Quarterly Report (SEC Filing - 10-Q)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

Under the new expected credit loss model, Ashland records an allowance for credit losses inherent in its receivables from revenue transactions and reinsurance recoverables. The allowance for credit losses is a valuation account deducted from the amortized cost basis of the assets to present their net carrying value at the amount expected to be collected. Ashland estimates expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. When measuring expected credit losses, Ashland pools assets with similar country risk and credit risk characteristics. Each period the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets. For the three and nine months ending June 30, 2021, no significant credit losses were incurred within the Statements of Consolidated Comprehensive Income (Loss).

NOTE B - ACQUISITIONS AND DIVESTITURES

Acquisitions

Personal Care & Household acquisition

On April 30, 2021, Ashland completed its acquisition of the personal care business of Schülke & Mayr GmbH (Schülke), a portfolio company of the global investment organization EQT. Ashland has included the purchase of this business within the Personal Care and Household reporting segment.

Purchase price allocation

The acquisition was recorded by Ashland using the purchase method of accounting in accordance with applicable U.S. GAAP whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values.

The all-cash purchase price of Schülke was $311million. Ashland incurred acquisition related transaction cost of $2million and $4million during the three and nine months ended June 30, 2021, respectively, which are recorded within the net income on acquisitions and divestitures caption within the Statement of Consolidated Comprehensive Income (Loss). Within this same caption, Ashland recognized income of $4million and $1million during the three and nine months ended June 30, 2021, respectively, associated with foreign currency derivative gains on foreign exchange contracts entered into to mitigate the exposure of the Euro dominated purchase price. The following table summarizes the current preliminary values of the assets acquired and liabilities assumed at the date of acquisition.

As of June 30, 2021, the purchase price allocation for the acquisition was preliminary and subject to completion. Adjustments to the current fair value estimates in the above table may occur as the process conducted for various valuations and assessments, including certain tangible and intangible assets, are finalized. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were based on strategic and synergistic benefits

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that are expected to be realized from the acquisition. A portion of the goodwill associated with foreign asset deal entities is expected to be deductible for income tax purposes.

Intangible assets identified

The purchase price allocation included $185 million of certain definite-lived intangible assets which are being amortized over the estimated useful life in proportion to the economic benefits consumed. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future cash flows of the combined company. In addition, Ashland reviewed certain technological trends and also considered the relative stability and retention rates in the current Schülke personal care customer base.

Divestitures

Composites and Marl facility

On August 30, 2019, Ashland completed the sale of its Composites business (excluding the Maleic business) and butanediol manufacturing facility in Marl, Germany to INEOS Enterprises (INEOS).

On September 30, 2020, Ashland completed the sale of its Maleic business to AOC Materials, LLC (AOC). Net proceeds from the sale were approximately $98million.

The disposal of the Composites business and Maleic business represented a strategic shift and had a major effect on Ashland's operations and financial results. The operating results and cash flows related to Composites and the Marl facility, including the Maleic business, have been reflected as discontinued operations in the Statements of Consolidated Comprehensive Income (Loss) and Statements of Condensed Consolidated Cash Flows. See Note C of the Notes to Condensed Consolidated Financial Statements for the results of operations for Composites and the Marl facility, including the Maleic business, for all periods presented.

Subsequent to the completion of the sale, Ashland is providing certain transition services to INEOS for a fee. While the transition services are expected to vary in duration depending upon the type of service provided, Ashland expects to reduce certain costs as the transition services are completed. Ashland recognized transition service fee income of $3million during the three months ended June 30, 2021 and 2020, respectively, and $8million and $9million during the nine months ended June 30, 2021 and 2020, respectively.

Other manufacturing facility sales

During the nine months ended June 30, 2021, Ashland completed the sale of a Specialty Additives facility, the assets and liabilities of which were classified as held for sale as of September 30, 2020. Net proceeds received from the sale were approximately $14million in the December 31, 2020 quarter ($20million in total including a deposit received in fiscal year 2020). The Company recognized a pre-tax gain of $14million recorded within the Net income on acquisitions and divestitures caption in the Statements of Consolidated Comprehensive Income (Loss) for the nine months ended June 30, 2021.

NOTE C- DISCONTINUED OPERATIONS

Ashland has divested certain businesses that have qualified as discontinued operations. The operating results from these divested businesses and subsequent adjustments related to ongoing assessments of certain retained liabilities and tax items have been recorded within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss) for all periods presented.

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NOTE D - RESTRUCTURING ACTIVITIES

Company-wide restructuring activities

Ashland periodically implements company-wide restructuring programs related to acquisitions, divestitures and other cost reduction programs in order to enhance profitability through streamlined operations and an improved overall cost structure.

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Fiscal 2020 and 2021 restructuring program

Ashland incurred severance income of $6million and expense of $12million during the three months ended June 30, 2021 and 2020, respectively, and $2million and $30million during the nine months ended June 30, 2021 and 2020, respectively, attributable to executive management changes and business management changes within the organization. As of June 30, 2021, the severance reserve associated with this transition was $14million.

Fiscal 2018 restructuring program

During fiscal 2018, Ashland initiated a company-wide cost reduction program as a result of ongoing strategic asset plans and activities. As part of this restructuring program, Ashland announced a voluntary severance offer to certain qualifying employees that was formally approved during 2018. Additionally, during fiscal 2018, an involuntary program for employees was also initiated as part of the restructuring program. These programs resulted in additional severance expense of zero for the three months ended June 30, 2021 and 2020, and zeroand $1million for the nine months ended June 30, 2021 and 2020, respectively, which was primarily recorded within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss). As of June 30, 2021, the severance reserve for the company-wide restructuring program was zero.

NOTE E - FAIR VALUE MEASUREMENTS

Restricted investments

Investment income and realized gains and losses on these company-restricted investments are reported within the net interest and other expense caption on the Statements of Consolidated Comprehensive Income (Loss). The following table provides a summary of the activity within the investment portfolio as of June 30, 2021 and September 30, 2020:

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Foreign currency derivatives

Ashland conducts business in a variety of foreign currencies. Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to curtail potential earnings volatility effects on certain assets and liabilities, including short-term inter-company loans, denominated in currencies other than Ashland's functional currency of an entity. These derivative contracts generally require exchange of one foreign currency for another at a fixed rate at a future date and generally have maturities of less than twelve months. All contracts are valued at fair value with net changes in fair value recorded within the selling, general and administrative expense caption except for a contract entered into to manage the foreign currency exposure related to the acquisition of the Schülke personal care business, which is reported within the net income from acquisitions and divestitures caption. The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies. The following table summarizes the net gains and losses recognized during the three and nine months ended June 30, 2021 and 2020 within the Statements of Consolidated Comprehensive Income (Loss).

Other financial instruments

At June 30, 2021 and September 30, 2020, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $1,597million and $1,588million, respectively, compared to a fair value of $1,749million and $1,708million, respectively. The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland's incremental borrowing rates.

NOTE F - INVENTORIES

NOTE G - GOODWILL AND OTHER INTANGIBLES

Goodwill

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Other intangible assets

Intangible assets principally consist of trademarks and trade names, intellectual property and customer and supplier relationships. Intangible assets classified as finite are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 3to 25 years, intellectual property over 5to 25 years, and customer and supplier relationships over 3to 24 years.

Amortization expense recognized on intangible assets was $24million and $21million for the three months ended June 30, 2021 and 2020, respectively, and $66million and $63million for the nine months ended June 30, 2021 and 2020, respectively, and is included in the Intangibles Amortization Expense caption of the Statements of Consolidated Comprehensive Income (Loss). Estimated amortization expense for future periods is $99million in 2021 (includes ninemonths actual and three months estimated), $98million in 2022, $98million in 2023, $82million in 2024 and $79million in 2025. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions and divestitures, potential impairment, accelerated amortization, or other events.

NOTE H - DEBT AND OTHER FINANCING ACTIVITIES

The scheduled aggregate maturities of long-term debt by year (including the current portion and excluding debt issuance costs) are as follows as of June 30, 2021: zeroremaining in 2021, $421million in 2022, $22million in 2023, $44million in 2024and $175million in 2025.

Accounts Receivable Facilities and Off-Balance Sheet Arrangements

U.S. Accounts Receivable Securitization Facility

On March 17, 2021, Ashland terminated its U.S. 2012 Accounts Receivable Securitization Facility. The program had no outstanding borrowings at its termination. At September 30, 2020, the outstanding amount of accounts receivable pledged was $151million and borrowings under the facility totaled $84million. This program did not meet the criteria for sale accounting and was reported as secured borrowing under ASC 860.

U.S. Accounts Receivable Sales Program

On March 17, 2021, a wholly-owned, bankruptcy-remote special purpose entity (SPE) and consolidated Ashland subsidiary entered into an agreement with a group of entities (buyers) to sell certain trade receivables, without recourse beyond the pledged receivables, of two other U.S. based Ashland subsidiaries. Under the agreement, Ashland can transfer whole receivables up to a limit established by the buyer, which is currently set at $125million between February and October of each year and up to $100million all other times. Ashland's continuing involvement is limited to servicing the receivables, including billing, collections and remittance of payments to the buyers as well as a limited guarantee on over-collateralization. The arrangement terminates on May 31, 2023, unless terminated earlier pursuant to the terms of the agreement.

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Ashland determined that any receivables transferred under this agreement are put presumptively beyond the reach of Ashland and its creditors, even in bankruptcy or other receivership. Ashland received a true sale at law and non-consolidation opinions to support the legal isolation of these receivables. Consequently, Ashland accounts for the receivables transferred to buyers as part of this agreement as sales under ASC 860. Ashland recognizes any gains or losses based on the excess of proceeds received net of buyer's discounts and fees compared to the carrying value of the assets. Proceeds received, net of buyer's discounts and fees, are recorded within the operating activities of the Statement of Condensed Consolidated Cash Flows. Losses on sale of assets, including related transaction expenses are recorded within the Net interest and other expense (income) caption of the Statement of Consolidated Comprehensive Income (Loss). Ashland regularly assesses its servicing obligations and records them as assets or liabilities when appropriate. Ashland also monitors its obligation with regards to the limited guarantee and records the resulting guarantee liability when warranted. When applicable, Ashland discloses the amount of the receivable that serves as over-collateralization as a restricted asset.

Ashland recognized a $1million loss within its Statement of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2021within the net interest and other expense (income) caption associated with sales under the program. Ashland has recorded $90million of sales against the buyer's limit, which was $117million at June 30, 2021. Ashland transferred $139million in receivables to the SPE as of June 30, 2021. Ashland recorded liabilities related to its service obligations and limited guarantee as of June 30, 2021of less than $1million. As of June 30, 2021, the year-to-date gross cash proceeds received for receivables transferred and derecognized was $233million, of which $143million was collected. The difference of $90million represents the proceeds from new transfers of receivables as of June 30, 2021.

Foreign Accounts Receivable Securitization Facility

Ashland continues to maintain its foreign 2018 Accounts Receivable Securitization Facility. Ashland accounts for the foreign 2018 Accounts Receivable Securitization Facility as secured borrowings, and the receivables sold pursuant to the facility are included in the Consolidated Balance Sheets as accounts receivable. At June 30, 2021and September 30, 2020, the outstanding amount of accounts receivable transferred by Ashland was $104million and $131million, respectively, and there were $71million and $93million, respectively, of borrowings (denominated in multiple currencies) under the facility.

Debt

Credit Agreement and Refinancing

During January 2020, Ashland LLC and Ashland Services B.V., indirect wholly owned subsidiaries of Ashland, entered into a senior unsecured credit agreement (the 2020 Credit Agreement) with a group of lenders. The 2020 Credit Agreement provides for (i) a $600million unsecured five-yearrevolving credit facility (the Revolving Credit Facility) and (ii) a $250million unsecured five-yearterm loan facility (the 2020 Term Loan Facility).

Ashland incurred $4million of new debt issuance costs in connection with the 2020 Credit Agreement, of which $1million was expensed immediately during the nine months ended June 30, 2020 within the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). The remaining balance is amortized using either the effective interest method or straight-line method. Additionally, as a result of the termination of the 2017 Credit Agreement, Ashland recognized a $1million charge for the accelerated amortization of previously capitalized debt issuance costs during the nine months ended June 30, 2020, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss).

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Note Issuance and existing notes tender

During January 2020, a subsidiary of Ashland, Ashland Services B.V., completed the issuance of 2.00% senior unsecured notes due 2028with an aggregate principal amount of €500million (the 2028 Notes).

Ashland incurred $8million of new debt issuance costs in connection with the 2028 Notes, which is amortized using the effective interest method over the term of the Notes.

Tender offers of 4.750% notes due 2022

During the nine months ended June 30, 2020, Ashland executed open market repurchases of its 4.750% notes due 2022(the 2022 Notes). As a result of these repurchases, the carrying values of the 2022 Notes were reduced by $670million. Ashland recognized a $5million charge related to accelerated accretion on debt discounts and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss) for the nine months ended June 30, 2020.

Tender offers of 6.875% notes due 2043

During the nine months ended June 30, 2020, Ashland executed open market repurchases of its 6.875% notes due 2043 (the 2043 Notes). As a result of these repurchases, the carrying values of the 2043Notes were reduced by $92million. Ashland recognized a $1million charge related to accelerated accretion on debt premiums and accelerated amortization previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss) for the nine months ended June 30, 2020.

Tender offers of 6.500% Junior Subordinated Debentures due 2029

During the nine months ended June 30, 2020, Ashland executed open market repurchases of Hercules LLC's 6.500% notes due 2029 (the 2029 Junior Debentures). As a result of these repurchases, the carrying values of the 2029 Junior Debentures were reduced by $2million.