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
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 DecemberMarch 31, 2017,2022, there were 62,228,81254,534,322 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 |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions except per share data - unaudited) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Sales |
| $ | 604 |
|
| $ | 509 |
|
| $ | 1,115 |
|
| $ | 977 |
|
Cost of sales |
|
| 384 |
|
|
| 349 |
|
|
| 735 |
|
|
| 670 |
|
Gross profit |
|
| 220 |
|
|
| 160 |
|
|
| 380 |
|
|
| 307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative expense |
|
| 90 |
|
|
| 79 |
|
|
| 172 |
|
|
| 180 |
|
Research and development expense |
|
| 13 |
|
|
| 11 |
|
|
| 26 |
|
|
| 24 |
|
Intangibles amortization expense |
|
| 24 |
|
|
| 22 |
|
|
| 47 |
|
|
| 43 |
|
Equity and other income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6 |
|
Operating income |
|
| 93 |
|
|
| 48 |
|
|
| 135 |
|
|
| 66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest and other expense |
|
| 43 |
|
|
| 23 |
|
|
| 49 |
|
|
| 17 |
|
Other net periodic benefit income - Note K |
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Income (loss) on acquisitions and divestitures, net |
|
| 7 |
|
|
| (5 | ) |
|
| 7 |
|
|
| 9 |
|
Income from continuing operations before income taxes |
|
| 58 |
|
|
| 20 |
|
|
| 94 |
|
|
| 58 |
|
Income tax expense (benefit) |
|
| 20 |
|
|
| (5 | ) |
|
| 24 |
|
|
| (10 | ) |
Income from continuing operations |
|
| 38 |
|
|
| 25 |
|
|
| 70 |
|
|
| 68 |
|
Income from discontinued operations (net of income taxes) - Note C |
|
| 748 |
|
|
| 16 |
|
|
| 764 |
|
|
| 29 |
|
Net income |
| $ | 786 |
|
| $ | 41 |
|
| $ | 834 |
|
| $ | 97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
PER SHARE DATA |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share - Note M |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.67 |
|
| $ | 0.41 |
|
| $ | 1.22 |
|
| $ | 1.11 |
|
Income from discontinued operations |
|
| 13.23 |
|
|
| 0.27 |
|
|
| 13.48 |
|
|
| 0.48 |
|
Net income |
| $ | 13.90 |
|
| $ | 0.68 |
|
| $ | 14.70 |
|
| $ | 1.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per share - Note M |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.66 |
|
| $ | 0.40 |
|
| $ | 1.20 |
|
| $ | 1.10 |
|
Income from discontinued operations |
|
| 13.03 |
|
|
| 0.27 |
|
|
| 13.25 |
|
|
| 0.47 |
|
Net income |
| $ | 13.69 |
|
| $ | 0.67 |
|
| $ | 14.45 |
|
| $ | 1.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 786 |
|
| $ | 41 |
|
| $ | 834 |
|
| $ | 97 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized translation gain (loss) |
|
| (5 | ) |
|
| (34 | ) |
|
| (21 | ) |
|
| 14 |
|
Unrealized gain on commodity hedges |
|
| 5 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Other comprehensive income (loss) - Note N |
|
| 0 |
|
|
| (34 | ) |
|
| (20 | ) |
|
| 14 |
|
Comprehensive income |
| $ | 786 |
|
| $ | 7 |
|
| $ | 814 |
|
| $ | 111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited) |
| March 31 |
|
| September 30 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 964 |
|
| $ | 210 |
|
Accounts receivable (a) - Note H |
|
| 407 |
|
|
| 369 |
|
Inventories - Note F |
|
| 573 |
|
|
| 473 |
|
Other assets |
|
| 77 |
|
|
| 68 |
|
Current assets held for sale - Note B |
|
| 4 |
|
|
| 597 |
|
Total current assets |
|
| 2,025 |
|
|
| 1,717 |
|
Noncurrent assets |
|
|
|
|
|
| ||
Property, plant and equipment |
|
|
|
|
|
| ||
Cost |
|
| 3,081 |
|
|
| 3,066 |
|
Accumulated depreciation |
|
| 1,701 |
|
|
| 1,639 |
|
Net property, plant and equipment |
|
| 1,380 |
|
|
| 1,427 |
|
Goodwill - Note G |
|
| 1,404 |
|
|
| 1,430 |
|
Intangibles - Note G |
|
| 1,041 |
|
|
| 1,099 |
|
Operating lease assets, net - Note I |
|
| 115 |
|
|
| 124 |
|
Restricted investments - Note E |
|
| 387 |
|
|
| 384 |
|
Asbestos insurance receivable (b) - Note L |
|
| 131 |
|
|
| 134 |
|
Deferred income taxes |
|
| 30 |
|
|
| 30 |
|
Other assets |
|
| 267 |
|
|
| 267 |
|
Total noncurrent assets |
|
| 4,755 |
|
|
| 4,895 |
|
Total assets |
| $ | 6,780 |
|
| $ | 6,612 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Short-term debt - Note H |
| $ | 0 |
|
| $ | 365 |
|
Current portion of long-term debt - Note H |
|
| 0 |
|
|
| 9 |
|
Trade and other payables |
|
| 248 |
|
|
| 236 |
|
Accrued expenses and other liabilities |
|
| 541 |
|
|
| 251 |
|
Current operating lease obligations - Note I |
|
| 21 |
|
|
| 23 |
|
Current liabilities held for sale - Note B |
|
| 0 |
|
|
| 50 |
|
Total current liabilities |
|
| 810 |
|
|
| 934 |
|
Noncurrent liabilities |
|
|
|
|
|
| ||
Long-term debt - Note H |
|
| 1,336 |
|
|
| 1,596 |
|
Asbestos litigation reserve - Note L |
|
| 462 |
|
|
| 490 |
|
Deferred income taxes |
|
| 218 |
|
|
| 237 |
|
Employee benefit obligations - Note K |
|
| 140 |
|
|
| 144 |
|
Operating lease obligations - Note I |
|
| 102 |
|
|
| 110 |
|
Other liabilities |
|
| 331 |
|
|
| 349 |
|
Total noncurrent liabilities |
|
| 2,589 |
|
|
| 2,926 |
|
Commitments and contingencies - Note L |
|
|
|
|
|
| ||
Stockholders’ equity - Note N |
|
| 3,381 |
|
|
| 2,752 |
|
|
|
|
|
|
|
| ||
Total liabilities and stockholders' equity |
| $ | 6,780 |
|
| $ | 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
|
| Six months ended |
| |||||
|
| March 31 |
| |||||
(In millions - unaudited) |
| 2022 |
|
| 2021 |
| ||
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM |
|
|
|
|
|
| ||
Net income |
| $ | 834 |
|
| $ | 97 |
|
Income from discontinued operations (net of income taxes) |
|
| (764 | ) |
|
| (29 | ) |
Adjustments to reconcile income from continuing operations to |
|
|
|
|
|
| ||
cash flows from operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 121 |
|
|
| 118 |
|
Original issue discount and debt issuance costs amortization |
|
| 3 |
|
|
| 3 |
|
Deferred income taxes |
|
| (3 | ) |
|
| (12 | ) |
Gain from sales of property and equipment |
|
| — |
|
|
| (3 | ) |
Distributions from equity affiliates |
|
| — |
|
|
| 1 |
|
Stock based compensation expense |
|
| 9 |
|
|
| 8 |
|
Excess tax benefit on stock based compensation |
|
| 1 |
|
|
| 1 |
|
Loss (income) from restricted investments |
|
| 14 |
|
|
| (19 | ) |
Income on acquisitions and divestitures |
|
| — |
|
|
| (11 | ) |
Impairments |
|
| — |
|
|
| 9 |
|
Pension contributions |
|
| (3 | ) |
|
| (4 | ) |
Gain on pension and other postretirement plan remeasurements |
|
| (1 | ) |
|
| — |
|
Change in operating assets and liabilities (a) |
|
| (180 | ) |
|
| (39 | ) |
Total cash flows provided by operating activities from continuing operations |
|
| 31 |
|
|
| 120 |
|
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM |
|
|
|
|
|
| ||
Additions to property, plant and equipment |
|
| (37 | ) |
|
| (53 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 11 |
|
|
| 5 |
|
Proceeds from sale or restructuring of operations |
|
| — |
|
|
| 14 |
|
Company-owned life insurance payments |
|
| — |
|
|
| (1 | ) |
Net purchase of funds restricted for specific transactions |
|
| (44 | ) |
|
| (1 | ) |
Reimbursements from restricted investments |
|
| 28 |
|
|
| 18 |
|
Proceeds from sale of securities |
|
| 46 |
|
|
| 47 |
|
Purchases of securities |
|
| (46 | ) |
|
| (47 | ) |
Total cash flows used by investing activities from continuing operations |
|
| (42 | ) |
|
| (18 | ) |
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM |
|
|
|
|
|
| ||
Repurchase of common stock |
|
| (155 | ) |
|
| — |
|
Repayment of long-term debt |
|
| (250 | ) |
|
| — |
|
Proceeds from (repayment of) short-term debt |
|
| (365 | ) |
|
| (195 | ) |
Cash dividends paid |
|
| (34 | ) |
|
| (33 | ) |
Stock based compensation employee withholding taxes paid in cash |
|
| (6 | ) |
|
| (5 | ) |
Total cash flows used by financing activities from continuing operations |
|
| (810 | ) |
|
| (233 | ) |
CASH USED BY CONTINUING OPERATIONS |
|
| (821 | ) |
|
| (131 | ) |
Cash provided (used) by discontinued operations |
|
|
|
|
|
| ||
Operating cash flows |
|
| (73 | ) |
|
| 57 |
|
Investing cash flows |
|
| 1,650 |
|
|
| (11 | ) |
Total cash provided by discontinued operations |
|
| 1,577 |
|
|
| 46 |
|
Effect of currency exchange rate changes on cash and cash equivalents |
|
| (2 | ) |
|
| 4 |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 754 |
|
|
| (81 | ) |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
|
| 210 |
|
|
| 454 |
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
| $ | 964 |
|
| $ | 373 |
|
|
|
|
|
|
|
|
(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,February 28, 2022, Ashland completed the distributionsale 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 Valvolinedivestiture represented 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 the separationthis divestiture.
Ashland is 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 effective inhave a subsequent period.material impact on Ashland's consolidated financial statements.
5
NOTE B– ACQUISITIONS AND DIVESTITURES
Acquisitions
Personal Care acquisition
On January 19, 2021, Ashland announced it had signed a definitive agreement to acquire the FASB issued accounting guidance outliningpersonal care business of Schülke & Mayr GmbH, 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
The all-cash purchase price of Schülke was $312 million, which was completed before the Condensed Consolidated Financial Statements and the adoption method options available as well as the overall impact the new guidance will have on the organization. The assessment process consists of categorizing Ashland’s revenue streams and reviewing the current internal accounting policies and practices to determine potential differences that would result from applying the requirementsend of the new standardJune 30, 2021 quarter.
During the three and six months ended March 31, 2021, Ashland incurred acquisition related transaction costs of $5 million, including $3 million of losses associated with foreign currency derivatives entered into to revenue contracts. Additional discussions and meetings with each revenue stream team have occurred to solicit input, identify potential impacts and appropriate changes to Ashland’s business processes, systems and controls to supportmitigate the revenue recognition and disclosure requirements underforeign exchange exposure of the new standard. Based on various preliminary assessments conducted to date, Ashland has identified agreements with distributors and customers thatexpected purchase price. The costs are subject to rebate and incentive programs that could contain elements of material rights and/or variable consideration. Ashland does not currently believe that these elements would result in a material change to how revenue would be recognized for these agreements. Ashland currently intends to adopt this standard using the modified retrospective approach and does not believe the impact will be material to the Condensed Consolidated Financial Statements but does expect there to be significant additional disclosuresrecorded within the Notes to Condensed Consolidated Financial Statements. This guidance becomes effective for AshlandIncome (loss) on October 1, 2018.
Divestitures
Performance Adhesives
On February 28, 2022, Ashland completed the service cost componentsale of its Performance Adhesives business. Proceeds from the sale were approximately $1.7 billion, net periodic benefit cost in the same captionof transaction costs. Ashland recognized a $732 million gain on sale within the Statement of Consolidated Comprehensive Income (Loss) as other employee compensation costs from services rendered during the period. All other componentsDiscontinued Operations caption of the net periodic benefit cost will be presented separately outside of 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, general and administrative expense and cost of sales captions to the other net periodic benefit income caption in the StatementStatements of Consolidated Comprehensive Income (Loss) for the three and six months ended DecemberMarch 31, 2016. 2022.
The components of net periodic benefits income (costs) reclassified primarily relate to interest cost, expected returntransaction represented a strategic shift in Ashland’s business and had a major effect on assets, curtailments, settlementsAshland’s operations and actuarial gainsfinancial results. Accordingly, the operating results 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).
Following the completion of the sale, Ashland is expected 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, or related fees, will be significant.
Other manufacturing facility sales
During the six months ended March 31, 2021, Ashland completed its acquisitionthe sale of a Specialty Additives facility. Net proceeds received from the sale were approximately $14 million in the December 31, 2020 quarter ($20 million in total including a deposit received in fiscal year 2020). Ashland recognized a pre-tax gain of $14 million recorded within the Income (loss) on acquisitions and divestitures, net caption in the Statements of Consolidated Comprehensive Income (Loss).
Other corporate assets
During the three and six months ended March 31, 2022, Ashland completed a sale of excess land. The net book value of the stockland was $4 million as of Pharmachem Laboratories, Inc. (Pharmachem),
6
caption of the Statements of Consolidated Comprehensive Income (Loss) for the three and six months ended March 31, 2022.
Held for sale classification
The acquisition was recorded by Ashland usingassets and liabilities of the purchase method of accountingPerformance Adhesives segment, along with other properties, have been reflected as assets and liabilities held for sale as described above. As a result, in accordance with applicable U.S. GAAP wherebystandards, depreciation and amortization were not being recorded within the total purchase price was allocated to tangibleStatements of Consolidated Comprehensive Income (Loss) and intangiblethe Condensed Consolidated Balance Sheets. These assets and liabilities acquired based on respective fair values.
|
| March 31 |
|
| September 30 |
| ||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Accounts receivable, net |
| $ | — |
|
| $ | 26 |
|
Inventories |
|
| — |
|
|
| 27 |
|
Net property, plant and equipment |
|
| 4 |
|
|
| 80 |
|
Goodwill |
|
| — |
|
|
| 453 |
|
Operating lease assets, net |
|
| — |
|
|
| 10 |
|
Other assets |
|
| — |
|
|
| 1 |
|
Current assets held for sale |
| $ | 4 |
|
| $ | 597 |
|
|
|
|
|
|
|
| ||
Trade and other payables |
| $ | — |
|
| $ | 33 |
|
Accrued expenses and other liabilities |
|
| — |
|
|
| 7 |
|
Current operating lease obligations |
|
| — |
|
|
| 1 |
|
Operating lease obligations |
|
| — |
|
|
| 9 |
|
Current liabilities held for sale |
| $ | — |
|
| $ | 50 |
|
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 |
NOTE C – ACQUISITIONS (continued)
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 |
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 and six months ended
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Income (loss) from discontinued operations (net of tax) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Performance Adhesives |
| $ | 17 |
|
| $ | 18 |
|
| $ | 34 |
|
| $ | 36 |
|
Composites/Marl facility |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Water Technologies |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Distribution |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (2 | ) |
Gain (loss) on disposal of discontinued operations (net of tax) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Performance Adhesives |
|
| 732 |
|
|
| — |
|
|
| 732 |
|
|
| — |
|
Composites/Marl facility |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (4 | ) |
|
| $ | 748 |
|
| $ | 16 |
|
| $ | 764 |
|
| $ | 29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and six months ended March 31, 2022 and 2021. The sale of the Performance Adhesives business was completed on February 28, 2022.
7
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Income (loss) from discontinued operations attributable to Performance Adhesives |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales |
| $ | 75 |
|
| $ | 88 |
|
| $ | 171 |
|
| $ | 172 |
|
Cost of sales |
|
| (56 | ) |
|
| (59 | ) |
|
| (122 | ) |
|
| (112 | ) |
Selling, general and administrative expense |
|
| (6 | ) |
|
| (5 | ) |
|
| (11 | ) |
|
| (10 | ) |
Research and development expense |
|
| (1 | ) |
|
| (2 | ) |
|
| (3 | ) |
|
| (4 | ) |
Pretax income of discontinued operations |
|
| 12 |
|
|
| 22 |
|
|
| 35 |
|
|
| 46 |
|
Income tax (expense) benefit |
|
| 5 |
|
|
| (4 | ) |
|
| (1 | ) |
|
| (10 | ) |
Income from discontinued operations |
| $ | 17 |
|
| $ | 18 |
|
| $ | 34 |
|
| $ | 36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 expense of 0 during both the three months ended DecemberMarch 31, 2016.
The following table details at March 31, 2022 and 2021, 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 March 31, 2022 and 2021.
(In millions) | Severance costs |
| |
Balance at of September 30, 2021 | $ | 6 |
|
Restructuring reserve |
| (1 | ) |
Utilization (cash paid) |
| (2 | ) |
Balance at March 31, 2022 | $ | 3 |
|
(In millions) | Severance costs |
| |
Balance at of September 30, 2020 | $ | 39 |
|
Restructuring reserve |
| 8 |
|
Utilization (cash paid) |
| (23 | ) |
Balance at March 31, 2021 | $ | 24 |
|
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 E – FAIR VALUE MEASUREMENTS
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.
8
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 DecemberMarch 31, 2017.
|
| Carrying |
|
| Total |
|
| Quoted prices |
|
| Significant |
|
| Significant |
| |||||
(In millions) |
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 964 |
|
| $ | 964 |
|
| $ | 964 |
|
| $ | 0 |
|
| $ | 0 |
|
Restricted investments (a) (b) |
|
| 423 |
|
|
| 423 |
|
|
| 423 |
|
|
| 0 |
|
|
| 0 |
|
Investment of captive insurance company (c) |
|
| 9 |
|
|
| 9 |
|
|
| 9 |
|
|
| 0 |
|
|
| 0 |
|
Foreign currency derivatives (d) |
|
| 3 |
|
|
| 3 |
|
|
| 0 |
|
|
| 3 |
|
|
| 0 |
|
Total return derivative (d) |
|
| 1 |
|
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Commodity derivatives (d) |
|
| 5 |
|
|
| 5 |
|
|
| 0 |
|
|
| 5 |
|
|
| 0 |
|
Total assets at fair value |
| $ | 1,405 |
|
| $ | 1,405 |
|
| $ | 1,396 |
|
| $ | 9 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency derivatives (e) |
| $ | 2 |
|
| $ | 2 |
|
| $ | 0 |
|
| $ | 2 |
|
| $ | 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 | $ | — | |||||||||
9
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 DecemberMarch 31, 20172022 and September 30, 2017:2021:
(In millions) |
| March 31 |
|
| September 30 |
| ||
Original cost |
| $ | 335 |
|
| $ | 335 |
|
Accumulated adjustments, net |
|
| 37 |
|
|
| (50 | ) |
Adjusted cost, beginning of year (a) |
|
| 372 |
|
|
| 285 |
|
Investment income (b) |
|
| 10 |
|
|
| 12 |
|
Net unrealized gain (c) |
|
| 24 |
|
|
| 49 |
|
Realized gains (c) |
|
| 1 |
|
|
| 17 |
|
Funds restricted for specific transactions (d) |
|
| 44 |
|
|
| 91 |
|
Disbursements |
|
| (28 | ) |
|
| (33 | ) |
Fair value |
| $ | 423 |
|
| $ | 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 | |||
10
The following table presents gross unrealized gains and losses for the restricted investment available-for-sale securities as of DecemberMarch 31, 20172022 and September 30, 2017:2021:
|
|
|
|
| Gross |
|
| Gross |
|
|
|
| ||||
(In millions) |
| Adjusted Cost |
|
| Unrealized Gain |
|
| Unrealized Loss |
|
| Fair Value |
| ||||
As of March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposit |
| $ | 4 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 4 |
|
Equity mutual fund |
|
| 160 |
|
|
| 41 |
|
|
| (1 | ) |
|
| 200 |
|
Fixed income mutual fund |
|
| 235 |
|
|
| 0 |
|
|
| (16 | ) |
|
| 219 |
|
Fair value |
| $ | 399 |
|
| $ | 41 |
|
| $ | (17 | ) |
| $ | 423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 and six months ended DecemberMarch 31, 20172022 and 2016.2021.
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Investment income |
| $ | 2 |
|
| $ | 3 |
|
| $ | 10 |
|
| $ | 8 |
|
Net gains (losses) |
|
| (28 | ) |
|
| (7 | ) |
|
| (24 | ) |
|
| 11 |
|
Disbursements |
|
| (21 | ) |
|
| (10 | ) |
|
| (28 | ) |
|
| (18 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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. 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 and six months ended
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Foreign currency derivative gain (loss) |
| $ | (11 | ) |
| $ | 0 |
|
| $ | (9 | ) |
| $ | 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Foreign currency derivative loss | $ | (11 | ) | $ | (8 | ) |
The following table summarizes the fair values of the outstanding foreign currency derivatives as of
|
| March 31 |
|
| September 30 |
| ||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Foreign currency derivative assets |
| $ | 3 |
|
| $ | 1 |
|
Notional contract values |
|
| 202 |
|
|
| 150 |
|
|
|
|
|
|
|
| ||
Foreign currency derivative liabilities |
| $ | 2 |
|
| $ | 2 |
|
Notional contract values |
|
| 442 |
|
|
| 212 |
|
|
|
|
|
|
|
|
11
Commodity derivatives
To manage its exposure to the market price volatility of natural gas consumed by its U.S. plants during the manufacturing process, Ashland regularly enters into forward contracts that are designated as cash flow hedges. The following table summarizes the net gains and losses recognized during the three and six months ended March 31, 2022 and 2021 within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss).
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Commodity derivative gain (loss) |
| $ | 2 |
|
| $ | 0 |
|
| $ | 4 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
The following table summarizes the fair values of the outstanding commodity derivatives as of March 31, 20172022, and September 30, 2017,2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.
|
| March 31 |
|
| September 30 |
| ||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Commodity derivative assets |
| $ | 5 |
|
| $ | 5 |
|
Notional contract values |
|
| 10 |
|
|
| 6 |
|
|
|
|
|
|
|
| ||
Commodity derivative liabilities |
| $ | — |
|
| $ | — |
|
Notional contract values |
|
| 1 |
|
|
| — |
|
|
|
|
|
|
|
|
Total return derivatives
Ashland maintains certain employee stock based compensation programs whereby certain employees receive awards that entitle them to a cash payout based on Ashland's stock price at a future date. To manage its exposure to the changes in fair value of the shares that determine the payout, Ashland entered into a Total Return Swap (TRS) in fiscal year 2022. The company pays a floating rate, based on LIBOR plus an interest rate spread on the notional amount of the TRS. The TRS is designed to substantially offset changes in the stock based compensation liabilities due to the change in the fair value of Ashland's stock. The contract term of the TRS is through December 2022 and is settled on quarterly basis. The following table summarized the net gains and losses recognized for the three and six months ended March 31, 2022 and 2021 within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss).
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Total return swap gain (loss) |
| $ | (1 | ) |
| $ | 0 |
|
| $ | (1 | ) |
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the fair values of the outstanding TRS as of March 31, 2022 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.
|
| March 31 |
|
| September 30 |
| ||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Total return swap assets |
| $ | 1 |
|
| $ | 0 |
|
Notional contract values |
|
| 8 |
|
|
| 0 |
|
|
|
|
|
|
|
|
12
Other financial instruments
At March 31, 2022 and September 30, 2021, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $2,614$1,352 million and 2,615$1,622 million, respectively, compared to a fair value of $2,755$1,356 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 therates. The carrying value of long-term debt with variable interest approximated fair value hierarchy.
NOTE F – INVENTORIES
Inventories are carried at the lower of cost or market.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.
The following table summarizes Ashland’s inventories as of the reported Condensed Consolidated Balance Sheet dates.
|
| March 31 |
|
| September 30 |
| ||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Finished products |
| $ | 330 |
|
| $ | 282 |
|
Raw materials, supplies and work in process |
|
| 243 |
|
|
| 191 |
|
|
| $ | 573 |
|
| $ | 473 |
|
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 |
NOTE G – GOODWILL AND OTHER INTANGIBLES
Goodwill
Ashland reviewstests 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 its reporting units forrecords an impairment loss based on the allocationdifference between fair value and carrying amount, not to exceed the associated carrying amount of goodwill are itsper reporting unit.
No indicators of impairment were identified in the three reportable segments: Specialty Ingredients, Composites and Intermediates and Solvents. Atsix months ended March 31, 2022.
Ashland’s assessment of an impairment on any of these assets classified currently as having indefinite lives, including goodwill, could 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.
The following is a progression of goodwill by reportable segment for the threesix months ended DecemberMarch 31, 2017.
| 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 |
| (16 | ) |
|
| (3 | ) |
|
| (7 | ) |
|
| 0 |
|
|
| (26 | ) |
Balance at March 31, 2022 | $ | 840 |
|
| $ | 126 |
|
| $ | 438 |
|
| $ | 0 |
|
| $ | 1,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||
13
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 years.
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 and six months ended March 31, 2022.
Intangible assets were comprised of the following as of
| March 31, 2022 |
| |||||||||
| Gross |
|
|
|
|
| Net |
| |||
| carrying |
|
| Accumulated |
|
| carrying |
| |||
(In millions) | amount |
|
| amortization |
|
| amount |
| |||
Definite-lived intangibles |
|
|
|
|
|
|
|
| |||
Trademarks and trade names | $ | 99 |
|
| $ | (35 | ) |
| $ | 64 |
|
Intellectual property |
| 744 |
|
|
| (516 | ) |
|
| 228 |
|
Customer and supplier relationships |
| 839 |
|
|
| (368 | ) |
|
| 471 |
|
Total definite-lived intangibles |
| 1,682 |
|
|
| (919 | ) |
|
| 763 |
|
|
|
|
|
|
|
|
|
| |||
Indefinite-lived intangibles |
|
|
|
|
|
|
|
| |||
Trademarks and trade names |
| 278 |
|
|
| — |
|
|
| 278 |
|
Total intangible assets | $ | 1,960 |
|
| $ | (919 | ) |
| $ | 1,041 |
|
| 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 |
|
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 |
Amortization expense recognized on intangible assets was $24$24 million and $19$22 million for the three months ended DecemberMarch 31, 20172022 and 2016,2021, respectively, and $47 million and $43 million for the six months ended March 31, 2022 and 2021, 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$95 million in 20182022 (includes threesix months actual and ninesix months estimated), $90$95 million in 2019, $892023, $81 million in 2020, $892024, $76 million in 20212025 and $87$72 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.
14
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) |
| March 31, 2022 |
|
| September 30, 2021 |
| ||
3.375% Senior Notes, due 2031 |
| $ | 450 |
|
| $ | 450 |
|
2.00% Senior Notes, due 2028 (Euro 500 million principal) |
|
| 558 |
|
|
| 580 |
|
6.875% notes, due 2043 |
|
| 282 |
|
|
| 282 |
|
Term loan A |
|
| 0 |
|
|
| 250 |
|
Accounts receivable securitizations |
|
| 0 |
|
|
| 117 |
|
6.50% junior subordinated notes, due 2029 |
|
| 59 |
|
|
| 57 |
|
Revolving credit facility |
|
| 0 |
|
|
| 225 |
|
Other (a) |
|
| (13 | ) |
|
| 9 |
|
Total debt |
|
| 1,336 |
|
|
| 1,970 |
|
Short-term debt (includes current portion of long-term debt) |
|
| 0 |
|
|
| (374 | ) |
Long-term debt (less current portion) |
| $ | 1,336 |
|
| $ | 1,596 |
|
|
|
|
|
|
|
|
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 | |||||
Other (a) | (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 | |||
As of March 31, 2022, Ashland had 0 long-term debt by year (including the current portion and excluding(excluding debt issuance costs) are as follows: $5 million remaining in 2018, $11 million in 2019, $269 million in 2020, $56 million in 2021maturing within the next 5 years.
Accounts Receivable Facilities and $1,279 million in 2022.
U.S. Accounts Receivable Sales Program
Ashland Financing Activities
Ashland recognized a $92loss of less than $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 and six months ended DecemberMarch 31, 2016.
15
Foreign Accounts Receivable Securitization Facility
Ashland continues to maintain its Foreign 2018 Accounts Receivable Securitization Facility. Ashland accounts for the Foreign 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. Ashland repaid all outstanding borrowings under the facility during the three and six months ended DecemberMarch 31, 2016.
Debt Repayments
2020 Credit Agreement
During the three and six months ended March 31, 2022, Ashland prepaid its Term loan A principal balance of $250 million.
Other Debt
During the three and six months ended March 31, 2022, Ashland repaid the outstanding balance on its European short-term loan facility for $23 million.
Available borrowing capacity
The borrowing capacity remaining under the 20172020 Credit Agreement which included the $600 million Revolving Credit Facility was $467$581 million due to an outstanding balance of $285 million,0, as well as a reduction of $48$19 million for letters of credit outstanding at Decemberas of March 31, 2017.2022. Ashland's total borrowing capacity at DecemberMarch 31, 20172022 was $498$692 million, which included $31$111 million of available capacity from the accounts receivable securitization facility.
Additionally, Ashland had 0 available liquidity under its current U.S. Accounts Receivable Sales Program as of March 31, 2022 as total program amounts are currently drawn.
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 DecemberMarch 31, 2017,2022, Ashland is in compliance with all debt agreement covenant restrictions.
The maximum consolidated net leverage ratio permitted under Ashland's most recentcurrent credit agreement (the 20172020 Credit Agreement) is 4.5.4.0. At DecemberMarch 31, 2017,2022, Ashland’s calculation of the consolidated net leverage ratio was 3.9.
The minimum required consolidated interest coverage ratio under the 20172020 Credit Agreement during its entire duration is 3.0.3.0. At DecemberMarch 31, 2017,2022, Ashland’s calculation of the interest coverage ratio was 4.6.9.0.
NOTE I – INCOME TAXESLEASING ARRANGEMENTS
Ashland leases certain office buildings, transportation equipment, warehouses and storage facilities, and equipment. Substantially all of Ashland’s leases are operating leases or short-term leases. Real estate leases represented over 80% of the total lease liability at March 31, 2022 and September 30, 2021, respectively.
16
The components of lease cost recognized within the Statements of Consolidated Comprehensive Income (Loss) were as follows:
|
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
|
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| Location |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease cost |
| Selling, General & Administrative |
| $ | 3 |
|
| $ | 3 |
|
| $ | 6 |
|
| $ | 6 |
|
Operating lease cost |
| Cost of Sales |
|
| 4 |
|
|
| 3 |
|
|
| 8 |
|
|
| 7 |
|
Variable lease cost |
| Selling, General & Administrative |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
Variable lease cost |
| Cost of Sales |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
Short-term leases |
| Cost of Sales |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
Total lease cost |
|
|
| $ | 10 |
|
| $ | 9 |
|
| $ | 19 |
|
| $ | 18 |
|
The Tax Cutsfollowing table summarizes Ashland’s lease assets and Jobs Act (Tax Act)liabilities as presented in the Condensed Consolidated Balance Sheet:
(In millions) |
|
|
| March 31 |
|
| September 30 |
| ||
Assets |
|
|
|
|
|
| ||||
Operating lease assets, net |
| $ | 115 |
|
| $ | 124 |
| ||
Total lease assets |
| $ | 115 |
|
| $ | 124 |
| ||
|
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
| ||||
Current operating lease obligations |
| $ | 21 |
|
| $ | 23 |
| ||
Non-current operating lease obligations |
|
| 102 |
|
|
| 110 |
| ||
Total lease liabilities |
| $ | 123 |
|
| $ | 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 March 31, 2022 and September 30, 2021 was enacted on December 22, 2017. The Tax Act reduces 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. At December 31, 2017,approximately 15 years for each period.
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 completeddeterminable. 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 March 31, 2022 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.
Right-of-use assets exchanged for new operating lease obligations was $3 million and $6 million for the three months ended DecemberMarch 31, 2017, which is2022 and 2021, respectively, and $4 and $10 million for the six months ended March 31, 2022 and 2021.
The following table provides cash paid for amounts included 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.
|
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
|
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
|
|
| 2022 |
|
| 2021 |
|
| 2021 |
|
| 2020 |
| ||||
Operating cash flows from operating leases |
| $ | 7 |
|
| $ | 7 |
|
| $ | 14 |
|
| $ | 14 |
|
17
The 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.
(In millions) |
|
|
| March 31 |
|
| September 30 |
| ||
Remainder of 2022 |
| $ | 26 |
|
| $ | 39 |
| ||
2023 |
|
| 21 |
|
|
| 20 |
| ||
2024 |
|
| 17 |
|
|
| 16 |
| ||
2025 |
|
| 12 |
|
|
| 11 |
| ||
2026 |
|
| 10 |
|
|
| 9 |
| ||
Thereafter |
|
| 77 |
|
|
| 78 |
| ||
Total lease payments |
|
| 163 |
|
|
| 173 |
| ||
Less amount of lease payment representing interest |
|
| (40 | ) |
|
| (40 | ) | ||
Total present value of lease payments |
| $ | 123 |
|
| $ | 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 200%34% and 25% for the three and six months ended March 31, 2022.
The currentquarter tax rate was impacted by jurisdictional income mix, as well as $7 million from net unfavorable tax discrete items primarily related to restructuring and separation activity partially offset by a favorable valuation allowance adjustment for certain foreign tax credits. The current six month tax rate was impacted by jurisdictional income mix as well as $5 million from net unfavorable tax discrete items primarily related to restructuring and separation activity partially offset by a favorable valuation adjustment for certain foreign tax credits and adjustments to uncertain positions.
Prior fiscal year
The overall effective tax rate was a benefit of 26% for the three months ended DecemberMarch 31, 20172021 and a benefit of 17% for the six months ended March 31, 2021. The quarter tax rate was primarily impacted by jurisdictional income mix, and net unfavorableas well as $7 million from favorable tax discrete adjustments of $16items primarily related to uncertain tax positions. The six months tax rate impacted by $20 million from favorable tax discrete items primarily related to the Tax Act.
Unrecognized tax benefits
Changes in unrecognized tax benefits are summarized as follows for the threesix months ended DecemberMarch 31, 2017.2022.
(In millions) |
|
| |
Balance at October 1, 2021 | $ | 82 |
|
Increases related to positions taken in the current year |
| 2 |
|
Lapse of statute of limitations |
| (1 | ) |
Balance at March 31, 2022 | $ | 83 |
|
|
|
|
(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 |
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 $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.
18
NOTE JK - EMPLOYEE BENEFIT PLANS
Plan contributions
For the threesix months ended DecemberMarch 31, 2017,2022, Ashland contributed $2$3 million to its non-U.S. pension plans and zeroless than $1 million to its U.S. pension plans. Ashland expects to make additional contributions of approximately $5$2 million to its non-U.S. plans and $1less than $1 million to its U.S. pension plans during the remainder of 2018.
Plan Remeasurements
Following the completion of thesethe sale of its Performance Adhesives business segment on February 28, 2022, the post-retirement benefits for approximately 40 employees transferred to Arkema, all of whom participated in a non-contributory defined benefit plan changesin the U.S., were frozen. This resulted in a remeasurementsignificant decrease in total expected future years of service within the plan and required Ashland to remeasure the plan as February 28, 2022. As a result, Ashland recorded a $1 million actuarial gain of $2 million recorded within the other net period benefit cost (income)periodic benefits income caption onof the StatementStatements of Consolidated Comprehensive Income (Loss) for the three and six months ended DecemberMarch 31, 2016.
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) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Three months ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service cost |
| $ | 1 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 0 |
|
Interest cost |
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| 0 |
|
Expected return on plan assets |
|
| (2 | ) |
|
| (2 | ) |
|
| 0 |
|
|
| 0 |
|
Actuarial (gain) |
|
| (1 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total net periodic benefit costs |
| $ | (1 | ) |
| $ | 1 |
|
| $ | 1 |
|
| $ | 0 |
|
Six months ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service cost |
| $ | 2 |
|
| $ | 3 |
|
| $ | 0 |
|
| $ | 0 |
|
Interest cost |
|
| 3 |
|
|
| 3 |
|
|
| 1 |
|
|
| 1 |
|
Expected return on plan assets |
|
| (4 | ) |
|
| (4 | ) |
|
| 0 |
|
|
| 0 |
|
Actuarial (gain) |
|
| (1 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total net periodic benefit costs |
| $ | 0 |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 1 |
|
Other postretirement | |||||||||||||||
Pension benefits | benefits | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Three months ended December 31 | |||||||||||||||
Service cost (a) | $ | 2 | $ | 2 | $ | 1 | $ | — | |||||||
Interest cost (b) | 3 | 2 | — | 1 | |||||||||||
Expected return on plan assets (b) | (3 | ) | (3 | ) | — | — | |||||||||
Actuarial gain (b) | — | — | — | (2 | ) | ||||||||||
Total net periodic benefit costs (income) | $ | 2 | $ | 1 | $ | 1 | $ | (1 | ) | ||||||
For segment reporting purposes, service cost 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 Income (Loss). All other costs for continuing operationscomponents are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss)., which netted to a gain of $1 million for the three and six months ended March 31, 2022 and 0 for the three and six months ended March 31, 2021.
NOTE K
Asbestos litigation
Ashland and 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.
19
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 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).
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 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.
|
| Six months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||
Open claims - beginning of year |
|
| 46 |
|
|
| 49 |
|
|
| 49 |
|
|
| 53 |
|
|
| 53 |
|
New claims filed |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
Claims settled |
|
| (1 | ) |
|
| 0 |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
Claims dismissed |
|
| (1 | ) |
|
| (3 | ) |
|
| (4 | ) |
|
| (5 | ) |
|
| (1 | ) |
Open claims - end of period |
|
| 45 |
|
|
| 47 |
|
|
| 46 |
|
|
| 49 |
|
|
| 53 |
|
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 |
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 HR&A.
During the most recent annual update of this estimate completed during the June 20172021 fiscal quarter, 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$301 million at DecemberMarch 31, 20172022 compared to
A progression of activity in the asbestos reserve is presented in the following table.
|
| Six months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||
Asbestos reserve - beginning of year |
| $ | 320 |
|
| $ | 335 |
|
| $ | 335 |
|
| $ | 352 |
|
| $ | 380 |
|
Reserve adjustment |
|
| 0 |
|
|
| 0 |
|
|
| 12 |
|
|
| 13 |
|
|
| 1 |
|
Amounts paid |
|
| (19 | ) |
|
| (15 | ) |
|
| (27 | ) |
|
| (30 | ) |
|
| (29 | ) |
Asbestos reserve - end of period (a) |
| $ | 301 |
|
| $ | 320 |
|
| $ | 320 |
|
| $ | 335 |
|
| $ | 352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ) | |||||||||
Asbestos reserve - end of period (a) | $ | 409 | $ | 406 | $ | 419 | $ | 415 | $ | 409 | |||||||||
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.
20
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. Substantially allA substantial portion of the estimated receivables from insurance companies are expected to be due from domestic insurers, all of which are solvent.
At DecemberMarch 31, 2017,2022, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $151$98 million (excluding the Hercules receivable for asbestos claims) compared to $155$100 million at September 30, 2017.2021. During the June 20172021 fiscal quarter, 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.
A progression of activity in the Ashland insurance receivable is presented in the following table.
|
| Six months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 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 |
|
| (2 | ) |
|
| (5 | ) |
|
| (9 | ) |
|
| (11 | ) |
|
| (12 | ) |
Insurance receivable - end of period (b) |
| $ | 98 |
|
| $ | 96 |
|
| $ | 100 |
|
| $ | 103 |
|
| $ | 123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ) | |||||||||
Insurance receivable - end of period (a) | $ | 151 | $ | 149 | $ | 155 | $ | 151 | $ | 150 | |||||||||
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.
|
| Six months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | ||||||||||||||
December 31 | Years ended September 30 | |||||||||||||
(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 |
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 HR&A.Gnarus. As a result of the most recent annual update of this estimate, completed during the June 20172021 fiscal quarter, 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$207 million at
21
A progression of activity in the asbestos reserve is presented in the following table.
|
| Six months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||
Asbestos reserve - beginning of year |
| $ | 217 |
|
| $ | 229 |
|
| $ | 229 |
|
| $ | 252 |
|
| $ | 282 |
|
Reserve adjustments |
|
| 0 |
|
|
| 0 |
|
|
| 8 |
|
|
| (3 | ) |
|
| (10 | ) |
Amounts paid |
|
| (10 | ) |
|
| (9 | ) |
|
| (20 | ) |
|
| (20 | ) |
|
| (20 | ) |
Asbestos reserve - end of period (a) |
| $ | 207 |
|
| $ | 220 |
|
| $ | 217 |
|
| $ | 229 |
|
| $ | 252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||
Hercules asbestos-related receivables
For the Hercules asbestos-related obligations, certain reimbursement obligations pursuant to coverage-in-place agreements with insurance carriers exist. 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.
As of
A progression of activity in the Hercules insurance receivable is presented in the following table.
|
| Six months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||
Insurance receivable - beginning of year |
| $ | 47 |
|
| $ | 47 |
|
| $ | 47 |
|
| $ | 49 |
|
| $ | 54 |
|
Receivable adjustment (a) |
|
| 0 |
|
|
| (1 | ) |
|
| 1 |
|
|
| (2 | ) |
|
| (5 | ) |
Amounts collected |
|
| (1 | ) |
|
| 0 |
|
|
| (1 | ) |
|
| 0 |
|
|
| 0 |
|
Insurance receivable - end of period (b) |
| $ | 46 |
|
| $ | 46 |
|
| $ | 47 |
|
| $ | 47 |
|
| $ | 49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
22
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. 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 reasonably
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
Ashland’s reserves for environmental remediation and related environmental litigation amounted to $168$192 million at DecemberMarch 31, 20172022 compared to $163$207 million at September 30, 2017,2021, of which $125$137 million at DecemberMarch 31, 20172022 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.
The following table provides a reconciliation of the changes in the environmental remediation reserves during the
|
| Six months ended |
| |||||
|
| March 31 |
| |||||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Reserve - beginning of period |
| $ | 207 |
|
| $ | 200 |
|
Disbursements |
|
| (30 | ) |
|
| (23 | ) |
Revised obligation estimates and accretion |
|
| 15 |
|
|
| 16 |
|
Reserve - end of period |
| $ | 192 |
|
| $ | 193 |
|
|
|
|
|
|
|
|
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 |
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 DecemberMarch 31, 20172022 and September 30, 2017, 2021,
23
Ashland’s recorded receivable for these probable insurance recoveries was $14$17 million and $15$16 million, respectively, of which $13$15 million and $14$13 million at DecemberMarch 31, 20172022 andSeptember 30, 2017,2021, respectively, werewas classified in other noncurrent assets on the Condensed Consolidated Balance Sheets.
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 and six ended March 31, 2022 and 2021.
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Environmental expense |
| $ | 12 |
|
| $ | 10 |
|
| $ | 15 |
|
| $ | 15 |
|
Accretion |
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
Legal expense |
|
| 1 |
|
|
| 0 |
|
|
| 2 |
|
|
| 1 |
|
Total expense |
|
| 13 |
|
|
| 11 |
|
|
| 17 |
|
|
| 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Insurance receivable |
|
| (3 | ) |
|
| 0 |
|
|
| (3 | ) |
|
| (1 | ) |
Total expense, net of receivable activity (a) |
| $ | 10 |
|
| $ | 11 |
|
| $ | 14 |
|
| $ | 16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Environmental expense | $ | 12 | $ | 4 | |||
Accretion | 1 | — | |||||
Legal expense | 1 | 2 | |||||
Total expense | 14 | 6 | |||||
Insurance receivable (a) | — | — | |||||
Total expense, net of receivable activity | $ | 14 | $ | 6 | |||
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 $412$455 million. The largest reserve for any site is approximately 15%14% of the remediation reserve.
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 L
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
24
shares outstanding was approximately 0.7 million and 0.91 million at DecemberMarch 31, 20172022 and 2016,2021, respectively. Earnings per share is reported under the treasury stock method.
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions, except per share data) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator for basic and diluted EPS - |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 38 |
|
| $ | 25 |
|
| $ | 70 |
|
| $ | 68 |
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator for basic EPS - Weighted- |
|
| 56 |
|
|
| 61 |
|
|
| 57 |
|
|
| 61 |
|
Share based awards convertible to common shares |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Denominator for diluted EPS - Adjusted weighted- |
|
| 57 |
|
|
| 62 |
|
|
| 58 |
|
|
| 62 |
|
EPS from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.67 |
|
| $ | 0.41 |
|
| $ | 1.22 |
|
| $ | 1.11 |
|
Diluted |
|
| 0.66 |
|
|
| 0.40 |
|
|
| 1.20 |
|
|
| 1.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE L
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 | |||||
Share-based awards convertible to common shares (a) | — | — | |||||
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 | ) | |||
Stock repurchase programs
In April 2015, Ashland's Board of Directors 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.
On March 1, 2022, under its current stock repurchase program, Ashland entered into an agreement to repurchase an aggregate amount of $200 million of Ashland common stock using open-market purchases under rule 10b-18. Under the terms of the agreement, the bank will purchase a number of shares of Ashland common stock for a pre-determined amount on various trading days dependent upon Ashland's prevailing stock price on that date. The term of the agreement is through September 1, 2022. As of DecemberMarch 31, 2017, $5002022, Ashland paid $155 million and received 1.7 million shares of share repurchase authorization remainscommon stock under the 2015 stock repurchase program.
Stockholder dividends
Dividends 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 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 quartersquarter of fiscal 2017.
25
Accumulated other comprehensive income (loss)
Components of other comprehensive income (loss) recorded in the Statements of Consolidated Comprehensive Income (Loss) are presented below, before taxbelow.
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
(In millions) |
| Before |
|
| Tax |
|
| Net of |
|
| Before |
|
| Tax |
|
| Net of |
| ||||||
Three months ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized translation gain (loss) |
| $ | (5 | ) |
| $ | 0 |
|
| $ | (5 | ) |
| $ | (33 | ) |
| $ | (1 | ) |
| $ | (34 | ) |
Unrealized gain (loss) on commodity hedges |
|
| 6 |
|
|
| (1 | ) |
|
| 5 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total other comprehensive income (loss) |
| $ | 1 |
|
| $ | (1 | ) |
| $ | — |
|
| $ | (33 | ) |
| $ | (1 | ) |
| $ | (34 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Six months ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized translation gain (loss) |
| $ | (22 | ) |
| $ | 1 |
|
| $ | (21 | ) |
| $ | 15 |
|
| $ | (1 | ) |
| $ | 14 |
|
Unrealized gain on commodity hedges |
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total other comprehensive income (loss) |
| $ | (21 | ) |
| $ | 1 |
|
| $ | (20 | ) |
| $ | 15 |
|
| $ | (1 | ) |
| $ | 14 |
|
Summary of stockholders’ equity
A reconciliation of changes in stockholders’ equity are as follows:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Common stock and paid in capital |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | 328 |
|
| $ | 771 |
|
| $ | 328 |
|
| $ | 770 |
|
Compensation expense and common shares issued (a) |
|
| 4 |
|
|
| 2 |
|
|
| 4 |
|
|
| 3 |
|
Common shares purchased under repurchase program (b) |
|
| (155 | ) |
|
| 0 |
|
|
| (155 | ) |
|
| 0 |
|
Balance, end of period |
|
| 177 |
|
|
| 773 |
|
|
| 177 |
|
|
| 773 |
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
|
| 2,827 |
|
|
| 2,686 |
|
|
| 2,796 |
|
|
| 2,649 |
|
Adoption of new accounting pronouncements |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (2 | ) |
Net income |
|
| 786 |
|
|
| 41 |
|
|
| 834 |
|
|
| 97 |
|
Regular dividends |
|
| (17 | ) |
|
| (17 | ) |
|
| (34 | ) |
|
| (34 | ) |
Balance, end of period |
|
| 3,596 |
|
|
| 2,710 |
|
|
| 3,596 |
|
|
| 2,710 |
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
|
| (392 | ) |
|
| (335 | ) |
|
| (372 | ) |
|
| (383 | ) |
Unrealized translation gain (loss) |
|
| (5 | ) |
|
| (34 | ) |
|
| (21 | ) |
|
| 14 |
|
Unrealized gain on commodity hedges |
|
| 5 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Balance, end of period |
|
| (392 | ) |
|
| (369 | ) |
|
| (392 | ) |
|
| (369 | ) |
Total stockholders' equity |
| $ | 3,381 |
|
| $ | 3,114 |
|
| $ | 3,381 |
|
| $ | 3,114 |
|
Cash dividends declared per common share |
| $ | 0.300 |
|
| $ | 0.275 |
|
| $ | 0.600 |
|
| $ | 0.550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
NOTE M – 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 | |||||||||||||||||||||||
credits included in net income (a) | — | — | — | (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 | ) | ||||||||
The components of Ashland’s pretaxpre-tax stock-based compensation expense included in continuing operations are as follows:
| Three months ended |
|
| Six months ended |
| ||||||||||
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) | 2022 (a) |
|
| 2021 (b) |
|
| 2022 (a) |
|
| 2021 (b) |
| ||||
SARs | $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1 |
|
Nonvested stock awards |
| 2 |
|
|
| 4 |
|
|
| 6 |
|
|
| 6 |
|
Performance share awards |
| 3 |
|
|
| 1 |
|
|
| 5 |
|
|
| 3 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 11 |
|
| $ | 10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 (a) | 2016 (b) | |||||
SARs | $ | 1 | $ | 1 | |||
Nonvested stock awards | 6 | 4 | |||||
Performance awards | 4 | 2 | |||||
$ | 11 | $ | 7 | ||||
27
NOTE P – REVENUE
Disaggregation of December 31, 2017, there was $8 million of total unrecognized compensation costs related torevenue
Ashland disaggregates its revenue by segment and geographical region as Ashland believes these awards.
Sales by geography |
| |||||||||||||||
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Life Sciences |
| |||||||||||||||
North America |
| $ | 62 |
|
| $ | 60 |
|
| $ | 115 |
|
| $ | 111 |
|
Europe |
|
| 66 |
|
|
| 60 |
|
|
| 121 |
|
|
| 114 |
|
Asia Pacific |
|
| 52 |
|
|
| 47 |
|
|
| 98 |
|
|
| 94 |
|
Latin America & other |
|
| 24 |
|
|
| 18 |
|
|
| 40 |
|
|
| 36 |
|
|
| $ | 204 |
|
| $ | 185 |
|
| $ | 374 |
|
| $ | 355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Personal Care |
| |||||||||||||||
North America |
| $ | 55 |
|
| $ | 42 |
|
| $ | 96 |
|
| $ | 83 |
|
Europe |
|
| 69 |
|
|
| 57 |
|
|
| 125 |
|
|
| 103 |
|
Asia Pacific |
|
| 30 |
|
|
| 22 |
|
|
| 62 |
|
|
| 43 |
|
Latin America & other |
|
| 18 |
|
|
| 16 |
|
|
| 35 |
|
|
| 33 |
|
|
| $ | 172 |
|
| $ | 137 |
|
| $ | 318 |
|
| $ | 262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Specialty Additives |
| |||||||||||||||
North America |
| $ | 61 |
|
| $ | 48 |
|
| $ | 114 |
|
| $ | 93 |
|
Europe |
|
| 69 |
|
|
| 62 |
|
|
| 125 |
|
|
| 114 |
|
Asia Pacific |
|
| 45 |
|
|
| 39 |
|
|
| 85 |
|
|
| 80 |
|
Latin America & other |
|
| 7 |
|
|
| 9 |
|
|
| 14 |
|
|
| 18 |
|
|
| $ | 182 |
|
| $ | 158 |
|
| $ | 338 |
|
| $ | 305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Intermediates |
| |||||||||||||||
North America |
| $ | 43 |
|
| $ | 20 |
|
| $ | 74 |
|
| $ | 40 |
|
Europe |
|
| 10 |
|
|
| 8 |
|
|
| 19 |
|
|
| 12 |
|
Asia Pacific |
|
| 11 |
|
|
| 7 |
|
|
| 21 |
|
|
| 14 |
|
Latin America & other |
|
| 2 |
|
|
| 2 |
|
|
| 5 |
|
|
| 3 |
|
|
| $ | 66 |
|
| $ | 37 |
|
| $ | 119 |
|
| $ | 69 |
|
Trade receivables
Trade receivables are granted annually,defined as receivables arising from contracts with each award covering a three-year vesting period.
28
NOTE 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
On February 28, 2022, Ashland completed the separation from Valvoline Inc. on May 12, 2017, Ashland'ssale of its Performance Adhesives segment. The operating results and cash flows for the Performance 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 include 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 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.
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.
29
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 and six months ended DecemberMarch 31, 20172022 and 2016.
| Three months ended |
|
| Six months ended |
| ||||||||||
| March 31 |
|
| March 31 |
| ||||||||||
(In millions - unaudited) | 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
SALES |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 204 |
|
| $ | 185 |
|
| $ | 374 |
|
| $ | 355 |
|
Personal Care |
| 172 |
|
|
| 137 |
|
|
| 318 |
|
|
| 262 |
|
Specialty Additives |
| 182 |
|
|
| 158 |
|
|
| 338 |
|
|
| 305 |
|
Intermediates |
| 66 |
|
|
| 37 |
|
|
| 119 |
|
|
| 69 |
|
Intersegment sales (a) |
| (20 | ) |
|
| (8 | ) |
|
| (34 | ) |
|
| (14 | ) |
| $ | 604 |
|
| $ | 509 |
|
| $ | 1,115 |
|
| $ | 977 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 43 |
|
| $ | 35 |
|
| $ | 64 |
|
| $ | 64 |
|
Personal Care |
| 28 |
|
|
| 19 |
|
|
| 42 |
|
|
| 33 |
|
Specialty Additives (b) |
| 26 |
|
|
| 19 |
|
|
| 44 |
|
|
| 21 |
|
Intermediates |
| 27 |
|
|
| 3 |
|
|
| 42 |
|
|
| 5 |
|
Unallocated and other |
| (31 | ) |
|
| (28 | ) |
|
| (57 | ) |
|
| (57 | ) |
| $ | 93 |
|
| $ | 48 |
|
| $ | 135 |
|
| $ | 66 |
|
DEPRECIATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 8 |
|
| $ | 8 |
|
| $ | 16 |
|
| $ | 17 |
|
Personal Care |
| 9 |
|
|
| 9 |
|
|
| 18 |
|
|
| 19 |
|
Specialty Additives |
| 17 |
|
|
| 16 |
|
|
| 33 |
|
|
| 33 |
|
Intermediates |
| 3 |
|
|
| 4 |
|
|
| 7 |
|
|
| 6 |
|
| $ | 37 |
|
| $ | 37 |
|
| $ | 74 |
|
| $ | 75 |
|
AMORTIZATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 7 |
|
| $ | 7 |
|
| $ | 14 |
|
| $ | 14 |
|
Personal Care |
| 12 |
|
|
| 10 |
|
|
| 24 |
|
|
| 19 |
|
Specialty Additives |
| 5 |
|
|
| 5 |
|
|
| 9 |
|
|
| 9 |
|
Intermediates |
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
| $ | 24 |
|
| $ | 22 |
|
| $ | 47 |
|
| $ | 43 |
|
EBITDA (c) |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 58 |
|
| $ | 50 |
|
| $ | 94 |
|
| $ | 95 |
|
Personal Care |
| 49 |
|
|
| 38 |
|
|
| 84 |
|
|
| 71 |
|
Specialty Additives |
| 48 |
|
|
| 40 |
|
|
| 86 |
|
|
| 63 |
|
Intermediates |
| 30 |
|
|
| 7 |
|
|
| 49 |
|
|
| 12 |
|
Unallocated and other |
| (31 | ) |
|
| (28 | ) |
|
| (57 | ) |
|
| (57 | ) |
| $ | 154 |
|
| $ | 107 |
|
| $ | 256 |
|
| $ | 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
30
| March 31 |
|
| September 30 |
| ||
(In millions - unaudited) | 2022 |
|
| 2021 |
| ||
TOTAL ASSETS |
|
|
|
|
| ||
Life Sciences | $ | 1,940 |
|
| $ | 1,945 |
|
Personal Care |
| 1,114 |
|
|
| 1,145 |
|
Specialty Additives |
| 1,638 |
|
|
| 1,636 |
|
Intermediates |
| 175 |
|
|
| 160 |
|
Unallocated and other |
| 1,913 |
|
|
| 1,726 |
|
| $ | 6,780 |
|
| $ | 6,612 |
|
|
|
|
|
|
|
31
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. 32 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 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, and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements, including,the ongoing Ukraine and Russia conflict, on the geographies in which Ashland operates, the end markets Ashland serves and 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.premier 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 6,5003,800 employees worldwide, Ashland serves customers in more than 100 countries.60%67% for both the three and six months ended DecemberMarch 31, 20172022 and 2016.68% for the three and six months ended March 31, 2021. Sales by region expressed as a percentage of total consolidated sales for the three and six months ended DecemberMarch 31 were as follows:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
Sales by Geography |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
North America (a) |
|
| 33 | % |
|
| 32 | % |
|
| 33 | % |
|
| 32 | % |
Europe |
|
| 35 | % |
|
| 37 | % |
|
| 35 | % |
|
| 35 | % |
Asia Pacific |
|
| 23 | % |
|
| 22 | % |
|
| 24 | % |
|
| 24 | % |
Latin America & other |
|
| 9 | % |
|
| 9 | % |
|
| 8 | % |
|
| 9 | % |
|
|
| 100 | % |
|
| 100 | % |
|
| 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 $1.65 billion. The transaction closed February 28, 2022. Ashland received proceeds from Valvoline Inc.,the sale of approximately $1.7 billion, net of transaction costs. A portion of these proceeds were used during the three and six months ended March 31, 2022 to reduce outstanding debt and execute an open-market stock repurchase agreement. Ashland intends to use the remaining proceeds to invest in the growth of its other reportable core businesses and explore further actions to optimize its balance sheet through debt reductions or utilization of unused authorized share repurchase program amounts. The divestiture represented a strategic shift in Ashland's businesses are managedbusiness and qualified 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. See Notes B and C of the Notes to the Condensed Consolidated Financial Statements for additional information.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.DecemberMarch 31 werewas as follows:
33
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
Sales by Reportable Segment |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Life Sciences |
|
| 34 | % |
|
| 36 | % |
|
| 34 | % |
|
| 36 | % |
Personal Care |
|
| 28 | % |
|
| 27 | % |
|
| 29 | % |
|
| 27 | % |
Specialty Additives |
|
| 30 | % |
|
| 31 | % |
|
| 30 | % |
|
| 31 | % |
Intermediates |
|
| 8 | % |
|
| 6 | % |
|
| 7 | % |
|
| 6 | % |
|
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
KEY DEVELOPMENTS
Business results current quarter
Ashland recorded net income of $786 million (income of $38 million in continuing operations and $748 million in discontinued operations) and net income of $41 million (income of $25 million in continuing operations and $16 million in discontinued operations) in the current and prior year quarters, respectively. Ashland’s EBITDA of $910 million increased by $792 million for the current quarter, primarily due to a $732 million gain related to Performance Adhesives recorded within income from discontinued operations for the current quarter, while Ashland’s Adjusted EBITDA of $163 million increased by $47 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 disciplined pricing leading to cost recovery in a high-inflation environment, improved product mix, and the impact of the Schülke acquisition, partially offset by unfavorable currency exchange and higher selling, general and administration costs.
Uncertainty relating to the Ukraine and Russia conflict
Business disruptions, including those related to the ongoing conflict between Ukraine and Russia continue to impact businesses around the globe. While it is impossible to predict the effects of the conflict such as possible escalating geopolitical tensions (including the imposition of existing and additional sanctions by the U.S and the European Union on Russia), worsening macroeconomic and general business conditions, supply chain interruptions and unfavorable energy markets, the impact could be material. Ashland is closely monitoring the situation and maintains business continuity plans that are intended to continue operations or mitigate the effects of events that could disrupt its business.
Ashland does not have manufacturing operations in Russia, Ukraine, or Belarus. Ashland sells (or previously sold) additives and specialty ingredients to manufacturers in these countries for their use in pharmaceuticals, personal care, and coatings applications. Sales to Russia and Belarus were previously limited and our products were primarily used in products and applications that are essential to the population's wellbeing and currently support our customers' humanitarian efforts. We have sales controls in place to ensure that future potential sales into the region are only to support critical pharmaceutical or personal hygiene products which are essential for the general population and in accordance with any applicable sanctions. Sales to Ukraine, Russia, and Belarus represent less than 1% of total sales and less than 1% of total assets (related to accounts receivable).
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.
34
Ashland continues to successfully navigate the uncertain environment associated with the COVID-19 pandemic. Through the second 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. 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
Ashland completed the sale of its Performance Adhesives business segment on February 28, 2022, resulting in proceeds to Ashland of approximately $1.7 billion, net of transaction costs. Ashland recognized an after-tax gain of $732 million within the Income from Discontinued Operations caption of the Statement of Consolidated Comprehensive Income (Loss) for the three and six months ended March 31, 2022 related to the sale of Performance Adhesives. Since this transaction represented 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 $3 million and $4 million for the three months ended March 31, 2022 and 2021, respectively, and $7 million and $8 million for the six months ended March 31, 2022 and 2021, respectively. Ashland is currently implementing plans to eliminate certain of these costs.
Debt Repayment Activities
Ashland used a portion of the proceeds from the sale of its Performance Adhesives segment to prepay $250 million of principal on its Term loan A, reduce $240 million of outstanding borrowing under the 2020 Revolving Credit Facility, $113 million of outstanding borrowing under the Foreign Accounts Receivable Securitization Facility, and repay $23 million outstanding balance on its European short-term loan facility during the three and six months ended March 31, 2022.
Stock Repurchase program agreements
In September 2021, under the 2018 stock repurchase program, Ashland entered into an accelerated share repurchase agreement (2021 ASR Agreement). Under the 2021 ASR Agreement, Ashland paid an initial purchase price of $450 million and received an initial delivery of 3.9 million shares of common stock during September 2021. The bank exercised its early termination option under the 2021 ASR Agreement in February 2022, and an additional 0.7 million shares were repurchased, bringing the total shares repurchased upon settlement to 4.6 million.
On March 1, 2022, under its current stock repurchase program, Ashland entered into an agreement to repurchase an aggregate amount of $200 million of Ashland common stock using open-market purchases under rule 10b-18. Under the terms of the agreement, the bank will purchase a number of shares of Ashland common stock for a pre-determined amount on various trading days dependent upon Ashland's prevailing stock price on that date. The term of the agreement is through September 1, 2022. As of March 31, 2022, Ashland paid $155 million and received 1.7
35
million shares of common stock under the agreement. On April 8, 2022, Ashland completed repurchases under this agreement repurchasing a total of 2.15 million shares.
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 March 31, 2022, 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.
Current Quarter - Key financial results for the three months ended March 31, 2022 and 2021 included the following:
Year-to-date - Key financial results for the six months ended March 31, 2022 and 2021 included the following:
36
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
Current Quarter - Operating income/loss amounted to income of $93 million and $48 million for the three months ended March 31, 2022 and 2021, 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 March 31, 2022 and 2021 included depreciation and amortization of $61 million and $59 million, respectively.
Year-to-date - Operating income/loss amounted to income of $135 million and $66 million for the six months ended March 31, 2022 and 2021, respectively. The current and prior year periods' 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:
37
Operating income for the six months ended March 31, 2022 and 2021 included depreciation and amortization of $121 million and $118 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 and six months ended March 31, 2022 and 2021.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Sales |
| $ | 604 |
|
| $ | 509 |
|
| $ | 95 |
|
| $ | 1,115 |
|
| $ | 977 |
|
| $ | 138 |
|
The following table provides a reconciliation of the change in sales for the three and six months ended March 31, 2022 and 2021.
|
| Three months ended |
|
| Six months ended |
| ||
(In millions) |
| March 31, 2022 |
|
| March 31, 2022 |
| ||
Volume/product mix |
| $ | 14 |
|
| $ | 18 |
|
Pricing |
|
| 71 |
|
|
| 96 |
|
Currency exchange |
|
| (13 | ) |
|
| (18 | ) |
Acquisition |
|
| 23 |
|
|
| 42 |
|
Change in sales |
| $ | 95 |
|
| $ | 138 |
|
Current Quarter - Sales for the current quarter increased $95 million compared to the prior year quarter. Favorable volume/product mix, including the acquisition of Schülke within the Personal Care reportable segment, and product pricing associated with cost inflation pricing actions increased sales by $37 million and $71 million, respectively, partially offset by unfavorable foreign currency exchange of $13 million.
Year-to-date - Sales for the current year increased $138 million compared to the prior year period. Favorable volume/product mix, including the acquisition of Schülke within the Personal Care reportable segment, and product pricing associated with cost inflation pricing actions increased sales by $60 million and $96 million, respectively, partially offset by unfavorable foreign currency exchange of $18 million.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Cost of sales |
| $ | 384 |
|
| $ | 349 |
|
| $ | 35 |
|
| $ | 735 |
|
| $ | 670 |
|
| $ | 65 |
|
Gross profit as a percent of sales |
|
| 36.4 | % |
|
| 31.4 | % |
|
|
|
|
| 34.1 | % |
|
| 31.4 | % |
|
|
|
38
The following table provides a reconciliation of the change in cost of sales between the three and six months ended March 31, 2022 and 2021.
|
| Three months ended |
|
| Six months ended |
| ||
(In millions) |
| March 31, 2022 |
|
| March 31, 2022 |
| ||
Changes in: |
|
|
|
|
|
| ||
Volume |
| $ | 9 |
|
| $ | 12 |
|
Price/mix |
|
| 19 |
|
|
| 39 |
|
Currency exchange |
|
| (6 | ) |
|
| (10 | ) |
Acquisition |
|
| 13 |
|
|
| 24 |
|
Change in cost of sales |
| $ | 35 |
|
| $ | 65 |
|
Current Quarter - Cost of sales for the current quarter increased $35 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 $22 million, respectively. These increases were partially offset by foreign currency exchange, which decreased cost of sales by $6 million.
Year-to-date - Cost of sales for the current year increased $65 million compared to the prior year period. Price/mix, which includes cost inflation associated with plant manufacturing and shipping costs, and higher volume, including Schülke, increased cost of sales by $39 million and $36 million, respectively. These increases were partially offset by foreign currency exchange, which decreased cost of sales by $10 million.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Selling, general and administrative expense |
| $ | 90 |
|
| $ | 79 |
|
| $ | 11 |
|
| $ | 172 |
|
| $ | 180 |
|
| $ | (8 | ) |
As a percent of sales |
|
| 14.9 | % |
|
| 15.5 | % |
|
|
|
|
| 15.4 | % |
|
| 18.4 | % |
|
|
|
Current Quarter - Selling, general and administrative expense for the current quarter increased $11 million compared to the prior year quarter with expenses as a percent of sales decreasing 0.6 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:
Year-to-date - Selling, general and administrative expense for the current period decreased $8 million compared to the prior year period with expenses as a percent of sales decreasing 3.0 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year period were:
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Research and development expense |
| $ | 13 |
|
| $ | 11 |
|
| $ | 2 |
|
| $ | 26 |
|
| $ | 24 |
|
| $ | 2 |
|
39
Current Quarter - Research and development expense remained relatively consistent with the prior year quarter.
Year-to-date - Research and development expense remained relatively consistent with the prior year period.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Intangibles amortization expense |
| $ | 24 |
|
| $ | 22 |
|
| $ | 2 |
|
| $ | 47 |
|
| $ | 43 |
|
| $ | 4 |
|
Current Quarter - The increase in amortization expense in the current quarter comparedis due to netthe amortization of intangible assets associated with the Schülke acquisition.
Year-to-date - The increase in amortization expense in the current year period is due to the amortization of intangible assets associated with the Schülke acquisition.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Equity and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other income |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 6 |
|
| $ | (6 | ) |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 6 |
|
| $ | (6 | ) |
Current Quarter - Other income was zero in both the current year quarter and prior year quarter.
Year-to-date - Other income of $10$6 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 wasperiod is primarily due to growth in the Intermediatesa gain on sale of excess corporate property of roughly $4 million.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Net interest and other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
| $ | 16 |
|
| $ | 17 |
|
| $ | (1 | ) |
| $ | 33 |
|
| $ | 33 |
|
| $ | — |
|
Loss (income) from restricted investments |
|
| 26 |
|
|
| 4 |
|
|
| 22 |
|
|
| 14 |
|
|
| (19 | ) |
|
| 33 |
|
Other financing costs |
|
| 1 |
|
|
| 2 |
|
|
| (1 | ) |
|
| 2 |
|
|
| 3 |
|
|
| (1 | ) |
|
| $ | 43 |
|
| $ | 23 |
|
| $ | 20 |
|
| $ | 49 |
|
| $ | 17 |
|
| $ | 32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Quarter - Net interest and Solvents and Specialty Ingredients reportable segments, which reported increases to Adjusted EBITDA of $16other expense increased by $20 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 decreased $1 million primarily due to lower debt levels during the current quarter compared to the prior year quarter. Restricted investments loss of $26 million and $4 million included realized losses of $28 million compared to $7 million for the three months ended March 31, 2022 and 2021, respectively. See Note E for more information on the restricted investments.
Year-to-date - Net interest and other expense increased by $32 million during the current period compared to the prior year period. Interest expense remained flat in the current period compared to the prior year period. Restricted investments loss of $14 million and income of $19 million included realized losses of $24 million compared to gains of $11 million for the six months ended March 31, 2022 and 2021, respectively. See Note E for more information on the restricted investments.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Other net periodic benefit income |
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
Current Quarter - Other net periodic benefit income included a $1 million actuarial gain on the remeasurement of a pension plan during the current quarter. See Note K for more information.
Year-to-date - Other net periodic benefit income included a $1 million actuarial gain on the remeasurement of a pension plan during the current period. See Note K for more information.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
|
| 2021 |
|
| Change |
|
| 2022 |
|
|
| 2021 |
|
| Change |
| ||||
Net income on acquisitions and divestitures |
| $ | 7 |
|
| $ | (5 | ) |
| $ | 12 |
|
| $ | 7 |
|
| $ | 9 |
|
| $ | (2 | ) |
Current Quarter -The activity in the current quarter was related to a gain on the sale of an excess corporate property. The activity in the prior year quarter related to a $5 million expense associated with acquisition related transactional costs (including losses associated with foreign currency derivatives).
40
Year-to-date - The activity in the current year was related to a gain on the sale of Pharmachem,an excess corporate property. The activity in the increaseprior year related to a $5 million expense associated with acquisition related transactional costs (including losses associated with foreign currency derivatives) and a $14 million gain related to the sale of a Specialty Additives facility.
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Income tax expense (benefit) |
| $ | 20 |
|
| $ | (5 | ) |
| $ | 25 |
|
| $ | 24 |
|
| $ | (10 | ) |
| $ | 34 |
|
Effective tax rate |
|
| 34 | % |
|
| -25 | % |
|
|
|
|
| 26 | % |
|
| -17 | % |
|
|
|
Current Quarter - Ashland’s effective tax rate in profitabilityany 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 34% for the three months ended March 31, 2022 and was impacted by jurisdictional income mix, as well as net unfavorable discrete items of $7 million, primarily related to restructuring and separation activity partially offset by a favorable valuation allowance adjustment for certain foreign tax credits.
The overall effective tax rate was a benefit of 25% for the three months ended March 31, 2021 and was impacted by jurisdictional income mix, as well as favorable discrete items of $7 million primarily related to uncertain tax positions.
Year-to-date - 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 26% for the six months ended March 31, 2022 and was impacted by jurisdictional income mix, as well as net unfavorable discrete items of $5 million, primarily related to restructuring and separation activity partially offset by a favorable valuation allowance for certain foreign tax credits and adjustments to uncertain tax positions.
The overall effective tax rate was a benefit of 17% for the six months ended March 31, 2021 and was impacted by jurisdictional income mix, as well as favorable discrete items of $20 million primarily related to the sale of a Specialty IngredientsAdditives facility and adjustments to uncertain tax positions.
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, excluding 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 consolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results.
41
The effective tax rate during the three and six months ended March 31, 2022 and 2021 was significantly impacted by the following tax specific key items:
The following table is a calculation of the effective tax rate, excluding these key items.
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
|
| 2021 |
|
| 2022 |
|
|
| 2021 |
| ||
Income (loss) from continuing operations before income taxes |
| $ | 58 |
|
| $ | 20 |
|
| $ | 94 |
|
| $ | 58 |
|
Key items (pre-tax) (a) |
|
| 29 |
|
|
| 21 |
|
|
| 29 |
|
|
| 14 |
|
Adjusted income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
before income taxes |
| $ | 87 |
|
| $ | 41 |
|
| $ | 123 |
|
| $ | 72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income tax expense (benefit) |
| $ | 20 |
|
| $ | (5 | ) |
| $ | 24 |
|
| $ | (10 | ) |
Income tax rate adjustments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Tax effect of key items |
|
| 6 |
|
|
| 4 |
|
|
| 6 |
|
|
| 2 |
|
Tax specific key items: (b) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Uncertain tax positions |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
Valuation allowance |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
Restructuring and separation activity |
|
| (10 | ) |
|
| — |
|
|
| (10 | ) |
|
| 13 |
|
Total income tax rate adjustments |
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| 22 |
|
Adjusted income tax expense |
| $ | 20 |
|
| $ | 6 |
|
| $ | 24 |
|
| $ | 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effective tax rate, excluding key items (Non-GAAP) (c) |
|
| 23 | % |
|
| 15 | % |
|
| 20 | % |
|
| 17 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Income (loss) from discontinued |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Performance Adhesives |
| $ | 17 |
|
| $ | 18 |
|
| $ | (1 | ) |
| $ | 34 |
|
| $ | 36 |
|
| $ | (2 | ) |
Composites/Marl facility |
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
Water Technologies |
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Distribution |
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
|
| — |
|
Gain (loss) on disposal of discontinued |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Performance Adhesives |
|
| 732 |
|
|
| — |
|
|
| 732 |
|
|
| 732 |
|
|
| — |
|
|
| 732 |
|
Composites/Marl facility |
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| (4 | ) |
|
| 4 |
|
|
| $ | 748 |
|
| $ | 16 |
|
| $ | 732 |
|
| $ | 764 |
|
| $ | 29 |
|
| $ | 735 |
|
Current Quarter - The activity for Water Technologies, 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 $75 million and $12 million, and $88 million and $22 million, respectively, for the current and prior year quarter. A $732 million gain on disposal was recorded
42
in the current quarter associated with the February 28, 2022 closing of the Performance Adhesives business segment divestiture.
Year-to-date - The activity for Water Technologies, Distribution and Composites/Marl facility during the current and prior year periods was related to post-closing adjustments. The Composites/Marl Facility activity for the prior year period included post-closing purchase price dispute adjustments. The Performance Adhesives segment sales and pre-tax operating income included in discontinued operations were $171 million and $35 million, and $172 million and $46 million, respectively, for the current and prior year periods. A $732 million gain on disposal was recorded in the current period associated with the February 28, 2022 closing of the Performance Adhesives business segment divestiture.
Other comprehensive income (loss)
A comparative analysis of the components of other comprehensive income is provided below for the three and six months ended March 31, 2022 and 2021.
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||||||||||
(In millions) | 2022 |
|
| 2021 |
|
| Change |
|
| 2022 |
|
| 2021 |
|
| Change |
| ||||||
Other comprehensive income (loss) (net of taxes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized translation gain (loss) | $ | (5 | ) |
| $ | (34 | ) |
| $ | 29 |
|
| $ | (21 | ) |
| $ | 14 |
|
| $ | (35 | ) |
Unrealized gain (loss) on commodity hedges |
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
| $ | — |
|
| $ | (34 | ) |
| $ | 34 |
|
| $ | (20 | ) |
| $ | 14 |
|
| $ | (34 | ) |
Current Quarter - Total other comprehensive income (loss), net of tax, for the current quarter increased $34 million compared to the prior year quarter was primarily driven by improvementsas a result of the following:
Year-to-date - Total other comprehensive income (loss), net of tax, for the current year decreased $34 million compared to the prior year period primarily as a componentresult of income tax expensethe following:
43
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.
44
The free cash flow metric 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.
Although Ashland 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.
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 20172020 Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that referencerefer to this metric.
EBITDA and losses for defined benefit pension and other postretirement benefit plans annually in the fourth quarterAdjusted EBITDA
EBITDA totaled income of each 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,
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 | |||||
Depreciation and amortization (a) | 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 | ) | ||||
Adjusted EBITDA (b) | $ | 136 | $ | 109 | |||
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
|
| 2021 |
| |||
Net income (loss) |
| $ | 786 |
|
| $ | 41 |
|
| $ | 834 |
|
| $ | 97 |
|
Income tax expense (benefit) |
|
| 20 |
|
|
| (5 | ) |
|
| 24 |
|
|
| (10 | ) |
Net interest and other expense (income) |
|
| 43 |
|
|
| 23 |
|
|
| 49 |
|
|
| 17 |
|
Depreciation and amortization |
|
| 61 |
|
|
| 59 |
|
|
| 121 |
|
|
| 118 |
|
EBITDA |
|
| 910 |
|
|
| 118 |
|
|
| 1,028 |
|
|
| 222 |
|
Income from discontinued operations (net of tax) |
|
| (748 | ) |
|
| (16 | ) |
|
| (764 | ) |
|
| (29 | ) |
Key items included in EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restructuring, separation and other costs |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 13 |
|
Capital project impairment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Environmental reserve adjustments |
|
| 7 |
|
|
| 8 |
|
|
| 10 |
|
|
| 12 |
|
Net (gain) loss on acquisitions and divestitures |
|
| (7 | ) |
|
| 5 |
|
|
| (7 | ) |
|
| (9 | ) |
Total key items included in EBITDA |
|
| 1 |
|
|
| 14 |
|
|
| 5 |
|
|
| 25 |
|
Adjusted EBITDA |
| $ | 163 |
|
| $ | 116 |
|
| $ | 269 |
|
| $ | 218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total key items included in EBITDA |
| $ | 1 |
|
| $ | 14 |
|
| $ | 5 |
|
| $ | 25 |
|
Unrealized (gain) loss on securities |
|
| 28 |
|
|
| 7 |
|
|
| 24 |
|
|
| (11 | ) |
Total key items, before tax |
| $ | 29 |
|
| $ | 21 |
|
| $ | 29 |
|
| $ | 14 |
|
45
Diluted EPS and Adjusted Diluted EPS
The following table reflects the U.S. GAAP calculation for the income (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.
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31 |
|
| March 31 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
|
| 2021 |
| |||
Diluted EPS from continuing operations (as reported) |
| $ | 0.66 |
|
| $ | 0.40 |
|
| $ | 1.20 |
|
| $ | 1.10 |
|
Key items, before tax: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restructuring, separation and other costs |
|
| 0.02 |
|
|
| 0.02 |
|
|
| 0.04 |
|
|
| 0.21 |
|
Environmental reserve adjustments |
|
| 0.14 |
|
|
| 0.12 |
|
|
| 0.19 |
|
|
| 0.19 |
|
Capital project impairment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.16 |
|
Unrealized (gain) loss on securities |
|
| 0.49 |
|
|
| 0.11 |
|
|
| 0.42 |
|
|
| (0.18 | ) |
Net (gain) loss on acquisitions and divestitures |
|
| (0.12 | ) |
|
| 0.08 |
|
|
| (0.12 | ) |
|
| (0.16 | ) |
Key items, before tax |
|
| 0.53 |
|
|
| 0.33 |
|
|
| 0.53 |
|
|
| 0.22 |
|
Tax effect of key items (a) |
|
| (0.12 | ) |
|
| (0.07 | ) |
|
| (0.12 | ) |
|
| (0.02 | ) |
Key items, after tax |
|
| 0.41 |
|
|
| 0.26 |
|
|
| 0.41 |
|
|
| 0.20 |
|
Tax specific key items: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restructuring and separation activity |
|
| 0.17 |
|
|
| — |
|
|
| 0.17 |
|
|
| (0.22 | ) |
Valuation allowance |
|
| (0.07 | ) |
|
| — |
|
|
| (0.07 | ) |
|
| — |
|
Uncertain tax positions |
|
| — |
|
|
| (0.10 | ) |
|
| — |
|
|
| (0.10 | ) |
Tax specific key items (b) |
|
| 0.10 |
|
|
| (0.10 | ) |
|
| 0.10 |
|
|
| (0.32 | ) |
Total key items |
|
| 0.51 |
|
|
| 0.16 |
|
|
| 0.51 |
|
|
| (0.12 | ) |
Adjusted diluted EPS from continuing operations (non-GAAP) |
| $ | 1.17 |
|
| $ | 0.56 |
|
| $ | 1.71 |
|
| $ | 0.98 |
|
Amortization expense adjustment (net of tax) (c) |
| $ | 0.33 |
|
| $ | 0.28 |
|
| $ | 0.66 |
|
| $ | 0.55 |
|
Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense |
| $ | 1.50 |
|
| $ | 0.84 |
|
| $ | 2.37 |
|
| $ | 1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
Three months ended December 31 | ||||||||||||
(In millions) | 2017 | 2016 | Change | |||||||||
Sales | $ | 842 | $ | 704 | $ | 138 |
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 |
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 | % |
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 |
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 | % |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Research and development expense | $ | 21 | $ | 20 | $ | 1 |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Equity and other income | |||||||||||
Equity income (a) | $ | — | $ | — | $ | — | |||||
Other income | 2 | 3 | (1 | ) | |||||||
$ | 2 | $ | 3 | $ | (1 | ) | |||||
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 | ) |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Other net periodic benefit income | $ | — | $ | 2 | $ | (2 | ) |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Net loss on divestitures | $ | 1 | $ | 1 | $ | — |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Income tax expense (benefit) | $ | 14 | $ | (41 | ) | $ | 55 | ||||
Effective tax rate | 200 | % | 39 | % |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Income from discontinued operations (net of tax) | |||||||||||
Valvoline | $ | 3 | $ | 75 | $ | (72 | ) |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Net income attributable to noncontrolling interest | $ | — | $ | 11 | $ | (11 | ) |
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 |
RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW
Ashland’s reportable segments:segments include Life Sciences, Personal Care (formerly Personal Care and Household), Specialty Ingredients, CompositesAdditives, and Intermediates (formerly Intermediates and Solvents.
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
46
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 and six months ended March 31, 2022 and 2021.
| Three months ended |
|
| Six months ended |
| ||||||||||
| March 31 |
|
| March 31 |
| ||||||||||
(In millions - unaudited) | 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
SALES |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 204 |
|
| $ | 185 |
|
| $ | 374 |
|
| $ | 355 |
|
Personal Care |
| 172 |
|
|
| 137 |
|
|
| 318 |
|
|
| 262 |
|
Specialty Additives |
| 182 |
|
|
| 158 |
|
|
| 338 |
|
|
| 305 |
|
Intermediates |
| 66 |
|
|
| 37 |
|
|
| 119 |
|
|
| 69 |
|
Intersegment sales (a) |
| (20 | ) |
|
| (8 | ) |
|
| (34 | ) |
|
| (14 | ) |
| $ | 604 |
|
| $ | 509 |
|
| $ | 1,115 |
|
| $ | 977 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 43 |
|
| $ | 35 |
|
| $ | 64 |
|
| $ | 64 |
|
Personal Care |
| 28 |
|
|
| 19 |
|
|
| 42 |
|
|
| 33 |
|
Specialty Additives (b) |
| 26 |
|
|
| 19 |
|
|
| 44 |
|
|
| 21 |
|
Intermediates |
| 27 |
|
|
| 3 |
|
|
| 42 |
|
|
| 5 |
|
Unallocated and other |
| (31 | ) |
|
| (28 | ) |
|
| (57 | ) |
|
| (57 | ) |
| $ | 93 |
|
| $ | 48 |
|
| $ | 135 |
|
| $ | 66 |
|
DEPRECIATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 8 |
|
| $ | 8 |
|
| $ | 16 |
|
| $ | 17 |
|
Personal Care |
| 9 |
|
|
| 9 |
|
|
| 18 |
|
|
| 19 |
|
Specialty Additives |
| 17 |
|
|
| 16 |
|
|
| 33 |
|
|
| 33 |
|
Intermediates |
| 3 |
|
|
| 4 |
|
|
| 7 |
|
|
| 6 |
|
| $ | 37 |
|
| $ | 37 |
|
| $ | 74 |
|
| $ | 75 |
|
AMORTIZATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 7 |
|
| $ | 7 |
|
| $ | 14 |
|
| $ | 14 |
|
Personal Care |
| 12 |
|
|
| 10 |
|
|
| 24 |
|
|
| 19 |
|
Specialty Additives |
| 5 |
|
|
| 5 |
|
|
| 9 |
|
|
| 9 |
|
Intermediates |
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
| $ | 24 |
|
| $ | 22 |
|
| $ | 47 |
|
| $ | 43 |
|
EBITDA (c) |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 58 |
|
| $ | 50 |
|
| $ | 94 |
|
| $ | 95 |
|
Personal Care |
| 49 |
|
|
| 38 |
|
|
| 84 |
|
|
| 71 |
|
Specialty Additives |
| 48 |
|
|
| 40 |
|
|
| 86 |
|
|
| 63 |
|
Intermediates |
| 30 |
|
|
| 7 |
|
|
| 49 |
|
|
| 12 |
|
Unallocated and other |
| (31 | ) |
|
| (28 | ) |
|
| (57 | ) |
|
| (57 | ) |
| $ | 154 |
|
| $ | 107 |
|
| $ | 256 |
|
| $ | 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
47
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.
March 2022 quarter compared to March 2021 quarter
Life Sciences’ sales increased $19 million to $204 million in the current quarter. Favorable pricing and higher volume/mix increased sales by $15 million and $8 million, respectively, while unfavorable foreign currency exchange decreased sales by $4 million.
Operating income increased $8 million to income of $43 million for the current quarter. Favorable price/mix and higher volume increased operating income by $9 million and $3 million, respectively, partially offset by unfavorable foreign currency exchange and higher costs which decreased operating income by $3 million and $1 million, respectively. Current quarter EBITDA increased $8 million to $58 million. EBITDA margin increased 1.4 percentage points in the current quarter to 28.4%.
Fiscal 2022 year-to-date compared to fiscal 2021 year-to-date
Life Sciences’ sales increased $19 million to $374 million in the current period. Favorable pricing and higher volume/mix increased sales by $18 million and $7 million, respectively, while unfavorable foreign currency decreased sales by $6 million.
Operating income remained flat at income of $64 million for the current period. Favorable price/mix and higher volume increased operating income by $4 million and $2 million, respectively, while unfavorable foreign currency and higher costs decreased operating income by $3 million and $3 million, respectively. Current period EBITDA decreased $1 million to $94. EBITDA margin decreased 1.7 percentage points in the current period to 25.1%.
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 (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 segmentEBITDA presentation for the three and six months ended DecemberMarch 31, 20172022 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 | |||||
Gross profit as a percent of sales (a) | 31.5 | % | 32.0 | % | |||
Composites | |||||||
Sales per shipping day | $ | 3.6 | $ | 2.7 | |||
Metric tons sold (thousands) | 91.2 | 78.4 | |||||
Gross profit as a percent of sales (a) | 18.4 | % | 21.1 | % | |||
Intermediates and Solvents | |||||||
Sales per shipping day | $ | 1.2 | $ | 0.9 | |||
Metric tons sold (thousands) | 32.7 | 32.2 | |||||
Gross profit as a percent of sales (a) | 21.3 | % | (0.9 | )% | |||
|
| Life Sciences |
| |||||||||||||
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating income |
| $ | 43 |
|
| $ | 35 |
|
| $ | 64 |
|
| $ | 64 |
|
Depreciation and amortization |
|
| 15 |
|
|
| 15 |
|
|
| 30 |
|
|
| 31 |
|
EBITDA |
| $ | 58 |
|
| $ | 50 |
|
|
| 94 |
|
|
| 95 |
|
48
Personal Care
Personal Care is comprised of biofunctionals, preservatives, skin care, sun care, oral care, hair care and 2016 were as follows. Ashland includes only U.S.household. These businesses have a broad range of nature-based, biodegradable, and Canada in its North American designation.
Three months ended December 31, 2017 | ||||||||
Sales by Geography | 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 | ||||||||
Sales by Geography | 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 | % |
March 2022 quarter compared to December 2016March 2021 quarter
Personal Care's sales increased $68$35 million to $550$172 million in the current quarter. TheFavorable product pricing and volume/mix, including the impact of the Schülke acquisition, of Pharmachem increased sales by $58$9 million or 12%. Favorable foreignand $30 million, respectively. Unfavorable currency exchange increaseddecreased 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.
Operating income totaled $42increased $9 million to income of $28 million for the current quarter compared to $40quarter. Favorable price/mix, favorable impact of the Schülke acquisition and higher volume increased operating income by $4 million, in the prior year quarter.$4 million and $2 million, respectively. Unfavorable currency exchange decreased operating income by $1 million. Current quarter EBITDA increased $7$11 million to $102 million, while Adjusted EBITDA increased $10 million to $105$49 million. Adjusted EBITDA margin decreased 0.6increased 0.8 percentage points in the current quarter to 19.1%28.5%.
Fiscal 2022 year-to-date compared to fiscal 2021 year-to-date
Personal Care’s sales increased $56 million to $318 million in the current period. Favorable product pricing and volume/mix, including the impact of the Schülke acquisition, increased sales by $11 million and $51 million, respectively. Unfavorable currency exchange decreased sales by $6 million.
Operating income increased $9 million to income of $42 million for the current period. Lower costs, favorable impact of the Schülke acquisition and higher volume increased operating income by $4 million, $6 million and $4 million, respectively. Unfavorable price/mix and unfavorable currency exchange decreased operating income by $3 million and $2 million, respectively. Current period EBITDA increased $13 million to $84 million. EBITDA margin decreased 0.7 percentage points in the current period to 26.4%.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation for the three and six months ended DecemberMarch 31, 20172022 and 2016 below2021 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 and six months ended March 31, 2022 or 2021.
|
| Personal Care |
| |||||||||||||
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating income |
| $ | 28 |
|
| $ | 19 |
|
| $ | 42 |
|
| $ | 33 |
|
Depreciation and amortization |
|
| 21 |
|
|
| 19 |
|
|
| 42 |
|
|
| 38 |
|
EBITDA |
| $ | 49 |
|
| $ | 38 |
|
|
| 84 |
|
|
| 71 |
|
49
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.
March 2022 quarter compared to March 2021 quarter
Specialty Additives’ sales increased $24 million to $182 million in the current quarter. Favorable product pricing and volume/mix increased sales by $23 million and $5 million, respectively. Unfavorable currency exchange decreased sales by $4 million.
Operating income increased $7 million to income of $26 million for the current quarter. Favorable volume and favorable pricing/mix increased operating income by $1 million and $14 million, respectively. Higher costs decreased operating income by $8 million. Current quarter EBITDA increased $8 million to $48 million. EBITDA margin increased 1.1 percentage points in the current quarter to 26.4%.
Fiscal 2022 year-to-date compared to fiscal 2021 year-to-date
Specialty Additives’ sales increased $33 million to $338 million in the current period. Favorable product pricing and volume/mix increased sales by $32 million and $6 million, respectively. Unfavorable currency exchange decreased sales by $5 million.
Operating income increased $23 million to income of $44 million for the current period. Favorable volume, favorable pricing/mix, favorable currency exchange and a capital project impairment in the prior year period increased operating income by $2 million, $15 million, $1 million and $9 million, respectively. Higher costs decreased operating income by $4 million. Current period EBITDA increased $23 million to $86 million while Adjusted EBITDA increased $14 million to $86 million. Adjusted EBITDA margin increased 1.8 percentage points in the current period to 25.4%.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation for the three and six months ended March 31, 2022 and 2021 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 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 | |||
Depreciation and amortization (a) | 60 | 55 | |||||
EBITDA | 102 | 95 | |||||
Accelerated depreciation | 2 | — | |||||
Severance and other restructuring costs | 1 | — | |||||
Adjusted EBITDA | $ | 105 | $ | 95 | |||
|
| Specialty Additives |
| |||||||||||||
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating income |
| $ | 26 |
|
| $ | 19 |
|
| $ | 44 |
|
| $ | 21 |
|
Depreciation and amortization |
|
| 22 |
|
|
| 21 |
|
|
| 42 |
|
|
| 42 |
|
EBITDA |
|
| 48 |
|
|
| 40 |
|
|
| 86 |
|
|
| 63 |
|
Capital project impairment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Adjusted EBITDA |
| $ | 48 |
|
| $ | 40 |
|
| $ | 86 |
|
| $ | 72 |
|
Intermediates
Intermediates is 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 |
50
March 2022 quarter compared to December 2016March 2021 quarter
Intermediates’ sales increased $17$29 million to $74$66 million in the current quarter. HigherImproved product pricing increased sales by $9$33 million, while higherpartially offset by unfavorable volumes and favorableunfavorable foreign currency exchange each increasedwhich decreases sales by $4 million.
Operating income increased $16$24 million duringto $27 million for the current quarter. Price/mix and lower costs increased operating income by $22 million and $3 million, respectively, and was partially offset by lower volume which decreased operating income by $1 million. Current quarter comparedEBITDA increased $23 million to the prior year quarter. Lower facility turn around costs$30 million.EBITDA margin increased 26.6 percentage points in the current quarter resulted in an $8 million increase in gross profit as a result of a significant
Fiscal 2022 year-to-date compared to the prior year quarterfiscal 2021 year-to-date
Intermediates’ sales increased $50 million to 21.3%.
Operating income increased $37 million to a loss of $7$42 million infor the prior year quarter.current period. Price/mix increased operating income by $39 million and was partially offset by unfavorable volume and unfavorable currency exchange which decreased operating income by $1 million each, respectively. Current period EBITDA and increased $37 million to $49 million.EBITDA margin increased 23.8 percentage points in the current quarter increasedperiod to $16 million and 21.6%, respectively.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation (as defined and described in the section above) for the three and six months ended DecemberMarch 31, 20172022 and 20162021 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 currentthree 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 | $ | — |
|
| Intermediates |
| |||||||||||||
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating income |
| $ | 27 |
|
| $ | 3 |
|
| $ | 42 |
|
| $ | 5 |
|
Depreciation and amortization |
|
| 3 |
|
|
| 4 |
|
|
| 7 |
|
|
| 7 |
|
EBITDA |
| $ | 30 |
|
| $ | 7 |
|
| $ | 49 |
|
| $ | 12 |
|
Unallocated and other
The following table summarizes the key components of the Unallocated and other segment'ssegment’s operating lossincome (loss) for the three months ended DecemberMarch 31, 20172022 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 |
|
| Unallocated and Other |
| |||||||||||||
|
| Three months ended March 31 |
|
| Six months ended March 31 |
| ||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Restructuring activities |
| $ | (4 | ) |
| $ | (5 | ) |
| $ | (9 | ) |
| $ | (21 | ) |
Environmental expenses |
|
| (7 | ) |
|
| (8 | ) |
|
| (11 | ) |
|
| (12 | ) |
Other expenses (primarily governance and legacy expenses) |
|
| (20 | ) |
|
| (15 | ) |
|
| (37 | ) |
|
| (24 | ) |
Total expense |
| $ | (31 | ) |
| $ | (28 | ) |
| $ | (57 | ) |
| $ | (57 | ) |
March 2022 quarter compared to December 2016March 2021 quarter
Unallocated and other recorded expense of $29$31 million and $33$28 million for the three months ended DecemberMarch 31, 20172022 and 2016,2021, respectively. The unallocated items for the current and prior year quartersquarter included chargesexpense of $4 million and $5 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. quarter, respectively, as well as stranded costs of $3 million and $4 million associated with the Performance Adhesives divestiture.
The current quarter alsoand prior year quarter included $4$7 million and $8 million for environmental expenses, respectively.
51
Other expenses increase of accelerated depreciation$5 million is primarily a result of decreased transition services income associated with the Composites sale from INEOS in the current quarter.
Fiscal 2022 year-to-date compared to fiscal 2021 year-to-date
Unallocated and other recorded expense of $57 million for both the six months ended March 31, 2022 and 2021. The current and prior year period included expense of $9 million and $21 million, respectively, for restructuring activities mainly comprised of severance, lease abandonment and other restructuring costs related to the planned closure of an office building and $1 million of integration charges related to the acquisition of Pharmachem.
The current period and prior year period included $11 million and $12 million for environmental expenses, respectively.
Other expenses increase of $13 million for environmental-related expenses while the remaining items duringis primarily a result of a gain of $4 million in the prior year quarter primarily included $5 million of expense for a legal reserveperiod associated with excess corporate property sales as well as decreased transition services income associated with the Composites sale from INEOS in the current period.
FINANCIAL POSITION
Liquidity
Ashland believes that cash flow from operations, availability under existing credit facilities and $4 million for environmental reserve adjustments.
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 threesix months ended DecemberMarch 31, 20172022 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 | ) |
|
| Six months ended |
| |||||
|
| March 31 |
| |||||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Cash provided (used) by: |
|
|
|
|
|
| ||
Operating activities from continuing operations |
| $ | 31 |
|
| $ | 120 |
|
Investing activities from continuing operations |
|
| (42 | ) |
|
| (18 | ) |
Financing activities from continuing operations |
|
| (810 | ) |
|
| (233 | ) |
Discontinued operations |
|
| 1,577 |
|
|
| 46 |
|
Effect of currency exchange rate changes on cash and cash equivalents |
|
| (2 | ) |
|
| 4 |
|
Net increase (decrease) in cash and cash equivalents |
| $ | 754 |
|
| $ | (81 | ) |
52
Cash and cash flows associated with Ashland’s operating activitiesequivalents increased $754 million for the threesix months ended DecemberMarch 31, 20172022 compared to a $81 million decrease for the six months ended March 31, 2021.
The $754 million increase for the six months ended March 31, 2022 was primarily driven by the proceeds of the sale of the Performance Adhesives business segment of approximately $1.7 billion, net of transaction costs, and 2016.
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 | ) | ||||
Change in operating assets and liabilities (a) | (109 | ) | (156 | ) | |||
Total cash flows used by operating activities from continuing operations | $ | (24 | ) | $ | (60 | ) | |
The $81 million decrease for the current and prior year quarters, respectively.
See the Statements of Condensed Consolidated Cash Flows for certain non-cash items including depreciation and amortization (including original issue discount and debt issuance cost amortization), as well as changesadditional details.
Ashland expects cash tax payments of roughly $320 million (for taxes associated with the Performance Adhesives sale) to occur 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.
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 | ) |
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 | ) |
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 |
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 quarters.periods. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
(In millions) |
| 2022 |
|
|
| 2021 |
| |
Total cash flows provided by operating activities from continuing operations |
| $ | 31 |
|
| $ | 120 |
|
less: |
|
|
|
|
|
| ||
Additions to property, plant and equipment |
|
| (37 | ) |
|
| (53 | ) |
Free cash flows |
|
| (6 | ) |
|
| 67 |
|
Cash (inflows) outflows from U.S. Accounts Receivable Sales Program (a) |
|
| (5 | ) |
|
| — |
|
Restructuring-related payments (b) |
|
| 5 |
|
|
| 29 |
|
Environmental and related litigation payments (c) |
|
| 28 |
|
|
| 21 |
|
Ongoing free cash flow |
| $ | 22 |
|
| $ | 117 |
|
|
|
|
|
|
|
| ||
Adjusted EBITDA (d) |
|
| 269 |
|
|
| 218 |
|
|
|
|
|
|
|
| ||
Ongoing free cash flow conversion (e) |
|
| 8 | % |
|
| 54 | % |
|
|
|
|
|
|
|
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 | ) | |||
Free cash flows (a) | $ | (48 | ) | $ | (93 | ) | |
Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $967$1,215 million compared to $941and $792 million atas of March 31, 2022 and September 30, 2017.2021, respectively. The increase in working capital was the primary reason of the $95 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 increased accounts receivable as a result of higher sales volumes. Liquid assets (cash, cash equivalents and accounts
53
receivable) amounted to 119%169% and 122%65% of current liabilities at December(excluding current liabilities held for sale) as of March 31, 20172022 and September 30, 2017,2021, respectively.
The following summary reflects Ashland’s cash, and unused borrowing capacity and liquidity as of
|
| March 31 |
|
| September 30 |
| ||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Cash and investment securities |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 964 |
|
| $ | 210 |
|
Restricted investments (a) |
|
| 423 |
|
|
| 421 |
|
|
|
|
|
|
|
| ||
Unused borrowing capacity and liquidity |
|
|
|
|
|
| ||
Revolving credit facility |
|
| 581 |
|
|
| 356 |
|
2018 accounts receivable securitization (foreign) |
|
| 111 |
|
|
| — |
|
Accounts receivable sales program (U.S.) |
|
| — |
|
|
| 12 |
|
|
|
|
|
|
|
|
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 |
The borrowing capacity remaining under the 2017 Revolving Credit Facility$600 million revolving credit facility was $467$581 million due to an outstanding balance of $285 million,zero, as well as a reduction of $48$19 million for letters of credit outstanding at DecemberMarch 31, 2017.2022. In total, Ashland’s available liquidity position, which includes cash, the revolving credit facility and theforeign accounts receivable securitization facility, was $1,099$1,656 million at DecemberMarch 31, 2017,2022, compared to $1,180$566 million at September 30, 2017.
Capital resources
Debt
The following summary reflects Ashland’s debt as of
|
| March 31 |
|
| September 30 |
| ||
(In millions) |
| 2022 |
|
| 2021 |
| ||
Short-term debt (includes current portion of long-term debt) |
| $ | — |
|
| $ | 374 |
|
Long-term debt (less current portion and debt issuance cost discounts) (a) |
|
| 1,336 |
|
|
| 1,596 |
|
Total debt |
| $ | 1,336 |
|
| $ | 1,970 |
|
|
|
|
|
|
|
|
December 31 | September 30 | ||||||
(In millions) | 2017 | 2017 | |||||
Short-term debt (includes current portion of long-term debt) | $ | 355 | $ | 235 | |||
Long-term debt (including current portion and debt issuance cost discounts) (a) | 2,584 | 2,584 | |||||
Total debt | $ | 2,939 | $ | 2,819 | |||
Debt as a percent of capital employed was 46%28% and 42% at DecemberMarch 31, 20172022 and 45% at September 30, 2017.2021, respectively. At DecemberMarch 31, 2017,2022, Ashland’s total debt had an outstanding principal balance of $3,015$1,390 million, discounts of $52$38 million, and debt issuance costs of $24$16 million. The scheduled aggregateThere are no maturities of long-term debt by year (includingdue within the current portion and excluding debt issuance costs) are as follows: $5 million remaining in 2018, $11 million in 2019, $269 million in 2020, $56 million in 2021 and $1,279 million in 2022.
Ashland credit ratings
Ashland’s corporate credit rating withratings remained unchanged at BB+ by Standard & Poor’s is BB, whileand Ba1 by Moody’s Investor Services is Ba2.Services. As of March 31, 2022, 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.
Ashland debt covenant restrictions
Ashland's 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.
54
The maximum consolidated net leverage ratio permitted under the 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.
The minimum required consolidated interest coverage ratio under the 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.
Any change in Covenant Adjusted EBITDA of $100 million would have an approximate 0.7x0.2x effect on the consolidated net leverage ratio and a 0.8x1.7x 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.
Additional capital resources
Total equity
Total equity decreased $7increased by $629 million since September 30, 20172021 to $3,399$3,381 million at DecemberMarch 31, 2017.2022. The decreaseincrease of $7$629 million was due to cash dividendsnet income of $14$834 million, compensation expense and a net losscommon shares issued of $4 million, partiallyand $1 million of deferred gains on commodity hedges offset by an $8stock repurchase activity of $155 million, net increase in available-for-sale securitiesdividends of $34 million, and $3 million related to deferred translation gains.
Stock repurchase program
In April 2015, Ashland's Board of Directors 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.
On March 1, 2022, under its current stock repurchase program, Ashland entered into an agreement to repurchase an aggregate amount of $200 million of Ashland common stock using open-market purchases under rule 10b-18. Under the terms of the agreement, the bank will purchase a number of shares of Ashland common stock for a pre-determined amount on various trading days dependent upon Ashland's prevailing stock price on that date. The term of the agreement is through September 1, 2022. As of DecemberMarch 31, 2017, $5002022, Ashland paid $155 million and received 1.7 million shares of share repurchase authorization remainscommon stock under the 2015 stock repurchase program.
Stockholder dividends
Ashland announcedpaid a quarterly cash dividend of 22.530 cents per share to eligible shareholders at record which was paid for quarterly dividends in the first and second 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 was paid for quarterly dividends in the first and second quartersquarter of fiscal 2017.
Capital
expendituresCapital expenditures were $24$37 million for the threesix months ended DecemberMarch 31, 2017 and averaged approximately $2172022 compared to $53 million duringfor the last three fiscal years.
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
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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
September 30,OUTLOOK
Ashland updatedissued its financial outlook for fiscal 20182022 in November 2021. This outlook has not changed and remains the same as shown in the table below.
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 second 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Ashland’s market risk exposure at
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
- As of the end of the period covered by this quarterly report, Ashland, under the supervision and with the participation of its management, including Ashland’s Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of Ashland’s disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as ofChanges in Internal Control over Financial Reporting
- During the three months endedAshland completed its purchase of 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 DecemberMarch 31, 2017.2022. 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.
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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 KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.
Environmental Proceedings
(a) CERCLA and Similar State Law Sites -
Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state laws, Ashland and its subsidiaries may be subject to joint and several liability for cleanup costs in connection with alleged releases of hazardous substances at sites where it has been identified as a “potentially responsible party” (PRP). As of(b) Hattiesburg, Mississippi Resource Conservation and Recovery Act Matter -
For additional information regarding environmental matters and reserves, see Note KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.
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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 DecemberMarch 31, 2017.2022. 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 DecemberMarch 31, 2017.
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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, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share repurchase activity during the three months ended DecemberMarch 31, 20172022 was as follows:
Issuer Purchases of Equity Securities |
| |||||||||||||||
Q2 Fiscal Periods |
| Total Number of |
|
| Average Price |
|
| Total Number of |
|
| Dollar Value of |
| ||||
January 1, 2022 to January 31, 2022 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 350 |
|
February 1, 2022 to February 28, 2022 |
|
| 707,487 |
|
|
| 98.54 |
|
|
| 707,487 |
|
|
| 350 |
|
March 1, 2022 to March 31, 2022 |
|
| 1,695,893 |
|
|
| 91.65 |
|
|
| 1,695,893 |
|
|
| 195 |
|
Total |
|
| 2,403,380 |
|
|
|
|
|
| 2,403,380 |
|
| $ | 195 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
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ITEM 6. EXHIBITS
(a) Exhibits | |
2.1 | |
10.1 | |
10.2 | |
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 March 31, 2022 and March 31, 2021; (ii) Condensed Consolidated Balance Sheets at March 31, 2022 and September 30, 2021; (iii) Statements of Condensed Consolidated Cash Flows for the six months ended March 31, 2022 and March 31, 2021; 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. |
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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) | ||
April 28, 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) |
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