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 December 31, 2017,June 30, 2023, there were 62,228,81251,241,016 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 |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions except per share data - unaudited) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Sales |
| $ | 546 |
|
| $ | 644 |
|
| $ | 1,674 |
|
| $ | 1,759 |
|
Cost of sales |
|
| 368 |
|
|
| 404 |
|
|
| 1,134 |
|
|
| 1,139 |
|
Gross profit |
|
| 178 |
|
|
| 240 |
|
|
| 540 |
|
|
| 620 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Selling, general and administrative expense |
|
| 84 |
|
|
| 127 |
|
|
| 256 |
|
|
| 299 |
|
Research and development expense |
|
| 12 |
|
|
| 14 |
|
|
| 37 |
|
|
| 40 |
|
Intangibles amortization expense - Note G |
|
| 24 |
|
|
| 23 |
|
|
| 70 |
|
|
| 71 |
|
Equity and other income |
|
| 4 |
|
|
| 1 |
|
|
| 5 |
|
|
| 2 |
|
Income on acquisitions and divestitures, net - Note B |
|
| — |
|
|
| 35 |
|
|
| — |
|
|
| 42 |
|
Operating income |
|
| 62 |
|
|
| 112 |
|
|
| 182 |
|
|
| 254 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net interest and other expense (income) |
|
| 3 |
|
|
| 59 |
|
|
| (21 | ) |
|
| 108 |
|
Other net periodic benefit loss - Note K |
|
| 2 |
|
|
| 1 |
|
|
| 6 |
|
|
| — |
|
Income from continuing operations before income taxes |
|
| 57 |
|
|
| 52 |
|
|
| 197 |
|
|
| 146 |
|
Income tax expense - Note J |
|
| 15 |
|
|
| 1 |
|
|
| 21 |
|
|
| 25 |
|
Income from continuing operations |
|
| 42 |
|
|
| 51 |
|
|
| 176 |
|
|
| 121 |
|
Income (loss) from discontinued operations (net of income taxes) - Note C |
|
| 8 |
|
|
| (15 | ) |
|
| 6 |
|
|
| 749 |
|
Net income |
| $ | 50 |
|
| $ | 36 |
|
| $ | 182 |
|
| $ | 870 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
PER SHARE DATA |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share - Note M |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.81 |
|
| $ | 0.94 |
|
| $ | 3.29 |
|
| $ | 2.16 |
|
Income (loss) from discontinued operations |
|
| 0.15 |
|
|
| (0.28 | ) |
|
| 0.11 |
|
|
| 13.40 |
|
Net income |
| $ | 0.96 |
|
| $ | 0.66 |
|
| $ | 3.40 |
|
| $ | 15.56 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Diluted earnings per share - Note M |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.79 |
|
| $ | 0.93 |
|
| $ | 3.24 |
|
| $ | 2.12 |
|
Income (loss) from discontinued operations |
|
| 0.15 |
|
|
| (0.28 | ) |
|
| 0.11 |
|
|
| 13.16 |
|
Net income |
| $ | 0.94 |
|
| $ | 0.65 |
|
| $ | 3.35 |
|
| $ | 15.28 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 50 |
|
| $ | 36 |
|
| $ | 182 |
|
| $ | 870 |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized translation gain (loss) |
|
| (4 | ) |
|
| (86 | ) |
|
| 105 |
|
|
| (107 | ) |
Unrealized gain (loss) on commodity hedges |
|
| 1 |
|
|
| (3 | ) |
|
| (6 | ) |
|
| (2 | ) |
Other comprehensive income (loss) - Note N |
|
| (3 | ) |
|
| (89 | ) |
|
| 99 |
|
|
| (109 | ) |
Comprehensive income (loss) |
| $ | 47 |
|
| $ | (53 | ) |
| $ | 281 |
|
| $ | 761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited) |
| June 30 |
|
| September 30 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 349 |
|
| $ | 646 |
|
Accounts receivable (a) - Note H |
|
| 345 |
|
|
| 402 |
|
Inventories - Note F |
|
| 712 |
|
|
| 629 |
|
Other assets |
|
| 120 |
|
|
| 91 |
|
Total current assets |
|
| 1,526 |
|
|
| 1,768 |
|
Noncurrent assets |
|
|
|
|
|
| ||
Property, plant and equipment |
|
|
|
|
|
| ||
Cost |
|
| 3,191 |
|
|
| 3,050 |
|
Accumulated depreciation |
|
| 1,837 |
|
|
| 1,712 |
|
Net property, plant and equipment |
|
| 1,354 |
|
|
| 1,338 |
|
Goodwill - Note G |
|
| 1,383 |
|
|
| 1,312 |
|
Intangibles - Note G |
|
| 916 |
|
|
| 963 |
|
Operating lease assets, net - Note I |
|
| 126 |
|
|
| 107 |
|
Restricted investments - Note E |
|
| 321 |
|
|
| 313 |
|
Asbestos insurance receivable (b) - Note L |
|
| 129 |
|
|
| 138 |
|
Deferred income taxes |
|
| 20 |
|
|
| 20 |
|
Other assets |
|
| 254 |
|
|
| 254 |
|
Total noncurrent assets |
|
| 4,503 |
|
|
| 4,445 |
|
Total assets |
| $ | 6,029 |
|
| $ | 6,213 |
|
|
|
|
|
|
| |||
LIABILITIES AND EQUITY |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Trade and other payables |
| $ | 210 |
|
| $ | 265 |
|
Accrued expenses and other liabilities |
|
| 201 |
|
|
| 269 |
|
Current operating lease obligations - Note I |
|
| 21 |
|
|
| 19 |
|
Total current liabilities |
|
| 432 |
|
|
| 553 |
|
Noncurrent liabilities |
|
|
|
|
|
| ||
Long-term debt - Note H |
|
| 1,328 |
|
|
| 1,270 |
|
Asbestos litigation reserve - Note L |
|
| 437 |
|
|
| 472 |
|
Deferred income taxes |
|
| 176 |
|
|
| 176 |
|
Employee benefit obligations - Note K |
|
| 108 |
|
|
| 103 |
|
Operating lease obligations - Note I |
|
| 109 |
|
|
| 94 |
|
Other liabilities |
|
| 290 |
|
|
| 325 |
|
Total noncurrent liabilities |
|
| 2,448 |
|
|
| 2,440 |
|
Commitments and contingencies - Note L |
|
|
|
|
|
| ||
Stockholders’ equity - Note N |
|
| 3,149 |
|
|
| 3,220 |
|
|
|
|
|
|
| |||
Total liabilities and stockholders' equity |
| $ | 6,029 |
|
| $ | 6,213 |
|
|
|
|
|
|
|
|
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
|
| Nine months ended |
| |||||
|
| June 30 |
| |||||
(In millions - unaudited) |
| 2023 |
|
| 2022 |
| ||
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM |
|
|
|
|
|
| ||
Net income |
| $ | 182 |
|
| $ | 870 |
|
Income from discontinued operations (net of income taxes) |
|
| (6 | ) |
|
| (749 | ) |
Adjustments to reconcile income from continuing operations to |
|
|
|
|
|
| ||
cash flows from operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 181 |
|
|
| 182 |
|
Original issue discount and debt issuance costs amortization |
|
| 4 |
|
|
| 4 |
|
Deferred income taxes |
|
| 11 |
|
|
| (5 | ) |
Gain from sales of property and equipment |
|
| (1 | ) |
|
| — |
|
Stock based compensation expense |
|
| 17 |
|
|
| 14 |
|
Excess tax benefit on stock based compensation |
|
| 1 |
|
|
| 1 |
|
Loss (income) from restricted investments |
|
| (57 | ) |
|
| 59 |
|
Income on acquisitions and divestitures |
|
| — |
|
|
| (42 | ) |
Asset impairments |
|
| 4 |
|
|
| — |
|
Pension contributions |
|
| (7 | ) |
|
| (4 | ) |
Gain on pension and other postretirement plan remeasurements |
|
| — |
|
|
| (1 | ) |
Change in operating assets and liabilities (a) |
|
| (166 | ) |
|
| (315 | ) |
Total cash flows provided by operating activities from continuing operations |
|
| 163 |
|
|
| 14 |
|
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM |
|
|
|
|
|
| ||
Additions to property, plant and equipment |
|
| (101 | ) |
|
| (67 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 3 |
|
|
| 51 |
|
Proceeds from settlement of company-owned life insurance contracts |
|
| 3 |
|
|
| 2 |
|
Company-owned life insurance payments |
|
| (1 | ) |
|
| — |
|
Funds restricted for specific transactions |
|
| (7 | ) |
|
| (74 | ) |
Reimbursements from restricted investments |
|
| 46 |
|
|
| 28 |
|
Proceeds from sale of securities |
|
| 36 |
|
|
| 75 |
|
Purchases of securities |
|
| (36 | ) |
|
| (75 | ) |
Total cash flows used by investing activities from continuing operations |
|
| (57 | ) |
|
| (60 | ) |
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM |
|
|
|
|
|
| ||
Repurchase of common stock |
|
| (300 | ) |
|
| (200 | ) |
Repayment of long-term debt |
|
| — |
|
|
| (250 | ) |
Repayment of short-term debt |
|
| — |
|
|
| (365 | ) |
Cash dividends paid |
|
| (56 | ) |
|
| (52 | ) |
Stock based compensation employee withholding taxes paid in cash |
|
| (10 | ) |
|
| (9 | ) |
Total cash flows used by financing activities from continuing operations |
|
| (366 | ) |
|
| (876 | ) |
CASH USED BY CONTINUING OPERATIONS |
|
| (260 | ) |
|
| (922 | ) |
Cash provided (used) by discontinued operations |
|
|
|
|
|
| ||
Operating cash flows |
|
| (43 | ) |
|
| (302 | ) |
Investing cash flows |
|
| — |
|
|
| 1,650 |
|
Total cash provided (used) by discontinued operations |
|
| (43 | ) |
|
| 1,348 |
|
Effect of currency exchange rate changes on cash and cash equivalents |
|
| 6 |
|
|
| (7 | ) |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| (297 | ) |
|
| 419 |
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
|
| 646 |
|
|
| 210 |
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
| $ | 349 |
|
| $ | 629 |
|
|
|
|
|
|
(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 (U.S. GAAP) 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’sthe Ashland Inc. and consolidated subsidiaries (Ashland or the Company) Annual Report on Form 10-K for the fiscal year ended
Ashland completed the distribution of its remaining 170 million shares of common stock of Valvoline Inc. which represented approximately 83%is comprised of the total outstanding shares of Valvoline Inc.'s common stock. This separation from Valvoline represented a strategic shift in Ashland's businessfollowing reportable segments: Life Sciences, Personal Care, Specialty Additives and qualified as a discontinued operation. Accordingly, Valvoline's operating resultsIntermediates. Unallocated and cash flows for the three months ended December 31, 2016 have been classified as discontinued operations within the Condensed Consolidated Financial Statements. See Note B forOther includes corporate governance activities and certain legacy matters. For additional information, on the separation of Valvoline Inc.see Note Q.
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, revenuessales 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 (includingenvironmental remediation, asbestos litigation, the accounting for goodwill and other intangible assets),assets, and income taxes and liabilities and receivables associated with asbestos litigation and environmental remediation.taxes. 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 following2022. 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.
5
NOTE B– DIVESTITURES
Performance Adhesives
On February 28, 2022, Ashland completed the adoption method options available as well assale of its Performance Adhesives business to Arkema, a French société anonyme. Proceeds from the overall impactsale were approximately $1.7 billion, net of transaction costs. Ashland recognized a $732 million gain on sale within 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 resultIncome (Loss) from applying the requirementsDiscontinued Operations caption of the new standard 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 support the revenue recognition and disclosure requirements under the new standard. Based on various preliminary assessments conducted to date, Ashland has identified agreements with distributors and customers that 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 disclosures within the Notes to Condensed Consolidated Financial Statements. This guidance becomes effective for Ashland on October 1, 2018.
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).
Other manufacturing facility sales
During the December 2022 quarter, Ashland entered into a definitive sale agreement to sell a Specialty Additives manufacturing facility for less than $1 million. The net asset value related to these sites was $4 million at September 30, 2022. During the three and nine months ended June 30, 2023, no impairment and $4 million of impairment charges, respectively, were recorded within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss) for this manufacturing facility.
During the current quarter, Ashland completed itsthe sale of this facility, received proceeds of less than $1 million, and recorded a loss of less than $1 million within the income on acquisition and divestitures, net caption of the stockStatement of Pharmachem Laboratories, Inc. (Pharmachem),
Other corporate assets
During the three and nine months ended June 30, 2022, Ashland completed the sale of quality ingredients to the global health and wellness industries and high-value differentiated products to fragrance and flavor houses. With annual revenuestwo excess land properties. Ashland received net proceeds of approximately $300$50 million and 14 manufacturing facilities in the United States and Mexico, New Jersey-based Pharmachem develops, manufactures and supplies custom and branded nutritional and fragrance products. Ashland has included Pharmachemrecorded a pre-tax gain of $35 million within the Specialty Ingredients reporting segment.
At | |||
May 17, 2017 | |||
Preliminary purchase price allocation (in millions) | As Adjusted | ||
Assets: | |||
Accounts receivable | 52 | ||
Inventory | 74 | ||
Other current assets | 4 | ||
Intangible assets | 330 | ||
Goodwill | 287 | ||
Property, plant and equipment | 97 | ||
Other noncurrent assets | 20 | ||
Liabilities: | |||
Accounts payable | (32 | ) | |
Deferred tax - net | (138 | ) | |
Other noncurrent liabilities | (14 | ) | |
Total purchase price | $ | 680 |
Weighted-average | |||||
amortization period | |||||
Intangible asset type (in millions) | Value | (years) | |||
Trademarks and trade names | $ | 26 | 15 | ||
Intellectual property | 68 | 22 | |||
Customer and supplier relationships | 236 | 20 | |||
Total | $ | 330 |
NOTE D –C– DISCONTINUED OPERATIONS
Ashland has divested certain businesses that have qualified as discontinued operations. The operating results from these divested businesses and subsequent adjustments related to ongoing assessments of certain retained liabilities and tax items have been recorded within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss) for all periods presented and are discussed further within this note.
6
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 nine months ended
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Income (loss) from discontinued operations (net of tax) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Performance Adhesives |
| $ | (1 | ) |
| $ | 4 |
|
| $ | (1 | ) |
| $ | 38 |
|
Composites/Marl facility |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
Valvoline |
|
| 15 |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
Asbestos |
|
| (4 | ) |
|
| (13 | ) |
|
| (4 | ) |
|
| (13 | ) |
Water Technologies |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Distribution |
|
| (2 | ) |
|
| (5 | ) |
|
| (3 | ) |
|
| (7 | ) |
Gain on disposal of discontinued operations (net of tax) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Performance Adhesives |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 732 |
|
| $ | 8 |
|
| $ | (15 | ) |
| $ | 6 |
|
| $ | 749 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months ended June 30, 2022. This disclosure was not applicable for the three and nine months ended June 30, 2023 as a result of the sale in fiscal 2022.
|
| Three months ended |
|
| Nine months ended |
| ||
|
| June 30 |
|
| June 30 |
| ||
(In millions) |
| 2022 |
|
| 2022 |
| ||
Income (loss) from discontinued operations attributable to Performance Adhesives |
|
|
|
|
|
| ||
Sales |
| $ | — |
|
| $ | 171 |
|
Cost of sales |
|
| — |
|
|
| (122 | ) |
Selling, general and administrative expense |
|
| (1 | ) |
|
| (12 | ) |
Research and development expense |
|
| — |
|
|
| (3 | ) |
Pretax income of discontinued operations |
|
| (1 | ) |
|
| 34 |
|
Income tax (expense) benefit |
|
| 5 |
|
|
| 4 |
|
Income from discontinued operations |
| $ | 4 |
|
| $ | 38 |
|
|
|
|
|
|
|
|
NOTE D – RESTRUCTURING ACTIVITIES
Fiscal 2023 Life Sciences restructuring program
During the December 31, 2016.2022 quarter, Ashland implemented a restructuring program within the Nutraceuticals business of the Life Sciences segment. Ashland recorded severance expense of zero and $1 million during the three and nine months ended June 30, 2023. As of June 30, 2023, the severance reserve associated with this program was less than $1 million.
Fiscal 2023 company-wide restructuring program
During the current quarter, Ashland implemented additional targeted company-wide restructuring actions to reduce costs. Ashland recorded severance expense of $1 million during the three and nine months ended June 30, 2023. As of June 30, 2023, the severance reserve associated with this program was $1 million.
7
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.
For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use ofusing fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable.
The following table summarizes financial instruments subject to recurring fair value measurements as of December 31, 2017.
|
| Carrying |
|
| Total |
|
| Quoted prices |
|
| Significant |
|
| Significant |
| |||||
(In millions) |
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 349 |
|
| $ | 349 |
|
| $ | 349 |
|
| $ | — |
|
| $ | — |
|
Restricted investments (a) (b) |
|
| 392 |
|
|
| 392 |
|
|
| 392 |
|
|
| — |
|
|
| — |
|
Investment of captive insurance company (c) |
|
| 4 |
|
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
Foreign currency derivatives (d) |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Total assets at fair value |
| $ | 746 |
|
| $ | 746 |
|
| $ | 745 |
|
| $ | 1 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Foreign currency derivatives (e) |
| $ | 1 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
Commodity derivatives (e) |
|
| 5 |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
Total liabilities at fair value |
| $ | 6 |
|
| $ | 6 |
|
| $ | — |
|
| $ | 6 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) | Carrying value | Total fair value | Quoted prices in active markets for identical assets Level 1 | Significant other observable inputs Level 2 | Significant unobservable inputs Level 3 | ||||||||||||||
Assets | |||||||||||||||||||
Cash and cash equivalents | $ | 601 | $ | 601 | $ | 601 | $ | — | $ | — | |||||||||
Restricted investments (a) | 345 | 345 | 345 | — | — | ||||||||||||||
Deferred compensation investments (b) | 160 | 160 | — | 160 | — | ||||||||||||||
Investments of captive insurance company (b) | 3 | 3 | 3 | — | — | ||||||||||||||
Foreign currency derivatives | 4 | 4 | — | 4 | — | ||||||||||||||
Total assets at fair value | $ | 1,113 | $ | 1,113 | $ | 949 | $ | 164 | $ | — | |||||||||
Liabilities | |||||||||||||||||||
Foreign currency derivatives | $ | 13 | $ | 13 | $ | — | $ | 13 | $ | — | |||||||||
8
The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2017.2022.
|
| Carrying |
|
| Total |
|
| Quoted prices |
|
| Significant |
|
| Significant |
| |||||
(In millions) |
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 646 |
|
| $ | 646 |
|
| $ | 646 |
|
| $ | — |
|
| $ | — |
|
Restricted investments (a) (b) |
|
| 374 |
|
|
| 374 |
|
|
| 374 |
|
|
| — |
|
|
| — |
|
Investment of captive insurance company (c) |
|
| 9 |
|
|
| 9 |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
Foreign currency derivatives (d) |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Commodity derivatives (d) |
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
Total assets at fair value |
| $ | 1,034 |
|
| $ | 1,034 |
| �� | $ | 1,029 |
|
| $ | 5 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency derivatives (e) |
| $ | 9 |
|
| $ | 9 |
|
| $ | — |
|
| $ | 9 |
|
| $ | — |
|
Commodity derivatives (e) |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Total liabilities at fair value |
| $ | 10 |
|
| $ | 10 |
|
| $ | — |
|
| $ | 10 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 | $ | — | |||||||||
Restricted investments
Ashland maintains certain insurance coverage for asbestos bodily injury claims with Underwriters at Lloyd’s, certain London Companies and Chartis (AIG) member companies, along with National Indemnity Company and Resolute Management, Inc., under which Ashland and Hercules received a total of $398 million (the January 2015 asbestos insurance settlement). Ashland placed $335 million of the settlement funds from the January 2015 asbestos insurance settlement into ainvestments in company restricted renewable annual trust restrictedtrusts for the purpose of paying ongoingfuture asbestos indemnity and defense costs and future environmental remediation and related litigation defense and claim settlement costs incurred in conjunction with asbestos claims.costs. The financial instruments are designated as investment securities, classified as Level 1 measurements within the fair value hierarchy. These fundssecurities were classified primarily as noncurrent restricted investment assets, with $30$71 million and $61 million classified within other current assets, in the Condensed Consolidated Balance Sheets as of December 31, 2017June 30, 2023 and September 30, 2017.2022, respectively.
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 | |||
The following table presents gross unrealized gains and losses for the restricted investment available-for-sale securities as of December 31, 2017June 30, 2023 and September 30, 2017:2022:
|
|
|
|
| Gross |
|
| Gross |
|
|
|
| ||||
(In millions) |
| Adjusted Cost |
|
| Unrealized Gain |
|
| Unrealized Loss |
|
| Fair Value |
| ||||
As of June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposit |
| $ | 8 |
|
| $ | — |
|
| $ | — |
|
| $ | 8 |
|
Equity mutual fund |
|
| 158 |
|
|
| 33 |
|
|
| — |
|
|
| 191 |
|
Fixed income mutual fund |
|
| 232 |
|
|
| — |
|
|
| (39 | ) |
|
| 193 |
|
Fair value |
| $ | 398 |
|
| $ | 33 |
|
| $ | (39 | ) |
| $ | 392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
As of September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposit |
| $ | 6 |
|
| $ | — |
|
| $ | — |
|
| $ | 6 |
|
Equity mutual fund |
|
| 186 |
|
|
| 20 |
|
|
| (25 | ) |
|
| 181 |
|
Fixed income mutual fund |
|
| 234 |
|
|
| — |
|
|
| (47 | ) |
|
| 187 |
|
Fair value |
| $ | 426 |
|
| $ | 20 |
|
| $ | (72 | ) |
| $ | 374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
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, funds restricted for specific transactions, and disbursements related to the investments within the portfolio for the three and nine months ended December 31, 2017June 30, 2023 and 2016.
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Investment income (a) |
| $ | 4 |
|
| $ | 3 |
|
| $ | 10 |
|
| $ | 13 |
|
Net gains (losses) (a) |
|
| 6 |
|
|
| (48 | ) |
|
| 47 |
|
|
| (72 | ) |
Funds restricted for specific transactions |
|
| 1 |
|
|
| 30 |
|
|
| 7 |
|
|
| 74 |
|
Disbursements |
|
| (29 | ) |
|
| — |
|
|
| (46 | ) |
|
| (28 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Three months ended Nine months ended June 30 June 30 (In millions) 2023 2022 2023 2022 Foreign currency derivative gains (losses) $ 1 $ (12 ) $ 10 $ (21 ) The following table summarizes the fair values of the outstanding foreign currency derivatives as of June 30 September 30 (In millions) 2023 2022 Foreign currency derivative assets $ 1 $ 1 Notional contract values 123 133 Foreign currency derivative liabilities $ 1 $ 9 Notional contract values 145 535 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 nine months ended June 30, 2023 and 2022 within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss). Three months ended Nine months ended June 30 June 30 (In millions) 2023 2022 2023 2022 Commodity derivative gains (losses) $ (2 ) $ 2 $ (2 ) $ 6 10 The following table summarizes the fair values of the outstanding commodity derivatives as of June 30, 2023, and September 30, June 30 September 30 (In millions) 2023 2022 Commodity derivative assets $ — $ 4 Notional contract values 1 13 Commodity derivative liabilities $ 5 $ 1 Notional contract values 18 9 Other financial instruments At June 30, 2023 and September 30, 2022, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of NOTE F – INVENTORIES Inventories are carried at the lower of cost or and/orand losses recognized during the three and nine months ended December 31, 2017June 30, 2023 and 20162022 within the Statements of Consolidated Comprehensive Income (Loss). Three months ended December 31 (In millions) 2017 2016 Foreign currency derivative loss $ (11 ) $ (8 ) December 31, 2017June 30, 2023 and September 30, 20172022 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets. December 31 September 30 (In millions) 2017 2017 Foreign currency derivative assets $ 4 $ 2 Notional contract values 425 79 Foreign currency derivative liabilities $ 13 $ 36 Notional contract values 810 1,601 Other financial instrumentsAt December 31, 20172017,2022 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.$2,614$1,342 million and 2,615$1,284 million, respectively, compared to a fair value of $2,755$1,195 million and $2,768$1,102 million, respectively. The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland’s incremental borrowing rates, which are deemed to be Level 2 measurements within the fair value hierarchy.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSmarket.net realizable value. Inventories are primarily stated at cost using the weighted-average cost method. In addition, certainThis method values 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.
|
| June 30 |
|
| September 30 |
| ||
(In millions) |
| 2023 |
|
| 2022 |
| ||
Finished products |
| $ | 460 |
|
| $ | 391 |
|
Raw materials, supplies and work in process |
|
| 252 |
|
|
| 238 |
|
|
| $ | 712 |
|
| $ | 629 |
|
|
|
|
|
|
|
|
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
No indicators of July 1impairment were identified in the three and consists of Ashland determining each reporting unit’s current fair value compared to its current carrying value. For its July 1, 2017 assessment, Ashland determined that its reporting units for the allocation of goodwill are its three reportable segments: Specialty Ingredients, Composites and Intermediates and Solvents. At that time, Ashland determined no additional impairment existed.nine months ended June 30, 2023.
The following is a progression of goodwill by reportable segment for the threenine months ended December 31, 2017.
| Life |
|
| Personal |
|
| Specialty |
|
|
|
|
|
|
| |||||
(In millions) | Sciences |
|
| Care (a) |
|
| Additives (a) |
|
| Intermediates (a) |
|
| Total |
| |||||
Balance at September 30, 2022 | $ | 787 |
|
| $ | 118 |
|
| $ | 407 |
|
| $ | — |
|
| $ | 1,312 |
|
Currency translation |
| 45 |
|
|
| 5 |
|
|
| 21 |
|
|
| — |
|
|
| 71 |
|
Balance at June 30, 2023 | $ | 832 |
|
| $ | 123 |
|
| $ | 428 |
|
| $ | — |
|
| $ | 1,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||
11
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 2520 years, intellectual property over 53 to 2520 years, and customer and supplier relationships over 310 to 24 years.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 nine months ended June 30, 2023.
Other intangible assets were comprised of the following as of
| June 30, 2023 |
| |||||||||
| Gross |
|
|
|
|
| Net |
| |||
| carrying |
|
| Accumulated |
|
| carrying |
| |||
(In millions) | amount |
|
| amortization |
|
| amount |
| |||
Definite-lived intangibles |
|
|
|
|
|
|
|
| |||
Trademarks and trade names | $ | 98 |
|
| $ | (42 | ) |
| $ | 56 |
|
Intellectual property |
| 738 |
|
|
| (573 | ) |
|
| 165 |
|
Customer and supplier relationships |
| 830 |
|
|
| (413 | ) |
|
| 417 |
|
Total definite-lived intangibles |
| 1,666 |
|
|
| (1,028 | ) |
|
| 638 |
|
|
|
|
|
|
|
|
| ||||
Indefinite-lived intangibles |
|
|
|
|
|
|
|
| |||
Trademarks and trade names |
| 278 |
|
|
| — |
|
|
| 278 |
|
Total intangible assets | $ | 1,944 |
|
| $ | (1,028 | ) |
| $ | 916 |
|
| September 30, 2022 |
| |||||||||
| Gross |
|
|
|
|
| Net |
| |||
| carrying |
|
| Accumulated |
|
| carrying |
| |||
(In millions) | amount |
|
| amortization |
|
| amount |
| |||
Definite-lived intangibles |
|
|
|
|
|
|
|
| |||
Trademarks and trade names | $ | 95 |
|
| $ | (37 | ) |
| $ | 58 |
|
Intellectual property |
| 718 |
|
|
| (523 | ) |
|
| 195 |
|
Customer and supplier relationships |
| 801 |
|
|
| (369 | ) |
|
| 432 |
|
Total definite-lived intangibles |
| 1,614 |
|
|
| (929 | ) |
|
| 685 |
|
|
|
|
|
|
|
|
|
| |||
Indefinite-lived intangibles |
|
|
|
|
|
|
|
| |||
Trademarks and trade names |
| 278 |
|
|
| — |
|
|
| 278 |
|
Total intangible assets | $ | 1,892 |
|
| $ | (929 | ) |
| $ | 963 |
|
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$23 million for the three months ended December 31, 2017June 30, 2023 and 2016,2022, respectively, and $70 million and $71 million for the nine months ended June 30, 2023 and 2022, 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$93 million in 20182023 (includes threenine months actual and ninethree months estimated), $90$80 million in 2019, $892024, $76 million in 2020, $892025, $74 million in 20212026 and $87$53 million in 2022. The amortization expense for future periods is an estimate.2027. 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.
12
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) |
| June 30, 2023 |
|
| September 30, 2022 |
| ||
3.375% Senior Notes, due 2031 |
| $ | 450 |
|
| $ | 450 |
|
2.00% Senior Notes, due 2028 (Euro 500 million principal) |
|
| 544 |
|
|
| 489 |
|
6.875% notes, due 2043 |
|
| 281 |
|
|
| 282 |
|
6.50% junior subordinated notes, due 2029 |
|
| 63 |
|
|
| 60 |
|
Other (a) |
|
| (10 | ) |
|
| (11 | ) |
Total debt |
|
| 1,328 |
|
|
| 1,270 |
|
Short-term debt (includes current portion of long-term debt) |
|
| — |
|
|
| — |
|
Long-term debt (less current portion) |
| $ | 1,328 |
|
| $ | 1,270 |
|
|
|
|
|
|
|
|
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 | |||
The scheduled aggregate maturities ofto 2027 for long-term debt by year (including the current portion and excluding debt issuance costs) are as follows: $5 million remainingfollows as of June 30, 2023: zero in 2018, $11the next 4 years and $4 million in 2019, $269 million in 2020, $56 million in 20212027.
Accounts Receivable Facilities and $1,279 million in 2022.
U.S. Accounts Receivable Sales Program
Ashland Financing Activities
Ashland recognized a loss of less than $1 million and a loss of $1 million within the Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.
As of June 30, 2023 and 2022, the year-to-date gross cash proceeds received for receivables transferred and derecognized were $150 million and $205 million, respectively, of which $164 million and $268 million were collected, which includes collections from sales in prior years transferred to the buyer. The difference between receivables transferred and derecognized versus collected of $14 million and $63 million for the three monthsperiods ended DecemberJune 30, 2023 and 2022, respectively, represent the impact of a net reduction in accounts receivable sales volume during each period, respectively. The prior year period included the impact of a $21 million net reduction in accounts receivables sales volume attributable to the Adhesives business sold in 2022.
On April 14, 2023, Ashland entered into Second and Third Amendments associated with this current program. As part of these amendments the buyer's limit was reduced to $115 million between April and October of each year, and up to $100 million at all other times. Additionally, the scheduled termination date was extended from May 31, 2016.
13
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. At June 30, 2023 and September 30, 2022, the outstanding amounts of accounts receivable transferred by Ashland were $139 million and $162 million, respectively, and there were zero borrowings (denominated in multiple currencies) under the facility in both periods.
Available borrowing capacity
The borrowing capacity remaining under the 20172022 Credit Agreement was $593 million, which reflects the full $600 million Revolving Credit Facility was $467 million due to an outstanding balance of $285 million, as well asless a reduction of $48$7 million for letters of credit outstanding at December 31, 2017.as of June 30, 2023. Ashland's total borrowing capacity at December 31, 2017June 30, 2023 was $498$702 million, which included $31$109 million of available capacity from the accounts receivable securitization facility.
Additionally, Ashland had zero available liquidity under its current U.S. Accounts Receivable Sales Program as of June 30, 2023.
Covenants related to current Ashland debt agreements
Ashland's debt contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations. As of December 31, 2017,June 30, 2023, 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 20172022 Credit Agreement) is 4.5.4.0. At December 31, 2017,June 30, 2023, Ashland’s calculation of the consolidated net leverage ratio was 3.9.
The minimum required consolidated interest coverage ratio under the 20172022 Credit Agreement during its entire duration is 3.0.3.0. At December 31, 2017,June 30, 2023, Ashland’s calculation of the interest coverage ratio was 4.6.9.9.
NOTE I – INCOME TAXES
The Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017. The Tax Act reducescomponents of lease cost recognized within the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earningsStatements of certain foreign subsidiaries thatConsolidated Comprehensive Income (Loss) were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, Ashland has not completed the internal accounting assessmentas follows:
|
|
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
|
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| Location |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease cost |
| Selling, General & Administrative (a) |
| $ | 3 |
|
| $ | 5 |
|
| $ | 10 |
|
| $ | 12 |
|
Operating lease cost |
| Cost of Sales |
|
| 3 |
|
|
| 3 |
|
|
| 11 |
|
|
| 10 |
|
Variable lease cost |
| Selling, General & Administrative |
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
Variable lease cost |
| Cost of Sales |
|
| 2 |
|
|
| 1 |
|
|
| 4 |
|
|
| 3 |
|
Short-term leases |
| Cost of Sales |
|
| — |
|
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
Total lease cost |
|
|
| $ | 9 |
|
| $ | 11 |
|
| $ | 30 |
|
| $ | 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets exchanged for new operating lease obligations were $6 million and $7 million for the three months ended December 31, 2017, which isJune 30, 2023 and 2022, respectively, and $29 million and $11 million for the nine months ended June 30, 2023 and 2022.
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 |
|
| Nine months ended |
| ||||||||||
|
|
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
|
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating cash flows from operating leases |
| $ | 8 |
|
| $ | 9 |
|
| $ | 21 |
|
| $ | 23 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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%26% and 11% for the three and nine months ended December 31, 2017 andJune 30, 2023.
The currentquarter's tax rate was primarily impacted by jurisdictional income mix, as well as net $4 million from favorable tax discrete items primarily related to changes in uncertain tax positions and adjustments to valuation allowances. The current nine month tax rate was impacted by jurisdictional income mix, as well as net $27 million from favorable tax discrete items primarily related to changes in uncertain tax positions.
Prior fiscal year
The overall effective tax rate was 2% and 17% for the three and nine months ended June 30, 2022. The prior year quarter's tax rate was impacted by jurisdictional income mix, as well as a net $1 million benefit primarily from favorable return to provision adjustments for certain jurisdictions. The nine month tax rate was impacted by jurisdictional income mix as well as $3 million from net unfavorable tax discrete adjustments of $16 millionitems primarily related to the Tax Act.
Unrecognized tax benefits
Changes in unrecognized tax benefits are summarized as follows for the threenine months ended December 31, 2017.June 30, 2023.
(In millions) |
|
| |
Balance at October 1, 2022 | $ | 84 |
|
Increases related to positions taken in prior years |
| 1 |
|
Decreases related to positions taken in prior years |
| (27 | ) |
Increases related to positions taken in the current year |
| 3 |
|
Lapse of statute of limitations |
| (4 | ) |
Balance at June 30, 2023 | $ | 57 |
|
|
|
|
(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 millionzero and $32 million for continuing operations.$1 million. 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.
NOTE JK - EMPLOYEE BENEFIT PLANS
Plan contributions
For the threenine months ended December 31, 2017,June 30, 2023, Ashland contributed $2$4 million to its non-U.S. pension plans and zero$3 million to its U.S. pension plans. Ashland expects to make additional contributions of approximately $5less than $1 million to both its non-U.S.U.S. pension plans and $1 million to its U.S.non-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 of February 28, 2022. As a result, Ashland recorded zero and $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 nine months ended December 31, 2016.
15
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) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Three months ended June 30 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service cost |
| $ | — |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | — |
|
Interest cost |
|
| 4 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
Expected return on plan assets |
|
| (2 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
Actuarial (gain) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total net periodic benefit costs |
| $ | 2 |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | — |
|
Nine months ended June 30 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service cost |
| $ | 2 |
|
| $ | 3 |
|
| $ | 1 |
|
| $ | — |
|
Interest cost |
|
| 10 |
|
|
| 5 |
|
|
| 1 |
|
|
| 1 |
|
Expected return on plan assets |
|
| (5 | ) |
|
| (5 | ) |
|
| — |
|
|
| — |
|
Actuarial (gain) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
Total net periodic benefit costs |
| $ | 7 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 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 incomeloss caption on the Statements of Consolidated Comprehensive Income (Loss)., which netted to a loss of $2 million and $6 million for the three and nine months ended June 30, 2023, respectively, and a loss of $1 million and zero for the three and nine months ended June 30, 2022.
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.
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).
16
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.
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| June 30 |
|
| Years ended September 30 |
| ||||||||||||||
(In thousands) |
| 2023 |
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||
Open claims - beginning of year |
|
| 44 |
|
|
| 46 |
|
|
| 46 |
|
|
| 49 |
|
|
| 53 |
|
New claims filed |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
Claims settled |
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
Claims dismissed |
|
| (3 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| (4 | ) |
|
| (5 | ) |
Open claims - end of period |
|
| 42 |
|
|
| 45 |
|
|
| 44 |
|
|
| 46 |
|
|
| 49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.costs. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year40-year model developed with the assistance of HR&A.
During the most recent annual update of this estimate completed during thein June 2017 quarter,2023, it was determined that the liability for Ashland asbestos-related claims should be increased by $36$9 million. Total reserves for asbestos claims were $409$285 million at December 31, 2017June 30, 2023 compared to
A progression of activity in the asbestos reserve is presented in the following table.
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| June 30 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||
Asbestos reserve - beginning of year |
| $ | 305 |
|
| $ | 320 |
|
| $ | 320 |
|
| $ | 335 |
|
| $ | 352 |
|
Reserve adjustment |
|
| 9 |
|
|
| 16 |
|
|
| 16 |
|
|
| 12 |
|
|
| 13 |
|
Amounts paid |
|
| (29 | ) |
|
| (26 | ) |
|
| (31 | ) |
|
| (27 | ) |
|
| (30 | ) |
Asbestos reserve - end of period (a) |
| $ | 285 |
|
| $ | 310 |
|
| $ | 305 |
|
| $ | 320 |
|
| $ | 335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 all of the estimated receivables from insurance companies are expected to be due from domestic insurers, all of which are solvent.
At December 31, 2017,June 30, 2023, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $151$97 million (excluding the Hercules receivable for asbestos claims)claims discussed below) compared to $155$101 million at September 30, 2017. During the2022. In June 2017 quarter,2023, 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$3 million increase in the receivable for probable insurance recoveries.
17
A progression of activity in the Ashland insurance receivable is presented in the following table.
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| June 30 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||
Insurance receivable - beginning of year |
| $ | 101 |
|
| $ | 100 |
|
| $ | 100 |
|
| $ | 103 |
|
| $ | 123 |
|
Receivable adjustment (a) |
|
| 3 |
|
|
| 7 |
|
|
| 7 |
|
|
| 6 |
|
|
| 1 |
|
Insurance settlement |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
Amounts collected |
|
| (7 | ) |
|
| (5 | ) |
|
| (6 | ) |
|
| (9 | ) |
|
| (11 | ) |
Insurance receivable - end of period (b) |
| $ | 97 |
|
| $ | 102 |
|
| $ | 101 |
|
| $ | 100 |
|
| $ | 103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| June 30 |
|
| Years ended September 30 |
| ||||||||||||||
(In thousands) |
| 2023 |
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||
Open claims - beginning of year |
|
| 11 |
|
|
| 12 |
|
|
| 12 |
|
|
| 12 |
|
|
| 13 |
|
New claims filed |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Claims dismissed |
|
| — |
|
|
| (1 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (2 | ) |
Open claims - end of period |
|
| 12 |
|
|
| 12 |
|
|
| 11 |
|
|
| 12 |
|
|
| 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.costs. Ashland reviews this estimate, and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year40-year model developed with the assistance of HR&A. As a result ofGnarus. During the most recent annual update of this estimate, completed during thein June 2017 quarter,2023, it was determined that the liability for Hercules asbestos-related claims should be increaseddecreased by $16$2 million. Total reserves for asbestos claims were $315$197 million at
A progression of activity in the asbestos reserve is presented in the following table.
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| June 30 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||
Asbestos reserve - beginning of year |
| $ | 213 |
|
| $ | 217 |
|
| $ | 217 |
|
| $ | 229 |
|
| $ | 252 |
|
Reserve adjustments |
|
| (2 | ) |
|
| 15 |
|
|
| 15 |
|
|
| 8 |
|
|
| (3 | ) |
Amounts paid |
|
| (14 | ) |
|
| (12 | ) |
|
| (19 | ) |
|
| (20 | ) |
|
| (20 | ) |
Asbestos reserve - end of period (a) |
| $ | 197 |
|
| $ | 220 |
|
| $ | 213 |
|
| $ | 217 |
|
| $ | 229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||
18
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.
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| June 30 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||
Insurance receivable - beginning of year |
| $ | 52 |
|
| $ | 47 |
|
| $ | 47 |
|
| $ | 47 |
|
| $ | 49 |
|
Receivable adjustment (a) |
|
| (3 | ) |
|
| 7 |
|
|
| 7 |
|
|
| 1 |
|
|
| (2 | ) |
Amounts collected |
|
| (2 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| — |
|
Insurance receivable - end of period (b) |
| $ | 47 |
|
| $ | 53 |
|
| $ | 52 |
|
| $ | 47 |
|
| $ | 47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
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 and the long latency period associated with asbestos exposure,related costs incurred in resolving those claims, 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.case. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, Ashland believes 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
19
such locations included 82 waste treatment or disposal57 sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, 118108 current and former operating facilities (including certain operating facilities conveyed as part of the MAP Transaction) and about 1,225 service station properties, of which 3614 are being actively remediated.
Ashland’s reserves for environmental remediation and related environmental litigation amounted to $168$204 million at December 31, 2017June 30, 2023 compared to $163$211 million at September 30, 2017,2022, of which $125$155 million at December 31, 2017June 30, 2023 and $121$157 million at September 30, 20172022 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
|
| Nine months ended |
| |||||
|
| June 30 |
| |||||
(In millions) |
| 2023 |
|
| 2022 |
| ||
Reserve - beginning of period |
| $ | 211 |
|
| $ | 207 |
|
Disbursements |
|
| (40 | ) |
|
| (42 | ) |
Revised obligation estimates and accretion |
|
| 33 |
|
|
| 61 |
|
Reserve - end of period |
| $ | 204 |
|
| $ | 226 |
|
|
|
|
|
|
|
|
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 December 31, 2017June 30, 2023 and September 30, 2017,2022, Ashland’s recorded receivable for these probable insurance recoveries was $14$21 million, and $15 million, respectively, of which $13 million and $14$17 million at December 31, 2017June 30, 2023 andSeptember 30, 2017, respectively,2022 were 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 nine ended June 30, 2023 and 2022.
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Environmental expense |
| $ | 22 |
|
| $ | 45 |
|
| $ | 32 |
|
| $ | 60 |
|
Accretion |
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Legal expense |
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
Total expense |
|
| 23 |
|
|
| 47 |
|
|
| 36 |
|
|
| 64 |
|
|
|
| — |
|
|
|
|
|
| — |
|
|
|
| ||
Insurance receivable |
|
| (2 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| (5 | ) |
Total expense, net of receivable activity (a) |
| $ | 21 |
|
| $ | 45 |
|
| $ | 34 |
|
| $ | 59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and 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.regulations. 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$465 million. The largest reserve for any site is approximately 15%13% of the remediation reserve.
20
Brazil tax credits
In March 2017, the Federal Supreme Court of Brazil (Brazil Supreme Court) ruled in a leading case that a Brazilian value-added tax (ICMS) should not be included in the base used to calculate a taxpayer’s federal contribution on total revenue known as PIS/COFINS (2017 Decision). As a result, two of Ashland’s Brazilian subsidiaries filed lawsuits challenging the inclusion of ICMS in Ashland’s calculation of PIS/COFINs, seeking recovery of excess taxes paid plus interest.
In response to the 2017 Decision, the Brazilian tax authority filed an appeal of the 2017 Decision seeking clarification of the amount of ICMS tax to exclude from the calculation of PIS/COFINS. In May 2021, the Brazil Supreme Court ruled that the ICMS tax be excluded from the calculation of PIS/COFINS. In May 2023, Law 14592/23 was passed in Brazil, converting the 2017 Decision provisional measure effective for PIS/COFINS legislation excluding ICMS from the calculation basis.
As of June 2023, Ashland had received all favorable court rulings for previously filed suits, completed its analysis of certain prior year overpayments related to ICMS and received acknowledgment from the Brazilian tax authority that allows Ashland to begin the process to recover the taxes. As a result, Ashland recorded a pre-tax gain of $12 million for the three and nine months ended June 30, 2023 for certain excess PIS/COFINS paid from 2012 to February 2023 plus interest. The gain was recognized within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss).
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 grantexercise 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.antidilutive. The total number of these shares outstanding was approximately 0.7 million and 0.91 million at December 31, 2017June 30, 2023 and 2016,2022, respectively. The majority of these shares are for warrants with a strike price of $128.66. Earnings per share is reported under the treasury stock method.
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions, except per share data) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Numerator |
|
|
|
|
|
|
|
| ||||||||
Numerator for basic and diluted EPS - |
| $ | 42 |
|
| $ | 51 |
|
| $ | 176 |
|
| $ | 121 |
|
Denominator |
|
|
|
|
|
|
|
| ||||||||
Denominator for basic EPS - Weighted- |
|
| 52 |
|
|
| 54 |
|
|
| 53 |
|
|
| 56 |
|
Share based awards convertible to common shares |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Denominator for diluted EPS - Adjusted weighted- |
|
| 53 |
|
|
| 55 |
|
|
| 54 |
|
|
| 57 |
|
EPS from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.81 |
|
| $ | 0.94 |
|
| $ | 3.29 |
|
| $ | 2.16 |
|
Diluted |
|
| 0.79 |
|
|
| 0.93 |
|
|
| 3.24 |
|
|
| 2.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
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 | ) | |||
2023 Stock repurchase programs
On June 28, 2023, Ashland's Boardboard of Directors approveddirectors authorized a $1new evergreen $1 billion common share repurchase authorization that was set to expire on December 31, 2017 (the 2015program (2023 stock repurchase program). ThisThe new 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.
Stock repurchase program agreements
During May 2023, under the 2022 stock repurchase program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of share repurchase authorization remainsits outstanding shares. The program was completed during June 2023, when Ashland paid a total of $100 million and received a delivery of 1.1 million shares of common stock.
During March 2023, under the 20152022 stock repurchase program.
During February 2023, under the final distribution2022 stock repurchase program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of Valvoline Inc.'sits outstanding shares. The program was completed during February 2023, when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock.
On March 1, 2022, under the 2018 stock repurchase program, Ashland entered into an agreement to repurchase an aggregate amount of $200 million of Ashland common stock theusing open-market purchases under rule 10b-18. On April 8, 2022, Ashland completed repurchases under this agreement repurchasing a total of 2.15 million shares for a total amount of $200 million.
Stockholder dividends
On May 11, 2023, Ashland's Board of Directors of Ashland announceddeclared a quarterly cash dividend of 22.5 cents$0.385 per share to eligible shareholders at record whichon the company's common stock representing a 15 percent increase from the previous quarter. The dividend was paid for quarterly dividends in the firstthird quarter of fiscal 2018 and the third and fourth quarters2023. Dividends of fiscal 2017. This represented a reduction from the previous quarterly dividend of 39 cents$0.335 per share which waswere paid for quarterly dividends in the first and second quarters of fiscal 2017.
Accumulated other comprehensive income (loss)
Components of other comprehensive income (loss) recorded in the Statements of Consolidated Comprehensive Income (Loss) are presented below, before tax and net of tax effects.
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||
(In millions) |
| Before |
|
| Tax |
|
| Net of |
|
| Before |
|
| Tax |
|
| Net of |
| ||||||
Three months ended June 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized translation gain (loss) |
| $ | (4 | ) |
| $ | — |
|
| $ | (4 | ) |
| $ | (86 | ) |
| $ | — |
|
| $ | (86 | ) |
Unrealized gain (loss) on commodity hedges |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| (4 | ) |
|
| 1 |
|
|
| (3 | ) |
Total other comprehensive income (loss) |
| $ | (3 | ) |
| $ | — |
|
| $ | (3 | ) |
| $ | (90 | ) |
| $ | 1 |
|
| $ | (89 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nine months ended June 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized translation gain (loss) |
| $ | 106 |
|
| $ | (1 | ) |
| $ | 105 |
|
| $ | (108 | ) |
| $ | 1 |
|
| $ | (107 | ) |
Unrealized gain (loss) on commodity hedges |
|
| (8 | ) |
|
| 2 |
|
|
| (6 | ) |
|
| (3 | ) |
|
| 1 |
|
|
| (2 | ) |
Total other comprehensive income (loss) |
| $ | 98 |
|
| $ | 1 |
|
| $ | 99 |
|
| $ | (111 | ) |
| $ | 2 |
|
| $ | (109 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Summary of stockholders’ equity
A reconciliation of changes in stockholders’ equity are as follows:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Common stock and paid in capital |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | — |
|
| $ | 177 |
|
| $ | 136 |
|
| $ | 328 |
|
Compensation expense and common shares issued (a) |
|
| 5 |
|
|
| 1 |
|
|
| 7 |
|
|
| 5 |
|
Common shares purchased under repurchase program (b) (c) |
|
| (5 | ) |
|
| (45 | ) |
|
| (143 | ) |
|
| (200 | ) |
Balance, end of period |
|
| — |
|
|
| 133 |
|
|
| — |
|
|
| 133 |
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
|
| 3,734 |
|
|
| 3,596 |
|
|
| 3,653 |
|
|
| 2,796 |
|
Net income |
|
| 50 |
|
|
| 36 |
|
|
| 182 |
|
|
| 870 |
|
Regular dividends |
|
| (20 | ) |
|
| (18 | ) |
|
| (56 | ) |
|
| (52 | ) |
Common shares purchased under repurchase program (b) |
|
| (145 | ) |
|
| — |
|
|
| (160 | ) |
|
| — |
|
Balance, end of period |
|
| 3,619 |
|
|
| 3,614 |
|
|
| 3,619 |
|
|
| 3,614 |
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
|
| (467 | ) |
|
| (392 | ) |
|
| (569 | ) |
|
| (372 | ) |
Unrealized translation gain (loss) |
|
| (4 | ) |
|
| (86 | ) |
|
| 105 |
|
|
| (107 | ) |
Unrealized gain (loss) on commodity hedges |
|
| 1 |
|
|
| (3 | ) |
|
| (6 | ) |
|
| (2 | ) |
Balance, end of period |
|
| (470 | ) |
|
| (481 | ) |
|
| (470 | ) |
|
| (481 | ) |
Total stockholders' equity |
| $ | 3,149 |
|
| $ | 3,266 |
|
| $ | 3,149 |
|
| $ | 3,266 |
|
Cash dividends declared per common share |
| $ | 0.385 |
|
| $ | 0.335 |
|
| $ | 1.055 |
|
| $ | 0.935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ) | ||||||||
NOTE NO – STOCK INCENTIVE PLANS
The components of Ashland’s pretaxpre-tax stock-based compensation expense included in continuing operations are as follows:
| Three months ended |
|
| Nine months ended |
| ||||||||||
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) | 2023 (a) |
|
| 2022 (b) |
|
| 2023 (a) |
|
| 2022 (b) |
| ||||
Nonvested stock awards | $ | 2 |
|
| $ | 4 |
|
| $ | 9 |
|
| $ | 10 |
|
Performance share awards |
| 1 |
|
|
| 3 |
|
|
| 8 |
|
|
| 8 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 17 |
|
| $ | 18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ||||
23
NOTE P – REVENUE
Disaggregation of revenue
Ashland disaggregates its revenue by segment and geographical region as Ashland believes these awards.
Sales by geography |
| |||||||||||||||
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Life Sciences |
| |||||||||||||||
North America |
| $ | 57 |
|
| $ | 70 |
|
| $ | 166 |
|
| $ | 185 |
|
Europe |
|
| 77 |
|
|
| 76 |
|
|
| 237 |
|
|
| 197 |
|
Asia Pacific |
|
| 60 |
|
|
| 61 |
|
|
| 182 |
|
|
| 159 |
|
Latin America & other |
|
| 25 |
|
|
| 21 |
|
|
| 81 |
|
|
| 61 |
|
| $ | 219 |
|
| $ | 228 |
|
| $ | 666 |
|
| $ | 602 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Personal Care |
| |||||||||||||||
North America |
| $ | 43 |
|
| $ | 50 |
|
| $ | 134 |
|
| $ | 146 |
|
Europe |
|
| 53 |
|
|
| 69 |
|
|
| 173 |
|
|
| 194 |
|
Asia Pacific |
|
| 28 |
|
|
| 31 |
|
|
| 84 |
|
|
| 93 |
|
Latin America & other |
|
| 22 |
|
|
| 22 |
|
|
| 61 |
|
|
| 57 |
|
| $ | 146 |
|
| $ | 172 |
|
| $ | 452 |
|
| $ | 490 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Specialty Additives |
| |||||||||||||||
North America |
| $ | 52 |
|
| $ | 71 |
|
| $ | 157 |
|
| $ | 185 |
|
Europe |
|
| 53 |
|
|
| 67 |
|
|
| 162 |
|
|
| 192 |
|
Asia Pacific |
|
| 40 |
|
|
| 48 |
|
|
| 114 |
|
|
| 133 |
|
Latin America & other |
|
| 7 |
|
|
| 8 |
|
|
| 23 |
|
|
| 22 |
|
| $ | 152 |
|
| $ | 194 |
|
| $ | 456 |
|
| $ | 532 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Intermediates |
| |||||||||||||||
North America |
| $ | 30 |
|
| $ | 47 |
|
| $ | 100 |
|
| $ | 121 |
|
Europe |
|
| 7 |
|
|
| 13 |
|
|
| 23 |
|
|
| 32 |
|
Asia Pacific |
|
| 5 |
|
|
| 10 |
|
|
| 19 |
|
|
| 31 |
|
Latin America & other |
|
| 1 |
|
|
| 3 |
|
|
| 6 |
|
|
| 8 |
|
| $ | 43 |
|
| $ | 73 |
|
| $ | 148 |
|
| $ | 192 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
Trade receivables are granted annually,defined as receivables arising from contracts with each award covering a three-year vesting period.
24
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.
Reportable segment business descriptions
Life Sciences is a global leader in cellulose ethers, vinyl pyrrolidonescomprised of pharmaceuticals, nutrition, nutraceuticals, agricultural chemicals, diagnostic films (formerly known as 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 is comprised of personalbiofunctionals, microbial protectants (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 architectural 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 arrayconstruction industry, and welders.
Intermediates is comprised of functional properties including corrosion resistance, fire retardance, ultraviolet resistance, water and chemical resistance, high mechanical strength, impact and scratch resistance and high strength-to-weight ratios. Key end markets include transportation, construction, marine and infrastructure. In addition, the business manufactures and sells molten maleic anhydride for the manufacture of a variety of products such as unsaturated polyester resins, copolymers, lubricating oil additives, alkenyl succinic anhydrides, malic acid, fumaric acid and numerous derivative chemicals. Key markets include composites, personal care, dispersants and paper sizing.
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.
25
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 incomeloss 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.
26
The following table presents various financial information for each reportable segment for the three and nine months ended December 31, 2017June 30, 2023 and 2016.
| Three months ended |
|
| Nine months ended |
| ||||||||||
| June 30 |
|
| June 30 |
| ||||||||||
(In millions - unaudited) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
SALES |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 219 |
|
| $ | 228 |
|
| $ | 666 |
|
| $ | 602 |
|
Personal Care |
| 146 |
|
|
| 172 |
|
|
| 452 |
|
|
| 490 |
|
Specialty Additives |
| 152 |
|
|
| 194 |
|
|
| 456 |
|
|
| 532 |
|
Intermediates |
| 43 |
|
|
| 73 |
|
|
| 148 |
|
|
| 192 |
|
Intersegment sales (a) |
| (14 | ) |
|
| (23 | ) |
|
| (48 | ) |
|
| (57 | ) |
$ | 546 |
|
| $ | 644 |
|
| $ | 1,674 |
|
| $ | 1,759 |
| |
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 49 |
|
| $ | 51 |
|
| $ | 141 |
|
| $ | 115 |
|
Personal Care |
| 14 |
|
|
| 25 |
|
|
| 38 |
|
|
| 67 |
|
Specialty Additives |
| 5 |
|
|
| 35 |
|
|
| 22 |
|
|
| 79 |
|
Intermediates |
| 13 |
|
|
| 30 |
|
|
| 50 |
|
|
| 72 |
|
Unallocated and other |
| (19 | ) |
|
| (29 | ) |
|
| (69 | ) |
|
| (79 | ) |
| $ | 62 |
|
| $ | 112 |
|
| $ | 182 |
|
| $ | 254 |
|
DEPRECIATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 11 |
|
| $ | 9 |
|
| $ | 31 |
|
| $ | 25 |
|
Personal Care |
| 9 |
|
|
| 10 |
|
|
| 28 |
|
|
| 28 |
|
Specialty Additives |
| 15 |
|
|
| 16 |
|
|
| 43 |
|
|
| 48 |
|
Intermediates |
| 3 |
|
|
| 2 |
|
|
| 9 |
|
|
| 9 |
|
Unallocated and other |
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
| $ | 38 |
|
| $ | 37 |
|
| $ | 111 |
|
| $ | 111 |
|
AMORTIZATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 7 |
|
| $ | 7 |
|
| $ | 20 |
|
| $ | 21 |
|
Personal Care |
| 12 |
|
|
| 11 |
|
|
| 35 |
|
|
| 35 |
|
Specialty Additives |
| 5 |
|
|
| 5 |
|
|
| 14 |
|
|
| 14 |
|
Intermediates |
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
| $ | 24 |
|
| $ | 24 |
|
| $ | 70 |
|
| $ | 71 |
|
EBITDA (b) |
|
|
|
|
|
|
|
|
|
|
| ||||
Life Sciences | $ | 67 |
|
| $ | 67 |
|
| $ | 192 |
|
| $ | 161 |
|
Personal Care |
| 35 |
|
|
| 46 |
|
|
| 101 |
|
|
| 130 |
|
Specialty Additives |
| 25 |
|
|
| 56 |
|
|
| 79 |
|
|
| 141 |
|
Intermediates |
| 16 |
|
|
| 33 |
|
|
| 60 |
|
|
| 82 |
|
Unallocated and other |
| (19 | ) |
|
| (64 | ) |
|
| (69 | ) |
|
| (120 | ) |
| $ | 124 |
|
| $ | 138 |
|
| $ | 363 |
|
| $ | 394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30 |
|
| September 30 |
| ||
(In millions - unaudited) | 2023 |
|
| 2022 |
| ||
TOTAL ASSETS |
|
|
|
|
| ||
Life Sciences | $ | 1,938 |
|
| $ | 1,905 |
|
Personal Care |
| 1,044 |
|
|
| 1,073 |
|
Specialty Additives |
| 1,642 |
|
|
| 1,567 |
|
Intermediates |
| 160 |
|
|
| 170 |
|
Unallocated and other |
| 1,245 |
|
|
| 1,498 |
|
| $ | 6,029 |
|
| $ | 6,213 |
|
|
|
|
|
|
|
27
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
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 |
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. In addition, Ashland may from time to time make forward-looking statements in its annual reports,Annual Report to Stockholders, quarterly
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements herein.
BUSINESS OVERVIEW
Ashland profile
Ashland is a premier global leader in providingadditives and specialty chemical solutions toingredients company with a conscious and proactive mindset for environment, social and governance (ESG). 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 6,5003,900 employees worldwide, Ashland serves customers in more than 100 countries.
Ashland’s sales generated outside of North America were 60%69% and 70% for both the three and nine months ended December 31, 2017June 30, 2023, respectively, and 2016.67% for the three and nine months ended June 30, 2022. Sales by region expressed as a percentage of total consolidated sales for the three and nine months ended December 31June 30 were as follows:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
Sales by Geography |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
North America (a) |
|
| 31 | % |
|
| 33 | % |
|
| 30 | % |
|
| 33 | % |
Europe (a) |
|
| 35 | % |
|
| 35 | % |
|
| 36 | % |
|
| 35 | % |
Asia Pacific |
|
| 24 | % |
|
| 23 | % |
|
| 24 | % |
|
| 24 | % |
Latin America & other |
|
| 10 | % |
|
| 9 | % |
|
| 10 | % |
|
| 8 | % |
|
|
| 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 Ashland’s reportable Three months ended Nine months ended June 30 June 30 Sales by Reportable Segment 2023 2022 2023 2022 Life Sciences 40 % 35 % 40 % 35 % Personal Care 27 % 27 % 27 % 28 % Specialty Additives 28 % 30 % 27 % 30 % Intermediates 5 % 8 % 6 % 7 % 100 % 100 % 100 % 100 % 29 KEY DEVELOPMENTS Business results Ashland recorded net 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 consolidated sales and less than 1% of total consolidated assets (related to accounts receivable). Uncertainty relating to the COVID-19 pandemic Ashland continues to successfully navigate the uncertain environment associated with the COVID-19 pandemic. Through the third quarter of fiscal 2023, 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. The COVID-19 impact related to the China re-opening did negatively impact demand during the first and second quarters of fiscal 2023 for both the Specialty Additives and Personal Care business segments. Additionally, Specialty Additives was also impacted by extended unplanned plant shutdowns at its Nanjing, China, facility as a result of these same dynamics during the first half of this fiscal year. Ashland’s overall liquidity remains strong and Ashland is more than able to meet its operating cash needs and other investing and financing cash requirements at this time, including those necessary to grow the business as economic conditions improve. Other items 2023 Stock Repurchase program On June 28, 2023, Ashland's board of directors authorized a new evergreen $1 billion common share repurchase program (2023 stock repurchase program). The new authorization terminates and replaces the company's 2022 stock repurchase program, which had $200 million outstanding at the date of termination. 30 Stock Repurchase program agreements During May 2023, under the 2022 stock repurchase program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of its outstanding shares. The program was completed during June 2023, when Ashland paid a total of $100 million and received a delivery of 1.1 million shares of common stock. During March 2023, under the 2022 stock repurchase program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of its outstanding shares. The program was completed during April 2023, when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock. During February 2023, under the existing 2022 stock repurchase program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of its outstanding shares. The program was completed in February 2023, when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock. RESULTS OF OPERATIONS – CONSOLIDATED REVIEW 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 June 30, 2023 and 2022 included the following: Year-to-date - Key financial results for the nine months ended June 30, 2023 and 2022 included the following: 31 For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income (Loss) caption review analysis. Operating income Current Quarter - Operating income amounted to $62 million and $112 million for the three months ended June 30, 2023 and 2022, 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 June 30, 2023 and 2022 included depreciation and amortization of $62 million and $61 million, respectively. Year-to-date - Operating income amounted to $182 million and $254 million for the nine months ended June 30, 2023 and 2022, 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: 32 Operating income for the nine months ended June 30, 2023 and 2022 included depreciation and amortization of $181 million and $182 million, respectively. 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 nine months ended June 30, 2023 and 2022. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Sales $ 546 $ 644 $ (98 ) $ 1,674 $ 1,759 $ (85 ) The following table provides a reconciliation of the change in sales for the three and nine months ended June 30, 2023 and 2022. Three months ended Nine months ended (In millions) June 30, 2023 June 30, 2023 Volume $ (134 ) $ (221 ) Pricing 33 170 Foreign currency exchange 3 (34 ) Change in sales $ (98 ) $ (85 ) Current Quarter - Sales for the current quarter decreased $98 million compared to the prior year quarter. Lower sales volume primarily from customer de-stocking of $134 million was partially offset by favorable product pricing associated with cost inflation pricing actions and favorable foreign currency exchange, which increased sales by $33 million and $3 million, respectively. Year-to-date - Sales for the current year decreased $85 million compared to the prior year period. Lower sales volume primarily from customer de-stocking of $221 million and unfavorable foreign currency exchange of $34 million were partially offset by favorable product pricing associated with cost inflation pricing actions which increased sales by $170 million. 33 Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Cost of sales $ 368 $ 404 $ (36 ) $ 1,134 $ 1,139 $ (5 ) Gross profit as a percent of sales 32.6 % 37.3 % 32.3 % 35.2 % The following table provides a reconciliation of the change in cost of sales between the three and nine months ended June 30, 2023 and 2022. Three months ended Nine months ended (In millions) June 30, 2023 June 30, 2023 Changes in: Volume $ (86 ) $ (151 ) Price/mix 4 32 Foreign currency exchange 1 (15 ) Operating Costs 45 129 Change in cost of sales $ (36 ) $ (5 ) Current Quarter - Cost of sales for the current quarter decreased $36 million compared to the prior year quarter. Lower volume primarily from customer de-stocking decreased cost of sales by $86 million. This decrease was partially offset by higher product pricing associated with cost inflation, unfavorable foreign currency exchange and higher operating costs primarily associated with inventory control actions, which increased cost of sales by $4 million, $1 million, and $45 million, respectively. Gross profit as a percentage of sales decreased 4.7% primarily as a result of lower sales volume and higher operating costs. Year-to-date - Cost of sales for the current year decreased $5 million compared to the prior year period. Lower volume primarily from customer de-stocking and favorable foreign currency exchange decreased cost of sales by $151 million and $15 million, respectively. This decrease was partially offset by higher product pricing associated with cost inflation, and higher operating costs, which includes costs associated with inventory control actions and inflation associated with plant manufacturing and shipping costs (as well as planned and unplanned plant shutdowns and maintenance), increased cost of sales by $32 million and $129 million, respectively. Gross profit as a percentage of sales decreased 2.9% primarily as a result of lower sales volume and higher operating costs. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Selling, general and administrative expense $ 84 $ 127 $ (43 ) $ 256 $ 299 $ (43 ) As a percent of sales 15.4 % 19.7 % 15.3 % 17.0 % Current Quarter - Selling, general and administrative expense for the current quarter decreased $43 million compared to the prior year quarter with expenses as a percent of sales decreasing 4.3 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 $43 million compared to the prior year period with expenses as a percent of sales decreasing 1.7 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year period were: 34 Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Research and development expense $ 12 $ 14 $ (2 ) $ 37 $ 40 $ (3 ) Current Quarter - Research and development expense decreased primarily due to lower incentive accruals. Year-to-date - Research and development expense decreased primarily due to lower incentive accruals. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Intangibles amortization expense $ 24 $ 23 $ 1 $ 70 $ 71 $ (1 ) Current Quarter - Intangibles amortization expense is primarily consistent with the prior year quarter. Year-to-date - Intangibles amortization expense is primarily consistent with the prior year quarter. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Equity and other income Other income $ 4 $ 1 $ 3 $ 5 $ 2 $ 3 $ 4 $ 1 $ 3 $ 5 $ 2 $ 3 Current Quarter - Other income increased $3 million primarily related to China financial cash subsidies. Year-to-date - Other income increased $3 million primarily related to China financial cash subsidies. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Income on acquisitions and divestitures, net $ — $ 35 $ (35 ) $ — $ 42 $ (42 ) Current Quarter - The activity in the prior year Year-to-date - The Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Net interest and other expense (income) Interest expense $ 14 $ 14 $ — $ 41 $ 47 $ (6 ) Interest income (2 ) — (2 ) (9 ) — (9 ) Loss (income) from restricted investments (10 ) 45 (55 ) (57 ) 59 (116 ) Other financing costs 1 — 1 4 2 2 $ 3 $ 59 $ (56 ) $ (21 ) $ 108 $ (129 ) Current Quarter - Net interest and Year-to-date - Net interest and other expense decreased by $129 million during the current period compared to the prior year period. Interest expense decreased $6 million primarily due to lower debt levels during the current year compared to the prior year period. Interest income increased $9 million due to higher investment yields and higher cash balances. Restricted investments income of $57 million and losses of $59 million included realized gains of 35 $47 million compared to losses of $72 million for the nine months ended June 30, 2023 and 2022, respectively. See Note E for more information on the restricted investments. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Other net periodic benefit loss (income) $ 2 $ 1 $ 1 $ 6 $ — $ 6 Current Quarter - Other net periodic benefit loss for the three months ended June 30, 2023 primarily included interest cost of $4 million which was partially offset by expected return on plan assets of $2 million. See Note K for more information. Year-to-date - Other net periodic benefit loss for the nine months ended June 30, 2023 primarily included interest cost of $11 million which was partially offset by expected return on plan assets of $5 million. Other net periodic benefit income included a $1 million actuarial gain on the remeasurement of a pension plan during the prior year period. See Note K for more information. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Income tax expense (benefit) $ 15 $ 1 $ 14 $ 21 $ 25 $ (4 ) Effective tax rate 26 % 2 % 11 % 17 % Current Quarter - Ashland’s effective tax rate in The overall effective tax rate was 2% for the three months ended June 30, 2022 and was impacted by jurisdictional income mix, as well as a net $1 million benefit primarily from favorable return to provision adjustments for certain jurisdictions. 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 11% for the nine months ended June 30, 2023 and was impacted by jurisdictional income mix, as well as net favorable discrete items of $27 million primarily related to changes in uncertain tax positions. The overall effective tax rate was 17% for the nine months ended June 30, 2022 and was impacted by jurisdictional income mix, as well as net unfavorable discrete items of $3 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. 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 36 consolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results. The effective tax rate during the three and nine months ended June 30, 2023 and 2022 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 Nine months ended June 30 June 30 (In millions) 2023 2022 2023 2022 Income from continuing operations before income taxes $ 57 $ 52 $ 197 $ 146 Key items (pre-tax) (a) 5 50 (19 ) 79 Adjusted income from continuing operations before income taxes $ 62 $ 102 $ 178 $ 225 Income tax expense $ 15 $ 1 $ 21 $ 25 Income tax rate adjustments: Tax effect of key items (3 ) 16 (8 ) 22 Tax specific key items: (b) Uncertain tax positions 3 — 23 — Valuation allowance 1 — 1 4 Restructuring and separation activity — — — (10 ) Total income tax rate adjustments 1 16 16 16 Adjusted income tax expense $ 16 $ 17 $ 37 $ 41 Effective tax rate, excluding key items (Non-GAAP) (c) 26 % 16 % 21 % 18 % Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Income (loss) from discontinued Performance Adhesives $ (1 ) $ 4 $ (5 ) $ (1 ) $ 38 $ (39 ) Composites/Marl facility — — — (1 ) — (1 ) Valvoline 15 — 15 15 — 15 Asbestos (4 ) (13 ) 9 (4 ) (13 ) 9 Water Technologies — (1 ) 1 — (1 ) 1 Distribution (2 ) (5 ) 3 (3 ) (7 ) 4 Gain on disposal of discontinued Performance Adhesives — — — — 732 (732 ) $ 8 $ (15 ) $ 23 $ 6 $ 749 $ (743 ) Current Quarter - The activity for Composites/Marl facility, Water Technologies and Distribution during the current and prior year quarter was related to post-closing adjustments. The Valvoline activity for the three months ended June 30, 2023 primarily represents cash proceeds related to subsequent adjustments that were made in conjunction 37 with post-closing disputes and Tax Matters Agreement. Asbestos activity in each quarter primarily relates to Ashland's annual update. Year-to-date - The activity for Composites/Marl facility, Water Technologies and Distribution during the current and prior year periods was related to post-closing adjustments. The Performance Adhesives segment sales and pre-tax operating income included in discontinued operations were $171 million and $34 million for the prior year period. A $732 million gain on disposal was recorded in the prior year period associated with the February 28, 2022 closing of the Performance Adhesives business segment divestiture. The Valvoline activity for the nine months ended June 30, 2023 primarily represents cash proceeds related to subsequent adjustments that were made in conjunction with post-closing disputes and Tax Matters Agreement. Asbestos activity in each period primarily relates to Ashland's annual update. Other comprehensive income (loss) A comparative analysis of the components of other comprehensive income is provided below for the three and nine months ended June 30, 2023 and 2022. Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 Change 2023 2022 Change Other comprehensive income (loss) (net of taxes) Unrealized translation gain (loss) $ (4 ) $ (86 ) $ 82 $ 105 $ (107 ) $ 212 Unrealized gain (loss) on commodity hedges 1 (3 ) 4 (6 ) (2 ) (4 ) $ (3 ) $ (89 ) $ 86 $ 99 $ (109 ) $ 208 Current Quarter - Total other comprehensive income (loss), net of tax, for the current quarter increased $86 million compared to the prior year quarter Year-to-date - Total other comprehensive income (loss), net of tax, for the current year increased $208 million compared to the prior year period primarily as a 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: 38 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. The free cash flow 39 Although Ashland These non-GAAP measures should be considered supplemental in nature and should not be construed as more significant than comparable measures defined by U.S. GAAP. Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with our results as determined in accordance with U.S. GAAP. The non-GAAP measures provided are used by Ashland management and may not be determined in a manner consistent with the methodologies used by other companies. EBITDA and Adjusted EBITDA provide a supplemental presentation of Ashland’s operating performance on a consolidated and reportable segment basis. Adjusted EBITDA generally includes adjustments for items that impact comparability between periods. In addition, certain financial covenants related to Ashland’s EBITDA and EBITDA totaled income of Three months ended Nine months ended June 30 June 30 (In millions) 2023 2022 2023 2022 Net income $ 50 $ 36 $ 182 $ 870 Income tax expense 15 1 21 25 Net interest and other expense (income) 3 59 (21 ) 108 Depreciation and amortization 62 61 181 182 EBITDA 130 157 363 1,185 Loss (income) from discontinued operations (net of tax) (8 ) 15 (6 ) (749 ) Key items included in EBITDA: Restructuring, separation and other costs 4 1 5 3 Environmental reserve adjustments 19 36 31 46 Asset impairments — — 4 — ICMS Brazil tax credit (12 ) — (12 ) — Income on acquisitions and divestitures, net — (35 ) — (42 ) Total key items included in EBITDA 11 2 28 7 Adjusted EBITDA $ 133 $ 174 $ 385 $ 443 Total key items included in EBITDA $ 11 $ 2 $ 28 $ 7 Unrealized (gain) loss on securities (6 ) 48 (47 ) 72 Total key items, before tax $ 5 $ 50 $ (19 ) $ 79 40 Diluted EPS and Adjusted Diluted EPS The following table reflects the U.S. GAAP calculation for the income Three months ended Nine months ended June 30 June 30 2023 2022 2023 2022 Diluted EPS from continuing operations (as reported) $ 0.79 $ 0.93 $ 3.24 $ 2.12 Key items, before tax: Restructuring, separation and other costs 0.09 0.02 0.09 0.06 Environmental reserve adjustments 0.36 0.65 0.58 0.81 Asset impairments — — 0.07 — ICMS Brazil tax credit (0.23 ) — (0.22 ) Unrealized (gain) loss on securities (0.12 ) 0.87 (0.87 ) 1.26 Income on acquisitions and divestitures, net — (0.63 ) — (0.73 ) Key items, before tax 0.10 0.91 (0.35 ) 1.40 Tax effect of key items (a) 0.06 (0.29 ) 0.15 (0.39 ) Key items, after tax 0.16 0.62 (0.20 ) 1.01 Tax specific key items: Restructuring and separation activity — — — 0.18 Valuation allowance (0.02 ) — (0.02 ) (0.07 ) Uncertain tax positions (0.06 ) — (0.42 ) — Tax specific key items (b) (0.08 ) — (0.44 ) 0.11 Total key items 0.08 0.62 (0.64 ) 1.12 Adjusted diluted EPS from continuing operations (non-GAAP) $ 0.87 $ 1.55 $ 2.60 $ 3.24 Amortization expense adjustment (net of tax) (c) $ 0.36 $ 0.34 $ 1.03 $ 1.00 Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense $ 1.23 $ 1.89 $ 3.63 $ 4.24 RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW Ashland’s reportable Results of Ashland’s reportable segments are presented based on its management and internal accounting structure. The structure is specific to Ashland; therefore, the financial results of Ashland’s reportable segments are not necessarily comparable with similar information for other 41 The following table discloses sales, operating income, depreciation and amortization and EBITDA by reportable segment for the three and nine months ended June 30, 2023 and 2022. Three months ended Nine months ended June 30 June 30 (In millions - unaudited) 2023 2022 2023 2022 SALES Life Sciences $ 219 $ 228 $ 666 $ 602 Personal Care 146 172 452 490 Specialty Additives 152 194 456 532 Intermediates 43 73 148 192 Intersegment sales (a) (14 ) (23 ) (48 ) (57 ) $ 546 $ 644 $ 1,674 $ 1,759 OPERATING INCOME (LOSS) Life Sciences $ 49 $ 51 $ 141 $ 115 Personal Care 14 25 38 67 Specialty Additives 5 35 22 79 Intermediates 13 30 50 72 Unallocated and other (19 ) (29 ) (69 ) (79 ) $ 62 $ 112 $ 182 $ 254 DEPRECIATION EXPENSE Life Sciences $ 11 $ 9 $ 31 $ 25 Personal Care 9 10 28 28 Specialty Additives 15 16 43 48 Intermediates 3 2 9 9 Unallocated and other — — — 1 $ 38 $ 37 $ 111 $ 111 AMORTIZATION EXPENSE Life Sciences $ 7 $ 7 $ 20 $ 21 Personal Care 12 11 35 35 Specialty Additives 5 5 14 14 Intermediates — 1 1 1 $ 24 $ 24 $ 70 $ 71 EBITDA (b) Life Sciences $ 67 $ 67 $ 192 $ 161 Personal Care 35 46 101 130 Specialty Additives 25 56 79 141 Intermediates 16 33 60 82 Unallocated and other (19 ) (64 ) (69 ) (120 ) $ 124 $ 138 $ 363 $ 394 42 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. June 2023 quarter compared to June 2022 quarter Life Sciences’ sales decreased $9 million to $219 million in the current quarter. Lower volume decreased sales by $32 million while favorable product pricing and foreign currency exchange increased sales by $22 million and $1 million, respectively. Operating income decreased $2 million to income of $49 million for the current quarter. Lower volume and higher costs (including restructuring and environmental costs incurred during the current quarter) decreased operating income by $9 million and $16 million, respectively. These decreases were partially offset by favorable price/mix and foreign currency exchange which increased operating income by $22 million and $1 million, respectively. Current quarter EBITDA remained consistent at $67 million while Adjusted EBITDA increased $5 million to $72 million. Adjusted EBITDA margin increased 3.5 percentage points in the current quarter to 32.9%. Fiscal 2023 year-to-date compared to fiscal 2022 year-to-date Life Sciences’ sales increased $64 million to $666 million in the current period. Favorable pricing increased sales by $82 million while lower volume and unfavorable foreign currency exchange decreased sales by $5 million and $13 million, respectively. Life Sciences experienced strong global demand for pharmaceutical ingredients throughout the current period. Operating income increased $26 million to income of $141 million for the current period. Favorable price/mix and higher volume increased operating income by $81 million and $5 million, respectively, while unfavorable foreign currency exchange and higher costs (including restructuring and environmental costs incurred during the current year) decreased operating income by $9 million and $51 million, respectively. Current period EBITDA increased $31 million to $192 million while Adjusted EBITDA increased $37 million to $198 million. Adjusted EBITDA margin increased 3.0 percentage points in the current period to 29.7%. 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 43 The following Life Sciences Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 2023 2022 Operating income $ 49 $ 51 $ 141 $ 115 Depreciation and amortization 18 16 51 46 EBITDA $ 67 $ 67 192 161 Restructuring and other costs 3 — 4 — Environmental reserve adjustments 2 — 2 — Adjusted EBITDA $ 72 $ 67 $ 198 $ 161 Personal Care Personal Care is comprised of biofunctionals, microbial protectants (preservatives), skin care, sun care, oral care, hair care and June 2023 quarter compared to Personal Care's sales Operating income decreased $11 million to income of $14 million for the current quarter. Lower volume and higher operating costs decreased operating income by $15 million and $10 million, Fiscal 2023 year-to-date compared to fiscal 2022 year-to-date Personal Care's sales decreased $38 million to $452 million in the current year period. Lower volume and Operating income decreased $29 million to income of 44 EBITDA and Adjusted EBITDA reconciliation The following EBITDA presentation for the three and nine months ended June 30, 2023 and 2022 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 nine months ended June 30, 2023 or 2022. Personal Care Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 2023 2022 Operating income $ 14 $ 25 $ 38 $ 67 Depreciation and amortization 21 21 63 63 EBITDA $ 35 $ 46 101 130 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. June 2023 quarter compared to June 2022 quarter Specialty Additives’ sales decreased $42 million to $152 million in the current quarter. Lower volume decreased sales by $47 million which was partially offset by favorable product pricing which increased sales by $5 million. Operating income decreased Fiscal 2023 year-to-date compared to fiscal 2022 year-to-date Specialty Additives’ sales decreased $76 million to $456 million in the current year period. Lower volume and unfavorable foreign currency exchange decreased sales by $108 million and $11 million, respectively. Those decreases were partially offset by favorable product pricing which increased sales by $43 million. Specialty Additives sales were negatively impacted by the COVID-19 impact related to the China re-opening (particularly in the first and second quarter of the current period) and the general economic slowdown in Europe in the current period. Operating income decreased $57 million to income of $22 million for the current year period. Lower volume, higher operating costs (including increased environmental costs), asset impairments, and unfavorable foreign currency exchange decreased operating income by $31 million, $43 million, $4 million, and $1 million, respectively. Operating costs were negatively impacted by COVID-19 dynamics in China which resulted in additional extended unplanned plant shutdowns, that were in addition to planned plant maintenance shutdowns. These decreases were partially offset by favorable pricing/mix which increased operating income by $22 million. Current year EBITDA decreased $62 million to $79 million while Adjusted EBITDA decreased $55 million to $87 million. Adjusted EBITDA margin decreased 7.6 percentage points in the current period to 19.1%. 45 EBITDA and Adjusted EBITDA reconciliation The following EBITDA presentation for the three and nine months ended Specialty Additives Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 2023 2022 Operating income $ 5 $ 35 $ 22 $ 79 Depreciation and amortization 20 21 57 62 EBITDA 25 56 79 141 Environmental reserve adjustments 4 1 4 1 Impairments — — 4 — Adjusted EBITDA $ 29 $ 57 $ 87 $ 142 Intermediates Intermediates is comprised of June 2023 quarter compared to Intermediates’ sales Operating income decreased $17 million to $13 million for the current quarter. Unfavorable price/mix, lower volume and higher production costs decreased operating income by $7 million, $9 million, Fiscal 2023 year-to-date compared to Intermediates’ sales decreased $44 million to Operating income decreased $22 million to $50 million for the EBITDA and Adjusted EBITDA reconciliation The following EBITDA presentation (as defined and described in the section above) for the three and nine months ended Intermediates Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 2023 2022 Operating income $ 13 $ 30 $ 50 $ 72 Depreciation and amortization 3 3 10 10 EBITDA $ 16 $ 33 $ 60 $ 82 46 Unallocated and other The following table summarizes the key components of the Unallocated and other Unallocated and Other Three months ended June 30 Nine months ended June 30 (In millions) 2023 2022 2023 2022 Restructuring activities $ (3 ) $ (2 ) $ (5 ) $ (11 ) Environmental expenses (12 ) (34 ) (24 ) (45 ) ICMS Brazil tax credit 12 — 12 — Income on acquisitions and divestitures, net — 35 — 42 Other expenses (primarily governance and legacy expenses) (16 ) (28 ) (52 ) (65 ) Total expense $ (19 ) $ (29 ) $ (69 ) $ (79 ) June 2023 quarter compared to Unallocated and other recorded expense of The current quarter and prior year quarter included $12 million and $34 million for environmental expenses, respectively. The prior year quarter also included income of $35 million from acquisitions and divestitures. See income on acquisitions and divestitures caption review above for additional details. The current quarter also included Other expenses between periods were driven by decreases in governance and legacy expenses primarily associated with fluctuations in foreign currency, deferred compensation and incentive compensation. Fiscal 2023 year-to-date compared to fiscal 2022 year-to-date Unallocated and other recorded expense of The current period and prior year period included The current period also included income of $12 million ICMS tax credits in Brazil (see Note L for more information). Other expenses between periods were driven by decreases in governance and legacy expenses primarily associated with fluctuations in foreign currency, deferred compensation and incentive compensation. FINANCIAL POSITION Liquidity Ashland 47 warrant and opportunities arise. The timing and size of 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 Nine months ended June 30 (In millions) 2023 2022 Cash provided (used) by: Operating activities from continuing operations $ 163 $ 14 Investing activities from continuing operations (57 ) (60 ) Financing activities from continuing operations (366 ) (876 ) Discontinued operations (43 ) 1,348 Effect of currency exchange rate changes on cash and cash equivalents 6 (7 ) Net increase (decrease) in cash and cash equivalents $ (297 ) $ 419 Cash and cash The $297 million decrease for the nine months ended June 30, 2023 was primarily driven by payment of cash dividends, additions to property, plant and The $419 million See the 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 48 Nine months ended June 30 (In millions) 2023 2022 Total cash flows provided by operating activities from continuing operations $ 163 $ 14 less: Additions to property, plant and equipment (101 ) (67 ) Free cash flows 62 (53 ) Cash outflows from U.S. Accounts Receivable Sales Program (a) 14 42 Restructuring-related payments (b) 3 9 Environmental and related litigation payments (c) 34 36 Ongoing free cash flow $ 113 $ 34 Net Income 182 870 Adjusted EBITDA (d) 386 443 Operating cash flow conversion (e) 90 % 2 % Ongoing free cash flow conversion (f) 29 % 8 % Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to The following summary reflects Ashland’s cash, June 30 September 30 (In millions) 2023 2022 Cash and investment securities Cash and cash equivalents $ 349 $ 646 Restricted investments (a) 392 374 Unused borrowing capacity and liquidity Revolving credit facility 593 581 2018 accounts receivable securitization (foreign) 109 99 Accounts receivable sales program (U.S.) — — 49 The borrowing capacity remaining under the Capital resources Debt The following summary reflects Ashland’s debt as of June 30 September 30 (In millions) 2023 2022 Short-term debt (includes current portion of long-term debt) $ — $ — Long-term debt (less current portion and debt issuance cost discounts) (a) 1,328 1,270 Total debt $ 1,328 $ 1,270 Debt as a percent of capital employed was Ashland credit ratings Ashland’s corporate credit Ashland debt covenant restrictions Ashland's The maximum consolidated net leverage ratio permitted under the The minimum required consolidated interest coverage ratio under the 50 Any change in Covenant Adjusted EBITDA of $100 million would have an approximate Additional capital resources Ashland cash projection During the March 31, 2023 quarter, Ashland Total equity Total equity decreased 2023 Stock Repurchase program On June 28, 2023, Ashland's board of directors authorized a Stock repurchase program agreements During May 2023, under the 2022 stock repurchase program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of During March 2023, under the During February 2023, under the existing 2022 stock repurchase program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of its outstanding shares. The program was completed during February 2023 when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock. Stockholder dividends On May Capital Capital expenditures were CRITICAL ACCOUNTING POLICIES The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes, other liabilities and receivables associated with asbestos litigation and environmental remediation. These accounting policies are discussed in detail in “Management’s Discussion and Analysis – Critical Accounting Policies” in Ashland’s Annual Report on Form 10-K for the fiscal year ended 51 different assumptions or conditions. Management has reviewed the estimates affecting these items with the Audit Committee of Ashland’s Board of Directors. No material changes have been made to the valuation techniques during the OUTLOOK Based on current forecasting, continued customer de-stocking and external uncertainties for the remainder of the fiscal year, Ashland Ashland is unable to reconcile forward-looking adjusted EBITDA to forward-looking net income, the 52 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Ashland’s market risk exposure at ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Changes in Internal Control over Financial Reporting 53 PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The following is a description of Ashland’s material legal proceedings. Asbestos-Related Litigation Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation (Riley), a former subsidiary. Although Riley was neither a producer nor a manufacturer of asbestos, its industrial boilers contained some asbestos-containing components provided by other companies. Hercules LLC (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland, is also subject to liabilities from asbestos-related personal injury lawsuits involving claims which typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. Ashland and Hercules are also defendants in lawsuits alleging exposure to asbestos at facilities formerly or presently owned or operated by Ashland or Hercules. For additional detailed information regarding liabilities arising from asbestos-related litigation, see Note Environmental Proceedings (a) CERCLA and Similar State Law Sites - (b) For additional information regarding environmental matters and reserves, see Note 54 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 55 ITEM 1A. RISK FACTORS During the period covered by this report, there were no material changes from the risk factors previously disclosed in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Share repurchase activity during the three months ended Subsequent to completing the separation from Valvoline Inc., Ashland's businesses are managed within the following threesegments:segments include Life Sciences, Personal Care, Specialty Ingredients, CompositesAdditives and IntermediatesIntermediates. Unallocated and Solvents. For further descriptions of each reportable segment, see “Results of Operations – Reportable Segment Review” beginning on page 45.December 31 wereJune 30 was as follows: 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 % ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISAshland’s current quarterloss was $4income of $50 million (income of $42 million in continuing operations and income of $8 million in discontinued operations) and net income of $36 million (income of $51 million in continuing operations and loss of $15 million in discontinued operations) in the current and prior year quarters, respectively. Ashland’s EBITDA of $130 million decreased by $27 million for the current quarter while Ashland’s Adjusted EBITDA of $133 million decreased by $41 million for the current quarter, compared to the prior year quarter (see U.S. GAAP reconciliation below under consolidated review). The decrease was primarily driven by lower sales volumes from customer de-stocking and higher costs primarily associated with inventory control actions, partially offset by improved pricing and favorable selling, general and administrative expense primarily driven by lower incentive compensation expense.$10$0.94 and $0.65 diluted earnings per share, respectively.quarter. Ashland’s Adjusted EBITDA increased by 25%quarter was related to $136 million (see U.S. GAAP reconciliationa gain on page 41).the sale of excess land.increase in Adjusted EBITDA was primarily due to growthactivity in the Intermediatesprior year was related to a gain on the sale of excess land. See Note B of the Notes to Condensed Consolidated Financial Statements for more information.Solvents and Specialty Ingredients reportable segments, which reported increases to Adjusted EBITDA of $16other expense decreased by $56 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 is primarily consistent during the acquisitioncurrent quarter compared to the prior year quarter. Interest income increased $2 million due to higher investment yields and higher cash balances. Restricted investments income of Pharmachem,$10 million and losses of $45 million included realized gains of $6 million compared to losses $48 million for the increasethree months ended June 30, 2023 and 2022, respectively. See Note E for more information on the restricted investments.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 26% for Specialty Ingredientsthe three months ended June 30, 2023 and was impacted by jurisdictional income mix, as well as net favorable discrete items of $4 million primarily related to changes in uncertain tax positions and adjustments to valuation allowances.
operations (net of tax)
operations (net of tax)was primarily driven by improvementsas a result of the following:volume and mix and favorableunrealized gain (loss) from foreign currency exchange.translation adjustments resulted in losses of $4 million and $86 million, respectively. The fluctuations in unrealized translation gains and losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars.Tax law changesThe Tax CutsFor the three months ended June 30, 2023 and Jobs Act (Tax Act) was enacted on December 22, 2017. The Tax Act reduces2022, the U.S. federal corporate tax rate from 35%change in commodity hedges is primarily due to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, Ashland has not completed the internal accounting assessment for the tax effects of enactmentfluctuations of the Tax Act; however, Ashland determined a reasonable estimatemarket prices of the effects on our existing deferred tax balancesunderlying commodities. Commodity hedges resulted in unrealized gains of $1 million and the one-time transition tax. Ashland recognized a provisional amountlosses of $3 million for the three months ended December 31, 2017, which is includedJune 30, 2023 and 2022, respectively.componentresult of income tax expensethe following:continuing operations. Ashland recorded net unfavorable taxforeign currency translation adjustments resulted in a gain of $16$105 million compared to a loss of $107 million for the nine months ended June 30, 2022. The fluctuations in unrealized translation gains and losses are primarily relateddue to deferred tax rate changestranslating foreign subsidiary financial statements from local currencies to U.S. Dollars.a one-time transition tax assessed on foreign cash2022, the change in commodity hedges is primarily due to the fluctuations of the market prices of the underlying commodities. Commodity hedges resulted in unrealized losses of $6 million and unremitted earnings.$2 million for the nine months ended June 30, 2023 and 2022, respectively.RESULTS OF OPERATIONS – CONSOLIDATED REVIEW-– net income (loss), plus income tax expense (benefit), net interest and other financing expenses, and depreciation and amortization.-– EBITDA adjusted for noncontrolling interests, discontinued operations, net gainincome (loss) on acquisitions and divestitures, other income and (expense) and key items (including the remeasurement gains and losses related to pension and other postretirement plans).-– Adjusted EBITDA which can include pro forma adjustments, divided by sales.-– income (loss) from continuing operations, adjusted for key items, net of tax, divided by the average outstanding diluted shares for the applicable period.-– operating cash flows less capital expenditures.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISour financial reporting, facilitate internal and external comparisons of Ashland’s historical operating performance and its business units and provide continuity to investors for comparability purposes.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, hasongoing free cash flow and ongoing free cash flow conversion are non-GAAP liquidity measures that Ashland believes provide useful information to management and investors about Ashland’s ability to convert Adjusted EBITDA to ongoing free cash flow. These liquidity measures are used regularly by Ashland’s stakeholders and industry peers to measure the efficiency at producing cash from regular business activities. Free cash flow, ongoing free cash flow and ongoing free cash flow conversion have certain limitations, including that it doesthey do not reflect adjustmentadjustments for certain non-discretionary cash flows such as mandatory debt repayments. The amount of mandatory versus discretionary expenditures can vary significantly between periods.providesmay provide forward-looking guidance for Adjusted EBITDA, Adjusted diluted EPS and ongoing free cash flow, Ashland is not reaffirming or providing forward-looking guidance for U.S. GAAP-reported financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items that affect these metrics such as domestic and international economic, political, legislative, regulatory and legal actions. In addition, certain economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations and are difficult to predict with certainty.20172022 Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that reference this metric.In accordance with U.S. GAAP, Ashland recognizes actuarial gainslosses for defined benefit pension and other postretirement benefit plans annually in the fourth quarterAdjusted EBITDAeach fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. Actuarial gains and losses occur when actual experience differs from the estimates used to allocate the change in value of pension and other postretirement benefit plans to expense throughout the year or when assumptions change, as they may each year. Significant factors that can contribute to the recognition of actuarial gains and losses include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets and other changes in actuarial assumptions, for example, the life expectancy of plan participants. Management believes Adjusted EBITDA,ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISwhich includes the expected return on pension plan assets yet excludes both the actual return on pension plan assets and the impact of actuarial gains and losses, provides investors with a meaningful supplemental presentation of Ashland’s operating performance (see the Adjusted EBITDA reconciliation table on page 41 for additional details on exact amounts included within this non-GAAP measure related to pension and other postretirement plans.) Management believes these actuarial gains and losses are primarily financing activities that are more reflective of changes in current conditions in global financial markets (and in particular interest rates) that are not directly related to the underlying business. For further information on the actuarial assumptions and plan assets referenced above, see Note M of the Notes to Consolidated Financial Statements within the 2017 Form 10-K.Consolidated reviewNet incomeAshland’s net income is primarily affected by results within operating income, net interest and other financing expense, income taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring.Key financial results for the three months ended December 31, 2017 and 2016 included the following:Ashland’s net loss attributable to Ashland amounted to $4$130 million and $1$157 million for the three months ended December 31, 2017June 30, 2023 and 2016,2022, respectively, or a loss of $0.07 and $0.01 diluted earnings per share, respectively. Ashland’s net income attributable to noncontrolling interest amounted to $11$363 million and $1,185 million for the threenine months ended December 31, 2016June 30, 2023 and reflects the noncontrolling interest of Valvoline Inc. before the final separation occurred on May 12, 2017.Discontinued operations, which are reported net of taxes, resulted in income of $3 million and $75 million during the three months ended December 31, 2017 and 2016, respectively. The activity within discontinued operations for the three months ended December 31, 2016 includes the operating results of Valvoline Inc.Loss from continuing operations, which excludes results from discontinued operations, amounted to $7 million and $65 million for the three months ended December 31, 2017 and 2016, respectively.The effective income tax rate was 200% and 39% for the three months ended December 31, 2017 and 2016, and was impacted by certain discrete items in both the current and prior year quarters. The current quarter rate was primarily impacted by income mix and net unfavorable tax discrete adjustments of $16 million related to the Tax Act.Ashland incurred pretax net interest and other financing expense of $31 million and $122 million for the three months ended December 31, 2017 and 2016, respectively. The prior year quarter was impacted by $92 million of net charges associated with debt financing activity.Operating income was $39 million and $15 million for the three months ended December 31, 2017 and 2016, respectively. For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income caption review analysis.Operating incomeOperating income amounted to $39 million and $15 million for the three months ended December 31, 2017 and 2016, respectively. The current and prior year quarters' operating income included certain key items that were excluded to arrive at Adjusted EBITDA. These key items are summarized as follows:•$11 million of environmental charges during the three months ended December 31, 2017;ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS•Separation, restructuring and other costs and accelerated depreciation include the following:◦$6 million and $22 million of costs related to the separation of Valvoline during the three months ended December 31, 2017 and 2016, respectively;◦$4 million of accelerated depreciation related to the planned closure of an office building during the three months ended December 31, 2017;◦$2 million of accelerated depreciation for the termination of a contract at a manufacturing facility during the three months ended December 31, 2017;◦$1 million of severance and other restructuring charges for the closure of a manufacturing plant during the three months ended December 31, 2017; and◦$1 million of integration costs related to the acquisition of Pharmachem for the three months ended December 31, 2017;Remeasurement gain of $2 million associated with the discontinuation of certain post-employment health and life insurance benefits during the three months ended December 31, 2016; anda $5 million charge for a legal reserve during the three months ended December 31, 2016.Operating income for the three months ended December 31, 2017 and 2016 included depreciation and amortization of $73 million and $68 million, respectively (which excluded accelerated depreciation of $6 million for the three months ended December 31, 2017).EBITDA and Adjusted EBITDAEBITDA totaled $114 million and $159 million for the three months ended December 31, 2017 and 2016,2022, respectively. EBITDA and Adjusted EBITDA results in the table below have been prepared to illustrate the ongoing effects of Ashland’s operations, which exclude certain key items previously described. Management believes the use of such non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the impact of Ashland's previous noncontrolling interest in Valvoline Inc. ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Net income (loss) $ (4 ) $ 10 Income tax expense (benefit) 14 (41 ) Net interest and other financing expense 31 122 73 68 EBITDA 114 159 Income from discontinued operations (net of tax) (3 ) (75 ) Environmental reserve adjustments 11 — Separation, restructuring and other costs 8 22 Accelerated depreciation 6 — Legal reserve — 5 Gain on post-employment plan remeasurement — (2 ) $ 136 $ 109 (a)Excludes $6 million of accelerated depreciation for the three months ended December 31, 2017. (loss) from continuing operations adjusted for the cumulative diluted EPS effect for key items after tax that have been identified in the Adjusted EBITDA table in the previous section. Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. The Adjusted diluted EPS for the income (loss) from continuing operations in the following table has been prepared to illustrate the ongoing effects of Ashland’s operations since managementoperations. Management believes theinvestors and analysts use ofthis financial measure in assessing Ashland's business performance and that presenting this non-GAAP measuresmeasure on a consolidated and reportable segment basis assists investors in better understanding Ashland’s ongoing business performance and enhances their ability to compare period-to-period financial results.ongoing operating performance by presentingdiluted EPS impact from the financial results between periods on a more comparable basis. Three months ended December 31 2017 2016 Diluted EPS from continuing operations (as reported) $ (0.12 ) $ (1.05 ) Key items 0.54 1.19 Adjusted diluted EPS from continuing operations (non-GAAP) $ 0.42 $ 0.14 StatementsRepresents the diluted EPS impact from tax specific financial transactions, tax law changes or other matters that fall within the definition of Consolidated Comprehensive Income – caption reviewA comparative analysiskey items. For additional explanation of these tax specific key items, see the income tax expense discussion within the Statements of Consolidated Comprehensive Income by(Loss) caption is provided as followsreview section above.December 31, 2017June 30, 2023 and 2016. Three months ended December 31 (In millions) 2017 2016 Change Sales $ 842 $ 704 $ 138 The following table provides a reconciliation of the change in sales between the three months ended December 31, 2017 and 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended (In millions) December 31, 2017 Acquisitions and divestitures $ 63 Pricing 30 Currency exchange 20 Volume 18 Product mix 7 Change in sales $ 138 Sales for the current quarter increased $138 million compared to the prior year quarter. The acquisition of Pharmachem within the Specialty Ingredients reportable segment increased sales by $58 million, or 8%, while the net impact of other acquisitions and divestitures increased sales by $5 million. Improvements in pricing increased sales by $30 million, or 4%, while favorable foreign currency exchange increased sales by $20 million, or 3%. Higher volumes and changes in product mix increased sales by $18 million and $7 million, respectively. Three months ended December 31 (In millions) 2017 2016 Change Cost of sales $ 613 $ 515 $ 98 Gross profit as a percent of sales 27.2 % 26.8 % Fluctuations in cost of sales are driven primarily by raw material prices, volume and changes in product mix, currency exchange, acquisitions and divestitures and other certain charges incurred as a result of changes or events within the businesses or restructuring activities. The following table provides a quantified reconciliation of the changes in cost of sales between the three months ended December 31, 2017 and 2016. Three months ended (In millions) December 31, 2017 Changes in: Acquisitions and divestitures $ 50 Production costs 20 Currency exchange 15 Volume 8 Product mix 4 Severance and other restructuring costs 1 Change in cost of sales $ 98 Cost of sales for the current quarter increased $98 million compared to the prior year quarter. The Pharmachem acquisition increased cost of sales by $44 million, or 9%, while the net impact of other acquisitions and divestitures increased cost of sales by $6 million. Unfavorable production costs and foreign currency exchange increased cost of sales by $20 million, or 4%, and $15 million, or 3%, respectively. Higher volumes and changes in product mix increased cost of sales by $8 million and $4 million, respectively, while the current quarter also included $1 million of severance and other restructuring charges related to a plant closure. Three months ended December 31 (In millions) 2017 2016 Change Selling, general and administrative expense $ 171 $ 157 $ 14 As a percent of sales 20.3 % 22.3 % ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISSelling, general and administrative expense for the current quarter increased $14 million compared to the prior year quarter with expenses as a percent of sales decreasing 2.0 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:$10 million of incremental costs related to Pharmachem’s operations and $1 million of Pharmachem integration costs during the current quarter;$14 million and $6 million in net environmental-related expenses during the current and prior year quarters, respectively;an increase of $7 million due to higher employee-related costs in the current quarter;an increase of $5 million due to unfavorable foreign currency exchange in the current quarter;$4 million of accelerated depreciation related to the planned closure of an office building during the current quarter;$6 million of costs related to the separation of Valvoline during the current quarter compared to $22 million in the prior year quarter; anda $5 million charge for a legal reserve during the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Change Research and development expense $ 21 $ 20 $ 1 Research and development expense remained relatively consistent with the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Change Equity and other income $ — $ — $ — Other income 2 3 (1 ) $ 2 $ 3 $ (1 ) (a)Activity of $0 denotes value less than $1 million.Equity and other income remained relatively consistent with the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Change Net interest and other financing expense (income) Interest expense $ 34 $ 126 $ (92 ) Interest income (1 ) (1 ) — Available-for-sale securities income (3 ) (3 ) — Other financing costs 1 — 1 $ 31 $ 122 $ (91 ) Net interest and other financing expense decreased $91 million during the current quarter compared to the prior year quarter. The current quarter decrease in interest expense was primarily due to the prior year quarter including $92 million of accelerated accretion related to the December 2016 tender offer of the 2029 notes. Available-for-sale securities income of $3 million during both the current and the prior year quarters represents investment income and realized gains related to restricted investments discussed in Note E of the Notes to Condensed Consolidated Financial Statements.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Change Other net periodic benefit income $ — $ 2 $ (2 ) The income in the prior year quarter primarily related to a $2 million gain on the remeasurement of certain post-employment health and life insurance benefit plans that were discontinued. Three months ended December 31 (In millions) 2017 2016 Change Net loss on divestitures $ 1 $ 1 $ — The activity in the current and prior year quarters primarily related to post-closing adjustments for certain divestitures. Three months ended December 31 (In millions) 2017 2016 Change Income tax expense (benefit) $ 14 $ (41 ) $ 55 Effective tax rate 200 % 39 % The overall effective tax expense rate was 200% for the three months ended December 31, 2017 and was primarily impacted by the current quarter income mix and net unfavorable tax discrete adjustments of $16 million related to the enactment of the Tax Act. These net unfavorable adjustments primarily included deferred tax rate changes and a one-time transition tax assessed on foreign cash and unremitted earnings.The overall effective tax benefit rate was 39% for the three months ended December 31, 2016 and was primarily impacted by income mix. Three months ended December 31 (In millions) 2017 2016 Change Income from discontinued operations (net of tax) Valvoline $ 3 $ 75 $ (72 ) As a result of the full separation of Valvoline Inc. on May 12, 2017, the operating results related to Valvoline Inc., including the operating results of the former Valvoline reportable segment, have been reflected as discontinued operations (net of tax) within the Statement of Consolidated Comprehensive Income (Loss). The activity within the current quarter represents subsequent adjustments that were made in conjunction with the Tax Matters Agreement. See Note B for more information on the Tax Matters Agreement. During the prior year quarter, Valvoline's sales and pre-tax operating income included in discontinued operations were $489 million and $120 million, respectively. Three months ended December 31 (In millions) 2017 2016 Change Net income attributable to noncontrolling interest $ — $ 11 $ (11 ) ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISSince Ashland's ownership interest in Valvoline Inc. was approximately 83% until the final separation on May 12, 2017, the amount of net income attributable to the outside stockholders' approximately 17% noncontrolling interest in Valvoline Inc. is presented within this caption on the Statement of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.Other comprehensive income (loss)A comparative analysis of the components of other comprehensive income (loss) is provided below for the three months ended December 31, 2017 and 2016. Three months ended December 31 (In millions) 2017 2016 Change Other comprehensive income (loss) (net of taxes) Unrealized translation gain (loss) $ 3 $ (146 ) $ 149 Net change in available-for-sale securities 8 — 8 Pension and postretirement obligation adjustment — (1 ) 1 $ 11 $ (147 ) $ 158 Total other comprehensive income, net of tax, for the current quarter increased $158 million compared to the prior year quarter as a result of the following components:For the three months ended December 31, 2017, the change in unrealized gain (loss) from foreign currency translation adjustments was a gain of $3 million compared to a loss of $146 million for the three months ended December 31, 2016. The fluctuations in unrealized translation gains and losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars.Gains on available-for-sale securities related to restricted investments amounted to $8 million, net of tax, during the three months ended December 31, 2017.Pension and postretirement obligation adjustment was $1 million for the three months ended December 31, 2016. This amount related to amortization of unrecognized prior services credits for pension and other postretirement benefit plans and was reclassified into net income during the prior year quarter.Subsequent to completing the separation from Valvoline Inc. on May 12, 2017, Ashland's operations are managed within the following threesegments:segments include Life Sciences, Personal Care, Specialty Ingredients, CompositesAdditives, and IntermediatesIntermediates. Unallocated and Solvents.comparable companies. Ashland allocates all significant costs to its reportable segments except for certain significant company-wide restructuring activities, certain corporate governance costs and other costs or adjustmentsactivities that relate to former businesses that Ashland no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded within the other net periodic benefit incomeloss 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.
Intersegment sales from Intermediates are accounted for at prices that approximate fair value. All other intersegment transfers are accounted for at cost.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS (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.table discloses sales, operating income, depreciation and amortization and statistical operating information by reportable segmentEBITDA presentation for the three and nine months ended December 31, 2017June 30, 2023 and 2016. Three months ended December 31 (In millions) 2017 2016 Sales Specialty Ingredients $ 550 $ 482 Composites 218 165 Intermediates and Solvents 74 57 $ 842 $ 704 Operating income (loss) Specialty Ingredients $ 42 $ 40 Composites 18 15 Intermediates and Solvents 8 (7 ) Unallocated and other (29 ) (33 ) $ 39 $ 15 Depreciation and amortization Specialty Ingredients $ 62 $ 55 Composites 5 6 Intermediates and Solvents 8 7 Unallocated and other 4 — $ 79 $ 68 Operating information Specialty Ingredients Sales per shipping day $ 9.0 $ 7.9 Metric tons sold (thousands) 73.0 72.6 31.5 % 32.0 % Composites Sales per shipping day $ 3.6 $ 2.7 Metric tons sold (thousands) 91.2 78.4 18.4 % 21.1 % Intermediates and Solvents Sales per shipping day $ 1.2 $ 0.9 Metric tons sold (thousands) 32.7 32.2 21.3 % (0.9 )% (a)Gross profit is defined as sales, less cost of sales divided by sales.Sales by region expressed2022 is provided as a percentagemeans to enhance the understanding of reportable segment salesfinancial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Life Sciences. The key items during the three and nine months ended June 30, 2023 related to charges of $3 million and $4 million for restructuring programs, and $2 million each, for environmental reserve adjustments for the three and nine months ended December 31, 2017June 30, 2023.2016 were as follows. Ashland includes only U.S.household solutions. These businesses have a broad range of natural, nature-derived, biodegradable, and Canada in its North American designation.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31, 2017 Specialty Ingredients Composites Intermediates and Solvents North America 41 % 45 % 21 % Europe 30 % 34 % 59 % Asia Pacific 19 % 14 % 17 % Latin America & other 10 % 7 % 3 % 100 % 100 % 100 % Three months ended December 31, 2016 Specialty Ingredients Composites Intermediates and Solvents North America 39 % 48 % 23 % Europe 29 % 28 % 57 % Asia Pacific 22 % 16 % 17 % Latin America & other 10 % 8 % 3 % 100 % 100 % 100 % Specialty IngredientsSpecialty Ingredients is a global leader in cellulose ethers, vinyl pyrrolidoneshigh-performance ingredients for customer driven solutions to help protect, renew, moisturize and biofunctionals. It offers industry-leading products, technologiesrevitalize skin and resources for solving formulationhair, and product-performance challenges. Specialty Ingredients uses natural, synthetic and semisynthetic polymers derived from cellulose ethers, vinyl pyrrolidones, acrylic polymers, polyester and polyurethane-based adhesives, and plant and seed extract. Specialty Ingredients’ end markets offer comprehensive and innovativeprovide solutions for today’s demandingtoothpastes, mouth washes and rinses, denture cleaning and care for teeth. Household supplies nature-derived rheology ingredients, biodegradable surface wetting agents, performance encapsulates, and specialty polymers for household, industrial and institutional cleaning products. Customers include formulators at large multinational branded consumer products companies and industrial applications. Key customers include: pharmaceutical companies; makers of personal care products, food and beverages; makers of nutraceuticals and supplements; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield servicesmaller, independent boutique companies.On May 17, 2017, Ashland completed its acquisition of the stock of Pharmachem, a leading provider of quality ingredients to the global health and wellness industries and high-value differentiated products to fragrance and flavor houses. With annual revenues of approximately $300 million and 14 manufacturing facilities in the United States and Mexico, New Jersey-based Pharmachem develops, manufactures and supplies custom and branded nutritional and fragrance products. See Note C within the Notes to Condensed Consolidated Financial Statements for more information.Additionally, Ashland completed the transfer of its ownership interest in a consolidated joint venture during the third quarter of fiscal 2017.December 2017December 2016June 2022 quarterSpecialty Ingredients’increased $68decreased $26 million to $550$146 million in the current quarter. The acquisition of Pharmachem increasedLower volume decreased sales by $58$40 million or 12%. Favorablewhile favorable product pricing and foreign currency exchange increased sales by $13 million and $1 million, respectively.whilerespectively. These decreases were partially offset by favorable price/mix and foreign currency exchange which increased operating income by $13 million and $1 million, respectively. Current quarter EBITDA decreased $11 million to $35 million. EBITDA margin decreased 2.7 percentage points in the current quarter to 24.0%.mix combined to increaseunfavorable foreign currency exchange decreased sales by $72 million and $9 million. In addition, improvedmillion, respectively, while favorable product pricing increased sales by $2$43 million. These increases were partially offset by a decrease$11$38 million from divestitures which was primarily related to the transfer of ownership interest in a consolidated joint venture.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISGross profit duringfor the current quarter increased $19 million compared to the prior year quarter. The acquisition of Pharmachem increased gross profit by $14 million while improvedperiod. Lower volume, and mix combined to increase gross profit by $9 million. Favorable foreign currency exchange increased gross profit by $4 million. These increases were partially offset by the net impact of pricing and costs which decreased gross profit by $6 million and the joint venture divestiture which decreased gross profit by $2 million. In total, gross profit margin during the current quarter decreased 0.5 percentage points as compared to the prior year quarter to 31.5%.Selling, general and administrative expenses (which include research and development expenses throughout the reportable segment discussion and analysis) increased $15 million in the current quarter as compared to the prior year quarter largely due to incremental costs of $10 million related to Pharmachem’s operations. The remaining increase in selling, general and administrative expenses was primarily due to higher employee-relatedoperating costs and unfavorable foreign currency exchange. Equityexchange decreased operating income by $27 million, $35 million and other$3 million, respectively. These decreases were partially offset by favorable price/mix which increased operating income by $36 million. Current year EBITDA decreased $29 million to $101 million. EBITDA margin decreased 4.2 percentage points in the current period to 22.3%.$2$30 million compared to the prior year quarter.Operating income totaled $42of $5 million for the current quarter compared to $40quarter. Lower volume and higher operating costs (including increased environmental costs) decreased operating income by $15 million in the prior year quarter.and $16 million, respectively. These decreases were partially offset by favorable pricing/mix which increased operating income by $1 million. Current quarter EBITDA increased $7decreased $31 million to $102$25 million while Adjusted EBITDA increased $10decreased $28 million to $105$29 million. Adjusted EBITDA margin decreased 0.610.3 percentage points in the current quarter to 19.1%.December 31, 2017June 30, 2023 and 2016 below2022 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 withinduring the current quarter relatenine months ended June 30, 2023 related to $2an impairment charge of $4 million of accelerated depreciation for the termination of a contract atassociated with a manufacturing facility, and $1environmental reserve adjustments of $4 million, of severance and other restructuring charges for the closure of a manufacturing plant. There were no unusual or key items that affected comparability for EBITDA during the prior year quarter. Three months ended December 31 (In millions) 2017 2016 Operating income $ 42 $ 40 60 55 EBITDA 102 95 Accelerated depreciation 2 — Severance and other restructuring costs 1 — Adjusted EBITDA $ 105 $ 95 (a)Excludes $2 million of accelerated depreciation for the three months ended December 31, 2017.CompositesComposites is a global leader in unsaturated polyester resins, vinyl ester resins and gelcoats. The Composites business manufactures and sells a broad range of general-purpose and high-performance grades of unsaturated polyester and vinyl ester resins, gelcoats and low-profile additives for the reinforced plastics industry. The products in the Composites business provide an array of functional properties including corrosion resistance, fire retardance, ultraviolet resistance, water and chemical resistance, high mechanical strength, impact and scratch resistance and high strength-to-weight ratios. Key end markets include transportation, construction, marine and infrastructure. In addition, the business manufactures and sells molten maleic anhydride for the manufacture of a variety of products such as unsaturated polyester resins, copolymers, lubricating oil additives,ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISalkenyl succinic anhydrides, malic acid, fumaric acid and numerous derivative chemicals. Key markets include composites, personal care, dispersants and paper sizing.December 2017 quarter compared to December 2016 quarterComposites’ sales increased$53 million to $218 million in the current quarter. Improved product pricing increased sales by $19 million, or 12%. The acquisition of an unsaturated polyester resins manufacturing facility in the third of quarter of fiscal 2017 increased sales by $16 million, or 10%. Improved volume and mix increased sales by $12 million, or 7%, as metric tons sold increased to 91.2 thousand in the current quarter, while favorable foreign currency exchange increased sales by $6 million, or 4%.Gross profit increased $5 million in the current quarter compared to the prior year quarter. Changes in volume and mix combined to increase gross profit by $3 million, while the facility acquisition and favorable foreign currency exchange each increased gross profit by $1 million. The net effects of pricing and raw material increases did not impact gross profit in the current quarter. In total, gross profit margin decreased 2.7 percentage points as compared to the prior year quarter to 18.4%.Selling, general and administrative expenses during the current quarter increased $3 million compared to the prior year quarter primarily due to higher employee-related costs and unfavorable foreign currency exchange. Equity and other income increased $1 million compared to the prior year quarter.Operating income totaled $18 million in the current quarter compared to $15 million in the prior year quarter. EBITDA increased $2 million to $23 million in the current quarter, while EBITDA margin decreased 2.1 percentage points in the current quarter to 10.6%.EBITDA and Adjusted EBITDA reconciliationThe following EBITDA presentation for the three and nine months ended December 31, 2017June 30, 2023 and 2016 below is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison$1 million, each for the resultsthree and nine months ended June 30, 2022.Composites. There were no unusual or key items that affected comparability for EBITDA during the current and prior year quarters. Three months ended December 31 (In millions) 2017 2016 Operating income $ 18 $ 15 Depreciation and amortization 5 6 EBITDA $ 23 $ 21 Intermediates and SolventsIntermediates and Solvents is a leading producerproduction of 1,4 butanediol (BDO) and related derivatives, including tetrahydrofuran and n-methylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. Butanediol is also suppliedprovided to Ashland’sLife Sciences, Personal Care, and Specialty Ingredients businessAdditives for use as a raw material.December 2017December 2016June 2022 quarterIntermediates and Solvents’increased $17decreased $30 million to $74$43 million in the current quarter. HigherUnfavorable product pricing increasedand lower volume decreased sales by $17 million and $13 million, respectively.while higher volumes and favorable foreign currency exchange each increased sales by $4$1 million, respectively. Current quarter EBITDA decreased $17 million to $16 million.Gross profit increased $16 million during the current quarter compared to the prior year quarter. Lower facility turn around costs EBITDA margin decreased 8.0 percentage points in the current quarter resulted in an $8 million increase in gross profit as a result of a significantASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISplanned plant shutdown that occurred in the prior year quarter. The net impact of pricing and costs increased gross profit by $7 million primarily due to improvements in product pricing. Higher volumes contributed to a $1 million increase in gross profit. In total, gross profit margin increased 22.2 percentage points as37.2%.the prior year quarterfiscal 2022 year-to-date21.3%.Selling, general and administrative expenses increased by $1 million compared to the prior year quarter.Operating income totaled $8$148 million in the current quarter as compared to a loss ofperiod. Unfavorable product pricing, lower volume and unfavorable foreign currency exchange decreased sales by $7 million, in$36 million and $1 million, respectively.priorcurrent period. Unfavorable price/mix, lower volume, higher production costs and unfavorable foreign currency exchange decreased operating income by $2 million, $16 million, $3 million and $1 million, respectively. Current year quarter. EBITDA anddecreased $22 million to $60 million. EBITDA margin decreased 2.2 percentage points in the current quarter increasedperiod to $16 million and 21.6%, respectively.December 31, 2017June 30, 2023 and 20162022 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 $ — segment'ssegment’s operating lossincome (loss) for the three and nine months ended December 31, 2017June 30, 2023 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 December 20172022.December 2016June 2022 quarter$29$19 million and $33$29 million for the three months ended December 31, 2017June 30, 2023 and 2016,2022, respectively. The unallocated items for the current and prior year quartersquarter included charges for restructuring activities of $14 million and $24 million, respectively. Restructuring activities included $6 million and $22 million of costs related to the separation of Valvoline and stranded divestiture costsexpense of $3 million and $2 million, respectively, for restructuring activities mainly comprised of severance, lease abandonment and other restructuring costs related to company-wide cost reduction programs during the current and prior year quarters,quarter, respectively, which included stranded costs of $1 million for prior year quarter associated with the Performance Adhesives divestiture.$4income of $12 million ICMS tax credits in Brazil (see Note L for more information).accelerated depreciation$69 million and $79 million for the nine months ended June 30, 2023 and 2022, respectively. The current and prior year period included expense of $5 million and $11 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 remaining unallocated itemscompany-wide cost reduction programs during the current quarter primarilyand prior year period, respectively, which included $13stranded costs of $8 million for environmental-related expenses while the remaining items during the prior year quarter primarilyassociated with the Performance Adhesives divestiture.$5$24 million of expense for a legal reserve and $4$45 million for environmental reserve adjustments.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIShad $601 million inbelieves that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash equivalentsfunds for Ashland’s foreseeable working capital needs, capital expenditures at existing facilities, dividend payments and debt service obligations. Ashland’s cash requirements are subject to change as business conditionsDecember 31, 2017, of which $581 million was held by foreign subsidiaries and had no significant limitationsany new business ventures or acquisitions that would prohibit remitting the funds to satisfy corporate obligations. In certain circumstances, if such amounts were repatriated to the United States, additional taxes might need to be accrued and paid depending on the source of the earnings remitted. Ashland currently has no plans to repatriate any amounts for which additional taxes would need to be accrued. However, due to the recent Tax Act, Ashland will be reassessing this position in future quarters.threenine months ended December 31, 2017June 30, 2023 and 2016. Three months ended December 31 (In millions) 2017 2016 Cash provided (used) by: Operating activities from continuing operations $ (24 ) $ (60 ) Investing activities from continuing operations (24 ) (31 ) Financing activities from continuing operations 99 (434 ) Discontinued operations (16 ) 50 Effect of currency exchange rate changes on cash and cash equivalents — (9 ) Net increase (decrease) in cash and cash equivalents $ 35 $ (484 ) Operating activitiesThe following discloses the2022.flows associated with Ashland’s operating activitiesequivalents decreased $297 million for the threenine months ended December 31, 2017June 30, 2023 compared to a $419 million increase for the nine months ended June 30, 2022.2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Cash flows provided (used) by operating activities from continuing operations Net income (loss) $ (4 ) $ 10 Income from discontinued operations (net of tax) (3 ) (75 ) Adjustments to reconcile income from continuing operations to cash flows from operating activities Depreciation and amortization 79 68 Original issue discount and debt issuance cost amortization 2 94 Deferred income taxes 8 2 Stock based compensation expense 7 5 Gain on early retirement of debt — (3 ) Realized gain and investment income on available-for-sale securities (3 ) (3 ) Net loss on divestitures 1 1 Pension contributions (2 ) (1 ) Gain on post-employment plan remeasurement — (2 ) (109 ) (156 ) Total cash flows used by operating activities from continuing operations $ (24 ) $ (60 ) (a)Excludes changes resulting from operations acquired or sold.Cashequipment, and stock repurchase activity of $56 million, $101 million, and $300 million, respectively. Operating cash flows used from operating activities from continuing operations a major source of Ashland’s liquidity, amounted to cashwere inflows of $24$163 million.and $60 million inincrease for the current and prior year quarters, respectively. Operating Activities - Operating Assets and LiabilitiesThe cash results during each quarter arenine months ended June 30, 2022 was primarily driven by the proceeds of the sale of the Performance Adhesives business segment of approximately $1.7 billion, net income (loss), excludingof transaction costs within discontinued operation results, adjusted for certain non-cash items including depreciation and amortization (including original issue discount and debt issuance cost amortization), as well as changes in working capital, which are fluctuations within accounts receivable, inventory, trade payables and accrued expenses. Ashland continues to emphasize working capital management as a high priority and focus.Changes in net working capital accounted for outflows of $96 million and $71 million for the three months ended December 31, 2017 and 2016, respectively, and were driven by the following:Accounts receivable - There were cash inflows of $15 million and $9 million during the current and prior year quarters, respectively, which were primarily due to collections in excess of sales during the first quarter of each fiscal year.Inventory - The current quarter had a cash outflow of $39 million compared to a cash inflow of $15 million during the prior year quarter, which were primarily due to sales volumes and inventory management strategies.Trade and other payables - There were cash outflows of $72 million and $95 million during the current and prior year quarters, respectively, which were primarily driven by seasonal fluctuations in trade payables and incentive compensation payouts from the prior year paid during the first quarter of each fiscal year. Additionally, the prior year quarter included the payment of certain Valvoline separation costs that were incurred in the preceding fiscal year.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISThe remaining outflows within changes in operating assets and liabilities of $13 million and $85 million in the current and prior year quarters, respectively, relate primarily to adjustments to certain accruals and long term assets and liabilities as well as income taxes received and paid.Operating Activities - SummaryOperatingoperations cash flows, for the current quarter included a lossand $14 million of operating cash flows from continuing operations offset by short-term debt repayments of $7$365 million, noncash adjustmentslong-term debt repayments of $79$250 million, for depreciation and amortization and $2$247 million for debt issuance cost amortization.Operatingof cash tax payment within discontinued operations cash flows for the prior year quarter included a loss from continuing operations of $65 million and noncash adjustments of $68 million for depreciation and amortization and $94 million for original issue discount and debt issuance cost amortization, including $92 million of accelerated accretion related to the tender offersale of Performance Adhesives, and $200 million of stock repurchase activity.2029 notes.Investing activitiesThe following discloses the cash flows associated with Ashland’s investing activitiesStatements of Condensed Consolidated Cash Flows for the three months ended December 31, 2017 and 2016. Three months ended December 31 (In millions) 2017 2016 Cash flows provided (used) by investing activities from continuing operations Additions to property, plant and equipment $ (24 ) $ (33 ) Proceeds from disposal of property, plant and equipment 1 — Proceeds from sale of operations 1 — Net purchase of funds restricted for specific transactions (5 ) (2 ) Reimbursements from restricted investments 5 — Proceeds from sales of available-for-sale securities 5 — Purchases of available-for-sale securities (5 ) — Proceeds from the settlement of derivative instruments — 4 Payments for the settlement of derivative instruments (2 ) — Total cash flows used by investing activities from continuing operations $ (24 ) $ (31 ) Cash used by investing activities was $24 million and $31 million for the current and prior year quarters, respectively. The significant cash investing activities for the current quarter primarily related to cash outflows of $24 million for property additions compared to $33 million in the prior year quarter.Financing activitiesThe following discloses the cash flows associated with Ashland’s financing activities for the three months ended December 31, 2017 and 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS Three months ended December 31 (In millions) 2017 2016 Cash flows provided (used) by financing activities from continuing operations Repayment of long-term debt $ (2 ) $ (239 ) Premium on long-term debt repayment — (5 ) Proceeds (repayment) from short-term debt 120 (154 ) Debt issuance costs — (4 ) Cash dividends paid (14 ) (24 ) Stock based compensation employee withholding taxes paid in cash (5 ) (8 ) Total cash flows provided (used) by financing activities from continuing operations $ 99 $ (434 ) Cash flows generated by financing activities was $99 million for the current quarter as compared to cash used of $434 million for the prior year quarter.Significant cash financing activities for the current quarter included short-term debt net cash inflows of $120 million related to debt outstanding on the 2017 Revolving Credit Facility and the accounts receivable securitization. The current quarter included cash dividends paid of $0.225 per share, for a total of $14 million.Significant cash financing activities for the prior year quarter included cash outflows of $239 million related to the repayments of a portion of the 2029 notes, 2022 notes and 2018 notes. Additionally, the prior year quarter included short-term debt net repayments of $154 million, which was primarily related to the $150 million full repayment of a term loan held by a foreign subsidiary. The prior year quarter included cash dividends paid of $0.39 per share, for a total of $24 million.The following discloses the cash flows associated with Ashland’s discontinued operations for the three months ended December 31, 2017 and 2016. Three months ended December 31 (In millions) 2017 2016 Cash used by discontinued operations Operating cash flows $ (16 ) $ 70 Investing cash flows — (10 ) Financing cash flows — (10 ) Total cash provided (used) by discontinued operations $ (16 ) $ 50 Cash flows for discontinued operations in the current quarter primarily related to previously divested businesses, including net payments of asbestos and environmental liabilities.Cash flows for discontinued operations in the prior year quarter primarily relate to net cash inflows of $62 million related to the activity of Valvoline Inc. The remaining cash flows in the prior year quarter related to other previously divested businesses, including net payments of asbestos and environmental liabilities.quarters.periods. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
Represents activity associated with the U.S. Accounts Receivable Sales Program impacting each period presented.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS(e) Three months ended December 31 (In millions) 2017 2016 Cash flows provided by operating activities from continuing operations $ (24 ) $ (60 ) Adjustments: Additions to property, plant and equipment (24 ) (33 ) $ (48 ) $ (93 ) (a)Includes $23 million and $29 million of restructuring payments for the three months ended December 31, 2017 and 2016, respectively.At December 31, 2017, working(f)$967$1,094 million and $1,215 million as of June 30, 2023 and September 30, 2022, respectively. The $121 million decrease in working capital was driven by a reduction in cash and cash equivalents, primarily associated with repurchases of common stock, offset by higher trade working capital (accounts receivable and inventories minus trade and other payables and accrued expenses and other liabilities). The $79 million increase in ongoing free cash flows between periods was primarily a result of reduced trade working capital additions compared to $941the prior year offset by $34 million at September 30, 2017.in higher additions to property, plant and equipment. Liquid assets (cash, cash equivalents and accounts receivable) amounted to 119%161% and 122%190% of current liabilities at December 31, 2017as as of June 30, 2023 and September 30, 2017,2022, respectively.and unused borrowing capacity and liquidity as of December 31, 2017June 30, 2023 and September 30, 2017. December 31 September 30 (In millions) 2017 2017 Cash and cash equivalents $ 601 $ 566 Unused borrowing capacity 2017 Revolving Credit Facility $ 467 $ 579 Accounts receivable securitization facility 31 35 20172022 Credit Agreement was $593 million, which reflects the full $600 million Revolving Credit Facility was $467 million due to an outstanding balance of $285 million, as well asless a reduction of $48$7 million for letters of credit outstanding at December 31, 2017.June 30, 2023. In total, Ashland’s available liquidity position, which includes cash, the revolving credit facility and theforeign accounts receivable securitization facility, was $1,099$1,051 million at December 31, 2017,June 30, 2023, compared to $1,180$1,326 million at September 30, 2017.December 31, 2017June 30, 2023 and September 30, 2017. December 31 September 30 (In millions) 2017 2017 Short-term debt (includes current portion of long-term debt) $ 355 $ 235 2,584 2,584 Total debt $ 2,939 $ 2,819 (a)Includes $24 million and $25$14 million of debt issuance cost discounts as of December 31, 2017June 30, 2023 and September 30, 2017, 2022, respectively.The current portion of long-term debt was $6 million at December 31, 2017. 46%30% and 28% at December 31, 2017June 30, 2023 and 45% at September 30, 2017.2022, respectively. At December 31, 2017,June 30, 2023, Ashland’s total debt had an outstanding principal balance of $3,015$1,376 million, discounts of $52$34 million, and debt issuance costs of $24$14 million. The scheduled aggregate maturities ofAshland had no 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 2021 and $1,279 million in 2022.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISFinancing Activities2017 Credit AgreementOn May 17, 2017, in conjunction withmaturing within the closing of the Pharmachem acquisition, Ashland entered into a secured credit agreement (the 2017 Credit Agreement) with a group of lenders. The 2017 Credit Agreement provided for (i) a $250 million three-year term loan A facility (the Three-Year TLA Facility), (ii) a $250 million five-year term loan A facility (the Five-Year TLA Facility and together with the Three-Year TLA Facility, the TLA Facilities) and (iii) a $680 million five-year revolving credit facility (including a $125 million letter of credit sublimit) (the 2017 Revolving Credit Facility). Proceeds of borrowings under the TLA Facilities were used solely to finance the acquisition of Pharmachem, while the proceeds of the 2017 Revolving Credit Facility were used to finance, in part, the acquisition of Pharmachem, to refinance the 2015 Senior Credit Agreement and for general corporate purposes. On May 19, 2017, Ashland entered into Amendment No. 1 to the 2017 Credit Agreement, which increased the aggregate commitments under the 2017 Revolving Credit Facility from $680 million to $800 million.At Ashland’s option, loans issued under the 2017 Credit Agreement bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. Loans bear interest at LIBOR plus 1.75% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.75%, in the alternative, through and including the date of delivery of a quarterly compliance certificate and thereafter the interest rate will fluctuate between LIBOR plus 1.375% per annum and LIBOR plus 2.500% per annum (or between the alternate base rate plus 0.375% per annum and the alternate base rate plus 1.500% per annum), based upon Ashland’s secured facilities ratings or the consolidated net leverage ratio (as defined in the 2017 Credit Agreement) (whichever yields a lower applicable interest rate margin) at such time. In addition, Ashland was required to pay fees of 0.25% per annum on the daily unused amount of the 2017 Revolving Credit Facility through and including the date of delivery of a compliance certificate, and thereafter the fee rate will fluctuate between 0.175% and 0.40% per annum, based upon Ashland’s secured facilities rating or the consolidated net leverage ratio (whichever yields a lower applicable rate). The TLA Facilities may be prepaid at any time without premium. The Three-Year TLA Facility will not amortize and will be due on May 17, 2020. The Five-Year TLA Facility will not amortize in each of the first, second and thirdnext 4 years and will amortize at a rate of 20% per annum$4 million due in each of the fourth and fifth years (payable in equal quarterly installments), with the outstanding balance of the Five-Year TLA Facility to be paid on May 17, 2022.On June 14, 2017, Ashland entered into Amendment No. 2 to the 2017 Credit Agreement, which provided for a new $600 million seven-year senior secured term loan B facility (the 2017 TLB Facility). At Ashland’s option, loans issued under the 2017 TLB Facility bear interest at either (x) LIBOR plus 2.00% per annum or (y) an alternate base rate plus 1.00% per annum. The 2017 TLB Facility may be prepaid at any time. The 2017 TLB Facility amortizes at a rate of 1.00% per annum (payable in equal quarterly installments) with the outstanding balance to be paid on May 17, 2024.6.50% junior subordinated notes due 2029In December 2016, Hercules LLC (Hercules) (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland, repurchased, through a cash tender offer (the Tender Offer), $182 million of the aggregate principal par value amount of its 6.50% junior subordinated notes due 2029 (2029 notes) for an aggregate purchase price of $177 million. As a result of the Tender Offer, the carrying value of the 2029 notes was reduced by $90 million and Ashland recognized a $92 million charge related to accelerated accretion of the recorded debt discount (compared to the total par value) and $5 million of a net gain related to the repayment of the debt. The charge and net gain are included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISOpen market repurchases of 4.750% notes due 2022 and 3.875% notes due 2018During the three months ended December 31, 2016, Ashland executed open market repurchases of its 4.750% notes due 2022 (2022 notes) and its 3.875% notes due 2018 (2018 notes). As a result of these repurchases, the carrying values of the 2022 notes and 2018 notes were reduced by $36 million and $29 million, respectively. Ashland recognized a $2 million charge related to premiums paid in the open market repurchases and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016.rating withratings remained unchanged at BB+ by Standard & Poor’s is BB, whileand Ba1 by Moody’s Investor Services is Ba2.Services. As of June 30, 2023, both Moody’s Investor Services and Standard & Poor's outlooks bothoutlook remained at stable. Subsequent changes to these ratings or outlook may have an effect on Ashland’s borrowing rate or ability to access capital markets in the future.most recentcurrent credit agreement (the 20172022 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. December 31, 2017,June 30, 2023, Ashland is in compliance with all debt agreement covenant restrictions under the 20172022 Credit Agreement.20172022 Credit Agreement is 4.5.4.0. The 20172022 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 20172022 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.20172022 Credit Agreement is 3.0. The 20172022 Credit Agreement defines the consolidated interest coverage ratio as the ratio of Covenant Adjusted EBITDA to consolidated interest charges for any measurement period.December 31, 2017, Ashland’s calculation of the consolidated net leverage ratio was 3.9, which is below the maximum consolidated ratio permitted under the 2017 Credit Agreement of 4.5. At December 31, 2017,June 30, 2023, Ashland’s calculation of the consolidated interest coverage ratio was 4.6, which exceeds the minimum required consolidated ratio of 3.0.The average9.9.0.7x0.3x effect on the consolidated net leverage ratio and a 0.8x1.8x effect on the consolidated interest coverage ratio. The average change in consolidated indebtedness of $100 million would affect the consolidated leverage ratio by approximately 0.2x.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISCashprojects that cash flow from operations and other available financial resources such as cash on hand and revolving credit should be sufficient to meet investing and financing requirements to enable Ashland to complyentered into a new, ten year raw materials contract with the covenantsoption to terminate in year five. The purchase obligations under the contract are estimated to be roughly $12 million for fiscal 2023, and other terms$209 million thereafter for a total of its financing obligations. These projections are based on various assumptions that include, but are not limited to: operational results, capital expenditures, working capital needs and tax payments and receipts.$7by $71 million since September 30, 20172022 to $3,399$3,149 million at December 31, 2017.June 30, 2023. The decrease of $7$71 million was due to cashnet income of $182 million, compensation expense and common shares issued of $7 million, and $105 million of deferred translation gains offset by stock repurchase activity of $303 million (includes $3 million in excise tax), dividends of $14$56 million, and losses on commodity hedges of $6 million.net loss of $4 million, partially offset by an $8 million net increase in available-for-sale securities and $3 million related to deferred translation gains.Stocknew evergreen $1 billion common share repurchase programIn 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 (2023 stock repurchase program). ThisThe new authorization allows for Ashland’s common shares to be repurchased in open market transactions, privately negotiated transactions or pursuant to one or more accelerated stock repurchase programs or Rule 10b5-1 plans.During 2017, Ashland's Board of Directors extendedterminates and replaces the 2015company's 2022 stock repurchase program, indefinitely. Aswhich had $200 million outstanding at the date of December 31, 2017, $500termination.share repurchase authorization remainsits outstanding shares. The program was completed during June 2023, when Ashland paid a total of $100 million and received a delivery of 1.1 million shares of common stock.20152022 stock repurchase program.In2017, subsequent to the final distribution of Valvoline Inc.'s common stock, the11, 2023, Ashland's Board of Directors of Ashland announceddeclared a quarterly cash dividend of 22.5 cents$0.385 per share to eligible shareholders at record whichon the company's common stock representing a 15 percent increase from the previous quarter. The dividend was paid for quarterly dividends in the firstthird quarter of fiscal 2018 and the third and fourth quarters2023. Dividends of fiscal 2017. This represented a reduction from the previous quarterly dividend of 39 cents$0.335 per share which waswere paid for quarterly dividends in the first and second quarters of fiscal 2017.$24$101 million for the threenine months ended December 31, 2017 and averaged approximately $217June 30, 2023 compared to $67 million duringfor the last three fiscal years.Contractual obligations and commitmentsAs a result of the Tax Act that was enacted during December 2017, Ashland has currently estimated and identified that the one-time transition tax related to the new law is estimated to be approximately $160 million payable over eight years, with the first payment of approximately $13 million due during the first quarter of fiscal year 2019. Ashland will continue to reassess this estimate in future periods. In addition, during January 2018, Ashland repatriated approximately $300 million in cash that was used to repay existing debt. There were no other significant changes to the contractual obligations table as presented at Septembernine months ended June 30, 2017.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS2017.2022. 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 underthreenine months ended December 31, 2017.Fiscal Year 2018updated its financial outlook for fiscal 2018 as shown in the table below.Prior FY 2018 OutlookUpdated FY 2018 OutlookAdjusted EBITDASpecialty Ingredients$560 - $590 millionNo changeComposites$85 - $95 millionNo changeIntermediates & Solvents$40 - $50 millionNo changeUnallocated and other($35 - $45 million)No changeKey Operating MetricsFree cash flow>$220 millionNo changeAdjusted diluted EPS$3.20 - $3.40$2.90 - $3.10Corporate ItemsDepreciation & amortization~$290 millionNo changeInterest expense$125 - $135 millionNo changeEffective tax rate8 - 13%16 - 20%Capital expenditures$195 - $205 millionNo changeDiluted share count~64 millionNo changeSecond Quarter of 2018For the second quarter of fiscal 2018, Ashland expects Adjusted diluted EPSwould expect sales to be in the range of $0.80-$0.90 per diluted share. This estimate assumes an effective tax rate$2.2 billion and Adjusted EBITDA to be in the range of 18% based on$500 million for fiscal year 2023.new U.S. tax legislation.December 31, 2017June 30, 2023 is generally consistent with the types of market risk exposures presented in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSISDecember 31, 2017.December 31, 2017,June 30, 2023, there were no significant changes in Ashland’sAshland's internal control over financial reporting, or in other factors, that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, Ashland’sAshland's internal control over financial reporting.During the June 2017 quarter, Ashland completed its purchase of Pharmachem. Although management believes appropriate internal controls and procedures have been maintained, Pharmachem’s controls and procedures for the recording, processing, and summarizing of financial information have not been fully evaluated by Ashland’s management as of December 31, 2017. As such, there is a risk that deficiencies may exist and not yet be identified that could constitute significant deficiencies or in the aggregate, a material weakness related to Pharmachem's businesses.KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.December 31, 2017,June 30, 2023, Ashland and its subsidiaries have been identified as a PRP by U.S. federal and state authorities, or by private parties seeking contribution, for the cost of environmental investigation and/or cleanup at 82 waste treatment or disposal57 sites. These sites are currently subject to ongoing investigation and remedial activities, overseen by the United States Environmental Protection Agency (USEPA) or a state agency, in which Ashland or its subsidiaries are typically participating as a member of a PRP group. Generally, the types of relief sought include remediation of contaminated soil and/or groundwater, reimbursement for past costs of site cleanup and administrative oversight and/or long-term monitoring of environmental conditions at the sites. The ultimate costs are not predictable with assurance. Hattiesburg, Mississippi Resource Conservation and Recovery Act Matter - In November 2008, the Mississippi Department of Environmental Quality (MDEQ) issued a Notice of Violation to Hercules’ now-closed Hattiesburg, Mississippi manufacturing facility alleging that a process water impoundment basin at the facility had been operated as a hazardous waste storage and treatment facility without a permit in violation of the Resource Conservation and Recovery Act. In May 2011, the USEPA issued an inspection report from a September 2010 inspection with allegations similar to those of the MDEQ and promulgated an information request. Ashland has been working with the MDEQ and USEPA to settle this matter in the context of the shutdown and ongoing remediation of the Hattiesburg facility. The USEPA proposed a settlement penalty in excess of $100,000. While it is reasonable to believe that this matter will involve a penalty from the MDEQ and/or the USEPA exceeding $100,000, the potential penalty with respect to this enforcement matter should not be material to Ashland.(c) Lower Passaic River, New Jersey Matters - Ashland, through two formerly owned facilities, and ISP, through a now-closed facility, have been identified as PRPs, along with approximately 70 other companies (the Cooperating Parties Group or the CPG), in a May 2007 Administrative Order of Consent (AOC) with the USEPA. The parties are required to perform a remedial investigation and feasibility study (RI/FS) of the entire 17 miles of the Passaic River. In June 2007, the USEPA separately commenced a Focused Feasibility Study (FFS) as an interim measure. In accordance with the 2007 AOC, in June 2012 the CPG voluntarily entered into another AOC for an interim removal action focused solely at mile 10.9 of the Passaic River. The allocations for the 2007 AOC and the 2012 removal action are based on interim allocations, are immaterial and have been accrued. In April 2014, the USEPA released the FFS. The CPGOccidentalanother chemical company to conduct and pay for the remedial design. TheThis chemical company has sued Ashland, ISP and numerous other defendants to recover past and future costs pursuant to the CERCLA. Ashland, ISP and numerous other defendants have filed a Motion to Dismiss all of the claims. Ashland and ISP are participating in an USEPA has advised that it will be working to secure similar agreements with other PRPs.allocation process. The release of the FFS Record of Decision, did not have a material adverse impact on Ashland’s business and financial operations; however, there are a number of contingencies in the future that could possibly have a material impact including adverse rulings or verdicts, allocationcurrent allocations proceedings and related orders.KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.December 31, 2017.June 30, 2023. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Ashland believes that such potential losses were immaterial as of December 31, 2017.2017.December 31, 2017June 30, 2023 was as follows:
Issuer Purchases of Equity Securities |
| |||||||||||||||
Q3 Fiscal Periods |
| Total Number of |
|
| Average Price |
|
| Total Number of |
|
| Dollar Value of |
| ||||
April 1, 2023 to April 30, 2023 |
|
| 465,735 |
|
| $ | 102.41 |
|
|
| 465,735 |
|
| $ | 300 |
|
May 1, 2023 to May 31, 2023 |
|
| 968,196 |
|
|
| 88.82 |
|
|
| 968,196 |
|
|
| 214 |
|
June 1, 2023 to June 30, 2023 |
|
| 160,746 |
|
|
| 87.12 |
|
|
| 160,746 |
|
|
| 1,000 |
|
Total |
|
| 1,594,677 |
|
|
|
|
|
| 1,594,677 |
|
| $ | 1,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
ITEM 5. OTHER INFORMATION
Insider Trading Arrangements
During the three months ended June 30, 2023, none of the Company's directors or officers adopted, modified or terminated a Rule 10b5-1 plan or a non-Rule 10b5-1 trading arrangement.
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ITEM 6. EXHIBITS
(a) Exhibits | |
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 and nine months ended June 30, 2023 and June 30, 2022; (ii) Condensed Consolidated Balance Sheets at June 30, 2023 and September 30, 2022; (iii) Statements of Condensed Consolidated Cash Flows for the nine months ended June 30, 2023 and June 30, 2022; 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. |
57
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 | ||
(Registrant) | ||
July 27, 2023 | /s/ J. Kevin Willis | |
J. Kevin Willis | ||
Senior Vice President and Chief Financial Officer (on behalf of the Registrant and as principal financial officer) |
58