# ASHLAND INC. (ASH) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from ASHLAND INC.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1674862/000095017021004843/ash-20210930.htm Accession: 0000950170-21-004843 Filing date: 2021-11-22 Report date: 2021-09-30 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/ASH/ All MD&A years: /company/ASH/mda/ Next year: /company/ASH/mda/fy2022/ (FY 2022) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements for the years ended September 30, 2021, 2020 and 2019. Effect of Recent Accounting Pronouncements and SEC Regulations In November 2020, the SEC issued Release No. 33-10890, “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information”. The SEC adopted these amendments to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the requirement for Selected Financial Data was eliminated, the requirement to disclose Supplementary Financial Information was streamlined, and Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”) were amended. These amendments are intended to eliminate duplicative disclosures and modernize and enhance MD&A disclosures for the benefit of investors, while simplifying compliance efforts for registrants. This release was effective for Ashland on August 9, 2021. As a result, Ashland applied the required amendments where applicable to form 10-K for its fiscal year ended September 30, 2021. BUSINESS OVERVIEW Ashland profile Ashland is a premier global leader in providing specialty materials to customers in a wide range of consumer and industrial markets including architectural coatings, construction, energy, food and beverage, nutraceuticals, personal care and pharmaceutical. With approximately 4,100 employees worldwide, Ashland serves customers in more than 100 countries. Ashland’s sales generated outside of North America were 68% in 2021 and 67% in 2020 and 2019. Sales by region expressed as a percentage of total consolidated sales were as follows: [[GREPCENT_TABLE]] [["Sales by Geography","","2021","","","2020","","","2019"],["North America (a)","","","32","%","","","33","%","","","33","%"],["Europe","","","36","%","","","36","%","","","36","%"],["Asia Pacific","","","23","%","","","22","%","","","22","%"],["Latin America & other","","","9","%","","","9","%","","","9","%"],["","","","100","%","","","100","%","","","100","%"]] [[/GREPCENT_TABLE]] (a) Ashland includes only U.S. and Canada in its North American designation. Reportable segments On August 31, 2021, Ashland announced its agreement with Arkema, a French société anonyme, to sell its Performance Adhesive business for the sum of $1.65 billion. The transaction is expected to close by the March 2022 quarter end, subject to closing conditions. Ashland expects net proceeds from the sale to be approximately $1.2 to $1.3 billion, with the aim of using the proceeds to invest in the growth of the other reportable core businesses as well as to optimize its balance sheet and reward shareholders. The expected divestiture represents a strategic shift in Ashland's business and qualifies 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. As a result, Ashland’s reportable segments include Life Sciences, Personal Care & Household, Specialty Additives and Intermediates and Solvents. Unallocated and Other includes corporate governance activities and certain legacy matters. The M-1 contribution to sales by each reportable segment expressed as a percentage of total consolidated sales for the year ended September 30 were as follows: [[GREPCENT_TABLE]] [["Sales by Reportable Segment","","2021","","","2020","","","2019"],["Life Sciences","","","35","%","","","35","%","","","35","%"],["Personal Care & Household","","","28","%","","","31","%","","","30","%"],["Specialty Additives","","","31","%","","","29","%","","","30","%"],["Intermediates and Solvents","","","6","%","","","5","%","","","5","%"],["","","","100","%","","","100","%","","","100","%"]] [[/GREPCENT_TABLE]] KEY DEVELOPMENTS Business Results Ashland’s net income was $220 million ($173 million income from continuing operations and $47 million income from discontinued operations) in 2021 compared to a loss of $508 million ($555 million loss from continuing operations and $47 million income from discontinued operations) in 2020. Results for Ashland’s continuing operations for 2021 and 2020 were impacted by restructuring costs and environmental reserve adjustments. Additionally, the current year included $17 million of debt restructuring costs, $13 million restructuring related impairment charges, and inventory adjustments. The prior year was affected by a non-cash goodwill impairment charge of $530 million, debt restructuring costs of $67 million and inventory control measures costs of $51 million. Discontinued operations were primarily driven by the change in results of the Performance Adhesives business, the Composites business, and the Marl facility between periods, including associated gains as a result of business dispositions. Ashland’s Adjusted EBITDA is $495 million for the current year compared to $449 million in the prior year (see U.S. GAAP reconciliation under consolidated review). The $46 million increase in Adjusted EBITDA was primarily due to improved pricing, favorable foreign currency exchange and lower selling, general and administrative expenses as a result of cost reduction programs. These increases were partially offset by challenges in shipping, logistics and packaging procurement as well as unplanned plant shutdowns, primarily associated with winter storms. Uncertainty relating to the COVID-19 pandemic Ashland continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact customers, employees, suppliers, vendors, business partners and distribution channels. Ashland is unable to predict the impact that the COVID-19 pandemic will have on its future financial position and operating results due to numerous uncertainties. These uncertainties include the severity of the virus and any variants, the duration of the outbreak, governmental, business or other actions, impacts on Ashland’s supply chain, the effect on customer demand, or changes to Ashland’s operations. The health of Ashland’s workforce and its ability to meet staffing needs throughout the critical functions cannot be predicted and is vital to operations. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. In addition, Ashland cannot predict the impact that the COVID-19 pandemic will have on its customers, vendors, suppliers and other business partners; however, any material effect on these parties could adversely impact Ashland. Ashland continues to successfully navigate the uncertain environment associated with the COVID-19 pandemic. This includes the execution of shelter in place, social distancing and deep cleaning process requirements. Through the balance of fiscal year 2021, Ashland has not experienced any additional major operating surprises beyond the initial impact of the COVID-19 pandemic, maintained a robust supply chain in a challenging environment, had strong safety performance in the face of unprecedented pressures and improved operating discipline across each of its businesses. The life sciences and personal care & household businesses showed resiliency in the face of difficult economic circumstances. The specialty additives business and the intermediates and solvents business results improved primarily due to increased product demand as countries began to ease pandemic related restrictions across the globe during 2021. Ashland’s overall liquidity remains strong and Ashland is more than able to meet its operating cash needs and other investing and financing cash requirements at this time, including those necessary to grow the business as economic conditions improve. M-2 The situation surrounding the COVID-19 pandemic remains fluid, and Ashland is actively managing its response in collaboration with customers, government officials, team members and business partners. For further information regarding the impact of the COVID-19 pandemic on the Company, please see Item 1A, Risk Factors in this report, which is incorporated herein by reference. Other significant items Performance Adhesives In May 2021, Ashland announced a strategic review of its Performance Adhesives business unit. On August 31, 2021, Ashland announced that it had signed a definitive agreement to sell substantially all of the assets and liabilities of its Performance Adhesives segment in a transaction valued at $1.65 billion. The transaction is expected to close prior to the end of the March 2022 quarter, contingent on certain customary regulatory approvals, standard conditions and completion of required employee information and consultation processes. Since this transaction represents a strategic shift in Ashland’s business and had a major effect on Ashland’s operations and financial results, the operating results and cash flows related to Performance Adhesives have been reflected as discontinued operations in the statement of Consolidated Comprehensive Income (Loss) and Statements of Consolidated Cash Flows. See Note C of the Notes to the Consolidated Financial Statements for more information. Certain indirect corporate costs included within the selling, general and administrative expense caption of the Statement 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 $15 million, $20 million, and $21 million during the twelve months ended September 30, 2021, 2020, and 2019, respectively. Ashland is currently implementing plans to eliminate these costs. Renewable annual trust for environmental remediation On September 8, 2021, Ashland established a renewable annual trust for environmental remediation "Environmental trust" that Ashland determined is restricted for ongoing and future environmental remediation and related litigation costs. These funds are presented primarily as noncurrent assets within the restricted investments caption of the Consolidated Balance Sheets, with $10 million classified within other current assets in the Consolidated Balance Sheets as of September 30, 2021. As of September 30, 2021, the funds within the Environmental trust had a balance of $88 million and were primarily invested in public equity, U.S. government bonds and investment grade corporate bond investments with a portion maintained in demand deposits. Stock repurchase program In September 2021, under the 2018 stock repurchase program, Ashland announced that it entered into an accelerated share repurchase agreement (2021 ASR Agreement). Under the 2021 ASR Agreement, Ashland paid an initial purchase price of $450 million and received an initial delivery of 3.9 million shares of common stock during September 2021. The program is expected to terminate by March 2022, resulting in a final share repurchase transaction. Personal Care & Household 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 has included the purchase of this business within the Personal Care and Household reporting segment. The acquisition was recorded by Ashland using the purchase method of accounting in accordance with applicable U.S. GAAP whereby the total purchase price was allocated to tangible assets and liabilities acquired based on respective fair values. The all-cash purchase price of Schülke was $312 million. Ashland incurred acquisition related transaction costs of $4 million during fiscal 2021 which are recorded within the net income on acquisitions and divestitures caption within the Statement of Consolidated Comprehensive Income (Loss). Within this same caption, Ashland recognized income of $1 million during fiscal M-3 2021 associated with foreign currency derivative and gains on foreign exchange contracts entered into to mitigate the exposure of the Euro denominated purchase price. Operational business model changes and restructurings As previously disclosed, during the second quarter of fiscal year 2020, Ashland changed the manner in which it manages the business moving from a functionally led to a business led organization. This new business-centric operational model required redesign of core operating systems and processes leading to a realignment in both the selling, general and administrative and research and development costs (SARD) associated with each business. In addition to the realignment of SARD, a productivity review with a focus on cost of goods sold (COGS) was also initiated. Based on these initiatives, Ashland is currently targeting the following savings:  $50 million of incremental SARD cost savings  $50 million of incremental COGS productivity savings As of September 30, 2021, Ashland achieved approximately 96% of its target run-rate cost savings, representing $97 million in annualized run-rate savings under these initiatives. Ashland expects to be substantially complete with these initiatives by the end of calendar year 2021. RESULTS OF OPERATIONS – CONSOLIDATED REVIEW Consolidated review Net income Ashland’s net income (loss) is primarily affected by results within operating income, net interest and other financing expense, other net periodic benefit income (expense), net income (loss) on acquisitions and divestitures, income taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring. Key financial results for 2021, 2020 and 2019 included the following: • Ashland’s net income/loss amounted to income of $220 million in 2021, loss of $508 million in 2020 and income of $505 million in 2019, or income of $3.59, a loss of $8.39 and income of $8.15 diluted earnings per share, respectively. • Discontinued operations, which are reported net of taxes, resulted in income of $47 million, $47 million and $544 million during 2021, 2020 and 2019, respectively. • Results from continuing operations, which excludes results from discontinued operations, amounted to income of $173 million for fiscal 2021, and losses of $555 million and $39 million in 2020 and 2019, respectively. Fiscal 2020 includes a non-cash goodwill impairment charge of $530 million. • The effective income tax was an income tax benefit rate of 28% for 2021, income tax benefit rate of 4% for 2020, and income tax expense rate of 333% for 2019, which were significantly impacted by certain tax specific key items and tax discrete items. • Ashland incurred pretax net interest and other expense of $56 million, $119 million and $99 million during 2021, 2020 and 2019, respectively. This includes charges for $16 million and $59 million for debt refinancing costs during fiscal 2021 and 2020, respectively, and $1 million and $8 million for accelerated debt issuance costs during 2021 and 2020, respectively, as well as gains of $21 million, $20 million and $7 million on restricted investments during 2021, 2020 and 2019, respectively. • Other net periodic benefit expense totaled $1 million, and income of $3 million and $6 million during 2021, 2020 and 2019, respectively. • Net income/loss on acquisitions and divestitures totaled income of $11 million and $2 million during 2021 and 2020, respectively, and a loss of $2 million in 2019. M-4 • Operating income/loss amounted to income of $181 million, a loss of $463 million, and income of $86 million in 2021, 2020 and 2019, respectively. Fiscal 2020 included a non-cash goodwill impairment charge of $530 million. For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income (Loss) caption review analysis. Operating income Operating income/loss was income of $181 million in 2021 compared to a loss of $463 million and income of $86 million in 2020 and 2019, respectively. The current and prior years’ operating income included certain key items that were excluded to arrive at Adjusted EBITDA and are quantified in the table below in the “EBITDA and Adjusted EBITDA” section. These operating key items for the applicable periods are summarized as follows: • Restructuring, separation and other costs – Ashland periodically implements company-wide cost reduction programs related to acquisitions, divestitures and other cost reduction programs in order to enhance profitability through streamlined operations and an improved overall cost structure. Ashland often incurs severance, facility and integration costs associated with these programs. See Note E in the Notes to Consolidated Financial Statements for further information on the restructuring activities. • Goodwill impairment – During 2020, Ashland realigned its operations into five reportable segments which resulted in a reassessment of the Company’s reporting units used to evaluate goodwill impairment. The impairment test under the new reporting unit structure concluded that the carrying value of the Personal Care & Household and the Specialty Additives reporting units exceeded their fair value, resulting in a $530 million non-cash goodwill impairment charge in 2020. See note H and Critical Accounting Policies for additional information. • Inventory adjustments – During 2021, Ashland recorded non-cash charges related to the fair value adjustment of inventory acquired from Schülke at the date of acquisition during the current year. During 2020, Ashland incurred charges associated with a program to reduce overall inventory levels as part of a working capital efficiency program. While successful in managing inventory levels, these actions resulted in increased expense primarily related to abnormal production variances due to plant shutdowns. • Environmental reserve adjustments – Ashland is subject to various federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts (collectively environmental remediation) at multiple locations. As a result of these activities, Ashland recorded adjustments during each year to its environmental liabilities and receivables related to previously divested businesses or non-operational sites. See Note N of the Notes to Consolidated Financial Statements for more information. • Accelerated depreciation – As a result of various restructuring activities at certain office facilities and manufacturing plants, Ashland recorded accelerated depreciation due to changes in the expected useful life of certain property, plant and equipment during 2019. See Note G of the Notes to Consolidated Financial Statements for more information. • Proxy costs – Ashland incurred significant consulting and other costs associated with the 2019 Annual Meeting of Stockholders and agreement with the Cruiser Group (as defined in the agreement) during 2019. • Asset impairments – Ashland recognized impairment charges to certain assets during 2021 and 2019. See Note E of the Notes to Consolidated Financial Statements for more information. • Tax indemnity expense – During 2019, Ashland recorded an adjustment to a tax indemnity receivable that was associated with the acquisition of Pharmachem. • Unplanned plant shutdowns – During 2019, Ashland incurred costs related to temporary shutdowns for the Specialty Additives Parlin facility as a result of force majeure contract issues. M-5 Operating income/loss for 2021, 2020 and 2019 included depreciation and amortization of $244 million, $235 million and $277 million, respectively (which includes accelerated depreciation of $39 million for 2019). Non-operating key items affecting EBITDA During the current and prior years, there were certain key items that were not included in operating income but were excluded to arrive at Adjusted EBITDA. These non-operating key items for the applicable periods are summarized as follows: • Net income/loss on divestitures – Ashland recorded income of $11 million during 2021 and a loss of $3 million during 2019. This includes $3 million of expense relating to the Schülke acquisition and a $14 million gain related to the sale of a Specialty Additives facility during 2021. • Loss/gain on pension and other postretirement plan remeasurements - Ashland recognized actuarial gains and losses for defined benefit pension and other postretirement benefit plans annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. See Note M of the Notes to Consolidated Financial Statements for more information. Statements of Consolidated Comprehensive Income (Loss) – caption review A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the years ended September 30, 2021, 2020 and 2019. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Sales","","$","2,111","","","$","2,016","","","$","2,148","","","$","95","","","$","(132",")"]] [[/GREPCENT_TABLE]] The following table provides a reconciliation of the change in sales between fiscal years 2021 and 2020 and between fiscal years 2020 and 2019. [[GREPCENT_TABLE]] [["(In millions)","","2021 change","","","2020 change"],["Volume","","$","(3",")","","$","(85",")"],["Pricing","","","20","","","","(20",")"],["Currency exchange","","","46","","","","(10",")"],["Plant realignment","","","\u2014","","","","(17",")"],["Acquisition","","","32","","","","\u2014"],["Change in sales","","$","95","","","$","(132",")"]] [[/GREPCENT_TABLE]] Sales for 2021 increased $95 million, or 5%, compared to 2020. The acquisition of Schülke within the Personal Care and Household reportable segment, product pricing and foreign currency exchange increased sales by $32 million, $20 million and $46 million, respectively. These increases were partially offset by unfavorable volume, which decreased sales by $3 million. Sales for 2020 decreased $132 million, or 6%, compared to 2019. Unfavorable volume, due primarily to lower industrial demand reflecting the impact of the COVID-19 pandemic, product pricing, foreign currency exchange and plant realignment decreased sales by $85 million, $20 million, $10 million and $17 million, respectively. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Cost of sales","","$","1,441","","","$","1,417","","","$","1,497","","","$","24","","","$","(80",")"],["Gross profit as a percent of sales","","","31.7","%","","","29.7","%","","","30.3","%"]] [[/GREPCENT_TABLE]] Fluctuations in cost of sales are driven primarily by the effects of challenges in shipping and logistics in the current year and lower industrial demand across the globe reflecting the impact of the COVID-19 pandemic in the prior year, raw material prices, volume and changes in product mix, currency exchange, acquisitions and divestitures and other certain charges incurred as a result of changes or events within the businesses or restructuring activities. M-6 The following table provides a reconciliation of the changes in cost of sales between fiscal years 2021 and 2020 and between fiscal years 2020 and 2019. [[GREPCENT_TABLE]] [["(In millions)","","2021 change","","","2020 change"],["Volume","","$","5","","","$","(51",")"],["Plant realignment/closure costs","","","\u2014","","","","(67",")"],["Price/mix","","","(7",")","","","(55",")"],["Currency exchange","","","22","","","","(6",")"],["Operating costs","","","(16",")","","","99"],["Acquisition","","","20","","","","\u2014"],["Change in cost of sales","","$","24","","","$","(80",")"]] [[/GREPCENT_TABLE]] Cost of sales for 2021 increased $24 million compared to 2020. Foreign currency exchange, the Schülke acquisition, and lower volume increased cost of sales by $22 million, $20 million, and $5 million, respectively. These increases were partially offset by the impact of lower price/mix and lower costs, including the winter storm impact of $11 million, which decreased cost of sales by $7 million and $16 million, respectively. Cost of sales for 2020 decreased $80 million compared to 2019. Plant realignment/closure costs, price/mix, volume, due primarily to lower industrial demand reflecting the impact of the COVID-19 pandemic, and foreign currency exchange decreased cost of sales by $67 million, $55 million, $51 million, and $6 million, respectively. Those decreases were partially offset by higher operating costs which increased cost of sales by $99 million primarily as a result of inventory control measures taken during the fourth quarter of fiscal 2020. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Selling, general and administrative expense","","$","358","","","$","400","","","$","426","","","$","(42",")","","$","(26",")"],["As a percent of sales","","","17.0","%","","","19.8","%","","","19.8","%"]] [[/GREPCENT_TABLE]] Selling, general and administrative expense for 2021 decreased $42 million compared to 2020, while expenses as a percent of sales decreased 2.8 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to 2020 were: • $45 million and $36 million in net environmental-related expenses during 2021 and 2020, respectively (see Note N for more information); • $10 million and $58 million of key items for severance, lease abandonment and other restructuring costs during 2021 and 2020, respectively; • $15 million and $20 million of stranded divestiture costs during 2021 and 2020, respectively; • $10 million related to a capital project impairment during 2021; and • Unfavorable currency exchange of $7 million and lower variable compensation expense. Selling, general and administrative expense for 2020 decreased $26 million compared to 2019, with expenses as a percent of sales remaining constant. Key drivers of the fluctuation in selling, general and administrative expense compared to 2019 were: • $36 million and $27 million in net environmental-related expenses during 2020 and 2019, respectively (see Note N for more information); • $58 million and $43 million of key items for restructuring, separation and other costs during 2020 and 2019, respectively; • $4 million of consulting and other costs associated with the proxy contest during 2019; • $20 million, and $21 million of stranded divestiture costs during 2020 and 2019, respectively; • Favorable currency exchange of $6 million; and M-7 • Achieved cost savings during 2020 from restructuring programs initiated in 2020 and 2019, which represents a substantial portion of the 2020 decline from 2019. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Research and development expense","","$","50","","","$","56","","","$","58","","","$","(6",")","","$","(2",")"]] [[/GREPCENT_TABLE]] Research and development expense decreased $6 million in 2021 compared to 2020 as a result of achieved cost savings and other costs compared to the prior year. In 2020, the $2 million decrease compared to 2019 was primarily due to the overall company-wide cost reduction program. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Intangibles amortization expense","","$","90","","","$","84","","","$","85","","","$","6","","","$","(1",")"]] [[/GREPCENT_TABLE]] Amortization expense increased by $6 million in 2021 compared to 2020 primarily due to the amortization of intangible assets associated with the Schülke acquisition. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Equity and other income","","$","9","","","$","8","","","$","4","","","$","1","","","$","4"]] [[/GREPCENT_TABLE]] Other income's increase in 2021 and 2020 over 2019 was primarily related to a gain on sale of excess corporate property of roughly $4 million in 2021 and a liquidation gain of $3 million in 2020. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Goodwill impairment","","$","\u2014","","","$","530","","","$","\u2014","","","$","(530",")","","$","530"]] [[/GREPCENT_TABLE]] Ashland recorded an impairment charge of $530 million in 2020. See Note H Goodwill and Other Intangibles for additional information. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Net interest and other expense (income)"],["Interest expense","","$","69","","","$","88","","","$","114","","","$","(19",")","","$","(26",")"],["Interest income","","","(1",")","","","(1",")","","","(2",")","","","\u2014","","","","1"],["Loss on the accounts receivable sale program","","","1","","","","\u2014","","","","\u2014","","","","1","","","","\u2014"],["Loss on early retirement of debt","","","16","","","","59","","","","\u2014","","","","(43",")","","","59"],["Loss (income) from restricted investments","","","(33",")","","","(30",")","","","(17",")","","","(3",")","","","(13",")"],["Other financing costs","","","4","","","","3","","","","4","","","","1","","","","(1",")"],["","","$","56","","","$","119","","","$","99","","","$","(63",")","","$","20"]] [[/GREPCENT_TABLE]] Net interest and other expense decreased by $63 million in 2021 compared to 2020. Interest expense decreased by $19 million due to lower average debt levels, lower cost of debt related to the debt restructuring activity during 2020 and lower accelerated debt issuance costs and original issuance discount costs of $7 million in 2021 compared to 2020. Ashland incurred $16 million of debt refinancing costs during 2021 compared to $59 million during 2020. See Note I for more information on the refinancing activity. The investment securities income of $33 million in 2021 compared to $30 million in 2020 represents investment income related to restricted investments discussed in Note F of the Notes to the Consolidated Financial Statements. Net interest and other expense increased $20 million in 2020 compared to 2019. Interest expense decreased by $26 million due to lower average debt levels and lower cost of debt related to the debt restructuring activity during 2020. The decreases were partially offset by $8 million of accelerated debt issuance costs and original issuance discount costs in 2020. Ashland incurred $59 million of debt refinancing costs during 2020. See Note I for more information on the refinancing activity. The investment securities income of $30 million in 2020 compared to $17 million in 2019 represents investment income related to restricted investments discussed in Note F of the Notes to the Consolidated Financial Statements M-8 [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Other net periodic benefit income (expense)","","$","(1",")","","$","3","","","$","6","","","$","(4",")","","$","(3",")"]] [[/GREPCENT_TABLE]] Other net periodic benefit expense during 2021 primarily included interest cost of $8 million and a $1 million loss on pension and other postretirement plan remeasurements, offset by expected return on plan assets of $8 million. Other net periodic benefit income during 2020 primarily included interest cost of $9 million, offset by expected return on plan assets of $11 million and a $1 million gain on pension and other postretirement plan remeasurements. Other net periodic benefit income during 2019 primarily included a $10 million loss on pension and other postretirement plan remeasurements, offset by a curtailment gain of $18 million due to the settlement of a non-U.S. pension plan in 2019. Other net periodic benefit income during 2019 also included an $12 million charge for interest cost, partially offset by a $10 million expected return on plan assets. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Net income (loss) on acquisitions and divestitures","","$","11","","","$","2","","","$","(2",")","","$","9","","","$","4"]] [[/GREPCENT_TABLE]] Net income (loss) on acquisitions and divestitures during 2021 primarily relates to a $3 million expense in transaction net costs associated with the personal care acquisition of Schülke, including a gain of $1 million associated with foreign currency derivatives entered into to mitigate the foreign exchange exposure of the purchase price. In addition there was also a $14 million gain related to the sale of a Specialty Additives facility within the current period. Net income (loss) on divestitures during 2020 primarily related to the sale of corporate assets and post-closing adjustments for certain divestitures. Net income (loss) on divestitures during 2019 primarily included a loss of $2 million related to the impairment of an investment offset by a gain on sale of a manufacturing facility, along with post-closing adjustments related to other previous divestitures. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Income tax expense (benefit)","","$","(38",")","","$","(22",")","","$","30","","","$","(16",")","","$","(52",")"],["Effective tax rate","","","(28",")%","","","(4",")%","","","333","%"]] [[/GREPCENT_TABLE]] The 2021 effective tax rate was impacted by jurisdictional income mix, as well as favorable discrete items of $59 million primarily related to the sale of a Specialty Additives facility and uncertain tax positions. The 2020 effective tax rate was impacted by nondeductible goodwill impairment of $527 million as well as $15 million favorable tax discrete items primarily from the tax benefit related to the Swiss Tax Reform enacted in the first quarter. The 2019 effective tax rate was impacted by jurisdictional income mix, restructuring activities, and the U.S. tax reform. Adjusted income tax expense (benefit) Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. Tax specific key items are defined as the financial effects from tax specific financial transactions, tax law changes or other matters that fall within the definition of key items as previously described. The effective tax rate, excluding key items, which is a non-GAAP measure, has been prepared to illustrate the ongoing tax effects of Ashland’s operations. Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP measure on a consolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results. M-9 The effective tax rates during 2021, 2020 and 2019 were significantly impacted by the following tax specific key items: • Deferred tax rate changes - Includes the impact from the remeasurement of Ashland’s domestic deferred tax balances resulting from the enactment of the Tax Act as well as the impact from deferred rate changes for other jurisdictions; • One-time transition tax - Includes the one-time transition tax resulting from the enactment of the Tax Act; • Uncertain tax position - Includes the impact from the settlement of uncertain tax positions with various tax authorities; • Restructuring and separation activity - Includes the impact from company-wide cost reduction programs; and • Other tax reform - Includes the impact from other items related to the Tax Act and other tax law changes including Swiss Tax Reform. The Swiss Tax Reform benefit is an estimate based on ten-year income projections and is subject to approval by the Swiss tax authorities. Ashland will monitor this amount and make adjustments as appropriate in future periods. These adjustments also include the impact from the deductibility of compensation items and miscellaneous state tax items. The following table is a calculation of the effective tax rate, excluding the impact of these key items: [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Income (loss) from continuing operations"],["before income taxes","","$","135","","","$","(577",")","","$","(9",")"],["Key items (pre-tax) (a)","","","56","","","","719","","","","121"],["Adjusted income from continuing operations"],["before income taxes","","$","191","","","$","142","","","$","112"],["Income tax expense (benefit)","","","(38",")","","","(22",")","","","30"],["Income tax rate adjustments:"],["Tax effect of key items (b)","","","11","","","","35","","","","16"],["Tax specific key items: (c)"],["Deferred tax rate changes","","","\u2014","","","","\u2014","","","","(2",")"],["One-time transition tax","","","\u2014","","","","\u2014","","","","(28",")"],["Uncertain tax positions","","","53","","","","(3",")","","","6"],["Restructuring and separation activity","","","13","","","","\u2014","","","","(12",")"],["Other tax reform related activity","","","(6",")","","","20","","","","1"],["Total income tax rate adjustments","","","71","","","","52","","","","(19",")"],["Adjusted income tax expense (benefit)","","$","33","","","$","30","","","$","11"],["Effective tax rate, excluding key items (Non-GAAP) (d)","","","17","%","","","21","%","","","10","%"]] [[/GREPCENT_TABLE]] (a) See Adjusted EBITDA reconciliation table disclosed below in this Management, Discussion and Analysis for a summary of the key items, before tax. (b) The tax rate specific to the jurisdiction in which the key item originates is used to calculate the tax effect of key items. (c) For additional information on the effect that these tax specific key items had on EPS, see the Adjusted Diluted EPS table disclosed below in this Management Discussion and Analysis. (d) Due to rounding conventions, the effective tax rate presented may not recalculate precisely based on the numbers disclosed within this table. The following table provides a reconciliation of tax specific key items within the statutory federal income tax with the provision for income taxes summary disclosed in Note L of the Notes to Consolidated Financial Statements. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Tax effect of key items computed at applicable statutory rate (a)","","$","11","","","$","35","","","$","16"],["Tax reform","","","\u2014","","","","25","","","","(30",")"],["Uncertain tax positions","","","53","","","","(4",")","","","(9",")"],["Deemed inclusions, foreign dividends and other restructuring","","","\u2014","","","","(4",")","","","\u2014"],["Foreign tax credits","","","\u2014","","","","\u2014","","","","\u2014"],["Valuation allowance changes","","","(8",")","","","\u2014","","","","1"],["State taxes","","","\u2014","","","","\u2014","","","","(3",")"],["Other items","","","15","","","","\u2014","","","","6"],["","","$","71","","","$","52","","","$","(19",")"]] [[/GREPCENT_TABLE]] (a) Includes impact of $527 million of non-deductible goodwill. M-10 [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Income (loss) from discontinued operations (net of taxes)"],["Composites and Marl Facility","","$","\u2014","","","$","4","","","$","94","","","$","(4",")","","$","(90",")"],["Performance Adhesives","","","64","","","","64","","","","63","","","","\u2014","","","","1"],["Asbestos-related litigation","","","(9",")","","","(18",")","","","\u2014","","","","9","","","","(18",")"],["Water Technologies","","","(3",")","","","\u2014","","","","1","","","","(3",")","","","(1",")"],["Distribution","","","(5",")","","","(8",")","","","14","","","","3","","","","(22",")"],["Valvoline","","","3","","","","(24",")","","","\u2014","","","","27","","","","(24",")"],["Gain (loss) on disposal of discontinued operations"],["Composites/Marl facility","","","(4",")","","","29","","","","372","","","","(33",")","","","(343",")"],["Water Technologies","","","1","","","","\u2014","","","","\u2014","","","","1","","","","\u2014"],["","","$","47","","","$","47","","","$","544","","","$","\u2014","","","$","(497",")"]] [[/GREPCENT_TABLE]] As a result of the divestiture of the Composites segment (including the Maleic business) and Marl facility and the expected divestiture of the Performance Adhesives segment, the related operating results have been reflected as discontinued operations (net of tax) within the Statements of Consolidated Comprehensive Income (Loss). See Note C for more information on these transactions. In 2021, the sales and pre-tax income included in discontinued operations were $372 million and $83 million, respectively, for the Performance Adhesives segment. In 2020, the sales and pre-tax income included in discontinued operations were $310 million and $74 million for the Performance Adhesives segment, respectively, and $51 million and $9 million for the Composites segment (including the Maleic business) and Marl Facility, respectively. In 2019, the sales and pre-tax income included in discontinued operations were $345 million and $79 million for the Performance Adhesives segment, respectively, and $1,012 million and $118 million for the Composites segment (including the Maleic business) and Marl facility, respectively. In 2020, a $29 million gain on disposal was recorded in the fourth quarter associated with the September 30, 2020 closing of the sale of the Maleic business. In 2019, a $372 million gain on disposal was recorded in the fourth quarter associated with the August 30, 2019 closing of the sale of the Composites business (excluding the Maleic business) and the Marl facility with INEOS. Asbestos-related activity during 2021, 2020 and 2019 included after-tax net adjustments to the asbestos reserves and receivables of $9 million of expense, $18 million of expense, and zero, respectively, including the adjustments for the annual update. The activity for Water Technologies and Distribution during 2019 was related to post-closing adjustments. The Valvoline activity within 2021 and 2020 primarily represents subsequent adjustments that were made in conjunction with the Tax Matters Agreement. Other comprehensive income (loss) A comparative analysis of the components of other comprehensive income (loss) is provided below for the last three fiscal years ended September 30. [[GREPCENT_TABLE]] [["","","","","","","","","","","","2021","","","2020"],["(In millions)","","2021","","","2020","","","2019","","","change","","","change"],["Other comprehensive income (loss) (net of taxes)"],["Unrealized translation gain (loss)","","$","7","","","$","27","","","$","(80",")","","$","(20",")","","$","107"],["Unrealized gain on commodity hedges","","","4","","","","\u2014","","","","\u2014","","","","4","","","","\u2014"],["Pension and postretirement obligation adjustment","","","\u2014","","","","\u2014","","","","(5",")","","","\u2014","","","","5"],["","","$","11","","","$","27","","","$","(85",")","","$","(16",")","","$","112"]] [[/GREPCENT_TABLE]] M-11 Total other comprehensive income (loss), net of tax, decreased $16 million in 2021 as compared to 2020 as a result of the following components. • In 2021, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in a gain of $7 million, compared to a gain of $27 million during 2020. The fluctuations in unrealized translation gains and losses were primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars. • In 2021, a $4 million unrealized gain on commodity hedges was recorded. See Note F for more information. Total other comprehensive income (loss), net of tax, increased $112 million in 2020 as compared to 2019 as a result of the following components. • In 2020, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in a gain of $27 million, compared to a loss of $80 million during 2019. The fluctuations in unrealized translation gains and losses were primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars. • The pension and postretirement obligation adjustment was zero during 2020 compared to $5 million during 2019. The adjustments relate to amortization of unrecognized prior services credits for pension and other postretirement benefit plans, net of tax, and were reclassified into net income. Use of non-GAAP measures Ashland has included within this document the following non-GAAP measures, on both a consolidated and reportable segment basis, which are not defined within U.S. GAAP and do not purport to be alternatives to net income or cash flows from operating activities as a measure of operating performance or cash flows: • EBITDA - net income (loss), plus income tax expense (benefit), net interest and other financing expenses, and depreciation and amortization. • Adjusted EBITDA - EBITDA adjusted for discontinued operations, net gain (loss) on acquisitions and divestitures, other income and (expense) and key items (including the remeasurement gains and losses related to pension and other postretirement plans). • Adjusted EBITDA margin - Adjusted EBITDA, which can include pro forma adjustments, divided by sales. • Adjusted diluted earnings per share (EPS) - income (loss) from continuing operations, adjusted for key items, net of tax, divided by the average outstanding diluted shares for the applicable period. • Adjusted diluted earnings per share (EPS) excluding intangibles amortization expense – Adjusted earnings per share adjusted for intangibles amortization expense net of tax, divided by the average outstanding diluted shares for the applicable period. • Free cash flow - operating cash flows less capital expenditures and certain other adjustments as applicable. Management believes the use of EBITDA and Adjusted EBITDA measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting comparable financial results between periods. Ashland believes that by removing the impact of depreciation and amortization and excluding certain non-cash charges, amounts spent on interest and taxes and certain other charges that are highly variable from year to year, EBITDA and Adjusted EBITDA provide Ashland’s investors with performance measures that reflect the impact to operations from trends in changes in sales, margin and operating expenses, providing a perspective not immediately apparent from net income and operating income. The adjustments Ashland makes to derive the non-GAAP measures of EBITDA and Adjusted EBITDA exclude items which may cause short-term fluctuations in net income and operating income and which Ashland does not consider to be the fundamental attributes or primary drivers of its business. EBITDA and Adjusted EBITDA provide disclosure on the same basis as that used by Ashland’s management to evaluate financial performance on a consolidated and reportable segment basis and provide consistency in our financial reporting, facilitate internal and external comparisons of Ashland’s historical operating performance and its business units and provide continuity to investors for comparability purposes. M-12 The Adjusted diluted EPS metric enables Ashland to demonstrate what effect key items have on an earnings per diluted share basis by taking income (loss) from continuing operations, adjusted for key items after tax that have been identified in the Adjusted EBITDA table, and dividing by the average outstanding diluted shares for the applicable period. Ashland’s management believes this presentation is helpful to illustrate how the key items have impacted this metric during the applicable period. The Adjusted diluted EPS, excluding intangibles amortization expense metric enables Ashland to demonstrate the impact of non-cash intangibles amortization expense on EPS, in addition to the key items previously mentioned. Ashland’s management believes this presentation is helpful to illustrate how previous acquisitions impact applicable period results. The free cash flow metric enables Ashland to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Unlike cash flow provided by operating activities, free cash flow includes the impact of capital expenditures from continuing operations, providing a more complete picture of cash generation. Free cash flow has certain limitations, including that it does not reflect adjustment for certain non-discretionary cash flows such as mandatory debt repayments. The amount of mandatory versus discretionary expenditures can vary significantly between periods. Although Ashland may provide forward-looking guidance for Adjusted EBITDA, Adjusted diluted EPS and free cash flow, Ashland is not reaffirming or providing forward-looking guidance for U.S. GAAP-reported financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items that affect these metrics such as domestic and international economic, political, legislative, regulatory and legal actions. In addition, certain 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 and are difficult to predict with certainty. These non-GAAP measures should be considered supplemental in nature and should not be construed as more significant than comparable measures defined by U.S. GAAP. Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with our results as determined in accordance with U.S. GAAP. The non-GAAP measures provided are used by Ashland management and may not be determined in a manner consistent with the methodologies used by other companies. EBITDA and Adjusted EBITDA provide a supplemental presentation of Ashland’s operating performance on a consolidated and reportable segment basis. Adjusted EBITDA generally includes adjustments for items that impact comparability between periods. In addition, certain financial covenants related to Ashland’s 2020 Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that reference this metric. In accordance with U.S. GAAP, Ashland recognizes actuarial gains and losses for defined benefit pension and other postretirement benefit plans annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. Actuarial gains and losses occur when actual experience differs from the estimates used to allocate the change in value of pension and other postretirement benefit plans to expense throughout the year or when assumptions change, as they may each year. Significant factors that can contribute to the recognition of actuarial gains and losses include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets and other changes in actuarial assumptions, for example, the life expectancy of plan participants. Management believes Adjusted EBITDA, which includes the expected return on pension plan assets yet excludes both the actual return on pension plan assets and the impact of actuarial gains and losses, provides investors with a meaningful supplemental presentation of Ashland’s operating performance (see the Adjusted EBITDA reconciliation table for additional details on exact amounts included within this non-GAAP measure related to pension and other postretirement plans). Management believes these actuarial gains and losses are primarily financing activities that are more reflective of changes in current conditions in global financial markets (and in particular interest rates) that are not directly related to the underlying business. For further information on the actuarial assumptions and plan assets referenced above, see Note M of the Notes to Consolidated Financial Statements. M-13 EBITDA and Adjusted EBITDA EBITDA totaled income of $482 million, a loss of $176 million and income of $872 million for 2021, 2020 and 2019, respectively. EBITDA and Adjusted EBITDA results in the following table have been prepared to illustrate the ongoing effects of Ashland’s operations, which exclude certain key items previously described. Management believes the use of such non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Net income (loss)","","$","220","","","$","(508",")","","$","505"],["Income tax expense (benefit)","","","(38",")","","","(22",")","","","30"],["Net interest and other financing expense","","","56","","","","119","","","","99"],["Depreciation and amortization (a)","","","244","","","","235","","","","238"],["EBITDA","","","482","","","","(176",")","","","872"],["(Income) loss from discontinued operations (net of taxes)","","","(47",")","","","(47",")","","","(544",")"],["Key items included in EBITDA:"],["Goodwill impairment","","","\u2014","","","","530","","","","\u2014"],["Restructuring, separation and other costs (b)","","","10","","","","58","","","","51"],["Environmental reserve adjustments","","","43","","","","34","","","","25"],["Inventory adjustments","","","4","","","","51","","","","\u2014"],["Accelerated depreciation","","","\u2014","","","","\u2014","","","","39"],["Proxy costs","","","\u2014","","","","\u2014","","","","4"],["Asset impairments","","","13","","","","\u2014","","","","\u2014"],["Tax indemnity expense","","","\u2014","","","","\u2014","","","","6"],["Unplanned plant shutdowns","","","\u2014","","","","\u2014","","","","2"],["Net loss (gain) on acquisitions and divestitures (c)","","","(11",")","","","\u2014","","","","3"],["Loss (gain) on pension and other postretirement plan remeasurements","","","1","","","","(1",")","","","(8",")"],["Total key items included in EBITDA","","","60","","","","672","","","","122"],["Adjusted EBITDA (d)","","$","495","","","$","449","","","$","450"],["Total key items included in EBITDA","","$","60","","","$","672","","","$","122"],["Accelerated amortization of debt issuance costs","","","1","","","","8","","","","\u2014"],["Debt refinancing costs (e)","","","16","","","","59","","","","6"],["Unrealized gain on securities (f)","","","(21",")","","","(20",")","","","(7",")"],["Total key items, before tax","","$","56","","","$","719","","","$","121"]] [[/GREPCENT_TABLE]] (a) Excludes $39 million of accelerated depreciation during 2019. (b) Includes impairments of $8 million during 2019. (c) Excludes income of zero, $2 million and $1 million during 2021, 2020 and 2019, respectively, related to ongoing adjustments of previous divestiture transactions. (d) Includes $6 million, $4 million and $9 million during 2021, 2020 and 2019, respectively, of net periodic pension and other postretirement costs (income) recognized ratably through the fiscal year. These costs (income) are comprised of service cost, interest cost, expected return on plan assets, and amortization of prior service credit and are disclosed in further detail in Note M of the Notes to Consolidated Financial Statements. (e) Debt refinancing costs during 2021 included a $16 million loss on early retirement of debt and a $1 million charge for accelerated debt issuance costs. Debt refinancing costs during 2020 included $59 million loss on early retirement of debt. Debt refinancing costs during 2019 included a $6 million debt issuance costs amortization charge for the early repayment of term loans A and B. All debt refinancing costs were recorded within the net interest and other financing M-14 expense caption on the Statements of Consolidated Comprehensive Income (Loss). See Note I of the Notes to Consolidated Financial Statements for more information. (f) Due to the adoption of new accounting guidance in 2019, the unrealized (gains) losses on certain investment securities directly impact earnings and are recorded within the net interest and other expense caption on the Statements of Consolidated Comprehensive Income (Loss). See Note A of the Notes to Consolidated Financial Statements for more information. Diluted EPS and Adjusted Diluted EPS The following table reflects the U.S. GAAP calculation for the income (loss) from continuing operations adjusted for the cumulative diluted EPS effect for key items after tax that have been identified in the Adjusted EBITDA table in the previous section. Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. The Adjusted Diluted EPS for the income (loss) from continuing operations and Adjusted Diluted EPS from continuing operations excluding intangibles amortization expense in the following table have been prepared to illustrate these ongoing effects on Ashland’s operations. Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP measure on a consolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results. [[GREPCENT_TABLE]] [["","","2021","","","2020","","","2019"],["Diluted EPS from continuing operations (as reported)","","$","2.82","","","$","(9.16",")","","$","(0.62",")"],["Key items, before tax:"],["Goodwill impairment","","","\u2014","","","","8.75","","","","\u2014"],["Restructuring, separation and other costs (including accelerated depreciation)","","","0.16","","","","0.95","","","","1.42"],["Environmental reserve adjustments","","","0.70","","","","0.58","","","","0.41"],["Inventory adjustments","","","0.07","","","","0.83","","","","\u2014"],["Proxy costs","","","\u2014","","","","\u2014","","","","0.07"],["Asset impairments","","","0.21","","","","\u2014","","","","\u2014"],["Tax indemnity expense","","","\u2014","","","","\u2014","","","","0.10"],["Unplanned plant shutdowns","","","\u2014","","","","\u2014","","","","0.03"],["Net loss (gain) on acquisitions and divestitures","","","(0.18",")","","","\u2014","","","","0.05"],["Loss (gain) on pension and other postretirement plan remeasurements","","","0.02","","","","(0.01",")","","","(0.12",")"],["Unrealized gain on securities","","","(0.34",")","","","(0.33",")","","","(0.11",")"],["Accelerated amortization of debt issuance costs","","","0.02","","","","0.13","","","","\u2014"],["Debt refinancing costs","","","0.26","","","","0.97","","","","0.09"],["Key items, before tax","","","0.92","","","","11.87","","","","1.94"],["Tax effect of key items (a)","","","(0.18",")","","","(0.58",")","","","(0.25",")"],["Key items, after tax","","","0.74","","","","11.29","","","","1.69"],["Tax specific key items:"],["Deferred tax rate changes","","","\u2014","","","","\u2014","","","","0.03"],["One-time transition tax","","","\u2014","","","","\u2014","","","","0.44"],["Uncertain tax positions","","","(0.87",")","","","0.05","","","","(0.09",")"],["Restructuring and separation activity","","","(0.21",")","","","\u2014","","","","0.19"],["Other tax reform related activity","","","0.10","","","","(0.33",")","","","(0.02",")"],["Tax specific key items (b)","","","(0.98",")","","","(0.28",")","","","0.55"],["Total key items","","","(0.24",")","","","11.01","","","","2.24"],["Adjusted diluted EPS from continuing operations (non-GAAP)","","$","2.58","","","$","1.85","","","$","1.62"],["Amortization expense adjustment (net of tax) (c)","","","1.17","","","","1.08","","","","1.04"],["Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense","","$","3.75","","","$","2.93","","","$","2.66"]] [[/GREPCENT_TABLE]] (a) Represents the diluted EPS impact from the tax effect of the key items that are previously identified above. (b) Represents the diluted EPS impact from tax specific financial transactions, tax law changes or other matters that fall within the definition of tax specific key items. For additional explanation of these tax specific key items, see the income tax expense (benefit) discussion within the following caption review section. (c) Amortization expense adjustment (net of tax) tax rates were 20.0%, 21.0% and 23.0% for the years ended 2021, 2020 and 2019, respectively. M-15 RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW On August 31, 2021, Ashland announced that it had signed a definitive agreement to sell substantially all of the assets and liabilities of its Performance Adhesives segment in a transaction valued at $1.65 billion. The transaction is expected to close prior to the end of the March 2022 quarter, contingent on certain customary regulatory approvals, standard conditions and completion of required employee information and consultation processes. Since this transaction represents a strategic shift in Ashland’s business and had a major effect on Ashland’s operations and financial results, the operating results and cash flows related to Performance Adhesives have been reflected as discontinued operations in the statement of Consolidated Comprehensive Income (Loss) and Statements of Consolidated Cash Flows. See Note C of the Notes to the Consolidated Financial Statements for more information. Certain indirect corporate costs included within the selling, general and administrative expense caption of the Statement 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. As a result, Ashland's reportable segments include Life Sciences, Personal Care & Household, Specialty Additives, and Intermediates and Solvents. Unallocated and Other includes corporate governance activities and certain legacy matters. The historical segment information has been recast to conform to the current segment structure. Results of Ashland’s reportable segments are presented based on its management and internal accounting structure. The structure is specific to Ashland; therefore, the financial results of Ashland’s reportable segments are not necessarily comparable with similar information for other companies. Ashland allocates all significant costs to its reportable segments except for certain significant company-wide restructuring activities, certain corporate governance costs and other costs or activities that relate to former businesses that Ashland no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded within the other net periodic benefit income caption on the Statements of Consolidated Comprehensive Income (Loss). Ashland refines its expense allocation methodologies to the reportable segments from time to time as internal accounting practices are improved, more refined information becomes available and the industry or market changes. Significant revisions to Ashland’s methodologies are adjusted for all segments on a retrospective basis. This includes charges in the current fiscal year for indirect corporate costs previously allocated to Performance Adhesives. These costs are now reflected in Unallocated and Other for all periods presented. M-16 The following table shows sales, operating income, depreciation and amortization and EBITDA by reportable segment for each of the last three years ended September 30. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Sales"],["Life Sciences","","$","737","","","$","708","","","$","732"],["Personal Care & Household","","","592","","","","615","","","","651"],["Specialty Additives","","","655","","","","589","","","","654"],["Intermediates and Solvents","","","178","","","","129","","","","160"],["Intersegment sales (a)","","","(51",")","","","(25",")","","","(49",")"],["","","$","2,111","","","$","2,016","","","$","2,148"],["Operating income (loss)"],["Life Sciences","","$","130","","","$","123","","","$","114"],["Personal Care & Household (b)","","","73","","","","(296",")","","","85"],["Specialty Additives (b)","","","61","","","","(132",")","","","18"],["Intermediates and Solvents","","","35","","","","(10",")","","","28"],["Unallocated and Other","","","(118",")","","","(148",")","","","(159",")"],["","","$","181","","","$","(463",")","","$","86"],["Depreciation expense"],["Life Sciences","","$","36","","","$","33","","","$","33"],["Personal Care & Household","","","39","","","","41","","","","42"],["Specialty Additives","","","66","","","","62","","","","98"],["Intermediates and Solvents","","","12","","","","13","","","","10"],["Unallocated and Other","","","1","","","","2","","","","5"],["","","$","154","","","$","151","","","$","188"],["Amortization expense (c)"],["Life Sciences","","$","28","","","$","27","","","$","28"],["Personal Care & Household","","","42","","","","36","","","","37"],["Specialty Additives","","","19","","","","19","","","","21"],["Intermediates and Solvents","","","1","","","","1","","","","3"],["Unallocated and Other","","","\u2014","","","","1","","","","\u2014"],["","","$","90","","","$","84","","","$","89"],["EBITDA (d) (e)"],["Life Sciences","","$","194","","","$","183","","","$","175"],["Personal Care & Household","","","154","","","","(219",")","","","164"],["Specialty Additives","","","146","","","","(51",")","","","137"],["Intermediates and Solvents","","","48","","","","4","","","","41"],["Unallocated and Other","","","(117",")","","","(145",")","","","(154",")"],["","","$","425","","","$","(228",")","","$","363"]] [[/GREPCENT_TABLE]] (a) Intersegment sales from Intermediates and Solvents are accounted for at prices that approximate fair value. All other intersegment sales are accounted for at cost. (b) Includes a fixed asset impairment of $3 million related to Personal Care & Household and a capital project impairment of $10 million related to Specialty Additives for the year ended September 30, 2021. (c) Includes amortization of $4 million for the year ended September 30, 2019 related to land-use-rights associated with other non-current assets. (d) Excludes income (loss) from discontinued operations, other net periodic benefit income (expense) and net income (loss) on divestitures. See the Statement of Consolidated Comprehensive Income (Loss) for applicable amounts excluded. (e) Includes $39 million of accelerated depreciation for the year ended September 30, 2019. M-17 Life Sciences Life Sciences is comprised of pharmaceuticals, nutrition, nutraceuticals, agricultural chemicals, advanced materials and fine chemicals. Pharmaceutical solutions include controlled release polymers, disintegrants, tablet coating, thickeners, solubilizers, and tablet binders. Nutrition solutions include thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and binding structured foods. Nutraceutical solutions include products for weight management, joint comfort, stomach and intestinal health, sports nutrition and general wellness. The nutraceutical business also provide custom formulation, toll processing and particle engineering solutions. Customers include pharmaceutical, food, beverage, nutraceuticals and supplements manufacturers, hospitals and radiologists and industrial manufacturers. 2021 compared to 2020 Life Sciences' sales for the current year increased $29 million to $737 million compared to 2020. Favorable currency exchange, favorable volume and favorable pricing increased sales by $14 million, $11 million and $4 million, respectively. Operating income increased $7 million to $130 million compared to 2020. Favorable foreign currency exchange and higher volume increased operating income $12 million and $3 million, respectively, offset by unfavorable pricing and higher production costs, and environmental reserve adjustments of $14 million, $4 million, and $1 million, respectively. Additionally, there were $11 million of inventory control costs in 2020. EBITDA for the current year increased $11 million to $194 million compared to 2020. Adjusted EBITDA was flat year over year, while adjusted EBITDA margin decreased 1.0 percentage points in the current period to 26.5%. 2020 compared to 2019 Life Sciences' sales for 2020 decreased $24 million to $708 million compared to 2019. Plant restructuring, unfavorable foreign currency exchange, lower volume and lower pricing reduced sales by $9 million, $6 million, $5 million and $4 million, respectively. Operating income for 2020 increased $9 million to $123 million compared to 2019. Favorable price/mix and lower production costs contributed increases of $19 million and $3 million, respectively, partially offset by inventory control costs and lower volume of $11 million and $2 million, respectively. EBITDA for 2020 increased $8 million to $183 million compared to 2019. Adjusted EBITDA increased $20 million to $195 million. Adjusted EBITDA margin increased 3.6 percentage points in 2020 to 27.5%. EBITDA and Adjusted EBITDA reconciliation The EBITDA and Adjusted EBITDA amounts presented within this business section are provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for each segment. Each of these non-GAAP measures is defined as follows: EBITDA (operating income plus depreciation and amortization), Adjusted EBITDA (EBITDA adjusted for key items, which may include pro forma effects for significant acquisitions or divestitures, as applicable), and Adjusted EBITDA margin (Adjusted EBITDA, which may include pro forma adjustments, divided by sales or sales adjusted for pro forma results). Ashland does not allocate items to each reportable segment below operating income, such as interest expense and income taxes. As a result, reportable segment EBITDA and Adjusted EBITDA are reconciled directly to operating income since it is the most directly comparable Statements of Consolidated Comprehensive Income (Loss) caption. The following EBITDA presentation for the years ended September 30, 2021, 2020 and 2019, is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Life Sciences. The key items during year ended September 30, 2021 related to environmental reserve adjustments of $1 million. The key items during year ended September 30, 2020 related to inventory control measures of $11 million and restructuring costs of $1 million. M-18 [[GREPCENT_TABLE]] [["","","Life Sciences"],["(In millions)","","2021","","","2020","","","2019"],["Operating income","","$","130","","","$","123","","","$","114"],["Depreciation and amortization","","","64","","","","60","","","","61"],["EBITDA","","","194","","","","183","","","","175"],["Restructuring and other costs","","","\u2014","","","","1","","","","\u2014"],["Environmental reserve adjustments","","","1","","","","\u2014","","","","\u2014"],["Inventory control measures","","","\u2014","","","","11","","","","\u2014"],["Adjusted EBITDA","","$","195","","","$","195","","","$","175"]] [[/GREPCENT_TABLE]] Personal Care & Household Personal Care & Household is comprised of biofunctionals, preservatives, skin care, sun care, oral care, hair care and household. These businesses have a broad range of nature-based, biodegradable, and performance ingredients for customer driven solutions to help protect, renew, moisturize and revitalize skin and hair, and provide solutions for toothpastes, mouth washes and rinses, denture cleaning and care for teeth. Household supplies nature-derived rheology ingredients, biodegradable surface wetting agents, performance encapsulates, and specialty polymers for household, industrial and institutional cleaning products. Customers include formulators at large multinational branded consumer products companies and smaller, independent boutique companies. On April 30, 2021, Ashland completed the $312 million acquisition of the personal care business from Schülke. The completion of the acquisition is expected to strengthen the profitable growth of the personal care and household segment, enhance the specialty ingredients solutions and expand the biotechnology and microbiology technical competencies. 2021 compared to 2020 Personal Care & Household's sales for the current year decreased $23 million to $592 million compared to 2020. Unfavorable volume and product pricing decreased sales by $64 million and $3 million, respectively. These decreases were partially offset by the Schülke acquisition and foreign currency, which increased sales by $32 million and $12 million, respectively. Operating income/loss for the current year increased $369 million to income of $73 million compared to 2020. Favorable foreign currency exchange, lower costs, a prior year goodwill impairment and prior year inventory control costs increased operating income by $6 million, $37 million, $356 million and $13 million, respectively. These increases were partially offset by an inventory adjustment related to the Schülke acquisition, lower volume, unfavorable price/mix, a plant restructuring related impairment charge, and storm related unplanned plant shutdown costs which decreased operating income by $4 million, $23 million, $2 million, $3 million, and $11 million, respectively. EBITDA for the current year increased $373 million to income of $154 million compared to 2020. Adjusted EBITDA increased $11 million to $161 million. Adjusted EBITDA margin increased 2.8 percentage points in the current period to 27.2%. 2020 compared to 2019 Personal Care & Household's sales for 2020 decreased $36 million to $615 million compared to 2019. Lower volume, unfavorable currency exchange, plant restructuring and lower pricing decreased sales by $27 million, $2 million, $2 million and $5 million, respectively. During 2020, sales volumes were impacted by economic circumstances brought on by the COVID-19 pandemic. Operating income/loss for 2020 decreased $381 million to a loss of $296 million compared to 2019. Goodwill impairments, unfavorable costs, inventory control measures and lower volume decreased operating income by $356 million, $19 million, $13 million and $8 million, respectively. Those decreases were partially offset by favorable price/mix which increased operating income/loss by $15 million. EBITDA for 2020 decreased $383 million to a loss of $219 million compared to 2019, while Adjusted EBITDA decreased $14 million to income of $150 million. Adjusted EBITDA margin decreased 0.8 percentage point in 2020 to 24.4%. EBITDA and Adjusted EBITDA reconciliation M-19 The following EBITDA presentation for the years ended September 30, 2021, 2020 and 2019, is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Personal Care & Household. The key items during year ended September 30, 2021 related to inventory adjustments of $4 million and an asset impairment of $3 million. The key items during year ended September 30, 2020 related to a goodwill impairment of $356 million and $13 million in inventory control measures. [[GREPCENT_TABLE]] [["","","","","","Personal Care & Household"],["(In millions)","","2021","","","2020","","","2019"],["Operating income","","$","73","","","$","(296",")","","$","85"],["Depreciation and amortization","","","81","","","","77","","","","79"],["EBITDA","","","154","","","","(219",")","","","164"],["Inventory adjustment","","","4","","","","\u2014","","","","\u2014"],["Asset impairment","","","3","","","","\u2014","","","","\u2014"],["Goodwill impairment","","","\u2014","","","","356","","","","\u2014"],["Inventory control measures","","","\u2014","","","","13","","","","\u2014"],["Adjusted EBITDA","","$","161","","","$","150","","","$","164"]] [[/GREPCENT_TABLE]] Specialty Additives Specialty Additives is comprised of rheology- and performance-enhancing additives serving the coatings, construction, energy, automotive and various industrial markets. Solutions include coatings additives for architectural paints, finishes and lacquers, cement- and gypsum- based dry mortars, ready-mixed joint compounds, synthetic plasters for commercial and residential construction, and specialty materials for industrial applications. Products include rheology modifiers (cellulosic and associative thickeners), foam control agents, surfactants and wetting agents, pH neutralizers, advanced ceramics used in catalytic converters, and environmental filters, ingredients that aid the manufacturing process of ceramic capacitors, plasma display panels and solar cells, ingredients for textile printing, thermoplastic metals and alloys for welding. Products help improve desired functional outcomes through rheology modification and control, water retention, workability, adhesive strength, binding power, film formation, deposition and suspension and emulsification. Customers include global paint manufacturers, electronics and automotive manufacturers, textile mills, the construction industry, and welders. 2021 compared to 2020 Specialty Additives sales for the current year increased $66 million to $655 million compared to 2020. Higher volume, favorable currency exchange, and product pricing increased sales by $44 million, $19 million, and $3 million, respectively. Operating income/loss for the current year increased $193 million to $61 million compared to 2020. Higher volume, favorable price/mix, foreign currency exchange, a prior year goodwill impairment charge and prior year inventory control costs increased operating income by $12 million, $14 million, $2 million, $174 million and $18 million, respectively. Those improvements were partially offset by higher production costs and a capital project impairment of $17 million and $10 million, respectively. EBITDA for the current year increased $197 to $146 million compared to 2020, Adjusted EBITDA increased $15 million to $158 million and Adjusted EBITDA margin decreased 0.2 percentage points in 2021 to 24.1%. 2020 compared to 2019 Specialty Additives sales for 2020 decreased $65 million to $589 million compared to 2019. Lower volume, due primarily to lower industrial demand reflecting the impact of the COVID-19 pandemic, unfavorable currency exchange, plant restructuring and lower pricing decreased sales by $52 million, $2 million, $6 million and $5 million, respectively. M-20 Operating income/loss for 2020 year decreased $150 million to a loss of $132 million compared to 2019. Goodwill impairment, inventory control measures, lower volume and increased production costs decreased operating income by $174 million, $18 million, $15 million and $4 million, respectively. Those decreases were partially offset by 2019 plant restructuring/shutdown costs and favorable price/mix of $50 million and $11 million, respectively. EBITDA for 2020 decreased $150 to a loss of $51 million compared to 2019, while Adjusted EBITDA decreased $7 million to $143 million. Adjusted EBITDA margin increased 1.4 percentage points in 2020 to 24.3%. EBITDA and adjusted EBITDA reconciliation The following EBITDA presentation (as defined and described in the section above) for the years ended September 30, 2021, 2020 and 2019 below is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Specialty Additives. The key items during 2021 included $10 million and $2 million related to a capital project impairment and environmental reserve adjustments within Specialty Additives, respectively. The key items during 2020 included $174 million related to Goodwill impairment, $18 million for inventory control measures and $2 million of environmental reserve adjustments. The key items during 2019 included $38 million of accelerated depreciation related to a planned facility closure, $10 million of costs related to restructuring activity at certain manufacturing plants, $2 million for an unplanned plant shutdown and $1 million of environmental reserve adjustments for Specialty Additives. [[GREPCENT_TABLE]] [["","","Specialty Additives"],["(In millions)","","2021","","","2020","","","2019"],["Operating income","","$","61","","","$","(132",")","","$","18"],["Depreciation and amortization (a)","","","85","","","","81","","","","81"],["EBITDA","","","146","","","","(51",")","","","99"],["Restructuring and other costs","","","\u2014","","","","\u2014","","","","10"],["Goodwill impairment","","","\u2014","","","","174","","","","\u2014"],["Asset impairment","","","10","","","","\u2014","","","","\u2014"],["Inventory control measures","","","\u2014","","","","18","","","","\u2014"],["Accelerated depreciation","","","\u2014","","","","\u2014","","","","38"],["Environmental reserve adjustments","","","2","","","","2","","","","1"],["Unplanned plant shutdown","","","\u2014","","","","\u2014","","","","2"],["Adjusted EBITDA","","$","158","","","$","143","","","$","150"]] [[/GREPCENT_TABLE]] (a) Depreciation and amortization excludes accelerated depreciation of $38 million for the year ended September 30, 2019. Intermediates and Solvents Intermediates and Solvents is comprised of the production of 1,4 butanediol (BDO) and related derivatives, including n-methylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. BDO is also supplied to Life Sciences, Personal Care, and Specialty Additives for use as a raw material. 2021 compared to 2020 Intermediates and Solvents’ sales for 2021 increased $49 million to $178 million compared to 2020 primarily due to higher product pricing, higher volume, and favorable foreign exchange increasing sales $31 million, $17 million, and $1 million, respectively. Operating income/loss for 2021 increased $45 million to income of $35 million compared to 2020. Pricing/mix, lower production costs, prior year inventory adjustments, and favorable foreign exchange increased operating income by $28 million, $9 million, $9 million, and $1 million, respectively. This increase was partially offset by unfavorable volume which decreased operating income by $2 million. M-21 EBITDA for 2021 increased $44 million to $48 million compared to 2020, while Adjusted EBITDA increased $35 million to $48 million. Adjusted EBITDA margin increased 16.9 percentage points in 2021 to 27.0%. 2020 compared to 2019 Intermediates and Solvents’ sales for 2020 decreased $31 million to $129 million compared to 2019. Lower volume, due primarily to lower industrial demand reflecting the impact of the COVID-19 pandemic, and lower pricing decreased sales by $19 million and $12 million, respectively. Operating income/loss for 2020 decreased $38 million to a loss of $10 million compared to 2019. Inventory control measures, lower volume and unfavorable costs decreased operating income by $9 million, $10 million and $19 million, respectively. EBITDA for 2020 decreased $37 million to $4 million compared to 2019, while Adjusted EBITDA decreased $28 million to $13 million. Adjusted EBITDA margin decreased 15.5 percentage points in 2020 to 10.1%. EBITDA and Adjusted EBITDA reconciliation The following EBITDA presentation (as defined and described in the section above) for the years ended September 30, 2021, 2020 and 2019 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Intermediates and Solvents. Key items for 2020 included inventory control measures of $9 million. There were no unusual or key items that affected comparability for EBITDA during 2021 or 2019. [[GREPCENT_TABLE]] [["","","Intermediates & Solvents"],["(In millions)","","2021","","","2020","","","2019"],["Operating income","","$","35","","","$","(10",")","","$","28"],["Depreciation and amortization","","","13","","","","14","","","","13"],["EBITDA","","","48","","","","4","","","","41"],["Inventory control measures","","","\u2014","","","","9","","","","\u2014"],["Adjusted EBITDA","","$","48","","","$","13","","","$","41"]] [[/GREPCENT_TABLE]] Unallocated and other The following table summarizes the key components of the Unallocated and other segment’s operating income (loss) for each of the last three years ended September 30. [[GREPCENT_TABLE]] [["","","Unallocated and Other"],["(In millions)","","2021","","","2020","","","2019"],["Restructuring activities","","$","(25",")","","$","(78",")","","$","(108",")"],["Environmental expenses","","","(40",")","","","(33",")","","","(25",")"],["Legal settlement/reserve","","","\u2014","","","","(2",")","","","\u2014"],["Tax indemnity expense","","","\u2014","","","","\u2014","","","","(6",")"],["Proxy costs","","","\u2014","","","","\u2014","","","","(4",")"],["Other expenses (primarily governance and legacy expenses)","","","(53",")","","","(35",")","","","(16",")"],["Total expense","","$","(118",")","","$","(148",")","","$","(159",")"]] [[/GREPCENT_TABLE]] Unallocated and other recorded expense of $118 million, $148 million and $159 million for 2021, 2020 and 2019 respectively. The charges for restructuring activities of $25 million, $78 million and $108 million during 2021, 2020 and 2019, respectively, were primarily comprised of the following items: • $10 million, $58 million and $42 million of severance, lease abandonment and other restructuring costs related to company-wide cost reduction programs during 2021, 2020 and 2019, respectively; • $4 million of impairment related to the planned sale of an office building during 2019; • $15 million, $20 million and $62 million of stranded divestiture costs during 2021, 2020 and 2019, respectively; M-22 The remaining items included: $40 million for environmental expenses in 2021, $33 million for environmental expenses and $2 million for legal settlement reserves in 2020, and $25 million for environmental expenses, $6 million for tax indemnity costs and $4 million in proxy defense costs in 2019. Other expenses between periods were driven by changes in governance and legacy expenses associated with foreign currency, deferred compensation, stock compensation and incentive compensation. FINANCIAL POSITION Liquidity Ashland had $210 million in cash and cash equivalents as of September 30, 2021, of which $183 million was held by foreign subsidiaries and had no significant limitations that would prohibit remitting the funds to satisfy corporate obligations. In certain circumstances, if such amounts were repatriated to the United States, additional taxes might need to be accrued and paid depending on the source of the earnings remitted. Ashland currently has no plans to repatriate any amounts for which additional taxes would need to be accrued. However, due to the Tax Act enacted in 2018, Ashland may reassess this position as it pertains to future earnings. Ashland has taken actions and may continue to take actions intended to increase its cash position and preserve financial flexibility in light of current uncertainty in global markets. On March 17, 2021, Ashland terminated its U.S. accounts receivable securitization facility and entered into an agreement with a group of entities to sell certain trade receivables, without recourse, of two U.S. based Ashland subsidiaries. Under the agreement, Ashland can transfer whole receivables up to a limit established by the buyer. As of September 30, 2021, Ashland has sold $113 million of receivables under this agreement against the buyers’ limit, which was at $125 million at September 30, 2021. During the fourth quarter of Fiscal 2021, Ashland issued new 3.375% Notes in the amount of $450 million, which will mature in 2031, and used part of the proceeds to retire its 4.75% Senior notes, which were due to mature in 2022 for $427 million, including $16 million of premiums paid to the holders of the bond. In January 2020, Ashland renewed and extended its Revolving Credit Agreement through 2025 and issued new 2.00% senior notes in Europe for €500 million which mature in 2028. During the fiscal 2021, Ashland elected to access $225 million on its Revolving Credit Facility, to partially fund an accelerated share repurchase. As of September 30, 2021, Ashland has total remaining borrowing capacity of $356 million available under the Revolving Credit Facility and foreign Accounts Receivable Securitization Facility. Ashland also had an additional $12 million available liquidity under the U.S. Accounts Receivable Sales Program as of September 30, 2021. Ashland has no significant maturities related to our term loans, revolving credit facilities or bonds until fiscal 2025. See Note I for more information. Ashland believes that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for Ashland’s foreseeable working capital needs, capital expenditures at existing facilities, dividend payments and debt service obligations. Ashland’s cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. For information regarding the impact of COVID-19 on the Company, including its liquidity and capital resources, please see Item 1A. Risk Factors in this report. Ashland’s cash flows from operating, investing and financing activities, as reflected in the Statements of Consolidated Cash Flows, are summarized as follows. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Cash provided (used) by:"],["Operating activities from continuing operations","","$","466","","","$","227","","","$","140"],["Investing activities from continuing operations","","","(367",")","","","(85",")","","","(111",")"],["Financing activities from continuing operations","","","(426",")","","","9","","","","(1,149",")"],["Discontinued operations","","","80","","","","69","","","","1,061"],["Effect of currency exchange rate changes on cash and cash equivalents","","","3","","","","2","","","","(3",")"],["Net increase (decrease) in cash and cash equivalents","","$","(244",")","","$","222","","","$","(62",")"]] [[/GREPCENT_TABLE]] M-23 Ashland paid income taxes of $1 million during 2021 compared to $91 million in 2020 and $67 million in 2019. Cash receipts for interest income were $1 million in 2021, $1 million in 2020 and $3 million in 2019, while cash payments for interest expense amounted to $62 million in 2021, $77 million in 2020 and $124 million in 2019. Operating activities The following discloses the cash flows associated with Ashland’s operating activities for 2021, 2020 and 2019, respectively. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Cash flows provided (used) by operating activities from continuing operations"],["Net income (loss)","","$","220","","","$","(508",")","","$","505"],["Income from discontinued operations (net of tax)","","","(47",")","","","(47",")","","","(544",")"],["Adjustments to reconcile income from continuing operations to cash flows from operating activities"],["Depreciation and amortization","","","244","","","","235","","","","277"],["Original issue discount and debt issuance cost amortization","","","7","","","","15","","","","13"],["Deferred income taxes","","","(26",")","","","(42",")","","","18"],["Distributions from equity affiliates","","","1","","","","1","","","","\u2014"],["Gain from sales of property and equipment","","","(4",")","","","\u2014","","","","\u2014"],["Stock based compensation expense - Note P","","","15","","","","14","","","","21"],["Excess tax benefits on stock based compensation","","","2","","","","1","","","","11"],["Loss on early retirement of debt","","","16","","","","59","","","","\u2014"],["Income from restricted investments","","","(33",")","","","(30",")","","","(17",")"],["Income on acquisitions and divestitures - Notes B and C","","","(15",")","","","(3",")","","","\u2014"],["Impairments","","","13","","","","530","","","","8"],["Pension contributions","","","(8",")","","","(6",")","","","(5",")"],["Gain on pension and other postretirement plan remeasurements","","","1","","","","(1",")","","","(8",")"],["Change in operating assets and liabilities (a)","","","80","","","","9","","","","(139",")"],["Total cash flows provided by operating activities from continuing operations","","$","466","","","$","227","","","$","140"]] [[/GREPCENT_TABLE]] (a) Excludes changes resulting from operations acquired or sold. Cash flows provided by operating activities from continuing operations, a major source of Ashland’s liquidity, amounted to $466 million in 2021, $227 million in 2020 and $140 million in 2019. Operating Activities - Operating Assets and Liabilities The cash results during each year were primarily driven by net income, excluding discontinued operation results, adjusted for certain non-cash items including depreciation and amortization (including debt issuance cost amortization), losses on acquisitions and divestitures as well as changes in working capital, which are fluctuations within accounts receivable, inventory, trade payables and accrued expenses. Ashland continues to emphasize working capital management as a high priority and focus. The following details certain changes in key operating assets and liabilities for 2021, 2020 and 2019, respectively. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Cash flows from assets and liabilities (a)"],["Accounts receivable","","$","72","","","$","2","","","$","37"],["Inventories","","","41","","","","64","","","","(6",")"],["Trade and other payables","","","3","","","","(46",")","","","(70",")"],["Other assets and liabilities","","","(36",")","","","(11",")","","","(100",")"],["Change in operating assets and liabilities","","$","80","","","$","9","","","$","(139",")"]] [[/GREPCENT_TABLE]] (a) Excludes changes resulting from operations acquired or sold. M-24 Changes in net working capital accounted for inflows of $116 million in 2021, compared to inflows of $20 million in 2020 and outflows of $39 million in 2019, and were driven by the following: • Accounts receivable – Changes in accounts receivable resulted in inflows of $72 million, $2 million, and $37 million in 2021, 2020 and 2019, respectively, and were primarily related $92 million of inflows from the U.S. Accounts Receivable Sales Program and to sales volumes in each period. • Inventory – Changes in inventory resulted in cash inflows of $41 million and $64 million in 2021 and 2020 compared to cash outflows of $6 million in 2019 and were primarily driven by inventory management activities, including significant plant shut-downs in the fourth quarter of 2020. • Trade and other payables – Changes in trade and other payables resulted in cash inflows of $3 million in 2021, and cash outflows of $46 million and $70 million in 2020 and 2019, respectively, and primarily related to the timing of certain payments. The remaining cash outflows of $36 million, $11 million and $100 million in 2021, 2020 and 2019, respectively, were primarily due to income taxes paid or income tax refunds, interest paid, and adjustments to certain accruals and other long-term assets and liabilities such as payments associated with environmental remediation. Operating Activities - Summary Operating cash flows for 2021 included income from continuing operations of $173 million and non-cash adjustments of $244 million for depreciation and amortization, $15 million for stock-based compensation expense, $16 million for losses on early retirement of debt, $33 million of income from restricted investments, $15 million of income on acquisitions and divestitures and $13 million for impairment charges. Operating cash flows for 2020 included loss from continuing operations of $555 million and non-cash adjustments of $530 million for a goodwill impairment charge, $235 million for depreciation and amortization, $59 million loss on early retirement of debt, $15 million original issue discounts and debt issuance cost amortization and $42 million for deferred income taxes. Operating cash flows for 2020 also included non-cash adjustments of $14 million related for stock-based compensation expense and $30 million income from restricted investments. Operating cash flows for 2019 included loss from continuing operations of $39 million and non-cash adjustments of $277 million for depreciation and amortization and $18 million for deferred income taxes. The adjustment for deferred income taxes during 2019 included the final adjustment related to the enactment of the Tax Act during 2018. Operating cash flows for 2019 also included non-cash adjustments of $21 million for stock-based compensation, $8 million related to asset impairment charges, $8 million of net gains on pension and other postretirement plan remeasurements, $13 million for debt issuance cost amortization, and $17 million income from restricted investments. M-25 Investing activities The following discloses the cash flows associated with Ashland’s investing activities for 2021, 2020 and 2019. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Cash flows provided (used) by investing activities from continuing operations"],["Additions to property, plant and equipment","","$","(105",")","","$","(133",")","","$","(147",")"],["Proceeds from disposal of property, plant and equipment","","","5","","","","5","","","","9"],["Purchase of operations - net of cash acquired","","","(309",")","","","\u2014","","","","(2",")"],["Proceeds from sale or restructuring of operations","","","14","","","","9","","","","\u2014"],["Proceeds from settlement of Company-owned life insurance contracts","","","91","","","","8","","","","3"],["Company-owned life insurance payments","","","(6",")","","","(6",")","","","(3",")"],["Net purchases of funds restricted for specific transactions","","","(91",")","","","(3",")","","","(7",")"],["Reimbursement from restricted investments","","","33","","","","35","","","","32"],["Proceeds from sale of securities","","","149","","","","21","","","","348"],["Purchase of securities","","","(149",")","","","(21",")","","","(348",")"],["Proceeds from the settlement of derivative instruments","","","1","","","","\u2014","","","","6"],["Payments for the settlement of derivative instruments","","","\u2014","","","","\u2014","","","","(2",")"],["Total cash flows used by investing activities from continuing operations","","$","(367",")","","$","(85",")","","$","(111",")"]] [[/GREPCENT_TABLE]] Cash used by investing activities was $367 million in 2021 compared to $85 million and $111 million in 2020 and 2019, respectively. The significant cash investing activities for the current year primarily related to cash outflows of $105 million for capital expenditures and $309 million related to the purchase of the Schülke personal care business. Additionally, there were reimbursements of $33 million from the restricted renewable annual asbestos trust and $14 million of proceeds from the sale of a manufacturing facility as well as post-closing adjustments. During the fourth quarter of fiscal 2021, Ashland liquidated $90 million in company owned life insurance contracts to initiate the environmental trust. The 2020 year included cash outflows of $133 million for capital expenditures. Additionally, there were reimbursements of $35 million from the restricted renewable annual asbestos trust and $9 million of proceeds from the sale of a manufacturing facility. The 2019 year included cash outflows of $147 million for capital expenditures. Additionally, there were reimbursements of $32 million from the restricted renewable annual asbestos trust. Financing activities The following discloses the cash flows associated with Ashland’s financing activities for 2021, 2020 and 2019, respectively. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Cash flows provided (used) by financing activities from continuing operations"],["Proceeds from issuance of long-term debt","","$","450","","","$","804","","","$","\u2014"],["Repayment of long-term debt","","","(411",")","","","(767",")","","","(797",")"],["Premium on long-term debt repayment","","","(16",")","","","(59",")","","","\u2014"],["Proceeds from (repayment of) short-term debt","","","84","","","","115","","","","(78",")"],["Repurchase of common stock","","","(450",")","","","\u2014","","","","(200",")"],["Debt issuance costs","","","(6",")","","","(11",")","","","\u2014"],["Cash dividends paid","","","(70",")","","","(66",")","","","(64",")"],["Stock based compensation employee withholding taxes paid in cash","","","(7",")","","","(7",")","","","(10",")"],["Total cash flows provided (used) by financing activities from continuing operations","","$","(426",")","","$","9","","","$","(1,149",")"]] [[/GREPCENT_TABLE]] M-26 Cash provided (used) by financing activities was $(426) million for 2021, $9 million for 2020, and $(1,149) million for 2019. Significant cash financing activities for 2021 included $411 million for the full repayment of the 4.750% notes due 2022, $16 million of premiums paid on the retirement of the aforementioned notes, $450 million of proceeds from the issuance of new 3.375% senior notes due 2031, payments of $6 million of new debt issuance costs, and short-term debt of $84 million. See note I for additional information. 2021 also included cash dividends paid of $1.15 per share, for a total of $70 million and common stock repurchases of $450 million. Significant cash financing activities for 2020 included proceeds from issuance of long-term debt, repayment of long-term debt, premiums paid on retirement of long-term debt, and debt issuance costs paid of $804 million, $767 million, $59 million and $11 million, respectively, all related to debt refinancing activity. See note I for additional information. 2020 also included short-term cash inflows of $115 million, primarily related to draws on the 2020 Revolving Credit Facility and cash dividends paid of $1.10 per share, for a total of $66 million. Significant cash financing activities for 2019 included a cash outflow of $797 million for repayments of long-term debt, including $593 million for the full repayment of the term loan B facility, $195 million for the full repayment of the five-year term loan A facility, $5 million for repayments of the Series B – 9.35% Medium Term Notes, $3 million for repayments of the 4.75% Senior Notes due 2022, and $1 million for the 6.875% Senior Notes due 2043. 2019 also included short-term debt net repayments of $78 million related to the revolving credit facility, the accounts receivable securitization facilities and a short-term loan facility. The revolving credit facility and the outstanding balance of the three-year term loan A facility were repaid primarily using cash from repatriations. 2019 also included cash dividends paid of $1.05 per share, for a total of $64 million and common stock repurchases of $200 million. Cash provided (used) by discontinued operations The following discloses the cash flows associated with Ashland’s discontinued operations for 2021, 2020 and 2019, respectively. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Cash provided (used) by discontinued operations"],["Operating cash flows","","$","94","","","$","(24",")","","$","101"],["Investing cash flows","","","(14",")","","","93","","","","960"],["Total cash provided (used) by discontinued operations","","$","80","","","$","69","","","$","1,061"]] [[/GREPCENT_TABLE]] Cash flows for discontinued operations in 2021, 2020 and 2019 primarily related to net cash inflows of $88 million related to the Performance Adhesives segment and a $30 million cash inflow for a tax refund associated with the Composites divestiture in 2021; $80 million inflows related to the Performance Adhesives segment, $98 million inflows related to the sale of the Maleic business and $59 million cash outflows for tax payments associated with the sale of the Composites business and Marl facility in 2020; and $81 million inflows related to the Performance Adhesives segment, $1 billion (which includes net proceeds from the completed sale of the Composites business (excluding the Maleic business) and Marl facility of $972 million) related to the divestiture of the Composites business (including the Maleic business) and Marl facility in 2019, respectively. The remaining cash flows for discontinued operations for these years related to other previously divested businesses, including net payments of asbestos and environmental liabilities. M-27 Free cash flow and other liquidity information The following represents Ashland’s calculation of free cash flow for the disclosed periods and reconciles free cash flow to cash flows provided by operating activities from continuing operations. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments. See “Results of Operations - Consolidated Review - Use of non-GAAP measures” for additional information. [[GREPCENT_TABLE]] [["","","September 30"],["(In millions)","","2021","","","2020","","","2019"],["Cash flows provided by operating activities from continuing operations","","$","466","","","$","227","","","$","140"],["Less:"],["Additions to property, plant and equipment","","","(105",")","","","(133",")","","","(147",")"],["Free cash flows (a) (b)","","$","361","","","$","94","","","$","(7",")"]] [[/GREPCENT_TABLE]] (a) Included $44 million, $30 million and $61 million of restructuring-related and separation payments during 2021, 2020 and 2019, respectively. (b) Includes $92 million of cash inflows during 2021 associated with the U.S. Accounts Receivable Sales Program. At September 30, 2021, working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $792 million, compared to $734 million at the end of 2020. Liquid assets (cash, cash equivalents and accounts receivable) amounted to 62% of current liabilities at September 30, 2021 and 110% at September 30, 2020. The following summary reflects Ashland’s cash, investment securities and unused borrowing capacity as of September 30, 2021, 2020 and 2019. [[GREPCENT_TABLE]] [["","","September 30"],["(In millions)","","2021","","","2020","","","2019"],["Cash and cash equivalents","","$","210","","","$","454","","","$","232"],["Unused borrowing capacity"],["Revolving credit facility","","$","356","","","$","500","","","$","752"],["2018 accounts receivable securitization (foreign)","","","\u2014","","","","\u2014","","","","\u2014"],["2012 accounts receivable securitization (U.S.)","","","\u2014","","","","\u2014","","","","48"],["Accounts receivable sales program (U.S.)","","","12","","","","\u2014","","","","\u2014"]] [[/GREPCENT_TABLE]] The borrowing capacity remaining under the $600 million revolving credit facility was $356 million due to an outstanding balance of $225 million and a reduction of $19 million for letters of credit outstanding at September 30, 2021. In total, Ashland’s available liquidity position, which includes cash, the revolving credit facilities and accounts receivable securitization facilities, was $566 million at September 30, 2021 as compared to $954 million at September 30, 2020 and $1,032 million at September 30, 2019. Ashland also had an additional $12 million of liquidity available under the U.S. accounts receivable sales program as of September 30, 2021. For further information, see Note I within the Notes to Consolidated Financial Statements. Capital resources Debt The following summary reflects Ashland’s debt as of September 30, 2021 and 2020. [[GREPCENT_TABLE]] [["","","September 30"],["(In millions)","","2021","","","2020"],["Short-term debt (includes current portion of long-term debt)","","$","374","","","$","280"],["Long-term debt (less current portion and debt issuance cost discounts) (a)","","","1,596","","","","1,573"],["Total debt","","$","1,970","","","$","1,853"]] [[/GREPCENT_TABLE]] (a) Includes $17 million and $15 million of debt issuance cost discounts as of September 30, 2021 and 2020, respectively. During fiscal 2021, Ashland completed the issuance of 3.375% senior unsecured notes due 2031 with an aggregate principal amount of $450 million. Ashland used the net proceeds of the offering to redeem its obligations under the existing 4.750% senior notes due 2022 for a total of $411 million. During fiscal 2020, Ashland entered into a new credit facility, the 2020 Credit Agreement, which was comprised of a $600 million, 5-year credit facility and a $250 million 5-year term loan. Additionally, M-28 Ashland issued new 8-year Senior notes in Europe, for approximately $554 million. The proceeds of these debt issuances were primarily used to tender for $767 million of Senior notes. See Note I for more information. The current portion of long-term debt was $9 million at September 30, 2021. Debt as a percent of capital employed was 42% at September 30, 2021 and 38% at September 30, 2020. At September 30, 2021, Ashland’s total debt had an outstanding principal balance of $2,027 million, discounts of $40 million and debt issuance costs of $17 million. The scheduled aggregate maturities of long-term debt for the next five fiscal years (including the current portion and excluding debt issuance costs) are as follows: $9 in 2022, $22 million in 2023, $44 million in 2024, $175 million in 2025, and zero in 2026. Credit Agreements and Refinancing Note Issuance and existing notes tender During August 2021, a subsidiary of Ashland, Ashland LLC, completed the issuance of 3.375% senior unsecured notes due 2031 with an aggregate principal amount of $450 million (the 2031 Notes). The 2031 notes are senior unsecured obligations of Ashland LLC and initially guaranteed on an unsecured basis by Ashland Global Holdings Inc. Ashland used the net proceeds of the offering (after deducting initial purchasers' discounts and other fees and expenses) to redeem its obligations under the existing 4.750% senior notes due 2022 described below in debt repayments, and to pay fees and expenses associated therewith. Ashland incurred $6 million of new debt issuance costs in connection with the 2031 Notes, which is amortized using the effective interest method over the Notes' term and was included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). During January 2020, a subsidiary of Ashland, Ashland Services B.V., completed the issuance of 2.00% senior unsecured notes due 2028 with an aggregate principal amount of €500 million (the 2028 Notes). The 2028 notes are senior unsecured obligations of Ashland Services B.V and initially guaranteed on an unsecured basis by each of Ashland Global Holdings Inc. and Ashland LLC. Ashland used the net proceeds of the offering (after deducting initial purchasers’ discounts and other fees and expenses), together with the proceeds of the new term loan facility and other funds of Ashland LLC or its subsidiaries, to repurchase the existing notes described below in cash tender offers, and to pay fees and expenses associated therewith. Ashland incurred $8 million of new debt issuance costs in connection with the 2028 Notes, which is amortized using the effective interest method over the 2028 Notes’ term. 2020 Credit Agreement During January 2020, Ashland LLC and Ashland Services B.V., indirect and wholly owned subsidiaries of Ashland, entered into a new senior unsecured credit agreement (the 2020 Credit Agreement) with a group of lenders, replacing the 2017 Credit Agreement. The 2020 Credit Agreement provides for (i) a $600 million unsecured five-year revolving credit facility (the 2020 Revolving Credit Facility) and (ii) a $250 million unsecured five-year term loan facility (the 2020 Term Loan Facility). The 2020 Credit Agreement is guaranteed by Ashland Global Holdings Inc. and Ashland Chemco Inc., and the obligations of Ashland Services B.V. under the 2020 Revolving Credit Facility are guaranteed by Ashland LLC. Proceeds of borrowings under the 2020 Revolving Credit Facility were used to refinance the Ashland’s existing 2017 Credit Agreement, to provide ongoing working capital and for other general corporate purposes. The proceeds under the 2020 Term Loan Facility were used to refinance a portion of Ashland’s outstanding 4.750% Senior Notes due 2022, 6.875% Senior Notes due 2043 and Hercules LLC’s 6.500% junior subordinated debentures. At Ashland’s option, loans issued under the 2020 Credit Agreement bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. Loans initially bear interest at LIBOR plus 1.375% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.375%, in the alternative, through and including the date of delivery of a quarterly compliance certificate and thereafter the interest rate will fluctuate between LIBOR plus 1.250% per annum and LIBOR plus 1.750% per annum (or between the alternate base rate plus 0.250% per annum and the alternate base rate plus 0.750% annum), based upon the consolidated net leverage ratio (as defined in the 2020 Credit Agreement) at such time. In addition, Ashland is initially required to pay fees of 0.20% per annum on the daily unused amount of the 2020 Revolving Facility through and including the date of delivery of a compliance certificate, and thereafter the fee rate will fluctuate between 0.15% and 0.30% per annum, based upon the consolidated net leverage ratio. The Credit Facilities may be prepaid at any time without premium. M-29 The term loan A (TLA) Facility will not amortize in each of the first and second years and will amortize at a rate of 5.0% per annum, 10% per annum and 20% per annum in the third, fourth and fifth years, respectively (payable in equal quarterly installments), with the outstanding balance of the TLA Facility to be paid on January 10, 2025. The 2020 Credit Agreement contains financial covenants for leverage and interest coverage ratios akin to those in effect under the 2017 Credit Agreement. The 2020 Credit Agreement contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional indebtedness, further negative pledges, investments, mergers, sale of assets and restricted payments, and other customary limitations. Ashland incurred $4 million of new debt issuance costs in connection with the 2020 Credit Agreement, of which $1 million was expensed immediately during 2020 within the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). The remaining balance is amortized using either the effective interest method or straight-line method. Financing activity related to the 2017 Credit Agreement During 2019, Ashland utilized proceeds from the sale of its Composites business (excluding the Maleic business) and the Marl facility to repay the remaining principal balance of the TLA Facility and the TLB Facility. As a result of these repayments, Ashland recognized accelerated amortization of previously capitalized debt issuance costs of $6 million during 2019, which was included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). During January 2020, Ashland entered into the 2020 Credit Agreement, replacing the 2017 Credit Agreement. As a result of the termination of the 2017 Credit Agreement, Ashland recognized a $1 million charge for accelerated amortization of previously capitalized debt issuance costs during 2020, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). Debt repayments and repurchases Cash repatriation During 2021 and 2020, Ashland repatriated approximately $131 million and $576 million (including the proceeds of the 2020 senior notes due 2028), respectively, in cash that was primarily used to repay existing debt, principally portions of the 4.75% senior notes due 2022, the 6.875% senior notes due 2043 and the 6.5% junior notes in 2020 and the TLA Facility and TLB Facility in 2019 (as previously discussed). 2021 Debt repayments and repurchases Redemption of 4.750% senior notes due 2022 During 2021, Ashland redeemed all of its outstanding 4.750% senior notes due 2022 (the 2022 Notes), of which approximately $411 million were outstanding. Ashland recognized a $1 million charge related to accelerated accretion on debt discounts and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). Proceeds from the 2031 Notes were used to pay for the redemption. Total premiums paid for all the tender offers in 2021 noted above were $16 million, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). 2020 Debt repayments and repurchases Tender offers of 4.750% notes due 2022 During 2020, Ashland executed tender offers of its 4.750% notes due 2022 (the 2022 Notes). As a result of these repurchases, the carrying values of the 2022 Notes was reduced by $670 million. Ashland recognized a $5 million charge related to accelerated accretion on debt discounts and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). M-30 Tender offers of 6.875% notes due 2043 During 2020, Ashland executed tender offers of its 6.875% notes due 2043 (the 2043 Notes). As a result of these repurchases, the carrying values of the 2043 Notes was reduced by $92 million. Ashland recognized a $1 million charge related to accelerated accretion on debt premiums and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). Tender offers of 6.500% Junior Subordinated Debentures due 2029 During 2020, Ashland executed tender offers of Hercules LLC’s 6.500% junior subordinated debentures due 2029 (the 2029 Junior Debentures). As a result of these repurchases, the carrying values of the 2029 Junior Debentures was reduced by $2 million. Total premiums paid for all the tender offers in 2020 noted above were $59 million, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). 2019 Debt repayments and repurchases Repayment of the Term loan A due 2022 During 2019, Ashland repaid all of the outstanding principal balance of its term loan A for a total of $195 million. As a result of these repayments, Ashland recognized accelerated amortization of previously capitalized debt issuance costs of $1 million during 2019, which was included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). Repayment of the Term loan B due 2024 During 2019, Ashland repaid all of the outstanding principal balance of its term loan B for a total of $593 million. As a result of these repayments, Ashland recognized accelerated amortization of previously capitalized debt issuance costs of $5 million during 2019, which was included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). Redemption of 9.35% notes due 2019 During 2019, Ashland redeemed all of its outstanding 9.35% medium term notes due 2019, of which approximately $5 million were outstanding. Cash on hand was used to pay for the redemption. Open market repurchases of 4.750% notes due 2022 and 6.875% notes due 2043 During 2019, Ashland executed open market repurchases of its 4.750% notes due 2022 (2022 Senior Notes) and its 6.875% notes due 2043 (2043 Senior Notes). As a result of these repurchases, the carrying values of the 2022 and 2043 Senior Notes were reduced by $3 million and $1 million, respectively. Accounts receivable securitizations U.S. Accounts Receivable Sales Program On March 17, 2021, a wholly-owned, bankruptcy-remote special purpose entity (SPE) and consolidated Ashland subsidiary entered into an agreement with a group of entities (buyers) to sell certain trade receivables, without recourse beyond the pledged receivables, of two other U.S. based Ashland subsidiaries. Under the agreement, Ashland can transfer whole receivables up to a limit established by the buyer, which is currently set at $125 million between February and October of each year and up to $100 million all other times. Ashland’s continuing involvement is limited to servicing the receivables, including billing, collections and remittance of payments to the buyers as well as a limited guarantee on over-collateralization. The arrangement terminates on May 31, 2023, unless terminated earlier pursuant to the terms of the agreement. Ashland determined that any receivables transferred under this agreement are put presumptively beyond the reach of Ashland and its creditors, even in bankruptcy or other receivership. Ashland received a true sale at law and non-consolidation opinions to support the legal isolation of these receivables. Consequently, Ashland accounts for the receivables transferred to buyers as part of this agreement as a sale. Ashland recognizes any gains or losses based on the excess of proceeds received net of buyer’s discounts and fees compared to the carrying value of the assets. Proceeds received, net of buyer’s discounts and fees, are recorded M-31 within the operating activities of the Statement of Consolidated Cash Flows. Losses on sale of assets, including related transaction expenses are recorded within the Net interest and other expense (income) caption of the Statement of Consolidated Comprehensive Income (Loss). Ashland regularly assesses its servicing obligations and records them as assets or liabilities when appropriate. Ashland also monitors its obligation with regards to the limited guarantee and records the resulting guarantee liability when warranted. When applicable, Ashland discloses the amount of the receivable that serves as over-collateralization as a restricted asset. Ashland recognized a $1 million loss within its Statement of Consolidated Comprehensive Income (Loss) for the year ended September 30, 2021 within the net interest and other expense (income) caption associated with sales under the program. Ashland has recorded $113 million of sales against the buyer’s limit, which was $125 million at September 30, 2021. Ashland transferred $167 million in receivables to the SPE as of September 30, 2021. Ashland recorded liabilities related to its service obligations and limited guarantee as of September 30, 2021 of less than $1 million. As of September 30, 2021, the year-to-date gross cash proceeds received for receivables transferred and derecognized was $432 million, of which $319 million was collected. The difference of $113 million represents the proceeds from new transfers of receivables as of September 30, 2021, of which $21 million related to Performance Adhesives. 2018 foreign accounts receivable securitization During July 2018, Ashland entered into a €115 million accounts receivable securitization facility (the Program) for the transfer by certain subsidiaries of Ashland (the Sellers) directly or indirectly to Ester Finance Titrisation (the Purchaser), a wholly-owned subsidiary of Crédit Agricole Corporate and Investment Bank (the Arranger), of certain receivables and/or collections originated by the Sellers towards certain corporate debtors located in multiple European jurisdictions and denominated in multiple currencies. The Program originally had a term of two years but was extended to August 2021 in September 2019. During July 2021, the termination date of the program was extended to July 2023. During July 2020, the available funding for qualified receivables under the accounts receivable securitization facility decreased from €115 million to €100 million. Under the Program, each Seller will assign, on an ongoing basis, certain of its accounts receivable and the right to the collections on those accounts receivable to the Purchaser. Under the terms of the Program, the Sellers could, from time to time, obtain up to €100 million from the Purchaser through the sale of an undivided interest in such accounts receivable and collections. Ashland accounts for the securitization facility as secured borrowings, and the receivables sold pursuant to the facility are included in the Consolidated Balance Sheets as accounts receivable. Fundings under the Program will be repaid as accounts receivable are collected, with new fundings being advanced (through daily advanced purchase price) as new accounts receivable are originated by the Sellers and assigned to the Purchaser, with settlement occurring monthly. Ashland classifies any borrowings under this facility as a short-term debt instrument within the Consolidated Balance Sheets. Once sold to the Purchaser, the accounts receivable and rights to collection described above are separate and distinct from each Sellers’ own assets and are not available to its creditors should such Sellers become insolvent. At September 30, 2021 and 2020, the outstanding amount of accounts receivable transferred by Ashland to the Purchaser was $152 million and $131 million, respectively, and there were $117 million and $93 million, respectively, of borrowings (denominated in multiple currencies) under the facility. The weighted-average interest rate for this instrument was 0.6% and 1.2% for 2021 and 2020, respectively. 2012 U.S. accounts receivable securitization On August 31, 2012, Ashland entered into a $350 million accounts receivable securitization facility pursuant to (i) a Sale Agreement, among Ashland and certain of its direct and indirect subsidiaries (each an Originator and collectively, the Originators) and CVG Capital III LLC, a wholly-owned “bankruptcy remote” special purpose subsidiary of the Originators (CVG) and (ii) a Transfer and Administration Agreement, among CVG, each Originator, Ashland, as Master Servicer, certain Conduit Investors, Uncommitted Investors, Letter of Credit Issuers, Managing Agents, Administrators and Committed Investors, and The Bank of Nova Scotia, as agent for various secured parties (the Agent). The Transfer and Administration Agreement had a term of three years but was extendable at the discretion of Ashland and the Investors. M-32 Under the Sale Agreement, each Originator transfers, on an ongoing basis, certain of its accounts receivable, certain related assets and the right to the collections on those accounts receivable to CVG. Ashland accounts for the securitization facility as secured borrowings, and the receivables sold pursuant to the facility are included in the Consolidated Balance Sheets as accounts receivable. Fundings under the Transfer and Administration Agreement will be repaid as accounts receivable are collected, with new fundings being advanced (through daily reinvestments) as new accounts receivable are originated by the Originators and transferred to CVG, with settlement generally occurring monthly. Ashland continues to classify any borrowings under this facility as a short-term debt instrument within the Consolidated Balance Sheets. Once sold to CVG, the accounts receivable, related assets and rights to collection described above are separate and distinct from each Originator’s own assets and are not available to its creditors should such Originator become insolvent. Substantially all of CVG’s assets have been pledged to the Agent in support of its obligations under the Transfer and Administration Agreement. During 2016, the termination date of the commitments under the Transfer and Administration Agreement was extended from December 31, 2015, the previous termination extension date, to March 22, 2017. During March 2017, this facility was extended for an additional year with similar terms as the previous facility agreement. During March 2018, the termination date of the accounts receivable securitization facility was extended from March 2018 to March 2020. During March 2020, the termination date of the accounts receivable securitization was extended from March 2020 to March 2021. The available funding for qualified receivables under the accounts receivable securitization facility increased from $100 million to $115 million, however this was decreased back to $100 million on August 30, 2019 in conjunction with the Composites and Marl facility divestiture. No other changes to the agreement are expected to have a significant impact to Ashland's results of operations and financial position. On March 17, 2021, Ashland terminated its U.S. 2012 Accounts Receivable Securitization facility. The program had no outstanding borrowings at its termination. At September 30, 2020, the outstanding amount of accounts receivable transferred by Ashland to CVG was $151 million. Ashland had $84 million of borrowings under the facility as of September 30, 2020. The weighted-average interest rate for this instrument was 1.8% for 2020. Other debt At September 30, 2021 and 2020, Ashland held other debt totaling $83 million and $81 million, respectively, comprised primarily of a European short-term loan facility, the 6.50% notes due 2029 and other notes. Ashland debt covenants restrictions Ashland’s debt contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations. As of September 30, 2021, Ashland was in compliance with all debt agreement covenant restrictions. The maximum consolidated net leverage ratio permitted under Ashland’s most recent credit agreement (the 2020 Credit Agreement) is 4.0. The 2020 Credit Agreement defines the consolidated net leverage ratio as the ratio of consolidated indebtedness minus unrestricted cash and cash equivalents to consolidated EBITDA (Covenant Adjusted EBITDA) for any measurement period. In general, the 2020 Credit Agreement defines Covenant Adjusted EBITDA as net income plus consolidated interest charges, taxes, depreciation and amortization expense, fees and expenses related to capital market transactions and proposed or actual acquisitions and divestitures, restructuring and integration charges, non-cash stock and equity compensation expense, and any other nonrecurring expenses or losses that do not represent a cash item in such period or any future period; less any non-cash gains or other items increasing net income. The computation of Covenant Adjusted EBITDA differs from the calculation of EBITDA and Adjusted EBITDA, which have been reconciled on page M-14. In general, consolidated indebtedness includes debt plus all purchase money indebtedness, banker’s acceptances and bank guaranties, deferred purchase price of property or services, attributable indebtedness and guarantees. At September 30, 2021, Ashland’s calculation of the consolidated net leverage ratio was 3.2. M-33 The minimum required consolidated interest coverage ratio under the 2020 Credit Agreement is 3.0. The 2020 Credit Agreement defines the consolidated interest coverage ratio as the ratio of Covenant Adjusted EBITDA to consolidated interest charges for any measurement period. At September 30, 2021, Ashland’s calculation of the consolidated interest coverage ratio was 9.4. Any change in Covenant Adjusted EBITDA of $100 million would have an approximate 0.5x effect on the consolidated net leverage ratio and a 1.7x effect on the consolidated interest coverage ratio. Any change in consolidated indebtedness of $100 million would affect the consolidated net leverage ratio by approximately 0.2x. Ashland credit ratings Ashland’s corporate credit ratings remained unchanged at BB+ by Standard & Poor’s and Ba1 by Moody’s Investor Services. As of September 30, 2021, Moody’s Investor Services outlook remained at stable, while Standard & Poor’s outlook was revised to stable from negative. Subsequent changes to these ratings or outlook may have an effect on Ashland’s borrowing rate or ability to access capital markets in the future. Additional capital resources Ashland cash projection Ashland believes that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for the Company’s foreseeable working capital needs, capital expenditures at existing facilities, pending acquisitions, dividend payments and debt service obligations. The Company’s cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. For information regarding the impact of COVID-19 on the Company, including on its liquidity and capital resources, please see item 1A, Risk Factors in this report. Ashland expects the following material cash funding requirements from known contractual obligations at September 30, 2021: [[GREPCENT_TABLE]] [["","","","","","Less than","","","More than"],["(In millions)","","Total","","","1 year","","","1 year"],["Material Cash Funding Requirements Contractual obligations"],["Raw material and service contract purchase obligations (a)","","$","104","","","$","67","","","$","37"],["Employee benefit obligations (b)","","","64","","","","9","","","","55"],["Operating lease obligations (c)","","","173","","","","39","","","","134"],["Interest payments (d)","","","711","","","","57","","","","654"],["Unrecognized tax benefits (e)","","","82","","","","6","","","","76"],["One-time transition tax (f)","","","50","","","","5","","","","45"],["Total contractual obligations","","$","1,184","","","$","183","","","$","1,001"],["Other commitments"],["Letters of credit (g)","","$","81","","","$","81","","","$","\u2014"]] [[/GREPCENT_TABLE]] M-34 (a) Includes raw material and service contracts where minimal committed quantities and prices are fixed. (b) Includes estimated funding of Ashland’s qualified U.S. and non-U.S. pension plans for 2021 as well as projected benefit payments through 2030 under Ashland’s unfunded pension and other postretirement benefit plans. Excludes the benefit payments from the pension plan trust funds. See Note M of the Notes to Consolidated Financial Statements for additional information. (c) Includes leases for office buildings, transportation equipment, warehouses and storage facilities and other equipment. For further information, see Note K of the Notes to Consolidated Financial Statements. (d) Includes interest expense on both variable and fixed rate debt assuming no prepayments. Variable interest rates have been assumed to remain constant through the end of the term at rates that existed as of September 30, 2021. (e) Due to uncertainties in the timing of the effective settlement of tax positions with respect to taxing authorities, Ashland is unable to determine the timing of payments related to noncurrent unrecognized tax benefits, including interest and penalties. Therefore, these amounts were included in the “More than 1 year” column. (f) As a result of the Tax Act enacted during fiscal year 2018, Ashland has currently recorded a $50 million liability for the one-time transition tax. This liability will be payable over six years. (g) Ashland issues various types of letters of credit as part of its normal course of business. For further information, see Note I of the Notes to Consolidated Financial Statements. Total Equity Total equity was $2,752 million and $3,036 million at September 30, 2021 and September 30, 2020, respectively. During 2021, there were increases of $220 million for net income, $7 million for deferred translation gains, $4 million for unrealized gains on commodity hedges, and $8 million for common shares issued under stock incentive plans. These increases were offset by decreases of $450 million for repurchases of common stock and $71 million for dividends paid during 2021. Stock repurchase programs During March 2018, Ashland’s Board of Directors approved a $1 billion stock repurchase program, which replaced the 2015 stock repurchase program. Under the new program, Ashland’s common shares may be repurchased in open market transactions, privately negotiated transactions or pursuant to one or more accelerated stock repurchase programs or Rule 10b5-1 plans. As of September 30, 2021, $350 million remained available for repurchase under this authorization. Stock repurchase program agreements In September 2021, under the 2018 stock repurchase program, Ashland announced that it entered into an accelerated share repurchase agreement (2021 ASR Agreement). Under the 2021 ASR Agreement, Ashland paid an initial purchase price of $450 million and received an initial delivery of 3.9 million shares of common stock during September 2021. The program is expected to terminate by March 2022, resulting in a final share repurchase transaction. In May 2019, under the 2018 stock repurchase program, Ashland announced that it entered into an accelerated share repurchase agreement (2019 ASR Agreement). Under the 2019 ASR Agreement, Ashland paid an initial purchase price of $200 million and received an initial delivery of 2.2 million shares of common stock during May 2019. The bank exercised its early termination option under the 2019 ASR Agreement in August 2019, and an additional 400 thousand shares were repurchased, bringing the total shares repurchased upon settlement to 2.6 million. Stockholder dividends Ashland paid dividends per common share of $1.15, $1.10 and $1.05 during 2021, 2020 and 2019, respectively. In May 2021, the Board of Directors of Ashland announced a quarterly cash dividend of 30 cents per share to eligible stockholders of record, which was paid in the third quarter of fiscal 2021. This dividend represented an increase over the previous quarterly cash dividend of 27.5 cents per share. This dividend was paid in the third and fourth quarters of fiscal 2021. In May 2019, the Board of Directors of Ashland announced a quarterly cash dividend of 27.5 cents per share to eligible stockholders at record, which represented an increase from the previous quarterly cash dividend of 25.0 cents per share. This dividend was paid in the third and fourth quarters of fiscal 2019, each quarter of fiscal 2020 and the first and second quarters of 2021. In May 2018, the Board of Directors of Ashland announced a quarterly cash dividend of 25 cents per share to eligible stockholders at record, which represented an increase from the previous quarterly cash dividend of 22.5 cents per share. This dividend was paid in the third quarter and fourth quarters of fiscal 2018 and the first and second quarters of fiscal 2019. M-35 Capital expenditures Capital expenditures were $105 million for 2021 and averaged $128 million during the last three years. Ashland expects capital expenditures over the next three years of approximately $165 million annually. A summary of capital expenditures by reportable segment during 2021, 2020 and 2019 follow. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020","","","2019"],["Life Sciences","","$","27","","","$","51","","","$","54"],["Personal Care & Household","","","7","","","","13","","","","20"],["Specialty Additives","","","67","","","","59","","","","57"],["Intermediates and Solvents","","","2","","","","5","","","","7"],["Unallocated and Other","","","2","","","","5","","","","9"],["Total capital expenditures","","$","105","","","$","133","","","$","147"]] [[/GREPCENT_TABLE]] A summary of the capital employed in Ashland’s current operations, which is calculated by adding equity to capital investment, as of the end of the last two years is as follows. [[GREPCENT_TABLE]] [["(In millions)","","2021","","","2020"],["Capital employed (a)"],["Life Sciences","","$","1,857","","","$","1,879"],["Personal Care & Household","","","1,082","","","","885"],["Specialty Additives","","","1,447","","","","1,506"],["Intermediates and Solvents","","","132","","","","143"]] [[/GREPCENT_TABLE]] (a) Excludes the assets and liabilities classified within unallocated and other which primarily includes debt and other long-term liabilities such as asbestos and pension. The net liability in unallocated and other was $2,313 million and $1,948 million as of September 30, 2021 and 2020, respectively. Additionally, net assets held for sale were $547 million and $571 million as of September 30, 2021 and 2020, respectively. OFF-BALANCE SHEET ARRANGEMENTS As part of its normal course of business, Ashland is a party to various financial guarantees and other commitments. These arrangements involve elements of performance and credit risk that are not included in the Consolidated Balance Sheets. The possibility that Ashland would have to make actual cash expenditures in connection with these obligations is largely dependent on the performance of the guaranteed party, or the occurrence of future events that Ashland is unable to predict. Ashland has reserved the approximate fair value of these guarantees in accordance with U.S. GAAP. NEW ACCOUNTING PRONOUNCEMENTS For a discussion and analysis of recently issued accounting pronouncements and its impact on Ashland, see Note A of Notes to Consolidated Financial Statements. M-36 CRITICAL ACCOUNTING ESTIMATES The preparation of Ashland’s 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, long-lived assets (including 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. Management has reviewed the estimates affecting these items with the Audit Committee of Ashland’s Board of Directors. Environmental remediation and asset retirement obligations Ashland is subject to various federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts (collectively environmental remediation) at multiple locations. At September 30, 2021, such locations included 81 waste treatment or disposal sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, 112 current and former operating facilities and about 1,225 service station properties, of which 18 are being actively remediated. See Note N of the Notes to Consolidated Financial Statements for additional information. Ashland’s reserves for environmental remediation and related environmental litigation amounted to $207 million at September 30, 2021 compared to $200 million at September 30, 2020 of which $152 million at September 30, 2021 and $150 million at September 30, 2020 were classified in other noncurrent liabilities on the Consolidated Balance Sheets. The remaining reserves were classified in accrued expenses and other liabilities on the Consolidated Balance Sheets. The total reserves for environmental remediation reflect Ashland’s estimates of the most likely costs that will be incurred over an extended period to remediate identified conditions for which the costs are reasonably estimable, without regard to any third-party recoveries. Engineering studies, probability techniques, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated reserves for environmental remediation. Ashland continues to discount certain environmental sites and regularly adjusts its reserves as environmental remediation continues. Ashland has estimated the value of its probable insurance recoveries associated with its environmental reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage. At September 30, 2021 and 2020, Ashland’s recorded receivable for these probable insurance recoveries was $16 million and $15 million, respectively, of which $13 million and $13 million, respectively, were classified in other noncurrent assets in the Consolidated Balance Sheets. During 2021, 2020 and 2019, Ashland recognized $50 million, $48 million and $30 million of expense, respectively, for certain environmental liabilities related to normal ongoing remediation cost estimate updates for sites, which is consistent with Ashland’s historical environmental accounting policy. Environmental remediation reserves are subject to numerous inherent uncertainties that affect Ashland’s ability to estimate its share of the costs. Such uncertainties involve the nature and extent of contamination at each site, the extent of required cleanup efforts under existing environmental regulations, widely varying costs of alternate cleanup methods, changes in environmental regulations, the potential effect of continuing improvements in remediation technology, and the number and financial strength of other potentially responsible parties at multiparty sites. Although it is not possible to predict with certainty the ultimate costs of environmental remediation, Ashland currently estimates that the upper end of the reasonably possible range of future costs for identified sites could be as high as approximately $480 million. The largest reserve for any site is 13% of the remediation reserve. Asbestos litigation Ashland and Hercules have liabilities from claims alleging personal injury caused by exposure to asbestos. To assist in developing and annually updating independent reserve estimates for future asbestos claims and related costs given various assumptions, Ashland has retained third party actuarial experts Gnarus Advisors, LLC (Gnarus). The methodology used by Gnarus to project future asbestos costs is based largely on recent experience, including claim-filing and settlement rates, disease mix, enacted legislation, open claims and litigation defense. The claim experience of Ashland and Hercules are separately M-37 compared to the results of previously conducted third party epidemiological studies estimating the number of people likely to develop asbestos-related diseases. Those studies were undertaken in connection with national analyses of the population expected to have been exposed to asbestos. Using that information, Gnarus estimates a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims. Changes in asbestos-related liabilities and receivables are recorded on an after-tax basis within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss). See Note N of the Notes to Consolidated Financial Statements for additional information. Ashland asbestos-related litigation The claims alleging personal injury caused by exposure to asbestos asserted against Ashland result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley, a former subsidiary. The amount and timing of settlements and number of open claims can fluctuate from period to period. Ashland asbestos-related liability From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of Gnarus. During the most recent update completed during 2021, it was determined that the liability for Ashland asbestos-related claims should be increased by $12 million. Total reserves for asbestos claims were $320 million at September 30, 2021 compared to $335 million at September 30, 2020. Ashland asbestos-related receivables Ashland has insurance coverage for certain litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage that will be accessed. For the Ashland asbestos-related obligations, Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. Substantially all of the estimated receivables from insurance companies are expected to be due from domestic insurers, all of which are solvent. At September 30, 2021, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $100 million (excluding the Hercules receivable for asbestos claims). Receivables from insurers amounted to $103 million at September 30, 2020. During 2021, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers, was completed. This model update resulted in a $8 million increase in the receivable for probable insurance recoveries. Hercules asbestos-related litigation Hercules has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. The amount and timing of settlements and number of open claims can fluctuate from period to period. Hercules asbestos-related liability From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs, which generally approximates the mid-point of the estimated range of exposure from model results. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 50-year model developed with the assistance of Gnarus. As a result of the most recent annual update of this estimate, completed during 2021, it was determined that the liability for Hercules asbestos-related claims should be increased by $8 million. Total reserves for asbestos claims were $217 million at September 30, 2021 compared to $229 million at September 30, 2020. M-38 Hercules asbestos-related receivables For the Hercules asbestos-related obligations, certain reimbursement obligations pursuant to coverage-in-place agreements with insurance carriers exist. As a result, any increases in the asbestos reserve have been partially offset by probable insurance recoveries. Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. The estimated receivable consists exclusively of solvent domestic insurers. As of September 30, 2021 and 2020, the receivables from insurers amounted to $47 million for both periods. During 2021, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers was completed. This model update resulted in a $2 million increase in the receivable for probable insurance recoveries. Asbestos litigation cost projection Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, mortality rates, dismissal rates, costs of medical treatment, the impact of bankruptcies of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, Ashland believes that the asbestos reserves for Ashland and Hercules represent the best estimate within a range of possible outcomes. As a part of the process to develop these estimates of future asbestos costs, a range of long-term cost models was developed. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. Ashland has currently estimated in various models ranging from approximately 40 to 50 year periods that it is reasonably possible that total future litigation defense and claim settlement costs on an inflated and undiscounted basis could range as high as approximately $482 million for the Ashland asbestos-related litigation (current reserve of $320 million) and approximately $334 million for the Hercules asbestos-related litigation (current reserve of $217 million), depending on the combination of assumptions selected in the various models. If actual experience is worse than projected, relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, or actuarial refinement or improvements to the assumptions used within these models are initiated, Ashland may need to further increase the estimates of the costs associated with asbestos claims and these increases could be material over time. Long-lived assets Tangible assets The cost of property, plant and equipment is depreciated by the straight-line method over the estimated useful lives of the assets. Buildings are depreciated principally over 12 to 35 years and machinery and equipment principally over 2 to 25 years. Ashland reviews property, plant and equipment asset groups for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Ashland monitors these changes and events on at least a quarterly basis. Examples of events or changes in circumstances could include, but are not limited to, a prolonged economic downturn, current period operating or cash flow losses combined with a history of losses or a forecast of continuing losses associated with the use of an asset group, or a current expectation that an asset group will be sold or disposed of before the end of its previously estimated useful life. Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the property, plant and equipment asset groups, as well as specific appraisals in certain instances. Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other property, plant and equipment asset groups. If the future undiscounted cash flows result in a value that is less than the carrying value, then the long-lived asset is considered impaired and a loss is recognized based on the amount by which the carrying amount exceeds the estimated fair value. Various factors that Ashland uses in determining the impact of these assessments include the expected useful lives of long-lived assets and the ability to realize any undiscounted cash flows in excess of the carrying amounts M-39 of such asset groups, and are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Because judgment is involved in determining the fair value of property, plant and equipment asset groups, there is risk that the carrying value of these assets may require adjustment in future periods. Total depreciation expense on property, plant and equipment for 2021, 2020 and 2019 was $154 million, $151 million and $188 million, respectively. Depreciation expense for 2019 included $39 million in accelerated depreciation. Capitalized interest for 2021, 2020 and 2019 was $2 million, $2 million and zero, respectively. Finite-lived intangible assets Finite-lived intangible assets principally consist of certain trademarks and trade names, intellectual property, and customer relationships. These intangible assets are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 3 to 25 years, intellectual property over 5 to 25 years and customer and supplier relationships over 3 to 24 years. Ashland reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Ashland monitors these changes and events on at least a quarterly basis. Amortization expense recognized on finite-lived intangible assets was $90 million for 2021, $84 million for 2020 and $85 million for 2019. Goodwill Ashland accounts for goodwill and other intangible assets acquired in a business combination in conformity with current accounting guidance which does not allow for goodwill and indefinite-lived intangible assets to be amortized. Ashland reviews goodwill for impairment annually as of July 1 or when events and circumstances indicate an impairment may have occurred. Ashland tests goodwill for impairment by comparing the estimated fair value of the reporting units to the related carrying value. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds fair value. However, the loss recognized cannot exceed the carrying amount of goodwill. Reporting units are defined as either operating segments or one level below the operating segments for which discrete financial information is available and reviewed by the business management. During the second quarter of fiscal 2020, Ashland realigned its operations which resulted in a reassessment of the Company’s reporting units used to evaluate goodwill impairment. The Company’s reporting units align with its reportable segments and determined that its reporting units are Life Sciences, Personal Care & Household, Specialty Additives, Performance Adhesives, Intermediates and Solvents and Unallocated and Other. On August 31, 2021, Ashland announced that it had signed a definitive agreement to sell its Performance Adhesives segment. Ashland determined that this expected divestiture qualified as a discontinued operation. Accordingly, the assets and liabilities that are to be sold have been classified within the Consolidated Balance Sheets under a held for sale designation. See Notes C and D for additional information on this expected divestiture. Following this announcement, Ashland determined that its new reporting segments are: Life Sciences, Personal Care & Household, Specialty Additives, Intermediates and Solvents and Unallocated and Other. Ashland makes various estimates and assumptions in determining the estimated fair value of each reporting unit using a combination of discounted cash flow models and valuations based on earnings multiples for guideline public companies in each reporting unit’s industry peer group, when externally quoted market prices are not readily available. Discounted cash flow models are highly reliant on various assumptions, including projected business results, long-term growth factors and weighted-average cost of capital. Management judgement is involved in estimating these variables, and they include inherent uncertainties since they are forecasting future events. Ashland performs sensitivity analyses by using a range of inputs to confirm the reasonableness of the long-term growth rate and weighted average cost of capital estimates. Additionally, Ashland compares the indicated equity value to Ashland’s market capitalization and evaluates the resulting implied control premium/discount to determine if the estimated enterprise value is reasonable compared to external market indicators. M-40 Ashland performed its annual goodwill impairment using the quantitative approach as of July 1, 2021 and concluded there was no impairment as of that date. The impairment test at July 1, 2021 concluded that all reporting units had fair values significantly in excess of its respective carrying amounts. Ashland compared the total fair values of the reporting units to Ashland’s market capitalization at July 1, 2021, including the implied control premium, to determine if the fair values are reasonable compared to external market indicators. Ashland believes its use of significant assumptions within its valuation models are reasonable estimates of likely future events. Subsequent to this annual impairment test, no additional indications of an impairment were identified. This includes the review of the Performance Adhesives business purchase price comparison to book value, which was significantly in excess of the Performance Adhesives business carrying value. Significant assumptions inherent in the valuation methodologies include estimates of future projected business results (principally revenue and EBITDA), long-term growth rates, and the weighted-average cost of capital. Ashland performed sensitivity analyses by using a range of inputs to confirm the reasonableness of long-term growth rate and weighted average cost of capital estimates. Significant assumptions utilized in the impairment analysis included the weighted-average cost of capital, ranging between 8.8% and 10.0%, and terminal growth rate, ranging between 2.0% and 4.0% depending on the reporting unit. Based on sensitivity analysis performed on two key assumptions in the discounted cash flow model at July 1, 2021, a 1% decrease in the long-term growth factor assumption or a 1% increase in the weighted average cost of capital assumption across each of Ashland’s reporting units would not have resulted in a fair value below the respective reporting units carrying value. For further information, see Note H of Notes to the Consolidated Financial Statements. Other indefinite-lived intangible assets Other indefinite-lived intangible assets include certain trademarks and trade names. Ashland reviews these intangible assets for possible impairment annually as of July 1 or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, the asset is written down to its fair value and the amount of the write down is the impairment charge. Similar to its annual assessment for goodwill, Ashland performs a quantitative test for impairment. When a quantitative analysis is performed, Ashland tests these assets using a “relief-from-royalty” valuation method to determine the fair value. Significant assumptions inherent in the valuation methodologies include, but are not limited to, future projected business results, growth rates, the weighted-average cost of capital for a market participant, and royalty and discount rates. In conjunction with the July 1 annual assessment of indefinite-lived intangible assets, Ashland’s quantitative approach models did not indicate any impairment, as each indefinite-lived intangible asset’s fair value exceeded their carrying values. Ashland’s assessment of an impairment on any of these assets classified currently as having indefinite lives, including goodwill, could change in future periods if significant events happen and/or circumstances change that effect the previously mentioned assumptions. Significant assumptions inherent in the valuation methodologies include, but are not limited to, such estimates as future projected business results, growth rates, the weighted average cost of capital for a market participant, and royalty and discount rates. For further information, see Note H of Notes to Consolidated Financial Statements. M-41 Income taxes Ashland is subject to income taxes in the United States and numerous foreign jurisdictions. Judgment in the forecasting of taxable income using historical and projected future operating results is required in determining Ashland’s provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable, and deferred taxes. Under U.S. GAAP, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax loss and credit carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the enactment date occurs. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized. Deferred taxes are not provided on the unremitted earnings of subsidiaries outside of the United States when it is expected that these earnings are indefinitely reinvested. In the event that the actual outcome of future tax consequences differs from Ashland’s estimates and assumptions due to changes or future events such as tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans, the resulting change to the provision for income taxes could have a material effect on the Statement of Consolidated Comprehensive Income (Loss) and Consolidated Balance Sheet. The recoverability of deferred tax assets and the recognition and measurement of uncertain tax positions are subject to various assumptions and judgment by Ashland. If actual results differ from the estimates made by Ashland in establishing or maintaining valuation allowances against deferred tax assets, the resulting change in the valuation allowance would generally impact earnings or other comprehensive income depending on the nature of the respective deferred tax asset. Additionally, the positions taken with regard to tax contingencies may be subject to audit and review by tax authorities, which may result in future taxes, interest and penalties. Positive and negative evidence is considered in determining the need for a valuation allowance against deferred tax assets, which includes such evidence as historical earnings, projected future earnings, tax planning strategies and expected timing of reversal of existing temporary differences. In determining the recoverability of deferred tax assets Ashland gives consideration to all available positive and negative evidence including reversals of deferred tax liabilities (other than those with an indefinite reversal period), projected future taxable income, tax planning strategies and recent financial operations. Ashland attaches the most weight to historical earnings due to their verifiable nature. In evaluating the objective evidence that historical results provide, Ashland considers three years of cumulative income or loss. In addition, Ashland has reflected increases and decreases in our valuation allowance based on the overall weight of positive versus negative evidence on a jurisdiction by jurisdiction basis. EFFECTS OF INFLATION AND CHANGING PRICES Ashland’s financial statements are prepared on the historical cost method of accounting in accordance with U.S. GAAP and, as a result, do not reflect changes in the purchasing power of the U.S. dollar. Monetary assets (such as cash, cash equivalents and accounts receivable) lose purchasing power as a result of inflation, while monetary liabilities (such as accounts payable and indebtedness) result in a gain, because they can be settled with dollars of diminished purchasing power. As of September 30, 2021, Ashland’s monetary assets exceed its monetary liabilities, leaving it currently more exposed to the effects of future inflation. However, given the recent consistent stability of inflation in the United States in the past decade as well as forward economic outlooks, current inflationary pressures seem moderate. Certain of the industries in which Ashland operates are capital-intensive, and replacement costs for its plant and equipment generally would substantially exceed their historical costs. Accordingly, depreciation and amortization expense would be greater if it were based on current replacement costs. However, because replacement facilities would reflect technological improvements and changes in business strategies, such facilities would be expected to be more productive than existing facilities, mitigating at least part of the increased expense. Ashland uses the LIFO method to value a relatively small portion of its inventories to provide a better matching of revenues with current costs. However, LIFO values such inventories below their replacement costs during inflationary periods. OUTLOOK Ashland issued its financial outlook for fiscal 2022 as shown in the table below. M-42 [[GREPCENT_TABLE]] [["","","FY2022 Outlook"],["Key Operating Metrics"],["Sales","","$2.25 - $2.35 billion"],["Adjusted EBITDA","","$550 - $570 million"]] [[/GREPCENT_TABLE]] FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements including, without limitation, statements made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” (MD&A), within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Ashland has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “objectives,” “may,” “will,” “should,” “plans” and “intends” and the negative of these words or other comparable terminology. Ashland may from time to time make forward-looking statements in its Annual Report to Stockholders, quarterly reports and other filings with the Securities and Exchange Commission (SEC), news releases and other written and oral communications. These forward-looking statements are based on Ashland’s expectations and assumptions, as of the date such statements are made, regarding Ashland’s future operating performance and financial condition and expected effects of the COVID-19 pandemic on Ashland’s business, as well as the economy and other future events or circumstances. Ashland’s expectations and assumptions include, without limitation, those mentioned within the MD&A, internal forecasts and analyses of current and future market conditions and trends, management plans and strategies, operating efficiencies, cost savings and economic conditions (such as prices, supply and demand, cost of raw materials, and the ability to recover raw-material cost increases through price increases), and risks and uncertainties associated with the following: the impact of acquisitions and/or divestitures Ashland has made or may make (including the possibility that Ashland may not realize the anticipated benefits from such transactions), including the expected sale of the Performance Adhesives business; Ashland’s substantial indebtedness (including the possibility that such indebtedness and related restrictive covenants may adversely affect Ashland’s future cash flows, results of operations, financial condition and its ability to repay debt); execution risks associated with our growth strategies; the competitive nature of our business; severe weather, natural disasters, public health crises (including the COVID-19 pandemic), cyber events and legal proceedings and claims (including product recalls, environmental and asbestos matters); the effects of the COVID-19 pandemic on the geographies in which Ashland operates, the end markets Ashland serves and on Ashland’s supply chain and customers; and without limitation, risks and uncertainties affecting Ashland that are contained in “Use of estimates, risks and uncertainties” in Note A of Notes to Consolidated Financial Statements and in Item 1A of this Annual Report Form 10-K. Various risks and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements. The extent and duration of the COVID-19 pandemic on our business and operations remains uncertain. Factors that influence the impact on our business and operations include the duration and extent of the pandemic, the extent of imposed or recommended containment and mitigation measures, and the general economic consequences of the pandemic. Ashland believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected herein will be achieved. Unless legally required, Ashland undertakes no obligation to update any forward-looking statements made in this Form 10-K whether as a result of new information, future events or otherwise. Information on Ashland’s website is not incorporated into or a part of this Form 10-K.