Fair Value Measurements

9 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

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 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 June 30, 2022.

	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	$	629	$	629	$	629	$	—	$	—
Restricted investments (a) (b)		407		407		407		—		—
Investment of captive insurance company (c)		9		9		9		—		—
Foreign currency derivatives (d)		2		2		—		2		—
Commodity derivatives (d)		3		3		—		3		—
Total assets at fair value	$	1,050	$	1,050	$	1,045	$	5	$	—
Liabilities
Foreign currency derivatives (e)	$	3	$	3	$	—	$	3	$	—
Commodity derivatives (e)		2		2		—		2		—
Total liabilities at fair value	$	5	$	5	$	—	$	5	$	—

(a)Included in restricted investments and $61 million within other current assets in the Condensed Consolidated Balance Sheets.

(b)Includes $269 million related to the Asbestos trust and $138 million related to the Environmental trust.

(c)Included in other noncurrent assets in the Condensed Consolidated Balance Sheets.

(d)Included in accounts receivable in the Condensed Consolidated Balance Sheets.

(e)Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets.

The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2021.

	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	$	210	$	210	$	210	$	—	$	—
Restricted investments (a) (b)		421		421		421		—		—
Investment of captive insurance company (c)		8		8		8		—		—
Foreign currency derivatives (d)		1		1		—		1		—
Commodity derivatives (d)		5		5		—		5		—
Total assets at fair value	$	645	$	645	$	639	$	6	$	—
Liabilities
Foreign currency derivatives (e)	$	2	$	2	$	—	$	2	$	—

(a)Included in restricted investments and $37 million within other current assets in the Condensed Consolidated Balance Sheets.

(b)Includes $333 million related to the Asbestos trust and $88 million related to the Environmental trust.

(c)Included in other noncurrent assets in the Condensed Consolidated Balance Sheets.

(d)Included in accounts receivable in the Condensed Consolidated Balance Sheets.

(e)Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets.

Restricted investments

Investment income and realized gains and losses on these company-restricted investments are reported within the net interest and other expense caption on the Statements of Consolidated Comprehensive Income (Loss). The following table provides a summary of the activity within the investment portfolio as of June 30, 2022 and September 30, 2021:

(In millions)	June 30 2022			September 30 2021
Original cost	$	335		$	335
Accumulated adjustments, net		37			(50	)
Adjusted cost, beginning of year (a)		372			285
Investment income (b)		13			12
Net unrealized gain (loss) (c)		(25	)		49
Realized gains (losses) (c)		1			17
Funds restricted for specific transactions (d)		74			91
Disbursements		(28	)		(33	)
Fair value	$	407		$	421

(a)The adjusted cost of the demand deposits includes accumulated investment income, realized gains, additional funds restricted for specific transactions and disbursements recorded in previous periods. The adjusted cost as of June 30, 2022 includes the $90 million funding to establish the Environmental trust.

(b)Investment income relates to the demand deposit and includes interest income as well as dividend income transferred from the equity and fixed income mutual funds.

(c)Presented under the original cost method.

(d)The June 30, 2022 period included additional contributions to the Environmental trust from proceeds associated with the Performance Adhesives sale and excess land sales. The September 30, 2021 period included $90 million to establish the Environmental trust.

The following table presents gross unrealized gains and losses for the restricted investment securities as of June 30, 2022 and September 30, 2021:

			Gross		Gross
(In millions)	Adjusted Cost		Unrealized Gain		Unrealized Loss			Fair Value
As of June 30, 2022
Demand deposit	$	7	$	—	$	—		$	7
Equity mutual fund		178		23		(13	)		188
Fixed income mutual fund		247		—		(35	)		212
Fair value	$	432	$	23	$	(48	)	$	407
As of September 30, 2021
Demand deposit	$	6	$	—	$	—		$	6
Equity mutual fund		143		44		(1	)		186
Fixed income mutual fund		223		7		(1	)		229
Fair value	$	372	$	51	$	(2	)	$	421

The following table presents the investment income, net gains and losses realized and disbursements related to the investments within the portfolio for the three and nine months ended June 30, 2022 and 2021.

	Three months ended						Nine months ended
	June 30						June 30
(In millions)	2022			2021			2022			2021
Investment income	$	3		$	2		$	13		$	10
Net gains (losses)		(48	)		15			(72	)		26
Disbursements		—			(6	)		(28	)		(25	)

Foreign currency derivatives

Ashland conducts business in a variety of foreign currencies. Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to curtail potential earnings volatility effects on certain assets and liabilities, including short-term inter-company loans, denominated in currencies other than Ashland’s functional currency of an entity. These derivative contracts generally require exchange of one foreign currency for another at a fixed rate at a future date and generally have maturities of less than twelve months. The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies. The following table summarizes the net gains and losses recognized during the three and nine months ended June 30, 2022 and 2021 within the Statements of Consolidated Comprehensive Income (Loss).

	Three months ended					Nine months ended
	June 30					June 30
(In millions)	2022			2021		2022			2021
Foreign currency derivative gain (loss)	$	(12	)	$	3	$	(21	)	$	6

The following table summarizes the fair values of the outstanding foreign currency derivatives as of June 30, 2022 and September 30, 2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.

	June 30		September 30
(In millions)	2022		2021
Foreign currency derivative assets	$	2	$	1
Notional contract values		244		150
Foreign currency derivative liabilities	$	3	$	2
Notional contract values		263		212

Commodity derivatives

To manage its exposure to the market price volatility of natural gas consumed by its U.S. plants during the manufacturing process, Ashland regularly enters into forward contracts that are designated as cash flow hedges. The following table summarizes the net gains and losses recognized during the three and nine months ended June 30, 2022 and 2021 within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss).

	Three months ended				Nine months ended
	June 30				June 30
(In millions)	2022		2021		2022		2021
Commodity derivative gain (loss)	$	2	$	—	$	6	$	—

The following table summarizes the fair values of the outstanding commodity derivatives as of June 30, 2022, and September 30, 2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.

	June 30		September 30
(In millions)	2022		2021
Commodity derivative assets	$	3	$	5
Notional contract values		12		6
Commodity derivative liabilities	$	2	$	—
Notional contract values		10		—

Total return derivatives

Ashland maintains certain employee stock based compensation programs whereby certain employees receive awards that entitle them to a cash payout based on Ashland's stock price at a future date. To manage its exposure to the changes in fair value of the shares that determine the payout, Ashland entered into a Total Return Swap (TRS) in fiscal year 2022. The company pays a floating rate, based on LIBOR plus an interest rate spread on the notional amount of the TRS. The TRS is designed to substantially offset changes in the stock based compensation liabilities due to the change in the fair value of Ashland's stock. The contract term of the TRS is through December 2022 and is settled on quarterly basis. The following table summarized the net gains and losses recognized for the three and nine months ended June 30, 2022 and 2021 within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss).

	Three months ended				Nine months ended
	June 30				June 30
(In millions)	2022		2021		2022		2021
Total return swap gain (loss)	$	—	$	—	$	—	$	—

The following table summarizes the fair values of the outstanding TRS as of June 30, 2022 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.

	June 30		September 30
(In millions)	2022		2021
Total return swap assets	$	—	$	—
Notional contract values		8		—

Other financial instruments

At June 30, 2022 and September 30, 2021, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $1,317 million and $1,622 million, respectively, compared to a fair value of $1,181 million and $1,794 million, respectively. The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland’s incremental borrowing rates. The carrying value of long-term debt with variable interest approximated fair value.