SEC Filing | Ashland Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2022


☐	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 June 30, 2022, there were 54,139,396 shares of Registrant’s Common Stock outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)


	Three months ended						Nine months ended
	June 30						June 30
(In millions except per share data - unaudited)	2022			2021			2022			2021
Sales	$	644		$	543		$	1,759		$	1,520
Cost of sales		404			370			1,139			1,040
Gross profit		240			173			620			480

Selling, general and administrative expense		127			93			299			274
Research and development expense		14			13			40			37
Intangibles amortization expense		23			23			71			65
Equity and other income		1			1			2			7
Operating income		77			45			212			111

Net interest and other expense		59			1			108			18
Other net periodic benefit loss - Note K		(1	)		—			—			—
Income on acquisitions and divestitures, net - Note B		35			2			42			11
Income from continuing operations before income taxes		52			46			146			104
Income tax expense (benefit)		1			(26	)		25			(35	)
Income from continuing operations		51			72			121			139
Income (loss) from discontinued operations (net of income taxes) - Note C		(15	)		8			749			37
Net income	$	36		$	80		$	870		$	176

PER SHARE DATA
Basic earnings per share - Note M
Income from continuing operations	$	0.94		$	1.18		$	2.16		$	2.29
Income (loss) from discontinued operations		(0.28	)		0.12			13.40			0.61
Net income	$	0.66		$	1.30		$	15.56		$	2.90

Diluted earnings per share - Note M
Income from continuing operations	$	0.93		$	1.17		$	2.12		$	2.27
Income (loss) from discontinued operations		(0.28	)		0.12			13.16			0.60
Net income	$	0.65		$	1.29		$	15.28		$	2.87

COMPREHENSIVE INCOME (LOSS)
Net income	$	36		$	80		$	870		$	176
Other comprehensive income (loss), net of tax
Unrealized translation gain (loss)		(86	)		23			(107	)		37
Unrealized gain (loss) on commodity hedges		(3	)		—			(2	)		—
Other comprehensive income (loss) - Note N		(89	)		23			(109	)		37
Comprehensive income (loss)	$	(53	)	$	103		$	761		$	213

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions - unaudited)	June 30 2022		September 30 2021
ASSETS
Current assets
Cash and cash equivalents	$	629	$	210
Accounts receivable (a) - Note H		488		369
Inventories - Note F		609		473
Other assets		91		68
Current assets held for sale - Note B		—		597
Total current assets		1,817		1,717
Noncurrent assets
Property, plant and equipment
Cost		3,065		3,066
Accumulated depreciation		1,713		1,639
Net property, plant and equipment		1,352		1,427
Goodwill - Note G		1,356		1,430
Intangibles - Note G		1,001		1,099
Operating lease assets, net - Note I		112		124
Restricted investments - Note E		346		384
Asbestos insurance receivable (b) - Note L		140		134
Deferred income taxes		30		30
Other assets		258		267
Total noncurrent assets		4,595		4,895
Total assets	$	6,412	$	6,612

LIABILITIES AND EQUITY
Current liabilities
Short-term debt - Note H	$	—	$	365
Current portion of long-term debt - Note H		—		9
Trade and other payables		241		236
Accrued expenses and other liabilities		291		251
Current operating lease obligations - Note I		18		23
Current liabilities held for sale - Note B		—		50
Total current liabilities		550		934
Noncurrent liabilities
Long-term debt - Note H		1,302		1,596
Asbestos litigation reserve - Note L		483		490
Deferred income taxes		218		237
Employee benefit obligations - Note K		137		144
Operating lease obligations - Note I		100		110
Other liabilities		356		349
Total noncurrent liabilities		2,596		2,926
Commitments and contingencies - Note L
Stockholders’ equity - Note N		3,266		2,752

Total liabilities and stockholders' equity	$	6,412	$	6,612

(a)

Accounts receivable includes an allowance for credit losses of $2 million at both June 30, 2022 and September 30, 2021.

(b)

Asbestos insurance receivable includes an allowance for credit losses of $3 million at both June 30, 2022 and September 30, 2021.

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS


	Nine months ended
	June 30
(In millions - unaudited)	2022			2021
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Net income	$	870		$	176
Income from discontinued operations (net of income taxes)		(749	)		(37	)
Adjustments to reconcile income from continuing operations to
cash flows from operating activities:
Depreciation and amortization		182			180
Original issue discount and debt issuance costs amortization		4			4
Deferred income taxes		(5	)		(3	)
Gain from sales of property and equipment		—			(3	)
Distributions from equity affiliates		—			1
Stock based compensation expense		14			12
Excess tax benefit on stock based compensation		1			1
Loss (income) from restricted investments		59			(36	)
Income on acquisitions and divestitures		(42	)		(15	)
Impairments		—			9
Pension contributions		(4	)		(6	)
Gain on pension and other postretirement plan remeasurements		(1	)		—
Change in operating assets and liabilities (a)		(315	)		31
Total cash flows provided by operating activities from continuing operations		14			314
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Additions to property, plant and equipment		(67	)		(74	)
Proceeds from disposal of property, plant and equipment		51			4
Purchase of operations - net of cash acquired		—			(308	)
Proceeds from sale or restructuring of operations		—			14
Proceeds from settlement of Company-owned life insurance contracts		2			1
Company-owned life insurance payments		—			(1	)
Net purchase of funds restricted for specific transactions		(74	)		(1	)
Reimbursements from restricted investments		28			25
Proceeds from sale of securities		75			56
Purchases of securities		(75	)		(56	)
Total cash flows used by investing activities from continuing operations		(60	)		(340	)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
Repurchase of common stock		(200	)		—
Repayment of long-term debt		(250	)		—
Proceeds from (repayment of) short-term debt		(365	)		(185	)
Cash dividends paid		(52	)		(52	)
Stock based compensation employee withholding taxes paid in cash		(9	)		(6	)
Total cash flows used by financing activities from continuing operations		(876	)		(243	)
CASH USED BY CONTINUING OPERATIONS		(922	)		(269	)
Cash provided (used) by discontinued operations
Operating cash flows		(302	)		84
Investing cash flows		1,650			(11	)
Total cash provided by discontinued operations		1,348			73
Effect of currency exchange rate changes on cash and cash equivalents		(7	)		4
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		419			(192	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		210			454
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	629		$	262

(a)

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

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

ASHLAND GLOBAL HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and Securities and Exchange Commission (SEC) regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with Ashland Global Holdings Inc. and consolidated subsidiaries (Ashland) Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Results of operations for the periods ended June 30, 2022 are not necessarily indicative of the expected results for the remaining quarter in the fiscal year.

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

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

Use of estimates, risks and uncertainties

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

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

New accounting pronouncements

A description of new U.S. GAAP accounting standards issued or adopted during the current year is required in interim financial reporting. A detailed listing of new accounting standards relevant to Ashland is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2021. There were no new standards that were either issued or adopted in the current fiscal year that will have a material impact on Ashland's consolidated financial statements.

NOTE B – ACQUISITIONS AND DIVESTITURES

Acquisitions

Personal Care acquisition

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

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

Divestitures

Performance Adhesives

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

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

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

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

Other manufacturing facility sales

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

Other corporate assets

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

Held for sale classification

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


	September 30
(In millions)	2021
Accounts receivable, net	$	26
Inventories		27
Net property, plant and equipment		80
Goodwill