UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(a
I.R.S. No.
Telephone Number (
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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.
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).
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.
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Accelerated Filer |
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Non-Accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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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, 2022, there were
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
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Three months ended |
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December 31 |
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(In millions except per share data - unaudited) |
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2022 |
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2021 |
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Sales |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expense |
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Research and development expense |
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Intangibles amortization expense - Note G |
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Equity and other income |
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— |
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Operating income |
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Net interest and other expense (income) |
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( |
) |
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Other net periodic benefit loss |
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( |
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— |
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Income from continuing operations before income taxes |
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Income tax expense - Note J |
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Income from continuing operations |
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Income (loss) from discontinued operations (net of income taxes) - Note C |
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( |
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Net income |
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$ |
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$ |
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PER SHARE DATA |
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Basic earnings per share - Note M |
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Income from continuing operations |
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$ |
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$ |
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Income (loss) from discontinued operations |
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( |
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Net income |
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$ |
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$ |
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Diluted earnings per share - Note M |
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Income from continuing operations |
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$ |
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$ |
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Income (loss) from discontinued operations |
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( |
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Net income |
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$ |
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$ |
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COMPREHENSIVE INCOME |
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Net income |
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$ |
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$ |
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Other comprehensive income (loss), net of tax |
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Unrealized translation gain (loss) |
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( |
) |
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Unrealized loss on commodity hedges |
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( |
) |
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( |
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Other comprehensive income (loss) - Note N |
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( |
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Comprehensive income |
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$ |
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$ |
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - unaudited) |
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December 31 |
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September 30 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable (a) - Note H |
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Inventories - Note F |
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Other assets |
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Total current assets |
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Noncurrent assets |
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Property, plant and equipment |
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Cost |
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Accumulated depreciation |
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Net property, plant and equipment |
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Goodwill - Note G |
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Intangibles - Note G |
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Operating lease assets, net - Note I |
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Restricted investments - Note E |
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Asbestos insurance receivable (b) - Note L |
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Deferred income taxes |
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Other assets |
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Total noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities |
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Trade and other payables |
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$ |
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$ |
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Accrued expenses and other liabilities |
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Current operating lease obligations - Note I |
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Total current liabilities |
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Noncurrent liabilities |
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Long-term debt - Note H |
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Asbestos litigation reserve - Note L |
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Deferred income taxes |
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Employee benefit obligations - Note K |
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Operating lease obligations - Note I |
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Other liabilities |
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Total noncurrent liabilities |
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Stockholders’ equity - Note N |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
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Three months ended |
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December 31 |
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(In millions - unaudited) |
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2022 |
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2021 |
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CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM |
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Net income |
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$ |
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$ |
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Loss (Income) from discontinued operations (net of income taxes) |
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( |
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Adjustments to reconcile income from continuing operations to |
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cash flows from operating activities: |
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Depreciation and amortization |
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Original issue discount and debt issuance costs amortization |
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Deferred income taxes |
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Stock based compensation expense |
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Excess tax benefit on stock based compensation |
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— |
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Income from restricted investments |
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( |
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( |
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Asset impairments |
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— |
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Pension contributions |
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( |
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( |
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Change in operating assets and liabilities (a) |
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( |
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( |
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Total cash flows provided (used) by operating activities from continuing operations |
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( |
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CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM |
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Additions to property, plant and equipment |
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( |
) |
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( |
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Proceeds from disposal of property, plant and equipment |
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— |
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Proceeds from settlement of company-owned life insurance contracts |
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— |
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Company-owned life insurance payments |
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( |
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— |
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Funds restricted for specific transactions |
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( |
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— |
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Reimbursements from restricted investments |
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— |
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Proceeds from sale of securities |
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— |
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Purchases of securities |
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— |
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( |
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Total cash flows used by investing activities from continuing operations |
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( |
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( |
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CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM |
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Proceeds from short-term debt |
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— |
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Cash dividends paid |
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( |
) |
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( |
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Stock based compensation employee withholding taxes paid in cash |
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( |
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( |
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Total cash flows used by financing activities from continuing operations |
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( |
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( |
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CASH USED BY CONTINUING OPERATIONS |
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( |
) |
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( |
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Cash provided (used) by discontinued operations |
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Operating cash flows |
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( |
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( |
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Investing cash flows |
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( |
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Total cash provided by discontinued operations |
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( |
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( |
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Effect of currency exchange rate changes on cash and cash equivalents |
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( |
) |
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DECREASE IN CASH AND CASH EQUIVALENTS |
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( |
) |
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( |
) |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS - END OF PERIOD |
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$ |
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$ |
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
ASHLAND 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 the Ashland Inc. and consolidated subsidiaries (Ashland) Annual Report on Form 10-K for the fiscal year ended September 30, 2022. Results of operations for the period ended December 31, 2022 are not necessarily indicative of the expected results for the remaining quarters in the fiscal year.
Ashland is comprised of the following reportable segments: Life Sciences, Personal Care, Specialty Additives and Intermediates. 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, sales 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, environmental remediation, asbestos litigation, the accounting for goodwill and other intangible assets, and income taxes. 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, 2022. 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.
5
NOTE B – DIVESTITURES
Performance Adhesives
On February 28, 2022, Ashland completed the sale of its Performance Adhesives business to Arkema, a French société anonyme. Proceeds from the sale were approximately $
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. 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
Other manufacturing facility sale
During the three months ended December 31, 2022, Ashland entered into a definitive sale agreement to sell a Specialty Additives manufacturing facility for less than $
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, 2022 and 2021.
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Three months ended |
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December 31 |
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(In millions) |
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2022 |
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2021 |
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Income (loss) from discontinued operations (net of tax) |
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Performance Adhesives |
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$ |
( |
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$ |
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Distribution |
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( |
) |
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( |
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$ |
( |
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$ |
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6
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 Performance Adhesives for the three months ended December 31, 2021. This disclosure was not applicable for the three months ended December 31, 2022 as a result of the sale in fiscal 2022.
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Three months ended |
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December 31 |
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(In millions) |
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2021 |
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Income (loss) from discontinued operations attributable |
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Sales |
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$ |
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Cost of sales |
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( |
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Selling, general and administrative expense |
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( |
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Research and development expense |
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( |
) |
Pretax income of discontinued operations |
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Income tax expense |
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( |
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Income from discontinued operations |
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$ |
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NOTE D – RESTRUCTURING ACTIVITIES
Ashland periodically implements 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 2023 Life Sciences restructuring program
During December 2022, Ashland implemented a restructuring program within the Nutraceuticals business of the Life Sciences segment. Ashland recorded severance expense of $
NOTE E – FAIR VALUE MEASUREMENTS
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
7
using 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 December 31, 2022.
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Carrying |
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Total |
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Quoted prices |
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Significant |
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Significant |
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(In millions) |
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value |
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value |
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Level 1 |
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Level 2 |
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Level 3 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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$ |
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$ |
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Restricted investments (a) (b) |
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Investment of captive insurance company (c) |
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Foreign currency derivatives (d) |
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(d) |
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Total assets at fair value |
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$ |
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$ |
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$ |
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$ |
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$ |
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Liabilities |
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Foreign currency derivatives (e) |
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$ |
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$ |
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$ |
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$ |
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$ |
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(e) |
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Total liabilities at fair value |
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$ |
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$ |
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$ |
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$ |
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$ |
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The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2022.
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Carrying |
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Total |
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Quoted prices |
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Significant |
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Significant |
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|||||
(In millions) |
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value |
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value |
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Level 1 |
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Level 2 |
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Level 3 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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$ |
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$ |
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Restricted investments (a) (b) |
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Investment of captive insurance company (c) |
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Foreign currency derivatives (d) |
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(d) |
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