UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ | ||||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
December 31,OR
☐ | |||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to ___________
Commission file number 333-211719
ASHLAND GLOBAL HOLDINGS INC.
(a Delaware corporation)
I.R.S. No. 81-2587835
8145 Blazer Drive
Wilmington, Delaware 19808
Telephone Number (859) 815-3333(302) 995-3000
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, 2017,2020, there were 62,228,81260,667,388 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) |
| 2020 |
|
| 2019 |
| ||
Sales |
| $ | 552 |
|
| $ | 533 |
|
Cost of sales |
|
| 374 |
|
|
| 380 |
|
Gross profit |
|
| 178 |
|
|
| 153 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense |
|
| 106 |
|
|
| 99 |
|
Research and development expense |
|
| 15 |
|
|
| 16 |
|
Intangibles amortization expense |
|
| 21 |
|
|
| 21 |
|
Equity and other income |
|
| 5 |
|
|
| 0 |
|
Operating income |
|
| 41 |
|
|
| 17 |
|
|
|
|
|
|
|
|
|
|
Net interest and other expense (income) |
|
| (6 | ) |
|
| 10 |
|
Net income on divestitures |
|
| 14 |
|
|
| 3 |
|
Income from continuing operations before income taxes |
|
| 61 |
|
|
| 10 |
|
Income tax expense (benefit) |
|
| 0 |
|
|
| (24 | ) |
Income from continuing operations |
|
| 61 |
|
|
| 34 |
|
Loss from discontinued operations (net of income taxes) |
|
| (5 | ) |
|
| (2 | ) |
Net income |
| $ | 56 |
|
| $ | 32 |
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA |
|
|
|
|
|
|
|
|
Basic earnings per share - Note M |
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 1.00 |
|
| $ | 0.57 |
|
Income (loss) from discontinued operations |
|
| (0.08 | ) |
|
| (0.03 | ) |
Net income |
| $ | 0.92 |
|
| $ | 0.54 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share - Note M |
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 0.99 |
|
| $ | 0.56 |
|
Income (loss) from discontinued operations |
|
| (0.08 | ) |
|
| (0.03 | ) |
Net income |
| $ | 0.91 |
|
| $ | 0.53 |
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
Net income |
| $ | 56 |
|
| $ | 32 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
Unrealized translation gain |
|
| 48 |
|
|
| 38 |
|
Other comprehensive income |
|
| 48 |
|
|
| 38 |
|
Comprehensive income |
| $ | 104 |
|
| $ | 70 |
|
|
|
|
|
|
|
|
|
|
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 | ) | ||
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited) |
| December 31 2020 |
|
| September 30 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 335 |
|
| $ | 454 |
|
Accounts receivable (a) |
|
| 409 |
|
|
| 471 |
|
Inventories - Note F |
|
| 537 |
|
|
| 529 |
|
Other assets |
|
| 100 |
|
|
| 87 |
|
Current assets held for sale - Note B |
|
| — |
|
|
| 6 |
|
Total current assets |
|
| 1,381 |
|
|
| 1,547 |
|
Noncurrent assets |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
Cost |
|
| 3,310 |
|
|
| 3,265 |
|
Accumulated depreciation |
|
| 1,748 |
|
|
| 1,700 |
|
Net property, plant and equipment |
|
| 1,562 |
|
|
| 1,565 |
|
Goodwill - Note G |
|
| 1,792 |
|
|
| 1,758 |
|
Intangibles - Note G |
|
| 1,001 |
|
|
| 1,013 |
|
Operating lease assets, net - Note I |
|
| 137 |
|
|
| 137 |
|
Restricted investments - Note E |
|
| 316 |
|
|
| 301 |
|
Asbestos insurance receivable (b) - Note L |
|
| 130 |
|
|
| 136 |
|
Deferred income taxes |
|
| 26 |
|
|
| 26 |
|
Other assets |
|
| 397 |
|
|
| 394 |
|
Total noncurrent assets |
|
| 5,361 |
|
|
| 5,330 |
|
Total assets |
| $ | 6,742 |
|
| $ | 6,877 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Short-term debt - Note H |
| $ | 93 |
|
| $ | 280 |
|
Trade and other payables |
|
| 217 |
|
|
| 233 |
|
Accrued expenses and other liabilities |
|
| 252 |
|
|
| 277 |
|
Current operating lease obligations - Note I |
|
| 23 |
|
|
| 23 |
|
Total current liabilities |
|
| 585 |
|
|
| 813 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
Long-term debt - Note H |
|
| 1,601 |
|
|
| 1,573 |
|
Asbestos litigation reserve - Note L |
|
| 498 |
|
|
| 513 |
|
Deferred income taxes |
|
| 222 |
|
|
| 229 |
|
Employee benefit obligations - Note K |
|
| 157 |
|
|
| 157 |
|
Operating lease obligations - Note I |
|
| 124 |
|
|
| 124 |
|
Other liabilities |
|
| 433 |
|
|
| 432 |
|
Total noncurrent liabilities |
|
| 3,035 |
|
|
| 3,028 |
|
Commitments and contingencies - Note L |
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
| 3,122 |
|
|
| 3,036 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 6,742 |
|
| $ | 6,877 |
|
|
|
|
|
|
|
|
|
|
(a) | ||
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 | |||
Accounts receivable includes an allowance for |
(b) | Asbestos insurance receivable includes an allowance for credit losses of $3 million at December 31, 2020. |
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| other |
|
|
|
|
| |
|
| Common |
|
| Paid-in |
|
| Retained |
|
| comprehensive |
|
|
|
|
| ||||
(In millions - unaudited) |
| stock |
|
| capital |
|
| earnings |
|
| income (loss) (a) |
|
| Total |
| |||||
BALANCE AT SEPTEMBER 30, 2020 |
| $ | 1 |
|
| $ | 769 |
|
| $ | 2,649 |
|
| $ | (383 | ) |
| $ | 3,036 |
|
Adoption of new accounting pronouncement (b) |
|
|
|
|
|
|
|
|
|
| (2 | ) |
|
|
|
|
|
| (2 | ) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
| 56 |
|
|
|
|
|
|
| 56 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 48 |
|
|
| 48 |
|
Regular dividends, $0.275 per common share |
|
|
|
|
|
|
|
|
|
| (17 | ) |
|
|
|
|
|
| (17 | ) |
Common shares issued under stock incentive and other plans (c) |
|
|
|
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
BALANCE AT DECEMBER 31, 2020 |
| $ | 1 |
|
| $ | 770 |
|
| $ | 2,686 |
|
| $ | (335 | ) |
| $ | 3,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | ||
(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 | ||||||||
At December 31, |
(b) | Represents the cumulative-effect adjustment, net of tax, for the adoption of the new accounting pronouncement related to the measurement of credit losses on financial instruments. |
(c) | Common shares issued were |
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions - unaudited) |
| 2020 |
|
| 2019 |
| ||
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS |
|
|
|
|
|
|
|
|
Net income |
| $ | 56 |
|
| $ | 32 |
|
Loss from discontinued operations (net of income taxes) |
|
| 5 |
|
|
| 2 |
|
Adjustments to reconcile income from continuing operations to |
|
|
|
|
|
|
|
|
cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 62 |
|
|
| 61 |
|
Original issue discount and debt issuance costs amortization |
|
| 1 |
|
|
| 2 |
|
Deferred income taxes |
|
| (5 | ) |
|
| (12 | ) |
Gain from sales of property and equipment |
|
| (4 | ) |
|
| — |
|
Stock based compensation expense |
|
| 4 |
|
|
| 4 |
|
Income from restricted investments |
|
| (23 | ) |
|
| (13 | ) |
Net income on divestitures |
|
| (14 | ) |
|
| — |
|
Impairments |
|
| 9 |
|
|
| — |
|
Pension contributions |
|
| (2 | ) |
|
| (1 | ) |
Change in operating assets and liabilities (a) |
|
| 17 |
|
|
| (109 | ) |
Total cash flows provided (used) by operating activities from continuing operations |
|
| 106 |
|
|
| (34 | ) |
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM CONTINUING OPERATIONS |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (30 | ) |
|
| (29 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 5 |
|
|
| — |
|
Proceeds from sale or restructuring of operations |
|
| 14 |
|
|
| — |
|
Net purchase of funds restricted for specific transactions |
|
| (1 | ) |
|
| (1 | ) |
Reimbursement from restricted investments |
|
| 8 |
|
|
| 10 |
|
Proceeds from sales of securities |
|
| 42 |
|
|
| 4 |
|
Purchase of securities |
|
| (42 | ) |
|
| (4 | ) |
Total cash flows used by investing activities from continuing operations |
|
| (4 | ) |
|
| (20 | ) |
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONS |
|
|
|
|
|
|
|
|
Proceeds from (repayment of) short-term debt |
|
| (187 | ) |
|
| 14 |
|
Cash dividends paid |
|
| (17 | ) |
|
| (16 | ) |
Stock based compensation employee withholding taxes paid in cash |
|
| (3 | ) |
|
| (5 | ) |
Total cash flows used by financing activities from continuing operations |
|
| (207 | ) |
|
| (7 | ) |
CASH PROVIDED (USED) BY CONTINUING OPERATIONS |
|
| (105 | ) |
|
| (61 | ) |
Cash provided (used) by discontinued operations |
|
|
|
|
|
|
|
|
Operating cash flows |
|
| (14 | ) |
|
| (17 | ) |
Investing cash flows |
|
| (3 | ) |
|
| 2 |
|
Total cash provided (used) by discontinued operations |
|
| (17 | ) |
|
| (15 | ) |
Effect of currency exchange rate changes on cash and cash equivalents |
|
| 3 |
|
|
| 1 |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| (119 | ) |
|
| (75 | ) |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
|
| 454 |
|
|
| 232 |
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
| $ | 335 |
|
| $ | 157 |
|
|
|
|
|
|
|
|
|
|
(a) | ||
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 | |||
Excludes changes resulting from operations acquired, sold or |
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
–SIGNIFICANT ACCOUNTING POLICIESBasis of presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and Securities and Exchange Commission (SEC) regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Additionally, certain prior period data, primarily related to discontinued operations, have been reclassified in the Consolidated Financial Statements and accompanying notes to conform to the current period presentation, as further described in this section. These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with Ashland’sAshland Global Holdings Inc. and consolidated subsidiaries (Ashland) Annual Report on Form 10-K for the fiscal year ended
Ashland’s reportable segments include the distribution of its remaining 170 million shares of common stock of Valvoline Inc. which represented approximately 83% ofconsumer specialty businesses: Life Sciences and Personal Care & Household; the total outstanding shares of Valvoline Inc.'s common stock. This separation from Valvoline represented a strategic shift in Ashland's businessindustrial specialty businesses: Specialty Additives and qualified as a discontinued operation. Accordingly, Valvoline's operating results 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 for additional information on the separation of Valvoline Inc.
Use of estimates, risks and uncertainties
The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes and liabilities and receivables associated with asbestos litigation and environmental remediation. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.
Ashland’s results are affected by domestic and international economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations. While Ashland maintains reserves for anticipated liabilities and carries various levels of insurance, Ashland could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to asbestos, environmental remediation or other matters.
New accounting standards
A description of new U.S. GAAP accounting standards issued or adopted during the current year is required in interim financial reporting. A detailed listing of new accounting standards relevant to Ashland is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2020. The following standards relevant to Ashland were either issued or adopted in the current period,fiscal year or will become effective in a subsequent period.
In May 2014,June 2016, the FASB issued amended accounting guidance outlining a single comprehensive five steprelated to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for entitiesmost financial assets to use in accountingrequire measurement and recognition of expected credit losses for revenue arising from contracts with customers (ASC 606 Revenue from Contracts with Customers). The new guidance supersedes most current revenue recognition guidance, in an
Under the new expected credit loss model, Ashland records an allowance for credit losses inherent in its receivables from revenue transactions and reinsurance recoverables. The allowance for credit losses is a valuation account deducted from the amortized cost basis of the assets to present their net carrying value at the amount expected to be collected. Ashland estimates expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that will change how employers who sponsor defined benefit pension and/or postretirement benefit plans presentaffect the net periodic benefit cost incollectability of the Statementreported amount. When measuring expected credit losses, Ashland pools assets with similar country risk and credit risk characteristics. Each period the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets. For the three months ending December 31, 2020, no significant credit losses were incurred within the Statements of Consolidated Comprehensive Income (Loss). This guidance requires employers
NOTE B– DIVESTITURES
Composites and Marl facility
On August 30, 2019, Ashland completed the sale of its Composites business (excluding the Maleic business) and butanediol manufacturing facility in Marl, Germany to presentINEOS Enterprises (INEOS).
On September 30, 2020, Ashland completed the service cost componentsale of net periodic benefit costits Maleic business to AOC. Net proceeds from the sale were approximately $98 million.
Since this disposal group signifies a strategic shift in the same caption within the StatementAshland’s business and had a major effect of Consolidated Comprehensive Income (Loss) as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost will be presented separately outside ofAshland’s operations and financial results, the operating income caption. This guidance must be applied retrospectively. Ashland elected to early adopt this guidance on October 1, 2017, which resulted in a reclassification of $2 million in income from the selling, generalresults and administrative expense and cost of sales captions to the other net periodic benefit income caption in the Statement of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2016. The components of net periodic benefits income (costs) reclassified primarily relate to interest cost, expected return on assets, curtailments, settlements and actuarial gains and losses. Ashland did not have to adjust the classification of service cost since it previously was recorded within the caption required by the new guidance. See Note J for additional information on net periodic benefit costs.
Subsequent to separate Ashland into two independent, publicly traded companies comprisingthe completion of the new Ashland (now known as Ashland Global Holdings Inc.) and Valvoline Inc. The initial step of the separation, the initial public offering (IPO) of Valvoline Inc., closed on September 28, 2016. As discussed further within the Final Separation section of this Note, Ashland completed the distribution of its remaining shares in Valvoline Inc. on May 12, 2017. The newsale, Ashland is providing certain transition services to INEOS for a premier global leaderfee. While the transition services are expected to vary in providing specialty chemical solutionsduration depending upon the type of service provided, Ashland expects to customers in a wide rangereduce certain costs as the transition services are completed. Ashland recognized transition service fee income of consumer and industrial markets. Key markets and applications include pharmaceutical, personal care, food and beverage, architectural coatings, adhesives, automotive, construction and energy.
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 | ) |
Other manufacturing facility sales
During the three months ended December 31, 2016 have been2020, Ashland completed the sale of a Specialty Additives facility, the assets and liabilities of which were classified as discontinued operations withinheld for sale as of September 30, 2020. Net proceeds from the Condensed Consolidated Financial Statements. See Note D for more information.
NOTE C
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 |
Ashland has divested certain businesses that have qualified as discontinued operations. The operating results from these divested businesses and subsequent adjustments related to ongoing assessments of certain retained liabilities and tax items have been recorded within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss) for all periods presented and are discussed further within this note.
Components of amounts reflected in the Statements of Consolidated Comprehensive Income (Loss) related to discontinued operations are presented in the following table for the three months ended
December 31,
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Income (loss) from discontinued operations (net of tax) |
|
|
|
|
|
|
|
|
Composites/Marl facility |
| $ | — |
|
| $ | — |
|
Valvoline |
|
| — |
|
|
| (1 | ) |
Water Technologies |
|
| — |
|
|
| (1 | ) |
Distribution |
|
| (1 | ) |
|
| — |
|
Gain (loss) on disposal of discontinued operations (net of taxes) |
|
|
|
|
|
|
|
|
Composites/Marl facility |
|
| (4 | ) |
|
| — |
|
|
| $ | (5 | ) |
| $ | (2 | ) |
|
|
|
|
|
|
|
|
|
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 ValvolineComposites and the Marl facility for the three months ended December 31, 2016.2019. The Maleic business, which was sold during fiscal 2020 to AOC, was operated under the Composites business and Marl facility disposal group and is therefore reported in discontinued operations.
|
| Three months ended |
| |
|
| December 31 |
| |
(In millions) |
| 2019 |
| |
Income (loss) from discontinued operations attributable to Composites/Marl facility |
|
|
|
|
Sales |
| $ | 12 |
|
Cost of sales |
|
| (10 | ) |
Selling, general and administrative expense |
|
| (2 | ) |
Equity and other income |
|
| 2 |
|
Pretax income of discontinued operations |
|
| 2 |
|
Income tax expense |
|
| (2 | ) |
Income from discontinued operations |
| $ | — |
|
NOTE D – RESTRUCTURING ACTIVITIES
Company-wide restructuring activities
Ashland periodically implements company-wide restructuring programs related to acquisitions, divestitures and other cost reduction programs in order to enhance profitability through streamlined operations and an improved overall cost structure.
Fiscal 2020 and 2021 restructuring costs
During the three months ended December 31, 2020 and 2019, Ashland incurred severance expense of $8 million and $3 million, respectively, attributable to executive management changes and business management changes within the organization. As of December 31, 2020, the severance reserve associated with this transition was $36 million.
The following table details at December 31, 2020 and 2019, the amount of restructuring severance reserves related to this program. The severance reserves were primarily recorded within accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet as of December 31, 2020 and December 31, 2019.
(In millions) | Severance costs |
| |
Balance at of September 30, 2020 |
| 39 |
|
Restructuring reserve |
| 8 |
|
Utilization (cash paid) |
| (11 | ) |
Balance at December 31, 2020 | $ | 36 |
|
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 |
(In millions) | Severance costs |
| |
Balance at of September 30, 2019 |
| 0 |
|
Restructuring reserve |
| 3 |
|
Utilization (cash paid) |
| 0 |
|
Balance at December 31, 2019 | $ | 3 |
|
Fiscal 2018 restructuring costs
During fiscal 2018, Ashland initiated a company-wide cost reduction program as a result of ongoing strategic asset plans and activities. As part of this restructuring program, Ashland announced a voluntary severance offer to certain qualifying employees that was formally approved during 2018. Additionally, during fiscal 2018, an involuntary program for employees was also initiated as part of the restructuring program. These programs resulted in additional severance expense of $1 million for the three months ended December 31, 2019 which was primarily recorded within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss). As of December 31, 2020, the severance reserve for the company-wide restructuring program was 0.
The following table details at December 31, 2019, the amount of restructuring reserves related to the programs discussed above, and the related activity in these reserves during the three months ended December 31, 2019. The severance reserve was primarily recorded within accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet as of December 31, 2019.
(In millions) | Severance costs |
| |
Balance at of September 30, 2019 |
| 7 |
|
Restructuring reserve |
| 1 |
|
Utilization (cash paid) |
| (3 | ) |
Balance at December 31, 2019 | $ | 5 |
|
NOTE E – FAIR VALUE MEASUREMENTS
As required by U.S. GAAP, Ashland uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value. Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows.
Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect Ashland’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include Ashland’s own financial data such as internally developed pricing
For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use ofusing fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable.
The following table summarizes financial instruments subject to recurring fair value measurements as of December 31, 2017.2020.
|
| Carrying |
|
| Total fair |
|
| Quoted prices in active markets for identical assets |
|
| Significant other observable inputs |
|
| Significant unobservable inputs |
| |||||
(In millions) |
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 335 |
|
| $ | 335 |
|
| $ | 335 |
|
| $ | 0 |
|
| $ | 0 |
|
Restricted investments (a) |
|
| 346 |
|
|
| 346 |
|
|
| 346 |
|
|
| 0 |
|
|
| 0 |
|
Investment of captive insurance company (b) |
|
| 8 |
|
|
| 8 |
|
|
| 8 |
|
|
| 0 |
|
|
| 0 |
|
Total assets at fair value |
| $ | 689 |
|
| $ | 689 |
|
| $ | 689 |
|
| $ | 0 |
|
| $ | 0 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives |
| $ | 1 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 1 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) | Carrying value | Total fair value | Quoted prices in active markets for identical assets Level 1 | Significant other observable inputs Level 2 | Significant unobservable inputs Level 3 | ||||||||||||||
Assets | |||||||||||||||||||
Cash and cash equivalents | $ | 601 | $ | 601 | $ | 601 | $ | — | $ | — | |||||||||
Restricted investments (a) | 345 | 345 | 345 | — | — | ||||||||||||||
Deferred compensation investments (b) | 160 | 160 | — | 160 | — | ||||||||||||||
Investments of captive insurance company (b) | 3 | 3 | 3 | — | — | ||||||||||||||
Foreign currency derivatives | 4 | 4 | — | 4 | — | ||||||||||||||
Total assets at fair value | $ | 1,113 | $ | 1,113 | $ | 949 | $ | 164 | $ | — | |||||||||
Liabilities | |||||||||||||||||||
Foreign currency derivatives | $ | 13 | $ | 13 | $ | — | $ | 13 | $ | — | |||||||||
(a) | Included in restricted investments is $30 million classified in the other current assets caption on the Condensed Consolidated Balance Sheets. |
(b) | Included in other noncurrent assets in the Condensed Consolidated Balance Sheets. |
The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2017.2020.
|
| Carrying |
|
| Total fair |
|
| Quoted prices in active markets for identical assets |
|
| Significant other observable inputs |
|
| Significant unobservable inputs |
| |||||
(In millions) |
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 454 |
|
| $ | 454 |
|
| $ | 454 |
|
| $ | 0 |
|
| $ | 0 |
|
Restricted investments (a) |
|
| 331 |
|
|
| 331 |
|
|
| 331 |
|
|
| 0 |
|
|
| 0 |
|
Investment of captive insurance company (b) |
|
| 9 |
|
|
| 9 |
|
|
| 9 |
|
|
| 0 |
|
|
| 0 |
|
Foreign currency derivatives | �� |
| 1 |
|
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Total assets at fair value |
| $ | 795 |
|
| $ | 795 |
|
| $ | 794 |
|
| $ | 1 |
|
| $ | 0 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives |
| $ | 3 |
|
| $ | 3 |
|
| $ | 0 |
|
| $ | 3 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | ||
(In millions) | Carrying value | Total fair value | Quoted prices in active markets for identical assets Level 1 | Significant other observable inputs Level 2 | Significant unobservable inputs Level 3 | ||||||||||||||
Assets | |||||||||||||||||||
Cash and cash equivalents | $ | 566 | $ | 566 | $ | 566 | $ | — | $ | — | |||||||||
Restricted investments (a) | 332 | 332 | 332 | — | — | ||||||||||||||
Deferred compensation investments (b) | 158 | 158 | — | 158 | — | ||||||||||||||
Investments of captive insurance company (b) | 3 | 3 | 3 | — | — | ||||||||||||||
Foreign currency derivatives | 2 | 2 | — | 2 | — | ||||||||||||||
Total assets at fair value | $ | 1,061 | $ | 1,061 | $ | 901 | $ | 160 | $ | — | |||||||||
Liabilities | |||||||||||||||||||
Foreign currency derivatives | $ | 36 | $ | 36 | $ | — | $ | 36 | $ | — | |||||||||
Included in restricted investments is $30 million classified in the other current assets caption on the Condensed Consolidated Balance Sheets. |
(b) | Included in other noncurrent assets in the Condensed Consolidated Balance Sheets. |
Restricted investments
Investment income and realized gains and losses on the available-for-sale securitiesthese company-restricted investments are reported inwithin the net interest and other financing expense caption inon the Statements of Consolidated Comprehensive Income.Income (Loss). The following table provides a summary of the available-for-sale securitiesactivity within the investment portfolio as of December 31, 20172020 and September 30, 2017:2020:
(In millions) |
| December 31 2020 |
|
| September 30 2020 |
| ||
Original cost |
| $ | 335 |
|
| $ | 335 |
|
Accumulated adjustments, net (a) |
|
| (50 | ) |
|
| (30 | ) |
Adjusted cost, beginning of year |
|
| 285 |
|
|
| 305 |
|
Investment income (b) |
|
| 5 |
|
|
| 10 |
|
Net unrealized gain (c) |
|
| 52 |
|
|
| 46 |
|
Realized gains (c) |
|
| 11 |
|
|
| 2 |
|
Settlement funds |
|
| 1 |
|
|
| 3 |
|
Disbursements |
|
| (8 | ) |
|
| (35 | ) |
Fair value |
| $ | 346 |
|
| $ | 331 |
|
|
|
|
|
|
|
|
|
|
(a) | ||
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 accumulated adjustments include investment income, realized gains, disbursements and settlements recorded in previous periods. |
(b) | Investment income for the demand deposit includes interest income as well as dividend income transferred from the equity and |
(c) | Presented under the original cost method. |
The following table presents gross unrealized gains and losses for the restricted investment available-for-sale securities as of December 31, 20172020 and September 30, 2017:2020:
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
| ||
(In millions) |
| Adjusted Cost |
|
| Unrealized Gain |
|
| Unrealized Loss |
|
| Fair Value |
| ||||
As of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit |
| $ | 9 |
|
| $ | — |
|
| $ | — |
|
| $ | 9 |
|
Equity mutual fund |
|
| 101 |
|
|
| 38 |
|
|
| 0 |
|
|
| 139 |
|
Fixed income mutual fund |
|
| 184 |
|
|
| 14 |
|
|
| 0 |
|
|
| 198 |
|
|
| $ | 294 |
|
| $ | 52 |
|
| $ | 0 |
|
| $ | 346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit |
| $ | 7 |
|
| $ | — |
|
| $ | — |
|
| $ | 7 |
|
Equity mutual fund |
|
| 116 |
|
|
| 31 |
|
|
| (1 | ) |
|
| 146 |
|
Fixed income mutual fund |
|
| 162 |
|
|
| 16 |
|
|
| 0 |
|
|
| 178 |
|
|
| $ | 285 |
|
| $ | 47 |
|
| $ | (1 | ) |
| $ | 331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | Gross | ||||||||||||||
(In millions) | Adjusted Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||
As of December 31, 2017 | |||||||||||||||
Demand Deposit | $ | 17 | $ | — | $ | — | $ | 17 | |||||||
Equity Mutual Fund | 163 | 45 | — | 208 | |||||||||||
Corporate bond Mutual Fund | 120 | — | — | 120 | |||||||||||
Fair value | $ | 300 | $ | 45 | $ | — | $ | 345 | |||||||
As of September 30, 2017 | |||||||||||||||
Demand Deposit | $ | 9 | $ | — | $ | — | $ | 9 | |||||||
Equity Mutual Fund | 168 | 34 | — | 202 | |||||||||||
Corporate bond Mutual Fund | 120 | 1 | — | 121 | |||||||||||
Fair value | $ | 297 | $ | 35 | $ | — | $ | 332 |
The following table presents the investment income, net gains and losses realized and disbursements related to the investments within the portfolio for the three months ended December 31, 20172020 and 2016.
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Investment income | $ | 2 | $ | 3 | |||
Realized gains | 1 | — | |||||
Disbursements | (5 | ) | — |
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Investment income |
| $ | 5 |
|
| $ | 4 |
|
Net gains (losses) unrealized (a) |
|
| 18 |
|
|
| 9 |
|
Disbursements |
|
| (8 | ) |
|
| (10 | ) |
|
|
|
|
|
|
|
|
|
(a) | ||
Ashland determined that all unrealized gains and (losses) were related to equity securities with readily determinable fair values. Due to the new accounting guidance adopted in the first quarter of fiscal year 2019, the net unrealized gains and (losses) during the year ended September 30, 2019 and forward were recorded within the net interest and other expense caption in the Statements of Consolidated Income (Loss). |
Foreign currency derivatives
Ashland conducts business in a variety of foreign currencies. Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to curtail potential earnings volatility effects on certain assets and liabilities, including short-term inter-company loans, denominated in currencies other than Ashland’s functional currency of an entity. These derivative contracts generally require exchange of one foreign currency for another at a fixed rate at a future date and generally have maturities of less than twelve months. All contracts are valued at fair value with net changes in fair value recorded within the selling, general and administrative expense caption. The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies. The following table summarizes the net gains and/orand losses recognized during the three months ended
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Foreign currency derivative gains (losses) |
| $ | 3 |
|
| $ | 1 |
|
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Foreign currency derivative loss | $ | (11 | ) | $ | (8 | ) |
The following table summarizes the fair values of the outstanding foreign currency derivatives as of
December 31,
|
| December 31 |
|
| September 30 |
| ||
(In millions) |
| 2020 |
|
| 2020 |
| ||
Foreign currency derivative assets |
| $ | 0 |
|
| $ | 1 |
|
Notional contract values |
|
| 168 |
|
|
| 170 |
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative liabilities |
| $ | 1 |
|
| $ | 3 |
|
Notional contract values |
|
| 221 |
|
|
| 215 |
|
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 instruments
At December 31, 20172020 and September 30, 2017,2020, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $2,614$1,616 million and 2,615$1,588 million, respectively, compared to a fair value of $2,755$1,806 million and $2,768$1,708 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.
NOTE F – INVENTORIES
Inventories are carried at the lower of cost or market.net realizable value. Inventories are primarily stated at cost using the weighted-average cost method. In addition, certain inventories are valued at cost using the last-in, first-out (LIFO) method.
The following table summarizes Ashland’s inventories as of the reported Condensed Consolidated Balance Sheet dates.
(In millions) |
| December 31, 2020 |
|
| September 30, 2020 |
| ||
Finished products |
| $ | 341 |
|
| $ | 336 |
|
Raw materials, supplies and work in process |
|
| 196 |
|
|
| 193 |
|
|
| $ | 537 |
|
| $ | 529 |
|
December 31 | September 30 | ||||||
(In millions) | 2017 | 2017 | |||||
Finished products | $ | 421 | $ | 390 | |||
Raw materials, supplies and work in process | 256 | 245 | |||||
LIFO reserves | (3 | ) | (1 | ) | |||
$ | 674 | $ | 634 |
NOTE G – GOODWILL AND OTHER INTANGIBLES
Goodwill
Ashland reviewstests goodwill and other indefinite-lived intangible assets for impairment annually oras of July 1 and when events and circumstances indicate an impairment may have occurred. This annual assessment is performed as of July 1Ashland tests goodwill and consists of Ashland determining each reporting unit’s currentother indefinite-lived intangible assets for impairment by comparing the estimated fair value comparedof the reporting units (for goodwill) and other indefinite-lived intangible assets to its currentthe related carrying value. ForIf the carrying amount of a reporting unit or other indefinite-lived intangible asset exceeds its July 1, 2017estimated fair value, Ashland records an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed to the associated carrying amount of goodwill.
Ashland’s assessment of an impairment on any of these assets classified currently as having indefinite lives, including goodwill, could change in future periods if significant events happen and/or circumstances change that effect the previously mentioned assumptions such as: a significant change in projected business results, a divestiture decision, increase in Ashland’s weighted-average cost of capital rates, decrease in growth rates or assumptions, economic deterioration that is more severe or of a longer duration than anticipated, or another significant economic event.
Ashland’s reporting units align with its reportable segments. Ashland determined that its reporting units for the allocation of goodwill are its three reportable segments:Life Sciences, Personal Care & Household, Specialty Ingredients, CompositesAdditives, Performance Adhesives, and Intermediates and Solvents. At that time, Ashland determined no additional
No indicators of impairment existed.
The following is a progression of goodwill by reportable segment for the three months ended December 31, 2017.2020.
(In millions) | Life Sciences |
|
| Personal Care & Household |
| (a) | Specialty Additives |
| (a) | Performance Adhesives |
|
| Intermediates and Solvents |
| (a) | Total |
| ||||||
Balance at September 30, 2020 | $ | 861 |
|
| $ | 0 |
|
| $ | 444 |
|
| $ | 453 |
|
| $ | 0 |
|
| $ | 1,758 |
|
Currency translation |
| 21 |
|
|
| 0 |
|
|
| 13 |
|
|
| 0 |
|
|
| 0 |
|
|
| 34 |
|
Balance at December 31, 2020 | $ | 882 |
|
| $ | 0 |
|
| $ | 457 |
|
| $ | 453 |
|
| $ | 0 |
|
| $ | 1,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty | Intermediates | ||||||||||||||
(In millions) | Ingredients | Composites | and Solvents | (a) | Total | ||||||||||
Balance as of September 30, 2017 | $ | 2,315 | $ | 150 | $ | — | $ | 2,465 | |||||||
Currency translation adjustment | 10 | — | — | 10 | |||||||||||
Balance as of December 31, 2017 | $ | 2,325 | $ | 150 | $ | — | $ | 2,475 | |||||||
(a) |
As of December 31, |
Other intangible assets
Intangible assets principally consist of trademarks and trade names, intellectual property and customer and supplier relationships. Intangible assets classified as finite are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 3 to 25 years, intellectual property over 5 to 25 years, and customer and supplier relationships over 3 to 24 years.
Ashland annually reviews, as of July 1, indefinite-lived intangible assets for possible impairment or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.
Trademarks and trade names are valued using a “relief-from-royalty” valuation method compared to the carrying value. No indicators of impairment were identified in the first quarter of Fiscal 2021.
Intangible assets were comprised of the following as of
December 31,
| December 31, 2020 |
| |||||||||
| Gross |
|
|
|
|
|
| Net |
| ||
| carrying |
|
| Accumulated |
|
| carrying |
| |||
(In millions) | amount |
|
| amortization |
|
| amount |
| |||
Definite-lived intangibles |
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names | $ | 66 |
|
| $ | (33 | ) |
| $ | 33 |
|
Intellectual property |
| 731 |
|
|
| (460 | ) |
|
| 271 |
|
Customer and supplier relationships |
| 770 |
|
|
| (351 | ) |
|
| 419 |
|
Total definite-lived intangibles |
| 1,567 |
|
|
| (844 | ) |
|
| 723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangibles |
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names |
| 278 |
|
|
| — |
|
|
| 278 |
|
Total intangible assets | $ | 1,845 |
|
| $ | (844 | ) |
| $ | 1,001 |
|
| September 30, 2020 |
| |||||||||
| Gross |
|
|
|
|
|
| Net |
| ||
| carrying |
|
| Accumulated |
|
| carrying |
| |||
(In millions) | amount |
|
| amortization |
|
| amount |
| |||
Definite-lived intangibles |
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names | $ | 66 |
|
| $ | (32 | ) |
| $ | 34 |
|
Intellectual property |
| 721 |
|
|
| (442 | ) |
|
| 279 |
|
Customer and supplier relationships |
| 757 |
|
|
| (335 | ) |
|
| 422 |
|
Total definite-lived intangibles |
| 1,544 |
|
|
| (809 | ) |
|
| 735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangibles |
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names |
| 278 |
|
|
| — |
|
|
| 278 |
|
Total intangible assets | $ | 1,822 |
|
| $ | (809 | ) |
| $ | 1,013 |
|
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$21 million and $19 million for both the three months ended December 31, 20172020 and 2016,2019, respectively, and is included in the selling, general and administrative expenseIntangibles Amortization Expense caption of the Statements of Consolidated Comprehensive Income (Loss). Estimated amortization expense for future periods is $94$87 million in 20182021 (includes three months actual and nine months estimated), $90$86 million in 2019, $892022, $86 million in 2020, $892023, $72 million in 20212024 and $87$69 million in 2022. The amortization expense for future periods is an estimate.2025. 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.
NOTE H – DEBT
The following table summarizes Ashland’s current and long-term debt as of the dates reported in the Condensed Consolidated Balance Sheets.
(In millions) |
| December 31, 2020 |
|
| September 30, 2020 |
| ||
4.750% notes, due 2022 |
| $ | 411 |
|
| $ | 411 |
|
2.00% Senior Notes, due 2028 (Euro 500 million principal) |
|
| 614 |
|
|
| 587 |
|
6.875% notes, due 2043 |
|
| 282 |
|
|
| 282 |
|
Term loan A |
|
| 250 |
|
|
| 250 |
|
Accounts receivable securitizations |
|
| 69 |
|
|
| 177 |
|
6.50% junior subordinated notes, due 2029 |
|
| 55 |
|
|
| 55 |
|
Revolving credit facility |
|
| — |
|
|
| 80 |
|
Other (a) |
|
| 13 |
|
|
| 11 |
|
Total debt |
|
| 1,694 |
|
|
| 1,853 |
|
Short-term debt (includes current portion of long-term debt) |
|
| (93 | ) |
|
| (280 | ) |
Long-term debt (less current portion) |
| $ | 1,601 |
|
| $ | 1,573 |
|
|
|
|
|
|
|
|
|
|
(a) | ||
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 | |||
Includes $15 million of debt issuance cost discounts as of both December 31, |
The scheduled aggregate maturities of long-term debt by year (including the current portion and excluding debt issuance costs) are as follows: $5 millionfollows as of December 31, 2020: 0 remaining in 2018, $112021, $421 million in 2019, $2692022, $22 million in 2020, $562023, $44 million in 20212024 and $1,279$175 million in 2022.
Available borrowing capacity
The borrowing capacity remaining under the 20172020 $600 million Revolving Credit Facility was $467$580 million due to an outstanding balance of $285 million, as well as a reduction of $48$20 million for letters of credit outstanding atas of December 31, 2017.2020. Ashland's total borrowing capacity at December 31, 20172020 was $498$694 million, which included $31$114 million of available capacity from the two accounts receivable securitization facility.
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, 2017,2020, Ashland is in compliance with all debt agreement covenant restrictions.
The maximum consolidated net leverage ratio permitted under Ashland's most recent credit agreement (the 20172020 Credit Agreement) is 4.5.4.0. At December 31, 2017,2020, Ashland’s calculation of the consolidated net leverage ratio was 3.9.
The minimum required consolidated interest coverage ratio under the 20172020 Credit Agreement during its entire duration is 3.0. At December 31, 2017,2020, Ashland’s calculation of the interest coverage ratio was 4.6.
NOTE I – INCOME TAXESLEASING ARRANGEMENTS
Ashland determines if an arrangement is or contains a lease at contract inception and determines its classification as an operating or finance lease at lease commencement. Ashland leases certain office buildings, transportation equipment, warehouses and storage facilities, and equipment. All of Ashland’s leases are operating leases. Real estate leases represent approximately 89% of the total lease liability. Operating lease assets and obligations are reflected within operating lease assets, net; current operating lease obligations; and non-current operating lease obligations captions on the Condensed Consolidated Balance Sheets.
Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. The Tax Cutscomponents of lease cost recognized within our Statements of Consolidated Comprehensive Income (Loss) were as follows:
|
|
|
| Three months ended |
| |||||
|
|
|
| December 31 |
| |||||
(In millions) |
| Location |
| 2020 |
|
| 2019 |
| ||
Lease cost: |
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
| Selling, General & Administrative |
| $ | 3 |
|
| $ | 5 |
|
Operating lease cost |
| Cost of Sales |
|
| 4 |
|
|
| 4 |
|
Variable lease cost |
| Cost of Sales |
|
| 1 |
|
|
| 1 |
|
Short-term leases |
| Cost of Sales |
|
| 1 |
|
|
| — |
|
Total lease cost |
|
|
| $ | 9 |
|
| $ | 10 |
|
The following table summarizes Ashland’s lease assets and Jobs Act (Tax Act) was enactedliabilities as presented in the Condensed Consolidated Balance Sheet:
(In millions) |
| December 31, 2020 |
|
| September 30, 2020 |
| ||
Assets |
|
|
|
|
|
|
|
|
Operating lease assets, net |
| $ | 137 |
|
| $ | 137 |
|
Total lease assets |
|
| 137 |
|
|
| 137 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current operating lease obligations |
| $ | 23 |
|
| $ | 23 |
|
Non-current operating lease obligations |
|
| 124 |
|
|
| 124 |
|
Total lease liabilities |
| $ | 147 |
|
| $ | 147 |
|
|
|
|
|
|
|
|
|
|
Ashland often has options to renew lease terms for buildings and other assets. The exercise of lease renewal options are generally at Ashland’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at Ashland’s discretion. Ashland evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option on December 22, 2017.the basis of economic factors. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earningsweighted average remaining lease term for operating leases as of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017,2020 and September 30, 2020 was approximately 15 years for each period.
Residual value guarantees are not common within Ashland’s lease agreements nor are restrictions or covenants imposed by leases. Ashland has elected the practical expedient to combine lease and non-lease components. The discount rate implicit within the leases is generally not completeddeterminable. Therefore, Ashland determines the internal accounting assessment fordiscount rate based on its incremental borrowing rate. The incremental borrowing rate is determined using a buildup method resulting in an estimated range of secured borrowing rates matching the tax effects of enactmentlease term and the currency of the Tax Act; however, Ashland determined a reasonable estimatejurisdiction in which lease payments are made, adjusted for impacts of the effects on our existing deferred tax balancescollateral. Consideration was given to Ashland’s own relevant debt issuances as well as debt instruments of comparable companies with similar credit characteristics. The weighted average discount rate used to measure operating lease liabilities as of December 31, 2020 and the one-time transition tax. Ashland recognized a provisional amountSeptember 30, 2020 was 2.9%. There are no leases that have not yet commenced but that create significant rights and obligations for Ashland.
Right-of-use assets exchanged for new operating lease obligations were $2 million and less than $1 million for the three months ended December 31, 2017, which is2020 and 2019, respectively.
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 |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Operating cash flows from operating leases |
| $ | 7 |
|
| $ | 9 |
|
Maturity Analysis of the deferred tax balance was a favorable tax adjustmentLease Liabilities
Maturities of $126 million.
(In millions) |
|
|
| December 31, 2020 |
|
| September 30, 2020 |
| ||
Remainder of 2021 |
| $ | 20 |
|
| $ | 28 |
| ||
2022 |
|
| 37 |
|
|
| 35 |
| ||
2023 |
|
| 17 |
|
|
| 17 |
| ||
2024 |
|
| 14 |
|
|
| 13 |
| ||
2025 |
|
| 12 |
|
|
| 11 |
| ||
Thereafter |
| $ | 90 |
|
| $ | 88 |
| ||
Total lease payments |
|
| 190 |
|
|
| 192 |
| ||
Less amount of lease payment representing interest |
|
| (43 | ) |
|
| (45 | ) | ||
Total present value of lease payments |
| $ | 147 |
|
| $ | 147 |
| ||
|
|
|
|
|
|
|
|
|
|
|
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%0 for the three months ended December 31, 2017 and2020.The currentquarter tax rate was primarily impacted by jurisdictional income mix, and net unfavorableas well as $13 million from favorable tax discrete adjustments of $16 millionitems primarily related to the Tax Act.
Prior fiscal year
The overall effective tax benefit rate was 39%a benefit of 240% for the three months ended December 31, 2016 and2019. The quarter tax rate was primarily impacted by jurisdictional income mix.
Unrecognized tax benefits
Changes in unrecognized tax benefits are summarized as follows for the three months ended December 31, 2017.2020.
(In millions) |
|
|
|
Balance at October 1, 2020 | $ | 171 |
|
Increases related to positions taken in the current year |
| 7 |
|
Balance at December 31, 2020 | $ | 178 |
|
(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$50 million and $32$60 million for continuing operations. It is reasonably possible that there could be other material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues or the reassessment of existing uncertain tax positions; however, Ashland is not able to estimate the impact of these items at this time.
NOTE JK - EMPLOYEE BENEFIT PLANS
Plan contributions
For the three months ended December 31, 2017,2020, Ashland contributed $2 million to its non-U.S. pension plans and zero0 to its U.S. pension plans. Ashland expects to make additional contributions of approximately $5$3 million to its non-U.S. plans and $1$2 million to its U.S. pension plans during the remainder of 2018.
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 benefits |
| ||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Three months ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 1 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 0 |
|
Interest cost |
|
| 2 |
|
|
| 2 |
|
|
| 0 |
|
|
| 1 |
|
Expected return on plan assets |
|
| (2 | ) |
|
| (3 | ) |
|
| 0 |
|
|
| 0 |
|
Curtailment |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total net periodic benefit costs |
| $ | 1 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 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 Loss (Income). All other costs for continuing operationscomponents are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss)Loss (Income).
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 &Nathan Associates Inc. (HR&A)(Nathan). The methodology used by HR&ANathan 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&ANathan 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.
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.
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| December 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||
Open claims - beginning of year |
|
| 49 |
|
|
| 53 |
|
|
| 53 |
|
|
| 53 |
|
|
| 54 |
|
New claims filed |
|
| 1 |
|
|
| 0 |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
Claims settled |
|
| 0 |
|
|
| 0 |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
Claims dismissed |
|
| (1 | ) |
|
| (2 | ) |
|
| (5 | ) |
|
| (1 | ) |
|
| (2 | ) |
Open claims - end of period |
|
| 49 |
|
|
| 51 |
|
|
| 49 |
|
|
| 53 |
|
|
| 53 |
|
Three months ended | ||||||||||||||
December 31 | Years ended September 30 | |||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2015 | |||||||||
Open claims - beginning of period | 54 | 57 | 57 | 60 | 65 | |||||||||
New claims filed | 1 | — | 2 | 2 | 2 | |||||||||
Claims settled | — | — | (1 | ) | — | — | ||||||||
Claims dismissed | (1 | ) | (1 | ) | (4 | ) | (5 | ) | (7 | ) | ||||
Open claims - end of period | 54 | 56 | 54 | 57 | 60 |
Ashland asbestos-related liability
From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of HR&A.
During the most recent annual update of this estimate completed during the June 2017 quarter,fiscal year 2020, it was determined that the liability for Ashland asbestos-related claims should be increased by $36$13 million. Total reserves for asbestos claims were $409$325 million at December 31, 20172020 compared to
A progression of activity in the asbestos reserve is presented in the following table.
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| December 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||
Asbestos reserve - beginning of year |
| $ | 335 |
|
| $ | 352 |
|
| $ | 352 |
|
| $ | 380 |
|
| $ | 419 |
|
Reserve adjustment |
|
| 0 |
|
|
| 0 |
|
|
| 13 |
|
|
| 1 |
|
|
| (8 | ) |
Amounts paid |
|
| (10 | ) |
|
| (10 | ) |
|
| (30 | ) |
|
| (29 | ) |
|
| (31 | ) |
Asbestos reserve - end of period (a) |
| $ | 325 |
|
| $ | 342 |
|
| $ | 335 |
|
| $ | 352 |
|
| $ | 380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||
(a) |
Included |
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 allA substantial portion of the estimated receivables from insurance companies are expected to be due from domestic insurers, all of which are solvent.
At December 31, 2017,2020, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $151$98 million (excluding the Hercules receivable for asbestos claims) compared to $155$103 million at September 30, 2017.2020. During the June 2017 quarter,fiscal year 2020, 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$1 million increase in the receivable for probable insurance recoveries.
A progression of activity in the Ashland insurance receivable is presented in the following table.
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| December 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||
Insurance receivable - beginning of year |
| $ | 103 |
|
| $ | 123 |
|
| $ | 123 |
|
| $ | 140 |
|
| $ | 155 |
|
Receivable adjustment (a) |
|
| (2 | ) |
|
| 0 |
|
|
| 1 |
|
|
| (5 | ) |
|
| (5 | ) |
Insurance settlement |
|
| 0 |
|
|
| 0 |
|
|
| (10 | ) |
|
| 0 |
|
|
| 0 |
|
Amounts collected |
|
| (3 | ) |
|
| (1 | ) |
|
| (11 | ) |
|
| (12 | ) |
|
| (10 | ) |
Insurance receivable - end of period (b) |
| $ | 98 |
|
| $ | 122 |
|
| $ | 103 |
|
| $ | 123 |
|
| $ | 140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||
(a) | The three months ended December 31, 2020 includes a $2 million adjustment related to allowances for credit losses as a result of Ashland’s adoption of the new credit measurement standard described in Note A. |
(b) | Included |
Hercules asbestos-related litigation
Hercules has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. The amount and timing of settlements and number of open claims can fluctuate from period to period. A summary of Hercules’ asbestos claims activity follows.
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| December 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||
Open claims - beginning of year |
|
| 12 |
|
|
| 13 |
|
|
| 13 |
|
|
| 13 |
|
|
| 12 |
|
New claims filed |
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
Claims dismissed |
|
| (1 | ) |
|
| 0 |
|
|
| (2 | ) |
|
| (1 | ) |
|
| (1 | ) |
Open claims - end of period |
|
| 12 |
|
|
| 13 |
|
|
| 12 |
|
|
| 13 |
|
|
| 13 |
|
Three months ended | ||||||||||||||
December 31 | Years ended September 30 | |||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2015 | |||||||||
Open claims - beginning of period | 12 | 15 | 15 | 20 | 21 | |||||||||
New claims filed | — | — | 1 | 1 | 1 | |||||||||
Claims dismissed | — | — | (4 | ) | (6 | ) | (2 | ) | ||||||
Open claims - end of period | 12 | 15 | 12 | 15 | 20 |
Hercules asbestos-related liability
From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results. Ashland reviews this estimate, and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of HR&A.Nathan. As a result of the most recent annual update of this estimate, completed during the June 2017 quarter,fiscal year 2020, it was determined that the liability for Hercules asbestos-related claims
should be increaseddecreased by $16$3 million. Total reserves for asbestos claims were $315$224 million at
A progression of activity in the asbestos reserve is presented in the following table.
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| December 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||
Asbestos reserve - beginning of year |
| $ | 229 |
|
| $ | 252 |
|
| $ | 252 |
|
| $ | 282 |
|
| $ | 323 |
|
Reserve adjustments |
|
| 0 |
|
|
| 0 |
|
|
| (3 | ) |
|
| (10 | ) |
|
| (19 | ) |
Amounts paid |
|
| (5 | ) |
|
| (5 | ) |
|
| (20 | ) |
|
| (20 | ) |
|
| (22 | ) |
Asbestos reserve - end of period (a) |
| $ | 224 |
|
| $ | 247 |
|
| $ | 229 |
|
| $ | 252 |
|
| $ | 282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | ||
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 | |||||||||
Included |
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
December 31,A progression of activity in the Hercules insurance receivable is presented in the following table.
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| December 31 |
|
| Years ended September 30 |
| ||||||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||
Insurance receivable - beginning of year |
| $ | 47 |
|
| $ | 49 |
|
| $ | 49 |
|
| $ | 54 |
|
| $ | 68 |
|
Receivable adjustment (a) |
|
| (1 | ) |
|
| 0 |
|
|
| (2 | ) |
|
| (5 | ) |
|
| (14 | ) |
Insurance receivable - end of period |
| $ | 46 |
|
| $ | 49 |
|
| $ | 47 |
|
| $ | 49 |
|
| $ | 54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | The three months ended December 31, 2020 includes a $1 million adjustment related to allowances for credit losses as a result of Ashland’s adoption of the new credit measurement standard described in Note A. |
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, the long latency period associated with asbestos exposure, mortality rates, dismissal rates, costs of medical treatment, the impact of bankruptcies of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light ofConsidering these inherent uncertainties, Ashland believes that the asbestos reserves for Ashland and Hercules represent the best estimate within a range of possible outcomes. As a part of the process to develop these estimates of future asbestos costs, a range of long-term cost models was developed. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. Ashland has currently estimated in various models ranging from approximately 40 to 50 year periods that it is reasonably
Environmental remediation and asset retirement obligations
Ashland is subject to various federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts (collectively, environmental remediation) at multiple locations. At
December 31,Ashland’s reserves for environmental remediation and related environmental litigation amounted to $168$195 million at December 31, 20172020 compared to $163$200 million at September 30, 2017,2020, of which $125$145 million at December 31, 20172020 and $121$150 million at September 30, 20172020 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
three months ended December 31,
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Reserve - beginning of period |
| $ | 200 |
|
| $ | 186 |
|
Disbursements |
|
| (10 | ) |
|
| (9 | ) |
Revised obligation estimates and accretion |
|
| 5 |
|
|
| 2 |
|
Reserve - end of period |
| $ | 195 |
|
| $ | 179 |
|
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, 20172020 and September 30, 2017,2020, Ashland’s recorded receivable for these probable insurance recoveries was $14$15 million, and $15 million, respectively, of which $13 million and $14$12 million at December 31, 2017 2020andSeptember 30, 2017, respectively, were2020 was 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 months ended December 31,
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Environmental expense |
| $ | 5 |
|
| $ | 2 |
|
Accretion |
|
| 0 |
|
|
| 0 |
|
Legal expense |
|
| 1 |
|
|
| 2 |
|
Total expense |
|
| 6 |
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
Insurance receivable |
|
| (1 | ) |
|
| 0 |
|
Total expense, net of receivable activity (a) |
| $ | 5 |
|
| $ | 4 |
|
|
|
|
|
|
|
|
|
|
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 | |||
(a) | Net expense of |
Environmental remediation reserves are subject to numerous inherent uncertainties that affect Ashland’s ability to estimate its share of the costs. Such uncertainties involve the nature and extent of contamination at each site, the extent of required cleanup efforts under existing environmental regulations, widely varying costs of alternate cleanup methods, changes in environmental regulations, the potential effect of continuing improvements in remediation technology, and the number and financial strength of other potentially responsible parties at multiparty sites. Although it is not possible to predict with certainty the ultimate costs of environmental remediation, Ashland currently estimates that the upper end of the reasonably possible range of future costs for identified sites could be as high as approximately $412$470 million. The largest reserve for any site is approximately 15%14% of the remediation reserve.
Other legal proceedings and claims
In addition to the matters described above, there are other various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries. Such actions are with respect to commercial matters, product liability, toxic tort liability, and other environmental matters, which seek remedies or damages, some of which are for substantial amounts. While Ashland cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded and losses already recognized with respect to such actions were immaterial as of
December 31,The following is the computation of basic and diluted earnings per share (EPS) from continuing operations attributable to Ashland. Stock appreciation rights (SARs), stock options and warrants available to purchase shares outstanding for each reporting period whose grant price was greater than the average market price of Ashland Common Stock for each applicable period were not included in the computation of income from continuing operations per diluted share because the effect of these instruments would be antidilutive. The total number of these shares outstanding was approximately 0.7 million and 0.92 million at December 31, 20172020 and 2016,2019, respectively. Earnings per share is reported under the treasury stock method.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions, except per share data) |
| 2020 |
|
| 2019 |
| ||
Numerator |
|
|
|
|
|
|
|
|
Numerator for basic and diluted EPS - |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
| $ | 61 |
|
| $ | 34 |
|
Denominator |
|
|
|
|
|
|
|
|
Denominator for basic EPS - Weighted- average common shares outstanding |
|
| 60 |
|
|
| 60 |
|
Share based awards convertible to common shares |
|
| 1 |
|
|
| 1 |
|
Denominator for diluted EPS - Adjusted weighted- average shares and assumed conversions |
|
| 61 |
|
|
| 61 |
|
EPS from continuing operations |
|
|
|
|
|
|
|
|
Basic |
| $ | 1.00 |
|
| $ | 0.57 |
|
Diluted |
|
| 0.99 |
|
|
| 0.56 |
|
|
|
|
|
|
|
|
|
|
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 | ) | |||
Stockholder dividends
Dividends of Directors approved a $1 billion share repurchase authorization that was set to expire on December 31, 2017 (the 2015 stock repurchase program). This authorization allows for Ashland’s common shares to be repurchased in open market transactions, privately negotiated transactions or pursuant to one or more accelerated stock repurchase programs or Rule 10b5-1 plans.
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.
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
(In millions) |
| Before tax |
|
| Tax (expense) benefit |
|
| Net of tax |
|
| Before tax |
|
| Tax (expense) benefit |
|
| Net of tax |
| ||||||
Three months ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized translation gain |
| $ | 48 |
|
| $ | — |
|
| $ | 48 |
|
| $ | 38 |
|
| $ | — |
|
| $ | 38 |
|
Total other comprehensive income |
| $ | 48 |
|
| $ | — |
|
| $ | 48 |
|
| $ | 38 |
|
| $ | — |
|
| $ | 38 |
|
Summary of stockholders’ equity
A reconciliation of changes in stockholders’ equity are as follows:
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Common stock and paid in capital |
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 770 |
|
| $ | 757 |
|
Common shares issued under stock incentive and other plans (a) |
|
| 1 |
|
|
| 1 |
|
Balance, end of period |
|
| 771 |
|
|
| 758 |
|
Retained earnings |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| 2,649 |
|
|
| 3,224 |
|
Adoption of new accounting pronouncements |
|
| (2 | ) |
|
| — |
|
Net income |
|
| 56 |
|
|
| 32 |
|
Regular dividends |
|
| (17 | ) |
|
| (17 | ) |
Balance, end of period |
|
| 2,686 |
|
|
| 3,239 |
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| (383 | ) |
|
| (410 | ) |
Unrealized translation gain |
|
| 48 |
|
|
| 38 |
|
Balance, end of period |
|
| (335 | ) |
|
| (372 | ) |
Total stockholders' equity |
| $ | 3,122 |
|
| $ | 3,625 |
|
Cash dividends declared per common share |
| $ | 0.275 |
|
| $ | 0.275 |
|
|
|
|
|
|
|
|
|
|
(a) | ||
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 | ) | ||||||||
Common shares issued were 99,194 shares and 70,461 shares for the three months ended December 31, |
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 |
| |||||
| December 31 |
| |||||
(In millions) | 2020 (a) |
|
| 2019 (b) |
| ||
SARs | $ | 1 |
|
| $ | 2 |
|
Nonvested stock awards |
| 2 |
|
|
| 2 |
|
Performance share awards |
| 2 |
|
|
| 1 |
|
| $ | 5 |
|
| $ | 5 |
|
|
|
|
|
|
|
|
|
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 | ||||
(a) |
Included $1 million of expense related to cash-settled nonvested restricted stock awards and 0 related to cash-settled performance units during the three months ended December 31, 2020. |
(b) | Included $1 million of expense related to cash-settled nonvested restricted stock awards and 0 related to cash-settled performance |
NOTE P – REVENUE
Revenue recognition
Ashland’s revenue is measured as the amount of consideration it expects to receive in exchange for transferring goods or providing services and is recognized when performance obligations are grantedsatisfied under the terms of contracts with customers. Ashland generally utilizes standardized language for the terms of contracts, unless a separate agreement has been entered into with a customer that supersedes the standard language.
A performance obligation is deemed to employeesbe satisfied by Ashland when control of the product or directorsservice is transferred to the customer. The transaction price of a contract, or the amount Ashland expects to receive upon satisfaction of all performance obligations, is determined by reference to the contract’s terms and includes adjustments, if applicable, for any variable consideration, such as volume discounts, rebates,
refunds and right to return. Where a contract contains more than one distinct performance obligation, the transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation, although these situations do not occur frequently and are generally not included within Ashland’s contracts. Any unsatisfied performance obligations are not material. Standalone selling prices are based on prices Ashland charges to customers, which in some cases is based on established market prices. Ashland generally collects the cash from its customers within 60 days of the product delivery date. Sales and other similar taxes collected from customers on behalf of third parties are excluded from the contract price.
All of Ashland’s revenue is derived from contracts with customers, and nearly all contracts with customers contain one performance obligation for the transfer of goods where such performance obligation is satisfied at a price equalpoint in time. Control of a product is deemed to be transferred to the fair market valuecustomer generally upon shipment or delivery. Costs for shipping and handling activities, whether performed before or after the customer obtains control of the stock on the date of grant and typically become exercisable over periods of onegoods, are accounted for as fulfillment costs when not reimbursed.
Costs incurred to three years. Unexercised SARs lapse ten years and one month after the date of grant. SARs granted for the three months ended December 31, 2017 and 2016 were 470 thousand and 422 thousand, respectively. As of December 31, 2017, there was $13 million
Trade receivables
Trade receivables are defined as receivables arising from contracts with changes in the fair market value of the Ashland Common Stock. These awards generally vest over a period of three years. The expense recognized related to cash-settled nonvested stock awards was $2 millioncustomers and $1 million during the three months ended December 31, 2017 and 2016, respectively.
Disaggregation of Ashland’s total shareholder return (TSR) performancerevenue
Ashland disaggregates its revenue by segment and Ashland’s return on investment (ROI) performancegeographical region as compared to the internal targets. TSR relative to peers is considered a market condition while ROI is considered a performance condition under applicable U.S. GAAP.
Sales by geography |
| |||||||
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Life Sciences |
| |||||||
North America |
| $ | 51 |
|
| $ | 49 |
|
Europe |
|
| 54 |
|
|
| 49 |
|
Asia Pacific |
|
| 47 |
|
|
| 42 |
|
Latin America & other |
|
| 18 |
|
|
| 15 |
|
|
| $ | 170 |
|
| $ | 155 |
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Personal Care & Household |
| |||||||
North America |
| $ | 41 |
|
| $ | 41 |
|
Europe |
|
| 46 |
|
|
| 55 |
|
Asia Pacific |
|
| 21 |
|
|
| 24 |
|
Latin America & other |
|
| 18 |
|
|
| 17 |
|
|
| $ | 126 |
|
| $ | 137 |
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Specialty Additives |
| |||||||
North America |
| $ | 45 |
|
| $ | 45 |
|
Europe |
|
| 52 |
|
|
| 50 |
|
Asia Pacific |
|
| 41 |
|
|
| 35 |
|
Latin America & other |
|
| 9 |
|
|
| 9 |
|
|
| $ | 147 |
|
| $ | 139 |
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Performance Adhesives |
| |||||||
North America |
| $ | 68 |
|
| $ | 64 |
|
Europe |
|
| 10 |
|
|
| 7 |
|
Asia Pacific |
|
| 4 |
|
|
| 2 |
|
Latin America & other |
|
| 2 |
|
|
| 1 |
|
|
| $ | 84 |
|
| $ | 74 |
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Intermediates and Solvents |
| |||||||
North America |
| $ | 21 |
|
| $ | 15 |
|
Europe |
|
| 4 |
|
|
| 5 |
|
Asia Pacific |
|
| 7 |
|
|
| 7 |
|
Latin America & other |
|
| 1 |
|
|
| 1 |
|
|
| $ | 33 |
|
| $ | 28 |
|
NOTE OQ – REPORTABLE SEGMENT INFORMATION
Ashland determines its reportable segments based on how operations are managed internally for the products and services sold to customers, including how the results are reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. Operating income isand EBITDA are the primary measure on the Statementsmeasures of Consolidated Comprehensive Income (Loss)performance that isare reviewed by the chief operating decision maker in assessing each reportable segment's financial performance. Ashland does not aggregate operating segments to arrive at these reportable segments.
Reportable Segments
Ashland’s reportable segments:segments include Life Sciences, Personal Care & Household, Specialty Ingredients, CompositesAdditives, Performance Adhesives and Intermediates and Solvents. As a result,Unallocated and Other includes corporate governance activities and certain legacy matters. Ashland has also provided subtotals by its consumer and industrial businesses to reflect the financial information for the newend markets served by each reportable segments (Composites and Intermediates and Solvents) has been disclosed for all periods presented. Prior to the separation from Valvoline Inc., Composites and Intermediates and Solvents were reporting units included within the previous Ashland Performance Materials reportable segment.
Reportable segment business descriptions
Consumer Specialties
The Consumer Specialties business is a global leader in cellulose ethers, vinyl pyrrolidonescomprised of the following reportable segments:
Life Sciences is comprised of pharmaceuticals, nutrition, nutraceuticals, agricultural chemicals, advanced materials and biofunctionals. It offers industry-leadingfine chemicals. Pharmaceutical solutions include controlled release polymers, disintegrants, film coatings, solubilizers, and tablet binders. Nutrition solutions include thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and controlling color. Nutraceutical solutions include products technologiesfor weight management, joint comfort, stomach and resources for solvingintestinal health, sports nutrition and general wellness, and providing 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 & Household is comprised of personalbiofunctionals, preservatives, skin care, products, foodsun care, oral care, hair care and beverages; makers of nutraceuticals and supplements; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield service companies. On May 17, 2017, Ashland completed its acquisition of the stock of Pharmachem, a leading provider of quality ingredients to
Industrial Specialties
The Industrial Specialties business is comprised of unsaturated polyesterthe following reportable segments:
Specialty Additives is comprised of rheology- and vinyl ester resins, gelcoatsperformance-enhancing additives serving the coatings, construction, energy, automotive and low-profilevarious industrial markets. Solutions include coatings additives for architectural paints, finishes and lacquers, cement- and gypsum- based dry mortars, ready-mixed joint compounds, synthetic plasters for commercial and residential construction, and specialty materials for industrial applications. Products include rheology modifiers (cellulosic and associative thickeners), foam-control agents, surfactants and wetting agents, pH neutralizers, advanced ceramics used in catalytic converters, and environmental filters, ingredients that aid the reinforced plasticsmanufacturing 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.
Performance Adhesives is comprised of adhesives used in packaging, converting and structural applications. Packaging adhesives has an extensive line of pressure sensitive adhesives, functional coatings and primers combined with innovative technology solutions for narrow-, mid- and wide-web applications. Products meet stringent requirements in food and beverage safety, shipping, transportation, health and beauty, industrial, postage and security printing. Structural adhesives include light weighting vehicles and eliminating VOCs in buildings. Customers include converters of packaging materials, manufacturers of building materials and tier one suppliers to transportation 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, alkenyl succinic anhydrides, malic acid, fumaric acid and numerous derivative chemicals. Key markets include composites, personal care, dispersants and paper sizing.
Other
Intermediates and Solvents is a leading producercomprised of the production of 1,4 butanediol (BDO) and related derivatives, including tetrahydrofuran and n-methylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. Butanediol is also suppliedprovided to Ashland’sLife Sciences, Personal Care, and Specialty Ingredients businessAdditives for use as a raw material.
Unallocated and Other generally includes items such as certain significant company-wide restructuring activities, including internal separationcorporate governance costs and legacy costs or adjustmentsactivities that relate to divested businesses that are no longer operated by Ashland.
Reportable segment results
Results of Ashland’s reportable segments are presented based on its management and internal accounting structure. The structure is specific to Ashland; therefore, the financial results of Ashland’s reportable segments are not necessarily comparable with similar information for other comparable companies. Ashland allocates all significant costs to its reportable segments except for certain significant company-wide restructuring activities, certain corporate governance costs and other costs or adjustmentsactivities that relate to former businesses that Ashland no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss). Ashland refines its expense allocation methodologies to the reportable segments from time to time as internal accounting practices are improved, more refined information becomes available and the industry or market changes. Significant revisions to Ashland’s methodologies are adjusted for all segments on a retrospective basis. This includes charges in the current fiscal year for certain corporate governance costs, which were previously allocated in the first quarter of fiscal 2020. These costs are now reflected in Unallocated and Other for all periods presented.
The following table presents various financial information for each reportable segment for the three months ended December 31, 20172020 and 2016. 2019.
| Three months ended |
| |||||
| December 31 |
| |||||
(In millions - unaudited) | 2020 |
|
| 2019 |
| ||
SALES |
|
|
|
|
|
|
|
Life Sciences | $ | 170 |
|
| $ | 155 |
|
Personal Care & Household |
| 126 |
|
|
| 137 |
|
Consumer Specialties |
| 296 |
|
|
| 292 |
|
Specialty Additives |
| 147 |
|
|
| 139 |
|
Performance Adhesives |
| 84 |
|
|
| 74 |
|
Industrial Specialties |
| 231 |
|
|
| 213 |
|
Intermediates and Solvents |
| 33 |
|
|
| 28 |
|
Intersegment sales (a) |
|
|
|
|
|
|
|
Intermediates and Solvents |
| (8 | ) |
|
| — |
|
| $ | 552 |
|
| $ | 533 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
Life Sciences | $ | 29 |
|
| $ | 22 |
|
Personal Care & Household |
| 15 |
|
|
| 11 |
|
Consumer Specialties |
| 44 |
|
|
| 33 |
|
Specialty Additives (b) |
| 2 |
|
|
| 9 |
|
Performance Adhesives |
| 20 |
|
|
| 10 |
|
Industrial Specialties |
| 22 |
|
|
| 19 |
|
Intermediates and Solvents |
| 2 |
|
|
| (12 | ) |
Unallocated and other |
| (27 | ) |
|
| (23 | ) |
| $ | 41 |
|
| $ | 17 |
|
DEPRECIATION EXPENSE |
|
|
|
|
|
|
|
Life Sciences | $ | 9 |
|
| $ | 8 |
|
Personal Care & Household |
| 10 |
|
|
| 10 |
|
Consumer Specialties |
| 19 |
|
|
| 18 |
|
Specialty Additives |
| 16 |
|
|
| 15 |
|
Performance Adhesives |
| 3 |
|
|
| 4 |
|
Industrial Specialties |
| 19 |
|
|
| 19 |
|
Intermediates and Solvents |
| 3 |
|
|
| 3 |
|
| $ | 41 |
|
| $ | 40 |
|
AMORTIZATION EXPENSE |
|
|
|
|
|
|
|
Life Sciences | $ | 7 |
|
| $ | 7 |
|
Personal Care & Household |
| 9 |
|
|
| 9 |
|
Consumer Specialties |
| 16 |
|
|
| 16 |
|
Specialty Additives |
| 5 |
|
|
| 5 |
|
Performance Adhesives |
| — |
|
|
| — |
|
Industrial Specialties |
| 5 |
|
|
| 5 |
|
Intermediates and Solvents |
| — |
|
|
| — |
|
| $ | 21 |
|
| $ | 21 |
|
EBITDA (c) |
|
|
|
|
|
|
|
Life Sciences | $ | 45 |
|
| $ | 37 |
|
Personal Care & Household |
| 34 |
|
|
| 30 |
|
Consumer Specialties |
| 79 |
|
|
| 67 |
|
Specialty Additives |
| 23 |
|
|
| 29 |
|
Performance Adhesives |
| 23 |
|
|
| 14 |
|
Industrial Specialties |
| 46 |
|
|
| 43 |
|
Intermediates and Solvents |
| 5 |
|
|
| (9 | ) |
Unallocated and other |
| (27 | ) |
|
| (23 | ) |
| $ | 103 |
|
| $ | 78 |
|
| December 31 |
|
| September 30 |
| ||
(In millions - unaudited) | 2020 |
|
| 2020 |
| ||
TOTAL ASSETS |
|
|
|
|
|
|
|
Life Sciences | $ | 1,987 |
|
| $ | 1,974 |
|
Personal Care & Household |
| 904 |
|
|
| 939 |
|
Consumer Specialties |
| 2,891 |
|
|
| 2,913 |
|
Specialty Additives |
| 1,662 |
|
|
| 1,666 |
|
Performance Adhesives |
| 594 |
|
|
| 591 |
|
Industrial Specialties |
| 2,256 |
|
|
| 2,257 |
|
Intermediates and Solvents |
| 158 |
|
|
| 161 |
|
Unallocated and other |
| 1,437 |
|
|
| 1,546 |
|
| $ | 6,742 |
|
| $ | 6,877 |
|
|
|
|
|
|
|
|
|
(a) | ||
Intersegment sales from Intermediates and Solvents are accounted for at prices that approximate fair value. All other intersegment sales are accounted for at cost. |
(b) | Includes a capital project impairment of $9 million for the three months ended December 31, 2020 relating to a long-term capital project plan change at a plant facility. |
(c) | Excludes income (loss) from discontinued operations, other net periodic benefit income (expense) and net income (loss) on divestitures. See the Statement of Consolidated Comprehensive Income (Loss) for applicable amounts excluded. |
NOTE R – SUBSEQUENT EVENTS
On January 19, 2021 Ashland announced it had signed a definitive agreement to acquire the personal care business from Schülke & Mayr GmbH, a portfolio company of the global investment organization EQT.
Under the terms of the agreement, Ashland will pay €262.5 million in an all cash transaction, which is expected to be completed before the end of the June 30, 2021 quarter subject to customary closing conditions and required regulatory approvals.
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 Shareholders, quarterly
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements herein.
BUSINESS OVERVIEW
Ashland profile
Ashland is a premier global leader in providing specialty chemical solutions tomaterials company with a conscious and proactive mindset for sustainability. The Company serves customers in a wide range of consumer and industrial markets, including adhesives, architectural coatings, automotive, construction, energy, food and beverage, nutraceuticals, personal care and pharmaceutical. With approximately 6,5004,200 employees worldwide, Ashland serves customers in more than 100 countries.
Ashland’s sales generated outside of North America were 61% and 60% for both the three months ended December 31, 20172020 and 2016.2019. Sales by region expressed as a percentage of total consolidated sales for the three months ended December 31 were as follows:
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
Sales by Geography |
| 2020 |
|
| 2019 |
| ||
North America (a) |
|
| 39 | % |
|
| 40 | % |
Europe |
|
| 30 | % |
|
| 31 | % |
Asia Pacific |
|
| 22 | % |
|
| 21 | % |
Latin America & other |
|
| 9 | % |
|
| 8 | % |
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
(a) | Ashland includes only U.S. and Canada in its North America designation. |
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 segments:segments include Life Sciences, Personal Care & Household, Specialty Ingredients, CompositesAdditives, Performance Adhesives and Intermediates and Solvents. For further descriptions ofUnallocated and Other includes corporate governance activities and certain legacy matters. Ashland has also provided subtotals by its consumer and industrial businesses to reflect the end markets served by each reportable segment, see “Results of Operations – Reportable Segment Review” beginning on page 45.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
Sales by Reportable Segment |
| 2020 |
|
| 2019 |
| ||
Life Sciences |
|
| 31 | % |
|
| 29 | % |
Personal Care & Household |
|
| 23 | % |
|
| 26 | % |
Consumer Specialties |
|
| 54 | % |
|
| 55 | % |
Specialty Additives |
|
| 27 | % |
|
| 26 | % |
Performance Adhesives |
|
| 14 | % |
|
| 14 | % |
Industrial Specialties |
|
| 41 | % |
|
| 40 | % |
Intermediates and Solvents |
|
| 5 | % |
|
| 5 | % |
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
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 | % |
KEY DEVELOPMENTS
Business results
Ashland recorded net loss was $4income of $56 million (income of $61 million in continuing operations and loss of $5 million in discontinued operations) and $32 million (income of $34 million in continuing operations and loss of $2 million in discontinued operations) in the current and prior year quarters, respectively. Ashland’s EBITDA of $112 million increased by $33 million, while Ashland’s Adjusted EBITDA was $124 million for the current quarter compared to net income of $10$88 million in the prior year quarter. Ashland’s Adjusted EBITDA increased by 25% to $136 million (see U.S. GAAP reconciliation on page 41)below under consolidated review). The increaseimprovement in Adjusted EBITDAresults was primarily due to growthhigher volumes, improved pricing/mix, lower costs and favorable foreign currency exchange, partially offset by a capital project impairment.
Uncertainty relating to the COVID-19 pandemic
Ashland continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact customers, employees, suppliers, vendors, business partners and distribution channels. Ashland is unable to predict the impact that the COVID-19 pandemic will have on its future financial position and operating results due to numerous uncertainties. These uncertainties include the severity of the virus, the duration of the outbreak, governmental, business or other actions, impacts on Ashland’s supply chain, the effect on customer demand, or changes to Ashland’s operations. The health of Ashland’s workforce and its ability to meet staffing needs throughout the critical functions cannot be predicted and is vital to operations. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. In addition, Ashland cannot predict the impact that the COVID-19 pandemic will have on its customers, vendors, suppliers and other business partners; however, any material effect on these parties could adversely impact Ashland.
Ashland continues to successfully navigate the uncertain environment associated with the COVID-19 pandemic. This includes the execution of shelter in place, social distancing and deep cleaning process requirements. Through the first quarter of fiscal year 2021, Ashland has not experienced any additional major operating surprises, related to the COVID-19 pandemic, and continues to maintain a robust supply chain in a challenging environment, had strong safety performance in the face of unprecedented pressures and improved operating discipline across each of its businesses. The consumer specialties businesses continued to show resiliency in the face of difficult economic circumstances. The industrial specialties businesses and the Intermediates and Solvents business experienced downward pressure on demand as a result of the COVID-19 pandemic’s impact on those businesses’ end markets in 2020, with improved conditions through the first quarter of 2021. However, Ashland’s overall liquidity remains strong and Specialty Ingredients reportable segments,Ashland is able to meet its operating cash needs and other investing and financing cash requirements at this time, including those necessary to grow the business as economic conditions continue to improve.
The situation surrounding the COVID-19 pandemic remains fluid, and Ashland is actively managing its response in collaboration with customers, government officials, team members and business partners. For further information regarding the impact of the COVID-19 pandemic on the Company, please see Item 1A, Risk Factors in Ashland’s most recent Form 10-K filed with the SEC.
Other items
Operational business model changes and restructurings
During the second quarter of fiscal year 2020, Ashland changed the manner in which it manages the business moving from a functionally led to a business led organization. This new business-centric operational redesign of core operating systems and processes lead to a realignment in both the selling, general and administrative and research and development costs (SARD) associated with each business. In addition to the realignment of SARD, a productivity review with a focus on cost of goods sold (COGS) was also initiated. Based on these initiatives, Ashland is currently targeting the following savings:
• | $50 million of incremental SARD cost savings |
• | $50 million of incremental COGS productivity savings |
Ashland achieved over 80% of its target run-rate SARD cost savings and about 70% of its COGS productivity savings, in total representing about $78 million in annualized run-rate savings under these initiatives as of December 31, 2020. Ashland expects to be substantially complete with these initiatives by the end of fiscal year 2021.
Pending acquisition
On January 19, 2021 Ashland announced it had signed a definitive agreement to acquire the personal care business from Schülke & Mayr GmbH, a portfolio company of the global investment organization EQT.
Under the terms of the agreement, Ashland will pay €262.5 million in an all cash transaction, which is expected to be completed before the end of the June 30, 2021 quarter subject to customary closing conditions and required regulatory approvals.
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 taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring.
Key financial results for the three months ended December 31, 2020 and 2019 included the following:
• | Ashland’s net income amounted to $56 million compared to $32 million for the three months ended December 31, 2020 and 2019, respectively, or income of $0.91 and $0.53 diluted earnings per share, respectively. |
• | Discontinued operations, which are reported net of taxes, resulted in a loss of $5 million and $2 million during the three months ended December 31, 2020 and 2019, respectively. |
• | Income from continuing operations, which excludes results from discontinued operations, amounted to $61 million and $34 million for the three months ended December 31, 2020 and 2019, respectively. |
• | The effective income tax rates were an expense of zero and a benefit of 240% for the three months ended December 31, 2020 and 2019, respectively, and were significantly impacted by certain tax discrete items in both the current and prior year quarters. |
• | Ashland incurred pretax net interest and other income of $6 millioncompared to expense of $10 million for the three months ended December 31, 2020 and 2019, respectively. This includes gains of $18 million and $9 million on restricted investments. |
• | Net income on divestitures totaled income of $14 million and $3 million for the three months ended December 31, 2020 and 2019, respectively. |
• | Operating income was $41 million and $17 million for the three months ended December 31, 2020 and 2019, respectively. |
For further information on the items reported increasesabove, see the discussion in the comparative Statements of Consolidated Comprehensive Income (Loss) caption review analysis.
Operating income
Operating income/loss amounted to income of $41 million and $17 million for the three months ended December 31, 2020 and 2019, 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:
• | Restructuring, separation and other costs – Ashland periodically implements company-wide cost reduction programs related to acquisitions, divestitures and other cost reduction programs in order to enhance profitability through streamlined operations and an improved overall cost structure. Ashland often incurs severance, facility and integration costs associated with these programs. See Note D in the Notes to Condensed Consolidated Financial Statements for further information on the restructuring activities. |
• | During the three months ended December 31, 2020, Ashland incurred an impairment charge associated with a long-term capital project plan change at a plant facility. |
Operating income/loss for the three months ended December 31, 2020 and 2019 included depreciation and amortization of $62 million and $61 million, respectively.
Non-operating key items affecting EBITDA
• | Net gain on divestitures – Ashland recorded a gain of $14 million during the three months ended December 31, 2020 related to the sale of a Specialty Additives facility. |
Statements of Consolidated Comprehensive Income (Loss) – caption review
A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the three months ended December 31, 2020 and 2019.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Sales |
| $ | 552 |
|
| $ | 533 |
|
| $ | 19 |
|
The following table provides a reconciliation of the change in sales for the three months ended December 31, 2020 and 2019.
|
| Three months ended |
| |
(In millions) |
| December 31, 2020 |
| |
Volume |
| $ | 14 |
|
Pricing |
|
| (6 | ) |
Currency exchange |
|
| 11 |
|
Change in sales |
| $ | 19 |
|
Sales for the current quarter increased $19 million compared to the prior year quarter. Favorable volume and foreign currency exchange increased sales by $14 million and $11 million, respectively. These increases were partially offset by product pricing which decreased sales $6 million.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Cost of sales |
| $ | 374 |
|
| $ | 380 |
|
| $ | (6 | ) |
Gross profit as a percent of sales |
|
| 32.2 | % |
|
| 28.7 | % |
|
|
|
|
The following table provides a reconciliation of the change in cost of sales between the three months ended December 31, 2020 and 2019.
|
| Three months ended |
| |
(In millions) |
| December 31, 2020 |
| |
Changes in: |
|
|
|
|
Volume |
| $ | 11 |
|
Price/mix |
|
| (12 | ) |
Currency exchange |
|
| 4 |
|
Operating costs |
|
| (9 | ) |
Change in cost of sales |
| $ | (6 | ) |
Cost of sales for the current quarter decreased $6 million compared to the prior year quarter. Price/mix, and operating costs decreased cost of sales by $12 million and $9 million, respectively. These decreases were partially offset by higher volume and foreign currency exchange which increased cost of sales by $11 million and $4 million, respectively.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Selling, general and administrative expense |
| $ | 106 |
|
| $ | 99 |
|
| $ | 7 |
|
As a percent of sales |
|
| 19.2 | % |
|
| 18.6 | % |
|
|
|
|
Selling, general and administrative expense for the current quarter increased $7 million compared to the prior year quarter with expenses as a percent of sales increasing 0.6 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:
• | $12 million and $7 million of key items for severance, lease abandonment and other restructuring costs during the three months ended December 31, 2020 and 2019, respectively; |
• | $9 million related to a capital project impairment during the three months ended December 31, 2020; and |
• | Unfavorable currency exchange of $1 million during the three months ended December 31, 2020. |
The above increases were partially offset by achieved cost savings during the three months ended December 31, 2020 from restructuring programs initiated in fiscal year 2020.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Research and development expense |
| $ | 15 |
|
| $ | 16 |
|
| $ | (1 | ) |
Research and development expense is relatively consistent with the prior year quarter.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Intangibles amortization expense |
| $ | 21 |
|
| $ | 21 |
|
| $ | — |
|
Amortization expense is consistent with the prior year quarter.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Equity and other income |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
| $ | 5 |
|
| $ | — |
|
| $ | 5 |
|
|
| $ | 5 |
|
| $ | — |
|
| $ | 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income for the current year quarter was primarily due to a gain on sale of excess corporate property of roughly $4 million.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Net interest and other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| $ | 16 |
|
| $ | 23 |
|
| $ | (7 | ) |
Interest income |
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
Loss (income) from restricted investments |
|
| (23 | ) |
|
| (13 | ) |
|
| (10 | ) |
Other financing costs |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| $ | (6 | ) |
| $ | 10 |
|
| $ | (16 | ) |
Net interest and other expense (income) decreased by $16 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. Excluding the acquisitionInterest expense decreased $7 million due to lower cost of Pharmachem, the increase in profitability for Specialty Ingredientsdebt and lower debt levels compared to the prior year quarter was primarily driven by improvements in volumequarter. Restricted investments included gains of $18 million and mix and favorable foreign currency exchange.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Net income (loss) on divestitures |
| $ | 14 |
|
| $ | 3 |
|
| $ | 11 |
|
The activity in the current year quarter was related to the sale of a Specialty Additives facility, while activity in the prior year quarter related to post-closing adjustments for certain divestitures.
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Income tax expense (benefit) |
| $ | — |
|
| $ | (24 | ) |
| $ | 24 |
|
Effective tax rate |
|
| 0 | % |
|
| (240 | )% |
|
|
|
|
Ashland’s effective tax rate in any interim period is includedsubject to adjustments related to discrete items and the mix of domestic and foreign operating results. The overall effective tax rate was zero for the three months ended December 31, 2020. The current quarter tax rate was impacted by jurisdictional income mix, as a componentwell as favorable discrete items of income tax expense from continuing operations. Ashland recorded net unfavorable tax adjustments of $16$13 million primarily related to deferredthe sale of a Specialty Additives facility.
The overall effective tax rate was a benefit of 240% for the three months ended December 31, 2019 and was primarily impacted by jurisdictional income mix, certain nondeductible restructuring costs as well as $27 million from favorable tax discrete items primarily from the tax benefit related to the Swiss Tax Reform enacted in the prior year quarter.
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 one-time transitionconsolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results.
The effective tax assessed on foreign cashrate during the three months ended December 31, 2020 and unremitted earnings.2019 was significantly impacted by the following tax specific key items:
• | Restructuring and separation activity – Includes the impact from company-wide cost reduction programs, and the impact of the sale of a Specialty Additives facility; and |
• | Other tax reform – Includes the impact from other items related to the Tax Act and other tax law changes including Swiss Tax Reform. The Swiss Tax Reform benefit is an estimate based on ten year income projections and is subject to approval by the Swiss tax authorities. Ashland will monitor this amount and make adjustments as appropriate in future periods. These adjustments also include the impact from the deductibility of compensation items and miscellaneous state tax items. |
The following table is a calculation of the effective tax rate, excluding these key items.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Income (loss) from continuing operations before income taxes |
| $ | 61 |
|
| $ | 10 |
|
Key items (pre-tax) (a) |
|
| (11 | ) |
|
| (2 | ) |
Adjusted income from continuing operations |
|
|
|
|
|
|
|
|
before income taxes |
| $ | 50 |
|
| $ | 8 |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
| $ | — |
|
| $ | (24 | ) |
Income tax rate adjustments: |
|
|
|
|
|
|
|
|
Tax effect of key items |
|
| (4 | ) |
|
| (1 | ) |
Tax specific key items: (b) |
|
|
|
|
|
|
|
|
Restructuring and separation activity |
|
| 13 |
|
|
| — |
|
Other tax reform |
|
| — |
|
|
| 25 |
|
Total income tax rate adjustments |
|
| 9 |
|
|
| 24 |
|
Adjusted income tax expense |
| $ | 9 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
Effective tax rate, excluding key items (Non-GAAP) (c) |
|
| 19 | % |
|
| 3 | % |
|
|
|
|
|
|
|
|
|
(a) | See Adjusted EBITDA reconciliation table disclosed in this MD&A for a summary of the key items, before tax. |
(b) | For additional information on the effect that these tax specific key items had on EPS, see the Adjusted Diluted EPS table disclosed in this MD&A. |
(c) | Due to rounding conventions, the effective tax rate presented may not recalculate precisely based on the numbers disclosed within this table. |
|
| Three months ended December 31 |
| |||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Income (loss) from discontinued operation (net of taxes) |
| |||||||||||
Valvoline |
| $ | — |
|
| $ | (1 | ) |
| $ | 1 |
|
Water Technologies |
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
Distribution |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Gain (loss) on disposal of discontinued operations (net of taxes) |
|
|
|
|
|
|
|
|
|
|
|
|
Composites/Marl facility |
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
|
| $ | (5 | ) |
| $ | (2 | ) |
| $ | (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The activity for Composites/Marl facility during the current quarter was related to post-closing purchase price adjustment disputes. The activity for Valvoline, Water Technologies and Distribution during the current and prior year quarters was related to post-closing adjustments.
Other comprehensive income (loss)
A comparative analysis of the components of other comprehensive income is provided below for the three months ended December 31, 2020 and 2019.
| Three months ended December 31 |
| |||||||||
(In millions) | 2020 |
|
| 2019 |
|
| Change |
| |||
Other comprehensive income (loss) (net of taxes) |
|
|
|
|
|
|
|
|
|
|
|
Unrealized translation gain | $ | 48 |
|
| $ | 38 |
|
| $ | 10 |
|
| $ | 48 |
|
| $ | 38 |
|
| $ | 10 |
|
Total other comprehensive income, net of tax, for the current quarter increased $10 million compared to the prior year quarter primarily as a result of the following:
• | For the three months ended December 31, 2020, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in a gain of $48 million compared to $38 million for the three months ended December 31, 2019. The fluctuations in unrealized translation gains and losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars. |
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:
• | EBITDA – net income (loss), plus income tax expense (benefit), net interest and other expenses, and depreciation and amortization. |
• | Adjusted EBITDA – EBITDA adjusted for noncontrolling interests, discontinued operations, net income (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 margin – Adjusted EBITDA divided by sales. |
• | Adjusted diluted earnings per share (EPS) – income (loss) from continuing operations, adjusted for key items, net of tax, divided by the average outstanding diluted shares for the applicable period. |
• | Adjusted diluted earnings per share (EPS) excluding intangibles amortization expense – Adjusted earnings per share adjusted for intangibles amortization expense net of tax, divided by the average outstanding diluted shares for the applicable period. |
• | Free cash flow – operating cash flows less capital expenditures and certain other adjustments as applicable. |
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
providing a perspective not immediately apparent from net income and operating income. The adjustments Ashland makes to derive the non-GAAP measures of EBITDA and Adjusted EBITDA exclude items which may cause short-term fluctuations in net income and operating income and which Ashland does not consider to be the fundamental attributes or primary drivers of its business. EBITDA and Adjusted EBITDA provide disclosure on the same basis as that used by Ashland’s management to evaluate financial performance on a consolidated and reportable segment basis and provide consistency in our 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.
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 metric enables 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 includes the impact of capital expenditures from continuing operations, providing a more complete picture of cash generation. Free cash flow has certain limitations, including that it does not reflect adjustment for certain non-discretionary cash flows such as mandatory debt repayments. The amount of mandatory versus discretionary expenditures can vary significantly between periods.
Although Ashland providesmay provide forward-looking guidance for Adjusted EBITDA, Adjusted diluted EPS and free cash flow, Ashland is not reaffirming or providing forward-looking guidance for U.S. GAAP-reported financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items that affect these metrics such as domestic and international economic, political, legislative, regulatory and legal actions. In addition, certain economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations and are difficult to predict with certainty.
These non-GAAP measures should be considered supplemental in nature and should not be construed as more significant than comparable measures defined by U.S. GAAP. Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with our results as determined in accordance with U.S. GAAP. The non-GAAP measures provided are used by Ashland management and may not be determined in a manner consistent with the methodologies used by other companies. EBITDA and Adjusted EBITDA provide a supplemental presentation of Ashland’s operating performance on a consolidated and reportable segment basis. Adjusted EBITDA generally includes adjustments for items that impact comparability between periods. In addition, certain financial covenants related to Ashland’s 20172020 Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that referencerefer to this metric.
EBITDA and losses for defined benefit pension and other postretirement benefit plans annually in the fourth quarterAdjusted EBITDA
EBITDA totaled income of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. Actuarial gains and losses occur when actual experience differs from the estimates used to allocate the change in value of pension and other postretirement benefit plans to expense throughout the year or when assumptions change, as they may each year. Significant factors that can contribute to the recognition of actuarial gains and losses include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets and other changes in actuarial assumptions, for example, the life expectancy of plan participants. Management believes Adjusted EBITDA,
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Net income |
| $ | 56 |
|
| $ | 32 |
|
Income tax expense (benefit) |
|
| — |
|
|
| (24 | ) |
Net interest and other expense (income) |
|
| (6 | ) |
|
| 10 |
|
Depreciation and amortization |
|
| 62 |
|
|
| 61 |
|
EBITDA |
|
| 112 |
|
|
| 79 |
|
Loss from discontinued operations (net of tax) |
|
| 5 |
|
|
| 2 |
|
Key items included in EBITDA: |
|
|
|
|
|
|
|
|
Restructuring, separation and other costs |
|
| 12 |
|
|
| 7 |
|
Capital project impairment |
|
| 9 |
|
|
| — |
|
Net gain on divestitures |
|
| (14 | ) |
|
| — |
|
Total key items included in EBITDA |
|
| 7 |
|
|
| 7 |
|
Adjusted EBITDA |
| $ | 124 |
|
| $ | 88 |
|
|
|
|
|
|
|
|
|
|
Total key items included in EBITDA |
| $ | 7 |
|
| $ | 7 |
|
Unrealized gain on securities |
|
| (18 | ) |
|
| (9 | ) |
Total key items, before tax |
| $ | (11 | ) |
| $ | (2 | ) |
|
|
|
|
|
|
|
|
|
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Net income (loss) | $ | (4 | ) | $ | 10 | ||
Income tax expense (benefit) | 14 | (41 | ) | ||||
Net interest and other financing expense | 31 | 122 | |||||
Depreciation and amortization (a) | 73 | 68 | |||||
EBITDA | 114 | 159 | |||||
Income from discontinued operations (net of tax) | (3 | ) | (75 | ) | |||
Environmental reserve adjustments | 11 | — | |||||
Separation, restructuring and other costs | 8 | 22 | |||||
Accelerated depreciation | 6 | — | |||||
Legal reserve | — | 5 | |||||
Gain on post-employment plan remeasurement | — | (2 | ) | ||||
Adjusted EBITDA (b) | $ | 136 | $ | 109 | |||
Diluted EPS and Adjusted Diluted EPS
The following table reflects the U.S. GAAP calculation for the income (loss) from continuing operations adjusted for the cumulative diluted EPS effect for key items after tax that have been identified in the Adjusted EBITDA table in the previous section. Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. The Adjusted diluted EPS for the income (loss) from continuing operations in the following table has been prepared to illustrate the ongoing effects of Ashland’s operations since managementoperations. Management believes theinvestors and analysts use ofthis financial measure in assessing Ashland's business performance and that presenting this non-GAAP measuresmeasure on a consolidated and reportable segment basis assists investors in better understanding theAshland’s ongoing operatingbusiness performance by presenting theand enhances their ability to compare period-to-period 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 |
Three months ended December 31 | ||||||||||||
(In millions) | 2017 | 2016 | Change | |||||||||
Sales | $ | 842 | $ | 704 | $ | 138 |
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Diluted EPS from continuing operations (as reported) |
| $ | 0.99 |
|
| $ | 0.56 |
|
Key items, before tax: |
|
|
|
|
|
|
|
|
Restructuring, separation and other costs |
|
| 0.18 |
|
|
| 0.12 |
|
Capital project impairment |
|
| 0.16 |
|
|
| — |
|
Unrealized gain on securities |
|
| (0.29 | ) |
|
| (0.15 | ) |
Net gain on divestitures |
|
| (0.23 | ) |
|
| — |
|
Key items, before tax |
|
| (0.18 | ) |
|
| (0.03 | ) |
Tax effect of key items (a) |
|
| 0.07 |
|
|
| 0.02 |
|
Key items, after tax |
|
| (0.11 | ) |
|
| (0.01 | ) |
Tax specific key items: |
|
|
|
|
|
|
|
|
Restructuring and separation activity |
|
| (0.22 | ) |
|
| — |
|
Other tax reform |
|
| — |
|
|
| (0.42 | ) |
Tax specific key items (b) |
|
| (0.22 | ) |
|
| (0.42 | ) |
Total key items |
|
| (0.33 | ) |
|
| (0.43 | ) |
Adjusted diluted EPS from continuing operations (non-GAAP) |
| $ | 0.66 |
|
| $ | 0.13 |
|
Amortization expense adjustment (net of tax) (c) |
| $ | 0.28 |
|
| $ | 0.28 |
|
Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense |
| $ | 0.94 |
|
| $ | 0.41 |
|
|
|
|
|
|
|
|
|
|
(a) | ||
Represents the diluted EPS impact from the tax effect of the key items that are identified above. |
(b) | ||
Represents the diluted EPS impact from tax specific financial transactions, tax law changes or other matters that fall within the definition of key items. For additional explanation of these tax specific key items, see the income tax expense (benefit) discussion within the Statements of Consolidated Comprehensive Income (Loss) caption review section above. |
Three months ended | ||||
(In millions) | December 31, 2017 | |||
Acquisitions and divestitures | $ | 63 | ||
Pricing | 30 | |||
Currency exchange | 20 | |||
Volume | 18 | |||
Product mix | 7 | |||
Change in sales | $ | 138 |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Cost of sales | $ | 613 | $ | 515 | $ | 98 | |||||
Gross profit as a percent of sales | 27.2 | % | 26.8 | % |
Three months ended | ||||
(In millions) | December 31, 2017 | |||
Changes in: | ||||
Acquisitions and divestitures | $ | 50 | ||
Production costs | 20 | |||
Currency exchange | 15 | |||
Volume | 8 | |||
Product mix | 4 | |||
Severance and other restructuring costs | 1 | |||
Change in cost of sales | $ | 98 |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Selling, general and administrative expense | $ | 171 | $ | 157 | $ | 14 | |||||
As a percent of sales | 20.3 | % | 22.3 | % |
(c) | ||
Amortization expense adjustment (net of tax) tax rates were 21% and 20% for the three months ended December 31, 2020 and December 31, 2019, respectively. |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Research and development expense | $ | 21 | $ | 20 | $ | 1 |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Equity and other income | |||||||||||
Equity income (a) | $ | — | $ | — | $ | — | |||||
Other income | 2 | 3 | (1 | ) | |||||||
$ | 2 | $ | 3 | $ | (1 | ) | |||||
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Net interest and other financing expense (income) | |||||||||||
Interest expense | $ | 34 | $ | 126 | $ | (92 | ) | ||||
Interest income | (1 | ) | (1 | ) | — | ||||||
Available-for-sale securities income | (3 | ) | (3 | ) | — | ||||||
Other financing costs | 1 | — | 1 | ||||||||
$ | 31 | $ | 122 | $ | (91 | ) |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Other net periodic benefit income | $ | — | $ | 2 | $ | (2 | ) |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Net loss on divestitures | $ | 1 | $ | 1 | $ | — |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Income tax expense (benefit) | $ | 14 | $ | (41 | ) | $ | 55 | ||||
Effective tax rate | 200 | % | 39 | % |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Income from discontinued operations (net of tax) | |||||||||||
Valvoline | $ | 3 | $ | 75 | $ | (72 | ) |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Net income attributable to noncontrolling interest | $ | — | $ | 11 | $ | (11 | ) |
Three months ended December 31 | |||||||||||
(In millions) | 2017 | 2016 | Change | ||||||||
Other comprehensive income (loss) (net of taxes) | |||||||||||
Unrealized translation gain (loss) | $ | 3 | $ | (146 | ) | $ | 149 | ||||
Net change in available-for-sale securities | 8 | — | 8 | ||||||||
Pension and postretirement obligation adjustment | — | (1 | ) | 1 | |||||||
$ | 11 | $ | (147 | ) | $ | 158 |
RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW
Ashland’s reportable segments:segments include Life Sciences, Personal Care & Household, Specialty Ingredients, CompositesAdditives, Performance Adhesives and Intermediates and Solvents.
Results of Ashland’s reportable segments are presented based on its management and internal accounting structure. The structure is specific to Ashland; therefore, the financial results of Ashland’s reportable segments are not necessarily comparable with similar information for other comparable companies. Ashland allocates all significant costs to its reportable segments except for certain significant company-wide restructuring activities, certain corporate governance costs and other costs or adjustmentsactivities that relate to former businesses that Ashland no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss). Ashland refines its expense allocation methodologies to the reportable segments from time to time as 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. This includes charges in the current fiscal year for certain corporate governance costs, which were previously allocated in the first quarter of fiscal 2020. These costs are now reflected in Unallocated and Other for all periods presented.
The following table discloses sales, operating income, depreciation and amortization and EBITDA by reportable segment for the three months ended December 31, 2020 and 2019.
| Three months ended |
| |||||
| December 31 |
| |||||
(In millions - unaudited) | 2020 |
|
| 2019 |
| ||
SALES |
|
|
|
|
|
|
|
Life Sciences | $ | 170 |
|
| $ | 155 |
|
Personal Care & Household |
| 126 |
|
|
| 137 |
|
Consumer Specialties |
| 296 |
|
|
| 292 |
|
Specialty Additives |
| 147 |
|
|
| 139 |
|
Performance Adhesives |
| 84 |
|
|
| 74 |
|
Industrial Specialties |
| 231 |
|
|
| 213 |
|
Intermediates and Solvents |
| 33 |
|
|
| 28 |
|
Intersegment sales (a) |
|
|
|
|
|
|
|
Intermediates and Solvents |
| (8 | ) |
|
| — |
|
| $ | 552 |
|
| $ | 533 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
Life Sciences | $ | 29 |
|
| $ | 22 |
|
Personal Care & Household |
| 15 |
|
|
| 11 |
|
Consumer Specialties |
| 44 |
|
|
| 33 |
|
Specialty Additives (b) |
| 2 |
|
|
| 9 |
|
Performance Adhesives |
| 20 |
|
|
| 10 |
|
Industrial Specialties |
| 22 |
|
|
| 19 |
|
Intermediates and Solvents |
| 2 |
|
|
| (12 | ) |
Unallocated and other |
| (27 | ) |
|
| (23 | ) |
| $ | 41 |
|
| $ | 17 |
|
DEPRECIATION EXPENSE |
|
|
|
|
|
|
|
Life Sciences | $ | 9 |
|
| $ | 8 |
|
Personal Care & Household |
| 10 |
|
|
| 10 |
|
Consumer Specialties |
| 19 |
|
|
| 18 |
|
Specialty Additives |
| 16 |
|
|
| 15 |
|
Performance Adhesives |
| 3 |
|
|
| 4 |
|
Industrial Specialties |
| 19 |
|
|
| 19 |
|
Intermediates and Solvents |
| 3 |
|
|
| 3 |
|
| $ | 41 |
|
| $ | 40 |
|
AMORTIZATION EXPENSE |
|
|
|
|
|
|
|
Life Sciences | $ | 7 |
|
| $ | 7 |
|
Personal Care & Household |
| 9 |
|
|
| 9 |
|
Consumer Specialties |
| 16 |
|
|
| 16 |
|
Specialty Additives |
| 5 |
|
|
| 5 |
|
Performance Adhesives |
| — |
|
|
| — |
|
Industrial Specialties |
| 5 |
|
|
| 5 |
|
Intermediates and Solvents |
| — |
|
|
| — |
|
| $ | 21 |
|
| $ | 21 |
|
EBITDA (c) |
|
|
|
|
|
|
|
Life Sciences | $ | 45 |
|
| $ | 37 |
|
Personal Care & Household |
| 34 |
|
|
| 30 |
|
Consumer Specialties |
| 79 |
|
|
| 67 |
|
Specialty Additives |
| 23 |
|
|
| 29 |
|
Performance Adhesives |
| 23 |
|
|
| 14 |
|
Industrial Specialties |
| 46 |
|
|
| 43 |
|
Intermediates and Solvents |
| 5 |
|
|
| (9 | ) |
Unallocated and other |
| (27 | ) |
|
| (23 | ) |
| $ | 103 |
|
| $ | 78 |
|
|
|
|
|
|
|
|
|
(a) | ||
Intersegment sales are accounted for at prices that approximate fair value. |
(b) | Includes a capital project impairment of $9 million for the three months ended December 31, 2020 relating to a long-term capital project plan change at a plant facility. |
(c) | Excludes income (loss) from discontinued operations, other net periodic benefit income (expense) and net income (loss) on divestitures. See the Statement of Consolidated Comprehensive Income (Loss) for applicable amounts excluded. |
Consumer Specialties
The Consumer Specialties business is comprised of the following reportable segments:
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.
Personal Care & Household
Personal Care & Household is comprised of biofunctionals, preservatives, skin care, sun care, oral care, hair care and household. These businesses have a broad range of nature-based, biodegradable, and performance-enhancing ingredients for customer-driven solutions to help protect, renew, moisturize and revitalize skin and hair, and provide solutions for toothpastes, mouth washes and rinses, denture cleaning and care for teeth. Household supplies nature-derived rheology ingredients, biodegradable surface wetting agents, performance encapsulates, and specialty polymers for household, industrial and institutional cleaning products. Customers include formulators at large multinational branded consumer products companies and smaller, independent boutique companies.
December 2020 quarter compared to December 2019 quarter
Consumer Specialties’ sales increased $4 million to $296 million in the current quarter. Life Sciences represented an increase of $15 million, offset by a decrease of $11 million for Personal Care & Household. Favorable currency exchange increased sales by $5 million for the Consumer Specialties business. This increase was partially offset by product pricing which decreased sales by $1 million.
Operating income increased $11 million to income of $44 million for the current quarter. Life Sciences and Personal Care & Household recorded income of $29 million and $15 million, respectively. Favorable price/mix, favorable foreign currency exchange, lower costs and a legal settlement related to Personal Care & Household increased operating income by $4 million, $4 million, $2 million and $2 million, respectively. These increases were partially offset by lower volume which decreased operating income by $1 million. Current quarter EBITDA increased $12 million to $79 million, of which $45 million was in Life Sciences and $34 million in Personal Care & Household. EBITDA margin increased 3.7 percentage points in the current quarter to 26.7%.
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 (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.
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Sales | |||||||
Specialty Ingredients | $ | 550 | $ | 482 | |||
Composites | 218 | 165 | |||||
Intermediates and Solvents | 74 | 57 | |||||
$ | 842 | $ | 704 | ||||
Operating income (loss) | |||||||
Specialty Ingredients | $ | 42 | $ | 40 | |||
Composites | 18 | 15 | |||||
Intermediates and Solvents | 8 | (7 | ) | ||||
Unallocated and other | (29 | ) | (33 | ) | |||
$ | 39 | $ | 15 | ||||
Depreciation and amortization | |||||||
Specialty Ingredients | $ | 62 | $ | 55 | |||
Composites | 5 | 6 | |||||
Intermediates and Solvents | 8 | 7 | |||||
Unallocated and other | 4 | — | |||||
$ | 79 | $ | 68 | ||||
Operating information | |||||||
Specialty Ingredients | |||||||
Sales per shipping day | $ | 9.0 | $ | 7.9 | |||
Metric tons sold (thousands) | 73.0 | 72.6 | |||||
Gross profit as a percent of sales (a) | 31.5 | % | 32.0 | % | |||
Composites | |||||||
Sales per shipping day | $ | 3.6 | $ | 2.7 | |||
Metric tons sold (thousands) | 91.2 | 78.4 | |||||
Gross profit as a percent of sales (a) | 18.4 | % | 21.1 | % | |||
Intermediates and Solvents | |||||||
Sales per shipping day | $ | 1.2 | $ | 0.9 | |||
Metric tons sold (thousands) | 32.7 | 32.2 | |||||
Gross profit as a percent of sales (a) | 21.3 | % | (0.9 | )% | |||
Three months ended December 31, 2017 | ||||||||
Sales by Geography | Specialty Ingredients | Composites | Intermediates and Solvents | |||||
North America | 41 | % | 45 | % | 21 | % | ||
Europe | 30 | % | 34 | % | 59 | % | ||
Asia Pacific | 19 | % | 14 | % | 17 | % | ||
Latin America & other | 10 | % | 7 | % | 3 | % | ||
100 | % | 100 | % | 100 | % |
Three months ended December 31, 2016 | ||||||||
Sales by Geography | Specialty Ingredients | Composites | Intermediates and Solvents | |||||
North America | 39 | % | 48 | % | 23 | % | ||
Europe | 29 | % | 28 | % | 57 | % | ||
Asia Pacific | 22 | % | 16 | % | 17 | % | ||
Latin America & other | 10 | % | 8 | % | 3 | % | ||
100 | % | 100 | % | 100 | % |
The following EBITDA presentation for the three months ended December 31, 20172020 and 20162019 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 Consumer Specialties.
|
| Life Sciences |
|
| Personal Care & Household |
|
| Consumer Specialties |
| |||||||||||||||
|
| Three months ended December 31 |
| |||||||||||||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Operating income |
| $ | 29 |
|
| $ | 22 |
|
| $ | 15 |
|
| $ | 11 |
|
| $ | 44 |
|
| $ | 33 |
|
Depreciation and amortization |
|
| 16 |
|
|
| 15 |
|
|
| 19 |
|
|
| 19 |
|
|
| 35 |
|
|
| 34 |
|
EBITDA |
|
| 45 |
|
|
| 37 |
|
|
| 34 |
|
|
| 30 |
|
|
| 79 |
|
|
| 67 |
|
Industrial Specialties
The Industrial Specialties business is comprised of the below reportable segments:
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.
Performance Adhesives
Performance Adhesives is comprised of adhesives used in packaging, converting and structural applications. Packaging adhesives has an extensive line of pressure sensitive adhesives, functional coatings and primers combined with innovative technology solutions for narrow-, mid- and wide-web applications. Products meet stringent requirements in food and beverage safety, shipping, transportation, health and beauty, industrial, postage and security printing. Structural adhesives include light weighting vehicles and eliminating VOCs in buildings. Customers include converters of packaging materials, manufacturers of building materials and tier one suppliers to transportation industry.
December 2020 quarter compared to December 2019 quarter
Industrial Specialties’ sales increased $18 million to $231 million in the current quarter. Specialty Additives and Performance Adhesives represented $8 million and $10 million of the increase, respectively. Higher volume and favorable currency exchange increased sales by $16 million and $5 million, respectively. These increases were partially offset by product pricing which decreased sales by $3 million.
Operating income increased $3 million to $22 million for the current quarter. Specialty Additives and Performance Adhesives recorded income of $2 million and $20 million, respectively, down $7 million and up $10 million from the prior year quarter, respectively. Higher volume, favorable price/mix, foreign currency exchange and production costs increased operating income by $4 million, $5 million, $1 million and $2 million, respectively. Those increases were partially offset by a capital project impairment of $9 million. Current quarter EBITDA increased $3 million to $46 million, $23 million income in Specialty Additives and $23 million income in Performance Adhesives. Adjusted EBITDA increased $12 million to $55 million, of which $32 million and $23 million originated from Specialty Additives and Performance Adhesives, respectively. Adjusted EBITDA margin increased 3.6 percentage points in the current quarter to 23.8%.
EBITDA and adjusted EBITDA reconciliation
The following EBITDA and Adjusted EBITDA presentation (as defined and described in the section above) for the three months ended December 31, 2020 and 2019 below 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.Industrial Specialties. Adjusted EBITDA results have been prepared to illustrate the ongoing effects of Ashland'sAshland’s operations, which exclude certain key items. The key items within the current quarter relate to $2 million of accelerated depreciation for the termination of a contract at a manufacturing facility and $1 million of severance and other restructuring charges for the closure of a manufacturing plant. There were no unusual or key items that affected comparability for EBITDA during the prior year quarter.
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Operating income | $ | 42 | $ | 40 | |||
Depreciation and amortization (a) | 60 | 55 | |||||
EBITDA | 102 | 95 | |||||
Accelerated depreciation | 2 | — | |||||
Severance and other restructuring costs | 1 | — | |||||
Adjusted EBITDA | $ | 105 | $ | 95 | |||
|
| Specialty Additives |
|
| Performance Adhesives |
|
| Industrial Specialties |
| |||||||||||||||
|
| Three months ended December 31 |
| |||||||||||||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Operating income |
| $ | 2 |
|
| $ | 9 |
|
| $ | 20 |
|
| $ | 10 |
|
| $ | 22 |
|
| $ | 19 |
|
Depreciation and amortization |
|
| 21 |
|
|
| 20 |
|
|
| 3 |
|
|
| 4 |
|
|
| 24 |
|
|
| 24 |
|
EBITDA |
|
| 23 |
|
|
| 29 |
|
|
| 23 |
|
|
| 14 |
|
|
| 46 |
|
|
| 43 |
|
Capital project impairment |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
Adjusted EBITDA |
| $ | 32 |
|
| $ | 29 |
|
| $ | 23 |
|
| $ | 14 |
|
| $ | 55 |
|
| $ | 43 |
|
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Operating income | $ | 18 | $ | 15 | |||
Depreciation and amortization | 5 | 6 | |||||
EBITDA | $ | 23 | $ | 21 |
Intermediates and Solvents
Intermediates and Solvents is a leading producercomprised of the production of 1,4 butanediol (BDO) and related derivatives, including tetrahydrofuran and n-methylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. Butanediol is also suppliedprovided to Ashland’sLife Sciences, Personal Care, and Specialty Ingredients businessAdditives for use as a raw material.
December 20172020 quarter compared to December 20162019 quarter
Intermediates and Solvents’ sales increased $17$5 million to $74 million in the current quarter. Higher product pricing increased sales by $9 million while higher volumes and favorable foreign currency exchange each increased sales by $4 million.
Operating income/loss of $7increased $14 million into $2 million for the prior yearcurrent quarter. Lower production costs and higher volume increased operating income by $17 million and $1 million, respectively. This increase was partially offset by price/mix and foreign currency exchange which decreased operating income by $3 million and $1 million respectively. Current quarter EBITDA and increased $14 million to $5 million.EBITDA margin infor the current quarter increased to $16 million and 21.6%, respectively.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation (as defined and described in the section above) for the three months ended December 31, 20172020 and 20162019 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 and Solvents. 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) |
| 2020 |
|
| 2019 |
| ||
Operating income |
| $ | 2 |
|
| $ | (12 | ) |
Depreciation and amortization |
|
| 3 |
|
|
| 3 |
|
EBITDA |
|
| 5 |
|
|
| (9 | ) |
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Operating income (loss) | $ | 8 | $ | (7 | ) | ||
Depreciation and amortization | 8 | 7 | |||||
EBITDA | $ | 16 | $ | — |
Unallocated and other
The following table summarizes the key components of the Unallocated and other segment'ssegment’s operating lossincome (loss) for the three months ended December 31, 20172020 and 2016.2019.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Restructuring activities |
| $ | (12 | ) |
| $ | (7 | ) |
Environmental expenses |
|
| (4 | ) |
|
| (3 | ) |
Other expenses (primarily governance and legacy expenses) |
|
| (11 | ) |
|
| (13 | ) |
Total expense |
| $ | (27 | ) |
| $ | (23 | ) |
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 20172020 quarter compared to December 20162019 quarter
Unallocated and other recorded expense of $29$27 million and $33$23 million for the three months ended December 31, 20172020 and 2016,2019, respectively. The unallocated items for the current and prior year quarters included charges for restructuring activities of $14$12 million and $24$7 million, respectively. Restructuring activities included $6 million and $22 millionrespectively, which were comprised of costs related to the separation of Valvoline and stranded divestiture costs of $3 million and $2 million during the current and prior year quarters, respectively. following:
• | $12 million and $7 million of severance, lease abandonment and other restructuring costs related to company-wide cost reduction programs during the current and prior quarters, respectively. |
The current quarter alsoand prior quarter included $4 million of accelerated depreciation related to the planned closure of an office building and $1 million of integration charges related to the acquisition of Pharmachem.
FINANCIAL POSITION
Liquidity
Ashland had $601$335 million in cash and cash equivalents as of December 31, 2017,2020, of which $581$263 million was held by foreign subsidiaries and had no significant limitations that would prohibit remitting the funds to satisfy corporate obligations. In certain circumstances, if such amounts were repatriated to the United States, additional taxes might need to be accrued and paid 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
Ashland has taken actions and may continue to take actions intended to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets. In January 2020, Ashland renewed and extended its Revolving Credit Agreement through 2025 and issued new 2.00% senior notes in Europe for €500 million which mature in 2028. During the three months ended December 31, 2020, Ashland elected not to access funds on its Revolving Credit Facility. As of December 31, 2020, Ashland has total remaining borrowing capacity of $694 million, comprised of amounts remaining available under the Revolving Credit Facility and two accounts receivable securitization facilities. Ashland has no significant maturities related to our term loans, revolving credit facilities or bonds until August 2022.
Ashland believes that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for Ashland’s foreseeable working capital needs, capital expenditures at existing facilities, dividend payments and debt service obligations. Ashland’s cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. For information regarding the impact of COVID-19 on the Company, including on its liquidity and capital resources, please see item 1A, in Ashland’s most recent Tax Act, Ashland will be reassessing this position in future quarters.Form 10-K filed with the SEC.
Ashland’s cash flows from operating, investing and financing activities, as reflected in the Statements of Condensed Consolidated Cash Flows, are summarized as follows for the three months ended December 31, 20172020 and 2016. 2019.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Cash provided (used) by: |
|
|
|
|
|
|
|
|
Operating activities from continuing operations |
| $ | 106 |
|
| $ | (34 | ) |
Investing activities from continuing operations |
|
| (4 | ) |
|
| (20 | ) |
Financing activities from continuing operations |
|
| (207 | ) |
|
| (7 | ) |
Discontinued operations |
|
| (17 | ) |
|
| (15 | ) |
Effect of currency exchange rate changes on cash and cash equivalents |
|
| 3 |
|
|
| 1 |
|
Net decrease in cash and cash equivalents |
| $ | (119 | ) |
| $ | (75 | ) |
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 activities
The following discloses the cash flows associated with Ashland’s operating activities for the three months ended December 31, 20172020 and 2016.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Cash flows provided (used) by operating activities from continuing operations |
|
|
|
|
|
|
|
|
Net income |
| $ | 56 |
|
| $ | 32 |
|
Loss from discontinued operations (net of income taxes) |
|
| 5 |
|
|
| 2 |
|
Adjustments to reconcile income from continuing operations to |
|
|
|
|
|
|
|
|
cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 62 |
|
|
| 61 |
|
Original issue discount and debt issuance costs amortization |
|
| 1 |
|
|
| 2 |
|
Deferred income taxes |
|
| (5 | ) |
|
| (12 | ) |
Gain from sales of property and equipment |
|
| (4 | ) |
|
| — |
|
Stock based compensation expense |
|
| 4 |
|
|
| 4 |
|
Income from restricted investments |
|
| (23 | ) |
|
| (13 | ) |
Net income on divestitures |
|
| (14 | ) |
|
| — |
|
Impairments |
|
| 9 |
|
|
| — |
|
Pension contributions |
|
| (2 | ) |
|
| (1 | ) |
Change in operating assets and liabilities (a) |
|
| 17 |
|
|
| (109 | ) |
Total cash flows provided (used) by operating activities from continuing operations |
| $ | 106 |
|
| $ | (34 | ) |
|
|
|
|
|
|
|
|
|
(a) | ||
Excludes changes resulting from operations acquired or sold. |
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Cash flows provided (used) by operating activities from continuing operations | |||||||
Net income (loss) | $ | (4 | ) | $ | 10 | ||
Income from discontinued operations (net of tax) | (3 | ) | (75 | ) | |||
Adjustments to reconcile income from continuing operations to | |||||||
cash flows from operating activities | |||||||
Depreciation and amortization | 79 | 68 | |||||
Original issue discount and debt issuance cost amortization | 2 | 94 | |||||
Deferred income taxes | 8 | 2 | |||||
Stock based compensation expense | 7 | 5 | |||||
Gain on early retirement of debt | — | (3 | ) | ||||
Realized gain and investment income on available-for-sale securities | (3 | ) | (3 | ) | |||
Net loss on divestitures | 1 | 1 | |||||
Pension contributions | (2 | ) | (1 | ) | |||
Gain on post-employment plan remeasurement | — | (2 | ) | ||||
Change in operating assets and liabilities (a) | (109 | ) | (156 | ) | |||
Total cash flows used by operating activities from continuing operations | $ | (24 | ) | $ | (60 | ) | |
Cash flows usedprovided (used) from operating activities from continuing operations a major source of Ashland’s liquidity, amounted to cash inflows of $24$106 million and $60outflows of $(34) million in the current and prior year quarters,periods, respectively.
Operating Activities -– Operating Assets and Liabilities
The cash results during each quarterperiod are primarily driven by net income, (loss), excluding discontinued operation results, adjusted for certain non-cash items including depreciation and amortization (including original issue discount and debt issuance cost amortization), as well as changes in working capital, which are fluctuations within accounts receivable, inventory, trade payables and accrued expenses. Ashland continues to emphasize working capital management as a high priority and focus.
Changes in net working capitaloperating assets and liabilities accounted for inflows of $17 million for the current quarter compared to outflows of $96 million and $71$109 million for the three months ended December 31, 20172020 and 2016,2019, respectively, and were driven by the following:
• | ||
Accounts receivable – There were cash inflows of $59 million and $40 million during the current and prior year quarters, respectively. |
• | ||
Inventory – There were cash outflows of $12 million and $38 million during the current and prior year quarters, respectively. |
• | ||
Trade and other payables – There were cash outflows of $34 million and $96 million during the current and prior year quarters, respectively, and primarily related to the timing of certain payments and management of supplier/vendor payment terms. |
The remaining outflows within changes into operating assets and liabilities resulted in inflows of $13$4 million and $85outflows of $15 million in the current and prior year quarters, respectively, relateand were primarily due to income taxes paid or income tax refunds, interest paid, and adjustments to certain accruals and long termother long-term assets and liabilities as well as income taxes received and paid.
Operating Activities -– Summary
Operating cash flows for the current year quarter included a lossincome from continuing operations of $7 million, noncash$61 million. Additionally, the current quarter included non-cash adjustments of $79$62 million for depreciation and amortization, and $2$4 million for debt issuance cost amortization.
Operating cash flows for the prior year quarter included a lossincome from continuing operations of $65 million and noncash$34 million. Additionally, the prior year quarter included non-cash adjustments of $68$61 million for depreciation and amortization, $13 million income from restricted investments and $94$4 million for original issue discount and debt issuance cost amortization, including $92 million of accelerated accretion related to the tender offer of the 2029 notes.
Investing activities
The following discloses the cash flows associated with Ashland’s investing activities for the three months ended December 31, 20172020 and 2016.2019.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Cash flows provided (used) by investing activities from continuing operations |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
| $ | (30 | ) |
| $ | (29 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 5 |
|
|
| — |
|
Proceeds from sale or restructuring of operations |
|
| 14 |
|
|
| — |
|
Net purchase of funds restricted for specific transactions |
|
| (1 | ) |
|
| (1 | ) |
Reimbursement from restricted investments |
|
| 8 |
|
|
| 10 |
|
Proceeds from sales of securities |
|
| 42 |
|
|
| 4 |
|
Purchase of securities |
|
| (42 | ) |
|
| (4 | ) |
Total cash flows used by investing activities from continuing operations |
| $ | (4 | ) |
| $ | (20 | ) |
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$4 million and $31$20 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$30 million for property additions compared to $33$29 million in the prior year quarter. Additionally, there were reimbursements from the restricted renewable annual asbestos trust of $8 million during the current quarter compared to $10 million in the prior year quarter, proceeds from disposal of property, plant and equipment of $5 million in the current quarter and proceeds from sale or restructuring of operations of $14 million in the current quarter. The current quarter also included a rebalancing within the asbestos trust, which resulted in $42 million of proceeds from the sale of securities offset by $42 million of purchases of securities.
Financing activities
The following discloses the cash flows associated with Ashland’s financing activities for the three months ended December 31, 20172020 and 2016.2019.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Cash flows provided (used) by financing activities from continuing operations |
|
|
|
|
|
|
|
|
Proceeds from (repayment of) short-term debt |
| $ | (187 | ) |
| $ | 14 |
|
Cash dividends paid |
|
| (17 | ) |
|
| (16 | ) |
Stock based compensation employee withholding taxes paid in cash |
|
| (3 | ) |
|
| (5 | ) |
Total cash flows used by financing activities from continuing operations |
| $ | (207 | ) |
| $ | (7 | ) |
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 generatedused by financing activities was $99resulted in an outflow of $207 million for the current quarter as compared to cash usedan outflow of $434$7 million for the prior year quarter.
Significant cash financing activities for the current quarter included short-term debt net cash inflowsrepayments of $120$187 million, primarily related to debt outstanding on the 20172020 Revolving Credit Facility and the accounts receivable securitization.securitization facilities. The current quarter included cash dividends paid of $0.225$0.275 per share, for a total of $14$17 million.
Significant cash financing activities for the prior year quarter included short-term cash outflowsinflows of $239$14 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 draws on the $150 million full repayment of a term loan held by a foreign subsidiary.2017 Revolving Credit Facility. The prior year quarter included cash dividends paid of $0.39$0.275 per share, for a total of $24$16 million.
The following discloses the cash flows associated with Ashland’s discontinued operations for the three months ended December 31, 20172020 and 2016.2019.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Cash provided (used) by discontinued operations |
|
|
|
|
|
|
|
|
Operating cash flows |
| $ | (14 | ) |
| $ | (17 | ) |
Investing cash flows |
|
| (3 | ) |
|
| 2 |
|
Total cash provided (used) by discontinued operations |
| $ | (17 | ) |
| $ | (15 | ) |
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, environmental liabilities 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.
Free cash flow and other liquidity resources
The following represents Ashland’s calculation of free cash flow for the disclosed quarters. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
|
| Three months ended |
| |||||
|
| December 31 |
| |||||
(In millions) |
| 2020 |
|
| 2019 |
| ||
Total cash flows provided (used) by operating activities from continuing operations |
| $ | 106 |
|
| $ | (34 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (30 | ) |
|
| (29 | ) |
Free cash flows (a) |
| $ | 76 |
|
| $ | (63 | ) |
|
|
|
|
|
|
|
|
|
(a) | ||
Three months ended | |||||||
December 31 | |||||||
(In millions) | 2017 | 2016 | |||||
Cash flows provided by operating activities from continuing operations | $ | (24 | ) | $ | (60 | ) | |
Adjustments: | |||||||
Additions to property, plant and equipment | (24 | ) | (33 | ) | |||
Free cash flows (a) | $ | (48 | ) | $ | (93 | ) | |
Includes |
Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $967$802 million compared to $941and $734 million atas of December 31, 2020 and September 30, 2017.2020, respectively. Liquid assets (cash,
(cash, cash equivalents and accounts receivable) amounted to 119%127% and 122%114% of current liabilities at(excluding current liabilities held for sale) as of December 31, 20172020 and September 30, 2017,2020, respectively.
The following summary reflects Ashland’s cash and unused borrowing capacity as of
December 31,(In millions) |
| December 31 2020 |
|
| September 30 2020 |
| ||
Cash and investment securities |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 335 |
|
| $ | 454 |
|
|
|
|
|
|
|
|
|
|
Unused borrowing capacity |
|
|
|
|
|
|
|
|
Revolving credit facility |
| $ | 580 |
|
| $ | 500 |
|
Accounts receivable securitizations |
|
| 114 |
|
|
| — |
|
December 31 | September 30 | ||||||
(In millions) | 2017 | 2017 | |||||
Cash and cash equivalents | $ | 601 | $ | 566 | |||
Unused borrowing capacity | |||||||
2017 Revolving Credit Facility | $ | 467 | $ | 579 | |||
Accounts receivable securitization facility | 31 | 35 |
The borrowing capacity remaining under the 2017 Revolving Credit Facility$600 million revolving credit facility was $467$580 million due to an outstanding balance of $285 million, as well as a reduction of $48$20 million for letters of credit outstanding at December 31, 2017.2020. In total, Ashland’s available liquidity position, which includes cash, the revolving credit facility and the accounts receivable securitization facility,facilities, was $1,099$1,029 million at December 31, 2017,2020, compared to $1,180$954 million at September 30, 2017.
Capital resources
Debt
The following summary reflects Ashland’s debt as of
December 31,December 31 | September 30 | ||||||
(In millions) | 2017 | 2017 | |||||
Short-term debt (includes current portion of long-term debt) | $ | 355 | $ | 235 | |||
Long-term debt (including current portion and debt issuance cost discounts) (a) | 2,584 | 2,584 | |||||
Total debt | $ | 2,939 | $ | 2,819 | |||
(In millions) |
| December 31 2020 |
|
| September 30 2020 |
| ||
Short-term debt (includes current portion of long-term debt) |
| $ | 93 |
|
| $ | 280 |
|
Long-term debt (less current portion and debt issuance cost discounts) (a) |
|
| 1,601 |
|
|
| 1,573 |
|
Total debt |
| $ | 1,694 |
|
| $ | 1,853 |
|
|
|
|
|
|
|
|
|
|
(a) | Includes $15 million of debt issuance cost discounts as of both December 31, 2020 and September 30, 2020. |
Debt as a percent of capital employed was 46%35% and 38% at December 31, 20172020 and 45% at September 30, 2017.2020, respectively. At December 31, 2017,2020, Ashland’s total debt had an outstanding principal balance of $3,015$1,751 million, discounts of $52$42 million, and debt issuance costs of $24$15 million. The scheduled aggregate maturities of long-term debt by year (including the current portion and excluding debt issuance costs) are as follows: $5 millionzero remaining in 2018, $112021, $421 million in 2019, $2692022, $22 million in 2020, $562023, $44 million in 20212024 and $1,279$175 million in 2022.
Ashland credit ratings
Ashland’s corporate credit rating withratings remained unchanged at BB+ by Standard & Poor’s is BB, whileand Ba1 by Moody’s Investor Services. As of December 31, 2020, Moody’s Investor Services is Ba2. Moody’s Investor Services andoutlook remained at stable, while Standard & Poor's outlooks bothoutlook remained at stable.negative. Subsequent changes to these ratings or outlook may have an effect on Ashland’s borrowing rate or ability to access capital markets in the future.
Ashland debt covenant restrictions
Ashland's most recent credit agreement (the 20172020 Credit Agreement) contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations.
The maximum consolidated net leverage ratio permitted under the 20172020 Credit Agreement is 4.5.4.0. The 20172020 Credit Agreement defines the consolidated net leverage ratio as the ratio of consolidated indebtedness minus unrestricted cash and cash equivalents to consolidated EBITDA (Covenant Adjusted EBITDA) for any measurement period. In general, the 20172020 Credit Agreement defines Covenant Adjusted EBITDA as net income plus consolidated interest charges, taxes, depreciation and amortization expense, fees and expenses related to capital market transactions and proposed or actual acquisitions and divestitures, restructuring and integration charges, noncash stock and equity compensation expense, and any other nonrecurring expenses or losses that do not represent a cash item in such period or any future period; less any noncash gains or other items increasing net income. The computation of Covenant Adjusted EBITDA differs from the calculation of EBITDA and Adjusted EBITDA, which have been reconciled on page 41.above in the “consolidated review” section. In general, consolidated indebtedness includes debt plus all purchase money indebtedness, banker’s acceptances and bank guaranties, deferred purchase price of property or services, attributable indebtedness and guarantees.
The minimum required consolidated interest coverage ratio under the 20172020 Credit Agreement is 3.0. The 20172020 Credit Agreement defines the consolidated interest coverage ratio as the ratio of Covenant Adjusted EBITDA to consolidated interest charges for any measurement period.
Any change in Covenant Adjusted EBITDA of $100 million would have an approximate 0.7x0.4x effect on the consolidated net leverage ratio and a 0.8x1.5x effect on the consolidated interest coverage ratio. The average change in consolidated indebtedness of $100 million would affect the consolidated leverage ratio by approximately 0.2x.
Additional capital resources
Cash projection
Ashland projectsbelieves that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other available financial resources such asfinancing, if necessary, will provide adequate cash on hand and revolving credit should be sufficient to meet investing and financing requirements to enable Ashland to comply withfunds for the covenants and other terms of its financing obligations. These projections are based on various assumptions that include, but are not limited to: operational results, capital expenditures,Company’s foreseeable working capital needs, and taxcapital expenditures at existing facilities, pending acquisitions, dividend payments and receipts.
Total equity
Total equity decreased $7increased $86 million since September 30, 20172020 to $3,399$3,122 million at December 31, 2017.2020. The decreaseincrease of $7$86 million was due to cash dividendsnet income of $14$56 million, deferred translation gain of $48 million and a net loss$1 million of $4 million, partiallycommon shares issued under stock incentive plans, offset by an $8$17 million net increase in available-for-sale securitiesof dividends and $3$2 million related to deferred translation gains.
Stockholder dividends
In May 2017, subsequent to the final distribution of Valvoline Inc.'s common stock,2019, the Board of Directors of Ashland announced a quarterly cash dividend of 22.527.5 cents per share to eligible shareholdersstockholders at record whichrecord. This dividend was paid for quarterly dividends in the first quarter of fiscal 20182021, each quarter of fiscal 2020 and the third and fourth quarters of fiscal 2017. This represented a reduction from the previous quarterly dividend of 39 cents per share which was paid for quarterly dividends in the first and second quarters of fiscal 2017.
Capital
expendituresCapital expenditures were $24$30 million for the three months ended December 31, 2017 and averaged approximately $2172020 compared to $29 million duringfor the last three fiscal years.
CRITICAL ACCOUNTING POLICIES
The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes, other liabilities and receivables associated with asbestos litigation and environmental remediation. These accounting policies are discussed in detail in “Management’s Discussion and Analysis – Critical Accounting Policies” in Ashland’s Annual Report on Form 10-K for the fiscal year ended
September 30,from the estimates under different assumptions or conditions. Management has reviewed the estimates affecting these items with the Audit Committee of Ashland’s Board of Directors. No material changes have been made to the valuation techniques during the
three months ended December 31,ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Ashland’s market risk exposure at
December 31,ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
- As of the end of the period covered by this quarterly report, Ashland, under the supervision and with the participation of its management, including Ashland’s Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of Ashland’s disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31,Changes in Internal Control over Financial Reporting
- During the three months ended December 31,PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following is a description of Ashland’s material legal proceedings.
Asbestos-Related Litigation
Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation (Riley), a former subsidiary. Although Riley was neither a producer nor a manufacturer of asbestos, its industrial boilers contained some asbestos-containing components provided by other companies.
Hercules LLC (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland, is also subject to liabilities from asbestos-related personal injury lawsuits involving claims which typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market.
Ashland and Hercules are also defendants in lawsuits alleging exposure to asbestos at facilities formerly or presently owned or operated by Ashland or Hercules.
For additional detailed information regarding liabilities arising from asbestos-related litigation, see Note KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.
Environmental Proceedings
(a) CERCLA and Similar State Law Sites -
Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state laws, Ashland and its subsidiaries may be subject to joint and several liability for cleanup costs in connection with alleged releases of hazardous substances at sites where it has been identified as a “potentially responsible party” (PRP). As of December 31,(b) Hattiesburg, Mississippi Resource Conservation and Recovery Act Matter -
For additional information regarding environmental matters and reserves, see Note KL of Notes to Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q.
Other Pending Legal Proceedings
In addition to the matters described above, there are other various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries. Such actions are with respect to commercial matters, product liability, toxic tort liability and other environmental matters which seek remedies or damages, some of which are for substantial amounts. While Ashland cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded and losses already recognized with respect to such actions were immaterial as of December 31, 2017.2020. 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, 2017.2020.
ITEM 1A. RISK FACTORS
During the period covered by this report, there were no material changes from the risk factors previously disclosed in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There was no share repurchase activity during the three months ended December 31, 2017 was as follows:2020.
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 Be Purchased Under the Plans or Programs (in millions)(a) |
| ||||
October 1, 2020 to October 31, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 800 |
|
November 1, 2020 to November 30, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 800 |
|
December 1, 2020 to December 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 800 |
|
Total |
|
| — |
|
|
|
|
|
|
| — |
|
| $ | 800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities | ||||||||||||||
Q1 Fiscal Periods | Total Number of Shares Purchased | Average Price Paid Per Share, including commission | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(a) | ||||||||||
October 1, 2017 to October 31, 2017 | — | $ | — | — | $ | 500 | ||||||||
November 1, 2017 to November 30, 2017: | ||||||||||||||
Employee Tax Withholdings | 16,465 | (b) | 66.56 | — | 500 | |||||||||
December 1, 2017 to December 31, 2017 | — | — | — | 500 | ||||||||||
Total.......................................................... | 16,465 | — | $ | 500 |
(a) | During March 2018, Ashland’s Board of Directors approved a new $1 billion stock repurchase program, which replaced the previous stock repurchase program. Ashland’s stock repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 of the Exchange Act. As of December 31, 2020, $800 million remains available for repurchase under this authorization. |
ITEM 6. EXHIBITS
(a) Exhibits | |
10.1 | |
10.2 | |
10.3* | |
10.4* | |
31.1* | |
101.INS** | Inline XBRL Instance Document. |
101.SCH** | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL** | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF** | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB** | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE** | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* | Filed herewith. |
** | Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2020 and December 31, 2019; (ii) Condensed Consolidated Balance Sheets at December 31, 2020 and September 30, 2020; (iii) Statements of Consolidated Equity at December 31, 2020; (iv) Statements of Condensed Consolidated Cash Flows for the three months ended December 31, 2020 and December 31, 2019; and (v) Notes to Condensed Consolidated Financial Statements. |
SM | Service mark, Ashland or its subsidiaries, registered in various countries. |
™ | Trademark, Ashland or its subsidiaries, registered in various countries. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Ashland Global Holdings Inc. | ||
(Registrant) | ||
February 4, 2021 | /s/ J. Kevin Willis | |
J. Kevin Willis | ||
Senior Vice President and Chief Financial Officer (on behalf of the Registrant and as principal financial officer) |
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