UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
December 31,OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to ___________
Commission file number 333-211719
ASHLAND GLOBAL HOLDINGS INC.
(a Delaware corporation)
I.R.S. No. 81-2587835
8145 Blazer Drive
Wilmington, Delaware19808
Telephone Number (859) 815-3333
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $.01 per share | ASH | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
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
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer | ☑ | Accelerated Filer | ☐ | ||||
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | ||||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
At December 31, 2017,2021, there were 62,228,81256,923,767 shares of Registrant’s Common Stock outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
Three months ended | |||||||
December 31 | |||||||
(In millions except per share data - unaudited) | 2017 | 2016 | |||||
Sales | $ | 842 | $ | 704 | |||
Cost of sales | 613 | 515 | |||||
Gross profit | 229 | 189 | |||||
Selling, general and administrative expense | 171 | 157 | |||||
Research and development expense | 21 | 20 | |||||
Equity and other income | 2 | 3 | |||||
Operating income | 39 | 15 | |||||
Net interest and other financing expense | 31 | 122 | |||||
Other net periodic benefit income | — | 2 | |||||
Net loss on divestitures | 1 | 1 | |||||
Income (loss) from continuing operations before income taxes | 7 | (106 | ) | ||||
Income tax expense (benefit) - Note I | 14 | (41 | ) | ||||
Loss from continuing operations | (7 | ) | (65 | ) | |||
Income from discontinued operations (net of tax) - Note D | 3 | 75 | |||||
Net income (loss) | (4 | ) | 10 | ||||
Net income attributable to noncontrolling interest (a) | — | 11 | |||||
Net loss attributable to Ashland | $ | (4 | ) | $ | (1 | ) | |
PER SHARE DATA | |||||||
Basic earnings per share - Note L | |||||||
Loss from continuing operations | $ | (0.12 | ) | $ | (1.05 | ) | |
Income from discontinued operations attributable to Ashland | 0.05 | 1.04 | |||||
Net loss attributable to Ashland | $ | (0.07 | ) | $ | (0.01 | ) | |
Diluted earnings per share - Note L | |||||||
Loss from continuing operations | $ | (0.12 | ) | $ | (1.05 | ) | |
Income from discontinued operations attributable to Ashland | 0.05 | 1.04 | |||||
Net loss attributable to Ashland | $ | (0.07 | ) | $ | (0.01 | ) | |
COMPREHENSIVE INCOME (LOSS) | |||||||
Net income (loss) | $ | (4 | ) | $ | 10 | ||
Other comprehensive income (loss), net of tax - Note M | |||||||
Unrealized translation gain (loss) | 3 | (146 | ) | ||||
Net change in available-for-sale securities | 8 | — | |||||
Pension and postretirement obligation adjustment | — | (1 | ) | ||||
Other comprehensive income (loss) | 11 | (147 | ) | ||||
Comprehensive income (loss) | $ | 7 | $ | (137 | ) | ||
Comprehensive income attributable to noncontrolling interest | — | 10 | |||||
Comprehensive income (loss) attributable to Ashland | $ | 7 | $ | (147 | ) | ||
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions except per share data - unaudited) |
| 2021 |
|
| 2020 |
| ||
Sales |
| $ | 512 |
|
| $ | 468 |
|
Cost of sales |
|
| 351 |
|
|
| 321 |
|
Gross profit |
|
| 161 |
|
|
| 147 |
|
|
|
|
|
|
|
| ||
Selling, general and administrative expense |
|
| 82 |
|
|
| 101 |
|
Research and development expense |
|
| 13 |
|
|
| 13 |
|
Intangibles amortization expense |
|
| 24 |
|
|
| 21 |
|
Equity and other income |
|
| 0 |
|
|
| 5 |
|
Operating income |
|
| 42 |
|
|
| 17 |
|
|
|
|
|
|
|
| ||
Net interest and other expense (income) |
|
| 5 |
|
|
| (7 | ) |
Net income on acquisitions and divestitures |
|
| 0 |
|
|
| 14 |
|
Income from continuing operations before income taxes |
|
| 37 |
|
|
| 38 |
|
Income tax expense (benefit) |
|
| 5 |
|
|
| (5 | ) |
Income from continuing operations |
|
| 32 |
|
|
| 43 |
|
Income from discontinued operations (net of income taxes) - Note C |
|
| 16 |
|
|
| 13 |
|
Net income |
| $ | 48 |
|
| $ | 56 |
|
|
|
|
|
|
|
| ||
PER SHARE DATA |
|
|
|
|
|
| ||
Basic earnings per share - Note M |
|
|
|
|
|
| ||
Income from continuing operations |
| $ | 0.56 |
|
| $ | 0.71 |
|
Income from discontinued operations |
|
| 0.29 |
|
|
| 0.22 |
|
Net income |
| $ | 0.85 |
|
| $ | 0.93 |
|
|
|
|
|
|
|
| ||
Diluted earnings per share - Note M |
|
|
|
|
|
| ||
Income from continuing operations |
| $ | 0.55 |
|
| $ | 0.70 |
|
Income from discontinued operations |
|
| 0.28 |
|
|
| 0.22 |
|
Net income |
| $ | 0.83 |
|
| $ | 0.92 |
|
|
|
|
|
|
|
| ||
COMPREHENSIVE INCOME |
|
|
|
|
|
| ||
Net income |
| $ | 48 |
|
| $ | 56 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
| ||
Unrealized translation gain (loss) |
|
| (17 | ) |
|
| 48 |
|
Unrealized loss on commodity hedges |
|
| (3 | ) |
|
| 0 |
|
Other comprehensive income (loss) - Note N |
|
| (20 | ) |
|
| 48 |
|
Comprehensive income |
| $ | 28 |
|
| $ | 104 |
|
|
|
|
|
|
|
|
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited) |
| December 31 |
|
| September 30 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 194 |
|
| $ | 210 |
|
Accounts receivable (a) - Note H |
|
| 340 |
|
|
| 369 |
|
Inventories - Note F |
|
| 530 |
|
|
| 473 |
|
Other assets |
|
| 66 |
|
|
| 68 |
|
Current assets held for sale - Note B |
|
| 604 |
|
|
| 597 |
|
Total current assets |
|
| 1,734 |
|
|
| 1,717 |
|
Noncurrent assets |
|
|
|
|
|
| ||
Property, plant and equipment |
|
|
|
|
|
| ||
Cost |
|
| 3,070 |
|
|
| 3,066 |
|
Accumulated depreciation |
|
| 1,669 |
|
|
| 1,639 |
|
Net property, plant and equipment |
|
| 1,401 |
|
|
| 1,427 |
|
Goodwill - Note G |
|
| 1,411 |
|
|
| 1,430 |
|
Intangibles - Note G |
|
| 1,068 |
|
|
| 1,099 |
|
Operating lease assets, net - Note I |
|
| 117 |
|
|
| 124 |
|
Restricted investments - Note E |
|
| 390 |
|
|
| 384 |
|
Asbestos insurance receivable (b) - Note L |
|
| 132 |
|
|
| 134 |
|
Deferred income taxes |
|
| 30 |
|
|
| 30 |
|
Other assets |
|
| 266 |
|
|
| 267 |
|
Total noncurrent assets |
|
| 4,815 |
|
|
| 4,895 |
|
Total assets |
| $ | 6,549 |
|
| $ | 6,612 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Short-term debt - Note H |
| $ | 376 |
|
| $ | 365 |
|
Current portion of long-term debt - Note H |
|
| 13 |
|
|
| 9 |
|
Trade and other payables |
|
| 236 |
|
|
| 236 |
|
Accrued expenses and other liabilities |
|
| 214 |
|
|
| 251 |
|
Current operating lease obligations - Note I |
|
| 22 |
|
|
| 23 |
|
Current liabilities held for sale - Note B |
|
| 47 |
|
|
| 50 |
|
Total current liabilities |
|
| 908 |
|
|
| 934 |
|
Noncurrent liabilities |
|
|
|
|
|
| ||
Long-term debt - Note H |
|
| 1,580 |
|
|
| 1,596 |
|
Asbestos litigation reserve - Note L |
|
| 472 |
|
|
| 490 |
|
Deferred income taxes |
|
| 238 |
|
|
| 237 |
|
Employee benefit obligations - Note K |
|
| 145 |
|
|
| 144 |
|
Operating lease obligations - Note I |
|
| 104 |
|
|
| 110 |
|
Other liabilities |
|
| 339 |
|
|
| 349 |
|
Total noncurrent liabilities |
|
| 2,878 |
|
|
| 2,926 |
|
Commitments and contingencies - Note L |
|
|
|
|
|
| ||
Stockholders’ equity - Note N |
|
| 2,763 |
|
|
| 2,752 |
|
|
|
|
|
|
|
| ||
Total liabilities and stockholders' equity |
| $ | 6,549 |
|
| $ | 6,612 |
|
|
|
|
|
|
|
|
December 31 | September 30 | ||||||
(In millions - unaudited) | 2017 | 2017 | |||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 601 | $ | 566 | |||
Accounts receivable (a) | 597 | 612 | |||||
Inventories - Note F | 674 | 634 | |||||
Other assets | 92 | 91 | |||||
Total current assets | 1,964 | 1,903 | |||||
Noncurrent assets | |||||||
Property, plant and equipment | |||||||
Cost | 3,795 | 3,762 | |||||
Accumulated depreciation | 1,850 | 1,792 | |||||
Net property, plant and equipment | 1,945 | 1,970 | |||||
Goodwill - Note G | 2,475 | 2,465 | |||||
Intangibles - Note G | 1,298 | 1,319 | |||||
Restricted investments - Note E | 315 | 302 | |||||
Asbestos insurance receivable - Note K | 205 | 209 | |||||
Deferred and other income taxes | 28 | 28 | |||||
Other assets | 425 | 422 | |||||
Total noncurrent assets | 6,691 | 6,715 | |||||
Total assets | $ | 8,655 | $ | 8,618 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities | |||||||
Short-term debt - Note H | $ | 355 | $ | 235 | |||
Trade and other payables | 382 | 409 | |||||
Accrued expenses and other liabilities | 266 | 324 | |||||
Total current liabilities | 1,003 | 968 | |||||
Noncurrent liabilities | |||||||
Long-term debt - Note H | 2,584 | 2,584 | |||||
Asbestos litigation reserve - Note K | 676 | 694 | |||||
Deferred and other income taxes | 390 | 375 | |||||
Employee benefit obligations - Note J | 194 | 191 | |||||
Other liabilities | 409 | 400 | |||||
Total noncurrent liabilities | 4,253 | 4,244 | |||||
Commitments and contingencies - Note K | |||||||
Stockholders' equity | 3,399 | 3,406 | |||||
Total liabilities and stockholders' equity | $ | 8,655 | $ | 8,618 | |||
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED EQUITY
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions - unaudited) |
| 2021 |
|
| 2020 |
| ||
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM |
|
|
|
|
|
| ||
Net income |
| $ | 48 |
|
| $ | 56 |
|
Income from discontinued operations (net of income taxes) |
|
| (16 | ) |
|
| (13 | ) |
Adjustments to reconcile income from continuing operations to |
|
|
|
|
|
| ||
cash flows from operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 60 |
|
|
| 59 |
|
Original issue discount and debt issuance costs amortization |
|
| 1 |
|
|
| 1 |
|
Deferred income taxes |
|
| 3 |
|
|
| (5 | ) |
Gain from sales of property and equipment |
|
| — |
|
|
| (4 | ) |
Stock based compensation expense |
|
| 4 |
|
|
| 4 |
|
Income from restricted investments |
|
| (13 | ) |
|
| (23 | ) |
Income on acquisitions and divestitures |
|
| — |
|
|
| (14 | ) |
Impairments |
|
| — |
|
|
| 9 |
|
Pension contributions |
|
| (1 | ) |
|
| (2 | ) |
Change in operating assets and liabilities (a) |
|
| (72 | ) |
|
| 13 |
|
Total cash flows provided by operating activities from continuing operations |
|
| 14 |
|
|
| 81 |
|
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM |
|
|
|
|
|
| ||
Additions to property, plant and equipment |
|
| (15 | ) |
|
| (30 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 1 |
|
|
| 5 |
|
Proceeds from sale or restructuring of operations |
|
| — |
|
|
| 14 |
|
Net purchase of funds restricted for specific transactions |
|
| — |
|
|
| (1 | ) |
Reimbursements from restricted investments |
|
| 7 |
|
|
| 8 |
|
Proceeds from sale of securities |
|
| 4 |
|
|
| 42 |
|
Purchases of securities |
|
| (4 | ) |
|
| (42 | ) |
Total cash flows used by investing activities from continuing operations |
|
| (7 | ) |
|
| (4 | ) |
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM |
|
|
|
|
|
| ||
Proceeds from (repayment of) short-term debt |
|
| 11 |
|
|
| (187 | ) |
Cash dividends paid |
|
| (17 | ) |
|
| (17 | ) |
Stock based compensation employee withholding taxes paid in cash |
|
| (5 | ) |
|
| (3 | ) |
Total cash flows used by financing activities from continuing operations |
|
| (11 | ) |
|
| (207 | ) |
CASH USED BY CONTINUING OPERATIONS |
|
| (4 | ) |
|
| (130 | ) |
Cash provided (used) by discontinued operations |
|
|
|
|
|
| ||
Operating cash flows |
|
| (8 | ) |
|
| 11 |
|
Investing cash flows |
|
| (1 | ) |
|
| (3 | ) |
Total cash provided by discontinued operations |
|
| (9 | ) |
|
| 8 |
|
Effect of currency exchange rate changes on cash and cash equivalents |
|
| (3 | ) |
|
| 3 |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| (16 | ) |
|
| (119 | ) |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
|
| 210 |
|
|
| 454 |
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
| $ | 194 |
|
| $ | 335 |
|
|
|
|
|
|
|
|
(In millions - unaudited) | Common stock | Paid-in capital | Retained earnings | Accumulated other comprehensive income (loss) | (a) | Total | |||||||||||||
BALANCE AT SEPTEMBER 30, 2017 | $ | 1 | $ | 931 | $ | 2,696 | $ | (222 | ) | $ | 3,406 | ||||||||
Total comprehensive income (loss) | |||||||||||||||||||
Net loss | (4 | ) | (4 | ) | |||||||||||||||
Other comprehensive income | 11 | 11 | |||||||||||||||||
Regular dividends, $0.225 per common share | (14 | ) | (14 | ) | |||||||||||||||
Common shares issued under stock incentive and other plans (b) | — | — | |||||||||||||||||
BALANCE AT DECEMBER 31, 2017 | $ | 1 | $ | 931 | $ | 2,678 | $ | (211 | ) | $ | 3,399 | ||||||||
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
Three months ended | |||||||
December 31 | |||||||
(In millions - unaudited) | 2017 | 2016 | |||||
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM | |||||||
CONTINUING OPERATIONS | |||||||
Net income (loss) | $ | (4 | ) | $ | 10 | ||
Income from discontinued operations (net of tax) | (3 | ) | (75 | ) | |||
Adjustments to reconcile income from continuing operations to | |||||||
cash flows from operating activities | |||||||
Depreciation and amortization | 79 | 68 | |||||
Original issue discount and debt issuance cost amortization | 2 | 94 | |||||
Deferred and other income taxes | 8 | 2 | |||||
Stock based compensation expense | 7 | 5 | |||||
Gain on early retirement of debt | — | (3 | ) | ||||
Realized gain and investment income on available-for-sale securities | (3 | ) | (3 | ) | |||
Net loss on divestitures | 1 | 1 | |||||
Pension contributions | (2 | ) | (1 | ) | |||
Gain on post-employment plan remeasurement | — | (2 | ) | ||||
Change in operating assets and liabilities (a) | (109 | ) | (156 | ) | |||
Total cash flows used by operating activities from continuing operations | (24 | ) | (60 | ) | |||
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM | |||||||
CONTINUING OPERATIONS | |||||||
Additions to property, plant and equipment | (24 | ) | (33 | ) | |||
Proceeds from disposal of property, plant and equipment | 1 | — | |||||
Proceeds from sale of operations | 1 | — | |||||
Net purchase of funds restricted for specific transactions | (5 | ) | (2 | ) | |||
Reimbursements from restricted investments | 5 | — | |||||
Proceeds from sales of available-for-sale securities | 5 | — | |||||
Purchases of available-for-sale securities | (5 | ) | — | ||||
Proceeds from the settlement of derivative instruments | — | 4 | |||||
Payments for the settlement of derivative instruments | (2 | ) | — | ||||
Total cash flows used by investing activities from continuing operations | (24 | ) | (31 | ) | |||
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM | |||||||
CONTINUING OPERATIONS | |||||||
Repayment of long-term debt | (2 | ) | (239 | ) | |||
Premium on long-term debt repayment | — | (5 | ) | ||||
Proceeds (repayment) from short-term debt | 120 | (154 | ) | ||||
Debt issuance costs | — | (4 | ) | ||||
Cash dividends paid | (14 | ) | (24 | ) | |||
Stock based compensation employee withholding taxes paid in cash | (5 | ) | (8 | ) | |||
Total cash flows provided (used) by financing activities from continuing operations | 99 | (434 | ) | ||||
CASH USED BY CONTINUING OPERATIONS | 51 | (525 | ) | ||||
Cash provided (used) by discontinued operations | |||||||
Operating cash flows, net | (16 | ) | 70 | ||||
Investing cash flows, net | — | (10 | ) | ||||
Financing cash flows, net | — | (10 | ) | ||||
Total cash provided (used) by discontinued operations | (16 | ) | 50 | ||||
Effect of currency exchange rate changes on cash and cash equivalents | — | (9 | ) | ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 35 | (484 | ) | ||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 566 | 1,017 | |||||
Change in cash and cash equivalents held by Valvoline | — | (65 | ) | ||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 601 | $ | 468 | |||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
–SIGNIFICANT ACCOUNTING POLICIESBasis of presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and Securities and Exchange Commission (SEC) regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Additionally, certain prior period data, primarily related to discontinued operations, have been reclassified in the Consolidated Financial Statements and accompanying notes to conform to the current period presentation, as further described in this section. These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with Ashland’sAshland Global Holdings Inc. and consolidated subsidiaries (Ashland) Annual Report on Form 10-K for the fiscal year ended
On May 12, 2017,August 31, 2021, Ashland completedannounced that it had signed a definitive agreement to sell substantially all of the distributionassets and liabilities of its remaining 170 million shares of common stock of Valvoline Inc. which represented approximately 83% of the total outstanding shares of Valvoline Inc.'s common stock.Performance Adhesives segment to Arkema, a French société anonyme. This separation from Valvoline representedexpected divestiture represents a strategic shift in Ashland's business and qualified as a discontinued operation. Accordingly, Valvoline'sAs a result, the assets, liabilities, operating results and cash flows for the three months ended December 31, 2016related to Performance Adhesives have been classified as discontinued operations for all periods presented within the Condensed Consolidated Financial Statements. See NoteNotes B and C for additional information on this expected divestiture.
As a result of classifying the separationPerformance Adhesives reporting segment as a discontinued operation, Ashland is now comprised of Valvoline Inc.
Use of estimates, risks and uncertainties
The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes and liabilities and receivables associated with asbestos litigation and environmental remediation. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.
Ashland’s results are affected by domestic and international economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations. While Ashland maintains reserves for anticipated liabilities and carries various levels of insurance, Ashland could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to asbestos, environmental remediation or other matters.
New accounting standards
A description of new U.S. GAAP accounting standards issued or adopted during the current year is required in interim financial reporting. A detailed listing of new accounting standards relevant to Ashland is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2017. The following2021. There were no new standards relevant to Ashlandthat were either issued or adopted in the current period, orfiscal year that will become effectivehave a material impact on Ashland's consolidated financial statements.
5
NOTE B– DIVESTITURES
Performance Adhesives
On August 31, 2021, Ashland announced that it had signed a definitive agreement to sell substantially all of the assets and liabilities of its Performance Adhesives segment in a subsequent period.
The transaction is expected to close prior to the FASB issued accounting guidance outlining a single comprehensive five step model for entities to use in accounting for revenue arising from contracts with customers (ASC 606 Revenue from Contracts with Customers). The new guidance supersedes most current revenue recognition guidance, in an
Since this transaction represents a strategic shift in the same caption within the Statement of Consolidated Comprehensive Income (Loss) as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost will be presented separately outside ofAshland’s business and had a major effect on Ashland’s operations and financial results, the operating income caption. This guidance must be applied retrospectively. Ashland elected to early adopt this guidance on October 1, 2017, which resulted in a reclassification of $2 million in income from the selling, generalresults and administrative expense and cost of sales captions to the other net periodic benefit income caption in the Statement of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016. The components of net periodic benefits income (costs) reclassified primarily relate to interest cost, expected return on assets, curtailments, settlements and actuarial gains and losses. Ashland did not have to adjust the classification of service cost since it previously was recorded within the caption required by the new guidance. See Note J for additional information on net periodic benefit costs.
May 12 | |||
(In millions) | 2017 | ||
ASSETS | |||
Current assets | |||
Cash | 179 | ||
Accounts receivable, net | 385 | ||
Inventories | 153 | ||
Other current assets | 24 | ||
Total current assets | 741 | ||
Noncurrent assets | |||
Net property, plant and equipment | 357 | ||
Goodwill | 329 | ||
Equity and other unconsolidated investments | 31 | ||
Deferred income taxes | 391 | ||
Other noncurrent assets | 93 | ||
Total noncurrent assets | 1,201 | ||
Total assets | $ | 1,942 | |
LIABILITIES AND EQUITY | |||
Current liabilities | |||
Short-term debt | 75 | ||
Current portion of long-term debt | 16 | ||
Trade and other payables | 353 | ||
Other current liabilities | 34 | ||
Total current liabilities | 478 | ||
Noncurrent liabilities | |||
Long-term debt | 662 | ||
Employee benefit obligations | 826 | ||
Other long-term liabilities | 163 | ||
Total noncurrent liabilities | 1,651 | ||
Total liabilities | $ | 2,129 | |
Net deficit | $ | (187 | ) |
Certain indirect corporate costs of $6 million and $28 million for the three months ended December 31, 2017 and 2016, respectively. Of these amounts, $6 million of separation costs directly related to Valvoline and were included within the discontinued operations caption of the Statement of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016. Otherwise, separation costs are recorded within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss).
Subsequent to the completion of the sale, Ashland expects to provide certain transition services to Arkema for a fee. While the transition services are expected to vary in duration depending upon the type of service provided, Ashland does not expect these transition services will be significant.
Other manufacturing facility sales
During the three months ended December 31, 2020, Ashland completed its acquisitionthe sale of the stock of Pharmachem Laboratories, Inc. (Pharmachem),
At | |||
May 17, 2017 | |||
Preliminary purchase price allocation (in millions) | As Adjusted | ||
Assets: | |||
Accounts receivable | 52 | ||
Inventory | 74 | ||
Other current assets | 4 | ||
Intangible assets | 330 | ||
Goodwill | 287 | ||
Property, plant and equipment | 97 | ||
Other noncurrent assets | 20 | ||
Liabilities: | |||
Accounts payable | (32 | ) | |
Deferred tax - net | (138 | ) | |
Other noncurrent liabilities | (14 | ) | |
Total purchase price | $ | 680 |
Weighted-average | |||||
amortization period | |||||
Intangible asset type (in millions) | Value | (years) | |||
Trademarks and trade names | $ | 26 | 15 | ||
Intellectual property | 68 | 22 | |||
Customer and supplier relationships | 236 | 20 | |||
Total | $ | 330 |
NOTE D –C– DISCONTINUED OPERATIONS
Ashland has divested certain businesses that have qualified as discontinued operations. The operating results from these divested businesses and subsequent adjustments related to ongoing assessments of certain retained liabilities and tax items have been recorded within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss) for all periods presented and are discussed further within this note.
Components of amounts reflected in the Statements of Consolidated Comprehensive Income (Loss) related to discontinued operations are presented in the following table for the three months ended
December 31,
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2021 |
|
| 2020 |
| ||
Income (loss) from discontinued operations (net of tax) |
|
|
|
|
|
| ||
Performance Adhesives |
| $ | 17 |
|
| $ | 18 |
|
Distribution |
|
| (1 | ) |
|
| (1 | ) |
Gain (loss) on disposal of discontinued operations (net of taxes) |
|
|
|
|
|
| ||
Composites/Marl facility |
|
| 0 |
|
|
| (4 | ) |
|
| $ | 16 |
|
| $ | 13 |
|
|
|
|
|
|
|
|
6
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Income from discontinued operations (net of tax) | |||||||
Valvoline | $ | 3 | $ | 75 | |||
Total income from discontinued operations (net of tax) | $ | 3 | $ | 75 |
The following table presents a reconciliation of the historically reported captions within Ashland's Statements of Consolidated Comprehensive Income (Loss) for the income (loss) from discontinued operations attributable to ValvolinePerformance Adhesives for the three months ended December 31, 2016.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2021 |
|
| 2020 |
| ||
Income (loss) from discontinued operations attributable |
|
|
|
|
|
| ||
Sales |
| $ | 96 |
|
| $ | 84 |
|
Cost of sales |
|
| (67 | ) |
|
| (53 | ) |
Selling, general and administrative expense |
|
| (5 | ) |
|
| (5 | ) |
Research and development expense |
|
| (2 | ) |
|
| (2 | ) |
Pretax income of discontinued operations |
|
| 22 |
|
|
| 24 |
|
Income tax expense |
|
| (5 | ) |
|
| (6 | ) |
Income from discontinued operations |
| $ | 17 |
|
| $ | 18 |
|
|
|
|
|
|
|
|
Three months ended | |||
(In millions) | December 31, 2016 | ||
Income from discontinued operations | |||
attributable to Valvoline | |||
Sales | $ | 489 | |
Cost of sales | (293 | ) | |
Selling, general and administrative expense | (82 | ) | |
Research and development expense | (3 | ) | |
Equity and other income | 9 | ||
Operating income of discontinued operations | 120 | ||
Net interest and other financing expense | (10 | ) | |
Pretax income of discontinued operations | 110 | ||
Income tax expense | (35 | ) | |
Income from discontinued operations | $ | 75 |
NOTE D – RESTRUCTURING ACTIVITIES
Company-wide restructuring activities
Ashland periodically implements company-wide restructuring programs related to acquisitions, divestitures and other cost reduction programs in order to enhance profitability through streamlined operations and an improved overall cost structure.
Fiscal 2020 and 2021 restructuring program
Ashland recorded severance income of $1 million and expense of $8 million during the three months ended December 31, 2021 and 2020, respectively, attributable to executive management changes and business management changes within the organization. As of December 31, 2021, the severance reserve associated with this transition was $3 million.
The following table details at December 31, 2021 and 2020, the amount of restructuring severance reserves related to this program. The severance reserves were primarily recorded within accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet as of December 31, 2021 and 2020.
(In millions) | Severance costs |
| |
Balance at of September 30, 2021 | $ | 6 |
|
Restructuring reserve |
| (1 | ) |
Utilization (cash paid) |
| (2 | ) |
Balance at December 31, 2021 | $ | 3 |
|
(In millions) | Severance costs |
| |
Balance at of September 30, 2020 | $ | 39 |
|
Restructuring reserve |
| 8 |
|
Utilization (cash paid) |
| (11 | ) |
Balance at December 31, 2020 | $ | 36 |
|
7
NOTE E – FAIR VALUE MEASUREMENTS
As required by U.S. GAAP, Ashland uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value. Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows.
Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect Ashland’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include Ashland’s own financial data such as internally developed pricing
For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use ofusing fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable.
The following table summarizes financial instruments subject to recurring fair value measurements as of December 31, 2017.
|
| Carrying |
|
| Total |
|
| Quoted prices |
|
| Significant |
|
| Significant |
| |||||
(In millions) |
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 194 |
|
| $ | 194 |
|
| $ | 194 |
|
| $ | 0 |
|
| $ | 0 |
|
Restricted investments (a) (b) |
|
| 426 |
|
|
| 426 |
|
|
| 426 |
|
|
| 0 |
|
|
| 0 |
|
Investment of captive insurance company (c) |
|
| 9 |
|
|
| 9 |
|
|
| 9 |
|
|
| 0 |
|
|
| 0 |
|
Foreign currency derivatives (d) |
|
| 2 |
|
|
| 2 |
|
|
| 0 |
|
|
| 2 |
|
|
| 0 |
|
Commodity derivatives (d) |
|
| 2 |
|
|
| 2 |
|
|
| 0 |
|
|
| 2 |
|
|
| 0 |
|
Total assets at fair value |
| $ | 633 |
|
| $ | 633 |
|
| $ | 629 |
|
| $ | 4 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency derivatives (e) |
| $ | 1 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 1 |
|
| $ | 0 |
|
Commodity derivatives (e) |
|
| 1 |
|
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Total liabilities at fair value |
| $ | 2 |
|
| $ | 2 |
|
| $ | 0 |
|
| $ | 2 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) | Carrying value | Total fair value | Quoted prices in active markets for identical assets Level 1 | Significant other observable inputs Level 2 | Significant unobservable inputs Level 3 | ||||||||||||||
Assets | |||||||||||||||||||
Cash and cash equivalents | $ | 601 | $ | 601 | $ | 601 | $ | — | $ | — | |||||||||
Restricted investments (a) | 345 | 345 | 345 | — | — | ||||||||||||||
Deferred compensation investments (b) | 160 | 160 | — | 160 | — | ||||||||||||||
Investments of captive insurance company (b) | 3 | 3 | 3 | — | — | ||||||||||||||
Foreign currency derivatives | 4 | 4 | — | 4 | — | ||||||||||||||
Total assets at fair value | $ | 1,113 | $ | 1,113 | $ | 949 | $ | 164 | $ | — | |||||||||
Liabilities | |||||||||||||||||||
Foreign currency derivatives | $ | 13 | $ | 13 | $ | — | $ | 13 | $ | — | |||||||||
8
The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2017.2021.
|
| Carrying |
|
| Total |
|
| Quoted prices |
|
| Significant |
|
| Significant |
| |||||
(In millions) |
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 210 |
|
| $ | 210 |
|
| $ | 210 |
|
| $ | 0 |
|
| $ | 0 |
|
Restricted investments (a) (b) |
|
| 421 |
|
|
| 421 |
|
|
| 421 |
|
|
| 0 |
|
|
| 0 |
|
Investment of captive insurance company (c) |
|
| 8 |
|
|
| 8 |
|
|
| 8 |
|
|
| 0 |
|
|
| 0 |
|
Foreign currency derivatives (d) |
|
| 1 |
|
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Commodity derivatives (d) |
|
| 5 |
|
|
| 5 |
|
|
| 0 |
|
|
| 5 |
|
|
| 0 |
|
Total assets at fair value |
| $ | 645 |
|
| $ | 645 |
|
| $ | 639 |
|
| $ | 6 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency derivatives (e) |
| $ | 2 |
|
| $ | 2 |
|
| $ | 0 |
|
| $ | 2 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) | Carrying value | Total fair value | Quoted prices in active markets for identical assets Level 1 | Significant other observable inputs Level 2 | Significant unobservable inputs Level 3 | ||||||||||||||
Assets | |||||||||||||||||||
Cash and cash equivalents | $ | 566 | $ | 566 | $ | 566 | $ | — | $ | — | |||||||||
Restricted investments (a) | 332 | 332 | 332 | — | — | ||||||||||||||
Deferred compensation investments (b) | 158 | 158 | — | 158 | — | ||||||||||||||
Investments of captive insurance company (b) | 3 | 3 | 3 | — | — | ||||||||||||||
Foreign currency derivatives | 2 | 2 | — | 2 | — | ||||||||||||||
Total assets at fair value | $ | 1,061 | $ | 1,061 | $ | 901 | $ | 160 | $ | — | |||||||||
Liabilities | |||||||||||||||||||
Foreign currency derivatives | $ | 36 | $ | 36 | $ | — | $ | 36 | $ | — | |||||||||
Included in restricted investments |
Restricted investments
Investment income and realized gains and losses on the available-for-sale securitiesthese company-restricted investments are reported inwithin the net interest and other financing expense caption inon the Statements of Consolidated Comprehensive Income. Income (Loss). The following table provides a summary of the available-for-sale securitiesactivity within the investment portfolio as of December 31, 20172021 and September 30, 2017:2021:
(In millions) |
| December 31 |
|
| September 30 |
| ||
Original cost |
| $ | 335 |
|
| $ | 335 |
|
Accumulated adjustments, net |
|
| 37 |
|
|
| (50 | ) |
Adjusted cost, beginning of year (a) |
|
| 372 |
|
|
| 285 |
|
Investment income (b) |
|
| 8 |
|
|
| 12 |
|
Net unrealized gain (c) |
|
| 53 |
|
|
| 49 |
|
Realized gains (c) |
|
| 0 |
|
|
| 17 |
|
Funds restricted for specific transactions (d) |
|
| 0 |
|
|
| 91 |
|
Disbursements |
|
| (7 | ) |
|
| (33 | ) |
Fair value |
| $ | 426 |
|
| $ | 421 |
|
|
|
|
|
|
|
|
December 31 | September 30 | ||||||
(In millions) | 2017 | 2017 | |||||
Original cost | $ | 335 | $ | 335 | |||
Accumulated adjustments, net (a) | (38 | ) | (24 | ) | |||
Adjusted cost, beginning of year | 297 | 311 | |||||
Investment income (b) | 2 | 9 | |||||
Unrealized gain | 45 | 35 | |||||
Realized gain | 1 | 2 | |||||
Settlement funds | 5 | 2 | |||||
Disbursements | (5 | ) | (27 | ) | |||
Fair value | $ | 345 | $ | 332 | |||
9
The following table presents gross unrealized gains and losses for the restricted investment available-for-sale securities as of December 31, 20172021 and September 30, 2017:2021:
|
|
|
|
| Gross |
|
| Gross |
|
|
|
| ||||
(In millions) |
| Adjusted Cost |
|
| Unrealized Gain |
|
| Unrealized Loss |
|
| Fair Value |
| ||||
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposit |
| $ | 11 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 11 |
|
Equity mutual fund |
|
| 139 |
|
|
| 51 |
|
|
| 0 |
|
|
| 190 |
|
Fixed income mutual fund |
|
| 223 |
|
|
| 4 |
|
|
| (2 | ) |
|
| 225 |
|
Fair value |
| $ | 373 |
|
| $ | 55 |
|
| $ | (2 | ) |
| $ | 426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
As of September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposit |
| $ | 6 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 6 |
|
Equity mutual fund |
|
| 143 |
|
|
| 44 |
|
|
| (1 | ) |
|
| 186 |
|
Fixed income mutual fund |
|
| 223 |
|
|
| 7 |
|
|
| (1 | ) |
|
| 229 |
|
Fair value |
| $ | 372 |
|
| $ | 51 |
|
| $ | (2 | ) |
| $ | 421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | Gross | ||||||||||||||
(In millions) | Adjusted Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||
As of December 31, 2017 | |||||||||||||||
Demand Deposit | $ | 17 | $ | — | $ | — | $ | 17 | |||||||
Equity Mutual Fund | 163 | 45 | — | 208 | |||||||||||
Corporate bond Mutual Fund | 120 | — | — | 120 | |||||||||||
Fair value | $ | 300 | $ | 45 | $ | — | $ | 345 | |||||||
As of September 30, 2017 | |||||||||||||||
Demand Deposit | $ | 9 | $ | — | $ | — | $ | 9 | |||||||
Equity Mutual Fund | 168 | 34 | — | 202 | |||||||||||
Corporate bond Mutual Fund | 120 | 1 | — | 121 | |||||||||||
Fair value | $ | 297 | $ | 35 | $ | — | $ | 332 |
The following table presents the investment income, net gains and losses realized and disbursements related to the investments within the portfolio for the three months ended December 31, 20172021 and 2016.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2021 |
|
| 2020 |
| ||
Investment income |
| $ | 8 |
|
| $ | 5 |
|
Net gains (losses) (a) |
|
| 4 |
|
|
| 18 |
|
Disbursements |
|
| (7 | ) |
|
| (8 | ) |
|
|
|
|
|
|
|
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Investment income | $ | 2 | $ | 3 | |||
Realized gains | 1 | — | |||||
Disbursements | (5 | ) | — |
Foreign currency derivatives Ashland conducts business in a variety of foreign currencies. Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to curtail potential earnings volatility effects on certain assets and liabilities, including short-term inter-company loans, denominated in currencies other than Ashland’s functional currency of an entity. These derivative contracts generally require exchange of one foreign currency for another at a fixed rate at a future date and generally have maturities of less than twelve months. Three months ended December 31 (In millions) 2021 2020 Foreign currency derivative gains $ 2 $ 3 The following table summarizes the fair values of the outstanding foreign currency derivatives as of December 31 September 30 (In millions) 2021 2021 Foreign currency derivative assets $ 2 $ 1 Notional contract values 252 150 Foreign currency derivative liabilities $ 1 $ 2 Notional contract values 156 212 10 Commodity derivatives To manage its exposure to the market price volatility of natural gas consumed by its US plants during the manufacturing process, Ashland regularly enters into forward contracts that are designated as cash flow hedges. Ashland recognized gains of $2 million and 0 during the three months ended December 31, 2021 and 2020, respectively, within the Statements of Consolidated Comprehensive Income (Loss). The following table summarizes the fair values of the outstanding commodity derivatives as of December 31, 2021, and September 30, 2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets. December 31 September 30 (In millions) 2021 2021 Commodity derivative assets $ 2 $ 11 Notional contract values 5 6 Commodity derivative liabilities $ 1 $ — Notional contract values 7 — Other financial instruments At December 31, NOTE F – INVENTORIES Inventories are carried at the lower of cost or The following table summarizes Ashland’s inventories as of the reported Condensed Consolidated Balance Sheet dates. December 31 September 30 (In millions) 2021 2021 Finished products $ 319 $ 282 Raw materials, supplies and work in process 211 191 $ 530 $ 473 11 NOTE G – GOODWILL AND OTHER INTANGIBLES Goodwill Ashland No indicators of impairment were identified in the three months ended December 31, 2021. Ashland’s assessment of an impairment on any of these assets classified currently as having indefinite lives, including goodwill, The following is a progression of goodwill by reportable segment for the three months ended December 31, Life Personal Specialty (In millions) Sciences Care (a) Additives (a) Intermediates (a) Total Balance at September 30, 2021 $ 856 $ 129 $ 445 $ 0 $ 1,430 Currency translation (12 ) (2 ) (5 ) 0 (19 ) Balance at December 31, 2021 $ 844 $ 127 $ 440 $ 0 $ 1,411 Other intangible assets Intangible assets principally consist of trademarks and trade names, intellectual property and customer and supplier relationships. Intangible assets classified as finite are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 3 to 25 years, intellectual property over 5 to 25 years, and customer and supplier relationships over 3 to 24 Ashland annually reviews, as of July 1, indefinite-lived intangible assets for possible impairment or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. No indicators of impairment were identified in the three months ended December 31, 2021. Intangible assets were comprised of the following as of December 31, 2021 Gross Net carrying Accumulated carrying (In millions) amount amortization amount Definite-lived intangibles Trademarks and trade names $ 100 $ (34 ) $ 66 Intellectual property 745 (504 ) �� 241 Customer and supplier relationships 842 (359 ) 483 Total definite-lived intangibles 1,687 (897 ) 790 Indefinite-lived intangibles Trademarks and trade names 278 — 278 Total intangible assets $ 1,965 $ (897 ) $ 1,068 12 September 30, 2021 Gross Net carrying Accumulated carrying (In millions) amount amortization amount Definite-lived intangibles Trademarks and trade names $ 101 $ (32 ) $ 69 Intellectual property 750 (495 ) 255 Customer and supplier relationships 849 (352 ) 497 Total definite-lived intangibles 1,700 (879 ) 821 Indefinite-lived intangibles Trademarks and trade names 278 — 278 Total intangible assets $ 1,978 $ (879 ) $ 1,099 Amortization expense recognized on intangible assets was NOTE H – DEBT The following table summarizes Ashland’s current and long-term debt as of the dates reported in the Condensed Consolidated Balance Sheets. (In millions) December 31, 2021 September 30, 2021 3.375% Senior Notes, due 2031 $ 450 $ 450 2.00% Senior Notes, due 2028 (Euro 500 million principal) 566 580 6.875% notes, due 2043 282 282 Term loan A 250 250 Accounts receivable securitizations 113 117 6.50% junior subordinated notes, due 2029 58 57 Revolving credit facility 240 225 Other (a) 10 9 Total debt 1,969 1,970 Short-term debt (includes current portion of long-term debt) (389 ) (374 ) Long-term debt (less current portion) $ 1,580 $ 1,596 The scheduled aggregate maturities of long-term debt by year (including the current portion and excluding debt issuance costs) are as Accounts Receivable Facilities and Off-Balance Sheet Arrangements U.S. Accounts Receivable Sales Program Ashland 13 guarantee liability when warranted. When applicable, Ashland discloses the amount of the receivable that serves as over-collateralization as a restricted asset. Ashland recognized a Foreign Accounts Receivable Securitization Facility Ashland continues to maintain its Foreign 2018 Accounts Receivable Securitization Facility. Ashland accounts for the Available borrowing capacity The borrowing capacity remaining under the Additionally, Ashland had 0 available liquidity under its current U.S. Accounts Receivable Sales Program as of December 31, 2021. Covenants related to current Ashland debt agreements Ashland's debt contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations. As of December 31, The maximum consolidated net leverage ratio permitted under Ashland's The minimum required consolidated interest coverage ratio under the NOTE I – Ashland leases certain office buildings, transportation equipment, warehouses and 14 The components of lease cost recognized within the Statements of Consolidated Comprehensive Income (Loss) were as follows: Three months ended December 31 (In millions) Location 2021 2020 Lease cost: Operating lease cost Selling, General & Administrative $ 3 $ 3 Operating lease cost Cost of Sales 4 4 Variable lease cost Selling, General & Administrative 1 0 Variable lease cost Cost of Sales 1 1 Short-term leases Cost of Sales 1 1 Total lease cost $ 10 $ 9 The following table summarizes Ashland’s lease assets and liabilities as presented in the Condensed Consolidated Balance Sheet: (In millions) December 31 September 30 Assets Operating lease assets, net $ 117 $ 124 Total lease assets $ 117 $ 124 Liabilities Current operating lease obligations $ 22 $ 23 Non-current operating lease obligations 104 110 Total lease liabilities $ 126 $ 133 Ashland often has options to renew lease terms for buildings and other assets. The exercise of lease renewal options are generally at Ashland’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at Ashland’s discretion. Ashland evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for operating leases as of both December 31, 2021 and September 30, 2021 was approximately 15 years. Residual value guarantees are not common within Ashland’s lease agreements nor are restrictions or covenants imposed by leases. Ashland has elected the practical expedient to combine lease and non-lease components. The discount rate implicit within the leases is generally not Right-of-use assets exchanged for new operating lease obligations was $1 million and $2 million for the three months ended December 31, The following table provides cash paid for amounts included Three months ended December 31 (In millions) 2021 2020 Operating cash flows from operating leases $ 7 $ 7 15 The (In millions) December 31 September 30 Remainder of 2022 $ 32 $ 39 2023 20 20 2024 16 16 2025 11 11 2026 9 9 Thereafter 77 78 Total lease payments 165 173 Less amount of lease payment representing interest (39 ) (40 ) Total present value of lease payments $ 126 $ 133 NOTE J – INCOME TAXES Current fiscal year Ashland’s effective tax rate in any interim period is subject to adjustments related to discrete items and the mix of domestic and foreign operating results. The overall effective tax rate was The currentquarter tax rate was Prior fiscal year The overall effective tax Unrecognized tax benefits Changes in unrecognized tax benefits are summarized as follows for the three months ended December 31, (In millions) Balance at October 1, 2021 $ 82 Increases related to positions taken in the current year 1 Lapse of statute of limitations (1 ) Balance at December 31, 2021 $ 82 From a combination of statute expirations and audit settlements in the next twelve months, Ashland expects a decrease in the amount accrued for uncertain tax positions of between NOTE Plan contributions For the three months ended December 31, 16 Components of net periodic benefit costs (income) The following table details the components of pension and other postretirement benefit costs for continuing operations. Pension benefits Other postretirement (In millions) 2021 2020 2021 2020 Three months ended December 31 Service cost $ 1 $ 1 $ 0 $ 0 Interest cost 2 2 0 0 Expected return on plan assets (2 ) (2 ) 0 0 Total net periodic benefit costs $ 1 $ 1 $ 0 $ 0 For segment reporting purposes, service cost NOTE Asbestos litigation Ashland To assist in developing and annually updating independent reserve estimates for future asbestos claims and related costs given various assumptions for Ashland and Hercules asbestos claims, Ashland retained Ashland asbestos-related litigation The claims alleging personal injury caused by exposure to asbestos asserted against Ashland result primarily from indemnification obligations undertaken in 1990 in connection with the sale of 17 Three months ended December 31 Years ended September 30 (In thousands) 2021 2020 2021 2020 2019 Open claims - beginning of year 46 49 49 53 53 New claims filed 0 1 2 2 2 Claims settled 0 0 (1 ) (1 ) (1 ) Claims dismissed (1 ) (1 ) (4 ) (5 ) (1 ) Open claims - end of period 45 49 46 49 53 Ashland asbestos-related liability From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of During the most recent annual update of this estimate completed during A progression of activity in the asbestos reserve is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2021 2020 2021 2020 2019 Asbestos reserve - beginning of year $ 320 $ 335 $ 335 $ 352 $ 380 Reserve adjustment 0 0 12 13 1 Amounts paid (13 ) (10 ) (27 ) (30 ) (29 ) Asbestos reserve - end of period (a) $ 307 $ 325 $ 320 $ 335 $ 352 Ashland asbestos-related receivables Ashland has insurance coverage for certain 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 that will be accessed. For the Ashland asbestos-related obligations, Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. At December 31, 18 A progression of activity in the Ashland insurance receivable is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2021 2020 2021 2020 2019 Insurance receivable - beginning of year $ 100 $ 103 $ 103 $ 123 $ 140 Receivable adjustment (a) 0 (2 ) 6 1 (5 ) Insurance settlement 0 0 0 (10 ) 0 Amounts collected (1 ) (3 ) (9 ) (11 ) (12 ) Insurance receivable - end of period (b) $ 99 $ 98 $ 100 $ 103 $ 123 Hercules asbestos-related litigation Hercules has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. The amount and timing of settlements and number of open claims can fluctuate from period to period. A summary of Hercules’ asbestos claims activity follows. Three months ended December 31 Years ended September 30 (In thousands) 2021 2020 2021 2020 2019 Open claims - beginning of year 12 12 12 13 13 New claims filed 1 1 1 1 1 Claims dismissed (1 ) (1 ) (1 ) (2 ) (1 ) Open claims - end of period 12 12 12 12 13 Hercules asbestos-related liability From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results. Ashland reviews this estimate, and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of A progression of activity in the asbestos reserve is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2021 2020 2021 2020 2019 Asbestos reserve - beginning of year $ 217 $ 229 $ 229 $ 252 $ 282 Reserve adjustments 0 0 8 (3 ) (10 ) Amounts paid (6 ) (5 ) (20 ) (20 ) (20 ) Asbestos reserve - end of period (a) $ 211 $ 224 $ 217 $ 229 $ 252 19 Hercules asbestos-related receivables For the Hercules asbestos-related obligations, certain reimbursement obligations pursuant to coverage-in-place agreements with insurance carriers exist. As of A progression of activity in the Hercules insurance receivable is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2021 2020 2021 2020 2019 Insurance receivable - beginning of year $ 47 $ 47 $ 47 $ 49 $ 54 Receivable adjustment (a) 0 (1 ) 1 (2 ) (5 ) Amounts collected 0 0 (1 ) 0 0 Insurance receivable - end of period (b) $ 47 $ 46 $ 47 $ 47 $ 49 Asbestos litigation cost projection 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, mortality rates, 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. Environmental remediation and asset retirement obligations 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 20 conveyed as part of Ashland’s reserves for environmental remediation and related environmental litigation amounted to The following table provides a reconciliation of the changes in the environmental remediation reserves during the Three months ended December 31 (In millions) 2021 2020 Reserve - beginning of period $ 207 $ 200 Disbursements (14 ) (10 ) Revised obligation estimates and accretion 4 5 Reserve - end of period $ 197 $ 195 The total reserves for environmental remediation reflect Ashland’s estimates of the most likely costs that will be incurred over an extended period to remediate identified conditions for which the costs are reasonably estimable, without regard to any third-party recoveries. Engineering studies, probability techniques, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated reserves for environmental remediation. Ashland continues to discount certain environmental sites and regularly adjusts its reserves as environmental remediation continues. Ashland has estimated the value of its probable insurance recoveries associated with its environmental reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage. At December 31, Components of environmental remediation expense included within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss) are presented in the following table for the Three months ended December 31 (In millions) 2021 2020 Environmental expense $ 3 $ 5 Legal expense 1 1 Total expense 4 6 Insurance receivable 0 (1 ) Total expense, net of receivable activity (a) $ 4 $ 5 Environmental remediation reserves are subject to numerous inherent uncertainties that affect Ashland’s ability to estimate its share of the costs. Such uncertainties involve the nature and extent of contamination at each site, the extent of required cleanup efforts under existing environmental regulations, widely varying costs of alternate cleanup methods, changes in environmental regulations, the potential effect of continuing improvements in remediation technology, and the number and financial strength of other potentially responsible parties at multiparty sites. Although it is not possible to predict with certainty the ultimate costs of environmental remediation, Ashland currently estimates that the upper end of the reasonably possible range of future costs for identified sites could be as high as approximately 21 Other legal proceedings and claims In addition to the matters described above, there are other 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 Ashland cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded and losses already recognized with respect to such actions were immaterial as of NOTE The following is the computation of basic and diluted earnings per share (EPS) from continuing operations attributable to Ashland. Stock appreciation rights (SARs), stock options and warrants available to purchase shares outstanding for each reporting period whose grant price was greater than the average market price of Ashland Common Stock for each applicable period were not included in the computation of income from continuing operations per diluted share because the effect of these instruments would be antidilutive. The total number of these shares outstanding was approximately Three months ended December 31 (In millions, except per share data) 2021 2020 Numerator Numerator for basic and diluted EPS - Income (loss) from continuing operations $ 32 $ 43 Denominator Denominator for basic EPS - Weighted- 57 60 Share based awards convertible to common shares 1 1 Denominator for diluted EPS - Adjusted weighted- 58 61 EPS from continuing operations Basic $ 0.56 $ 0.71 Diluted 0.55 0.70 NOTE Stockholder dividends Dividends of Accumulated other comprehensive income (loss) Components of other comprehensive income (loss) recorded in the Statements of Consolidated Comprehensive Income (Loss) are presented below, before tax and net of tax effects. 2021 2020 (In millions) Before Tax Net of Before Tax Net of Three months ended December 31 Other comprehensive income (loss) Unrealized translation gain (loss) $ (18 ) $ 1 $ (17 ) $ 48 $ 0 $ 48 Unrealized gain (loss) on commodity hedges (4 ) 1 (3 ) 0 0 0 Total other comprehensive income (loss) $ (22 ) $ 2 $ (20 ) $ 48 $ 0 $ 48 22 Summary of stockholders’ equity A reconciliation of changes in stockholders’ equity are as follows: Three months ended December 31 (In millions) 2021 2020 Common stock and paid in capital Balance, beginning of period $ 328 $ 770 Common shares issued under stock incentive and other plans (a) 0 1 Balance, end of period 328 771 Retained earnings Balance, beginning of period 2,796 2,649 Adoption of new accounting pronouncements 0 (2 ) Net income 48 56 Regular dividends (17 ) (17 ) Balance, end of period 2,827 2,686 Accumulated other comprehensive income (loss) Balance, beginning of period (372 ) (383 ) Unrealized translation gain (loss) (17 ) 48 Unrealized loss on commodity hedges (3 ) 0 Balance, end of period (392 ) (335 ) Total stockholders' equity $ 2,763 $ 3,122 Cash dividends declared per common share $ 0.300 $ 0.275 NOTE The components of Ashland’s Three months ended December 31 (In millions) 2021 (a) 2020 (b) SARs $ 0 $ 1 Nonvested stock awards 4 2 Performance share awards 2 2 $ 6 $ 5 23 NOTE P – REVENUE Disaggregation of Ashland disaggregates its revenue by segment and geographical region as Ashland believes these Sales by geography Three months ended December 31 (In millions) 2021 2020 Life Sciences North America $ 53 $ 51 Europe 55 54 Asia Pacific 46 47 Latin America & other 16 18 $ 170 $ 170 Three months ended December 31 (In millions) 2021 2020 Personal Care North America $ 41 $ 41 Europe 57 46 Asia Pacific 32 21 Latin America & other 17 18 $ 147 $ 126 Three months ended December 31 (In millions) 2021 2020 Specialty Additives North America $ 52 $ 45 Europe 55 52 Asia Pacific 41 41 Latin America & other 8 9 $ 156 $ 147 Three months ended December 31 (In millions) 2021 2020 Intermediates North America $ 32 $ 21 Europe 10 4 Asia Pacific 9 7 Latin America & other 2 1 $ 53 $ 33 Trade receivables Trade receivables are 24 NOTE All contracts are valued at fair value with net changes in fair value recorded within the selling, general and administrative expense caption. The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies. The following table summarizes the net gains and/orand losses recognized during the three months ended 20172021 and 20162020 within the Statements of Consolidated Comprehensive Income (Loss). Three months ended December 31 (In millions) 2017 2016 Foreign currency derivative loss $ (11 ) $ (8 ) 20172021 and September 30, 20172021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets. December 31 September 30 (In millions) 2017 2017 Foreign currency derivative assets $ 4 $ 2 Notional contract values 425 79 Foreign currency derivative liabilities $ 13 $ 36 Notional contract values 810 1,601 20172021 and September 30, 2017,2021, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $2,614$1,610 million and 2,615$1,622 million, respectively, compared to a fair value of $2,755$1,752 million and $2,768$1,794 million, respectively. The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland’s incremental borrowing rates, which are deemed to be Level 2 measurements within the fair value hierarchy.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSmarket.net realizable value. Inventories are primarily stated at cost using the weighted-average cost method. In addition, certain inventories are valued at cost using the last-in, first-out (LIFO) method. December 31 September 30 (In millions) 2017 2017 Finished products $ 421 $ 390 Raw materials, supplies and work in process 256 245 LIFO reserves (3 ) (1 ) $ 674 $ 634 Goodwillreviewstests goodwill and other indefinite-lived intangible assets for impairment annually oras of July 1 and when events and circumstances indicate an impairment may have occurred. This annual assessment is performed as of July 1Ashland tests goodwill and consists of Ashland determining each reporting unit’s currentother indefinite-lived intangible assets for impairment by comparing the estimated fair value comparedof the reporting units (for goodwill) and other indefinite-lived intangible assets to its currentthe related carrying value. ForIf the carrying amount of a reporting unit or other indefinite-lived intangible asset exceeds its July 1, 2017 assessment,estimated fair value, Ashland determined that itsrecords an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, fornot to exceed to the allocationassociated carrying amount of goodwill.are its three reportable segments: Specialty Ingredients, Composites and Intermediates and Solvents. Atcould change in future periods if significant events happen and/or circumstances change that time, Ashland determined no additional impairment existed.effect the previously mentioned assumptions such as: a significant change in projected business results, a divestiture decision, increase in Ashland’s weighted-average cost of capital rates, decrease in growth rates or assumptions, economic deterioration that is more severe or of a longer duration than anticipated, or another significant economic event.2017. Specialty Intermediates (In millions) Ingredients Composites and Solvents (a) Total Balance as of September 30, 2017 $ 2,315 $ 150 $ — $ 2,465 Currency translation adjustment 10 — — 10 Balance as of December 31, 2017 $ 2,325 $ 150 $ — $ 2,475 (a)As of December 31, 2017, there was accumulated impairment of $171 million related to the Intermediates and Solvents reportable segment.years.20172021 and September 30, 2017.2021.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE G – GOODWILL AND OTHER INTANGIBLES (continued) December 31, 2017 Gross Net carrying Accumulated carrying (In millions) amount amortization amount Definite-lived intangible assets Trademarks and trade names $ 67 $ (22 ) $ 45 Intellectual property 758 (340 ) 418 Customer and supplier relationships 780 (246 ) 534 Total definite-lived intangible assets 1,605 (608 ) 997 Indefinite-lived intangible assets Trademarks and trade names 301 — 301 Total intangible assets $ 1,906 $ (608 ) $ 1,298 September 30, 2017 Gross Net carrying Accumulated carrying (In millions) amount amortization amount Definite-lived intangible assets Trademarks and trade names $ 67 $ (22 ) $ 45 Intellectual property 757 (326 ) 431 Customer and supplier relationships 777 (235 ) 542 Total definite-lived intangible assets 1,601 (583 ) 1,018 Indefinite-lived intangible assets Trademarks and trade names 301 — 301 Total intangible assets $ 1,902 $ (583 ) $ 1,319 $24$24 million and $19$21 million for the three months ended December 31, 20172021 and 2016,2020, respectively, and is included in the selling, general and administrativeintangibles amortization expense caption of the Statements of Consolidated Comprehensive Income (Loss). Estimated amortization expense for future periods is $94$94 million in 20182022 (includes three months actual and nine months estimated), $90$93 million in 2019, $892023, $80 million in 2020, $892024, $78 million in 20212025 and $87$75 million in 2022. The amortization expense for future periods is an estimate.2026. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions and divestitures, potential impairment, accelerated amortization, or other events.
Includes $17 million of debt issuance cost discounts as of both December 31, 2021 and September 30, 2021. Additionally, as of both December 31, 2021 and September 30, 2021, Other includes a European short-term loan facility with an outstanding balance $23 million.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE H – DEBT (continued) December 31 September 30 (In millions) 2017 2017 4.750% notes, due 2022 $ 1,082 $ 1,082 Term Loan B, due 2024 597 599 6.875% notes, due 2043 376 376 Revolving Credit Facility 285 173 Term Loan A, due 2022 250 250 Term Loan A, due 2020 250 250 Accounts receivable securitization 64 56 6.50% junior subordinated notes, due 2029 51 51 Medium-term notes, due 2019, interest of 9.4% at December 31, 2017 5 5 (21 ) (23 ) Total debt 2,939 2,819 Short-term debt (includes current portion of long-term debt) (355 ) (235 ) Long-term debt (less current portion and debt issuance cost discounts) $ 2,584 $ 2,584 (a)Other includes $24 million and $25 million of debt issuance cost discounts as of December 31, 2017 and September 30, 2017, respectively.follows: $5follows as of December 31, 2021: $9 million remaining in 2018, $112022, $22 million in 2019, $2692023, $44 million in 2020, $562024, $175 million in 20212025 and $1,279 million0 in 2022. Financing Activities2017 Credit AgreementOn May 17, 2017, in conjunction with the closing of the Pharmachem acquisition, Ashlandcontinues to maintain its U.S. Accounts Receivable Sales Program entered into a secured credit agreement (the 2017 Credit Agreement) with a group of lenders. The 2017 Credit Agreement providedduring fiscal 2021. Ashland accounts for (i) a $250 million three-year term loan A facility (the Three-Year TLA Facility), (ii) a $250 million five-year term loan A facility (the Five-Year TLA Facility and together with the Three-Year TLA Facility, the TLA Facilities) and (iii) a $680 million five-year revolving credit facility (including a $125 million letter of credit sublimit) (the 2017 Revolving Credit Facility). Proceeds of borrowings under the TLA Facilities were used solelyreceivables transferred to finance the acquisition of Pharmachem, while the proceeds of the 2017 Revolving Credit Facility were used to finance, in part, the acquisition of Pharmachem, to refinance the 2015 Senior Credit Agreement and for general corporate purposes. On May 19, 2017,buyers as sales. Ashland entered into Amendment No. 1 to the 2017 Credit Agreement, which increased the aggregate commitments under the 2017 Revolving Credit Facility from $680 million to $800 million.At Ashland’s option, loans issued under the 2017 Credit Agreement bear interest at either LIBORrecognizes any gains or an alternate base rate, in each case plus the applicable interest rate margin. Loans bear interest at LIBOR plus 1.75% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.75%, in the alternative, through and including the date of delivery of a quarterly compliance certificate and thereafter the interest rate will fluctuate between LIBOR plus 1.375% per annum and LIBOR plus 2.500% per annum (or between the alternate base rate plus 0.375% per annum and the alternate base rate plus 1.500% per annum),losses based upon Ashland’s secured facilities ratings or the consolidated net leverage ratio (as defined in the 2017 Credit Agreement) (whichever yields a lower applicable interest rate margin) at such time. In addition, Ashland was required to pay fees of 0.25% per annum on the daily unused amountexcess of the 2017 Revolving Credit Facility throughproceeds received net of buyer’s discounts and including the date of delivery of a compliance certificate, and thereafter the fee rate will fluctuate between 0.175% and 0.40% per annum, based upon Ashland’s secured facilities rating or the consolidated net leverage ratio (whichever yields a lower applicable rate). The TLA Facilities may be prepaid at any time withoutASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE H – DEBT (continued)premium. The Three-Year TLA Facility will not amortize and will be due on May 17, 2020. The Five-Year TLA Facility will not amortize in each of the first, second and third years and will amortize at a rate of 20% per annum in each of the fourth and fifth years (payable in equal quarterly installments), with the outstanding balance of the Five-Year TLA Facilityfees compared to be paid on May 17, 2022.On June 14, 2017, Ashland entered into Amendment No. 2 to the 2017 Credit Agreement, which provided for a new $600 million seven-year senior secured term loan B facility (the 2017 TLB Facility). At Ashland’s option, loans issued under the 2017 TLB Facility bear interest at either (x) LIBOR plus 2.00% per annum or (y) an alternate base rate plus 1.00% per annum. The 2017 TLB Facility may be prepaid at any time. The 2017 TLB Facility amortizes at a rate of 1.00% per annum (payable in equal quarterly installments) with the outstanding balance to be paid on May 17, 2024.6.50% junior subordinated notes due 2029In December 2016, Hercules LLC (Hercules) (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland, repurchased, through a cash tender offer (the Tender Offer), $182 million of the aggregate principal par value amount of its 6.50% junior subordinated notes due 2029 (2029 notes) for an aggregate purchase price of $177 million. As a result of the Tender Offer, the carrying value of the 2029 notes was reduced by $90 millionassets. Proceeds received, net of buyer’s discounts and fees, are recorded within the operating activities of the Statement of Condensed Consolidated Cash Flows. Losses on sale of assets, including related transaction expenses are recorded within the Net interest and other expense (income) caption of the Statement of Consolidated Comprehensive Income (Loss). Ashland regularly assesses its servicing obligations and records them as assets or liabilities when appropriate. Ashland also monitors its obligation with regards to the limited guarantee and records the resulting$92loss of less then $1 million charge related to accelerated accretion of the recorded debt discount (compared to the total par value) and $5 million of a net gain related to the repayment of the debt. The charge and net gain are included in the net interest and other financing expense caption of the Statementswithin its Statement of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.Open market repurchases of 4.750% notes due 2022 and 3.875% notes due 2018During the three months ended December 31, 2016, Ashland executed open market repurchases of its 4.750% notes due 2022 (2022 notes) and its 3.875% notes due 2018 (2018 notes). As a result of these repurchases, the carrying values of the 2022 notes and 2018 notes were reduced by $36 million and $29 million, respectively. Ashland recognized a $2 million charge related to premiums paid in the open market repurchases and accelerated amortization of previously capitalized debt issuance costs, which is included in2021 within the net interest and other financing expense (income) caption associated with sales under the program. Ashland has recorded $100 million of sales at December 31, 2021 against the Statementsbuyer’s limit, which was $100 million at December 31, 2021 compared to $113 million of Consolidated Comprehensive Income (Loss)sales at September 30, 2021 against the buyer's limit, which was $125 million at September 30, 2021. Ashland transferred $143 million and $167 million in receivables to the special purpose entity (SPE) as of December 31, 2021 and September 30, 2021, respectively. Ashland recorded liabilities related to its service obligations and limited guarantee as of December 31, 2021 and September 30, 2021 of less than $1 million. As of December 31, 2021, the year-to-date gross cash proceeds received for receivables transferred and derecognized was $124 million, of which $137 million was collected, which includes collections from the sales in prior year transferred to the buyer. The difference of $13 million for receivables transferred and derecognized versus collected represents the impact of a reduction in sales volume during the current quarter, of which $3 million related to Performance Adhesives.three months endedForeign 2018 Accounts Receivable Securitization Facility as secured borrowings, and the receivables sold pursuant to the facility are included in the Consolidated Balance Sheets as accounts receivable. At December 31, 2016.Remaining2021 and September 30, 2021, the outstanding amount of accounts receivable transferred by Ashland was $138 million and $152 million, respectively, and there were $113 million and $117 million, respectively, of borrowings (denominated in multiple currencies) under the facility.20172020 Credit Agreement which included the $600 million Revolving Credit Facility was $467$341 million due to an outstanding balance of $285$240 million, as well as a reduction of $48$19 million for letters of credit outstanding atas of December 31, 2017.2021. Ashland's total borrowing capacity at December 31, 20172021 was $498$341 million, which included $31 million0 of available capacity from the accounts receivable securitization facility.2017,2021, Ashland is in compliance with all debt agreement covenant restrictions.most recentcurrent credit agreement (the 20172020 Credit Agreement) is 4.5.4.0. At December 31, 2017,2021, Ashland’s calculation of the consolidated net leverage ratio was 3.9.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE H – DEBT (continued)20172020 Credit Agreement during its entire duration is 3.0.3.0. At December 31, 2017,2021, Ashland’s calculation of the interest coverage ratio was 4.6.9.4.INCOME TAXESTax Law ChangesThe Tax CutsLEASING ARRANGEMENTSJobs Act (Tax Act) was enacted on December 22, 2017. The Tax Act reducesstorage facilities, and equipment. Substantially all of Ashland’s leases are operating leases or short-term leases. Real estate leases represented over 80% of the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Attotal lease liability at December 31, 2017,2021 and September 30, 2021, respectively.
2021
2021completeddeterminable. Therefore, Ashland determines the internal accounting assessment fordiscount rate based on its incremental borrowing rate. The incremental borrowing rate is determined using a buildup method resulting in an estimated range of secured borrowing rates matching the tax effects of enactmentlease term and the currency of the Tax Act; however, Ashland determined a reasonable estimatejurisdiction in which lease payments are made, adjusted for impacts of the effects on our existing deferred tax balancescollateral. Consideration was given to Ashland’s own relevant debt issuances as well as debt instruments of comparable companies with similar credit characteristics. The weighted average discount rate used to measure operating lease liabilities as of December 31, 2021 and the one-time transition tax. Ashland recognized a provisional amountSeptember 30, 2021 was 2.8%, respectively. There are no leases that have not yet commenced but that create significant rights and obligations.2017, which is2021 and 2020, respectively.as a component of income tax expense from continuing operations. Ashland recorded net unfavorable tax adjustments of $16 million primarily related to deferred tax rate changes and a one-time transition tax assessed on foreign cash and unremitted earnings.Provisional amounts - Deferred and other income tax assets and liabilitiesAshland remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, Ashland is still analyzing certain aspects of the Tax Act and refining certain calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. operating lease liabilities:provisional amount recorded related to the remeasurementfollowing table summarizes Ashland's maturities of the deferred tax balance was a favorable tax adjustmentlease liabilities as of $126 million.Provisional amounts - Foreign tax effectsThe one-time transition tax is based on Ashland's total post-1986 earningsDecember 31, 2021 and profits (E&P) of foreign subsidiaries that were previously deferred from U.S. income taxes. Ashland recorded a provisional amount for this one-time transition tax liability of $142 million. Ashland has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries. In addition, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when Ashland finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Ashland determined that the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable at this time.September 30, 2021:
2021
2021200%13% for the three months ended December 31, 2017 and2021. primarily impacted by jurisdictional income mix, and net unfavorableas well as $3 million from favorable tax discrete adjustments of $16 million related to the Tax Act.benefit rate was 39%a benefit of 13% for the three months ended December 31, 2016 and2020. The quarter tax rate was primarily impacted by jurisdictional income mix.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE I – INCOME TAXES (continued)2017.2021. (In millions) Balance at October 1, 2017 $ 194 Increases related to positions taken on items from prior years 2 Increases related to positions taken in the current year 3 Balance at December 31, 2017 $ 199 $22$6 million and $32$16 million for continuing operations. It is reasonably possible that there could be other material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues or the reassessment of existing uncertain tax positions; however, Ashland is not able to estimate the impact of these items at this time.JK - EMPLOYEE BENEFIT PLANS2017,2021, Ashland contributed $2$1 million to its non-U.S. pension plans and zero0 to its U.S. pension plans. Ashland expects to make additional contributions of approximately $5$4 million to its non-U.S. plans and $1less than $1 million to its U.S. pension plans during the remainder of 2018.Plan RemeasurementsEffective January 1, 2017, Ashland discontinued certain post-employment health and life insurance benefits. The effect of these plan changes resulted in a remeasurement gain of $2 million recorded within the other net period benefit cost (income) caption on the Statement of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE J – EMPLOYEE BENEFIT PLANS (continued)
benefits Other postretirement Pension benefits benefits (In millions) 2017 2016 2017 2016 Three months ended December 31 $ 2 $ 2 $ 1 $ — 3 2 — 1 (3 ) (3 ) — — — — — (2 ) Total net periodic benefit costs (income) $ 2 $ 1 $ 1 $ (1 ) (a)Service cost was not impacted by new accounting guidance adopted in the current quarter and is therefore still classified within the selling, general and administrative expense and cost of sales captions on the Statements of Consolidated Comprehensive Income (Loss). See Note A for additional information.(b)These components are now classified within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss) due to the adoption of new accounting guidance in the current quarter. See Note A for additional information. for continuing operations is proportionately allocated to each segment, excluding the Unallocated and other segment, while alland is recorded within the selling, general and administrative expense and cost of sales captions on the Statements of Consolidated Comprehensive Loss (Income). All other costs for continuing operationscomponents are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss).Loss (Income), which netted to zero for the three months ended December 31, 2021 and 2020.Kand Hercules haveis subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation (Riley) and the acquisition of Hercules in November 2008. Although Riley, a former subsidiary, was neither a producer nor a manufacturer of asbestos, its industrial boilers contained some asbestos-containing components provided by other companies. Hercules, an indirect wholly-owned subsidiary of Ashland, has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products sold by one of Hercules’ former subsidiaries to a limited industrial market.Hamilton, Rabinovitz & Associates, Inc. (HR&A).third party actuarial experts Gnarus. The methodology used by HR&AGnarus to project future asbestos costs is based largely on recent experience, including claim-filing and settlement rates, disease mix, enacted legislation, open claims and litigation defense. The claim experience of Ashland and Hercules are separately compared to the results of previously conducted third party 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&AGnarus estimates a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims. Changes in asbestos-related liabilities and receivables are recorded on an after-tax basis within the discontinued operations caption in the Statements of Consolidated Comprehensive Income.Income (Loss).Riley Stoker Corporation, a former subsidiary.Riley. The amount and timing of settlements and number of open claims can fluctuate from period to period. A summary of Ashland asbestos claims activity, excluding Hercules claims, follows.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE K – LITIGATION, CLAIMS AND CONTINGENCIES (continued) Three months ended December 31 Years ended September 30 (In thousands) 2017 2016 2017 2016 2015 Open claims - beginning of period 54 57 57 60 65 New claims filed 1 — 2 2 2 Claims settled — — (1 ) — — Claims dismissed (1 ) (1 ) (4 ) (5 ) (7 ) Open claims - end of period 54 56 54 57 60 HR&A. the June 2017 quarter,fiscal year 2021, it was determined that the liability for Ashland asbestos-related claims should be increased by $36$12 million. Total reserves for asbestos claims were $409$307 million at December 31, 20172021 compared to 419320 million at September 30, 2017. Three months ended December 31 Years ended September 30 (In millions) 2017 2016 2017 2016 2015 Asbestos reserve - beginning of period $ 419 $ 415 $ 415 $ 409 $ 438 Reserve adjustment — — 36 37 — Amounts paid (10 ) (9 ) (32 ) (31 ) (29 ) $ 409 $ 406 $ 419 $ 415 $ 409 (a)Included $34 million classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017.Substantially allA substantial portion of the estimated receivables from insurance companies are expected to be due from domestic insurers, all of which are solvent.2017,2021, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $151$99 million (excluding the Hercules receivable for asbestos claims) compared to $155$100 million at September 30, 2017.2021. During the June 2017 quarter,fiscal year 2021, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers was completed. This model update resulted in a $15$8 million increase in the receivable for probable insurance recoveries.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE K – LITIGATION, CLAIMS AND CONTINGENCIES (continued)(b) Three months ended December 31 Years ended September 30 (In millions) 2017 2016 2017 2016 2015 Insurance receivable - beginning of period $ 155 $ 151 $ 151 $ 150 $ 402 Receivable adjustment — — 15 16 (3 ) Insurance settlement — — (5 ) (4 ) (227 ) Amounts collected (4 ) (2 ) (6 ) (11 ) (22 ) $ 151 $ 149 $ 155 $ 151 $ 150 (a)Included $14 million classified in accounts receivable on the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017. Three months ended December 31 (In thousands) 2017 2016 2017 2016 2015 Open claims - beginning of period 12 15 15 20 21 New claims filed — — 1 1 1 Claims dismissed — — (4 ) (6 ) (2 ) Open claims - end of period 12 15 12 15 20 HR&A.Gnarus. As a result of the most recent annual update of this estimate, completed during the June 2017 quarter,fiscal year 2021, it was determined that the liability for Hercules asbestos-related claims should be increased by $16$8 million. Total reserves for asbestos claims were $315$211 million at 20172021 compared to $323217 million at September 30, 2017.
Included $17 million and $18 million classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets as of December 31, 2021 and September 30, 2021, respectively.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE K – LITIGATION, CLAIMS AND CONTINGENCIES (continued) Three months ended December 31 Years ended September 30 (In millions) 2017 2016 2017 2016 2015 Asbestos reserve - beginning of period $ 323 $ 321 $ 321 $ 311 $ 329 Reserve adjustment — — 16 25 4 Amounts paid (8 ) (3 ) (14 ) (15 ) (22 ) Asbestos reserve - end of period (a) $ 315 $ 318 $ 323 $ 321 $ 311 (a)Included $14 million classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017. As a result, any increases in the asbestos reserve have been partially offset by probable insurance recoveries. Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. The estimated receivable consists exclusively of solvent domestic insurers.20172021, Ashland’s receivable for recoveries of litigation defense and September 30, 2017, the receivablesclaims costs from insurers with respect to Hercules amounted to $68$47 million. During the June 2017 quarter,fiscal year 2021, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers was completed. This model update resulted in a $5an increase of $2 million increase in the receivable for probable insurance recoveries.(b) Three months ended December 31 Years ended September 30 (In millions) 2017 2016 2017 2016 2015 Insurance receivable - beginning of period $ 68 $ 63 $ 63 $ 56 $ 77 Receivable adjustment — — 5 7 1 Insurance settlement — — — — (22 ) Insurance receivable - end of period $ 68 $ 63 $ 68 $ 63 $ 56 In light ofConsidering these inherent uncertainties, Ashland believes that the asbestos reserves for Ashland and Hercules represent the best estimate within a range of possible outcomes. As a part of the process to develop these estimates of future asbestos costs, a range of long-term cost models was developed. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. Ashland has currently estimated in various models ranging from approximately 40 to 50 year periods that it is reasonablyASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE K – LITIGATION, CLAIMS AND CONTINGENCIES (continued)$660$482 million for the Ashland asbestos-related litigation (current reserve of $409$307 million) and approximately $510$334 million for the Hercules asbestos-related litigation (current reserve of $315$211 million), depending on the combination of assumptions selected in the various models. If actual experience is worse than projected, relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, or actuarial refinement or improvements to the assumptions used within these models are initiated, Ashland may need to further increase the estimates of the costs associated with asbestos claims and these increases could be material over time.2017,2021, such locations included 82 waste treatment or disposal80 sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, 118112 current and former operating facilities (including certain operating facilitiesthe MAP Transaction)previous divestitures) and about 1,225 service station properties, of which 3617 are being actively remediated.$168$197 million at December 31, 20172021 compared to $163$207 million at September 30, 2017,2021, of which $125$142 million at December 31, 20172021 and $121$152 million at September 30, 20172021 were classified in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. The remaining reserves were classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets.20172021 and 2016.2020. Three months ended December 31 (In millions) 2017 2016 Reserve - beginning of period $ 163 $ 177 Disbursements (8 ) (7 ) Revised obligation estimates and accretion 13 4 Reserve - end of period $ 168 $ 174 20172021 and September 30, 2017,2021, Ashland’s recorded receivable for these probable insurance recoveries was $14$15 million and $15$16 million, respectively, of which $13 million and $14$13 million at December 31, 20172021 andSeptember 30, 2017, respectively, were2021 was classified in other noncurrent assets on the Condensed Consolidated Balance Sheets.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE K – LITIGATION, CLAIMS AND CONTINGENCIES (continued)20172021 and 20162020, relates to divested businesses which qualified for treatment as discontinued operations for which certain environmental liabilities were retained by Ashland. These amounts are classified within the income from discontinued operations caption of the Statements of Consolidated Comprehensive Income (loss). Three months ended December 31 (In millions) 2017 2016 Environmental expense $ 12 $ 4 Accretion 1 — Legal expense 1 2 Total expense 14 6 — — Total expense, net of receivable activity $ 14 $ 6 (a)Activity of $0 denotes value less than $1 million.$412$465 million. The largest reserve for any site is approximately 15%14% of the remediation reserve.20172021 and September 30, 2017.2021. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Ashland believes that such potential losses were immaterial as of December 31, 2017.2021.L0.71 million and 0.92 million at December 31, 20172021 and 2016,2020, respectively. Earnings per share is reported under the treasury stock method.
average common shares outstanding
average shares and assumed conversionsASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSL – EARNINGS PER SHARE (continued) Three months ended December 31 (In millions except per share data) 2017 2016 Numerator Numerator for basic and diluted EPS – Loss from continuing operations $ (7 ) $ (65 ) Denominator Denominator for basic EPS – Weighted-average common shares outstanding 62 62 — — Denominator for diluted EPS – Adjusted weighted- average shares and assumed conversions 62 62 EPS from continuing operations attributable to Ashland Basic $ (0.12 ) $ (1.05 ) Diluted (0.12 ) (1.05 ) (a)As a result of the loss from continuing operations attributable to Ashland during the three months ended December 31, 2017 and 2016, the effect of the share-based awards convertible to common shares would be antidilutive. In accordance with U.S. GAAP, they have been excluded from the diluted EPS calculation.NOTE MN– EQUITY ITEMSStock repurchase programsIn April 2015, Ashland's BoardDirectors approved a $1 billion share repurchase authorization that was set to expire on December 31, 2017 (the 2015 stock repurchase program). This authorization allows for Ashland’s common shares to be repurchased in open market transactions, privately negotiated transactions or pursuant to one or more accelerated stock repurchase programs or Rule 10b5-1 plans.During 2017, Ashland's Board of Directors extended the 2015 stock repurchase program indefinitely. As of December 31, 2017, $500 million of share repurchase authorization remains under the 2015 stock repurchase program.Stockholder dividendsIn May 2017, subsequent to the final distribution of Valvoline Inc.'s common stock, the Board of Directors of Ashland announced a quarterly cash dividend of 22.530 cents per share to eligible shareholders at record which waswere paid for quarterly dividends in the first quarter of fiscal 20182022 and the third and fourth quarters of fiscal 2017. This represented a reduction from the previous quarterly dividend of 3927.5 cents per share which waswere paid for quarterly dividends in the first and second quartersquarter of fiscal 2017.
tax
(expense) benefit
tax
tax
(expense) benefit
tax
Common shares issued were 94,715 shares and 99,194 for the three months ended December 31, 2021 and 2020, respectively.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSM – EQUITY ITEMS (continued) 2017 2016 Tax Tax Before (expense) Net of Before (expense) Net of (In millions) tax benefit tax tax benefit tax Three months ended December 31 Other comprehensive income (loss) Unrealized translation gain (loss) $ 3 $ — $ 3 $ (150 ) $ 4 $ (146 ) Pension and postretirement obligation adjustment: Amortization of unrecognized prior service — — — (3 ) 2 (1 ) Net change in available-for-sale securities: Unrealized gains during period 11 (2 ) 9 — — — Reclassification adjustment for realized gains included in net income (1 ) — (1 ) — — — Total other comprehensive income (loss) $ 13 $ (2 ) $ 11 $ (153 ) $ 6 $ (147 ) (a)For the three months ended December 31, 2016, the amortization of unrecognized prior service credits was related to pension and other postretirement benefit plans that transferred to Valvoline and was classified in the discontinued operations caption on the Statements of Consolidated Comprehensive Income (Loss).NOTE NO – STOCK INCENTIVE PLANSAshland has stock incentive plans under which key employees or directors are granted stock appreciation rights (SARs), performance awards or nonvested stock awards. Each program is typically a long-term incentive plan designed to link employee compensation with increased shareholder value or reward superior performance and encourage continued employment with Ashland. Ashland recognizes compensation expense for the grant date fair value of stock-based awards over the applicable vesting period.pretaxpre-tax stock-based compensation expense included in continuing operations are as follows: Three months ended December 31 (In millions) SARs $ 1 $ 1 Nonvested stock awards 6 4 Performance awards 4 2 $ 11 $ 7 (a)The three months ended December 31, 2017 included $2Included $2 million of expense related to cash-settled nonvested restricted stock awards and $2 million of expense related to cash-settled performance units.(b)The three months ended December 31, 2016 included $1 million of expense related to cash-settled nonvested restricted stock awards and $1 million of expense related to cash-settled performance units.SARsSARs are granted to employees or directors at a price equal to the fair market value of the stock on the date of grant and typically become exercisable over periods of one to three years. Unexercised SARs lapse ten years and one month after the date of grant. SARs granted for the three months ended December 31, 2017 and 2016 were 470 thousand and 422 thousand, respectively. As of December 31, 2017, there was $13 millionASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE N – STOCK INCENTIVE PLANS (continued)of total unrecognized compensation costs related to SARs. That cost is expected to be recognized over a weighted-average period of 2.4 years. Ashland estimates the fair value of SARs granted using the Black-Scholes option-pricing model. This model requires several assumptions, which Ashland has developed and updates based on historical trends and current market observations. The accuracy of these assumptions is critical to the estimate of fair value for these equity instruments.Nonvested stock awardsNonvested stock awards are granted to employees or directors at a price equal to the fair market value of the stock on the date of grant and generally vest over a one-to-five-year period. However, such shares or units are subject to forfeiture upon termination of service before the vesting period ends. Only nonvested stock awards granted in the form of shares entitle employees or directors to vote the shares. Dividends on nonvested stock awards granted are in the form of additional units or shares of nonvested stock awards, which are subject to vesting and forfeiture provisions. Stock-settled nonvested stock awardsNonvested stock awards granted in the form of shares were 142 thousand and 81 thousand for the three months ended December 31, 2017 and 2016, respectively. As of December 31, 2017, there was $12 million of total unrecognized compensation costs related to these nonvested stock awards. That cost is expected to be recognized over a weighted-average period of 2.0 years.Cash-settled nonvested stock awardsCertain nonvested stock awards are granted to employees and are settled in cash upon vesting. As of December 31, 2017, 220 thousand cash-settled nonvested stock awards were outstanding. The value of these cash-settled nonvested stock awards changes in connection with changes in the fair market value of the Ashland Common Stock. These awards generally vest over a period of three years. The expense recognized related to cash-settled nonvested stock awards was $2 million and $1 million during the three months ended December 31, 2017 and 2016, respectively.2021.Executive performance incentive and retention programDuring 2016, certain executives were granted performance-based restricted shares of Ashland in order to provide an incentive to remain employed in the period after the full separation. At December 31, 2017, there were 60 thousand shares outstanding in connection with these awards, which includes forfeitures and the cumulative value of forfeitable dividends. The expense recognition for these awards commenced upon completing the full separation of Valvoline which occurred on May 12, 2017, as discussed further in Note B, and resulted in $2Included $1 million of expense forrelated to cash-settled nonvested restricted stock awards during the three months ended December 31, 2017. As2020.December 31, 2017, there was $8 million of total unrecognized compensation costs related torevenueawards.Performance awardsAshland sponsors a long-term incentive plan that awards performance shares/units to certain key employees that are primarily tied to Ashland’s overall financial performance relative to internal targets. Additionally, certain outstanding performance awards are tied to Ashland's overall financial performance relative tocategories best depict how management reviews the financial performance of selected industry peer groups. Awardsits operations. See the following tables for details. See Note Q for additional information.granted annually,defined as receivables arising from contracts with each award covering a three-year vesting period. ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE N – STOCK INCENTIVE PLANS (continued)For awards granted in fiscal 2016, each performance share/unit is convertible to one share of Ashland Common Stock. These planscustomers and are recorded as a component of stockholders’ equity inwithin the accounts receivable caption within the Condensed Consolidated Balance Sheets. Performance measures used to determine the actual number of performance shares issuable upon vesting include an equal weighting of Ashland’s total shareholder return (TSR) performancetrade receivables were $288 million and Ashland’s return on investment (ROI) performance$308 million as compared to the internal targets. TSR relative to peers is considered a market condition while ROI is considered a performance condition under applicable U.S. GAAP. For awards granted in fiscal 2017 and 2018, the performance measure used to determine the actual number of performance shares/units issuable upon vesting is the financial performance of Ashland compared to award targets. The financial performance award metric is considered a performance condition under applicable U.S. GAAP. Additionally, the actual number of performance shares/units issuable upon vesting can be potentially increased or decreased based on a TSR performance modifier relative to peers of Ashland. For awards granted in fiscal 2017, each performance unit will be settled in cash based on the fair value of Ashland common stock. For awards granted in fiscal 2018, each performance share/unit is convertible to one share of Ashland Common Stock.Nonvested performance shares/units do not entitle employees to vote the shares or to receive any dividends thereon. Performance shares/units granted for the three months ended December 31, 2017 and 2016 were 101 thousand and 56 thousand, respectively. As of December 31, 2017, there was $17 million of total unrecognized compensation costs related2021 and September 30, 2021, respectively. See Note H for additional information on Ashland’s program to performance shares/units. That cost is expectedsell certain receivables on a revolving basis to be recognized over a weighted-average period of 2.2 years.third party banks up to an aggregate purchase limit (U.S Accounts Receivable Sales Program).OQ – REPORTABLE SEGMENT INFORMATION
Ashland determines its reportable segments based on how operations are managed internally for the products and services sold to customers, including how the results are reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. Operating income isand EBITDA are the primary measure on the Statementsmeasures of Consolidated Comprehensive Income (Loss)performance that isare reviewed by the chief operating decision maker in assessing each reportable segment's financial performance. Ashland does not aggregate operating segments to arrive at these reportable segments.
Change in Reportable Segments
As previously described in Note B, Ashland announced that it had signed a definitive agreement on August 30, 2021 to completingsell its Performance Adhesives segment. The operating results and cash flows for the separation from Valvoline Inc. on May 12, 2017, Ashland'sPerformance Adhesives segment have been classified as discontinued operations are managed by the chief operating decision maker within the following three reportable segments: Specialty Ingredients, Composites and Intermediates and Solvents. As a result, the financial information for the new reportable segments (Composites and Intermediates and Solvents) has been disclosedConsolidated Financial Statements for all periods presented. PriorAs a result, Ashland's reportable segments included Life Sciences, Personal Care, Specialty Additives and Intermediates.
Unallocated and Other includes corporate governance activities and certain legacy matters. The historical segment information has been recast to conform to the separation from Valvoline Inc., Composites and Intermediates and Solvents were reporting units included within the previous Ashland Performance Materials reportable segment.
Reportable segment business descriptions
Life Sciences is a global leader in cellulose ethers, vinyl pyrrolidonescomprised of pharmaceuticals, nutrition, nutraceuticals, agricultural chemicals, advanced materials and biofunctionals. It offers industry-leadingfine chemicals. Pharmaceutical solutions include controlled release polymers, disintegrants, film coatings, solubilizers, and tablet binders. Nutrition solutions include for thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and controlling color. Nutraceutical solutions include products technologiesfor weight management, joint comfort, stomach and resources for solvingintestinal health, sports nutrition and general wellness, and provide custom formulation, toll processing and product-performance challenges. Specialty Ingredients uses natural, syntheticparticle engineering solutions. Customers include pharmaceutical, food, beverage, nutraceuticals and semisynthetic polymers derived from cellulose ethers, vinyl pyrrolidones, acrylic polymers, polyestersupplements manufacturers, hospitals and polyurethane-based adhesives, and plant and seed extract. Specialty Ingredients’ end markets offer comprehensive and innovative solutions for today’s demanding consumerradiologists and industrial applications. Key customers include: pharmaceutical companies; makersmanufacturers.
Personal Care (formerly Personal Care & Household) is comprised of personalbiofunctionals, preservatives, skin care, products, foodsun care, oral care, hair care and beverages; makers of nutraceuticals and supplements; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield service companies. On May 17, 2017, Ashland completed its acquisition of the stock of Pharmachem, a leading provider of quality ingredients to
Specialty Additives is comprised of unsaturated polyesterrheology- and vinyl ester resins, gelcoatsperformance-enhancing additives serving the coatings, construction, energy, automotive and low-profilevarious industrial markets. Solutions include coatings additives for architectural paints, finishes and lacquers, cement- and gypsum- based dry mortars, ready-mixed joint compounds, synthetic plasters for commercial and residential construction, and specialty materials for industrial applications. Products include rheology modifiers (cellulosic and associative thickeners), foam control agents, surfactants and wetting agents, pH neutralizers, advanced ceramics used in catalytic converters, and environmental filters, ingredients that aid the reinforced plastics industry. The products inmanufacturing process of ceramic capacitors, plasma display panels and solar cells, ingredients for textile printing, thermoplastic metals and alloys for welding. Products help improve desired functional outcomes through rheology modification and control, water retention, workability, adhesive strength, binding power, film formation, deposition and suspension and emulsification. Customers include global paint manufacturers, electronics and automotive manufacturers, textile mills, the Composites business provide an array of functional properties including corrosion resistance, fire retardance, ultraviolet resistance, waterconstruction industry, and chemical resistance, high mechanical strength, impact and scratch resistance and high strength-to-weight ratios. Key end markets include transportation, construction, marine and infrastructure. In addition, the business manufactures and sells molten maleic anhydride for the manufacture of a variety of products such as unsaturated polyester resins, copolymers, lubricating oil additives, alkenyl succinic anhydrides, malic acid, fumaric acid and numerous derivative chemicals. Key markets include composites, personal care, dispersants and paper sizing.
Intermediates (formerly Intermediates and SolventsSolvents) is a leading producercomprised of the production of 1,4 butanediol (BDO) and related derivatives, including tetrahydrofuran and n-methylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. Butanediol is also suppliedprovided as a feedstock to Ashland’sLife Sciences, Personal Care, and Specialty Ingredients businessAdditives for use as a raw material.
25
Unallocated and Other generally includes items such as certain significant company-wide restructuring activities, including internal separationcorporate governance costs and legacy costs or adjustmentsactivities that relate to divested businesses that are no longer operated by Ashland.
Reportable segment results
Results of Ashland’s reportable segments are presented based on its management and internal accounting structure. The structure is specific to Ashland; therefore, the financial results of Ashland’s reportable segments are not necessarily comparable with similar information for other comparable companies. Ashland allocates all significant costs to its reportable segments except for certain significant company-wide restructuring activities, certain corporate governance costs and other costs or adjustmentsactivities that relate to former businesses that Ashland no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss). Ashland refines its expense allocation methodologies to the reportable segments from time to time as internal accounting practices are improved, more refined information becomes available and the industry or market changes. Significant revisions to Ashland’s methodologies are adjusted for all segments on a retrospective basis.
The following table presents various financial information for each reportable segment for the three months ended December 31, 20172021 and 2016.
| Three months ended |
| |||||
| December 31 |
| |||||
(In millions - unaudited) | 2021 |
|
| 2020 |
| ||
SALES |
|
|
|
|
| ||
Life Sciences | $ | 170 |
|
| $ | 170 |
|
Personal Care |
| 147 |
|
|
| 126 |
|
Specialty Additives |
| 156 |
|
|
| 147 |
|
Intermediates |
| 53 |
|
|
| 33 |
|
Intersegment sales (a) |
| (14 | ) |
|
| (8 | ) |
| $ | 512 |
|
| $ | 468 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
| ||
Life Sciences | $ | 21 |
|
| $ | 29 |
|
Personal Care |
| 15 |
|
|
| 15 |
|
Specialty Additives (b) |
| 17 |
|
|
| 2 |
|
Intermediates |
| 16 |
|
|
| 2 |
|
Unallocated and other |
| (27 | ) |
|
| (31 | ) |
| $ | 42 |
|
| $ | 17 |
|
DEPRECIATION EXPENSE |
|
|
|
|
| ||
Life Sciences | $ | 8 |
|
| $ | 9 |
|
Personal Care |
| 9 |
|
|
| 10 |
|
Specialty Additives |
| 16 |
|
|
| 16 |
|
Intermediates |
| 3 |
|
|
| 3 |
|
| $ | 36 |
|
| $ | 38 |
|
AMORTIZATION EXPENSE |
|
|
|
|
| ||
Life Sciences | $ | 7 |
|
| $ | 7 |
|
Personal Care |
| 12 |
|
|
| 9 |
|
Specialty Additives |
| 5 |
|
|
| 5 |
|
Intermediates |
| 0 |
|
|
| 0 |
|
| $ | 24 |
|
| $ | 21 |
|
EBITDA (c) |
|
|
|
|
| ||
Life Sciences | $ | 36 |
|
| $ | 45 |
|
Personal Care |
| 36 |
|
|
| 34 |
|
Specialty Additives |
| 38 |
|
|
| 23 |
|
Intermediates |
| 19 |
|
|
| 5 |
|
Unallocated and other |
| (27 | ) |
|
| (31 | ) |
| $ | 102 |
|
| $ | 76 |
|
26
| December 31 |
|
| September 30 |
| ||
(In millions - unaudited) | 2021 |
|
| 2021 |
| ||
TOTAL ASSETS |
|
|
|
|
| ||
Life Sciences | $ | 1,922 |
|
| $ | 1,945 |
|
Personal Care |
| 1,110 |
|
|
| 1,145 |
|
Specialty Additives |
| 1,618 |
|
|
| 1,636 |
|
Intermediates |
| 163 |
|
|
| 160 |
|
Unallocated and other |
| 1,736 |
|
|
| 1,726 |
|
| $ | 6,549 |
|
| $ | 6,612 |
|
|
|
|
|
|
|
27
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements including, without limitation, statements made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” (MD&A), within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Ashland has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “objectives,” “may,” “will,” “should,” “plans” and “intends” and the negative of these words or other comparable terminology. 28 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements herein. BUSINESS OVERVIEW Ashland profile Ashland is a premier Ashland’s sales generated outside of North America were NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE O – REPORTABLE SEGMENT INFORMATION (continued) Three months ended December 31 (In millions - unaudited) 2017 2016 SALES Specialty Ingredients $ 550 $ 482 Composites 218 165 Intermediates and Solvents 74 57 $ 842 $ 704 OPERATING INCOME (LOSS) Specialty Ingredients $ 42 $ 40 Composites 18 15 Intermediates and Solvents 8 (7 ) Unallocated and other (29 ) (33 ) $ 39 $ 15 ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESIn addition, Ashland may from time to time make forward-looking statements in its annual reports,Annual Report to Shareholders, quarterlyPharmachemSchülke & Mayr’s personal care business and the sale of the Performance Adhesive business (including the possibility that Ashland may not realize the anticipated benefits from such transactions); Ashland’s substantial indebtedness (including the possibility that such indebtedness and related restrictive covenants may adversely affect Ashland’s future cash flows, results of operations, financial condition and its ability to repay debt); execution risks associated with Ashland’s growth strategies; the potential that Ashland does not realize allcompetitive nature of the expected benefits of the separation of its ValvolineAshland’s business; the potential that the Tax Cuts and Jobs Act enacted on December 22, 2017 will have a negative impact on Ashland’s financial results, and severe weather, natural disasters, public health crises (including the COVID-19 pandemic), cyber events and legal proceedings and claims (including product recalls, environmental and asbestos matters). Various risks; the effects of the COVID-19 pandemic on the geographies in which Ashland operates, the end markets Ashland serves and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements, including,on Ashland’s supply chain and customers; and without limitation, risks and uncertainties affecting Ashland that are contained in “Use of estimates, risks and uncertainties” in Note A of Notes to Consolidated Financial Statements and in Item 1A in its most recent Form 10-K filed with the SEC, which is available on Ashland’s website at http://investor.ashland.com or on the SEC’s website at http://www.sec.gov. Various risks and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements. The extent and duration of the COVID-19 pandemic on our business and operations is uncertain. Factors that influence the impact on our business and operations include the duration and extent of the pandemic, the extent of imposed or recommended containment and mitigation measures, and the general economic consequences of the pandemic. Ashland believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected herein will be achieved. Unless legally required, Ashland undertakes no obligation to update any forward-looking statements made in this Form 10-Q whether as a result of new information, future events or otherwise. Information on Ashland’s website is not incorporated into or a part of this Form 10-Q.global leader in providing specialty chemical solutions toadditives and materials company with a conscious and proactive mindset for sustainability. The Company serves customers in a wide range of consumer and industrial markets, including adhesives, architectural coatings, construction, energy, food and beverage, nutraceuticals, personal care and pharmaceutical. With approximately 6,5004,100 (3,800 excluding Performance Adhesives) employees worldwide, Ashland serves customers in more than 100 countries.60%68% for both the three months ended December 31, 20172021 and 2016.2020. Sales by region expressed as a percentage of total consolidated sales for the three months ended December 31 were as follows:
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
Sales by Geography |
| 2021 |
|
| 2020 |
| ||
North America (a) |
|
| 32 | % |
|
| 32 | % |
Europe |
|
| 35 | % |
|
| 34 | % |
Asia Pacific |
|
| 25 | % |
|
| 25 | % |
Latin America & other |
|
| 8 | % |
|
| 9 | % |
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
Three months ended | |||||
December 31 | |||||
Sales by Geography | 2017 | 2016 | |||
North America (a) | 40 | % | 40 | % | |
Europe | 34 | % | 31 | % | |
Asia Pacific | 18 | % | 20 | % | |
Latin America & other | 8 | % | 9 | % | |
100 | % | 100 | % | ||
Reportable segments On August 31, 2021, Ashland announced its agreement with Arkema, a French société anonyme, to As a result, Ashland’s reportable Subsequentcompletingsell the separationPerformance Adhesive business for the sum of $1.65 billion. The transaction is expected to close by the March 2022 quarter end, subject to closing conditions. Ashland expects net proceeds from Valvoline Inc.,the sale to be approximately $1.2 to $1.3 billion, with the aim of using the proceeds to invest in the growth of its other reportable core businesses as well as to optimize its balance sheet through debt reductions or utilization of unused authorized share repurchase program amounts. The expected divestiture represents a strategic shift in Ashland's businesses are managedbusiness and qualifies as a discontinued operation. As a result, the assets, liabilities, operating results and cash flows related to Performance Adhesives have been classified as discontinued operations for all periods presented within the following threeConsolidated Financial Statements.segments:segments include Life Sciences, Personal Care (formerly Personal Care & Household), Specialty Ingredients, CompositesAdditives and Intermediates (formerly Intermediates and Solvents. For further descriptions of each reportable segment, see “Results of Operations – Reportable Segment Review” beginning on page 45.werewas as follows:
29
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
Sales by Reportable Segment |
| 2021 |
|
| 2020 |
| ||
Life Sciences |
|
| 33 | % |
|
| 36 | % |
Personal Care |
|
| 29 | % |
|
| 27 | % |
Specialty Additives |
|
| 30 | % |
|
| 32 | % |
Intermediates |
|
| 8 | % |
|
| 5 | % |
|
|
| 100 | % |
|
| 100 | % |
KEY DEVELOPMENTS
Business results current quarter
Ashland recorded net income of $48 million (income of $32 million in continuing operations and $16 million in discontinued operations) and net income of $56 million (income of $43 million in continuing operations and $13 million in discontinued operations) in the current and prior year quarters, respectively. Ashland’s EBITDA of $118 million increased by $15 million for the current quarter, while Ashland’s Adjusted EBITDA of $106 million increased by $5 million for the current quarter, each compared to the prior year quarter (see U.S. GAAP reconciliation below under consolidated review). These increases were primarily driven by the operations of the acquired Schülke business along with improved pricing and mix, partially offset by increased plant, manufacturing, and shipping costs and unfavorable foreign currency.
Uncertainty relating to the COVID-19 pandemic
Ashland continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact customers, employees, suppliers, vendors, business partners and distribution channels. Ashland is unable to predict the impact that the COVID-19 pandemic will have on its future financial position and operating results due to numerous uncertainties. These uncertainties include the severity of the virus, the duration of the outbreak, governmental, business or other actions, impacts on Ashland’s supply chain, the effect on customer demand, or changes to Ashland’s operations. The health of Ashland’s workforce and its ability to meet staffing needs throughout the critical functions cannot be predicted and is vital to operations. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. In addition, Ashland cannot predict the impact that the COVID-19 pandemic will have on its customers, vendors, suppliers and other business partners; however, any material effect on these parties could adversely impact Ashland.
Ashland continues to successfully navigate the uncertain environment associated with the COVID-19 pandemic. Through the first quarter of fiscal 2022, Ashland has not experienced any additional major operating surprises related to the COVID-19 pandemic, continues to maintain supply chains in a challenging environment, had strong safety performance in the face of unprecedented pressures and improved operating discipline across each of its businesses. Ashland's businesses continued to show resiliency in the face of difficult economic circumstances. While sales were up in the quarter period-over-period, continued supply-chain and labor-shortage challenges inhibited Ashland's ability to meet strong overall customer demand. As a result, approximately $20 million of confirmed orders were delayed in late December with the large majority being shipped in early January. Additionally, Ashland continues to carry a large backlog of unconfirmed orders it cannot commit to supply at this time. Ashland’s overall liquidity remains strong and Ashland is able to meet its operating cash needs and other investing and financing cash requirements at this time, including those necessary to grow the business.
The situation surrounding the COVID-19 pandemic remains fluid, and Ashland is actively managing its response in collaboration with customers, government officials, team members and business partners. For further information regarding the impact of the COVID-19 pandemic on the Company, please see Item 1A, Risk Factors in Ashland’s most recent Form 10-K filed with the SEC.
Other items
Performance Adhesives
30
In May 2021, Ashland announced a strategic review of its Performance Adhesives business unit. On August 31, 2021, Ashland announced that it had signed a definitive agreement to sell substantially all of the assets and liabilities of its Performance Adhesives segment in a transaction valued at $1.65 billion. The transaction is expected to close prior to the end of the March 2022 quarter, contingent on certain customary regulatory approvals, standard conditions and completion of required employee information and consultation processes. Since this transaction represents a strategic shift in Ashland’s business and had a major effect on Ashland’s operations and financial results, the operating results and cash flows related to Performance Adhesives have been reflected as discontinued operations in the statement of Consolidated Comprehensive Income (Loss) and Statements of Condensed Consolidated Cash Flows. See Notes B and C of the Notes to the Condensed Consolidated Financial Statements for more information. Certain indirect corporate costs included within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss) that were previously allocated to the Performance Adhesives segment do not qualify for classification within discontinued operations and are now reported as selling, general and administrative expense within continuing operations on a consolidated basis and within the Unallocated and other segment. These costs were $4 million for both the three months ended December 31, 2021, and 2020, respectively. Ashland is currently implementing plans to eliminate certain of these costs.
Operational business model changes and restructurings
As previously disclosed, during the second quarter of fiscal year 2020, Ashland changed the manner in which it manages the business moving from a functionally led to a business led organization. This new business-centric operational redesign of core operating systems and processes lead to a realignment in both the selling, general and administrative and research and development costs (SARD) associated with each business. In addition to the realignment of SARD, a productivity review with a focus on cost of goods sold (COGS) was also initiated. Based on these initiatives, Ashland targeted the following savings:
Three months ended | |||||
December 31 | |||||
Sales by Reportable Segment | 2017 | 2016 | |||
Specialty Ingredients | 65 | % | 69 | % | |
Composites | 26 | % | 23 | % | |
Intermediates and Solvents | 9 | % | 8 | % | |
100 | % | 100 | % |
As of December 31, 2021, Ashland has substantially achieved all of its target run-rate cost savings under these initiatives.
RESULTS OF OPERATIONS – CONSOLIDATED SUBSIDIARIES
Consolidated review
Net income
Ashland’s net income is primarily affected by results within operating income, net interest and other expense (income), income taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring.
Key financial results for the three months ended December 31, 2021 and 2020 included the following:
31
For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income (Loss) caption review analysis.
Operating income
Operating income/loss amounted to income of $42 million and $17 million for the three months ended December 31, 2021 and 2020, respectively. The current and prior year quarters’ operating income included certain key items that were excluded to arrive at Adjusted EBITDAand are quantified in the table below in the “EBITDA and Adjusted EBITDA” section. These operating key items for the applicable periods are summarized as follows:
Operating income for the three months ended December 31, 2021 and 2020 included depreciation and amortization of $60 million and $59 million, respectively.
Non-operating key items affecting EBITDA
Statements of Consolidated Comprehensive Income (Loss) – caption review
A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the three months ended December 31, 2021 and 2020.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Sales |
| $ | 512 |
|
| $ | 468 |
|
| $ | 44 |
|
The following table provides a reconciliation of the change in sales for the three ended December 31, 2021 and 2020.
|
| Three months ended |
| |
(In millions) |
| December 31, 2021 |
| |
Volume |
| $ | 5 |
|
Pricing |
|
| 26 |
|
Currency exchange |
|
| (6 | ) |
Acquisition |
|
| 19 |
|
Change in sales |
| $ | 44 |
|
32
Sales for the current quarter increased $44 million compared to the prior year quarter. Favorable volume, including the acquisition of Schülke within the Personal Care reportable segment, and product pricing associated with cost inflation pricing actions increased sales by $24 million and $26 million, respectively, partially offset by unfavorable foreign currency exchange of $6 million.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Cost of sales |
| $ | 351 |
|
| $ | 321 |
|
| $ | 30 |
|
Gross profit as a percent of sales |
|
| 31.4 | % |
|
| 31.4 | % |
|
|
|
The following table provides a reconciliation of the change in cost of sales between the three months ended December 31, 2021 and 2020.
|
| Three months ended |
| |
(In millions) |
| December 31, 2021 |
| |
Changes in: |
|
|
| |
Volume |
| $ | 4 |
|
Price/mix |
|
| 19 |
|
Currency exchange |
|
| (3 | ) |
Acquisition |
|
| 10 |
|
Change in cost of sales |
| $ | 30 |
|
Cost of sales for the current quarter increased $30 million compared to the prior year quarter. Price/mix, which includes cost inflation associated with plant manufacturing and shipping costs, and higher volume, including Schülke, increased cost of sales by $19 million and $14 million, respectively. These increases were partially offset by foreign currency exchange, which decreased cost of sales by $3 million.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Selling, general and administrative expense |
| $ | 82 |
|
| $ | 101 |
|
| $ | (19 | ) |
As a percent of sales |
|
| 16.0 | % |
|
| 21.6 | % |
|
|
|
Selling, general and administrative expense for the current quarter decreased $19 million compared to the prior year quarter with expenses as a percent of sales decreasing 5.6 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Research and development expense |
| $ | 13 |
|
| $ | 13 |
|
| $ | — |
|
Research and development expense is consistent with the prior year quarter.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Intangibles amortization expense |
| $ | 24 |
|
| $ | 21 |
|
| $ | 3 |
|
The increase in amortization expense in the current quarter comparedis due to netthe amortization of intangible assets associated with the Schülke acquisition.
33
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Equity and other income |
|
|
|
|
|
|
|
|
| |||
Other income |
| $ | — |
|
| $ | 5 |
|
| $ | (5 | ) |
|
| $ | — |
|
| $ | 5 |
|
| $ | (5 | ) |
Other income of $10$5 million in the prior year quarter. Ashland’s Adjusted EBITDA increased by 25% to $136 million (see U.S. GAAP reconciliation on page 41). The increase in Adjusted EBITDA wasquarter is primarily due to growth in the Intermediatesa gain on sale of excess corporate property of roughly $4 million.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| Change |
| |||
Net interest and other expense (income) |
|
|
|
|
|
|
|
|
| |||
Interest expense |
| $ | 16 |
|
| $ | 15 |
|
| $ | 1 |
|
Loss (income) from restricted investments |
|
| (12 | ) |
|
| (23 | ) |
|
| 11 |
|
Other financing costs |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| $ | 5 |
|
| $ | (7 | ) |
| $ | 12 |
|
|
|
|
|
|
|
|
|
|
|
Net interest and Three months ended December 31 (In millions) 2021 2020 Change Net income on acquisitions and divestitures $ — $ 14 $ (14 ) The activity in the prior year quarter relates to a a $14 million gain related to the sale of a Specialty Additives facility. Three months ended December 31 (In millions) 2021 2020 Change Income tax expense (benefit) $ 5 $ (5 ) $ 10 Effective tax rate 13 % (13 )% Ashland’s effective tax rate in any interim period is The overall effective tax rate was a Adjusted income tax expense (benefit) Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. Tax specific key items are defined as the financial effects from tax specific financial transactions, tax law changes or other matters that fall within the definition of key items as previously described. The effective tax rate, 34 The effective tax The following table is a calculation of the effective tax rate, excluding these key items. Three months ended December 31 (In millions) 2021 2020 Income (loss) from continuing operations before income taxes $ 37 $ 38 Key items (pre-tax) (a) — (7 ) Adjusted income from continuing operations before income taxes $ 37 $ 31 Income tax expense (benefit) $ 5 $ (5 ) Income tax rate adjustments: Tax effect of key items — (3 ) Tax specific key items: (b) Restructuring and separation activity — 13 Total income tax rate adjustments — 10 Adjusted income tax expense $ 5 $ 5 Effective tax rate, excluding key items (Non-GAAP) (c) 13 % 17 % Three months ended December 31 (In millions) 2021 2020 Change Income (loss) from discontinued operation (net of taxes) Performance Adhesives $ 17 $ 18 $ (1 ) Distribution (1 ) (1 ) — Gain (loss) on disposal of discontinued operations (net of taxes) Composites/Marl facility — (4 ) 4 $ 16 $ 13 $ 3 The activity for Distribution and Composites/Marl facility during the current and prior year quarters was related to post-closing adjustments. The Composites/Marl Facility activity for the prior year quarter included post-closing purchase price dispute adjustments. The Performance Adhesives segment sales and pre-tax operating income included in discontinued operations were $96 million and $22 million, and $84 million and $24 million respectively, for the current and prior year quarter. Other comprehensive income (loss) A comparative analysis of the components of other comprehensive income is provided below for the three months ended December 31, 2021 and 2020. Three months ended December 31 (In millions) 2021 2020 Change Other comprehensive income (loss) (net of taxes) Unrealized translation gain (loss) $ (17 ) $ 48 $ (65 ) Unrealized gain (loss) on commodity hedges (3 ) — (3 ) $ (20 ) $ 48 $ (68 ) Total other comprehensive income (loss), net of tax, for the current quarter decreased $68 million compared to the prior year quarter primarily as a result of the following: 35 Use of non-GAAP measures Ashland has included within this document the following non-GAAP measures, on both a consolidated and reportable segment basis, which are not defined within U.S. GAAP and do not purport to be alternatives to net income or cash flows from operating activities as a measure of operating performance or cash flows: Management believes the use of EBITDA and Adjusted EBITDA measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting comparable financial results between periods. Ashland believes that by removing the impact of depreciation and amortization and excluding certain non-cash charges, amounts spent on interest and taxes and certain other charges that are highly variable from year to year, EBITDA and Adjusted EBITDA provide Ashland’s investors with performance measures that reflect the impact to operations from trends in changes in sales, margin and The Adjusted diluted EPS metric enables Ashland to demonstrate what effect key items have on an earnings per diluted share basis by taking income (loss) from continuing operations, adjusted for key items after tax that have been identified in the Adjusted EBITDA table, and dividing by the average outstanding diluted shares for the applicable period. Ashland’s management believes this presentation is helpful to illustrate how the key items have impacted this metric during the applicable period. The Adjusted diluted EPS, excluding intangibles amortization expense metric enables Ashland to demonstrate the impact of non-cash intangibles amortization expense on EPS, in addition to the key items previously mentioned. Ashland’s management believes this presentation is helpful to illustrate how previous acquisitions impact applicable period results. 36 The free cash flow Although Ashland These non-GAAP measures should be considered supplemental in nature and should not be construed as more significant than comparable measures defined by U.S. GAAP. Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with our results as determined in accordance with U.S. GAAP. The non-GAAP measures provided are used by Ashland management and may not be determined in a manner consistent with the methodologies used by other companies. EBITDA and Adjusted EBITDA provide a supplemental presentation of Ashland’s operating performance on a consolidated and reportable segment basis. Adjusted EBITDA generally includes adjustments for items that impact comparability between periods. In addition, certain financial covenants related to Ashland’s EBITDA and EBITDA totaled income of Three months ended December 31 (In millions) 2021 2020 Net income (loss) $ 48 $ 56 Income tax expense (benefit) 5 (5 ) Net interest and other expense (income) 5 (7 ) Depreciation and amortization 60 59 EBITDA 118 103 Income from discontinued operations (net of tax) (16 ) (13 ) Key items included in EBITDA: Restructuring, separation and other costs 1 12 Capital project impairment — 9 Environmental reserve adjustments 3 4 Net gain on acquisitions and divestitures — (14 ) Total key items included in EBITDA 4 11 Adjusted EBITDA $ 106 $ 101 Total key items included in EBITDA $ 4 $ 11 Unrealized gain on securities (4 ) (18 ) Total key items, before tax $ — $ (7 ) 37 Diluted EPS and Adjusted Diluted EPS The following table reflects the U.S. GAAP calculation for the income Three months ended December 31 2021 2020 Diluted EPS from continuing operations (as reported) $ 0.55 $ 0.70 Key items, before tax: Restructuring, separation and other costs 0.02 0.18 Environmental reserve adjustments 0.05 0.06 Capital project impairment — 0.16 Unrealized gain on securities (0.07 ) (0.29 ) Net gain on acquisitions and divestitures — (0.23 ) Key items, before tax — (0.12 ) Tax effect of key items (a) — 0.05 Key items, after tax — (0.07 ) Tax specific key items: Restructuring and separation activity — (0.22 ) Tax specific key items (b) — (0.22 ) Total key items — (0.29 ) Adjusted diluted EPS from continuing operations (non-GAAP) $ 0.55 $ 0.41 Amortization expense adjustment (net of tax) (c) $ 0.33 $ 0.28 Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense $ 0.88 $ 0.69 RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW Ashland’s reportable Results of Ashland’s reportable segments are presented based on its management and internal accounting structure. The structure is specific to Ashland; therefore, the financial results of Ashland’s reportable segments are not necessarily comparable with similar information for other 38 internal accounting practices are improved, more refined information becomes available and the industry or market changes. Significant revisions to Ashland’s methodologies are adjusted for all segments on a retrospective basis. The following table discloses sales, operating income, depreciation and amortization and EBITDA by reportable segment for the three months ended December 31, 2021 and 2020. Three months ended December 31 (In millions - unaudited) 2021 2020 SALES Life Sciences $ 170 $ 170 Personal Care 147 126 Specialty Additives 156 147 Intermediates 53 33 Intersegment sales (a) (14 ) (8 ) $ 512 $ 468 OPERATING INCOME (LOSS) Life Sciences $ 21 $ 29 Personal Care 15 15 Specialty Additives (b) 17 2 Intermediates 16 2 Unallocated and other (27 ) (31 ) $ 42 $ 17 DEPRECIATION EXPENSE Life Sciences $ 8 $ 9 Personal Care 9 10 Specialty Additives 16 16 Intermediates 3 3 $ 36 $ 38 AMORTIZATION EXPENSE Life Sciences $ 7 $ 7 Personal Care 12 9 Specialty Additives 5 5 Intermediates — — $ 24 $ 21 EBITDA (c) Life Sciences $ 36 $ 45 Personal Care 36 34 Specialty Additives 38 23 Intermediates 19 5 Unallocated and other (27 ) (31 ) $ 102 $ 76 39 Life Sciences Life Sciences is comprised of pharmaceuticals, nutrition, nutraceuticals, agricultural chemicals, advanced materials and fine chemicals. Pharmaceutical solutions include controlled release polymers, disintegrants, film coatings, solubilizers, and tablet binders. Nutrition solutions include thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and controlling color. Nutraceutical solutions include products for weight management, joint comfort, stomach and intestinal health, sports nutrition and general wellness, and providing custom formulation, toll processing and particle engineering solutions. Customers include pharmaceutical, food, beverage, nutraceuticals and supplements manufacturers, hospitals and radiologists and industrial manufacturers. December 2021 quarter compared to December 2020 quarter Life Sciences’ sales remained consistent at $170 million in the current quarter. Favorable pricing increased sales by $3 million, while lower volume and unfavorable foreign currency decreased sales by $1 million and $2 million, respectively. Operating income decreased $8 million to income of $21 million for the current quarter. Unfavorable price/mix, lower volume, unfavorable foreign currency and higher costs decreased operating income by $5 million, $1 million, $1 million and $1 million, respectively. Current quarter EBITDA decreased $9 million to $36 million. EBITDA margin decreased 5.3 percentage points in the current quarter to 21.2%. EBITDA and Adjusted EBITDA reconciliation The EBITDA and Adjusted EBITDA amounts presented within this business section are provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for each segment. Each of these non-GAAP measures is defined as follows: EBITDA (operating income The following EBITDA presentation for the three months ended December 31, Life Sciences Three months ended December 31 (In millions) 2021 2020 Operating income $ 21 $ 29 Depreciation and amortization 15 16 EBITDA $ 36 $ 45 40 Personal Care Personal Care is comprised of biofunctionals, preservatives, skin care, sun care, oral care, hair care and household. These businesses have a broad range of nature-based, biodegradable, and performance-enhancing ingredients for customer-driven solutions to help protect, renew, moisturize and revitalize skin and hair, and provide solutions for toothpastes, mouth washes and rinses, denture cleaning and care for teeth. Household supplies nature-derived rheology ingredients, biodegradable surface wetting agents, performance encapsulates, and specialty polymers for household, industrial and institutional cleaning products. Customers include formulators at large multinational branded consumer products companies and smaller, independent boutique companies. As previously disclosed, on April 30, 2021 Ashland completed the $312 million acquisition of the personal care business from Schülke. December 2021 quarter compared to December 2020 quarter Personal Care’ sales increased $21 million to $147 million in the current quarter. Favorable product pricing and volume/mix, including the impact of the Schülke acquisition, increased sales by $2 million and $21 million, respectively. Unfavorable currency exchange decreased sales by $2 million. Operating income of $15 million remained consistent for the current quarter. Lower costs, favorable impact of the Schülke acquisition and higher volume increased operating income by $3 million, $3 million and $1 million, respectively. Unfavorable price/mix decreased operating income by $7 million. Current quarter EBITDA increased $2 million to $36 million. EBITDA margin decreased 2.5 percentage points in the current quarter to 24.5%. EBITDA and Adjusted EBITDA reconciliation The following EBITDA presentation for the three months ended December 31, 2021 and 2020 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Personal Care. Personal Care had no key items for the three months ended December 31, 2021 or 2020. Personal Care Three months ended December 31 (In millions) 2021 2020 Operating income $ 15 $ 15 Depreciation and amortization 21 19 EBITDA $ 36 $ 34 Specialty Additives Specialty Additives is comprised of rheology- and performance-enhancing additives serving the coatings, construction, energy, automotive and various industrial markets. Solutions include coatings additives for architectural paints, finishes and lacquers, cement- and gypsum- based dry mortars, ready-mixed joint compounds, synthetic plasters for commercial and residential construction, and specialty materials for industrial applications. Products include rheology modifiers (cellulosic and associative thickeners), foam-control agents, surfactants and wetting agents, pH neutralizers, advanced ceramics used in catalytic converters, and environmental filters, ingredients that aid the manufacturing process of ceramic capacitors, plasma display panels and solar cells, ingredients for textile printing, thermoplastic metals and alloys for welding. Products help improve desired functional outcomes through rheology modification and control, water retention, workability, adhesive strength, binding power, film formation, deposition and suspension and emulsification. Customers include global paint manufacturers, electronics and automotive manufacturers, textile mills, the construction industry, and welders. December 2021 quarter compared to December 2020 quarter Specialty Additives’ sales increased $9 million to $156 million in the current quarter. Favorable product pricing and volume/mix increased sales by $8 million and $2 million, respectively. Unfavorable currency exchange decreased sales by $1 million. Operating income increased $15 million to income of $17 million for the current quarter. Lower costs, favorable volume, favorable pricing/mix, and a capital project impairment in the prior year quarter increased operating income by $4 million, $1 million, $1 million and $9 million, respectively. Current quarter EBITDA increased $15 million 41 to $38 million while Adjusted EBITDA increased $6 million to $38 million. Adjusted EBITDA margin increased 2.6 percentage points in the current quarter to 24.4%. EBITDA and Adjusted EBITDA reconciliation The following EBITDA presentation for the three months ended December 31, 2021 and 2020 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Specialty Specialty Additives Three months ended December 31 (In millions) 2021 2020 Operating income $ 17 $ 2 Depreciation and amortization 21 21 EBITDA 38 23 Capital project impairment — 9 Adjusted EBITDA $ 38 $ 32 Intermediates Intermediates is December Intermediates’ sales increased Operating income increased EBITDA and Adjusted EBITDA reconciliation The following EBITDA presentation (as defined and described in the section above) for the three months ended December 31, Intermediates Three months ended December 31 (In millions) 2021 2020 Operating income $ 16 $ 2 Depreciation and amortization 3 3 EBITDA $ 19 $ 5 42 Unallocated and other The following table summarizes the key components of the Unallocated and other Unallocated and Other Three months ended December 31 (In millions) 2021 2020 Restructuring activities $ (5 ) $ (16 ) Environmental expenses (3 ) (4 ) Other expenses (primarily governance and legacy expenses) (19 ) (11 ) Total expense $ (27 ) $ (31 ) December Unallocated and other recorded expense of The current quarter Other expenses increase of $8 million is primarily a result of a gain of $4 million in the prior year quarter associated with excess corporate property sales as well as decreased transition services income associated with the Composites sale from INEOS in the current quarter. FINANCIAL POSITION Liquidity Ashland believes that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash Cash flows Ashland’s cash flows from operating, investing and financing activities, as reflected in the Statements of Condensed Consolidated Cash Flows, are summarized as follows for the three months ended December 31, Three months ended December 31 (In millions) 2021 2020 Cash provided (used) by: Operating activities from continuing operations $ 14 $ 81 Investing activities from continuing operations (7 ) (4 ) Financing activities from continuing operations (11 ) (207 ) Discontinued operations (9 ) 8 Effect of currency exchange rate changes on cash and cash equivalents (3 ) 3 Net decrease in cash and cash equivalents $ (16 ) $ (119 ) 43 Cash and cash The $16 million The $119 million Free cash flow and other liquidity resources The following represents Ashland’s calculation of free cash flow and ongoing free cash flows for the disclosed (In millions) 2021 2020 Total cash flows provided by operating activities from continuing operations $ 14 $ 81 less: Additions to property, plant and equipment (15 ) (30 ) Free cash flows (1 ) 51 Cash (inflows) outflows from U.S. Accounts Receivable Sales Program (a) 10 — Restructuring-related payments (b) 4 14 Environmental and related litigation payments (c) 13 9 Ongoing free cash flow $ 26 $ 74 Adjusted EBITDA (d) 106 101 Ongoing free cash flow conversion (e) 25 % 73 % Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to The following summary reflects Ashland’s cash, December 31 September 30 (In millions) 2021 2021 Cash and investment securities Cash and cash equivalents $ 194 $ 210 Restricted investments (a) 426 421 Unused borrowing capacity and liquidity Revolving credit facility 341 356 2018 accounts receivable securitization (foreign) — — Accounts receivable sales program (U.S.) — 12 44 The borrowing capacity remaining under the Capital resources Debt The following summary reflects Ashland’s debt as of December 31 September 30 (In millions) 2021 2021 Short-term debt (includes current portion of long-term debt) $ 389 $ 374 Long-term debt (less current portion and debt issuance cost discounts) (a) 1,580 1,596 Total debt $ 1,969 $ 1,970 Debt as a percent of capital employed was Ashland credit ratings Ashland’s corporate credit Ashland debt covenant restrictions Ashland's The maximum consolidated net leverage ratio permitted under the The minimum required consolidated interest coverage ratio under the 45 Any change in Covenant Adjusted EBITDA of $100 million would have an approximate Additional capital resources Total equity Total equity Stockholder dividends Ashland Capital Capital expenditures were CRITICAL ACCOUNTING POLICIES The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes, other liabilities and receivables associated with asbestos litigation and environmental remediation. These accounting policies are discussed in detail in “Management’s Discussion and Analysis – Critical Accounting Policies” in Ashland’s Annual Report on Form 10-K for the fiscal year ended OUTLOOK Ashland FY Key Operating Metrics Sales $2.25 - $2.35 billion Adjusted $ Ashland is unable to reconcile forward-looking adjusted EBITDA to forward-looking net income, the 46 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Ashland’s market risk exposure at ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Changes in Internal Control over Financial Reporting Ashland completed its purchase of 47 PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The following is a description of Ashland’s material 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. Hercules LLC (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland, is also subject to liabilities from asbestos-related personal injury lawsuits involving claims which typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. Ashland and Hercules are also defendants in lawsuits alleging exposure to asbestos at facilities formerly or presently owned or operated by Ashland or Hercules. For additional detailed information regarding liabilities arising from asbestos-related litigation, see Note Environmental Proceedings (a) CERCLA and Similar State Law Sites - (b) For additional information regarding environmental matters and reserves, see Note 48 Other Pending Legal Proceedings In addition to the matters described above, there are other 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 Ashland cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded and losses already recognized with respect to such actions were immaterial as of December 31, 49 ITEM 1A. RISK FACTORS During the period covered by this report, there were no material changes from the risk factors previously disclosed in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There was no share repurchase activity during the three months ended December 31, Issuer Purchases of Equity Securities Q1 Fiscal Periods Total Number of Average Price Total Number of Dollar Value of October 1, 2021 to October 31, 2021 — $ — — $ 350 November 1, 2021 to November 30, 2021 — — — 350 December 1, 2021 to December 31, 2021 — — — 350 Total — — $ 350 50 ITEM 6. EXHIBITS (a) Exhibits 3.1 10.1* 31.1* 101.INS** Inline XBRL Instance Document. 101.SCH** Inline XBRL Taxonomy Extension Schema Document. 101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * Filed herewith. ** Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2021 and December 31, 2020; (ii) Condensed Consolidated Balance Sheets at December 31, 2021 and September 30, 2021; (iii) Statements of Condensed Consolidated Cash Flows for the three months ended December 31, 2021 and December 31, 2020; and (iv) Notes to Condensed Consolidated Financial Statements. SM Service mark, Ashland or its subsidiaries, registered in various countries. ™ Trademark, Ashland or its subsidiaries, registered in various countries. 51 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 Global Holdings Inc. (Registrant) February 3, 2022 /s/ J. Kevin Willis J. Kevin Willis Senior Vice President and Chief Financial Officer (on behalf of the Registrant and as principal financial officer) 52Solvents and Specialty Ingredients reportable segments, which reported increases to Adjusted EBITDA of $16other expense increased by $12 million and $10 million, respectively. The significant improvement in the performance of Intermediates and Solvents was primarily driven by improved product pricing and reduced costs induring the current quarter compared to the prior year quarter. ExcludingInterest expense increased $1 million primarily due to higher debt levels during the acquisition of Pharmachem, the increase in profitability for Specialty Ingredientscurrent quarter compared to the prior year quarter was primarily driven by improvements in volumequarter. Restricted investments income of $12 million and mix and favorable foreign currency exchange.Tax law changesThe Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35%$23 million included gains of $4 million compared to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, Ashland has not completed the internal accounting assessment for the tax effects of enactment of the Tax Act; however, Ashland determined a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. Ashland recognized a provisional amount$18 million for the three months ended December 31, 2017, which2021 and 2020, respectively. See Note E for more information on the restricted investments.includedsubject to adjustments related to discrete items and the mix of domestic and foreign operating results. The overall effective tax rate was 13% for the three months ended December 31, 2021 and was primarily impacted by jurisdictional income mix, as well as favorable discrete items of $3 million.componentbenefit of 13% for the three months ended December 31, 2020 and was primarily impacted by jurisdictional income tax expense from continuing operations. Ashland recorded net unfavorable tax adjustmentsmix, as well as favorable discrete items of $16$13 million primarily related to deferredthe sale of a Specialty Additives facility.changesexcluding key items, which is a non-GAAP measure, has been prepared to illustrate the ongoing tax effects of Ashland’s operations. Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP measure on a one-time transitionconsolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results.assessedrate during the three months ended December 31, 2021 and 2020 was significantly impacted by the following tax specific key items:cashcurrency translation adjustments resulted in a loss of $17 million compared to a gain of $48 million for the three months ended December 31, 2020. The fluctuations in unrealized translation gains and unremitted earnings.losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars.RESULTS OF OPERATIONS – CONSOLIDATED REVIEW-– net income (loss), plus income tax expense (benefit), net interest and other financing expenses, and depreciation and amortization.-– EBITDA adjusted for noncontrolling interests, discontinued operations, net gainincome (loss) on acquisitions and divestitures, other income and (expense) and key items (including the remeasurement gains and losses related to pension and other postretirement plans).-– Adjusted EBITDA which can include pro forma adjustments, divided by sales.-– income (loss) from continuing operations, adjusted for key items, net of tax, divided by the average outstanding diluted shares for the applicable period.-– operating cash flows less capital expenditures.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISmetric enablesmetrics enable Ashland to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Unlike cash flow provided by operating activities, free cash flow and ongoing free cash flow includes the impact of capital expenditures from continuing operations and other significant items impacting cash flow, providing a more complete picture of current and future cash generation. Free cash flow has certain limitations, including that it does not reflect adjustment for certain non-discretionary cash flows such as mandatory debt repayments. The amount of mandatory versus discretionary expenditures can vary significantly between periods.providesmay provide forward-looking guidance for Adjusted EBITDA, Adjusted diluted EPS and ongoing free cash flow, Ashland is not reaffirming or providing forward-looking guidance for U.S. GAAP-reported financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items that affect these metrics such as domestic and international economic, political, legislative, regulatory and legal actions. In addition, certain economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations and are difficult to predict with certainty.20172020 Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that referencerefer to this metric.In accordance with U.S. GAAP, Ashland recognizes actuarial gainslosses for defined benefit pension and other postretirement benefit plans annually in the fourth quarterAdjusted EBITDAeach fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. Actuarial gains and losses occur when actual experience differs from the estimates used to allocate the change in value of pension and other postretirement benefit plans to expense throughout the year or when assumptions change, as they may each year. Significant factors that can contribute to the recognition of actuarial gains and losses include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets and other changes in actuarial assumptions, for example, the life expectancy of plan participants. Management believes Adjusted EBITDA,ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISwhich includes the expected return on pension plan assets yet excludes both the actual return on pension plan assets and the impact of actuarial gains and losses, provides investors with a meaningful supplemental presentation of Ashland’s operating performance (see the Adjusted EBITDA reconciliation table on page 41 for additional details on exact amounts included within this non-GAAP measure related to pension and other postretirement plans.) Management believes these actuarial gains and losses are primarily financing activities that are more reflective of changes in current conditions in global financial markets (and in particular interest rates) that are not directly related to the underlying business. For further information on the actuarial assumptions and plan assets referenced above, see Note M of the Notes to Consolidated Financial Statements within the 2017 Form 10-K.Consolidated reviewNet incomeAshland’s net income is primarily affected by results within operating income, net interest and other financing expense, income taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring.Key financial results for the three months ended December 31, 2017 and 2016 included the following:Ashland’s net loss attributable to Ashland amounted to $4$118 million and $1$103 million for the three months ended December 31, 20172021 and 2016, respectively, or a loss of $0.07 and $0.01 diluted earnings per share, respectively. Ashland’s net income attributable to noncontrolling interest amounted to $11 million for the three months ended December 31, 2016 and reflects the noncontrolling interest of Valvoline Inc. before the final separation occurred on May 12, 2017.Discontinued operations, which are reported net of taxes, resulted in income of $3 million and $75 million during the three months ended December 31, 2017 and 2016, respectively. The activity within discontinued operations for the three months ended December 31, 2016 includes the operating results of Valvoline Inc.Loss from continuing operations, which excludes results from discontinued operations, amounted to $7 million and $65 million for the three months ended December 31, 2017 and 2016, respectively.The effective income tax rate was 200% and 39% for the three months ended December 31, 2017 and 2016, and was impacted by certain discrete items in both the current and prior year quarters. The current quarter rate was primarily impacted by income mix and net unfavorable tax discrete adjustments of $16 million related to the Tax Act.Ashland incurred pretax net interest and other financing expense of $31 million and $122 million for the three months ended December 31, 2017 and 2016, respectively. The prior year quarter was impacted by $92 million of net charges associated with debt financing activity.Operating income was $39 million and $15 million for the three months ended December 31, 2017 and 2016, respectively. For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income caption review analysis.Operating incomeOperating income amounted to $39 million and $15 million for the three months ended December 31, 2017 and 2016, respectively. The current and prior year quarters' operating income included certain key items that were excluded to arrive at Adjusted EBITDA. These key items are summarized as follows:•$11 million of environmental charges during the three months ended December 31, 2017;ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS•Separation, restructuring and other costs and accelerated depreciation include the following:◦$6 million and $22 million of costs related to the separation of Valvoline during the three months ended December 31, 2017 and 2016, respectively;◦$4 million of accelerated depreciation related to the planned closure of an office building during the three months ended December 31, 2017;◦$2 million of accelerated depreciation for the termination of a contract at a manufacturing facility during the three months ended December 31, 2017;◦$1 million of severance and other restructuring charges for the closure of a manufacturing plant during the three months ended December 31, 2017; and◦$1 million of integration costs related to the acquisition of Pharmachem for the three months ended December 31, 2017;Remeasurement gain of $2 million associated with the discontinuation of certain post-employment health and life insurance benefits during the three months ended December 31, 2016; anda $5 million charge for a legal reserve during the three months ended December 31, 2016.Operating income for the three months ended December 31, 2017 and 2016 included depreciation and amortization of $73 million and $68 million, respectively (which excluded accelerated depreciation of $6 million for the three months ended December 31, 2017).EBITDA and Adjusted EBITDAEBITDA totaled $114 million and $159 million for the three months ended December 31, 2017 and 2016,2020, respectively. EBITDA and Adjusted EBITDA results in the table below have been prepared to illustrate the ongoing effects of Ashland’s operations, which exclude certain key items previously described. Management believes the use of such non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the impact of Ashland's previous noncontrolling interest in Valvoline Inc. ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Net income (loss) $ (4 ) $ 10 Income tax expense (benefit) 14 (41 ) Net interest and other financing expense 31 122 73 68 EBITDA 114 159 Income from discontinued operations (net of tax) (3 ) (75 ) Environmental reserve adjustments 11 — Separation, restructuring and other costs 8 22 Accelerated depreciation 6 — Legal reserve — 5 Gain on post-employment plan remeasurement — (2 ) $ 136 $ 109 (a)Excludes $6 million of accelerated depreciation for the three months ended December 31, 2017. (loss) from continuing operations adjusted for the cumulative diluted EPS effect for key items after tax that have been identified in the Adjusted EBITDA table in the previous section. Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. The Adjusted diluted EPS for the income (loss) from continuing operations in the following table has been prepared to illustrate the ongoing effects of Ashland’s operations since managementoperations. Management believes theinvestors and analysts use ofthis financial measure in assessing Ashland's business performance and that presenting this non-GAAP measuresmeasure on a consolidated and reportable segment basis assists investors in better understanding Ashland’s ongoing business performance and enhances their ability to compare period-to-period financial results.ongoing operating performance by presentingdiluted EPS impact from the financial results between periods on a more comparable basis. Three months ended December 31 2017 2016 Diluted EPS from continuing operations (as reported) $ (0.12 ) $ (1.05 ) Key items 0.54 1.19 Adjusted diluted EPS from continuing operations (non-GAAP) $ 0.42 $ 0.14 StatementsRepresents the diluted EPS impact from tax specific financial transactions, tax law changes or other matters that fall within the definition of Consolidated Comprehensive Income – caption reviewA comparative analysiskey items. For additional explanation of these tax specific key items, see the income tax expense (benefit) discussion within the Statements of Consolidated Comprehensive Income by(Loss) caption is provided as followsreview section above.20172021 and 2016. Three months ended December 31 (In millions) 2017 2016 Change Sales $ 842 $ 704 $ 138 The following table provides a reconciliation of the change in sales between the three months ended December 31, 2017 and 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended (In millions) December 31, 2017 Acquisitions and divestitures $ 63 Pricing 30 Currency exchange 20 Volume 18 Product mix 7 Change in sales $ 138 Sales for the current quarter increased $138 million compared to the prior year quarter. The acquisition of Pharmachem within the Specialty Ingredients reportable segment increased sales by $58 million, or 8%, while the net impact of other acquisitions and divestitures increased sales by $5 million. Improvements in pricing increased sales by $30 million, or 4%, while favorable foreign currency exchange increased sales by $20 million, or 3%. Higher volumes and changes in product mix increased sales by $18 million and $7 million, respectively. Three months ended December 31 (In millions) 2017 2016 Change Cost of sales $ 613 $ 515 $ 98 Gross profit as a percent of sales 27.2 % 26.8 % Fluctuations in cost of sales are driven primarily by raw material prices, volume and changes in product mix, currency exchange, acquisitions and divestitures and other certain charges incurred as a result of changes or events within the businesses or restructuring activities. The following table provides a quantified reconciliation of the changes in cost of sales between the three months ended December 31, 2017 and 2016. Three months ended (In millions) December 31, 2017 Changes in: Acquisitions and divestitures $ 50 Production costs 20 Currency exchange 15 Volume 8 Product mix 4 Severance and other restructuring costs 1 Change in cost of sales $ 98 Cost of sales for the current quarter increased $98 million compared to the prior year quarter. The Pharmachem acquisition increased cost of sales by $44 million, or 9%, while the net impact of other acquisitions and divestitures increased cost of sales by $6 million. Unfavorable production costs and foreign currency exchange increased cost of sales by $20 million, or 4%, and $15 million, or 3%, respectively. Higher volumes and changes in product mix increased cost of sales by $8 million and $4 million, respectively, while the current quarter also included $1 million of severance and other restructuring charges related to a plant closure. Three months ended December 31 (In millions) 2017 2016 Change Selling, general and administrative expense $ 171 $ 157 $ 14 As a percent of sales 20.3 % 22.3 % ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISSelling, general and administrative expense for the current quarter increased $14 million compared to the prior year quarter with expenses as a percent of sales decreasing 2.0 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:$10 million of incremental costs related to Pharmachem’s operations and $1 million of Pharmachem integration costs during the current quarter;$14 million and $6 million in net environmental-related expenses during the current and prior year quarters, respectively;an increase of $7 million due to higher employee-related costs in the current quarter;an increase of $5 million due to unfavorable foreign currency exchange in the current quarter;$4 million of accelerated depreciation related to the planned closure of an office building during the current quarter;$6 million of costs related to the separation of Valvoline during the current quarter compared to $22 million in the prior year quarter; anda $5 million charge for a legal reserve during the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Change Research and development expense $ 21 $ 20 $ 1 Research and development expense remained relatively consistent with the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Change Equity and other income $ — $ — $ — Other income 2 3 (1 ) $ 2 $ 3 $ (1 ) (a)Activity of $0 denotes value less than $1 million.Equity and other income remained relatively consistent with the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Change Net interest and other financing expense (income) Interest expense $ 34 $ 126 $ (92 ) Interest income (1 ) (1 ) — Available-for-sale securities income (3 ) (3 ) — Other financing costs 1 — 1 $ 31 $ 122 $ (91 ) Net interest and other financing expense decreased $91 million during the current quarter compared to the prior year quarter. The current quarter decrease in interest expense was primarily due to the prior year quarter including $92 million of accelerated accretion related to the December 2016 tender offer of the 2029 notes. Available-for-sale securities income of $3 million during both the current and the prior year quarters represents investment income and realized gains related to restricted investments discussed in Note E of the Notes to Condensed Consolidated Financial Statements.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Change Other net periodic benefit income $ — $ 2 $ (2 ) The income in the prior year quarter primarily related to a $2 million gain on the remeasurement of certain post-employment health and life insurance benefit plans that were discontinued. Three months ended December 31 (In millions) 2017 2016 Change Net loss on divestitures $ 1 $ 1 $ — The activity in the current and prior year quarters primarily related to post-closing adjustments for certain divestitures. Three months ended December 31 (In millions) 2017 2016 Change Income tax expense (benefit) $ 14 $ (41 ) $ 55 Effective tax rate 200 % 39 % The overall effective tax expense rate was 200% for the three months ended December 31, 2017 and was primarily impacted by the current quarter income mix and net unfavorable tax discrete adjustments of $16 million related to the enactment of the Tax Act. These net unfavorable adjustments primarily included deferred tax rate changes and a one-time transition tax assessed on foreign cash and unremitted earnings.The overall effective tax benefit rate was 39% for the three months ended December 31, 2016 and was primarily impacted by income mix. Three months ended December 31 (In millions) 2017 2016 Change Income from discontinued operations (net of tax) Valvoline $ 3 $ 75 $ (72 ) As a result of the full separation of Valvoline Inc. on May 12, 2017, the operating results related to Valvoline Inc., including the operating results of the former Valvoline reportable segment, have been reflected as discontinued operations (net of tax) within the Statement of Consolidated Comprehensive Income (Loss). The activity within the current quarter represents subsequent adjustments that were made in conjunction with the Tax Matters Agreement. See Note B for more information on the Tax Matters Agreement. During the prior year quarter, Valvoline's sales and pre-tax operating income included in discontinued operations were $489 million and $120 million, respectively. Three months ended December 31 (In millions) 2017 2016 Change Net income attributable to noncontrolling interest $ — $ 11 $ (11 ) ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISSince Ashland's ownership interest in Valvoline Inc. was approximately 83% until the final separation on May 12, 2017, the amount of net income attributable to the outside stockholders' approximately 17% noncontrolling interest in Valvoline Inc. is presented within this caption on the Statement of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.Other comprehensive income (loss)A comparative analysis of the components of other comprehensive income (loss) is provided below for the three months ended December 31, 2017 and 2016. Three months ended December 31 (In millions) 2017 2016 Change Other comprehensive income (loss) (net of taxes) Unrealized translation gain (loss) $ 3 $ (146 ) $ 149 Net change in available-for-sale securities 8 — 8 Pension and postretirement obligation adjustment — (1 ) 1 $ 11 $ (147 ) $ 158 Total other comprehensive income, net of tax, for the current quarter increased $158 million compared to the prior year quarter as a result of the following components:For the three months ended December 31, 2017, the change in unrealized gain (loss) from foreign currency translation adjustments was a gain of $3 million compared to a loss of $146 million for the three months ended December 31, 2016. The fluctuations in unrealized translation gains and losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars.Gains on available-for-sale securities related to restricted investments amounted to $8 million, net of tax, during the three months ended December 31, 2017.Pension and postretirement obligation adjustment was $1 million for the three months ended December 31, 2016. This amount related to amortization of unrecognized prior services credits for pension and other postretirement benefit plans and was reclassified into net income during the prior year quarter.Subsequent to completing the separation from Valvoline Inc. on May 12, 2017, Ashland's operations are managed within the following threesegments:segments include Life Sciences, Personal Care (formerly Personal Care and Household), Specialty Ingredients, CompositesAdditives, and Intermediates (formerly Intermediates and Solvents.comparable companies. Ashland allocates all significant costs to its reportable segments except for certain significant company-wide restructuring activities, certain corporate governance costs and other costs or adjustmentsactivities that relate to former businesses that Ashland no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss). Ashland refines its expense allocation methodologies to the reportable segments from time to time as
Intersegment sales from Intermediates are accounted for at prices that approximate fair value. All other intersegment sales are accounted for at cost.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS
Excludes income (loss) from discontinued operations, other net periodic benefit income (expense) and net income (loss) on divestitures. See the Statement of Consolidated Comprehensive Income (Loss) for applicable amounts excluded. (loss) plus depreciation and amortization), Adjusted EBITDA (EBITDA adjusted for key items, which may include pro forma effects for significant acquisitions or divestitures, as applicable), and Adjusted EBITDA margin (Adjusted EBITDA, which may include pro forma adjustments, divided by sales or sales adjusted for pro forma results). Ashland does not allocate items to each reportable segment below operating income, such as interest expense and income taxes. As a result, reportable segment EBITDA and Adjusted EBITDA are reconciled directly to operating income since it is the most directly comparable caption to the Statements of Consolidated Comprehensive Income.The following table discloses sales, operating income, depreciation and amortization and statistical operating information by reportable segment for the three months ended December 31, 2017 and 2016. Three months ended December 31 (In millions) 2017 2016 Sales Specialty Ingredients $ 550 $ 482 Composites 218 165 Intermediates and Solvents 74 57 $ 842 $ 704 Operating income (loss) Specialty Ingredients $ 42 $ 40 Composites 18 15 Intermediates and Solvents 8 (7 ) Unallocated and other (29 ) (33 ) $ 39 $ 15 Depreciation and amortization Specialty Ingredients $ 62 $ 55 Composites 5 6 Intermediates and Solvents 8 7 Unallocated and other 4 — $ 79 $ 68 Operating information Specialty Ingredients Sales per shipping day $ 9.0 $ 7.9 Metric tons sold (thousands) 73.0 72.6 31.5 % 32.0 % Composites Sales per shipping day $ 3.6 $ 2.7 Metric tons sold (thousands) 91.2 78.4 18.4 % 21.1 % Intermediates and Solvents Sales per shipping day $ 1.2 $ 0.9 Metric tons sold (thousands) 32.7 32.2 21.3 % (0.9 )% (a)Gross profit is defined as sales, less cost of sales divided by sales.Sales by region expressed as a percentage of reportable segment sales for the three months ended December 31, 2017 and 2016 were as follows. Ashland includes only U.S. and Canada in its North American designation.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31, 2017 Specialty Ingredients Composites Intermediates and Solvents North America 41 % 45 % 21 % Europe 30 % 34 % 59 % Asia Pacific 19 % 14 % 17 % Latin America & other 10 % 7 % 3 % 100 % 100 % 100 % Three months ended December 31, 2016 Specialty Ingredients Composites Intermediates and Solvents North America 39 % 48 % 23 % Europe 29 % 28 % 57 % Asia Pacific 22 % 16 % 17 % Latin America & other 10 % 8 % 3 % 100 % 100 % 100 % Specialty IngredientsSpecialty Ingredients is a global leader in cellulose ethers, vinyl pyrrolidones and biofunctionals. It offers industry-leading products, technologies and resources for solving formulation and product-performance challenges. Specialty Ingredients uses natural, synthetic and semisynthetic polymers derived from cellulose ethers, vinyl pyrrolidones, acrylic polymers, polyester and polyurethane-based adhesives, and plant and seed extract. Specialty Ingredients’ end markets offer comprehensive and innovative solutions for today’s demanding consumer and industrial applications. Key customers include: pharmaceutical companies; makers of personal care products, food and beverages; makers of nutraceuticals and supplements; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield service companies.On May 17, 2017, Ashland completed its acquisition of the stock of Pharmachem, a leading provider of quality ingredients to the global health and wellness industries and high-value differentiated products to fragrance and flavor houses. With annual revenues of approximately $300 million and 14 manufacturing facilities in the United States and Mexico, New Jersey-based Pharmachem develops, manufactures and supplies custom and branded nutritional and fragrance products. See Note C within the Notes to Condensed Consolidated Financial Statements for more information.Additionally, Ashland completed the transfer of its ownership interest in a consolidated joint venture during the third quarter of fiscal 2017.December 2017 quarter compared to December 2016 quarterSpecialty Ingredients’ sales increased $68 million to $550 million in the current quarter. The acquisition of Pharmachem increased sales by $58 million, or 12%. Favorable foreign currency exchange increased sales by $10 million, while volume and mix combined to increase sales by $9 million. In addition, improved product pricing increased sales by $2 million. These increases were partially offset by a decrease of $11 million from divestitures which was primarily related to the transfer of ownership interest in a consolidated joint venture.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISGross profit during the current quarter increased $19 million compared to the prior year quarter. The acquisition of Pharmachem increased gross profit by $14 million while improved volume and mix combined to increase gross profit by $9 million. Favorable foreign currency exchange increased gross profit by $4 million. These increases were partially offset by the net impact of pricing and costs which decreased gross profit by $6 million and the joint venture divestiture which decreased gross profit by $2 million. In total, gross profit margin during the current quarter decreased 0.5 percentage points as compared to the prior year quarter to 31.5%.Selling, general and administrative expenses (which include research and development expenses throughout the reportable segment discussion and analysis) increased $15 million in the current quarter as compared to the prior year quarter largely due to incremental costs of $10 million related to Pharmachem’s operations. The remaining increase in selling, general and administrative expenses was primarily due to higher employee-related costs and unfavorable foreign currency exchange. Equity and other income decreased $2 million compared to the prior year quarter.Operating income totaled $42 million for the current quarter compared to $40 million in the prior year quarter. Current quarter EBITDA increased $7 million to $102 million, while Adjusted EBITDA increased $10 million to $105 million. Adjusted EBITDA margin decreased 0.6 percentage points in the current quarter to 19.1%.EBITDA and Adjusted EBITDA reconciliation20172021 and 2016 below2020 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Life Sciences. Life Sciences had no key items for the three months ended December 31, 2021 or 2020.Ingredients. Adjusted EBITDA results have been prepared to illustrate the ongoing effects of Ashland's operations, which exclude certain key items.Additives. The key items within the current quarter relate to $2 million of accelerated depreciation for the termination of a contract at a manufacturing facility and $1 million of severance and other restructuring charges for the closure of a manufacturing plant. There were no unusual or key items that affected comparability for EBITDA during the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Operating income $ 42 $ 40 60 55 EBITDA 102 95 Accelerated depreciation 2 — Severance and other restructuring costs 1 — Adjusted EBITDA $ 105 $ 95 (a)Excludes $2 million of accelerated depreciation for the three months ended December 31, 2017.CompositesComposites is a global leader in unsaturated polyester resins, vinyl ester resins and gelcoats. The Composites business manufactures and sells a broad range of general-purpose and high-performance grades of unsaturated polyester and vinyl ester resins, gelcoats and low-profile additives for the reinforced plastics industry. The products in the Composites business provide an array of functional properties including corrosion resistance, fire retardance, ultraviolet resistance, water and chemical resistance, high mechanical strength, impact and scratch resistance and high strength-to-weight ratios. Key end markets include transportation, construction, marine and infrastructure. In addition, the business manufactures and sells molten maleic anhydride for the manufacture of a variety of products such as unsaturated polyester resins, copolymers, lubricating oil additives,ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISalkenyl succinic anhydrides, malic acid, fumaric acid and numerous derivative chemicals. Key markets include composites, personal care, dispersants and paper sizing.December 2017 quarter compared to December 2016 quarterComposites’ sales increased$53 million to $218 million in the current quarter. Improved product pricing increased sales by $19 million, or 12%. The acquisition of an unsaturated polyester resins manufacturing facility in the third of quarter of fiscal 2017 increased sales by $16 million, or 10%. Improved volume and mix increased sales by $12 million, or 7%, as metric tons sold increased to 91.2 thousand in the current quarter, while favorable foreign currency exchange increased sales by $6 million, or 4%.Gross profit increased $5 million in the current quarter compared to the prior year quarter. Changes in volume and mix combined to increase gross profit by $3 million, while the facility acquisition and favorable foreign currency exchange each increased gross profit by $1 million. The net effects of pricing and raw material increases did not impact gross profit in the current quarter. In total, gross profit margin decreased 2.7 percentage points as compared to the prior year quarter to 18.4%.Selling, general and administrative expenses during the current quarter increased $3 million compared to the prior year quarter primarily due to higher employee-related costs and unfavorable foreign currency exchange. Equity and other income increased $1 million compared to the prior year quarter.Operating income totaled $18 million in the current quarter compared to $15 million in the prior year quarter. EBITDA increased $2 million to $23 million in the current quarter, while EBITDA margin decreased 2.1 percentage points in the current quarter to 10.6%.EBITDA and Adjusted EBITDA reconciliationThe following EBITDA presentation for the three months ended December 31, 2017 and 2016 below2020 related to a capital project impairment within Specialty Additives.provided as a means to enhancecomprised of the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Composites. There were no unusual or key items that affected comparability for EBITDA during the current and prior year quarters. Three months ended December 31 (In millions) 2017 2016 Operating income $ 18 $ 15 Depreciation and amortization 5 6 EBITDA $ 23 $ 21 Intermediates and SolventsIntermediates and Solvents is a leading producerproduction of 1,4 butanediol (BDO) and related derivatives, including tetrahydrofuran and n-methylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. Butanediol is also suppliedprovided to Ashland’sLife Sciences, Personal Care, and Specialty Ingredients businessAdditives for use as a raw material.20172021 quarter compared to December 20162020 quarterIntermediates and Solvents’$17$20 million to $74$53 million in the current quarter. Higherperiod primarily due to higher product pricingpricing.sales by $9$14 million while higher volumes and favorable foreign currency exchange each increased sales by $4 million.Gross profit increasedto $16 million duringfor the current quarter. Price/mix increased operating income by $17 million and was partially offset by higher production costs which decreased operating income by $3 million. Current quarter comparedEBITDA increased $14 million to the prior year quarter. Lower facility turn around costs$19 million.EBITDA margin increased 20.6 percentage points in the current quarter resulted in an $8 million increase in gross profit as a result of a significantASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISplanned plant shutdown that occurred in the prior year quarter. The net impact of pricing and costs increased gross profit by $7 million primarily due to improvements in product pricing. Higher volumes contributed to a $1 million increase in gross profit. In total, gross profit margin increased 22.2 percentage points as compared to the prior year quarter to 21.3%35.8%.Selling, general and administrative expenses increased by $1 million compared to the prior year quarter.Operating income totaled $8 million in the current quarter as compared to a loss of $7 million in the prior year quarter. EBITDA and EBITDA margin in the current quarter increased to $16 million and 21.6%, respectively.20172021 and 20162020 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Intermediates. Intermediates and Solvents. There werehad no unusual or key items that affected comparability for EBITDA during the current and prior year quarters. Three months ended December 31 (In millions) 2017 2016 Operating income (loss) $ 8 $ (7 ) Depreciation and amortization 8 7 EBITDA $ 16 $ — segment'ssegment’s operating lossincome (loss) for the three months ended December 31, 20172021 and 2016. Three months ended December 31 (In millions) 2017 2016 Restructuring activities (includes separation, severance, integration and stranded divestiture costs) $ 14 $ 24 Environmental expense for divested businesses 13 4 Legal reserve — 5 Other expense 2 — Total expense $ 29 $ 33 20172021 quarter compared to December 20162020 quarter$29$27 million and $33$31 million for the three months ended December 31, 20172021 and 2016,2020, respectively. The unallocated items for the current and prior year quarters included chargesexpense of $5 million and $16 million, respectively, for restructuring activities mainly comprised of $14 millionseverance, lease abandonment and $24 million, respectively. Restructuring activities included $6 million and $22 million ofother restructuring costs related to the separation of Valvoline and stranded divestiture costs of $3 million and $2 millioncompany-wide cost reduction programs during the current and prior year quarters, respectively. respectively, as well as stranded costs of $4 million for each period associated with the Performance Adhesives divestiture.also included $4 million of accelerated depreciation related to the planned closure of an office building and $1 million of integration charges related to the acquisition of Pharmachem.The remaining unallocated items during the current quarter primarily included $13 million for environmental-related expenses while the remaining items during the prior year quarter primarily included $5$3 million of expense for a legal reserve and $4 million for environmental reserve adjustments.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISFINANCIAL POSITIONLiquidityAshland had $601expenses, respectively.equivalentsfunds for Ashland’s foreseeable working capital needs, capital expenditures at existing facilities, dividend payments and debt service obligations. Ashland’s cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of December 31, 2017,any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. For information regarding the impact of which $581 million was held by foreign subsidiaries and had no significant limitations that would prohibit remitting the funds to satisfy corporate obligations. In certain circumstances, if such amounts were repatriated to the United States, additional taxes might need to be accrued and paid dependingCOVID-19 on the source ofCompany, including on its liquidity and capital resources, please see item 1A, in Ashland’s most recent Form 10-K filed with the earnings remitted. Ashland currently has no plans to repatriate any amounts for which additional taxes would need to be accrued. However, due to the recent Tax Act, Ashland will be reassessing this position in future quarters.20172021 and 2016. Three months ended December 31 (In millions) 2017 2016 Cash provided (used) by: Operating activities from continuing operations $ (24 ) $ (60 ) Investing activities from continuing operations (24 ) (31 ) Financing activities from continuing operations 99 (434 ) Discontinued operations (16 ) 50 Effect of currency exchange rate changes on cash and cash equivalents — (9 ) Net increase (decrease) in cash and cash equivalents $ 35 $ (484 ) Operating activitiesThe following discloses the2020.flows associated with Ashland’s operating activities for the three months ended December 31, 2017 and 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Cash flows provided (used) by operating activities from continuing operations Net income (loss) $ (4 ) $ 10 Income from discontinued operations (net of tax) (3 ) (75 ) Adjustments to reconcile income from continuing operations to cash flows from operating activities Depreciation and amortization 79 68 Original issue discount and debt issuance cost amortization 2 94 Deferred income taxes 8 2 Stock based compensation expense 7 5 Gain on early retirement of debt — (3 ) Realized gain and investment income on available-for-sale securities (3 ) (3 ) Net loss on divestitures 1 1 Pension contributions (2 ) (1 ) Gain on post-employment plan remeasurement — (2 ) (109 ) (156 ) Total cash flows used by operating activities from continuing operations $ (24 ) $ (60 ) (a)Excludes changes resulting from operations acquired or sold.Cash flows used from operating activities from continuing operations, a major source of Ashland’s liquidity, amounted to cash inflows of $24 million and $60 million in the current and prior year quarters, respectively. Operating Activities - Operating Assets and LiabilitiesThe cash results during each quarter are primarily driven by net income (loss), excluding discontinued operation results, adjusted for certain non-cash items including depreciation and amortization (including original issue discount and debt issuance cost amortization), as well as changes in working capital, which are fluctuations within accounts receivable, inventory, trade payables and accrued expenses. Ashland continues to emphasize working capital management as a high priority and focus.Changes in net working capital accounted for outflows of $96 million and $71equivalents decreased $16 million for the three months ended December 31, 2017 and 2016, respectively, and were driven by the following:Accounts receivable - There were cash inflows of $15 million and $9 million during the current and prior year quarters, respectively, which were primarily due to collections in excess of sales during the first quarter of each fiscal year.Inventory - The current quarter had a cash outflow of $39 million2021 compared to a cash inflow of $15$119 million during the prior year quarter, which were primarily due to sales volumes and inventory management strategies.Trade and other payables - There were cash outflows of $72 million and $95 million during the current and prior year quarters, respectively, which were primarily driven by seasonal fluctuations in trade payables and incentive compensation payouts from the prior year paid during the first quarter of each fiscal year. Additionally, the prior year quarter included the payment of certain Valvoline separation costs that were incurred in the preceding fiscal year.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISThe remaining outflows within changes in operating assets and liabilities of $13 million and $85 million in the current and prior year quarters, respectively, relate primarily to adjustments to certain accruals and long term assets and liabilities as well as income taxes received and paid.Operating Activities - SummaryOperating cash flows for the current quarter included a loss from continuing operations of $7 million, noncash adjustments of $79 million for depreciation and amortization and $2 million for debt issuance cost amortization.Operating cash flows for the prior year quarter included a loss from continuing operations of $65 million and noncash adjustments of $68 million for depreciation and amortization and $94 million for original issue discount and debt issuance cost amortization, including $92 million of accelerated accretion related to the tender offer of the 2029 notes.Investing activitiesThe following discloses the cash flows associated with Ashland’s investing activitiesdecrease for the three months ended December 31, 2017 and 2016. Three months ended December 31 (In millions) 2017 2016 Cash flows provided (used) by investing activities from continuing operations Additions to property, plant and equipment $ (24 ) $ (33 ) Proceeds from disposal of property, plant and equipment 1 — Proceeds from sale of operations 1 — Net purchase of funds restricted for specific transactions (5 ) (2 ) Reimbursements from restricted investments 5 — Proceeds from sales of available-for-sale securities 5 — Purchases of available-for-sale securities (5 ) — Proceeds from the settlement of derivative instruments — 4 Payments for the settlement of derivative instruments (2 ) — Total cash flows used by investing activities from continuing operations $ (24 ) $ (31 ) Cash used by investing activities was $242020.and $31 million for the current and prior year quarters, respectively. The significant cash investing activities for the current quarter primarily related to cash outflows of $24 million for property additions compared to $33 million in the prior year quarter.Financing activitiesThe following discloses the cash flows associated with Ashland’s financing activitiesdecrease for the three months ended December 31, 20172021 was primarily driven by payment of cash dividends of $17 million and 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Cash flows provided (used) by financing activities from continuing operations Repayment of long-term debt $ (2 ) $ (239 ) Premium on long-term debt repayment — (5 ) Proceeds (repayment) from short-term debt 120 (154 ) Debt issuance costs — (4 ) Cash dividends paid (14 ) (24 ) Stock based compensation employee withholding taxes paid in cash (5 ) (8 ) Total cash flows provided (used) by financing activities from continuing operations $ 99 $ (434 ) Cash flows generatedadditions to property, plant and equipment of $15 million offset by financing activities was $99 million for the current quarter as compared to cash used of $434 million for the prior year quarter.Significant cash financing activities for the current quarter includednet proceeds from short-term debt netof $11 million. Operating cash flows from continuing operations were inflows of $120$14 million, related to debt outstanding on the 2017 Revolving Credit Facility and the accounts receivable securitization. The current quarter includedwhile discontinued operations cash dividends paid of $0.225 per share, for a total of $14 million.Significant cash financing activities for the prior year quarter included cashflows were outflows of $239$9 million.related to the repayments of a portion of the 2029 notes, 2022 notes and 2018 notes. Additionally, the prior year quarter included short-term debt net repayments of $154 million, which was primarily related to the $150 million full repayment of a term loan held by a foreign subsidiary. The prior year quarter included cash dividends paid of $0.39 per share, for a total of $24 million.The following discloses the cash flows associated with Ashland’s discontinued operationsdecrease for the three months ended December 31, 2017 and 2016. Three months ended December 31 (In millions) 2017 2016 Cash used by discontinued operations Operating cash flows $ (16 ) $ 70 Investing cash flows — (10 ) Financing cash flows — (10 ) Total cash provided (used) by discontinued operations $ (16 ) $ 50 Cash flows for discontinued operations in the current quarter2020 was primarily related to previously divested businesses, including net paymentsdriven by repayment of asbestos and environmental liabilities.Cash flows for discontinued operations in the prior year quarter primarily relate to net cash inflowsshort-term debt of $62$187 million related to the activityoffset by $81 million of Valvoline Inc. The remainingoperating cash flows in the prior year quarter related to other previously divested businesses, including net payments of asbestos and environmental liabilities.quarters.periods. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
Represents activity associated with the U.S. Accounts Receivable Sales Program impacting each period presented.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS(e) Three months ended December 31 (In millions) 2017 2016 Cash flows provided by operating activities from continuing operations $ (24 ) $ (60 ) Adjustments: Additions to property, plant and equipment (24 ) (33 ) $ (48 ) $ (93 ) (a)Includes $23 million and $29 million of restructuring payments for the three months ended December 31, 2017 and 2016, respectively.At December 31, 2017, working$967$839 million compared to $941and $792 million atas of December 31, 2021 and September 30, 2017.2021, respectively. The $47 million increase in working capital was the primary reason of the $48 million decline in ongoing free cash flows between periods primarily as a result of increased inventories to navigate supply-chain issues as well as cost inflation and reduced accrued expenses as a result of annual incentive program payouts. Liquid assets (cash, cash equivalents and accounts receivable) amounted to 119%62% and 122%65% of current liabilities at(excluding current liabilities held for sale) as of December 31, 20172021 and September 30, 2017,2021, respectively.and unused borrowing capacity and liquidity as of 20172021 and September 30, 2017. December 31 September 30 (In millions) 2017 2017 Cash and cash equivalents $ 601 $ 566 Unused borrowing capacity 2017 Revolving Credit Facility $ 467 $ 579 Accounts receivable securitization facility 31 35 2017 Revolving Credit Facility$600 million revolving credit facility was $467$341 million due to an outstanding balance of $285$240 million, as well as a reduction of $48$19 million for letters of credit outstanding at December 31, 2017.2021. In total, Ashland’s available liquidity position, which includes cash, the revolving credit facility and theforeign accounts receivable securitization facility, was $1,099$535 million at December 31, 2017,2021, compared to $1,180$566 million at September 30, 2017.20172021 and September 30, 2017. December 31 September 30 (In millions) 2017 2017 Short-term debt (includes current portion of long-term debt) $ 355 $ 235 2,584 2,584 Total debt $ 2,939 $ 2,819 (a)Includes $24 million and $25$17 million of debt issuance cost discounts as of December 31, 20172021 and September 30, 2017, 2021, respectively.The current portion of long-term debt was $6 million at December 31, 2017. 46%42% at December 31, 20172021 and 45% at September 30, 2017.2021, respectively. At December 31, 2017,2021, Ashland’s total debt had an outstanding principal balance of $3,015$2,025 million, discounts of $52$39 million, and debt issuance costs of $24$17 million. The scheduled aggregate maturities of long-term debt by year (including the current portion and excluding debt issuance costs) are as follows: $5 million remaining in 2018, $11$9 million in 2019, $2692022, $22 million in 2020, $562023, $44 million in 2021 and $1,2792024, $175 million in 2022.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISFinancing Activities2017 Credit AgreementOn May 17, 2017,2025 and zero in conjunction with the closing of the Pharmachem acquisition, Ashland entered into a secured credit agreement (the 2017 Credit Agreement) with a group of lenders. The 2017 Credit Agreement provided for (i) a $250 million three-year term loan A facility (the Three-Year TLA Facility), (ii) a $250 million five-year term loan A facility (the Five-Year TLA Facility and together with the Three-Year TLA Facility, the TLA Facilities) and (iii) a $680 million five-year revolving credit facility (including a $125 million letter of credit sublimit) (the 2017 Revolving Credit Facility). Proceeds of borrowings under the TLA Facilities were used solely to finance the acquisition of Pharmachem, while the proceeds of the 2017 Revolving Credit Facility were used to finance, in part, the acquisition of Pharmachem, to refinance the 2015 Senior Credit Agreement and for general corporate purposes. On May 19, 2017, Ashland entered into Amendment No. 1 to the 2017 Credit Agreement, which increased the aggregate commitments under the 2017 Revolving Credit Facility from $680 million to $800 million.At Ashland’s option, loans issued under the 2017 Credit Agreement bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. Loans bear interest at LIBOR plus 1.75% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.75%, in the alternative, through and including the date of delivery of a quarterly compliance certificate and thereafter the interest rate will fluctuate between LIBOR plus 1.375% per annum and LIBOR plus 2.500% per annum (or between the alternate base rate plus 0.375% per annum and the alternate base rate plus 1.500% per annum), based upon Ashland’s secured facilities ratings or the consolidated net leverage ratio (as defined in the 2017 Credit Agreement) (whichever yields a lower applicable interest rate margin) at such time. In addition, Ashland was required to pay fees of 0.25% per annum on the daily unused amount of the 2017 Revolving Credit Facility through and including the date of delivery of a compliance certificate, and thereafter the fee rate will fluctuate between 0.175% and 0.40% per annum, based upon Ashland’s secured facilities rating or the consolidated net leverage ratio (whichever yields a lower applicable rate). The TLA Facilities may be prepaid at any time without premium. The Three-Year TLA Facility will not amortize and will be due on May 17, 2020. The Five-Year TLA Facility will not amortize in each of the first, second and third years and will amortize at a rate of 20% per annum in each of the fourth and fifth years (payable in equal quarterly installments), with the outstanding balance of the Five-Year TLA Facility to be paid on May 17, 2022.On June 14, 2017, Ashland entered into Amendment No. 2 to the 2017 Credit Agreement, which provided for a new $600 million seven-year senior secured term loan B facility (the 2017 TLB Facility). At Ashland’s option, loans issued under the 2017 TLB Facility bear interest at either (x) LIBOR plus 2.00% per annum or (y) an alternate base rate plus 1.00% per annum. The 2017 TLB Facility may be prepaid at any time. The 2017 TLB Facility amortizes at a rate of 1.00% per annum (payable in equal quarterly installments) with the outstanding balance to be paid on May 17, 2024.6.50% junior subordinated notes due 2029In December 2016, Hercules LLC (Hercules) (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland, repurchased, through a cash tender offer (the Tender Offer), $182 million of the aggregate principal par value amount of its 6.50% junior subordinated notes due 2029 (2029 notes) for an aggregate purchase price of $177 million. As a result of the Tender Offer, the carrying value of the 2029 notes was reduced by $90 million and Ashland recognized a $92 million charge related to accelerated accretion of the recorded debt discount (compared to the total par value) and $5 million of a net gain related to the repayment of the debt. The charge and net gain are included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISOpen market repurchases of 4.750% notes due 2022 and 3.875% notes due 2018During the three months ended December 31, 2016, Ashland executed open market repurchases of its 4.750% notes due 2022 (2022 notes) and its 3.875% notes due 2018 (2018 notes). As a result of these repurchases, the carrying values of the 2022 notes and 2018 notes were reduced by $36 million and $29 million, respectively. Ashland recognized a $2 million charge related to premiums paid in the open market repurchases and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.rating withratings remained unchanged at BB+ by Standard & Poor’s is BB, whileand Ba1 by Moody’s Investor Services is Ba2.Services. As of December 31, 2021, both Moody’s Investor Services and Standard & Poor's outlooks bothoutlook remained at stable. Subsequent changes to these ratings or outlook may have an effect on Ashland’s borrowing rate or ability to access capital markets in the future.most recentcurrent credit agreement (the 20172020 Credit Agreement) contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations. 2017,2021, Ashland is in compliance with all debt agreement covenant restrictions under the 20172020 Credit Agreement.20172020 Credit Agreement is 4.5.4.0. The 20172020 Credit Agreement defines the consolidated net leverage ratio as the ratio of consolidated indebtedness minus unrestricted cash and cash equivalents to consolidated EBITDA (Covenant Adjusted EBITDA) for any measurement period. In general, the 20172020 Credit Agreement defines Covenant Adjusted EBITDA as net income plus consolidated interest charges, taxes, depreciation and amortization expense, fees and expenses related to capital market transactions and proposed or actual acquisitions and divestitures, restructuring and integration charges, noncash stock and equity compensation expense, and any other nonrecurring expenses or losses that do not represent a cash item in such period or any future period; less any noncash gains or other items increasing net income. The computation of Covenant Adjusted EBITDA differs from the calculation of EBITDA and Adjusted EBITDA, which have been reconciled on page 41.above in the “consolidated review” section. In general, consolidated indebtedness includes debt plus all purchase money indebtedness, banker’s acceptances and bank guaranties, deferred purchase price of property or services, attributable indebtedness and guarantees.20172020 Credit Agreement is 3.0. The 20172020 Credit Agreement defines the consolidated interest coverage ratio as the ratio of Covenant Adjusted EBITDA to consolidated interest charges for any measurement period.2017, Ashland’s calculation of the consolidated net leverage ratio was 3.9, which is below the maximum consolidated ratio permitted under the 2017 Credit Agreement of 4.5. At December 31, 2017,2021, Ashland’s calculation of the consolidated interest coverage ratio was 4.6, which exceeds the minimum required consolidated ratio of 3.0.The average9.4.0.7x0.5x effect on the consolidated net leverage ratio and a 0.8x1.6x effect on the consolidated interest coverage ratio. The average change in consolidated indebtedness of $100 million would affect the consolidated leverage ratio by approximately 0.2x.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISCash projectionAshland projects that cash flow from operations and other available financial resources such as cash on hand and revolving credit should be sufficient to meet investing and financing requirements to enable Ashland to comply with the covenants and other terms of its financing obligations. These projections are based on various assumptions that include, but are not limited to: operational results, capital expenditures, working capital needs and tax payments and receipts.decreased $7increased by $11 million since September 30, 20172021 to $3,399$2,763 million at December 31, 2017.2021. The decreaseincrease of $7$11 million was due to cashnet income of $48 million, offset by dividends of $14$17 million, and a netdeferred translation loss of $4$17 million, partially offset by an $8 million net increase in available-for-sale securities and $3 million related toof deferred translation gains.Stock repurchase programIn April 2015, Ashland's Board of Directors approved a $1 billion share repurchase authorization that was set to expireloss on December 31, 2017 (the 2015 stock repurchase program). This authorization allows for Ashland’s common shares to be repurchased in open market transactions, privately negotiated transactions or pursuant to one or more accelerated stock repurchase programs or Rule 10b5-1 plans.During 2017, Ashland's Board of Directors extended the 2015 stock repurchase program indefinitely. As of December 31, 2017, $500 million of share repurchase authorization remains under the 2015 stock repurchase program.In May 2017, subsequent to the final distribution of Valvoline Inc.'s common stock, the Board of Directors of announcedpaid a quarterly cash dividend of 22.530 cents per share to eligible shareholders at record which was paid for quarterly dividendsthe first quarter of fiscal 2022 and 27.5 cents per share in the first quarter of fiscal 2018 and the third and fourth quarters of fiscal 2017. This represented a reduction from the previous quarterly dividend of 39 cents per share which was paid for quarterly dividends in the first and second quarters of fiscal 2017.$24$15 million for the three months ended December 31, 2017 and averaged approximately $2172021 compared to $30 million duringfor the last three fiscal years.Contractual obligations and commitmentsAs a result of the Tax Act that was enacted duringmonths ended December 2017, Ashland has currently estimated and identified that the one-time transition tax related to the new law is estimated to be approximately $160 million payable over eight years, with the first payment of approximately $13 million due during the first quarter of fiscal year 2019. Ashland will continue to reassess this estimate in future periods. In addition, during January 2018, Ashland repatriated approximately $300 million in cash that was used to repay existing debt. There were no other significant changes to the contractual obligations table as presented at September 30, 2017.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS2017.2021. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions. Management has reviewed the estimates affecting these items with the Audit Committee of Ashland’s Board of Directors. No material changes have been made to the valuation techniques during the three months ended December 31, 2017.Fiscal Year 2018updatedissued its financial outlook for fiscal 20182022 in November 2021. This outlook has not changed and remains the same as shown in the table below.Prior 20182022 OutlookUpdated FY 2018 OutlookAdjusted EBITDASpecialty Ingredients$560 - $590 millionNo changeComposites$85 - $95 millionNo changeIntermediates & Solvents$40 - $50 millionNo changeUnallocated and other($35 - $45 million)No changeFree cash flow>$220 millionNo changediluted EPSEBITDA3.20550 - $3.40$2.90 - $3.10$570 millionCorporate ItemsDepreciation & amortization~$290 millionNo changeInterest expense$125 - $135 millionNo changeEffective tax rate8 - 13%16 - 20%Capital expenditures$195 - $205 millionNo changeDiluted share count~64 millionNo changeSecond Quarter of 2018Forsecond quarter of fiscal 2018, Ashland expects Adjusted diluted EPSmost closely comparable GAAP financial measure, because the information needed to be in the range of $0.80-$0.90 per diluted share. This estimate assumes an effective tax rate of 18% based on the new U.S. tax legislation.20172021 is generally consistent with the types of market risk exposures presented in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS2017.2017,2021, there were no significant changes in Ashland’sAshland'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’sAshland's internal control over financial reporting.During the June 2017 quarter, Pharmachem.Schülke in the quarter ended June 30, 2021. Although management believes appropriate internal controls and procedures have been maintained, Pharmachem’sSchülke's controls and procedures for the recording, processing, and summarizing of financial information have not been fully evaluated by Ashland’sAshland's management as of December 31, 2017.2021. Ashland anticipates to have this assessment complete during Fiscal 2022. As such, there is a risk that deficiencies may exist and not yet be identified that could constitute significant deficiencies or in the aggregate, a material weakness related to Pharmachem's businesses.KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.2017,2021, Ashland and its subsidiaries have been identified as a PRP by U.S. federal and state authorities, or by private parties seeking contribution, for the cost of environmental investigation and/or cleanup at 82 waste treatment or disposal80 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 or its subsidiaries are typically participating as a member of a PRP group. Generally, the types of relief sought include remediation of contaminated soil and/or groundwater, reimbursement for past costs of site cleanup and administrative oversight and/or long-term monitoring of environmental conditions at the sites. The ultimate costs are not predictable with assurance. Hattiesburg, Mississippi Resource Conservation and Recovery Act Matter - In November 2008, the Mississippi Department of Environmental Quality (MDEQ) issued a Notice of Violation to Hercules’ now-closed Hattiesburg, Mississippi manufacturing facility alleging that a process water impoundment basin at the facility had been operated as a hazardous waste storage and treatment facility without a permit in violation of the Resource Conservation and Recovery Act. In May 2011, the USEPA issued an inspection report from a September 2010 inspection with allegations similar to those of the MDEQ and promulgated an information request. Ashland has been working with the MDEQ and USEPA to settle this matter in the context of the shutdown and ongoing remediation of the Hattiesburg facility. The USEPA proposed a settlement penalty in excess of $100,000. While it is reasonable to believe that this matter will involve a penalty from the MDEQ and/or the USEPA exceeding $100,000, the potential penalty with respect to this enforcement matter should not be material to Ashland.(c) Lower Passaic River, New Jersey Matters - Ashland, through two formerly owned facilities, and ISP, through a now-closed facility, have been identified as PRPs, along with approximately 70 other companies (the Cooperating Parties Group or the CPG), in a May 2007 Administrative Order of Consent (AOC) with the USEPA. The parties are required to perform a remedial investigation and feasibility study (RI/FS) of the entire 17 miles of the Passaic River. In June 2007, the USEPA separately commenced a Focused Feasibility Study (FFS) as an interim measure. In accordance with the 2007 AOC, in June 2012 the CPG voluntarily entered into another AOC for an interim removal action focused solely at mile 10.9 of the Passaic River. The allocations for the 2007 AOC and the 2012 removal action are based on interim allocations, are immaterial and have been accrued. In April 2014, the USEPA released the FFS. The CPGOccidentalanother chemical company to conduct and pay for the remedial design. TheThis chemical company has sued Ashland, ISP and numerous other defendants to recover past and future costs pursuant to the CERCLA. Ashland, ISP and numerous other defendants have filed a Motion to Dismiss all of the claims. Ashland and ISP are participating in an USEPA has advised that it will be working to secure similar agreements with other PRPs.allocation process. The release of the FFS Record of Decision, did not have a material adverse impact on Ashland’s business and financial operations; however, there are a number of contingencies in the future that could possibly have a material impact including adverse rulings or verdicts, allocationcurrent allocations proceedings and related orders.KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.2017.2021. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Ashland believes that such potential losses were immaterial as of December 31, 2017.2017.Share2017 was as follows:
Shares Purchased
Paid Per Share,
including
commission
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Shares that May
Be Purchased
Under the Plans
or Programs
(in millions) (a)Issuer Purchases of Equity Securities Q1 Fiscal Periods Total Number of Shares Purchased Average Price Paid Per Share, including commission Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(a) October 1, 2017 to October 31, 2017 — $ — — $ 500 November 1, 2017 to November 30, 2017: Employee Tax Withholdings 16,465 (b) 66.56 — 500 December 1, 2017 to December 31, 2017 — — — 500 Total.......................................................... 16,465 — $ 500 (a)In April 2015, the Company'sDuring March 2018, Ashland’s Board of Directors authorizedapproved a program to repurchase up tonew $1 billion ofstock repurchase program, which replaced the Company'sprevious stock with the authorization expiring December 31, 2017. In September 2017, the Company's Board of Directors renewed the program for the remaining $500 million. The Company's sharerepurchase program. Ashland’s stock repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 of the Exchange Act. As of December 31, 2017, $5002021, $350 million remains available for repurchase under this authorization.(b)Shares withheld from employees to cover their withholding requirements for personal income taxes related to the vesting of restricted stock.*Filed herewith.**Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Consolidated Comprehensive Income for the three months ended December 31, 2017 and December 31, 2016; (ii) Condensed Consolidated Balance Sheets at December 31, 2017 and September 30, 2017; (iii) Statements of Consolidated Equity at December 31, 2017; (iv) Statements of Condensed Consolidated Cash Flows for the three months ended December 31, 2017 and December 31, 2016; and (v) Notes to Condensed Consolidated Financial Statements. SM Service mark, Ashland or its subsidiaries, registered in various countries.™ Trademark, Ashland or its subsidiaries, registered in various countries.January 30, 201865