Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements herein.
BUSINESS OVERVIEW
Ashland profile
Ashland is a global additives and specialty ingredients company with a conscious and proactive mindset for environmental, social and governance ("ESG"). The company serves customers in a wide range of consumer and industrial markets, including architectural coatings, construction, energy, food and beverage, personal care and pharmaceutical. With approximately 3,200 employees worldwide, Ashland serves customers in more than 100 countries.
Ashland’s sales generated outside of North America were 72% and 66% for the three months ended December 31, 2024 and 2023, respectively. Sales by region expressed as a percentage of total consolidated sales for the three months ended December 31, were as follows:
Sales by Geography
2024
2023
North America (a)
28
%
34
%
Europe (a)
33
%
33
%
Asia Pacific
29
%
24
%
Latin America & other
10
%
9
%
100
%
100
%
(a) Ashland includes only U.S. and Canada in its North America designation and includes Europe, the Middle East and Africa in its Europe designation.
Reportable segments
Ashland’s reportable segments include Life Sciences, Personal Care, Specialty Additives and Intermediates. 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:
Sales by Reportable Segment
2024
2023
Life Sciences
33
%
42
%
Personal Care
33
%
27
%
Specialty Additives
28
%
26
%
Intermediates
6
%
5
%
100
%
100
%
28
KEY DEVELOPMENTS
Uncertainty relating to the ongoing Ukraine/Russia and Israel/Hamas conflicts
Business disruptions, including those related to the ongoing conflicts between Ukraine/Russia or Israel/Hamas continue to impact businesses around the globe. While it is impossible to predict the effects of the conflicts such as possible escalating geopolitical tensions (including the imposition of existing and additional sanctions by the U.S. and the European Union on Russia), worsening macroeconomic and general business conditions, supply chain interruptions and unfavorable energy markets, the impact could be material. Ashland is closely monitoring these situations and maintains business continuity plans that are intended to continue operations or mitigate the effects of events that could disrupt its business.
Ashland does not have manufacturing operations in Russia, Ukraine, or Belarus. Ashland sells (or previously sold) additives and specialty ingredients to manufacturers in these countries for their use in pharmaceuticals, personal care, and coatings applications. Sales to Russia and Belarus were previously limited and our products were primarily used in products and applications that are essential to the population's well-being and currently support our customers' humanitarian efforts. We have sales controls in place to ensure that future potential sales into the region are only to support critical pharmaceutical or personal hygiene products which are essential for the general population and in accordance with any applicable sanctions. Sales to Ukraine, Russia, and Belarus represent less than 1% of total consolidated sales and less than 1% of total consolidated assets (related to accounts receivable).
Ashland does not have manufacturing operations in Israel. Sales to Israel represent approximately 1% of total consolidated sales and less than 1% of total consolidated assets (related to accounts receivable).
Other items
Restructuring programs
As previously announced, Ashland initiated a new $30 million restructuring plan to offset the impact from the Nutraceuticals sale, completed in fiscal 2024, and other portfolio optimization actions, which are expected to be realized 50 percent in fiscal 2025 and 50 percent in fiscal 2026.
Ashland is also advancing a multi-year manufacturing optimization restructuring plan to improve operational cost and strengthen its competitive position. This optimization plan is expected to generate pre-tax savings of $60 million once fully achieved, including savings of $5 million in fiscal 2025.
Ashland is also continuing to execute its fiscal 2024 portfolio and plant optimization actions to further strengthen Ashland’s resilience and improve margins and returns.
The following table summarizes the impact of these restructuring actions:
Three months ended
December 31
(In millions)
2024
2023
Accelerated depreciation (a)
$
—
$
21
Restructuring, separation and other costs (b)
3
4
Other plant optimization costs (c)
3
—
$
6
$
25
(a) Recorded within the cost of sales caption within the Statements of Condensed Consolidated Comprehensive Income (Loss).
(b) Recorded within the selling, general and administrative caption within the Statements of Condensed Consolidated Comprehensive Income (Loss).
(c) Recorded within the cost of sales caption of the Statements of Condensed Consolidated Comprehensive Income (Loss).
Avoca business
In December 2024, Ashland signed a definitive agreement to sell substantially all of the net assets of its Avoca business to Mane SA. The transaction is expected to close during Ashland's fiscal second quarter, contingent on certain customary approvals and standard closing conditions.
Ashland recorded a $183 million impairment charge related to allocated goodwill, intangibles and property, plant and equipment within the loss on acquisitions and divestitures, net caption of the Statements of Condensed
29
Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2024. See Note B of the Notes to the Condensed Consolidated Financial Statements for more information.
RESULTS OF OPERATIONS – CONSOLIDATED REVIEW
Consolidated review
Overview
Key financial results included the following:
Three months ended
December 31
(In millions except per share data)
2024
2023
Change
Net income (loss)
$
(165
)
$
26
$
(191
)
Diluted earnings per share net income (loss) (a)
(3.50
)
0.51
(4.01
)
Income (loss) from continuing operations
(166
)
28
(194
)
Diluted earnings per share income (loss) from continuing operations (a)
(3.51
)
0.54
(4.05
)
Operating loss
(179
)
(18
)
(161
)
EBITDA (b)
(129
)
34
(163
)
Adjusted EBITDA (b)
61
70
(9
)
Adjusted Diluted EPS from Continuing Operations Excluding Intangibles Amortization Expense (b)
0.28
0.45
(0.17
)
(a) As a result of the loss from continuing operations attributable to Ashland during the three months ended December 31, 2024, the effect of the share-based awards convertible to common stock would be antidilutive and have been excluded from the diluted EPS calculation.
(b) These are non-GAAP financial measures. See "Use of Non-GAAP Financial Measures" section below for reconciliations to U.S. GAAP.
Business results current quarter
Ashland's net loss of $165 million ($3.50 diluted earnings per share) and net income of $26 million ($0.51 diluted earnings per share) included income from discontinued operations of $1 million ($0.01 diluted earnings per share) and a loss from discontinued operations of $2 million (loss of $0.03 diluted earnings per share) in the three months ended December 31, 2024 and 2023, respectively. Ashland's net loss, during the December 31, 2024 quarter, was primarily driven by a $183 million impairment charge related to the Avoca business.
Results for Ashland’s continuing operations, diluted earnings per share from continuing operations and operating loss for the three months ended December 31, 2024 and 2023 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 $191 million and $34 million for the three months ended December 31, 2024 and 2023, respectively, impacting continuing operations. Continuing operations was also impacted by unfavorable tax specific key items for discrete tax items totaling $8 million and favorable tax specific key items for discrete tax items totaling $24 million for the three months ended December 31, 2024 and 2023, respectively.
Excluding these key items, the decrease in continuing operations, diluted earnings per share from continuing operations and operating loss was primarily driven by portfolio optimization actions, which includes volume impacts, and reduced pricing. This was partially offset by production volume recovery versus inventory corrective actions in the prior year. In addition, diluted earnings per share from continuing operations was also impacted by common stock reductions from repurchases of Ashland common stock over the last twelve months. These common stock repurchases reduced the number of weighted average shares from 51 million diluted shares at December 31, 2023 to 47 million diluted shares at December 31, 2024.
Ashland’s Adjusted EBITDA was $61 million for the three months ended December 31, 2024 compared to $70 million for the three months ended December 31, 2023 (see U.S. GAAP reconciliation under “Use of Non-GAAP Financial Measures” below). The $9 million decrease in Adjusted EBITDA was primarily driven by portfolio optimization actions, which includes volume impacts, and reduced pricing. This was partially offset by production volume recovery versus inventory corrective actions in the prior year. 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 stock repurchases noted above.
For further information on the items reported above, see the discussion in the comparative Statements of Condensed Consolidated Comprehensive Income (Loss) caption review analysis.
30
Statements of Condensed Consolidated Comprehensive Income (Loss) – caption review
A comparative analysis of the Statements of Condensed Consolidated Comprehensive Income (Loss) by caption is provided as follows:
Three months ended December 31
(In millions)
2024
2023
Change
Sales
$
405
$
473
$
(68
)
The following table provides a reconciliation of the change in sales for the three months ended December 31, 2024 from the three months ended December 31, 2023:
(In millions)
Sales change
Divestiture
$
(39
)
Volume
(18
)
Price/mix
(10
)
Foreign currency exchange
(1
)
Change in sales
$
(68
)
Sales for the current quarter decreased $68 million compared to the prior year quarter. The decrease was driven by the unfavorable impact of divestitures, lower volume, unfavorable pricing and unfavorable foreign currency exchange. Portfolio optimization initiatives had an approximate $50 million impact on sales compared to the prior year quarter, primarily within divestiture and volume caption changes.
Three months ended December 31
(In millions)
2024
2023
Change
Cost of sales
$
294
$
375
$
(81
)
Gross profit as a percent of sales
27.4
%
20.7
%
The following table provides a reconciliation of the change in cost of sales between the three months ended December 31, 2024 and 2023.
(In millions)
Cost of sales change
Operating Costs
$
(39
)
Divestiture
(33
)
Volume
(11
)
Foreign currency exchange
(1
)
Price/mix
3
Change in cost of sales
$
(81
)
Cost of sales for the current quarter decreased $81 million compared to the prior year quarter. The decrease was primarily driven by lower operating costs, the favorable impact of divestitures, lower sales volume, and favorable foreign exchange currency, which was partially offset by unfavorable pricing and $3 million of other plant optimization costs. Gross profit as a percentage of sales increased 6.7% primarily due to production volume recovery versus inventory corrective actions and accelerated depreciation in the prior year.
Three months ended December 31
(In millions)
2024
2023
Change
Selling, general and administrative expense
$
78
$
83
$
(5
)
As a percent of sales
19.3
%
17.5
%
31
Selling, general and administrative expense for the current quarter decreased $5 million compared to the prior year quarter with expenses as a percent of sales increasing 1.7%. Key drivers of the fluctuation in selling, general and administrative expense compared to the prior year quarter were:
• $1 million and $4 million in net environmental-related expenses during the current and prior year quarter, respectively (see Note L of the Notes to the Condensed Consolidated Financial Statements for more information);
• Expense of $3 million and $4 million comprised of key items for severance, lease abandonment and other restructuring costs during the current and prior year quarter, respectively;
• Expense of $5 million related to the devaluation of the currency in Argentina in the prior year; and
• Higher variable compensation expenses (including stock-based compensation) between periods.
Three months ended December 31
(In millions)
2024
2023
Change
Research and development expense
$
13
$
12
$
1
Research and development expense is generally consistent with the prior year quarter.
Three months ended December 31
(In millions)
2024
2023
Change
Intangibles amortization expense
$
17
$
21
$
(4
)
The lower intangibles amortization expense in the current quarter is driven by the impact of amortization related to the divested Nutraceuticals business in the prior year quarter.
Three months ended December 31
(In millions)
2024
2023
Change
Equity and other income
$
1
$
2
$
(1
)
Equity and other income is generally consistent with the prior year quarter.
Three months ended December 31
(In millions)
2024
2023
Change
Loss on acquisitions and divestitures, net
$
(183
)
$
(2
)
$
(181
)
Ashland recorded a $183 million impairment charge associated with the Avoca business during the current quarter. See Note B of the Notes to the Condensed Consolidated Financial Statements for more information.
Three months ended December 31
(In millions)
2024
2023
Change
Net interest and other expense (income)
Interest expense
$
15
$
13
$
2
Interest income
(2
)
(3
)
1
Expense (income) from restricted investments
12
(36
)
48
Other financing costs
3
2
1
$
28
$
(24
)
$
52
Net interest and other expense (income) increased by $52 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 expense of $12 million and income of $36 million included realized losses of $17 million compared to gains of $31 million for the three months ended December 31, 2024 and 2023, respectively. See Note E of the Notes to the Condensed Consolidated Financial Statements for more information on the restricted investments.
Three months ended December 31
(In millions)
2024
2023
Change
Other net periodic benefit loss
$
2
$
2
$
—
32
Other net periodic benefit loss for the three months ended December 31, 2024 primarily included interest cost of $3 million and a $1 million loss on curtialment partially offset by expected return on plan assets of $2 million. 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. See Note K of the Notes to the Condensed Consolidated Financial Statements for more information.
Three months ended December 31
(In millions)
2024
2023
Change
Income tax benefit
$
(43
)
$
(24
)
$
(19
)
Effective tax rate
21
%
-600
%
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 21% for the three months ended December 31, 2024 and was primarily impacted by jurisdictional income mix as well as a net $8 million from unfavorable tax discrete items primarily related to final regulations issued in the United States during the quarter impacting the recognition of deferred taxes on certain unrealized foreign exchange gains and losses.
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.
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 loss 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. The effective tax rate, excluding key items, which is a non-GAAP financial measure, has been prepared to illustrate the ongoing tax effects of Ashland’s operations. Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP 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, 2024 was significantly impacted by U.S. tax final regulation activity while the effective tax rate during the three months ended December 31, 2023 was significantly impacted by foreign tax reform related activity.
The following table is a calculation of the effective tax rate, excluding these key items.
Three months ended
December 31
(In millions)
2024
2023
Income (loss) from continuing operations before income taxes
$
(209
)
$
4
Key items (pre-tax) (a)
208
3
Adjusted income (loss) from continuing operations before income taxes
$
(1
)
$
7
Income tax benefit
$
(43
)
$
(24
)
Income tax rate adjustments:
Tax effect of key items (b)
50
1
Tax specific key items: (c)
Uncertain tax positions
(1
)
—
Other and tax reform related activity
(7
)
24
Total income tax rate adjustments
42
25
Adjusted income tax expense (benefit)
$
(1
)
$
1
Effective tax rate
21
%
-600
%
Effective Tax Rate, Excluding Key Items (Non-GAAP) (d)
Not meaningful
13
%
33
(a) See Adjusted EBITDA reconciliation table disclosed in this Management’s Discussion and Analysis of Financial Condition and Results of Operation for a summary of the key items, before tax.
(b) The tax rate specific to the jurisdiction in which the key item originates is used to calculate the tax effect of key items.
(c) For additional information on the effect that these tax specific key items had on EPS, see the adjusted diluted EPS table disclosed in this Management’s Discussion and Analysis of Financial Condition and Results of Operation.
(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
(In millions)
2024
2023
Change
Income (loss) from discontinued operations, net of income taxes
Performance Adhesives
$
—
$
(3
)
$
3
Asbestos-related litigation
1
1
—
$
1
$
(2
)
$
3
The activity for Performance Adhesives in the prior year represents subsequent adjustments that were made in conjunction with post-closing disputes and taxes. Asbestos activity in each quarter primarily relates to after-tax net adjustments to the asbestos reserves and receivables.
Other comprehensive income (loss)
Three months ended December 31
(In millions)
2024
2023
Change
Other comprehensive income (loss), net of tax
Unrealized translation gain (loss)
$
(94
)
$
54
$
(148
)
Unrealized gain (loss) on commodity hedges
1
(1
)
2
$
(93
)
$
53
$
(146
)
Total other comprehensive income (loss), net of tax, for the current quarter decreased $146 million compared to the prior year quarter primarily as a result of the following:
• For the three months ended December 31, 2024 and 2023, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in losses of $94 million and gains of $54 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. Dollars.
• For the three months ended December 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 $1 million for the three months ended December 31, 2024 and 2023, respectively.
Use of Non-GAAP Financial Measures
Ashland has included within this document the following non-GAAP financial measures, on both a consolidated and reportable segment basis, which are not defined within U.S. GAAP and do not purport to be alternatives to net income (loss) or cash flows from operating activities as a measure of operating performance or cash flows:
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
EBITDA is defined as net income (loss), plus income tax benefit, net interest and other expense (income), and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for discontinued operations and key items. Adjusted EBITDA margin is Adjusted EBITDA divided by sales.
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 (loss) and operating 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 (loss) and operating loss and which Ashland does not consider to be the fundamental attributes or primary drivers of its business. EBITDA and Adjusted EBITDA provide
34
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.
Adjusted Diluted Earnings Per Share (EPS)
Adjusted Diluted EPS is defined as income (loss) from continuing operations, adjusted for key items, net of tax, divided by the average outstanding diluted shares for the applicable period. The Adjusted Diluted EPS metric enables Ashland to demonstrate what effect key items have on an earnings per diluted share basis by taking income (loss) from continuing operations, adjusted for key items after tax that have been identified in the Adjusted EBITDA table, and dividing by the average outstanding diluted shares for the applicable period. Ashland’s management believes this presentation is helpful to illustrate how the key items have impacted this metric during the applicable period.
Adjusted Diluted Earnings Per Share (EPS) Excluding Intangibles Amortization Expense
The Adjusted Diluted EPS Excluding Intangible Amortization Expense is adjusted earnings per share adjusted for intangibles amortization expense net of tax, divided by the average outstanding diluted shares for the applicable period. The Adjusted Diluted EPS, Excluding Intangibles Amortization Expense metric enables Ashland to demonstrate the impact of non-cash intangibles amortization expense on EPS, in addition to the key items previously mentioned. Ashland’s management believes this presentation is helpful to illustrate how previous acquisitions impact applicable period results.
Free Cash Flow, Ongoing Free Cash Flow and Ongoing Free Cash Flow Conversion
Free Cash Flow is defined as operating cash flows less capital expenditures while Ongoing Free Cash Flow is operating cash flows less capital expenditures and certain other adjustments as applicable. Ongoing Free Cash Flow Conversion is Ongoing Free Cash flow divided by Adjusted EBITDA. These free cash flow metrics enable Ashland to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Unlike cash flow provided by operating activities, Free Cash Flow and Ongoing Free Cash Flow include the impact of capital expenditures from continuing operations and other significant items impacting cash flow, providing a more complete picture of current and future cash generation. Free Cash Flow, Ongoing Free Cash Flow, and Free Cash Flow Conversion are non-GAAP liquidity measures that Ashland believes provide useful information to management and investors about Ashland's ability to convert Adjusted EBITDA to Ongoing Free Cash Flow. These liquidity measures are used regularly by Ashland's stakeholders and industry peers to measure the efficiency at providing cash from regular business activity. Free Cash Flow, Ongoing Free Cash Flow, and Free Cash Flow Conversion have certain limitations, including that they do not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments. The amount of mandatory versus discretionary expenditures can vary significantly between periods.
Other disclosures on non-GAAP financial measures
Although Ashland may provide forward-looking guidance for Adjusted EBITDA, Adjusted diluted EPS and Ongoing Free Cash Flow, Ashland is not reaffirming or providing forward-looking guidance for U.S. GAAP-reported financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items that affect these metrics such as domestic and international economic, political, legislative, regulatory and legal actions. In addition, certain economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations and are difficult to predict with certainty.
These non-GAAP financial measures should be considered supplemental in nature and should not be construed as more significant than comparable measures defined by U.S. GAAP. 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. GAAP. 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. Adjusted EBITDA generally includes adjustments for
35
items that impact comparability between periods. In addition, certain financial covenants related to Ashland’s 2022 Credit Agreement are based on similar non-GAAP financial measures and are defined further in the sections that reference this metric.
EBITDA and Adjusted EBITDA
EBITDA totaled loss of $129 million and income of $34 million for the three months ended December 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. Management believes the use of such non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis.
These operating key items for the applicable periods are summarized as follows:
• Avoca impairment – During the three months ended December 31, 2024, Ashland entered into an agreement to sell substantially all of the net assets of its Avoca business. As a result, Ashland recorded a $183 million impairment charge within the loss on acquisitions and divestitures, net caption of the Statements of Condensed Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2024. See Note B of the Notes to Condensed Consolidated Financial Statements for more information;
• 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 D in the Notes to Condensed Consolidated Financial Statements for further information on the restructuring activities;
• Other plant optimization costs – During the three months ended December 31, 2024, Ashland incurred inventory adjustments and production costs associated with product line optimization actions;
• 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 L of the Notes to Condensed 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. See Note D of the Notes to Condensed Consolidated Financial Statements for more information; and
• 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 Condensed Consolidated Comprehensive Income (Loss) for the three months ended December 31, 2023.
Non-operating key items affecting EBITDA
During the current and prior years, there were certain key items that were not included in operating income (loss) but were excluded to arrive at Adjusted EBITDA. These non-operating key items for the applicable periods are summarized as follows:
• Loss on pension plan remeasurements – During the three months ended December 31, 2024, Ashland recognized a curtailment loss for pension plan remeasurement for defined benefit pension plan. See Note K of the Notes to the Condensed Consolidated Financial Statements for more information.
36
Three months ended
December 31
(In millions)
2024
2023
Net income (loss)
$
(165
)
$
26
Income tax benefit
(43
)
(24
)
Net interest and other expense (income)
28
(24
)
Depreciation and amortization (a)
51
56
EBITDA
(129
)
34
Loss (income) from discontinued operations, net of income taxes
(1
)
2
Key items included in EBITDA:
Avoca business impairment
183
—
Restructuring, separation and other costs
3
4
Other plant optimization costs
3
—
Environmental reserve adjustments
1
4
Loss on pension plan remeasurements
1
—
Accelerated depreciation
—
21
Argentina currency devaluation impact
—
5
Total key items included in EBITDA
191
34
Adjusted EBITDA
$
61
$
70
Total key items included in EBITDA
$
191
$
34
Unrealized losses (gains) on securities
17
(31
)
Total key items, before tax
$
208
$
3
(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.
Diluted EPS and Adjusted Diluted EPS
The following table reflects the U.S. GAAP calculation for the income (loss) from continuing operations adjusted for the cumulative diluted EPS effect for key items after tax that have been identified in the Adjusted EBITDA table in the previous section. Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income (loss) and/or operating income (loss) which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. The Adjusted Diluted EPS for the income (loss) from continuing operations in the following table has been prepared to illustrate the ongoing effects of Ashland’s operations. Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP financial measure on a consolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhances their ability to compare period-to-period financial results.
In addition to the operating key items previously described, additional non-operating key items for the applicable periods are summarized as follows:
• Unrealized losses (gains) on securities – represents losses (gains) recognized on restricted investments related to the Asbestos trust and Environmental trust for each period. 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 months ended December 31, 2024 and 2023; and
• Other and tax reform related activity – primarily represents tax specific key items associated with final tax regulations and tax reform related activity for the three months ended December 31, 2024 and 2023.
37
Three months ended
December 31
2024
2023
Diluted EPS from continuing operations (as reported)
$
(3.51
)
$
0.54
Key items, before tax:
Avoca business impairment
3.89
—
Unrealized losses (gains) on securities
0.35
(0.60
)
Restructuring, separation and other costs
0.06
0.08
Other plant optimization costs
0.06
—
Environmental reserve adjustments
0.02
0.08
Loss on pension plan remeasurements
0.02
—
Accelerated depreciation
—
0.41
Argentina currency devaluation impact
—
0.10
Key items, before tax
4.40
0.07
Tax effect of key items (a)
(1.07
)
(0.02
)
Key items, after tax
3.33
0.05
Tax specific key items:
Restructuring and separation activity
0.02
—
Other and tax reform related activity
0.15
(0.47
)
Tax specific key items (b)
0.17
(0.47
)
Total key items
3.50
(0.42
)
Adjusted Diluted EPS from Continuing Operations (non-GAAP)
$
(0.01
)
$
0.12
Amortization expense adjustment (net of tax) (c)
$
0.29
$
0.33
Adjusted Diluted EPS from Continuing Operations (non-GAAP) Excluding Intangibles Amortization Expense
$
0.28
$
0.45
(a) Represents the diluted EPS impact from the tax effect of the key items that are identified above.
(b) Represents the diluted EPS impact from tax specific financial transactions, tax law changes or other matters that fall within the definition of tax specific key items. For additional explanation of these tax specific key items, see the income tax benefit discussion within the Statements of Condensed Consolidated Comprehensive Income (Loss) caption review section above.
(c) Amortization expense adjustment (net of tax) tax rates were 21% and 20% for the three months ended December 31, 2024 and 2023, respectively.
RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW
Ashland’s reportable segments include Life Sciences, Personal Care, Specialty Additives, and Intermediates. Unallocated and Other includes corporate governance activities and certain legacy matters.
Results of Ashland’s reportable segments are presented based on its management and internal accounting structure. The structure is specific to Ashland; therefore, the financial results of Ashland’s reportable segments are not necessarily comparable with similar information for other companies. Ashland allocates all significant costs to its reportable segments except for certain significant company-wide restructuring activities, certain corporate governance costs and other costs or activities that relate to former businesses that Ashland no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded within the other net periodic benefit loss caption on the Statements of Condensed Consolidated Comprehensive Income (Loss). Ashland refines its expense allocation methodologies to the reportable segments from time to time as internal accounting practices are improved, more refined information becomes available and the industry or market changes. Significant revisions to Ashland’s methodologies are adjusted for all segments on a retrospective basis.
38
The following table discloses sales, operating income (loss), depreciation and amortization and EBITDA by reportable segment:
Three months ended
December 31
(In millions - unaudited)
2024
2023
Change
SALES
Life Sciences
$
134
$
200
$
(66
)
Personal Care
134
129
5
Specialty Additives
115
122
(7
)
Intermediates
33
33
—
Intersegment sales (a)
(11
)
(11
)
—
$
405
$
473
$
(68
)
OPERATING INCOME (LOSS)
Life Sciences
$
14
$
32
$
(18
)
Personal Care
11
2
9
Specialty Additives
(5
)
(32
)
27
Intermediates
3
7
(4
)
Unallocated and other (b)
(202
)
(27
)
(175
)
$
(179
)
$
(18
)
$
(161
)
DEPRECIATION EXPENSE
Life Sciences
$
9
$
9
$
—
Personal Care
8
9
(1
)
Specialty Additives (c)
14
35
(21
)
Intermediates
3
3
—
$
34
$
56
$
(22
)
AMORTIZATION EXPENSE
Life Sciences
$
5
$
7
$
(2
)
Personal Care
10
11
(1
)
Specialty Additives
2
3
(1
)
Intermediates
—
—
—
$
17
$
21
$
(4
)
EBITDA (d)
Life Sciences
$
28
$
48
$
(20
)
Personal Care
29
22
7
Specialty Additives
11
6
5
Intermediates
6
10
(4
)
Unallocated and other
(202
)
(27
)
(175
)
$
(128
)
$
59
$
(187
)
(a) Intersegment sales from Intermediates are accounted for at prices that approximate fair value. All other intersegment sales are accounted for at cost.
(b) Includes a $183 million impairment charge related to the Avoca business within the loss on acquisitions and divestitures, net for the three months ended December 31, 2024.
(c) Depreciation includes accelerated depreciation of $21 million for Specialty Additives for the three months ended December 31, 2023.
(d) Excludes income (loss) from discontinued operations and other net periodic benefit loss. See the Statements of Condensed Consolidated Comprehensive Income (Loss) for applicable amounts excluded.
39
Life Sciences
Life Sciences is comprised of pharmaceuticals, nutrition, agricultural chemicals, diagnostic films (formerly known as advanced materials) and fine chemicals. Pharmaceutical solutions include controlled release polymers, disintegrants, tablet coating, thickeners, solubilizers, and tablet binders. Nutrition solutions include thickeners, stabilizers, emulsifiers and additives for enhancing mouthfeel, controlling moisture migration, reducing oil uptake and binding structured foods. Customers include pharmaceutical, food, beverage, hospitals and radiologists and industrial manufacturers. The Nutraceuticals business was sold in August 2024.
The following table provides a reconciliation of the change in sales for the Life Sciences reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Sales change
Divestiture
$
(39
)
Volume
(22
)
Price/mix
(4
)
Foreign Currency
(1
)
$
(66
)
The following table provides a reconciliation of the change in operating income for the Life Sciences reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Operating income change
Volume
$
(9
)
Divestiture
(8
)
Price/mix
(3
)
Cost
2
$
(18
)
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation 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. Life Sciences had no key items for the three months ended December 31, 2024 or 2023.
Life Sciences
Three months ended December 31
(In millions)
2024
2023
Change
Operating income
$
14
$
32
$
(18
)
Depreciation and amortization
14
16
(2
)
EBITDA
$
28
$
48
(20
)
Operating income as a percent of sales
10.4
%
16.0
%
-560 bps
EBITDA as a percent of sales
20.9
%
24.0
%
-310 bps
40
Three months ended December 31, 2024 compared to three months ended December 31, 2023
Life Sciences' sales, operating income and EBITDA decreased in the current quarter due to lower volume, including the effects of portfolio optimization activities, the divestiture of the Nutraceuticals business, unfavorable pricing and unfavorable foreign currency exchange partially offset by lower costs.
Personal Care
Personal Care is comprised of biofunctionals, microbial protectants (preservatives), skin care, sun care, oral care, hair care and household solutions. These businesses have a broad range of natural, nature-derived, biodegradable, and high-performance ingredients for customer driven solutions to help protect, renew, moisturize and revitalize skin and hair, and provide solutions for toothpastes, mouth washes and rinses, denture cleaning and care for teeth. Personal Care supplies nature-derived rheology ingredients, biodegradable surface wetting agents, performance encapsulates, and specialty polymers for household, industrial and institutional cleaning products. Customers include formulators at large multinational branded consumer products companies and smaller, independent boutique companies. In December 2024, Ashland signed a definitive agreement to sell substantially all of the net assets of its Avoca business to Mane SA. The transaction is expected to close during Ashland's fiscal second quarter, contingent on certain customary regulatory approvals and standard closing conditions. See Note B of the Notes to the Condensed Consolidated Financial Statements for more information.
The following table provides a reconciliation of the change in sales for the Personal Care reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Sales change
Volume
$
5
$
5
The following table provides a reconciliation of the change in operating income for the Personal Care reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Operating income change
Cost
$
4
Volume
2
Divestiture (site closure)
2
Price/mix
1
$
9
41
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA and Adjusted EBITDA presentation 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 Personal Care. The key items for Personal Care for the three months ended December 31, 2024 related to $1 million of plant optimization costs. Personal Care had no key items for the three months ended December 31, 2023.
Personal Care
Three months ended December 31
(In millions)
2024
2023
Change
Operating income
$
11
$
2
$
9
Depreciation and amortization
18
20
(2
)
EBITDA
$
29
$
22
7
Other plant optimization costs
1
—
1
Adjusted EBITDA
$
30
$
22
$
8
Operating income as a percent of sales
8.2
%
1.6
%
660 bps
Adjusted EBITDA as a percent of sales
22.4
%
17.1
%
530 bps
Three months ended December 31, 2024 compared to three months ended December 31, 2023
Personal Care's sales increased in the current quarter primarily due to higher volume while operating income and EBITDA increased in the current quarter primarily due to higher volume and lower costs.
Specialty Additives
Specialty Additives is comprised of rheology- and performance-enhancing additives serving the architectural coatings, construction, energy, automotive and various industrial markets. Solutions include coatings additives for architectural paints, finishes and lacquers, cement- and gypsum- based dry mortars, ready-mixed joint compounds, synthetic plasters for commercial and residential construction, and specialty materials for industrial applications. Products include rheology modifiers (cellulosic and associative thickeners), foam control agents, surfactants and wetting agents, pH neutralizers, advanced ceramics used in catalytic converters, and environmental filters, ingredients that aid the manufacturing process of ceramic capacitors, plasma display panels and solar cells, ingredients for textile printing, thermoplastic metals and alloys for welding. Products help improve desired functional outcomes through rheology modification and control, water retention, workability, adhesive strength, binding power, film formation, deposition and suspension and emulsification. Customers include global paint manufacturers, electronics and automotive manufacturers, textile mills, the construction industry, and welders.
The following table provides a reconciliation of the change in sales for the Specialty Additives reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Sales change
Volume
$
(5
)
Price/mix
(2
)
$
(7
)
The following table provides a reconciliation of the change in operating loss for the Specialty Additives reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Operating loss change
Costs
$
28
Price/mix
(1
)
$
27
42
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA and Adjusted EBITDA presentation 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 Specialty Additives. The key items during the three months ended December 31, 2024 and 2023 related to $2 million in plant optimization costs and $21 million accelerated depreciation, respectively.
Specialty Additives
Three months ended December 31
(In millions)
2024
2023
Change
Operating income (loss)
$
(5
)
$
(32
)
$
27
Depreciation and amortization (a)
16
17
(1
)
EBITDA
11
(15
)
26
Accelerated depreciation
—
21
(21
)
Other plant optimization costs
2
—
2
Adjusted EBITDA
$
13
$
6
$
7
Operating income as a percent of sales
-4.3
%
-26.2
%
2190 bps
Adjusted EBITDA as a percent of sales
11.3
%
4.9
%
640 bps
(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.
Three months ended December 31, 2024 compared to three months ended December 31, 2023
Specialty Additives sales for the quarter decreased primarily as a result of lower volume and unfavorable pricing while operating income and Adjusted EBITDA increased primarily due to lower costs as a result of higher production volumes when compared to the inventory corrective actions in the prior year which included accelerated depreciation.
Intermediates
Intermediates is comprised of the production of 1,4 butanediol (BDO) and related derivatives, including nmethylpyrrolidone. These products are used as chemical intermediates in the production of engineering polymers and polyurethanes, and as specialty process solvents in a wide array of applications including electronics, pharmaceuticals, water filtration membranes and more. BDO is also supplied to Life Sciences, Personal Care, and Specialty Additives for use as a raw material.
The following table provides a reconciliation of the change in sales for the Intermediates reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Sales change
Price/mix
$
(5
)
Volume
5
$
—
The following table provides a reconciliation of the change in operating income for the Intermediates reportable segment between the three months ended December 31, 2024 and 2023.
(In millions)
Operating income change
Price/mix
$
(10
)
Cost
4
Volume
2
$
(4
)
43
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation 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, 2024 or 2023.
Intermediates
Three months ended December 31
(In millions)
2024
2023
Change
Operating income
$
3
$
7
$
(4
)
Depreciation and amortization
3
3
—
EBITDA
$
6
$
10
$
(4
)
Operating income as a percent of sales
9.1
%
21.2
%
-1210 bps
EBITDA as a percent of sales
18.2
%
30.3
%
-1210 bps
Three months ended December 31, 2024 compared to three months ended December 31, 2023
Intermediates' sales for the quarter remained consistent while operating income and EBITDA decreased primarily due to unfavorable price/mix partially offset by lower costs and higher volume.
Unallocated and other
The following table summarizes the key components of the Unallocated and other’s operating loss between the three months ended December 31, 2024 and 2023.
Unallocated and other
Three months ended December 31
(In millions)
2024
2023
Change
Restructuring activities
$
(3
)
$
(4
)
$
1
Environmental expenses
(1
)
(4
)
3
Loss on acquisitions and divestitures, net
(183
)
(2
)
(181
)
Argentina currency devaluation impact
—
(5
)
5
Other expenses (primarily governance and legacy expenses)
(15
)
(12
)
(3
)
Total expense
$
(202
)
$
(27
)
$
(175
)
Three months ended December 31, 2024 compared to three months ended December 31, 2023
Unallocated and other recorded expense of $202 million and $27 million for the three months ended December 31, 2024 and 2023, respectively. The current and prior year quarter included expense of $3 million and $4 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 $1 million and $4 million for environmental expenses, respectively.
The remaining items included losses of $183 million, related to the Avoca business impairment, and $2 million from acquisitions and divestitures during the current and prior year quarter, respective, and expense of $5 million related to the devaluation of the currency in Argentina during the prior quarter.
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.
44
FINANCIAL POSITION
Liquidity
Ashland believes that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for Ashland’s foreseeable working capital needs, capital expenditures at existing facilities, dividend payments and debt service obligations. Ashland’s cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements.
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 Taulia Alliance 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 JP Morgan and Taulia Alliance under this program. As of December 31, 2024, the program has not yet been offered to suppliers for utilization.
Cash flows
Ashland’s cash flows from operating, investing and financing activities, as reflected in the Statements of Condensed Consolidated Cash Flows, are summarized as follows:
Three months ended
December 31
(In millions)
2024
2023
Cash provided (used) by:
Operating activities from continuing operations
$
(30
)
$
201
Investing activities from continuing operations
(18
)
(26
)
Financing activities from continuing operations
(22
)
(139
)
Discontinued operations
(10
)
(14
)
Effect of currency exchange rate changes on cash and cash equivalents
(1
)
1
Net increase (decrease) in cash and cash equivalents
$
(81
)
$
23
Cash and cash equivalents decreased $81 million for the three months ended December 31, 2024 compared to an increase of $23 million for the three months ended December 31, 2023.
The $81 million decrease for the three months ended December 31, 2024 was primarily driven by payment of cash dividends and additions to property, plant and equipment of $19 million and $23 million, respectively. Operating cash flows from continuing operations were outflows of $30 million, while discontinued operations cash flows were outflows of $10 million.
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. Operating cash flows from continuing operations were inflows of $201 million, while discontinued operations cash flows were outflows of $14 million.
The change in cash flows from operating activities from continuing operations was primarily driven by U.S. and Foreign Accounts Receivable Sales Program activity, $130 million negative impact between periods, as well as unfavorable working capital, approximately $113 million negative impact between periods, primarily related to changes in inventory and incentive compensation payouts between periods.
See the Statements of Condensed Consolidated Cash Flows for additional details.
Free Cash Flow and other liquidity resources
The following represents Ashland’s calculation of Free Cash Flow and Ongoing Free Cash Flow for the disclosed periods. Free Cash Flow does not reflect adjustments for certain non-discretionary cash flows such as mandatory debt repayments.
45
Three months ended
December 31
(In millions)
2024
2023
Total cash flows provided (used) by operating activities from continuing operations
$
(30
)
$
201
less:
Additions to property, plant and equipment
(23
)
(36
)
Free Cash Flow
(53
)
165
Cash (inflows) outflows from U.S. Accounts Receivable Sales Program (a)
7
(8
)
Cash (inflows) outflows from Foreign Accounts Receivable Sales Program (b)
13
(102
)
Restructuring-related payments (c)
3
3
Environmental and related litigation payments (d)
4
8
Ongoing Free Cash Flow
$
(26
)
$
66
Net income (loss)
$
(165
)
$
26
Adjusted EBITDA (e)
$
61
$
70
Operating Cash Flow Conversion (f)
18
%
773
%
Ongoing Free Cash Flow Conversion (g)
-43
%
94
%
(a) Represents activity associated with the U.S. Accounts Receivable Sales Program impacting each period presented.
(b) Represents activity associated with the Foreign Accounts Receivable Sales Program impacting each period presented.
(c) Restructuring payments incurred during each period.
(d) Represents cash outflows associated with environmental and related litigation payments which will be reimbursed by the environmental trust.
(e) See Adjusted EBITDA reconciliation.
(f) Operating Cash Flow Conversion is defined as Cash flows provided by operating activities from continuing operations divided by Net income (loss).
(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 $644 million and $705 million as of December 31, 2024 and September 30, 2024, respectively. The $61 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 receivable under the Foreign Accounts Receivable Sales Programs, partially offset by an increase in refundable income taxes and current assets held for sale. See Note H of the Notes to the Condensed Consolidated Financial Statements for additional information on the Foreign Accounts Receivable Sales Programs. Liquid assets (cash, cash equivalents and accounts receivable) amounted to 90% and 111% of current liabilities as as of December 31, 2024 and September 30, 2024, respectively. The decrease in Ongoing Free Cash Flows was driven by lower Adjusted EBITDA, higher variable compensation payouts and increased inventory reductions in the prior year due to inventory control measures during that period.
46
The following summary reflects Ashland’s cash, unused borrowing capacity and liquidity as of:
December 31
September 30
(In millions)
2024
2024
Cash and investment securities
Cash and cash equivalents
$
219
$
300
Restricted investments (a)
350
368
Unused borrowing capacity and liquidity
Revolving credit facility
596
596
U.S. Accounts Receivable Sales Program
—
—
Foreign Accounts Receivable Sales Program
—
—
(a) Includes $233 million and $248 million related to the Asbestos trust and $117 million and $120 million related to the Environmental trust as of December 31, 2024 and September 30, 2024, 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, 2024. In total, Ashland’s available liquidity position, which includes cash and the revolving credit facility, was $815 million at December 31, 2024, compared to $896 million at September 30, 2024. Ashland had zero available liquidity under the U.S. and Foreign Accounts Receivable Sales Programs, respectively, as of December 31, 2024. Ashland also maintained $350 million of restricted investments to pay for future asbestos claims and environmental remediation and related litigation.
Capital resources
Debt
The following summary reflects Ashland’s debt as of:
December 31
September 30
(In millions)
2024
2024
Short-term debt
$
—
$
—
Long-term debt (less debt issuance cost discounts) (a)
1,313
1,349
Total debt
$
1,313
$
1,349
(a) Includes $11 million and $12 million of debt issuance cost discounts as of December 31, 2024 and September 30, 2024 , respectively.
Debt as a percent of capital employed was 34% and 32% at December 31, 2024 and September 30, 2024, respectively. At December 31, 2024, Ashland’s total debt had an outstanding principal balance of $1,352 million, discounts of $28 million, and debt issuance costs of $11 million. Ashland has no long-term debt (excluding debt issuance costs) maturing within 2025 and 2026, $4 million due in fiscal 2027, $520 million due in 2028, $97 million in 2029, and zero in 2030.
Ashland credit ratings
Ashland’s corporate credit ratings remained unchanged at BB+ by Standard & Poor’s and Ba1 by Moody’s Investor Services. As of December 31, 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.
Ashland debt covenant restrictions
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, 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
47
general, the 2022 Credit Agreement defines Covenant Adjusted EBITDA as net income (loss) 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 (loss). The computation of Covenant Adjusted EBITDA differs from the calculation of EBITDA and adjusted EBITDA, which have been reconciled above in the “consolidated review” section. In general, consolidated indebtedness includes debt plus all purchase money indebtedness, banker’s acceptances and bank guaranties, deferred purchase price of property or services, attributable indebtedness and guarantees. At December 31, 2024, Ashland’s calculation of the consolidated net leverage ratio was 2.5.
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, 2024, Ashland’s calculation of the consolidated interest coverage ratio was 7.6.
Any change in Covenant Adjusted EBITDA of $100 million would have an approximate 0.5x effect on the consolidated net leverage ratio and a 1.7x effect on the consolidated interest coverage ratio. The change in consolidated indebtedness of $100 million would affect the consolidated leverage ratio by approximately 0.2x.
Additional capital resources
Total equity
Total equity decreased by $276 million since September 30, 2024 to $2,592 million at December 31, 2024. The decrease of $276 million was due to net loss of $165 million, $94 million of deferred translation losses, and dividends of $19 million partially offset by common stock issued of $1 million and $1 million for unrealized gains on commodity hedges.
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, 2024, $620 million remained available for repurchase under the 2023 Stock Repurchase Program.
Stock repurchase program agreements
There was no common stock repurchase activity during the three months ended December 31, 2024. The following table provides the common stock repurchase activity for the three months ended December 31, 2023:
(In millions, except per share data)
Number of shares repurchased
1.20
Weighted-average price per share (a)
$
80.78
Aggregate purchase price (a)
$
100
Program
2023 Stock Repurchase Program
(a) Includes transactions costs.
Stockholder dividends
Ashland paid dividends of 40.5 cents per share for the first quarter of fiscal 2024 and 38.5 cents per share in the first quarter of fiscal 2024.
Capital expenditures
Capital expenditures were $23 million for the three months ended December 31, 2024, compared to $36 million for the three months ended December 31, 2023.
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CRITICAL ACCOUNTING POLICIES
The preparation of Ashland’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill and other intangible assets), income taxes, other liabilities and receivables associated with asbestos litigation and environmental remediation. These accounting policies are discussed in detail in “Management’s Discussion and Analysis – Critical Accounting Policies” in Ashland’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions. 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, 2024.
OUTLOOK
Ashland continues to proactively drive performance by leveraging growth catalysts, such as expanding high-performing business lines into new markets and commercializing new technology platforms, while simultaneously accelerating cost savings and optimizing its portfolio through the planned sale of Avoca. This diversified strategy aims to drive growth and improve business mix while improving cost structure to ultimately support the company's full-year outlook.
As expected, the first quarter was seasonally slow. Aside from weaker demand in Europe and the effects of extended plant shutdowns, Ashland’s performance is generally aligned with planning assumptions. The company is monitoring a potential European recovery and trade policy shifts, but has not observed any market dynamics that would necessitate a revision of its outlook. Despite uncertainty surrounding potential trade policy changes, Ashland is well-prepared following the completion of its annual maintenance turnarounds.
Overall, Ashland continues to expect full fiscal year sales in the range of $1.90 billion to $2.05 billion and Adjusted EBITDA in the range of $430 million to $470 million.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Ashland’s market risk exposure at December 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, 2024.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.