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 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, automotive, construction, energy, food and beverage, nutraceuticals, personal care and pharmaceutical. With approximately 4,200 employees worldwide, Ashland serves customers in more than 100 countries. Ashland's sales generated outside ofNorth America were 61% and 60% for the three months endedDecember 31, 2020 and 2019. 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 2020 2019 North America (a) 39 % 40 % Europe 30 % 31 % Asia Pacific 22 % 21 % Latin America & other 9 % 8 % 100 % 100 %
(a) Ashland includes only
Reportable segments Ashland's reportable segments include Life Sciences, Personal Care & Household, Specialty Additives, Performance Adhesives and Intermediates and Solvents. Unallocated and Other includes corporate governance activities and certain legacy matters. Ashland has also provided subtotals by its consumer and industrial businesses to reflect the end markets served by each reportable segment. The contribution to sales by each reportable segment expressed as a percentage of total consolidated sales for the three month endedDecember 31 were as follows: Three months ended December 31 Sales by Reportable Segment 2020 2019 Life Sciences 31 % 29 % Personal Care & Household 23 % 26 % Consumer Specialties 54 % 55 % Specialty Additives 27 % 26 % Performance Adhesives 14 % 14 % Industrial Specialties 41 % 40 % Intermediates and Solvents 5 % 5 % 100 % 100 % 33
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KEY DEVELOPMENTS Business results Ashland recorded net income of$56 million (income of$61 million in continuing operations and loss of$5 million in discontinued operations) and$32 million (income of$34 million in continuing operations and loss of$2 million in discontinued operations) in the current and prior year quarters, respectively. Ashland's EBITDA of$112 million increased by$33 million , while Ashland's Adjusted EBITDA was$124 million for the current quarter compared to$88 million in the prior year quarter. (seeU.S. GAAP reconciliation below under consolidated review). The improvement in results was primarily due to higher volumes, improved pricing/mix, lower costs and favorable foreign currency exchange, partially offset by a capital project impairment.
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. This includes the execution of shelter in place, social distancing and deep cleaning process requirements. Through the first quarter of fiscal year 2021, Ashland has not experienced any additional major operating surprises, related to the COVID-19 pandemic, and continues to maintain a robust supply chain in a challenging environment, had strong safety performance in the face of unprecedented pressures and improved operating discipline across each of its businesses. The consumer specialties businesses continued to show resiliency in the face of difficult economic circumstances. The industrial specialties businesses and the Intermediates and Solvents business experienced downward pressure on demand as a result of the COVID-19 pandemic's impact on those businesses' end markets in 2020, with improved conditions through the first quarter of 2021. However, Ashland's overall liquidity remains strong and Ashland is able to meet its operating cash needs and other investing and financing cash requirements at this time, including those necessary to grow the business as economic conditions continue to improve. 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 theSEC .
Other items
Operational business model changes and restructurings
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 is currently targeting the following savings: •$50 million of incremental SARD cost savings •$50 million of incremental COGS productivity savings Ashland achieved over 80% of its target run-rate SARD cost savings and about 70% of its COGS productivity savings, in total representing about$78 million in annualized run-rate savings under these initiatives as ofDecember 31, 2020 . Ashland expects to be substantially complete with these initiatives by the end of fiscal year 2021. 34
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Pending acquisition
OnJanuary 19, 2021 Ashland announced it had signed a definitive agreement to acquire the personal care business from Schülke &Mayr GmbH , a portfolio company of the global investment organization EQT. Under the terms of the agreement, Ashland will pay €262.5 million in an all cash transaction, which is expected to be completed before the end of theJune 30, 2021 quarter subject to customary closing conditions and required regulatory approvals.
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.
Key financial results for the three months ended
• Ashland's net income amounted to
the three months ended
of
• Discontinued operations, which are reported net of taxes, resulted in a
loss of
31, 2020 and 2019, respectively.
• Income from continuing operations, which excludes results from
discontinued operations, amounted to $61 million and $34 million for the
three months ended December 31, 2020 and 2019, respectively.
• The effective income tax rates were an expense of zero and a benefit of
240% for the three months ended
and were significantly impacted by certain tax discrete items in both the
current and prior year quarters.
• Ashland incurred pretax net interest and other income of $6
million compared to expense of $10 million for the three months ended
December 31, 2020 and 2019, respectively. This includes gains of $18
million and $9 million on restricted investments.
• Net income on divestitures totaled income of
for the three months ended
• Operating income was
ended
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$41 million and$17 million for the three months endedDecember 31, 2020 and 2019, respectively. The current and prior year quarters' operating income included certain key items that were excluded to arrive at Adjusted EBITDA and are quantified in the table below in the "EBITDA and Adjusted EBITDA" section. These operating key items for the applicable periods are summarized as follows:
• Restructuring, separation and other costs - Ashland periodically
implements company-wide cost reduction programs related to acquisitions,
divestitures and other cost reduction programs in order to enhance
profitability through streamlined operations and an improved overall cost
structure. Ashland often incurs severance, facility and integration costs
associated with these programs. See Note D in the Notes to Condensed
Consolidated Financial Statements for further information on the
restructuring activities.
• During the three months ended
impairment charge associated with a long-term capital project plan change
at a plant facility.
Operating income/loss for the three months ended
35
--------------------------------------------------------------------------------Non-operating key items affecting EBITDA
• Net gain on divestitures - Ashland recorded a gain of
the three months ended
Specialty Additives facility.
Statements of Consolidated Comprehensive Income (Loss) - caption review
A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the three months endedDecember 31, 2020 and 2019. Three months ended December 31 (In millions) 2020 2019 Change Sales$ 552 $ 533 $ 19
The following table provides a reconciliation of the change in sales for the
three months ended
Three months ended
(In millions) December 31, 2020
Volume $ 14
Pricing (6 )
Currency exchange 11
Change in sales $ 19
Sales for the current quarter increased $19 million compared to the prior year
quarter. Favorable volume and foreign currency exchange increased sales by $14
million and $11 million , respectively. These increases were partially offset by
product pricing which decreased sales $6 million .
Three months ended December 31
(In millions) 2020 2019 Change
Cost of sales $ 374 $ 380 $ (6 )
Gross profit as a percent of sales 32.2 % 28.7 %
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, 2020
Changes in:
Volume $ 11
Price/mix (12 )
Currency exchange 4
Operating costs (9 )
Change in cost of sales $ (6 )
Cost of sales for the current quarter decreased $6 million compared to the prior
year quarter. Price/mix, and operating costs decreased cost of sales by $12
million and $9 million , respectively. These decreases were partially offset by
higher volume and foreign currency exchange which increased cost of sales by $11
million and $4 million , respectively.
Three months ended December 31
(In millions) 2020 2019 Change
Selling, general and administrative expense
$ 7 As a percent of sales 19.2 % 18.6 % 36
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Selling, general and administrative expense for the current quarter increased$7 million compared to the prior year quarter with expenses as a percent of sales increasing 0.6 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:
•
and other restructuring costs during the three months ended December 31,
2020 and 2019, respectively;
•
ended
• Unfavorable currency exchange of
The above increases were partially offset by achieved cost savings during the three months endedDecember 31, 2020 from restructuring programs initiated in fiscal year 2020. Three months ended December 31 (In millions) 2020 2019 Change
Research and development expense
Research and development expense is relatively consistent with the prior year
quarter.
Three months ended December 31
(In millions) 2020 2019 Change
Intangibles amortization expense
-
Amortization expense is consistent with the prior year quarter.
Three months ended December 31
(In millions) 2020 2019 Change
Equity and other income
Other income $ 5 $ - $ 5
$ 5 $ - $ 5 Other income for the current year quarter was primarily due to a gain on sale of
excess corporate property of roughly
Three months ended December 31
(In millions) 2020 2019 Change
Net interest and other expense (income)
Interest expense $ 16 $ 23 $ (7 )
Interest income - (1 ) 1
Loss (income) from restricted investments (23 ) (13 ) (10 )
Other financing costs 1 1 -
$ (6 ) $ 10 $ (16 )
Net interest and other expense (income) decreased by $16 million during the
current quarter compared to the prior year quarter. Interest expense decreased
$7 million due to lower cost of debt and lower debt levels compared to the prior
year quarter. Restricted investments included gains of $18 million and $9
million for the three months ended December 31, 2020 and 2019, respectively. See
Note E for more information on the restricted investments.
Three months ended December 31
(In millions) 2020 2019 Change
Net income (loss) on divestitures
The activity in the current year quarter was related to the sale of a Specialty Additives facility, while activity in the prior year quarter related to post-closing adjustments for certain divestitures.
Three months ended December 31
(In millions) 2020 2019 Change
Income tax expense (benefit) $ - $ (24 ) $ 24
Effective tax rate 0 % (240 )%
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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 zero for the three months endedDecember 31, 2020 . The current quarter tax rate was impacted by jurisdictional income mix, as well as favorable discrete items of$13 million primarily related to the sale of a Specialty Additives facility. The overall effective tax rate was a benefit of 240% for the three months endedDecember 31, 2019 and was primarily impacted by jurisdictional income mix, certain nondeductible restructuring costs as well as$27 million from favorable tax discrete items primarily from the tax benefit related to the Swiss Tax Reform enacted in the prior year quarter.
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 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; and
• Other tax reform - Includes the impact from other items related to the Tax
Act and other tax law changes including Swiss Tax Reform. The Swiss Tax
Reform benefit is an estimate based on ten year income projections and is
subject to approval by the Swiss tax authorities. Ashland will monitor
this amount and make adjustments as appropriate in future periods. These
adjustments also include the impact from the deductibility of compensation
items and miscellaneous state tax items.
The following table is a calculation of the effective tax rate, excluding these
key items.
Three months ended
December 31
(In millions) 2020 2019
Income (loss) from continuing operations before
income taxes $ 61 $ 10
Key items (pre-tax) (a) (11 ) (2 ) Adjusted income from continuing operations before income taxes $ 50 $ 8 Income tax expense (benefit) $ - $ (24 ) Income tax rate adjustments: Tax effect of key items (4 ) (1 ) Tax specific key items: (b) Restructuring and separation activity 13 - Other tax reform -
25
Total income tax rate adjustments 9
24
Adjusted income tax expense $ 9 $ -
Effective tax rate, excluding key items (Non-GAAP)
(c) 19 % 3 %
(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.
38
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Three months ended December 31
(In millions) 2020 2019 Change
Income (loss) from discontinued operation (net of taxes)
Valvoline $ - $ (1 ) $ 1
Water Technologies - (1 ) 1
Distribution (1 ) - (1 )
Gain (loss) on disposal of discontinued
operations (net of taxes)
Composites/Marl facility (4 ) - (4 )
$ (5 ) $ (2 ) $ (3 )
The activity for Composites/Marl facility during the current quarter was related
to post-closing purchase price adjustment disputes. The activity for Valvoline,
Water Technologies and Distribution during the current and prior year quarters
was related to post-closing adjustments.
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) 2020 2019 Change
Other comprehensive income (loss) (net of taxes)
Unrealized translation gain $ 48 $ 38 $ 10
$ 48 $ 38 $ 10 Total other comprehensive income, net of tax, for the current quarter increased
• For the three months ended
gain (loss) from foreign currency translation adjustments resulted in a
gain of $48 million compared to $38 million for the three months endedlosses are primarily due to translating foreign subsidiary financial
statements from local currencies to
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,
39
-------------------------------------------------------------------------------- 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 forU.S. GAAP-reported financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparableU.S. GAAP measure because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items that affect these metrics such as domestic and international economic, political, legislative, regulatory and legal actions. In addition, certain economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations and are difficult to predict with certainty. These non-GAAP measures should be considered supplemental in nature and should not be construed as more significant than comparable measures defined byU.S. GAAP. Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with our results as determined in accordance withU.S. GAAP. The non-GAAP measures provided are used by Ashland management and may not be determined in a manner consistent with the methodologies used by other companies. EBITDA and Adjusted EBITDA provide a supplemental presentation of Ashland's operating performance on a consolidated and reportable segment basis. Adjusted EBITDA generally includes adjustments for items that impact comparability between periods. In addition, certain financial covenants related to Ashland's 2020 Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that refer to this metric. 40
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EBITDA and Adjusted EBITDA
EBITDA totaled income of$112 million and$79 million for the three months endedDecember 31, 2020 and 2019, respectively. EBITDA and Adjusted EBITDA results in the table below have been prepared to illustrate the ongoing effects of Ashland's operations, which exclude certain key items previously described. Management believes the use of such non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis. Three months ended December 31 (In millions) 2020 2019 Net income$ 56 $ 32 Income tax expense (benefit) - (24 ) Net interest and other expense (income) (6 ) 10 Depreciation and amortization 62 61 EBITDA 112 79 Loss from discontinued operations (net of tax) 5 2 Key items included in EBITDA: Restructuring, separation and other costs 12 7 Capital project impairment 9 - Net gain on divestitures (14 ) - Total key items included in EBITDA 7 7 Adjusted EBITDA$ 124 $ 88 Total key items included in EBITDA$ 7 $ 7 Unrealized gain on securities (18 ) (9 ) Total key items, before tax$ (11 ) $ (2 ) 41
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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 endedDecember 31 2020 2019
Diluted EPS from continuing operations (as reported)
$ 0.56 Key items, before tax: Restructuring, separation and other costs 0.18
0.12
Capital project impairment 0.16
-
Unrealized gain on securities (0.29 ) (0.15 ) Net gain on divestitures (0.23 ) - Key items, before tax (0.18 ) (0.03 ) Tax effect of key items (a) 0.07
0.02
Key items, after tax (0.11 ) (0.01 ) Tax specific key items: Restructuring and separation activity (0.22 ) - Other tax reform - (0.42 ) Tax specific key items (b) (0.22 ) (0.42 ) Total key items (0.33 ) (0.43 ) Adjusted diluted EPS from continuing operations (non-GAAP)$ 0.66 $ 0.13 Amortization expense adjustment (net of tax) (c)$ 0.28
$ 0.94 $ 0.41
(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
Statements of Consolidated Comprehensive Income (Loss) caption review
section above.
(c) Amortization expense adjustment (net of tax) tax rates were 21% and 20%
for the three months ended December 31, 2020 and December 31, 2019 ,
respectively.
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RESULTS OF OPERATIONS - REPORTABLE SEGMENT REVIEW
Ashland's reportable segments include Life Sciences, Personal Care & Household, Specialty Additives, Performance Adhesives and Intermediates and Solvents. Unallocated and Other includes corporate governance activities and certain legacy matters. Ashland has also provided subtotals by its consumer and industrial businesses to reflect the end markets served by each reportable segment.
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 in the first quarter of fiscal 2020. These costs are now reflected in Unallocated and Other for all periods presented.
The following table discloses sales, operating income, depreciation and
amortization and EBITDA by reportable segment for the three months ended
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Three months ended
December 31
(In millions - unaudited) 2020 2019
SALES
Life Sciences$ 170 $ 155 Personal Care & Household 126 137 Consumer Specialties 296 292 Specialty Additives 147 139 Performance Adhesives 84 74 Industrial Specialties 231 213 Intermediates and Solvents 33 28 Intersegment sales (a) Intermediates and Solvents (8 ) -$ 552 $ 533 OPERATING INCOME (LOSS) Life Sciences$ 29 $ 22 Personal Care & Household 15 11 Consumer Specialties 44 33 Specialty Additives (b) 2 9 Performance Adhesives 20 10 Industrial Specialties 22 19 Intermediates and Solvents 2 (12 ) Unallocated and other (27 ) (23 )$ 41 $ 17 DEPRECIATION EXPENSE Life Sciences$ 9 $ 8 Personal Care & Household 10 10 Consumer Specialties 19 18 Specialty Additives 16 15 Performance Adhesives 3 4 Industrial Specialties 19 19 Intermediates and Solvents 3 3$ 41 $ 40 AMORTIZATION EXPENSE Life Sciences$ 7 $ 7 Personal Care & Household 9 9 Consumer Specialties 16 16 Specialty Additives 5 5 Performance Adhesives - - Industrial Specialties 5 5 Intermediates and Solvents - -$ 21 $ 21 EBITDA (c) Life Sciences$ 45 $ 37 Personal Care & Household 34 30 Consumer Specialties 79 67 Specialty Additives 23 29 Performance Adhesives 23 14 Industrial Specialties 46 43 Intermediates and Solvents 5 (9 ) Unallocated and other (27 ) (23 )$ 103 $ 78
(a) Intersegment sales are accounted for at prices that approximate fair value.
(b) Includes a capital project impairment of
ended
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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Consumer Specialties
The Consumer Specialties business is comprised of the following reportable 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 increased$4 million to$296 million in the current quarter. Life Sciences represented an increase of$15 million , offset by a decrease of$11 million for Personal Care & Household. Favorable currency exchange increased sales by$5 million for the Consumer Specialties business. This increase was partially offset by product pricing which decreased sales by$1 million . Operating income increased$11 million to income of$44 million for the current quarter. Life Sciences and Personal Care & Household recorded income of$29 million and$15 million , respectively. Favorable price/mix, favorable foreign currency exchange, lower costs and a legal settlement related to Personal Care & Household increased operating income by$4 million ,$4 million ,$2 million and$2 million , respectively. These increases were partially offset by lower volume which decreased operating income by$1 million . Current quarter EBITDA increased$12 million to$79 million , of which$45 million was in Life Sciences and$34 million in Personal Care & Household. EBITDA margin increased 3.7 percentage points in the current quarter to 26.7%.
EBITDA and Adjusted EBITDA reconciliation
The EBITDA and Adjusted EBITDA amounts presented within this business section
are provided as a means to enhance the understanding of financial measurements
that Ashland has internally determined to be relevant measures of comparison for
each segment. Each of these non-GAAP measures is defined as follows: EBITDA
(operating income plus depreciation and amortization), Adjusted EBITDA (EBITDA
adjusted for key items, which may include pro forma effects for significant
acquisitions or divestitures, as applicable), and Adjusted EBITDA margin
(Adjusted EBITDA, which may include pro forma adjustments, divided by sales or
sales adjusted for pro forma results). Ashland does not allocate items to each
reportable segment below operating income, such as interest expense and income
taxes. As a result, reportable segment EBITDA and Adjusted EBITDA are reconciled
directly to operating income since it is the most directly comparable Statements
of Consolidated Comprehensive Income (Loss) caption.
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The following EBITDA presentation for the three months ended December 31, 2020
and 2019 is provided as a means to enhance the understanding of financial
measurements that Ashland has internally determined to be relevant measures of
comparison for the results of Consumer Specialties.
Life Sciences Personal Care & Household Consumer Specialties
Three months ended December 31
(In millions) 2020 2019 2020 2019 2020 2019
Operating income $ 29 $ 22 $ 15
15 19 19 35 34
EBITDA 45 37 34 30 79 67
Industrial Specialties
The Industrial Specialties business is comprised of the below reportable 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 increased$18 million to$231 million in the current quarter. Specialty Additives and Performance Adhesives represented$8 million and$10 million of the increase, respectively. Higher volume and favorable currency exchange increased sales by$16 million and$5 million , respectively. These increases were partially offset by product pricing which decreased sales by$3 million . Operating income increased$3 million to$22 million for the current quarter. Specialty Additives and Performance Adhesives recorded income of$2 million and$20 million , respectively, down$7 million and up$10 million from the prior year quarter, respectively. Higher volume, favorable price/mix, foreign currency exchange and production costs increased operating income by$4 million ,$5 million ,$1 million and$2 million , respectively. Those increases were partially offset by a capital project impairment of$9 million . Current quarter EBITDA increased$3 million to$46 million ,$23 million income in Specialty Additives and$23 million income in Performance Adhesives. Adjusted EBITDA increased$12 million to$55 million , of which$32 million and$23 million originated from Specialty Additives and Performance Adhesives, respectively. Adjusted EBITDA margin increased 3.6 percentage points in the current quarter to 23.8%. 46 --------------------------------------------------------------------------------
EBITDA and adjusted EBITDA reconciliation
The following EBITDA and Adjusted EBITDA presentation (as defined and described in the section above) for the three months endedDecember 31, 2020 and 2019 below is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Industrial Specialties. Adjusted EBITDA results have been prepared to illustrate the ongoing effects of Ashland's operations, which exclude certain key items. The key items during the three months endedDecember 31, 2020 related to a capital project impairment within Specialty Additives. Specialty Additives Performance Adhesives Industrial Specialties Three months ended December 31 (In millions) 2020 2019 2020 2019 2020 2019 Operating income$ 2 $ 9 $
20
21 20 3 4 24 24
EBITDA 23 29 23 14 46 43
Capital project impairment 9 - - - 9 -
Adjusted EBITDA $ 32 $ 29 $ 23 $ 14 $ 55 $ 43
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.
Intermediates and Solvents' sales increased
Operating income/loss increased$14 million to$2 million for the current quarter. Lower production costs and higher volume increased operating income by$17 million and$1 million , respectively. This increase was partially offset by price/mix and foreign currency exchange which decreased operating income by$3 million and$1 million respectively. Current quarter EBITDA increased$14 million to$5 million . EBITDA margin for the current quarter was 15.2%.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation (as defined and described in the section above) for the three months endedDecember 31, 2020 and 2019 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Intermediates and Solvents. Three months ended December 31 (In millions) 2020 2019 Operating income$ 2 $ (12 ) Depreciation and amortization 3 3 EBITDA 5 (9 ) 47
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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 months endedDecember 31, 2020 and 2019. Three months ended December 31 (In millions) 2020 2019 Restructuring activities$ (12 ) $ (7 ) Environmental expenses (4 ) (3 ) Other expenses (primarily governance and legacy expenses) (11 ) (13 ) Total expense$ (27 ) $ (23 )
Unallocated and other recorded expense of$27 million and$23 million for the three months endedDecember 31, 2020 and 2019, respectively. The current and prior year quarters included charges for restructuring activities of$12 million and$7 million , respectively, which were comprised of the following:
•
restructuring costs related to company-wide cost reduction programs during
the current and prior quarters, respectively.
The current quarter and prior quarter included
FINANCIAL POSITION Liquidity Ashland had$335 million in cash and cash equivalents as ofDecember 31, 2020 , of which$263 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 endedDecember 31, 2020 , Ashland elected not to access funds on its Revolving Credit Facility. As ofDecember 31, 2020 , Ashland has total remaining borrowing capacity of$694 million , comprised of amounts remaining available under the Revolving Credit Facility and two accounts receivable securitization facilities. 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 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 theSEC . 48 --------------------------------------------------------------------------------
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) 2020 2019
Cash provided (used) by:
Operating activities from continuing operations $ 106 $ (34 )
Investing activities from continuing operations (4 ) (20 )
Financing activities from continuing operations (207 ) (7 )
Discontinued operations (17 ) (15 ) Effect of currency exchange rate changes on cash and cash equivalents
3 1
Net decrease in cash and cash equivalents $ (119 ) $ (75 )
Operating activities
The following discloses the cash flows associated with Ashland's operating
activities for the three months ended
Three months ended
December 31
(In millions) 2020 2019Cash flows provided (used) by operating activities from continuing operations Net income
$ 56 $ 32
Loss from discontinued operations (net of income 5 2
taxes)
Adjustments to reconcile income from continuing operations to cash flows from operating activities: Depreciation and amortization 62
61
Original issue discount and debt issuance costs 1 2
amortization
Deferred income taxes (5 ) (12 ) Gain from sales of property and equipment (4 ) - Stock based compensation expense 4 4 Income from restricted investments (23 ) (13 ) Net income on divestitures (14 ) - Impairments 9 - Pension contributions (2 ) (1 ) Change in operating assets and liabilities (a) 17 (109 ) Total cash flows provided (used) by operating activities from continuing operations $ 106
$ (34 )
(a) Excludes changes resulting from operations acquired or sold.
Cash flows provided (used) from operating activities from continuing operations amounted to inflows of$106 million and outflows of$(34) million in the current and prior year periods, respectively.
Operating Activities - Operating Assets and Liabilities
The cash results during each period are primarily driven by net income, excluding discontinued operation results, adjusted for certain non-cash items including depreciation and amortization (including original issue discount and debt issuance cost amortization), as well as changes in working capital, which are fluctuations within accounts receivable, inventory, trade payables and accrued expenses. Ashland continues to emphasize working capital management as a high priority and focus. Changes in operating assets and liabilities accounted for inflows of$17 million for the current quarter compared to outflows of$109 million for the three months endedDecember 31, 2020 and 2019, respectively, and were primarily driven by the following net working capital accounts: • Accounts receivable - There were cash inflows of$59 million and$40 million during the current and prior year quarters, respectively. 49
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• Inventory - There were cash outflows of
the current and prior year quarters, respectively.
• Trade and other payables - There were cash outflows of
million during the current and prior year quarters, respectively, and
primarily related to the timing of certain payments and management of
supplier/vendor payment terms.
The remaining changes to operating assets and liabilities resulted in inflows of
$4 million and outflows of $15 million in the current and prior year quarters,
respectively, and were primarily due to income taxes paid or income tax refunds,
interest paid, and adjustments to certain accruals and other long-term assets
and liabilities.
Operating Activities - Summary
Operating cash flows for the current year quarter included income from continuing operations of$61 million . Additionally, the current quarter included non-cash adjustments of$62 million for depreciation and amortization,$4 million for stock-based compensation expense,$23 million income from restricted investments,$14 million net income on divestitures and$9 million for impairments.
Operating cash flows for the prior year quarter included income from continuing
operations of
Investing activities
The following discloses the cash flows associated with Ashland's investing
activities for the three months ended
Three months ended
December 31
(In millions) 2020 2019Cash flows provided (used) by investing activities from continuing operations Additions to property, plant and equipment
$ (30 ) $ (29 )
Proceeds from disposal of property, plant and
equipment 5 -
Proceeds from sale or restructuring of operations 14 -
Net purchase of funds restricted for specific
transactions (1 ) (1 )
Reimbursement from restricted investments 8 10
Proceeds from sales of securities 42 4 Purchase of securities (42 ) (4 ) Total cash flows used by investing activities from continuing operations $ (4 ) $ (20 ) Cash used by investing activities was$4 million and$20 million for the current and prior year quarters, respectively. The significant cash investing activities for the current quarter primarily related to cash outflows of$30 million for property additions compared to$29 million in the prior year quarter. Additionally, there were reimbursements from the restricted renewable annual asbestos trust of$8 million during the current quarter compared to$10 million in the prior year quarter, proceeds from disposal of property, plant and equipment of$5 million in the current quarter and proceeds from sale or restructuring of operations of$14 million in the current quarter. The current quarter also included a rebalancing within the asbestos trust, which resulted in$42 million of proceeds from the sale of securities offset by$42 million of purchases of securities. 50
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Financing activities
The following discloses the cash flows associated with Ashland's financing
activities for the three months ended
Three months ended
December 31
(In millions) 2020 2019Cash flows provided (used) by financing activities from continuing operations Proceeds from (repayment of) short-term debt
$ (187 ) $ 14 Cash dividends paid (17 )
(16 ) Stock based compensation employee withholding taxes paid in cash
(3 ) (5 )
Total cash flows used by financing activities from $ (207 ) $ (7 )
continuing operations
Cash flows used by financing activities resulted in an outflow of $207 million
for the current quarter compared to an outflow of $7 million for the prior year
quarter.
Significant cash financing activities for the current quarter included
short-term debt repayments of $187 million , primarily related to the 2020
Revolving Credit Facility and accounts receivable securitization facilities. The
current quarter included cash dividends paid of $0.275 per share, for a total of
$17 million .
Significant cash financing activities for the prior year quarter included
short-term cash inflows of $14 million , primarily related to draws on the 2017
Revolving Credit Facility. The prior year quarter included cash dividends paid
of $0.275 per share, for a total of $16 million .
The following discloses the cash flows associated with Ashland's discontinued
operations for the three months ended
Three months ended
December 31
(In millions) 2020 2019
Cash provided (used) by discontinued operations
Operating cash flows $ (14 ) $ (17 )
Investing cash flows (3 ) 2
Total cash provided (used) by discontinued operations
(15 )
Cash flows for discontinued operations in the current quarter primarily related to previously divested businesses, including net payments of asbestos, environmental liabilities and tax payments during the period.
Cash flows for discontinued operations in the prior year quarter related to previously divested businesses, including net payments of asbestos and environmental liabilities.
Free cash flow and other liquidity resources
The following represents Ashland's calculation of free cash flow for the disclosed quarters. Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
Three months ended
December 31
(In millions) 2020 2019
Total cash flows provided (used) by operating $ 106 $ (34 )
activities from continuing operations
Adjustments:
Additions to property, plant and equipment (30 ) (29 )
Free cash flows (a) $ 76 $ (63 )
(a) Includes
three months ended
Working capital (current assets minus current liabilities, excluding long-term
debt due within one year) amounted to
51
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(cash, cash equivalents and accounts receivable) amounted to 127% and 114% of
current liabilities (excluding current liabilities held for sale) as of December
31, 2020 and September 30, 2020 , respectively.
The following summary reflects Ashland's cash and unused borrowing capacity as
of
December 31 September 30
(In millions) 2020 2020
Cash and investment securities
Cash and cash equivalents $ 335 $ 454
Unused borrowing capacity
Revolving credit facility $ 580 $ 500
Accounts receivable securitizations 114 -
The borrowing capacity remaining under the $600 million revolving credit
facility was $580 million due to a reduction of $20 million for letters of
credit outstanding at December 31, 2020 . In total, Ashland's available liquidity
position, which includes cash, the revolving credit facility and the accounts
receivable securitization facilities, was $1,029 million at December 31, 2020 ,
compared to $954 million at September 30, 2020 .
Capital resources
Debt
The following summary reflects Ashland's debt as of December 31, 2020 and
September 30, 2020 .
December 31 September 30
(In millions) 2020 2020
Short-term debt (includes current portion of
long-term debt) $ 93 $ 280
Long-term debt (less current portion and debt issuance cost discounts) (a) 1,601 1,573 Total debt $ 1,694 $ 1,853
(a) Includes
31, 2020 and September 30, 2020 .
Debt as a percent of capital employed was 35% and 38% at December 31, 2020 and
at September 30, 2020 , respectively. At December 31, 2020 , Ashland's total debt
had an outstanding principal balance of $1,751 million , discounts of $42
million , and debt issuance costs of $15 million . The scheduled aggregate
maturities of long-term debt by year (including the current portion and
excluding debt issuance costs) are as follows: zero remaining in 2021, $421
million in 2022, $22 million in 2023, $44 million in 2024 and $175 million in
2025.
Ashland credit ratings
Ashland's corporate credit ratings remained unchanged at BB+ by Standard &
Poor's and Ba1 by Moody's Investor Services . As of December 31, 2020 , Moody's
Investor Services outlook remained at stable, while Standard & Poor's outlook
remained at negative. Subsequent changes to these ratings or outlook may have an
effect on Ashland's borrowing rate or ability to access capital markets in the
future.
Ashland debt covenant restrictions
Ashland's most recent credit agreement (the 2020 Credit Agreement) contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations. As ofDecember 31, 2020 , Ashland is in compliance with all debt agreement covenant restrictions under the 2020 Credit Agreement. 52
-------------------------------------------------------------------------------- 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. AtDecember 31, 2020 , Ashland's calculation of the consolidated net leverage ratio was 2.6. 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. AtDecember 31, 2020 , Ashland's calculation of the consolidated interest coverage ratio was 7.8. Any change in Covenant Adjusted EBITDA of$100 million would have an approximate 0.4x effect on the consolidated net leverage ratio and a 1.5x effect on the consolidated interest coverage ratio. The change in consolidated indebtedness of$100 million would affect the consolidated leverage ratio by approximately 0.2x.
Additional capital resources
Cash projection
Ashland believes that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for the Company's foreseeable working capital needs, capital expenditures at existing facilities, pending acquisitions, dividend payments and debt service obligations. The Company's cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. For information regarding the impact of COVID-19 on the Company, including on its liquidity and capital resources, please see item 1A, in Ashland's most recent Form 10-K filed with theSEC .
Total equity
Total equity increased$86 million sinceSeptember 30, 2020 to$3,122 million atDecember 31, 2020 . The increase of$86 million was due to net income of$56 million , deferred translation gain of$48 million and$1 million of common shares issued under stock incentive plans, offset by$17 million of dividends and$2 million related to the adoption of new accounting guidance around the measurement of credit losses.
Stockholder dividends
In
Capital expenditures
Capital expenditures were
CRITICAL ACCOUNTING POLICIES
The preparation of Ashland's Condensed Consolidated Financial Statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes, other liabilities and receivables associated with asbestos litigation and environmental remediation. These accounting policies are discussed in detail in "Management's Discussion and Analysis - Critical Accounting Policies" in Ashland's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2020 . Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly 53 --------------------------------------------------------------------------------
from the estimates under different assumptions or conditions. Management has
reviewed the estimates affecting these items with the Audit Committee of
Ashland's Board of Directors. No material changes have been made to the
valuation techniques during the three months ended
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