What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-01 · 346 added, 262 removed, 469 unchanged (56% of the section changed)

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

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:

Ashland’s sales generated outside of North America were 69% and 68% for the three and nine months ended June 30, 2024, respectively, and 69% and 70% for the three and nine months ended June 30, 2023, respectively.

Sales by region expressed as a percentage of total consolidated sales for the three and nine months ended June 30 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 and six months ended March 31 was as follows:

The contribution to sales by each reportable segment expressed as a percentage of total consolidated sales for the three and nine months ended June 30 was as follows:

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Sales by Reportable Segment

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Stock repurchase program agreements

During June 2024, under the 2023 Stock Repurchase Program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $30 million of its outstanding shares.

The program was completed during June 2024, when Ashland paid a total of $30 million and received a delivery of 0.3 million shares of common stock.

During May 2024, 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 June 2024, when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock.

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.

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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.

As of the fiscal third quarter, Ashland closed CMC production at Hopewell, Virginia.

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

In addition, Ashland completed 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.

Ashland also executed similar optimization actions at a Personal Care facility in Summerville, South Carolina.

The impact of these portfolio actions for the three and nine months ended June 30, 2024, resulted in accelerated depreciation charges of $8 million and $56 million and other plant optimization costs of $4 million and $5 million, respectively, recorded within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss).

In addition, severance of $3 million and $23 million and other restructuring costs of zero and $5 million were recorded for the three and nine months ended June 30, 2024, each respectively within the selling, general and

administrative caption of the Statements of Consolidated Comprehensive Income (Loss).

See Note D for additional information.

Nutraceuticals business

In May 2024, Ashland signed a definitive agreement to sell substantially all of the net assets of its Nutraceuticals business to Turnspire Capital Partners LLC ("Turnspire").

The transaction is expected to close during Ashland's fiscal fourth quarter, contingent on certain customary regulatory approvals and standard closing conditions.

Ashland recorded a $99 million impairment charge within the loss on acquisitions and divestitures, net caption of the Statements of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2024.

See Note B of the Notes to the Condensed Consolidated Financial Statements for more information.

RESULTS OF OPERATIONS – CONSOLIDATED REVIEW

Consolidated review

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

Key financial results for the three and nine months ended June 30, 2024 and 2023 included the following:

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(In millions except per share data)

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Diluted earnings per share income from continuing operations

Operating income

Operating income (loss)

Adjusted EBITDA (a)

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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 $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.

Ashland's net income of $6 million ($0.12 diluted earnings per share) and $50 million ($0.94 diluted earnings per share) included a loss from discontinued operations of $25 million ($0.48 diluted earnings per share) and income of $8 million ($0.15 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 (loss) 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 $147 million and $5 million for the three months ended June 30, 2024 and 2023 impacting continuing operations.

Continuing operations was also impacted by favorable tax specific key items for discrete tax items totaling $106 million and $4 million for the three months ended June 30, 2024 and 2023.

Excluding these key items, the increase in continuing operations, diluted earnings per share from continuing operations and operating income (loss) was primarily driven by higher sales and production volumes within the Personal Care and Specialty Additives segments, favorable product mix, and deflationary raw materials, partially offset by unfavorable volume and pricing within the Life Sciences segment, lower pricing within the Intermediates segment and higher selling, general and administrative expenses, primarily related to the reset of variable compensation.

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 second quarter of fiscal 2023 to 51 million diluted shares in the second quarter of fiscal 2024.

These common stock repurchases reduced the number of weighted average shares from 53 million diluted shares in the third quarter of fiscal 2023 to 51 million diluted shares in the third quarter of fiscal 2024.

Ashland’s adjusted EBITDA was $139 million for the current quarter compared to $133 million in the prior year quarter (see U.S.

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

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.

The $6 million increase in adjusted EBITDA was primarily driven by higher sales and production volumes within the Personal

Care and Specialty Additives segments, favorable product mix, and deflationary raw materials, partially offset by unfavorable volume and pricing within the Life Sciences segment, lower pricing within the Intermediates segment and higher selling, general and administrative expenses, primarily related to the reset of variable compensation.

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 and six months ended March 31, 2024 and 2023.

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A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the three and nine months ended June 30, 2024 and 2023.

Three months ended June 30

Nine months ended June 30

(In millions)

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

The following table provides a reconciliation of the change in sales for the three and nine months ended June 30, 2024 and 2023.

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March 31, 2024

June 30, 2024

Foreign currency exchange

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Current Quarter - Sales for the current quarter decreased $2 million compared to the prior year quarter.

Unfavorable product pricing was the primary factor.

The decrease was driven by unfavorable product price/mix and foreign exchange currency, which was partially offset by favorable volume.

CMC and MC portfolio optimization initiatives reduced sales by approximately $15 million during the current quarter.

Year-to-date - Sales for the current year decreased $83 million compared to the prior year period.

Lower sales volumes and unfavorable pricing were the primary factors.

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Unfavorable product price/mix and lower sales volumes were the primary factors.

CMC and MC portfolio optimization initiatives reduced sales by approximately $15 million during the current year.

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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 and six months ended March 31, 2024 and 2023.

The following table provides a reconciliation of the change in cost of sales between the three and nine months ended June 30, 2024 and 2023.

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March 31, 2024

June 30, 2024

Cost of sales change

Operating Costs

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Change in cost of sales

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.

Current Quarter - Cost of sales for the current quarter decreased $10 million compared to the prior year quarter.

The decrease was primarily driven by favorable product price/mix, lower operating costs and favorable foreign exchange currency, which was partially offset by higher volume, $8 million of accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities and one Personal Care

manufacturing facility, and $4 million of other plant optimization costs.

Gross profit as a percentage of sales increased 1.6%.

Year-to-date - Cost of sales for the current year increased $13 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.

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Higher operating costs driven by higher unit manufacturing costs associated with decreased plant loading to produce to demand in the first half of the year, $56 million of accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities and one Personal Care manufacturing facility, and $5 million of other plant optimization costs were the primary factors.

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

Gross profit as a percentage of sales decreased 4.4% primarily as a result of higher operating costs including product line optimization activities.

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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 $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.

• $35 million and $16 million in net environmental-related expenses during the current and prior year quarter, respectively (see Note L for more information);

• $12 million gain associated with ICMS Brazil tax credit during the prior year quarter;

• Higher variable compensation expenses between quarters.

Year-to-date - Selling, general and administrative expense for the current period increased $47 million compared to the prior year period with expenses as a percent of sales increasing 3.7 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);

• $41 million and $28 million in net environmental-related expenses during the current and prior year period, respectively (see Note L for more information);

• Expense of $28 million and $5 million comprised of key items for severance, lease abandonment and other restructuring costs during the current and prior year period, respectively;

• $12 million gain associated with ICMS Brazil tax credit during the prior year period;

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

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

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Research and development expense

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.

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Current Quarter - Research and development expense increased due to higher incentive compensation.

Year-to-date - Research and development expense increased due to higher incentive compensation.

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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.

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Equity and other income

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.

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Current Quarter - Equity and other income was zero for the current year quarter, while the prior year quarter included China financial cash subsidies.

Year-to-date - Equity and other income is $3 million for in the current year period.

The prior year activity related to China financial cash subsidies.

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Loss on acquisitions and divestitures, net

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.

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Current Quarter - Ashland recorded a $99 million impairment charge associated with the Nutraceuticals business.

See Note B for more information.

Year-to-date - Ashland recorded a $99 million impairment charge associated with the Nutraceuticals business.

See Note B for more information.

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

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.

Restricted investments income of $4 million and $10 million included realized gains of $1 million compared to gains of $6 million for the three months ended June 30, 2024 and 2023, respectively.

See Note E for more information on the restricted investments.

Year-to-date - Net interest and other expense (income) increased by $7 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.

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Restricted investments income of $51 million and $57 million included realized gains of $39 million compared to gains of $47 million for the nine months ended June 30, 2024 and 2023, respectively.

See Note E for more information on the restricted investments.

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Other net periodic benefit loss

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.

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.

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Current Quarter - Other net periodic benefit loss for the three months ended June 30, 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 June 30, 2023 primarily included interest cost of $4 million which was partially offset by expected return on plan assets of $2 million.

See Note K for more information.

Year-to-date - Other net periodic benefit loss for the nine months ended June 30, 2024 primarily included interest cost of $12 million which was partially offset by expected return on plan assets of $6 million.

Other net periodic benefit loss for the nine months ended June 30, 2023 primarily included interest cost of $11 million which was partially offset by expected return on plan assets of $5 million.

See Note K for more information.

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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.

The overall effective tax rate was 144% for the three months ended June 30, 2024 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $104 million primarily related to the tax impact of the held for sale classification for the Nutraceuticals business.

The overall effective tax rate was 26% for the three months ended June 30, 2023 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $4 million primarily related to changes in uncertain tax positions and adjustments to valuation allowances.

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.

The overall effective tax rate was a 467% for the nine months ended June 30, 2024 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $231 million primarily related to changes in foreign tax activity and the tax impact of the held for sale classification for the Nutraceuticals business.

The overall effective tax rate was 11% for the nine months ended June 30, 2023 and was primarily impacted by jurisdictional income mix, as well as net favorable discrete items of $27 million primarily related to changes in uncertain tax positions.

Adjusted income tax expense (benefit)

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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 and six months ended March 31, 2024 and 2023 was significantly impacted by foreign tax activity and uncertain tax positions.

The effective tax rate during the three and nine months ended June 30, 2024 and 2023 was significantly impacted by foreign tax activity, uncertain tax positions, and the tax impact of the held for sale classification for the Nutraceuticals business.

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

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Income from continuing operations before income taxes

Income (loss) from continuing operations before income taxes

Key items (pre-tax) (a)

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Uncertain tax positions

Valuation allowance

Restructuring and separation activity

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.

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(In millions)

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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.

Water Technologies

Asbestos-related litigation

Current Quarter - The activity for Valvoline for the three months ended June 30, 2023 primarily represents cash proceeds related to subsequent adjustments that were made in conjunction with post-closing disputes and Tax Matters Agreement.

The activity for Composites/Marl facility, Distribution, and Water Technologies was related to post-closing adjustments in the current and prior year quarter primarily related to environmental liabilities.

Asbestos activity in each quarter primarily relates to Ashland's annual update.

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

The activity for Composites/Marl facility, Distribution and Water Technologies was related to post-closing adjustments primarily related to environmental liabilities.

The Valvoline activity for the current year period represents subsequent adjustments that were made in conjunction with post-closing tax items and disputes and primarily represents cash proceeds related to certain post-closing disputes and Tax Matters Agreement during the prior year period.

Asbestos activity in each period primarily relates to Ashland's annual update.

Other comprehensive income (loss)

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.

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A comparative analysis of the components of other comprehensive income is provided below for the three and nine months ended June 30, 2024 and 2023.

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(In millions)

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Current Quarter - Total other comprehensive income (loss), net of tax, for the current quarter decreased $20 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.

• For the three months ended June 30, 2024 and 2023, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in losses of $25 million and $4 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 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.

• For the three months ended June 30, 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 $2 million and $1 million for the three months ended June 30, 2024 and 2023, respectively.

Year-to-date - Total other comprehensive income (loss), net of tax, for the current year decreased $95 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.

• For the nine months ended June 30, 2024 and 2023, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in gains of $2 million and $105 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.

• For the nine months ended June 30, 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 $2 million and unrealized losses of $6 million for the nine months ended June 30, 2024 and 2023, respectively.

Use of Non-GAAP Financial Measures

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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 (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.

comparisons of Ashland’s historical operating performance and its segments and provide continuity to investors for comparability purposes.

Adjusted Diluted Earnings Per Share (EPS)

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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.

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EBITDA and Adjusted EBITDA

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 totaled loss of $34 million and income of $130 million for the three months ended June 30, 2024 and 2023, respectively, and income of $76 million and $363 million for the nine months ended June 30, 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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These operating key items for the applicable periods are summarized as follows:

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

Ashland often incurs severance, facility and integration costs associated with these programs.

See Note C in the Notes to Consolidated Financial Statements for further information on the restructuring activities;

• Nutraceutical impairment – During the three months ended June 30, 2024, Ashland entered

into an agreement to sell substantially all of the net assets of its Nutraceuticals business.

result, Ashland recorded a $99 million impairment charge within the loss on acquisitions and divestitures, net caption of the Statements of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2024.

See Note B of the Notes to Condensed Consolidated Financial Statements for more information.

• Accelerated depreciation – As a result of product line optimization activities at two Specialty Additives manufacturing plants and a Personal Care manufacturing plant, Ashland recorded accelerated depreciation due to changes in the expected useful life of certain property, plant and equipment during the three and nine months ended June 30, 2024.

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

• Environmental reserve adjustments – Ashland is subject to various federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts (collectively environmental remediation) at multiple locations.

As a result of these activities, Ashland recorded adjustments during each year to its environmental liabilities and receivables primarily related to previously divested businesses or non-operational sites.

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

• 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 six months ended March 31, 2024;

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

Ashland often incurs severance, facility and integration costs associated with these programs.

See Note D in the Notes to Condensed Consolidated Financial Statements for further information on the restructuring activities;

• Other plant optimization costs – During the three and nine months ended June 30, 2024, Ashland incurred inventory adjustment and production costs associated with product line optimization actions.

• 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 nine months ended June 30, 2024;

• 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.

• ICMS Brazil tax credit – In 2017, the Federal Supreme Court of Brazil ruled in a leading case that a Brazil value-added tax (ICMS) should not be included in the base used to calculate a taxpayer's federal contribution on total revenue known as PIS/COFINS (2017 Decision).

Following favorable court rulings from lawsuits previously filed by two of Ashland's Brazilian subsidiaries challenging the inclusion of ICMS in Ashland's calculation of PIS/COFINS, Ashland received acknowledgment from the Brazilian tax authorities that allows Ashland to begin the process to recover the taxes;

• Held for sale depreciation and amortization – Represents the depreciation and amortization for the Nutraceuticals business held for sale assets during the three and nine months ended June 30, 2024.

See Note B of the Notes to Condensed Consolidated Financial Statements for more information.

Three months ended

Six months ended

Nine months ended

(In millions)

2 unchanged sentences

Depreciation and amortization (a)

Loss from discontinued operations, net of income taxes

Loss (income) from discontinued operations, net of income taxes

Key items included in EBITDA:

Restructuring, separation and other costs

Environmental reserve adjustments

Nutraceutical impairment

Accelerated depreciation

Environmental reserve adjustments

Restructuring, separation and other costs

Other plant optimization costs

Argentina currency devaluation impact

Asset impairments

Other plant optimization costs

ICMS Brazil tax credit

Held for sale depreciation and amortization

Total key items included in EBITDA

1 unchanged sentence

Total key items included in EBITDA

Unrealized gain on securities

Unrealized gains on securities

Total key items, before tax

(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.

(a) Depreciation and amortization excludes accelerated depreciation of $1 million for Personal Care for both the three and nine months ended June 30, 2024 and $7 million and $55 million for Specialty Additives for the three and nine months ended June 30, 2024, respectively, which is included as a key item within this table as a component of adjusted EBITDA.

Depreciation and amortization includes $1 million for Life Sciences for the Nutraceuticals business held for sale assets for both the three and nine months ended June 30, 2024, which is included as a key item within this table as a component of adjusted EBITDA.

Diluted EPS and Adjusted Diluted EPS

6 unchanged sentences

• Unrealized gain on securities – represents gains recognized on restricted investments related to the Asbestos trust and Environmental trust for each period.

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 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.

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

• Uncertain tax positions – represents the impact from the settlement of uncertain tax positions with various tax authorities for the three and nine months ended June 30, 2024 and June 30, 2023;

• Valuation allowance – represents the impact from the release of certain foreign tax credit valuation allowances;

• Restructuring and separation activity – represents the tax impact of the held for sale classification for the

Nutraceuticals business;

• Other and tax reform related activity – represents tax specific key items associated with foreign tax related activity for the three and nine months ended June 30, 2024.

Three months ended

Six months ended

Nine months ended

Diluted EPS from continuing operations (as reported)

Key items, before tax:

Restructuring, separation and other costs

Environmental reserve adjustments

Nutraceutical impairment

Accelerated depreciation

Environmental reserve adjustments

Restructuring, separation and other costs

Other plant optimization costs

Argentina currency devaluation impact

Asset impairments

Other plant optimization costs

ICMS Brazil tax credit

Held for sale depreciation and amortization

Unrealized gain on securities

3 unchanged sentences

Tax specific key items:

Other and tax reform related activity

Uncertain tax positions

Valuation allowance

Restructuring and separation activity

Other and tax reform related activity

Tax specific key items (b)

6 unchanged sentences

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 and six months ended March 31, 2024 and 2023.

(c) Amortization expense adjustment (net of tax) tax rates were 20% for the three and nine months ended June 30, 2024 and 2023.

RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW

9 unchanged sentences

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

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.

The following table discloses sales, operating income (loss), depreciation and amortization and EBITDA by reportable segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

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(In millions - unaudited)

9 unchanged sentences

Intermediates

Unallocated and other

Unallocated and other (b)

DEPRECIATION EXPENSE

Life Sciences

Personal Care

Specialty Additives (b)

Personal Care (c)

Specialty Additives (d)

Intermediates

11 unchanged sentences

All other intersegment sales are accounted for at cost.

(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.

(b) Includes a $99 million impairment charge within the loss on acquisitions and divestitures, net caption of the Statements of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2024.

(c) Depreciation includes accelerated depreciation of $1 million for Personal Care for both the three and nine months ended June 30, 2024.

(d) Depreciation includes accelerated depreciation of $7 million and $55 million for Specialty Additives for the three and nine months ended June 30, 2024, respectively.

(e) Excludes income (loss) from discontinued operations and other net periodic benefit loss.

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

3 unchanged sentences

Nutrition solutions include thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and binding structured foods.

Nutraceutical solutions include products for weight management, joint comfort, stomach and intestinal health, sports nutrition and general wellness.

Nutraceutical solutions, which is classified as held for sale, include products for weight management, joint comfort, stomach and intestinal health, sports nutrition and general wellness.

The nutraceutical business also provides custom formulation, toll processing and particle engineering solutions.

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 and six months ended March 31, 2024 and 2023.

In May 2024, Ashland signed a definitive agreement to sell substantially all of the net assets of its Nutraceuticals business to Turnspire Capital Partners LLC ("Turnspire").

The transaction is expected to close during Ashland's fiscal fourth quarter, contingent on certain customary regulatory approvals and standard closing conditions.

The following table provides a reconciliation of the change in sales for the Life Sciences operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

Six months ended

Nine months ended

(In millions)

March 31, 2024

June 30, 2024

Foreign Currency

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.

The following table provides a reconciliation of the change in operating income (loss) for the Life Sciences operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

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Nine months ended

(In millions)

March 31, 2024

June 30, 2024

Operating income change

6 unchanged sentences

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.

The following EBITDA presentation for the three and nine months ended June 30, 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 three and nine months ended June 30, 2024 related to $1 million for environmental reserve adjustment offset by $1 million held for sale reversal of depreciation and amortization.

The key items during the three and nine months ended June 30, 2023 related to $3 million and $4 million for restructuring programs, and $2 million each, for environmental reserve adjustments for the three and nine months ended June 30, 2023.

Life Sciences

Three months ended March 31

Six months ended March 31

Three months ended June 30

Nine months ended June 30

(In millions)

2 unchanged sentences

Restructuring and other costs

Environmental reserve adjustments

Held for sale depreciation and amortization

Adjusted EBITDA

As a percent of sales

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.

(a) Depreciation and amortization includes $1 million for Life Sciences associated with the Nutraceuticals business held for sale assets for the three and nine months ended June 30, 2024, respectively, which is included as a key item within this table as a component of adjusted EBITDA.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

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

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.

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

Personal Care

3 unchanged sentences

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 and six months ended March 31, 2024 and 2023.

The following table provides a reconciliation of the change in sales for the Personal Care operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

Six months ended

Nine months ended

(In millions)

March 31, 2024

June 30, 2024

Foreign Currency

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.

The following table provides a reconciliation of the change in operating income (loss) for the Personal Care operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

Six months ended

Nine months ended

(In millions)

March 31, 2024

June 30, 2024

Operating income change

Foreign Currency

EBITDA and Adjusted EBITDA reconciliation

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

The key items for Personal Care for the three and nine months ended June 30, 2024 related to $1 million of accelerated depreciation.

Personal Care had no key items for the three and nine months ended June 30, 2023.

Personal Care

Three months ended March 31

Six months ended March 31

Three months ended June 30

Nine months ended June 30

(In millions)

1 unchanged sentence

Depreciation and amortization

Accelerated depreciation

Adjusted EBITDA

As a percent of sales

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.

(a) Depreciation and amortization excludes accelerated depreciation of $1 million for Personal Care for the three and nine months ended June 30, 2024, respectively, which is included as a key item within this table as a component of adjusted EBITDA.

Three months ended June 30, 2024 compared to three months ended June 30, 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 Adjusted EBITDA increased in the current period primarily due to higher volume and favorable price/mix, partially offset by unfavorable foreign currency exchange.

The CMC portfolio optimization initiative had an approximate $3 million negative sales impact during the quarter.

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.

Personal Care's sales increased in the current period primarily due to higher volume partially offset by unfavorable price/mix.

Operating income and Adjusted EBITDA increased primarily due to higher volume and favorable price/mix, partially offset by unfavorable foreign currency exchange and higher cost including $1 million of accelerated depreciation for product line optimization activities associated with a manufacturing facility.

The CMC portfolio optimization initiative had an approximate $3 million negative sales impact during the year.

Specialty Additives

4 unchanged sentences

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 and six months ended March 31, 2024 and 2023.

The following table provides a reconciliation of the change in sales for the Specialty Additives operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

Six months ended

Nine months ended

(In millions)

March 31, 2024

June 30, 2024

Foreign Currency

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.

The following table provides a reconciliation of the change in operating income (loss) for the Specialty Additives operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

Six months ended

Nine months ended

(In millions)

March 31, 2024

June 30, 2024

Operating income (loss) change

2 unchanged sentences

EBITDA and Adjusted EBITDA reconciliation

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.

The key items during the three months ended June 30, 2024 and 2023 related to $7 million of accelerated depreciation, $4 million of other plant optimization costs, and $1 million in environmental reserve adjustments in fiscal 2024 and environmental reserve adjustments of $4 million in fiscal 2023.

The key items during the nine months ended June 30, 2024 and 2023 related to $55 million accelerated depreciation, $5 million of other plant optimization costs and $1 million in environmental reserve adjustments in fiscal 2024 and an asset impairment charge of $4 million and environmental reserve adjustments of $4 million in fiscal 2023 all of which were associated with manufacturing facilities.

Specialty Additives

Three months ended March 31

Six months ended March 31

Three months ended June 30

Nine months ended June 30

(In millions)

3 unchanged sentences

Asset Impairments

Environmental reserve adjustments

Other plant optimization costs

1 unchanged sentence

As a percent of sales

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.

(a) Depreciation and amortization excludes accelerated depreciation of $7 million and $55 million for Specialty Additives for the three and nine months ended June 30, 2024, respectively, which is included as a key item within this table as a component of adjusted EBITDA.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Specialty Additives sales for the quarter decreased primarily as a result of unfavorable price/mix and foreign exchange currency, partially offset by higher volume, while operating income and Adjusted EBITDA increased primarily due to favorable price/mix and higher volume, partially offset by higher costs, including $7 million of accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities.

The CMC and MC portfolio optimization initiatives had an approximate $12 million negative sales impact during the quarter.

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.

Specialty Additives sales for the current period decreased primarily due to unfavorable price/mix, while operating income (loss) and Adjusted EBITDA decreased primarily due to higher costs, including $55 million of accelerated depreciation for product line optimization activities associated with two Specialty Additives manufacturing facilities and unfavorable foreign currency exchange partially offset by higher volume.

The CMC and MC portfolio optimization initiatives had an approximate $12 million negative sales impact during the year.

Intermediates

2 unchanged sentences

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 and six months ended March 31, 2024 and 2023.

The following table provides a reconciliation of the change in sales for the Intermediates operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

Six months ended

Nine months ended

(In millions)

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.

June 30, 2024

The following table provides a reconciliation of the change in operating income (loss) for the Intermediates operating segment for the three and nine months ended June 30, 2024 and 2023.

Three months ended

Six months ended

Nine months ended

(In millions)

March 31, 2024

June 30, 2024

Operating income change

EBITDA and Adjusted EBITDA reconciliation

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.

The following EBITDA presentation (as defined and described in the section above) for the three and nine months ended June 30, 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 nine months ended June 30, 2024 or 2023.

Intermediates

Three months ended March 31

Six months ended March 31

Three months ended June 30

Nine months ended June 30

(In millions)

2 unchanged sentences

As a percent of sales

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.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

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

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.

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

Unallocated and other

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.

The following table summarizes the key components of the Unallocated and other segment’s operating income (loss) for the three and nine months ended June 30, 2024 and 2023.

Unallocated and Other

Three months ended March 31

Six months ended March 31

Three months ended June 30

Nine months ended June 30

(In millions)

1 unchanged sentence

Environmental expenses

ICMS Brazil tax credit

Loss on acquisitions and divestitures, net

2 unchanged sentences

Total expense

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.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Unallocated and other recorded expense of $151 million and $19 million for the three months ended June 30, 2024 and 2023, respectively.

The current and prior year quarter included expense of $3 million, each quarter, 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 $33 million and $12 million for environmental expenses, respectively.

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.

The prior year quarter included income of $12 million ICMS tax credits in Brazil.

The current quarter also includes a $99 million loss on acquisitions and divestitures, net due to an impairment charge within the Nutraceuticals business.

See Note B of the Notes to Condensed Consolidated Financial Statements for more information.

Other expenses between periods were driven by changes 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.

Unallocated and other recorded expense of $223 million and $69 million for the nine months ended June 30, 2024 and 2023, respectively.

The current and prior year period included expense of $28 million and $5 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 $40 million and $24 million for environmental expenses, respectively.

The current year also includes a $99 million loss on acquisitions and divestitures, net due to an impairment charge within the Nutraceuticals business.

See Note B of the Notes to Condensed Consolidated Financial Statements for more information.

The prior year period also included income of $12 million ICMS tax credits in Brazil.

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

5 unchanged sentences

On October 19, 2023, Ashland entered, through an Ireland based, wholly-owned, bankruptcy-remote consolidated special purpose entity (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) 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.

Under the agreement, Ashland can transfer whole receivables up to a limit established by the buyer, which is currently set at a maximum of €125 million subject to other limitations as applicable.

Ashland accounts for receivables transferred to buyers as part of this agreement as sales.

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 six months ended March 31, 2024 and 2023.

Six months ended

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

During April 2024, Ashland authorized a financing program offered through JP Morgan and Taulia Alliance.

Under this program, JP Morgan and its affiliates may purchase certain confirmed receivables directly from suppliers pursuant to the terms of a separate arrangement entered into between JPMorgan and such Suppliers.

There were no changes to Ashland's standard payment terms with its suppliers in connection with this program.

Ashland provides no guarantees to the third party under this program.

As of June 30, 2024, the program is in systems implementation phase and has not yet been offered to suppliers.

Nine months ended

(In millions)

6 unchanged sentences

Net increase (decrease) in cash and cash equivalents

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.

Cash and cash equivalents decreased $18 million for the nine months ended June 30, 2024 and $297 million for the nine months ended June 30, 2023.

The $18 million decrease for the nine months ended June 30, 2024 was primarily driven by payment of cash dividends, additions to property, plant and equipment, and stock repurchase activity of $59 million, $99 million, and $230 million, respectively.

Operating cash flows from continuing operations were inflows of $382 million.

The $297 million decrease for the nine months ended June 30, 2023 was primarily driven by payment of cash dividends, additions to property, plant and equipment, and stock repurchase activity of $56 million, $101 million, and $300 million, respectively.

Operating cash flows from continuing operations were inflows of $163 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.

Six months ended

Nine months ended

(In millions)

19 unchanged sentences

(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 $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 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.

Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $921 million and $1,050 million as of June 30, 2024 and September 30, 2023, respectively.

The $129 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 an increase in refundable income taxes and current assets held for sale.

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

The $69 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.

Liquid assets (cash, cash equivalents and accounts receivable) amounted to 134% and 166% of current liabilities as as of June 30, 2024 and September 30, 2023, respectively.

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

(In millions)

7 unchanged sentences

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.

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 March 31, 2024.

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.

(a) Includes $250 million and $243 million related to the Asbestos trust and $113 million and $124 million related to the Environmental trust as of June 30, 2024 and September 30, 2023, respectively.

In total, Ashland’s available liquidity position, which includes cash and the revolving credit facility, was $995 million at June 30, 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.

and Foreign Accounts Receivable Sales Programs, respectively, as of June 30, 2024.

Ashland also maintained $363 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 March 31, 2024 and September 30, 2023.

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

(In millions)

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

(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.

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

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

At June 30, 2024, Ashland’s total debt had an outstanding principal balance of $1,367 million, discounts of $30 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 $535 million due in 2028.

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

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

As of June 30, 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.

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

As of June 30, 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.

The 2022 Credit Agreement defines the consolidated net leverage ratio as the ratio of consolidated indebtedness minus unrestricted cash and cash equivalents to consolidated EBITDA (Covenant Adjusted EBITDA) for any measurement period.

In general, the 2022 Credit Agreement defines Covenant Adjusted EBITDA as net income plus consolidated interest charges, taxes, depreciation and amortization expense, fees and expenses related to capital market transactions and proposed or actual acquisitions and divestitures, restructuring and integration charges, noncash stock and equity compensation expense, and any other nonrecurring expenses or losses that do not represent a cash item in such period or any future period;

general, the 2022 Credit Agreement defines Covenant Adjusted EBITDA as net income plus consolidated interest charges, taxes, depreciation and amortization expense, fees and expenses related to capital market transactions and proposed or actual acquisitions and divestitures, restructuring and integration charges, noncash stock and equity compensation expense, and any other nonrecurring expenses or losses that do not represent a cash item in such period or any future period;

less any noncash gains or other items increasing net income.

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

At June 30, 2024, Ashland’s calculation of the consolidated net leverage ratio was 2.2.

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

At June 30, 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.

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Additional capital resources

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.

Total equity decreased by $130 million since September 30, 2023 to $2,967 million at June 30, 2024.

The decrease of $130 million was due to net income of $153 million, compensation expense and common shares issued of $4 million, $2 million of deferred translation gains, and $2 million for unrealized gains on commodity hedges offset by stock repurchase activity of $232 million (includes $2 million in excise tax) and dividends of $59 million.

2023 Stock Repurchase program

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The new authorization terminated and replaced the 2022 Stock Repurchase Program, which had $200 million outstanding at the date of termination.

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

As of June 30, 2024, $770 million remained available for repurchase under this authorization.

Stock repurchase program agreements

Current fiscal year

During June 2024, under the 2023 Stock Repurchase Program, Ashland initiated a Rule 10b5-1 trading plan agreement to repurchase up to $30 million of its outstanding shares.

The program was completed during June 2024, when Ashland paid a total of $30 million and received a delivery of 0.3 million shares of common stock.

During May 2024, 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 June 2024, when Ashland paid a total of $100 million and received a delivery of 1.0 million shares of common stock.

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.

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.

Prior fiscal year

During May 2023, under the 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 June 2023, when Ashland paid a total of $100 million and received a delivery of 1.1 million shares of common stock.

During March 2023, under the 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 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.

During February 2023, under the 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 and second quarters of fiscal 2024 and 33.5 cents per share in the first and second quarters of fiscal 2023.

On May 7, 2024, Ashland's Board declared a quarterly cash dividend of $0.405 cents per share on the company's common stock representing a five percent increase from the previous quarter.

The dividend was paid in the third quarter of fiscal 2024.

Dividends of $0.385 cents per share were paid in the first and second quarters of fiscal 2024 and the third quarter of fiscal 2023 and $0.335 cents per share in the first and second quarters of fiscal 2023.

Capital expenditures

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.

Capital expenditures were $99 million for the nine months ended June 30, 2024 compared to $101 million for the nine months ended June 30, 2023.

CRITICAL ACCOUNTING POLICIES

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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 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.

No material changes have been made to the valuation techniques during the nine months ended June 30, 2024.

During the quarter, Ashland announced the signing of a definitive agreement to sell its nutraceuticals business to Turnspire Capital Partners LLC.

The transaction is expected to close in the calendar third quarter 2024, subject to the satisfaction of customary closing conditions.

In addition, Ashland continues to reduce its inventory and volume exposure to lower value, more cyclical business within MC and CMC.

The CMC and MC portfolio optimization initiative is expected to reduce revenue versus the prior year by approximately $20 million during the fiscal-fourth quarter.

Diminished sales trends experienced in June have continued into July, reflecting increasingly challenging market conditions.

Overall end market demand growth is estimated to be flat-to-low single digits.

Ashland’s fiscal-fourth quarter year-over-year improvement is expected to be largely driven by the continuing convergence of our sales volume and customer end market demand with a commensurate increase in production at our manufacturing plants.

Improved demand in Personal Care and Specialty Additives is expected to be partially offset by softer VP&D volumes within Life Sciences.

Overall year-over-year sales volume growth, adjusted for portfolio optimization, is expected to be mid-single-digit in the fiscal-fourth quarter, partially offset by low-single-digit pricing declines.

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

Adjusted EBITDA margin is forecasted to be in-line with Ashland’s mid-20s second-half target, supported by portfolio optimization actions.

Overall, for the fiscal-fourth quarter the company expects sales in the range of $530 million to $540 million and adjusted EBITDA in the range of $130 million to $140 million.

For the full fiscal year, Ashland now expects sales of approximately $2.1 billion and adjusted EBITDA in the range of $465 million to $475 million.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

Ashland’s market risk exposure at June 30, 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