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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, 2020

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, 2020, there were 60,667,388 shares of Registrant’s Common Stock outstanding.

 

 

 

 


 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

 

 

 

Three months ended

 

 

 

December 31

 

(In millions except per share data - unaudited)

 

2020

 

 

2019

 

Sales

 

$

552

 

 

$

533

 

Cost of sales

 

 

374

 

 

 

380

 

Gross profit

 

 

178

 

 

 

153

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

 

106

 

 

 

99

 

Research and development expense

 

 

15

 

 

 

16

 

Intangibles amortization expense

 

 

21

 

 

 

21

 

Equity and other income

 

 

5

 

 

 

 

Operating income

 

 

41

 

 

 

17

 

 

 

 

 

 

 

 

 

 

Net interest and other expense (income)

 

 

(6

)

 

 

10

 

Net income on divestitures

 

 

14

 

 

 

3

 

Income from continuing operations before income taxes

 

 

61

 

 

 

10

 

Income tax expense (benefit)

 

 

 

 

 

(24

)

Income from continuing operations

 

 

61

 

 

 

34

 

Loss from discontinued operations (net of income taxes)

 

 

(5

)

 

 

(2

)

Net income

 

$

56

 

 

$

32

 

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

Basic earnings per share - Note M

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.00

 

 

$

0.57

 

Income (loss) from discontinued operations

 

 

(0.08

)

 

 

(0.03

)

Net income

 

$

0.92

 

 

$

0.54

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share - Note M

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.99

 

 

$

0.56

 

Income (loss) from discontinued operations

 

 

(0.08

)

 

 

(0.03

)

Net income

 

$

0.91

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

Net income

 

$

56

 

 

$

32

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

Unrealized translation gain

 

 

48

 

 

 

38

 

Other comprehensive income

 

 

48

 

 

 

38

 

Comprehensive income

 

$

104

 

 

$

70

 

 

 

 

 

 

 

 

 

 

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

2


 

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In millions - unaudited)

 

December 31

2020

 

 

September 30

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

335

 

 

$

454

 

Accounts receivable (a)

 

 

409

 

 

 

471

 

Inventories - Note F

 

 

537

 

 

 

529

 

Other assets

 

 

100

 

 

 

87

 

Current assets held for sale - Note B

 

 

 

 

 

6

 

Total current assets

 

 

1,381

 

 

 

1,547

 

Noncurrent assets

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

 

Cost

 

 

3,310

 

 

 

3,265

 

Accumulated depreciation

 

 

1,748

 

 

 

1,700

 

Net property, plant and equipment

 

 

1,562

 

 

 

1,565

 

Goodwill - Note G

 

 

1,792

 

 

 

1,758

 

Intangibles - Note G

 

 

1,001

 

 

 

1,013

 

Operating lease assets, net - Note I

 

 

137

 

 

 

137

 

Restricted investments - Note E

 

 

316

 

 

 

301

 

Asbestos insurance receivable (b) - Note L

 

 

130

 

 

 

136

 

Deferred income taxes

 

 

26

 

 

 

26

 

Other assets

 

 

397

 

 

 

394

 

Total noncurrent assets

 

 

5,361

 

 

 

5,330

 

Total assets

 

$

6,742

 

 

$

6,877

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Short-term debt - Note H

 

$

93

 

 

$

280

 

Trade and other payables

 

 

217

 

 

 

233

 

Accrued expenses and other liabilities

 

 

252

 

 

 

277

 

Current operating lease obligations - Note I

 

 

23

 

 

 

23

 

Total current liabilities

 

 

585

 

 

 

813

 

Noncurrent liabilities

 

 

 

 

 

 

 

 

Long-term debt - Note H

 

 

1,601

 

 

 

1,573

 

Asbestos litigation reserve - Note L

 

 

498

 

 

 

513

 

Deferred income taxes

 

 

222

 

 

 

229

 

Employee benefit obligations - Note K

 

 

157

 

 

 

157

 

Operating lease obligations - Note I

 

 

124

 

 

 

124

 

Other liabilities

 

 

433

 

 

 

432

 

Total noncurrent liabilities

 

 

3,035

 

 

 

3,028

 

Commitments and contingencies - Note L

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

3,122

 

 

 

3,036

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

6,742

 

 

$

6,877

 

 

 

 

 

 

 

 

 

 

 

(a)

Accounts receivable includes an allowance for credit losses of $3 million at both December 31, 2020 and September 30, 2020.

 

(b)

Asbestos insurance receivable includes an allowance for credit losses of $3 million at December 31, 2020.

 

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, 2020

 

$

1

 

 

$

769

 

 

$

2,649

 

 

$

(383

)

 

$

3,036

 

Adoption of new accounting pronouncement (b)

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

(2

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

56

 

 

 

 

 

 

 

56

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

Regular dividends, $0.275 per common share

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

 

(17

)

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

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

1

 

BALANCE AT DECEMBER 31, 2020

 

$

1

 

 

$

770

 

 

$

2,686

 

 

$

(335

)

 

$

3,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

At December 31, 2020 and September 30, 2020, the after-tax accumulated other comprehensive loss of $335 million and $383 million, respectively, was each comprised of net unrealized translation losses of $333 million and $381 million, respectively, and unrecognized prior service costs as a result of certain employee benefit plan amendments of $2 million, each.

(b)

Represents the cumulative-effect adjustment, net of tax, for the adoption of the new accounting pronouncement related to the measurement of credit losses on financial instruments. 

(c)

Common shares issued were 99,194 for the three months ended December 31, 2020

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)

 

2020

 

 

2019

 

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM

   CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

Net income

 

$

56

 

 

$

32

 

Loss from discontinued operations (net of income taxes)

 

 

5

 

 

 

2

 

Adjustments to reconcile income from continuing operations to

 

 

 

 

 

 

 

 

cash flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

62

 

 

 

61

 

Original issue discount and debt issuance costs amortization

 

 

1

 

 

 

2

 

Deferred income taxes

 

 

(5

)

 

 

(12

)

Gain from sales of property and equipment

 

 

(4

)

 

 

 

Stock based compensation expense

 

 

4

 

 

 

4

 

Income from restricted investments

 

 

(23

)

 

 

(13

)

Net income on divestitures

 

 

(14

)

 

 

 

Impairments

 

 

9

 

 

 

 

Pension contributions

 

 

(2

)

 

 

(1

)

Change in operating assets and liabilities (a)

 

 

17

 

 

 

(109

)

Total cash flows provided (used) by operating activities from continuing operations

 

 

106

 

 

 

(34

)

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM

   CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(30

)

 

 

(29

)

Proceeds from disposal of property, plant and equipment

 

 

5

 

 

 

 

Proceeds from sale or restructuring of operations

 

 

14

 

 

 

 

Net purchase of funds restricted for specific transactions

 

 

(1

)

 

 

(1

)

Reimbursement from restricted investments

 

 

8

 

 

 

10

 

Proceeds from sales of securities

 

 

42

 

 

 

4

 

Purchase of securities

 

 

(42

)

 

 

(4

)

Total cash flows used by investing activities from continuing operations

 

 

(4

)

 

 

(20

)

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM

   CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

Proceeds from (repayment of) short-term debt

 

 

(187

)

 

 

14

 

Cash dividends paid

 

 

(17

)

 

 

(16

)

Stock based compensation employee withholding taxes paid in cash

 

 

(3

)

 

 

(5

)

Total cash flows used by financing activities from continuing operations

 

 

(207

)

 

 

(7

)

CASH PROVIDED (USED) BY CONTINUING OPERATIONS

 

 

(105

)

 

 

(61

)

Cash provided (used) by discontinued operations

 

 

 

 

 

 

 

 

Operating cash flows

 

 

(14

)

 

 

(17

)

Investing cash flows

 

 

(3

)

 

 

2

 

Total cash provided (used) by discontinued operations

 

 

(17

)

 

 

(15

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

3

 

 

 

1

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(119

)

 

 

(75

)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

 

454

 

 

 

232

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$

335

 

 

$

157

 

 

 

 

 

 

 

 

 

 

(a)

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. 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, 2020. Results of operations for the period ended December 31, 2020 are not necessarily indicative of the expected results for the remaining quarters in the fiscal year. All amounts are presented in millions except per-share amounts.

Ashland’s reportable segments include the consumer specialty businesses: Life Sciences and Personal Care & Household; the industrial specialty businesses: Specialty Additives and Performance Adhesives; and Intermediates and Solvents. Unallocated and Other includes corporate governance activities and certain legacy matters.  For additional information, see Note Q.

 

Use of estimates, risks and uncertainties

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

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

New accounting pronouncements

A description of new U.S. GAAP accounting standards issued or adopted during the current year is required in interim financial reporting. A detailed listing of new accounting standards relevant to Ashland is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The following standards relevant to Ashland were either issued or adopted in the current fiscal year or will become effective in a subsequent period.  

6


 

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. This guidance became effective for Ashland on October 1, 2020. As a result, Ashland recorded a $3 million increase in its allowance for credit losses, primarily related to asbestos receivables, and a $2 million decrease to retained earnings, net of tax, reflecting the cumulative effect on retained earnings.

Under the new expected credit loss model, Ashland records an allowance for credit losses inherent in its receivables from revenue transactions and reinsurance recoverables. The allowance for credit losses is a valuation account deducted from the amortized cost basis of the assets to present their net carrying value at the amount expected to be collected. Ashland estimates expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. When measuring expected credit losses, Ashland pools assets with similar country risk and credit risk characteristics. Each period the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets. For the three months ending December 31, 2020, no significant credit losses were incurred within the Statements of Consolidated Comprehensive Income (Loss).  

 

NOTE B – DIVESTITURES

Composites and Marl facility

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

On September 30, 2020, Ashland completed the sale of its Maleic business to AOC.  Net proceeds from the sale were approximately $98 million.

Since this disposal group signifies a strategic shift in Ashland’s business and had a major effect of 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.

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 certain costs as the transition services are completed. Ashland recognized transition service fee income of $3 million during the three months ended December 31, 2020 and 2019.

Other manufacturing facility sales

During the three months ended December 31, 2020, Ashland completed the sale of a Specialty Additives facility, the assets and liabilities of which were classified as held for sale as of September 30, 2020.  Net proceeds from the sale were approximately $14 million in the current quarter ($20 million in total including a deposit received in fiscal year 2020) and the Company recognized a pre-tax gain of $14 million recorded within the Net income on divestitures caption in the Statements of Consolidated Comprehensive Income (Loss).

NOTE C– DISCONTINUED OPERATIONS

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

Components of amounts reflected in the Statements of Consolidated Comprehensive Income (Loss) related to discontinued operations are presented in the following table for the three months ended December 31, 2020 and 2019.

7


 

 

 

Three months ended

 

 

 

December 31

 

(In millions)

 

2020

 

 

2019

 

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

 

 

 

 

 

 

 

 

Composites/Marl facility

 

$

 

 

$

 

Valvoline

 

 

 

 

 

(1

)

Water Technologies

 

 

 

 

 

(1

)

Distribution

 

 

(1

)

 

 

 

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

   taxes)

 

 

 

 

 

 

 

 

Composites/Marl facility

 

 

(4

)

 

 

 

 

 

$

(5

)

 

$

(2

)

 

 

 

 

 

 

 

 

 

 

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. The Maleic business, which was sold during fiscal 2020 to AOC, was operated under the Composites business and Marl facility disposal group and is therefore reported in discontinued operations.

 

 

Three months ended

 

 

 

December 31

 

(In millions)

 

2019

 

Income (loss) from discontinued operations attributable

   to Composites/Marl facility

 

 

 

 

Sales

 

$

12

 

Cost of sales

 

 

(10

)

Selling, general and administrative expense

 

 

(2

)

Equity and other income

 

 

2

 

Pretax income of discontinued operations

 

 

2

 

Income tax expense

 

 

(2

)

Income from discontinued operations

 

$

 

 

 

NOTE D – RESTRUCTURING ACTIVITIES

 

Company-wide restructuring activities

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

Fiscal 2020 and 2021 restructuring costs

During the three months ended December 31, 2020 and 2019, Ashland incurred severance expense of $8 million and $3 million, respectively, attributable to executive management changes and business management changes within the organization. As of December 31, 2020, the severance reserve associated with this transition was $36 million.

The following table details at December 31, 2020 and 2019, the amount of restructuring severance reserves related to this program. The severance reserves were primarily recorded within accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet as of December 31, 2020 and December 31, 2019.

 

(In millions)

Severance costs

 

Balance at of September 30, 2020

 

39

 

Restructuring reserve

 

8

 

Utilization (cash paid)

 

(11

)

Balance at December 31, 2020

$

36

 

 

8


 

 

(In millions)

Severance costs

 

Balance at of September 30, 2019

 

 

Restructuring reserve

 

3

 

Utilization (cash paid)

 

 

Balance at December 31, 2019

$

3

 

Fiscal 2018 restructuring costs

During fiscal 2018, Ashland initiated a company-wide cost reduction program as a result of ongoing strategic asset plans and activities. As part of this restructuring program, Ashland announced a voluntary severance offer to certain qualifying employees that was formally approved during 2018. Additionally, during fiscal 2018, an involuntary program for employees was also initiated as part of the restructuring program. These programs resulted in additional severance expense of $1 million for the three months ended December 31, 2019 which was primarily recorded within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss). As of December 31, 2020, the severance reserve for the company-wide restructuring program was zero.

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

(In millions)

Severance costs

 

Balance at of September 30, 2019

 

7

 

Restructuring reserve

 

1

 

Utilization (cash paid)

 

(3

)

Balance at December 31, 2019

$

5

 

 

NOTE E – FAIR VALUE MEASUREMENTS

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

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

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

Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect Ashland’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include Ashland’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived using fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable.

9


 

The following table summarizes financial instruments subject to recurring fair value measurements as of December 31, 2020.

 

 

 

Carrying

 

 

Total

fair

 

 

Quoted prices

in active

markets for

identical

assets

 

 

Significant

other

observable

inputs

 

 

Significant

unobservable

inputs

 

(In millions)

 

value

 

 

value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

335

 

 

$

335

 

 

$

335

 

 

$

 

 

$

 

Restricted investments (a)

 

 

346

 

 

 

346

 

 

 

346

 

 

 

 

 

 

 

Investment of captive insurance company (b)

 

 

8

 

 

 

8

 

 

 

8

 

 

 

 

 

 

 

Total assets at fair value

 

$

689

 

 

$

689

 

 

$

689

 

 

$

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency derivatives

 

$

1

 

 

$

1

 

 

$

 

 

$

1

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Included in restricted investments is $30 million classified in the other current assets caption on the Condensed Consolidated Balance Sheets.

 

(b)

Included in other noncurrent assets in the Condensed Consolidated Balance Sheets.

The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2020.

 

 

 

Carrying

 

 

Total

fair

 

 

Quoted prices

in active

markets for

identical

assets

 

 

Significant

other

observable

inputs

 

 

Significant

unobservable

inputs

 

(In millions)

 

value

 

 

value

 

 

Level 1