Ashland Global Holdings Inc.
ASHLAND GLOBAL HOLDINGS INC (Form: 10-Q, Received: 04/26/2017 16:13:38)


 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 

___________________________
 
FORM 10-Q
(Mark One)
 
 
 
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2017
 
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 GLOBAL HOLDINGS INC.

(a Delaware corporation)
I.R.S. No. 81-2587835

50 E. RiverCenter Boulevard
Covington, Kentucky 41011
Telephone Number (859) 815-3333

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 Web site, 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 whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of  “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”  in Rule 12b-2 of the Exchange Act.  (Check One):
 
 Large Accelerated Filer þ
 
 Accelerated Filer o   
 
 Non-Accelerated Filer o
 
Smaller Reporting Company o   
 
 (Do not check if a smaller reporting company.)
Emerging Growth Company o  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No þ
At March 31, 2017 , there were 62,216,934 shares of Registrant’s Common Stock outstanding.
 
 
 
 
 




PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
 
 
 
 
 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
 
 
 
 
 
 
Three months ended
 
Six months ended
 
March 31
 
March 31
(In millions except per share data - unaudited)
2017

 
2016

 
2017

 
2016

Sales
$
1,320

 
$
1,247

 
$
2,513

 
$
2,410

Cost of sales
887

 
823

 
1,694

 
1,595

Gross profit
433

 
424

 
819

 
815

 
 
 
 
 
 
 
 
Selling, general and administrative expense
245

 
258

 
483

 
483

Research and development expense
24

 
25

 
47

 
49

Equity and other income
6

 
6

 
18

 
15

Operating income
170

 
147

 
307

 
298

 
 
 
 
 
 
 
 
Net interest and other financing expense
38

 
43

 
170

 
85

Net loss on divestitures

 
(2
)
 
(1
)
 

Income from continuing operations before income taxes
132

 
102

 
136

 
213

Income tax expense - Note I
30

 
15

 
24

 
35

Income from continuing operations
102

 
87

 
112

 
178

Income (loss) from discontinued operations (net of tax) - Note D
3

 

 
3

 
(2
)
Net income
105

 
87

 
115

 
176

Net income attributable to noncontrolling interest
13

 

 
24

 

Net income attributable to Ashland
$
92

 
$
87

 
$
91

 
$
176

 
 
 
 
 
 
 
 
PER SHARE DATA
 
 
 
 
 
 
 
Basic earnings per share - Note L
 

 
 

 
 

 
 

Income from continuing operations attributable to Ashland
$
1.43

 
$
1.39

 
$
1.42

 
$
2.79

Income (loss) from discontinued operations
0.05

 

 
0.05

 
(0.03
)
Net income attributable to Ashland
$
1.48

 
$
1.39

 
$
1.47

 
$
2.76

 
 
 
 
 
 
 
 
Diluted earnings per share - Note L
 

 
 

 
 

 
 

Income from continuing operations attributable to Ashland
$
1.42

 
$
1.38

 
$
1.41

 
$
2.76

Income (loss) from discontinued operations
0.05

 

 
0.05

 
(0.03
)
Net income attributable to Ashland
$
1.47

 
$
1.38

 
$
1.46

 
$
2.73

 
 
 
 
 
 
 
 
DIVIDENDS PAID PER COMMON SHARE
$
0.39

 
$
0.39

 
$
0.78

 
$
0.78

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Net income
$
105

 
$
87

 
$
115

 
$
176

Other comprehensive income (loss), net of tax - Note M
 
 
 
 
 
 
 
Unrealized translation gain (loss)
60

 
80

 
(86
)
 
19

Pension and postretirement obligation adjustment
(2
)
 
24

 
(4
)
 
21

Net change in available-for-sale securities
6

 
3

 
6

 
9

Other comprehensive income (loss)
64

 
107

 
(84
)
 
49

Comprehensive income
169

 
194

 
31

 
225

Comprehensive income attributable to noncontrolling interest
14

 

 
24

 

Comprehensive income attributable to Ashland
$
155

 
$
194

 
$
7

 
$
225



SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

2

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
 

 
March 31

 
September 30

(In millions - unaudited)
2017

 
2016

 
 
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
605

 
$
1,188

Accounts receivable  (a)
972

 
894

Inventories - Note F
687

 
671

Other assets
113

 
113

Total current assets
2,377

 
2,866

Noncurrent assets
 

 
 

Property, plant and equipment
 
 
 
Cost
4,364

 
4,343

Accumulated depreciation
2,159

 
2,119

Net property, plant and equipment
2,205

 
2,224

Goodwill - Note G
2,413

 
2,401

Intangibles - Note G
1,017

 
1,064

Restricted investments - Note E
298

 
292

Asbestos insurance receivable - Note K
193

 
196

Equity and other unconsolidated investments
61

 
57

Deferred income taxes
199

 
177

Other assets
423

 
420

Total noncurrent assets
6,809

 
6,831

Total assets
$
9,186

 
$
9,697

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Current liabilities
 

 
 

Short-term debt - Note H
$
95

 
$
170

Current portion of long-term debt - Note H
16

 
19

Trade and other payables
520

 
541

Accrued expenses and other liabilities
406

 
486

Total current liabilities
1,037

 
1,216

Noncurrent liabilities
 

 
 

Long-term debt - Note H
2,812

 
3,055

Employee benefit obligations - Note J
1,017

 
1,080

Asbestos litigation reserve - Note K
663

 
686

Deferred income taxes
69

 
69

Other liabilities
445

 
426

Total noncurrent liabilities
5,006

 
5,316

Commitments and contingencies - Note K


 


Equity
 
 
 
Total Ashland stockholders' equity
3,300

 
3,347

Noncontrolling interest
(157
)
 
(182
)
Total equity
3,143

 
3,165

Total liabilities and equity
$
9,186

 
$
9,697

 
 
 
 
(a)
Accounts receivable includes an allowance for doubtful accounts of $14 million at March 31, 2017 and September 30, 2016 .



SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

3

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED EQUITY

 
 
 



(In millions - unaudited)
Common
stock

 
Paid-in
capital

 
Retained
earnings

 
Accumulated
other
comprehensive
income (loss)

(a)
Noncontrolling interest

(b)
Total

BALANCE AT SEPTEMBER 30, 2016
$
1

 
$
923

 
$
2,704

 
$
(281
)

$
(182
)
 
$
3,165

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
 
 
91

 
 

24

 
115

Other comprehensive loss
 
 
 
 
 
 
(84
)
 

 
(84
)
Regular dividends, $0.78 per common share
 

 
 

 
(48
)
 
 

 
 
 
(48
)
Common shares issued under stock
 

 
 

 
 

 
 

 
 
 
 

   incentive and other plans (c)
 

 
(1
)
 
 
 
 

 
 
 
(1
)
Other
 
 
(5
)
 
 
 
 
 
5

 

Distributions to noncontrolling interest
 
 
 
 
 
 
 
 
(4
)
 
(4
)
BALANCE AT MARCH 31, 2017
$
1

 
$
917

 
$
2,747

 
$
(365
)

$
(157
)
 
$
3,143

 
 
 
 
 
 
 
 
 
 
 
 
(a)
At March 31, 2017 and September 30, 2016 , the after-tax accumulated other comprehensive loss attributable to Ashland of $365 million and $281 million , respectively, was comprised of unrecognized prior service credits as a result of certain employee benefit plan amendments of $43 million and $46 million , respectively, net unrealized translation losses of $420 million and $333 million , respectively, and net unrealized gain on available-for-sale securities of $12 million and $6 million , respectively. At March 31, 2017 and September 30, 2016 , amounts attributable to noncontrolling interest included unrecognized prior service credits of $8 million and $9 million , respectively, and net unrealized translation losses of $1 million and $2 million , respectively.
(b)
See Note B for discussion of Valvoline Inc. noncontrolling interest.
(c)
Common shares issued were 56,661 for the six months ended March 31, 2017 .





















SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

4

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS

 
 
 

 
Six months ended
 
March 31
(In millions - unaudited)
2017

 
2016

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM
 
 
 
CONTINUING OPERATIONS
 
 
 
Net income
$
115

 
$
176

Loss (income) from discontinued operations (net of tax)
(3
)
 
2

Adjustments to reconcile income from continuing operations to
 

 
 

cash flows from operating activities
 

 
 

Depreciation and amortization
153

 
168

Original issue discount and debt issuance cost amortization
98

 
6

Deferred income taxes
1

 
1

Equity income from affiliates
(7
)
 
(8
)
Distributions from equity affiliates
4

 
9

Stock based compensation expense
12

 
17

Gain on early retirement of debt
(3
)
 

Gain on available-for-sale securities
(7
)
 
(4
)
Net loss on divestitures
1

 

Pension contributions
(14
)
 
(15
)
Loss (gain) on pension and other postretirement plan remeasurements
(10
)
 
23

Change in operating assets and liabilities (a)
(278
)
 
(125
)
Total cash flows provided by operating activities from continuing operations
62

 
250

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM
 

 
 

CONTINUING OPERATIONS
 

 
 

Additions to property, plant and equipment
(104
)
 
(103
)
Proceeds from disposal of property, plant and equipment
1

 
3

Purchase of operations - net of cash acquired
(48
)
 
(66
)
Proceeds (uses) from sale of operations or equity investments
(1
)
 
12

Net purchase of funds restricted for specific transactions
(2
)
 

Reimbursements from restricted investments
12

 
23

Purchases of available-for-sale securities
(19
)
 
(4
)
Proceeds from sales of available-for-sale securities
19

 
4

Proceeds from the settlement of derivative instruments
4

 
7

Payments for the settlement of derivative instruments
(3
)
 

Total cash flows used by investing activities from continuing operations
(141
)
 
(124
)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM
 

 
 

CONTINUING OPERATIONS
 

 
 

Repayment of long-term debt
(337
)
 
(36
)
Premium on long-term debt repayment
(5
)
 

Proceeds (repayment) from short-term debt
(75
)
 
368

Repurchase of common stock

 
(500
)
Debt issuance costs
(4
)
 

Cash dividends paid
(48
)
 
(48
)
Distributions to noncontrolling interest
(4
)
 

Excess tax benefits related to share-based payments
(2
)
 
(1
)
Total cash flows used by financing activities from continuing operations
(475
)
 
(217
)
CASH USED BY CONTINUING OPERATIONS
(554
)
 
(91
)
Cash used by discontinued operations
 

 
 

Operating cash flows
(21
)
 
(19
)
Investing cash flows

 

Total cash used by discontinued operations
(21
)
 
(19
)
Effect of currency exchange rate changes on cash and cash equivalents
(8
)
 
(11
)
DECREASE IN CASH AND CASH EQUIVALENTS
(583
)
 
(121
)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
1,188

 
1,257

CASH AND CASH EQUIVALENTS - END OF PERIOD
$
605

 
$
1,136

 
 
 
 
(a)
Excludes changes resulting from operations acquired or sold.

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

5

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 



NOTE A   SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation  
On September 20, 2016, Ashland was reincorporated under the laws of the State of Delaware through a tax-free reorganization under a new holding company structure (the 2016 Reorganization). As a result of the Reorganization, Ashland Global Holdings Inc. replaced Ashland Inc. as the publicly held corporation and, through its subsidiaries, now conducts all of the operations that historically were conducted by Ashland Inc. The Condensed Consolidated Financial Statements include the accounts of Ashland Global Holdings Inc. and its majority owned subsidiaries and, when applicable, entities for which Ashland has a controlling financial interest or is the primary beneficiary (Ashland).
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and Securities and Exchange Commission (SEC) regulations.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016 .  Results of operations for the period ended March 31, 2017 are not necessarily indicative of the expected results for the remaining quarter in the fiscal year.
Ashland is composed of three reportable segments:  Ashland Specialty Ingredients (Specialty Ingredients), Ashland Performance Materials (Performance Materials) and Valvoline. As of March 31, 2017 , Ashland maintains an approximately 83% controlling interest in Valvoline Inc., which holds the Valvoline reportable segment. See Note B for additional information. The term Valvoline as used herein, depending on context, refers to either Valvoline Inc. or Valvoline as a reportable segment of Ashland.
Use of estimates, risks and uncertainties
The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities.  Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), employee benefit obligations, income taxes and liabilities and receivables associated with asbestos litigation and environmental remediation.  Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.
Ashland’s results are affected by domestic and international economic, political, legislative, regulatory and legal actions.  Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations.  While Ashland maintains reserves for anticipated liabilities and carries various levels of insurance, Ashland could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to asbestos, environmental remediation or other matters.
New accounting standards
A description of new U.S. GAAP accounting standards issued or adopted during the current year is required in interim financial reporting.  A detailed listing of new accounting standards relevant to Ashland is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2016 . The following standards relevant to Ashland were either issued or adopted in the current period, or will become effective in a subsequent period.

6

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE A   SIGNIFICANT ACCOUNTING POLICIES (continued)
 

In March 2017, the FASB issued accounting guidance that will change how employers who sponsor defined benefit pension and/or postretirement benefit plans present the net periodic benefit cost in the Statement of Consolidated Comprehensive Income. This guidance requires employers to present the service cost component of net periodic benefit cost in the same caption within the Statement of Consolidated Comprehensive Income as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost will be presented separately outside of the operating income caption. This guidance must be applied retrospectively and will become effective for Ashland on October 1, 2018, with early adoption being optional. Ashland currently intends to early adopt this guidance on October 1, 2017 and will revise the presentation of the net periodic benefit cost in previous periods to conform to the current period presentation. Ashland expects this guidance to have a significant impact on the presentation of Ashland’s Statements of Consolidated Comprehensive Income as it will result in a reclassification of expenses and income from operating income into a separate caption below operating income, but before income taxes.
In January 2017, the FASB issued accounting guidance which simplifies the subsequent measurement of goodwill by eliminating the second step of the two-step impairment test under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. The guidance instead requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value.  This guidance must be applied prospectively and will become effective for Ashland on October 1, 2020. Ashland is currently evaluating the impact this guidance may have on Ashland's Condensed Consolidated Financial Statements.
In April 2015, the FASB issued accounting guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. Cloud computing arrangements represent the delivery of hosted services over the internet which includes software, platforms, infrastructure and other hosting arrangements. Under the guidance, customers that gain access to software in a cloud computing arrangement account for the software as internal-use software only if the arrangement includes a software license. This guidance became effective prospectively for Ashland on October 1, 2016.
NOTE B – VALVOLINE
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 (now known as Ashland Global Holdings Inc.) and Valvoline Inc. The initial step of the separation, the initial public offering (IPO) of Valvoline Inc., closed on September 28, 2016. The new Ashland is a premier 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. Valvoline Inc., a controlled subsidiary, operates on a stand-alone basis as a premium consumer-branded lubricant supplier.
After completing the IPO on September 28, 2016, Ashland owns 170 million shares of Valvoline Inc.’s common stock, representing approximately 83% of the total outstanding shares of Valvoline Inc.’s common stock. The resulting outside stockholders’ interests in Valvoline Inc., which was approximately 17% as of March 31, 2017 and September 30, 2016 , are presented separately as a noncontrolling interest within Ashland’s equity in the Condensed Consolidated Balance Sheets. As of March 31, 2017 and September 30, 2016 , the noncontrolling interest was $157 million and $182 million , respectively. The amount of consolidated net income attributable

7

 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
NOTE B – VALVOLINE (continued)



to these minority holders is presented as a separate caption on the Statement of Consolidated Comprehensive Income.
Ashland recognized separation costs of $26 million and $12 million for the three months ended March 31, 2017 and 2016 , respectively, and $54 million and $18 million for the six months ended March 31, 2017 and 2016 , respectively, which are primarily related to transaction and legal fees. Separation costs are primarily recorded within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income.
Transferred Assets and Liabilities
As of September 30, 2016, Valvoline Inc. included substantially all of the Valvoline business as historically reported by Ashland, as well as certain other assets and liabilities transferred to Valvoline Inc. by Ashland as a part of the separation process. The largest transferred liabilities were the net pension and other postretirement plan liabilities, which include a substantial portion of the largest U.S. qualified pension plans and non-qualified U.S. pension plans. As of September 30, 2016, Valvoline Inc.’s net pension and other postretirement plan liabilities totaled approximately $900 million .
Other transferred assets and liabilities primarily consist of deferred compensation, certain Ashland legacy business insurance reserves, tax attributes and certain trade payables. The impact of these other transferring assets and liabilities during 2016 was approximately $15 million of net assets. Additionally, any deferred tax assets and liabilities that relate specifically to these assets and liabilities have been transferred to Valvoline Inc. as well as certain other tax liabilities as a result of the Tax Matters Agreement. For purposes of Ashland’s 2017 segment reporting and consistent with prior periods, these transferred assets and liabilities remain included within Unallocated and other.
Final Separation
On April 25, 2017, Ashland announced that the Board of Directors has authorized the distribution to Ashland stockholders of all 170 million shares of Valvoline Inc.'s common stock on May 12, 2017 as a pro rata dividend on shares of Ashland common stock outstanding at the close of business on the record date of May 5, 2017. The actual distribution ratio for the Valvoline Inc. common stock to be distributed per share of Ashland common stock will be determined based on the number of shares of Ashland common stock outstanding on the record date.
This final distribution is subject to certain conditions, including receipt of a customary tax opinion and confirmation of sufficient capital adequacy and surplus to make the distribution. Ashland expects all of these conditions to be satisfied on the distribution date.
Acquisitions
Time-It Lube
On January 31, 2017, Valvoline completed the acquisition of the business assets related to 28 quick-lube stores, primarily located in east Texas and Louisiana, from Time-It Lube LLC and Time-It Lube of Texas, LP (together, "Time-It Lube") for a purchase price of $48 million . Of the $48 million , $44 million was preliminarily allocated to goodwill and the remainder was allocated to working capital, customer relationships and trade names.
Oil Can Henry's
On December 11, 2015, Ashland announced that it signed a definitive agreement to acquire OCH International, Inc. (Oil Can Henry's), which was the 13 th  largest quick-lube network in the United States, servicing approximately 1 million vehicles annually with 89 quick-lube stores, consisting of 47 company-owned stores

8

 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
NOTE B – VALVOLINE (continued)



and 42 franchise locations, in Oregon, Washington, California, Arizona, Idaho and Colorado. On February 1, 2016, Ashland completed the acquisition.
The acquisition of Oil Can Henry's was valued at $72 million , which included acquired indebtedness of $11 million and other working capital adjustments. Net of acquired indebtedness and certain purchase price adjustments, the net cash outlay was $62 million during the six months ended March 31, 2016 . The purchase price allocation primarily included $83 million of goodwill.
NOTE C – DIVESTITURES
Specialty Ingredients Joint Venture    
During September 2016, Ashland entered into a definitive sale agreement to sell its ownership interest in a Specialty Ingredients consolidated joint venture. Ashland recognized a loss of $12 million before tax in 2016 to recognize the assets at fair value less cost to sell, using Level 2 nonrecurring fair value measurements. The loss was reported within the net gain (loss) on divestitures caption within the Statement of Consolidated Comprehensive Income. The net assets held for sale are not material to Ashland’s Condensed Consolidated Balance Sheets.
Ashland determined this transaction 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. Any additional gain or loss recognized as a result of the transaction is expected to be nominal and would be recognized in the period incurred. The disposition is expected to be completed during fiscal 2017.
NOTE D – DISCONTINUED OPERATIONS
In previous periods, Ashland has divested certain businesses that have qualified as discontinued operations. The operating results from these divested businesses and subsequent adjustments related to ongoing assessments of certain retained liabilities and tax items have been recorded within the discontinued operations caption in the Statements of Consolidated Comprehensive Income for all periods presented and are discussed further within this note.
On July 31, 2014, Ashland completed the sale of the Ashland Water Technologies (Water Technologies) business to Clayton, Dubilier & Rice. Ashland made subsequent post-closing adjustments to the discontinued operations caption as defined by the definitive agreement during the three and six months ended March 31, 2017 and 2016 .
Components of amounts reflected in the Statements of Consolidated Comprehensive Income related to discontinued operations are presented in the following table for the three and six months ended March 31, 2017 and 2016 .
 
Three months ended
 
Six months ended
 
March 31
 
March 31
(In millions)
2017

 
2016

 
2017

 
2016

Income (loss) from discontinued operations (net of tax)
 
 
 
 
 
 
 
Water Technologies
$
3

 
$
(1
)
 
$
3

 
$
(1
)
Gain (loss) on disposal of discontinued operations (net of tax)
 

 
 

 
 

 
 

Water Technologies

 
1

 

 
(1
)
Total income (loss) from discontinued operations (net of tax)
$
3

 
$

 
$
3

 
$
(2
)

9

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE E – FAIR VALUE MEASUREMENTS

As required by U.S. GAAP, Ashland uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value.  Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement.  The three levels within the fair value hierarchy are described as follows.
Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date.  Unobservable inputs reflect Ashland’s own assumptions about what market participants would use to price the asset or liability.  The inputs are developed based on the best information available in the circumstances, which might include Ashland’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs.  Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.  For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable.
The following table summarizes financial instruments subject to recurring fair value measurements as of March 31, 2017 .

10

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE E – FAIR VALUE MEASUREMENTS (continued)

(In millions)
Carrying
value

 
Total
fair
value

 
Quoted prices
in active
markets for
identical
assets
Level 1

 
Significant
other
observable
inputs
Level 2

 
Significant
unobservable
inputs
Level 3

Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
605

 
$
605

 
$
605

 
$

 
$

Restricted investments (a)
328

 
328

 
328

 

 

Deferred compensation investments (b)
186

 
186

 
33

 
153

 

Investments of captive insurance company (b)
2

 
2

 
2

 

 

Foreign currency derivatives
6

 
6

 

 
6

 

Total assets at fair value
$
1,127

 
$
1,127

 
$
968

 
$
159

 
$

 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

 
 

Foreign currency derivatives
$
4

 
$
4

 
$

 
$
4

 
$

 
 
 
 
 
 
 
 
 
 
(a)
Included in restricted investments and $30 million within other current assets in the Condensed Consolidated Balance Sheets.
(b)
Included in other noncurrent assets in the Condensed Consolidated Balance Sheets.
The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2016 .
(In millions)
Carrying
value

 
Total
fair
value

 
Quoted prices
in active
markets for
identical
assets
Level 1

 
Significant
other
observable
inputs
Level 2

 
Significant
unobservable
inputs
Level 3

Assets
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
1,188

 
$
1,188

 
$
1,188

 
$

 
$

Restricted investments (a)
322

 
322

 
322

 

 

Deferred compensation investments (b)
185

 
185

 
35

 
150

 

Investments of captive insurance company (b)
4

 
4

 
4

 

 

Foreign currency derivatives
3

 
3

 

 
3

 

Total assets at fair value
$
1,702

 
$
1,702

 
$
1,549

 
$
153

 
$

 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

 
 

Foreign currency derivatives
$
5

 
$
5

 
$

 
$
5

 
$

 
 
 
 
 
 
 
 
 
 
(a)
Included in restricted investments and $30 million within other current assets in the Condensed Consolidated Balance Sheets.
(b)
Included in other noncurrent assets in the Condensed Consolidated Balance Sheets.
Restricted investments
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 (the January 2015 asbestos insurance settlement). During the March 2015 quarter, Ashland placed $335 million of the settlement

11

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE E – FAIR VALUE MEASUREMENTS (continued)

funds from the January 2015 asbestos insurance settlement into a renewable annual trust restricted for the purpose of paying ongoing and future litigation defense and claim settlement costs incurred in conjunction with asbestos claims. These funds were classified primarily as noncurrent restricted investment assets, with $30 million classified within other current assets, in the Condensed Consolidated Balance Sheets as of March 31, 2017 and September 30, 2016 .
During 2015, Ashland diversified the restricted investments received from the January 2015 asbestos insurance settlement into primarily equity and corporate bond mutual funds that are designated as available-for-sale securities, classified as Level 1 measurements within the fair value hierarchy. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, included in the stockholders' equity section of the Condensed Consolidated Balance Sheets as a component of accumulated other comprehensive income (AOCI). Investment income and realized gains and losses on the available-for-sale securities are reported in the net interest and other financing expense caption in the Statements of Consolidated Comprehensive Income. The following table provides a summary of the available-for-sale securities portfolio as of March 31, 2017 and September 30, 2016 :
 
March 31

 
September 30

(In millions)
2017

 
2016

Original cost
$
335

 
$
335

Accumulated investment income, settlement funds
 
 
 
and disbursements, net
(24
)
 
(3
)
Adjusted cost (a)
311

 
332

Investment income (b)
5

 
8

Unrealized gain
21

 
11

Unrealized loss
(1
)
 

Realized gain
2

 

Settlement funds
2

 
4

Disbursements
(12
)
 
(33
)
Fair value
$
328

 
$
322

 
 
 
 
(a)
The adjusted cost of the demand deposit includes accumulated investment income, disbursements and settlements recorded in previous periods.
(b)
Investment income for the demand deposit includes interest income as well as dividend income transferred from the equity and corporate bond mutual funds.
The following table presents gross unrealized gains and losses for the available-for-sale securities as of March 31, 2017 and September 30, 2016 :

12

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE E – FAIR VALUE MEASUREMENTS (continued)

 
 
 
Gross

 
Gross

 
 
(In millions)
Adjusted Cost

 
Unrealized Gain

 
Unrealized Loss

 
Fair Value

As of March 31, 2017
 
 
 
 
 
 
 
Demand Deposit
$
20

 
$

 
$

 
$
20

Equity Mutual Fund
168

 
21

 

 
189

Corporate bond Mutual Fund
120

 

 
(1
)
 
119

Fair value
$
308

 
$
21

 
$
(1
)
 
$
328

 
 
 
 
 
 
 
 
As of September 30, 2016
 
 
 
 
 
 
 
Demand Deposit
$
6

 
$

 
$

 
$
6

Equity Mutual Fund
185

 
8

 

 
193

Corporate bond Mutual Fund
120

 
3

 

 
123

Fair value
$
311

 
$
11

 
$

 
$
322


The unrealized gains and losses as of March 31, 2017 and September 30, 2016 were recognized within AOCI. Ashland invests in highly-rated investment grade mutual funds. No other-than-temporary impairment was recognized in AOCI during the three and six months ended March 31, 2017 and 2016 .
The following table presents the investment income, realized gains and disbursements related to the investments within the portfolio for the three and six months ended March 31, 2017 and 2016 .
 
Three months ended
 
Six months ended
 
March 31
 
March 31
(In millions)
2017

 
2016

 
2017

 
2016

Investment income
$
2

 
$
2

 
$
5

 
$
4

Realized gains
2

 

 
2

 

Disbursements
(12
)
 
(16
)
 
(12
)
 
(23
)
Deferred compensation investments
Deferred compensation investments consist of Level 1 and Level 2 measurements within the fair value hierarchy. Level 1 investments consist primarily of fixed income U.S. government bonds while Level 2 investments are comprised primarily of a guaranteed interest fund, a common stock index fund and an intermediate government bond fund. Gains and losses related to deferred compensation investments are immediately recognized within the Statements of Consolidated Comprehensive Income.
Derivative and hedging activities
Currency hedges
Ashland conducts business in a variety of foreign currencies.  Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to curtail potential earnings volatility effects of certain assets and liabilities, including short-term inter-company loans, denominated in currencies other than Ashland’s functional currency of an entity. These derivative contracts generally require exchange of one foreign currency for another at a fixed rate at a future date and generally have maturities of less than twelve months.  All contracts are valued at fair value with net changes in fair value recorded within the selling, general and administrative expense caption.  The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies. The following table summarizes the gains recognized

13

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE E – FAIR VALUE MEASUREMENTS (continued)

during the three and six months ended March 31, 2017 and 2016 within the Statements of Consolidated Comprehensive Income.
 
Three months ended
 
Six months ended
 
March 31
 
March 31
(In millions)
2017

 
2016

 
2017

 
2016

Foreign currency derivative gain
$
7

 
$
1

 
$
9

 
$
4

The following table summarizes the fair values of the outstanding foreign currency derivatives as of March 31, 2017 and September 30, 2016 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.
 
March 31

 
September 30

(In millions)
2017

 
2016

Foreign currency derivative assets
$
6

 
$
3

Notional contract values
781

 
333

 
 
 
 
Foreign currency derivative liabilities
$
3

 
$
4

Notional contract values
312

 
530

Net investment hedges
Since 2014, Ashland has entered into foreign currency contracts in order to manage the foreign currency exposure of the net investment in certain foreign operations. These foreign currency contracts were primarily the result of certain proceeds from the sale of Water Technologies being received in non-U.S. denominated currencies during 2014 and ongoing management of the volatility in foreign currency exchange rates. Ashland designated the foreign currency contracts as hedges of net investments in its foreign subsidiaries. As a result, Ashland records these hedges at fair value using forward rates, with the effective portion of the gain or loss reported as a component of the cumulative translation adjustment within AOCI and subsequently recognized in the Statements of Consolidated Comprehensive Income when the hedged item affects net income . During 2017 and 2016, these foreign currency contracts were settled and for certain hedges Ashland entered into new foreign currency contracts designated as hedges of net investments in foreign subsidiaries. These settlements resulted in net gains and losses recorded within the cumulative translation adjustment within AOCI, including a net loss of $2 million for the three months ended March 31, 2017 , and net gains of $1 million and $7 million for the six months March 31, 2017 and 2016 , respectively.
As of March 31, 2017 and September 30, 2016 , the total notional value of foreign currency contracts equaled $69 million and $94 million , respectively. The fair value of Ashland's net investment hedge assets and liabilities are calculated using forward rates. Accordingly, these instruments are deemed to be Level 2 measurements within the fair value hierarchy. Counterparties to these net investment hedges are highly rated financial institutions which Ashland believes carry only a nominal risk of nonperformance. The following table summarizes the fair value of the outstanding net investment hedge instruments as of March 31, 2017 and September 30, 2016 .
 
 
March 31

 
September 30

(In millions)
Consolidated balance sheet caption
2017

 
2016

Net investment hedge assets (a)
Accounts receivable
$

 
$

Net investment hedge liabilities  
Accrued expenses and other liabilities
1

 
1

 
 
 
 
 
(a)
Fair value of $0 denotes a value less than $1 million.

14

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE E – FAIR VALUE MEASUREMENTS (continued)

The following table summarizes the change in the unrealized gain (loss) on the net investment hedge instruments recognized within the cumulative translation adjustment within AOCI during the three and six months ended March 31, 2017 and 2016 . No portion of the gain or loss was reclassified to income during the three and six months ended March 31, 2017 and 2016 . There was no hedge ineffectiveness with these instruments during the three and six months ended March 31, 2017 and 2016 .
 
Three months ended
 
Six months ended
 
March 31
 
March 31
(In millions)
2017

 
2016

 
2017

 
2016

Change in unrealized loss in AOCI
$
(1
)
 
$
(2
)
 
$
(1
)
 
$
(2
)
Tax impact of change in unrealized loss in AOCI (a)
1

 
1

 

 
1

 
 
 
 
 
 
 
 
(a)
$0 denotes a value less than $1 million.
Other financial instruments
At March 31, 2017 and September 30, 2016 , Ashland’s consolidated long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $2,855 million and $3,103 million , respectively, compared to a fair value of $3,002 million and $3,336 million , respectively.  The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland’s incremental borrowing rates, which are deemed to be Level 2 measurements within the fair value hierarchy.
NOTE F –   INVENTORIES
Inventories are carried at the lower of cost or market.  Inventories are primarily stated at cost using the weighted-average cost method. In addition, certain chemicals, plastics and lubricants are valued at cost using the last-in, first-out (LIFO) method.  
The following table summarizes Ashland’s inventories as of the reported Condensed Consolidated Balance Sheet dates.
 
March 31

 
September 30

(In millions)
2017

 
2016

Finished products
$
514

 
$
516

Raw materials, supplies and work in process
200

 
184

LIFO reserves
(27
)
 
(29
)
 
$
687

 
$
671

NOTE G – GOODWILL AND OTHER INTANGIBLES
Goodwill
Ashland reviews goodwill and indefinite-lived intangible assets for impairment annually or when events and circumstances indicate an impairment may have occurred.  This annual assessment is performed as of July 1 and consists of Ashland determining each reporting unit’s current fair value compared to its current carrying value.  For its July 1, 2016 assessment, Ashland determined that its reporting units for the allocation of goodwill include the Specialty Ingredients reportable segment, the Composites and Intermediates/Solvents reporting units within the Performance Materials reportable segment, and the Core North America, Quick Lubes and

15

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE G – GOODWILL AND OTHER INTANGIBLES (continued)

International reporting units within the Valvoline reportable segment. Based on the results of its goodwill impairment testing as of July 1, 2016, Ashland recorded a pre-tax goodwill impairment charge of $171 million for Intermediates/Solvents during the fourth quarter of 2016.
The following is a progression of goodwill by reportable segment for the six months ended March 31, 2017 .
 
Specialty

 
Performance

 
 
 
 

(In millions)
Ingredients

 
Materials

(a)
Valvoline

(b)
Total

Balance as of September 30, 2016
$
1,991

 
$
147

 
$
263

 
$
2,401

Acquisitions (c)

 

 
49

 
49

Currency translation adjustment
(36
)
 
(1
)
 

 
(37
)
Balance as of March 31, 2017
$
1,955

 
$
146

 
$
312

 
$
2,413

 
 
 
 
 
 
 
 
(a)
As of March 31, 2017 , goodwill was completely attributable to the Composites reporting unit due to the full impairment of the goodwill for the Intermediates/Solvents reporting unit during the fourth quarter of 2016.
(b)
As of March 31, 2017 , goodwill consisted of $89 million for the Core North America reporting unit, $183 million for the Quick Lubes reporting unit and $40 million for the International reporting unit.
(c)
Relates to $44 million for the acquisition of Time-It Lube and $5 million for Valvoline Instant Oil Change SM center acquisitions during the six months ended March 31, 2017 . See Note B for more information on the acquisition of Time-It Lube.
Other intangible assets
Intangible assets principally consist of trademarks and trade names, intellectual property and customer relationships. Intangible assets classified as finite are amortized on a straight-line basis over their estimated useful lives.  The cost of trademarks and trade names is amortized principally over 3 to 25 years, intellectual property over 5 to 20 years, and customer relationships over 3 to 24 years.
Ashland annually reviews indefinite-lived intangible assets for possible impairment or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.  
Intangible assets were comprised of the following as of March 31, 2017 and September 30, 2016 .
 
 
March 31, 2017
 
Gross

 
 
 
Net

 
carrying

 
Accumulated

 
carrying

(In millions)
amount

 
amortization

 
amount

Definite-lived intangible assets
 
 
 
 
 
Trademarks and trade names (a)
$
43

 
$
(20
)
 
$
23

Intellectual property
663

 
(297
)
 
366

Customer relationships (a)
538

 
(211
)
 
327

Total definite-lived intangible assets
1,244

 
(528
)
 
716

 
 
 
 
 
 
Indefinite-lived intangible assets
 
 
 
 
 
Trademarks and trade names
301

 

 
301

Total intangible assets
$
1,545

 
$
(528
)
 
$
1,017

 
 
 
 
 
 
(a)
Acquired customer relationships and trade names during the six months ended March 31, 2017 had gross carrying amounts of $2 million and $1 million , respectively, for Time-It Lube. See Note B for more information on the acquisition of Time-It Lube.

16

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE G – GOODWILL AND OTHER INTANGIBLES (continued)

 
September 30, 2016
 
Gross

 
 
 
Net

 
carrying

 
Accumulated

 
carrying

(In millions)
amount

 
amortization

 
amount

Definite-lived intangible assets
 
 
 
 
 
Trademarks and trade names
$
42

 
$
(19
)
 
$
23

Intellectual property
667

 
(273
)
 
394

Customer relationships
546

 
(200
)
 
346

Total definite-lived intangible assets
1,255

 
(492
)
 
763

 
 
 
 
 
 
Indefinite-lived intangible assets
 
 
 
 
 
Trademarks and trade names
301

 

 
301

Total intangible assets
$
1,556

 
$
(492
)
 
$
1,064

Amortization expense recognized on intangible assets was $19 million for each of the three months ended March 31, 2017 and 2016 , and $38 million for each of the six months ended March 31, 2017 and 2016 , and is included in the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income. Estimated amortization expense for future periods is $77 million in 2017 (includes six months actual and six months estimated), $76 million in 2018 , $71 million in 2019 , $70 million in 2020 and $70 million in 2021 . The amortization expense for future periods is an estimate. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions and divestitures, potential impairment, accelerated amortization, or other events.
NOTE H – DEBT
The following table summarizes Ashland’s current and long-term debt as of the dates reported in the Condensed Consolidated Balance Sheets.

17

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE H – DEBT (continued)

 
March 31

 
September 30

(In millions)
2017

 
2016

4.750% notes, due 2022
$
1,082

 
$
1,121

3.875% notes, due 2018
659

 
700

6.875% notes, due 2043
376

 
376

5.500% notes, due 2024 (a)
375

 
375

Term Loan, due 2021 (a)
293

 
375

2017 accounts receivable securitization facility (a)
75

 

6.50% junior subordinated notes, due 2029  
50

 
140

Other international loans, interest at a weighted-
 

 
 

average rate of 4.9% at March 31, 2017 (4.8% to 5.0%)
20

 
20

Medium-term notes, due 2019, interest of 9.4% at March 31, 2017
5

 
5

Term Loan, due 2017

 
150

Other (b)
(12
)
 
(18
)
Total debt
2,923

 
3,244

Short-term debt
(95
)
 
(170
)
Current portion of long-term debt
(16
)
 
(19
)
Long-term debt (less current portion and debt issuance cost discounts)
$
2,812

 
$
3,055

 
 
 
 
(a)
These debt instruments were issued by Valvoline during 2016 and 2017 in connection with the separation process.
(b)
Other includes $27 million and $29 million of debt issuance cost discounts as of March 31, 2017 and September 30, 2016 , respectively.
The scheduled aggregate maturities of long-term debt by year (including the current portion and excluding debt issuance costs) are as follows:  $8 million remaining in 2017 , $674 million in 2018 , $35 million in 2019 , $30 million in 2020 and $210 million in 2021 .  
Ashland Financing Activities
6.50% junior subordinated notes due 2029
In December 2016, Hercules LLC (Hercules) (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland, repurchased, through a cash tender offer (the Tender Offer), $182 million of the aggregate principal par value amount of its 6.50% junior subordinated notes due 2029 (2029 notes) for an aggregate purchase price of $177 million . As a result of the Tender Offer, the carrying value of the 2029 notes was reduced by $90 million and Ashland recognized a $92 million charge related to accelerated accretion of the recorded debt discount (compared to the total par value) and $5 million of a net gain related to the repayment of the debt. The charge and net gain are included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income for the six months ended March 31, 2017 .
Open market repurchases of 4.750% notes due 2022 and 3.875% notes due 2018
During the six months ended March 31, 2017 , Ashland executed open market repurchases of its 4.750% notes due 2022 (2022 notes) and its 3.875% notes due 2018 (2018 notes). As a result of these repurchases, the carrying values of the 2022 notes and 2018 notes were reduced by $39 million and $41 million , respectively. Ashland recognized a $3 million charge related to premiums paid in the open market repurchases and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income for the six months ended March 31, 2017 .

18

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE H – DEBT (continued)

Subsidiary senior unsecured term loan
During August 2016, a wholly owned foreign subsidiary of Ashland entered into a credit agreement which provided for an aggregate principal amount of $150 million in a senior unsecured term loan facility. This term loan was drawn in full as of September 30, 2016 and was fully repaid during the six months ended March 31, 2017 .
Accounts receivable securitization
During the December 2015 quarter, the Transfer and Administration Agreement was amended to extend the termination date of the accounts receivable securitization facility from December 31, 2015 to March 22, 2017. During the March 2017 quarter, this facility was extended for an additional year with similar terms as the previous facility agreement.  No other changes to the agreement within the current or prior year amendments are expected to have a significant impact to Ashland's results of operations and financial position.
Remaining borrowing capacity
The borrowing capacity remaining under Ashland's 2015 revolving credit facility was $748 million , which is net of $52 million for letters of credit outstanding at March 31, 2017 . Ashland's total borrowing capacity at March 31, 2017 (excluding Valvoline) was $847 million , which included $99 million of available capacity from the accounts receivable securitization facility.
Covenants related to current Ashland debt agreements
Ashland's debt contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations.   As of March 31, 2017 , Ashland is in compliance with all debt agreement covenant restrictions.
The maximum consolidated leverage ratio permitted under Ashland's most recent credit agreement (the 2015 Senior Credit Agreement) during its remaining duration is 3.50 .  At March 31, 2017 , Ashland’s calculation of the consolidated leverage ratio was 3.1 , which is below the maximum consolidated leverage ratio of 3.50 .
The minimum required consolidated interest coverage ratio under the 2015 Senior Credit Agreement during its entire duration is 3.0 .  At March 31, 2017 , Ashland’s calculation of the interest coverage ratio was 4.5 , which exceeds the minimum required consolidated ratio of 3.0 .
Valvoline Financing Activities
Accounts receivable securitization
In November 2016, Valvoline entered into a $125 million accounts receivable securitization facility (the 2017 accounts receivable securitization facility) pursuant to (i) a Sale Agreement, between Valvoline and LEX Capital LLC, a wholly-owned “bankruptcy remote” special purpose subsidiary of Valvoline (Lex) and (ii) a Transfer and Administration Agreement, among Lex, Valvoline, as Master Servicer, a certain Conduit Investor, Uncommitted Investor, and Letter of Credit Issuer, certain Managing Agents, Administrators and Committed Investors, and PNC Bank National Association, as agent for various secured parties (the Agent).
Under the Sale Agreement, Valvoline will sell, on an ongoing basis, substantially all of its accounts receivable, certain related assets and the right to the collections on those accounts receivable to Lex. Under the terms of the Transfer and Administration Agreement, Lex may, from time to time, obtain up to $125 million (in the form of cash or letters of credit for the benefit of Valvoline) from the Conduit Investor, the Uncommitted

19

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE H – DEBT (continued)

Investor and/or the Committed Investors (together the “Investors”) through the sale of an undivided interest in such accounts receivable, related assets and collections. The Transfer and Administration Agreement has a term of one year but is extendable at the discretion of the Investors. Valvoline accounts for the 2017 accounts receivable securitization facility as secured borrowings, and the receivables sold pursuant to the facility are included in Ashland's Condensed Consolidated Balance Sheet as accounts receivable. Valvoline classifies any borrowings under this facility as short-term debt within Ashland's Condensed Consolidated Balance Sheet. 
During the first quarter of 2017, Valvoline borrowed $75 million under the 2017 accounts receivable securitization facility and used the net proceeds to repay an equal amount of the 2016 term loan facility. As a result, Valvoline recognized a $1 million charge related to the accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other financing expense caption of the Statements of Consolidated Comprehensive Income for the six months ended March 31, 2017 .
Remaining borrowing capacity
At March 31, 2017 , the total borrowing capacity remaining under Valvoline's 2016 revolving credit facility was $436 million , which is net of $14 million for letters of credit outstanding. Valvoline's total borrowing capacity at March 31, 2017 was $486 million , which included $50 million of available capacity from the 2017 accounts receivable securitization facility.
Covenants related to current Valvoline debt agreements
The Valvoline Credit Agreement contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as financial covenants (including maintenance of a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio) and other customary limitations.  As of March 31, 2017 , Valvoline Inc. was in compliance with all debt agreement covenant restrictions.
The maximum consolidated leverage ratio permitted under the Valvoline Credit Agreement is 4.5 . At March 31, 2017 , Valvoline’s calculation of the consolidated leverage ratio was 1.4 , which is below the maximum consolidated leverage ratio of 4.5 .
The minimum required consolidated interest coverage ratio under the Valvoline Credit Agreement during its entire duration is 3.0 . At March 31, 2017 , Valvoline’s calculation of the interest coverage ratio was 13.5 , which exceeds the minimum required consolidated ratio of 3.0 .
NOTE I – INCOME TAXES
Current fiscal year
Ashland’s estimated annual effective income tax rate used to determine income tax expense in interim financial reporting for the year ending September 30, 2017 is 24% . Ashland’s effective tax rate in any interim period is subject to adjustments related to discrete items and the mix of domestic and foreign operating results.  The overall effective tax rate was 23% and 18% for the three and six months ended March 31, 2017 , respectively. The current quarter and period tax rate was impacted by net favorable tax discrete items of $4 million primarily related to unrecognized tax benefits due to lapse of the statute of limitations.

20

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE I – INCOME TAXES (continued)

Prior fiscal year
Ashland’s annual effective income tax rate used to determine income tax expense in interim financial reporting for the year ending September 30, 2016 was 25% . The overall effective tax rate was 15% and 16% for the three and six months ended March 31, 2016 , respectively. The prior year quarter and period tax rate was impacted by net favorable tax discrete items of $7 million and $13 million , respectively, primarily related to the law change from the reinstatement of the research and development credit, a favorable tax liquidation resolution and the reversal of unrecognized tax benefits due to lapse of the statute of limitations.
Unrecognized tax benefits
Changes in unrecognized tax benefits are summarized as follows for the six months ended March 31, 2017 .
 (In millions)
 

Balance at October 1, 2016
$
168

Increases related to positions taken on items from prior years
5

Decreases related to positions taken on items from prior years
(2
)
Increases related to positions taken in the current year
7

Lapse of the statute of limitations
(2
)
Settlement of uncertain tax positions with tax authorities
(1
)
Balance at March 31, 2017
$
175

In the next twelve months, Ashland expects a decrease in the amount accrued for uncertain tax positions of up to $1 million for continuing operations and zero for discontinued operations related primarily to audit settlements and statute of limitations expirations in various tax jurisdictions. It is reasonably possible that there could be other material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues or the reassessment of existing uncertain tax positions; however, Ashland is not able to estimate the impact of these items at this time.
NOTE J – EMPLOYEE BENEFIT PLANS
For the six months ended March 31, 2017 , Ashland contributed $7 million to its non-qualified U.S. pension plans, all of which was paid by Valvoline, and $7 million to its non-U.S. pension plans. No contributions were made to Ashland's qualified U.S. pension plans during the six months ended March 31, 2017 . Ashland expects to make additional contributions to the U.S. plans of approximately $7 million , which will primarily be paid by Valvoline, and to the non-U.S. plans of approximately $3 million during the remainder of 2017 .
Plan Transfers
During September 2016, Ashland transferred a substantial portion of the largest U.S. qualified pension and non-qualified U.S. pension plans as well as certain other postretirement obligations to Valvoline Inc. as part of the separation process discussed further in Note B.
Plan Amendments and Remeasurements
Effective January 1, 2017, Ashland discontinued certain post-employment health and life insurance benefits. The effect of these plan changes resulted in a remeasurement gain of $10 million , $4 million within cost of sales and $6 million within selling, general and administrative expense, in the Statements of Consolidated Comprehensive Income for the six months ended March 31, 2017 .

21

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE J – EMPLOYEE BENEFIT PLANS (continued)

During March 2016, Ashland announced plans to amend the majority of its U.S. pension plans, with the exception of certain union plans, to freeze the accrual of pension benefits for participants. The freezing of pension benefits was effective September 30, 2016. Additionally, Ashland announced plans to reduce retiree life and medical benefits effective October 1, 2016 and January 1, 2017, respectively. The net effect of the these remeasurements resulted in a loss of $23 million within the Statements of Consolidated Comprehensive Income for the three and six months ended March 31, 2016. The following details the components of the remeasurement impact:
As a result of the remeasurement of the affected U.S. pension plans, Ashland recognized a curtailment gain of $65 million and actuarial loss of $123 million during the three and six months ended March 31, 2016.
As a result of the remeasurement of other postretirement benefit plans, Ashland recognized a curtailment gain of $39 million and actuarial loss of $7 million during the three and six months ended March 31, 2016. This remeasurement reduced the benefit obligations by $86 million , which will be amortized to income in future periods.
Ashland was also required to remeasure a non-U.S. pension plan during the prior year quarter and as a result recognized a curtailment gain of $6 million and actuarial loss of $3 million during the three and six months ended March 31, 2016.
Components of net periodic benefit costs (income)
For segment reporting purposes, service cost for continuing operations is proportionately allocated to each segment, excluding the Unallocated and other segment, while all other costs for continuing operations are recorded within the Unallocated and other segment.
The following table details the components of pension and other postretirement benefit costs.
 
 
 
 
 
Other postretirement
 
Pension benefits
 
benefits
(In millions)
2017

 
2016

 
2017

 
2016

Three months ended March 31
 
 
 
 
 
 
 
Service cost (a)
$
2

 
$
6

 
$

 
$

Interest cost
24

 
31

 
1

 
1

Expected return on plan assets
(39
)
 
(48
)
 

 

Amortization of prior service credit (a)

 

 
(3
)
 
(4
)
Curtailment gain

 
(71
)
 

 
(39
)
Actuarial loss

 
126

 

 
7

 
$
(13
)
 
$
44

 
$
(2
)
 
$
(35
)
 
 
 
 
 
 
 
 
Six months ended March 31
 

 
 

 
 

 
 

Service cost (a)
$
5

 
$
13

 
$

 
$

Interest cost
47

 
62

 
2

 
3

Expected return on plan assets
(78
)
 
(96
)
 

 

Amortization of prior service credit (a)

 
(1
)
 
(6
)
 
(8
)
Curtailment gain

 
(71
)
 

 
(39
)
Actuarial (gain) loss

 
126

 
(10
)
 
7

 
$
(26
)
 
$
33

 
$
(14
)
 
$
(37
)
 
 
 
 
 
 
 
 
(a)
Activity of $0 denote values less than $1 million.

22

 
 
 
 
 
 
ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
NOTE K –   LITIGATION, CLAIMS AND CONTINGENCIES

Asbestos litigation
Ashland and Hercules have liabilities from claims alleging personal injury caused by exposure to asbestos.  To assist in developing and annually updating independent reserve estimates for future asbestos claims and related costs given various assumptions, Ashland retained Hamilton, Rabinovitz & Associates, Inc. (HR&A).  The methodology used by HR&A to project future asbestos costs is based largely on recent experience, including claim-filing and settlement rates, disease mix, enacted legislation, open claims and litigation defense.  The claim experience of Ashland and Hercules are separately compared to the results of previously conducted third party epidemiological studies estimating the number of people likely to develop asbestos-related diseases.  Those studies were undertaken in connection with national analyses of the population expected to have been exposed to asbestos.  Using that information, HR&A estimates a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims.  Changes in asbestos-related liabilities and receivables are recorded on an after-tax basis within the discontinued operations caption in the Statements of Consolidated Comprehensive Income.
Ashland asbestos-related litigation
The claims alleging personal injury caused by exposure to asbestos asserted against Ashland result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation, a former subsidiary.  The amount and timing of settlements and number of open claims can fluctuate from period to period.  A summary of Ashland asbestos claims activity, excluding Hercules claims, follows.
 
Six months ended
 
 
 
 
 
 
 
March 31
 
  Years ended September 30
(In thousands)
2017

 
2016

 
2016

 
2015

 
2014

Open claims - beginning of period
57

 
60

 
60

 
65

 
65

New claims filed
1

 
1

 
2

 
2

 
2

Claims settled

 

 

 

 
(1
)
Claims dismissed
(2
)
 
(3
)
 
(5
)
 
(7
)
 
(1
)
Open claims - end of period
56

 
58

 
57

 
60

 
65

Ashland asbestos-related liability
From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results.  Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of HR&A.  
During the most recent annual update of this estimate completed during the June 2016 quarter, it was determined that the liability for Ashland asbestos-related claims should be increased by $37 million .  Total reserves for asbestos claims were $397 million at March 31, 2017 compared to