MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements herein.
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 adhesives, architectural coatings, construction, energy, food and beverage, personal care and pharmaceutical. With approximately 4,700 employees worldwide, Ashland serves customers in more than 100 countries. Ashland's sales generated outside ofNorth America were 60% for the three and six months endedMarch 31, 2020 and 61% for the three and six months endedMarch 31, 2019 . Sales by region expressed as a percentage of total consolidated sales for the three and six months endedMarch 31 were as follows: Three months ended Six months ended March 31 March 31 Sales by Geography 2020 2019 2020 2019 North America (a) 40 % 39 % 40 % 39 % Europe 35 % 34 % 33 % 33 % Asia Pacific 17 % 18 % 19 % 19 % Latin America & other 8 % 9 % 8 % 9 % 100 % 100 % 100 % 100 %
(a) Ashland includes only
Reportable segments 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 change recognizes that Ashland has a diverse portfolio of businesses with different value propositions for the markets Ashland serves. The organizational change allows Ashland to align its business models, resources and cost structure to the specific needs of each business and enable greater ownership and accountability for both short- and long-term performance. As a result, Ashland's five reportable segments include the consumer specialty businesses: Life Sciences and Personal Care & Household; the industrial specialty businesses: Specialty Additives and Performance Adhesives; and Intermediates and Solvents. Corporate includes corporate governance activities and certain legacy matters. The historical segment information has been recast to conform to the current segment structure. The contribution to sales by each reportable segment expressed as a percentage of total consolidated sales for the three and six months endedMarch 31 were as follows: Three months ended Six months ended March 31 March 31 Sales by Reportable Segment 2020 2019 2020 2019 Life Sciences 30 % 30 % 30 % 30 % Personal Care & Household 26 % 28 % 26 % 27 % Consumer Specialties 56 % 58 % 56 % 57 % Specialty Additives 25 % 25 % 25 % 25 % Performance Adhesives 14 % 13 % 14 % 14 % Industrial Specialties 39 % 38 % 39 % 39 % Intermediates and Solvents 5 % 4 % 5 % 4 % 100 % 100 % 100 % 100 % 37
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KEY DEVELOPMENTS Business results Ashland recorded a net loss of$582 million in the current quarter (loss of$575 million in continuing operations and$7 million loss in discontinued operations) compared to a net income of$76 million in the prior year quarter (income of$45 million in continuing operations and$31 million in discontinued operations). Results for Ashland's continuing operations were primarily driven by a non-cash goodwill impairment charge of$530 million related to the Personal Care & Household and Specialty Additives segments, debt restructuring costs of$67 million and lower volumes partially offset by lower selling, general and administrative expense and other expenses, between periods. Discontinued operations were primarily driven by the results of the Composites segment and Marl facility. Ashland's EBITDA decreased by$550 million , primarily due to the$530 goodwill impairment charge during the current quarter and lower sales volume partially offset by lower selling, general and administrative expense costs between periods. Ashland's Adjusted EBITDA is flat at$142 million (seeU.S. GAAP reconciliation below under consolidated review). Adjusted EBITDA was negatively impacted by lower sales volumes and offset by lower selling, general and administrative expenses as a result of cost reduction programs.
Uncertainty relating to the COVID-19 pandemic
Ashland did not incur significant financial consequences during the three and six months endedMarch 31, 2020 from the COVID-19 pandemic, as Ashland was able to manage through the execution of shelter in place, social distancing and deep cleaning process requirements. To date, the effects from the COVID-19 pandemic have not been significant and Ashland's operations and cash flows remain stable. Ashland's overall liquidity remains sufficient for it to meet its operating needs and other investing and financing requirements. Ashland is closely monitoring 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, 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. 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.
RESULTS OF OPERATIONS - CONSOLIDATED REVIEW
Consolidated review
Net income
Ashland's net income is primarily affected by results within operating income, net interest and other expense, income taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring.
• Ashland's net income amounted to a loss of
of$76 million for the three months endedMarch 31, 2020 and 2019, respectively, or loss of$9.61 compared to income of$1.19 diluted earnings per share, respectively. 38
-------------------------------------------------------------------------------- • Discontinued operations, which are reported net of taxes, resulted in a loss of$7 million compared to income of$31 million during the three months endedMarch 31, 2020 and 2019, respectively. • Results from continuing operations, which excludes results from
discontinued operations, amounted to a loss of
income of
respectively.
• Results from continuing operations include a goodwill impairment charge of
Household and the Specialty Additives segments. See Critical Accounting
Policies section for additional information.
• The effective income tax rates were a benefit of 2% and expense of 2% for
the three months ended
significantly impacted by certain tax discrete items in both the current
and prior year quarters.
• Ashland incurred pretax net interest and other expense of
compared to income of
and 2019, respectively. This includes charges for
million for debt refinancing costs and accelerated debt issuance costs,
respectively, for the current quarter, as well as losses of
compared to gains of
• Operating income amounted to a loss of
respectively.
Year-to-date - Key financial results for the six months ended
• Ashland's net income amounted to a loss of
income of
respectively, or loss of$9.08 and income of$0.45 diluted earnings per share, respectively.
• Discontinued operations, which are reported net of taxes, resulted in a
loss of
endedMarch 31, 2020 and 2019, respectively. • Results from continuing operations, which excludes results from discontinued operations, amounted to losses of$541 million and$26
million for the six months ended
• Results from continuing operations include a goodwill impairment charge of
Household and the Specialty Additives segments. See Critical Accounting
Policies section for additional information.
• The effective income tax rates were a benefit of 6% and expense of 2500%
for the six months ended
significantly impacted by certain tax discrete items in both the current
and prior year periods.
• Ashland incurred pretax net interest and other expense of
respectively. This includes charges for
debt refinancing costs and accelerated debt issuance costs, respectively,
for the current year, as well as losses of
of
• Other net periodic benefit income totaled
endedMarch 31, 2019 , which was related to the curtailment gain from the settlement of a non-U.S. pension plan.
• Net income/loss on divestitures totaled income of
• Operating income/loss amounted to a loss of
income of
respectively.
For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income (Loss) caption review analysis.
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Operating income
Current Quarter - Operating income/loss amounted to a loss of$468 million compared to income of$44 million for the three months endedMarch 31, 2020 and 2019, respectively. The current and prior year quarters' 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:
•
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
non-cash goodwill impairment charge. See note G and Critical Accounting
Policies for additional information. • 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 D in the Notes to Condensed Consolidated Financial Statements for further information on the restructuring activities.
• Accelerated depreciation - As a result of various restructuring activities
at certain office facilities and manufacturing facilities during the prior
year quarter, Ashland recorded accelerated depreciation due to changes in
the expected useful life of certain property, plant and equipment.
• Proxy costs - Ashland incurred significant consulting and other costs
associated with the 2019 Annual Meeting of Stockholders and agreement with
• Lower of cost or net realizable value inventory adjustment - Inventories
are carried at the lower of cost or net realizable value. When comparing
the stated value of its inventory to its net realizable value, Ashland
determined that an adjustment was required for the current quarter.
Operating income/loss for the three months ended
Year-to-date - Operating income/loss was a loss of
•
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
non-cash goodwill impairment charge. See note G and Critical Accounting
Policies for additional information. • 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 D in the Notes to Condensed Consolidated Financial Statements for further information on the restructuring activities.
• Accelerated depreciation - As a result of various restructuring activities
at certain office facilities and manufacturing facilities during the prior
year period, Ashland recorded accelerated depreciation due to changes in the expected useful life of certain property, plant and equipment. 40
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• Proxy costs - Ashland incurred significant consulting and other costs
associated with the 2019 Annual Meeting of Stockholders and agreement with
• Lower of cost or net realizable value inventory adjustment -Inventories
are carried at the lower of cost or net realizable value. When comparing
the stated value of its inventory to its net realizable value, Ashland
determined that an adjustment was required for the current year.
Operating income for the six months endedMarch 31, 2020 and 2019 included depreciation and amortization of$122 million and$124 million , respectively (which excluded accelerated depreciation and amortization of$39 million the six months endedMarch 31, 2019 ).
Non-operating key items affecting EBITDA
• Gain on pension and other postretirement plan remeasurements - Ashland
recognized a remeasurement gain due to the settlement of a non-U.S. pension plan during the prior year quarter. See Note K of the Notes to Condensed Consolidated Financial Statements for more information. • Net loss on divestitures - Ashland recorded a loss during the first quarter of fiscal 2019 related to the impairment of an investment.
Statements of Consolidated Comprehensive Income (Loss) - caption review
A comparative analysis of the Statements of Consolidated Comprehensive Income
(Loss) by caption is provided as follows for the three and six months ended
Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Sales$ 610 $ 667 $ (57 ) $ 1,143 $ 1,243 $ (100 )
The following table provides a reconciliation of the change in sales for the
three and six months ended
Three months ended Six months ended (In millions) March 31, 2020 March 31, 2020 Volume $ (35 ) $ (64 ) Plant realignment (8 ) (14 ) Currency exchange (7 ) (11 ) Pricing (7 ) (11 ) Change in sales $ (57 ) $ (100 )
Year-to-Date - Sales for the current year decreased$100 million compared to the prior year period. Unfavorable volume, plant realignment, foreign currency and product pricing decreased sales by$64 million ,$14 million ,$11 million and$11 million , respectively. Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Cost of sales$ 413 $ 469 $ (56 ) $ 793 $ 893 $ (100 ) Gross profit as a percent of sales 32.3 % 29.7 % 30.6 % 28.2 % 41
-------------------------------------------------------------------------------- Fluctuations in cost of sales are driven primarily by 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. The following table provides a quantified reconciliation of the changes in cost of sales between the three and six months endedMarch 31, 2020 and 2019. Three months ended Six months ended (In millions) March 31, 2020 March 31, 2020 Changes in: Plant realignment/closure costs $ (27 ) $ (61 ) Volume (23 ) (41 ) Currency exchange (3 ) (6 ) Operating costs (4 ) 4 Price/mix 1 4 Change in cost of sales $ (56 ) $ (100 )Current Quarter - Cost of sales for the current quarter decreased$56 million compared to the prior year quarter. Unfavorable plant realignment/closure costs, volume, operating costs and foreign currency exchange decreased cost of sales by$27 million ,$23 million ,$4 million and$3 million , respectively. Those decreases were partially offset by an increase in price/mix of$1 million . Year-to-Date - Cost of sales for the current year decreased$100 million compared to the prior year. Unfavorable plant realignment/closure costs, volume and foreign currency exchange decreased cost of sales by$61 million ,$41 million and$6 million , respectively. Those decreases were partially offset by higher operating costs and unfavorable price/mix which increased cost of sales by$4 million and$4 million , respectively. Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Selling, general and$ 103 $ 115 $ (12 ) $ 202 $ 236 $ (34 ) administrative expense As a percent of sales 16.9 % 17.2 % 17.7 % 19.0 %Current Quarter - Selling, general and administrative expense for the current quarter decreased$12 million compared to the prior year quarter with expenses as a percent of sales decreasing 0.3 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:
•
and other restructuring costs related to company-wide cost-savings initiatives during the current and prior year quarters, respectively.
• Favorable currency exchange of
well as achieved cost savings during the current quarter compared to the prior year quarter. Year-to-Date - Selling, general and administrative expense for the current quarter decreased$34 million compared to the prior year quarter with expenses as a percent of sales decreasing 1.3 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:
•
other costs during the current and prior year periods, respectively.
•
during the prior year period.
• Favorable currency exchange of
during the current year period. 42
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Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change
Research and development expense
1$ 34 $ 34 $ -
Year-to-Date - Research and development expense are consistent year over year. Three months endedMarch 31 Six months endedMarch 31
(In millions) 2020 2019 Change 2020 2019 Change Intangibles amortization$ 21 $ 21 $ -$ 42 $ 43 $ (1 ) expense
Year-to-Date - Amortization expense is relatively consistent with the prior year period. Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Goodwill impairment$ 530 $ -$ 530 $ 530 $ -$ 530
Year-to-Date - Ashland recorded an impairment charge of$530 million in the current year. See note G Critical and Accounting Policies for more information. Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Equity and other income Equity income (a) $ - $ - $ - $ - $ - $ - Other income 7 (1 ) 8 7 - 7$ 7 $ (1 ) $ 8 $ 7 $ -$ 7 (a) Activity of$0 denotes value less than$1 million .
Equity and other income increased during the three and six months due to a
liquidation gain of
Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Net interest and other expense (income) Interest expense$ 28 $ 26 $ 2 $ 51 $ 53 $ (2 ) Interest income - - - (1 ) (1 ) - Loss on early retirement of 59 - 59 59 - 59 debt Loss (income) from restricted 29 (29 ) 58 16 (2 ) 18 investments Other financing costs 1 - 1 2 2 -$ 117 $ (3 ) $ 120 $ 127 $ 52 $ 75 43
--------------------------------------------------------------------------------Current Quarter - Net interest and other expense increased by$120 million during the current quarter compared to the prior year quarter. Interest expense decreased$6 million due to lower cost of debt related to the debt restructuring activity during the current quarter compared to the prior year quarter. The decreases were offset by$8 million of accelerated debt issuance costs and original issuance discount costs for the current quarter. Ashland incurred$59 million of debt refinancing costs during the current quarter. See Note H for more information on the refinancing activity. Restricted investments included a loss of$29 million compared to gains of$29 million for the three months endedMarch 31, 2020 and 2019, respectively. See Note E for more information on the restricted investments. Year-to-Date - Net interest and other expense increased by$75 million during the current year compared to the prior year period. Interest expense decreased$10 million due to lower cost of debt related to the debt restructuring activity during the current year compared to the prior year period. The decreases were partially offset by$8 million of accelerated debt issuance costs and original issuance discount costs for the current period. Ashland incurred$59 million of debt refinancing costs during the current year. See Note H for more information on the refinancing activity. Restricted investments included losses of$16 million for the current period compared to gains of$2 million for the prior periods. See Note E for more information on the restricted investments. Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change
Other net periodic benefit income $ -
1 $ -$ 17 $ (17 )
Other net periodic benefit income during the prior year related to the
curtailment gain from the settlement of a non-
Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change
Net income (loss) on divestitures $ - $ - $
-$ 3 $ (3 ) $ 6 The activity in the current year was related to post-closing adjustments for certain divestitures, while activity in the prior year related to the impairment of an investment. Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Income tax expense (benefit)$ (10 ) $ 1 $ (11 ) $ (34 ) $ 25 $ (59 ) Effective tax rate 2 % (2 )%
6 % (2,500 )%Current Quarter - Ashland's effective tax rate in any interim period is subject to adjustments related to discrete items and the mix of domestic and foreign operating results. The overall effective tax rate was a benefit of 2% for the three months endedMarch 31, 2020 and was impacted by a nondeductible goodwill impairment of$527 million of the$530 million charge taken during the quarter. The overall effective tax rate was 2% for the three months endedMarch 31, 2019 and was impacted by certain nondeductible restructuring costs as well as$11 million in favorable tax discrete items including nontaxable earnings in deferred compensation related investments and other items. Year-to-Date - Ashland's effective tax rate in any interim period is subject to adjustments related to discrete items and the mix of domestic and foreign operating results. The overall effective tax rate was 6% for the six months endedMarch 31, 2020 and was primarily impacted by nondeductible goodwill impairment of$527 million as well as$25 million favorable tax discrete items from the tax benefit related to the Swiss Tax Reform enacted in the first quarter. The overall effective tax rate was 2500% for the six months endedMarch 31, 2019 and was primarily impacted by the income mix and net unfavorable tax discrete adjustments of$30 million related to the enactment of the US Tax Cuts and Jobs Act of 2017 (Tax Act). 44
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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. The effective tax rate during the three months endedMarch 31, 2020 and 2019 was 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 impact from the one-time transition
tax resulting from the enactment of the Tax Act; • 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 these key items. Three months ended Six months ended March 31 March 31 (In millions) 2020 2019 2020 2019 Income (loss) from continuing operations before income taxes$ (585 ) $ 46 $ (575 ) $ (1 ) Key items (pre-tax) (a) 648 10 646 70 Adjusted income from continuing operations before income taxes$ 63 $ 56 $ 71 $ 69 Income tax expense (benefit)$ (10 ) $ 1$ (34 ) $ 25 Income tax rate adjustments: Tax effect of key items 21 (2 ) 20 5 Tax specific key items: (b) Deferred tax rate changes - - - (2 ) One-time transition tax - - - (22 ) Restructuring and separation activity - 2 - 1 Other tax reform - 3 25 - Total income tax rate adjustments 21 3 45 (18 ) Adjusted income tax expense$ 11 $ 4 $
11
Effective tax rate, excluding key items (Non-GAAP) (c) 18 % 6 % 16 % 10 %
(a) See Adjusted EBITDA reconciliation table previously disclosed in this
MD&A for a summary of the key items, before tax. (b) For additional information on the effect that these tax specific key
items had on EPS, see the Adjusted Diluted EPS table previously disclosed
in this MD&A.
(c) Due to rounding conventions, the effective tax rate presented may not
recalculate precisely based on the numbers disclosed within this table.
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Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Income (loss) from discontinued operation (net of taxes) Composites/Marl facility$ 4 $ 28 $ (24 ) $ 4 $ 53 $ (49 ) Valvoline - 1 (1 ) (1 ) 1 (2 ) Water Technologies - 2 (2 ) (1 ) 1 (2 ) Distribution (2 ) - (2 ) (2 ) (1 ) (1 ) Asbestos (7 ) - (7 ) (7 ) - (7 ) Gain (loss) on disposal of discontinued operations (net of taxes) Composites/Marl facility (2 ) - (2 ) (2 ) - (2 )$ (7 ) $ 31 $ (38 ) $ (9 ) $ 54 $ (63 ) Current Quarter - As a result of the divestiture of the Composites segment and Marl facility, the related operating results have been reflected as discontinued operations (net of tax) within the Statements of Consolidated Comprehensive Income (Loss). See Note B for more information on this divestiture. In the current quarter, for the Maleic business component of the Composites business not sold toINEOS , the sales and pre-tax operating income included in discontinued operations were$17 million and$5 million , respectively. In the prior year quarter, the sales and pre-tax operating income included in discontinued operations were$284 million and$45 million , respectively for the Composites/Marl facility. The activity for Valvoline, Water Technologies, Distribution and the Composites loss on sale during the current and prior quarters was related to post-closing adjustments. Year-to-Date - As a result of the divestiture of the Composites segment and Marl facility, the related operating results have been reflected as discontinued operations (net of tax) within the Statements of Consolidated Comprehensive Income (Loss). See Note B for more information on this divestiture. In the current year, for the Maleic business component of the Composites business not sold toINEOS , the sales and pre-tax operating income included in discontinued operations were$28 million and$7 million , respectively. In the prior year period, the sales and pre-tax operating income included in discontinued operations were$559 million and$81 million , respectively for the Composites/Marl facility. The activity for Valvoline, Water Technologies, Distribution and the Composites loss on sale during the current and prior periods was related to post-closing adjustments.
Other comprehensive income (loss)
A comparative analysis of the components of other comprehensive income (loss) is
provided below for the three and six months ended
Three months ended March 31 Six months ended March 31 (In millions) 2020 2019 Change 2020 2019 Change Other comprehensive income (loss) (net of taxes) Unrealized translation gain (loss)$ (52 ) $ (9 ) $ (43 ) $ (14 ) $ (40 ) $ 26 Pension and postretirement obligation adjustment - - - - (6 ) 6$ (52 ) $ (9 ) $ (43 ) $ (14 ) $ (46 ) $ 32 Current Quarter - Total other comprehensive income, net of tax, for the current quarter decreased$43 million compared to the prior year quarter as a result of the following components:
• For the three months ended
(loss) from foreign currency translation adjustments resulted in a loss of
2019. The fluctuations in unrealized translation gains and losses are
primarily due to translating foreign subsidiary financial statements from
local currencies toU.S. Dollars. 46
-------------------------------------------------------------------------------- Year-to-Date - Total other comprehensive income, net of tax, for the current period increased$32 million compared to the prior year period as a result of the following components:
• For the six months ended
(loss) from foreign currency translation adjustments resulted in losses of
$14 million compared to$40 million for the six months endedMarch 31, 2019 . The fluctuations in unrealized translation gains and losses are primarily due to translating foreign subsidiary financial statements from local currencies toU.S. Dollars.
• For the six months ended
obligation adjustment included$6 million of prior service costs recognized within other comprehensive income (loss) due to pension plan remeasurements. 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 withinU.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 expenses, and depreciation and amortization. • Adjusted EBITDA - EBITDA adjusted for noncontrolling interests, discontinued operations, net income (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 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. 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. 47 -------------------------------------------------------------------------------- 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 forU.S. GAAP-reported financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparableU.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 byU.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 withU.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 refer to this metric. 48
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EBITDA and Adjusted EBITDA
EBITDA totaled a loss of$414 million compared to an income of$136 million for the three months endedMarch 31, 2020 and 2019, respectively, and a loss of$335 million compared to an income of$229 million for the six months endedMarch 31, 2020 and 2019, respectively. EBITDA and Adjusted EBITDA results in the table below have been prepared to illustrate the ongoing effects of Ashland's operations, which exclude certain key items previously described. Management believes the use of such non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis. Three months ended Six months ended March 31 March 31 (In millions) 2020 2019 2020 2019 Net income (loss)$ (582 ) $ 76 $ (550 ) $ 28 Income tax expense (benefit) (10 ) 1 (34 ) 25 Net interest and other expense 117 (3 ) 127 52 Depreciation and amortization (a) 61 62 122 124 EBITDA (414 ) 136 (335 ) 229 Loss (income) from discontinued operations (net of tax) 7 (31 ) 9 (54 ) Key items included in EBITDA: Restructuring, separation and other costs 15 12 22 38 Proxy costs - 5 - 5 Goodwill impairment 530 - 530 - Inventory adjustment 4 - 4 - Accelerated depreciation - 20 - 39 Gain on pension and other postretirement plan remeasurements - - - (18 ) Net loss on divestitures - - - 3 Total key items included in EBITDA 549 37 556 67 Adjusted EBITDA$ 142 $ 142 $
230
Total key items included in EBITDA
556$ 67 Accelerated amortization of debt issuance costs 8 - 8 - Debt refinancing costs 59 - 59 - Unrealized (gain) loss on securities (b) 32 (27 ) 23 3 Total key items, before tax$ 648 $ 10 $ 646 $ 70
(a) Excludes
endedMarch 31, 2019 , and$39 million for the six months endedMarch 31, 2019 included as key items. (b) Due to the adoption of new accounting guidance inOctober 2018 , the unrealized losses on certain investment securities directly impact earnings and are recorded within the net interest and other expense caption on the Statements of Consolidated Comprehensive Income (Loss). See Note E of the Notes to Condensed Consolidated Financial Statements for more information. 49
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Diluted EPS and Adjusted Diluted EPS
The following table reflects theU.S. GAAP calculation for the income (loss) from continuing operations adjusted for the cumulative diluted EPS effect for key items after tax that have been identified in the Adjusted EBITDA table in the previous section. Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland's underlying business performance and trends. The Adjusted diluted EPS for the income (loss) from continuing operations in the following table has been prepared to illustrate the ongoing effects of Ashland's operations. Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP measure on a consolidated basis assists investors in better understanding Ashland's ongoing business performance and enhances their ability to compare period-to-period financial results. Three months ended Six months ended March 31 March 31 2020 2019 2020 2019 Diluted EPS from continuing operations (as reported)$ (9.48 ) $ 0.71 $ (8.93 ) $ (0.41 ) Key items, before tax: Restructuring, separation and other costs 0.23 0.50 0.35 1.21 Gain on pension and other postretirement plan remeasurements - 0.08 - 0.08 Legal settlement - - - (0.29 ) Unrealized (gain) loss on securities 0.53 (0.42 ) 0.38 0.05 Goodwill impairment 8.75 - 8.75 - Inventory adjustment 0.06 - 0.06 - Accelerated amortization of debt issuance costs 0.13 - 0.13 - Debt refinancing costs 0.97 - 0.97 - Net loss on divestitures - - - 0.05 Key items, before tax 10.67 0.16 10.64 1.10 Tax effect of key items (a) (0.35 ) 0.04 (0.33 ) (0.08 ) Key items, after tax 10.32 0.20 10.31 1.02 Tax specific key items: Deferred tax rate changes - - - 0.03 One-time transition tax - - - 0.35 Restructuring and separation activity - (0.03 ) - (0.02 ) Other tax reform - (0.05 ) (0.41 ) Tax specific key items (b) - (0.08 ) (0.41 ) 0.36 Total key items 10.32 0.12 9.90 1.38 Adjusted diluted EPS from continuing operations (non-GAAP)$ 0.84 $ 0.83 $ 0.97 $ 0.97 Amortization expense adjustment (net of tax) (c)$ 0.28 $ 0.25 $ 0.56 $ 0.51 Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense$ 1.12 $ 1.08 $ 1.53 $ 1.48
(a) Represents the diluted EPS impact from the tax effect of the key items
that are 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 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% for the three and six months endedMarch 31, 2020 , and 25% for the three and six months endedMarch 31, 2019 .
RESULTS OF OPERATIONS - REPORTABLE SEGMENT REVIEW
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 change recognizes that Ashland has a diverse portfolio of businesses with different value propositions for the markets Ashland 50 -------------------------------------------------------------------------------- serves. The organizational change allows Ashland to align its business models, resources and cost structure to the specific needs of each business and enable greater ownership and accountability for both short- and long-term performance. Ashland has realigned its segment reporting structure commensurate with this organizational change. As a result, Ashland's five reportable segments include the consumer specialty businesses: Life Sciences and Personal Care & Household; the industrial specialty businesses: Specialty Additives and Performance Adhesives; and Intermediates and Solvents. Corporate 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 certain corporate governance costs, which were previously allocated. These costs are now reflected in Unallocated and Other for all periods presented. The following table discloses sales, operating income and depreciation and amortization by reportable segment for the three and six months endedMarch 31, 2020 and 2019. Three months ended Six months ended March 31 March 31 (In millions) 2020 2019 2020 2019 Sales Life Sciences$ 184 $ 196 $ 340 $ 366 Personal Care & Household 159 183 296 337 Consumer Specialties 343 379 636 703 Specialty Additives 155 169 294 316 Performance Adhesives 85 89 159 171 Industrial Specialties 240 258 453 487 Intermediates and Solvents 37 44 64 77 Intersegment sales (a) (10 ) (14 ) (10 ) (24 )$ 610 $ 667 $ 1,143 $ 1,243 Operating income (loss) Life Sciences$ 36 $ 33 $ 58 $ 56 Personal Care & Household (336 ) 25 (326 ) 42 Consumer Specialties (300 ) 58 (268 ) 98 Specialty Additives (161 ) (2 ) (152 ) (24 ) Performance Adhesives 16 17 27 26 Industrial Specialties (145 ) 15 (125 ) 2 Intermediates and Solvents (2 ) 9 (14 ) 11 Unallocated and other (21 ) (38 ) (44 ) (74 )$ (468 ) $ 44 $ (451 ) $ 37 51
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Depreciation expense Life Sciences$ 8 $ 8 $ 16 $ 16 Personal Care & Household 10 10 20 21 Consumer Specialties 18 18 36 37 Specialty Additives 16 36 32 69 Performance Adhesives 3 3 6 6 Industrial Specialties 19 39 38 75 Intermediates and Solvents 3 2 6 5 Unallocated and other - 2 - 3$ 40 $ 61 $ 80 $ 120 Amortization expense Life Sciences$ 7 $ 7 $ 14 $ 14 Personal Care & Household 9 9 18 18 Consumer Specialties 16 16 32 32 Specialty Additives 4 3 8 9 Performance Adhesives 1 1 1 1 Industrial Specialties 5 4 9 10 Intermediates and Solvents - 1 1 1$ 21 $ 21 $ 42 $ 43 EBITDA (b) (c) Life Sciences$ 51 $ 48 $ 88 $ 86 Personal Care & Household (317 ) 44 (288 ) 81 Consumer Specialties (266 ) 92 (200 ) 167 Specialty Additives (141 ) 37 (112 ) 54 Performance Adhesives 20 21 34 33 Industrial Specialties (121 ) 58 (78 ) 87 Intermediates and Solvents 1 12 (7 ) 17 Unallocated and other (21 ) (36 ) (44 ) (71 )$ (407 ) $ 126 $ (329 ) $ 200
(a) Intersegment sales are accounted for at prices that approximate fair value.
(b) 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.
(c) Includes $20 million of accelerated depreciation for the three months ended
52 --------------------------------------------------------------------------------
Consumer Specialties
The Consumer Specialties group is comprised of the following business segments:
Life Sciences Life Sciences is comprised of pharmaceuticals, nutrition, nutraceuticals, agricultural chemicals, advanced materials and fine chemicals. Pharmaceutical solutions include controlled release polymers, disintegrants, film coatings, solubilizers, and tablet binders. Nutrition solutions include thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and controlling color. Nutraceutical solutions include products for weight management, joint comfort, stomach and intestinal health, sports nutrition and general wellness, and provide custom formulation, toll processing and particle engineering solutions. Customers include pharmaceutical, food, beverage, nutraceuticals and supplements manufacturers, hospitals and radiologists and industrial manufacturers.
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.
Consumer Specialties' sales decreased$36 million to$343 million in the current quarter. Personal Care & Household and Life Sciences represented$24 million and$12 million of the decrease, respectively. Lower volume, unfavorable currency exchange, plant realignment and lower pricing decreased sales by$23 million ,$4 million ,$6 million and$3 million , respectively. Operating income/loss decreased$358 million to a loss of$300 million for the current quarter. Personal Care & Household recorded a$336 million loss, mostly due to a goodwill impairment, while Life Sciences recorded a$36 million operating income, up$3 million for the prior year quarter.Goodwill impairment, lower volume and unfavorable foreign exchange decreased operating income by$356 million ,$8 million and$2 million , respectively. Those decreases were partially offset by favorable price/mix and favorable costs which increased operating income/loss by$6 million and$2 million , respectively. Current quarter EBITDA decreased$358 to a loss of$266 million , a$317 million loss in Personal Care & Household and a$51 million income in Life Sciences, while Adjusted EBITDA decreased$1 million to$91 million , of which$52 million and$39 million originated from Life Sciences and Personal Care & Household, respectively. Adjusted EBITDA margin increased 2.2 percentage points in the current quarter to 26.5%.
Fiscal 2020 year-to-date compared to fiscal 2019 year-to-date
Consumer Specialties' sales decreased$67 million to$636 million in the current period. Personal Care & Household and Life Sciences represented$26 million and$41 million of the decrease, respectively. Lower volume, unfavorable currency exchange, plant restructuring and lower pricing decreased sales by$48 million ,$7 million ,$10 million and$2 million , respectively. Operating income/loss decreased$366 million to a loss of$268 million for the current period. Personal Care & Household recorded a$326 million loss, mostly due to a goodwill impairment, while Life Sciences recorded a$58 million operating income, up$2 million for the prior year quarter.Goodwill impairments, lower volume and unfavorable foreign exchange decreased operating income by$356 million ,$17 million and$3 million , respectively. Those decreases were partially offset by lower costs and favorable price/mix which increased operating income/loss by$2 million and$8 million , respectively. Current year EBITDA decreased$367 to a loss of$200 million , a$288 million loss in Personal Care & Household and a$88 53 -------------------------------------------------------------------------------- million income in Life Sciences, while Adjusted EBITDA decreased$10 million to$157 million , of which$89 million and$68 million originated from Life Sciences and Personal Care & Household, respectively. Adjusted EBITDA margin increased 0.9 percentage points in the current period to 24.7%.
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 three and six months endedMarch 31, 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 Consumer Specialties. The key items during the three and six months endedMarch 31, 2020 related to a goodwill impairment of$356 million for Personal Care & Household and$1 million in restructuring costs for Life Sciences. Life Sciences Personal Care & Household Consumer Specialties Three months ended March 31 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ 36 $ 33 $ (336 )$ 25 $ (300 ) $ 58 Depreciation and amortization 15 15 19 19 34 34 EBITDA 51 48 (317 ) 44 (266 ) 92 Restructuring and other costs 1 - - - 1 - Goodwill impairment - - 356 - 356 - Adjusted EBITDA$ 52 $ 48 $ 39$ 44 $ 91 $ 92 Life Sciences Personal Care & Household Consumer Specialties Six months ended March 31 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ 58 $ 56 $ (326 )$ 42 $ (268 ) $ 98 Depreciation and amortization 30 30 38 39 68 69 EBITDA 88 86 (288 ) 81 (200 ) 167 Restructuring and other costs 1 - - - 1 - Goodwill impairment - - 356 - 356 - Adjusted EBITDA$ 89 $ 86 $ 68$ 81 $ 157 $ 167 54
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Industrial Specialties
The Industrial Specialties business group is comprised of the below business segments:
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.
Performance Adhesives
Performance Adhesives is comprised of adhesives used in packaging, converting and structural applications. Packaging adhesives has an extensive line of pressure sensitive adhesives, functional coatings and primers combined with innovative technology solutions for narrow-, mid- and wide-web applications. Products meet stringent requirements in food and beverage safety, shipping, transportation, health and beauty, industrial, postage and security printing. Structural adhesives include light weighting vehicles and eliminating VOCs in buildings. Customers include converters of packaging materials, manufacturers of building materials and tier one suppliers to transportation industry.
Industrial Specialties' sales decreased$18 million to$240 million in the current quarter. Specialty Additives and Performance Adhesives represented$14 million and$4 million of the decrease, respectively. Lower volume, unfavorable currency exchange lower pricing, and plant restructuring decreased sales by$12 million ,$2 million ,$3 million and$1 million , respectively. Operating income/loss decreased$160 million to a loss of$145 million for the current quarter. Specialty Additives recorded a$161 million loss, mostly due to aGoodwill impairment, while Performance Adhesives recorded a$16 million operating income, down$1 million from the prior year quarter.Goodwill impairment, lower volume and unfavorable costs decreased operating income by$174 million ,$3 million and$5 million , respectively. Those decreases were partially offset by the prior year plant restructuring costs and improved price/mix of$20 million and$2 million , respectively. Current quarter EBITDA decreased$160 to a loss of$121 million , a$141 million loss in Specialty Additives and a$20 million income in Performance Adhesives, while Adjusted EBITDA decreased$6 million to$53 million , of which$33 million and$20 million originated from Specialty Additives and Performance Adhesives, respectively. Adjusted EBITDA margin decreased 0.8 percentage points in the current quarter to 22.1%.
Fiscal 2020 year-to-date compared to fiscal 2019 year-to-date
Industrial Specialties' sales decreased$34 million to$453 million in the current period. Specialty Additives and Performance Adhesives represented$22 million and$12 million of the decrease, respectively. Lower volume, unfavorable currency exchange, plant restructuring and lower pricing decreased sales by$22 million ,$4 million ,$4 million and$4 million , respectively. Operating income/loss decreased$127 million to a loss of$125 million for the current year. Specialty Additives recorded a$152 million loss, mostly due to a goodwill impairment, while Performance Adhesives recorded a$27 million operating income, up$1 million from the prior year period.Goodwill impairment and lower volume decreased operating income by$174 million and$6 million , respectively. Those decreases were partially offset by prior year plant restructuring costs and favorable price/mix of$47 million 55 -------------------------------------------------------------------------------- and$6 million , respectively. Current year EBITDA decreased$127 to a loss of$78 million , a$112 million loss in Specialty Additives and a$34 million income in Performance Adhesives, while Adjusted EBITDA decreased$1 million to$96 million , of which$62 million and$34 million originated from Specialty Additives and Performance Adhesives, respectively. Adjusted EBITDA margin increased 1.3 percentage points in the current year to 21.2%.
EBITDA and adjusted EBITDA reconciliation
The following EBITDA and Adjusted EBITDA presentation (as defined and described in the section above) for the three and six months endedMarch 31, 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 Industrial Specialties. Adjusted EBITDA results have been prepared to illustrate the ongoing effects of Ashland's operations, which exclude certain key items. The key items during the three and six months endedMarch 31, 2020 related to aGoodwill impairment for Specialty Additives. The key items during the prior year periods related to$20 million and$48 million of restructuring costs associated with the planned closure of a manufacturing facility within Specialty Additives (which included$19 million and$38 million of accelerated depreciation) for the three and six months endedMarch 31, 2019 , respectively. Specialty Additives Performance Adhesives Industrial Specialties Three months ended March 31 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ (161 ) $ (2 ) $ 16 $ 17 $ (145 ) $ 15 Depreciation and amortization (a) 20 20 4 4 24 24 EBITDA (141 ) 18 20 21 (121 ) 39 Accelerated depreciation - 19 - - - 19 Goodwill Impairment 174 - - - 174 - Severance and other restructuring costs - 1 - - - 1 Adjusted EBITDA$ 33 $ 38 $ 20 $ 21 $ 53$ 59 Specialty Additives Performance Adhesives Industrial Specialties Six months ended March 31 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ (152 ) $ (24 ) $ 27 $ 26 $ (125 ) $ 2 Depreciation and amortization (a) 40 40 7 7 47 47 EBITDA (112 ) 16 34 33 (78 ) 49 Accelerated depreciation - 38 - - - 38 Goodwill Impairment 174 - - - 174 - Severance and other restructuring costs - 10 - - - 10 Adjusted EBITDA$ 62 $ 64 $ 34 $ 33 $ 96$ 97 (a) Depreciation and amortization excludes accelerated depreciation of$19 million and$38 million for the three and six months endedMarch 31, 2019 , which are included as key items.
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. Butanediol is also provided as a feedstock to the supplied to Life Sciences, Personal Care, and Specialty Additives for use as a raw material.
Intermediates and Solvents' sales decreased$7 million to$37 million in the current quarter. Lower volume and lower pricing decreased sales by$3 million and$4 million , respectively. 56 -------------------------------------------------------------------------------- Operating income/loss decreased$11 million to a loss of$2 million for the current quarter. Unfavorable price/mix, unfavorable costs and inventory adjustments decreased operating income by$4 million ,$3 million and$4 million , respectively. Current quarter EBITDA decreased$11 to$1 million , while Adjusted EBITDA decreased$7 million to$5 million . Adjusted EBITDA margin decreased 13.8 percentage points in the current quarter to 13.5%.
Fiscal 2020 year-to-date compared to fiscal 2019 year-to-date
Intermediates and Solvents' sales decreased$13 million to$64 million in the current period. Lower volume and lower pricing decreased sales by$7 million and$6 million , respectively. Operating income/loss decreased$25 million to a loss of$14 million for the current period. Lower volume, unfavorable price/mix, unfavorable costs and inventory adjustments decreased operating income by$1 million ,$3 million ,$17 million and$4 million , respectively. Current year EBITDA decreased$24 to a loss of$7 million , while Adjusted EBITDA decreased$20 million to a loss of$3 million . Adjusted EBITDA margin decreased 26.8 percentage points in the current year to -4.7%.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation (as defined and described in the section above) for the three and six months endedMarch 31, 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 the three and six months endedMarch 31, 2020 included an inventory adjustment of$4 million . Three months ended Six months ended March 31 March 31 (In millions) 2020 2019 2020 2019 Operating income$ (2 ) $ 9 $ (14 ) $ 11 Depreciation and amortization 3 3 7 6 EBITDA$ 1 $ 12 $ (7 ) $ 17 Inventory adjustment 4 - 4 - Adjusted EBITDA$ 5 $ 12 $ (3 ) $ 17 Unallocated and other The following table summarizes the key components of the Unallocated and other segment's operating income (loss) for the three and six months endedMarch 31, 2020 and 2019. Three months ended Six months ended March 31 March 31 (In millions) 2020 2019 2020 2019 Restructuring activities$ (14 ) $ (24 ) $ (22 ) $ (53 ) Environmental expenses (5 ) (4 ) (8 ) (6 ) Proxy costs - (5 ) - (5 ) Other expenses (primarily governance and legacy expenses) (2 ) (5 ) (14 ) (10 ) Total expense$ (21 ) $ (38 ) $ (44 ) $ (74 )
Unallocated and other recorded expense of$21 million and$38 million for the three months endedMarch 31, 2020 and 2019, respectively. The current and prior year quarters included charges for restructuring activities of$14 million and$24 million , respectively, which were comprised of the following items:
•
primarily related to the planned divestiture of the Composites segment and
Marl facility;
•
restructuring costs related to company-wide cost reduction programs during
the current and prior quarters, respectively; and 57
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•
during the prior year quarter.
The current quarter included
The remaining items during the prior year quarter primarily included
Fiscal 2020 year-to-date compared to fiscal 2019 year-to-date
Unallocated and other recorded expense of$44 million and$74 million for the six months endedMarch 31, 2020 and 2019, respectively. The current and prior year periods included charges for restructuring activities of$22 million and$53 million , respectively, which were comprised of the following items:
•
•
restructuring costs related to company-wide cost reduction programs during
the current and prior year periods, respectively; and
•
during the prior year period.
The current year period also included
The remaining items during the prior year period primarily included
FINANCIAL POSITION Liquidity Ashland had$353 million in cash and cash equivalents as ofMarch 31, 2020 , of which$160 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 tothe 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. 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 the global markets. InJanuary 2020 , Ashland renewed and extended its Revolving Credit Agreement through 2025 and issued new 2.00% senior notes inEurope for €500 million which mature in 2028. During the three months endedMarch 31, 2020 , Ashland elected to access$240 million on its Revolving Credit Facility, with these amounts on deposit as cash and cash equivalents. As ofMarch 31, 2020 , Ashland has total remaining borrowing capacity of$339 million , comprised of amounts remaining available under the Revolving Credit Facility and two accounts receivable securitization facilities. Ashland has no major loan maturities until 2022. 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 on its liquidity and capital resources, please see item 1A, risk factors in this report. 58 --------------------------------------------------------------------------------
Ashland's cash flows from operating, investing and financing activities, as
reflected in the Statements of Condensed Consolidated Cash Flows, are summarized
as follows for the six months ended
Six months ended March 31 (In millions) 2020 2019 Cash provided (used) by: Operating activities from continuing operations $ 13 $ 6 Investing activities from continuing operations (49 ) (49 ) Financing activities from continuing operations 234 (36 ) Discontinued operations (78 ) (49 ) Effect of currency exchange rate changes on cash and cash equivalents 1 (2 ) Net increase (decrease) in cash and cash equivalents $ 121 $ (130 ) Operating activities
The following discloses the cash flows associated with Ashland's operating
activities for the six months ended
Six months ended March 31 (In millions) 2020 2019 Cash flows provided (used) by operating activities from continuing operations Net income (loss) $ (550 ) $
28
Income (loss) from discontinued operations 9 (54 ) (net of income taxes) Adjustments to reconcile income from continuing operations to cash flows from operating activities: Depreciation and amortization 122
163
Original issue discount and debt issuance 12
4
costs amortization Deferred income taxes (28 )
2
Stock based compensation expense 8
13
(Income) loss from restricted investments 16 (2 ) Excess tax benefit on stock based 1
2
compensation
Loss on early retirement of debt 59 - Net loss on divestitures - 3 Impairments 530 5 Pension contributions (3 ) (3 ) Gain on pension and other postretirement plan - (18 ) remeasurements Change in operating assets and liabilities (163 ) (137 ) (a) Total cash flows provided by operating $ 13 $
6
activities from continuing operations
(a) Excludes changes resulting from operations acquired or sold. Cash flows used from operating activities from continuing operations amounted to inflows of$13 million and$6 million in the current and prior year periods, respectively. 59
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Operating Activities - Operating Assets and Liabilities
The cash results during each period are primarily driven by net income (loss), excluding discontinued operation results, adjusted for certain non-cash items including depreciation and amortization (including original issue discount and debt issuance cost amortization), 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. Changes in operating assets and liabilities for outflows of$163 million and$137 million for the six months endedMarch 31, 2020 and 2019, respectively, and were driven by the following net working capital accounts:
• Accounts receivable - There were cash outflows of
of
• Inventory - There were cash outflows of
the current and prior year periods, respectively.
• Trade and other payables - There were cash outflows of$83 million and$116 million during the current and prior year periods, respectively, and primarily related to the timing of certain payments. The remaining changes to operating assets and liabilities resulted in outflows of$46 million and$22 million in the current and prior year periods, respectively, and 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.
Operating Activities - Summary
Operating cash flows for the current year period included a loss from continuing operations of$541 million . Additionally, the current period included non-cash adjustments of$530 million for a goodwill impairment charge,$122 million for depreciation and amortization,$59 million loss on early retirement of debt,$12 million original issue discounts and debt issuance cost amortization,$8 million for stock-based compensation expense and$16 million loss on restricted investments. Operating cash flows for the prior year period included a loss from continuing operations of$26 million . Additionally, the prior year period included a non-cash adjustment of$163 million for depreciation and amortization,$2 million for a gain on restricted investments,$5 million for an impairment of a held for sale facility,$13 million for stock-based compensation expense and$18 million for the gain on pension and other postretirement plan remeasurements.
Investing activities
The following discloses the cash flows associated with Ashland's investing
activities for the six months ended
Six months ended March 31 (In millions) 2020 2019 Cash flows provided (used) by investing activities from continuing operations Additions to property, plant and equipment $ (66 ) $ (70 ) Proceeds from disposal of property, plant and equipment - 4 Purchase of operations - (1 ) Net purchase of funds restricted for specific transactions (2 ) (2 ) Reimbursement from restricted investments 19
20
Proceeds from sales of securities 10
156
Purchase of securities (10 ) (156 ) Proceeds from the settlement of derivative instruments - 2 Payments for the settlement of derivative instruments - (2 ) Total cash flows used by investing activities from continuing operations $ (49 ) $ (49 ) 60
-------------------------------------------------------------------------------- Cash used by investing activities was$49 million for both the current and prior year periods, respectively. The significant cash investing activities for the current period primarily related to cash outflows of$66 million for property additions compared to$70 million in the prior year period. Additionally, there were reimbursements from the restricted renewable annual asbestos trust of$19 million during the current period compared to$20 million in the prior year period.
Financing activities
The following discloses the cash flows associated with Ashland's financing
activities for the six months ended
Six months ended March 31 (In millions) 2020 2019 Cash flows provided (used) by financing activities from continuing operations Proceeds from issuance of long-term debt 804 - Repayment of long-term debt (767 ) (8 ) Premium on long-term debt repayment (59 ) - Proceeds from (repayment of) short-term debt 306 11 Debt issuance costs (11 ) - Cash dividends paid (33 ) (31 ) Stock based compensation employee withholding taxes paid in cash (6 ) (8 ) Total cash flows provided (used) by financing $ 234 $ (36 ) activities from continuing operations Cash flows (used) provided by financing activities resulted in an inflow of$234 million for the current period as compared to an outflow of$36 million for the prior year period. Significant cash financing activities for the current period included proceeds from issuance of long-term debt, repayment of long-term debt, premiums 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 H for additional information. The current year period also included short-term cash inflows of$306 million , primarily related to draws on the 2020 Revolving Credit Facility. The current period included cash dividends paid of$0.550 per share, for a total of$33 million . Significant cash financing activities for the prior year period included long-term cash outflows of$8 million , primarily related to repayments of term loans and debentures. The prior period included cash dividends paid of$0.50 per share, for a total of$31 million . Additionally,$11 million of inflows were drawn out the 2017 Revolving Credit Facility.
The following discloses the cash flows associated with Ashland's discontinued
operations for the six months ended
Six months ended March 31 (In millions) 2020 2019 Cash provided (used) by discontinued operations Operating cash flows$ (79 ) $ (41 ) Investing cash flows 1 (8 )
Total cash used by discontinued operations
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Cash flows for discontinued operations in the current period primarily related
to previously divested businesses, including net payments of asbestos,
environmental liabilities and tax payments associated with the Composites
divestiture, which was a
Cash flows for discontinued operations in the prior year period included cash outflows of$25 million related to the activity of Composites and the Marl facility. The remaining cash flows for discontinued operations related to other previously divested businesses, including net payments of asbestos and environmental liabilities.
Free cash flow and other liquidity resources
The following represents Ashland's calculation of free cash flow for the disclosed quarters. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
Six months ended March 31 (In millions) 2020 2019 Total cash flows provided by operating $ 13 $ 6 activities from continuing operations Adjustments: Additions to property, plant and equipment (66 ) (70 ) Free cash flows (a) $ (53 ) $ (64 )
(a) Includes
six months ended
Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to$673 million and$676 million as ofMarch 31, 2020 andSeptember 30, 2019 , respectively. Liquid assets (cash, cash equivalents and accounts receivable) amounted to 88% and 94% of current liabilities (excluding current liabilities held for sale) as ofMarch 31, 2020 andSeptember 30, 2019 , respectively.
The following summary reflects Ashland's cash and unused borrowing capacity as
of
March 31 September 30 (In millions) 2020 2019 Cash and investment securities Cash and cash equivalents$ 353 $ 232 Unused borrowing capacity Revolving credit facility$ 338 $ 752 Accounts receivable securitizations 1 48 62
-------------------------------------------------------------------------------- During the current year period, Ashland entered into a new revolving credit facility. The borrowing capacity remaining under the new$600 million revolving credit facility was$338 million due to an outstanding balance of$240 million and a reduction of$22 million for letters of credit outstanding atMarch 31, 2020 . In total, Ashland's available liquidity position, which includes cash, the revolving credit facility and the accounts receivable securitization facilities, was$692 million atMarch 31, 2020 , compared to$1,032 million atSeptember 30, 2019 . Capital resources Debt The following summary reflects Ashland's debt as ofMarch 31, 2020 andSeptember 30, 2019 . March 31 September 30 (In millions) 2020 2019 Short-term debt (includes current portion of long-term debt) $ 471 $
166
Long-term debt (less current portion and debt issuance cost discounts) (a) 1,535 1,501 Total debt $ 2,006 $ 1,667
(a) Includes
as ofMarch 31, 2020 andSeptember 30, 2019 , respectively. During the current year, 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, Ashland issued new 8-year Senior notes inEurope , for approximately$554 million . The proceeds of these debt issuances were primarily used to tender on current Senior notes for a total of$767 million . See Note H for more information. Debt as a percent of capital employed was 40% and 32% atMarch 31, 2020 and atSeptember 30, 2019 , respectively. AtMarch 31, 2020 , Ashland's total debt had an outstanding principal balance of$2,066 million , discounts of$45 million , and debt issuance costs of$15 million . The scheduled aggregate maturities of long-term debt by year (including the current portion and excluding debt issuance costs) are as follows: zero remaining in 2020, zero in 2021,$421 million in 2022,$22 million in 2023 and$44 million in 2024.
Ashland credit ratings
Ashland's corporate credit rating withStandard & Poor's is BB+, whileMoody's Investor Services is Ba1.Moody's Investor Services andStandard & Poor's outlooks both remained at stable. Subsequent changes to these ratings may have an effect on Ashland's borrowing rate or ability to access capital markets in the future.
Ashland debt covenant restrictions
Ashland's most recent 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 subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations. As ofMarch 31, 2020 , Ashland is in compliance with all debt agreement covenant restrictions under the 2020 Credit Agreement. The maximum consolidated net leverage ratio permitted under 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, noncash 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 noncash 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 above in the "consolidated 63
-------------------------------------------------------------------------------- review" section. 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. AtMarch 31, 2020 , Ashland's calculation of the consolidated net leverage ratio was 3.1. 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. AtMarch 31, 2020 , Ashland's calculation of the consolidated interest coverage ratio was 7.7. Any change in Covenant Adjusted EBITDA of$100 million would have an approximate 0.6x effect on the consolidated net leverage ratio and a 1.4x effect on the consolidated interest coverage ratio. The average change in consolidated indebtedness of$100 million would affect the consolidated leverage ratio by approximately 0.2x. Additional capital resources 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. Total equity Total equity decreased$588 million sinceSeptember 30, 2019 to$2,983 million atMarch 31, 2020 . The decrease of$588 million was due to net loss of$550 million , deferred translation loss of$14 million , and dividends of$33 million , offset by$9 million of common shares issued under stock incentive and other plans. Stockholder dividends InMay 2019 , the Board of Directors of Ashland announced a quarterly cash dividend of27.5 cents per share to eligible stockholders at record, which represented an increase from previous quarterly cash dividend of25.0 cents per share. This dividend was paid in the third and fourth quarter of fiscal 2019 and the first and second quarters of fiscal 2020.
Capital expenditures
Capital expenditures were
CRITICAL ACCOUNTING POLICIES
The preparation of Ashland's Condensed Consolidated Financial Statements in conformity withU.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, long-lived assets (including goodwill and other intangible assets), income taxes, other liabilities and receivables associated with asbestos litigation and environmental remediation. These accounting policies are discussed in detail in "Management's Discussion and Analysis - Critical Accounting Policies" in Ashland's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2019 . 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. No material changes have been made to the valuation techniques during the six months endedMarch 31, 2020 . 64 --------------------------------------------------------------------------------
Ashland tests goodwill and other indefinite-lived intangible assets for impairment annually as ofJuly 1 and when events and circumstances indicate an impairment may have occurred. Ashland tests goodwill and other indefinite-lived intangible assets for impairment by comparing the estimated fair value of the reporting units (for goodwill) or other indefinite-lived intangible assets to the related carrying value. If the carrying amount of a reporting unit or other indefinite-lived intangible asset exceeds its estimated fair value, Ashland records an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed to the associated 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 into five reportable segments 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. Ashland determined that its reporting units are Life Sciences, Personal Care & Household, Specialty Additives, Performance Adhesives, and Intermediates and Solvents. Prior to the business realignment, the reporting units consisted ofAshland Specialty Ingredients and Intermediates and Solvents. TheAshland Specialty Ingredients reporting unit contained all of Ashland's reported goodwill atSeptember 30, 2019 . In conjunction with the realignment, Ashland tested goodwill for impairment for each reporting unit both immediately before and immediately after the business realignment. The fair values of the reporting units were determined 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. The goodwill impairment test under the former reporting unit structure concluded that no impairment existed during the second quarter of fiscal 2020. Ashland then allocated goodwill to the new reporting unit structure using a relative fair value approach and re-assessed goodwill for impairment for each of its new reporting units. The impairment test under the new reporting unit structure concluded that Life Sciences and Performance Adhesives fair value were in excess of the carrying amounts by more than 10%. The carrying value of the Personal Care & Household reporting unit and the Specialty Additives reporting unit exceeded its respective fair value, resulting in a non-cash goodwill impairment charge of$530 million , which was recorded within theGoodwill impairment caption within the Statement of Consolidated Comprehensive Income (Loss) for the three and six months endedMarch 31, 2020 . Remaining goodwill after impairment was zero for Personal Care & Household and$435 million for Specialty Additives. The Personal Care & Household goodwill impairment charge was due in large part to lower growth and lower margins since the acquisitions of the Oral Care and Avoca businesses, which collectively have resulted in reduced cash flow projections. The Specialty Additives goodwill impairment charge was also due in large part to lower growth and lower margins within the global construction and energy end markets, which collectively have resulted in reduced cash flow projections. The table below provides a sensitivity analysis for Specialty Additives goodwill, utilizing reasonably possible changes in the assumptions for the shorter term and residual growth rates and the discount rate, to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to a 25-basis point increase to discount rate or a 25-basis point decrease to residual growth rates, both of which would result in incremental impairment charges to Specialty Additives reporting unit. Approximate Percent Change in Estimated Fair Value +25 bps -25 bps Discount Rate Growth Rate Specialty Additives -2.9% -2.1% 65
-------------------------------------------------------------------------------- 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 reasonableness of these estimates. Additionally, Ashland compares the indicated equity value to Ashland's market capitalization, and implied control premium/discount, to determine if the estimated enterprise value is reasonable compared to external market indicators. Ashland believes the data and assumptions used are appropriate in the circumstances and consistent with internal projections. Significant assumptions utilized in the impairment analysis performed during the second quarter of 2020 included the weighted average cost of capital, ranging between 9.0% and 10.5%, and terminal growth rate, ranging between 2.0% and 4.0% depending on the reporting unit. 66
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