Ashland(ASH) - 2024 Q4 - Annual Report

PART I Item 1. Business Ashland Inc. is a global specialty additives and materials company serving diverse consumer and industrial markets - Ashland Inc. is a global specialty additives and materials company with approximately 3,200 employees, serving customers in over 100 countries across various consumer and industrial markets[7] - The company's reportable segments include Life Sciences, Personal Care, Specialty Additives, and Intermediates, with Unallocated and Other covering corporate governance and legacy matters[7] Fiscal Year 2024 Sales Contribution by Product Category (10% or greater of total consolidated sales) | Product | % of Ashland total consolidated sales | | :---------------------- | :------------------------------------ | | Cellulosics | 37% | | Polyvinylpyrrolidones (PVP) | 23% | - Ashland maintains a company-wide environmental policy, with reserves for environmental remediation and related litigation amounting to $221 million at September 30, 2024, with a reasonably possible upper range of $485 million[23][24] - The company operates in highly competitive markets, with competition based on product performance, quality, price, availability, customer service, and technical capability. Key competitors are often larger with greater financial resources[27] - Ashland's human capital strategy focuses on a Zero Incident Culture (ZIC) for safety, aligning operations with the Paris Climate Accord, attracting and developing global talent, ensuring competitive and equitable pay, and fostering an inclusive and diverse workforce[33][35][38][39] Employee Demographics as of September 30, 2024 | Category | Percentage | | :-------------- | :--------- | | Total Employees | 3,200 | | Male Employees | 68% | | Female Employees| 32% | | US Ethnically Diverse | 21% | | Board Diversity | 72% | | Executive Committee Women | 30% | | Executive Committee Ethnic Diversity | 60% | General Life Sciences Personal Care Specialty Additives Intermediates Miscellaneous Environmental Matters Product Control, Registration and Inventory Remediation Air Solid Waste Water Climate Change and Related Regulatory Developments Competition Intellectual Property Raw Materials and Energy Research and Development Seasonality Human Capital Employee Health and Safety Environmental Human Capital Management Competitive Pay and Benefits Inclusion and Diversity Talent Management Forward-Looking Statements Item 1A. Risk Factors Ashland faces a range of significant risks that could adversely affect its business, financial performance, and growth - Ashland's aggressive growth goals are subject to risks such as failure to optimize assets, integrate acquisitions, and manage unexpected costs, potentially leading to reduced sales or asset impairment[44][45] - Business disruptions from natural disasters, operational hazards, supply chain issues, cyber-attacks, and geopolitical conflicts (e.g., Ukraine/Russia, Israel/Hamas) could severely harm operations and financial performance, with insurance potentially insufficient to cover all damages[46] - Climate change poses risks including supply chain disruptions, operational impacts in vulnerable areas, increased energy costs, water scarcity, and scrutiny over raw material sourcing (e.g., deforestation). Failure to meet sustainability commitments could also lead to reputational and business impacts[47][49] - Operating in highly competitive global markets, Ashland faces downward pressure on prices and margins, and may struggle to pass on increased raw material or energy costs to customers. The inability to develop new, sustainable products could result in market share loss[54][55][57] - Ashland's substantial global operations (over half of net sales outside North America) expose it to risks from foreign exchange fluctuations, trade restrictions, geopolitical instability, and difficulties in enforcing agreements or collecting receivables in foreign legal systems[50][51] - The company's substantial debt could limit its ability to fund operations, acquisitions, and respond to market changes, potentially leading to default if cash flow is insufficient for repayment[52] - Ashland relies on IT systems, patents, trademarks, and trade secrets, making it vulnerable to cybersecurity threats, intellectual property infringement claims, and the loss of proprietary information[59][60][62] - Significant legal and regulatory risks include product liability claims, substantial environmental remediation costs (reserves of $221 million, potential upper end $485 million), and asbestos litigation liabilities ($459 million at Sept 30, 2024), which are subject to inherent uncertainties in estimation[63][64][65][89][90] - Changes in tax laws, such as the OECD's Pillar Two initiative for a 15% global minimum tax, and disagreements with tax authorities in over 100 countries, could adversely affect Ashland's effective tax rates and cash flows[68] Risks Related to the Company's Business Operations, Financial Performance and Growth Risks Related to Competition Risks Related to Human Capital Risks Related to Information Technology, Cybersecurity and Intellectual Property Risks Related to Legal and Regulatory Compliance and Litigation Risks Related to Taxation Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - The company has no unresolved staff comments[69] Item 1C. Cybersecurity Ashland maintains a robust information security program, aligned with NIST Cybersecurity Framework 2.0, as part of its Enterprise Risk Management - Ashland's information security program, part of its ERM, aligns with NIST Cybersecurity Framework 2.0 and includes an incident response plan, 24/7 Security Operations Center, and a dedicated threat hunting team[70] - The program also incorporates employee training, periodic testing of security systems, and engagement with third-party consultants for risk identification and assessment[70] - The Vice President of Cyber Security, with over 30 years of IT experience, leads the program, and the Board's Audit Committee provides oversight of cybersecurity risks[73] - As of the report date, Ashland is not aware of any cybersecurity incidents that have materially affected its business, results of operations, or financial condition[72] Risk Management and Strategy Governance Item 2. Properties Ashland's corporate headquarters is in Wilmington, Delaware, which is owned, while other principal offices and shared service centers are leased - Ashland's corporate headquarters is owned in Wilmington, Delaware, with other major operational offices and shared service centers leased in various global locations[74] - The company considers its physical properties suitable and adequate for its business[74] Item 3. Legal Proceedings Ashland is involved in material legal proceedings, primarily asbestos-related litigation and environmental proceedings under CERCLA and similar state laws - Ashland faces asbestos-related litigation primarily from indemnification obligations related to the 1990 sale of Riley Stoker Corporation and claims against its subsidiary Hercules LLC[75][76] - The company is identified as a 'potentially responsible party' (PRP) at 53 sites under CERCLA and similar state laws for environmental investigation and cleanup costs[77] - Ashland is involved in the Lower Passaic River, New Jersey matters, participating in remedial investigation and feasibility studies and facing lawsuits from other chemical companies for cost recovery[77] - For other pending legal proceedings, including commercial, product liability, toxic tort, and environmental matters, Ashland believes adequate reserves are recorded, and potential losses are not material as of September 30, 2024[78] Asbestos-Related Litigation Environmental Proceedings Other Pending Legal Proceedings Item 4. Mine Safety Disclosures This item is not applicable to Ashland Inc - Item 4. Mine Safety Disclosures is not applicable to Ashland Inc[80] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ashland's common stock is listed on the NYSE under the ticker symbol "ASH", with approximately 8,003 holders of record as of October 31, 2024 - Ashland's common stock is listed on the NYSE under the ticker symbol "ASH"[7] - As of October 31, 2024, there were approximately 8,003 holders of record of Ashland's Common Stock[83] - Ashland expects to continue paying quarterly cash dividends comparable to past dividends, subject to the discretion of its Board of Directors[83] Common Stock Repurchase Activity (Q4 Fiscal 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Dollar Value Remaining (in millions) | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------- | | July 1, 2024 to July 31, 2024 | — | — | 770 | | August 1, 2024 to August 31, 2024 | 992,380 | $86.44 | 684 | | September 1, 2024 to September 30, 2024 | 740,117 | $86.82 | 620 | | Total | 1,732,497 | | 620 | - As of September 30, 2024, $620 million remained available for repurchase under the 2023 Stock Repurchase Program[88] Market Information Holders Dividends FIVE-YEAR TOTAL RETURN PERFORMANCE GRAPH Repurchases of Company Common Stock Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation Ashland Inc. is a global specialty additives and ingredients company with a focus on ESG, serving diverse consumer and industrial markets - Ashland is a global specialty additives and ingredients company with 69% of sales generated outside North America in 2024[143] Sales by Geography (Percentage of Total Consolidated Sales) | Region | 2024 | 2023 | 2022 | | :---------------------- | :---- | :---- | :---- | | North America | 31 % | 31 % | 32 % | | Europe | 35 % | 36 % | 36 % | | Asia Pacific | 25 % | 23 % | 23 % | | Latin America & other | 9 % | 10 % | 9 % | Sales by Reportable Segment (Percentage of Total Consolidated Sales) | Reportable Segment | 2024 | 2023 | 2022 | | :---------------------- | :---- | :---- | :---- | | Life Sciences | 38 % | 40 % | 34 % | | Personal Care | 30 % | 27 % | 28 % | | Specialty Additives | 27 % | 28 % | 30 % | | Intermediates | 5 % | 5 % | 8 % | - Ashland's net income decreased from $178 million in 2023 to $169 million in 2024, while diluted EPS increased slightly from $3.31 to $3.36[150][152] Key Financial Results (2024 vs. 2023 vs. 2022) | Metric | 2024 ($M) | 2023 ($M) | 2022 ($M) | 2024 Change ($M) | 2023 Change ($M) | | :------------------------------------------------------------------ | :-------- | :-------- | :-------- | :--------------- | :--------------- | | Net income | 169 | 178 | 927 | (9) | (749) | | Diluted earnings per share net income | 3.36 | 3.31 | 16.41 | 0.05 | (13.10) | | Income from continuing operations | 199 | 168 | 181 | 31 | (13) | | Diluted earnings per share income from continuing operations | 3.95 | 3.13 | 3.20 | 0.82 | (0.07) | | Operating income (loss) | (26) | 172 | 333 | (198) | (161) | | EBITDA | 142 | 419 | 1,342 | (277) | (923) | | Adjusted EBITDA | 459 | 459 | 590 | - | (131) | | Adjusted Diluted EPS from Continuing Operations Excluding Intangibles Amortization Expense | 4.45 | 4.07 | 5.70 | 0.38 | (1.63) | - Sales for 2024 decreased by $78 million (4%) compared to 2023, primarily due to unfavorable pricing in a moderately deflationary raw material environment, and portfolio optimization initiatives[155] - Adjusted EBITDA remained consistent at $459 million for both 2024 and 2023, driven by deflationary raw materials and favorable foreign exchange, offset by unfavorable pricing and lower volume in Life Sciences[154] - Ashland's liquidity position at September 30, 2024, included $300 million in cash and cash equivalents and $596 million in remaining borrowing capacity under its Revolving Credit Facility, totaling $896 million in available liquidity[214][226] - The company's total debt outstanding was $1,390 million at September 30, 2024, with a consolidated net leverage ratio of 2.3 and an interest coverage ratio of 7.8, well within covenant limits[227][237] - For fiscal year 2025, Ashland expects sales in the range of $1.90 billion to $2.05 billion and Adjusted EBITDA between $430 million and $470 million, anticipating lower growth, increased competitive intensity, and impacts from portfolio optimization[268] BUSINESS OVERVIEW Ashland profile Reportable segments KEY DEVELOPMENTS Uncertainty relating to the ongoing Ukraine/Russia conflict and Israel/Hamas conflict Other significant items Stock repurchase program Stock repurchase program agreements Restructuring programs Nutraceuticals business RESULTS OF OPERATIONS – CONSOLIDATED REVIEW Consolidated review Statements of Consolidated Comprehensive Income (Loss) – caption review Adjusted income tax expense Other comprehensive income (loss) Use of non-GAAP measures EBITDA and Adjusted EBITDA Diluted EPS and Adjusted Diluted EPS RESULTS OF OPERATIONS – REPORTABLE SEGMENT REVIEW Life Sciences Personal Care Specialty Additives Intermediates Unallocated and other FINANCIAL POSITION Liquidity Operating activities Investing activities Financing activities Cash provided (used) by discontinued operations Free Cash Flow and other liquidity resources Capital resources Debt Credit Agreements and Refinancing Debt repayments and repurchases Accounts receivable facilities and off-balance sheet arrangements Foreign Accounts Receivable Sales Program Supply Chain Finance Program Other debt Available borrowing capacity and liquidity Covenants related to current Ashland debt agreements Ashland credit ratings Additional capital resources Ashland cash projection Total Equity 2023 Stock repurchase program Stockholder dividends Capital expenditures OFF-BALANCE SHEET ARRANGEMENTS NEW ACCOUNTING PRONOUNCEMENTS CRITICAL ACCOUNTING ESTIMATES Environmental remediation and asset retirement obligations Asbestos litigation Accounting for goodwill and other indefinite-lived intangible assets Income taxes EFFECTS OF INFLATION AND CHANGING PRICES OUTLOOK Portfolio-optimization actions Financial Outlook FORWARD-LOOKING STATEMENTS Item 7A. Quantitative and Qualitative Disclosures about Market Risk Ashland manages its exposure to foreign currency fluctuations using derivative instruments, primarily short-term forward contracts, to mitigate earnings volatility - Ashland uses foreign currency derivative instruments to manage exposure to foreign currency fluctuations, primarily for short-term intercompany loans[271] - Derivative contracts generally have maturities of less than twelve months, are valued at fair value, and net changes are recorded in selling, general and administrative expense[271] - As of September 30, 2024, Ashland had no significant open hedging contracts for commodities[271] Item 8. Financial Statements and Supplementary Data This section presents Ashland's audited consolidated financial statements, management's report on internal control, independent auditor's reports, and detailed notes on accounting policies and various financial items Management's report on internal control over financial reporting Reports of independent registered public accounting firm Critical Audit Matters Valuation of Environmental Remediation Reserves Valuation of Asbestos Litigation Reserves Statements of Consolidated Comprehensive Income (Loss) Consolidated Balance Sheets Statements of Consolidated Equity Statements of Consolidated Cash Flows Notes to Consolidated Financial Statements NOTE A – SIGNIFICANT ACCOUNTING POLICIES NOTE B – DIVESTITURES NOTE C – DISCONTINUED OPERATIONS NOTE D – RESTRUCTURING ACTIVITIES NOTE E – FAIR VALUE MEASUREMENTS NOTE F – PROPERTY, PLANT AND EQUIPMENT NOTE G – GOODWILL AND OTHER INTANGIBLES NOTE H – DEBT NOTE I – OTHER NONCURRENT ASSETS AND LIABILITIES NOTE J – LEASING ARRANGEMENTS NOTE K – INCOME TAXES NOTE L – EMPLOYEE BENEFIT PLANS NOTE M – LITIGATION, CLAIMS AND CONTINGENCIES NOTE N – EQUITY ITEMS NOTE O – STOCK INCENTIVE PLANS NOTE P – REVENUE NOTE Q – REPORTABLE SEGMENT INFORMATION Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - There are no changes in and disagreements with accountants on accounting and financial disclosure[89] Item 9A. Controls and Procedures Ashland's management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024 - Ashland's disclosure controls and procedures were effective as of September 30, 2024, as concluded by management, including the CEO and CFO[90] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2024[90] Item 9B. Other Information This section discloses a Rule 10b5-1 trading arrangement entered into by Robin E. Lampkin for the sale of 1,464 shares of Ashland Common Stock - Robin E. Lampkin, SVP, General Counsel, and Corporate Secretary, entered a Rule 10b5-1 trading arrangement to sell 1,464 shares of Ashland Common Stock, effective until February 28, 2025, or earlier completion/termination[92] - Ashland has an Insider Trading Policy to govern securities transactions by its directors, officers, and employees, promoting compliance with insider trading laws[93] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There is no disclosure regarding foreign jurisdictions that prevent inspections - There is no disclosure regarding foreign jurisdictions that prevent inspections[93] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from Ashland's 2025 Annual Meeting of Stockholders Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[96] Item 11. Executive Compensation Details on executive compensation are incorporated by reference from Ashland's 2025 Annual Meeting of Stockholders Proxy Statement - Executive compensation information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[97] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2025 Annual Meeting of Shareholders Proxy Statement - Security ownership information is incorporated by reference from the 2025 Annual Meeting of Shareholders Proxy Statement[98] Equity Compensation Plan Information as of September 30, 2024 | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :------------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------ | :----------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 534,449 | $66.16 | 10,363,703 | | Equity compensation plans not approved by security holders | 51,848 | — | 1,275,314 | | Total | 586,297 | $66.16 | 11,639,017 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from Ashland's 2025 Annual Meeting of Stockholders Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[104] Item 14. Principal Accountant Fees and Services Information concerning principal accountant fees and services is incorporated by reference from Ashland's 2025 Annual Meeting of Stockholders Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[105] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including various agreements, corporate documents, debt indentures, and compensation plans - Item 15 details various exhibits and financial statement schedules, including stock and asset purchase agreements, corporate governance documents, debt indentures, and equity compensation plans[109][110][111][112][113][114][115][117][119][121] - The report includes Inline XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, and Presentation Linkbase Document[131][132][133] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[135]