<SUBMISSION>
<ACCESSION-NUMBER>0000007694-04-000113
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>6
<PERIOD>20040630
<FILING-DATE>20040812
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>ASHLAND INC
<CIK>0000007694
<ASSIGNED-SIC>5160
<IRS-NUMBER>610122250
<STATE-OF-INCORPORATION>KY
<FISCAL-YEAR-END>0930
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-02918
<FILM-NUMBER>04971052
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>50 E. RIVERCENTER BOULEVARD
<CITY>COVINGTON
<STATE>KY
<ZIP>41012
<PHONE>6068153333
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>50 E. RIVERCENTER BOULEVARD
<CITY>COVINGTON
<STATE>KY
<ZIP>41012
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ASHLAND OIL INC
<DATE-CHANGED>19920703
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ASHLAND OIL & REFINING CO
<DATE-CHANGED>19700806
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>edgarq.txt
<DESCRIPTION>FORM 10-Q
<TEXT>


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



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-Q



             Quarterly Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934




                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

                          Commission file number 1-2918



                                  ASHLAND INC.
                            (a Kentucky corporation)



                              I.R.S. No. 61-0122250
                                50 E. RiverCenter
                                    Boulevard
                                  P. O. Box 391
                               Covington, Kentucky
                                   41012-0391



                        Telephone Number: (859) 815-3333



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

     Indicate by checkmark  whether the Registrant is an accelerated  filer
(as defined in Rule 12b-2 of the Act). [X]

     At July 31, 2004, there were 71,066,675 shares of Registrant's  Common
Stock  outstanding.  One  Right to  purchase  one-thousandth  of a share of
Series  A  Participating   Cumulative   Preferred  Stock  accompanies  each
outstanding share of Registrant's Common Stock.


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

<PAGE>






                       PART I - FINANCIAL INFORMATION
                       ------------------------------

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME

------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Three months ended         Nine months ended
                                                                                            June 30                     June 30
                                                                                     ----------------------     --------------------
(In millions except per share data)                                                   2004         2003           2004         2003
-----------------------------------------------------------------------------------------------------------     --------------------
<S>                                                                              <C>         <C>             <C>          <C>
REVENUES
      Sales and operating revenues                                               $   2,192    $   2,006      $   5,928    $   5,388
      Equity income                                                                    221          104            277          169
      Other income                                                                      12           15             34           43
                                                                                 ----------   ----------     -----------  ----------
                                                                                     2,425        2,125          6,239        5,600
COSTS AND EXPENSES
      Cost of sales and operating expenses                                           1,756        1,602          4,727        4,296
      Selling, general and administrative expenses                                     330          336            974        1,004
      Depreciation, depletion and amortization                                          47           49            144          153
                                                                                 ----------   ----------    -----------   ----------
                                                                                     2,133        1,987          5,845        5,453
                                                                                 ----------   ----------    -----------   ----------
OPERATING INCOME                                                                       292          138            394          147
      Net interest and other financial costs                                           (29)         (31)           (88)         (97)
                                                                                 ----------   ----------    -----------   ----------
INCOME FROM CONTINUING OPERATIONS
      BEFORE INCOME TAXES                                                              263          107            306           50
      Income taxes                                                                     (96)         (36)          (111)         (17)
                                                                                 ----------   ----------    -----------   ----------
INCOME FROM CONTINUING OPERATIONS                                                      167           71            195           33
      Results from discontinued operations (net of income taxes) - Note B               (6)          (1)           (16)         (94)
                                                                                 ----------   ----------    -----------   ----------
NET INCOME (LOSS)                                                                $     161    $      70     $      179    $     (61)
                                                                                 ==========   ==========    ===========   ==========

BASIC EARNINGS (LOSS) PER SHARE - Note A
      Income from continuing operations                                          $    2.38    $    1.04     $     2.80    $     .48
      Results from discontinued operations                                            (.09)        (.02)          (.23)       (1.38)
                                                                                 ----------   ----------    -----------   ----------
      Net income (loss)                                                          $    2.29    $    1.02     $     2.57    $    (.90)
                                                                                 ==========   ==========    ===========   ==========

DILUTED EARNINGS (LOSS) PER SHARE - Note A
      Income from continuing operations                                          $    2.35    $    1.03     $     2.75    $     .48
      Results from discontinued operations                                            (.09)        (.02)          (.22)       (1.37)
                                                                                 ----------   ----------    -----------   ----------
      Net income (loss)                                                          $    2.26    $    1.01     $     2.53    $    (.89)
                                                                                 ==========   ==========    ===========   ==========

DIVIDENDS PAID PER COMMON SHARE                                                  $    .275    $    .275     $     .825    $    .825

</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                     2
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

------------------------------------------------------------------------------------------------------------------------------------
                                                                                       June 30       September 30           June 30
(In millions)                                                                             2004               2003              2003
------------------------------------------------------------------------------------------------------------------------------------


                                       ASSETS
                                       ------
<S>                                                                                  <C>                <C>               <C>
CURRENT ASSETS
      Cash and cash equivalents                                                      $     183          $     223         $     112
      Accounts receivable                                                                1,256              1,170             1,085
      Allowance for doubtful accounts                                                      (39)               (35)              (40)
      Inventories - Note A                                                                 510                441               512
      Deferred income taxes                                                                115                142                98
      Assets of discontinued operations held for sale                                        -                  -               198
      Other current assets                                                                 204                144               186
                                                                                     ----------         ----------       ----------
                                                                                         2,229              2,085             2,151
INVESTMENTS AND OTHER ASSETS
      Investment in Marathon Ashland Petroleum LLC (MAP)                                 2,568              2,448             2,401
      Goodwill                                                                             513                523               519
      Asbestos insurance receivable (noncurrent portion)                                   400                399               398
      Other noncurrent assets                                                              393                340               345
                                                                                     ----------         ----------       ----------
                                                                                         3,874              3,710             3,663
PROPERTY, PLANT AND EQUIPMENT
      Cost                                                                               2,955              2,959             2,949
      Accumulated depreciation, depletion and amortization                              (1,791)            (1,748)           (1,725)
                                                                                     ----------        -----------       ----------
                                                                                         1,164              1,211             1,224
                                                                                     ----------        -----------       ----------
                                                                                     $   7,267          $   7,006         $   7,038
                                                                                     ==========        ===========       ==========

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

CURRENT LIABILITIES
      Debt due within one year                                                       $     204          $     102         $     296
      Trade and other payables                                                           1,384              1,371             1,235
      Liabilities of discontinued operations held for sale                                   -                  -                28
      Income taxes                                                                          15                 11                16
                                                                                     ----------         ----------       ----------
                                                                                         1,603              1,484             1,575
NONCURRENT LIABILITIES
      Long-term debt (less current portion)                                              1,338              1,512             1,564
      Employee benefit obligations                                                         394                385               493
      Deferred income taxes                                                                313                291               201
      Reserves of captive insurance companies                                              196                168               184
      Asbestos litigation reserve (noncurrent portion)                                     565                560               535
      Other long-term liabilities and deferred credits                                     358                353               346
      Commitments and contingencies - Notes D and F
                                                                                     ----------        -----------       ----------
                                                                                         3,164              3,269             3,323

COMMON STOCKHOLDERS' EQUITY                                                              2,500              2,253             2,140
                                                                                     ----------        -----------       ----------

                                                                                     $   7,267          $   7,006         $   7,038
                                                                                     ==========        ===========       ==========

</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                     3
<PAGE>
<TABLE>
<CAPTION>

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

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Accumulated
                                                                                                           other
                                                   Common           Paid-in          Retained      comprehensive
(In millions)                                       stock           capital          earnings               loss              Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>               <C>                <C>                <C>
BALANCE AT OCTOBER 1, 2002                       $     68      $        338      $      1,961       $       (194)      $      2,173
      Total comprehensive income (1)                                                      (61)                76                 15
      Cash dividends                                                                      (56)                                  (56)
      Issued 64,370 common shares under
        stock incentive and other plans                                   8                                                       8
                                                 ----------    --------------    --------------     --------------     -------------
BALANCE AT JUNE 30, 2003                         $     68      $        346      $      1,844       $       (118)      $      2,140
                                                 ==========    ==============    ==============     ==============     =============


BALANCE AT OCTOBER 1, 2003                       $     68      $        350      $      1,961       $       (126)      $      2,253
      Total comprehensive income (1)                                                      179                 22                201
      Cash dividends                                                                      (57)                                  (57)
      Issued 2,698,722 common shares under
        stock incentive and other plans                 3               100                                                     103
                                                 ----------    --------------    --------------     --------------     -------------
BALANCE AT JUNE 30, 2004                         $     71      $        450      $      2,083       $       (104)      $      2,500
                                                 ==========    ==============    ==============     ==============     =============
------------------------------------------------------------------------------------------------------------------------------------
(1) Reconciliations of net income (loss) to total comprehensive income follow.
</TABLE>

<TABLE>
<CAPTION>
                                                                        Three months ended                 Nine months ended
                                                                              June 30                            June 30
                                                                   ----------------------------     -------------------------------
      (In millions)                                                    2004              2003               2004               2003
      ------------------------------------------------------------------------------------------------------------------------------
      <S>                                                          <C>           <C>                <C>                <C>
      Net income (loss)                                            $    161      $         70       $        179       $        (61)
      Minimum pension liability adjustment                                -                 -                  -                 19
          Related tax expense                                             -                 -                  -                 (7)
      Unrealized translation adjustments                                (12)               32                 22                 64
          Related tax benefits                                            -                 -                  -                  -
                                                                   ----------    --------------     --------------     -------------
      Total comprehensive income                                   $    149      $        102       $        201       $         15
                                                                   ==========    ==============     ==============     =============

      ------------------------------------------------------------------------------------------------------------------------------
      At June 30, 2004, the accumulated  other  comprehensive  loss of $104
      million (after tax) was comprised of net unrealized translation gains
      of $12 million and a minimum pension liability of $116 million.

</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                     4
<PAGE>
<TABLE>
<CAPTION>

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

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Nine months ended
                                                                                                                   June 30
                                                                                                            ------------------------
(In millions)                                                                                                    2004         2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                         <C>           <C>
CASH FLOWS FROM OPERATIONS
      Income from continuing operations                                                                     $     195     $     33
      Expense (income) not affecting cash
          Depreciation, depletion and amortization                                                                144          153
          Deferred income taxes                                                                                    70           43
          Equity income from affiliates                                                                          (277)        (169)
          Distributions from equity affiliates                                                                    156          114
          Other items                                                                                               2           (1)
      Change in operating assets and liabilities (1)                                                             (213)         (62)
                                                                                                            -----------   ----------
                                                                                                                   77          111
CASH FLOWS FROM FINANCING
      Proceeds from issuance of common stock                                                                       86            1
      Repayment of long-term debt                                                                                 (75)        (191)
      Increase in short-term debt                                                                                   8          243
      Dividends paid                                                                                              (57)         (56)
                                                                                                            -----------   ----------
                                                                                                                  (38)          (3)
CASH FLOWS FROM INVESTMENT
      Additions to property, plant and equipment                                                                 (121)         (84)
      Purchase of operations - net of cash acquired                                                                (5)          (5)
      Proceeds from sale of operations                                                                             48            5
      Other - net                                                                                                  13           (6)
                                                                                                            -----------   ----------
                                                                                                                  (65)         (90)
                                                                                                            -----------   ----------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS                                                                     (26)          18
      Cash provided (used) by discontinued operations                                                             (14)           4
                                                                                                            -----------   ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                  (40)          22

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                                                   223           90
                                                                                                            -----------   ----------

CASH AND CASH EQUIVALENTS - END OF PERIOD                                                                   $     183     $    112
                                                                                                            ===========   ==========

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)      Excludes changes resulting from operations acquired or sold.


SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     5

<PAGE>

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

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

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

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL REPORTING

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted  accounting  principles
for interim  financial  reporting and  Securities  and Exchange  Commission
regulations.  All  adjustments  (consisting of normal  recurring  accruals)
considered  necessary  by  management  for a fair  presentation  have  been
included,  although  such  statements  are  subject to any  year-end  audit
adjustments  which may be necessary.  These financial  statements should be
read in  conjunction  with  Ashland's  Annual  Report  on Form 10-K for the
fiscal  year ended  September  30,  2003 (as amended to include the audited
financial  statements of Marathon Ashland  Petroleum LLC for the year ended
December 31, 2003).  Results of  operations  for the periods ended June 30,
2004,  are  not  necessarily  indicative  of  results  to be  expected  for
Ashland's fiscal year ending September 30, 2004.

INVENTORIES
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
                                                                         June 30          September  30       June 30
(In millions)                                                               2004               2003              2003
----------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>               <C>
Chemicals and plastics                                              $        390      $         333     $         364
Construction materials                                                        76                 67                82
Petroleum products                                                            73                 66                75
Other products                                                                50                 48                60
Supplies                                                                       6                  5                 5
Excess of replacement costs over LIFO carrying values                        (85)               (78)              (74)
                                                                    -------------     --------------    --------------
                                                                    $        510      $         441     $         512
                                                                    =============     ==============    ==============

</TABLE>

EARNINGS PER SHARE

The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share (EPS) from continuing operations.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                                        Three months ended         Nine months ended
                                                                              June 30                   June 30
                                                                      ------------------------   -----------------------
(In millions except per share data)                                        2004          2003         2004         2003
------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>           <C>          <C>
NUMERATOR
Numerator for basic and diluted EPS - Income
      from continuing operations                                      $     167    $       71    $     195    $      33
                                                                      ==========   ===========   ==========   ==========
DENOMINATOR
Denominator for basic EPS - Weighted average
      common shares outstanding                                              70            68           70           68
Common shares issuable upon exercise of stock options                         1             1            1            1
                                                                      ----------   -----------   ----------   ----------
Denominator for diluted EPS - Adjusted weighted
      average shares and assumed conversions                                 71            69           71           69
                                                                      ==========   ===========   ==========   ==========

EARNINGS PER SHARE FROM CONTINUING OPERATIONS
      Basic                                                           $    2.38    $     1.04    $    2.80    $     .48
      Diluted                                                         $    2.35    $     1.03    $    2.75    $     .48

</TABLE>
                                     6

<PAGE>




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

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

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

NOTE B - DISCONTINUED OPERATIONS

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.  During the quarter ended
December 31, 2002,  Ashland  increased  its reserve for asbestos  claims by
$390  million  to cover  litigation  defense  and  claim  settlement  costs
expected to be paid  through  December  2012.  Because  insurance  provides
reimbursements  for most of these  costs and  coverage-in-place  agreements
exist with the insurance  companies that provide  substantially  all of the
coverage being accessed, the increase in the asbestos reserve was offset in
part by probable insurance recoveries valued at $235 million. The resulting
$155 million pretax charge to income,  net of deferred  income tax benefits
of $60  million,  was  reflected  as an  after-tax  loss from  discontinued
operations of $95 million in the Statement of  Consolidated  Income for the
three  months  ended  December  31,  2002.  Additional  reserves  have been
provided  since  then to  reflect  updates  in the  estimate  of  potential
payments for litigation  defense and claim settlement costs during the next
ten years. See Note F for further discussion of Ashland's  asbestos-related
litigation.

On August 29, 2003, Ashland sold the net assets of its Electronic Chemicals
business  and  certain  related  subsidiaries  in a  transaction  valued at
approximately $300 million before tax.  Electronic  Chemicals was a part of
Ashland  Specialty  Chemical,  providing  ultra  pure  chemicals  and other
products  and  services  to  the  worldwide  semiconductor  industry,  with
revenues of $215 million in 2003,  $217 million in 2002 and $212 million in
2001. The sale reflects Ashland's strategy to optimize its business mix and
focus  greater  attention  on the  remaining  chemical  and  transportation
construction operations where it can achieve strategic advantage. Ashland's
after-tax  proceeds  were used  primarily  to reduce  debt.  All assets and
liabilities  of Electronic  Chemicals are classified as current in the June
30, 2003 balance  sheet.  Assets of $198  million were  composed of current
assets of $52 million,  investments  and other  assets of $26 million,  and
property,  plant and equipment of $120 million.  Liabilities of $28 million
were  composed  of  current  liabilities  of  $15  million  and  noncurrent
liabilities of $13 million.

Components  of  amounts  reflected  in the  income  statements  related  to
discontinued operations are presented in the following table.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                                         Three months ended         Nine months ended
                                                                               June 30                   June 30
                                                                       ------------------------   -----------------------
(In millions)                                                               2004          2003         2004         2003
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>           <C>          <C>
PRETAX INCOME (LOSS) FROM DISCONTINUED OPERATIONS
      Reserves for asbestos-related litigation                         $      (7)   $       (8)   $     (22)   $    (171)
      Electronic Chemicals
          Results of operations                                                -             5            -           12
          Loss on disposal                                                    (2)            -           (3)           -
INCOME TAXES
      Reserves for asbestos-related litigation                                 3             3            9           67
      Electronic Chemicals
          Results of operations                                                -            (1)           -           (2)
          Loss on disposal                                                     -             -            -            -
                                                                       ----------   -----------   ----------   ----------
RESULTS FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)             $      (6)   $       (1)   $     (16)   $     (94)
                                                                       ==========   ===========   ==========   ==========
</TABLE>

                                     7

<PAGE>




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

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

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

NOTE C - UNCONSOLIDATED AFFILIATES

Under  Rule  3-09  of  Regulation  S-X,  Ashland  filed  audited  financial
statements  for  Marathon  Ashland  Petroleum  LLC (MAP) for the year ended
December 31, 2003,  on a Form 10-K/A on March 19,  2004.  Unaudited  income
statement information for MAP is shown below.

MAP is  organized  as a limited  liability  company  that has elected to be
taxed as a partnership.  Therefore,  the parents are responsible for income
taxes  applicable  to their share of MAP's taxable  income.  The net income
reflected  below for MAP does not include any  provision  for income  taxes
that will be incurred by its parents.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                                       Three months ended          Nine months ended
                                                                             June 30                    June 30
                                                                     ------------------------   ------------------------
(In millions)                                                              2004         2003         2004          2003
------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>          <C>           <C>
Sales and operating revenues                                         $   11,155    $   8,005    $  29,773     $  23,338
Income from operations                                                      585          281          734           457
Net income                                                                  583          276          725           446
Ashland's equity income                                                     216          101          261           157

</TABLE>

On March 19, 2004,  Ashland  announced  the signing of an  agreement  under
which  it  would  transfer  its 38%  interest  in MAP and two  wholly-owned
businesses to Marathon in a transaction structured to be generally tax free
and valued at  approximately  $3.0 billion.  The two other  businesses  are
Ashland's  maleic  anhydride  business and 61 Valvoline  Instant Oil Change
(VIOC) centers.  The transaction is subject to several previously disclosed
conditions,  including  approval by  Ashland's  shareholders,  consent from
public debt holders and receipt of a favorable  private  letter ruling from
the Internal Revenue Service with respect to the tax treatment. While there
is  meaningful  risk that the  transaction  will not receive the  favorable
ruling from the IRS, in which case the transaction would not close, Ashland
believes it is more likely than not that this  transaction  will  receive a
favorable ruling. If the conditions are met, the transaction is expected to
close by the end of the 2004 calendar year.

NOTE D - LEASES AND OTHER COMMITMENTS

LEASES

Under various operating leases, Ashland has made guarantees with respect to
the residual  value of the  underlying  property.  If Ashland had cancelled
those leases at June 30, 2004, its maximum  obligations  under the residual
value  guarantees  would have  amounted to $102  million.  Ashland does not
expect to incur any significant  charge to earnings under these guarantees,
$24 million of which  relates to real estate.  These lease  agreements  are
with   unrelated   third  party  lessors  and  Ashland  has  no  additional
contractual or other commitments to any party to the leases.

OTHER COMMITMENTS

Ashland  has  guaranteed  38% of  MAP's  payments  for  certain  crude  oil
purchases,  up to a maximum  guarantee  of $95  million.  At June 30, 2004,
Ashland's  contingent  liability  under  this  guarantee  amounted  to  $83
million.  Although  Ashland  has not made and does not  expect  to make any
payments  under  this  guarantee,  it has  recorded  the fair  value of the
guarantee obligation, which is not significant.


                                     8

<PAGE>




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

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

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

NOTE E - EMPLOYEE BENEFIT PLANS

In May 2004, the Financial Accounting Standards Board issued Staff Position
No. FAS  106-2,  "Accounting  and  Disclosure  Requirements  Related to the
Medicare Prescription Drug,  Improvement and Modernization Act of 2003 (the
Act)."  Among  other  things,  the Act will  expand  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 new Medicare drug benefit.
The  Staff  Position  is  effective  July 1,  2004.  Ashland  is  currently
evaluating  the impact of the Act on its  postretirement  benefit plans and
has not determined the effect of the Act on its financial statements.

Presently,  Ashland  anticipates  contributing  $128 million to its pension
plans during fiscal 2004. As of June 30, 2004, $89 million of contributions
have been made.

The  following   tables   detail  the   components  of  pension  and  other
postretirement benefit costs.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                                                                 Other postretirement
                                                                       Pension benefits                benefits
                                                                    ------------------------   -------------------------
(In millions)                                                            2004          2003          2004          2003
------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>          <C>           <C>
THREE MONTHS ENDED JUNE 30
Service cost                                                        $      12     $      13    $        1    $        3
Interest cost                                                              19            19             4             5
Expected return on plan assets                                            (18)          (15)            -             -
Other amortization and deferral                                             9             9            (2)           (2)
                                                                    ----------    ----------   -----------   -----------
                                                                    $      22     $      26    $        3    $        6
                                                                    ==========    ==========   ===========   ===========

NINE MONTHS ENDED JUNE 30
Service cost                                                        $      35     $      33    $        8    $        8
Interest cost                                                              53            50            15            18
Expected return on plan assets                                            (48)          (39)            -             -
Other amortization and deferral                                            24            23           (10)           (5)
                                                                    ----------    ----------   -----------   -----------
                                                                    $      64     $      67    $       13    $       21
                                                                    ==========    ==========   ===========   ===========

</TABLE>

NOTE F - 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,   as  well  as  the  number  of  open  claims,  can  fluctuate
significantly from period to period.


                                     9


<PAGE>

<TABLE>
<CAPTION>


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

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

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

NOTE F - LITIGATION, CLAIMS AND CONTINGENCIES (continued)

----------------------------------------------------------------------------------------------------------------------
                                                 Nine months ended
                                                      June 30                       Years ended September 30
                                             ---------------------------    ------------------------------------------
(In thousands)                                     2004            2003           2003            2002           2001
----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>            <C>             <C>            <C>
Open claims - beginning of period                   198             160            160             167            118
New claims filed                                     24              58             66              45             52
Claims settled                                       (6)             (5)            (7)            (15)            (2)
Claims dismissed                                    (17)            (17)           (21)            (37)            (1)
                                             -----------     -----------    -----------     -----------    -----------
Open claims - end of period                         199             196            198             160            167
                                             ===========     ===========    ===========     ===========    ===========
</TABLE>
Since  October 1, 2000,  Riley has been  dismissed as a defendant in 72% of
the resolved claims. For the nine months ended June 30, 2004, amounts spent
on litigation  defense and claim  settlements  amounted to $1,736 per claim
resolved,  compared to $1,593 for the nine months ended June 30, 2003,  and
annual  costs  of  $1,610  in  2003,  $723 in 2002 and  $4,445  in 2001.  A
progression  of  activity  in the  asbestos  reserve  is  presented  in the
following table.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                 Nine months ended
                                                      June 30                        Years ended September 30
                                             ---------------------------    -------------------------------------------
(In millions)                                      2004            2003           2003            2002            2001
-----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>            <C>             <C>            <C>
Asbestos reserve - beginning of period       $      610      $      202     $      202      $      199     $        57
Expense incurred                                     44             419            453              41             157
Amounts paid                                        (39)            (36)           (45)            (38)            (15)
                                             -----------     -----------    -----------     -----------    ------------
Asbestos reserve - end of period             $      615      $      585     $      610      $      202     $       199
                                             ===========     ===========    ===========     ===========    ============

</TABLE>
During the  December  2002  quarter,  Ashland  increased  its  reserve  for
asbestos  claims by $390 million to cover the litigation  defense and claim
settlement  costs for probable and  reasonably  estimable  future  payments
related to existing  open claims,  as well as an estimate of those that may
be filed in the future.  Prior to December 31, 2002,  the asbestos  reserve
was based on the estimated  costs that would be incurred to settle existing
open claims.  A range of estimates  of future  asbestos  claims and related
costs using  various  assumptions  was  developed  with the  assistance  of
Hamilton,  Rabinovitz  &  Alschuler,  Inc.  (HR&A),  nationally  recognized
experts in that  field.  The  methodology  used by HR&A to  project  future
asbestos costs was based largely on Ashland's recent experience,  including
claim-filing and settlement rates, disease mix, open claims, and litigation
defense and claim settlement costs. Ashland's claim experience was compared
to the results of previously conducted  epidemiological  studies estimating
the number of people  likely to develop  asbestos-related  diseases.  Those
studies  were  undertaken  in  connection  with  national  analyses  of the
population   expected  to  have  been  exposed  to  asbestos.   Using  that
information, HR&A estimated a range of the number of future claims that may
be filed,  as well as the related  costs that may be incurred in  resolving
those claims.

From the range of estimates,  Ashland recorded the amount it believed to be
the best estimate,  which  represented the expected payments for litigation
defense and claim  settlement  costs during the next ten years.  Subsequent
updates to this estimate have been made based on a combination  of a number
of factors  including  the actual volume of new claims,  recent  settlement
costs,  changes in the mix of alleged disease,  enacted legislative changes
and other developments  impacting  Ashland's estimate of potential payments
during the next ten years.  In  addition,  at least  annually,  more formal
estimates are developed with the assistance of HR&A.  Ashland's reserve for
asbestos claims on an  undiscounted  basis amounted to $615 million at June
30, 2004, compared to $585 million at June 30, 2003.

                                       10


<PAGE>




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

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

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

NOTE F - LITIGATION, CLAIMS AND CONTINGENCIES (continued)

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,
and even though it is reasonably  possible that  additional  costs might be
incurred,  they  are not  reasonably  estimable  at this  time.  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 are generally
due from insurers that are insolvent,  rather than as a result of uninsured
claims or the exhaustion of Ashland's insurance coverage.

Ashland  retained  the  services  of  Tillinghast-Towers  Perrin  to assist
management  in  the  estimation  of  probable  insurance  recoveries.  Such
recoveries are based on assumptions and estimates surrounding the available
insurance  coverage;  one assumption of which is that all solvent insurance
carriers  remain  solvent.  Although  coverage  limits are  resolved in the
coverage-in-place agreement with Equitas Limited (Equitas) and other London
companies,  which collectively  provide a significant  portion of Ashland's
insurance coverage for asbestos claims,  there is a disagreement with these
companies   over  the  timing  of   recoveries.   The  resolution  of  this
disagreement  could  have a  material  effect  on the  value  of  insurance
recoveries  from  those  companies.  In  estimating  the  value  of  future
recoveries,  Ashland has used the least  favorable  interpretation  of this
agreement under which the ultimate  recoveries are extended for many years,
resulting  in  a  significant   discount   being  applied  to  value  those
recoveries. Ashland will continue to apply this methodology until such time
as the disagreement is resolved.  On July 21, 2004,  Ashland filed a demand
for  arbitration to resolve the dispute  concerning the  interpretation  of
this agreement.

At June 30, 2004, Ashland's receivable for recoveries of litigation defense
and claim settlement costs from its insurers  amounted to $430 million,  of
which $39  million  relates  to costs  previously  paid.  Receivables  from
insurance companies amounted to $423 million at June 30, 2003. About 35% of
the estimated  receivables  from insurance  companies at June 30, 2004, are
expected  to be  due  from  Equitas  and  other  London  companies.  Of the
remainder,  over 90% is expected to come from  companies or groups that are
rated A or higher by A. M. Best.


                                    11

<PAGE>




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

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

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

NOTE F - LITIGATION, CLAIMS AND CONTINGENCIES (CONTINUED)

ENVIRONMENTAL PROCEEDINGS

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
June 30, 2004, such locations included 95 waste treatment or disposal sites
where Ashland has been identified as a potentially  responsible party under
Superfund  or similar  state  laws,  approximately  130  current and former
operating  facilities  (including certain operating  facilities conveyed to
MAP) and about 1,220 service  station  properties.  Ashland's  reserves for
environmental  remediation  amounted to $169 million at June 30, 2004,  and
$167 million at June 30, 2003. Such amounts reflect Ashland's  estimates of
the most  likely  costs that will be incurred  over an  extended  period to
remediate  identified   conditions  for  which  the  costs  are  reasonably
estimable,  without  regard  to  any  third-party  recoveries.  Engineering
studies,  probability  techniques,  historical experience and other factors
are used to  identify  and  evaluate  remediation  alternatives  and  their
related  costs in  determining  the  estimated  reserves for  environmental
remediation.

Environmental   remediation  reserves  are  subject  to  numerous  inherent
uncertainties  that affect  Ashland's  ability to estimate its share of the
costs. Such uncertainties involve the nature and extent of contamination at
each  site,  the  extent  of  required   cleanup   efforts  under  existing
environmental  regulations,  widely  varying  costs  of  alternate  cleanup
methods,  changes in  environmental  regulations,  the potential  effect of
continuing  improvements  in  remediation  technology,  and the  number and
financial strength of other potentially  responsible  parties at multiparty
sites. Ashland regularly adjusts its reserves as environmental  remediation
continues.

No  individual  remediation  location is material to Ashland as its largest
reserve  for any site is less  than 10% of the  remediation  reserve.  As a
result,  Ashland's  exposure to adverse  developments  with  respect to any
individual  site is not  expected  to be  material,  and these sites are in
various stages of ongoing remediation.  Although environmental  remediation
could  have a  material  effect on  results  of  operations  if a series of
adverse developments occurs in a particular quarter or fiscal year, Ashland
believes that the chance of such developments occurring in the same quarter
or fiscal year is remote.

OTHER LEGAL PROCEEDINGS

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


                                    12

<PAGE>

<TABLE>
<CAPTION>


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

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT

------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Three months ended         Nine months ended
                                                                                             June 30                    June 30
                                                                                     ------------------------    -------------------
(In millions)                                                                            2004          2003         2004      2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>          <C>           <C>        <C>
REVENUES
    Sales and operating revenues
       APAC                                                                          $    698     $     683     $  1,755   $ 1,615
       Ashland Distribution                                                               838           733        2,320     2,081
       Ashland Specialty Chemical                                                         354           308          983       870
       Valvoline                                                                          330           307          945       889
       Intersegment sales
          Ashland Distribution                                                             (5)           (6)         (13)      (16)
          Ashland Specialty Chemical                                                      (23)          (19)         (61)      (50)
          Valvoline                                                                         -             -           (1)       (1)
                                                                                     ---------     ---------    ---------- --------
                                                                                        2,192         2,006        5,928     5,388
    Equity income
       APAC                                                                                 3             2           11         6
       Ashland Specialty Chemical                                                           2             1            5         5
       Valvoline                                                                            -             -            -         1
       Refining and Marketing                                                             216           101          261       157
                                                                                     ----------   -----------   ---------- --------
                                                                                          221           104          277       169
    Other income
       APAC                                                                                 9             3           20         5
       Ashland Distribution                                                                 1             3            8        17
       Ashland Specialty Chemical                                                           3             3            8         8
       Valvoline                                                                            2             1            3         4
       Refining and Marketing                                                              (2)            4           (7)        4
       Corporate                                                                           (1)            1            2         5
                                                                                     ----------   -----------   ---------- --------
                                                                                           12            15           34        43
                                                                                     ----------   -----------   ---------- --------
                                                                                     $  2,425     $   2,125     $  6,239   $ 5,600
                                                                                     ==========   ===========   ========== ========
OPERATING INCOME
    APAC                                                                             $     43     $      17     $     41   $   (39)
    Ashland Distribution                                                                   23            11           56        27
    Ashland Specialty Chemical                                                             22             3           63        21
    Valvoline                                                                              30            24           75        56
    Refining and Marketing (1)                                                            205           100          232       145
    Corporate                                                                             (31)          (17)         (73)      (63)
                                                                                     ----------   -----------   ---------  --------
                                                                                     $    292     $     138     $    394   $   147
                                                                                     ==========   ===========   ========== ========
</TABLE>
--------------------------------------------------------------------------------
(1)      Includes  Ashland's  equity  income from MAP,  amortization  related to
         Ashland's  excess  investment in MAP, and other  activities  associated
         with refining and marketing.


                                       13


<PAGE>

<TABLE>
<CAPTION>

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

ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT

------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Three months ended         Nine months ended
                                                                                            June 30                    June 30
                                                                                     -----------------------    --------------------
                                                                                         2004          2003         2004      2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>          <C>           <C>        <C>
OPERATING INFORMATION
APAC
    Construction backlog at June 30 (millions) (1)                                                              $  1,869   $ 1,824
    Net construction job revenues (millions) (2)                                     $    409     $     402     $    982   $   904
    Hot-mix asphalt production (million tons)                                             9.9           9.8         22.7      21.0
    Aggregate production (million tons)                                                   8.1           7.6         21.0      19.7
    Ready-mix concrete production (million cubic yards)                                   0.4           0.6          1.4       1.5
Ashland Distribution (3)
    Sales per shipping day (millions)                                                $   13.3     $    11.6     $   12.3   $  11.1
    Gross profit as a percent of sales                                                   14.4%         15.1%        14.6%     15.3%
Ashland Specialty Chemical (3)
    Sales per shipping day (millions)                                                $    5.6     $     4.9     $    5.1   $   4.6
    Gross profit as a percent of sales                                                   30.7%         33.1%        32.3%     33.8%
Valvoline
    Lubricant sales (million gallons)                                                    50.0          49.2        141.3     142.2
    Premium lubricants (percent of U.S. branded volumes)                                 22.0%         19.8%        21.0%     18.5%
Refining and Marketing (4)
    Refinery runs (thousand barrels per day)
       Crude oil refined                                                                1,013           951          900       878
       Other charge and blend stocks                                                      142           129          174       130
    Refined product yields (thousand barrels per day)
       Gasoline                                                                           623           582          596       544
       Distillates                                                                        323           292          285       276
       Asphalt                                                                             85            76           70        69
       Other                                                                              138           138          136       123
                                                                                     ---------    ----------    ---------  --------
       Total                                                                            1,169         1,088        1,087     1,012
    Refined product sales (thousand barrels per day) (5)                                1,440         1,346        1,367     1,311
    Refining and wholesale marketing margin (per barrel) (6)                         $   5.27     $    2.94     $   2.87   $  2.21
    Speedway SuperAmerica (SSA)
       Retail outlets at June 30                                                                                   1,746     1,802
       Gasoline and distillate sales (million gallons)                                    802           882        2,371     2,608
       Gross margin - gasoline and distillates (per gallon)                          $  .1192     $   .1229     $  .1161   $ .1134
       Merchandise sales (millions) (7)                                              $    600     $     590     $  1,668   $ 1,695
       Merchandise margin (as a percent of sales)                                        23.4%         23.9%        24.4%     24.4%

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)      Includes   APAC's   proportionate   share   of  the   backlog   of
         unconsolidated joint ventures.
(2)      Total construction job revenues, less subcontract costs.
(3)      Sales are defined as sales and operating revenues. Gross profit is
         defined as sales and  operating  revenues,  less cost of sales and
         operating expenses,  and depreciation and amortization relative to
         manufacturing assets.
(4)      Amounts represent 100% of MAP's operations,  in which Ashland owns
         a 38% interest.
(5)      Total average  daily volume of all refined  product sales to MAP's
         wholesale, branded and retail (SSA) customers.
(6)      Sales revenue less cost of refinery inputs, purchased products and
         manufacturing expenses, including depreciation.
(7)      Effective January 1, 2003, SSA adopted EITF 02-16,  "Accounting by
         a  Customer  (Including  a  Reseller)  for  Certain  Consideration
         Received from a Vendor," which requires rebates from vendors to be
         recorded as  reductions  to cost of sales.  Rebates  from  vendors
         recorded in SSA merchandise  sales for periods prior to January 1,
         2003 have not been  restated  and included $46 million in the nine
         months ended June 30, 2003.


                                    14
<PAGE>




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

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

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

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

RESULTS OF OPERATIONS

CURRENT  QUARTER - Ashland  reported  net  income of $161  million  for the
quarter ended June 30, 2004,  compared to $70 million for the quarter ended
June 30, 2003.  Ashland reported income from continuing  operations of $167
million for the quarter  ended June 30,  2004,  compared to $71 million for
the  quarter  ended June 30,  2003.  Ashland's  results  from  discontinued
operations, consisting of charges associated with estimated future asbestos
liabilities less probable insurance recoveries,  as well as net income from
the discontinued operations of its Electronic Chemicals business, accounted
for the difference in net income and income from continuing operations.

Consistent  growth  in sales  and  operating  revenues,  an  improved  cost
structure  and a healthier  economy  contributed  to a 97%  improvement  in
operating   income  for  the  Chemical  Sector  (which   includes   Ashland
Distribution,   Ashland   Specialty   Chemical  and   Valvoline).   Ashland
Distribution  achieved an all-time record for quarterly  operating  income,
reflecting a 14% increase in sales and operating revenues. Operating income
from Ashland Specialty  Chemical improved on the strength of a 15% increase
in sales and  operating  revenues.  Valvoline  recorded a 25%  increase  in
operating  income  as its  premium  product  strategy  contributed  to a 7%
increase  in  sales  and   operating   revenues.   In  the   Transportation
Construction Sector, Ashland Paving And Construction, Inc. (APAC) continued
its profit recovery, recording operating income of $43 million for the June
2004  quarter,  compared to $17 million for the June 2003  quarter.  Strong
demand, favorable refining margins and improved throughput resulted in $205
million in operating  income from Refining and Marketing,  compared to $100
million for the June 2003 quarter.

YEAR-TO-DATE  - Ashland  reported  net income of $179  million for the nine
months ended June 30,  2004,  compared to a net loss of $61 million for the
nine months ended June 30, 2003.  Ashland  reported  income from continuing
operations  of $195  million  for the nine  months  ended  June  30,  2004,
compared to income of $33 million for the nine months  ended June 30, 2003.
Ashland's  results  from  discontinued  operations,  consisting  of charges
associated  with  estimated  future  asbestos   liabilities  less  probable
insurance  recoveries,   as  well  as  net  income  from  the  discontinued
operations  of  its  Electronic  Chemicals  business,   accounted  for  the
difference in net income and income from continuing operations.

Chemical  Sector  operating  income totaled $194 million for the first nine
months  of fiscal  2004,  compared  to $104  million  for the 2003  period.
Ashland  Distribution,  Ashland Specialty Chemical and Valvoline all showed
significant  improvement,  reflecting  a combined 11% increase in sales and
operating  revenues and an improved cost structure.  In the  Transportation
Construction  Sector, APAC recorded operating income of $41 million for the
2004  period,  compared  to a loss  of $39  million  in  the  2003  period,
reflecting  closer-to-normal  weather and a reduced cost structure.  Higher
refining margins and improved throughput led to an increase in Refining and
Marketing  operating  income from $145  million for the 2003 period to $232
million for the 2004 period.  An analysis of  operating  income by industry
segment follows.

APAC

CURRENT  QUARTER - APAC  reported  operating  income of $43 million for the
June 2004  quarter,  compared  to $17  million  for the June 2003  quarter.
During  the  quarter,  APAC sold a  significant  portion  of its  ready-mix
operations, realizing proceeds net of selling expenses of $38 million and a
pre-tax gain of $9 million.  Though sales and operating  revenues were only
up 2%, overall margin was up, reflecting  reduced costs across the business
and  increased  profits  from the sale of hot-mix  asphalt and  aggregates.
Costs associated


                                    15

<PAGE>




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

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

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

APAC (CONTINUED)

with Project PASS, APAC's process redesign  initiative,  were $2 million in
the June 2004 quarter,  compared to $6 million in the June 2003 quarter, as
that project is now essentially complete.

YEAR-TO-DATE - APAC reported  operating  income of $41 million for the nine
months  ended June 30, 2004,  compared to an operating  loss of $39 million
for the nine months  ended June 30, 2003.  The  improvement  reflects  more
normal weather  conditions,  a reduced cost structure and a $9 million gain
on the sale of a significant portion of APAC's ready-mix  operations in the
June 2004 quarter.  Net construction  job revenues (total  construction job
revenues less  subcontract  costs) increased 9% from the prior year period,
while production of hot-mix asphalt  increased 8% and aggregate  production
increased  7%. Costs  associated  with Project PASS were $10 million in the
2004 period,  compared to $15 million in the 2003 period. At June 30, 2004,
APAC's construction backlog,  which consists of work awarded and funded but
not yet performed,  was $1.87 billion, a record for the June quarter and up
slightly over the same period in 2003.

ASHLAND DISTRIBUTION

CURRENT QUARTER - Ashland  Distribution  reported  operating  income of $23
million, an all-time record for quarterly operating income, compared to $11
million for the June 2003 quarter.  Sales and operating  revenues increased
14%,  reflecting a 10% growth in sales  volumes due to a healthier  economy
and strong customer  satisfaction.  Ashland  Distribution  has continued to
build on its leadership positions in logistics and operational  excellence.
These factors, coupled with the division's low-cost operational model, have
contributed to its dramatic recovery.  The gross profit percentage declined
to 14.4%,  compared to 15.1% in the June 2003 quarter, due to lower margins
in   chemicals   and   environmental   services.   Selling,   general   and
administrative  (SG&A) expenses were down $7 million  compared to the prior
year period,  reflecting  the benefits of the  Top-Quartile  Cost Structure
(TQCS) initiative.

YEAR-TO-DATE - Ashland Distribution reported record operating income of $56
million for the nine months  ended June 30,  2004,  compared to $27 million
for the nine months ended June 30, 2003. The improvement  reflects the same
factors  described in the current quarter  comparison.  Sales and operating
revenues were up 11%, including 6% from volume increases.  The gross profit
percentage  declined from 15.3% to 14.6%, due to lower margins in chemicals
and environmental services. SG&A expenses declined $20 million. Income from
litigation  settlements  and asset sales amounted to $4 million in the 2004
period compared to $7 million in the 2003 period.

ASHLAND SPECIALTY CHEMICAL

CURRENT QUARTER - Ashland Specialty  Chemical reported  operating income of
$22 million for the June 2004 quarter,  compared to $3 million for the June
2003  quarter,  which  included an  impairment  charge of $10 million for a
mothballed  maleic  anhydride  production  facility in Neville Island,  Pa.
Growth  initiatives  combined  with a lower cost  structure led to improved
results  despite  continued  higher raw  material  costs.  Results from the
thermoset resins  businesses  (Casting  Solutions,  Composite  Polymers and
Specialty  Polymers  &  Adhesives)  improved  48%,  as sales and  operating
revenues were up 18%,  reflecting a 15% increase in sales volumes.  Results
from the water  technologies  businesses  (Drew Industrial and Drew Marine)
improved 57%, reflecting a 6% increase in sales and operating revenues.

YEAR-TO-DATE  - Operating  income for Ashland  Specialty  Chemical  was $63
million for the nine months  ended June 30,  2004,  compared to $21 million
for the nine months ended June 30, 2003.  Results from the thermoset resins
businesses increased 60%, while the water technologies businesses increased
34%. The  improvement  reflects  the same factors  described in the current
quarter comparison.


                                    16
<PAGE>




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

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

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

VALVOLINE

CURRENT QUARTER - Valvoline  reported  operating  income of $30 million for
the June 2004 quarter,  a 25% improvement over the $24 million reported for
the June 2003 quarter.  Valvoline's core lubricant business improved on the
strength of a 7% increase in branded  lubricant  sales volumes,  aided by a
19% increase in premium lubricant sales volumes.  Valvoline's international
operations  posted a record  June  quarter  mostly due to a 9%  increase in
lubricant sales volumes and stronger foreign currencies.  Valvoline Instant
Oil  Change  (VIOC)  earnings  were  lower as a result of a decline  in the
number of oil  changes,  the impact of which was  partially  offset by a 3%
improvement in the average ticket price.

YEAR-TO-DATE - Valvoline  reported record  operating  income of $75 million
for the nine months  ended June 30, 2004,  a 34%  improvement  over the $56
million  reported for the same period in 2003.  Valvoline's  core lubricant
business  improved,  reflecting a 14% increase in sales volumes for premium
lubricant  products.  VIOC  reported  record  earnings  due in part to a 3%
increase  in non-oil  change  revenues,  and a 3%  increase  in premium oil
changes,  contributing  to a 7% increase in the average  ticket  price.  In
addition, Valvoline's international operations posted record results mostly
due to a 3% increase  in  lubricant  sales  volumes  and  stronger  foreign
currencies.

REFINING AND MARKETING

CURRENT  QUARTER - Operating  income from  Refining  and  Marketing,  which
consists  primarily of equity income from Ashland's 38% ownership  interest
in MAP,  amounted  to $205  million for the  quarter  ended June 30,  2004,
compared  to $100  million  for the June 2003  quarter.  MAP  achieved  the
second-highest  level of quarterly  operating income in the joint venture's
history. High demand in the spring driving season, strong refining margins,
and record  throughput at MAP's  refineries  contributed  to a $129 million
increase  in equity  income from MAP's  refining  and  wholesale  marketing
operations.  MAP's refining and wholesale  marketing  margin averaged $5.27
per barrel for the June 2004  quarter,  compared to $2.94 per barrel in the
June  2003  quarter.  Crude oil  throughput  during  the June 2004  quarter
averaged a record 1.013  million  barrels per day, up 7% over the June 2003
quarter.  Equity income from MAP's retail operations (Speedway SuperAmerica
(SSA)  and a 50%  interest  in the  Pilot  Travel  Centers  joint  venture)
decreased $11 million, reflecting an $8 million gain on the sale of 190 SSA
stores in May 2003 and  decreased  product sales volumes as a result of the
sale.  Ashland's  administrative  and other costs  related to Refining  and
Marketing increased by $10 million,  reflecting mark-to-market losses of $2
million  on  margin  hedges  in the June 2004  quarter  versus  gains of $4
million  in the June 2003  quarter,  and  transaction  costs of $5  million
associated  with the proposed  transfer of Ashland's 38% interest in MAP to
Marathon Oil Corporation (Marathon).

On March 19, 2004,  Ashland  announced  the signing of an  agreement  under
which  it  would  transfer  its 38%  interest  in MAP and two  wholly-owned
businesses to Marathon in a transaction structured to be generally tax free
and valued at  approximately  $3.0 billion.  The two other  businesses  are
Ashland's maleic anhydride business and 61 VIOC centers.  On June 21, 2004,
Ashland  filed a  preliminary  proxy  statement  with  the  Securities  and
Exchange Commission related to the transaction.  The transaction is subject
to several previously disclosed conditions, including approval by Ashland's
shareholders,  consent  from public debt holders and receipt of a favorable
private letter ruling from the Internal Revenue Service with respect to the
tax treatment. While there is meaningful risk that the transaction will not
receive the  favorable  ruling from the IRS, in which case the  transaction
would not close,  Ashland  believes  it is more  likely  than not that this
transaction will receive a favorable ruling. If the conditions are met, the
transaction is expected to close by the end of the 2004 calendar year.


                                    17


<PAGE>




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

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

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

REFINING AND MARKETING (CONTINUED)

YEAR-TO-DATE  - Operating  income from Refining and  Marketing  amounted to
$232  million for the nine  months  ended June 30,  2004,  compared to $145
million  for the  2003  period.  Equity  income  from  MAP's  refining  and
wholesale  marketing  operations  increased  $113 million,  reflecting a 66
cents per barrel increase in MAP's refining and wholesale  marketing margin
and increased throughput,  due to the same factors described in the current
quarter comparison.  Equity income from MAP's retail operations declined $9
million  due  to  the  same  factors   described  in  the  current  quarter
comparison. Ashland's administrative and other costs increased $17 million,
reflecting mark-to-market losses of $7 million on margin hedges in the 2004
period versus gains of $4 million in the 2003 period, and transaction costs
of $8 million  associated  with the  proposed  transfer  of  Ashland's  38%
interest in MAP.

CORPORATE

Corporate  expenses  amounted to $31 million in the quarter  ended June 30,
2004,  compared  to  $17  million  in the  June  2003  quarter,  reflecting
increased incentive  compensation costs. Corporate expenses amounted to $73
million for the nine months  ended June 30,  2004,  compared to $63 million
for the 2003 period.  The increase  reflects higher  incentive and deferred
compensation  costs in the 2004 period,  partially  offset by an $8 million
charge in the December  2002  quarter for  severance  and other  transition
costs  related to Ashland's  program to reduce  general and  administrative
costs.

NET INTEREST AND OTHER FINANCIAL COSTS

Net interest and other  financial costs declined to $29 million in the June
2004  quarter,  compared to $31 million in the June 2003  quarter.  For the
nine months ended June 30, 2004,  net  interest and other  financial  costs
amounted to $88 million,  compared to $97 million for the 2003 period.  The
declines reflect a reduction in the average level of debt outstanding.

DISCONTINUED OPERATIONS

As  described  in  Notes B and F to the  Condensed  Consolidated  Financial
Statements,  Ashland's results from discontinued operations include charges
associated  with  estimated  future  asbestos   liabilities  less  probable
insurance  recoveries,   as  well  as  net  income  from  the  discontinued
operations  of  its  Electronic   Chemicals  business.   Such  amounts  are
summarized in the following table.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                                         Three months ended         Nine months ended
                                                                               June 30                   June 30
                                                                       ------------------------   -----------------------
(In millions)                                                               2004          2003         2004         2003
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>          <C>           <C>
PRETAX INCOME (LOSS) FROM DISCONTINUED OPERATIONS
      Reserves for asbestos-related litigation                         $      (7)   $       (8)   $     (22)   $    (171)
      Electronic Chemicals
          Results of operations                                                -             5            -           12
          Loss on disposal                                                    (2)            -           (3)           -
INCOME TAXES
      Reserves for asbestos-related litigation                                 3             3            9           67
      Electronic Chemicals
          Results of operations                                                -            (1)           -           (2)
          Loss on disposal                                                     -             -            -            -
                                                                       ----------   -----------   ----------   ----------
RESULTS FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)             $      (6)   $       (1)  $      (16)   $     (94)
                                                                       ==========   ===========   ==========   ==========

</TABLE>

                                  18


<PAGE>




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

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

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

FINANCIAL POSITION

LIQUIDITY

Cash flows from operations, a major source of Ashland's liquidity, amounted
to $77 million for the nine months  ended June 30,  2004,  compared to $111
million for the nine months ended June 30, 2003.  Cash  distributions  from
MAP amounted to $146 million in the 2004 period compared to $108 million in
the 2003  period.  This  increase  was more than  offset  by a $59  million
increase in pension contributions and a $45 million increase in federal tax
payments. Other operating cash flows from Ashland's wholly owned businesses
increased  $32 million.  Ashland's  capital  requirements  for net property
additions and dividends  exceeded cash flows from operations by $83 million
for the nine months ended June 30, 2004. Cash flows from operations for the
nine months ended June 30, 2004 have been  supplemented  by proceeds of $86
million  from the  issuance of common  stock  resulting  from stock  option
exercises  and  proceeds  of $48  million  from  the sale of  certain  APAC
operations.   Ashland   anticipates  meeting  its  remaining  2004  capital
requirements for property additions and dividends from internally generated
funds. Under the terms of the proposed transaction with Marathon,  MAP will
not make  quarterly  cash  distributions  to Ashland and Marathon until the
closing of the  transaction.  The final amount received by Ashland from the
transaction  would  be  increased  by an  amount  equal  to 38% of the cash
accumulated from operations during the period prior to closing.

Ashland's  financial  position  has  enabled it to obtain  capital  for its
financing needs and to maintain investment grade ratings on its senior debt
of Baa2 from Moody's and BBB from Standard & Poor's (S&P).  In August 2003,
S&P revised its outlook on Ashland to  negative  from  stable,  and lowered
Ashland's  commercial paper rating to A-3 from A-2. In March 2004,  Moody's
took  a  similar  action  after  the   announcement  of  the  proposed  MAP
transaction with Marathon and lowered Ashland's  commercial paper rating to
P-3  from  P-2.  These  actions  materially  restrict,  and  could at times
eliminate,  the  availability  of the  commercial  paper market to Ashland.
Ashland  has  two  revolving  credit  agreements  providing  for up to $350
million in borrowings.  Although  Ashland borrowed $175 million under these
agreements to repay commercial  paper shortly after the S&P downgrade,  the
revolving credit agreements were not used during the nine months ended June
30, 2004. In the June 2004  quarter,  Ashland  executed an additional  $200
million  revolving credit  agreement which expires March 31, 2005.  Ashland
has utilized this facility to fund  currently  maturing  long-term debt and
certain lease payments,  and had $8 million outstanding under this facility
at June 30, 2004. While the revolving credit  agreements  contain covenants
limiting new  borrowings  based on Ashland's  stockholders'  equity,  these
agreements would have permitted an additional $2.1 billion of borrowings at
June 30, 2004. Additional  permissible borrowings are increased (decreased)
by 150% of any increase (decrease) in stockholders' equity.

At June 30,  2004,  working  capital  (excluding  debt due within one year)
amounted to $830  million,  compared to $703 million at September 30, 2003,
and $872 million at June 30, 2003. The amount at June 30, 2003 included net
assets of $170 million of the discontinued  Electronic Chemical operations.
Ashland's  working  capital is  affected  by its use of the LIFO  method of
inventory  valuation.  The  LIFO  method  valued  inventories  below  their
replacement costs by $85 million at June 30, 2004,  compared to $78 million
at September  30, 2003,  and $74 million at June 30,  2003.  Liquid  assets
(cash, cash equivalents and accounts receivable) amounted to 87% of current
liabilities  at June 30, 2004,  compared to 92% at September 30, 2003,  and
73%  at  June  30,  2003.  The  improvements  since  last  June  reflect  a
combination  of an  increase  of $104  million  in cash  equivalents  and a
reduction of $245 million in short-term debt that resulted principally from
the sale of the Electronic Chemicals business.


                                    19


<PAGE>




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

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

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

CAPITAL RESOURCES

For the nine months ended June 30,  2004,  property  additions  amounted to
$121  million,  compared to $84 million for the 2003  period.  The increase
reflects a $33 million  buyout of an  operating  lease for a portion of the
buildings on Ashland's Dublin, Ohio campus.

Ashland's  debt  level  amounted  to $1.5  billion at June 30,  2004,  $1.6
billion at September 30, 2003, and $1.9 billion at June 30, 2003. Debt as a
percent of capital employed amounted to 38.1% at June 30, 2004, compared to
41.7% at September 30, 2003,  and 46.5% at June 30, 2003. At June 30, 2004,
Ashland's debt included $37 million of floating-rate  obligations,  and the
interest  rates on an additional  $183 million of  fixed-rate,  medium-term
notes were  effectively  converted to floating rates through  interest rate
swap agreements. In addition, Ashland's costs under its sale of receivables
program  and  various  operating  leases  are  based  on the  floating-rate
interest  costs  on $186  million  of  third-party  debt  underlying  those
transactions.   As  a  result,  Ashland  was  exposed  to  fluctuations  in
short-term  interest rates on $406 million of debt  obligations at June 30,
2004.

ASBESTOS-RELATED LITIGATION AND ENVIRONMENTAL REMEDIATION

For a discussion of Ashland's asbestos-related litigation and environmental
remediation  matters,  see Note F to the Condensed  Consolidated  Financial
Statements.

FORWARD-LOOKING STATEMENTS

Management's  Discussion  and  Analysis  (MD&A)  contains   forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the  Securities  Exchange  Act of 1934,  with respect to
various information in the Results of Operations,  Financial Position,  and
Asbestos-Related  Litigation and Environmental Remediation sections of this
MD&A.  These  statements  include  those that refer to Ashland's  operating
performance,  earnings and expectations about the MAP transaction. Although
Ashland believes its expectations are based on reasonable  assumptions,  it
cannot assure the  expectations  reflected  herein will be achieved.  These
forward-looking  statements are 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) and are subject
to a number of risks,  uncertainties,  and  assumptions  that  could  cause
actual  results  to  differ   materially   from  those   described  in  the
forward-looking  statements.  The  risks,  uncertainties,  and  assumptions
include the  possibility  that Ashland will be unable to fully  realize the
benefits  anticipated from the MAP transaction;  the possibility of failing
to receive a  favorable  ruling  from the  Internal  Revenue  Service;  the
possibility that Ashland fails to obtain the approval of its  shareholders;
the  possibility  that the transaction may not close or that Ashland may be
required  to modify  some aspect of the  transaction  to obtain  regulatory
approvals. Other factors and risks affecting Ashland are contained in Risks
and  Uncertainties  in Note A to the Consolidated  Financial  Statements in
Ashland's Annual Report on Form 10-K, as amended, for the fiscal year ended
September 30, 2003. Ashland undertakes no obligation to subsequently update
or revise these forward-looking statements.


                                    20

<PAGE>




ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Ashland's  market risk  exposure at June 30, 2004 is  generally  consistent
with the types and amounts of market risk exposures  presented in Ashland's
Annual Report on Form 10-K, as amended, for the fiscal year ended September
30, 2003.

ITEM 4.  CONTROLS AND PROCEDURES

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

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


                                    21


<PAGE>



                        PART II - OTHER INFORMATION
--------------------------------------------------------------------------------

     ITEM 1.  LEGAL PROCEEDINGS

ASBESTOS-RELATED LITIGATION - Ashland is subject to liabilities from claims
alleging personal injury caused by exposure to asbestos. Such claims result
primarily from indemnification obligations undertaken in 1990 in connection
with the sale of Riley Stoker Corporation  ("Riley"),  a former subsidiary.
Although Riley was neither a producer nor a manufacturer  of asbestos,  its
industrial boilers contained some  asbestos-containing  components provided
by  other   companies.   As  of  June  30,  2004,   approximately   370,000
asbestos-related  claims have been filed against Riley and/or  Ashland.  Of
this  number,  approximately  171,000  claims  have  been  disposed  of  by
settlement or dismissal.  The total number of claims pending as of June 30,
2004 is approximately 199,000, compared to 196,000 as of June 30, 2003.

The  majority of these  claims  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  varies  as a result  of  jurisdictional
requirements  and  practices,  though the  overwhelming  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 the  jurisdiction  in  which  the  complaint  was  filed.  This
variability, coupled with the actual experience of resolving claims over an
extended  period,  demonstrates  that damages  requested in any  particular
lawsuit  or  complaint  bears  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  impact of  bankruptcies  of other
companies that are co-defendants in claims,  specific defenses available to
certain  defendants,  other  potential  causative  factors and the specific
jurisdiction in which the claim is made.

For   additional    information    regarding   liabilities   arising   from
asbestos-related  litigation,  see  Note  F to the  Condensed  Consolidated
Financial Statements in this quarterly report on Form 10-Q.


U.S. DEPARTMENT OF JUSTICE ANTITRUST DIVISION INVESTIGATIONS - (1) In April
2003, APAC-Missouri,  Inc., an indirect wholly-owned subsidiary of Ashland,
received a subpoena from the U.S. Department of Justice, Antitrust Division
("USDOJ")  in  a  federal  grand  jury  investigation   involving  Missouri
Department of Transportation  road building  projects.  On August 11, 2004,
APAC-Missouri,  Inc. and one current APAC-Missouri, Inc. employee were each
indicted on a single charge alleging a violation of U.S. federal  antitrust
laws in  connection  with a single  project bid by the Central  Division of
APAC-Missouri,   Inc.  in  2000  with   revenues   less  than  $8  million.
APAC-Missouri, Inc. will vigorously defend the action.

(2) In November 2003,  Ashland  received a subpoena from the USDOJ relating
to  a  foundry  resins  grand  jury  investigation.  Ashland  is  providing
responsive  records to the subpoena.  As is  frequently  the case when such
investigations  are in progress,  a number of civil actions have since been
filed in multiple  jurisdictions,  most of which are seeking  class  action
status for classes of customers of foundry resins.  Ashland will vigorously
defend the actions.

ENVIRONMENTAL   PROCEEDINGS   -  (1)   Under  the   federal   Comprehensive
Environmental  Response  Compensation  and  Liability  Act (as amended) and
similar state laws,  Ashland may be subject to joint and several  liability
for  clean-up  costs in  connection  with  alleged  releases  of  hazardous
substances  at  sites  where  it  has  been  identified  as a  "potentially
responsible  party" ("PRP").  As of June 30, 2004, Ashland had been named a
PRP at 95 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


                                    22


<PAGE>



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  Note  F  to  the  Condensed
Consolidated Financial Statements in this quarterly report on Form 10-Q.

(2) On May 13, 2002,  Ashland  entered into a plea  agreement with the U.S.
Attorney's  Office for the  District  of  Minnesota  and the  Environmental
Crimes Section of the U.S.  Department of Justice  regarding a May 16, 1997
sewer fire at the St. Paul Park, Minnesota refinery,  which is now owned by
MAP. As part of the plea  agreement,  Ashland  entered  guilty pleas to two
federal misdemeanors, paid a $3.5 million fine related to violations of the
Clean Air Act ("CAA"),  paid $3.55 million as  restitution to the employees
injured in the fire,  and paid $200,000 as  restitution  to the  responding
rescue units.  Ashland also agreed to complete  certain upgrades to the St.
Paul Park  refinery's  process  sewers,  junction  boxes and drains to meet
standards  established  by  Subpart  QQQ  of  the  New  Source  Performance
Standards of the CAA (the "Refinery Upgrades").

In addition, as part of the plea agreement, Ashland entered into a deferred
prosecution  agreement,  wherein  prosecution  of a  separate  count of the
indictment  charging  Ashland with  violating  Subpart QQQ was deferred for
four years.  The deferred  prosecution  agreement  provides that if Ashland
satisfies the terms and  conditions of the plea agreement and completes the
Refinery Upgrades,  the deferred  prosecution  agreement will terminate and
the United States will dismiss that count with prejudice.  If, however,  it
is  determined  by the court that  Ashland  willfully  violated any term or
condition  of the plea  agreement  during the deferral  period,  the United
States may re-initiate prosecution of the deferred count of the indictment,
using an admission  made by Ashland for purposes of the plea agreement that
Ashland  knowingly  operated  the St. Paul Park  refinery in  violation  of
certain Subpart QQQ standards.

As part of its  sentence,  Ashland was placed on probation  for five years.
The primary  condition of probation is an  obligation  not to commit future
federal, state, or local crimes. If Ashland were to commit such a crime, it
would be subject not only to prosecution  for that new  violation,  but the
government  could also seek to revoke  Ashland's  probation.  The probation
office has retained an independent  environmental  consultant to review and
monitor Ashland's compliance with applicable environmental requirements and
the terms and  conditions  of  probation.  The court  also  included  other
customary terms and restrictions of probation in its probation order.

(3)   Pursuant  to  a  1988   Resource   Conservation   and   Recovery  Act
Administrative Consent Order ("Consent Order"), Ashland is remediating soil
and groundwater at a former chemical distribution facility site in Lansing,
Michigan. The USEPA has asserted that Ashland has not complied with certain
provisions  of the  Consent  Order  and,  although  Ashland  disputes  this
assertion,  Ashland  and the USEPA  have  agreed to  resolve  the  dispute.
Ashland has agreed to payment of a $650,000  penalty,  pending agreement on
settlement  terms and  conditions.  Ashland is  continuing to work with the
USEPA to define Ashland's  continuing  obligations under the Consent Order.
No formal penalty proceeding has been initiated.

(4) In 1990,  contamination of groundwater at Ashland's former Canton, Ohio
refinery (now owned and operated by MAP) was first  identified and reported
to Ohio's  Environmental  Protection  Agency  ("OEPA").  Since  that  time,
Ashland has voluntarily conducted  investigation and remediation activities
and regularly communicated with OEPA regarding this matter. Ashland and the
state of Ohio have exchanged Consent Order drafts and have met to negotiate
the terms of such an order.  The state filed a complaint in February  2004,
but  simultaneously  expressed  an interest  in  continuing  Consent  Order
settlement  discussions.  Following the filing of the  complaint,  Ashland,
OEPA and Ohio's  Office of the Attorney  General have  continued to work to
finalize  a Consent  Order.  The state has  advised  that it will  assess a
penalty as part of the overall  settlement and has made an initial  request
for  $650,000.

SHAREHOLDER  DERIVATIVE  LITIGATION - On August 16, 2002, Central Laborers'
Pension  Fund,  derivatively  as a  shareholder  of Ashland,  instituted an
action in the Circuit Court of Kentucky in Kenton

                                    23

<PAGE>


County  against  Ashland's  then-serving  Board of Directors.  On motion of
Ashland and the other defendants, the case was removed to the United States
District Court, Eastern District of Kentucky,  Covington Division. The case
has been remanded to the state court. Ashland has filed a Motion to Dismiss
the Complaint.  The action is purportedly  filed on behalf of Ashland,  and
asserts the following  causes of action  against the  Directors:  breach of
fiduciary  duty,  abuse  of  control,  gross  mismanagement,  and  waste of
corporate assets.  The suit also names Paul W. Chellgren,  the then-serving
Chief  Executive  Officer  and  Chairman  of the Board,  and James R. Boyd,
former Senior Vice  President and Group  Operating  Officer,  as individual
defendants,  and it seeks to recover an unstated sum from them individually
alleging unjust enrichment from various transactions completed during their
tenure with  Ashland.  The suit further seeks an  unspecified  sum from Mr.
Chellgren   individually   based  upon  alleged   usurpation  of  corporate
opportunities.  The  suit  also  names  J.  Marvin  Quin,  Ashland's  Chief
Financial  Officer,   as  well  as  three  former  employees  of  Ashland's
wholly-owned  subsidiary,  APAC, as individual  defendants and alleges that
they  participated  in  the  preparation  and  filing  of  false  financial
statements  during fiscal years 1999 - 2001. The suit further names Ernst &
Young  LLP  ("E&Y"),  as  a  defendant,  alleging  professional  accounting
malpractice  and  negligence in the conduct of its audit of Ashland's  1999
and 2000 financial statements,  respectively,  as well as alleging that E&Y
aided and abetted the  individual  defendants  in their  alleged  breach of
duties.  The  complaint  seeks to  recover,  jointly  and  severally,  from
defendants  an unstated  sum of  compensatory  and  punitive  damages.  The
complaint seeks equitable and/or injunctive relief to avoid continuing harm
from alleged  ongoing illegal acts, and seeks a disgorgement of defendants'
alleged  insider-trading  gains,  in  addition to the  reasonable  cost and
expenses  incurred in bringing  the  complaint,  including  attorneys'  and
experts' fees.

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 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

10.1     Amended and Restated Ashland Inc. Incentive Plan.

12       Computation of Ratio of Earnings to Fixed Charges.

31.1     Certificate  of James  J.  O'Brien,  Chief  Executive  Officer  of
         Ashland,  pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
         2002, 18 U.S.C. Section 1350.

31.2     Certificate of J. Marvin Quin, Chief Financial Officer of Ashland,
         pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002, U.S.C.
         Section 1350.

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

(B) REPORTS ON FORM 8-K

During the  quarter  ended June 30,  2004,  and  between  such date and the
filing  of this  quarterly  report  on Form  10-Q,  Ashland  furnished  the
following reports on Form 8-K:

(1)      A report on Form 8-K dated April 7, 2004  containing  a Regulation
         FD disclosure.


                                    24
<PAGE>


(2)      A report on Form 8-K dated April 15, 2004 announcing that Lamar M.
         Chambers  has  been  elected  Vice  President  and  Controller  of
         Ashland, effective May 1, 2004.

(3)      A report on Form 8-K dated April 26, 2004  containing a Regulation
         FD disclosure.

(4)      A report on Form 8-K  dated  April 26,  2004  reporting  Ashland's
         second quarter fiscal 2004 results.

(5)      A report on Form 8-K dated May 28, 2004 containing a Regulation FD
         disclosure.

(6)      A  report  on  Form  8-K  dated  June  18,  2004  announcing  that
         APAC-Missouri,  an indirect,  wholly owned  subsidiary of Ashland,
         received a subpoena from the U.S. Department of Justice, Antitrust
         Division in Missouri, in a road-building grand jury investigation.

(7)      A report on Form 8-K dated June 28, 2004  containing  a Regulation
         FD disclosure.

(8)      A report on Form 8-K dated July 14, 2004  announcing that Kathleen
         A. Ligocki had been elected to Ashland's Board of Directors.

(9)      A report on Form 8-K dated July 26, 2004  containing  a Regulation
         FD disclosure.

(10)     A report on Form 8-K dated July 26, 2004 reporting Ashland's third
         quarter fiscal 2004 results.


                                    25

<PAGE>



                                 SIGNATURE

Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                             Ashland Inc.
                                 -------------------------------------
                                            (Registrant)

Date:  August 12, 2004           /s/ J. Marvin Quin
                                 -------------------------------------
                                 J. Marvin Quin
                                 Senior Vice President and Chief
                                 Financial Officer (on behalf of the
                                 Registrant as principal financial
                                 officer)


                                    26


<PAGE>




                               EXHIBIT INDEX


Exhibit
  No.                          Description
--------------------------------------------------------------------------------

10.1     Amended and Restated Ashland Inc. Incentive Plan.

12       Computation of Ratio of Earnings to Fixed Charges.

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

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

32       Certificate  of James  J.  O'Brien,  Chief  Executive  Officer  of
         Ashland,  and J. Marvin Quin, Chief Financial  Officer of Ashland,
         pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, U.S.C.
         Section 1350.



                                    27

<PAGE>




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>ex101.txt
<DESCRIPTION>EX. 10.1
<TEXT>

                                                                Exhibit 10.1
                           AMENDED AND RESTATED
                           ASHLAND INC. INCENTIVE PLAN
                           (As amended July 15, 2004)

SECTION 1.  PURPOSE

     The  purpose of the  Ashland  Inc.  Incentive  Plan is to promote  the
interests of Ashland Inc. and its  shareholders by providing  incentives to
its directors,  officers and employees.  Accordingly, the Company may grant
to selected officers and employees Option Awards, Stock Appreciation Rights
Awards, Restricted Stock Awards, Incentive Awards,  Performance Unit Awards
and Merit Awards in an effort to attract and retain in its employ qualified
individuals  and to provide such  individuals  with  incentives to continue
service  with the  Company,  devote  their best  efforts to the Company and
improve the Company's economic performance, thus enhancing the value of the
Company  for the  benefit  of  shareholders.  This  Plan also  provides  an
incentive for qualified  persons,  who are not officers or employees of the
Company,  to serve on the Board of Directors of the Company and to continue
to work for the best  interests  of the Company by  rewarding  such persons
with an  automatic  Restricted  Stock Award and with  discretionary  Option
Awards.

SECTION 2.  DEFINITIONS

     (A) "Agreement" shall mean a written agreement setting forth the terms
of an Award, to be entered into at the Company's discretion.

     (B)  "Attestation"  means the  delivery  to the Company of a completed
attestation  form  prescribed by the Company setting forth the whole shares
of  Common  Stock  owned by the  Recipient  which the  Recipient  wishes to
utilize  to  pay  the  Exercise  Price.  The  Common  Stock  listed  on the
attestation  form must  have  been  owned by the  Recipient  six  months or
longer,  and not have been used to effect  an Option  exercise  within  the
preceding six months, unless the Committees specifically provide otherwise.

     (C) "Award" shall mean an Option  Award,  a Stock  Appreciation  Right
Award,  an Incentive  Award, a Performance  Unit Award, a Restricted  Stock
Award or a Merit Award, in each case granted under this Plan.

     (D)  "Beneficiary"  shall mean the  person,  persons,  trust or trusts
designated by a Recipient or if no  designation  has been made, the person,
persons,  trust,  or trusts  entitled  by will or the laws of  descent  and
distribution to receive the benefits specified under this Plan in the event
of a Recipient's death.

     (E) "Board"  shall mean the Board of  Directors  of the Company or its
designee.

     (F)  "Cashless  Exercise"  shall mean the  procedure by which a broker
provides  the funds to a  Recipient  to effect an Option  exercise.  At the
direction of the  Recipient,  the broker will  either:  (i) sell all of the
shares  received  when the Option is exercised  and pay the  Recipient  the
proceeds of the sale (minus the Exercise Price,  withholding  taxes and any
fees due to the broker);  or (ii) sell enough of the shares  received  upon
exercise of the Option to cover the Exercise Price,  withholding  taxes and
any fees due the broker and deliver to the  Recipient  (either  directly or
through the Company) a stock certificate for the remaining shares.

     (G) "Change in Control"  shall be deemed to occur (1) upon approval of
the shareholders of the Company (or if such approval is not required,  upon
the  approval  of the  Board)  of (A) any  consolidation  or  merger of the
Company, other than a consolidation or merger of the Company into or with a
direct or indirect wholly-owned subsidiary, in which the Company is not the
continuing or surviving  corporation  or pursuant to which shares of Common
Stock would be converted into cash, securities or other property other than
a merger in which the  holders  of Common  Stock  immediately  prior to the
merger will have the same  proportionate  ownership  of common stock of the
surviving  corporation  immediately after the merger,  (B) any sale, lease,
exchange,  or other  transfer  (in one  transaction  or a series of related
transactions)  of all or  substantially  all  the  assets  of the  Company,
provided,  however,  that no sale, lease, exchange or other transfer of all
or  substantially  all the assets of the  Company  shall be deemed to occur
unless  assets  constituting  80% of the total  assets of the  Company  are
transferred  pursuant to such sale, lease,  exchange or other transfer,  or
(C) adoption of any plan or proposal for the  liquidation or dissolution of
the Company, (2) when any person (as defined in Section 3(a)(9) or 13(d) of
the Exchange Act), other than the

<PAGE>


Company or any Subsidiary or employee  benefit plan or trust  maintained by
the Company,  shall become the  beneficial  owner (as defined in Rule 13d-3
under the Exchange Act),  directly or  indirectly,  of more than 15% of the
Company's Common Stock outstanding at the time, without the approval of the
Board,  or (3) at any  time  during  a  period  of two  consecutive  years,
individuals who at the beginning of such period constituted the Board shall
cease for any reason to constitute at least a majority thereof,  unless the
election or the  nomination for election by the Company's  shareholders  of
each new director  during such two-year period was approved by a vote of at
least  two-thirds of the directors  then still in office who were directors
at the beginning of such two-year  period.  Notwithstanding  the foregoing,
any  transaction,  or  series of  transactions,  that  shall  result in the
disposition  of  Ashland's  interest in  Marathon  Ashland  Petroleum  LLC,
including  without  limitation any transaction  arising out of that certain
Put/Call,  Registration  Rights and Standstill  Agreement  dated January 1,
1998 among Marathon Oil Company, USX Corporation,  the Company and Marathon
Ashland Petroleum LLC, as amended from time to time, shall not be deemed to
constitute a Change in Control.

     (H) "Code"  shall mean the Internal  Revenue Code of 1986,  as amended
from time to time.

     (I)  "Committees"  shall refer to the P&C  Committee  as it relates to
Awards to Participants  and to the G&N Committee as it relates to Awards to
Outside
Directors.

     (J) "Common  Stock" shall mean the Common Stock of the Company  ($1.00
par value), subject to adjustment pursuant to Section 15 hereof.

     (K)  "Company"  shall  mean,   collectively,   Ashland  Inc.  and  its
Subsidiaries.

     (L) "Disability"  shall mean, (i) in the case of a Participant,  he or
she becomes unable to perform the functions  required by his or her regular
job due to physical or mental illness and, in connection  with the grant of
an  Incentive  Stock Option shall be disabled if he or she falls within the
meaning of that term as provided  in Section  22(e)(3) of the Code and (ii)
in the case of an Outside  Director,  when he or she is unable to attend to
his or her duties and  responsibilities as a member of the Board because of
incapacity due to physical or mental illness.

     (M) "Exercise  Price" shall mean, with respect to each share of Common
Stock subject to an Option, the price fixed by the Committees at which such
share may be  purchased  from the Company  pursuant to the exercise of such
Option,  which  price at no time may be less than  100% of the Fair  Market
Value of the Common Stock on the date the Option is granted.

     (N) "Exchange Act" shall mean the Securities  Exchange Act of 1934, as
amended.

     (O) "Fair  Market  Value"  shall mean the price of the Common Stock as
reported on the Composite  Tape of the New York Stock  Exchange on the date
and at the time selected by the Committees or as otherwise provided in this
Plan.

     (P) "G&N Committee" shall mean the Governance and Nominating Committee
of the Board, as from time to time constituted,  or any successor committee
of the Board with similar functions, or its designee.

     (Q)  "Incentive  Award" shall mean an Award made pursuant to Section 7
hereof,  the payment of which is  contingent  upon the  achievement  of the
Performance Goals for the particular Performance Period.

     (R)  "Incentive  Stock  Option" or "ISO"  shall mean an Option that is
intended by the Committees to meet the  requirements  of Section 422 of the
Code or any successor provision.

     (S) "ISO  Award"  shall  mean an Award of an  Incentive  Stock  Option
pursuant to Section 10 hereof.

     (T) "Merit Award" shall mean an Award of Common Stock issued  pursuant
to Section 9 hereof.

     (U) "Non-Employee  Director" shall mean a non-employee director within
the  meaning  of  applicable  regulatory   requirements,   including  those
promulgated under Section 16 of the Exchange Act.

                                    -2-

<PAGE>


     (V) "Nonqualified Stock Option" or "NQSO" shall mean an Option granted
pursuant to this Plan which does not qualify as an Incentive Stock Option.

     (W) "Notice of Grant" shall mean a written  notice  setting  forth the
terms of an  Option  or SAR  Award,  to be  entered  into at the  Company's
discretion.

     (X) "Option" shall mean the right to purchase  Common Stock at a price
to be  specified  and upon  terms to be  designated  by the  Committees  or
otherwise  determined pursuant to this Plan. The Committees shall designate
an Option as a Nonqualified Stock Option or an Incentive Stock Option.

     (Y)  "Option  Award"  shall  mean an Award of an  Option  pursuant  to
Section 10 hereof.

     (Z) "Outside Director" shall mean a director of the Company who is not
also an employee of the Company as selected by the G&N Committee to receive
an Award under this Plan.

     (AA)  "P&C  Committee"  shall  mean  the  Personnel  and  Compensation
Committee of the Board, as from time to time constituted,  or any successor
committee of the Board with similar functions, which shall consist of three
or more  members,  each of whom  shall be a  Non-Employee  Director  and an
outside director as defined in the regulations  issued under Section 162(m)
of the Code, or its designee.

     (BB)  "Participant"  shall  mean a  regular,  full-time  or  part-time
employee  of the Company as  selected  by the P&C  Committee  to receive an
Award under this Plan.

     (CC)  "Performance  Goals"  shall  mean  performance  goals  as may be
established in writing by the P&C Committee which may be based on earnings,
stock  price,  return on  equity,  return on  investment,  total  return to
shareholders,  economic  profit,  debt rating or  achievement  of business,
financial or operational  goals.  Such goals may be absolute in their terms
or  measured  against  or in  relation  to other  companies  comparably  or
otherwise  situated.   Such  performance  goals  may  be  particular  to  a
Participant  or the division or other unit in which the  Participant  works
and/or may be based on the performance of the Company generally.

     (DD) "Performance  Period" shall mean the period designated by the P&C
Committee during which the performance objectives shall be measured.

     (EE)  "Performance  Unit Award"  shall mean an Award made  pursuant to
Section 8 hereof,  the payment of which is contingent  upon the achievement
of the Performance Goals for the particular Performance Period.

     (FF) "Personal  Representative"  shall mean the person or persons who,
upon the Disability or incompetence of a Recipient,  shall have acquired on
behalf of the  Recipient  by legal  proceeding  or  otherwise  the right to
receive the benefits specified in this Plan.

     (GG) "Plan" shall mean this Ashland Inc.  Incentive  Plan,  as amended
and restated.

     (HH) "Recipients" shall mean a Participant or an Outside Director,  as
appropriate.

     (II) "Restricted Period" shall mean the period designated during which
Restricted  Stock  may not be  sold,  assigned,  transferred,  pledged,  or
otherwise encumbered, which period in the case of Participants shall not be
less than one year from the date of grant (unless otherwise directed by the
P&C  Committee),  and in the case of  Outside  Directors  is the period set
forth in Section 6(B) hereof.

     (JJ) "Restricted Stock" shall mean those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions,
terms, and conditions set forth in the related Agreement, if any.

     (KK) "Restricted  Stock Award" shall mean an Award of Restricted Stock
pursuant to Section 6 hereof.

     (LL)  "Retained  Distributions"  shall  mean any  securities  or other
property (other than regular cash dividends)  distributed by the Company in
respect of Restricted Stock during any Restricted Period.

                                    -3-

<PAGE>


     (MM)  "Retirement"  shall  mean,  (a) in the  case  of a  Participant,
retirement  from the employ of the Company at any time as  described in the
Ashland Inc. and Affiliates  Pension Plan or in any successor pension plan,
as from time to time in effect, and (b) in the case of an Outside Director,
retirement  from the  Board at age 72 or at any  other age as the Board may
from time to time determine.

     (NN) "Stock  Appreciation  Right" or "SAR" shall mean the right of the
holder to receive the  appreciation  in the Fair Market  Value of shares of
Common Stock upon terms to be  designated  by the  Committees  or otherwise
determined  pursuant  to this Plan.  The holder of an  exercisable  SAR may
elect to  surrender  the SAR and  receive in exchange  therefore  an amount
equal to the excess of the Fair  Market  Value of the  Common  Stock on the
date the election to surrender is received by the Company over the Exercise
Price  specified in such SAR  multiplied  by the number of shares of Common
Stock covered by such SAR, or portion thereof,  which is so surrendered.  A
SAR may be  granted  either  singly  or  concurrently  with the grant of an
Option. A SAR shall be exercisable upon any additional terms and conditions
(including,  without  limitation,  the issuance of Restricted Stock and the
imposition  of  restrictions  upon the  timing  of  exercise)  which may be
determined as provided in this Plan.

     (OO) "Stock  Appreciation  Right  Award" or "SAR Award"  shall mean an
Award of a Stock Appreciation Right pursuant to Section 11 hereof.

     (PP)  "Subsidiary"   shall  mean  any  present  or  future  subsidiary
corporations, as defined in Section 424 of the Code, of the Company.

     (QQ) "Tax Date"  shall mean the date the  withholding  tax  obligation
arises with respect to an Award.

SECTION 3.  STOCK SUBJECT TO THIS PLAN

     There will be reserved  for  issuance  under this Plan an aggregate of
4,000,000  shares of Common  Stock,  par value  $1.00 per share;  provided,
however,  that of such shares only 1,000,000  shares in the aggregate shall
be available  for  Restricted  Stock Awards,  Merit Awards,  ISO Awards and
Performance  Unit  Awards.  Such shares  shall be  authorized  but unissued
shares of  Common  Stock.  If any Award  under  this Plan  shall  expire or
terminate for any reason  without  having been earned or vested in full, or
if any Award shall be  forfeited  or  deferred,  the shares  subject to the
unearned,  forfeited  or  deferred  portion  of such Award  shall  again be
available  for the purposes of this Plan. No  Participant  shall be granted
more than a total of 250,000  Option or SAR Awards  annually and no Outside
Director  shall be granted more than a total of 10,000 Option or SAR Awards
annually.

SECTION 4.  ADMINISTRATION

     The P&C  Committee  shall have the  exclusive  authority to administer
this Plan for  Participants.  The G&N  Committee  shall have the  exclusive
authority to administer this Plan for Outside Directors.

     In  addition  to any  implied  powers and duties that may be needed to
carry out the provisions hereof, the Committees, acting individually, shall
have all the powers vested in them by the terms hereof, including exclusive
authority to select the  Recipients,  to determine the type, size and terms
of the  Awards to be made to each  Recipient,  to  determine  the time when
Awards will be  granted,  and to  prescribe  the form of the  Agreement  or
Notice of Grant embodying Awards made under this Plan. The Committees shall
be  authorized  to interpret  this Plan and the Awards  granted  under this
Plan, to establish, amend and rescind any rules and regulations relating to
this Plan, to make any other determinations which they believe necessary or
advisable  for the  administration  hereof,  and to  correct  any defect or
supply any omission or reconcile any  inconsistency  in this Plan or in any
Award in the  manner and to the extent the  Committees  deem  desirable  to
carry it into effect.  Any decision of the Committees in the administration
of this Plan, as described herein, shall be final and conclusive.

SECTION 5.  ELIGIBILITY

     Awards  may only be  granted  (i) to regular  full-time  or  part-time
employees of the Company,  or (ii) as expressly  provided in Sections 6(B),
10 and 11 hereof, to Outside Directors of the Company.

                                    -4-

<PAGE>


SECTION 6.  RESTRICTED STOCK AWARDS

(A)  Awards to Employees

     The P&C  Committee  may make a  Restricted  Stock  Award  to  selected
Participants,   which   Restricted  Stock  Awards  may,  at  the  Company's
discretion  and as  directed  by the  P&C  Committee,  be  evidenced  by an
Agreement  which  shall  contain  such  terms  and  conditions  as the  P&C
Committee,  in its sole  discretion,  may  determine.  The  amount  of each
Restricted  Stock Award and the  respective  terms and  conditions  of such
Award (which terms and conditions  need not be the same in each case) shall
be determined by the P&C Committee in its sole  discretion.  As a condition
to any Restricted  Stock Award  hereunder,  the P&C Committee may require a
Participant to pay to the Company a  non-refundable  amount equal to, or in
excess  of,  the par value of the  shares of the  Restricted  Stock  Award.
Subject to the terms and  conditions of each  Restricted  Stock Award,  the
Participant,  as the owner of the Common Stock issued as Restricted  Stock,
shall have all  rights of a  shareholder  including,  but not  limited  to,
voting  rights as to such Common  Stock and the right to receive  dividends
thereon when, as and if paid.

     Unless otherwise determined and directed by the P&C Committee,  in the
event that a Restricted  Stock Award has been made to a  Participant  whose
employment or service is  subsequently  terminated  for any reason prior to
the  lapse of all  restrictions  thereon,  such  Restricted  Stock  will be
forfeited in its entirety by such Participant.

(B)  Awards to Outside Directors

     During  the term of this  Plan,  each  person  who is  hereafter  duly
appointed or elected as an Outside Director shall be granted,  effective on
the date of his or her  appointment  or election to the Board, a Restricted
Stock  Award of 1,000  shares.  All Awards  under this  subsection  (B) are
subject to the limitation on the number of shares of Common Stock available
pursuant to Section 3 hereof and to the terms and  conditions  set forth in
this subsection (B) and subsection (C) below.

     As a condition to any Restricted  Stock Award  hereunder,  the Outside
Director  may be  required to pay to the  Company a  non-refundable  amount
equal to the par value of the shares of the  Restricted  Stock Award.  Upon
the granting of the Restricted Stock Award,  such Outside Director shall be
entitled to all rights incident to ownership of Common Stock of the Company
with respect to his or her Restricted Stock, including, but not limited to,
the right to vote such shares of Restricted Stock and to receive  dividends
thereon when, as and if paid; provided, however, that subject to subsection
(C) hereof,  in no case may any shares of  Restricted  Stock  granted to an
Outside  Director be sold,  assigned,  transferred,  pledged,  or otherwise
encumbered  during the  Restricted  Period  which shall not lapse until the
earlier  to occur  of the  following:  (i)  Retirement,  (ii) the  death or
Disability of such Outside  Director,  (iii) a 50% change in the beneficial
ownership of the Company as defined in Rule 13d-3 under the  Exchange  Act,
or (iv)  voluntary  early  retirement  to take a position  in  governmental
service.  Unless otherwise determined and directed by the G&N Committee, in
the case of voluntary  resignation  or other  termination  of service of an
Outside  Director prior to the occurrence of any of the events described in
the preceding  sentence,  any Restricted  Stock Award made pursuant to this
subsection will be forfeited by such Outside Director.

(C) Transferability

     Subject to Section  17(B)  hereof,  Restricted  Stock may not be sold,
assigned, transferred, pledged, or otherwise encumbered during a Restricted
Period, which, in the case of Participants,  shall be determined by the P&C
Committee and, unless otherwise determined by the P&C Committee,  shall not
be less than one year from the date of the Restricted Stock Award,  and, in
the case of Outside  Directors,  shall be  determined  in  accordance  with
subsection (B) of this Section.  The P&C Committee may, at any time, reduce
the  Restricted  Period  with  respect  to  any  outstanding  shares  of  a
Restricted  Stock  Award,  but,  unless  otherwise  determined  by the  P&C
Committee, such Restricted Period shall not be less than one year.

     During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the Recipient's
name and bear a  restrictive  legend to the effect that  ownership  of such
Restricted Stock (and any such Retained  Distributions),  and the enjoyment
of all rights appurtenant  thereto are subject to the restrictions,  terms,
and conditions provided in this Plan and the applicable Agreement,  if any.
Such certificates shall

                                    -5-

<PAGE>


be deposited by the Recipient with the Company,  together with stock powers
or other  instruments  of  assignment,  each endorsed in blank,  which will
permit  transfer  to the  Company of all or any  portion of the  Restricted
Stock and any securities constituting Retained Distributions which shall be
forfeited in accordance  with this Plan and the  applicable  Agreement,  if
any.  Restricted  Stock shall constitute  issued and outstanding  shares of
Common Stock for all corporate  purposes,  with the exception that: (i) the
Recipient  will not be  entitled  to  delivery  of the  stock  certificates
representing  such  Restricted  Stock  until  the  restrictions  applicable
thereto  shall have  expired;  (ii) the Company will retain  custody of all
Retained  Distributions  made or declared  with  respect to the  Restricted
Stock  (and  such  Retained  Distributions  will  be  subject  to the  same
restrictions,  terms and  conditions as are  applicable  to the  Restricted
Stock) until such time,  if ever, as the  Restricted  Stock with respect to
which such Retained  Distributions  shall have been made, paid, or declared
shall have become vested,  and such Retained  Distributions  shall not bear
interest or be  segregated in separate  accounts;  (iii) subject to Section
17(B)  hereof,  the  Recipient  may not  sell,  assign,  transfer,  pledge,
exchange,  encumber,  or dispose of the  Restricted  Stock or any  Retained
Distributions  during the  Restricted  Period;  and (iv)  unless  otherwise
determined and directed by the  Committees,  a breach of any  restrictions,
terms, or conditions provided in this Plan or established by the Committees
with respect to any Restricted Stock or Retained Distributions will cause a
forfeiture of such  Restricted  Stock and any Retained  Distributions  with
respect thereto.

SECTION 7.  INCENTIVE AWARDS

     (A) Any Participant may receive one or more Incentive  Awards,  as the
P&C Committee shall from time to time determine.

     (B) No later than 120 days (90 days for those Participants  subject to
the  limitations  of Code Section  162(m)) after the  commencement  of each
Performance  Period,  the P&C Committee  shall  establish in writing one or
more  Performance  Goals that must be reached by a Participant  in order to
receive an Incentive Award for such Performance Period. Except with respect
to Participants  subject to the limitations of Code Section 162(m), the P&C
Committee shall have the discretion to later revise the  Performance  Goals
and the amount to be paid out upon the  attainment  of these  goals for any
reason  including the reflection of promotions,  transfers or other changes
in a  Participant's  employment so long as such changes are consistent with
the Performance  Goals  established  for other  Participants in the same or
similar positions.  Performance Goals established for Participants  subject
to Code  Section  162(m) may only be  adjusted to reduce or  eliminate  the
amount of compensation otherwise payable upon attainment of the Performance
Goals.

     (C)  The  target   Incentive  Award  is  a  fixed  percentage  of  the
Participant's Base Salary paid during the year. The maximum Incentive Award
is 150% of the target  Incentive  Award.  No  Incentive  Award shall exceed
three million dollars ($3,000,000).

     (D) Payment of Incentive Awards shall be made on a date or dates fixed
by the P&C Committee.  Payment may be made in one or more  installments and
may be made  wholly  in  cash,  wholly  in  shares  of  Common  Stock  or a
combination thereof as determined by the P&C Committee.

     If payment of an  Incentive  Award shall be made all or  partially  in
shares  of Common  Stock,  the  number  of  shares  of  Common  Stock to be
delivered  to a  Participant  on any payment  date shall be  determined  by
dividing (x) the original  dollar amount to be paid on the payment date (or
the part thereof  determined by the P&C Committee to be delivered in shares
of such Incentive Award) by (y) the Fair Market Value on the date the Board
approves the P&C  Committee's  decision to pay an  Incentive  Award or such
other date as the Board shall determine.

     (E) Unless otherwise determined and directed by the P&C Committee,  an
Incentive  Award  shall  terminate  if  the  Participant  does  not  remain
continuously  employed and in good standing with the Company until the date
of payment of such Award.  Unless otherwise  determined and directed by the
P&C  Committee,  in the  event a  Participant's  employment  is  terminated
because of death, Disability or Retirement,  the Participant (or his or her
beneficiaries  or estate) shall receive the prorated portion of the payment
of an Incentive Award for which the  Participant  would have otherwise been
eligible based upon the portion of the  Performance  Period during which he
or she was so employed so long as the  Performance  Goals are  subsequently
achieved.


                                    -6-

<PAGE>


SECTION 8.  PERFORMANCE UNIT AWARDS

     (A) Any Participant may receive one or more  Performance  Unit Awards,
as the P&C Committee shall from time to time determine.

     (B) The  Performance  Goals and  Performance  Period  applicable  to a
Performance  Unit Award shall be set forth in writing by the P&C  Committee
no later  than 120 days (90  days for  those  Participants  subject  to the
limitations  imposed by Code Section 162(m)) after the  commencement of the
Performance  Period.  Except with  respect to  Participants  subject to the
limitations  of Code  Section  162(m),  the P&C  Committee  shall  have the
discretion to later revise the Performance  Goals and the amount to be paid
out upon the  attainment  of  these  goals  for any  reason  including  the
reflection of  promotions,  transfers or other  changes in a  Participant's
employment  so long as such  changes are  consistent  with the  Performance
Goals established for other  Participants in the same or similar positions.
Goals established for Participants  subject to Code Section 162(m) may only
be adjusted to reduce or  eliminate  the amount of  compensation  otherwise
payable upon attainment of the Performance Goals.

     (C) Each  Performance  Unit Award shall be  established  in dollars or
shares of Common Stock,  or a combination of both, as determined by the P&C
Committee.  The  original  amount of any  Performance  Unit Award shall not
exceed 400% of the  Participant's  then annual base salary and the original
amount of any Performance  Unit Award shall not exceed five million dollars
($5,000,000). In determining the amount of any Performance Unit Award made,
in whole or in part, in shares of Common Stock,  the value thereof shall be
based on the Fair Market Value on the first day of the  Performance  Period
or on such other date as the Board shall determine.

     (D) Unless otherwise  determined and directed by the P&C Committee,  a
Performance  Unit Award shall terminate for all purposes if the Participant
does not remain continuously employed and in good standing with the Company
until payment of such Performance Unit Award.  Unless otherwise  determined
and  directed  by  the  P&C  Committee,   a  Participant  (or  his  or  her
beneficiaries or estate) whose employment was terminated  because of death,
Disability or Retirement will receive a prorated  portion of the payment of
his or her Award based upon the portion of the  Performance  Period  during
which  he or she  was so  employed  so long as the  Performance  Goals  are
subsequently achieved.

     (E) Payment  with respect to  Performance  Unit Awards will be made to
Participants  on a date or dates fixed by the P&C Committee.  The amount of
such payment shall be determined by the P&C Committee and shall be based on
the original amount of such  Performance Unit Award adjusted to reflect the
attainment of the Performance Goals during the Performance Period.  Payment
may be made in one or more  installments  and may be made  wholly  in cash,
wholly in shares of Common Stock or a combination  thereof as determined by
the P&C Committee.

     If payment of a Performance Unit Award established in dollars is to be
made in shares of Common  Stock or  partly in such  shares,  the  number of
shares of Common Stock to be delivered to a Participant on any payment date
shall be  determined  by  dividing  (x) the amount  payable by (y) the Fair
Market Value on the date the Board approves the P&C Committee's decision to
pay the  Performance  Unit Award or on such  other date as the Board  shall
determine.

     If payment of a Performance Unit Award established in shares of Common
Stock is to be made in cash or  partly  in cash,  the  amount of cash to be
paid  to  a  Participant  on  any  payment  date  shall  be  determined  by
multiplying  (x) the number of shares of Common Stock to be paid in cash on
such payment date with respect to such  Performance  Unit Award, by (y) the
Fair  Market  Value on the  date the  Board  approves  the P&C  Committee's
decision  to pay the  Performance  Unit  Award or on such other date as the
Board shall determine.  Any payment may be subject to such restrictions and
conditions as the P&C Committee may determine.

SECTION 9.  MERIT AWARDS

     Any  Participant  may receive a Merit Award of Common Stock under this
Plan for such  reasons and in such  amounts as the P&C  Committee  may from
time to time  determine.  As a condition to any such Merit  Award,  the P&C
Committee may require a Participant to pay to the Company a  non-refundable
amount  equal to, or in excess  of,  the par value of the  shares of Common
Stock awarded to him or her.

                                    -7-

<PAGE>


SECTION 10.  OPTION AWARDS

     (A) Any  Recipient  may  receive  one or more  Option  Awards,  as the
Committees shall from time to time determine.

     (B) Designation and Price

     (1) Any Option  granted under this Plan may be granted as an Incentive
Stock Option or as a  Nonqualified  Stock Option as shall be  designated by
the Committees at the time of the grant of such Option.  Only  Participants
may be granted ISOs.  Each Option shall,  at the  discretion of the Company
and as directed by the Committees, be evidenced by a Notice of Grant, which
Notice of Grant shall specify the  designation of the Option as an ISO or a
NQSO,  as the case may be, and shall  contain such terms and  conditions as
the Committees, in their sole discretion,  may determine in accordance with
this Plan.

     (2) Every ISO shall provide for a fixed  expiration  date of not later
than ten years from the date such ISO is granted.  Every NQSO shall provide
for a fixed  expiration date of not later than ten years and one month from
the date such NQSO is granted.

     (3) The Exercise Price of Common Stock issued  pursuant to each Option
shall be fixed by the Committees at the time of the granting of the Option;
provided,  however, that such Exercise Price shall in no event be less than
100% of the Fair Market  Value of the Common  Stock on the date such Option
is granted.

     (C) Exercise

     The  Committees  may,  in their sole  discretion,  provide for Options
granted under this Plan to be  exercisable  in whole or in part;  provided,
however, that no Option shall be exercisable prior to the first anniversary
of the date of its grant, except as provided in Section 13 hereof or as the
Committees otherwise determine in accordance with this Plan, and in no case
may an Option be  exercised  at any time for fewer  than 50 shares  (or the
total  remaining  shares  covered  by the  Option if fewer  than 50 shares)
during  the term of the  Option.  The  specified  number of shares  will be
issued upon receipt by the Company of (i) notice from the holder thereof of
the exercise of an Option,  and (ii) payment to the Company (as provided in
subsection  (D) of this  Section),  of the Exercise Price for the number of
shares with respect to which the Option is exercised.  Each such notice and
payment  shall be  delivered  or mailed to the Company at such place and in
such manner as the Company may designate from time to time.

     (D) Payment for Shares

     Except as otherwise  provided in this Section,  the Exercise Price for
the  Common  Stock  shall be paid in full  when the  Option  is  exercised.
Subject to such rules as the Committees may impose,  the Exercise Price may
be paid in whole or in part:  (i) in cash;  (ii) in whole  shares of Common
Stock owned by the  Recipient  and  evidenced by  negotiable  certificates,
valued at their Fair Market Value  (which  shares of Common Stock must have
been owned by the Recipient six months or longer, and not used to effect an
Option  exercise  within the  preceding six months,  unless the  Committees
specifically   provide  otherwise);   (iii)  by  Attestation;   (iv)  by  a
combination of such methods of payment;  or (v) by such other consideration
as shall constitute  lawful  consideration for the issuance of Common Stock
and be approved by the Committees (including, without limitation, effecting
a Cashless Exercise of the Option with a broker).

     (E) Continued Employment, Agreement to Serve and Exercise Period

     (1) Participants

     (a) Subject to the  provisions of Section  13(D) hereof,  every Option
and SAR shall  provide that it may not be exercised in whole or in part for
a period  of one  year  after  the date of  granting  such  Option  (unless
otherwise  determined by the P&C  Committee)  and if the  employment of the
Participant  shall  terminate  prior to the end of such one year period (or
such other period  determined by the P&C Committee),  the Option granted to
such Participant shall immediately terminate.

                                    -8-

<PAGE>


     (b) Every Option shall provide that in the event the Participant  dies
(i) while employed by the Company, (ii) during the periods in which Options
may be exercised by a Participant determined to be Disabled, or (iii) after
Retirement,  such Option shall be exercisable,  at any time or from time to
time, prior to the fixed  termination date set forth in the Option,  by the
Beneficiaries   of  the  decedent  for  the  number  of  shares  which  the
Participant  could have acquired under the Option  immediately prior to the
Participant's death.

     (c) Every Option shall provide that in the event the employment of any
Participant  shall cease by reason of Disability,  as determined by the P&C
Committee  at any time during the term of the Option,  such Option shall be
exercisable,  at any  time  or  from  time  to  time  prior  to  the  fixed
termination date set forth in the Option by such Participant for the number
of shares  which the  Participant  could  have  acquired  under the  Option
immediately prior to the Participant's Disability. The determination by the
P&C Committee of any question  involving  Disability of a Participant shall
be conclusive and binding.

     (d) Every Option shall provide that in the event the employment of any
Participant  shall  cease by  reason  of  Retirement,  such  Option  may be
exercised at any time or from time to time, prior to the fixed  termination
date set forth in the Option for the number of shares which the Participant
could have acquired under the Option immediately prior to such Retirement.

     (e)  Notwithstanding  any provision of this Plan to the contrary,  any
Option,  may, in the  discretion of the P&C Committee or as provided in the
relevant Notice of Grant (if any), become exercisable,  at any time or from
time to time,  prior to the fixed  termination date set forth in the Option
for the full number of awarded shares or any part thereof, less such number
as may have been  theretofore  acquired under the Option from and after the
time the Participant ceases to be an employee of the Company as a result of
the  sale or  other  disposition  by the  Company  of  assets  or  property
(including  shares of any Subsidiary) in respect of which such  Participant
had  theretofore  been employed or as a result of which such  Participant's
continued employment with the Company is no longer required.

     (f) Except as provided in  sub-subsections  (b), (c), (d), (e) and (g)
of this Section 10(E) and Section 13(D) hereof,  every Option shall provide
that it shall  terminate  on the earlier to occur of the fixed  termination
date set forth in the  Option or thirty  (30) days after  cessation  of the
Participant's  employment  for any cause in respect of the number of shares
which the  Participant  could have  acquired  under the Option  immediately
prior to such cessation of employment;  provided,  however,  that no Option
may be exercised after the fixed termination date set forth in the Option.

     (g) Notwithstanding any provision of this Section to the contrary,  in
the  event  the  P&C  Committee  determines,   in  its  sole  and  absolute
discretion,  that the  employment of any  Participant  has terminated for a
reason or in a manner  adversely  affecting the Company (which may include,
without limitation,  taking other employment or rendering service to others
without the consent of the Company), then the P&C Committee may direct that
such Participant forfeit any and all Options that he or she could otherwise
have exercised pursuant to the terms of this Plan.

     (h) Each  Participant  granted an Award under this Plan shall agree by
his or her acceptance of such Award to remain in the service of the Company
for a period  of at least  one year  from the date of the  Notice  of Grant
respecting the Award (or, if no Notice of Grant is given, at least one year
from the date of the Award).  Such service  shall,  subject to the terms of
any contract between the Company and such  Participant,  be at the pleasure
of the Company and at such  compensation  as the Company  shall  reasonably
determine from time to time.  Nothing in this Plan, or in any Award granted
pursuant to this Plan, shall confer on any individual any right to continue
in the employment of or service to the Company or interfere in any way with
the right of the Company to terminate the  Participant's  employment at any
time.

     (i)  Notwithstanding  anything to the contrary herein, any Option that
is an ISO shall be  exercisable  not later than three (3) months  following
the date that the employment of a Participant terminated.

     (2) Outside Directors

                                    -9-

<PAGE>


     If an Outside  Director's service on the Board terminates by reason of
(i)  Retirement,  (ii) the death or  Disability  of such Outside  Director,
(iii) a 50% change in the beneficial ownership of the Company as defined in
Rule 13d-3 under the Exchange Act, or (iv)  voluntary  early  retirement to
take a position in  governmental  service,  any Option held by such Outside
Director may  thereafter  be exercised by the Outside  Director,  or in the
event of death,  by his or her  Beneficiary to the extent it was vested and
exercisable at the time of such  termination  (i) for a period equal to the
number  of  years  of  completed  Board  service  as of the  date  of  such
termination  of  the  Outside  Director  on  whose  behalf  the  Option  is
exercised,  or (ii) until the  expiration of the stated term of such Option
whichever period is the shorter. In the event of termination for any reason
other than those set forth above,  any Option held by such Outside Director
may  thereafter  be exercised by the Outside  Director to the extent it was
vested and  exercisable at the time of termination  (i) for a period of one
year from the date of such  termination or (ii) until the expiration of the
stated  term  of such  Option,  whichever  period  is the  shorter,  unless
otherwise determined by the G&N Committee.

SECTION 11.  STOCK APPRECIATION RIGHT AWARDS

     The  Committees  may, in their  discretion,  grant Stock  Appreciation
Rights  pursuant  to the  provisions  of  this  Section  either  singly  or
concurrently  with an Option granted under this Plan with respect to all or
a portion of the shares subject to the related Option. Subject to the terms
and  provisions of this Section,  each SAR that is granted  singly shall be
exercisable as determined by the  Committees,  and each SAR that is granted
concurrently  with the grant of a related Option shall be exercisable  only
at the same time and to the same extent the related  Option is  exercisable
and in no event after the termination of the related Option. A SAR shall be
exercisable  only when the Fair Market Value  (determined as of the date of
exercise  of the SAR) of each share of Common  Stock with  respect to which
the SAR is to be exercised  shall  exceed the  Exercise  Price per share of
Common  Stock  subject to the SAR, or in the event that the SAR was granted
concurrently with the grant of a related Option,  the related Option. A SAR
granted under this Plan shall be  exercisable in whole or in part by notice
to the  Company  at  such  place  and in such  manner  as the  Company  may
designate from time to time. Such notice shall state that the holder of the
SAR elects to exercise the SAR and the number of shares in respect of which
the SAR is being exercised.

     Subject to the terms and provisions of this Section, upon the exercise
of a SAR,  the  Recipient  shall be  entitled  to receive  from the Company
consideration  (in the  form  hereinafter  provided)  equal in value to the
excess of the Fair Market Value  (determined  as of the date of exercise of
the SAR) of each share of Common  Stock with  respect to which such SAR has
been exercised over the Exercise Price per share of Common Stock subject to
either the SAR or, in the event that the SAR was granted  concurrently with
the grant of a related  Option,  the related  Option.  The  Committees  may
stipulate in the Notice of Grant the form of  consideration  which shall be
received  upon the  exercise of a SAR.  If no  consideration  is  specified
therein,  upon the exercise of a SAR, the Recipient may specify the form of
consideration to be received by such Recipient, which shall be in shares of
Common Stock,  or in cash, or partly in cash and partly in shares of Common
Stock (valued at the Fair Market Value on the date of exercise of the SAR),
as the Recipient shall request; provided,  however, that the Committees, in
their sole discretion,  may disapprove the form of consideration  requested
and instead authorize the payment of such consideration in shares of Common
Stock  (valued as  aforesaid),  or in cash, or partly in cash and partly in
shares of Common Stock.

     Upon the  exercise  of a SAR that was  granted  concurrently  with the
grant of a related Option,  the related Option shall be deemed exercised to
the  extent of the number of shares of Common  Stock with  respect to which
such SAR is exercised and to that extent a  corresponding  number of shares
of Common Stock shall not again be available  for the grant of Awards under
this Plan.  Upon the exercise or  termination  of a related  Option granted
concurrently with the grant of a SAR, the SAR with respect thereto shall be
considered to have been exercised or terminated to the extent of the number
of shares of Common Stock with  respect to which the related  Option was so
exercised or terminated.


                                   -10-

<PAGE>


SECTION 12.  CONTINUED EMPLOYMENT

     Nothing in this Plan, or in any Award  granted  pursuant to this Plan,
shall confer on any  individual any right to continue in the employment of,
or service  to, the Company or  interfere  in any way with the right of the
Company to terminate the Participant's employment at any time.

SECTION 13.  CHANGE IN CONTROL

     (A) Upon a Change in Control, any Restricted Stock Award shall be free
of all  restrictions for the full number of awarded shares less such number
as may have been theretofore acquired under the Restricted Stock Award.

     (B) Upon a Change in Control,  there shall be an  acceleration  of any
Performance  Period  relating to any  Incentive  Award,  and payment of any
Incentive  Award  shall be made in cash as soon as  practicable  after such
Change  in  Control  based  upon  achievement  of  the  Performance   Goals
applicable to such Award up to the date of the Change in Control.  Further,
the  Company's  obligation  with respect to such  Incentive  Award shall be
assumed,  or new  obligations  substituted  therefor,  by the  acquiring or
surviving  corporation after such Change in Control. In addition,  prior to
the  date  of such  Change  in  Control,  the P&C  Committee,  in its  sole
judgment, may make adjustments to any Incentive Award as may be appropriate
to reflect such Change in Control.

     (C) Upon a Change in Control,  there shall be an  acceleration  of any
Performance  Period relating to any Performance  Unit Award, and payment of
any  Performance  Unit Award  shall be made in cash as soon as  practicable
after such  Change in Control  based upon  achievement  of the  Performance
Goals  applicable  to such  Performance  Unit  Award  up to the date of the
Change in Control. If such Performance Unit Award was established in shares
of  Common  Stock,  the  amount  of cash to be paid to a  Participant  with
respect to the  Performance  Unit Award shall be determined by  multiplying
(x) the number of shares of Common Stock relating to such  Performance Unit
Award,  by (y) the Fair Market  Value on the date of the Change in Control.
Further,  the Company's  obligation with respect to such  Performance  Unit
Award shall be assumed,  or new obligations  substituted  therefor,  by the
acquiring  or  surviving  corporation  after  such  Change in  Control.  In
addition,  prior to the date of such Change in Control,  the P&C Committee,
in its sole judgment, may make adjustments to any Performance Unit Award as
may be appropriate to reflect such Change in Control.

     (D) Upon a Change in  Control,  any  Option  Award or SAR Award  shall
become immediately exercisable for the full number of awarded shares or any
part thereof, less such numbers as may have been theretofore acquired under
the  Option  Award or SAR Award  from and after the date of such  Change in
Control, unless otherwise provided in the Notice of Grant.

SECTION 14.  WITHHOLDING TAXES

     Federal,  state or local  law may  require  the  withholding  of taxes
applicable  to gains  resulting  from the  payment  or vesting of an Award.
Unless  otherwise  prohibited by the P&C Committee,  each  Participant  may
satisfy any such tax withholding  obligation by any of the following means,
or by a combination of such means: (i) a cash payment; (ii) authorizing the
Company to withhold from the shares of Common Stock  otherwise  issuable to
the  Participant  pursuant  to the  vesting  of an Award a number of shares
having a Fair  Market  Value,  as of the Tax Date,  which will  satisfy the
amount of the  withholding  tax  obligation;  or (iii) by  delivery  to the
Company of a number of shares of Common Stock having a Fair Market Value as
of the Tax Date  which  will  satisfy  the  amount of the  withholding  tax
obligation  arising from the vesting of an Award. A Participant's  election
to pay the  withholding  tax obligation by (ii) or (iii) above must be made
on or before the Tax Date, is irrevocable,  is subject to such rules as the
P&C Committee may adopt,  and may be disapproved  by the P&C Committee.  If
the amount  requested is not paid,  the P&C  Committee  may refuse to issue
Common Stock under this Plan.

SECTION 15.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

     In the event of any change in the outstanding Common Stock of the Company
by reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination, or exchange of shares, split-up,
split-off, spin-off, liquidation or other similar change in capitalization, or
any distribution to common stockholders other than cash dividends, the number or
kind of shares that may be issued under this Plan pursuant to Section 3 hereof
and the number or kind of shares subject to, or the price per share under any
outstanding Award shall be

                                   -11-

<PAGE>


automatically  adjusted so that the proportionate interest of the Recipient
shall be maintained as before the occurrence of such event. Such adjustment
shall be conclusive and binding for all purposes hereof.



SECTION 16.  AMENDMENT AND TERMINATIONS

     The  Committees  may amend,  alter or terminate  this Plan at any time
without the prior approval of the Board;  provided,  however, that: (i) the
Committees may not, without approval by the Board and the shareholders, (a)
materially  increase the benefits provided to Recipients under this Plan or
(b) provide for the  re-pricing  of Options;  and (ii) any  amendment  with
respect to Restricted  Stock granted to Outside  Directors must be approved
by the full Board.

     Termination  of this Plan shall not affect any Awards  made  hereunder
which are  outstanding  on the date of  termination  and such Awards  shall
continue  to be  subject  to the  terms of this  Plan  notwithstanding  its
termination.

SECTION 17.  MISCELLANEOUS PROVISIONS

     (A) Except as to Awards of Restricted Stock to Outside  Directors,  no
Participant  or other person shall have any claim or right to be granted an
Award under this Plan.

     (B) A  Recipient's  rights  and  interest  under  this Plan may not be
assigned  or  transferred  in  whole  or in  part,  either  directly  or by
operation of law or otherwise (except in the event of a Recipient's  death,
by will or the laws of descent and distribution), including, but not by way
of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy
or in any other  manner,  and no such right or interest of any Recipient in
this  Plan  shall  be  subject  to any  obligation  or  liability  of  such
individual; provided, however, that a Recipient's rights and interest under
this Plan may,  subject to the discretion and direction of the  Committees,
be made  transferable by such Recipient during his or her lifetime.  Except
as specified in Section 6 hereof, the holder of an Award shall have none of
the rights of a  shareholder  until the shares  subject  thereto shall have
been  registered  in the name of the person  receiving or person or persons
exercising the Award on the transfer books of the Company.

     (C) No Common Stock shall be issued  hereunder  unless counsel for the
Company shall be satisfied  that such  issuance will be in compliance  with
applicable Federal, state, and other securities laws.

     (D) The expenses of this Plan shall be borne by the Company.

     (E) By accepting  any Award under this Plan,  each  Recipient and each
Personal Representative or Beneficiary claiming under or through him or her
shall be  conclusively  deemed to have  indicated his or her acceptance and
ratification  of, and consent  to, any action  taken under this Plan by the
Company, the Board, and the Committees.

     (F) Awards  granted under this Plan shall be binding upon the Company,
its successors, and assigns.

     (G)  Nothing  contained  in this Plan  shall  prevent  the Board  from
adopting  other  or  additional  compensation   arrangements,   subject  to
shareholder approval if such approval is required.

     (H) Each  Recipient  shall be deemed to have been granted any Award on
the date the Committees  took action to grant such Award under this Plan or
such date as the Committees in their sole discretion shall determine at the
time such grant is authorized.

SECTION 18.  EFFECTIVENESS OF THIS PLAN

     This Plan was originally  approved by the  shareholders of the Company
on January 27, 2000.  The Amended and  Restated  Plan shall be submitted to
the  shareholders of the Company for their approval and adoption on January
25, 2001, or such other date fixed for the next meeting of  shareholders or
any   adjournment  or  postponement   thereof.   If  not  approved  by  the
shareholders  of the Company at the January  25, 2001 Annual  Meeting,  the
original  Plan shall  remain in effect  with  respect to Awards  other than
Option Awards and SAR

                                   -12-

<PAGE>


Awards.  No Option Awards or SAR Awards shall be made under the Amended and
Restated  Plan  unless and until the  Amended  and  Restated  Plan has been
approved and adopted at a meeting of the Company's shareholders.



SECTION 19.  GOVERNING LAW

     The  provisions  of this Plan shall be  interpreted  and  construed in
accordance with the laws of the Commonwealth of Kentucky.

                                   -13-

<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>3
<FILENAME>ex12.txt
<DESCRIPTION>EX. 12
<TEXT>
                                                                     EXHIBIT 12
                                  ASHLAND INC.
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                  (In millions)
<TABLE>
<CAPTION>
                                                                                                               Nine months ended
                                                                  Years ended September 30                          June 30
                                                  ---------------------------------------------------------  ----------------------
                                                       1999       2000        2001        2002        2003        2003        2004
                                                  ----------  ---------   ---------   ---------  ----------  ----------  ----------
<S>                                               <C>         <C>         <C>         <C>        <C>         <C>         <C>
EARNINGS
--------

Income from continuing operations                 $     283   $    272    $    390    $    115   $      94   $      33   $     195
Income taxes                                            188        179         266          68          44          17         111
Interest expense                                        141        189         160         133         121          94          84
Interest portion of rental expense                       34         39          40          35          33          23          25
Amortization of deferred debt expense                     1          2           2           2           2           1           1
Distributions in excess of (less than) earnings
    of unconsolidated affiliates                        (11)      (113)        (91)         20         (98)        (55)       (121)
                                                  ----------  ---------   ---------   ---------  ----------  ----------  ----------
                                                  $     636   $    568    $    767    $    373   $     196   $     113   $     295
                                                  ==========  =========   =========   =========  ==========  ==========  ==========

FIXED CHARGES
-------------

Interest expense                                  $     141   $    189    $    160    $    133   $     121   $      94   $      84
Interest portion of rental expense                       34         39          40          35          33          23          25
Amortization of deferred debt expense                     1          2           2           2           2           1           1
                                                  ----------  ---------   ---------   ---------  ----------  ----------  ----------
                                                  $     176   $    230    $    202    $    170   $     156   $     118   $     110
                                                  ==========  =========   =========   =========  ==========  ==========  ==========

RATIO OF EARNINGS TO FIXED CHARGES                     3.61       2.47        3.80        2.19        1.26        0.96        2.68

</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>4
<FILENAME>ex311.txt
<DESCRIPTION>EX. 31.1
<TEXT>
                                                     Exhibit 31.1

                               CERTIFICATION

Statement  Pursuant  to Section  302 of the  Sarbanes-Oxley  Act of 2002 by
Chief  Executive  Officer  Regarding  Facts and  Circumstances  Relating to
Exchange Act Filings.

I, James J. O'Brien, Chief Executive Officer of Ashland Inc., certify that:

1.       I have  reviewed  this  quarterly  report on Form 10-Q of  Ashland
         Inc.;

2.       Based on my knowledge,  this quarterly report does not contain any
         untrue  statement  of a material  fact or omit to state a material
         fact  necessary  to make  the  statements  made,  in  light of the
         circumstances   under  which  such   statements   were  made,  not
         misleading  with respect to the period  covered by this  quarterly
         report;

3.       Based  on  my  knowledge,  the  financial  statements,  and  other
         financial  information  included in this quarterly report,  fairly
         present in all material respects the financial condition,  results
         of operations and cash flows of the registrant as of, and for, the
         periods presented in this quarterly report;

4.       The registrant's  other certifying  officers and I are responsible
         for   establishing   and  maintaining   disclosure   controls  and
         procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e))
         for the registrant and have:

a)       Designed such disclosure  controls and procedures,  or caused such
         disclosure  controls  and  procedures  to be  designed  under  our
         supervision,  to ensure that material  information relating to the
         registrant, including its consolidated subsidiaries, is made known
         to us by others  within those  entities,  particularly  during the
         period in which this quarterly report is being prepared;

b)       Evaluated  the   effectiveness  of  the  registrant's   disclosure
         controls  and   procedures   and  presented  in  this  report  our
         conclusions about the effectiveness of the disclosure controls and
         procedures,  as of the end of the period covered by this quarterly
         report based on such evaluation; and

c)       Disclosed in this quarterly  report any change in the registrant's
         internal control over financial reporting that occurred during the
         registrant's most recent fiscal quarter (the  registrant's  fourth
         fiscal  quarter  in  the  case  of  an  annual  report)  that  has
         materially affected, or is reasonably likely to materially affect,
         the registrant's internal control over financial reporting; and

5.       The registrant's  other certifying  officers and I have disclosed,
         based on our most  recent  evaluation  of  internal  control  over
         financial  reporting,  to the registrant's  auditors and the audit
         committee  of   registrant's   board  of  directors   (or  persons
         performing the equivalent functions):

a)       All significant deficiencies and material weaknesses in the design
         or operation of internal  control over financial  reporting  which
         are reasonably likely to adversely affect the registrant's ability
         to record,  process,  summarize and report financial  information;
         and

b)       Any fraud,  whether or not material,  that involves  management or
         other  employees who have a significant  role in the  registrant's
         internal control over financial reporting.

 Date: August 12, 2004

                                /s/ James J. O'Brien
                                -------------------------------------
                                Chief Executive Officer

<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>5
<FILENAME>ex312.txt
<DESCRIPTION>EX. 31.2
<TEXT>
                                                                  Exhibit 31.2
                               CERTIFICATION

Statement  Pursuant  to Section  302 of the  Sarbanes-Oxley  Act of 2002 by
Chief  Financial  Officer  Regarding  Facts and  Circumstances  Relating to
Exchange Act Filings.

I, J. Marvin Quin, Chief Financial Officer of Ashland Inc., certify that:

1.       I have  reviewed  this  quarterly  report on Form 10-Q of  Ashland
         Inc.;

2.       Based on my  knowledge,  this  report  does not contain any untrue
         statement  of a  material  fact or omit to state a  material  fact
         necessary  to  make  the   statements   made,   in  light  of  the
         circumstances   under  which  such   statements   were  made,  not
         misleading with respect to the period covered by this report;

3.       Based  on  my  knowledge,  the  financial  statements,  and  other
         financial  information included in this report,  fairly present in
         all  material  respects  the  financial   condition,   results  of
         operations  and cash flows of the  registrant  as of, and for, the
         periods presented in this report;

4.       The registrant's  other certifying  officers and I are responsible
         for   establishing   and  maintaining   disclosure   controls  and
         procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e))
         for the registrant and have:

a)       Designed such disclosure  controls and procedures,  or caused such
         disclosure  controls  and  procedures  to be  designed  under  our
         supervision,  to ensure that material  information relating to the
         registrant, including its consolidated subsidiaries, is made known
         to us by others  within those  entities,  particularly  during the
         period in which this report is being prepared;

b)       Evaluated  the   effectiveness  of  the  registrant's   disclosure
         controls  and   procedures   and  presented  in  this  report  our
         conclusions about the effectiveness of the disclosure controls and
         procedures,  as of the end of the period  covered  by this  report
         based on such evaluation; and

c)       Disclosed in this report any change in the  registrant's  internal
         control  over  financial   reporting  that  occurred   during  the
         registrant's most recent fiscal quarter (the  registrant's  fourth
         fiscal  quarter  in  the  case  of  an  annual  report)  that  has
         materially affected, or is reasonably likely to materially affect,
         the registrant's internal control over financial reporting; and

5.       The registrant's  other certifying  officers and I have disclosed,
         based on our most  recent  evaluation  of  internal  control  over
         financial  reporting,  to the registrant's  auditors and the audit
         committee  of   registrant's   board  of  directors   (or  persons
         performing the equivalent functions):

a)       All significant deficiencies and material weaknesses in the design
         or operation of internal  control over financial  reporting  which
         are reasonably likely to adversely affect the registrant's ability
         to record,  process,  summarize and report financial  information;
         and

b)       Any fraud,  whether or not material,  that involves  management or
         other  employees who have a significant  role in the  registrant's
         internal control over financial reporting.

     Date:  August 12, 2004

                                             /s/ J. Marvin Quin
                                           ----------------------------
                                           Chief Financial Officer

<PAGE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>6
<FILENAME>ex32.txt
<DESCRIPTION>EX. 32
<TEXT>
                                                                Exhibit 32


                         CERTIFICATION PURSUANT TO
                          18 U.S.C. SECTION 1350,
                           AS ADOPTED PURSUANT TO
               SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly  Report of Ashland Inc. (the "Company") on
Form 10-Q for the period ended June 30, 2004 as filed with the  Securities
and  Exchange  Commission  on the date hereof (the  "Report"),  each of the
undersigned,  James J. O'Brien, Chief Executive Officer of the Company, and
J. Marvin Quin, Chief Financial Officer of the Company,  certify,  pursuant
to 18 U.S.C.  Section  1350,  as adopted  pursuant  to  Section  906 of the
Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1)      The Report  fully  complies,  in all material  respects,  with the
         requirements of section 13(a) or 15(d) of the Securities  Exchange
         Act of 1934; and

(2)      The information  contained in the Report fairly  presents,  in all
         material  respects,   the  financial   condition  and  results  of
         operations  of the Company as of and for the periods  presented in
         the report.


The foregoing  certification  is provided  solely for purposes of complying
with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is
not intended to be used or relied upon for any other purpose.

 /s/ James J. O'Brien
-----------------------
James J. O'Brien
Chief Executive Officer
August 12, 2004

 /s/ J. Marvin Quin
----------------------
J. Marvin Quin
Chief Financial Officer
August 12, 2004


A signed  original of this  written  statement  required by Section 906 has
been  provided to Ashland  Inc.  and will be retained by Ashland  Inc.  and
furnished to the Securities and Exchange Commission or staff upon request.

<PAGE>

</TEXT>
</DOCUMENT>
</SUBMISSION>
