ASHLAND INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) Three months ended December 31 (In millions except per share data - unaudited) 2023 2022 Sales $ 473 $ 525 Cost of sales 375 360 Gross profit 98 165 Selling, general and administrative expense 83 93 Research and development expense 12 13 Intangibles amortization expense - Note F 21 23 Equity and other income 2 1 Loss on acquisitions and divestitures, net ( 2 ) — Operating income (loss) ( 18 ) 37 Net interest and other income ( 24 ) ( 14 ) Other net periodic benefit loss - Note J 2 1 Income from continuing operations before income taxes 4 50 Income tax expense (benefit) - Note I ( 24 ) 8 Income from continuing operations 28 42 Loss from discontinued operations, net of income taxes - Note B ( 2 ) ( 2 ) Net income $ 26 $ 40 PER SHARE DATA Basic earnings per share - Note L Income from continuing operations $ 0.54 $ 0.77 Loss from discontinued operations ( 0.03 ) ( 0.03 ) Net income $ 0.51 $ 0.74 Diluted earnings per share - Note L Income from continuing operations $ 0.54 $ 0.76 Loss from discontinued operations ( 0.03 ) ( 0.03 ) Net income $ 0.51 $ 0.73 COMPREHENSIVE INCOME Net income $ 26 $ 40 Other comprehensive income (loss), net of tax Unrealized translation gain 54 82 Unrealized loss on commodity hedges ( 1 ) ( 4 ) Other comprehensive income - Note M 53 78 Comprehensive income $ 79 $ 118 SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions - unaudited) December 31 2023 September 30 2023 ASSETS Current assets Cash and cash equivalents $ 440 $ 417 Accounts receivable (a) - Note G 194 338 Inventories - Note E 588 626 Other assets 143 125 Total current assets 1,365 1,506 Noncurrent assets Property, plant and equipment Cost 3,277 3,211 Accumulated depreciation 1,910 1,838 Net property, plant and equipment 1,367 1,373 Goodwill - Note F 1,396 1,362 Intangibles - Note F 875 886 Operating lease assets, net - Note H 123 122 Restricted investments - Note D 315 290 Asbestos insurance receivable (b) - Note K 124 127 Deferred income taxes 45 22 Other assets 256 251 Total noncurrent assets 4,501 4,433 Total assets $ 5,866 $ 5,939 LIABILITIES AND EQUITY Current liabilities Short-term debt - Note G $ — $ 16 Trade and other payables 202 210 Accrued expenses and other liabilities 190 208 Current operating lease obligations - Note H 22 22 Total current liabilities 414 456 Noncurrent liabilities Long-term debt - Note G 1,341 1,314 Asbestos litigation reserve - Note K 412 427 Deferred income taxes 148 148 Employee benefit obligations - Note J 98 100 Operating lease obligations - Note H 107 106 Other liabilities 293 291 Total noncurrent liabilities 2,399 2,386 Commitments and contingencies - Note K Stockholders’ equity - Note M 3,053 3,097 Total liabilities and stockholders' equity $ 5,866 $ 5,939 (a) Accounts receivable includes an allowance for credit losses of $ 3 million at both December 31, 2023 and September 30, 2023 . (b) Asbestos insurance receivable includes an allowance for credit losses of $2 million at both December 31, 2023 and September 30, 2023 . SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS Three months ended December 31 (In millions - unaudited) 2023 2022 CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS Net income $ 26 $ 40 Loss from discontinued operations, net of income taxes 2 2 Adjustments to reconcile income from continuing operations to cash flows from operating activities: Depreciation and amortization 77 59 Original issue discount and debt issuance costs amortization 1 1 Deferred income taxes ( 30 ) 7 Stock based compensation expense 1 7 Excess tax benefit on stock-based compensation — 1 Income from restricted investments ( 35 ) ( 26 ) Asset impairments — 4 Pension contributions ( 8 ) ( 1 ) Change in operating assets and liabilities (a) 167 ( 123 ) Total cash flows provided (used) by operating activities from continuing operations 201 ( 29 ) CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES FROM CONTINUING OPERATIONS Additions to property, plant and equipment ( 36 ) ( 23 ) Proceeds from settlement of Company-owned life insurance contracts — 2 Company-owned life insurance payments ( 1 ) ( 1 ) Funds restricted for specific transactions ( 5 ) ( 5 ) Reimbursements from restricted investments 16 — Proceeds from sale of securities 9 — Purchases of securities ( 9 ) — Total cash flows used by investing activities from continuing operations ( 26 ) ( 27 ) CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONS Repurchase of Common Stock ( 100 ) — Repayment of short-term debt ( 16 ) — Cash dividends paid ( 20 ) ( 18 ) Stock based compensation employee withholding taxes paid in cash ( 3 ) ( 9 ) Total cash flows used by financing activities from continuing operations ( 139 ) ( 27 ) CASH PROVIDED (USED) BY CONTINUING OPERATIONS 36 ( 83 ) Cash used by discontinued operations Operating cash flows ( 14 ) ( 34 ) Total cash used by discontinued operations ( 14 ) ( 34 ) Effect of currency exchange rate changes on cash and cash equivalents 1 3 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23 ( 114 ) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 417 646 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 440 $ 532 (a) Excludes changes resulting from operations acquired, sold or held for sale. SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting ("U.S. GAAP") and Securities and Exchange Commission ("SEC") regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction with the Ashland Inc. and consolidated subsidiaries ("Ashland" or the "Company") Annual Report on Form 10-K for the fiscal year ended September 30, 2023. Results of operations for the period ended December 31, 2023 are not necessarily indicative of the expected results for the remainder of the fiscal year. Ashland is comprised of the following reportable segments: Life Sciences, Personal Care, Specialty Additives and Intermediates. Unallocated and Other includes corporate governance activities and certain legacy matters. For additional information about Ashland's reportable segments, see Note P. Use of estimates, risks and uncertainties The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues 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, environmental remediation, asbestos litigation, the accounting for goodwill and other indefinite-lived intangible assets and income taxes. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions. Ashland’s results are affected by domestic and international economic, political, legislative, regulatory and legal actions. 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. While Ashland maintains reserves for anticipated liabilities and carries various levels of insurance, Ashland could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to asbestos, environmental remediation, income taxes or other matters. New accounting pronouncements A description of new U.S. GAAP accounting standards issued or adopted during the current year is required in interim financial reporting. A detailed listing of new accounting standards relevant to Ashland is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2023 . There were no new standards that were either issued or adopted in the current fiscal year that will have a material impact on Ashland's Condensed Consolidated Financial Statements. NOTE B – 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. The following divested businesses represent disposal groups that qualified as discontinued operations in previous periods and impacted discontinued operations for the three months ended December 31, 2023 and 2022: • The Performance Adhesives business divested in 2022; and • The sale of the Ashland Distribution (Distribution) business divested in 2011. Additionally, Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result primarily from indemnification obligations undertaken in 1990 in connection with the sale of 5 Riley Stoker Corporation, a former subsidiary, which qualified as a discontinued operation and from the acquisition during 2009 of Hercules LLC (formerly Hercules Incorporated), an indirect wholly-owned subsidiary of Ashland. Adjustments to the recorded litigation reserves and related insurance receivables are recorded within the discontinued operations caption. See Note K for more information related to the adjustments on asbestos liabilities and receivables. Components of amounts reflected in the Statements of Consolidated Comprehensive Income (Loss) related to discontinued operations are presented in the following table for the three months ended December 31, 2023 and 2022. Three months ended December 31 (In millions) 2023 2022 Loss from discontinued operations, net of income taxes Performance Adhesives $ ( 3 ) $ ( 1 ) Asbestos-related litigation 1 — Distribution — ( 1 ) $ ( 2 ) $ ( 2 ) NOTE C – RESTRUCTURING ACTIVITIES Ashland periodically implements 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. Fiscal 2024 and 2023 restructuring costs During fiscal 2023, Ashland implemented targeted organizational restructuring actions to reduce costs. This program continued into fiscal 2024. Severance costs Ashland recorded severance expense of $ 3 million and zero during the three months ended December 31, 2023 and 2022, respectively, within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss). As of December 31, 2023 and September 30, 2023 , the severance reserve associated with this program was $ 3 million within accrued expenses and other liabilities in the Consolidated Balance Sheets. The following table details at December 31, 2023, the amount of restructuring severance reserves related to this program. (In millions) Severance costs Balance at of September 30, 2023 $ 3 Restructuring reserve 3 Utilization (cash paid) ( 3 ) Balance at December 31, 2023 $ 3 Plant optimization actions During the three months ended December 31, 2023, Ashland incurred $ 21 million of accelerated depreciation for product line optimization activities associated with a Specialty Additives manufacturing facility, which was recorded within the cost of goods sold caption of the Statements of Consolidated Comprehensive Income (Loss). Fiscal 2023 Life Sciences restructuring program During the three months ended December 31, 2022, Ashland implemented a restructuring program within the Nutraceuticals business of the Life Sciences segment. Ashland recorded severance expense of $ 1 million during the three months ended December 31, 2022, within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss). As of December 31, 2023 and September 30, 2023, the severance reserve associated with this program was zero . 6 NOTE D – FAIR VALUE MEASUREMENTS Ashland uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value. Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable. The following table summarizes financial instruments subject to recurring fair value measurements as of December 31, 2023. Carrying Total fair Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs (In millions) value value Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 440 $ 440 $ 440 $ — $ — Restricted investments (a)(b) 392 392 392 — — Investment of captive insurance company (c) 7 7 7 — — Foreign currency derivatives (d) 1 1 — 1 — Total assets at fair value $ 840 $ 840 $ 839 $ 1 $ — Liabilities Commodity derivatives (e ) 5 5 — 5 — Total liabilities at fair value $ 5 $ 5 $ — $ 5 $ — (a) Included in restricted investments and $ 77 million within other current assets in the Condensed Consolidated Balance Sheets . (b) Includes $ 258 million related to the Asbestos trust and $ 134 million related to the Environmental trust . (c) Included in other noncurrent assets in the Condensed Consolidated Balance Sheets . (d) Included in accounts receivable in the Condensed Consolidated Balance Sheets . (e) Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets. 7 The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2023. Carrying Total fair Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs (In millions) value value Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 417 $ 417 $ 417 $ — $ — Restricted investments (a)(b) 367 367 367 — — Investment of captive insurance company (c) 6 6 6 — — Foreign currency derivatives (d) 1 1 — 1 — Total assets at fair value $ 791 $ 791 $ 790 $ 1 $ — Liabilities Foreign currency derivatives (e) $ 1 $ 1 $ — $ 1 $ — Commodity derivatives (e ) 4 4 — 4 — Total liabilities at fair value $ 5 $ 5 $ — $ 5 $ — (a) Included in restricted investments and $ 77 million within other current assets in the Condensed Consolidated Balance Sheets . (b) Includes $ 243 million related to the Asbestos trust and $ 124 million related to the Environmental trust . (c) Included in other noncurrent assets in the Condensed Consolidated Balance Sheets . (d) Included in accounts receivable in the Condensed Consolidated Balance Sheets . (e) Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets. Restricted investments Ashland maintains certain investments in company restricted renewable annual trusts for the purpose of paying future asbestos indemnity and defense costs and future environmental remediation and related litigation costs. The financial instruments are designated as investment securities, classified as Level 1 measurements within the fair value hierarchy. These securities were classified primarily as noncurrent restricted investment assets, with $ 77 million classified within other current assets, in the Condensed Consolidated Balance Sheets at both December 31, 2023 and September 30, 2023. The following table presents gross unrealized gains and losses for the restricted securities as of December 31, 2023 and September 30, 2023: Gross Gross (In millions) Adjusted Cost Unrealized Gain Unrealized Loss Fair Value As of December 31, 2023 Demand deposit $ 16 $ — $ — $ 16 Equity mutual fund 147 36 — 183 Fixed income mutual fund 226 — ( 33 ) 193 Fair value $ 389 $ 36 $ ( 33 ) $ 392 As of September 30, 2023 Demand deposit $ 12 $ — $ — $ 12 Equity mutual fund 155 24 ( 2 ) 177 Fixed income mutual fund 226 — ( 48 ) 178 Fair value $ 393 $ 24 $ ( 50 ) $ 367 8 The following table presents the investment income, net gains and losses realized, funds restricted for specific transactions, and disbursements related to the investments within the restricted investments portfolio for the three months ended December 31, 2023 and 2022. Three months ended December 31 (In millions) 2023 2022 Investment income (a) $ 5 $ 4 Net gains (a) 31 21 Funds restricted for specific transactions 5 5 Disbursements ( 16 ) — (a) Included in the net interest and other income caption within the Statements of Consolidated Comprehensive Income (Loss). 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 of certain assets and liabilities, including short-term intercompany 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. 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 gains and losses recognized during the three months ended December 31, 2023 and 2022 within the Statements of Consolidated Comprehensive Income (Loss). Three months ended December 31 (In millions) 2023 2022 Foreign currency derivative gains $ 3 $ 8 The following table summarizes the fair values of the outstanding foreign currency derivatives as of December 31, 2023 and September 30, 2023 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets. December 31 September 30 (In millions) 2023 2023 Foreign currency derivative assets $ 1 $ 1 Notional contract values 173 147 Foreign currency derivative liabilities $ — $ 1 Notional contract values 17 103 Commodity derivatives To manage its exposure to the market price volatility of natural gas consumed by its U.S. plants during the manufacturing process, Ashland regularly enters into forward contracts that are designated as cash flow hedges. The following table summarizes the net gai ns and losses recognized during the three months ended December 31, 2023 and 2022 within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss). Three months ended December 31 (In millions) 2023 2022 Commodity derivative gains (losses) $ ( 1 ) $ 1 9 The following table summarizes the fair values of the outstanding commodity derivatives as of December 31, 2023, and September 30, 2023 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets. December 31 September 30 (In millions) 2023 2023 Commodity derivative assets $ — $ — Notional contract values — 2 Commodity derivative liabilities $ 5 $ 4 Notional contract values 14 16 Other financial instruments At December 31, 2023 and September 30, 2023 , Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $ 1,354 million and $ 1,327 million, respectively, compared to a fair value of $ 1,279 million and $ 1,160 million, respectively. The fair values of long-term debt are based on quoted market prices. NOTE E – INVENTORIES Inventories are carried at the lower of cost or net realizable value. Inventories are stated at cost using the weighted-average cost method. This method values inventories using average costs for raw materials and most recent production costs for labor and overhead. The following table summarizes Ashland’s inventories as of the reported Condensed Consolidated Balance Sheets dates. December 31 September 30 (In millions) 2023 2023 Finished products $ 376 $ 390 Raw materials, supplies and work in process 212 236 $ 588 $ 626 NOTE F – GOODWILL AND OTHER INTANGIBLES Goodwill Ashland tests goodwill and other indefinite-lived intangible assets for impairment annually as of July 1 and when events and circumstances indicate an impairment may have occurred. N o indicators of impairment were identified in the three months ended December 31, 2023 . The following is a progression of goodwill by reportable segment for the three months ended December 31, 2023. Life Personal Specialty (In millions) Sciences Care (a) Additives (a) Intermediates (a) Total Balance at September 30, 2023 $ 819 $ 122 $ 421 $ — $ 1,362 Currency translation 21 2 11 — 34 Balance at December 31, 2023 $ 840 $ 124 $ 432 $ — $ 1,396 (a) As of December 31, 2023 and September 30, 2023 , there were accumulated impairments of $ 356 million, $ 174 million and $ 90 million related to the Personal Care, Specialty Additives and Intermediates reportable segments, respectively. 10 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 3 to 20 years , intellectual property over 3 to 20 years , and customer and supplier relationships over 10 to 24 years . Ashland annually reviews, as of July 1, indefinite-lived intangible assets for possible impairment or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. No indicators of impairment were identified in the three months ended December 31, 2023 . Other intangible assets were comprised of the following as of December 31, 2023 and September 30, 2023. December 31, 2023 September 30, 2023 Gross Net Gross Net carrying Accumulated carrying carrying Accumulated carrying (In millions) amount amortization amount amount amortization amount Definite-lived intangibles Trademarks and trade names $ 99 $ ( 44 ) $ 55 $ 97 $ ( 43 ) $ 54 Intellectual property 741 ( 598 ) 143 731 ( 581 ) 150 Customer and supplier relationships 835 ( 436 ) 399 821 ( 417 ) 404 Total definite-lived intangibles 1,675 ( 1,078 ) 597 1,649 ( 1,041 ) 608 Indefinite-lived intangibles Trademarks and trade names 278 — 278 278 — 278 Total intangible assets $ 1,953 $ ( 1,078 ) $ 875 $ 1,927 $ ( 1,041 ) $ 886 Amortization expense recognized on intangible assets was $ 21 million and $ 23 million for the three months ended December 31, 2023 and 2022 , 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 $ 79 million in 2024 (includes three months actual and nine months estimated), $ 77 million in 2025, $ 75 million in 2026, $ 53 million in 2027 and $ 50 million in 2028. 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 G – DEBT AND OTHER FINANCING ACTIVITIES The following table summarizes Ashland’s current and long-term debt as of the dates reported in the Condensed Consolidated Balance Sheets. (In millions) December 31, 2023 September 30, 2023 3.375 % Senior Notes, due 2031 $ 450 $ 450 2.00 % Senior Notes, due 2028 (Euro 500 million principal) 554 528 6.875 % notes, due 2043 282 282 6.50 % junior subordinated notes, due 2029 64 64 Other (a) ( 9 ) 6 Total debt 1,341 1,330 Short-term debt — 16 Long-term debt (less debt issuance costs) $ 1,341 $ 1,314 (a) Other includes $ 13 million of debt issuance costs as of December 31, 2023 and September 30, 2023 . The current portion of the long-term debt was zero for both December 31, 2023 and September 30, 2023. The scheduled aggregate maturities to 2028 for long-term debt by year (including the current portion and excluding debt issuance costs) are as follows as of December 31, 2023 : zero in the next 3 years, $ 4 million in 2027, and $ 554 million in 2028. 11 Accounts Receivable Facilities and Off-Balance Sheet Arrangements U.S. Accounts Receivable Sales Program Ashland continues to maintain its U.S. Accounts Receivable Sales Program, which was entered into during fiscal 2021. Ashland accounts for the receivables transferred to buyers as sales. 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 Statements of Condensed Consolidated Cash Flows. Losses on sale of assets, including related transaction expenses are recorded within the net interest and other income caption of the Statements 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 loss of less than $ 1 million within the Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2023 and 2022 within the net interest and other income caption associated with sales under the program. Ashland has recorded $ 78 million in sales at December 31, 2023 against the buyer’s limit, which was $ 100 million at December 31, 2023 compared to $ 86 million of sales at September 30, 2023 against the buyer's limit, which was $ 115 million at September 30, 2023 . Ashland transferred $ 99 million and $ 106 million in receivables to the special purpose entity as of December 31, 2023 and September 30, 2023, respectively. Ashland recorded liabilities related to its service obligations and limited guarantee as of December 31, 2023 and September 30, 2023 of less than $ 1 million. As of December 31, 2023 and 2022, the year-to-date gross cash proceeds received for receivables transferred and derecognized were $ 85 million and $ 49 million, respectively, of which $ 77 million and $ 68 million were collected, which includes collections from sales in prior years transferred to the buyer. The difference between receivables transferred and derecognized versus collected of $ 8 million and $ 19 million for the periods ended December 31, 2023 and 2022, respectively, represents the impact of a net increase and a net reduction in accounts receivable sales volume during each period, respectively. 2018 Foreign Accounts Receivable Securitization Facility In October 2023, Ashland terminated its 2018 Foreign Accounts Receivable Securitization Facility. The program had no outstanding borrowings at its termination. This program did not meet criteria for sale accounting and was reported as secured borrowing under ASC 860. At September 30, 2023, the outstanding amount of accounts receivable transferred by Ashland to the purchaser was $ 124 million. Foreign Accounts Receivable Sales Program On October 19, 2023, Ashland entered, through an Ireland based, wholly-owned, bankruptcy-remote consolidated special purpose entity (the "SPE"), into a three-year agreement with a group of entities (buyers) to sell certain trade receivables, without recourse beyond the pledged receivables, of certain wholly-owned Ashland subsidiaries (Foreign Accounts Receivable Sales Program s) primarily in Europe. Under the agreement, Ashland can transfer whole receivables up to a limit established by the buyer, which is currently set at € 125 million. 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. 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 true sale at law and non-consolidation opinions from independent qualified legal advisors in the jurisdiction of each originating subsidiary to support the legal isolation of these receivables. Consequently, Ashland accounts for receivables transferred to buyers as part of this agreement as sales. Through December 31, 2023 , Ashland has sold $ 102 million in receivables under this agreement. Accordingly, Ashland recognized $ 1 million in losses within the net interest and other income caption of the Statements of Consolidated Income (Loss) for the three months ended December 31, 2023 . Ashland recorded $ 102 million in sales and gross proceeds received against the buyer's limit, which was $ 102 million at December 31, 2023 . Ashland transferred $ 147 million in receivables to the SPE as of December 31, 2023 . Ashland recorded less than $ 1 million in liabilities related to its service obligations and limited guarantee as of December 31, 2023. 12 Available borrowing capacity and liquidity The borrowing capacity remaining under the 2022 Credit Agreement was $ 596 million, which reflects the full $ 600 million Revolving Credit Facility less a reduction of $ 4 million for letters of credit outstanding as of December 31, 2023. Ashland's total borrowing capacity at December 31, 2023 was $ 596 million. Ashland had no available liquidity under its current U.S. and Foreign Accounts Receivable Sales Programs as of December 31, 2023. Covenants related to current Ashland debt agreements Ashland's debt contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations. As of December 31, 2023, Ashland is in compliance with all debt agreement covenant restrictions. The maximum consolidated net leverage ratio permitted under Ashland's current credit agreement (the 2022 Credit Agreement) is 4.0 . At December 31, 2023 , Ashland’s calculation of the consolidated net leverage ratio was 2.1 . The minimum required consolidated interest coverage ratio under the 2022 Credit Agreement during its entire duration is 3.0 . At December 31, 2023 , Ashland’s calculation of the interest coverage ratio was 7.6 . NOTE H – LEASING ARRANGEMENTS The components of lease cost recognized within the Statements of Consolidated Comprehensive Income (Loss) were as follows: Three months ended December 31 (In millions) Location 2023 2022 Lease cost: Operating lease cost Selling, General & Administrative (a) $ 4 $ 3 Operating lease cost Cost of Sales 3 3 Variable lease cost Selling, General & Administrative 1 1 Variable lease cost Cost of Sales 1 2 Short-term leases Cost of Sales 1 1 Total lease cost $ 10 $ 10 (a) Includes a $ 1 million charge for the impairment of an abandoned right of use office building asset for the three months ended December 31, 2023 . Right-of-use assets exchanged for new operating lease obligations were $ 1 million and $ 2 million for the three months ended December 31, 2023 and 2022, respectively. The following table provides cash paid for amounts included in the measurement of operating lease liabilities: Three months ended December 31 (In millions) 2023 2022 Operating cash flows from operating leases $ 7 $ 7 NOTE I – INCOME TAXES Current fiscal year 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 600 % for the three months ended December 31, 2023. The current quarter's tax rate was impacted by jurisdictional income mix, as well as net $ 24 million from favorable tax discrete items primarily related to changes in foreign tax reform related activity. 13 Prior fiscal year The overall effective tax rate was 16 % for the three months ended December 31, 2022 . The prior year quarter's tax rate was impacted by jurisdictional income mix, as well as net $ 1 million from favorable tax discrete items. Unrecognized tax benefits Changes in unrecognized tax benefits are summarized as follows for the three months ended December 31, 2023. (In millions) Balance at October 1, 2023 $ 59 Increases related to positions taken in prior years 3 Lapse of statute of limitations ( 1 ) Balance at December 31, 2023 $ 61 From a combination of statute expirations and audit settlements in the next twelve months, Ashland expects a decrease in the amount of accrual for uncertain tax positions of between $ 4 million and $ 5 million for continuing operations. For the remaining balance as of December 31, 2023 , it is reasonably possible that there could be material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues, reassessment of existing uncertain tax positions or the expiration of applicable statute of limitations; however, Ashland is not able to estimate the impact of these items at this time. NOTE J - EMPLOYEE BENEFIT PLANS Plan contributions For the three months ended December 31, 2023 , Ashland contributed $ 4 million to its non-U.S. pension plans and $ 4 million to its U.S. pension plans. Ashland expects to make additional contributions of $ 2 million to its U.S. pension plans and $ 4 million to its non-U.S. pension plans during the remainder of fiscal 2024. Components of net periodic benefit costs (income) The following table details the components of pension and other postretirement benefit costs for continuing operations. Pension benefits Other postretirement benefits (In millions) 2023 2022 2023 2022 Three months ended December 31 Service cost $ 1 $ 1 $ — $ — Interest cost 3 3 1 — Expected return on plan assets ( 2 ) ( 2 ) — — Total net periodic benefit costs $ 2 $ 2 $ 1 $ — For segment reporting purposes, service cost is proportionately allocated to each segment, excluding the Unallocated and other segment, and is recorded within the selling, general and administrative expense and cost of sales captions on the Statements of Consolidated Comprehensive Income (Loss). All other components are recorded within the other net periodic benefit loss caption on the Statements of Consolidated Comprehensive Income (Loss), which netted to expense of $ 2 million and $ 1 million for the three months ended December 31, 2023 and 2022 , respectively. 14 NOTE K – LITIGATION, CLAIMS AND CONTINGENCIES Asbestos litigation Ashland is subject to liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims result from indemnification obligations undertaken in 1990 in connection with the sale of Riley Stoker Corporation (Riley) and the acquisition of Hercules in November 2008. Although Riley, a former subsidiary, was neither a producer nor a manufacturer of asbestos, its industrial boilers contained some asbestos-containing components provided by other companies. Hercules, an indirect wholly-owned subsidiary of Ashland, has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products sold by one of Hercules’ former subsidiaries to a limited industrial market. To assist in developing and annually updating independent reserve estimates for future asbestos claims and related costs given various assumptions for Ashland and Hercules asbestos claims, Ashland retained third party actuarial experts Gnarus. The methodology used by Gnarus to project future asbestos costs is based largely on recent experience, including claim-filing and settlement rates, disease mix, open claims and litigation defense. The claim experience of Ashland and Hercules are separately compared to the results of previously conducted third party epidemiological studies estimating the number of people likely to develop asbestos-related diseases. Those studies were undertaken in connection with national analyses of the population expected to have been exposed to asbestos. Using that information, Gnarus estimates a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims. Changes in asbestos-related liabilities and receivables are recorded on an after-tax basis within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss). Ashland asbestos-related litigation The claims alleging personal injury caused by exposure to asbestos asserted against Ashland result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley. The amount and timing of settlements and number of open claims can fluctuate from period to period. A summary of Ashland asbestos claims activity, excluding Hercules claims, follows. Three months ended December 31 Years ended September 30 (In thousands) 2023 2022 2023 2022 2021 Open claims - beginning of year 42 44 44 46 49 New claims filed 1 1 2 2 2 Claims settled — — ( 1 ) ( 1 ) ( 1 ) Claims dismissed ( 1 ) ( 1 ) ( 3 ) ( 3 ) ( 4 ) Open claims - end of period 42 44 42 44 46 Ashland asbestos-related liability From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 40-year model developed with the assistance of Gnarus. During the most recent update completed in fiscal 2023, it was determined that the liability for Ashland asbestos-related claims should be increased by $ 9 million. Total reserves for asbestos claims were $ 271 million at December 31, 2023 compared to $ 281 million at September 30, 2023. 15 A progression of activity in the asbestos reserve is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2023 2022 2023 2022 2021 Asbestos reserve - beginning of year $ 281 $ 305 $ 305 $ 320 $ 335 Reserve adjustment — — 9 16 12 Amounts paid ( 10 ) ( 13 ) ( 33 ) ( 31 ) ( 27 ) Asbestos reserve - end of period (a) $ 271 $ 292 $ 281 $ 305 $ 320 (a) Included $ 28 million classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023. Ashland asbestos-related receivables Ashland has insurance coverage for certain litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage that will be accessed. For the Ashland asbestos-related obligations, Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. Substantially all of the estimated receivables from insurance companies are expected to be due from domestic insurers, all of which are solvent. At December 31, 2023 , Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $ 93 million (excluding the Hercules receivable for asbestos claims discussed below) compared to $ 95 million at September 30, 2023 . In fiscal 2023, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers was completed. This model update resulted in a $ 3 million increase in the receivable for probable insurance recoveries. A progression of activity in the Ashland insurance receivable is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2023 2022 2023 2022 2021 Insurance receivable - beginning of year $ 95 $ 101 $ 101 $ 100 $ 103 Receivable adjustment (a) — — 3 7 6 Amounts collected ( 2 ) ( 2 ) ( 9 ) ( 6 ) ( 9 ) Insurance receivable - end of period (b) $ 93 $ 99 $ 95 $ 101 $ 100 (a) 2021 includes a $ 2 million reserve adjustment related to allowances for credit losses as a result of Ashland's adoption of the credit measurement standard. The total allowance for credit losses was $ 1 million as of December 31, 2023 and September 30, 2023. (b) Includes $ 11 million classified in accounts receivable on the Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023 . Hercules asbestos-related litigation Hercules has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. The amount and timing of settlements and number of open claims can fluctuate from period to period. A summary of Hercules’ asbestos claims activity follows. Three months ended December 31 Years ended September 30 (In thousands) 2023 2022 2023 2022 2021 Open claims - beginning of year 12 11 11 12 12 New claims filed — — 1 1 1 Claims dismissed — — — ( 2 ) ( 1 ) Open claims - end of period 12 11 12 11 12 16 Hercules asbestos-related liability From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs. Ashland reviews this estimate, and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 40-year model developed with the assistance of Gnarus. During the most recent update completed in fiscal 2023, it was determined that the liability for Hercules asbestos-related claims should be decreased by $ 2 million. Total reserves for asbestos claims were $ 186 million at December 31, 2023 compared to $ 191 million at September 30, 2023. A progression of activity in the asbestos reserve is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2023 2022 2023 2022 2021 Asbestos reserve - beginning of year $ 191 $ 213 $ 213 $ 217 $ 229 Reserve adjustments — — ( 2 ) 15 8 Amounts paid ( 5 ) ( 4 ) ( 20 ) ( 19 ) ( 20 ) Asbestos reserve - end of period (a) $ 186 $ 209 $ 191 $ 213 $ 217 (a) Included $ 17 million classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023 . Hercules asbestos-related receivables For the Hercules asbestos-related obligations, certain reimbursement obligations pursuant to coverage-in-place agreements with insurance carriers exist. As a result, any increases in the asbestos reserve have been partially offset by probable insurance recoveries. Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. The estimated receivable consists exclusively of solvent domestic insurers. As of December 31, 2023 , Ashland’s receivable for recoveries of litigation defense and claims costs from insurers with respect to Hercules amounted to $ 46 million compared to $ 47 million at September 30, 2023 . In fiscal 2023, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers was completed. This model update resulted in a decrease of $ 3 million in the receivable for probable insurance recoveries. A progression of activity in the Hercules insurance receivable is presented in the following table. Three months ended December 31 Years ended September 30 (In millions) 2023 2022 2023 2022 2021 Insurance receivable - beginning of year $ 47 $ 52 $ 52 $ 47 $ 47 Receivable adjustment (a) — — ( 3 ) 7 1 Amounts collected ( 1 ) ( 1 ) ( 2 ) ( 2 ) ( 1 ) Insurance receivable - end of period (b) $ 46 $ 51 $ 47 $ 52 $ 47 (a) 2021 includes a $ 1 million reserve adjustment related to allowances for credit losses as a result of Ashland's adoption of the credit measurement standard. The total allowance for credit losses was $ 1 million as of December 31, 2023 and September 30, 2023 . (b) Includes $ 4 million classified in accounts receivable on the Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023 . 17 Asbestos litigation cost projection Projecting future asbestos costs is subject to numerous variables that are difficult to predict. In addition to the uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant and the related costs incurred in resolving those claims, mortality rates, dismissal rates, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, Ashland believes that the asbestos reserves for Ashland and Hercules represent the best estimate within a range of possible outcomes. As a part of the process to develop these estimates of future asbestos costs, a range of long-term cost models was developed. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. Ashland has currently estimated in various models ranging from approximately 40 year periods that it is reasonably possible that total future litigation defense and claim settlement costs on an inflated and undiscounted basis could range as high as approximately $ 422 million for the Ashland asbestos-related litigation (current reserve of $ 271 million) and approximately $ 288 million for the Hercules asbestos-related litigation (current reserve of $ 186 million), depending on the combination of assumptions selected in the various models. While the timeframe used in Ashland’s models for projecting asbestos liabilities generally decreases over time based on the expected lifetime of the liabilities, these models have been consistently applied between all periods presented. If actual experience is worse than projected, relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, or actuarial refinement or improvements to the assumptions used within these models are initiated, Ashland may need to further increase the estimates of the costs associated with asbestos claims and these increases could be material over time. Environmental remediation and asset retirement obligations 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. At December 31, 2023 , such locations included 55 sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, 108 current and former operating facilities and about 1,225 service station properties, of which 14 are being actively remediated. Ashland’s reserves for environmental remediation and related environmental litigation amounted to $ 207 million at December 31, 2023 compared to $ 214 million at September 30, 2023 , of which $ 158 million at December 31, 2023 and $ 165 million at September 30, 2023 were classified in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. The remaining reserves were classified in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets. The following table provides a reconciliation of the changes in the environmental remediation reserves during the three months ended December 31, 2023 and 2022. Three months ended December 31 (In millions) 2023 2022 Reserve - beginning of period $ 214 $ 211 Disbursements ( 11 ) ( 13 ) Revised obligation estimates and accretion 4 8 Reserve - end of period $ 207 $ 206 The total reserves for environmental remediation reflect Ashland’s estimates of the most likely costs that will be incurred over an extended period to remediate identified conditions for which the costs are reasonably estimable, without regard to any third-party recoveries. Engineering studies, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated reserves for environmental remediation. Ashland regularly adjusts its reserves as environmental remediation continues. Ashland has estimated the value of its probable insurance recoveries associated with its environmental reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage. At December 31, 2023 and September 30, 2023 , Ashland’s recorded receivable for these probable insurance recoveries 18 were $ 16 million and $ 17 million, respectively, of which $ 12 million and $ 15 million at December 31, 2023 and September 30, 2023 were classified in other noncurrent assets on the Condensed Consolidated Balance Sheets. Components of environmental remediation expense included within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss) are presented in the following table for the three months ended December 31, 2023 and 2022. Three months ended December 31 (In millions) 2023 2022 Environmental expense $ 4 $ 8 Legal expense 1 1 Total expense 5 9 Insurance receivable ( 1 ) — Total expense, net of receivable activity (a) $ 4 $ 9 (a) Net expense of $ 1 million for the three months ended December 31, 2022 relates to divested businesses which qualified for treatment as discontinued operations for which certain environmental liabilities were retained by Ashland. These amounts are classified within the loss from discontinued operations caption of the Statements of Consolidated Comprehensive Income (Loss). Environmental remediation reserves are subject to uncertainties that affect Ashland’s ability to estimate its share of the costs. Such uncertainties involve the nature and extent of contamination at each site and the extent of required cleanup efforts under existing environmental regulations. Although it is not possible to predict with certainty the ultimate costs of environmental remediation, Ashland currently estimates that the upper end of the reasonably possible range of future costs for identified sites could be as high as approximately $ 455 million. The largest reserve for any site is 22 % of the remediation reserve as of December 31, 2023. Other legal proceedings and claims In addition to the matters described above, there are other various claims, lawsuits and administrative proceedings pending or threatened against Ashland and its current and former subsidiaries. Such actions are with respect to commercial matters, product liability, toxic tort liability, and other environmental matters, which seek remedies or damages, some of which are for substantial amounts. While Ashland cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded and losses already recognized with respect to such actions were immaterial as of December 31, 2023. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Ashland believes that such potential losses were immaterial as of December 31, 2023 . NOTE L – EARNINGS PER SHARE The following is the computation of basic and diluted earnings per share ("EPS") from continuing operations attributable to Ashland. Stock appreciation rights and warrants available to purchase shares outstanding for each reporting period whose exercise price was greater than the average market price of Ashland Common Stock for each applicable period were not included in the computation of income from continuing operations per diluted share because the effect of these instruments would be antidilutive . The total number of these shares outstanding was 19 approximately 1 million at December 31, 2023 and 2022 , respectively. The majority of these shares are for warrants with a strike price of $ 128.66 . Earnings per share is reported under the treasury stock method. Three months ended December 31 (In millions, except per share data) 2023 2022 Numerator Numerator for basic and diluted EPS - Income from continuing operations, net of tax $ 28 $ 42 Denominator Denominator for basic EPS - Weighted-average common shares outstanding 51 54 Share based awards convertible to common shares — 1 Denominator for diluted EPS - Adjusted weighted-average shares and assumed conversions 51 55 EPS from continuing operations Basic $ 0.54 $ 0.77 Diluted 0.54 0.76 NOTE M – EQUITY ITEMS 2023 Stock repurchase program On June 28, 2023, Ashland's board of directors authorized a new evergreen $ 1 billion common share repurchase program ("2023 Stock Repurchase Program"). The new authorization terminated and replaced the 2022 Stock Repurchase Program, which had $ 200 million outstanding at the date of termination. As of December 31, 2023, $ 900 million remained available for repurchase under this authorization. Stock repurchase program agreements During November 2023, under the 2023 Stock Repurchase Program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $ 100 million of its outstanding shares. The program was completed during December 2023, when Ashland paid a total of $ 100 million and received a delivery of 1.2 million shares of common stock. Stockholder dividends Dividends of 38.5 cents and 33.5 cents per share were paid in the first quarters of fiscal 2024 and 2023, respectively. Accumulated other comprehensive income (loss) Components of other comprehensive income (loss) recorded in the Statements of Consolidated Comprehensive Income (Loss) are presented below, before tax and net of tax effects. 2023 2022 (In millions) Before tax Tax (expense) benefit Net of tax Before tax Tax (expense) benefit Net of tax Three months ended December 31 Other comprehensive income (loss) Unrealized translation gain (loss) $ 54 $ — $ 54 $ 83 $ ( 1 ) $ 82 Unrealized gain (loss) on commodity hedges ( 1 ) — ( 1 ) ( 5 ) 1 ( 4 ) Total other comprehensive income $ 53 $ — $ 53 $ 78 $ — $ 78 20 Summary of stockholders’ equity A reconciliation of changes in stockholders’ equity are as follows: Three months ended December 31 (In millions) 2023 2022 Common stock and paid in capital Balance, beginning of period $ 5 $ 136 Common shares issued under stock incentive and other plans (a) ( 2 ) ( 2 ) Common shares purchased under repurchase program (b)(c) ( 2 ) — Balance, end of period 1 134 Retained earnings Balance, beginning of period 3,595 3,653 Common shares purchased under repurchase program (b)(c) ( 99 ) — Net income 26 40 Regular dividends ( 20 ) ( 18 ) Balance, end of period 3,502 3,675 Accumulated other comprehensive income (loss) Balance, beginning of period ( 503 ) ( 569 ) Unrealized translation gain 54 82 Unrealized loss on commodity hedges ( 1 ) ( 4 ) Balance, end of period ( 450 ) ( 491 ) Total stockholders' equity $ 3,053 $ 3,318 Cash dividends declared per common share $ 0.385 $ 0.335 (a) Common shares issued were 78,349 and 127,577 for the three months ended December 31, 2023 and 2022 , respectively. Includes $ 3 million and $ 9 million associated with stock-based compensation employee withholding taxes for the three months ended December 31, 2023 and 2022 , respectively. (b) Common shares repurchased were 1,238,212 for the three months ended December 31, 2023 . (c) Includes $ 1 million in excise tax on stock repurchases for the three months ended December 31, 2023 . Ashland paid a total of $ 100 million for the three months ended December 31, 2023 for common stock repurchases. NOTE N – STOCK INCENTIVE PLANS The components of Ashland’s pre-tax stock-based compensation expense included in continuing operations are as follows: Three months ended December 31 (In millions) 2023 (a) 2022 (b) Nonvested stock awards $ 4 $ 3 Performance share awards ( 3 ) 5 $ 1 $ 8 (a) Included less than $ 1 million of expense related to cash-settled nonvested restricted stock awards during the three months ended December 31, 2023 , and $ 1 million of income related to cash-settled performance units during the three months ended December 31, 2023 . (b) Included $ 1 million of expense related to cash-settled nonvested restricted stock awards during the three months ended December 31, 2022 . 21 NOTE O – REVENUE Disaggregation of revenue Ashland disaggregates its revenue by segment and geographical region as Ashland believes these categories best depict how management reviews the financial performance of its operations. Ashland includes only U.S. and Canada in its North America designation and includes Europe, the Middle East and Africa in its Europe designation. See the following tables for details. See Note P for additional information. Sales by geography Three months ended December 31 (In millions) 2023 2022 Life Sciences North America $ 67 $ 47 Europe 63 74 Asia Pacific 51 60 Latin America & other 19 26 $ 200 $ 207 Three months ended December 31 (In millions) 2023 2022 Personal Care North America $ 40 $ 42 Europe 47 51 Asia Pacific 25 28 Latin America & other 17 17 $ 129 $ 138 Three months ended December 31 (In millions) 2023 2022 Specialty Additives North America $ 42 $ 53 Europe 40 48 Asia Pacific 34 35 Latin America & other 6 7 $ 122 $ 143 Three months ended December 31 (In millions) 2023 2022 Intermediates North America $ 25 $ 34 Europe 4 9 Asia Pacific 3 8 Latin America & other 1 3 $ 33 $ 54 Trade receivables Trade receivables are defined as receivables arising from contracts with customers and are recorded within the accounts receivable caption within the Condensed Consolidated Balance Sheets. Ashland’s trade receivables were $ 161 million and $ 288 million as of December 31, 2023 and September 30, 2023 , respectively. See Note G for additional information on Ashland’s programs to sell certain receivables on a revolving basis to third party banks up to an aggregate purchase limit (U.S and Foreign Accounts Receivable Sales Programs). 22 NOTE P – REPORTABLE SEGMENT INFORMATION Ashland determines its reportable segments based on how operations are managed internally for the products and services sold to customers, including how the results are reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. Operating income and EBITDA are the primary measures of performance that are reviewed by the chief operating decision maker in assessing each reportable segment's financial performance. Ashland does not aggregate operating segments to arrive at these reportable segments. Reportable segment business descriptions Life Sciences is comprised of pharmaceuticals, nutrition, nutraceuticals, agricultural chemicals, diagnostic films (formerly known as advanced materials) and fine chemicals. Pharmaceutical solutions include controlled release polymers, disintegrants, film coatings, solubilizers, and tablet binders. Nutrition solutions include thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and controlling color. Nutraceutical solutions include products for weight management, joint comfort, stomach and intestinal health, sports nutrition and general wellness, and provide custom formulation, toll processing and particle engineering solutions. Customers include pharmaceutical, food, beverage, nutraceuticals and supplements manufacturers, hospitals and radiologists and industrial manufacturers. Personal Care is comprised of biofunctionals, microbial protectants (preservatives), skin care, sun care, oral care, hair care and household. These businesses have a broad range of natural, nature-derived, biodegradable, and high-performance ingredients for customer-driven solutions to help protect, renew, moisturize and revitalize skin and hair, and provide solutions for toothpastes, mouth washes and rinses, denture cleaning and care for teeth. Household supplies nature-derived rheology ingredients, biodegradable surface wetting agents, performance encapsulates, and specialty polymers for household, industrial and institutional cleaning products. Customers include formulators at large multinational branded consumer products companies and smaller, independent boutique companies. Specialty Additives is comprised of rheology and performance-enhancing additives serving the architectural 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. Intermediates is comprised of the production of 1,4 butanediol (BDO) and related derivatives, including n-methylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. BDO is also supplied to Life Sciences, Personal Care, and Specialty Additives for use as a raw material. Unallocated and Other generally includes items such as certain significant company-wide restructuring activities, corporate governance costs and legacy costs or activities that relate to divested businesses that are no longer operated by Ashland. 23 Reportable segment results 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 comparable 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 loss 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. 24 The following table presents various financial information for each reportable segment for the three months ended December 31, 2023 and 2022. Three months ended December 31 (In millions - unaudited) 2023 2022 SALES Life Sciences $ 200 $ 207 Personal Care 129 138 Specialty Additives 122 143 Intermediates 33 54 Intersegment sales (a) ( 11 ) ( 17 ) $ 473 $ 525 OPERATING INCOME (LOSS) Life Sciences $ 32 $ 34 Personal Care 2 11 Specialty Additives ( 32 ) 1 Intermediates 7 20 Unallocated and other ( 27 ) ( 29 ) $ ( 18 ) $ 37 DEPRECIATION EXPENSE Life Sciences $ 9 $ 10 Personal Care 9 9 Specialty Additives (b) 35 14 Intermediates 3 3 Unallocated and other — — $ 56 $ 36 AMORTIZATION EXPENSE Life Sciences $ 7 $ 7 Personal Care 11 12 Specialty Additives 3 4 Intermediates — — $ 21 $ 23 EBITDA (c) Life Sciences $ 48 $ 51 Personal Care 22 32 Specialty Additives 6 19 Intermediates 10 23 Unallocated and other ( 27 ) ( 29 ) $ 59 $ 96 December 31 September 30 (In millions - unaudited) 2023 2023 TOTAL ASSETS Life Sciences $ 1,908 $ 1,904 Personal Care 985 1,004 Specialty Additives 1,556 1,580 Intermediates 132 136 Unallocated and other 1,285 1,315 $ 5,866 $ 5,939 (a) Intersegment sales from Intermediates are accounted for at prices that approximate fair value. All other intersegment sales are accounted for at cost. (b) Depreciation includes accelerated depreciation of $ 21 million for Specialty Additives for the three months ended December 31, 2023. (c) Excludes loss from discontinued operations and other net periodic benefit loss. See the Statements of Consolidated Comprehensive Income (Loss) for applicable amounts excluded. 25 ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements including, without limitation, statements made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” (MD&A), within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Ashland has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “objectives,” “may,” “will,” “should,” “plans” and “intends” and the negative of these words or other comparable terminology. Ashland may from time to time make forward-looking statements in its Annual Report to Stockholders, quarterly reports and other filings with the Securities and Exchange Commission (SEC), news releases and other written and oral communications. These forward-looking statements are based on Ashland’s expectations and assumptions, as of the date such statements are made, regarding Ashland’s future operating performance and financial condition, as well as the economy and other future events or circumstances. Ashland’s expectations and assumptions include, without limitation, those mentioned within the MD&A, internal forecasts and analyses of current and future market conditions and trends, management plans and strategies, operating efficiencies, cost savings and economic conditions (such as prices, supply and demand, cost of raw materials, and the ability to recover raw-material cost increases through price increases), and risks and uncertainties associated with the following: the impact of acquisitions and/or divestitures Ashland has made or may make (including the possibility that Ashland may not realize the anticipated benefits from such transactions); Ashland’s substantial indebtedness (including the possibility that such indebtedness and related restrictive covenants may adversely affect Ashland’s future cash flows, results of operations, financial condition and its ability to repay debt); execution risks associated with our growth strategies; the competitive nature of our business; severe weather, natural disasters, public health crises, cyber events and legal proceedings and claims (including product recalls, environmental and asbestos matters); the effects of the ongoing Ukraine/Russia and Israel/Hamas conflicts on the geographies in which Ashland operates, the end markets Ashland serves and on Ashland’s supply chain and customers; and without limitation, risks and uncertainties affecting Ashland that are contained in “Use of estimates, risks and uncertainties” in Note A of Notes to Consolidated Financial Statements and in Item 1A of its most recent Form 10-K filed with SEC. Various risks and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements. Ashland believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected herein will be achieved. Unless legally required, Ashland undertakes no obligation to update any forward-looking statements made in this Form 10-Q whether as a result of new information, future events or otherwise. Information on Ashland’s website is not incorporated into or a part of this Form 10-Q. 26