assumptions  used to determine the benefit  obligations for 2006
and 2005 follow.

                                    F-28



                                                                                                      Other postretirement
                                                                        Pension plans                    benefit plans
                                                                   -----------------------          -----------------------
(In millions)                                                           2006         2005                2006         2005
---------------------------------------------------------------------------------------------------------------------------
                                                                                                     
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at October 1                                   $   1,558    $   1,330           $     246    $     298
Service cost                                                              57           53                   7            9
Interest cost                                                             84           78                  12           16
Curtailment                                                              (48)           -                 (13)           -
Participant contributions                                                  1            1                  12            9
Benefits paid                                                            (64)         (56)                (28)         (31)
Medicare Part D Act                                                        -            -                   -          (58)
Changes in assumptions                                                   (53)         160                  11            4
Foreign currency exchange rate changes                                     8            2                   -            -
Other - net                                                                6          (10)                 (2)          (1)
                                                                   ----------   ----------          ----------   ----------
Benefit obligations at September 30                                $   1,549    $   1,558           $     245    $     246
                                                                   ==========   ==========          ==========   ==========
CHANGE IN PLAN ASSETS
Value of plan assets at October 1                                  $   1,143    $     932           $       -    $       -
Actual return on plan assets                                             107          131                   -            -
Employer contributions                                                   105          121                  16           22
Participant contributions                                                  1            1                  12            9
Benefits paid                                                            (58)         (50)                (28)         (31)
Foreign currency exchange rate changes                                     7            1                   -            -
Other                                                                      6            7                   -            -
                                                                   ----------   ----------          ----------   ----------
Value of plan assets at September 30                               $   1,311    $   1,143           $       -    $       -
                                                                   ==========   ==========          ==========   ==========
FUNDED STATUS OF THE PLANS
Unfunded benefit obligation                                        $    (238)   $    (415)          $    (245)   $    (246)
Unrecognized net actuarial loss                                          323          480                  12           19
Unrecognized prior service cost (credit)                                   2            -                 (33)         (76)
                                                                   ----------   ----------          ----------   ----------
Net amount recognized                                              $      87    $      65           $    (266)   $    (303)
                                                                   ==========   ==========          ==========   ==========
AMOUNTS RECOGNIZED IN THE BALANCE SHEET
Accrued benefit liabilities                                        $    (100)   $    (199)          $    (266)   $    (303)
Intangible assets                                                          2            2                   -            -
Accumulated other comprehensive loss                                     185          262                   -            -
                                                                   ----------   ----------          ----------   ----------
Net amount recognized                                              $      87    $      65           $    (266)   $    (303)
                                                                   ==========   ==========          ==========   ==========
WEIGHTED AVERAGE PLAN ASSUMPTIONS
Discount rate                                                           5.66%        5.42%               5.64%        5.33%
Rate of compensation increase                                           3.74%        4.46%                  -            -


     The  accumulated  benefit  obligation for all pension plans was $1,407
million at September  30, 2006 and $1,345  million at  September  30, 2005.
Information  for pension plans with an  accumulated  benefit  obligation in
excess of plan assets follows.



                                                                2006                                    2005
                                                 -----------------------------------     -----------------------------------
                                                                   Non-                                    Non-
                                                  Qualified   qualified                   Qualified   qualified
(In millions)                                      plans (a)      plans       Total        plans (a)      plans       Total
----------------------------------------------------------------------------------------------------------------------------
                                                                                                
Projected benefit obligation                     $      112   $      95   $     207      $    1,355   $     118   $   1,473
Accumulated benefit obligation                           98          86         184           1,171         106       1,277
Fair value of plan assets                                73           -          73           1,069           -       1,069


(a) Includes  qualified U.S. and non-U.S.  pension plans.  The  significant
    decline in amounts  between  2005 and 2006 is due to the fact that plan
    assets for  Ashland's  major U.S.  pension plan exceed the  accumulated
    benefit obligation at September 30, 2006.

                                    F-29


NOTE Q - EMPLOYEE BENEFIT PLANS (CONTINUED)

PLAN ASSETS

     The expected  long-term rate of return on U.S. pension plan assets for
2006 of 8.5% was  based on an  assumed  real  rate of  return of 5.5% and a
projected  long-term  inflation rate of 3%. The basis for  determining  the
expected  long-term  rate of  return  is a  combination  of  future  return
assumptions  for various asset classes in Ashland's  investment  portfolio,
historical analysis of previous returns, market indices and a projection of
inflation.

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

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

     The  target   allocation   for  2006  by  asset  category  and  actual
allocations at September 30, 2006 and 2005 follow.

                                     Target          Actual at September 30
                                    --------        ------------------------
(In millions)                           2006            2006            2005
----------------------------------------------------------------------------
PLAN ASSETS ALLOCATION
Equity securities                        70%             70%             71%
Debt securities                          30%             25%             27%
Other                                     -               5%              2%
                                    --------        --------       ---------
                                        100%            100%            100%
                                    ========        ========       =========

CASH FLOWS

     In fiscal 2007,  Ashland expects to contribute $51 million to its U.S.
pension plans and $7 million to its non-U.S.  pension plans.  The following
benefit payments,  which reflect future service, are expected to be paid in
each of the next five years and in aggregate for five years thereafter.



                                                    Other postretirement benefits
                                             -------------------------------------------
                            Pension             With Medicare           Without Medicare
(In millions)              benefits            Part D subsidy             Part D subsidy
----------------------------------------------------------------------------------------
                                                                      
2007                      $      66                 $      21                  $      25
2008                             68                        21                         25
2009                             72                        22                         26
2010                             80                        22                         27
2011                             81                        23                         28
2012-2016                       470                       117                        147


OTHER PLANS

     Ashland sponsors  qualified savings plans to assist eligible employees
in  providing  for  retirement  or other  future  needs.  Under such plans,
company contributions  amounted to $17 million in 2006, $18 million in 2005
and $19 million in 2004.

                                    F-30


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



(In millions)                                           2006         2005         2004
--------------------------------------------------------------------------------------
                                                                   
REVENUES
Sales and operating revenues
   Performance Materials                           $   1,425    $   1,369   $    1,026
   Distribution                                        4,070        3,810        3,199
   Valvoline                                           1,409        1,326        1,297
   Water Technologies                                    502          394          360
   Intersegment sales (a)
     Performance Materials                              (145)        (143)         (85)
     Distribution                                        (23)         (22)         (19)
     Valvoline                                            (3)          (2)          (1)
     Water Technologies                                   (2)          (1)          (1)
                                                   ----------   ----------  -----------
                                                       7,233        6,731        5,776
Equity income
   Performance Materials                                  10            7            7
   Valvoline                                               1            1            -
   Refining and Marketing                                  -          517          405
                                                   ----------   ----------  -----------
                                                          11          525          412
Other income
   Performance Materials                                   4           17            8
   Distribution                                            4            7            9
   Valvoline                                               7            6            4
   Water Technologies                                      4            4            8
   Refining and Marketing                                  -            3           (6)
   Unallocated and other                                  14            2            3
                                                   ----------   ----------  -----------
                                                          33           39           26
                                                   ----------   ----------  -----------
                                                   $   7,277    $   7,295   $    6,214
                                                   ==========   ==========  ===========
OPERATING INCOME
Performance Materials                              $     112    $      88   $       42
Distribution                                             120           99           56
Valvoline                                                (21)          59           77
Water Technologies                                        14           11           14
Refining and Marketing (b)                                 -          486          383
Unallocated and other                                    (55)         (72)         (47)
                                                   ----------   ----------  -----------
                                                   $     170    $     671   $      525
                                                   ==========   ==========  ===========
ASSETS
Performance Materials                              $     841    $     764   $      640
Distribution                                           1,148        1,057          922
Valvoline                                                742          723          658
Water Technologies                                       468          233          202
Refining and Marketing                                     -            -        2,742
Discontinued operations                                    -        1,569        1,428
Unallocated and other (c)                              3,391        2,469          910
                                                   ----------   ----------  -----------
                                                   $   6,590    $   6,815   $    7,502
                                                   ==========   ==========  ===========


(a) Intersegment  sales are accounted for at prices that approximate market
    value.
(b) Includes  Ashland's  equity  income  from MAP  through  June 30,  2005,
    amortization  related to Ashland's excess  investment in MAP, and other
    activities associated with refining and marketing.
(c) Includes  cash,  cash  equivalents,  available-for-sale  securities and
    other assets.

                                    F-31



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



(In millions)                                            2006         2005          2004
-----------------------------------------------------------------------------------------
                                                                     
INVESTMENT IN EQUITY AFFILIATES
Performance Materials                               $      44    $      38    $       37
Valvoline                                                  11            7             7
Water Technologies                                          3            4             3
Refining and Marketing                                      -            -         2,713
Unallocated and other                                       3            2             1
                                                    ----------   ----------   -----------
                                                    $      61    $      51    $    2,761
                                                    ==========   ==========   ===========
EXPENSE (INCOME) NOT AFFECTING CASH
Depreciation and amortization
   Performance Materials                            $      31    $      31    $       30
   Distribution                                            21           18            18
   Valvoline                                               28           27            27
   Water Technologies                                      17           13            11
   Unallocated and other                                   14           11            12
                                                    ----------   ----------   -----------
                                                          111          100            98
Other noncash items (d)
   Performance Materials                                  (16)         (47)(e)         4
   Distribution                                             7           (6)            3
   Valvoline                                               (1)         (31)(e)         2
   Water Technologies                                      (4)          (1)(e)         4
   Refining and Marketing                                   -       (2,005)(e)      (181)
   Unallocated and other                                    9          200 (e)        12
                                                    ----------   ----------   -----------
                                                           (5)      (1,890)         (156)
                                                    ----------   ----------   -----------
                                                    $     106    $  (1,790)   $      (58)
                                                    ==========   ==========   ===========
PROPERTY, PLANT AND EQUIPMENT - NET
Performance Materials                               $     297    $     262    $      264
Distribution                                              192          176           166
Valvoline                                                 237          236           215
Water Technologies                                        121           56            45
Unallocated and other                                     103          100            88
                                                    ----------   ----------   -----------
                                                    $     950    $     830    $      778
                                                    ==========   ==========   ===========
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Performance Materials                               $      58    $      45    $       45
Distribution                                               36           26            10
Valvoline                                                  38           66            26
Water Technologies                                         23           19            17
Unallocated and other                                      20           24            39
                                                    ----------   ----------   -----------
                                                    $     175    $     180    $      137
                                                    ==========   ==========   ===========


(d) Includes  deferred  income taxes,  equity income from affiliates net of
    distributions and other items not affecting cash.
(e) Includes  a  $1,531  million   reduction  to  income  from   continuing
    operations  to arrive at cash  flows  from  operating  activities  from
    continuing  operations for the gain on the MAP Transaction and the loss
    on early retirement of debt, net of their respective tax effects.  This
    amount  was  recorded  by  segment  as  follows:   $(43)   million  for
    Performance  Materials,  $(24) million for Valvoline,  $(1,625) million
    for Refining and Marketing,  and $161 million  included in "unallocated
    and other."

                                    F-32



QUARTERLY FINANCIAL INFORMATION

     The following table presents quarterly  financial  information and per
share data  relative to Ashland's  common  stock.  Amounts for each quarter
have been  amended to reflect the  presentation  of APAC as a  discontinued
operation. See Note D for further information.



                                           December 31             March 31             June 30            September 30
Quarters ended                         -------------------   -------------------  -------------------   ------------------
(In millions except per share data)        2005      2004        2006      2005       2006      2005(a)    2006(b)   2005(c)
--------------------------------------------------------------------------------------------------------------------------
                                                                                          
Sales and operating revenues           $  1,686  $  1,565    $  1,786  $  1,674   $  1,853  $  1,779    $ 1,908   $ 1,712
Operating income                             46       167          49       126         47       357         28        21
Income (loss) from
   continuing operations                     35        85          49        58         42     1,733         56        81
Net income (loss)                            66        94          49        33         93     1,767        200       111

Basic earnings (loss) per share
   Continuing operations               $    .49  $   1.19    $    .69  $    .80   $    .59  $  23.67    $   .80   $  1.10
   Net income (loss)                        .92      1.30         .68       .45       1.31     24.13       2.85      1.50

Diluted earnings (loss) per share
   Continuing operations               $    .48  $   1.17    $    .68  $    .79   $    .59  $  23.19    $   .79   $  1.08
   Net income (loss)                        .91      1.28         .67       .44       1.29     23.65       2.82      1.48

Regular cash dividends per share       $   .275  $   .275    $   .275  $   .275   $   .275  $   .275    $  .275   $  .275

Market price per common share
   High                                $  59.13  $  60.17    $  71.30  $  68.85   $  75.17  $  72.20    $ 68.59   $ 65.25
   Low                                    50.74     53.80       57.96     54.72      57.39     61.45      60.15     50.45


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

(b) Ashland  sold APAC to  Oldcastle  Materials,  Inc.  in August  2006 for
    approximately  $1.3  billion,  recording an  after-tax  gain on sale of
    discontinued operations of $110 million.
(c) During the  quarter,  Ashland  recorded  $39  million  in tax  benefits
    related to a favorable settlement with the Internal Revenue Service for
    the  1996 - 1998  audit  period  and the  reevaluation  of  income  tax
    reserves related to other years.


Ashland Inc. and Consolidated Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



                                                        Balance at     Provisions                                   Balance
                                                         beginning     charged to      Reserves         Other        at end
(In millions)                                              of year       earnings      utilized       changes       of year
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   
YEAR ENDED SEPTEMBER 30, 2006
Reserves deducted from asset accounts
   Accounts receivable                                    $     33      $      12     $     (11)    $       6     $      40
   Inventories                                                  11              6            (1)            -            16
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2005
Reserves deducted from asset accounts
   Accounts receivable                                    $     31      $      12     $     (10)    $       -     $      33
   Inventories                                                  10              3            (2)            -            11
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
Reserves deducted from asset accounts
   Accounts receivable                                    $     31      $      13     $     (14)    $       1     $      31
   Inventories                                                   9              2            (1)            -            10
----------------------------------------------------------------------------------------------------------------------------

                                    F-33


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



(In millions except per share data)                                2006         2005         2004         2003         2002
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   
SUMMARY OF OPERATIONS
Revenues
   Sales and operating revenues                               $   7,233    $   6,731    $   5,776    $   5,165    $   4,738
   Equity income                                                     11          525          412          292          181
   Other income                                                      33           39           26           46           35
Costs and expenses
   Cost of sales and operating expenses                          (6,030)      (5,545)      (4,721)      (4,189)      (3,812)
   Selling, general and administrative expenses                  (1,077)      (1,079)        (968)      (1,031)        (964)
                                                              ----------   ----------   ----------   ----------   ----------
Operating income                                                    170          671          525          283          178
(Loss) gain on the MAP Transaction                                   (5)       1,284            -            -            -
Loss on early retirement of debt                                      -         (145)           -            -            -
Net interest and other financing income (costs)                      47          (82)        (114)        (128)        (137)
                                                              ----------   ----------   ----------   ----------   ----------
Income from continuing operations
   before income taxes                                              212        1,728          411          155           41
Income tax (expense) benefit                                        (29)         230         (100)         (52)         (14)
                                                              ----------   ----------   ----------   ----------   ----------
Income from continuing operations                                   183        1,958          311          103           27
Income (loss) from discontinued operations                          224           46           67          (23)         101
                                                              ----------   ----------   ----------   ----------   ----------
Income before cumulative effect
   of accounting changes                                            407        2,004          378           80          128
Cumulative effect of accounting changes                               -            -            -           (5)         (11)
                                                              ----------   ----------   ----------   ----------   ----------
Net income                                                    $     407    $   2,004    $     378    $      75    $     117
                                                              ==========   ==========   ==========   ==========   ==========

BALANCE SHEET INFORMATION
Current assets                                                $   4,250    $   3,757    $   2,302    $   2,085    $   1,922
Current liabilities                                               2,041        1,545        1,815        1,484        1,508
                                                              ----------   ----------   ----------   ----------   ----------
Working capital                                               $   2,209    $   2,212    $     487    $     601    $     414
                                                              ==========   ==========   ==========   ==========   ==========

Total assets                                                  $   6,590    $   6,815    $   7,502    $   7,006    $   6,722

Short-term debt                                               $       -    $       -    $      40    $       -    $      10
Long-term debt (including current portion)                           82           94        1,508        1,614        1,797
Stockholders' equity                                              3,096        3,739        2,706        2,253        2,173
                                                              ----------   ----------   ----------   ----------   ----------
Capital employed                                              $   3,178    $   3,833    $   4,254    $   3,867    $   3,980
                                                              ==========   ==========   ==========   ==========   ==========

CASH FLOW INFORMATION
Cash flows from operating activities from
      continuing operations                                   $     148    $     (64)   $      43    $     201    $     (41)
Additions to property, plant and equipment                          175          180          137           65           71
Cash dividends                                                       78           79           77           75           76

COMMON STOCK INFORMATION
Diluted earnings per share
   Income from continuing operations                          $    2.53    $   26.23    $    4.36    $    1.50    $    0.38
   Net income                                                      5.64        26.85         5.31         1.10         1.67
Regular cash dividends per share                                   1.10         1.10         1.10         1.10         1.10
Special cash dividend per share - Note N                          10.20            -            -            -            -


                                    F-34