Leasing Arrangements

9 Months Ended

Jun. 30, 2022

NOTE I – LEASING ARRANGEMENTS

Ashland leases certain office buildings, transportation equipment, warehouses and storage facilities, and equipment. Substantially all of Ashland’s leases are operating leases or short-term leases. Real estate leases represented over 80% of the total lease liability at June 30, 2022 and September 30, 2021, respectively.

The components of lease cost recognized within the Statements of Consolidated Comprehensive Income (Loss) were as follows:


		Three months ended				Nine months ended
		June 30				June 30
(In millions)	Location	2022		2021		2022		2021
Lease cost:
Operating lease cost	Selling, General & Administrative (a)	$	5	$	3	$	12	$	10
Operating lease cost	Cost of Sales		3		4		10		11
Variable lease cost	Selling, General & Administrative		1		1		3		2
Variable lease cost	Cost of Sales		1		1		3		2
Short-term leases	Cost of Sales		1		1		2		3
Total lease cost		$	11	$	10	$	30	$	28

Includes $2 million lease termination fee for the three and nine months ended June 30, 2022.

The following table summarizes Ashland’s lease assets and liabilities as presented in the Condensed Consolidated Balance Sheet:


(In millions)	June 30 2022		September 30 2021
Assets
Operating lease assets, net	$	112	$	124
Total lease assets	$	112	$	124

Liabilities
Current operating lease obligations	$	18	$	23
Non-current operating lease obligations		100		110
Total lease liabilities	$	118	$	133

Ashland often has options to renew lease terms for buildings and other assets. The exercise of lease renewal options are generally at Ashland’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at Ashland’s discretion. Ashland evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for operating leases as of June 30, 2022 and September 30, 2021 was approximately 15 years for each period.

Residual value guarantees are not common within Ashland’s lease agreements nor are restrictions or covenants imposed by leases. Ashland has elected the practical expedient to combine lease and non-lease components. The discount rate implicit within the leases is generally not determinable. Therefore, Ashland determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate is determined using a buildup method resulting in an estimated range of secured borrowing rates matching the lease term and the currency of the jurisdiction in which lease payments are made, adjusted for impacts of collateral. Consideration was given to Ashland’s own relevant debt issuances as well as debt instruments of comparable companies with similar credit characteristics. The weighted average discount rate used to measure operating lease liabilities as of June 30, 2022 and September 30, 2021 was 2.8%, respectively. There are no leases that have not yet commenced but that create significant rights and obligations.

Right-of-use assets exchanged for new operating lease obligations were $7 million and $6 million for the three months ended June 30, 2022 and 2021, respectively, and $11 million and $16 million for the nine months ended June 30, 2022 and 2021. This includes $1 million of right-of-use assets and operating lease obligations recorded as a result of the purchase of the Schülke personal care business during the three and nine months ended June 30, 2021.

The following table provides cash paid for amounts included in the measurement of operating lease liabilities:


	Three months ended				Nine months ended
	June 30				June 30
(In millions)	2022		2021		2021		2020
Operating cash flows from operating leases	$	9	$	8	$	23	$	23

The following table summarizes Ashland's maturities of lease liabilities as of June 30, 2022 and September 30, 2021:


(In millions)	June 30 2022			September 30 2021
Remainder of 2022	$	20		$	39
2023		21			20
2024		16			16
2025		12			11
2026		9			9
Thereafter		74			78
Total lease payments		152			173
Less amount of lease payment representing interest		(34	)		(40	)
Total present value of lease payments	$	118		$	133