What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2024-01-31 · 291 added, 173 removed, 440 unchanged (51% of the section changed)

8 unchanged sentences

With approximately 3,800 employees worldwide, Ashland serves customers in more than 100 countries.

Ashland’s sales generated outside of North America were 66% and 70% for the three months ended December 31, 2023 and 2022, respectively.

Sales by region expressed as a percentage of total consolidated sales for the three months ended December 31 were as follows:

Ashland’s sales generated outside of North America were 69% and 68% for the three and six months ended March 31, 2024 and 70% for the three and six months ended March 31, 2023.

Sales by region expressed as a percentage of total consolidated sales for the three and six months ended March 31 were as follows:

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Sales by Geography

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Unallocated and Other includes corporate governance activities and certain legacy matters.

The contribution to sales by each reportable segment expressed as a percentage of total consolidated sales for the three months ended December 31 was as follows:

The contribution to sales by each reportable segment expressed as a percentage of total consolidated sales for the three and six months ended March 31 was as follows:

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Sales by Reportable Segment

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Sales to Israel represent approximately 1% of total consolidated sales and less than 1% of total consolidated assets (related to accounts receivable).

2023 Stock Repurchase Program

On June 28, 2023, Ashland's board of directors authorized a new evergreen $1 billion common share repurchase program (the 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

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These actions are expected to reduce volatility, improve focus and decrease working capital and maintenance capital expenditures.

The impact of these portfolio actions for the three months ended December 31, 2023, resulted in accelerated depreciation charges of $21 million within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss) and severance of $3 million and an impairment of a leased office building of $1 million within the selling, general and administrative caption of the Statements of Consolidated Comprehensive Income (Loss).

Ashland continues to make progress on these portfolio optimization actions which include optimizing and consolidating CMC and MC production as well as rebalancing the global HEC production network.

During the fiscal second quarter, Ashland continued to wrap-up CMC production at Hopewell, Virginia.

CMC levels will be drawn down while Ashland migrates select production volumes into Alizay, France.

In addition, Ashland advanced actions to optimize MC by consolidating production capacity in Doel, Belgium.

Other actions to improve Ashland's HEC business continue to be assessed.

The impact of these portfolio actions for the three and six months ended March 31, 2024, resulted in accelerated depreciation charges of $27 million and $49 million and other plant optimization costs of $1 million and $1 million, respectively, recorded within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss).

In addition, severance of $18 million and $21 million and other restructuring costs of $2 million and $3 million, respectively, were recorded for the three and six months ended March 31, 2024 within the selling, general and administrative caption of the Statements of Consolidated Comprehensive Income (Loss).

See Note C for additional information.

RESULTS OF OPERATIONS – CONSOLIDATED REVIEW

Consolidated review

Key financial results for the three months ended December 31, 2023 and 2022 included the following:

Three months ended December 31

Key financial results for the three and six months ended March 31, 2024 and 2023 included the following:

Three months ended

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(In millions except per share data)

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Diluted earnings per share income from continuing operations

Operating income (loss)

Operating income

Adjusted EBITDA (a)

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See "Use of Non-GAAP Financial Measures" section below for reconciliations to U.S.

Ashland's net income of $26 million ($0.51 diluted earnings per share) and $40 million ($0.73 diluted earnings per share) included a loss from discontinued operations of $2 million ($0.03 diluted earnings per share) in the current and prior year quarters, each respectively.

Business results current quarter

Ashland's net income of $120 million ($2.39 diluted earnings per share) and $91 million ($1.67 diluted earnings per share) included a loss from discontinued operations of $1 million ($0.01 diluted earnings per share) and a loss of $1 million ($0.01 diluted earnings per share) in the current and prior year quarters, each respectively.

Results for Ashland’s continuing operations, diluted earnings per share from continuing operations and operating income for the current and prior year quarters included certain key items that were excluded to arrive at adjusted EBITDA and are quantified in the “Use of Non-GAAP Financial Measures” section below.

These pre-tax key items totaled expense of $3 million and income of $8 million for the three months ended December 31, 2023 and 2022 impacting continuing operations.

Continuing operations was also impacted by favorable discrete tax items totaling $24 million and zero for the three months ended December 31, 2023 and 2022.

The pre-tax key items impacting operating income totaled expense of $34 million and expense of $13 million for the three months ended December 31, 2023 and 2022.

Excluding these key items, the decrease in continuing operations, diluted earnings per share from continuing operations and operating income was primarily driven by lower sales and production volumes, partially offset by improved price versus raw material cost and lower selling, general and administrative expense.

These pre-tax key items totaled expense of $42 million and income of $16 million for the three months ended March 31, 2024 and 2023 impacting continuing operations.

Continuing operations was also impacted by favorable tax specific key items for discrete tax items totaling $105 million and $20 million for the three months ended March 31, 2024 and 2023.

Excluding these key items, the decrease in continuing operations, diluted earnings per share from continuing operations and operating income was primarily driven by unfavorable pricing primarily within Intermediates, and higher selling, general and administrative expense, due to higher variable compensation expense.

In addition, diluted earnings per share from continuing operations was also impacted by common share reductions from repurchases of Ashland common stock over the last twelve months.

These common stock repurchases reduced the number of weighted average shares from 55 million diluted shares in the first quarter of fiscal 2023 to 51 million diluted shares in the first quarter of fiscal 2024.

These common stock repurchases reduced the number of weighted average shares from 55 million diluted shares in the second quarter of fiscal 2023 to 51 million diluted shares in the second quarter of fiscal 2024.

Ashland’s adjusted EBITDA was $126 million for the current quarter compared to $145 million in the prior year quarter (see U.S.

GAAP reconciliation under “Use of Non-GAAP Financial Measures” below).

The $38 million decrease in Adjusted EBITDA was primarily driven by lower sales and production volumes, partially offset by improved price versus raw material cost and lower selling, general and administrative expense.

The $19 million decrease in adjusted EBITDA was primarily driven by unfavorable pricing primarily within Intermediates and higher selling, general and administrative expense, due to higher variable compensation expense.

Adjusted diluted EPS from continuing operations (non-GAAP) excluding intangibles amortization expense was also impacted by these key factors along with the impact of common share repurchases noted above.

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Statements of Consolidated Comprehensive Income (Loss) – caption review

A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the three ended December 31, 2023 and 2022.

Three months ended December 31

A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the three and six months ended March 31, 2024 and 2023.

Three months ended March 31

Six months ended March 31

(In millions)

The following table provides a reconciliation of the change in sales for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in sales for the three and six months ended March 31, 2024 and 2023.

Three months ended

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(In millions)

December 31, 2023

March 31, 2024

Foreign currency exchange

Change in sales

Sales for the current quarter decreased $52 million compared to the prior year quarter.

Lower sales volume was the primary factor.

Three months ended December 31

Current Quarter - Sales for the current quarter decreased $28 million compared to the prior year quarter.

Unfavorable product pricing was the primary factor.

Year-to-date - Sales for the current year decreased $80 million compared to the prior year period.

Lower sales volumes and unfavorable pricing were the primary factors.

Three months ended March 31

Six months ended March 31

(In millions)

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Gross profit as a percent of sales

The following table provides a reconciliation of the change in cost of sales between the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in cost of sales between the three and six months ended March 31, 2024 and 2023.

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(In millions)

December 31, 2023

March 31, 2024

Operating Costs

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Change in cost of sales

Cost of sales for the current quarter increased $15 million compared to the prior year quarter.

Higher operating costs driven primarily by higher unit manufacturing cost associated with decreased plant loading to produce to demand (including $21 million due to accelerated depreciation for product line optimization activities associated with a Specialty Additives manufacturing facility) was the primary factor.

This increase was partially offset by lower volume and product price/mix.

Current Quarter - Cost of sales for the current quarter increased $8 million compared to the prior year quarter.

Higher operating costs driven by $27 million accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities was the primary factor.

This increase was partially offset by favorable product price/mix.

Gross profit as a percentage of sales decreased 4.7% primarily as a result of higher operating costs and lower sales.

Year-to-date - Cost of sales for the current year increased $23 million compared to the prior year period.

Higher operating costs driven by higher unit manufacturing costs associated with decreased plant loading to produce to demand and $49 million of accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities were the primary factor.

These increases were partially offset by lower volume and product price/mix.

Gross profit as a percentage of sales decreased 7.4% primarily as a result of lower sales volume and higher operating costs.

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

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As a percent of sales

Selling, general and administrative expense for the current quarter decreased $10 million compared to the prior year quarter with expenses as a percent of sales decreasing 0.2 percentage points.

Current Quarter - Selling, general and administrative expense for the current quarter increased $27 million compared to the prior year quarter with expenses as a percent of sales increasing 5.3 percentage points.

Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:

• $3 million and $4 million in net environmental-related expenses during the current and prior year quarter, respectively (see Note K for more information);

• Expense of $4 million and $1 million comprised of key items for severance, lease abandonment and other restructuring costs during the current and prior year quarter, respectively;

• $4 million impairment charge in the prior year quarter associated with the sale of a Specialty Additives manufacturing facility;

• Lower variable compensation expenses (including stock-based compensation) between periods.

Three months ended December 31

• Expense of $20 million and zero comprised of key items for severance, lease abandonment and other restructuring costs during the current and prior year quarter, respectively;

• Higher variable compensation expenses (including stock-based compensation) between quarters.

Year-to-date - Selling, general and administrative expense for the current period increased $17 million compared to the prior year period with expenses as a percent of sales increasing 2.8 percentage points.

Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:

• $7 million and $12 million in net environmental-related expenses during the current and prior year period, respectively (see Note K for more information);

• Expense of $24 million and $1 million comprised of key items for severance, lease abandonment and other restructuring costs during the current and prior year period, respectively;

• $4 million impairment charge in the prior year period associated with the sale of a Specialty Additives manufacturing facility;

• A $5 million charge associated with the impact of a currency devaluation in Argentina in the current period;

• Higher variable compensation expenses, partially offset by lower stock based compensation between periods.

Three months ended March 31

Six months ended March 31

(In millions)

Research and development expense

Research and development expense is generally consistent with the prior year quarter.

Three months ended December 31

Current Quarter - Research and development expense is generally consistent with the prior year quarter.

Year-to-date - Research and development expense is generally consistent with the prior year period.

Three months ended March 31

Six months ended March 31

(In millions)

Intangibles amortization expense

Intangibles amortization expense is generally consistent with the prior year quarter.

Three months ended December 31

Current Quarter - The lower intangibles amortization expense in the current quarter is driven by the impact of certain fully amortized intangibles in prior periods.

Year-to-date - The lower intangibles amortization expense in the current period is driven by the impact of certain fully amortized intangibles in prior periods.

Three months ended March 31

Six months ended March 31

(In millions)

Equity and other income

Equity and other income is generally consistent with the prior year quarter.

Three months ended December 31

Current Quarter - Equity and other income was zero for the current and prior year quarter.

Year-to-date - Equity and other income is generally consistent with the prior year period.

Three months ended March 31

Six months ended March 31

(In millions)

Loss on acquisitions and divestitures, net

The activity in the current quarter primarily related to legal fees associated with ongoing divestiture activity.

Three months ended December 31

Current Quarter - Loss on acquisitions and divestitures, net was zero for the current and prior year quarter.

Year-to-date - The activity in the current period primarily related to legal fees associated with ongoing divestiture activity.

Three months ended March 31

Six months ended March 31

(In millions)

Net interest and other income

Net interest and other expense (income)

Interest expense

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Other financing costs

Net interest and other income increased by $10 million during the current quarter compared to the prior year quarter.

Current Quarter - Net interest and other expense (income) increased by $12 million during the current quarter compared to the prior year quarter.

Interest expense and interest income remained primarily consistent during the current quarter compared to the prior year quarter.

Restricted investments income of $36 million and $25 million included realized gains of $31 million compared to gains of $21 million for the three months ended December 31, 2023 and 2022, respectively.

Restricted investments income of $12 million and $22 million included realized gains of $9 million compared to gains of $20 million for the three months ended March 31, 2024 and 2023, respectively.

See Note D for more information on the restricted investments.

Three months ended December 31

Year-to-date - Net interest and other expense (income) increased by $3 million during the current period compared to the prior year period.

Interest expense and interest income remained primarily consistent during the current quarter compared to the prior year period.

Restricted investments income of $48 million and $47 million included realized gains of $39 million compared to gains of $41 million for the six months ended March 31, 2024 and 2023, respectively.

See Note D for more information on the restricted investments.

Three months ended March 31

Six months ended March 31

(In millions)

Other net periodic benefit loss

Other net periodic benefit loss for the three months ended December 31, 2023 primarily included interest cost of $4 million which was partially offset by expected return on plan assets of $2 million.

Current Quarter - Other net periodic benefit loss for the three months ended March 31, 2024 primarily included interest cost of $3 million which was partially offset by expected return on plan assets of $1 million.

Other net periodic benefit loss for the three months ended March 31, 2023 primarily included interest cost of $4 million which was partially offset by expected return on plan assets of $2 million.

See Note J for more information.

Other net periodic benefit loss for the three months ended December 31, 2022 primarily included interest cost of $3 million which was partially offset by expected return on plan assets of $2 million.

Year-to-date - Other net periodic benefit loss for the six months ended March 31, 2024 primarily included interest cost of $8 million which was partially offset by expected return on plan assets of $4 million.

Other net periodic benefit loss for the six months ended March 31, 2023 primarily included interest cost of $7 million which was partially offset by expected return on plan assets of $4 million.

See Note J for more information.

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

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Effective tax rate

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 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $24 million primarily related to changes in foreign tax reform related activity.

The overall effective tax rate was 16% for the three months ended December 31, 2022 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $1 million.

Current Quarter - Ashland’s effective tax rate in any interim period is subject to adjustments related to discrete items and the mix of domestic and foreign operating results.

The overall effective tax rate was a benefit of 612% for the three months ended March 31, 2024 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $102 million primarily related to changes in foreign tax activity.

The overall effective tax rate was a benefit 1% for the three months ended March 31, 2023 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $20 million primarily related to changes in uncertain tax positions.

Year-to-date - Ashland’s effective tax rate in any interim period is subject to adjustments related to discrete items and the mix of domestic and foreign operating results.

The overall effective tax rate was a benefit of 610% for the

six months ended March 31, 2024 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $126 million primarily related to changes in foreign tax activity.

The overall effective tax rate was 5% for the six months ended March 31, 2023 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $23 million primarily related to changes in uncertain tax positions primarily from a combination of state expirations and audit settlements.

Adjusted income tax expense (benefit)

Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends.

Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income (loss) which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends.

Tax specific key items are defined as the financial effects from tax specific financial transactions, tax law changes or other matters that fall within the definition of key items as previously described.

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Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP financial measure on a consolidated basis assists investors in better understanding Ashland’s ongoing business performance enhancing their ability to compare period-to-period financial results.

The effective tax rate during the three months ended December 31, 2023 was significantly impacted by foreign tax reform related activity.

The effective tax rate during the three months ended December 31, 2022 was not impacted by tax specific key items.

The effective tax rate during the three and six months ended March 31, 2024 and 2023 was significantly impacted by foreign tax activity and uncertain tax positions.

The following table is a calculation of the effective tax rate, excluding these key items.

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(In millions)

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Tax specific key items:

Uncertain tax positions

Other and tax reform related activity

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(d) Due to rounding conventions, the effective tax rate presented may not recalculate precisely based on the numbers disclosed within this table.

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

Loss from discontinued operations, net of income taxes

Income (loss) from discontinued operations, net of income taxes

Performance Adhesives

Asbestos-related litigation

The activity for the Performance Adhesives segment represents subsequent adjustments that were made in conjunction with post-closing tax items and disputes during the current and prior year quarters.

The activity for Distribution was related to post-closing adjustments for environmental expenses.

Asbestos-related activity included after-tax net adjustments to the asbestos reserves and receivables during the current quarter.

Composites/Marl facility

Current Quarter - The activity for Valvoline represents subsequent adjustments that were made in conjunction with post-closing tax items and disputes during the current quarter.

The activity for Composites/Marl facility was related to post-closing adjustments in the current and prior year quarter.

Year-to-date - The activity for the Performance Adhesives represents subsequent adjustments that were made in conjunction with post-closing tax items and disputes during the current year period.

The activity for Composites/Marl facility, Distribution and Valvoline was related to post-closing adjustments.

Other comprehensive income (loss)

A comparative analysis of the components of other comprehensive income is provided below for the three months ended December 31, 2023 and 2022.

Three months ended December 31

A comparative analysis of the components of other comprehensive income is provided below for the three and six months ended March 31, 2024 and 2023.

Three months ended March 31

Six months ended March 31

(In millions)

Other comprehensive income (loss), net of tax

Unrealized translation gain

Unrealized loss on commodity hedges

Total other comprehensive income (loss), net of tax, for the current quarter decreased $25 million compared to the prior year quarter primarily as a result of the following:

• For the three months ended December 31, 2023 and 2022, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in gains of $54 million and $82 million, respectively.

Unrealized translation gain (loss)

Unrealized gain (loss) on commodity hedges

Current Quarter - Total other comprehensive income (loss), net of tax, for the current quarter decreased $50 million compared to the prior year quarter primarily as a result of the following:

• For the three months ended March 31, 2024 and 2023, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in a loss of $27 million and a gain of $27 million, respectively.

The fluctuations in unrealized translation gains and losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S.

• For the three months ended December 31, 2023 and 2022, the change in commodity hedges is primarily due to the fluctuations of the market prices of the underlying commodities.

Commodity hedges resulted in unrealized losses of $1 million and $4 million for the three months ended December 31, 2023 and 2022, respectively.

• For the three months ended March 31, 2024 and 2023, the change in commodity hedges is primarily due to the fluctuations of the market prices of the underlying commodities.

Commodity hedges resulted in unrealized gains of $1 million and losses of $3 million for the three months ended March 31, 2024 and 2023, respectively.

Year-to-date - Total other comprehensive income (loss), net of tax, for the current year decreased $75 million compared to the prior year period primarily as a result of the following:

• For the six months ended March 31, 2024 and 2023, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in gains of $27 million and $109 million, respectively.

The fluctuations in unrealized translation gains and losses are primarily due to translating foreign subsidiary financial statements from local currencies to U.S.

• For the six months ended March 31, 2024 and 2023, the change in commodity hedges is primarily due to the fluctuations of the market prices of the underlying commodities.

Commodity hedges resulted in unrealized losses of $7 million for the six months ended March 31, 2023.

Use of Non-GAAP Financial Measures

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EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

EBITDA is defined as net income, plus income tax expense (benefit), net interest and other income, and depreciation and amortization.

EBITDA is defined as net income, plus income tax expense (benefit), net interest and other expense (income), and depreciation and amortization.

Adjusted EBITDA is EBITDA adjusted for discontinued operations and key items.

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Management believes the use of EBITDA and adjusted EBITDA measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting comparable financial results between periods.

Ashland believes that by removing the impact of depreciation and amortization and excluding certain non-cash charges, amounts spent on interest and taxes and certain other charges that are highly variable from year to year, EBITDA and Adjusted EBITDA provide Ashland’s investors with performance measures that reflect the impact to operations from trends in changes in sales, margin and operating expenses, providing a perspective not immediately apparent from net income and operating income.

The adjustments Ashland makes to derive the non-GAAP financial measures of EBITDA and Adjusted EBITDA exclude items which may cause short-term fluctuations in net income and operating income and which Ashland does not consider to be the fundamental attributes or primary drivers of its business.

Ashland believes that by removing the impact of depreciation and amortization and excluding certain non-cash charges, amounts spent on interest and taxes and certain other charges that are highly variable from year to year, EBITDA and adjusted EBITDA provide Ashland’s investors with performance measures that reflect the impact to operations from trends in changes in sales, margin and operating expenses, providing a

perspective not immediately apparent from net income and operating income (loss).

The adjustments Ashland makes to derive the non-GAAP financial measures of EBITDA and adjusted EBITDA exclude items which may cause short-term fluctuations in net income and operating income (loss) and which Ashland does not consider to be the fundamental attributes or primary drivers of its business.

EBITDA and adjusted EBITDA provide disclosure on the same basis as that used by Ashland’s management to evaluate financial performance on a consolidated and reportable segment basis and provide consistency in our financial reporting, facilitate internal and external comparisons of Ashland’s historical operating performance and its segments and provide continuity to investors for comparability purposes.

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Limitations associated with the use of these non-GAAP financial measures include that these measures do not present all of the amounts associated with our results as determined in accordance with U.S.

The non-GAAP financial measures provided are used by Ashland management and may not be determined in a manner consistent with the methodologies used by other companies.

The non-GAAP financial measures provided are used by

Ashland management and may not be determined in a manner consistent with the methodologies used by other companies.

EBITDA and adjusted EBITDA provide a supplemental presentation of Ashland’s operating performance on a consolidated and reportable segment basis.

2 unchanged sentences

EBITDA and Adjusted EBITDA

EBITDA totaled income of $34 million and $93 million for the three months ended December 31, 2023 and 2022, respectively.

EBITDA totaled income of $74 million and $140 million for the three months ended March 31, 2024 and 2023, respectively, and income of $109 million and $235 million for the six months ended March 31, 2024 and 2023, respectively.

EBITDA and adjusted EBITDA results in the table below have been prepared to illustrate the ongoing effects of Ashland’s operations, which exclude certain key items previously described.

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See Note K of the Notes to Consolidated Financial Statements for more information;

• Accelerated depreciation – As a result of product line optimization activities at a Specialty Additives manufacturing plant, Ashland recorded accelerated depreciation due to changes in the expected useful life of certain property, plant and equipment during the three months ended December 31, 2023.

• Accelerated depreciation – As a result of product line optimization activities at two Specialty Additives manufacturing plants, Ashland recorded accelerated depreciation due to changes in the expected useful life of certain property, plant and equipment during the six months ended March 31, 2024.

See Note C of the Notes to Consolidated Financial Statements for more information;

• Argentina foreign currency devaluation – following the enactment by the Argentina government of a 50% peso devaluation against the dollar, Ashland recorded a currency devaluation charge within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2023

• Asset impairments – Ashland recognized impairment charges to certain assets during 2023.

• Asset impairments – Ashland recognized impairment charges to certain assets during fiscal 2023;

• Other plant optimization costs – During the second quarter of fiscal 2024, Ashland incurred inventory adjustment and production costs associated with product line optimization actions.

Three months ended

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(In millions)

Income tax expense (benefit)

Net interest and other income

Net interest and other expense (income)

Depreciation and amortization (a)

6 unchanged sentences

Asset impairments

Other plant optimization costs

Total key items included in EBITDA

3 unchanged sentences

Total key items, before tax

(a) Depreciation and amortization excludes accelerated depreciation of $21 million for Specialty Additives for the three months ended December 31, 2023, which is included as a key item within this table as a component of Adjusted EBITDA.

(a) Depreciation and amortization excludes accelerated depreciation of $27 million and $49 million for Specialty Additives for the three and six months ended March 31, 2024, respectively, which is included as a key item within this table as a component of adjusted EBITDA.

Diluted EPS and Adjusted Diluted EPS

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GAAP calculation for the income from continuing operations adjusted for the cumulative diluted EPS effect for key items after tax that have been identified in the adjusted EBITDA table in the previous section.

The adjusted diluted EPS for the income from continuing operations in the following table has been prepared to illustrate the ongoing effects of Ashland’s operations.

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See Note D of the Notes to Consolidated Financial Statements for more information;

• Other and tax reform related activity – represents tax specific key items associated with foreign tax reform related activity for the three months ended December 31, 2023.

• Other and tax reform related activity – represents tax specific key items associated with foreign tax related activity for the three and six months ended March 31, 2024;

• Uncertain tax positions – represents the impact from the settlement of uncertain tax positions with various tax authorities for the three and six months ended March 31, 2023.

Three months ended

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Diluted EPS from continuing operations (as reported)

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Asset impairments

Other plant optimization costs

Unrealized gain on securities

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Other and tax reform related activity

Uncertain tax positions

Tax specific key items (b)

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For additional explanation of these tax specific key items, see the income tax expense (benefit) discussion within the Statements of Consolidated Comprehensive Income (Loss) caption review section above.

(c) Amortization expense adjustment (net of tax) tax rates were 20% for the three months ended December 31, 2023 and 2022.

(c) Amortization expense adjustment (net of tax) tax rates were 20% for the three and six months ended March 31, 2024 and 2023.

RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW

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Significant revisions to Ashland’s methodologies are adjusted for all segments on a retrospective basis.

The following table discloses sales, operating income, depreciation and amortization and EBITDA by reportable segment for the three months ended December 31, 2023 and 2022.

Three months ended December 31

The following table discloses sales, operating income (loss), depreciation and amortization and EBITDA by reportable segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

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(In millions - unaudited)

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Intermediates

Unallocated and other

AMORTIZATION EXPENSE

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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.

(b) Depreciation includes accelerated depreciation of $27 million and $49 million for Specialty Additives for the three and six months ended March 31, 2024, respectively.

See the Statements of Consolidated Comprehensive Income (Loss) for applicable amounts excluded.

6 unchanged sentences

Customers include pharmaceutical, food, beverage, nutraceuticals and supplements manufacturers, hospitals and radiologists and industrial manufacturers.

The following table provides a reconciliation of the change in sales for the Life Sciences operating segment for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in sales for the Life Sciences operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

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(In millions)

March 31, 2024

Foreign Currency

The following table provides a reconciliation of the change in operating income for the Life Sciences operating segment for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in operating income (loss) for the Life Sciences operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

Six months ended

(In millions)

March 31, 2024

Operating income change

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Each of these non-GAAP financial measures are defined as follows:

EBITDA (operating income plus depreciation and amortization), Adjusted EBITDA (EBITDA adjusted for key items as applicable), and Adjusted EBITDA margin (Adjusted EBITDA divided by sales).

Ashland does not allocate items to each reportable segment below operating income, such as interest expense and income taxes.

As a result, reportable segment EBITDA and Adjusted EBITDA are reconciled directly to operating income since it is the most directly comparable Statements of Consolidated Comprehensive Income (Loss) caption.

The following EBITDA presentation for the three months ended December 31, 2023 and 2022 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Life Sciences.

The key items during the three months ended December 31, 2022 related to $1 million for restructuring program within the Nutraceuticals business of the Life Sciences segment.

EBITDA (operating income (loss) plus depreciation and amortization), adjusted EBITDA (EBITDA adjusted for key items as applicable), and adjusted EBITDA margin (adjusted EBITDA divided by sales).

Ashland does not allocate items to each reportable segment below operating income (loss), such as interest expense and income taxes.

As a result, reportable segment EBITDA and adjusted EBITDA are reconciled directly to operating income (loss) since it is the most directly comparable Statements of Consolidated Comprehensive Income (Loss) caption.

The following EBITDA presentation for the three and six months ended March 31, 2024 and 2023 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Life Sciences.

The key items during the six months ended March 31, 2023 related to $1 million for restructuring program within the Nutraceuticals business of the Life Sciences segment.

Life Sciences

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

4 unchanged sentences

As a percent of sales

Three months ended December 31, 2023 compared to three months ended December 31, 2022

Life Sciences' sales, operating income and Adjusted EBITDA decreased in the current quarter due to lower volume and higher costs partially offset by favorable price/mix actions and favorable foreign currency exchange.

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Life Sciences' sales, operating income and adjusted EBITDA primarily decreased in the current quarter due to lower volume.

Fiscal 2024 year-to-date compared to fiscal 2023 year-to-date

Life Sciences' sales, operating income and adjusted EBITDA decreased in the current period due to lower volume and higher costs, partially offset by favorable price/mix actions and favorable foreign currency exchange.

Personal Care

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Customers include formulators at large multinational branded consumer products companies and smaller, independent boutique companies.

The following table provides a reconciliation of the change in sales for the Personal Care operating segment for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in sales for the Personal Care operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

Six months ended

(In millions)

March 31, 2024

Foreign Currency

The following table provides a reconciliation of the change in operating income for the Personal Care operating segment for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in operating income (loss) for the Personal Care operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

Six months ended

(In millions)

March 31, 2024

Operating income change

EBITDA and Adjusted EBITDA reconciliation

Personal Care had no key items for the three months ended December 31, 2023 or 2022.

Personal Care had no key items for the three and six months ended March 31, 2024 or 2023.

Personal Care

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

2 unchanged sentences

As a percent of sales

Three months ended December 31, 2023 compared to three months ended December 31, 2022

Personal Care's sales, operating income and EBITDA decreased in the current quarter primarily due to higher costs and lower volume, partially offset by favorable price/mix.

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Personal Care's sales increased primarily due to higher volume, partially offset by unfavorable price/mix and foreign currency exchange, while operating income and EBITDA increased in the current period primarily due to higher volume, lower costs and favorable price/mix.

Fiscal 2024 year-to-date compared to fiscal 2023 year-to-date

Personal Care's sales decreased in the current period primarily due to lower volume and unfavorable price/mix.

Operating income increased primarily due to favorable price/mix, partially offset by lower volume and EBITDA remained generally consistent compared to the prior year period.

Specialty Additives

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Customers include global paint manufacturers, electronics and automotive manufacturers, textile mills, the construction industry, and welders.

The following table provides a reconciliation of the change in sales for the Specialty Additives operating segment for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in sales for the Specialty Additives operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

Six months ended

(In millions)

March 31, 2024

Foreign Currency

The following table provides a reconciliation of the change in operating income for the Specialty Additives operating segment for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in operating income (loss) for the Specialty Additives operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

Six months ended

(In millions)

Operating income change

March 31, 2024

Operating income (loss) change

Costs (including accelerated depreciation)

1 unchanged sentence

EBITDA and Adjusted EBITDA reconciliation

The key items during the three months ended December 31, 2023 and 2022 related to $21 million accelerated depreciation in 2023 and an impairment charge of $4 million in 2022 both of which were associated with manufacturing facilities.

The key items during the three months ended March 31, 2024 related to $27 million of accelerated depreciation and $1 million of other plant optimization costs.

The key items during the six months ended March 31, 2024 and 2023 related to $49 million accelerated depreciation and $1 million of other plant optimization costs in fiscal 2024 and an asset impairment charge of $4 million in fiscal 2023 all of which were associated with manufacturing facilities.

Specialty Additives

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

Operating income

Operating income (loss)

Depreciation and amortization (a)

Accelerated depreciation

Asset Impairments

Other plant optimization costs

Adjusted EBITDA

As a percent of sales

Three months ended December 31, 2023 compared to three months ended December 31, 2022

Specialty Additives sales, operating income and Adjusted EBITDA for the current quarter decreased primarily due to higher costs, including $21 million of accelerated depreciation for product line optimization activities associated with a Specialty Additives manufacturing facility and lower volume.

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Specialty Additives sales for the quarter decreased primarily as a result of unfavorable price/mix partially offset by higher volume, while operating income (loss) decreased primarily due to higher costs, including $27 million of accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities and unfavorable price/mix.

Adjusted EBITDA decreased primarily due to higher costs and unfavorable price/mix, partially offset by higher volume.

Fiscal 2024 year-to-date compared to fiscal 2023 year-to-date

Specialty Additives sales and operating income (loss) for the current period decreased primarily due to higher costs, including $49 million of accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities, unfavorable price/mix, and lower volume.

Adjusted EBITDA's decrease was driven primarily by increased costs and price/mix.

Intermediates

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BDO is also supplied to Life Sciences, Personal Care, and Specialty Additives for use as a raw material.

The following table provides a reconciliation of the change in sales for the Intermediates operating segment for the three months ended December 31, 2023 and 2022.

The following table provides a reconciliation of the change in sales for the Intermediates operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

Six months ended

(In millions)

The following table provides a reconciliation of the change in operating income for the Intermediates operating segment for the three months ended December 31, 2023 and 2022.

March 31, 2024

Current Year End

The following table provides a reconciliation of the change in operating income (loss) for the Intermediates operating segment for the three and six months ended March 31, 2024 and 2023.

Three months ended

Six months ended

(In millions)

March 31, 2024

Operating income change

EBITDA and Adjusted EBITDA reconciliation

The following EBITDA presentation (as defined and described in the section above) for the three months ended December 31, 2023 and 2022 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Intermediates.

Intermediates had no key items for the three months ended December 31, 2023 or 2022.

The following EBITDA presentation (as defined and described in the section above) for the three and six months ended March 31, 2024 and 2023 is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Intermediates.

Intermediates had no key items for the three and six months ended March 31, 2024 or 2023.

Intermediates

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

2 unchanged sentences

As a percent of sales

Three months ended December 31, 2023 compared to three months ended December 31, 2022

Intermediates' sales, operating income and EBITDA for the current quarter decreased primarily due to lower volume, unfavorable price/mix and higher costs.

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Intermediates' sales, operating income and EBITDA for the current quarter decreased primarily due to unfavorable price/mix, partially offset by higher volume.

Fiscal 2024 year-to-date compared to fiscal 2023 year-to-date

Intermediates' sales, operating income and EBITDA for the current period decreased primarily due to unfavorable price/mix and lower volume.

Unallocated and other

The following table summarizes the key components of the Unallocated and other segment’s operating income (loss) for the three months ended December 31, 2023 and 2022.

The following table summarizes the key components of the Unallocated and other segment’s operating income (loss) for the three and six months ended March 31, 2024 and 2023.

Unallocated and Other

Three months ended December 31

Three months ended March 31

Six months ended March 31

(In millions)

1 unchanged sentence

Environmental expenses

Argentina currency devaluation impact

Loss on acquisitions and divestitures, net

Argentina currency devaluation impact

Other expenses (primarily governance and legacy expenses)

Total expense

Three months ended December 31, 2023 compared to three months ended December 31, 2022

Unallocated and other recorded expense of $27 million and $29 million for the three months ended December 31, 2023 and 2022, respectively.

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Unallocated and other recorded expense of $45 million and $21 million for the three months ended March 31, 2024 and 2023, respectively.

The current and prior year quarter included expense of $20 million and $1 million, respectively, for restructuring activities mainly comprised of severance, lease abandonment and other restructuring costs related to company-wide cost reduction programs during the current and prior year quarter, respectively.

The current quarter and prior year quarter included $3 million and $4 million for environmental expenses, respectively.

The remaining items included expense of $5 million related to the devaluation of the currency in Argentina and a loss of $2 million from acquisitions and divestitures during the current quarter.

Other expenses between periods were driven by decreases in governance and legacy expenses primarily associated with fluctuations in foreign currency, deferred compensation and stock compensation expense.

Other expenses between periods were driven by increases in governance and legacy expenses primarily associated with fluctuations in foreign currency, deferred compensation and variable incentive compensation.

Fiscal 2024 year-to-date compared to fiscal 2023 year-to-date

Unallocated and other recorded expense of $72 million and $50 million for the six months ended March 31, 2024 and 2023, respectively.

The current and prior year period included expense of $24 million and $2 million, respectively, for restructuring activities mainly comprised of severance, lease abandonment and other restructuring costs related to company-wide cost reduction programs during the current and prior year period, respectively.

The current and prior year period included $7 million and $12 million for environmental expenses, respectively.

The remaining items primarily included expense of $5 million related to the devaluation of the currency in Argentina.

FINANCIAL POSITION

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See Note G for more information on the Foreign Accounts Receivables Sale Program.

Ashland’s cash flows from operating, investing and financing activities, as reflected in the Statements of Condensed Consolidated Cash Flows, are summarized as follows for the three months ended December 31, 2023 and 2022.

Three months ended

Six months ended

(In millions)

6 unchanged sentences

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents increased $23 million for the three months ended December 31, 2023 compared to a $114 million decrease for the three months ended December 31, 2022.

The $23 million increase for the three months ended December 31, 2023 was primarily driven by operating cash inflows offset by payment of cash dividends, additions to property, plant and equipment, and stock repurchase activity of $20 million, $36 million, and $100 million, respectively.

Cash and cash equivalents increased $22 million for the six months ended March 31, 2024 compared to a $247 million decrease for the six months ended March 31, 2023.

The $22 million increase for the six months ended March 31, 2024 was primarily driven by operating cash inflows from continuing operations of $255 million partially offset by payment of cash dividends, additions to property, plant and equipment, and stock repurchase activity of $39 million, $70 million, and $100 million, respectively.

Discontinued operations cash flows were outflows of $27 million.

The $247 million decrease for the six months ended March 31, 2023 was primarily driven by payment of cash dividends, additions to property, plant and equipment, and stock repurchase activity of $36 million, $58 million, and $142 million, respectively.

Operating cash flows from continuing operations were inflows of $27 million, while discontinued operations cash flows were outflows of $47 million.

The $114 million decrease for the three months ended December 31, 2022 was primarily driven by payment of cash dividends, additions to property, plant and equipment, and taxes paid on stock based compensation of $18 million, $23 million, and $9 million, respectively.

Operating cash flows from continuing operations were outflows of $29 million, while discontinued operations cash flows were outflows of $34 million.

See the Statements of Condensed Consolidated Cash Flows for additional details.

2 unchanged sentences

Free cash flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.

Three months ended

Six months ended

(In millions)

Total cash flows provided (used) by operating activities from continuing operations

Total cash flows provided by operating activities from continuing operations

Additions to property, plant and equipment

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(g) Ongoing free cash flow conversion is defined as ongoing free cash flow divided by adjusted EBITDA.

Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $951 million and $1,050 million as of December 31, 2023 and September 30, 2023, respectively.

The $99 million decrease in working capital was driven by a reduction in cash and cash equivalents, primarily associated with repurchases of common stock, and lower trade working capital (accounts receivable and inventories minus trade and other payables and accrued expenses and other liabilities) including sales of foreign accounts receivables under the new Foreign Accounts Receivable Sales Programs.

See Note G for additional information.

Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $974 million and $1,050 million as of March 31, 2024 and September 30, 2023, respectively.

The $76 million decrease in working capital was driven by lower trade working capital (accounts receivable and inventories minus trade and other payables and accrued expenses and other liabilities) including sales of foreign accounts receivables under the new Foreign Accounts Receivable Sales Programs, partially offset by higher cash and cash equivalents as well as an increase in refundable income taxes.

See Note G for additional information on the Foreign Accounts Receivables Sales Programs.

The $54 million increase in ongoing free cash flows between periods was primarily a result of reduced trade working capital additions reflecting a reduction in inventory balances as well as reduced incentive compensation payout compared to the prior year offset by $12 million in higher additions to property, plant and equipment.

Liquid assets (cash, cash equivalents and accounts receivable) amounted to 153% and 166% of current liabilities as as of December 31, 2023 and September 30, 2023, respectively.

The following summary reflects Ashland’s cash, unused borrowing capacity and liquidity as of December 31, 2023 and September 30, 2023.

Liquid assets (cash, cash equivalents and accounts receivable) amounted to 154% and 166% of current liabilities as as of March 31, 2024 and September 30, 2023, respectively.

The following summary reflects Ashland’s cash, unused borrowing capacity and liquidity as of March 31, 2024 and September 30, 2023.

(In millions)

6 unchanged sentences

Accounts Receivable Sales Program

(a) Includes $258 million and $243 million related to the Asbestos trust and $134 million and $124 million related to the Environmental trust as of December 31, 2023 and September 30, 2023, respectively.

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 at December 31, 2023.

In total, Ashland’s available liquidity position, which includes cash and the revolving credit facility, was $1,036 million at December 31, 2023, compared to $1,115 million at September 30, 2023.

Ashland had zero of available liquidity under the U.S.

and Foreign Accounts Receivable Sales Programs, respectively, as of December 31, 2023.

Foreign Accounts Receivable Sales Program

(a) Includes $255 million and $243 million related to the Asbestos trust and $128 million and $124 million related to the Environmental trust as of March 31, 2024 and September 30, 2023, respectively.

In total, Ashland’s available liquidity position, which includes cash and the revolving credit facility, was $1,035 million at March 31, 2024, compared to $1,115 million at September 30, 2023.

Ashland had zero available liquidity under the U.S.

and Foreign Accounts Receivable Sales Programs, respectively, as of March 31, 2024.

Ashland also maintained $383 million of restricted investments to pay for future asbestos claims and environmental remediation and related litigation.

Capital resources

The following summary reflects Ashland’s debt as of December 31, 2023 and September 30, 2023.

The following summary reflects Ashland’s debt as of March 31, 2024 and September 30, 2023.

(In millions)

1 unchanged sentence

Long-term debt (less current portion and debt issuance cost discounts) (a)

(a) Includes $13 million of debt issuance cost discounts as of December 31, 2023 and September 30, 2023 , respectively.

Debt as a percent of capital employed was 31% and 30% at December 31, 2023 and at September 30, 2023, respectively.

At December 31, 2023, Ashland’s total debt had an outstanding principal balance of $1,386 million, discounts of $32 million, and debt issuance costs of $13 million.

(a) Includes $12 million and $13 million of debt issuance cost discounts as of March 31, 2024 and September 30, 2023 , respectively.

Debt as a percent of capital employed was 30% at March 31, 2024 and at September 30, 2023, respectively.

At March 31, 2024, Ashland’s total debt had an outstanding principal balance of $1,372 million, discounts of $32 million, and debt issuance costs of $12 million.

Ashland had no long-term debt (excluding debt issuance costs) maturing within the next 3 years, $4 million due in fiscal 2027 and $540 million due in 2028.

1 unchanged sentence

Ashland’s corporate credit ratings remained unchanged at BB+ by Standard & Poor’s and Ba1 by Moody’s Investor Services.

As of December 31, 2023, both Moody’s Investor Services and Standard & Poor's outlook remained at stable.

As of March 31, 2024, both Moody’s Investor Services and Standard & Poor's outlook remained at stable.

Subsequent changes to these ratings or outlook may have an effect on Ashland’s borrowing rate or ability to access capital markets in the future.

1 unchanged sentence

Ashland's current credit agreement (the "2022 Credit Agreement") contains usual and customary representations, warranties and affirmative and negative covenants, including financial covenants for leverage and interest coverage ratios, limitations on liens, additional subsidiary indebtedness, restrictions on subsidiary distributions, investments, mergers, sale of assets and restricted payments and other customary limitations.

As of December 31, 2023, Ashland is in compliance with all debt agreement covenant restrictions under the 2022 Credit Agreement.

As of March 31, 2024, Ashland is in compliance with all debt agreement covenant restrictions under the 2022 Credit Agreement.

The maximum consolidated net leverage ratio permitted under the 2022 Credit Agreement is 4.0.

4 unchanged sentences

In general, consolidated indebtedness includes debt plus all purchase money indebtedness, banker’s acceptances and bank guaranties, deferred purchase price of property or services, attributable indebtedness and guarantees.

At December 31, 2023, Ashland’s calculation of the consolidated net leverage ratio was 2.1.

At March 31, 2024, Ashland’s calculation of the consolidated net leverage ratio was 2.1.

The minimum required consolidated interest coverage ratio under the 2022 Credit Agreement is 3.0.

The 2022 Credit Agreement defines the consolidated interest coverage ratio as the ratio of Covenant Adjusted EBITDA to consolidated interest charges for any measurement period.

At December 31, 2023, Ashland’s calculation of the consolidated interest coverage ratio was 7.6.

At March 31, 2024, Ashland’s calculation of the consolidated interest coverage ratio was 7.3.

Any change in Covenant Adjusted EBITDA of $100 million would have an approximate 0.4x effect on the consolidated net leverage ratio and a 1.7x effect on the consolidated interest coverage ratio.

1 unchanged sentence

Additional capital resources

Total equity decreased by $44 million since September 30, 2023 to $3,053 million at December 31, 2023.

The decrease of $44 million was due to net income of $26 million and $54 million of deferred translation gains, offset by compensation expense and common shares issued of $2 million, stock repurchase activity of $101 million (includes $1 million in excise tax), dividends of $20 million, and losses on commodity hedges of $1 million.

Total equity increased by $37 million since September 30, 2023 to $3,134 million at March 31, 2024.

The increase of $37 million was due to net income of $147 million, $27 million of deferred translation gains, and $3 million in compensation expense and common shares issued, offset by stock repurchase activity of $101 million (includes $1 million in excise tax) and dividends of $39 million.

2023 Stock Repurchase program

1 unchanged sentence

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.

As of March 31, 2024, $900 million remained available for repurchase under this authorization.

Stock repurchase program agreements

1 unchanged sentence

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.

During March 2023, under the 2022 stock repurchase program, Ashland inititated a Rule 10b5-1 trading plan agreement to repurchase up to $100 million of its outstanding shares.

The program was completed during April 2023, when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock.

As of March 31, 2023, Ashland repurchased a total of $52 million (of which $42 million was cash settled and $10 million was accrued within the accrued expenses and other liabilities caption for authorized and executed share repurchases pending settlement as of period end) and received a delivery of 0.5 million shares of common stock.

During February 2023, under the existing 2022 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 February 2023 when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock.

Stockholder dividends

Ashland paid a dividend of 38.5 cents per share for the first quarter of fiscal 2024 and 33.5 cents per share in the first quarter of fiscal 2023.

Ashland paid a dividend of 38.5 cents per share for the first and second quarters of fiscal 2024 and 33.5 cents per share in the first and second quarters of fiscal 2023.

Capital expenditures

Capital expenditures were $36 million for the three months ended December 31, 2023 compared to $23 million for the three months ended December 31, 2022.

Capital expenditures were $70 million for the six months ended March 31, 2024 compared to $58 million for the six months ended March 31, 2023.

CRITICAL ACCOUNTING POLICIES

5 unchanged sentences

Management has reviewed the estimates affecting these items with the Audit Committee of Ashland’s Board of Directors.

No material changes have been made to the valuation techniques during the three months ended December 31, 2023.

There is growing evidence of a convergence between Ashland’s sales volume and customer end-market demand.

While traditionally a seasonally slower period, demand in January demonstrated sequential improvement with similar trends into February order build.

Current demand patterns suggest a potential recovery with continued momentum into the second half of the fiscal year.

Demand evolution in the subsequent months will further narrow the range of recovery scenarios.

Ashland’s portfolio optimization actions continue to make progress and include the consolidation of Ashland’s carboxymethylcellulose (CMC) production capacity into Alizay, France resulting in a closure of CMC production

capacity in Hopewell, Virginia during the fiscal second quarter of 2024.

Other actions to improve Ashland’s industrial methylcellulose (MC) and hydroxyethycellulose (HEC) businesses continue to be assessed.

Ashland expects to realize a partial return to more typical margins during the second quarter, primarily a result of a forecasted increase in sales and production volumes, with continued improvement throughout the fiscal year.

Overall, for the fiscal-second quarter the company expects sales in the range of $565 million to $585 million and adjusted EBITDA in the range of $115 million to $125 million.

For the full fiscal year, Ashland expects sales in the range of $2.15 billion to $2.25 billion and adjusted EBITDA in the range of $460 million to $500 million.

No material changes have been made to the valuation techniques during the six months ended March 31, 2024.

Overall end market demand growth is expected to be flat-to-low single digits this year with Ashland’s full-year results driven primarily through a convergence of our sales volume and customer end market demand with a commensurate increase in production at our manufacturing plants.

Versus the prior year, Ashland expects higher full-year volume and mix to approximately offset the revenue impact of portfolio optimization actions and softer pricing.

As part of its portfolio optimization initiative, Ashland recently announced the closure of one of its production units at its plant in Doel, Belgium.

As a result, Ashland will be reducing its volume exposure to several lower value, more cyclical industrial segments, including the construction end market.

Ashland will continue to operate its remaining methylcellulose (MC) production unit to grow in higher value segments.

Ashland continues to advance its work to improve the productivity of its hydroxyethylcellulose (HEC) business.

Ashland expects a sequential improvement in margins during the second half of the fiscal year, primarily reflecting a forecasted increase in sales and production volumes as well as portfolio optimization mix benefits.

Year-over-year second-half margin improvement is expected to be significant when compared against inventory corrective actions taken in fiscal year 2023.

Overall, for the fiscal-third quarter the company expects sales in the range of $560 million to $580 million and adjusted EBITDA in the range of $138 million to $148 million.

For the full fiscal year, Ashland now expects sales in the range of $2.150 billion to $2.225 billion and adjusted EBITDA in the range of $470 million to $500 million.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Ashland’s market risk exposure at December 31, 2023 is generally consistent with the types of market risk exposures presented in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Ashland’s market risk exposure at March 31, 2024 is generally consistent with the types of market risk exposures presented in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis