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 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 4,600 employees worldwide, Ashland serves customers in more than 100 countries. Ashland's sales generated outside ofNorth America were 62% and 60% for the three and nine months endedJune 30, 2020 and 59% and 60% for the three and nine months endedJune 30, 2019 , respectively. Sales by region expressed as a percentage of total consolidated sales for the three and nine months endedJune 30 were as follows: Three months ended Nine months ended June 30 June 30 Sales by Geography 2020 2019 2020 2019 North America (a) 38 % 41 % 40 % 40 % Europe 33 % 33 % 33 % 32 % Asia Pacific 20 % 19 % 19 % 20 % Latin America & other 9 % 7 % 8 % 8 % 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 nine months endedJune 30 were as follows: Three months ended Nine months ended June 30 June 30 Sales by Reportable Segment 2020 2019 2020 2019 Life Sciences 33 % 30 % 31 % 30 % Personal Care & Household 27 % 25 % 26 % 26 % Consumer Specialties 60 % 55 % 57 % 56 % Specialty Additives 24 % 27 % 25 % 26 % Performance Adhesives 12 % 14 % 14 % 14 % Industrial Specialties 36 % 41 % 39 % 40 % Intermediates and Solvents 4 % 4 % 4 % 4 % 100 % 100 % 100 % 100 % 37
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KEY DEVELOPMENTS Business results Ashland recorded a net income of$37 million in the current quarter (income of$50 million in continuing operations and loss of$13 million in discontinued operations) compared to a net income of$66 million in the prior year quarter (income of$23 million in continuing operations and$43 million in discontinued operations). Results for Ashland's continuing operations were primarily driven by improved product mix, lower raw-material costs and lower selling, general and administrative expense partially offset by lower volumes, between periods. Discontinued operations were primarily driven by the change in results of the Composites segment and Marl facility between periods. Ashland's EBITDA of$97 million decreased by$51 million , primarily due to the impact of discontinued operations and lower sales volume partially offset by improved product mix, lower raw-materials and lower selling, general and administrative expense costs between periods. Ashland's Adjusted EBITDA is$143 million for the current quarter compared to$140 million in the prior year quarter. (seeU.S. GAAP reconciliation below under consolidated review). The$3 million increase in Adjusted EBITDA is primarily due to improved product mix, lower raw-materials and lower selling, general and administrative expenses as a result of cost reduction programs, partially offset by lower sales volumes.
Uncertainty relating to the COVID-19 pandemic
Ashland did not incur significant financial consequences during the three and nine months endedJune 30, 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 net 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.
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• Ashland's net income amounted to
the three months ended
• Discontinued operations, which are reported net of taxes, resulted in a
loss of $13 million and income of $43 million during the three months
ended June 30, 2020 and 2019, respectively.
• Income from continuing operations, which excludes results from
discontinued operations, amounted to $50 million and $23 million for the
three months ended June 30, 2020 and 2019, respectively.
• The effective income tax rates were an expense of 19% and a benefit of 5%
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 income of $14
million compared to expense of
30, 2020 and 2019, respectively. This includes gains of
million on restricted investments.
• Operating income was
ended
Year-to-date - Key financial results for the nine months ended
• Ashland's net income amounted to a loss of
income of
respectively, or loss of $8.47 and income of $1.50 diluted earnings per
share, respectively.
• Discontinued operations, which are reported net of taxes, resulted in a
loss of $22 million compared to income of $97 million during the nine
months ended June 30, 2020 and 2019, respectively.
• Results from continuing operations, which excludes results from
discontinued operations, amounted to losses of
for the nine 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 4% and an expense of 114%
for the nine 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 gains of $9 million and $3 million on
restricted investments for the current and prior year period,
respectively.
• Other net periodic benefit income totaled
the nine months ended June 30, 2020 and 2019, respectively, of which $18
million in the prior year 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 income of$48 million and$43 million for the three months endedJune 30, 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:
• 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.
• 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 non-cash adjustments during the current and
prior year quarters to its environmental liabilities and receivables
related to operating facilities and previously divested businesses ornon-operational sites. See Note L of the Notes to Condensed Consolidated
Financial Statements for more information.
• Tax indemnity expense - Ashland incurred a charge in the prior year
quarter for pre-tax indemnity related items
• Unplanned plant shutdown - Ashland incurred an unplanned plant shutdown
during the prior year quarter at its Parlin facility for force majeure
contract issues.
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 anon-cash goodwill impairment charge. See note G and Critical Accounting
Policies for additional information.
• Restructuring, separation and other costs - Ashland periodicallyimplements 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.
• Proxy costs - Ashland incurred significant consulting and other costs
associated with the 2019 Annual Meeting of Stockholders and agreement with
• 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
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recorded non-cash 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.
• Tax indemnity expense - Ashland incurred a charge in the prior year
quarter for pre-tax indemnity related items
• Unplanned plant shutdown - Ashland incurred an unplanned plant shutdown
during the prior year quarter at its Parlin facility for force majeure
contract issues.
• 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 nine months endedJune 30, 2020 and 2019 included depreciation and amortization of$183 million and$186 million , respectively (which excluded accelerated depreciation and amortization of$39 million the nine months endedJune 30, 2019 ).
Non-operating key items affecting EBITDA
• Gain on pension and other postretirement plan remeasurements - Ashland
recognized a remeasurement gain due to the settlement of a non-U.S.
pension plan during the prior year period. See Note K of the Notes to
Condensed Consolidated Financial Statements for more information.
• Net loss on divestitures - Ashland recorded a loss during the prior year
period related to the impairment of an investment.
Statements of Consolidated Comprehensive Income (Loss) - caption review
A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the three and nine months endedJune 30, 2020 and 2019. Three months ended June 30 Nine months ended June 30 (In millions) 2020 2019 Change 2020 2019 Change Sales$ 574 $ 641 $ (67 ) $ 1,717 $ 1,884 $ (167 )
The following table provides a reconciliation of the change in sales for the
three and nine months ended
Three months ended Nine months ended
(In millions) June 30, 2020 June 30, 2020
Volume $ (53 ) $ (116 )
Pricing (6 ) (18 )
Currency exchange (6 ) (17 )
Plant realignment (2 ) (16 )
Change in sales $ (67 ) $ (167 )
Current Quarter - Sales for the current quarter decreased $67 million compared
to the prior year quarter. Unfavorable volume, due primarily to lower industrial
demand across the globe reflecting the impact of the COVID-19 pandemic, product
pricing, foreign currency exchange and plant realignment decreased sales by $53
million , $6 million , $6 million and $2 million , respectively.
Year-to-Date - Sales for the current year decreased $167 million compared to the
prior year period. Unfavorable volume, due primarily to lower industrial demand
across the globe reflecting the impact of the COVID-19 pandemic, product
pricing, foreign currency and plant realignment decreased sales by $116 million ,
$18 million , $17 million and $16 million , respectively.
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Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 Change
Cost of sales $ 378 $ 434 $ (56 ) $ 1,171 $ 1,327 $ (156 )
Gross profit as a percent of sales 34.1 % 32.3 % 31.8 % 29.6 %
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 nine months ended
Three months ended Nine months ended
(In millions) June 30, 2020 June 30, 2020
Changes in:
Volume $ (38 ) $ (80 )
Plant realignment/closure costs (5 ) (65 )
Price/mix (7 ) (4 )
Currency exchange (3 ) (9 )
Operating costs (3 ) 2
Change in cost of sales $ (56 ) $ (156 )
Current Quarter - Cost of sales for the current quarter decreased $56 million
compared to the prior year quarter. Unfavorable volume, due primarily to lower
industrial demand across the globe reflecting the impact of the COVID-19
pandemic, plant realignment/closure costs, price/mix, foreign currency exchange,
and operating costs decreased cost of sales by $38 million , $5 million , $7
million , $3 million and $3 million , respectively.
Year-to-Date - Cost of sales for the current year decreased $156 million
compared to the prior year. Unfavorable volume, due primarily to lower
industrial demand across the globe reflecting the impact of the COVID-19
pandemic, plant realignment/closure costs, price/mix, and foreign currency
exchange decreased cost of sales by $80 million , $65 million , $4 million and $9
million , respectively. Those decreases were partially offset by higher operating
costs which increased cost of sales by $2 million .
Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 Change
Selling, general and $ 113 $ 128 $ (15 ) $ 315 $ 364 $ (49 )
administrative expense
As a percent of sales 19.7 % 20.0 % 18.3 % 19.3 %
Current Quarter - Selling, general and administrative expense for the current
quarter decreased $15 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:
•
the current and prior year period, respectively (see Note L for more
information).
•
and other restructuring costs related to company-wide cost-savings
initiatives during the current and prior year quarters, respectively.
• $6 million of tax indemnity costs during the prior year quarter.
• Remaining variance primarily driven by achieved cost savings and lower
variable compensation and other costs during the current quarter.
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-------------------------------------------------------------------------------- Year-to-Date - Selling, general and administrative expense for the current year decreased$49 million compared to the prior year with expenses as a percent of sales decreasing 1.0 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year were:
•
the current and prior year period, respectively (see Note L for more
information).
•
other costs during the current and prior year periods, respectively.
• $6 million of tax indemnity costs during the prior year.
•
during the prior year period.
• Favorable currency exchange of
and lower variable compensation and other costs during the current year
period.
Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 Change
Research and development expense
$ 48 $ 51 $ (3 )
Year-to-Date - Research and development expense decrease was a result of achieved cost savings and lower variable compensation and other costs compared to the prior year.
Three months ended June 30 Nine months ended June 30 (In millions) 2020 2019 Change 2020 2019 Change Intangibles amortization$ 21 $ 22 $ (1 ) $ 63 $ 65 $ (2 ) expense
Year-to-Date - Amortization expense is relatively consistent with the prior year
period.
Three months ended June 30 Nine months ended June 30 (In millions) 2020 2019 Change 2020 2019 Change Goodwill impairment $ - $ - $ -$ 530 $ -$ 530
Year-to-Date - Ashland recorded an impairment charge of$530 million in the current year. See note G Goodwill and Other Intangibles for more information. Three months ended June 30 Nine months ended June 30 (In millions) 2020 2019 Change 2020 2019 Change Equity and other income Equity income (a) $ - $ - $ - $ - $ - $ - Other income - 3 (3 ) 7 3 4 $ -$ 3 $ (3 ) $ 7 $ 3 $ 4 (a) Activity of$0 denotes value less than$1 million .
Year-to-Date - Equity and other income increased during the nine months
primarily due to a liquidation gain of
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Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 Change
Net interest and other expense
(income)
Interest expense $ 18 $ 28 $ (10 ) $ 70 $ 81 $ (11 )
Interest income - - - (1 ) (1 ) -
Loss on early retirement of debt - - - 59 - 59
Loss (income) from restricted (33 ) (8 ) (25 ) (17 ) (10 ) (7 )
investments
Other financing costs 1 1 - 2 3 (1 )
$ (14 ) $ 21 $ (35 ) $ 113 $ 73 $ 40
Current Quarter - Net interest and other expense decreased by $35 million during
the current quarter compared to the prior year quarter. Interest expense
decreased $10 million due to lower cost of debt and lower debt levels compared
to the prior year quarter. Restricted investments included gains of $31 million
and $6 million for the three months ended June 30, 2020 and 2019, respectively.
See Note E for more information on the restricted investments.
Year-to-Date - Net interest and other expense increased by $40 million during
the current year compared to the prior year period. Interest expense decreased
$19 million due to lower debt levels and 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 gains of $9 million for the current period compared to
gains of $3 million for the prior period. See Note E for more information on the
restricted investments.
Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 ChangeOther net periodic benefit income $ - $ - $
- $ 1 $ 17 $ (16 ) Other net periodic benefit income during the prior year related to the
curtailment gain from the settlement of a non-
Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 ChangeNet 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 June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 Change
Income tax expense (benefit) $ 12 $ (1 ) $ 13 $ (21 ) $ 24 $ (45 )
Effective tax rate 19 % (5 )% 4 % 114 %
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 an expense of 19% for the
three months ended June 30, 2020 and was impacted primarily by income mix and
unfavorable discrete items of $4 million .
The overall effective tax rate was a benefit of 5% for the three months ended
June 30, 2019 and was primarily impacted by income mix, as well as $2 million in
net favorable tax discrete items including the favorable adjustment from the
release of reserves to unrecognize tax benefits and the unfavorable adjustment
related to transition tax and other items.
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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 a benefit of 4% for the
nine months ended June 30, 2020 and was primarily impacted by nondeductible
goodwill impairment of $527 million as well as $20 million favorable tax
discrete items primarily from the tax benefit related to the Swiss Tax Reform
enacted in the first quarter.
The overall effective tax rate was an expense of 114% for the nine months ended
June 30, 2019 and was primarily impacted by the items referenced in the three
month period as well as a net $17 million from unfavorable tax discrete items
including the final assessment of the Tax Act and other items.
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 endedJune 30, 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.
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The following table is a calculation of the effective tax rate, excluding these
key items.
Three months ended Nine months ended
June 30 June 30
(In millions) 2020 2019 2020 2019
Income (loss) from continuing
operations before income taxes $ 62 $ 22 $ (512 ) $ 21
Key items (pre-tax) (a) 2 29 647 99
Adjusted income from continuing
operations
before income taxes $ 64 $ 51 Income tax expense (benefit) $ 12 $ (1 )$ (21 ) $ 24 Income tax rate adjustments: Tax effect of key items 1 5 20 10 Tax specific key items: (b) Deferred tax rate changes - - - (2 ) One-time transition tax - (6 ) - (28 ) Uncertain tax positions - 8 - 8 Restructuring and separation activity - - - 1 Other tax reform - (3 ) 25 (3 ) Total income tax rate adjustments 1 4 45 (14 ) Adjusted income tax expense $ 13 $ 3
Effective tax rate, excluding key items (Non-GAAP) (c) 20 % 6 % 18 % 8 %
(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 keyitems 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.
Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 Change
Income (loss) from discontinued operation (net of taxes)
Composites/Marl facility $ 1 $ 24 $ (23 ) $ 5 $ 77 $ (72 )
Valvoline - - - (1 ) 1 (2 )
Water Technologies (1 ) - (1 ) (1 ) 1 (2 )
Distribution (5 ) 19 (24 ) (7 ) 18 (25 )
Asbestos (8 ) - (8 ) (15 ) - (15 )
Gain (loss) on disposal of
discontinued operations (net of
taxes) -
Composites/Marl facility - - - (3 ) - (3 )
$ (13 ) $ 43 $ (56 ) $ (22 ) $ 97 $ (119 )
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 to INEOS , the sales and pre-tax operating income included in
discontinued operations were $10 million and $2 million , respectively. In the
prior year quarter, the sales and pre-tax operating income included in
discontinued operations were $281 million and $44 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.
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-------------------------------------------------------------------------------- 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$38 million and$9 million , respectively. In the prior year period, the sales and pre-tax operating income included in discontinued operations were$840 million and$125 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 nine months ended
Three months ended June 30 Nine months ended June 30
(In millions) 2020 2019 Change 2020 2019 Change
Other comprehensive income (loss)
(net of taxes)
Unrealized translation gain (loss) $ 7 $ 3 $ 4 $ (7 ) $ (37 ) $ 30
Pension and postretirement obligation
adjustment - - - - (6 ) 6
$ 7 $ 3 $ 4 $ (7 ) $ (43 ) $ 36
Current Quarter - Total other comprehensive income, net of tax, for the current
quarter increased $4 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 gain of
are primarily due to translating foreign subsidiary financial statements
from local currencies to U.S. Dollars.
Year-to-Date - Total other comprehensive income, net of tax, for the current
period increased $36 million compared to the prior year period as a result of
the following components:
• For the nine months ended
(loss) from foreign currency translation adjustments resulted in a loss of
are primarily due to translating foreign subsidiary financial statements
from local currencies to
• For the nine months ended
obligation adjustment included $6 million of prior service costs
recognized within other comprehensive income (loss) due to pension plan
remeasurements.
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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.
The free cash flow metric enables Ashland to provide a better indication of the
ongoing cash being generated that is ultimately available for both debt and
equity holders as well as other investment opportunities. Unlike cash flow
provided by operating activities, free cash flow includes the impact of capital
expenditures from continuing operations, providing a more complete picture of
cash generation. Free cash flow has certain limitations, including that it does
not reflect adjustment for certain non-discretionary cash flows such as
mandatory debt repayments. The amount of mandatory versus discretionary
expenditures can vary significantly between periods.
Although Ashland may provide forward-looking guidance for Adjusted EBITDA,
Adjusted diluted EPS and free cash flow, Ashland is not reaffirming or providing
forward-looking guidance for
48
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economic, political, legislative, regulatory and legal actions. In addition,
certain economic conditions, such as recessionary trends, inflation, interest
and monetary exchange rates, government fiscal policies and changes in the
prices of certain key raw materials, can have a significant effect on operations
and are difficult to predict with certainty.
These non-GAAP measures should be considered supplemental in nature and should
not be construed as more significant than comparable measures defined by U.S.
GAAP. Limitations associated with the use of these non-GAAP measures include
that these measures do not present all of the amounts associated with our
results as determined in accordance with U.S. GAAP. The non-GAAP measures
provided are used by Ashland management and may not be determined in a manner
consistent with the methodologies used by other companies. EBITDA and Adjusted
EBITDA provide a supplemental presentation of Ashland's operating performance on
a consolidated and reportable segment basis. Adjusted EBITDA generally includes
adjustments for items that impact comparability between periods. In addition,
certain financial covenants related to Ashland's 2020 Credit Agreement are based
on similar non-GAAP measures and are defined further in the sections that refer
to this metric.
EBITDA and Adjusted EBITDA
EBITDA totaled income of $97 million and $148 million for the three months ended
June 30, 2020 and 2019, respectively, and loss of $238 million compared to
income of $377 million for the nine months ended June 30, 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 Nine months ended
June 30 June 30
(In millions) 2020 2019 2020 2019
Net income (loss) $ 37 $ 66 $ (513 ) $ 94
Income tax expense (benefit) 12 (1 ) (21 ) 24
Net interest and other expense (14 ) 21 113 73
Depreciation and amortization (a) 62 62 183 186
EBITDA 97 148 (238 ) 377
Loss (income) from discontinued operations (net
of tax) 13 (43 ) 22 (97 )
Key items included in EBITDA:
Restructuring, separation and other costs 14 12 36 50
Proxy costs - - - 5
Goodwill impairment - - 530 -
Inventory adjustment - - 4 -
Accelerated depreciation - - - 39
Environmental reserve adjustments 19 15 19 15
Unplanned plant shutdown - 2 - 2
Tax indemnity expense - 6 - 6
Gain on pension and other postretirement plan
remeasurements - - - (18 )
Net loss on divestitures - - - 3
Total key items included in EBITDA 33 35 589 102
Adjusted EBITDA $ 143 $ 140 Total key items included in EBITDA$ 33 $ 35 $ 589 $ 102 Accelerated amortization of debt issuance costs - - 8 - Debt refinancing costs - - 59 - Unrealized (gain) loss on securities (b) (31 ) (6 ) (9 ) (3 ) Total key items, before tax$ 2 $ 29 $ 647 $ 99
(a) Excludes
key items.
(b) Due to the adoption of new accounting guidance in October 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 Nine months ended June 30 June 30 2020 2019 2020 2019 Diluted EPS from continuing operations (as reported)$ 0.81 $ 0.37 $ (8.11 ) $ (0.05 ) Key items, before tax: Restructuring, separation and other costs 0.23 0.19 0.58 1.40 Proxy costs - - - 0.08 Tax indemnity expense - 0.10 - 0.10 Gain on pension and other postretirement plan remeasurements - - - (0.29 ) Environmental reserve adjustments 0.32 0.24 0.32 0.24 Unplanned plant shutdowns - 0.03 - 0.03 Unrealized (gain) loss on securities (0.51 ) (0.10 ) (0.15 ) (0.05 ) Goodwill impairment - - 8.75 - Inventory adjustment - - 0.06 - Accelerated amortization of debt issuance costs - - 0.13 - Debt refinancing costs - - 0.97 - Net loss on divestitures - - - 0.05 Key items, before tax 0.04 0.46 10.66 1.56 Tax effect of key items (a) (0.01 ) (0.08 ) (0.33 ) (0.16 ) Key items, after tax 0.03 0.38 10.33 1.40 Tax specific key items: Deferred tax rate changes - - - 0.03 One-time transition tax - 0.10 - 0.44 Uncertain tax positions - (0.13 ) - (0.12 ) Restructuring and separation activity - - - (0.02 ) Other tax reform - 0.05 (0.41 ) 0.05 Tax specific key items (b) - 0.02 (0.41 ) 0.38 Total key items 0.03 0.40 9.92 1.78 Adjusted diluted EPS from continuing operations (non-GAAP)$ 0.84 $ 0.77 $ 1.81 $ 1.73 Amortization expense adjustment (net of tax) (c)$ 0.28 $ 0.27 $ 0.83 $ 0.79 Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense$ 1.12 $ 1.04 $ 2.64 $ 2.52
(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 thedefinition 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 nine months ended
and nine months ended June 30, 2019 , respectively.
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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 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.
51
-------------------------------------------------------------------------------- The following table discloses sales, operating income and depreciation and amortization by reportable segment for the three and nine months endedJune 30, 2020 and 2019. Three months ended Nine months ended June 30 June 30 (In millions) 2020 2019 2020 2019 Sales Life Sciences$ 189 $ 190 $ 528 $ 556 Personal Care & Household 155 158 451 495 Consumer Specialties 344 348 979 1,051 Specialty Additives 135 177 429 494 Performance Adhesives 70 88 229 258 Industrial Specialties 205 265 658 752 Intermediates and Solvents 37 41 102 118 Intersegment sales (a) (12 ) (13 ) (22 ) (37 )$ 574 $ 641 $ 1,717 $ 1,884 Operating income (loss) Life Sciences$ 40 $ 32 $ 97 $ 88 Personal Care & Household 16 17 (309 ) 60 Consumer Specialties 56 49 (212 ) 148 Specialty Additives 15 19 (137 ) (5 ) Performance Adhesives 13 16 40 42 Industrial Specialties 28 35 (97 ) 37 Intermediates and Solvents 7 8 (7 ) 20 Unallocated and other (43 ) (49 ) (87 ) (125 )$ 48 $ 43 $ (403 ) $ 80 Depreciation expense Life Sciences$ 8 $ 8 $ 24 $ 24 Personal Care & Household 10 10 30 30 Consumer Specialties 18 18 54 54 Specialty Additives 15 15 46 84 Performance Adhesives 4 4 10 11 Industrial Specialties 19 19 56 95 Intermediates and Solvents 4 3 10 8 Unallocated and other - - - 3$ 41 $ 40 $ 120 $ 160 Amortization expense Life Sciences$ 7 $ 7 $ 21 $ 21 Personal Care & Household 9 10 27 28 Consumer Specialties 16 17 48 49 Specialty Additives 5 5 14 14 Performance Adhesives - - 1 1 Industrial Specialties 5 5 15 15 Intermediates and Solvents - - - 1$ 21 $ 22 $ 63 $ 65 52
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EBITDA (b) (c) Life Sciences$ 55 $ 47 $ 142 $ 133 Personal Care & Household 35 37 (252 ) 118 Consumer Specialties 90 84 (110 ) 251 Specialty Additives 35 39 (77 ) 93 Performance Adhesives 17 20 51 54 Industrial Specialties 52 59 (26 ) 147 Intermediates and Solvents 11 11 3 29 Unallocated and other (43 ) (49 ) (83 ) (122 )$ 110 $ 105 $ (216 ) $ 305
(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 zero of accelerated depreciation for the three months ended June
30, 2019 and $39 million for the nine months ended June 30, 2019 .
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 providing 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-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.
Consumer Specialties' sales decreased$4 million to$344 million in the current quarter. Personal Care & Household and Life Sciences represented$3 million and$1 million of the decrease, respectively. Unfavorable currency exchange, lower pricing and plant restructuring decreased sales by$4 million ,$2 million and$1 million , respectively. Those decreases were partially offset by favorable volume which increased sales by$3 million . Operating income increased$7 million to income of$56 million for the current quarter. Personal Care & Household recorded income of$16 million , while Life Sciences recorded income of$40 million . Favorable volume and favorable price/mix increased operating income by$1 million and$11 million , respectively. Those increases were partially offset by unfavorable foreign exchange and unfavorable costs which decreased operating income by$1 million and$4 million , respectively. Current quarter EBITDA increased$6 million to$90 million ,$35 million in Personal Care & Household and$55 million in Life Sciences. EBITDA margin increased 2.1 percentage points in the current quarter to 26.2%. 53
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Fiscal 2020 year-to-date compared to fiscal 2019 year-to-date
Consumer Specialties' sales decreased$72 million to$979 million in the current period. Personal Care & Household and Life Sciences represented$44 million and$28 million of the decrease, respectively. Lower volume, unfavorable currency exchange, plant restructuring and lower pricing decreased sales by$44 million ,$11 million ,$11 million and$6 million , respectively. Operating income/loss decreased$360 million to a loss of$212 million for the current period. Personal Care & Household recorded a$309 million loss, driven by a goodwill impairment, while Life Sciences recorded$97 million operating income, up$9 million from the prior year period.Goodwill impairments, lower volume, unfavorable foreign exchange and unfavorable costs decreased operating income by$356 million ,$16 million ,$4 million and$4 million , respectively. Those decreases were partially offset by favorable price/mix which increased operating income/loss by$20 million . Current year EBITDA decreased$361 million to a loss of$110 million , a$252 million loss in Personal Care & Household and$142 million income in Life Sciences, while Adjusted EBITDA decreased$4 million to$247 million , of which$143 million and$104 million originated from Life Sciences and Personal Care & Household, respectively. Adjusted EBITDA margin increased 1.3 percentage points in the current period to 25.2%.
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 nine months endedJune 30, 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 nine months endedJune 30, 2020 related to a goodwill impairment of$356 million for Personal Care & Household and$1 million in restructuring costs for Life Sciences. Life Sciences Personal Care & Household Consumer Specialties Three months ended June 30 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ 40 $ 32 $ 16$ 17 $ 56 $ 49 Depreciation and amortization 15 15 19 20 34 35 EBITDA 55 47 35 37 90 84 Restructuring and other costs - - - - - - Goodwill impairment - - - - - - Adjusted EBITDA$ 55 $ 47 $ 35$ 37 $ 90 $ 84 Life Sciences Personal Care & Household Consumer Specialties Nine months ended June 30 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ 97 $ 88 $ (309
)
45 57 58 102 103
EBITDA 142 133 (252 ) 118 (110 ) 251
Restructuring and other costs 1 - - - 1 -
Goodwill impairment - - 356 - 356 -
Adjusted EBITDA $ 143 $ 133 $ 104 $ 118 $ 247 $ 251
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$60 million to$205 million in the current quarter. Specialty Additives and Performance Adhesives represented$42 million and$18 million of the decrease, respectively. Lower volume, due primarily to lower industrial demand across the globe reflecting the impact of the COVID-19 pandemic, unfavorable currency exchange, lower pricing, and plant restructuring decreased sales by$54 million ,$2 million ,$3 million and$1 million , respectively. Operating income decreased$7 million to$28 million for the current quarter. Specialty Additives recorded operating income of$15 million , while Performance Adhesives recorded operating income of$13 million , down$4 million and$3 million from the prior year quarter, respectively. Lower volume and increased environmental costs decreased operating income by$15 million and$1 million , respectively. Those decreases were partially offset by favorable price/mix and lower costs of$5 million and$4 million , respectively. Current quarter EBITDA decreased$7 to$52 million ,$35 million income in Specialty Additives and$17 million income in Performance Adhesives, while Adjusted EBITDA decreased$8 million to$54 million , of which$37 million and$17 million originated from Specialty Additives and Performance Adhesives, respectively. Adjusted EBITDA margin increased 2.9 percentage points in the current quarter to 26.3%.
Fiscal 2020 year-to-date compared to fiscal 2019 year-to-date
Industrial Specialties' sales decreased$94 million to$658 million in the current period. Specialty Additives and Performance Adhesives represented$65 million and$29 million of the decrease, respectively. Lower volume, due primarily to lower industrial demand across the globe reflecting the impact of the COVID-19 pandemic, unfavorable currency exchange, plant restructuring and lower pricing decreased sales by$76 million ,$6 million ,$5 million and$7 million , respectively.
Operating income/loss decreased
55
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recorded $40 million operating income, down $2 million from the prior year
period. Goodwill impairment, lower volume and increased environmental costs
decreased operating income by $174 million , $21 million , and $1 million ,
respectively. Those decreases were partially offset by prior year plant
restructuring costs, lower costs, favorable price/mix and favorable shutdown
costs of $48 million , $2 million , $10 million and $2 million , respectively.
Current year EBITDA decreased $135 to a loss of $26 million , a $77 million loss
in Specialty Additives and $51 million income in Performance Adhesives, while
Adjusted EBITDA decreased $10 million to $150 million , of which $99 million and
$51 million originated from Specialty Additives and Performance Adhesives,
respectively. Adjusted EBITDA margin increased 1.5 percentage points in the
current year to 22.8%.
EBITDA and adjusted EBITDA reconciliation
The following EBITDA and Adjusted EBITDA presentation (as defined and described in the section above) for the three and nine months endedJune 30, 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 nine months endedJune 30, 2020 related to aGoodwill impairment and environmental reserve adjustments for Specialty Additives. The key items during the prior year periods related to restructuring costs associated with the planned closure of a manufacturing facility, environmental reserve adjustments and unplanned plant shutdown within Specialty Additives (which included$38 million of accelerated depreciation) for the three and nine months endedJune 30, 2019 . Specialty Additives Performance Adhesives Industrial Specialties Three months ended June 30 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ 15 $ 19 $ 13 $ 16 $ 28 $ 35 Depreciation and amortization (a) 20 20 4 4 24 24 EBITDA 35 39 17 20 52 59 Environmental reserve adjustments 2 1 - - 2 1 Unplanned plant shutdown - 2 - - - 2 Adjusted EBITDA$ 37 $ 42 $ 17 $ 20 $ 54 $ 62 Specialty Additives Performance Adhesives Industrial Specialties Nine months ended June 30 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ (137 ) $ (5 ) $ 40 $ 42 $ (97 ) $ 37 Depreciation and amortization (a) 60 60 11 12 71 72 EBITDA (77 ) 55 51 54 (26 ) 109 Accelerated depreciation - 38 - - - 38 Goodwill Impairment 174 - - - 174 - Severance and other restructuring costs - 10 - - - 10 Environmental reserve adjustments 2 1 - - 2 1 Unplanned plant shutdown - 2 - - - 2 Adjusted EBITDA$ 99 $ 106 $ 51 $ 54 $ 150 $ 160 (a) Depreciation and amortization excludes accelerated depreciation of$38 million for the three and nine months endedJune 30, 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 to Life Sciences, Personal Care, and Specialty
Additives for use as a raw material.
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Intermediates and Solvents' sales decreased
Operating income/loss decreased
Fiscal 2020 year-to-date compared to fiscal 2019 year-to-date
Intermediates and Solvents' sales decreased$16 million to$102 million in the current period. Lower volume and lower pricing decreased sales by$6 million and$10 million , respectively. Operating income/loss decreased$27 million to a loss of$7 million for the current period. Lower volume, unfavorable price/mix, unfavorable costs and inventory adjustments decreased operating income by$2 million ,$5 million ,$16 million and$4 million , respectively. Current year EBITDA decreased$26 million to$3 million , while Adjusted EBITDA decreased$22 million to$7 million . Adjusted EBITDA margin decreased 17.7 percentage points in the current year to 6.9%.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation (as defined and described in the section above) for the three and nine months endedJune 30, 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 nine months endedJune 30, 2020 included an inventory adjustment of$4 million . Three months ended Nine months ended June 30 June 30 (In millions) 2020 2019 2020 2019 Operating income$ 7 $ 8 $ (7 ) $ 20 Depreciation and amortization 4 3 10 9 EBITDA$ 11 $ 11 $ 3 $ 29 Inventory adjustment - - 4 - Adjusted EBITDA$ 11 $ 11 $ 7 $ 29 Unallocated and other The following table summarizes the key components of the Unallocated and other segment's operating income (loss) for the three and nine months endedJune 30, 2020 and 2019. Three months ended Nine months ended June 30 June 30 (In millions) 2020 2019 2020 2019 Restructuring activities$ (14 ) $ (24 ) $ (36 ) $ (77 ) Environmental expenses (18 ) (16 ) (26 ) (22 ) Proxy costs - - - (5 ) Tax indemnity costs - (6 ) - (6 ) Other expenses (primarily governance and legacy expenses) (11 ) (3 ) (25 ) (15 ) Total expense$ (43 ) $ (49 ) $ (87 ) $ (125 ) 57
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Unallocated and other recorded expense of$43 million and$49 million for the three months endedJune 30, 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.
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$87 million and$125 million for the nine months endedJune 30, 2020 and 2019, respectively. The current and prior year periods included charges for restructuring activities of$36 million and$77 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$22 million for environmental expenses,$6 million for tax indemnity costs and$5 million in proxy defense costs. FINANCIAL POSITION Liquidity Ashland had$416 million in cash and cash equivalents as ofJune 30, 2020 , of which$222 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 endedJune 30, 2020 , Ashland elected to access$230 million on its Revolving Credit Facility, with these amounts on deposit as cash and cash equivalents. As ofJune 30, 2020 , Ashland has total remaining borrowing capacity of$350 million , comprised of amounts remaining available under the Revolving Credit Facility. Ashland has no significant maturities related to our term loans, revolving credit facilities or bonds untilAugust 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 58 --------------------------------------------------------------------------------
information regarding the impact of COVID-19 on the Company, including on its liquidity and capital resources, please see item 1A, risk factors in this report.
Ashland'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 nine months ended
Nine months ended
June 30
(In millions) 2020 2019
Cash provided (used) by:
Operating activities from continuing operations $ 153 $ 93
Investing activities from continuing operations (65 ) (76 )
Financing activities from continuing operations 192 (183 )
Discontinued operations (97 ) 6
Effect of currency exchange rate changes on cash and cash equivalents
1
(2 )
Net increase (decrease) in cash and cash equivalents $ 184
Operating activities
The following discloses the cash flows associated with Ashland's operating
activities for the nine months ended
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