ASHLAND INC. 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 specialty additives and materials company with a conscious and proactive mindset for sustainability. The Company serves customers in a wide range of consumer and industrial markets, including adhesives, architectural coatings, construction, energy, food and beverage, nutraceuticals, personal care and pharmaceutical. With approximately 4,100 (3,800 excluding Performance Adhesives) employees worldwide, Ashland serves customers in more than 100 countries.
Ashland's sales generated outside ofNorth America were 68% for both the three months endedDecember 31, 2021 and 2020. Sales by region expressed as a percentage of total consolidated sales for the three months endedDecember 31 were as follows: Three months ended December 31 Sales by Geography 2021 2020 North America (a) 32 % 32 % Europe 35 % 34 % Asia Pacific 25 % 25 % Latin America & other 8 % 9 % 100 % 100 % (a)
Ashland includes only
Reportable segments
On
As a result, Ashland's reportable segments include Life Sciences, Personal Care
(formerly Personal Care & Household), Specialty Additives and Intermediates
(formerly Intermediates and Solvents). Unallocated and Other includes corporate
governance activities and certain legacy matters. The contribution to sales by
each reportable segment expressed as a percentage of total consolidated sales
for the three months ended
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Three months ended
December 31
Sales by Reportable Segment 2021 2020
Life Sciences 33 % 36 %
Personal Care 29 % 27 %
Specialty Additives 30 % 32 %
Intermediates 8 % 5 %
100 % 100 %
KEY DEVELOPMENTS
Business results current quarter
Ashland recorded net income of
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, 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. Through the first quarter of fiscal 2022, Ashland
has not experienced any additional major operating surprises related to the
COVID-19 pandemic, continues to maintain supply chains in a challenging
environment, had strong safety performance in the face of unprecedented
pressures and improved operating discipline across each of its businesses.
Ashland's businesses continued to show resiliency in the face of difficult
economic circumstances. While sales were up in the quarter period-over-period,
continued supply-chain and labor-shortage challenges inhibited Ashland's ability
to meet strong overall customer demand. As a result, approximately
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 Ashland's most recent Form 10-K filed with the
Other items
Performance Adhesives
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In
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 redesign of core operating systems and processes lead 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 targeted the following savings:
•
$50 million of incremental SARD cost savings •$50 million of incremental COGS productivity savings
As of
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), income taxes, discontinued operations and other significant events or transactions that are unusual or nonrecurring.
Key financial results for the three months ended
•
Ashland's net income amounted to$48 million compared to$56 million for the three months endedDecember 31, 2021 and 2020, respectively, or income of$0.83 and$0.92 diluted earnings per share, respectively. • Discontinued operations, which are reported net of taxes, resulted in income of$16 million and$13 million during the three months endedDecember 31, 2021 and 2020, respectively. • Income from continuing operations, which excludes results from discontinued operations, amounted to income of$32 million and$43 million for the three months endedDecember 31, 2021 and 2020, respectively. • The effective income tax rates were an expense of 13% and a benefit of 13% for the three months endedDecember 31, 2021 and 2020, respectively, and were significantly impacted by certain tax discrete items in both the current and prior year quarters. • Ashland incurred pretax net interest and other expense (income) of$5 million and income of$7 million for the three months endedDecember 31, 2021 and 2020, respectively. This includes gains of$4 million and$18 million on restricted investments, respectively, for the current and prior year quarters. 31
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•
Net income on acquisitions and divestitures totaled income$14 million for the three months endedDecember 31, 2020 . • Operating income was$42 million and$17 million for the three months endedDecember 31, 2021 and 2020, respectively.
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 amounted to income of
•
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. As a result of these activities, Ashland recorded expenses in the current and prior year quarters. See Note D in the Notes to Condensed Consolidated Financial Statements for further information on the restructuring activities. • During the three months endedDecember 31, 2020 , Ashland incurred an impairment charge associated with a long-term capital project plan change at a plant facility. • 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 the current and prior year quarters to its environmental liabilities and receivables related to operating facilities and previously divested businesses or non-operational sites. See Note L of the Notes to Condensed Consolidated Financial Statements for more information.
Operating income for the three months ended
Non-operating key items affecting EBITDA
•
Net income on acquisitions and divestitures - Ashland recorded income of
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 months endedDecember 31, 2021 and 2020. Three months ended December 31 (In millions) 2021 2020 Change Sales$ 512 $ 468 $ 44
The following table provides a reconciliation of the change in sales for the
three ended
Three months ended
(In millions) December 31, 2021
Volume $ 5
Pricing 26
Currency exchange (6 )
Acquisition 19
Change in sales $ 44
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Sales for the current quarter increased
Three months ended December 31
(In millions) 2021 2020 Change
Cost of sales $ 351 $ 321 $ 30
Gross profit as a percent of sales 31.4 % 31.4 %
The following table provides a reconciliation of the change in cost of sales
between the three months ended
Three months ended
(In millions) December 31, 2021
Changes in:
Volume $ 4
Price/mix 19
Currency exchange (3 )
Acquisition 10
Change in cost of sales $ 30
Cost of sales for the current quarter increased
Three months ended December 31
(In millions) 2021 2020 Change
Selling, general and administrative expense
16.0 % 21.6 %
Selling, general and administrative expense for the current quarter decreased
•
Expense of$1 million and$12 million comprised of key items for severance, lease abandonment and other restructuring costs during the three months endedDecember 31, 2021 and 2020, respectively; •$9 million related to a capital project impairment during the three months endedDecember 31, 2020 ; •$3 million and$4 million in net environmental-related expenses during the current and prior year period, respectively (see Note L for more information); and •$2 million increase in selling, general and administrative expense related to the Schülke acquisition. Three months ended December 31 (In millions) 2021 2020 Change
Research and development expense
Research and development expense is consistent with the prior year quarter.
Three months ended December 31
(In millions) 2021 2020 Change
Intangibles amortization expense
The increase in amortization expense in the current quarter is due to the amortization of intangible assets associated with the Schülke acquisition.
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Three months ended December 31
(In millions) 2021 2020 Change
Equity and other income
Other income $ - $ 5 $ (5 )
$ - $ 5 $ (5 ) Other income of
Three months ended December 31
(In millions) 2021 2020 Change
Net interest and other expense (income)
Interest expense $ 16 $ 15 $ 1
Loss (income) from restricted investments (12 ) (23 ) 11
Other financing costs 1 1 -
$ 5 $ (7 ) $ 12 Net interest and other expense increased by
Three months ended December 31
(In millions) 2021 2020 Change
Net income on acquisitions and divestitures $ -
The activity in the prior year quarter relates to a a
Three months ended December 31
(In millions) 2021 2020 Change
Income tax expense (benefit) $ 5 $ (5 ) $ 10
Effective tax rate 13 % (13 )%
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 13% for the three months ended
The overall effective tax rate was a benefit of 13% for the three months ended
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.
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The effective tax rate during the three months ended
•
Restructuring and separation activity - Includes the impact from company-wide cost reduction programs, and the impact of the sale of a Specialty Additives facility.
The following table is a calculation of the effective tax rate, excluding these
key items.
Three months ended
December 31
(In millions) 2021 2020
Income (loss) from continuing operations before
income taxes $ 37 $ 38
Key items (pre-tax) (a) - (7 )
Adjusted income from continuing operations
before income taxes $ 37 $ 31
Income tax expense (benefit) $ 5 $ (5 )
Income tax rate adjustments:
Tax effect of key items - (3 )
Tax specific key items: (b)
Restructuring and separation activity - 13
Total income tax rate adjustments - 10
Adjusted income tax expense $ 5 $ 5
Effective tax rate, excluding key items (Non-GAAP)
(c) 13 % 17 %
(a)
See Adjusted EBITDA reconciliation table 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 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.
Three months ended December 31
(In millions) 2021 2020 Change
Income (loss) from discontinued operation (net of taxes)
Performance Adhesives
(1 ) (1 ) -
Gain (loss) on disposal of discontinued operations (net of taxes) Composites/Marl facility
- (4 ) 4
$ 16 $ 13 $ 3 The activity for Distribution and Composites/Marl facility during the current
and prior year quarters was related to post-closing adjustments. The
Composites/Marl Facility activity for the prior year quarter included
post-closing purchase price dispute adjustments. The Performance Adhesives
segment sales and pre-tax operating income included in discontinued operations
were
Other comprehensive income (loss)
A comparative analysis of the components of other comprehensive income is
provided below for the three months ended
Three months ended December 31
(In millions) 2021 2020 Change
Other comprehensive income (loss) (net of taxes)
Unrealized translation gain (loss) $ (17 ) $ 48 $ (65 )
Unrealized gain (loss) on commodity hedges (3 ) - (3 )
$ (20 ) $ 48 $ (68 ) Total other comprehensive income (loss), net of tax, for the current quarter
decreased
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•
For the three months endedDecember 31, 2021 , the change in unrealized gain (loss) from foreign currency translation adjustments resulted in a loss of$17 million compared to a gain of$48 million for the three months endedDecember 31, 2020 . 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 three months endedDecember 31, 2021 , the change in commodity hedges is primarily due to the fluctuations of the market prices of the underlying commodities.
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
•
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 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. • Ongoing free cash flow - operating cash flows less capital expenditures and certain other adjustments as applicable. • Ongoing free cash flow conversion - ongoing free cash flow divided by adjusted EBITDA.
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.
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The free cash flow metrics enable 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 and ongoing free cash flow includes the impact of capital expenditures from continuing operations and other significant items impacting cash flow, providing a more complete picture of current and future 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 ongoing free cash flow, Ashland is not reaffirming or
providing forward-looking guidance for
These non-GAAP measures should be considered supplemental in nature and should
not be construed as more significant than comparable measures defined by
EBITDA and Adjusted EBITDA
EBITDA totaled income of
Three months ended
December 31
(In millions) 2021 2020
Net income (loss) $ 48 $ 56
Income tax expense (benefit) 5 (5 )
Net interest and other expense (income) 5 (7 )
Depreciation and amortization 60 59
EBITDA 118 103
Income from discontinued operations (net of tax) (16 ) (13 )
Key items included in EBITDA:
Restructuring, separation and other costs 1 12
Capital project impairment - 9
Environmental reserve adjustments 3 4
Net gain on acquisitions and divestitures - (14 )
Total key items included in EBITDA 4 11
Adjusted EBITDA $ 106 $ 101
Total key items included in EBITDA $ 4 $ 11
Unrealized gain on securities (4 ) (18 )
Total key items, before tax $ - $ (7 )
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Diluted EPS and Adjusted Diluted EPS
The following table reflects the
Three months ended
December 31
2021 2020
Diluted EPS from continuing operations (as reported)
0.02 0.18
Environmental reserve adjustments 0.05 0.06
Capital project impairment - 0.16
Unrealized gain on securities (0.07 ) (0.29 )
Net gain on acquisitions and divestitures - (0.23 )
Key items, before tax - (0.12 )
Tax effect of key items (a) - 0.05
Key items, after tax - (0.07 )
Tax specific key items:
Restructuring and separation activity - (0.22 )
Tax specific key items (b) - (0.22 )
Total key items - (0.29 )
Adjusted diluted EPS from continuing operations (non-GAAP)
$ 0.33 $ 0.28
Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense
$ 0.88 $ 0.69
(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 Statements of Consolidated Comprehensive Income (Loss) caption review section above. (c) Amortization expense adjustment (net of tax) tax rates were 20% and 21% for the three months endedDecember 31, 2021 and 2020, respectively.
RESULTS OF OPERATIONS - REPORTABLE SEGMENT REVIEW
Ashland's reportable segments include Life Sciences, Personal Care (formerly Personal Care and Household), Specialty Additives, and Intermediates (formerly Intermediates and Solvents). Unallocated and Other includes corporate governance activities and certain legacy matters.
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
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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.
The following table discloses sales, operating income, depreciation and
amortization and EBITDA by reportable segment for the three months ended
Three months ended
December 31
(In millions - unaudited) 2021 2020
SALES
Life Sciences $ 170 $ 170
Personal Care 147 126
Specialty Additives 156 147
Intermediates 53 33
Intersegment sales (a) (14 ) (8 )
$ 512 $ 468
OPERATING INCOME (LOSS)
Life Sciences $ 21 $ 29
Personal Care 15 15
Specialty Additives (b) 17 2
Intermediates 16 2
Unallocated and other (27 ) (31 )
$ 42 $ 17
DEPRECIATION EXPENSE
Life Sciences $ 8 $ 9
Personal Care 9 10
Specialty Additives 16 16
Intermediates 3 3
$ 36 $ 38
AMORTIZATION EXPENSE
Life Sciences $ 7 $ 7
Personal Care 12 9
Specialty Additives 5 5
Intermediates - -
$ 24 $ 21
EBITDA (c)
Life Sciences $ 36 $ 45
Personal Care 36 34
Specialty Additives 38 23
Intermediates 19 5
Unallocated and other (27 ) (31 )
$ 102 $ 76
(a)
Intersegment sales from Intermediates are accounted for at prices that
approximate fair value. All other intersegment sales are accounted for at cost.
(b)
Includes a capital project impairment of $9 million for the three months ended
December 31, 2020 relating to a long-term capital project plan change at a plant
facility.
(c)
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.
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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 providing custom formulation, toll processing and particle engineering solutions. Customers include pharmaceutical, food, beverage, nutraceuticals and supplements manufacturers, hospitals and radiologists and industrial manufacturers.
Life Sciences' sales remained consistent at
Operating income decreased
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 months ended
Life Sciences
Three months ended December 31
(In millions) 2021 2020
Operating income $ 21 $ 29
Depreciation and amortization 15 16
EBITDA $ 36 $ 45
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Personal Care
Personal Care 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-enhancing 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. As previously
disclosed, on
Personal Care' sales increased
Operating income of
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation for the three months ended
Personal Care
Three months ended December 31
(In millions) 2021 2020
Operating income $ 15 $ 15
Depreciation and amortization 21 19
EBITDA $ 36 $ 34
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.
Specialty Additives' sales increased
Operating income increased
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to
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation for the three months ended
Specialty Additives
Three months ended December 31
(In millions) 2021 2020
Operating income $ 17 $ 2
Depreciation and amortization 21 21
EBITDA 38 23
Capital project impairment - 9
Adjusted EBITDA $ 38 $ 32
Intermediates
Intermediates 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 to Life Sciences, Personal Care, and Specialty Additives for use as a raw material.
Intermediates' sales increased
Operating income increased
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation (as defined and described in the section above) for the three months endedDecember 31, 2021 and 2020 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. Intermediates had no key items for the three months endedDecember 31, 2021 or 2020. Intermediates Three months ended December 31 (In millions) 2021 2020 Operating income $ 16$ 2 Depreciation and amortization 3 3 EBITDA $ 19$ 5 42
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Unallocated and other The following table summarizes the key components of the Unallocated and other segment's operating income (loss) for the three endedDecember 31, 2021 and 2020. Unallocated and Other Three months ended December 31 (In millions) 2021 2020 Restructuring activities $ (5 ) $ (16 ) Environmental expenses (3 ) (4 ) Other expenses (primarily governance and legacy expenses) (19 ) (11 ) Total expense $ (27 ) $ (31 )
Unallocated and other recorded expense of
The current quarter and prior year quarter included
Other expenses increase of
FINANCIAL POSITION
Liquidity
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, in
Ashland's most recent Form 10-K filed with the
Cash flows
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 three months ended
Three months ended
December 31
(In millions) 2021 2020Cash provided (used) by: Operating activities from continuing operations $ 14 $ 81 Investing activities from continuing operations
(7 ) (4 )
Financing activities from continuing operations (11 ) (207 )
Discontinued operations (9 ) 8
Effect of currency exchange rate changes on cash
and cash equivalents (3 ) 3
Net decrease in cash and cash equivalents $ (16 ) $ (119 )
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Cash and cash equivalents decreased
The
The
Free cash flow and other liquidity resources
The following represents Ashland's calculation of free cash flow and ongoing free cash flows for the disclosed periods. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
(In millions) 2021 2020 Total cash flows provided by operating activities $ 14$ 81 from continuing operations less: Additions to property, plant and equipment (15 ) (30 ) Free cash flows (1 ) 51 Cash (inflows) outflows from U.S. Accounts 10 - Receivable Sales Program (a) Restructuring-related payments (b) 4 14 Environmental and related litigation payments (c) 13 9 Ongoing free cash flow $ 26$ 74 Adjusted EBITDA (d) 106 101 Ongoing free cash flow conversion (e) 25 % 73 %
(a)
Represents activity associated with theU.S. Accounts Receivable Sales Program impacting each period presented. (b) Restructuring payments incurred during each period. (c) Represents cash outflows associated with environmental and related litigation payments which will be reimbursed by the environmental trust. (d) See adjusted EBITDA reconciliation. (e) Ongoing free cash flow divided by Adjusted EBITDA.
Working capital (current assets minus current liabilities, excluding long-term
debt due within one year) amounted to
The following summary reflects Ashland's cash, unused borrowing capacity and
liquidity as of
December 31 September 30
(In millions) 2021 2021
Cash and investment securities
Cash and cash equivalents $ 194 $ 210
Restricted investments (a) 426 421
Unused borrowing capacity and liquidity
Revolving credit facility 341 356
2018 accounts receivable securitization (foreign) - -
Accounts receivable sales program (U.S.) - 12
(a)
Includes
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The borrowing capacity remaining under the
Capital resources Debt The following summary reflects Ashland's debt as ofDecember 31, 2021 andSeptember 30, 2021 . December 31 September 30 (In millions) 2021 2021 Short-term debt (includes current portion of long-term debt) $ 389 $ 374 Long-term debt (less current portion and debt issuance cost discounts) (a) 1,580 1,596 Total debt $ 1,969 $ 1,970 (a)
Includes
Debt as a percent of capital employed was 42% at
Ashland credit ratings
Ashland's corporate credit ratings remained unchanged at BB+ by
Ashland debt covenant restrictions
Ashland's current 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 of
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 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. At
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
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Any change in Covenant Adjusted EBITDA of
Additional capital resources
Total equity
Total equity increased by
Stockholder dividends
Ashland paid a dividend of
Capital expenditures
Capital expenditures were
CRITICAL ACCOUNTING POLICIES
The preparation of Ashland's Condensed Consolidated Financial Statements in
conformity with
OUTLOOK
Ashland issued its outlook for fiscal 2022 in
FY 2022 Outlook
Key Operating Metrics
Sales $2.25 - $2.35 billion
Adjusted EBITDA $550 - $570 million Ashland is unable to reconcile forward-looking adjusted EBITDA to forward-looking net income, the most closely comparable GAAP financial measure, because the information needed to provide such reconciliation would require unreasonable efforts.
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