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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 June 30, 2023

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 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. YesNo ☐

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). YesNo ☐

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, 2023, there were 51,241,016 shares of Registrant’s Common Stock outstanding.

 

 


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASHLAND 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)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Sales

 

$

546

 

 

$

644

 

 

$

1,674

 

 

$

1,759

 

Cost of sales

 

 

368

 

 

 

404

 

 

 

1,134

 

 

 

1,139

 

Gross profit

 

 

178

 

 

 

240

 

 

 

540

 

 

 

620

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

 

84

 

 

 

127

 

 

 

256

 

 

 

299

 

Research and development expense

 

 

12

 

 

 

14

 

 

 

37

 

 

 

40

 

Intangibles amortization expense - Note G

 

 

24

 

 

 

23

 

 

 

70

 

 

 

71

 

Equity and other income

 

 

4

 

 

 

1

 

 

 

5

 

 

 

2

 

Income on acquisitions and divestitures, net - Note B

 

 

 

 

 

35

 

 

 

 

 

 

42

 

Operating income

 

 

62

 

 

 

112

 

 

 

182

 

 

 

254

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and other expense (income)

 

 

3

 

 

 

59

 

 

 

(21

)

 

 

108

 

Other net periodic benefit loss - Note K

 

 

2

 

 

 

1

 

 

 

6

 

 

 

 

Income from continuing operations before income taxes

 

 

57

 

 

 

52

 

 

 

197

 

 

 

146

 

Income tax expense - Note J

 

 

15

 

 

 

1

 

 

 

21

 

 

 

25

 

Income from continuing operations

 

 

42

 

 

 

51

 

 

 

176

 

 

 

121

 

Income (loss) from discontinued operations (net of income taxes) - Note C

 

 

8

 

 

 

(15

)

 

 

6

 

 

 

749

 

Net income

 

$

50

 

 

$

36

 

 

$

182

 

 

$

870

 

 

 

 

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share - Note M

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.81

 

 

$

0.94

 

 

$

3.29

 

 

$

2.16

 

Income (loss) from discontinued operations

 

 

0.15

 

 

 

(0.28

)

 

 

0.11

 

 

 

13.40

 

Net income

 

$

0.96

 

 

$

0.66

 

 

$

3.40

 

 

$

15.56

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share - Note M

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.79

 

 

$

0.93

 

 

$

3.24

 

 

$

2.12

 

Income (loss) from discontinued operations

 

 

0.15

 

 

 

(0.28

)

 

 

0.11

 

 

 

13.16

 

Net income

 

$

0.94

 

 

$

0.65

 

 

$

3.35

 

 

$

15.28

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

50

 

 

$

36

 

 

$

182

 

 

$

870

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized translation gain (loss)

 

 

(4

)

 

 

(86

)

 

 

105

 

 

 

(107

)

Unrealized gain (loss) on commodity hedges

 

 

1

 

 

 

(3

)

 

 

(6

)

 

 

(2

)

Other comprehensive income (loss) - Note N

 

 

(3

)

 

 

(89

)

 

 

99

 

 

 

(109

)

Comprehensive income (loss)

 

$

47

 

 

$

(53

)

 

$

281

 

 

$

761

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

2


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In millions - unaudited)

 

June 30
2023

 

 

September 30
2022

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

349

 

 

$

646

 

Accounts receivable (a) - Note H

 

 

345

 

 

 

402

 

Inventories - Note F

 

 

712

 

 

 

629

 

Other assets

 

 

120

 

 

 

91

 

Total current assets

 

 

1,526

 

 

 

1,768

 

Noncurrent assets

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

Cost

 

 

3,191

 

 

 

3,050

 

Accumulated depreciation

 

 

1,837

 

 

 

1,712

 

Net property, plant and equipment

 

 

1,354

 

 

 

1,338

 

Goodwill - Note G

 

 

1,383

 

 

 

1,312

 

Intangibles - Note G

 

 

916

 

 

 

963

 

Operating lease assets, net - Note I

 

 

126

 

 

 

107

 

Restricted investments - Note E

 

 

321

 

 

 

313

 

Asbestos insurance receivable (b) - Note L

 

 

129

 

 

 

138

 

Deferred income taxes

 

 

20

 

 

 

20

 

Other assets

 

 

254

 

 

 

254

 

Total noncurrent assets

 

 

4,503

 

 

 

4,445

 

Total assets

 

$

6,029

 

 

$

6,213

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

$

210

 

 

$

265

 

Accrued expenses and other liabilities

 

 

201

 

 

 

269

 

Current operating lease obligations - Note I

 

 

21

 

 

 

19

 

Total current liabilities

 

 

432

 

 

 

553

 

Noncurrent liabilities

 

 

 

 

 

 

Long-term debt - Note H

 

 

1,328

 

 

 

1,270

 

Asbestos litigation reserve - Note L

 

 

437

 

 

 

472

 

Deferred income taxes

 

 

176

 

 

 

176

 

Employee benefit obligations - Note K

 

 

108

 

 

 

103

 

Operating lease obligations - Note I

 

 

109

 

 

 

94

 

Other liabilities

 

 

290

 

 

 

325

 

Total noncurrent liabilities

 

 

2,448

 

 

 

2,440

 

Commitments and contingencies - Note L

 

 

 

 

 

 

Stockholders’ equity - Note N

 

 

3,149

 

 

 

3,220

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

6,029

 

 

$

6,213

 

 

 

 

 

 

 

 

(a)
Accounts receivable includes an allowance for credit losses of $4 million at both June 30, 2023 and September 30, 2022, respectively.
(b)
Asbestos insurance receivable includes an allowance for credit losses of $3 million at both June 30, 2023 and September 30, 2022, respectively.

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

3


ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS

 

 

 

Nine months ended

 

 

 

June 30

 

(In millions - unaudited)

 

2023

 

 

2022

 

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM
   CONTINUING OPERATIONS

 

 

 

 

 

 

Net income

 

$

182

 

 

$

870

 

Income from discontinued operations (net of income taxes)

 

 

(6

)

 

 

(749

)

Adjustments to reconcile income from continuing operations to

 

 

 

 

 

 

cash flows from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

181

 

 

 

182

 

Original issue discount and debt issuance costs amortization

 

 

4

 

 

 

4

 

Deferred income taxes

 

 

11

 

 

 

(5

)

Gain from sales of property and equipment

 

 

(1

)

 

 

 

Stock based compensation expense

 

 

17

 

 

 

14

 

Excess tax benefit on stock based compensation

 

 

1

 

 

 

1

 

Loss (income) from restricted investments

 

 

(57

)

 

 

59

 

Income on acquisitions and divestitures

 

 

 

 

 

(42

)

Asset impairments

 

 

4

 

 

 

 

Pension contributions

 

 

(7

)

 

 

(4

)

Gain on pension and other postretirement plan remeasurements

 

 

 

 

 

(1

)

Change in operating assets and liabilities (a)

 

 

(166

)

 

 

(315

)

Total cash flows provided by operating activities from continuing operations

 

 

163

 

 

 

14

 

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM
   CONTINUING OPERATIONS

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(101

)

 

 

(67

)

Proceeds from disposal of property, plant and equipment

 

 

3

 

 

 

51

 

Proceeds from settlement of company-owned life insurance contracts

 

 

3

 

 

 

2

 

Company-owned life insurance payments

 

 

(1

)

 

 

 

Funds restricted for specific transactions

 

 

(7

)

 

 

(74

)

Reimbursements from restricted investments

 

 

46

 

 

 

28

 

Proceeds from sale of securities

 

 

36

 

 

 

75

 

Purchases of securities

 

 

(36

)

 

 

(75

)

Total cash flows used by investing activities from continuing operations

 

 

(57

)

 

 

(60

)

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM
   CONTINUING OPERATIONS

 

 

 

 

 

 

Repurchase of common stock

 

 

(300

)

 

 

(200

)

Repayment of long-term debt

 

 

 

 

 

(250

)

Repayment of short-term debt

 

 

 

 

 

(365

)

Cash dividends paid

 

 

(56

)

 

 

(52

)

Stock based compensation employee withholding taxes paid in cash

 

 

(10

)

 

 

(9

)

Total cash flows used by financing activities from continuing operations

 

 

(366

)

 

 

(876

)

CASH USED BY CONTINUING OPERATIONS

 

 

(260

)

 

 

(922

)

Cash provided (used) by discontinued operations

 

 

 

 

 

 

Operating cash flows

 

 

(43

)

 

 

(302

)

Investing cash flows

 

 

 

 

 

1,650

 

Total cash provided (used) by discontinued operations

 

 

(43

)

 

 

1,348

 

Effect of currency exchange rate changes on cash and cash equivalents

 

 

6

 

 

 

(7

)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(297

)

 

 

419

 

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

 

646

 

 

 

210

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$

349

 

 

$

629

 

 

 

 

 

 

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

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 (U.S. GAAP) 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 or the Company) Annual Report on Form 10-K for the fiscal year ended September 30, 2022. Results of operations for the period ended June 30, 2023 are not necessarily indicative of the expected results for the remainder of 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 Condensed 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 $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) for the nine months ended June 30, 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. See Note C for the results of operations for Performance Adhesives for all affected periods.

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. There were no such costs for the three and nine months ended June 30, 2023 and $1 million and $8 million for the three and nine months ended June 30, 2022, respectively.

Other manufacturing facility sales

During the December 2022 quarter, Ashland entered into a definitive sale agreement to sell a Specialty Additives manufacturing facility for less than $1 million. The net asset value related to these sites was $4 million at September 30, 2022. During the three and nine months ended June 30, 2023, no impairment and $4 million of impairment charges, respectively, were recorded within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss) for this manufacturing facility.

During the current quarter, Ashland completed the sale of this facility, received proceeds of less than $1 million, and recorded a loss of less than $1 million within the income on acquisition and divestitures, net caption of the Statement of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2023.

Other corporate assets

During the three and nine months ended June 30, 2022, Ashland completed the sale of two excess land properties. Ashland received net proceeds of approximately $50 million and recorded a pre-tax gain of $35 million within the Income on acquisitions and divestitures, net caption of the Statements of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2022.

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.

6


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 and nine months ended June 30, 2023 and 2022.

 

 

Three months ended

 

 

Nine months ended

 

 

 

June 30

 

 

June 30

 

(In millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Performance Adhesives

 

$

(1

)

 

$

4

 

 

$

(1

)

 

$

38

 

Composites/Marl facility

 

 

 

 

 

 

 

 

(1

)

 

 

 

Valvoline

 

 

15

 

 

 

 

 

 

15

 

 

 

 

Asbestos

 

 

(4

)

 

 

(13

)

 

 

(4

)

 

 

(13

)

Water Technologies

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Distribution

 

 

(2

)

 

 

(5

)

 

 

(3

)

 

 

(7

)

Gain on disposal of discontinued operations (net of tax)