Ashland Global Holdings Inc.
ASHLAND INC. (Form: 10-K, Received: 11/20/2015 16:08:46)





 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
______________________
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2015
OR
o
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 1-32532
ASHLAND INC.
Kentucky
(State or other jurisdiction of incorporation or organization)
20-0865835
(I.R.S. Employer Identification No.)
50 E. RiverCenter Boulevard
P.O. Box 391
Covington, Kentucky  41012-0391
Telephone Number (859) 815-3333
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $.01 per share
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:  None  
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes þ      No   o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   o      No   þ
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 þ      No   o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).         Yes þ      No   o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer þ
Accelerated Filer o
Non-Accelerated Filer o
Smaller Reporting Company o
(Do not check if a smaller reporting company)
 
                        
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).         Yes   o      No   þ
At March 31, 2015 , the aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $8,563,870,000 .  In determining this amount, the Registrant has assumed that its directors and executive officers are affiliates. Such assumption shall not be deemed conclusive for any other purpose.
At October 31, 2015 , there were 66,805,186 shares of Registrant’s common stock outstanding.
Documents Incorporated by Reference
Portions of Registrant’s Proxy Statement (Proxy Statement) for its January 28, 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this annual report on Form 10-K to the extent described herein.







TABLE OF CONTENTS
 
 
 
 
  Page
PART I
 
 
 
 
Item 1.
Business 
 
 
General
 
 
Corporate Developments
 
 
Ashland Specialty Ingredients
 
 
Ashland Performance Materials
 
 
Valvoline
 
 
Miscellaneous
 
Item 1A.
Risk Factors 
 
Item 1B.
Unresolved Staff Comments 
 
Item 2.
Properties 
 
Item 3.
Legal Proceedings 
 
Item 4.
Mine Safety Disclosures
 
Item X.
Executive Officers of Ashland
 
 
 
 
PART II
 
 
 
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of
 
 
 
Equity Securities
 
Item 6.
Selected Financial Data 
 
Item 7.
Management’s Discussion and Analysis of Financial
 
 
 
Condition and Results of Operation
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
 
Item 8.
Financial Statements and Supplementary Data 
 
Item 9.
Changes in and Disagreements with Accountants
 
 
 
on Accounting and Financial Disclosure
 
Item 9A.
Controls and Procedures 
 
Item 9B.
Other Information 
 
 
 
 
PART III
 
 
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
 
Item 11.
Executive Compensation 
 
Item 12.
Security Ownership of Certain Beneficial Owners
 
 
 
and Management and Related Stockholder Matters
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence 
 
Item 14.
Principal Accounting Fees and Services
 
 
 
 
PART IV
 
 
 
 
Item 15.
Exhibits and Financial Statement Schedules 







PART I
ITEM 1.  BUSINESS
GENERAL
Ashland Inc. is a Kentucky corporation, with its principal executive offices located at 50 E. RiverCenter Boulevard, Covington, Kentucky 41011 (Mailing Address: 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391) (Telephone: (859) 815-3333).  Ashland was organized in 2004 as the successor to a Kentucky corporation of the same name organized on October 22, 1936.  The terms “Ashland” and the “Company” as used herein include Ashland Inc., its predecessors and its consolidated subsidiaries, except where the context indicates otherwise.
Ashland is a global leader in specialty chemicals and, through Valvoline, a premium consumer-branded lubricant supplier. Ashland provides products, services and solutions that meet customers’ needs throughout a variety of industries in more than 100 countries.  Its chemistry is used in a wide variety of markets and applications, including architectural coatings, adhesives, automotive, construction, energy, food and beverage, personal care, and pharmaceutical.
Ashland has three reportable segments: Specialty Ingredients, Performance Materials and Valvoline. Financial information about Ashland’s three reportable segments for each of the fiscal years in the three-year period ended September 30, 2015 is set forth in Note Q of Notes to Consolidated Financial Statements in this annual report on Form 10-K, including sales, equity income, other income, operating income and assets. International data, such as sales to external customers, net assets and property, plant and equipment, are set forth in Note Q as well.
Specialty Ingredients is a global leader in cellulose ethers, vinyl pyrrolidones and biofunctionals. It offers industry-leading products, technologies and resources for solving formulation and product-performance challenges. Specialty Ingredients uses natural, synthetic and semisynthetic polymers derived from plant and seed extract, cellulose ethers, vinyl pyrrolidones, acrylic polymers as well as polyester and polyurethane-based adhesives. Specialty Ingredients includes two divisions - Consumer Specialties and Industrial Specialties - that offer comprehensive and innovative solutions for today’s demanding consumer and industrial applications. Key customers include: pharmaceutical companies; makers of personal care products, food and beverages; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield service companies. During 2015, Ashland sold the industrial biocides assets within Specialty Ingredients. See Note B of Notes to Consolidated Financial Statements in this annual report on Form 10-K for information on the divestiture of these assets.
Performance Materials is composed of two divisions: Composites and Intermediates/Solvents. Performance Materials is a global leader in unsaturated polyester resins and vinyl ester resins. The business unit has leading positions in gelcoats, maleic anhydride, butanediol, tetrahydrofuran, N-Methylpyrrolidone and other intermediates and solvents. Key customers include: manufacturers of residential and commercial building products; industrial product specifiers and manufacturers; wind blade and pipe manufacturers; automotive and truck OEM suppliers; boatbuilders; engineered plastics and electronic producers; and specialty chemical manufacturers. Results from the former Elastomers division were included in Performance Materials' results of operations within the Statements of Consolidated Comprehensive Income until its December 1, 2014 sale. See Note B for information on the divestiture of the Elastomers division.
Valvoline is a leading, worldwide producer and distributor of premium-branded automotive, commercial and industrial lubricants and automotive chemicals. It ranks as the #2 quick-lube chain and #3 passenger car motor oil brand in the United States. The brand operates and franchises approximately 940 Valvoline Instant Oil Change SM centers in the United States. It also markets Valvoline™ lubricants and automotive chemicals; MaxLife™ lubricants created for higher-mileage engines; SynPower™ synthetic motor oil; and Zerex™ antifreeze. Key customers include: retail auto parts stores and mass merchandisers who sell to consumers; installers, such as car dealers, repair shops and quick lubes; commercial fleets; and distributors. During 2015, Ashland sold its Valvoline car care product assets, including Car Brite TM and Eagle One TM automotive appearance products, and sold its joint venture equity investment in Venezuela. See Note B for information on the divestitures of this investment and the car care product assets.
At September 30, 2015 , Ashland and its consolidated subsidiaries had approximately 10,500 employees (excluding contract employees).
Available Information – Ashland’s Internet address is http://www.ashland.com .  On this website, Ashland makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as well as any beneficial ownership reports of officers and directors filed on Forms 3, 4 and 5.  All such reports are available as soon as reasonably practicable after they are electronically filed with, or electronically furnished to, the Securities and Exchange Commission (SEC).  Ashland also makes available, free of charge on its website, its Corporate Governance Guidelines, Board Committee Charters, Director Independence Standards and code of business conduct that applies to Ashland’s directors, officers and employees.  These documents are also available in print to any shareholder who requests them.  Information contained on Ashland’s website is not part of this annual report on Form 10-K and is not incorporated by reference in this document.  The public may read and copy any materials Ashland files with the SEC at the SEC’s Public Reference Room at 100

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F Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site ( http://www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

CORPORATE DEVELOPMENTS
On September 22, 2015, Ashland announced that the Board of Directors approved proceeding with a plan to separate Ashland into two independent, publicly traded companies comprising of the new Ashland and Valvoline. Ashland has begun the process to separate its Valvoline business from its Specialty Ingredients and Performance Materials businesses while it finalizes the transaction structure and obtains customary regulatory and other approvals. Ashland intends for the separation, which is subject to final board approval prior to completion, to be tax free for Ashland shareholders. Immediately following the separation, Ashland shareholders will own shares of both the new Ashland and Valvoline. The separation is expected to be completed as soon as practicable, but not before the end of fiscal 2016.
The new Ashland will be a global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets. These markets are currently served by Specialty Ingredients and Performance Materials. Key markets and applications include pharmaceutical, personal care, food and beverage, architectural coatings, adhesives, automotive, construction and energy. Together these businesses generated approximately  $3.4 billion  in sales for the fiscal year ended September 30, 2015.
Valvoline will focus on building the world's leading engine and automotive maintenance business by providing hands-on expertise to customers in each of its primary market channels: Do-It-Yourself (DIY); Installers; Valvoline Instant Oil Change SM ; and International. Valvoline generated sales of  $2.0 billion  for Ashland during the fiscal year ended September 30, 2015.

ASHLAND SPECIALTY INGREDIENTS
Ashland Specialty Ingredients (Specialty Ingredients) offers industry-leading products, technologies and resources for solving formulation and product-performance challenges.  Using natural, synthetic and semisynthetic polymers derived from plant and seed extract, cellulose ethers, vinyl pyrrolidones, acrylic polymers as well as polyester and polyurethane-based adhesives, Specialty Ingredients offers comprehensive and innovative solutions for consumer and industrial applications.
Key customers include pharmaceutical companies; makers of personal care products, food and beverages; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield service companies. Certain customer relationships are significant, and the loss of any one of those customers could have a material adverse effect on the Specialty Ingredients reportable segment.
Specialty Ingredients’ areas of expertise include: organic and synthetic chemistry, polymer chemistry, surface and colloid science, rheology, structural analysis and microbiology.
Specialty Ingredients’ solutions provide an array of properties, including: thickening and rheology control, water retention, adhesive strength, binding power, film formation, conditioning and deposition, colloid stabilization and suspension.
Specialty Ingredients is composed of two divisions: Consumer Specialties and Industrial Specialties. These divisions are defined based on end use markets of customers, but significant overlap of underlying product lines between the two divisions exists and many of the products are produced in shared manufacturing facilities, in order to better manage capacity and achieve desired returns.
Consumer Specialties – The Consumer Specialties division includes the Oral Care, Hair Care, Skin Care, Home Care and Pharmaceutical & Nutrition portfolios.
Oral Care – Specialty Ingredients’ portfolio of oral care products delivers active ingredients in toothpaste and mouthwashes; provides bioadhesive functionality for dentures; delivers flavor, texture and other functional properties; and provides product binding to ensure form and function throughout product lifecycle.
Hair Care – Specialty Ingredients’ portfolio of hair care products includes advanced styling polymers, fixatives, conditioning polymers, emulsifiers, preservatives and rheology modifiers.
Skin Care – Specialty Ingredients’ portfolio of skin care products helps to firm, nourish, revitalize and smooth skin.  The Skin Care line also provides sun care products, including UV filters, water-resistant agents and thickeners.  Emulsifiers, emollients, preservatives and rheology modifiers complete the Skin Care product line.
Home Care – Specialty Ingredients’ portfolio of products and technologies is used in many types of cleaning applications, including fabric care, home care and dishwashing.  Specialty Ingredients’ products are used in a variety of applications for viscosity enhancement, particle suspension, rheology modification and stabilization.

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Pharmaceutical – Specialty Ingredients is a leading supplier of excipients and tablet coating systems to the pharmaceutical and nutraceutical industries. The excipients division offers a comprehensive range of polymers for use as tablet binders, superdisintegrants, sustained-release agents and drug solubilizers, as well as a portfolio of fully formulated, one-step tablet coating systems for immediate-, sustained- and delayed-release applications.
Nutrition – Specialty Ingredients’ nutrition portfolio provides functional benefits in areas such as thickening, texture control, thermal gelation, structure enhancement, water binding, clarification and stabilization. Its core products include cellulose gums and vinyl pyrrolidone polymers which are used in a wide range of offerings for bakery, beverage, dairy, desserts, meat products, pet food, prepared foods, sauces and savory products.
Industrial Specialties – The Industrial Specialties division includes Coatings, Construction, Energy, Adhesives and Performance Specialties.
Coatings – Coatings Specialties is a recognized leader in rheology solutions for waterborne architectural paint and coatings.  Products include hydroxyethylcellulose (HEC), which provides thickening and application properties for interior and exterior paints, and nonionic synthetic associative thickeners (NSATs), which are APEO-free liquid synthetics for high-performance paint and industrial coatings. The Coatings Specialties market complements its rheology offering with a broad portfolio of performance foam-control agents, surfactants and wetting agents, dispersants and pH neutralizers.
Construction – Construction Specialties is a major producer and supplier of cellulose ethers and companion products for the construction industry.  These products control properties such as water retention, open time, workability, adhesion, stabilization, pumping, sag resistance, rheology, strength, appearance and performance in dry-mortar formulations.
Energy – Energy Specialties is a leading global manufacturer of guar-, synthetic- and cellulosic-based products for drilling fluids, oil-well cement slurries, completion and workover fluids, fracturing fluids and production chemicals.  Specialty Ingredients offers the oil and gas industry solutions for drilling, stimulation, completion, cementing and production applications.
Adhesives – Adhesives Specialties manufactures and sells adhesive solutions to the packaging and converting, building and construction, and transportation markets and manufactures and markets specialty coatings and adhesive solutions for use across multiple industries. Key technologies and markets include: acrylic polymers for pressure-sensitive adhesives; urethane adhesive for flexible packaging applications; aqueous and radiation-curable adhesives and specialty coatings for printing and converting applications; emulsion polymer isocyanate adhesives for structural wood bonding; elastomeric polymer adhesives for commercial roofing applications; acrylic, polyurethane and epoxy structural adhesives for bonding fiberglass reinforced plastics, composites, thermoplastics and metals in automotive, marine, recreational and industrial applications; specialty phenolic resins for paper impregnation and friction material bonding. Adhesive Specialties' adhesive products provide an array of functional properties including high-strength bonding, ease and speed of product assembly, heat and moisture resistance and design flexibility.
Performance – Performance Specialties provides products and services to over 30 industries.  Ashland offers a broad spectrum of organo- and water-soluble polymers that are derived from both natural and synthetic resources.  Product lines include derivatized cellulose polymers, synthetics, guar and guar derivatives that impart effective functionalities to serve a variety of industrial markets and specialized applications.   Many of the products within Performance Specialties function as performance additives that deliver high levels of end-user value in formulated products.  In other areas, such as plastics and textiles, Performance Specialties’ products function as a processing aid, improving the quality of end products and reducing manufacturing costs.
Specialty Ingredients’ cellulosics products were approximately 37% and 16% of Specialty Ingredients’ sales and Ashland’s consolidated sales, respectively, for fiscal 2015 .
Specialty Ingredients operates throughout the Americas, Europe and Asia Pacific.  It has 26 manufacturing facilities in eight countries which serve both the Consumer Specialties and Industrial Specialties divisions and participates in two joint ventures.  Specialty Ingredients has manufacturing facilities in Huntsville, Alabama; Wilmington, Delaware; Dalton, Georgia; Calumet City, Illinois; Calvert City, Kentucky; Freetown, Massachusetts; Chatham and Parlin, New Jersey; Columbus, Hilliard and Ashland, Ohio; White City, Oregon; Piedmont, South Carolina; Kenedy and Texas City, Texas and Hopewell, Virginia within the United States and Doel-Beveren, Belgium; Cabreuva, Brazil; Jiangmen and Nanjing, China; Alizay and Sophia Antipolis, France; Memmingen, Germany; Zwijndrecht, the Netherlands and Kidderminster, Newton Aycliffe and Poole, United Kingdom.  Specialty Ingredients also operates two production facilities through a joint venture in Luzhou and Suzhou, China.
Specialty Ingredients markets and distributes its products and services directly and through third-party distributors in the Americas, Europe, the Middle East, Africa and Asia Pacific.


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ASHLAND PERFORMANCE MATERIALS
Ashland Performance Materials (Performance Materials) is a global leader in unsaturated polyester resins and vinyl ester resins. The business unit has leading positions in gelcoats, maleic anhydride, butanediol, tetrahydrofuran, N-Methylpyrrolidone and other intermediates and solvents. Performance Materials’ Composites division is a global leader helping customers create stronger, lighter, more resistant substitutes for traditional materials through higher performing, cost-efficient resin technologies that improve the manufacturing, fabrication and design process. Applied industries include construction, transportation, infrastructure, and boatbuilding. The Intermediates and Solvents division provides butanediol and its derivatives to the chemical process industry, plastics manufacturers, and electronics markets, among others. Prior to the December 1, 2014 sale, the Elastomers division provided high-quality styrene butadiene rubber primarily to the replacement tire market.
Key customers include manufacturers of residential and commercial building products, industrial product specifiers and manufacturers, wind blade manufacturers, pipe manufacturers, automotive and truck OEM suppliers, boatbuilders, chemical producers and electronics makers.
Performance Materials is composed of the following divisions:
Composites – The Composites division manufactures and sells a broad range of general-purpose and high-performance grades of unsaturated polyester and vinyl ester resins, gelcoats and low-profile additives for the reinforced plastics industry.  Key markets include the transportation, construction, marine and infrastructure end markets.  Performance Materials’ composite products 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. In addition, the division also 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. Molten maleic anhydride is supplied both to Ashland businesses who consume it as a raw material, primarily in North America, and to the merchant market.
Intermediates and Solvents The Intermediates and Solvents (I&S) division is a leading producer of 1,4 butanediol and its 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, construction, and active pharmaceutical ingredient manufacture. Butanediol is also supplied to Specialty Ingredients for use as a raw material.
Performance Materials’ composites products were approximately 68% and 15% of Performance Materials’ sales and Ashland’s total consolidated sales, respectively, for fiscal 2015 .
Performance Materials operates throughout the Americas, Europe and Asia Pacific.  It has 15 manufacturing facilities in seven countries.  Composites has manufacturing plants in Fort Smith and Jacksonville, Arkansas; Commerce, California; Bartow, Florida; Neville Island and Philadelphia, Pennsylvania; and Neal, West Virginia within the United States and Aracariguama, Brazil; Changzhou, China; Porvoo, Finland; Miszewo, Poland; and Benicarló, Spain. I&S has manufacturing facilities in Lima, Ohio and Marl, Germany. Performance Materials also provides toll manufacturing services to ASK Chemicals GmbH through manufacturing facilities located in Changzhou, China. ASK Chemical GmbH was a joint venture in which Ashland held a 50% interest until its interest was sold on June 30, 2014.
Performance Materials markets and distributes its products directly and through third-party distributors in the Americas, Europe, the Middle East, Africa and Asia Pacific.

VALVOLINE
Valvoline delivers premium-branded automotive, commercial and industrial lubricants and automotive chemicals. It operates and franchises approximately 940 Valvoline Instant Oil Change SM centers in the United States. It markets Valvoline™ lubricants and automotive chemicals; MaxLife™ lubricants for cars with higher mileage engines; SynPower™ synthetic motor oil; and Zerex™ antifreeze.
Key customers include retail auto parts stores and mass merchandisers who sell to consumers; installers, such as car dealers, repair shops and quick lubes; commercial fleets; and distributors. Certain customer relationships are significant, and the loss of any one of those customers could have a material adverse effect on the Valvoline business unit.
The Valvoline reportable segment is composed of the following markets:
Do It Yourself (DIY) – The DIY unit sells Valvoline™ and other branded and private label products to consumers who perform their own auto maintenance.  These products are sold through retail auto parts stores such as AutoZone, O’Reilly Auto Parts,

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Advance Auto Parts, mass merchandisers such as Wal-Mart Stores, Inc., and warehouse distributors and their affiliated jobber stores such as NAPA and CARQUEST.
Installer Channels – The Installer Channels unit sells branded products and services to installers (such as car dealers, general repair shops and quick lubes) through a network of independent distributors and company-owned and operated “direct market” operations as well as national accounts such as Goodyear, Monro and Sears. The division also sells branded products and services to on-highway fleets and construction companies through company-owned and operated “direct market” operations, national accounts and a network of distributors. The Installer Channels has a relationship with Cummins Inc. (Cummins) for co-branding in the North America Heavy Duty business. During fiscal 2015, Ashland sold its Valvoline car care product assets.
Valvoline Instant Oil Change (VIOC) – The Valvoline Instant Oil Change SM   chain is the second largest competitor in the U.S. “fast oil change” service business, providing Valvoline with a significant presence in the installer channels segment of the passenger car and light truck motor oil market.  As of September 30, 2015 , 279 company-owned and 663 independently-owned and operated franchise VIOC centers were operating in 43 states.  VIOC centers offer customers an innovative computer-based preventive maintenance tracking system that allows service technicians to make service recommendations based primarily on manufacturers’ recommendations. In addition, this division includes distribution to quick lubes branded “Valvoline Express Care™,” which consists of 328 independently-owned and operated stores.
Valvoline International – Outside of North America, Valvoline International markets Valvoline™, Zerex™ and other branded products through wholly-owned affiliates, joint ventures, licensees and independent distributors in over 138 countries.  Valvoline International operates joint ventures with Cummins in Argentina, China and India.  In addition, Valvoline International operates joint ventures with local entities in Colombia, Ecuador and Thailand.  Valvoline International markets products for both consumer and commercial vehicles and equipment and is served by company-owned plants in the United States, Australia and the Netherlands and by numerous third-party warehouses and toll manufacturers throughout the world.
Valvoline International sells branded products and services to original equipment manufacturers (OEMs) through company-owned and operated “direct market” operations, national accounts and a network of distributors.  Valvoline International also maintains a strategic alliance with Cummins to distribute heavy duty lubricants to the commercial market, as well as smaller alliances with other global OEMs.
Valvoline’s lubricants products were approximately 86% and 31% of Valvoline’s and Ashland’s total consolidated sales, respectively, for fiscal 2015 .
Valvoline operates lubricant blending and packaging plants in Santa Fe Springs, California; Cincinnati, Ohio; East Rochester, Pennsylvania and Deer Park, Texas within the United States and Wetherill Park, Australia and Dordrecht, the Netherlands. Bulk blending and distribution facilities are located in College Park, Georgia; Willow Springs, Illinois and St. Louis, Missouri within the United States and Mississauga, Canada.  Distribution operations are conducted from centers located in College Park, Georgia; Willow Springs, Illinois; Noblesville, Indiana; St. Louis, Missouri; Cincinnati, Ohio and East Rochester, Pennsylvania within the United States and through owned facilities in Birkenhead, United Kingdom and leased facilities in Sydney, Australia and Dordrecht, the Netherlands. Valvoline also uses property owned and operated by third-parties in Pasadena and Highlands, Texas in the United States; Rotterdam, the Netherlands, and other smaller locations, and is a part of a joint venture that operates a plant in Ambarnath, India.
In addition to raw materials, Valvoline sources a significant portion of packaging and third party products and services.

MISCELLANEOUS
Environmental Matters
Ashland maintains a companywide environmental policy overseen by the Environmental, Health, Safety and Product Compliance Committee of Ashland’s Board of Directors.  Ashland’s Environmental, Health, Safety and Product Regulatory (EHS&PR) department has the responsibility to ensure that Ashland’s businesses worldwide maintain environmental compliance in accordance with applicable laws and regulations.  This responsibility is carried out via training; widespread communication of EHS&PR policies; information and regulatory updates; formulation of relevant policies, procedures and work practices; design and implementation of EHS&PR management systems; internal auditing by a separate auditing group; monitoring of legislative and regulatory developments that may affect Ashland’s operations; assistance to the businesses in identifying compliance issues and opportunities for voluntary actions that go beyond compliance; and incident response planning and implementation.
Federal, state and local laws and regulations relating to the protection of the environment have a significant impact on how Ashland conducts its businesses.  In addition, Ashland’s operations outside the United States are subject to the environmental laws of the countries in which they are located.  These laws include regulation of air emissions and water discharges, waste handling, remediation and product inventory, registration and regulation.  New laws and regulations may be enacted or adopted by various

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regulatory agencies globally.  The costs of compliance with any new laws or regulations cannot be estimated until the manner in which they will be implemented has been more precisely defined.
At September 30, 2015 , Ashland’s reserves for environmental remediation and related environmental litigation amounted to $186 million , reflecting 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, 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.  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 $370 million .  No individual remediation location is significant, as the largest reserve for any site is approximately 14% or less of the remediation reserve. Ashland continues to discount certain environmental sites and regularly adjusts its reserves as environmental remediation continues. Environmental remediation expense, net of insurance receivables, amounted to $40 million in 2015 , compared to $33 million in 2014 and $29 million in 2013 .
Product Control, Registration and Inventory – Many of Ashland’s products and operations are subject to chemical control laws of the countries in which they are located.  These laws include regulation of chemical substances and inventories under the Toxic Substances Control Act (TSCA) in the United States and the Registration, Evaluation and Authorization of Chemicals (REACH) regulation in Europe.  Under REACH, additional testing requirements, documentation, risk assessments and registrations are occurring and will continue to occur and may adversely affect Ashland’s costs of products produced in or imported into the European Union.  Examples of other product control regulations include right to know laws under the Global Harmonized System (GHS) for hazard communication, regulation of chemicals used in the manufacture of pharmaceuticals and personal care products and that contact food under the Food, Drug and Cosmetics Act in the United States, the Framework Regulation in Europe and other product control requirements for chemical weapons, drug precursors and import/export.  New laws and regulations may be enacted or adopted by various regulatory agencies globally.  The costs of compliance with any new laws or regulations cannot be estimated until the manner in which they will be implemented has been more precisely defined.
Remediation – Ashland currently operates, and in the past has operated, various facilities at which, during the normal course of business, releases of hazardous substances have occurred.  Additionally, Ashland has known or alleged potential environmental liabilities at a number of third-party sites.  Federal and state laws, including but not limited to the Resource Conservation and Recovery Act (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and various other remediation laws, require that contamination caused by hazardous substance releases be assessed and, if necessary, remediated to meet applicable standards.  Some of these laws also provide for liability for related damage to natural resources, and claims for alleged property and personal injury damage can also arise related to contaminated sites.  Laws in other jurisdictions in which Ashland operates require that contamination caused by such releases at these sites be assessed and, if necessary, remediated to meet applicable standards.
Air – In the United States, the Clean Air Act (CAA) imposes stringent limits on facility air emissions, establishes a federally mandated operating permit program, allows for civil and criminal enforcement actions and sets limits on the volatile or toxic content of many types of industrial materials and consumer products.  The CAA establishes national ambient air quality standards (NAAQS) with attainment deadlines and control requirements based on the severity of air pollution in a given geographical area.  Various state clean air acts implement, complement and, in many instances, add to the requirements of the federal CAA.  The requirements of the CAA and its state counterparts have a significant impact on the daily operation of Ashland’s businesses and, in many cases, on product formulation and other long-term business decisions.  Other countries where Ashland operates also have laws and regulations relating to air quality.  Ashland’s businesses maintain numerous permits and emission control devices pursuant to these clean air laws.
The United States Environmental Protection Agency (USEPA) has increased its frequency in reviewing the NAAQS.  The USEPA has stringent standards for particulate matter, ozone and sulfur dioxide.  Throughout 2015, state and local agencies continued to implement options for meeting the newest standards.  Particulate matter strategies include dust control measures for construction sites and reductions in emission rates allowed for industrial operations.  Options for ozone include emission controls for certain types of sources, reduced limits on the volatile organic compound content of industrial materials and consumer products, and requirements on the transportation sector.  Most options for sulfur dioxide focus on coal and diesel fuel combustion sources.  It is not possible at this time to estimate the potential financial impact that these newest standards may have on Ashland’s operations or products.  Ashland will continue to monitor and evaluate these standards to meet these and all air quality requirements.

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Solid Waste – Ashland’s businesses are subject to various laws relating to and establishing standards for the management of hazardous and solid waste.  In the United States, Ashland’s facilities are subject to RCRA and its regulations governing generators of hazardous waste.  Ashland has implemented systems to oversee compliance with the RCRA regulations.  In addition to regulating current waste disposal practices, RCRA also addresses the environmental effects of certain past waste disposal operations, the recycling of wastes and the storage of regulated substances in underground tanks.  Ashland has the remediation liability for certain facilities subject to these regulations.  Other countries where Ashland operates also have laws and regulations relating to hazardous and solid waste, and Ashland has systems in place to oversee compliance.
Water – Ashland’s businesses maintain numerous discharge permits.  In the United States, such permits may be required by the National Pollutant Discharge Elimination System of the Clean Water Act and similar state programs.  Other countries have similar laws and regulations requiring permits and controls relating to water discharge.
Climate Change and Related Regulatory Developments – Ashland has been collecting energy use data and calculating greenhouse gas (GHG) emissions for many years.  Ashland evaluates the potential impacts from both climate change and the anticipated GHG regulations to facilities, products and other business interests, as well as the strategies commonly considered by the industrial sector to reduce the potential impact of these risks.  These risks are generally grouped as impacts from legislative, regulatory and international developments, impacts from business and investment trends and impacts to company assets from the physical effects of climate change.  Current North American, European and other regional regulatory developments are not expected to have a material effect on Ashland’s operations, although some facilities are subject to promulgated rules.  Business and investment trends are expected to drive an increase in the demand for products that improve energy efficiency, reduce energy use and increase the use of renewable resources.  At this time, Ashland cannot estimate the impact of this expected demand increase to its businesses.  Physical effects from climate change have the potential to affect Ashland’s assets in areas prone to sea level rise or extreme weather events much as they do the general public and other businesses.  Due to the uncertainty of these matters, Ashland cannot estimate the impact at this time of GHG-related developments on its operations or financial condition.
Competition
Specialty Ingredients and Performance Materials compete in the highly fragmented specialty chemicals industry.  The participants in the industry offer a varied and broad array of product lines designed to meet specific customer requirements.  Participants compete with individual and service product offerings on a global, regional and/or local level subject to the nature of the businesses and products, as well as the end-markets and customers served.  Competition is based on several key criteria, including product performance and quality, product price, product availability and security of supply, responsiveness of product development in cooperation with customers, customer service, industry knowledge and technical capability.  Certain key competitors are significantly larger than Ashland and have greater financial resources, leading to greater operating and financial flexibility.  The industry has become increasingly global as participants have focused on establishing and maintaining leadership positions outside of their home markets.  Many of these segments’ product lines face domestic and international competition, as a result of industry consolidation, pricing pressures and competing technologies.
Valvoline competes in the highly competitive automotive lubricants business, principally through its offerings of premium products and services primarily under the Valvoline™ family of trademarks, coupled with strong brand marketing, customer support and distribution capabilities.  Some of the major brands of motor oils and lubricants with which Valvoline competes globally are Castrol , Mobil and Pennzoil .  In the “fast oil change” market, Valvoline competes with other leading independent fast lube chains on a national, regional or local basis, as well as automobile dealers and service stations.  Important competitive factors for Valvoline in the “fast oil change” market include the Valvoline brand recognition; maintaining market presence through Valvoline Instant Oil Change SM and Valvoline Express Care™ outlets; and quality and speed of service, location, convenience, sales promotions and other value-add elements.
Intellectual Property
Ashland has a broad intellectual property portfolio which is an important component of all of Ashland’s reportable segments.  In particular, Ashland’s Specialty Ingredients and Performance Materials reportable segments rely on patents, trade secrets, formulae and know-how to protect and differentiate their products and technologies.  In addition, these reportable segments own valuable trademarks which identify and differentiate Ashland’s products from its competitors.  The Valvoline™ trademark and other trademarks related to Valvoline brand products and franchises are of particular importance to the Valvoline brand segment and the overall Ashland business.  Ashland also licenses intellectual property rights from third-parties.
Raw Materials
Ashland purchases its raw materials from multiple sources of supply in the United States and other countries, and believes that raw material supplies will be available in quantities sufficient to meet demand in fiscal 2016 . All of Ashland’s reportable segments were impacted to varying degrees in fiscal 2015 by the volatility of raw materials costs, and these conditions may continue in fiscal 2016 .

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Research and Development
Ashland’s program of research and development is focused on defining the needs of the marketplace and framing those needs into technology platforms. Ashland has the capability to deliver and develop the intellectual property required to grow and protect those platforms.  Ashland is focused on developing new chemistries, market-changing technologies and customer driven solutions at numerous technology centers located in the Americas, Europe and the Asia Pacific region.  Research and development costs are expensed as they are incurred and totaled $110 million in fiscal 2015 , $114 million in 2014 and $142 million in 2013 . These amounts include impairment charges of $11 million , $13 million and $41 million during fiscal 2015 , 2014 and 2013 , respectively, related to certain in-process research and development assets associated with the acquisition of ISP. For additional information regarding these impairment charges, see Note H of Notes to Consolidated Financial Statements in this annual report on Form 10-K.
Seasonality
Ashland’s business may vary due to seasonality. Ashland’s business units typically experience stronger demand during warmer weather months, which generally occur during Ashland’s third and fourth quarters.
Forward-Looking Statements
This annual report on Form 10-K contains forward-looking statements 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 (the “Exchange Act”).  These forward-looking statements are not historical facts and generally are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should,” and “intends” and the negative of these words or other comparable terminology. Although Ashland believes that its expectations are based on reasonable assumptions, such expectations are subject to risks and uncertainties that are difficult to predict and may be beyond Ashland’s control.  As a result, Ashland cannot assure that the expectations contained in such statements will be achieved.  Important factors that could cause actual results to differ materially from those contained in such statements are discussed under “Use of estimates, risks and uncertainties” in Note A of Notes to Consolidated Financial Statements in this annual report on Form 10-K.  For a discussion of other factors and risks that could affect Ashland’s expectations and operations, see “Item 1A. Risk Factors” in this annual report on Form 10-K.

ITEM 1A.  RISK FACTORS
The following discussion of “risk factors” identifies the most significant factors that may adversely affect Ashland’s business, operations, financial position or future financial performance.  This information should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and related notes incorporated by reference into this annual report on Form 10-K.  The following discussion of risks is designed to highlight what Ashland believes are important factors to consider when evaluating its expectations.  These factors could cause future results to differ from those in forward-looking statements and from historical trends.
Ashland has set aggressive growth goals for its businesses, including increasing sales, cash flow and margins, in order to achieve its long term strategic objectives. Ashland’s successful execution of its growth strategies and business plans to facilitate that growth involves a number of risks.
Ashland has set aggressive growth goals for its chemicals and Valvoline businesses in order to meet long term strategic objectives and improve shareholder value. Ashland’s failure to meet one or more of these goals or objectives would negatively impact Ashland’s potential value and the businesses. One of the most important risks is that Ashland might fail to adequately execute its business and growth plans. Aspects of that risk include changes to global economic environment, changes to the competitive landscape, attraction and retention of skilled employees, the potential failure of product innovation plans, failure to comply with existing or new regulatory schemes, failure to maintain a competitive cost structure and other risks outlined in greater detail in this Item 1A.
Ashland’s plan to separate into two independent, publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, any of which could negatively impact our businesses.
On September 22, 2015, Ashland announced plans to separate its Valvoline business from its Specialty Ingredients and Performance Materials businesses in a structure that is expected to be tax free for Ashland shareholders. The separation is intended to be completed as soon as practicable, but will take no less than a year from the date of the announcement of the planned separation. The process of finalizing the transaction structure is underway. Once the separation structure is determined, the separation is subject to final approval from Ashland’s board of directors. In addition, other unanticipated developments, including changes to the competitive environment for Valvoline’s or new Ashland’s respective markets, possible delays in obtaining or failure to obtain

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tax opinions, regulatory or other approvals or clearances to approve or facilitate the separation, uncertainty in financial markets and other challenges in executing the separation as planned, could delay or prevent the separation, or cause it to occur on terms or conditions that are different or less favorable than expected.
Ashland expects that the process of completing the proposed separation will be time-consuming and involve significant costs and expenses, which may be significantly higher than those currently anticipated and may not yield a discernible benefit if the separation is not completed. Also, the time and energy required from Ashland’s senior management and other employees to plan and execute the separation may lead to increased costs, increased expenses, negative effects on relationships with business partners, suppliers, and customers, disruptions in operations and ultimately harm its businesses. Ashland may also experience difficulty attracting, retaining and motivating employees during the pendency of the separation, which could also harm its businesses.
If the separation is completed, there is a further risk that the sum of the value of the two independent, publicly traded companies will be less than the value of Ashland before the separation. There is also a risk that the completed separation will not meet all of the intended financial, strategic, and operational benefits that were the impetus for the decision to separate the company.
Ashland’s success depends upon its ability to attract and retain key employees and the identification and development of talent to succeed senior management.
Ashland’s success depends on its ability to attract and retain key personnel, and Ashland relies heavily on its management team. The inability to recruit and retain key personnel or the unexpected loss of key personnel may adversely affect Ashland’s operations. Also, a substantial portion of Ashland’s U.S.-based employees will be retirement-eligible within the next five years. That, combined with the relatively small number of middle tier managers with substantial experience in place to replace this group of retirement eligible employees, increases the potential negative impact of the risk that key employees could leave the Company. This risk of unwanted employee turnover also is substantial in positions that require certain technical expertise and geographically in developing markets which Ashland has targeted for growth, especially in Asia, South America and Eastern Europe. This risk is further enhanced by the planned separation of Ashland into two publicly traded companies announced on September 22, 2015. In addition, because of its reliance on its management team, Ashland’s future success depends, in part, on its ability to identify and develop talent to succeed its senior management and other key positions throughout the organization. If Ashland fails to identify and develop successors, the company is at risk of being harmed by the departures of these key employees.
Ashland faces competition from other companies, which places downward pressure on prices and margins and may adversely affect Ashland’s businesses and results of operations.
Ashland operates in highly competitive markets, competing against a number of domestic and foreign companies. Competition is based on several key criteria, including product performance and quality, product price, product availability and security of supply, responsiveness of product development in cooperation with customers and customer service, as well as the ability to bring innovative products or services to the marketplace. Certain key competitors are significantly larger than Ashland and have greater financial resources, leading to greater operating and financial flexibility. As a result, these competitors may be better able to withstand changes in conditions within the relevant industry, changes in the prices of raw materials and energy and changes in general economic conditions. In addition, competitors’ pricing decisions could compel Ashland to decrease its prices, which could negatively affect its margins and profitability. Additional competition in markets served by Ashland could adversely affect margins and profitability and could lead to a reduction in market share. Also, Ashland competes in certain markets that are declining and has targeted other markets for growth opportunities. If Ashland’s strategies for dealing with declining markets and leveraging opportunity markets are not successful, its results of operations could be negatively affected.
Ashland’s business exposes it to potential product liability claims and recalls, which could adversely affect its financial condition and performance.
The development, manufacture and sale of specialty chemical and other products by Ashland, including products produced for the food, beverage, personal care, pharmaceutical and nutritional supplement industries, involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity. A product liability claim or judgment against Ashland could also result in substantial and unexpected expenditures, affect consumer or customer confidence in its products, and divert management’s attention from other responsibilities. Although Ashland maintains product liability insurance, there can be no assurance that this type or the level of coverage is adequate or that Ashland will be able to continue to maintain its existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured product liability judgment against Ashland could have a material adverse effect on its reputation, results of operations and financial condition.
Failure to develop and market new products and production technologies could impact Ashland’s competitive position and have an adverse effect on its businesses and results of operations.
The specialty chemical industry is subject to periodic technological change and ongoing product improvements. In order to maintain margins and remain competitive, Ashland must successfully develop and introduce new products or improvements that

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appeal to its customers and ultimately to global consumers. Ashland plans to grow earnings, in part, by focusing on developing markets and solutions to meet increasing demand in those markets, including demand for personal care and pharmaceutical products which are subject to lengthy regulatory approval processes. Ashland’s efforts to respond to changes in consumer demand in a timely and cost-efficient manner to drive growth could be adversely affected by difficulties or delays in product development, including the inability to identify viable new products, successfully complete research and development, obtain regulatory approvals, obtain intellectual property protection or gain market acceptance of new products. Due to the lengthy development process, technological challenges and intense competition, there can be no assurance that any of the products Ashland is currently developing, or could develop in the future, will achieve substantial commercial success.
The impact of changing laws or regulations or the manner of interpretation or enforcement of existing rules could adversely impact Ashland’s financial performance and restrict its ability to operate its business or execute its strategies.
New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase Ashland’s cost of doing business and restrict its ability to operate its business or execute its strategies. This includes, among other things, the possible taxation under U.S. law of certain income from foreign operations, the possible taxation under foreign laws of certain income Ashland reports in other jurisdictions, regulations related to the protection of private information of Ashland’s employees and customers, regulations issued by the U.S. Food and Drug Administration (and analogous non-U.S. agencies) affecting Ashland and its customers, compliance with The U.S. Foreign Corrupt Practices Act (and analogous non-U.S. laws) and the European Union’s Registration, Authorisation and Restriction of Chemicals (REACH) regulation (and analogous non-EU initiatives), and costs associated with complying with the Patient Protection and Affordable Care Act of 2010 and the regulations promulgated thereunder. In addition, compliance with laws and regulations is complicated by Ashland’s substantial and growing global footprint, which will require significant and additional resources to comprehend and ensure compliance with applicable laws in the more than one hundred countries where Ashland conducts business.
Ashland’s substantial global operations subject it to risks of doing business in foreign countries, which could adversely affect its business, financial condition and results of operations.
Approximately one half of Ashland’s net sales for fiscal 2016 are expected to be to customers outside of North America. Ashland expects sales from international markets to continue to represent an even larger portion of the Company’s sales in the future. Also, a significant portion of Ashland’s manufacturing capacity is located outside of the United States. Accordingly, Ashland’s business is subject to risks related to the differing legal, political, cultural, social and regulatory requirements and economic conditions of many jurisdictions.
The global nature of Ashland’s business presents difficulties in hiring and maintaining a workforce in certain countries. Fluctuations in exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services provided in foreign countries. In addition, foreign countries may impose additional withholding taxes or otherwise tax Ashland’s foreign income, or adopt other restrictions on foreign trade or investment, including currency exchange controls. The imposition of tariffs is also a risk that could impair Ashland’s financial performance.
Certain legal and political risks are also inherent in the operation of a company with Ashland’s global scope. For example, it may be more difficult for Ashland to enforce its agreements or collect receivables through foreign legal systems. There is a risk that foreign governments may nationalize private enterprises in certain countries where Ashland operates. In certain countries or regions, terrorist activities and the response to such activities may threaten Ashland’s operations more than in those in the United States. In Europe, the effect of economic sanctions imposed on Russia and/or Russia’s reaction to the sanctions could adversely impact Ashland’s performance and results of operations. Social and cultural norms in certain countries may not support compliance with Ashland’s corporate policies including those that require compliance with substantive laws and regulations. Also, changes in general economic and political conditions in countries where Ashland operates, particularly in Europe, the Middle East and emerging markets, are a risk to Ashland’s financial performance.
As Ashland continues to operate its business globally, its success will depend, in part, on its ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to its multinational operations will not have an adverse effect on Ashland’s business, financial condition or results of operations.
The competitive nature of Ashland’s markets may delay or prevent the Company from passing increases in raw materials or energy costs on to its customers. In addition, certain of Ashland’s suppliers may be unable to deliver products or raw materials or may withdraw from contractual arrangements. The occurrence of either event could adversely affect Ashland’s results of operations.
Rising and volatile raw material prices, especially those of hydrocarbon derivatives, cotton linters or wood pulp, may negatively impact Ashland’s costs, results of operations and the valuation of its inventory. Similarly, energy costs are a significant component of certain of Ashland’s product costs. Ashland is not always able to raise prices in response to such increased costs, and its ability

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to pass on the costs of such price increases is dependent upon market conditions. Likewise, reductions in the valuation of Ashland’s inventory due to market volatility may not be recovered and could result in losses.
Ashland purchases certain products and raw materials from suppliers, often pursuant to written supply contracts. If those suppliers are unable to meet Ashland’s orders in a timely manner or choose to terminate or otherwise avoid contractual arrangements, Ashland may not be able to make alternative supply arrangements. Also, domestic and global government regulations related to the manufacture or transport of certain raw materials may impede Ashland’s ability to obtain those raw materials on commercially reasonable terms. If Ashland is unable to obtain and retain qualified suppliers under commercially acceptable terms, its ability to manufacture and deliver products in a timely, competitive and profitable manner or grow its business successfully could be adversely affected.
Adverse developments in the global economy and potential disruptions of financial markets could negatively impact Ashland’s customers and suppliers, and therefore have a negative impact on Ashland’s results of operations.
A global or regional economic downturn may reduce customer demand or inhibit Ashland’s ability to produce and sell products. Ashland’s business and operating results are sensitive to global and regional economic downturns, credit market tightness, declining consumer and business confidence, fluctuating commodity prices, volatile exchange rates, changes in interest rates, sovereign debt defaults and other challenges, including those related to international sanctions and acts of aggression or threatened aggression that can affect the global economy. In the event of adverse developments or stagnation in the economy or financial markets, Ashland’s customers may experience deterioration of their businesses, reduced demand for their products, cash flow shortages and difficulty obtaining financing. As a result, existing or potential customers might delay or cancel plans to purchase products and may not be able to fulfill their obligations to Ashland in a timely fashion. Further, suppliers may experience similar conditions, which could impact their ability to fulfill their obligations to Ashland. A weakening or reversal of the current economic recovery in the global economy or a substantial part of it could negatively impact Ashland’s business, results of operations, financial condition and ability to grow.
Ashland uses information technology (IT) systems to conduct business and these IT systems are at risk from cyber security threats.
The nature of our businesses, the markets we serve, and geographic profile of our operations make Ashland a target of cyber security threats. Despite steps Ashland takes to mitigate or eliminate them, cyber security threats to our systems are increasing and becoming more advanced and could occur as a result of the activity of hackers, employee error or employee misconduct. A breach of our IT systems could lead to the loss and destruction of trade secrets, confidential information, proprietary data, intellectual property, customer and supplier data, and employee personal information, and could disrupt business operations which could adversely affect Ashland’s relationships with business partners and harm our brands, reputation, and financial results.
Ashland may not be able to effectively protect or enforce its intellectual property rights.
Ashland relies on the patent, trademark, trade secret and copyright laws of the United States and other countries to protect its intellectual property rights. The laws of some countries may not protect Ashland’s intellectual property rights to the same extent as the laws of the United States. Failure of foreign countries to have laws to protect Ashland’s intellectual property rights or an inability to effectively enforce such rights in foreign countries could result in the loss of valuable proprietary information, which could have an adverse effect on Ashland’s business and results of operations.
Even in circumstances where Ashland has a patent on certain technologies, such patents may not provide meaningful protection against competitors or against competing technologies. In addition, any patent applications submitted by Ashland may not result in an issued patent. There can be no assurance that Ashland’s intellectual property rights will not be challenged, invalidated, circumvented or rendered unenforceable. Ashland could also face claims from third parties alleging that Ashland’s products or processes infringe on their proprietary rights. If Ashland is found liable for infringement, it could be responsible for significant damages, prohibited from using certain products or processes or required to modify certain products and processes. Any such infringement liability could adversely affect Ashland’s product and service offerings, profitability and results of operations.
Ashland also has substantial intellectual property associated with its know-how and trade secrets that are not protected by patent or copyright laws. Ashland protects these rights by entering into confidentiality and non-disclosure agreements with most of its employees and with third parties. There can be no assurance that such agreements will not be breached or that Ashland will be able to effectively enforce them. In addition Ashland’s trade secrets and know how may be improperly obtained by other means, such as a breach of Ashland’s information technologies security systems or direct theft. Any unauthorized disclosure of any of Ashland’s material know-how or trade secrets could adversely affect Ashland’s business and results of operations.

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Business disruptions from natural, operational and other catastrophic risks could seriously harm Ashland’s operations and financial performance. In addition, a catastrophic event at one of Ashland’s facilities or involving its products or employees could lead to liabilities that could further impair its operations and financial performance.
Business disruptions, including those related to operating hazards inherent with the production of chemicals, natural disasters, severe weather conditions, supply or logistics disruptions, increasing costs for energy, temporary plant and/or power outages, information technology systems and network disruptions, cyber-security breach, terrorist attacks, armed conflict, war, pandemic diseases, fires, floods or other catastrophic events, could seriously harm Ashland’s operations, as well as the operations of its customers and suppliers, and may adversely impact Ashland’s financial performance. Although it is impossible to predict the occurrence or consequences of any such events, they could result in reduced demand for Ashland’s products, make it difficult or impossible for Ashland to manufacture its products or deliver products and services to its customers or to receive raw materials from suppliers, or create delays and inefficiencies in the supply chain. In addition to leading to a serious disruption of Ashland’s businesses, a catastrophic event at one of our facilities or involving our products or employees could lead to substantial legal liability to or claims by parties allegedly harmed by the event.
While Ashland maintains business continuity plans that are intended to allow it to continue operations or mitigate the effects of events that could disrupt its business, Ashland cannot provide assurances that its plans would fully protect it from all such events. In addition, insurance maintained by Ashland to protect against property damage, loss of business and other related consequences resulting from catastrophic events is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of Ashland’s damages or damages to others in the event of a catastrophe. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.
Ashland has incurred, and will continue to incur, substantial costs as a result of environmental, health and safety, and hazardous substances liabilities and related compliance requirements. These costs could adversely impact Ashland’s cash flow, and, to the extent they exceed Ashland’s established reserves for these liabilities, its results of operations.
Ashland is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and human health and safety, and the generation, storage, handling, treatment, disposal and remediation of hazardous substances and waste materials. Ashland has incurred, and will continue to incur, significant costs and capital expenditures to comply with these laws and regulations.
Environmental, health and safety regulations change frequently, and such regulations and their enforcement have tended to become more stringent over time. Accordingly, changes in environmental, health and safety laws and regulations and the enforcement of such laws and regulations could interrupt Ashland’s operations, require modifications to its facilities or cause Ashland to incur significant liabilities, costs or losses that could adversely affect its profitability. Actual or alleged violations of environmental, health or safety laws and regulations could result in restrictions or prohibitions on plant operations as well as substantial damages, penalties, fines, civil or criminal sanctions and remediation costs. In addition, under some environmental laws, Ashland may be strictly liable and/or jointly and severally liable for environmental damages and penalties.
Ashland is also subject to various federal, state, local and foreign environmental laws and regulations that require environmental assessment or remediation efforts (collectively, environmental remediation) at multiple locations. Ashland uses engineering studies, historical experience and other factors to identify and evaluate remediation alternatives and their related costs in determining the estimated reserves for environmental remediation. Environmental remediation reserves are subject to numerous inherent uncertainties that affect Ashland’s ability to estimate its share of the applicable 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. As a result, Ashland’s actual costs for environmental remediation could affect Ashland’s cash flow and, to the extent costs exceed established reserves for those liabilities, its results of operations.
Ashland is responsible for, and has financial exposure to, liabilities from pending and threatened claims, including those alleging personal injury caused by exposure to asbestos, which could adversely impact Ashland’s results of operations and cash flow.
There are various claims, lawsuits and administrative proceedings pending or threatened, including those alleging personal injury caused by exposure to asbestos, against Ashland and its current and former subsidiaries. Such actions are with respect to commercial matters, product liability, toxic tort liability and other matters that seek remedies or damages, some of which are for substantial amounts. While these actions are being contested, their outcome is not predictable. Ashland’s results could be adversely affected by financial exposure to these liabilities. Insurance maintained by Ashland to protect against claims for damages alleged by third parties is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of Ashland’s liabilities to others. In addition, insurance related to these types of risks may not be available now or, if

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available, may not be available in the future at commercially reasonable rates. Ashland’s ability to recover from its insurers for asbestos liabilities could also have an adverse impact on its results of operations. 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, 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 of these inherent uncertainties, Ashland believes that its asbestos reserves 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. Because of the inherent uncertainties in projecting future asbestos liabilities and establishing appropriate reserves, Ashland’s actual asbestos costs could adversely affect its results of operations and, to the extent they exceed its reserves, could adversely affect its results of operations.
Ashland’s pension and postretirement benefit plan obligations are currently underfunded, and Ashland may have to make significant cash payments to some or all of these plans, which would reduce the cash available for Ashland’s businesses.
Ashland has underfunded obligations under its domestic and foreign pension and postretirement benefit plans. The funded status of Ashland’s pension plans is dependent upon many factors, including returns on invested assets, the level of certain market interest rates and the discount rate used to determine pension obligations. Unfavorable returns on plan assets or unfavorable changes in applicable laws or regulations could materially change the timing and amount of required plan funding, which would reduce the cash available for Ashland’s businesses. In addition, a decrease in the discount rate used to determine pension obligations could result in an increase in the valuation of pension obligations, which could affect the reported funding status of Ashland’s pension plans and future contributions. Similarly, an increase in discount rates could increase the periodic pension cost in subsequent fiscal years.
Under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, the Pension Benefit Guaranty Corporation (PBGC) has the authority to terminate an underfunded tax-qualified pension plan under limited circumstances. In the event Ashland’s tax-qualified pension plans are terminated by the PBGC, Ashland could be liable to the PBGC for some portion of the underfunded amount.
Ashland’s substantial indebtedness may adversely affect its business, results of operations and financial condition.
Ashland maintains a substantial amount of debt. Ashland’s substantial indebtedness could adversely affect its business, results of operations and financial condition by, among other things:
requiring Ashland to dedicate a substantial portion of its cash flow from operations to pay principal and interest on its debt, which would reduce the availability of Ashland’s cash flow to fund working capital, capital expenditures, acquisitions, execution of its growth strategy and other general corporate purposes;
limiting Ashland’s ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, execution of its growth strategy and other purposes;
making Ashland more vulnerable to adverse changes in general economic, industry and regulatory conditions and in its business by limiting Ashland’s flexibility in planning for, and making it more difficult for Ashland to react quickly to, changing conditions;
placing Ashland at a competitive disadvantage compared with those of its competitors that have less debt and lower debt service requirements;
making Ashland more vulnerable to increases in interest rates since some of its indebtedness is subject to variable rates of interest; and
making it more difficult for Ashland to satisfy its financial obligations.
In addition, Ashland may not be able to generate sufficient cash flow from its operations to repay its indebtedness when it becomes due and to meet its other cash needs. If Ashland is not able to pay its debts as they become due, it could be in default under its credit facility or other indebtedness. Ashland might also be required to pursue one or more alternative strategies to repay indebtedness, such as selling assets, refinancing or restructuring its indebtedness or selling additional debt or equity securities. Ashland may not be able to refinance its debt or sell additional debt or equity securities or its assets on favorable terms, if at all, and if Ashland must sell its assets, it may negatively affect its ability to generate revenues.

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ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.

ITEM 2.  PROPERTIES
Ashland’s corporate headquarters is located in Covington, Kentucky.  Principal offices of other major operations are located in Wilmington, Delaware (Specialty Ingredients); Bridgewater, New Jersey (Specialty Ingredients); Dublin, Ohio (Specialty Ingredients and Performance Materials); Lexington, Kentucky (Valvoline); and Barendrecht, the Netherlands; Shanghai, China; Hyderabad, India; Warsaw, Poland; and Schaffhausen, Switzerland (each of which are shared service centers of Ashland’s business units).  All of these office buildings are leased, except for portions of the Dublin, Ohio and the Lexington, Kentucky facilities that are owned.  Principal manufacturing, marketing and other materially important physical properties of Ashland and its subsidiaries are described within the applicable business units under “Item 1” in this annual report on Form 10-K.  All of Ashland’s physical properties are owned or leased.  Ashland believes its physical properties are suitable and adequate for the Company’s business.  Additional information concerning certain leases may be found in Note K of Notes to Consolidated Financial Statements in this annual report on Form 10-K.

ITEM 3.  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, a 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.
In October 2012, Ashland and Hercules initiated various arbitration proceedings against Underwriters at Lloyd’s, certain London companies and/or Chartis (AIG) member companies seeking to enforce these insurers’ contractual obligations to provide indemnity for asbestos liabilities and defense costs under existing coverage-in-place agreements. In addition, Ashland and Hercules initiated a lawsuit in Kentucky state court against certain Berkshire Hathaway entities (National Indemnity Company and Resolute Management, Inc.) on grounds that these Berkshire Hathaway entities wrongfully interfered with Underwriters' and Chartis' performance of their respective contractual obligations to provide asbestos coverage by directing the insurers to reduce and delay certain claim payments.
On January 13, 2015, Ashland and Hercules entered into a comprehensive settlement agreement related to certain insurance coverage for asbestos bodily injury claims with Underwriters at Lloyd’s, certain London companies and Chartis (AIG) member companies, along with National Indemnity Company and Resolute Management, Inc., under which Ashland and Hercules received a total of $398 million . In exchange, all claims were released against these entities for past, present and future coverage obligations arising out of the asbestos coverage-in-place agreements that were the subject of the pending arbitration proceedings. In addition, as part of this settlement, Ashland and Hercules released all claims against National Indemnity Company and Resolute Management, Inc. in the Kentucky state court action. As a result, the arbitration proceedings and the Kentucky state court action have been terminated.
As a result of this settlement, during 2015, Ashland recorded an after-tax gain of $120 million within the discontinued operations caption of the Statements of Consolidated Comprehensive Income and a $249 million reduction in the asbestos insurance receivable balance, consisting of $227 million and $22 million for Ashland and Hercules, respectively, within the Condensed Consolidated Balance Sheets. See Note N of the Notes to Condensed Consolidated Financial Statements in this annual report on Form 10-K for further information.
In addition, Ashland placed $335 million of the settlement funds received into a renewable annual trust restricted for the purpose of paying for ongoing and future litigation defense and claim settlement costs incurred in conjunction with asbestos claims.

14






For additional detailed information regarding liabilities arising from asbestos-related litigation, see “Management’s Discussion and Analysis - Critical Accounting Policies - Asbestos Litigation” and Note N of Notes to Consolidated Financial Statements in this annual report on Form 10-K.
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 September 30, 2015 , Ashland and its subsidiaries have been identified as a PRP by U.S. federal and state authorities, or by private parties seeking contribution, for the cost of environmental investigation and/or cleanup at 85 waste treatment or disposal sites.  These sites are currently subject to ongoing investigation and remedial activities, overseen by the United States Environmental Protection Agency (USEPA) or a state agency, in which Ashland or its subsidiaries are typically participating as a member of a PRP group.  Generally, the type of relief sought includes remediation of contaminated soil and/or groundwater, reimbursement for past costs of site cleanup and administrative oversight and/or long-term monitoring of environmental conditions at the sites.  The ultimate costs are not predictable with assurance.
(b)      Hattiesburg, Mississippi Resource Conservation and Recovery Act Matter - In November 2008, the Mississippi Department of Environmental Quality (MDEQ) issued a Notice of Violation to Hercules’ now-closed Hattiesburg, Mississippi manufacturing facility alleging that a process water impoundment basin at the facility had been operated as a hazardous waste storage and treatment facility without a permit in violation of the Resource Conservation and Recovery Act.  In May 2011, the USEPA issued an inspection report from a September 2010 inspection with allegations similar to those of the MDEQ and promulgated an information request.  Ashland has been working with the MDEQ and USEPA to settle this matter in the context of the shutdown and ongoing remediation of the Hattiesburg facility.  The USEPA proposed a settlement penalty in excess of $100,000.  While it is reasonable to believe that this matter will involve a penalty from the MDEQ and/or the USEPA exceeding $100,000, the potential penalty with respect to this enforcement matter should not be material to Ashland.
(c)      Lower Passaic River, New Jersey Matters - Ashland, through two formerly owned facilities, and ISP, through a now-closed facility, have been identified as PRPs, along with approximately 70 other companies (the Cooperating Parties Group or the CPG), in a May 2007 Administrative Order of Consent (AOC) with the USEPA. The parties are required to perform a remedial investigation and feasibility study (RI/FS) of the entire 17 miles of the Passaic River. In June 2007, the EPA separately commenced a Focused Feasibility Study (FFS) as an interim measure. In accordance with the 2007 AOC, in June 2012 the CPG voluntarily entered into another AOC for an interim removal action focused solely at mile 10.9 of the Passaic River. The allocations for the 2007 AOC and the 2012 removal action are based on interim allocations, are immaterial and have been accrued. In April 2014, the EPA released the FFS. The CPG submitted the Draft RI/FS Report on April 30, 2015. The EPA is expected to release the FFS Record of Decision for the lower 8 miles by December 31, 2015. Based on current knowledge and proceedings, Ashland does not believe the outcome of these proceedings or the release of the FFS Record of Decision will have a material adverse impact on its business and financial operations; however, there are a number of contingencies in the future that could possibly have a material impact including adverse rulings or verdicts, allocation proceedings and related orders.
(d)      Zwijndrecht Plant Matter - Between August 2012 and January 2014, Dutch environmental authorities have found several violations of a waste water discharge permit by Ashland Industries Nederland B.V., as owner of the manufacturing site at Zwijndrecht, The Netherlands. As a result, administrative penalties and sanctions totaling €350,000 were paid during calendar years 2013 and 2014. In addition, Dutch authorities announced prosecution with regards to some permit violations. Ashland initiated a settlement proposal and is awaiting a response to the proposal. While it is reasonable to believe that this matter will involve an additional penalty exceeding $100,000, the potential liability with respect to this matter should not be material to Ashland.
For additional information regarding environmental matters and reserves, see Note N of Notes to Consolidated Financial Statements in this annual report on Form 10-K.
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 September 30, 2015 . 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 September 30, 2015 .


15






ITEM 4.  MINE SAFETY DISCLOSURES
Not applicable.

ITEM X.  EXECUTIVE OFFICERS OF ASHLAND
The following is a list of Ashland’s current executive officers, their ages and their positions and offices during the last five years (listed alphabetically after the current members of Ashland’s Executive Committee).
WILLIAM A. WULFSOHN (age 53) is Chairman and Chief Executive Officer of Ashland since January 1, 2015. Prior to joining Ashland, Mr. Wulfsohn served as President and Chief Executive Officer of Carpenter Technology Corp., a manufacturer of stainless steel, titanium, and other specialty metals and engineered products, from July 2010 to November 2014. Mr. Wulfsohn also served as a Director for Carpenter Technology Corp. from April 2009 to November 2014.
J. KEVIN WILLIS (age 50) is Senior Vice President and Chief Financial Officer of Ashland and has served in such capacities since May 2013. Mr. Willis served as Vice President of Finance and Controller for the Specialty Ingredients business unit from August 2011 until May 2013 and Vice President of Finance and Treasurer from 2007 to 2011.
PETER J. GANZ (age 53) is Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Ashland and has served as Senior Vice President, General Counsel and Chief Compliance Officer since July 2011 and Secretary since November 2012.  Prior to joining Ashland, Mr. Ganz served as a partner with Sedgwick LLP, an international law firm, and as Executive Vice President, General Counsel and Secretary of Foster Wheeler AG, a global engineering and construction contractor and power equipment supplier.
LUIS FERNANDEZ-MORENO (age 53) is Senior Vice President of Ashland and President, Chemicals Group since April 2015. He previously served as Senior Vice President of Ashland and President, Ashland Specialty Ingredients from October 2013 until April 2015. Prior to that, Mr. Fernandez-Moreno served as Vice President of Ashland and President of Water Technologies from November 2012 until October 2013. During the past five years, he has served as Executive Vice President of Arch Chemicals, Inc., a global biocides company, where he was responsible for the wood protection and HTH water products businesses.
SAMUEL J. MITCHELL, JR. (age 54) is Senior Vice President of Ashland and President,Valvoline and has served in such capacities since 2011 and 2002, respectively.  During the past five years, he has also served as Vice President of Ashland.
GREGORY W. ELLIOTT (age 54) joined Ashland on November 9, 2015 as its Vice President and Chief Human Resources and Communications Officer. Since 2008, Mr. Elliott served as the Senior Vice President, Human Resources and Administration of Navistar, Inc., a global manufacturer of commercial and military trucks, proprietary diesel engines and buses.
J. WILLIAM HEITMAN (age 61) is Vice President and Controller of Ashland and has served in such capacities since 2008.
KEITH C. SILVERMAN (age 48) is Vice President, Environmental, Health, Safety and Regulatory Compliance and has served in such capacities since February 2014. He previously served as Vice President, Environmental, Health, Safety and Product Regulatory from June 2012 until January 2014. Prior to joining Ashland, he spent a number of years at Merck & Co., Inc., a pharmaceutical company, where he held various positions of increasing responsibility in research and development as well as in global safety and the environment.
ANNE T. SCHUMANN (age 55) is Vice President and Chief Information and Administrative Services Officer of Ashland and has served in such capacities since 2008 and 2009, respectively.  
Each executive officer is elected by the Board of Directors of Ashland to a term of one year, or until a successor is duly elected, at the annual meeting of the Board of Directors, except in those instances where the officer is elected other than at an annual meeting of the Board of Directors, in which case his or her tenure will expire at the next annual meeting of the Board of Directors unless the officer is re-elected.




16






PART II
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
See Quarterly Financial Information on page F-56 for information relating to market price and dividends of Ashland’s Common Stock.
At October 31, 2015 , there were approximately 13,000 holders of record of Ashland’s Common Stock.  Ashland Common Stock is listed on the New York Stock Exchange (NYSE) (ticker symbol ASH) and has trading privileges on NASDAQ.
There were no sales of unregistered securities required to be reported under Item 5 of Form 10-K.

FIVE-YEAR TOTAL RETURN PERFORMANCE GRAPH
The following graph compares Ashland’s five-year cumulative total shareholder return with the cumulative total return of the S&P MidCap 400 index and one peer group of companies. Ashland is listed in the S&P MidCap 400 index. The cumulative total shareholder return assumes the reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
ASHLAND, S&P MIDCAP 400 INDEX AND PEER GROUP

 
2010
2011
2012
2013
2014
2015
Ashland
100
92
150
197
225
220
S&P MidCap 400
100
99
127
162
181
183
Peer Group - Materials
100
93
122
143
170
140
The peer group consists of the following industry indices:
Peer Group – Materials:   S&P 500 Materials (large-cap) and S&P MidCap 400 Materials.  As of September 30, 2015 , this peer group consisted of 59 companies.

17






Purchase of Company Common Stock
Share repurchase activity during the three months ended September 30, 2015 was as follows:
 
 
 
 
 
 
 
 
 
 
 
Q4 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)
July 1, 2015 to July 31, 2015:
 
 
 
 
 
 
 
 
 
$
1,000

2014 ASR Agreements
 
563,905

(b)
 
$
116.33

 
563,905

 
 
 
2015 ASR Agreements
 
302,315

(b)
 
125.22

 
302,315

 
 
 
Employee tax withholdings
 
6,447

(c)
 
119.60

 

 
 
 
August 1, 2015 to August 31, 2015
 
448

(c)
 
108.47

 

 
 
1,000

September 1, 2015 to September 30, 2015
 
2,629

(c)
 
105.34

 

 
 
1,000

 
 
 
 
 
 
 
 
 
 
 
Total....................................................
 
875,744

 
 
 
 
866,220

 
 
$
1,000

(a)
On April 28, 2015, Ashland’s Board of Directors approved a $1 billion share repurchase authorization that expires December 31, 2017 and allows for shares to be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 of the Exchange Act. The $1 billion represents the remaining amount available for share repurchase as of September 30, 2015. On November 17, 2015, Ashland entered into an uncollared accelerated share repurchase agreement (the November 2015 ASR Agreement) with Goldman Sachs & Co. (Goldman Sachs) to repurchase an aggregate of $500 million of Ashland's common stock. Under the November 2015 ASR Agreement, Ashland has agreed to repurchase an aggregate of $500 million of its common stock from Goldman Sachs, with an initial delivery of approximately 3.9 million shares. The November 2015 ASR Agreement is scheduled to terminate no later than May 2016 but may be terminated early in certain circumstances, in whole or in part. Goldman Sachs may be required to deliver additional shares of common stock to Ashland, or under certain circumstances, Ashland may be required to deliver shares of common stock or to make a cash payment, at its election, to Goldman Sachs.
 
 
 
 
 
 
 
 
 
 
(b)
In August 2014, the Company entered into an accelerated share repurchase program with two financial institutions to purchase $750 million of the Company's common stock (the 2014 ASR Agreements). In exchange for an up-front payment totaling $750 million, the financial institutions initially delivered approximately 5.9 million shares of Ashland common stock. The 2014 ASR Agreements had a variable maturity, at the financial institutions’ option, with a pricing period termination date of no later than June 30, 2015. In June 2015, the 2014 ASR Agreements terminated pursuant to their terms and the pricing period was closed. The settlement price, which represents the weighted average price of Ashland’s common stock over the pricing period less a discount, was $116.33 per share. Based on this settlement price, the final number of shares repurchased by Ashland that were to be delivered by the financial institutions was 6.4 million shares. Ashland received the additional 563,905 shares from the financial institutions in the September 2015 quarter to settle the difference between the initial share delivery and the total number of shares repurchased.

Additionally, in January 2015, the Company entered into accelerated share repurchase programs to purchase $269.6 million of the Company's common stock (the 2015 ASR Agreements). In exchange for an up-front payment totaling $269.6 million, the financial institutions initially delivered approximately 1.9 million shares of Ashland common stock. The 2015 ASR Agreements had a variable maturity, at the financial institutions’ option, with a pricing period termination date of no later than July 31, 2015. In June 2015, the financial institutions exercised their early termination option under the 2015 ASR Agreements and the pricing period was closed. The settlement price, which represents the weighted average price of Ashland’s common stock over the pricing period less a discount, was $125.22 per share. Based on this settlement price, the final number of shares repurchased by Ashland that were to be delivered by the financial institutions under the 2015 ASR Agreements was 2.2 million shares. Ashland received the additional 302,315 shares from the financial institutions in the September 2015 quarter to settle the difference between the initial share delivery and the total number of shares repurchased. The average price paid by the Company for the shares delivered under the 2014 ASR Agreements and the 2015 ASR Agreements was $119.43.
 
 
 
 
 
 
 
 
 
 
(c)
Shares withheld from employees to cover their withholding requirements for personal income taxes related to the vesting of restricted stock.


18






ITEM 6.  SELECTED FINANCIAL DATA
See Five-Year Selected Financial Information on page F-57.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages M-1 through M-39.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Quantitative and Qualitative Disclosures about Market Risk on page M-39.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Ashland presented in this annual report on Form 10-K are listed in the index on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM 9A.  CONTROLS AND PROCEDURES
Disclosure Controls and Procedures As of September 30, 2015 , Ashland, under the supervision and with the participation of Ashland’s management, including Ashland’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of Ashland’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2015 .
Internal Control over Financial Reporting – See Management's Report on Internal Control Over Financial Reporting on page F-2 and the Reports of Independent Registered Public Accounting Firms on page F-3, F-4, and F-5.
Changes in Internal Control over Financial Reporting – There have been no changes in Ashland's internal control over financial reporting that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, Ashland's internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION
None.

PART III
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
There is hereby incorporated by reference the information to appear under the caption “Proposal One - Election of Directors for a One-Year Term” in Ashland’s Proxy Statement, which will be filed with the SEC within 120 days after September 30, 2015 .  See also the list of Ashland’s executive officers and related information under “Executive Officers of Ashland” in Part I - Item X in this annual report on Form 10-K.  
There is hereby incorporated by reference the information to appear under the caption “Corporate Governance - Governance Principles” in Ashland’s Proxy Statement.
There is hereby incorporated by reference the information to appear under the caption “Corporate Governance - Shareholder Nominations of Directors” in Ashland’s Proxy Statement.

19






There is hereby incorporated by reference the information to appear under the caption “Audit Committee Report” regarding Ashland’s audit committee and audit committee financial experts, as defined under Item 407(d)(4) and (5) of Regulation S-K in Ashland’s Proxy Statement.
There is hereby incorporated by reference the information to appear under the caption "Corporate Governance - Section 16(a) Beneficial Ownership Reporting Compliance" in Ashland's Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear under the captions “Compensation of Directors,” “Corporate Governance - Personnel and Compensation Committee Interlocks and Insider Participation,” “Executive Compensation,” “Compensation Discussion and Analysis,” and “Personnel and Compensation Committee Report on Executive Compensation” in Ashland’s Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
There is hereby incorporated by reference the information to appear under the captions “Ashland Common Stock Ownership of Certain Beneficial Owners,” and “Ashland Common Stock Ownership of Directors and Executive Officers of Ashland” in Ashland’s Proxy Statement.
The following table summarizes the equity compensation plans under which Ashland Common Stock may be issued as of September 30, 2015.

20






 
 
Equity Compensation Plan Information
 
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
 
(a)
 
(b)
 
(c)
Equity compensation plans approved by security
 
 
 
 
 
 
 
 
 
holders........................................................................
 
830,851

(1)
 
$
63.65

(2)
 
2,823,304

(3)
Equity compensation plans not approved by security
 
 
 
 
 
 
 
 
 
holders........................................................................
 
202,901

(4)
 

 
 
685,655

(5)
 
 
 
 
 
 
 
 
 
 
Total.......................................................................
 
1,033,752

 
 
$
63.65

(2)
 
3,508,959

 
_____________
(1)
This figure includes (a) 5,874 stock options outstanding under the Amended and Restated Ashland Inc. Incentive Plan (“Amended Plan”) and (b) 102 stock options outstanding under the Hercules Incorporated Amended and Restated Long Term Incentive Compensation Plan. This figure also includes 2,972 net shares that could be issued under stock-settled SARs under the Amended Plan, 183,657 net shares that could be issued under stock-settled SARs under the 2006 Ashland Inc. Incentive Plan (“2006 Incentive Plan”) and 222,055 net shares that could be issued under stock-settled SARs and 16,000 shares that could be issued under stock-settled restricted stock units under the Amended and Restated 2011 Ashland Inc. Incentive Plan (“2011 Incentive Plan”), based upon the closing price of Ashland Common Stock on the NYSE as of September 30, 2015 of $100.62. Additionally, this figure includes 151,088 restricted shares granted under the Amended Plan and deferred, 71,298 performance share units for the fiscal 2013-2015 performance period, 58,983 performance share units for the fiscal 2014-2016 performance period, and 68,592 performance share units for the fiscal 2015-2017 performance period, payable in Ashland Common Stock under the 2011 Incentive Plan, estimated assuming target performance is achieved. Also included in the figure are 31,680 shares to be issued under the pre-2005 Deferred Compensation Plan for Employees and 17,258 shares to be issued under the pre-2005 Deferred Compensation Plan for Non-Employee Directors, payable in Ashland Common Stock upon termination of employment or service with Ashland.
(2)
The weighted-average exercise price excludes shares in Ashland Common Stock which may be distributed under the deferred compensation plans and the deferred restricted stock and performance share units which may be distributed under the 2011 Incentive Plan, as described in footnotes (1) and (4) in this table.
(3)
This figure includes 2,414,128 shares available for issuance under the Amended and Restated 2015 Ashland Inc. Incentive Plan (“2015 Incentive Plan”), 144,789 shares available for issuance under the pre-2005 Deferred Compensation Plan for Employees and 264,387 shares available for issuance under the pre-2005 Deferred Compensation Plan for Non-Employee Directors. Under the 2015 Incentive Plan, full-value awards, which include all awards other than stock options and SARs, reduce the share reserve on a 2.75-to-1 basis.
(4)
This figure includes 31,223 shares to be issued under the Deferred Compensation Plan for Employees (2005), which is described in the “Non-Qualified Deferred Compensation-Ashland Inc. Employees’ Deferral Plan” section of Ashland’s proxy statement, and 171,678 shares to be issued under the Deferred Compensation Plan for Non-Employee Directors (2005), which is described in the “Compensation of Directors-Annual Retainer” and “Compensation of Directors-Restricted Shares/Units” sections of Ashland’s proxy statement, payable in Ashland Common Stock upon termination of employment or service with Ashland. Because these plans are not equity compensation plans as defined by the rules of the NYSE, neither plan required approval by Ashland’s shareholders.
(5)
This figure includes 382,741 shares available for issuance under the Deferred Compensation Plan for Employees (2005) and 302,914 shares available for issuance under the Deferred Compensation Plan for Non-Employee Directors (2005). Because these plans are not equity compensation plans as defined by the rules of the NYSE, neither plan required approval by Ashland’s shareholders. Ashland also granted Mr. Wulfsohn, its Chief Executive Officer, an employment inducement award, in compliance with Rule 303A.08 of The New York Stock Exchange Listed Company Manual, consisting of a one-time grant of time-vested restricted stock in the amount of 50,000 shares (“2015 Inducement Award”). All shares under the 2015 Inducement Award have been granted, are no longer available for future issuance and are not included in this figure.


21






ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE  
There is hereby incorporated by reference the information to appear under the captions “Corporate Governance – Director Independence and Certain Relationships,” “Corporate Governance - Related Person Transaction Policy,” and “Audit Committee Report” in Ashland’s Proxy Statement.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES  
There is hereby incorporated by reference the information with respect to principal accounting fees and services to appear under the captions “Audit Committee Report” and “Proposal Two - Ratification of Independent Registered Public Accountants” in Ashland’s Proxy Statement.  

PART IV
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  
(a) Documents filed as part of this Report
(1) Financial Statements; and
(2) See Item 15(b) in this annual report on Form 10-K
The consolidated financial statements of Ashland presented in this annual report on Form 10-K are listed in the index on page F-1.
Schedules other than that listed above have been omitted because of the absence of the conditions under which they are required or because the information required is shown in the consolidated financial statements or the notes thereto. Separate financial statements of unconsolidated affiliates are omitted because each company does not constitute a significant subsidiary using the 20% tests when considered individually. Summarized financial information for all unconsolidated affiliates is disclosed in Note D of Notes to Consolidated Financial Statements.
(b) Documents required by Item 601 of Regulation S-K
2.1
Stock and Asset Purchase Agreement, dated as of February 18, 2014, between Ashland Inc. and CD&R Seahawk Bidco, LLC (filed as Exhibit 2.1 to Ashland’s Form 8-K filed on February 24, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
2.2
Sale and Purchase Agreement related to the ASK Chemicals Group, dated April 8, 2014, among Ashland Inc., Ashland International Holdings, Inc., Clariant Produkte (Deutschland) GmbH, Clariant Corp., mertus 158. GmbH, Ascot US Bidco Inc. and Ascot UK Bidco Limited (filed as Exhibit 2.1 to Ashland’s Form 8-K filed on April 14, 2014 ( SEC File No. 001-32532), and incorporated herein by reference).
3.1
Fourth Restated Articles of Incorporation of Ashland Inc. (filed as Exhibit 3.2 to Ashland’s Form 8-K
filed on February 4, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
3.2
By-laws of Ashland Inc., as amended and restated (filed as Exhibit 3.3 to Ashland’s Form 8-K filed on
February 4, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
4.1
Ashland agrees to provide the SEC, upon request, copies of instruments defining the rights of holders of long-term debt of Ashland and all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed with the SEC.
4.2
Indenture, dated as of August 15, 1989, as amended and restated as of August 15, 1990, between Ashland Inc. and Citibank, N.A., as Trustee (filed as Exhibit 4.2 to Ashland’s Form 10-K for the fiscal year ended September 30, 2008 (SEC File No. 001-32532), and incorporated herein by reference).
4.3
Agreement of Resignation, Appointment and Acceptance, dated as of November 30, 2006, by and among Ashland Inc., Wilmington Trust Company (Wilmington) and Citibank, N.A. (Citibank) whereby Wilmington replaced Citibank as Trustee under the Indenture dated as of August 15, 1989, as amended and restated as of August 15, 1990, between Ashland Inc. and Citibank (filed as Exhibit 4 to Ashland’s Form 10-Q for the quarter ended December 31, 2006 (SEC File No. 001-32532), and incorporated herein by reference).

22






4.4
Indenture, dated May 27, 2009, by and among Ashland Inc., the Guarantors and U.S. Bank National Association (filed as Exhibit 4.1 to Ashland’s Form 10-Q for the quarter ended June 30, 2009 (SEC File No. 001-32532), and incorporated herein by reference).
4.5
Warrant Agreement dated July 27, 1999 between Hercules and The Chase Manhattan Bank, as warrant agent (filed as Exhibit 4.4 to Hercules’ Form 8-K filed on July 28, 1999 (SEC File No. 001-00496), and incorporated herein by reference).
4.6
Form of Series A Junior Subordinated Deferrable Interest Debentures (filed as Exhibit 4.5 to Hercules’ Form 8-K filed on July 28, 1999 (SEC File No. 001-00496), and incorporated herein by reference).
4.7
Form of CRESTS SM   Unit (filed as Exhibit 4.7 to Hercules’ Form 8-K filed on July 28, 1999 (SEC File No. 001-00496), and incorporated herein by reference).
4.8
Form of Warrant (filed as Exhibit 4.8 to Hercules’ Form 8-K filed on July 28, 1999 (SEC File No. 001-00496), and incorporated herein by reference).
4.9
Form of $100,000,000 6.6% Debenture due August 27, 2027 (filed as Exhibit 4.2 to Hercules’ Form 8-
K filed on July 30, 1997 (SEC File No. 001-00496), and incorporated herein by reference).
4.10
Indenture, dated as of August 7, 2012, between Ashland Inc. and U.S. Bank N.A., as Trustee (filed as Exhibit 4.1 to Ashland’s Form 8-K filed on September 21, 2012 (SEC File No. 001-32532), and incorporated herein by reference).
4.11
First Supplemental Indenture, dated as of February 26, 2013, between Ashland Inc. and U.S. Bank National Association, as Trustee, in respect of the senior notes due 2022 (filed as Exhibit 4.11 to Ashland’s Form 10-K for the fiscal year ended September 30, 2013 (SEC File No. 001-32532), and incorporated herein by reference).
4.12
Indenture, dated as of February 26, 2013, between Ashland Inc. and U.S. Bank National Association, as Trustee (filed as Exhibit 4.3 to Ashland’s Form 8-K filed on February 27, 2013 (SEC File No. 001- 32532), and incorporated herein by reference).
4.13
First Supplemental Indenture, dated as of February 26, 2013, between Ashland Inc. and U.S. Bank National Association, as Trustee, in respect of the senior notes due 2016, 2018 and 2043 (filed as Exhibit 4.4 to Ashland’s Form 8-K filed on February 27, 2013 (SEC File No. 001-32532), and incorporated herein by reference).
4.14
Second Supplemental Indenture, dated as of March 14, 2013, between Ashland Inc. and U.S. Bank National Association, as Trustee, in respect of the senior notes due 2043 (filed as Exhibit 4.2 to Ashland’s Form 8-K filed on March 18, 2013 (SEC File No. 001-32532), and incorporated herein by reference).

The following Exhibits 10.1 through 10.43 are contracts or compensatory plans or arrangements or management contracts required to be filed as exhibits pursuant to Items 601(b)(10)(ii)(A) and 601(b)(10)(iii)(A) and (B) of Regulation S-K.
10.1
Ashland Inc. Deferred Compensation Plan for Non-Employee Directors and Amendment No. 1 (filed as Exhibit 10.5 to Ashland’s Form 10-Q for the quarter ended December 31, 2004 (SEC File No. 001-02918), and incorporated herein by reference).
10.2
Ashland Inc. Deferred Compensation Plan and Amendment No. 1 (filed as Exhibit 10.3 to Ashland’s Form 10-Q for the quarter ended December 31, 2004 (SEC File No. 001-02918), and incorporated herein by reference).
10.3
Amended and Restated Ashland Inc. Deferred Compensation Plan for Employees (2005) (filed as Exhibit 10.3 to Ashland’s Form 10-K for the fiscal year ended September 30, 2008 (SEC File No. 001-32532), and incorporated herein by reference).
10.4
Amended and Restated Ashland Inc. Deferred Compensation Plan for Non-Employee Directors (2005) (filed as Exhibit 10.4 to Ashland’s Form 10-K for the fiscal year ended September 30, 2008 (SEC File No. 001-32532), and incorporated herein by reference).

23






10.5
Amended and Restated Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (filed as Exhibit 10.5 to Ashland’s Form 10-K for the fiscal year ended September 30, 2010 (SEC File No. 001-32532), and incorporated herein by reference).
10.6
Amendment to the Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (filed as Exhibit 10.10 to Ashland’s Form 10-Q for the quarter ended June 30, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.7
Amendment to the Amended and Restated Ashland Inc. Deferred Compensation Plan for Non-Employee Directors (2005) (filed as Exhibit 10.4 to Ashland’s Form 10-Q for the quarter ended March 31, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.8
Ashland Supplemental Defined Contribution Plan for Certain Employees (filed as Exhibit 10.3 to Ashland’s Form 10-Q for the quarter ended March 31, 2011 (SEC File No. 001-32532), and incorporated herein by reference).
10.9
Ashland Inc. Supplemental Defined Contribution Plan for Certain Employees effective January 1, 2015 (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on May 18, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.10
Amended and Restated Ashland Inc. Nonqualified Excess Benefit Pension Plan (filed as Exhibit 10.6 to Ashland’s Form 10-K for the fiscal year ended September 30, 2008 (SEC File No. 001-32532), and incorporated herein by reference).
10.11
Hercules Incorporated Employee Pension Restoration Plan (filed as Exhibit 10.9 to Ashland’s Form 10- K for the fiscal year ended September 30, 2010 (SEC File No. 001-32532), and incorporated herein by reference).
10.12
Form of Chief Executive Officer Change in Control Agreement (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on January 7, 2009 (SEC File No. 001-32532), and incorporated herein by reference).
10.13
Form of Executive Officer Change in Control Agreement, effective for agreements entered into after July 2009 (filed as Exhibit 10.11 to Ashland’s Form 10-K for the fiscal year ended September 30, 2009 (SEC File No. 001-32532), and incorporated herein by reference) (Replaced in the first quarter of fiscal 2016).
10.14
Form of Inducement Restricted Stock Award Agreement, between William A. Wulfsohn and Ashland (filed as Exhibit 4.3 to Ashland’s Form S-8 filed on December 18, 2014 (SEC File No. 333-201053), and incorporated herein by reference).
10.15
Form of Chief Executive Officer Change in Control Agreement (filed as Exhibit 10.3 to Ashland’s Form 10-Q for the quarter ended December 31, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.16
Form of Chief Executive Officer Change in Control Agreement (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on October 9, 2015 (SEC File No. 001-32532), and incorporated herein by reference) (Replaced in the first quarter of fiscal 2016).
10.17
Form of Executive Officer Change in Control Agreement (filed as Exhibit 10.2 to Ashland’s Form 8-K filed on October 9, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.18
Ashland Inc. Severance Pay Plan (filed as Exhibit 10.1 to Ashland’s Form 10-Q for the quarter ended June 30, 2013 (SEC File No. 001-32532), and incorporated herein by reference).
10.19
Form of Indemnification Agreement between Ashland and members of its Board of Directors (filed as Exhibit 10.10 to Ashland’s annual report on Form 10-K for fiscal year ended September 30, 2005 (SEC File No. 001-32532), and incorporated herein by reference).
10.20
Amended and Restated Ashland Inc. Incentive Plan (filed as Exhibit 10.17 to Ashland’s Form 10-K for the fiscal year ended September 30, 2009 (SEC File No. 001-32532), and incorporated herein by reference).

24






10.21
2006 Ashland Inc. Incentive Plan (filed as Exhibit 10 to Ashland’s Form 10-Q for the quarter ended December 31, 2005 (SEC File No. 001-32532), and incorporated herein by reference).
10.22
Amended and Restated 2011 Ashland Inc. Incentive Plan (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on February 1, 2013 (SEC File No. 001-32532), and incorporated herein by reference).
10.23
Amended and Restated 2015 Ashland Inc. Incentive Plan (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on July 20, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.24
Form of Stock Appreciation Rights Award Agreement under the Amended and Restated 2011 Ashland Inc. Incentive Plan (filed as Exhibit 10.16 to Ashland’s Form 10-K for the fiscal year ended September 30, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.25
Form of Performance Unit (LTIP) Award Agreement under the Amended and Restated 2011 Ashland Inc. Incentive Plan (filed as Exhibit 10.17 to Ashland’s Form 10-K for the fiscal year ended September 30, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.26
Form of Restricted Stock Award Agreement under the Amended and Restated 2011 Ashland Inc. Incentive Plan (filed as Exhibit 10.18 to Ashland’s Form 10-K for the fiscal year ended September 30, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.27
Form of Restricted Stock Unit Agreement under the Amended and Restated 2011 Ashland Inc. Incentive Plan (filed as Exhibit 10.19 to Ashland’s Form 10-K for the fiscal year ended September 30, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.28
Form of Restricted Stock Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (filed as Exhibit 10.5 to Ashland’s Form 10-Q for the quarter ended March 31, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.29
Form of Restricted Stock Unit Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (filed as Exhibit 10.6 to Ashland’s Form 10-Q for the quarter ended March 31, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.30
Form of Stock Appreciation Rights Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (filed as Exhibit 10.7 to Ashland’s Form 10-Q for the quarter ended March 31, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.31
Form of Performance Unit (LTIP) Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (filed as Exhibit 10.8 to Ashland’s Form 10-Q for the quarter ended March 31, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.32
Form of Restricted Stock Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (Double-Trigger Form) (filed as Exhibit 10.2 to Ashland’s Form 8-K filed on July 20, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.33
Form of Restricted Stock Unit Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (Double-Trigger Form) (filed as Exhibit 10.3 to Ashland’s Form 8-K filed on July 20, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.34
Form of Stock Appreciation Rights Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (Double-Trigger Form) (filed as Exhibit 10.4 to Ashland’s Form 8-K filed on July 20, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.35
Form of Performance Unit (LTIP) Award Agreement under the Amended and Restated 2015 Ashland Inc. Incentive Plan (Double-Trigger Form) (filed as Exhibit 10.5 to Ashland’s Form 8-K filed on July 20, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.36
Letter Agreement between Ashland and Luis Fernandez-Moreno dated July 29, 2013 (filed as Exhibit
10.22 to Ashland’s Form 10-K for the fiscal year ended September 30, 2013 (SEC File No. 001- 32532), and incorporated herein by reference).

25






10.37
Letter Agreement between Ashland and Luis Fernandez-Moreno dated November 4, 2013 (filed as Exhibit 10.23 to Ashland’s Form 10-K for the fiscal year ended September 30, 2013 (SEC File No. 001-32532), and incorporated herein by reference).
10.38
Letter Agreement between Ashland and Susan B. Esler dated October 28, 2014 (filed as Exhibit 10.25 to Ashland’s Form 10-K for the fiscal year ended September 30, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.39
Letter Agreement between Ashland and William A. Wulfsohn, dated November 12, 2014 (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on November 17, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.40**
Separation Agreement and General Release between Ashland and Susan B. Esler dated October 1, 2015.
10.41**
Separation Agreement and General Release between Ashland and Walter H. Solomon dated October 1, 2015.
10.42
Form of Performance-Based Restricted Stock Award Agreement (filed as Exhibit 10.3 to Ashland’s Form 8-K filed on October 9, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.43**
Form of Retention Award Agreement for certain Executive Officers.
10.44
Stock Purchase Agreement dated as of May 30, 2011, entered into by and among The Samuel J. Heyman 1981 Continuing Trust for Lazarus S. Heyman, The Samuel J. Heyman 1981 Continuing Trust for Eleanor S. Heyman, The Samuel J. Heyman 1981 Continuing Trust for Jennifer L. Heyman, The Samuel J. Heyman 1981 Continuing Trust for Elizabeth D. Heyman, The Lazarus S. Heyman Age 50 Trust for Assets Appointed Under Will of Lazarus S. Heyman, The Eleanor S. Heyman Age 50 Trust for Assets Appointed Under Will of Lazarus S. Heyman, The Jennifer L. Heyman Age 50 Trust for Assets Appointed Under Will of Lazarus S. Heyman, The Elizabeth D. Heyman Age 50 Trust for Assets Appointed Under Will of Lazarus S. Heyman, The Horizon Holdings Residual Trust, RFH Investment Holdings LLC, Ashland and Ronnie F. Heyman, as representative of the Seller Parties (filed as Exhibit 2.1 to Ashland’s Form 8-K filed on May 31, 2011 (SEC File No. 001-32532), and incorporated herein by reference).
10.45
Master Formation Agreement dated July 15, 2010, among Ashland, Süd-Chemie Aktiengesellschaft and Ashland-Südchemie-Kernfest GmbH (filed as Exhibit 10.26 to Ashland’s Form 10-K for the fiscal year ended September 30, 2010 (SEC File No. 001-32532), and incorporated herein by reference).
10.46
Master Contribution and Sale Agreement dated July 15, 2010, among Ashland, Ashland International Holdings, Inc., Süd-Chemie Aktiengesellschaft, Tecpro Holding Corporation Inc. and Ashland- Südchemie-Kernfest GmbH (filed as Exhibit 10.27 to Ashland’s Form 10-K for the fiscal year ended September 30, 2010 (SEC File No. 001-32532), and incorporated herein by reference).
10.47
Shareholders’ Agreement effective November 30, 2010 by and between Süd-Chemie Aktiengesellschaft and Süd-Chemie Finance GmbH and Ashland and Ashland International Holdings, Inc. (filed as Exhibit 10 to Ashland’s Form 10-Q for the quarter ended December 31, 2010 (SEC File No. 001-32532), and incorporated herein by reference).
10.48
Credit Agreement dated as of March 14, 2013, among Ashland Inc., as Borrower, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, Citibank, N.A., as Syndication Agent, Bank of America, N.A., Deutsche Bank Securities Inc. and PNC Bank, National Association, as Co-Documentation Agents, and the Lenders from time to time party thereto (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on March 15, 2013 (SEC File No. 001-32532), and incorporated herein by reference).
10.49
Amendment Agreement, dated as of February 5, 2014, to the Credit Agreement dated as of March 14, 2013, among Ashland Inc., as Borrower, The Bank of Nova Scotia, as Administrative Agent, and each Lender from time to time party thereto and the other agents and arrangers party thereto (filed as Exhibit 10.2 to Ashland’s Form 10-Q for the quarter ended March 31, 2015 (SEC File No. 001-32532), and incorporated herein by reference).

26






10.50
Amendment No. 2, dated as of February 27, 2015, to the Credit Agreement, dated as of March 14, 2013, as amended by the Amendment Agreement, dated as of February 5, 2014, among Ashland Inc., as Borrower, The Bank of Nova Scotia, as Administrative Agent, each Lender from time to time party thereto and the other agents and arrangers party thereto (filed as Exhibit 10.3 to Ashland’s Form 10-Q for the quarter ended March 31, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.51
Credit Agreement dated as of June 23, 2015, among Ashland Inc., as Borrower, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, Citibank, N.A., as Syndication Agent, Bank of America, N.A., Deutsche Bank Securities Inc. and PNC Bank, National Association, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Mizuho Bank LTD., U.S. Bank National Association, and Wells Fargo Bank, National Association, as Managing Agents, and the other Lenders party thereto (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on June 23, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.52
Transfer and Administration Agreement, dated as of August 31, 2012, among CVG Capital III LLC, Ashland Inc., Hercules Incorporated, Aqualon Company, ISP Technologies Inc., ISP Synthetic Elastomers LLC, and each other entity from time to time party thereto as an Originator, as Originators, Ashland Inc., as initial Master Servicer, each of Liberty Street Funding LLC, Market Street Funding LLC and Gotham Funding Corporation, as Conduit Investors and Uncommitted Investors, The Bank of Nova Scotia, as the Agent, a Letter of Credit Issuer, a Managing Agent, an Administrator and a Committed Investor, and the Letter of Credit Issuers, Managing Agents, Administrators, Uncommitted Investors and Committed Investors parties thereto from time to time (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on September 7, 2012 (SEC File No. 001-32532), and incorporated herein by reference).
10.53
Sale Agreement, dated as of August 31, 2012, among Ashland Inc., Hercules Incorporated, Aqualon Company, ISP Technologies Inc., ISP Synthetic Elastomers LLC and CVG Capital III LLC (filed as Exhibit 10.2 to Ashland’s Form 8-K filed on September 7, 2012 (SEC File No. 001-32532), and incorporated herein by reference).
10.54
Parent Undertaking, dated as of August 31, 2012, by Ashland Inc. in favor of The Bank of Nova Scotia and the Secured Parties (filed as Exhibit 10.3 to Ashland’s Form 8-K filed on September 7, 2012 (SEC File No. 001-32532), and incorporated herein by reference).
10.55
First Amendment to Transfer and Administration Agreement, dated as of April 30, 2013, among Ashland Inc., CVG Capital III LLC, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and the Bank of Nova Scotia, as Agent for the Investors (filed as Exhibit 10.2 to Ashland’s Form 10-Q for the quarter ended June 30, 2013 (SEC File No. 001-32532), and incorporated herein by reference).
10.56
Omnibus Amendment to Transfer and Administration Agreement, dated as of August 21, 2013, among Ashland Inc., CVG Capital III LLC, the Originators, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and the Bank of Nova Scotia, as Agent for the Investors (filed as Exhibit 10.34 to Ashland’s Form 10-K for the fiscal year ended September 30, 2013 (SEC File
No. 001-32532), and incorporated herein by reference).
10.57
Third Amendment to Transfer and Administration Agreement, dated as of October 15, 2013, among Ashland Inc., CVG Capital III LLC, the Originators, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and the Bank of Nova Scotia, as Agent for the Investors (filed as Exhibit 10.35 to Ashland’s Form 10-K for the fiscal year ended September 30, 2013 (SEC File
No. 001-32532), and incorporated herein by reference).
10.58
Fourth Amendment to Transfer and Administration Agreement, dated as of June 30, 2014, among Ashland Inc., CVG Capital III LLC, the Originators, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and the Bank of Nova Scotia, as Agent for the Investors (filed as Exhibit 10.1 to Ashland’s Form 10-Q for the quarter ended June 30, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.59
Receivables Assignment Agreement, dated as of November 25, 2014, among Ashland Inc., as originator and master servicer, CVG Capital III LLC, Ashland Specialty Ingredients G.P., the Investors, Letter of Credit Issuers, Managing Agent and Administrators party thereto, and the Bank of Nova Scotia, as Agent for the Investors (filed as Exhibit 10.4 to Ashland’s Form 10-Q for the quarter ended December 31, 2014 (SEC File No. 001-32532), and incorporated herein by reference).

27






10.60
Sixth Amendment to Transfer and Administration Agreement, dated as of November 25, 2014, among Ashland Inc., CVG Capital III LLC, the Originators, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and the Bank of Nova Scotia, as Agent for the Investors (filed as Exhibit 10.5 to Ashland’s Form 10-Q for the quarter ended December 31, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.61
Seventh Amendment dated as of August 28, 2015 to the Transfer and Administration Agreement dated as of August 31, 2012, among Ashland Inc., CVG Capital III LLC, the Originators, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and The Bank of Nova Scotia, as agent for the Investors (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on September 2, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.62
Eighth Amendment dated as of September 30, 2015 to the Transfer and Administration Agreement as of August 31, 2012, among Ashland Inc., CVG Capital III LLC, the Originators, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and The Bank of Nova Scotia, as agent for the Investors (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on October 6, 2015 (SEC File No. 001-32532), and incorporated herein by reference).
10.63
First Amendment to Sale Agreement, dated as of June 30, 2014, among Ashland Inc., Hercules Incorporated, Ashland Specialty Ingredients G.P., ISP Technologies Inc., Ashland Elastomers LLC and CVG Capital III LLC (filed as Exhibit 10.2 to Ashland’s Form 10-Q for the quarter ended June 30, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.64
Originator Removal Agreement and Facility Amendment, dated as of July 28, 2014, by and among Ashland, Hercules Incorporated, Ashland Specialty Ingredients G.P., ISP Technologies Inc., Ashland Elastomers LLC, CVG Capital III LLC, the Investors, the Letter of Credit Issuers, Managing Agents and Administrators party thereto, and the Bank of Nova Scotia, as Agent for the Investors (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on August 1, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.65
Master Confirmation - Uncollared Accelerated Share Repurchase, dated August 5, 2014, between Ashland Inc. and Deutsche Bank AG, London Branch (filed as Exhibit 10.1 to Ashland’s Form 8-K filed on August 6, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
10.66
Master Confirmation – Uncollared Accelerated Share Repurchase, dated August 5, 2014, between Ashland Inc. and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, N.A. (filed as Exhibit 10.2 to Ashland’s Form 8-K filed on August 6, 2014 (SEC File No. 001-32532), and incorporated herein by reference).
11**
Computation of Earnings Per Share (appearing in Note A of Notes to Consolidated Financial Statements in this annual report on Form 10-K).
12**
Computation of Ratio of Earnings to Fixed Charges.
21**
List of Subsidiaries.
23.1**
Consent of Ernst & Young LLP.
23.2**
Consent of PricewaterhouseCoopers LLP.
23.3**
Consent of Hamilton, Rabinovitz & Associates, Inc.
24**
Power of Attorney.
31.1**
Certification of William A. Wulfsohn, Chief Executive Officer of Ashland, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**
Certification of J. Kevin Willis, Chief Financial Officer of Ashland, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

28






32**
Certification of William A. Wulfsohn, Chief Executive Officer of Ashland, and J. Kevin Willis, Chief Financial Officer of Ashland, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document.
101.SCH*
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.

*Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language):  (i) Statements of Consolidated Comprehensive Income for years ended September 30, 2015 , 2014 and 2013 ; (ii) Consolidated Balance Sheets at September 30, 2015 and 2014 ; (iii) Statements of Consolidated Stockholders’ Equity at September 30, 2015 , 2014 and 2013 ; (iv) Statements of Consolidated Cash Flows for years ended September 30, 2015 , 2014 and 2013 ; and (v) Notes to Consolidated Financial Statements.  
**Filed herewith.
SM Service mark, Ashland or its subsidiaries, registered in various countries.
™ Trademark, Ashland or its subsidiaries, registered in various countries.
Trademark owned by a third party.
Upon written or oral request, a copy of the above exhibits will be furnished at cost.


29






SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 INC.
 
(Registrant)
 
By:
 
/s/ J. Kevin Willis
 
J. Kevin Willis
 
Senior Vice President and Chief Financial Officer
 
Date: November 20, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, in the capacities indicated, on November 20, 2015 .
  Signatures
 
  Capacity
/s/ William A. Wulfsohn
 
Chairman of the Board, Chief Executive Officer and Director
William A. Wulfsohn
 
(Principal Executive Officer)
/s/ J. Kevin Willis
 
Senior Vice President and Chief Financial Officer
J. Kevin Willis
 
(Principal Financial Officer)
/s/ J. William Heitman
 
Vice President and Controller
J. William Heitman
 
(Principal Accounting Officer)
 
 
 
 
Director
Brendan M. Cummins
 
 
 
Director
Roger W. Hale
 
 
 
Director
Stephen F. Kirk
 
 
*
 
Director
Vada O. Manager
 
 
*
 
Director
 Barry W. Perry
 
 
*
 
Director
 Mark C. Rohr
 
 
*
 
Director
George A. Schaefer, Jr.
 
 
 
Director
Janice J. Teal
 
 
*
 
Director
 Michael J. Ward
 
 
*By:
/s/ Peter J. Ganz
 
Peter J. Ganz
 
Attorney-in-Fact
 
 
Date:
November 20, 2015

30

































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31






ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements for the years ended September 30, 2015 , 2014 and 2013 .

BUSINESS OVERVIEW
Ashland profile
Ashland is a global leader in specialty chemicals and, through Valvoline, a premium consumer-branded lubricant supplier. Ashland provides products, services and solutions that meet customers’ needs throughout a variety of industries in more than 100 countries.  Its chemistry is used in a wide variety of markets and applications, including architectural coatings, adhesives, automotive, construction, energy, food and beverage, personal care, and pharmaceutical.  With approximately 10,500 employees worldwide, Ashland serves customers in more than 100 countries.
Ashland’s sales generated outside of North America were 47% in 2015 and 2014 , and 46% in 2013 .  Sales by region expressed as a percentage of total consolidated sales were as follows:
 
Sales by Geography
2015

 
2014

 
2013

North America (a)
53
%
 
53
%
 
54
%
Europe
24
%
 
25
%
 
24
%
Asia Pacific
16
%
 
15
%
 
15
%
Latin America & other
7
%
 
7
%
 
7
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
(a)
Ashland includes only U.S. and Canada in its North American designation.
Reportable segments
Ashland’s reporting structure is composed of three reportable segments:  Ashland Specialty Ingredients (Specialty Ingredients), Ashland Performance Materials (Performance Materials) and Valvoline.  For further descriptions of each reportable segment, see “Results of Operations – Reportable Segment Review” beginning on page M-13.
Sales by each reportable segment expressed as a percentage of total consolidated sales were as follows:
 
Sales by Reportable Segment
2015

 
2014

 
2013

Specialty Ingredients
42
%
 
41
%
 
41
%
Performance Materials
21
%
 
26
%
 
26
%
Valvoline
37
%
 
33
%
 
33
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 


KEY DEVELOPMENTS
During 2015 , the following operational decisions and economic developments had an impact on Ashland’s current and future cash flows, results of operations and financial position.
Business results
Ashland’s overall financial performance increased by 4% during 2015 compared to 2014 as adjusted EBITDA results increased to $1,119 million (see U.S. GAAP reconciliation on page M-7). The increase in adjusted EBITDA was primarily attributable to improved results within the Valvoline reportable segment, partially offset by a decline in the Performance Materials and Specialty Ingredients reportable segments. Compared to 2014, Valvoline's adjusted EBITDA results increased $51 million, or 14%, primarily due to lower raw material costs, specifically relating to the price of base oil, which resulted in increased gross profit. Additionally, lower selling, general and administrative expense, primarily due to cost savings from the 2014 global restructuring, contributed to Valvoline's improved results. Performance Materials' adjusted EBITDA results decreased by $20 million, or 12%, as lower production costs, which contributed to improved gross profit, and selling, general and administrative expense compared to the prior year were more than offset by the lost income from the divestiture of the Elastomers division and significant plant maintenance

M-1






shutdowns at both Intermediates/Solvents manufacturing facilities. Specialty Ingredients' adjusted EBITDA results remained relatively consistent, decreasing only $2 million compared to the prior year, primarily as a result of improved gross profit from lower raw material costs and cost savings from the 2014 global restructuring. These favorable results were more than offset by weak energy market results and unfavorable foreign currency exchange.
The following discussion outlines significant transactions announced or executed during 2015 .
Ashland Separation of Valvoline
On September 22, 2015, Ashland announced that the Board of Directors approved proceeding with a plan to separate Ashland into two independent, publicly traded companies comprising of the new Ashland and Valvoline. Ashland has begun the process to separate its Valvoline business from its Specialty Ingredients and Performance Materials businesses while it finalizes the transaction structure and obtains customary regulatory and other approvals. Ashland intends for the separation, which is subject to final board approval prior to completion, to be tax free for Ashland shareholders. Immediately following the separation, Ashland shareholders will own shares of both the new Ashland and Valvoline. The separation is expected to be completed as soon as practicable, but not before the end of fiscal 2016.
The new Ashland will be a global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets. These markets are currently served by Specialty Ingredients and Performance Materials. Key markets and applications include pharmaceutical, personal care, food and beverage, architectural coatings, adhesives, automotive, construction and energy. Together these businesses generated approximately $3.4 billion in sales for the fiscal year ended September 30, 2015.
Valvoline will focus on building the world's leading engine and automotive maintenance business by providing hands-on expertise to customers in each of its primary market channels: Do-It-Yourself (DIY); Installers; Valvoline Instant Oil Change SM ; and International. Valvoline generated sales of $2 billion for Ashland during the fiscal year ended September 30, 2015.
Acquisition
Zeta Fraction™
In September 2015, Specialty Ingredients completed the acquisition of the patented Zeta Fraction™ technology from AkzoNobel. The acquisition broadens Ashland’s value-added portfolio in the personal care, pharmaceutical, food and beverage, and agriculture markets. The patented Zeta Fraction™ process and technology selectively isolates efficacious components from living plants and marine sources to produce a wide range of biofunctional ingredients.
Divestitures
Industrial Biocides
During May 2015, Ashland entered into a definitive sale agreement to sell the industrial biocides assets within Specialty Ingredients, which closed on July 1, 2015. As a result of the sale, Ashland received net cash proceeds of approximately $30 million during the fourth quarter of 2015 and recognized a nominal gain before tax and after customary closing costs within the net gain (loss) on divestitures caption within the Statements of Consolidated Comprehensive Income.
The sale of Specialty Ingredients' industrial biocides assets did not qualify for discontinued operations treatment since it did not represent a strategic shift that had or will have a major effect on Ashland's operations and financial results.
Valvoline Car Care Products
In April 2015, Ashland entered into a definitive sale agreement to sell Valvoline's car care product assets for $24 million , which included Car Brite™ and Eagle One™ automotive appearance products. Prior to the sale, Ashland recognized a loss of $26 million before tax in 2015 to recognize the assets at fair value less cost to sell. The loss is reported within the net gain (loss) on divestitures caption within the Statements of Consolidated Comprehensive Income. The transaction closed on June 30, 2015 and Ashland received net proceeds of $19 million after adjusting for certain customary closing costs and final working capital totals.
The sale of Valvoline's car care product assets did not qualify for discontinued operations treatment since it did not represent a strategic shift that had or will have a major effect on Ashland's operations and financial results.
Valvoline Joint Venture
During April 2015, Ashland sold a Valvoline joint venture equity investment in Venezuela. Prior to the sale, Ashland recognized a $14 million impairment in 2015, for which there was no tax effect, within the equity and other income caption of the Statements of Consolidated Comprehensive Income.
Ashland’s decision to sell the equity investment and the resulting charge recorded during 2015 is reflective of the continued devaluation of the Venezuelan currency (bolivar) based on changes to the Venezuelan currency exchange rate mechanisms during the fiscal year. In addition, the continued lack of exchangeability between the Venezuelan bolivar and U.S. dollar had restricted

M-2






the joint venture’s ability to pay dividends and obligations denominated in U.S. dollars. These exchange regulations and cash flow limitations, combined with other recent Venezuelan regulations and the impact of declining oil prices on the Venezuelan economy, had significantly restricted Ashland’s ability to conduct normal business operations through the joint venture arrangement. Ashland determined this divestiture does not represent a strategic shift that had or will have a major effect on Ashland's operations and financial results, and thus it does not qualify for discontinued operations treatment.
Elastomers
On October 9, 2014, Ashland entered into a definitive agreement to sell the Elastomers division within the Performance Materials reportable segment, which operated a 250 -person manufacturing facility in Port Neches, Texas, to Lion Copolymer Holdings, LLC. The Elastomers division, which primarily served the North American replacement tire market, accounted for approximately 5% of Ashland's 2014 sales of $6.1 billion and 18% of Ashland Performance Materials' $1.6 billion in sales in 2014. The sale was completed on December 1, 2014 in a transaction valued at approximately $120 million which was subject to working capital adjustments. The total post-closing adjusted cash proceeds received before taxes by Ashland during 2015 was $105 million , which includes working capital adjustments and transaction costs, as defined in the definitive agreement.
Elastomers' net assets as of November 30, 2014 were $191 million which primarily included accounts receivable, inventory, property, plant and equipment, non-deductible goodwill and other intangibles and payables. Since the net proceeds received were less than book value, Ashland recorded a loss of $86 million pre-tax, within the net gain (loss) on divestiture caption of the Statements of Consolidated Comprehensive Income during 2015. The related tax effect was a benefit of $28 million included in the income tax expense (benefit) caption within the Statements of Consolidated Comprehensive Income.
Ashland determined that the sale of Elastomers did not represent a strategic shift that had or will have a major effect on Ashland's operations and financial results. As such, Elastomers' results were included in the Performance Materials reportable segment results of operations and financial position within the Statements of Consolidated Comprehensive Income and Consolidated Balance Sheets, respectively, until its December 1, 2014 sale. Certain indirect corporate costs of $11 million for 2015 were included within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income that were previously allocated to the Elastomers division and are now reported as selling, general and administrative expense within continuing operations on a consolidated basis within the Unallocated and other segment.
Financial position
During 2015, Ashland has continued its focus on executing its capital allocation strategies. The following highlights key transactions during 2015.
Stock repurchase programs
During 2015, Ashland's Board of Directors approved a new $1 billion share repurchase authorization that will expire on December 31, 2017. This authorization allows for the same repurchase methods as the 2014 repurchase program. During the first quarter of 2016, under this new share repurchase authorization, Ashland announced that it entered into an accelerated share repurchase agreement (November 2015 ASR Agreement) with Goldman, Sachs & Co. Under the November 2015 ASR Agreement, Ashland paid an initial purchase price of $500 million and received an initial delivery of approximately 3.9 million shares of common stock during November 2015. The November 2015 ASR Agreement is scheduled to terminate no later than May 2016 but may be terminated early in certain circumstances, in whole or in part.
During 2014, the Board of Directors of Ashland authorized a $1.35 billion common stock repurchase program. Under this program, Ashland’s common shares could be repurchased in open market transactions, privately negotiated transactions or pursuant to one or more accelerated stock repurchase programs or Rule 10b5-1 plans. Ashland completed this program during 2015. The following summarizes stock repurchase agreements that were entered into as part of the $1.35 billion common stock repurchase program.
In 2014, completed a prepaid variable share repurchase agreement for $80 million and received 0.8 million shares.
In 2014, entered into $750 million of accelerated share repurchase agreements that were completed during 2015 and received 6.4 million shares, of which 0.5 million shares were received during 2015.
In 2014, entered into $250 million of share repurchase agreements that were completed during 2015 and received 2.4 million shares, of which 1.2 million were repurchased during 2015.
In 2015, entered into $270 million of accelerated share repurchase agreements that were completed during 2015 and received 2.2 million shares.
In total, Ashland spent $1.35 billion in stock repurchase programs and received approximately 11.8 million shares of common stock.


M-3






Senior notes refinancing and 2015 Senior Credit Agreement
During June of 2015, Ashland completed certain refinancing transactions related to the $600 million 3.000% senior notes due in 2016 (2016 senior notes). Ashland commenced and completed a cash tender offer to purchase for cash any and all of its outstanding 2016 senior notes. At the close of the tender offer, $550 million aggregate principal amount of the 2016 senior notes was tendered by note holders, representing approximately 92% of the outstanding 2016 senior notes, which have been purchased by Ashland. Subsequently, Ashland redeemed the remaining balance of the 2016 senior notes of $50 million on July 23, 2015.
In connection with the tender offer and redemption, in June 2015, Ashland entered into a new Credit Agreement (the 2015 Senior Credit Agreement). The 2015 Senior Credit Agreement replaced the $1.2 billion senior unsecured revolving credit facility (the 2013 Senior Credit Facility), and was comprised of a new five-year senior unsecured revolving credit facility in an aggregate amount of $1.2 billion (the 2015 revolving credit facility), which includes a $250 million letter of credit sublimit and a $100 million swing line loan sublimit, and a five-year senior unsecured term loan facility in an aggregate principal amount of $1.1 billion (the term loan facility). The 2015 Senior Credit Agreement is not guaranteed, is unsecured and can be prepaid at any time without premium or penalty.
During 2015, Ashland used the proceeds from borrowings under the $1.1 billion term loan facility along with cash on hand (i) to fund the tender offer of the 2016 senior notes, (ii) to pay in full the outstanding loans under the 2013 Senior Credit Facility, (iii) to pay accrued interest, fees and expenses under the 2013 Senior Credit Facility and the 2016 senior notes, (iv) to contribute funds to the U.S. pension plans impacted by the pension plan settlement program discussed in Note M in Notes to Consolidated Financial Statements, and (v) to pay fees and expenses incurred in connection with the entry into the 2015 Senior Credit Agreement. As a result of the tender offer and redemption, Ashland recognized a $9 million charge related to early redemption premium payments, which is included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income in 2015.
Pension plan settlement program
During 2015, Ashland informed approximately 20,000 former employees, who were included in the approximately 53,000 participants within the primary U.S. pension plans, that Ashland was offering these participants the option of receiving a lump sum payment on their vested retirement benefit or a reduced annuity now, in lieu of receiving monthly annuity payments deferred until retirement eligibility or when the participant may choose to initiate payment. During August 2015, approximately 12,000 participants elected to participate in the settlement program which resulted in approximately $475 million in settlement payments made from the affected pension plans during September 2015. Settlement payments were funded with pension plan assets, which included the $500 million contribution made during the third quarter of fiscal 2015.
Accounts receivable securitization
During 2015, the termination of the commitments under the Transfer and Administration Agreement under the accounts receivable securitization was extended from August 28, 2015 to December 31, 2015. See Note I of the Notes to Consolidated Financial Statements for further information on this agreement.
Credit ratings
During 2015 , Ashland’s corporate credit ratings remained unchanged at BB by Standard & Poor’s and Ba1 by Moody’s Investor Services.  As of September 30, 2015 , Moody’s Investor Services affirmed Ashland’s outlook as stable, while Standard & Poor revised Ashland's outlook to negative following Ashland's announcement of its intent to separate the Valvoline business via a tax-free separation to its shareholders and not as a result of Ashland's ongoing operations.  Ashland’s ability to access capital markets to provide liquidity has remained largely unchanged as a result of the ratings; however, improvements in the credit markets and Ashland’s financial performance has allowed, and should continue in the future to allow, Ashland to borrow on more favorable terms, including less restrictive covenants and lower interest rates.
Insurance settlement
On January 13, 2015, Ashland and Hercules entered into a comprehensive settlement agreement related to certain insurance coverage for asbestos bodily injury claims with Underwriters at Lloyd’s, certain London companies and Chartis (AIG) member companies, along with National Indemnity Company and Resolute Management, Inc., under which Ashland and Hercules received a total of $398 million . In exchange, all claims were released against these entities for past, present and future coverage obligations arising out of the asbestos coverage-in-place agreements that were the subject of the pending arbitration proceedings. In addition, as part of this settlement, Ashland and Hercules released all claims against National Indemnity Company and Resolute Management, Inc. in the Kentucky state court action. As a result, the arbitration proceedings and the Kentucky state court action have been terminated.
As a result of this settlement, during 2015, Ashland recorded an after-tax gain of $120 million within the discontinued operations caption of the Statements of Consolidated Comprehensive Income and a $249 million reduction in the asbestos insurance receivable

M-4






balance, consisting of $227 million and $22 million for Ashland and Hercules, respectively, within the Consolidated Balance Sheets. See Note N of the Notes to Consolidated Financial Statements for further information.
In addition, Ashland placed $335 million of the settlement funds received into a renewable annual trust restricted for the purpose of paying for ongoing and future litigation defense and claim settlement costs incurred in conjunction with asbestos claims. These funds are presented primarily as noncurrent assets, with $30 million classified within other current assets in the Consolidated Balance Sheets.
Global restructuring
During 2014, in conjunction with the divestitures of Water Technologies and the Casting Solutions joint venture, Ashland initiated a global restructuring program to streamline the resources used across the organization. The global restructuring program improved operational performance while recognizing significant annualized cost savings. As of September 30, 2015, Ashland’s global restructuring program, which targeted $200 million in annualized run-rate cost savings, is complete. The cost savings associated with the restructuring program have been recognized within cost of sales and selling, general, and administrative expenses during 2014 and 2015. See Note E of the Notes to Consolidated Financial Statements for further information.

RESULTS OF OPERATIONS – CONSOLIDATED REVIEW
Use of non-GAAP measures
Ashland has included within this document certain non-GAAP measures which include EBITDA (net income, plus income tax expense (benefit), net interest and other financing expenses, and depreciation and amortization), Adjusted EBITDA (EBITDA adjusted for discontinued operations, net gain (loss) on acquisitions and divestitures, other income and (expense) and key items, which may include pro forma effects for significant acquisitions or divestitures, as applicable) and Adjusted EBITDA margin (Adjusted EBITDA, which can include pro forma adjustments, divided by sales).  Such measurements are not prepared in accordance with U.S. GAAP and as related to pro forma adjustments, contain Ashland’s best estimates of cost allocations and shared resource costs.  Management believes the use of non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting comparable financial results between periods.  The non-GAAP information provided is 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 unusual, non-operational or restructuring-related activities.  In addition, certain financial covenants related to Ashland’s 2015 Senior Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that reference this metric.
In accordance with U.S. GAAP, Ashland recognizes actuarial gains and losses for defined benefit pension and other postretirement benefit plans annually in the fourth quarter 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, which includes the expected return on pension plan assets and excludes both the actual return on pension plan assets and the impact of actuarial gains and losses, provides investors with a meaningful supplemental presentation of Ashland’s operating performance. Management believes these actuarial gains and losses are primarily financing activities that are more reflective of changes in current conditions in global financial markets (and in particular interest rates) that are not directly related to the underlying business and that do not have an immediate, corresponding impact on the compensation and benefits provided to eligible employees and retirees. For further information on the actuarial assumptions and plan assets referenced above, see MD&A - Critical Accounting Policies - Employee benefit obligations and Note M of the Notes to Consolidated Financial Statements.
Ashland has included free cash flow as an additional non-GAAP metric of cash flow generation.  Ashland believes free cash flow is relevant because capital expenditures are an important element of Ashland’s ongoing cash activities.  By deducting capital expenditures and certain other adjustments as applicable from operating cash flows, Ashland is able 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. Prior to 2013, Ashland deducted dividends from this calculation but has discontinued this practice to be more comparable to the broader market’s calculation of free cash flow.



M-5






Consolidated review
Net income
  Ashland’s net income is primarily affected by results within operating income, net interest and other financing expense, income taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring.  Operating income includes Ashland’s adjustment for the immediate recognition of the change in the fair value of the plan assets and net actuarial gains and losses for defined benefit pension plans and other postretirement benefit plans each fiscal year.  See “Critical Accounting Policies” for additional details regarding Ashland’s accounting policies for benefit plan obligations.
Key financial results for 2015 , 2014 and 2013 included the following:
Ashland’s net income amounted to $309 million in 2015 , $233 million in 2014 and $683 million in 2013 , or $4.48 , $3.00 and $8.57 diluted earnings per share, respectively.
Discontinued operations, which are reported net of taxes, resulted in income of $118 million , $161 million and $130 million during 2015 , 2014 and 2013 , respectively.  
Income from continuing operations, which excludes results from discontinued operations, amounted to $191 million in 2015 , $72 million in 2014 and $553 million in 2013 , or $2.78 , $0.93 and $6.95 diluted earnings per share, respectively.
The effective income tax benefit rate of 13% for 2015 , income tax benefit rate of 162% for 2014 , and the income tax expense rate of 26% for 2013 , were significantly affected by a number of discrete items.
Ashland incurred pretax net interest and other financing expense of $174 million , $166 million and $282 million during 2015 , 2014 and 2013 , respectively.  Certain charges associated with debt refinancing activity impacted 2015 and 2013.
Operating income was $458 million , $46 million and $1,039 million during 2015 , 2014 and 2013 , respectively.
For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income caption review analysis.
Operating income
Operating income amounted to $458 million , $46 million and $1,039 million in 2015 , 2014 and 2013 , respectively. The current and prior years' operating income include certain key items that are excluded to arrive at Adjusted EBITDA. These key items are summarized as follows:
Expense of $255 million and $438 million in 2015 and 2014 , respectively, and income of $417 million in 2013 from the immediate recognition from the change in the fair value of the plan assets and net actuarial gains and losses for defined benefit pension plans and other postretirement benefit plans;
Restructuring and integration costs include the following:
$27 million of restructuring costs (including $6 million of accelerated depreciation and $17 million related to the restructuring plan within an existing manufacturing facility) during 2015;
$147 million of restructuring and integration costs (including $17 million of accelerated depreciation and $19 million in asset impairment charges related to a foreign operation) during 2014; and
$29 million of restructuring and other integration costs during 2013;
a $14 million impairment related to the Valvoline joint venture equity investment within Venezuela during 2015 and a $50 million impairment charge related to the ASK joint venture equity investment during 2014;
$12 million , $13 million and $16 million net environmental charges during 2015, 2014 and 2013, respectively;
$11 million , $13 million and $41 million impairment charges related to certain in-process research and development (IPR&D) assets associated with the acquisition of International Specialty Products Inc. (ISP) in 2011 during 2015, 2014 and 2013, respectively;
$16 million of tax indemnity income, a $13 million charge related to a customer claim, and a $7 million charge for a stock incentive plan award modification, each during 2015;
two $5 million charges for a foreign tax indemnification receivable adjustment and a legal reserve, respectively, during 2014; and

M-6






$22 million and $13 million gains resulting from Ashland's settlement of an insurance claim and settlement of a customer claim, respectively, during 2013.
Operating income for 2015 , 2014 and 2013 included depreciation and amortization of $335 million , $357 million and $354 million , respectively (which excludes asset impairment charges and accelerated depreciation of $6 million , $36 million and $2 million , respectively, for each year).  EBITDA totaled $796 million , $568 million and $1,515 million for 2015 , 2014 and 2013 , respectively.  Adjusted EBITDA results in the following table have been prepared to illustrate the ongoing effects of Ashland’s operations, which exclude certain key items since management believes the use of such non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis.  
 
(In millions)
2015

 
2014

 
2013

Net income
$
309

 
$
233

 
$
683

Income tax expense (benefit)
(22
)
 
(188
)
 
196

Net interest and other financing expense
174

 
166

 
282

Depreciation and amortization (a)
335

 
357

 
354

EBITDA
796

 
568

 
1,515

Income from discontinued operations (net of taxes)
(118
)
 
(161
)
 
(130
)
Losses (gain) on pension and other postretirement plan remeasurement (b)
255

 
438

 
(417
)
Net loss on divestitures
118

 

 
14

Restructuring and other integration costs
21

 
111

 
29

Tax indemnity income
(16
)
 

 

Impairment of equity investments
14

 
50

 

Environmental reserve adjustments
12

 
13

 
16

Customer claim
13

 

 

Stock incentive award modification
7

 

 

Asset impairment and accelerated depreciation
6

 
36

 
2

Impairment of IPR&D assets
11

 
13

 
41

Foreign tax indemnification receivable adjustment

 
5

 

Legal reserve charge

 
5

 

Insurance settlement

 

 
(22
)
Settled claim

 

 
(13
)
Other

 

 
2

Adjusted EBITDA
$
1,119

 
$
1,078

 
$
1,037

 
 
 
 
 
 
(a)
Excludes $6 million , $36 million and $2 million of asset impairment charges and accelerated depreciation during 2015 , 2014 and 2013 , respectively.
(b)
For supplemental information on the components of this adjustment, see page M-30 within the MD&A - Critical Accounting Policies - Employee benefit obligations.
  
Statements of Consolidated Comprehensive Income – caption review
A comparative analysis of the Statements of Consolidated Comprehensive Income by caption is provided as follows for the years ended September 30, 2015 , 2014 and 2013 .
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Sales
$
5,387

 
$
6,121

 
$
6,091

 
$
(734
)
 
$
30

 
The following table provides a reconciliation of the change in sales between fiscal years 2015 and 2014 and between fiscal years 2014 and 2013 .

M-7






 
(In millions)
2015 change

 
2014 change

Pricing
$
(166
)
 
$
(88
)
Volume and product mix
(19
)
 
110

Currency exchange
(266
)
 
8

Divestitures
(283
)
 

Change in sales
$
(734
)
 
$
30

Sales for 2015 decreased $734 million , or 12% , compared to 2014 primarily due to the divestiture of certain divisions and product lines of $283 million , or 5%. The divestitures impact on sales was primarily due to the Elastomers division within the Performance Materials reportable segment. Unfavorable foreign currency exchange decreased sales by $266 million , or 4%, as a result of the U.S. dollar strengthening against foreign currencies, primarily the Euro. Additionally, pricing declines, primarily due to raw materials declines, across all reportable segments decreased sales by $166 million , or 3%, while volume and changes in product mix combined to decrease sales by $19 million , with the primary driver of the decline within Specialty Ingredients' energy market.
Sales for 2014 increased $30 million compared to 2013 primarily due to a combined change in volume and product mix which increased sales by $110 million, or 2%. Favorable currency exchange increased sales by $8 million. These increases were partially offset by pricing declines of $88 million, or 1%, primarily within the Performance Materials and Specialty Ingredients reportable segments.
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Cost of sales
$
3,814

 
$
4,605

 
$
4,304

 
$
(791
)
 
$
301

Gross profit as a percent of sales
29.2
%
 
24.8
%
 
29.3
%
 
 

 
 

 
Fluctuations in cost of sales are driven primarily by raw material prices, volume and changes in product mix, currency exchange, losses or gains on pension and other postretirement benefit plan remeasurements, and other certain charges incurred as a result of changes or events within the businesses or restructuring activities.
The following table provides a reconciliation of the changes in cost of sales between fiscal years 2015 and 2014 and between fiscal years 2014 and 2013 .
 
(In millions)
2015 change

 
2014 change

Production costs
$
(279
)
 
$
(70
)
Divestitures
(245
)
 

Currency exchange
(181
)
 
4

Volume and product mix
(30
)
 
80

Pension and other postretirement benefit plans expense (income) (including remeasurements)
(43
)
 
269

Asset impairment and accelerated depreciation
(30
)
 
34

Inventory/customer claim charges
13

 
(51
)
Severance and other costs
4

 
13

Insurance claim settlement

 
22

Change in cost of sales
$
(791
)
 
$
301


Cost of sales for 2015 decreased $791 million , or 17% , compared to 2014 primarily due to lower production costs, the divestiture of certain divisions and product lines, and favorable foreign currency exchange, which decreased cost of sales by $279 million , $245 million , and $181 million , respectively. The divestiture of the Elastomers division within the Performance Materials reportable segment accounted for $202 million, or 82%, of the $245 million divestiture impact on cost of sales. Volume and change in product mix combined also decreased cost of sales by $30 million . Pension and other postretirement plans expense decreased cost of sales by $43 million , primarily as a result of decreased remeasurement losses in 2015 compared to 2014, primarily due to lower than expected return on pension plan assets (see "Critical Accounting Policies" for additional details). The current year includes certain key items such as $17 million of severance and other costs and $6 million of accelerated depreciation related to a manufacturing facility within the Specialty Ingredients reportable segment, as well as $13 million in additional costs related to a customer claim.

M-8






The prior period includes certain key items such as $30 million of costs associated with plant closures within the Performance Materials reportable segment, which includes $17 million of accelerated depreciation, and also $19 million of asset impairment charges related to a foreign operation within the Specialty Ingredients reportable segment.
Cost of sales for 2014 increased $301 million , or 7% , compared to 2013 primarily due to increased expense of $269 million related to the pension and other postretirement plans' remeasurement losses in 2014 compared to a gain in 2013, which was primarily due to lower discount rates and a change in mortality tables (see "Critical Accounting Policies" for additional details). Lower production costs decreased cost of sales $70 million while higher volume and product mix resulted in an increase of $80 million. As previously discussed, cost of sales for 2014 also includes certain key items such as $49 million of costs associated with plant closures and a foreign operation. Cost of sales for 2013 included a $51 million inventory charge for certain guar-based products and inventory adjustments within Elastomers, a $22 million gain resulting from Ashland’s settlement of an insurance claim, and $2 million of accelerated depreciation.
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Selling, general and administrative expense
$
1,028

 
$
1,358

 
$
670

 
$
(330
)
 
$
688

As a percent of  sales
19.1
%
 
22.2
%
 
11.0
%
 
 

 
 

 
Selling, general and administrative expense for 2015 decreased 24% compared to 2014 , while expenses as a percent of sales decreased 3.1 percentage points.  Key drivers of the fluctuation in selling, general and administrative expense compared to 2014 were:
a $146 million decrease in expense compared to the prior year due to fluctuations in adjustments from the gains and losses for pension and postretirement benefit plans (costs of $155 million in 2015 and $301 million in 2014). As previously discussed within the cost of sales analysis, the 2015 remeasurement loss was driven primarily by a lower than expected return on pension plan assets (see "Critical Accounting Policies" for additional details);
Approximately $100 million of current year cost savings related to the 2014 global restructuring compared to approximately $40 million of cost savings in the prior year;
$98 million key item expense during 2014 for severance and other restructuring costs associated with the 2014 global restructuring;
Environmental reserve expense adjustments of $32 million and $29 million during 2015 and 2014, respectively;
Favorable foreign currency exchange of $36 million during 2015;
Increased employee related costs of approximately $22 million during 2015;
$21 million decrease in expense for certain divestitures, primarily the Elastomers division during 2015; and
Tax indemnification income of $16 million and a stock incentive award modification resulting in expense of $7 million during 2015.
Selling, general and administrative expense for 2014 increased 103% compared to 2013 , while expenses as a percent of sales increased 11.2 percentage points.  Key drivers of the fluctuation in selling, general and administrative expense compared to 2013 were:
a $590 million increase in expense compared to the prior year due to fluctuations in adjustments from the gains and losses for pension and postretirement benefit plans (cost of $301 million in 2014 and income of $289 million in 2013). As previously discussed within the cost of sales analysis, the 2014 remeasurement loss was driven primarily by lower discount rates and a change in mortality tables (see "Critical Accounting Policies" for additional details);
Certain key item expense in 2014 and 2013 of $98 million and $29 million, respectively, for severance, restructuring and integration charges;
Increased incentive compensation of approximately $50 million during 2014;
Approximately $40 million in cost savings during 2014 resulting from the 2014 global restructuring program; and
Environmental reserve expense adjustments of $29 million and $22 million during 2014 and 2013, respectively.

M-9






 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Research and development expense
$
110

 
$
114

 
$
142

 
$
(4
)
 
$
(28
)
 
Research and development expenses during 2015 decreased $4 million as compared to 2014 . The current year includes an impairment of $11 million compared to $13 million in the prior year related to certain IPR&D assets associated with the acquisition of ISP.
Research and development expenses for 2014 decreased $28 million as compared to 2013 . As noted previously, 2014 included an impairment related to certain IPR&D assets associated with the acquisition of ISP of $13 million compared to a $41 million impairment in 2013.
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Equity and other income (loss)
 
 
 
 
 
 
 
 
 
Equity income (loss)
$
1

 
$
(25
)
 
$
26

 
$
26

 
$
(51
)
Other income
22

 
27

 
38

 
(5
)
 
(11
)
 
$
23

 
$
2

 
$
64

 
$
21

 
$
(62
)
 
Total equity and other income increased $21 million during 2015 compared to 2014 .  Equity income increased $26 million in the current year primarily due to a $50 million impairment during the prior year related to the ASK joint venture equity investment within the Performance Materials reportable segment, partially offset by $10 million of lost income from the ASK joint venture as a result of its June 2014 sale. The current year included a $14 million impairment related to the Venezuelan joint venture equity investment within the Valvoline reportable segment. Other income in the prior year included income of $8 million from a favorable arbitration ruling on a commercial contract within the Valvoline reportable segment.
Total equity and other income decreased $62 million during 2014 compared to 2013 .  Equity income (loss) declined $51 million during 2014 primarily due to the $50 million impairment during the period within the ASK joint venture equity investment. The decrease in other income during 2014 is primarily due to a gain during 2013 of $13 million resulting from Ashland’s settlement of a claim related to sales commissions and receivables within the Specialty Ingredients reportable segment. These decreases were partially offset by income of $8 million from a favorable arbitration ruling on a commercial contract within the Valvoline reportable segment during 2014.
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Net interest and other financing expense (income)
 
 
 
 
 
 
 
 
 
Interest expense
$
166

 
$
163

 
$
273

 
$
3

 
$
(110
)
Interest income
(6
)
 
(6
)
 
(4
)
 

 
(2
)
Available-for-sale securities income
(3
)
 

 

 
(3
)
 

Other financing costs
17

 
9

 
13

 
8

 
(4
)
 
$
174

 
$
166

 
$
282

 
$
8

 
$
(116
)
 
Interest expense and other financing costs, excluding interest income and available-for-sale income, increased $11 million in 2015 compared to 2014 . Excluding certain current year charges associated with the 2015 refinancing, interest expense remained relatively consistent with the prior year as generally lower interest rates offset higher debt levels during the year. As previously noted, 2015 included certain charges related to the 2015 refinancing. These included $2 million of accelerated amortization for previously capitalized debt issuance costs and $2 million of new debt issuance costs recognized immediately associated with the 2015 refinancing activities. Other financing costs included a $9 million charge related to the early redemption premium payment for the tender of the 2016 senior notes. The available-for-sale securities income of $3 million represents investment income related to the restricted investments discussed in Note F of the Notes to Consolidated Financial Statements.
Interest expense and other financing costs, excluding interest income, declined $114 million in 2014 compared to 2013 . During 2013 there were significant charges included within the interest expense captions. Interest expense included a $47 million charge for the accelerated amortization of debt issuance and other costs resulting from the repayment of the 2011 Senior Credit Facility, as well as a $52 million charge resulting from the termination of the interest rate swap agreements associated with the 2011 Senior

M-10






Credit Facility. The 2013 period also included a $3 million charge for debt issuance costs and the original issue discount from certain instruments, as well as a $4 million charge related to an early redemption premium payment, both resulting from Ashland’s repayment of the remaining 9.125% senior notes during 2013. Excluding these charges of $106 million during 2013, interest expense and other financing costs declined $8 million during 2014 primarily due to a lower outstanding debt balance for most of 2014 compared to 2013.
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Net gain (loss) on divestitures
 
 
 
 
 
 
 
 
 
Elastomers
$
(86
)
 
$

 
$

 
$
(86
)
 
$

Valvoline car care products
(26
)
 

 

 
(26
)
 

MAP Transaction adjustments
(6
)
 
4

 
(8
)
 
(10
)
 
12

PVAc divestiture

 

 
1

 

 
(1
)
Other
3

 

 
(1
)
 
3

 
1

 
$
(115
)
 
$
4

 
$
(8
)
 
$
(119
)
 
$
12


Net loss on divestitures during 2015 includes the pre-tax loss on sale related to Elastomers of $86 million, the $26 million impairment for the Valvoline car care products assets, and the $6 million reduction related to the 2005 transfer of Ashland’s 38% interest in the Marathon Ashland Petroleum joint venture and two other small businesses to Marathon Oil Corporation (Marathon) (the MAP Transaction) receivable, primarily due to the January 2015 asbestos insurance settlement.
Net gain on divestitures during 2014 includes a gain resulting from the receipt of a tax credit reimbursement and other subsequent adjustments related to the MAP Transaction for certain state tax attributes.
Net loss on divestitures during 2013 includes a $14 million expense settlement and several favorable tax adjustments related to the MAP Transaction.
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Income tax expense (benefit)
$
(22
)
 
$
(188
)
 
$
196

 
$
166

 
$
(384
)
Effective tax rate
(13
)%
 
(162
)%
 
26
%
 
 

 
 

Effective tax rate (excluding key items)
23
 %
 
20
 %
 
22
%
 
 
 
 
The fiscal 2015 effective tax rate was impacted by net favorable items predominantly due to certain valuation allowance releases related to state deferred tax assets. These favorable adjustments were partially offset by an accrual for an unrecognized tax benefit and tax related to certain global restructuring steps.
Income tax benefit for 2014 included a $168 million tax benefit related to the reversal of deferred tax liabilities for outside basis differences and other related matters, a charge of $39 million for taxes associated with the sale of shares of subsidiaries included in the sale of the Water Technologies business, net charges of $32 million for uncertain tax positions and related matters, a charge of $14 million for a foreign income tax rate change and other net discrete item charges of $7 million primarily related to changes in valuation allowances. During the quarter ended September 30, 2014, as a result of an updated analysis of future cash needs in the U.S. and opportunities for investment outside the U.S., including the use of proceeds from the Water Technologies sale, Ashland changed its assertion related to the historical earnings of certain subsidiaries, and reversed deferred tax liabilities of $168 million (as noted previously), resulting in a tax benefit in 2014. 
Income tax expense for 2013 included a zero benefit recorded on the MAP Transaction charge of $14 million and a net benefit of $16 million primarily attributable to a foreign income tax rate change.

M-11






 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Income (loss) from discontinued operations
 
 
 
 
 
 
 
 
 
(net of taxes)
 
 
 
 
 
 
 
 
 
Asbestos-related litigation matters
$
110

 
$
6

 
$
2

 
$
104

 
$
4

Water Technologies
6

 
151

 
124

 
(145
)
 
27

Distribution
1

 

 
(6
)
 
1

 
6

APAC
1

 
4

 
10

 
(3
)
 
(6
)
 
$
118

 
$
161

 
$
130

 
$
(43
)
 
$
31


The current year included an after-tax gain of $120 million related to the January 2015 asbestos insurance settlement, partially offset by after-tax net expense adjustments to the asbestos reserves and receivables, including the adjustments for changes in estimates as well as a deferred tax adjustment. The results for income from discontinued operations for 2014 and 2013 also includes favorable net adjustments (after-tax) to the asbestos reserve and related receivables of $6 million and $2 million during 2014 and 2013, respectively.
Water Technologies activity during 2015 related primarily to income of $5 million due to a foreign pension plan remeasurement discussed in Note M in Notes to Consolidated Financial Statements as well as other post-closing adjustments. The 2014 period includes an after-tax gain of $92 million on the sale of Water Technologies and ten months of Water Technologies' operating results as compared to a full year of operating results for 2013 as a result of the July 31, 2014 sale of the Water Technologies business to CD&R. Water Technologies sales for 2014 and 2013 included in discontinued operations were $1,475 million and $1,722 million, respectively. Gross profit margin, on a comparable and adjusted basis, was 35.0% and 33.7%, respectively. On a comparable and adjusted basis the operating income for Water Technologies during 2014 and 2013 was $111 million and $92 million, respectively.
The reported results for Water Technologies in 2014 included $29 million from depreciation and amortization that was recorded before the announced definitive agreement signed in February 2014. Due to Water Technologies designation as held for sale within the Consolidated Balance Sheets, no future depreciation or amortization was recorded. Additionally, 2014 and 2013 reported results included a loss of $19 million and a gain of $81 million, respectively for pension and other postretirement plan remeasurement net losses or gains, which is discussed further in Note M of the Notes to the Consolidated Financial Statements. Also, 2013 included an $11 million charge for restructuring.
The operational results for income from discontinued operations for 2015, 2014 and 2013 also include subsequent environmental and tax adjustments to the previously divested businesses of Ashland Distribution (Distribution) and Ashland Paving And Construction, Inc. (APAC).
Other comprehensive income (loss)
A comparative analysis of the components of other comprehensive income (loss) is provided below for the last three fiscal years ended September 30.
 
 
 
 
 
 
 
2015

 
2014

(In millions)
2015

 
2014

 
2013

 
change

 
change

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
(net of taxes)
 
 
 
 
 
 
 
 
 
Unrealized translation gain (loss)
$
(369
)
 
$
(160
)
 
$
37

 
$
(209
)
 
$
(197
)
Pension and postretirement obligation adjustment
(18
)
 
(21
)
 
(5
)
 
3

 
(16
)
Unrealized loss on available-for-sale securities
(11
)
 

 

 
(11
)
 

Net change in interest rate hedges

 

 
38

 

 
(38
)
 
$
(398
)
 
$
(181
)
 
$
70

 
$
(217
)
 
$
(251
)
Total other comprehensive loss, net of tax, decreased $217 million in 2015 as compared to 2014 as a result of the following components.
In 2015 , other comprehensive loss, net of tax, from foreign currency translation adjustments was $369 million , compared to $160 million in 2014 , mainly as a result of the strengthening of the U.S. Dollar against other global currencies, including the Euro and Australian dollar. The fluctuations in unrealized translation losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars.

M-12






Pension and postretirement obligation adjustment was $18 million and $21 million in 2015 and 2014, respectively. Of these amounts, $17 million and $25 million during 2015 and 2014, respectively, of unrecognized prior service credits, net of tax, related to pension and other postretirement benefit plans were amortized and reclassified into net income, while cost of $1 million and credit of $4 million , respectively, of additional unrecognized prior service, net of tax, was included in other comprehensive loss.
$11 million of unrealized loss on available-for-sale securities, net of tax, related to the restricted investments, was recognized within other comprehensive loss during 2015.
Total other comprehensive income (loss), net of tax, decreased $251 million in 2014 as compared to 2013 as a result of the following components.
In 2014 , other comprehensive loss, net of tax, from foreign currency translation adjustments was $160 million , of which $166 million was recognized within other comprehensive income during 2014, compared to a gain of $37 million in 2013 . The fluctuations in unrealized translation are primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars. The change in this caption is a result of the U.S. dollar strengthening against the Euro during the last quarter of 2014. Additionally, as a result of the sale of Water Technologies during 2014, $6 million of translation losses were reclassified into net income.
Pension and postretirement obligation adjustment was $21 million and $5 million in 2014 and 2013, respectively. Of these amounts, $25 million and $15 million during 2014 and 2013, respectively, of unrecognized prior service credits, net of tax, related to pension and other postretirement benefit plans were amortized and reclassified into net income, while $4 million and $10 million , respectively, of additional unrecognized prior service credit, net of tax, was included in other comprehensive income (loss).
During 2013, $38 million of a net change related to interest rate hedges was recognized. Of this amount, $41 million , net of tax, was reclassified into net income for losses related to the interest rate hedges terminated during the year, while $3 million of an unrealized loss was recorded prior to the termination.

RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW
Subsequent to the sale of Water Technologies and a business realignment during 2014, Ashland’s businesses are managed within three reportable segments:  Specialty Ingredients, Performance Materials and Valvoline.
The 2014 business realignment resulted in the re-organization of Specialty Ingredients into two divisions: Consumer Specialties and Industrial Specialties, with the adhesives category joining the Industrial Specialties division, moving over from Performance Materials. While, Performance Materials became comprised of three divisions: 1) Intermediates/Solvents, which moved over from Specialty Ingredients and serves both Ashland’s internal butanediol needs as well as the merchant market; 2) Composites, which serves construction, transportation, marine and other markets; and 3) Elastomers, which primarily served the North American replacement tire market prior to its December 1, 2014 sale. The business realignment during 2014 did not affect the Valvoline business, as it remained unchanged compared to prior year periods.
Results of Ashland’s reportable segments are presented based on its management structure and internal accounting practices.  The structure and practices are 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 costs to its reportable segments except for certain significant company-wide restructuring activities, such as certain restructuring plans described in Note E of Notes to Consolidated Financial Statements, and other costs or adjustments 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 to Unallocated and other.  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.  Revisions to Ashland’s methodologies that are deemed insignificant are applied on a prospective basis.
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 reportable segment.  Each of these non-GAAP measures is defined as follows:  EBITDA (operating income 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 U.S. GAAP measure.

M-13






The following table shows sales, operating income and statistical operating information by reportable segment for each of the last three years ended September 30.
 
(In millions)
2015

 
2014

 
2013

Sales
 
 
 
 
 
Specialty Ingredients
$
2,263

 
$
2,498

 
$
2,478

Performance Materials
1,157

 
1,582

 
1,617

Valvoline
1,967

 
2,041

 
1,996