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ASHLAND INC. - Quarter Report: 2022 June (Form 10-Q)

 

 

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 June 30, 2022

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 (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. YesNo ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YesNo ☐

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.

 

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 ☐ No

At June 30, 2022, there were 54,139,396 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

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions except per share data - unaudited)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Sales

 

$

644

 

 

$

543

 

 

$

1,759

 

 

$

1,520

 

Cost of sales

 

 

404

 

 

 

370

 

 

 

1,139

 

 

 

1,040

 

Gross profit

 

 

240

 

 

 

173

 

 

 

620

 

 

 

480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

 

127

 

 

 

93

 

 

 

299

 

 

 

274

 

Research and development expense

 

 

14

 

 

 

13

 

 

 

40

 

 

 

37

 

Intangibles amortization expense

 

 

23

 

 

 

23

 

 

 

71

 

 

 

65

 

Equity and other income

 

 

1

 

 

 

1

 

 

 

2

 

 

 

7

 

Operating income

 

 

77

 

 

 

45

 

 

 

212

 

 

 

111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and other expense

 

 

59

 

 

 

1

 

 

 

108

 

 

 

18

 

Other net periodic benefit loss - Note K

 

 

(1

)

 

 

 

 

 

 

 

 

 

Income on acquisitions and divestitures, net - Note B

 

 

35

 

 

 

2

 

 

 

42

 

 

 

11

 

Income from continuing operations before income taxes

 

 

52

 

 

 

46

 

 

 

146

 

 

 

104

 

Income tax expense (benefit)

 

 

1

 

 

 

(26

)

 

 

25

 

 

 

(35

)

Income from continuing operations

 

 

51

 

 

 

72

 

 

 

121

 

 

 

139

 

Income (loss) from discontinued operations (net of income taxes) - Note C

 

 

(15

)

 

 

8

 

 

 

749

 

 

 

37

 

Net income

 

$

36

 

 

$

80

 

 

$

870

 

 

$

176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share - Note M

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.94

 

 

$

1.18

 

 

$

2.16

 

 

$

2.29

 

Income (loss) from discontinued operations

 

 

(0.28

)

 

 

0.12

 

 

 

13.40

 

 

 

0.61

 

Net income

 

$

0.66

 

 

$

1.30

 

 

$

15.56

 

 

$

2.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share - Note M

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.93

 

 

$

1.17

 

 

$

2.12

 

 

$

2.27

 

Income (loss) from discontinued operations

 

 

(0.28

)

 

 

0.12

 

 

 

13.16

 

 

 

0.60

 

Net income

 

$

0.65

 

 

$

1.29

 

 

$

15.28

 

 

$

2.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

36

 

 

$

80

 

 

$

870

 

 

$

176

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized translation gain (loss)

 

 

(86

)

 

 

23

 

 

 

(107

)

 

 

37

 

Unrealized gain (loss) on commodity hedges

 

 

(3

)

 

 

 

 

 

(2

)

 

 

 

Other comprehensive income (loss) - Note N

 

 

(89

)

 

 

23

 

 

 

(109

)

 

 

37

 

Comprehensive income (loss)

 

$

(53

)

 

$

103

 

 

$

761

 

 

$

213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

2


 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In millions - unaudited)

 

June 30
2022

 

 

September 30
2021

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

629

 

 

$

210

 

Accounts receivable (a) - Note H

 

 

488

 

 

 

369

 

Inventories - Note F

 

 

609

 

 

 

473

 

Other assets

 

 

91

 

 

 

68

 

Current assets held for sale - Note B

 

 

 

 

 

597

 

Total current assets

 

 

1,817

 

 

 

1,717

 

Noncurrent assets

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

Cost

 

 

3,065

 

 

 

3,066

 

Accumulated depreciation

 

 

1,713

 

 

 

1,639

 

Net property, plant and equipment

 

 

1,352

 

 

 

1,427

 

Goodwill - Note G

 

 

1,356

 

 

 

1,430

 

Intangibles - Note G

 

 

1,001

 

 

 

1,099

 

Operating lease assets, net - Note I

 

 

112

 

 

 

124

 

Restricted investments - Note E

 

 

346

 

 

 

384

 

Asbestos insurance receivable (b) - Note L

 

 

140

 

 

 

134

 

Deferred income taxes

 

 

30

 

 

 

30

 

Other assets

 

 

258

 

 

 

267

 

Total noncurrent assets

 

 

4,595

 

 

 

4,895

 

Total assets

 

$

6,412

 

 

$

6,612

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Short-term debt - Note H

 

$

 

 

$

365

 

Current portion of long-term debt - Note H

 

 

 

 

 

9

 

Trade and other payables

 

 

241

 

 

 

236

 

Accrued expenses and other liabilities

 

 

291

 

 

 

251

 

Current operating lease obligations - Note I

 

 

18

 

 

 

23

 

Current liabilities held for sale - Note B

 

 

 

 

 

50

 

Total current liabilities

 

 

550

 

 

 

934

 

Noncurrent liabilities

 

 

 

 

 

 

Long-term debt - Note H

 

 

1,302

 

 

 

1,596

 

Asbestos litigation reserve - Note L

 

 

483

 

 

 

490

 

Deferred income taxes

 

 

218

 

 

 

237

 

Employee benefit obligations - Note K

 

 

137

 

 

 

144

 

Operating lease obligations - Note I

 

 

100

 

 

 

110

 

Other liabilities

 

 

356

 

 

 

349

 

Total noncurrent liabilities

 

 

2,596

 

 

 

2,926

 

Commitments and contingencies - Note L

 

 

 

 

 

 

Stockholders’ equity - Note N

 

 

3,266

 

 

 

2,752

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

6,412

 

 

$

6,612

 

 

 

 

 

 

 

 

(a)
Accounts receivable includes an allowance for credit losses of $2 million at both June 30, 2022 and September 30, 2021.
(b)
Asbestos insurance receivable includes an allowance for credit losses of $3 million at both June 30, 2022 and September 30, 2021.

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

3


 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS

 

 

 

Nine months ended

 

 

 

June 30

 

(In millions - unaudited)

 

2022

 

 

2021

 

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM
   CONTINUING OPERATIONS

 

 

 

 

 

 

Net income

 

$

870

 

 

$

176

 

Income from discontinued operations (net of income taxes)

 

 

(749

)

 

 

(37

)

Adjustments to reconcile income from continuing operations to

 

 

 

 

 

 

cash flows from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

182

 

 

 

180

 

Original issue discount and debt issuance costs amortization

 

 

4

 

 

 

4

 

Deferred income taxes

 

 

(5

)

 

 

(3

)

Gain from sales of property and equipment

 

 

 

 

 

(3

)

Distributions from equity affiliates

 

 

 

 

 

1

 

Stock based compensation expense

 

 

14

 

 

 

12

 

Excess tax benefit on stock based compensation

 

 

1

 

 

 

1

 

Loss (income) from restricted investments

 

 

59

 

 

 

(36

)

Income on acquisitions and divestitures

 

 

(42

)

 

 

(15

)

Impairments

 

 

 

 

 

9

 

Pension contributions

 

 

(4

)

 

 

(6

)

Gain on pension and other postretirement plan remeasurements

 

 

(1

)

 

 

 

Change in operating assets and liabilities (a)

 

 

(315

)

 

 

31

 

Total cash flows provided by operating activities from continuing operations

 

 

14

 

 

 

314

 

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM
   CONTINUING OPERATIONS

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(67

)

 

 

(74

)

Proceeds from disposal of property, plant and equipment

 

 

51

 

 

 

4

 

Purchase of operations - net of cash acquired

 

 

 

 

 

(308

)

Proceeds from sale or restructuring of operations

 

 

 

 

 

14

 

Proceeds from settlement of Company-owned life insurance contracts

 

 

2

 

 

 

1

 

Company-owned life insurance payments

 

 

 

 

 

(1

)

Net purchase of funds restricted for specific transactions

 

 

(74

)

 

 

(1

)

Reimbursements from restricted investments

 

 

28

 

 

 

25

 

Proceeds from sale of securities

 

 

75

 

 

 

56

 

Purchases of securities

 

 

(75

)

 

 

(56

)

Total cash flows used by investing activities from continuing operations

 

 

(60

)

 

 

(340

)

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM
   CONTINUING OPERATIONS

 

 

 

 

 

 

Repurchase of common stock

 

 

(200

)

 

 

 

Repayment of long-term debt

 

 

(250

)

 

 

 

Proceeds from (repayment of) short-term debt

 

 

(365

)

 

 

(185

)

Cash dividends paid

 

 

(52

)

 

 

(52

)

Stock based compensation employee withholding taxes paid in cash

 

 

(9

)

 

 

(6

)

Total cash flows used by financing activities from continuing operations

 

 

(876

)

 

 

(243

)

CASH USED BY CONTINUING OPERATIONS

 

 

(922

)

 

 

(269

)

Cash provided (used) by discontinued operations

 

 

 

 

 

 

Operating cash flows

 

 

(302

)

 

 

84

 

Investing cash flows

 

 

1,650

 

 

 

(11

)

Total cash provided by discontinued operations

 

 

1,348

 

 

 

73

 

Effect of currency exchange rate changes on cash and cash equivalents

 

 

(7

)

 

 

4

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

419

 

 

 

(192

)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

 

210

 

 

 

454

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$

629

 

 

$

262

 

 

 

 

 

 

 

 

(a)
Excludes changes resulting from operations acquired, sold or held for sale.

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

4


 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE A – SIGNIFICANT ACCOUNTING POLICIES

Basis 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. These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with Ashland Global Holdings Inc. and consolidated subsidiaries (Ashland) Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Results of operations for the periods ended June 30, 2022 are not necessarily indicative of the expected results for the remaining quarter in the fiscal year.

On February 28, 2022, Ashland completed the sale of its Performance Adhesives segment to Arkema, a French société anonyme. This divestiture represented a strategic shift in Ashland's business and qualified as a discontinued operation. As a result, the assets, liabilities, operating results and cash flows related to Performance Adhesives have been classified as discontinued operations for all periods presented within the Consolidated Financial Statements. See Notes B and C for additional information on this divestiture.

Ashland is comprised of four reportable segments: Life Sciences, Personal Care (formerly Personal Care and Household), Specialty Additives, and Intermediates (formerly Intermediates and Solvents). Unallocated and Other includes corporate governance activities and certain legacy matters. For additional information, see Note Q.

Use of estimates, risks and uncertainties

The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, 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 pronouncements

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, 2021. There were no new standards that were either issued or adopted in the current fiscal year that will have a material impact on Ashland's consolidated financial statements.

 

 

5


 

NOTE B – ACQUISITIONS AND DIVESTITURES

Acquisitions

Personal Care acquisition

On April 30, 2021, Ashland completed its acquisition of the personal care business of Schülke & Mayr GmbH (Schülke), a portfolio company of the global investment organization EQT. Ashland included the purchase of this business within the Personal Care reporting segment.

The all-cash purchase price of Schülke was $312 million. Ashland incurred acquisition related transaction costs of $2 million and $4 million during the three and nine months ended June 30, 2021, respectively, which are recorded within the income on acquisitions and divestitures, net caption within the Statement of Consolidated Comprehensive Income (Loss). Within this same caption, Ashland recognized income of $4 million and $1 million during the three and nine months ended June 30, 2021, respectively, associated with foreign currency derivatives gains on foreign exchange contracts entered into to mitigate the exposure of the Euro dominated purchase price.

Divestitures

Performance Adhesives

On February 28, 2022, Ashland completed the sale of its Performance Adhesives business. Proceeds from the sale were approximately $1.7 billion, net of transaction costs. Ashland recognized a $732 million gain on sale within the Income (loss) from Discontinued Operations caption of the Statements of Consolidated Comprehensive Income (Loss) during the second quarter of fiscal 2022.

The transaction represented a strategic shift in Ashland’s business and had a major effect on Ashland’s operations and financial results. Accordingly, the operating results and cash flows related to Performance Adhesives have been reflected as discontinued operations in the Statements of Consolidated Comprehensive Income (Loss) and Statements of Condensed Consolidated Cash Flows, while the assets and liabilities that were sold have been classified within the Condensed Consolidated Balance Sheets as held for sale in periods preceding the sale. See Note C for the results of operations for Performance Adhesives for all periods presented.

Certain indirect corporate costs included within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss) that were previously allocated to the Performance Adhesives segment do not qualify for classification within discontinued operations and are now reported as selling, general and administrative expense within continuing operations on a consolidated basis and within the Unallocated and other segment. These costs were $1 million and $4 million for the three months ended June 30, 2022 and 2021, respectively, and $8 million and $12 million for the nine months ended June 30, 2022 and 2021, respectively.

Following the completion of the sale, Ashland is providing certain transition services to Arkema for a fee. While the transition services are expected to vary in duration depending upon the type of service provided, Ashland does not expect these transition services, or related fees, will be significant. Ashland recognized transaction service fee income of less than $1 million for the three and nine months ended June 30, 2022.

Other manufacturing facility sales

During the nine months ended June 30, 2021, Ashland completed the sale of a Specialty Additives facility. Net proceeds received from the sale were approximately $14 million in the December 31, 2020 quarter ($20 million in total including a deposit received in fiscal year 2020). Ashland recognized a pre-tax gain of $14 million recorded within the Income on acquisitions and divestitures, net caption in the Statements of Consolidated Comprehensive Income (Loss) for the nine months ended June 30, 2021.

6


 

Other corporate assets

During the three and nine months ended June 30, 2022, Ashland completed the sale of two excess land properties. The net book value of the land was $8 million as of September 30, 2021. Ashland received net proceeds of approximately $50 million and recorded pre-tax gains of $35 million and $42 million within the Income (loss) on acquisitions and divestitures, net caption of the Statements of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2022, respectively.

Held for sale classification

The assets and liabilities of the Performance Adhesives segment, along with other properties, had been reflected as assets and liabilities held for sale as described above for the period ended September 20, 2021. As a result, in accordance with U.S. GAAP standards, depreciation and amortization were not being recorded within the Statements of Consolidated Comprehensive Income (Loss) and the Condensed Consolidated Balance Sheets. These assets and liabilities are comprised of the following components:

 

 

September 30

 

(In millions)

 

2021

 

Accounts receivable, net

 

$

26

 

Inventories

 

 

27

 

Net property, plant and equipment

 

 

80

 

Goodwill

 

 

453

 

Operating lease assets, net

 

 

10

 

Other assets

 

 

1

 

Current assets held for sale

 

$

597

 

 

 

 

 

Trade and other payables

 

$

33

 

Accrued expenses and other liabilities

 

 

7

 

Current operating lease obligations

 

 

1

 

Operating lease obligations

 

 

9

 

Current liabilities held for sale

 

$

50

 

 

NOTE C– DISCONTINUED OPERATIONS

Ashland has divested certain businesses that have qualified as discontinued operations. The operating results from these divested businesses and subsequent adjustments related to ongoing assessments of certain retained liabilities and tax items have been recorded within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss) for all periods presented.

Components of amounts reflected in the Statements of Consolidated Comprehensive Income (Loss) related to discontinued operations are presented in the following table for the three and nine months ended June 30, 2022 and 2021.

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Income (loss) from discontinued operations (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

Performance Adhesives

 

$

4

 

 

$

15

 

 

$

38

 

 

$

51

 

Composites/Marl facility

 

 

 

 

 

2

 

 

 

 

 

 

1

 

Valvoline

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Asbestos

 

 

(13

)

 

 

(8

)

 

 

(13

)

 

 

(8

)

Water Technologies

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(1

)

Distribution

 

 

(5

)

 

 

(2

)

 

 

(7

)

 

 

(4

)

Gain (loss) on disposal of discontinued operations (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

Performance Adhesives

 

 

 

 

 

 

 

 

732

 

 

 

 

Composites/Marl facility

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

$

(15

)

 

$

8

 

 

$

749

 

 

$

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


 

The following table presents a reconciliation of the captions within Ashland's Statements of Consolidated Comprehensive Income (Loss) for the income (loss) from discontinued operations attributable to Performance Adhesives for the three and nine months ended June 30, 2022 and 2021. The sale of the Performance Adhesives business was completed on February 28, 2022.

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Income (loss) from discontinued operations attributable to Performance Adhesives

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

 

 

$

94

 

 

$

171

 

 

$

266

 

Cost of sales

 

 

 

 

 

(69

)

 

 

(122

)

 

 

(180

)

Selling, general and administrative expense

 

 

(1

)

 

 

(6

)

 

 

(12

)

 

 

(16

)

Research and development expense

 

 

 

 

 

(2

)

 

 

(3

)

 

 

(6

)

Intangibles amortization expense

 

 

 

 

 

 

 

 

 

 

 

(1

)

Pretax income of discontinued operations

 

 

(1

)

 

 

17

 

 

 

34

 

 

 

63

 

Income tax (expense) benefit

 

 

5

 

 

 

(2

)

 

 

4

 

 

 

(12

)

Income from discontinued operations

 

$

4

 

 

$

15

 

 

$

38

 

 

$

51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE D – RESTRUCTURING ACTIVITIES

 

Company-wide restructuring activities

Ashland periodically implements company-wide restructuring programs related to acquisitions, divestitures and other cost reduction programs in order to enhance profitability through streamlined operations and an improved overall cost structure.

Fiscal 2020 and 2021 restructuring program

Ashland recorded severance expense of zero and income of $6 million during the three months ended June 30, 2022 and 2021, respectively, and income of $1 million and expense of $2 million during the nine months ended June 30, 2022 and 2021, respectively, attributable to executive management changes and business management changes within the organization. As of June 30, 2022, the severance reserve associated with this transition was $2 million.

The following table details at June 30, 2022 and 2021, the amount of restructuring severance reserves related to this program. The severance reserves were primarily recorded within accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2022 and 2021.

 

(In millions)

Severance costs

 

Balance at of September 30, 2021

$

6

 

Restructuring reserve

 

(1

)

Utilization (cash paid)

 

(3

)

Balance at June 30, 2022

$

2

 

 

(In millions)

Severance costs

 

Balance at of September 30, 2020

$

39

 

Restructuring reserve

 

2

 

Utilization (cash paid)

 

(27

)

Balance at June 30, 2021

$

14

 

 

8


 

NOTE E – FAIR VALUE MEASUREMENTS

Ashland uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value. Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows.

Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

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 models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

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 using 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 June 30, 2022.

 

 

 

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

 

$

629

 

 

$

629

 

 

$

629

 

 

$

 

 

$

 

Restricted investments (a) (b)

 

 

407

 

 

 

407

 

 

 

407

 

 

 

 

 

 

 

Investment of captive insurance company (c)

 

 

9

 

 

 

9

 

 

 

9

 

 

 

 

 

 

 

Foreign currency derivatives (d)

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

Commodity derivatives (d)

 

 

3

 

 

 

3

 

 

 

 

 

 

3

 

 

 

 

Total assets at fair value

 

$

1,050

 

 

$

1,050

 

 

$

1,045

 

 

$

5

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency derivatives (e)

 

$

3

 

 

$

3

 

 

$

 

 

$

3

 

 

$

 

Commodity derivatives (e)

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

Total liabilities at fair value

 

$

5

 

 

$

5

 

 

$

 

 

$

5

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
Included in restricted investments and $61 million within other current assets in the Condensed Consolidated Balance Sheets.
(b)
Includes $269 million related to the Asbestos trust and $138 million related to the Environmental trust.
(c)
Included in other noncurrent assets in the Condensed Consolidated Balance Sheets.
(d)
Included in accounts receivable in the Condensed Consolidated Balance Sheets.
(e)
Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets.

9


 

The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2021.

 

 

 

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

 

$

210

 

 

$

210

 

 

$

210

 

 

$

 

 

$

 

Restricted investments (a) (b)

 

 

421

 

 

 

421

 

 

 

421

 

 

 

 

 

 

 

Investment of captive insurance company (c)

 

 

8

 

 

 

8

 

 

 

8

 

 

 

 

 

 

 

Foreign currency derivatives (d)

 

 

1

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Commodity derivatives (d)

 

 

5

 

 

 

5

 

 

 

 

 

 

5

 

 

 

 

Total assets at fair value

 

$

645

 

 

$

645

 

 

$

639

 

 

$

6

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency derivatives (e)

 

$

2

 

 

$

2

 

 

$

 

 

$

2

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
Included in restricted investments and $37 million within other current assets in the Condensed Consolidated Balance Sheets.
(b)
Includes $333 million related to the Asbestos trust and $88 million related to the Environmental trust.
(c)
Included in other noncurrent assets in the Condensed Consolidated Balance Sheets.
(d)
Included in accounts receivable in the Condensed Consolidated Balance Sheets.
(e)
Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets.

Restricted investments

Investment income and realized gains and losses on these company-restricted investments are reported within the net interest and other expense caption on the Statements of Consolidated Comprehensive Income (Loss). The following table provides a summary of the activity within the investment portfolio as of June 30, 2022 and September 30, 2021:

 

(In millions)

 

June 30
2022

 

 

September 30
2021

 

Original cost

 

$

335

 

 

$

335

 

Accumulated adjustments, net

 

 

37

 

 

 

(50

)

Adjusted cost, beginning of year (a)

 

 

372

 

 

 

285

 

Investment income (b)

 

 

13

 

 

 

12

 

Net unrealized gain (loss) (c)

 

 

(25

)

 

 

49

 

Realized gains (losses) (c)

 

 

1

 

 

 

17

 

Funds restricted for specific transactions (d)

 

 

74

 

 

 

91

 

Disbursements

 

 

(28

)

 

 

(33

)

Fair value

 

$

407

 

 

$

421

 

 

 

 

 

 

 

 

(a)
The adjusted cost of the demand deposits includes accumulated investment income, realized gains, additional funds restricted for specific transactions and disbursements recorded in previous periods. The adjusted cost as of June 30, 2022 includes the $90 million funding to establish the Environmental trust.
(b)
Investment income relates to the demand deposit and includes interest income as well as dividend income transferred from the equity and fixed income mutual funds.
(c)
Presented under the original cost method.
(d)
The June 30, 2022 period included additional contributions to the Environmental trust from proceeds associated with the Performance Adhesives sale and excess land sales. The September 30, 2021 period included $90 million to establish the Environmental trust.

10


 

The following table presents gross unrealized gains and losses for the restricted investment securities as of June 30, 2022 and September 30, 2021:

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

(In millions)

 

Adjusted Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

As of June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposit

 

$

7

 

 

$

 

 

$

 

 

$

7

 

Equity mutual fund

 

 

178

 

 

 

23

 

 

 

(13

)

 

 

188

 

Fixed income mutual fund

 

 

247

 

 

 

 

 

 

(35

)

 

 

212

 

Fair value

 

$

432

 

 

$

23

 

 

$

(48

)

 

$

407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposit

 

$

6

 

 

$

 

 

$

 

 

$

6

 

Equity mutual fund

 

 

143

 

 

 

44

 

 

 

(1

)

 

 

186

 

Fixed income mutual fund

 

 

223

 

 

 

7

 

 

 

(1

)

 

 

229

 

Fair value

 

$

372

 

 

$

51

 

 

$

(2

)

 

$

421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents the investment income, net gains and losses realized and disbursements related to the investments within the portfolio for the three and nine months ended June 30, 2022 and 2021.

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Investment income

 

$

3

 

 

$

2

 

 

$

13

 

 

$

10

 

Net gains (losses)

 

 

(48

)

 

 

15

 

 

 

(72

)

 

 

26

 

Disbursements

 

 

 

 

 

(6

)

 

 

(28

)

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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. 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 losses recognized during the three and nine months ended June 30, 2022 and 2021 within the Statements of Consolidated Comprehensive Income (Loss).

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Foreign currency derivative gain (loss)

 

$

(12

)

 

$

3

 

 

$

(21

)

 

$

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table summarizes the fair values of the outstanding foreign currency derivatives as of June 30, 2022 and September 30, 2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.

 

 

 

June 30

 

 

September 30

 

(In millions)

 

2022

 

 

2021

 

Foreign currency derivative assets

 

$

2

 

 

$

1

 

Notional contract values

 

 

244

 

 

 

150

 

 

 

 

 

 

 

 

Foreign currency derivative liabilities

 

$

3

 

 

$

2

 

Notional contract values

 

 

263

 

 

 

212

 

 

 

 

 

 

 

 

 

11


 

Commodity derivatives

To manage its exposure to the market price volatility of natural gas consumed by its U.S. plants during the manufacturing process, Ashland regularly enters into forward contracts that are designated as cash flow hedges. The following table summarizes the net gains and losses recognized during the three and nine months ended June 30, 2022 and 2021 within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss).

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Commodity derivative gain (loss)

 

$

2

 

 

$

 

 

$

6

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table summarizes the fair values of the outstanding commodity derivatives as of June 30, 2022, and September 30, 2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.

 

 

June 30

 

 

September 30

 

(In millions)

 

2022

 

 

2021

 

Commodity derivative assets

 

$

3

 

 

$

5

 

Notional contract values

 

 

12

 

 

 

6

 

 

 

 

 

 

 

 

Commodity derivative liabilities

 

$

2

 

 

$

 

Notional contract values

 

 

10

 

 

 

 

 

 

 

 

 

 

 

Total return derivatives

Ashland maintains certain employee stock based compensation programs whereby certain employees receive awards that entitle them to a cash payout based on Ashland's stock price at a future date. To manage its exposure to the changes in fair value of the shares that determine the payout, Ashland entered into a Total Return Swap (TRS) in fiscal year 2022. The company pays a floating rate, based on LIBOR plus an interest rate spread on the notional amount of the TRS. The TRS is designed to substantially offset changes in the stock based compensation liabilities due to the change in the fair value of Ashland's stock. The contract term of the TRS is through December 2022 and is settled on quarterly basis. The following table summarized the net gains and losses recognized for the three and nine months ended June 30, 2022 and 2021 within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss).

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Total return swap gain (loss)

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table summarizes the fair values of the outstanding TRS as of June 30, 2022 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.

 

 

June 30

 

 

September 30

 

(In millions)

 

2022

 

 

2021

 

Total return swap assets

 

$

 

 

$

 

Notional contract values

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

12


 

Other financial instruments

At June 30, 2022 and September 30, 2021, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $1,317 million and $1,622 million, respectively, compared to a fair value of $1,181 million and $1,794 million, respectively. The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland’s incremental borrowing rates. The carrying value of long-term debt with variable interest approximated fair value.

NOTE F – INVENTORIES

Inventories are carried at the lower of cost or net realizable value. Inventories are stated at cost using the weighted-average cost method.

The following table summarizes Ashland’s inventories as of the reported Condensed Consolidated Balance Sheet dates.

 

 

 

June 30

 

 

September 30

 

(In millions)

 

2022

 

 

2021

 

Finished products

 

$

350

 

 

$

282

 

Raw materials, supplies and work in process

 

 

259

 

 

 

191

 

 

 

$

609

 

 

$

473

 

 

NOTE G – GOODWILL AND OTHER INTANGIBLES

Goodwill

Ashland tests goodwill and other indefinite-lived intangible assets for impairment annually as of July 1 and when events and circumstances indicate an impairment may have occurred. Ashland tests goodwill and other indefinite-lived intangible assets for impairment by comparing the estimated fair value of the reporting units (for goodwill) and other indefinite-lived intangible assets to the related carrying value. If the carrying amount of a reporting unit or other indefinite-lived intangible asset exceeds its estimated fair value, Ashland records an impairment loss based on the difference between fair value and carrying amount, not to exceed the associated carrying amount of goodwill per reporting unit.

No indicators of impairment were identified in the three and nine months ended June 30, 2022.

Ashland’s assessment of an impairment on any of these assets classified currently as having indefinite lives, including goodwill, could change in future periods if significant events happen and/or circumstances change that effect the previously mentioned assumptions such as: a significant change in projected business results, a divestiture decision, increase in Ashland’s weighted-average cost of capital rates, decrease in growth rates or assumptions, economic deterioration that is more severe or of a longer duration than anticipated, or another significant economic event.

The following is a progression of goodwill by reportable segment for the nine months ended June 30, 2022.

 

 

Life

 

 

Personal

 

 

Specialty

 

 

 

 

 

 

 

(In millions)

Sciences

 

 

Care (a)

 

 

Additives (a)

 

 

Intermediates (a)

 

 

Total

 

Balance at September 30, 2021

$

856

 

 

$

129

 

 

$

445

 

 

$

 

 

$

1,430

 

Currency translation

 

(44

)

 

 

(7

)

 

 

(23

)

 

 

 

 

 

(74

)

Balance at June 30, 2022

$

812

 

 

$

122

 

 

$

422

 

 

$

 

 

$

1,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
As of June 30, 2022 and September 30, 2021, there were accumulated impairments of $356 million, $174 million and $90 million related to the Personal Care, Specialty Additives and Intermediates reportable segments, respectively.

13


 

Other intangible assets

Intangible assets principally consist of trademarks and trade names, intellectual property and customer and supplier relationships. Intangible assets classified as finite are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 3 to 25 years, intellectual property over 5 to 25 years, and customer and supplier relationships over 3 to 24 years.

Ashland annually reviews, as of July 1, indefinite-lived intangible assets for possible impairment or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

No indicators of impairment were identified in the three and nine months ended June 30, 2022.

Intangible assets were comprised of the following as of June 30, 2022 and September 30, 2021.

 

 

June 30, 2022

 

 

Gross

 

 

 

 

 

Net

 

 

carrying

 

 

Accumulated

 

 

carrying

 

(In millions)

amount

 

 

amortization

 

 

amount

 

Definite-lived intangibles

 

 

 

 

 

 

 

 

Trademarks and trade names

$

97

 

 

$

(36

)

 

$

61

 

Intellectual property

 

730

 

 

 

(519

)

 

 

211

 

Customer and supplier relationships

 

820

 

 

 

(369

)

 

 

451

 

Total definite-lived intangibles

 

1,647

 

 

 

(924

)

 

 

723

 

 

 

 

 

 

 

 

 

 

Indefinite-lived intangibles

 

 

 

 

 

 

 

 

Trademarks and trade names

 

278

 

 

 

 

 

 

278

 

Total intangible assets

$

1,925

 

 

$

(924

)

 

$

1,001

 

 

 

 

September 30, 2021

 

 

Gross

 

 

 

 

 

Net

 

 

carrying

 

 

Accumulated

 

 

carrying

 

(In millions)

amount

 

 

amortization

 

 

amount

 

Definite-lived intangibles

 

 

 

 

 

 

 

 

Trademarks and trade names

$

101

 

 

$

(32

)

 

$

69

 

Intellectual property

 

750

 

 

 

(495

)

 

 

255

 

Customer and supplier relationships

 

849

 

 

 

(352

)

 

 

497

 

Total definite-lived intangibles

 

1,700

 

 

 

(879

)

 

 

821

 

 

 

 

 

 

 

 

 

 

Indefinite-lived intangibles

 

 

 

 

 

 

 

 

Trademarks and trade names

 

278

 

 

 

 

 

 

278

 

Total intangible assets

$

1,978

 

 

$

(879

)

 

$

1,099

 

 

Amortization expense recognized on intangible assets was $23 million for the three months ended June 30, 2022 and 2021, respectively, and $71 million and $65 million for the nine months ended June 30, 2022 and 2021, respectively, and is included in the intangibles amortization expense caption of the Statements of Consolidated Comprehensive Income (Loss). Estimated amortization expense for future periods is $96 million in 2022 (includes nine months actual and three months estimated), $96 million in 2023, $80 million in 2024, $75 million in 2025 and $72 million in 2026. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions and divestitures, potential impairment, accelerated amortization, or other events.

14


 

NOTE H – DEBT AND OTHER FINANCING ACTIVITIES

The following table summarizes Ashland’s current and long-term debt as of the dates reported in the Condensed Consolidated Balance Sheets.

 

(In millions)

 

June 30, 2022

 

 

September 30, 2021

 

3.375% Senior Notes, due 2031

 

$

450

 

 

$

450

 

2.00% Senior Notes, due 2028 (Euro 500 million principal)

 

 

522

 

 

 

580

 

6.875% notes, due 2043

 

 

282

 

 

 

282

 

Term loan A

 

 

 

 

 

250

 

Accounts receivable securitizations

 

 

 

 

 

117

 

6.50% junior subordinated notes, due 2029

 

 

59

 

 

 

57

 

Revolving credit facility

 

 

 

 

 

225

 

Other (a)

 

 

(11

)

 

 

9

 

Total debt

 

 

1,302

 

 

 

1,970

 

Short-term debt (includes current portion of long-term debt)

 

 

 

 

 

(374

)

Long-term debt (less current portion)

 

$

1,302

 

 

$

1,596

 

 

 

 

 

 

 

 

(a)
Includes $15 million and $17 million of debt issuance cost discounts as of June 30, 2022 and September 30, 2021, respectively. Additionally, at September 30, 2021, Other included a European short-term loan facility with an outstanding balance of $23 million.

As of June 30, 2022, Ashland had no long-term debt (excluding debt issuance costs) maturing within the next 5 years.

Accounts Receivable Facilities and Off-Balance Sheet Arrangements

U.S. Accounts Receivable Sales Program

Ashland maintains a U.S. Accounts Receivable Sales Program entered into during fiscal 2021. Ashland accounts for the receivables transferred to buyers as sales. Ashland recognizes any gains or losses based on the excess of proceeds received net of buyer’s discounts and fees compared to the carrying value of the assets. Proceeds received, net of buyer’s discounts and fees, are recorded within the operating activities of the Statement of Condensed Consolidated Cash Flows. Losses on sale of assets, including related transaction expenses are recorded within the Net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). Ashland regularly assesses its servicing obligations and records them as assets or liabilities when appropriate. Ashland also monitors its obligation with regards to the limited guarantee and records the resulting guarantee liability when warranted. When applicable, Ashland discloses the amount of the receivable that serves as over-collateralization as a restricted asset.

Ashland recognized a loss of $1 million for the three and nine months ended June 30, 2022 and 2021, respectively, within the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss) associated with sales under the program. Ashland has recorded $50 million in sales at June 30, 2022 against the buyer’s limit, which was $125 million at June 30, 2022 compared to $113 million of sales at September 30, 2021 against the buyer's limit, which was $125 million at September 30, 2021. Ashland transferred $140 million and $167 million in receivables to the special purpose entity as of June 30, 2022 and September 30, 2021, respectively. Ashland recorded liabilities related to its service obligations and limited guarantee as of June 30, 2022 and September 30, 2021 of less than $1 million. As of June 30, 2022, the year-to-date gross cash proceeds received for receivables transferred and derecognized was $205 million, of which $268 million was collected, which included collections from the sales in prior year transferred to the buyer. The difference of $63 million for receivables transferred and derecognized versus collected represents the impact of a net reduction in accounts receivable sales volume during the current year.

 

15


 

Foreign Accounts Receivable Securitization Facility

Ashland continues to maintain its Foreign 2018 Accounts Receivable Securitization Facility. Ashland accounts for the Foreign 2018 Accounts Receivable Securitization Facility as secured borrowings, and the receivables sold pursuant to the facility are included in the Consolidated Balance Sheets as accounts receivable. Ashland repaid all outstanding borrowings under the facility during the nine months ended June 30, 2022 for a total of $113 million. At June 30, 2022 and September 30, 2021, the outstanding amounts of accounts receivable transferred by Ashland were $159 million and $152 million, respectively, and borrowing (denominated in multiple currencies) under the facility were zero and $117 million, respectively.

Debt Repayments

2020 Credit Agreement

During the nine months ended June 30, 2022, Ashland prepaid its Term loan A principal balance of $250 million.

Other Debt

During the nine months ended June 30, 2022, Ashland repaid the outstanding balance on its European short-term loan facility for $23 million.

Available borrowing capacity and liquidity

The borrowing capacity remaining under the 2020 Credit Agreement which included the $600 million Revolving Credit Facility was $581 million due to an outstanding balance of zero, as well as a reduction of $19 million for letters of credit outstanding as of June 30, 2022. Ashland's total borrowing capacity at June 30, 2022 was $686 million, which included $105 million of available capacity from the Foreign 2018 Accounts Receivable Securitization Facility.

Additionally, Ashland had $58 million of available liquidity under its current U.S. Accounts Receivable Sales Program as of June 30, 2022.

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 June 30, 2022, Ashland is in compliance with all debt agreement covenant restrictions.

The maximum consolidated net leverage ratio permitted under Ashland's current credit agreement (the 2020 Credit Agreement) is 4.0. At June 30, 2022, Ashland’s calculation of the consolidated net leverage ratio was 1.2.

The minimum required consolidated interest coverage ratio under the 2020 Credit Agreement during its entire duration is 3.0. At June 30, 2022, Ashland’s calculation of the interest coverage ratio was 9.7.

NOTE I – LEASING ARRANGEMENTS

Ashland leases certain office buildings, transportation equipment, warehouses and storage facilities, and equipment. Substantially all of Ashland’s leases are operating leases or short-term leases. Real estate leases represented over 80% of the total lease liability at June 30, 2022 and September 30, 2021, respectively.

16


 

The components of lease cost recognized within the Statements of Consolidated Comprehensive Income (Loss) were as follows:

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

 

 

June 30

 

 

June 30

 

(In millions)

 

Location

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

Selling, General & Administrative (a)

 

$

5

 

 

$

3

 

 

$

12

 

 

$

10

 

Operating lease cost

 

Cost of Sales

 

 

3

 

 

 

4

 

 

 

10

 

 

 

11

 

Variable lease cost

 

Selling, General & Administrative

 

 

1

 

 

 

1

 

 

 

3

 

 

 

2

 

Variable lease cost

 

Cost of Sales

 

 

1

 

 

 

1

 

 

 

3

 

 

 

2

 

Short-term leases

 

Cost of Sales

 

 

1

 

 

 

1

 

 

 

2

 

 

 

3

 

Total lease cost

 

 

 

$

11

 

 

$

10

 

 

$

30

 

 

$

28

 

a)
Includes $2 million lease termination fee for the three and nine months ended June 30, 2022.

The following table summarizes Ashland’s lease assets and liabilities as presented in the Condensed Consolidated Balance Sheet:

(In millions)

 

 

 

June 30
2022

 

 

September 30
2021

 

Assets

 

 

 

 

 

 

Operating lease assets, net

 

$

112

 

 

$

124

 

Total lease assets

 

$

112

 

 

$

124

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current operating lease obligations

 

$

18

 

 

$

23

 

Non-current operating lease obligations

 

 

100

 

 

 

110

 

Total lease liabilities

 

$

118

 

 

$

133

 

Ashland often has options to renew lease terms for buildings and other assets. The exercise of lease renewal options are generally at Ashland’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at Ashland’s discretion. Ashland evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for operating leases as of June 30, 2022 and September 30, 2021 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 determinable. Therefore, Ashland determines the discount 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 lease term and the currency of the jurisdiction in which lease payments are made, adjusted for impacts of collateral. 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 June 30, 2022 and September 30, 2021 was 2.8%, respectively. There are no leases that have not yet commenced but that create significant rights and obligations.

Right-of-use assets exchanged for new operating lease obligations were $7 million and $6 million for the three months ended June 30, 2022 and 2021, respectively, and $11 million and $16 million for the nine months ended June 30, 2022 and 2021. This includes $1 million of right-of-use assets and operating lease obligations recorded as a result of the purchase of the Schülke personal care business during the three and nine months ended June 30, 2021.

The following table provides cash paid for amounts included in the measurement of operating lease liabilities:

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

 

 

June 30

 

 

June 30

 

(In millions)

 

 

 

2022

 

 

2021

 

 

2021

 

 

2020

 

Operating cash flows from operating leases

 

$

9

 

 

$

8

 

 

$

23

 

 

$

23

 

 

17


 

 

The following table summarizes Ashland's maturities of lease liabilities as of June 30, 2022 and September 30, 2021:

(In millions)

 

 

 

June 30
2022

 

 

September 30
2021

 

Remainder of 2022

 

$

20

 

 

$

39

 

2023

 

 

21

 

 

 

20

 

2024

 

 

16

 

 

 

16

 

2025

 

 

12

 

 

 

11

 

2026

 

 

9

 

 

 

9

 

Thereafter

 

 

74

 

 

 

78

 

Total lease payments

 

 

152

 

 

 

173

 

Less amount of lease payment representing interest

 

 

(34

)

 

 

(40

)

Total present value of lease payments

 

$

118

 

 

$

133

 

 

NOTE J – INCOME TAXES

Current fiscal year

Ashland’s effective tax rate in any interim period is subject to adjustments related to discrete items and the mix of domestic and foreign operating results. The overall effective tax rate was 2% and 17% for the three and nine months ended June 30, 2022.

The current quarter tax rate was impacted by jurisdictional income mix, as well as a net $1 million benefit primarily from favorable return to provision adjustments for certain jurisdictions. The current nine month tax rate was impacted by jurisdictional income mix as well as $3 million from net unfavorable tax discrete items primarily related to restructuring and separation activity partially offset by a favorable valuation adjustment for certain foreign tax credits and adjustments to uncertain positions.

Prior fiscal year

The overall effective tax rate was a benefit of 57% for the three months ended June 30, 2021 and a benefit of 34% for the nine months ended June 30, 2021. The quarter tax rate was primarily impacted by jurisdictional income mix, as well as $33 million from favorable tax discrete items primarily related to uncertain tax positions. The nine months tax rate impacted by $52 million from favorable tax discrete items primarily related to the Specialty Additives facility sale and uncertain tax positions.

Unrecognized tax benefits

Changes in unrecognized tax benefits are summarized as follows for the nine months ended June 30, 2022.

 

(In millions)

 

 

Balance at October 1, 2021

$

82

 

Increases related to positions taken in the current year

 

2

 

Lapse of statute of limitations

 

(2

)

Balance at June 30, 2022

$

82

 

 

 

 

From a combination of statute expirations and audit settlements in the next twelve months, Ashland expects a decrease in the amount accrued for uncertain tax positions of between $6 million and $16 million. It is reasonably possible that there could be other material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues or the reassessment of existing uncertain tax positions; however, Ashland is not able to estimate the impact of these items at this time.

NOTE K - EMPLOYEE BENEFIT PLANS

Plan contributions

For the nine months ended June 30, 2022, Ashland contributed $4 million to its non-U.S. pension plans and less than $1 million to its U.S. pension plans. Ashland expects to make additional contributions of approximately $1 million to its non-U.S. and less than $1 million to its U.S. pension plans during the remainder of fiscal 2022.

18


 

Plan Remeasurements

Following the completion of the sale of its Performance Adhesives business segment on February 28, 2022, the post-retirement benefits for approximately 40 employees transferred to Arkema, all of whom participated in a non-contributory defined benefit plan in the U.S., were frozen. This resulted in a decrease in total expected future years of service within the plan and required Ashland to remeasure the plan as February 28, 2022. As a result, Ashland recorded a $1 million actuarial gain within the other net periodic benefits loss caption of the Statements of Consolidated Comprehensive Income (Loss) for the nine months ended June 30, 2022.

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)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Three months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

1

 

 

$

1

 

 

$

 

 

$

 

Interest cost

 

 

2

 

 

 

2

 

 

 

 

 

 

 

Expected return on plan assets

 

 

(1

)

 

 

(2

)

 

 

 

 

 

 

Actuarial (gain)

 

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit costs

 

$

2

 

 

$

1

 

 

$

 

 

$

 

Nine months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

3

 

 

$

4

 

 

$

 

 

$

 

Interest cost

 

 

5

 

 

 

4

 

 

 

1

 

 

 

1

 

Expected return on plan assets

 

 

(5

)

 

 

(5

)

 

 

 

 

 

 

Actuarial (gain)

 

 

(1

)

 

 

 

 

 

 

 

 

 

Total net periodic benefit costs

 

$

2

 

 

$

3

 

 

$

1

 

 

$

1

 

For segment reporting purposes, service cost is proportionately allocated to each segment, excluding the Unallocated and other segment, and is recorded within the selling, general and administrative expense and cost of sales captions on the Statements of Consolidated Comprehensive Income (Loss). All other components are recorded within the other net periodic benefit loss caption on the Statements of Consolidated Comprehensive Income (Loss), which netted to $1 million and zero for the three and nine months ended June 30, 2022, respectively, and zero for both the three and nine months ended June 30, 2021, respectively.

NOTE L LITIGATION, CLAIMS AND CONTINGENCIES

Asbestos litigation

Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation (Riley) and the acquisition of Hercules in November 2008. Although Riley, a former subsidiary, was neither a producer nor a manufacturer of asbestos, its industrial boilers contained some asbestos-containing components provided by other companies. Hercules, an indirect wholly-owned subsidiary of Ashland, has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products sold by one of Hercules’ former subsidiaries to a limited industrial market.

19


 

To assist in developing and annually updating independent reserve estimates for future asbestos claims and related costs given various assumptions for Ashland and Hercules asbestos claims, Ashland retained third party actuarial experts Gnarus. The methodology used by Gnarus 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, Gnarus 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 (Loss).

Ashland asbestos-related litigation

The claims alleging personal injury caused by exposure to asbestos asserted against Ashland result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley. The amount and timing of settlements and number of open claims can fluctuate from period to period. A summary of Ashland asbestos claims activity, excluding Hercules claims, follows.

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

 

Years ended September 30

 

(In thousands)

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

2019

 

Open claims - beginning of year

 

 

46

 

 

 

49

 

 

 

49

 

 

 

53

 

 

 

53

 

New claims filed

 

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

 

 

2

 

Claims settled

 

 

(1

)

 

 

 

 

 

(1

)

 

 

(1

)

 

 

(1

)

Claims dismissed

 

 

(1

)

 

 

(3

)

 

 

(4

)

 

 

(5

)

 

 

(1

)

Open claims - end of period

 

 

45

 

 

 

47

 

 

 

46

 

 

 

49

 

 

 

53

 

 

Ashland asbestos-related liability

From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 40-year model developed with the assistance of Gnarus.

During the most recent annual update of this estimate completed during the June 2022 fiscal quarter, it was determined that the liability for Ashland asbestos-related claims should be increased by $16 million. Total reserves for asbestos claims were $310 million at June 30, 2022 compared to $320 million at September 30, 2021.

A progression of activity in the asbestos reserve is presented in the following table.

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

 

Years ended September 30

 

(In millions)

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

2019

 

Asbestos reserve - beginning of year

 

$

320

 

 

$

335

 

 

$

335

 

 

$

352

 

 

$

380

 

Reserve adjustment

 

 

16

 

 

 

12

 

 

 

12

 

 

 

13

 

 

 

1

 

Amounts paid

 

 

(26

)

 

 

(21

)

 

 

(27

)

 

 

(30

)

 

 

(29

)

Asbestos reserve - end of period (a)

 

$

310

 

 

$

326

 

 

$

320

 

 

$

335

 

 

$

352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
Included $29 million classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021.

Ashland asbestos-related receivables

Ashland has insurance coverage for certain litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage that will be accessed.

20


 

For the Ashland asbestos-related obligations, Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. A substantial portion of the estimated receivables from insurance companies are expected to be due from domestic insurers.

At June 30, 2022, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $102 million (excluding the Hercules receivable for asbestos claims) compared to $100 million at September 30, 2021. During the June 2022 fiscal quarter, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers was completed. This model update resulted in a $7 million increase in the receivable for probable insurance recoveries.

A progression of activity in the Ashland insurance receivable is presented in the following table.

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

 

Years ended September 30

 

(In millions)

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

2019

 

Insurance receivable - beginning of year

 

$

100

 

 

$

103

 

 

$

103

 

 

$

123

 

 

$

140

 

Receivable adjustment (a)

 

 

7

 

 

 

6

 

 

 

6

 

 

 

1

 

 

 

(5

)

Insurance settlement

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

 

Amounts collected

 

 

(5

)

 

 

(7

)

 

 

(9

)

 

 

(11

)

 

 

(12

)

Insurance receivable - end of period (b)

 

$

102

 

 

$

102

 

 

$

100

 

 

$

103

 

 

$

123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
The nine months ended June 30, 2021 includes a reserve adjustment of $2 million related to allowances for credit losses as a result of Ashland’s adoption of the new credit measurement standard. The total allowance for credit losses was $2 million as of June 30, 2022.
(b)
Includes $12 million classified in accounts receivable on the Condensed Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021.

Hercules asbestos-related litigation

Hercules has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. The amount and timing of settlements and number of open claims can fluctuate from period to period. A summary of Hercules’ asbestos claims activity follows.

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

 

Years ended September 30

 

(In thousands)

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

2019

 

Open claims - beginning of year

 

 

12

 

 

 

12

 

 

 

12

 

 

 

13

 

 

 

13

 

New claims filed

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

Claims dismissed

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(2

)

 

 

(1

)

Open claims - end of period

 

 

12

 

 

 

12

 

 

 

12

 

 

 

12

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 40-year model developed with the assistance of Gnarus. As a result of the most recent annual update of this estimate, completed during the June 2022 fiscal quarter, it was determined that the liability for Hercules asbestos-related claims should be increased by $15 million. Total reserves for asbestos claims were $220 million at June 30, 2022 compared to $217 million at September 30, 2021.

21


 

A progression of activity in the asbestos reserve is presented in the following table.

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

 

Years ended September 30

 

(In millions)

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

2019

 

Asbestos reserve - beginning of year

 

$

217

 

 

$

229

 

 

$

229

 

 

$

252

 

 

$

282

 

Reserve adjustments

 

 

15

 

 

 

8

 

 

 

8

 

 

 

(3

)

 

 

(10

)

Amounts paid

 

 

(12

)

 

 

(16

)

 

 

(20

)

 

 

(20

)

 

 

(20

)

Asbestos reserve - end of period (a)

 

$

220

 

 

$

221

 

 

$

217

 

 

$

229

 

 

$

252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
Included $18 million classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021.

Hercules asbestos-related receivables

For the Hercules asbestos-related obligations, certain reimbursement obligations pursuant to coverage-in-place agreements with insurance carriers exist. 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 June 30, 2022, Ashland’s receivable for recoveries of litigation defense and claims costs from insurers with respect to Hercules amounted to $53 million. During fiscal year 2022, 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 an increase of $7 million in the receivable for probable insurance recoveries.

A progression of activity in the Hercules insurance receivable is presented in the following table.

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

 

Years ended September 30

 

(In millions)

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

2019

 

Insurance receivable - beginning of year

 

$

47

 

 

$

47

 

 

$

47

 

 

$

49

 

 

$

54

 

Receivable adjustment (a)

 

 

7

 

 

 

1

 

 

 

1

 

 

 

(2

)

 

 

(5

)

Amounts collected

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

Insurance receivable - end of period (b)

 

$

53

 

 

$

48

 

 

$

47

 

 

$

47

 

 

$

49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
The nine months ended June 30, 2021 includes a reserve adjustment of $1 million related to allowances for credit losses as a result of Ashland’s adoption of the new credit measurement standard. The total allowance for credit losses was $1 million as of June 30, 2022.
(b)
Includes $3 million and $1 million classified in accounts receivable on the Condensed Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021, respectively.

22


 

Asbestos litigation cost projection

Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, mortality rates, dismissal rates, costs of medical treatment, the impact of bankruptcies of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. Considering 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 year periods that it is reasonably possible that total future litigation defense and claim settlement costs on an inflated and undiscounted basis could range as high as approximately $456 million for the Ashland asbestos-related litigation (current reserve of $310 million) and approximately $317 million for the Hercules asbestos-related litigation (current reserve of $220 million), depending on the combination of assumptions selected in the various models. If actual experience is worse than projected, relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, or actuarial refinement or improvements to the assumptions used within these models are initiated, Ashland may need to further increase the estimates of the costs associated with asbestos claims and these increases could be material over time.

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 June 30, 2022, such locations included 76 sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, 111 current and former operating facilities (including certain operating facilities conveyed as part of previous divestitures) and about 1,225 service station properties, of which 17 are being actively remediated.

Ashland’s reserves for environmental remediation and related environmental litigation amounted to $226 million at June 30, 2022 compared to $207 million at September 30, 2021, of which $171 million at June 30, 2022 and $152 million at September 30, 2021 were classified in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. The remaining reserves were classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets.

The following table provides a reconciliation of the changes in the environmental remediation reserves during the nine months ended June 30, 2022 and 2021.

 

 

 

Nine months ended

 

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

Reserve - beginning of period

 

$

207

 

 

$

200

 

Disbursements

 

 

(42

)

 

 

(35

)

Changes in obligation estimates and accretion, net

 

 

61

 

 

 

40

 

Reserve - end of period

 

$

226

 

 

$

205

 

 

 

 

 

 

 

 

 

23


 

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 June 30, 2022 and September 30, 2021, Ashland’s recorded receivable for these probable insurance recoveries was $20 million and $16 million, of which $17 million and $13 million at June 30, 2022 and September 30, 2021, respectively, 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 and nine ended June 30, 2022 and 2021.

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Environmental expense

 

$

45

 

 

$

24

 

 

$

60

 

 

$

39

 

Accretion

 

 

1

 

 

 

 

 

 

1

 

 

 

1

 

Legal expense

 

 

1

 

 

 

1

 

 

 

3

 

 

 

2

 

Total expense

 

 

47

 

 

 

25

 

 

 

64

 

 

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance receivable

 

 

(2

)

 

 

 

 

 

(5

)

 

 

(1

)

Total expense, net of receivable activity (a)

 

$

45

 

 

$

25

 

 

$

59

 

 

$

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
Net expense of $9 million and $11 million for the three and nine months ended June 30, 2022, respectively, and $3 million and $6 million for the three and nine months ended June 30, 2021, respectively, relates to divested businesses which qualified for treatment as discontinued operations for which certain environmental liabilities were retained by Ashland. These amounts are classified within the income from discontinued operations caption of the Statements of Consolidated Comprehensive Income (loss).

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 $480 million. The largest reserve for any site is 12% of the remediation reserve at June 30, 2022.

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 June 30, 2022 and September 30, 2021. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Ashland believes that such potential losses were immaterial as of June 30, 2022.

24


 

NOTE M – EARNINGS PER SHARE

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 1 million at June 30, 2022 and 2021, respectively. Earnings per share is reported under the treasury stock method.

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Numerator for basic and diluted EPS -

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

51

 

 

$

72

 

 

$

121

 

 

$

139

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic EPS - Weighted-
   average common shares outstanding

 

 

54

 

 

 

61

 

 

 

56

 

 

 

61

 

Share based awards convertible to common shares

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

Denominator for diluted EPS - Adjusted weighted-
   average shares and assumed conversions

 

 

55

 

 

 

62

 

 

 

57

 

 

 

62

 

EPS from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.94

 

 

$

1.18

 

 

$

2.16

 

 

$

2.29

 

Diluted

 

 

0.93

 

 

 

1.17

 

 

 

2.12

 

 

 

2.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE N – EQUITY ITEMS

2022 Stock repurchase program

On May 25, 2022, Ashland's board of directors authorized a new, evergreen $500 million common share repurchase program (2022 stock repurchase program). The new authorization terminates and replaces the company's 2018 $1 billion share repurchase program, which had $150 million outstanding at the date of termination.

2018 Stock repurchase program

In September 2021, under the 2018 stock repurchase program, Ashland entered into an accelerated share repurchase agreement (2021 ASR Agreement). Under the 2021 ASR Agreement, Ashland paid an initial purchase price of $450 million and received an initial delivery of 3.9 million shares of common stock during September 2021. The bank exercised its early termination option under the 2021 ASR Agreement in February 2022, and an additional 0.7 million shares were repurchased, bringing the total shares repurchased upon settlement to 4.6 million.

On March 1, 2022, under the 2018 stock repurchase program, Ashland entered into an agreement to repurchase an aggregate amount of $200 million of Ashland common stock using open-market purchases under rule 10b-18. On April 8, 2022, Ashland completed repurchases under this agreement repurchasing a total of 2.15 million shares for a total amount of $200 million.

25


 

Stockholder dividends

On May 25, 2022, Ashland's Board declared a quarterly cash dividend of $0.335 cents per share on the company's common stock representing a 12 percent increase from the previous quarter. The dividend was paid in the third quarter of fiscal 2022. Dividends of 30 cents per share were paid in the third and fourth quarters of fiscal 2021 and the first and second quarter of fiscal 2022 and 27.5 cents per share were paid in the first and second quarter of fiscal 2021.

Accumulated other comprehensive income (loss)

Components of other comprehensive income (loss) recorded in the Statements of Consolidated Comprehensive Income (Loss) are presented below.

 

 

2022

 

 

2021

 

(In millions)

 

Before
tax

 

 

Tax
(expense) benefit

 

 

Net of
tax

 

 

Before
tax

 

 

Tax
(expense) benefit

 

 

Net of
tax

 

Three months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized translation gain (loss)

 

$

(86

)

 

$

 

 

$

(86

)

 

$

23

 

 

$

 

 

$

23

 

Unrealized gain (loss) on commodity hedges

 

 

(4

)

 

 

1

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

$

(90

)

 

$

1

 

 

$

(89

)

 

$

23

 

 

$

 

 

$

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized translation gain (loss)

 

$

(108

)

 

$

1

 

 

$

(107

)

 

$

38

 

 

$

(1

)

 

$

37

 

Unrealized gain (loss) on commodity hedges

 

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