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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number 333-211719

ASHLAND GLOBAL HOLDINGS INC.

(a Delaware corporation)

I.R.S. No. 81-2587835

 

8145 Blazer Drive

Wilmington, Delaware 19808

Telephone Number (302) 995-3000

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $.01 per share

ASH

New York Stock Exchange

 

Securities Registered Pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).   Yes  No 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large Accelerated Filer

 

 

Accelerated Filer

 

Non-Accelerated Filer

 

 

Smaller Reporting Company

 

 

 

Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No 

At December 31, 2019, there were 60,247,475 shares of Registrant’s Common Stock outstanding.

 

 

 

 


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

 

 

 

Three months ended

 

 

 

December 31

 

(In millions except per share data - unaudited)

 

2019

 

 

2018

 

Sales

 

$

533

 

 

$

576

 

Cost of sales

 

 

380

 

 

 

424

 

Gross profit

 

 

153

 

 

 

152

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

 

120

 

 

 

143

 

Research and development expense

 

 

16

 

 

 

17

 

Equity and other income

 

 

 

 

 

1

 

Operating income (loss)

 

 

17

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Net interest and other expense

 

 

10

 

 

 

55

 

Other net periodic benefit income

 

 

 

 

 

18

 

Net income (loss) on divestitures

 

 

3

 

 

 

(3

)

Income (loss) from continuing operations before income taxes

 

 

10

 

 

 

(47

)

Income tax expense (benefit)

 

 

(24

)

 

 

24

 

Income (loss) from continuing operations

 

 

34

 

 

 

(71

)

Income (loss) from discontinued operations (net of income taxes)

 

 

(2

)

 

 

23

 

Net income (loss)

 

$

32

 

 

$

(48

)

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

Basic earnings per share - Note M

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

0.57

 

 

$

(1.14

)

Income (loss) from discontinued operations

 

 

(0.03

)

 

 

0.38

 

Net income (loss)

 

$

0.54

 

 

$

(0.76

)

 

 

 

 

 

 

 

 

 

Diluted earnings per share - Note M

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

0.56

 

 

$

(1.14

)

Income (loss) from discontinued operations

 

 

(0.03

)

 

 

0.38

 

Net income (loss)

 

$

0.53

 

 

$

(0.76

)

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

Net income (loss)

 

$

32

 

 

$

(48

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Unrealized translation gain (loss)

 

 

38

 

 

 

(31

)

Pension and postretirement obligation adjustment

 

 

 

 

 

(6

)

Other comprehensive income (loss)

 

 

38

 

 

 

(37

)

Comprehensive income (loss)

 

$

70

 

 

$

(85

)

 

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

2


 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In millions - unaudited)

 

December 31

2019

 

 

September 30

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

157

 

 

$

232

 

Accounts receivable (a)

 

 

441

 

 

 

481

 

Inventories - Note F

 

 

633

 

 

 

597

 

Other assets

 

 

53

 

 

 

64

 

Current assets held for sale - Note B

 

 

60

 

 

 

59

 

Total current assets

 

 

1,344

 

 

 

1,433

 

Noncurrent assets

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

 

Cost

 

 

3,155

 

 

 

3,165

 

Accumulated depreciation

 

 

1,580

 

 

 

1,588

 

Net property, plant and equipment

 

 

1,575

 

 

 

1,577

 

Goodwill - Note G

 

 

2,274

 

 

 

2,253

 

Intangibles - Note G

 

 

1,072

 

 

 

1,088

 

Operating lease assets, net - Note I

 

 

157

 

 

 

 

Restricted investments - Note E

 

 

314

 

 

 

310

 

Asbestos insurance receivable - Note L

 

 

156

 

 

 

157

 

Deferred income taxes

 

 

23

 

 

 

23

 

Other assets

 

 

411

 

 

 

410

 

Total noncurrent assets

 

 

5,982

 

 

 

5,818

 

Total assets

 

$

7,326

 

 

$

7,251

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Short-term debt - Note H

 

$

179

 

 

$

166

 

Trade and other payables

 

 

234

 

 

 

313

 

Accrued expenses and other liabilities

 

 

245

 

 

 

271

 

Current operating lease obligations - Note I

 

 

24

 

 

 

 

Current liabilities held for sale - Note B

 

 

6

 

 

 

7

 

Total current liabilities

 

 

688

 

 

 

757

 

Noncurrent liabilities

 

 

 

 

 

 

 

 

Long-term debt - Note H

 

 

1,502

 

 

 

1,501

 

Asbestos litigation reserve - Note L

 

 

540

 

 

 

555

 

Deferred income taxes

 

 

250

 

 

 

264

 

Employee benefit obligations - Note K

 

 

152

 

 

 

150

 

Operating lease obligations - Note I

 

 

143

 

 

 

 

Other liabilities

 

 

426

 

 

 

453

 

Total noncurrent liabilities

 

 

3,013

 

 

 

2,923

 

Commitments and contingencies - Note L

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

3,625

 

 

 

3,571

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

7,326

 

 

$

7,251

 

 

 

 

 

 

 

 

 

 

 

(a)

Accounts receivable includes an allowance for doubtful accounts of $3 million at both December 31, 2019 and September 30, 2019.

 

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

3


 

 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CONSOLIDATED EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

(In millions - unaudited)

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

(a)

Total

 

BALANCE AT SEPTEMBER 30, 2019

 

$

1

 

 

$

756

 

 

$

3,224

 

 

$

(410

)

 

$

3,571

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

32

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38

 

 

 

38

 

Regular dividends, $0.275 per common share

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

 

(17

)

Common shares issued under stock incentive and other plans (b)

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

1

 

BALANCE AT DECEMBER 31, 2019

 

$

1

 

 

$

757

 

 

$

3,239

 

 

$

(372

)

 

$

3,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

At December 31, 2019 and September 30, 2019, the after-tax accumulated other comprehensive loss of $372 million and $410 million, respectively, was each comprised of net unrealized translation losses of $370 million and $408 million, respectively, and unrecognized prior service costs of $2 million each.

(b)

Common shares issued were 70,461 for the three months ended December 31, 2019.

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

4


 

 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS

 

 

 

Three months ended

 

 

 

December 31

 

(In millions - unaudited)

 

2019

 

 

2018

 

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

Net income (loss)

 

$

32

 

 

$

(48

)

Income (loss) from discontinued operations (net of income taxes)

 

 

2

 

 

 

(23

)

Adjustments to reconcile income from continuing operations to

 

 

 

 

 

 

 

 

cash flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

61

 

 

 

81

 

Original issue discount and debt issuance costs amortization

 

 

2

 

 

 

2

 

Deferred income taxes

 

 

(12

)

 

 

3

 

Stock based compensation expense

 

 

4

 

 

 

7

 

(Income) loss from restricted investments

 

 

(13

)

 

 

28

 

Excess tax benefit on stock based compensation

 

 

 

 

 

1

 

Net (income) loss on divestitures

 

 

 

 

 

3

 

Pension contributions

 

 

(1

)

 

 

(1

)

Gain on pension and other postretirement plan remeasurements

 

 

 

 

 

(18

)

Change in operating assets and liabilities (a)

 

 

(109

)

 

 

(44

)

Total cash flows used by operating activities from continuing operations

 

 

(34

)

 

 

(9

)

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(29

)

 

 

(33

)

Proceeds from disposal of property, plant and equipment

 

 

 

 

 

4

 

Net purchase of funds restricted for specific transactions

 

 

(1

)

 

 

(2

)

Reimbursement from restricted investments

 

 

10

 

 

 

8

 

Proceeds from sales of securities

 

 

4

 

 

 

 

Purchase of securities

 

 

(4

)

 

 

 

Proceeds from the settlement of derivative instruments

 

 

 

 

 

1

 

Payments for the settlement of derivative instruments

 

 

 

 

 

(2

)

Total cash flows used by investing activities from continuing operations

 

 

(20

)

 

 

(24

)

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

Repayment of long-term debt

 

 

 

 

 

(1

)

Proceeds from (repayment of) short-term debt

 

 

14

 

 

 

(26

)

Cash dividends paid

 

 

(16

)

 

 

(16

)

Stock based compensation employee withholding taxes paid in cash

 

 

(5

)

 

 

(7

)

Total cash flows used by financing activities from continuing operations

 

 

(7

)

 

 

(50

)

CASH PROVIDED (USED) BY CONTINUING OPERATIONS

 

 

(61

)

 

 

(83

)

Cash provided (used) by discontinued operations

 

 

 

 

 

 

 

 

Operating cash flows

 

 

(17

)

 

 

(58

)

Investing cash flows

 

 

2

 

 

 

(2

)

Total cash used by discontinued operations

 

 

(15

)

 

 

(60

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

1

 

 

 

(2

)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(75

)

 

 

(145

)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

 

232

 

 

 

294

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$

157

 

 

$

149

 

 

 

 

 

 

 

 

 

 

 

(a)

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

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

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and Securities and Exchange Commission (SEC) regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Additionally, certain prior period data, primarily related to discontinued operations, have been reclassified in the Consolidated Financial Statements and accompanying notes to conform to the current period presentation, as further described in this section. These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with Ashland Global Holdings Inc. and consolidated subsidiaries (Ashland) Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Results of operations for the period ended December 31, 2019 are not necessarily indicative of the expected results for the remaining quarters in the fiscal year.

On August 30, 2019, Ashland completed the sale of its Composites business (excluding Ashland’s maleic anhydride business (Maleic business)) and its butanediol facility in Marl, Germany (Marl facility). This disposal group represented a strategic shift in Ashland’s business and in accordance with U.S. GAAP, qualified as a discontinued operation. Accordingly, Composites (including the Maleic business) and the Marl facility assets, liabilities, operating results and cash flows for all periods presented have been classified as discontinued operations within the Consolidated Financial Statements. See Notes B and C for additional information on this divestiture.

As a result of classifying the Composites reporting segment as a discontinued operation, Ashland is now comprised of two reportable segments: Specialty Ingredients and Intermediates and Solvents. The financial information reported for Intermediates and Solvents excludes the activity from the Marl facility due to the divestiture.

Use of estimates, risks and uncertainties

The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes and liabilities and receivables associated with asbestos litigation and environmental remediation. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.

Ashland’s results are affected by domestic and international economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations. While Ashland maintains reserves for anticipated liabilities and carries various levels of insurance, Ashland could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to asbestos, environmental remediation or other matters.

New accounting pronouncements

A description of new U.S. GAAP accounting standards issued or adopted during the current year is required in interim financial reporting. A detailed listing of new accounting standards relevant to Ashland is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2019. The following standards relevant to Ashland were either issued or adopted in the current period or will become effective in a subsequent period.  

 

6


 

Leases

Effective October 1, 2019, Ashland adopted new accounting guidance related to lease transactions.  The adoption of the new lease guidance resulted in the recognition of right-of-use assets and operating lease liabilities of $174 million as of October 1, 2019. The adoption did not have a material impact on Ashland’s results of operations, cash flows or debt covenants. Results for reporting periods beginning after October 1, 2019 are presented under the new accounting guidance for leases, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting treatment. Ashland elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification.

Ashland determines if an arrangement contains a lease at inception. Ashland recognizes right-of-use assets and liabilities associated with leases based on the present value of the future minimum lease payments over the lease term at the later of the commencement date of the lease or the October 1, 2019 implementation date. Ashland uses its incremental borrowing rate at the recognition date in determining the present value of future payments for leases that do not have a readily determinable implicit rate. Lease terms reflect options to extend or terminate the lease when it is reasonably certain that the option will be exercised. For leases that include residual value guarantees or payments for terminating the lease, Ashland includes these costs in the lease liability when it is probable that we will incur them. Right-of-use assets and obligations for short-term leases (leases with an initial term of 12 months or less) are not recognized in the condensed consolidated balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. When contracts contain lease and non-lease components, the Company generally accounted for both components as a single lease component.

For additional information, see Note I.

Other accounting pronouncements

In February 2018, the FASB issued guidance which permits entities to reclassify tax effects stranded in accumulated other comprehensive income (AOCI) as a result of U.S. tax reform legislation to retained earnings. Additionally, this guidance requires entities to disclose whether they made an election to reclassify the tax effects and to disclose their accounting policy for releasing income tax effects from AOCI. This guidance became effective for Ashland on October 1, 2019. Ashland did not elect to reclassify the disproportionate amount in AOCI to retained earnings. Ashland estimated the impact of this guidance to be approximately $3 million. Ashland’s accounting policy for releasing income tax effects from AOCI is under the individual units of account method for items sold, terminated or extinguished from AOCI.

In August 2017, the FASB issued accounting guidance amending the existing hedge accounting model to simplify various hedge documentation requirements while also expanding hedging abilities for certain nonfinancial and financial risk components. This guidance became effective for Ashland on October 1, 2019 and had no impact on the Consolidated Financial Statements.

In June 2016, the FASB issued amended accounting guidance related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will become effective for Ashland on October 1, 2020. Ashland is in the process of evaluating the effect this amended accounting guidance will have on our consolidated financial position and results of operations; however, we do not expect the amended accounting guidance to have a material impact to Ashland’s Consolidated Financial Statements.

 

NOTE B – DIVESTITURES

Composites and Marl facility

On November 15, 2018, Ashland announced that it had signed a definitive agreement to sell its Composites segment and Intermediates and Solvents Marl facility to INEOS Enterprises in a transaction valued at $1.1 billion. Ashland retained the remaining Intermediates and Solvents facility in Lima, Ohio primarily for its own internal business use.

7


 

In late July of 2019, Ashland and INEOS agreed to certain additional changes to the sale agreement. As part of the proposed changes, the purchase price was adjusted to $1.015 billion while Ashland retained the right to the Maleic business, including the retention of any subsequent sale proceeds.

On August 30, 2019 Ashland completed the sale of its Composites business (excluding the Maleic business) and butanediol manufacturing facility in Marl, Germany to INEOS.

Since this disposal group signifies a strategic shift in Ashland’s business and had a major effect on Ashland’s operations and financial results, the operating results and cash flows related to Composites and the Marl facility, including the Maleic business, have been reflected as discontinued operations in the Statements of Consolidated Comprehensive Income (Loss) and Statements of Condensed Consolidated Cash Flows. See Note C of the Notes to Condensed Consolidated Financial Statements for the results of operations for Composites and the Marl facility, including the Maleic business, for all periods presented.

Certain indirect corporate costs included within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss) that were previously allocated to the Composites segment and Marl facility do not qualify for classification within discontinued operations and are now reported as selling, general and administrative expense within continuing operations on a consolidated basis and within the Unallocated and other segment. These costs were zero and $12 million during the three months ended December 31, 2019 and 2018, respectively.

Subsequent to the completion of the sale, Ashland is providing certain transition services to INEOS for a fee. While the transition services are expected to vary in duration depending upon the type of service provided, Ashland expects to reduce costs as the transition services are completed. Ashland recognized transition service fee income of $3 million during the three month period ending December 31, 2019.

 

Held for sale classification

The assets and liabilities of the Maleic business, along with other planned corporate asset divestitures as of December 31, 2019 and September 30, 2019 have been reflected as assets and liabilities held for sale. As a result, in accordance with U.S. GAAP standards, depreciation and amortization were not being recorded within the Statements of Consolidated Comprehensive Income (Loss) and the Condensed Consolidated Balance Sheets. These assets and liabilities are comprised of the following components:

 

 

 

December 31

 

 

September 30

 

(In millions)

 

2019

 

 

2019

 

Accounts receivable, net

 

$

4

 

 

$

5

 

Inventories

 

 

3

 

 

 

3

 

Net property, plant and equipment

 

 

34

 

 

 

34

 

Goodwill

 

 

14

 

 

 

14

 

Other assets

 

 

5

 

 

 

3

 

Current assets held for sale

 

$

60

 

 

$

59

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

$

5

 

 

$

6

 

Accrued expenses and other liabilities

 

 

1

 

 

 

1

 

Current liabilities held for sale

 

$

6

 

 

$

7

 

 

 

NOTE C– DISCONTINUED OPERATIONS

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

8


 

As previously described in Note B, Ashland has completed the previously announced sale of its Composites business (excluding the Maleic business) and butanediol manufacturing facility in Marl, Germany to INEOS. Ashland determined that this disposal group qualified as a discontinued operation, in accordance with U.S. GAAP, since it represents a strategic shift for Ashland and had a major effect on Ashland's operations and financial results. Accordingly, the operating results and cash flows for Composites business (including the Maleic business) and the Marl facility have been classified as discontinued operations within the Condensed Consolidated Financial Statements for all periods presented.

Components of amounts reflected in the Statements of Consolidated Comprehensive Income (Loss) related to discontinued operations are presented in the following table for the three months ended December 31, 2019 and 2018.

 

 

 

Three months ended

 

 

 

December 31

 

(In millions)

 

2019

 

 

2018

 

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

 

 

 

 

 

 

 

 

Composites/Marl facility

 

$

 

 

$

25

 

Valvoline

 

 

(1

)

 

 

 

Water Technologies

 

 

(1

)

 

 

(1

)

Distribution

 

 

 

 

 

(1

)

 

 

$

(2

)

 

$

23

 

 

The following table presents a reconciliation of the captions within Ashland's Statements of Consolidated Comprehensive Income (Loss) for the income (loss) from discontinued operations attributable to Composites and the Marl facility for the three months ended December 31, 2019 and 2018. Interest expense was allocated to discontinued operations based on Ashland’s mandatory debt prepayments upon the disposition of Composites and the Marl facility for applicable periods only. Although the Maleic business was not sold to INEOS, this business was operated under the Composites business and Marl facility disposal group and will continue to be reported in discontinued operations.

 

 

 

Three months ended

 

 

 

December 31

 

(In millions)

 

2019

 

 

2018

 

Income (loss) from discontinued operations attributable

 

 

 

 

 

 

 

 

to Composites/Marl facility

 

 

 

 

 

 

 

 

Sales

 

$

12

 

 

$

275

 

Cost of sales

 

 

(10

)

 

 

(217

)

Selling, general and administrative expense

 

 

(2

)

 

 

(22

)

Research and development expense

 

 

 

 

 

(3

)

Equity and other income

 

 

2

 

 

 

3

 

Pretax operating income of discontinued operations

 

 

2

 

 

 

36

 

Net interest and other financing expense

 

 

 

 

 

(6

)

Pretax income of discontinued operations

 

 

2

 

 

 

30

 

Income tax expense

 

 

(2

)

 

 

(5

)

Income from discontinued operations

 

$

 

 

$

25

 

 

 

NOTE D – RESTRUCTURING ACTIVITIES

 

Company-wide restructuring activities

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

9


 

Severance costs

During fiscal 2018, Ashland initiated a company-wide cost reduction program as a result of ongoing strategic asset plans and activities. As part of this restructuring program, Ashland announced a voluntary severance offer (VSO) to certain qualifying employees that was formally approved during 2018. Additionally, during fiscal 2018, an involuntary program for employees was also initiated as part of the restructuring program. During the three months ended December 31, 2019 and 2018, these programs resulted in additional severance expense of $1 million and $4 million, respectively, which was primarily recorded within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss). As of December 31, 2019, the severance reserve for the company-wide restructuring program was $5 million.

Facility costs

Ashland incurred zero and $7 million of lease abandonment charges during the three months ended December 31, 2019 and 2018, respectively, due to the exit from certain office facilities in conjunction with the company-wide cost reduction program. The costs related to this reserve were recorded within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss) and are paid over the remaining lease terms.  As of December 31, 2019, the reserve for facility costs was $6 million.

The following table details at December 31, 2019, the amount of restructuring reserves related to the programs discussed above, and the related activity in these reserves during the three months ended December 31, 2019. The severance and facility cost reserves were primarily recorded within accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet as of December 31, 2019 and December 31, 2018.

 

(In millions)

Severance costs

 

 

Facility costs

 

 

Total

 

Balance at of September 30, 2019

 

7

 

 

 

7

 

 

 

14

 

Restructuring reserve

 

1

 

 

 

 

 

 

1

 

Utilization (cash paid)

 

(3

)

 

 

(1

)

 

 

(4

)

Balance at December 31, 2019

$

5

 

 

$

6

 

 

 

11

 

 

(In millions)

Severance costs

 

 

Facility costs

 

 

Total

 

Balance at of September 30, 2018

 

36

 

 

 

7

 

 

 

43

 

Restructuring reserve

 

4

 

 

 

7

 

 

 

11

 

Utilization (cash paid)

 

(8

)

 

 

(3

)

 

 

(11

)

Balance at December 31, 2018

$

32

 

 

$

11