Ashland(ASH) - 2019 Q4 - Annual Report

PART I Item 1. Business Ashland is a global specialty chemical solutions leader with two reportable segments after divesting its Composites business General - Ashland Global Holdings Inc. was incorporated in 2016 in Delaware, succeeding Ashland Inc. to facilitate the separation of the Valvoline business[3] - The company is a global leader in specialty chemical solutions, serving over 100 countries with approximately 4,700 employees[3] - Following the sale of its Composites segment and Marl facility on August 30, 2019, Ashland's operations are managed under two reportable segments: Specialty Ingredients and Intermediates and Solvents[3] Specialty Ingredients - Specialty Ingredients is a global leader in cellulose ethers, vinyl pyrrolidones, and biofunctionals for diverse consumer and industrial markets[3][5] - The segment's expertise spans multiple chemistry disciplines to provide properties like thickening, water retention, and film formation[5] Specialty Ingredients Products as % of Total Consolidated Sales (Fiscal 2019) | Product | % of Specialty Ingredients sales | % of Ashland total consolidated sales | | :--- | :--- | :--- | | Cellulosics | 35% | 34% | | Polyvinylpyrrolidones (PVP) | 17% | 17% | Intermediates and Solvents - Intermediates and Solvents is a leading producer of 1,4 butanediol (BDO) and its derivatives for various industrial applications[3][11] - Butanediol is also supplied internally to Ashland's Specialty Ingredients business as a key raw material[3][11] - The segment operates a primary manufacturing facility in Lima, Ohio, following the sale of its Marl, Germany facility in August 2019[11] Miscellaneous - Ashland maintains a company-wide environmental policy and an EHSQ&RA department to ensure compliance with global environmental laws[12][14] - Ashland operates in a highly fragmented specialty chemicals industry, competing on product performance, quality, price, and service[17] - The company's broad intellectual property portfolio is crucial for protecting and differentiating its products and technologies[19] - Research and development focuses on new chemistries and customer-driven solutions, while facing volatile raw material costs[20][21][22] Environmental Remediation Reserves and Expense | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Environmental remediation reserves | $186 | $187 | N/A | | Upper end of reasonably possible range | ~$440 | N/A | N/A | | Environmental remediation expense, net of insurance receivables | $34 | $65 | $24 | Item 1A. Risk Factors The company faces significant risks in operations, global markets, regulations, and financial obligations - Ashland's aggressive growth goals face risks from global economic changes, competition, and failures in talent retention or product innovation[26] - The company's success depends on attracting and retaining key employees, particularly with a large portion of U.S-based employees nearing retirement[26] - Failure to develop and market new products in the fast-changing specialty chemical industry could impact Ashland's competitive position[27] - Ashland operates in highly competitive markets, facing price and margin pressure from larger competitors with greater financial resources[29][30] - The company is exposed to potential product liability claims and recalls, which could result in substantial expenditures and reputational damage[30] - Rising and volatile raw material and energy costs may negatively impact Ashland's costs and profitability[32] - Ashland's substantial global operations expose it to risks from differing legal requirements, exchange rate fluctuations, and trade disputes[32] - New or changing laws and regulations could increase compliance costs and restrict business operations[34] - The IPO and final distribution of Valvoline shares could result in significant tax liability for Ashland if the transactions are deemed not to qualify for non-recognition of gain[36] - Business disruptions from natural disasters, IT system failures, or cyber-security threats could seriously harm Ashland's operations[36][38] - Ashland relies on intellectual property but faces risks of infringement claims or unauthorized disclosure of proprietary information[39] - The company incurs substantial costs for environmental liabilities, with potential future remediation costs estimated as high as $440 million[41] - Ashland's substantial indebtedness could adversely affect its financial condition by requiring a significant portion of cash flow for debt service[41] - Ashland is exposed to liabilities from asbestos-related claims, primarily from indemnification obligations and the acquisition of Hercules LLC[43] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments were reported[44] Item 2. Properties The company maintains global offices and properties suitable for its operations, with a headquarters move to Delaware - Ashland's corporate headquarters will relocate from Covington, Kentucky, to Wilmington, Delaware, by December 2019[45] - All of Ashland's physical properties are either owned or leased, and the company believes they are suitable for its business operations[45] Item 3. Legal Proceedings Ashland is involved in material legal proceedings related to historical asbestos and environmental liabilities - Ashland is subject to asbestos-related litigation primarily due to indemnification obligations from the sale of Riley Stoker Corporation and claims against its subsidiary Hercules LLC[46] - Under CERCLA and similar laws, Ashland has been identified as a 'potentially responsible party' (PRP) at 80 waste treatment or disposal sites[47] - Specific environmental proceedings include RCRA matters in Hattiesburg, Mississippi, and Freetown, MA, and involvement as a PRP in the Lower Passaic River, New Jersey[49] - For all pending legal proceedings, Ashland believes adequate reserves have been recorded as of September 30, 2019[50] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to Ashland Global Holdings Inc[52] Item X. Information about our Executive Officers This section details the executive team and highlights the upcoming CEO transition - Guillermo Novo will succeed William A. Wulfsohn as Chairman and Chief Executive Officer effective December 31, 2019[53] - Key executive officers include J. Kevin Willis (CFO), Peter J. Ganz (General Counsel), Anne T. Schumann (CHRO), Vito J. Consiglio (CCO), Osama M. Musa (CTO), and Keith C. Silverman (SVP, Global Operations)[53][55] - J. William Heitman, Vice President and Controller, is retiring on December 31, 2019[55] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, and this section details shareholder returns and share repurchase activities - Ashland Global Holdings Inc.'s common stock (ASH) began trading on the NYSE on September 20, 2016, with approximately 10,500 holders of record at October 31, 2019[57] - The five-year cumulative total shareholder return graph compares Ashland's performance against the S&P MidCap 400† index and a peer group[58][61] - During the three months ended September 30, 2019, Ashland repurchased 400,508 shares at an average price of $75.84 per share[62] - In May 2019, Ashland initiated a $200 million accelerated share repurchase (ASR) program, resulting in the repurchase of 2.6 million shares[62] Five-Year Cumulative Total Return Comparison (Indexed to 100 in 2014) | | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Ashland | 100 | 98 | 114 | 127 | 165 | 153 | | S&P MidCap 400 † | 100 | 101 | 117 | 137 | 157 | 153 | | Peer Group - Materials | 100 | 83 | 103 | 125 | 130 | 131 | Item 6. Selected Financial Data Selected five-year financial data is provided on page F-69 of the report - Five-Year Selected Financial Information is available on page F-69[63] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation This section provides a comprehensive analysis of financial condition, results of operations, and liquidity BUSINESS OVERVIEW - Ashland is a global leader in specialty chemical solutions, serving diverse consumer and industrial markets[109] - The company has approximately 4,700 employees worldwide and serves customers in over 100 countries, with 60% of sales generated outside North America[109] - Ashland's reporting structure consists of two reportable segments: Specialty Ingredients and Intermediates and Solvents[111] Sales by Geography (Percentage of Total Consolidated Sales) | Sales by Geography | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | North America (a) | 40% | 40% | 40% | | Europe | 33% | 32% | 30% | | Asia Pacific | 19% | 19% | 20% | | Latin America & other | 8% | 9% | 10% | | Total | 100% | 100% | 100% | Sales by Reportable Segment (Percentage of Total Consolidated Sales) | Sales by Reportable Segment | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Specialty Ingredients | 96% | 95% | 96% | | Intermediates and Solvents | 4% | 5% | 4% | | Total | 100% | 100% | 100% | KEY DEVELOPMENTS - The increase in Net Income for 2019 was primarily driven by a $372 million after-tax gain on the sale of the Composites segment and Marl facility[113][116] - Adjusted EBITDA increased by $17 million in 2019, mainly due to lower selling, general and administrative costs[113] - On August 30, 2019, Ashland completed the sale of its Composites business and Marl facility to INEOS Enterprises for $1.015 billion[116] - Ashland announced a company-wide restructuring program in May 2018 to achieve $120 million in annualized run-rate savings, with $115 million captured by September 2019[117] - The Tax Cuts and Jobs Act of 2017 led to net unfavorable tax adjustments of $29 million in 2019[119] - In May 2019, Ashland initiated a $200 million accelerated share repurchase (ASR) program, repurchasing 2.6 million shares[120] - Ashland's Board of Directors increased the quarterly cash dividend to 27.5 cents per share in May 2019[121] - Debt was reduced by approximately $0.9 billion in fiscal 2019, leading to corporate credit rating upgrades from Standard & Poor's (BB to BB+) and Moody's (Ba2 to Ba1)[122] Ashland's Net Income and Adjusted EBITDA (2019 vs. 2018) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | Net Income | $505 | $114 | +$391 | | Adjusted EBITDA | $532 | $515 | +$17 | RESULTS OF OPERATIONS – CONSOLIDATED REVIEW - Ashland uses non-GAAP measures like EBITDA and Adjusted EBITDA to provide a clearer understanding of ongoing operating performance[123][126] - Discontinued operations significantly impacted net income, contributing $481 million in 2019, including a $372 million gain on the Composites/Marl sale[129] - Operating income included key items such as restructuring costs ($51M in 2019), accelerated depreciation ($39M in 2019), and environmental reserve adjustments ($15M in 2019)[132] - Sales decreased by $96 million (4%) in 2019 due to unfavorable volume/product mix and foreign currency exchange[144] - Sales increased by $280 million (12%) in 2018, driven by the Pharmachem acquisition and improved volume[144] - Cost of sales was flat in 2019 compared to 2018, with increases from accelerated depreciation and higher production costs offset by volume declines[146] - Selling, general and administrative (SG&A) expense decreased by $153 million in 2019, primarily due to lower net environmental-related expenses and reduced restructuring costs[149] - Research and development expense decreased by $7 million in 2019 due to company-wide cost reduction programs[151] - Net interest and other financing expense decreased by $3 million in 2019, primarily due to lower debt levels[153] - The 2019 effective tax rate was 66%, impacted by jurisdictional income mix, restructuring activities, and U.S. tax reform[157] - The $372 million gain on disposal in 2019 is from the sale of the Composites business and Marl facility[164] - The decrease in other comprehensive income (loss) in 2019 was primarily due to a $5 million pension and postretirement obligation adjustment[167] Consolidated Net Income and EPS Attributable to Ashland | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Net income attributable to Ashland | $505 | $114 | $1 | | Diluted earnings per share | $8.03 | $1.79 | $0.01 | Consolidated Operating Income | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Operating income | $166 | $102 | $49 | Consolidated EBITDA and Adjusted EBITDA | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | EBITDA | $900 | $471 | $487 | | Adjusted EBITDA | $532 | $515 | $430 | Consolidated Sales and Changes | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | 2019 Change (Millions USD) | 2018 Change (Millions USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | $2,493 | $2,589 | $2,309 | $(96) | $280 | Consolidated Cost of Sales and Gross Profit Margin | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Cost of sales | $1,726 | $1,726 | $1,580 | | Gross profit as a percent of sales | 30.8% | 33.3% | 31.6% | Consolidated Selling, General and Administrative Expense | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Selling, general and administrative expense | $539 | $692 | $610 | | As a percent of sales | 21.6% | 26.7% | 26.4% | Consolidated Research and Development Expense | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Research and development expense | $66 | $73 | $73 | Consolidated Net Interest and Other Expense (Income) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Net interest and other expense (income) | $99 | $102 | $229 | Consolidated Income Tax Expense (Benefit) and Effective Tax Rate | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Income tax expense (benefit) | $46 | $(8) | $(16) | | Effective tax rate | 66% | (73)% | 8% | Consolidated Income (Loss) from Discontinued Operations (Net of Taxes) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Composites and Marl Facility | $94 | $86 | $75 | | Asbestos-related litigation | $0 | $13 | $(25) | | Water Technologies | $1 | $3 | $2 | | Distribution | $14 | $(6) | $(3) | | Valvoline | $0 | $(1) | $159 | | Gain on disposal of discontinued operations (Composites/Marl facility) | $372 | $0 | $0 | | Total Income from discontinued operations (net of taxes) | $481 | $95 | $208 | Consolidated Other Comprehensive Income (Loss) (Net of Taxes) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | :--- | | Unrealized translation gain (loss) | $(80) | $(82) | $81 | | Pension and postretirement obligation adjustment | $(5) | $0 | $(4) | | Net change in investment securities | $0 | $13 | $15 | | Total other comprehensive income (loss), net of tax | $(85) | $(69) | $92 | RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW - Ashland's operations are managed within two reportable segments: Specialty Ingredients and Intermediates and Solvents[169] - Specialty Ingredients sales decreased by $88 million (4%) in 2019, driven by lower volume/mix and unfavorable foreign currency[173] - Specialty Ingredients gross profit decreased by $95 million in 2019, with gross profit margin falling 2.7 percentage points to 31.1%[175] - Specialty Ingredients operating income decreased to $272 million in 2019, but Adjusted EBITDA margin increased 0.2 percentage points to 23.4%[175] - Intermediates and Solvents sales decreased by $8 million (7%) to $111 million in 2019, primarily due to lower volume and mix[182] - Intermediates and Solvents gross profit decreased by $2 million in 2019, but gross profit margin increased 0.1 percentage points to 23.1%[182][184] - Unallocated and other expenses decreased to $122 million in 2019 from $229 million in 2018, primarily due to lower restructuring and environmental expenses[189] Reportable Segment Sales (Millions USD) | Segment | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Specialty Ingredients | $2,382 | $2,470 | $2,216 | | Intermediates and Solvents | $111 | $119 | $93 | | Total | $2,493 | $2,589 | $2,309 | Reportable Segment Operating Income (Loss) (Millions USD) | Segment | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Specialty Ingredients | $272 | $314 | $233 | | Intermediates and Solvents | $16 | $17 | $(6) | | Unallocated and Other | $(122) | $(229) | $(178) | | Total | $166 | $102 | $49 | Specialty Ingredients Operating Information | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Sales per shipping day (Millions USD) | $9.4 | $9.8 | $8.8 | | Metric tons sold (thousands) | 317.2 | 324.7 | 317.2 | | Gross profit as a percent of sales | 31.1% | 33.8% | 32.7% | Specialty Ingredients Adjusted EBITDA (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating income | $272 | $314 | $233 | | Depreciation and amortization | $235 | $246 | $229 | | EBITDA | $507 | $560 | $462 | | Accelerated depreciation | $38 | $6 | $14 | | Severance and other costs | $10 | $5 | $4 | | Asset impairment | $0 | $2 | $0 | | Environmental reserve adjustment | $1 | $1 | $0 | | Inventory fair value adjustment | $0 | $0 | $7 | | Unplanned plant shutdown | $2 | $0 | $6 | | Adjusted EBITDA | $558 | $574 | $493 | Intermediates and Solvents EBITDA (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating income | $16 | $17 | $(6) | | Depreciation and amortization | $13 | $14 | $14 | | EBITDA | $29 | $31 | $8 | Unallocated and Other Segment Expense (Millions USD) | Expense Category | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Restructuring activities | $(87) | $(139) | $(136) | | Environmental expenses | $(25) | $(58) | $(20) | | Asset impairment charges | $0 | $(14) | $0 | | Legal settlement/reserve | $0 | $5 | $(5) | | Tax indemnity expense | $(6) | $(5) | $0 | | Proxy costs | $(4) | $0 | $0 | | Other income (expense) | $0 | $(18) | $(17) | | Total unallocated expense | $(122) | $(229) | $(178) | FINANCIAL POSITION - As of September 30, 2019, $157 million of cash and cash equivalents were held by foreign subsidiaries[192] - Cash flows from operating activities from continuing operations were $228 million in 2019[196][197][201] - Investing activities used $118 million in 2019, primarily for capital expenditures ($154M)[204] - Financing activities used $1,149 million in 2019, mainly for repayments of long-term debt ($797M) and common stock repurchases ($200M)[208] - Cash flows from discontinued operations provided $980 million in 2019, including $972 million net proceeds from the sale of the Composites business[210] - Working capital increased to $676 million at September 30, 2019, from $647 million in 2018[214] - Total debt decreased to $1,667 million in 2019 from $2,529 million in 2018, with debt as a percent of capital employed falling to 32% from 43%[216] - Ashland's consolidated net leverage ratio was 2.6 and consolidated interest coverage ratio was 6.1 at September 30, 2019, both in compliance with debt covenants[233] - Ashland's corporate credit ratings were upgraded to BB+ by S&P and Ba1 by Moody's in September/October 2019[234] - Total equity increased to $3,571 million at September 30, 2019, from $3,406 million in 2018[236] Cash and Cash Equivalents (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $232 | $294 | $566 | Cash Flows Summary (Millions USD) | Cash Flow Category | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating activities from continuing operations | $228 | $241 | $174 | | Investing activities from continuing operations | $(118) | $(174) | $(798) | | Financing activities from continuing operations | $(1,149) | $(368) | $136 | | Discontinued operations | $980 | $28 | $(129) | | Net decrease in cash and cash equivalents | $(62) | $(272) | $(622) | Free Cash Flow (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Cash flows provided by operating activities from continuing operations | $228 | $241 | $174 | | Less: Additions to property, plant and equipment | $(154) | $(157) | $(168) | | Free cash flows | $74 | $84 | $6 | Total Debt (Millions USD) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Short-term debt | $166 | $254 | | Long-term debt | $1,501 | $2,275 | | Total debt | $1,667 | $2,529 | Capital Expenditures by Segment (Millions USD) | Segment | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Specialty Ingredients | $137 | $138 | $148 | | Intermediates and Solvents | $7 | $5 | $5 | | Unallocated and other | $10 | $14 | $15 | | Total capital expenditures | $154 | $157 | $168 | Contractual Obligations and Other Commitments (Millions USD) as of Sep 30, 2019 | Contractual obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Raw material and service contract purchase obligations | $180 | $79 | $85 | $11 | $5 | | Employee benefit obligations | $84 | $9 | $12 | $31 | $32 | | Operating lease obligations | $213 | $28 | $58 | $24 | $103 | | Debt | $1,726 | $166 | $1,083 | $0 | $477 | | Interest payments | $844 | $88 | $172 | $65 | $519 | | Unrecognized tax benefits | $165 | $0 | $0 | $0 | $165 | | One-time transition tax | $60 | $5 | $11 | $15 | $29 | | Total contractual obligations | $3,272 | $375 | $1,421 | $146 | $1,330 | | Other commitments: Letters of credit | $48 | $48 | $0 | $0 | $0 | CRITICAL ACCOUNTING POLICIES - Ashland's critical accounting policies involve significant estimates for environmental remediation, asbestos litigation, long-lived assets, and income taxes[251] - Environmental remediation reserves amounted to $186 million at September 30, 2019, with the upper end of the reasonably possible range of future costs as high as $440 million[252][253] - Asbestos litigation reserves totaled $604 million at September 30, 2019, with potential future costs ranging up to $550 million for Ashland-related and $390 million for Hercules-related litigation[254][255][257][259] - Long-lived assets, including goodwill and other intangibles, are tested annually for impairment using discounted cash flow models and earnings multiples[260][261][263][264][266] - Income taxes involve significant judgment in forecasting taxable income and recognizing uncertain tax positions[267] FORWARD-LOOKING STATEMENTS - This annual report contains forward-looking statements based on Ashland's expectations and assumptions regarding future performance[271] - These statements are subject to risks and uncertainties, including the success of cost elimination programs, indebtedness, and economic conditions[271] - Ashland undertakes no obligation to update any forward-looking statements unless legally required[273] Item 7A. Quantitative and Qualitative Disclosures about Market Risk Ashland primarily manages market risk through foreign currency derivative instruments - Ashland uses foreign currency derivative instruments to manage exposure to foreign currency fluctuations on transactions[274] - These derivative contracts typically have maturities of less than twelve months, with changes in fair value recorded in SG&A expense[274] - The potential loss from a hypothetical 10% adverse change in foreign currency rates would be largely offset by gains on non-functional currency transactions[274] - As of September 30, 2019, Ashland had no significant credit risk on open derivative contracts and no significant commodity hedging contracts[274] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, notes, and supplementary data MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING - Management is responsible for the integrity of the Consolidated Financial Statements and maintaining adequate internal control over financial reporting[277] - Ashland's internal control over financial reporting is designed to provide reasonable assurance regarding financial reporting reliability[277] - Management concluded that Ashland maintained effective internal control over financial reporting as of September 30, 2019[277] - Ernst & Young LLP audited and expressed an unqualified opinion on the effectiveness of Ashland's internal control over financial reporting[277] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Opinion on Internal Control Over Financial Reporting) - Ernst & Young LLP audited Ashland Global Holdings Inc.'s internal control over financial reporting as of September 30, 2019[279] - The firm expressed an unqualified opinion, stating that Ashland maintained effective internal control over financial reporting[279] - The audit was conducted in accordance with PCAOB standards to obtain reasonable assurance about the effectiveness of internal control[280] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Opinion on Financial Statements) - Ernst & Young LLP audited Ashland Global Holdings Inc.'s consolidated financial statements for the three years ended September 30, 2019[283] - The firm expressed an unqualified opinion, stating that the consolidated financial statements present fairly the financial position in conformity with U.S. GAAP[283] - The audit was conducted in accordance with PCAOB standards, including assessing risks of material misstatement[284] Critical Audit Matters - The valuation of Environmental Remediation Reserves ($186 million) was a critical audit matter due to inherent uncertainties in estimating costs[287] - The valuation of Asbestos Litigation Reserve ($604 million) was a critical audit matter due to the highly judgmental nature of projecting future costs[288] Statements of Consolidated Comprehensive Income (Loss) Consolidated Comprehensive Income (Loss) (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Sales | $2,493 | $2,589 | $2,309 | | Gross profit | $767 | $863 | $729 | | Operating income | $166 | $102 | $49 | | Income (loss) from continuing operations before income taxes | $70 | $11 | $(196) | | Income tax expense (benefit) | $46 | $(8) | $(16) | | Income (loss) from continuing operations | $24 | $19 | $(180) | | Income from discontinued operations (net of tax) | $481 | $95 | $208 | | Net income | $505 | $114 | $28 | | Net income attributable to Ashland | $505 | $114 | $1 | | Basic earnings per share (attributable to Ashland) | $8.15 | $1.82 | $0.01 | | Diluted earnings per share (attributable to Ashland) | $8.03 | $1.79 | $0.01 | | Other comprehensive income (loss), net of tax | $(85) | $(69) | $92 | | Comprehensive income attributable to Ashland | $420 | $45 | $93 | Consolidated Balance Sheets Consolidated Balance Sheets (Millions USD) as of September 30 | Asset/Liability/Equity Category | 2019 | 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $232 | $294 | | Accounts receivable | $481 | $522 | | Inventories | $597 | $596 | | Current assets held for sale | $59 | $240 | | Total current assets | $1,433 | $1,712 | | Net property, plant and equipment | $1,577 | $1,646 | | Goodwill | $2,253 | $2,304 | | Intangibles | $1,088 | $1,185 | | Restricted investments | $310 | $312 | | Asbestos insurance receivable | $157 | $179 | | Deferred income taxes | $23 | $28 | | Other assets | $410 | $416 | | Noncurrent assets held for sale | $0 | $477 | | Total noncurrent assets | $5,818 | $6,547 | | Total assets | $7,251 | $8,259 | | Liabilities and Equity | | | | Short-term debt | $166 | $254 | | Trade and other payables | $313 | $331 | | Accrued expenses and other liabilities | $271 | $328 | | Current liabilities held for sale | $7 | $163 | | Total current liabilities | $757 | $1,076 | | Long-term debt | $1,501 | $2,275 | | Asbestos litigation reserve | $555 | $612 | | Deferred income taxes | $264 | $286 | | Employee benefit obligations | $150 | $156 | | Other liabilities | $453 | $422 | | Noncurrent liabilities held for sale | $0 | $26 | | Total noncurrent liabilities | $2,923 | $3,777 | | Common stock | $1 | $1 | | Paid-in capital | $756 | $946 | | Retained earnings | $3,224 | $2,750 | | Accumulated other comprehensive loss | $(410) | $(291) | | Total equity | $3,571 | $3,406 | | Total liabilities and equity | $7,251 | $8,259 | Statements of Consolidated Equity - Total equity increased from $3,406 million in 2018 to $3,571 million in 2019, driven by net income of $505 million[295] - The adoption of new accounting pronouncements in 2019 resulted in a reclassification of $34 million from accumulated other comprehensive loss to retained earnings[295] Consolidated Equity (Millions USD) | Metric | Sep 30, 2016 | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Common stock | $1 | $1 | $1 | $1 | | Paid-in capital | $923 | $931 | $946 | $756 | | Retained earnings | $2,704 | $2,696 | $2,750 | $3,224 | | Accumulated other comprehensive income (loss) | $(281) | $(222) | $(291) | $(410) | | Noncontrolling interest | $(182) | $0 | $0 | $0 | | Total | $3,165 | $3,406 | $3,406 | $3,571 | Cash Dividends Declared Per Common Share | Year | Dividend Per Share | | :--- | :--- | | 2019 | $1.05 | | 2018 | $0.95 | | 2017 | $1.23 | Statements of Consolidated Cash Flows - Operating cash flows from continuing operations were $228 million in 2019, $241 million in 2018, and $174 million in 2017[297] - Investing activities from continuing operations used $118 million in 2019, primarily due to additions to property, plant and equipment ($154 million)[297] - Financing activities from continuing operations used $1,149 million in 2019, largely due to repayment of long-term debt ($797 million) and repurchase of common stock ($200 million)[297] - Cash provided by discontinued operations was $980 million in 2019, mainly due to the sale of the Composites business and Marl facility[297] Consolidated Cash Flows (Millions USD) | Cash Flow Category | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Cash flows provided by operating activities from continuing operations | $228 | $241 | $174 | | Cash flows used by investing activities from continuing operations | $(118) | $(174) | $(798) | | Cash flows provided (used) by financing activities from continuing operations | $(1,149) | $(368) | $136 | | Cash provided (used) by discontinued operations | $980 | $28 | $(129) | | Effect of currency exchange rate changes on cash and cash equivalents | $(3) | $1 | $(5) | | Decrease in cash and cash equivalents | $(62) | $(272) | $(622) | | Cash and cash equivalents - end of year | $232 | $294 | $566 | Notes to Consolidated Financial Statements NOTE A – SIGNIFICANT ACCOUNTING POLICIES - Ashland Global Holdings Inc. was reincorporated in Delaware in 2016, with financial statements prepared in accordance with U.S. GAAP[299] - Valvoline Inc. (separated May 2017) and the Composites business/Marl facility (sold August 2019) are classified as discontinued operations[299] - Significant estimates are made for environmental remediation, asbestos litigation, long-lived assets, and income taxes[300][302] - Inventories are carried at the lower of cost or net realizable value, primarily using the weighted-average cost method[306] - Goodwill and other indefinite-lived intangible assets are tested for impairment annually (July 1) or when circumstances indicate[311] - Ashland adopted ASC 606 (Revenue from Contracts with Customers) on October 1, 2018, with no material impact on its financial statements[315][317] - Asbestos-related litigation liabilities are estimated with the assistance of third-party actuarial experts[321][323] - New accounting pronouncements include new lease guidance (ASC 842) effective Oct 1, 2019, expected to add $140M-$180M in operating lease liabilities[331][332][333] Allowance for Doubtful Accounts (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts - beginning of year | $3 | $3 | $5 | | Adjustments to net income | $0 | $1 | $(1) | | Reserves utilized | $0 | $(1) | $(1) | | Allowance for doubtful accounts - end of year | $3 | $3 | $3 | Inventories (Millions USD) as of September 30 | Category | 2019 | 2018 | | :--- | :--- | :--- | | Finished products | $395 | $381 | | Raw materials, supplies and work in process | $197 | $215 | | LIFO benefit (reserve) | $5 | $0 | | Total | $597 | $596 | Tax Valuation Allowances (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Tax valuation allowances - beginning of year | $79 | $122 | $136 | | Adjustments to income tax expense (benefit) | $8 | $(5) | $27 | | Reserves utilized | $(4) | $(38) | $(41) | | Tax valuation allowances - end of year | $83 | $79 | $122 | Basic and Diluted EPS from Continuing Operations Attributable to Ashland | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Income (loss) from continuing operations, net of tax | $24 | $19 | $(180) | | Denominator for basic EPS (Weighted-average common shares outstanding) | 62 | 63 | 62 | | Denominator for diluted EPS (Adjusted weighted-average shares and assumed conversions) | 63 | 64 | 62 | | Basic EPS from continuing operations | $0.39 | $0.30 | $(2.90) | | Diluted EPS from continuing operations | $0.39 | $0.29 | $(2.90) | NOTE B – VALVOLINE - Ashland completed the separation of Valvoline Inc. into two independent, publicly traded companies, with the IPO closing on September 28, 2016[336] - Ashland distributed its remaining 170 million shares (83%) of Valvoline Inc. common stock as a pro rata dividend on May 12, 2017[338] - The distribution was recorded at a carrying amount of Valvoline Inc.'s net assets, which was a deficit of $187 million[338] - Valvoline qualified as a discontinued operation, and its results are classified as such for all periods presented[339] - Ashland recognized separation costs of $10 million in 2018 and $95 million in 2017[339] NOTE C – ACQUISITIONS - On May 17, 2017, Ashland acquired Pharmachem Laboratories, Inc. for $680 million in cash[341][342] - Pharmachem had approximately $300 million in annual revenues and its operations are included in Ashland's Specialty Ingredients segment[341] - The acquisition included $330 million in definite-lived intangible assets and $288 million in goodwill[347][348] - In January 2018, Ashland acquired Vornia Limited for $12 million, primarily for its intellectual property[353] Pharmachem Purchase Price Allocation (Millions USD) as of May 17, 2017 | Category | Value | | :--- | :--- | | Accounts receivable | $52 | | Inventory | $74 | | Other current assets | $4 | | Intangible assets | $330 | | Goodwill | $288 | | Property, plant and equipment | $94 | | Other noncurrent assets | $17 | | Accounts payable | $(33) | | Deferred tax - net | $(132) | | Other noncurrent liabilities | $(14) | | Total purchase price | $680 | Pharmachem Results of Operations Included in Ashland's 2017 Results (Millions USD) | Metric | 2017 | | :--- | :--- | | Sales | $104 | | Operating income | $7 | NOTE D – DIVESTITURES - On August 30, 2019, Ashland completed the sale of its Composites business and Marl facility to INEOS Enterprises for $1.015 billion[354] - Ashland recognized a $372 million after-tax gain from this sale, recorded within income from discontinued operations[354] - Certain indirect corporate costs previously allocated to the divested businesses are now reported within continuing operations[354] - Ashland is pursuing options to divest several corporate assets with a net value of $6 million at September 30, 2019[358] Assets and Liabilities Held for Sale (Millions USD) as of September 30 | Category | 2019 | 2018 | | :--- | :--- | :--- | | Current assets held for sale | | | | Accounts receivable, net | $5 | $159 | | Inventories | $3 | $67 | | Net property, plant and equipment | $34 | $0 | | Goodwill | $14 | $0 | | Other assets | $3 | $14 | | Total current assets held for sale | $59 | $240 | | Noncurrent assets held for sale | | | | Net property, plant and equipment | $0 | $254 | | Goodwill | $0 | $144 | | Intangibles | $0 | $40 | | Deferred income taxes | $0 | $7 | | Other assets | $0 | $32 | | Total noncurrent assets held for sale | $0 | $477 | | Current liabilities held for sale | | | | Trade and other payables | $6 | $152 | | Accrued expenses and other liabilities | $1 | $11 | | Total current liabilities held for sale | $7 | $163 | | Noncurrent liabilities held for sale | | | | Employee benefit obligations | $0 | $23 | | Other liabilities | $0 | $3 | | Total noncurrent liabilities held for sale | $0 | $26 | NOTE E – DISCONTINUED OPERATIONS - Ashland has divested several businesses classified as discontinued operations, including Valvoline and the Composites business/Marl facility[363][364] - Asbestos-related litigation, Water Technologies, and Ashland Distribution are also reported within discontinued operations[365] - The $423 million pre-tax gain on disposal in 2019 is from the sale of the Composites business and Marl facility[368][369] - Valvoline's activity in 2019 and 2018 primarily reflects subsequent adjustments related to the Tax Matters Agreement[365][371] Income (Loss) from Discontinued Operations (Millions USD) | Category | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Composites/Marl facility | $118 | $103 | $98 | | Valvoline | $0 | $(1) | $240 | | Asbestos-related litigation | $0 | $14 | $(31) | | Water Technologies | $(1) | $0 | $1 | | Distribution | $18 | $(11) | $(5) | | Gain on disposal of discontinued operations (Composites/Marl facility) | $423 | $0 | $0 | | Income before taxes | $558 | $105 | $303 | | Income tax benefit (expense) | $(79) | $(10) | $(95) | | Income from discontinued operations (net of taxes) | $481 | $95 | $208 | NOTE F – RESTRUCTURING ACTIVITIES - Ashland initiated a company-wide restructuring program in 2018, resulting in $6 million expense in 2019 and $36 million in 2018[373] - Lease abandonment charges of $7 million in 2019 and $9 million in 2018 were incurred due to office facility exits[374][375] - In 2018, Ashland incurred $16 million in asset impairment charges related to restructuring activities[376] - In 2019, Specialty Ingredients incurred $47 million in restructuring charges for a manufacturing facility cost reduction plan[377] Restructuring Reserves Activity (Millions USD) | Metric | Severance costs | Facility costs | Total | | :--- | :--- | :--- | :--- | | Balance as of September 30, 2018 | $36 | $7 | $43 | | Restructuring reserve | $6 | $7 | $13 | | Utilization (cash paid) | $(35) | $(7) | $(42) | | Balance as of September 30, 2019 | $7 | $7 | $14 | NOTE G – FAIR VALUE MEASUREMENTS - Ashland uses a three-level fair value hierarchy to prioritize inputs for fair value measurements[379] - Restricted investments, held in a trust for asbestos costs, are designated as available-for-sale securities and classified as Level 1[383] - Ashland uses foreign currency derivatives to manage currency exposure, recognizing a $2 million gain in 2019 compared to a $32 million loss in 2018[388][389] - Long-term debt had a carrying value of $1,513 million and a fair value of $1,680 million in 2019[391] Financial Instruments Subject to Recurring Fair Value Measurements (Millions USD) as of September 30, 2019 | Category | Carrying value | Total fair value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | | Cash and cash equivalents | $232 | $232 | $232 | $0 | $0 | | Restricted investments | $334 | $334 | $334 | $0 | $0 | | Investments of captive insurance company | $5 | $5 | $5 | $0 | $0 | | Foreign currency derivatives | $2 | $2 | $0 | $2 | $0 | | Total assets at fair value | $573 | $573 | $571 | $2 | $0 | | Liabilities | | | | | | | Foreign currency derivatives | $2 | $2 | $0 | $2 | $0 | Restricted Investments Activity (Millions USD) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Adjusted cost, beginning of year | $288 | $297 | | Investment income | $10 | $8 | | Net unrealized gain | $29 | $54 | | Realized gain | $32 | $6 | | Settlement funds | $7 | $10 | | Disbursements | $(32) | $(33) | | Fair value, end of year | $334 | $342 | Foreign Currency Derivatives (Millions USD) as of September 30 | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Foreign currency derivative assets | $2 | $11 | | Notional contract values (assets) | $271 | $1,209 | | Foreign currency derivative liabilities | $2 | $3 | | Notional contract values (liabilities) | $168 | $755 | NOTE H – PROPERTY, PLANT AND EQUIPMENT - Depreciation in 2019 included $38 million of accelerated depreciation for a Specialty Ingredients manufacturing facility cost reduction plan[394] - In 2017, $13 million of accelerated depreciation was recorded for a Specialty Ingredients manufacturing facility closure[395][396] Property, Plant and Equipment (Millions USD) as of September 30 | Category | 2019 | 2018 | | :--- | :--- | :--- | | Land | $148 | $148 | | Buildings | $461 | $461 | | Machinery and equipment | $2,361 | $2,363 | | Construction in progress | $195 | $200 | | Total (gross) | $3,165 | $3,172 | | Accumulated depreciation | $(1,588) | $(1,526) | | Total (net) | $1,577 | $1,646 | Depreciation and Capitalized Interest (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Depreciation | $203 | $184 | $185 | | Capitalized interest | $0 | $0 | $1 | NOTE I – GOODWILL AND OTHER INTANGIBLES - Goodwill for Specialty Ingredients decreased from $2,304 million in 2018 to $2,253 million in 2019, primarily due to currency translation effects[398] - Amortization expense for intangible assets was $86 million in 2019, with estimated amortization for 2020 also at $86 million[399] - Ashland performed its annual goodwill and other intangibles impairment tests as of July 1, 2019, and concluded no impairment existed[401][402] Goodwill by Reportable Segment (Millions USD) | Segment | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2019 | | :--- | :--- | :--- | :--- | | Specialty Ingredients | $2,315 | $2,304 | $2,253 | | Intermediates and Solvents | $0 | $0 | $0 | | Total | $2,315 | $2,304 | $2,253 | Other Intangible Assets (Millions USD) as of September 30, 2019 | Intangible asset type | Gross carrying amount | Accumulated amortization | Net carrying amount | | :--- | :--- | :--- | :--- | | Definite-lived intangible assets | | | | | Trademarks and trade names | $66 | $(29) | $37 | | Intellectual property | $712 | $(391) | $321 | | Customer and supplier relationships | $744 | $(292) | $452 | | Total definite-lived intangible assets | $1,522 | $(712) | $810 | | Indefinite-lived intangible assets | | | | | Trademarks and trade names | $278 | $0 | $278 | | Total intangible assets | $1,800 | $(712) | $1,088 | NOTE J – DEBT - Total debt decreased to $1,667 million in 2019 from $2,529 million in 2018[404] - The 2017 Credit Agreement provided facilities to finance the Pharmachem acquisition and refinance existing debt[405][407] - In 2019, Ashland repaid the remaining principal balances of the TLA Facility ($195M) and TLB Facility ($593M) using proceeds from the Composites/Marl facility sale[408][409][411] - Ashland repatriated approximately $900 million in cash in 2019 primarily to repay existing debt[409] - Ashland operates two accounts receivable securitization facilities with total borrowings of $144 million as of Sep 30, 2019[412][414] - Ashland was in compliance with all debt agreement covenants as of September 30, 2019[418] Ashland's Current and Long-Term Debt (Millions USD) as of September 30 | Debt Type | 2019 | 2018 | | :--- | :--- | :--- | | 4.750% notes, due 2022 | $1,080 | $1,083 | | Term loan B, due 2024 | $0 | $593 | | 6.875% notes, due 2043 | $374 | $376 | | Term loan A, due 2022 | $0 | $195 | | Accounts receivable securitizations | $144 | $195 | | 6.50% junior subordinated notes, due 2029 | $54 | $52 | | Revolving credit facility | $0 | $25 | | Medium-term notes, due 2019, interest of 9.35% | $0 | $5 | | Other | $15 | $5 | | Total debt | $1,667 | $2,529 | | Short-term debt (includes current portion of long-term debt) | $(166) | $(254) | | Long-term debt (less current portion and debt issuance cost discounts) | $1,501 | $2,275 | Net Interest and Other Expense (Income) (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Interest expense | $114 | $116 | $227 | | Interest income | $(2) | $(4) | $(4) | | Investment securities income | $(17) | $(14) | $(11) | | Other financing costs | $4 | $4 | $17 | | Total | $99 | $102 | $229 | NOTE K – OTHER NONCURRENT ASSETS AND LIABILITIES - Deferred compensation investments generated gains of $7 million in 2019, $10 million in 2018, and $11 million in 2017[425] Components of Other Noncurrent Assets (Millions USD) as of September 30 | Category | 2019 | 2018 | | :--- | :--- | :--- | | Deferred compensation investments | $170 | $165 | | Tax and tax indemnity receivables | $68 | $74 | | Life insurance policies | $56 | $52 | | Manufacturing catalyst supplies | $38 | $35 | | Defined benefit plan assets | $33 | $35 | | Equity and other unconsolidated investments | $6 | $8 | | Land use rights | $6 | $11 | | Environmental insurance receivables | $12 | $11 | | Debt issuance costs | $4 | $6 | | Other | $17 | $19 | | Total | $410 | $416 | Components of Other Noncurrent Liabilities (Millions USD) as of September 30 | Category | 2019 | 2018 | | :--- | :--- | :--- | | Tax liabilities | $220 | $176 | | Environmental remediation reserves | $143 | $147 | | Deferred compensation | $42 | $47 | | Other | $48 | $52 | | Total | $453 | $422 | NOTE L – LEASE COMMITMENTS - Ashland leases office buildings, transportation equipment, warehouses, and other facilities[429] Future Minimum Rental Payments (Millions USD) as of September 30, 2019 | Year | Amount | | :--- | :--- | | 2020 | $28 | | 2021 | $25 | | 2022 | $33 | | 2023 | $13 | | 2024 | $11 | | 2025 and later | $103 | Rental Expense Under Operating Leases (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Minimum rentals | $42 | $46 | $40 | | Sublease rental income | $(1) | $(1) | $(2) | | Total | $41 | $45 | $38 | NOTE M – INCOME TAXES - The Tax Cuts and Jobs Act of 2017 resulted in net unfavorable tax adjustments of $29 million in 2019 related to the transition tax[430][431] - Ashland has elected to treat taxes due on future Global Intangible Low-Taxed Income (GILTI) as a current period expense[435] - Ashland had $165 million of unrecognized tax benefits at September 30, 2019, with $155 million affecting the tax rate[443] Provision for Income Taxes Related to Continuing Operations (Millions USD) | Category | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Current | | | | | Federal | $(2) | $20 | $(26) | | State | $(7) | $(2) | $(1) | | Foreign | $35 | $74 | $37 | | Total Current | $26 | $92 | $10 | | Deferred | | | | | Deferred | $20 | $(100) | $(26) | | Income tax expense (benefit) | $46 | $(8) | $(16) | Deferred Tax Assets and Liabilities (Millions USD) as of September 30 | Category | 2019 | 2018 | | :--- | :--- | :--- | | Deferred tax assets | | | | Foreign net operating loss carryforwards | $36 | $39 | | Employee benefit obligations | $29 | $28 | | Environmental, self-insurance and litigation reserves | $114 | $119 | | State net operating loss carryforwards | $38 | $48 | | Compensation accruals | $28 | $31 | | Credit carryforwards | $10 | $10 | | Other items | $38 | $32 | | Valuation allowances | $(83) | $(79) | | Total deferred tax assets | $210 | $228 | | Deferred tax liabilities | | | | Goodwill and other intangibles | $243 | $269 | | Property, plant and equipment | $207 | $217 | | Unremitted earnings | $1 | $0 | | Total deferred tax liabilities | $451 | $486 | | Net deferred tax liability | $(241) | $(258) | Reconciliation of Statutory Federal Income Tax to Provision for Income Taxes (Millions USD) | Category | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Income taxes computed at U.S. statutory rate | $15 | $3 | $(69) | | Tax reform | $29 | $44 | $0 | | Uncertain tax positions | $10 | $(13) | $12 | | Foreign dividends, deemed inclusions and other restructuring | $11 | $48 | $125 | | Foreign tax credits | $(17) | $(54) | $(29) | | Valuation allowance changes | $14 | $(2) | $(3) | | Research and development credits | $(6) | $(5) | $(6) | | State taxes | $(5) | $(3) | $(16) | | International rate differential | $(30) | $(50) | $(57) | | Other items | $25 | $24 | $27 | | Income tax expense (benefit) | $46 | $(8) | $(16) | Changes in Unrecognized Tax Benefits (Millions USD) | Metric | Amount | | :--- | :--- | | Balance at September 30, 2017 | $194 | | Increases related to positions taken on items from prior years | $5 | | Decreases related to positions taken on items from prior years | $(40) | | Increases related to positions taken in the current year | $14 | | Lapse of statute of limitations | $(5) | | Settlement of uncertain tax positions with tax authorities | $(4) | | Balance at September 30, 2018 | $164 | | Increases related to positions taken on items from prior years | $1 | | Decreases related to positions taken on items from prior years | $(5) | | Increases related to positions taken in the current year | $21 | | Lapse of statute of limitations | $(10) | | Disposition of Composites and Marl facility | $(6) | | Balance at September 30, 2019 | $165 | NOTE N – EMPLOYEE BENEFIT PLANS - Ashland sponsors several defined benefit pension plans for international and certain U.S. union employees[446] - In 2019, Ashland settled a non-U.S. pension plan, resulting in an $18 million curtailment gain[448][449] - Ashland contributed $1 million to U.S. pension plans and $4 million to non-U.S. pension plans in 2019[464] - Company contributions to savings plans for eligible employees amounted to $26 million in 2019[466] Components of Net Periodic Benefit Costs (Income) (Millions USD) | Metric | 2019 Pension | 2018 Pension | 2017 Pension | 2019 Other Postretirement | 2018 Other Postretirement | 2017 Other Postretirement | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Service cost | $6 | $9 | $8 | $1 | $1 | $1 | | Interest cost | $10 | $10 | $8 | $2 | $1 | $2 | | Curtailment, settlement and other | $(18) | $0 | $0 | $0 | $0 | $0 | | Expected return on plan assets | $(10) | $(12) | $(12) | $0 | $0 | $0 | | Amortization of prior service credit | $0 | $0 | $0 | $0 | $0 | $0 | | Actuarial (gain) loss | $18 | $(14) | $2 | $(7) | $0 | $6 | | Total | $6 | $(7) | $6 | $(4) | $2 | $9 | Weighted-Average Plan Assumptions for Net Periodic Benefit Costs | Assumption | 2019 Pension | 2018 Pension | 2017 Pension | 2019 Other Postretirement | 2018 Other Postretirement | 2017 Other Postretirement | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Discount rate for service cost | 2.40% | 2.54% | 1.93% | 4.37% | 3.93% | 3.93% | | Discount rate for interest cost | 3.02% | 2.55% | 2.25% | 3.91% | 3.13% | 2.86% | | Rate of compensation increase | 2.52% | 2.53% | 2.81% | N/A | N/A | N/A | | Expected long-term rate of return on plan assets | 3.44% | 3.36% | 3.44% | N/A | N/A | N/A | Pension and Other Postretirement Benefit Obligations and Funded Status (Millions USD) as of September 30 | Metric | 2019 Pension | 2018 Pension | 2019 Other Postretirement | 2018 Other Postretirement | | :--- | :--- | :--- | :--- | :--- | | Benefit obligations at October 1 | $404 | $428 | $58 | $62 | | Benefit obligations at September 30 | $405 | $404 | $52 | $58 | | Value of plan assets at October 1 | $341 | $349 | $0 | $0 | | Value of plan assets at September 30 | $337 | $341 | $0 | $0 | | Unfunded status of the plans | $(68) | $(63) | $(52) | $(58) | | Noncurrent benefit assets | $33 | $35 | $0 | $0 | | Current benefit liabilities | $(3) | $(3) | $(3) | $(4) | | Noncurrent benefit liabilities | $(98) | $(95) | $(49) | $(54) | | Net amount recognized | $(68) | $(63) | $(52) | $(58) | Pension Plan Assets by Investment Category (Millions USD) as of September 30, 2019 | Investment Category | Total fair value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $5 | $5 | $0 | $0 | | U.S. Government securities | $29 | $0 | $29 | $0 | | Non-U.S. Government securities | $73 | $0 | $73 | $0 | | Corporate debt instruments | $145 | $0 | $145 | $0 | | Listed real assets | $11 | $0 | $11 | $0 | | Asset-backed securities | $22 | $0 | $22 | $0 | | Corporate stocks | $29 | $0 | $29 | $0 | | Insurance contracts | $23 | $0 | $23 | $0 | | Total assets at fair value | $337 | $5 | $332 | $0 | Weighted-Average Asset Allocations for U.S. and Non-U.S. Plans | Plan assets allocation | Target | Actual at September 30, 2019 | Actual at September 30, 2018 | | :--- | :--- | :--- | :--- | | Equity securities | 5 - 45% | 9% | 9% | | Fixed income securities | 55 - 95% | 88% | 88% | | Other | 0 - 5% | 3% | 3% | | Total | | 100% | 100% | Projected Benefit Payments (Millions USD) | Year | Pension benefits | Other postretirement benefits | | :--- | :--- | :--- | | 2020 | $18 | $3 | | 2021 | $18 | $3 | | 2022 | $18 | $3 | | 2023 | $19 | $4 | | 2024 | $19 | $4 | | 2025 - 2029 | $99 | $18 | NOTE O – LITIGATION, CLAIMS AND CONTINGENCIES - Ashland and Hercules face asbestos-related litigation, with reserve estimates updated annually by third-party actuarial experts[467] - Ashland's asbestos-related liability reserves totaled $352 million at September 30, 2019[471] - Ashland's receivable for asbestos insurance recoveries was $123 million at September 30, 2019[475] - Hercules' asbestos-related liability reserves totaled $252 million at September 30, 2019[479] - Hercules' receivable from insurers for asbestos claims was $49 million at September 30, 2019[481] - Projecting future asbestos costs is highly uncertain, with total future costs estimated to range up to $550 million for Ashland-related and $390 million for Hercules-related litigation[482][484] - Environmental remediation reserves were $186 million at September 30, 2019[485][486] - Ashland believes adequate reserves have been recorded for other pending legal proceedings and claims[490] Ashland Asbestos Claims Activity (Thousands) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Open claims - beginning of year | 53 | 54 | 57 | | New claims filed | 2 | 2 | 2 | | Claims settled | (1) | (1) | (1) | | Claims dismissed | (1) | (2) | (4) | | Open claims - end of year | 53 | 53 | 54 | Ashland Asbestos Reserve Activity (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Asbestos reserve - beginning of year | $380 | $419 | $415 | | Reserve adjustment | $1 | $(8) | $36 | | Amounts paid | $(29) | $(31) | $(32) | | Asbestos reserve - end of year | $352 | $380 | $419 | Hercules Asbestos Claims Activity (Thousands) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Open claims - beginning of year | 13 | 12 | 15 | | New claims filed | 1 | 2 | 1 | | Claims dismissed | (1) | (1) | (4) | | Open claims - end of year | 13 | 13 | 12 | Environmental Remediation Expense (Millions USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Environmental expense | $