ASHLAND INC. (ASH) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements for the years ended September 30, 2022, 2021 and 2020.

BUSINESS OVERVIEW

Ashland profile

Ashland is a global specialty additives and materials company with a conscious and proactive mindset for sustainability. The company serves customers in a wide range of consumer and industrial markets including architectural coatings, construction, energy, food and beverage, nutraceuticals, personal care and pharmaceutical. With approximately 3,900 employees worldwide, Ashland serves customers in more than 100 countries.

Ashland’s sales generated outside of North America were 68% in 2022 and 2021, and 67% in 2020. respectively. Sales by region expressed as a percentage of total consolidated sales were as follows:

(a) Ashland includes only U.S. and Canada in its North American 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 year ended September 30 were as follows:

KEY DEVELOPMENTS

Business Results

Ashland’s net income was $927 million ($181 million income from continuing operations and $746 million income from discontinued operations) in 2022 compared to income of $220 million ($173 million income from continuing operations and $47 million income from discontinued operations) in 2021. Results for Ashland’s continuing operations for 2022 and 2021 were impacted by restructuring costs of $5 million in 2022 and $10 million in 2021, environmental reserve adjustments of $53 million in 2022 and $45 million in 2021, and unrealized losses of $102 million and unrealized gains of $21 million on restricted investment securities. Fiscal 2022 also included $42 million of gains associated with the sale of two excess and unused parcels of land and a $22 million gain on pension and other postretirement plan remeasurements. Additionally, the prior year included $17 million of debt restructuring costs, $13 million restructuring related impairment charges, and a $4 million charge for inventory adjustments. Discontinued operations were primarily driven by the change in results of the Performance Adhesives business including the $726 million gain as a result of the sale of that business during fiscal 2022. Ashland’s Adjusted EBITDA is $590 million for the current year compared to $495 million in the prior year (see U.S. GAAP reconciliation under consolidated review). The $95 million increase in Adjusted EBITDA was primarily driven by disciplined pricing leading to cost recovery in a high-inflation environment and improved product mix partially offset by higher raw material and operating costs, unfavorable currency exchange and higher selling, general and administration costs.

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Uncertainty relating to the Ukraine and Russia conflict

Business disruptions, including those related to the ongoing conflict between Ukraine and Russia continue to impact businesses around the globe. While it is impossible to predict the effects of the conflict 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 the situation 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 wellbeing 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).

Uncertainty relating to the COVID-19 pandemic

Ashland continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact customers, employees, suppliers, vendors, business partners and distribution channels. Ashland is unable to predict the impact that the COVID-19 pandemic will have on its future financial position and operating results due to numerous uncertainties. These uncertainties include the severity of the virus and any variants, the duration of the outbreak, governmental, business or other actions, impacts on Ashland’s supply chain, the effect on customer demand, or changes to Ashland’s operations. The health of Ashland’s workforce and its ability to meet staffing needs throughout the critical functions cannot be predicted and is vital to operations. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. In addition, Ashland cannot predict the impact that the COVID-19 pandemic will have on its customers, vendors, suppliers and other business partners; however, any material effect on these parties could adversely impact Ashland.

Ashland continues to successfully navigate the uncertain environment associated with the COVID-19 pandemic. Through fiscal year 2022, Ashland has not experienced any additional major operating surprises related to the COVID-19 pandemic, continues to maintain supply chains in a challenging environment, had strong safety performance in the face of unprecedented pressures and improved operating discipline across each of its businesses. Ashland businesses continue to show resiliency in the face of difficult economic circumstances. While sales were up in the year period-over-period, continued supply-chain and labor-shortage challenges inhibited Ashland's ability to meet strong overall customer demand. Ashland’s overall liquidity remains strong and Ashland is more than able to meet its operating cash needs and other investing and financing cash requirements at this time, including those necessary to grow the business as economic conditions improve.

The situation surrounding the COVID-19 pandemic remains fluid, and Ashland is actively managing its response in collaboration with customers, government officials, team members and business partners. For further information regarding the impact of the COVID-19 pandemic on the Company, please see Item 1A, Risk Factors in this report, which is incorporated herein by reference.

Other significant items

Performance Adhesives

Ashland completed the sale of its Performance Adhesives business segment on February 28, 2022, resulting in proceeds to Ashland of approximately $1.7 billion, net of transaction costs. Ashland recognized an after-tax gain of $726 million within the income from discontinued operations caption of the Statement of Consolidated Comprehensive Income (Loss) for the twelve months ended September 30, 2022 related to the sale of Performance Adhesives. Since this transaction represented a strategic

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shift in Ashland’s business and had a major effect on Ashland’s operations and financial results, the operating results and cash flows related to Performance Adhesives have been reflected as discontinued operations in the statement of Consolidated Comprehensive Income (Loss) and Statements of Condensed Consolidated Cash Flows. See Note C of the Notes to the Consolidated Financial Statements for more information. Certain indirect corporate costs included within the selling, general and administrative expense caption of the Statement of Consolidated Comprehensive Income (Loss) that were previously allocated to the Performance Adhesives segment do not qualify for classification within discontinued operations and are now reported as selling, general and administrative expense within continuing operations on a consolidated basis and within the Unallocated and other segment. These costs were $9 million, $15 million, and $20 million during the twelve months ended September 30, 2022, 2021, and 2020, respectively.

Debt Repayment Activities

Ashland used a portion of the proceeds from the sale of its Performance Adhesives segment to prepay $250 million of principal on its Term loan A, reduce $240 million of outstanding borrowing under the 2020 Revolving Credit Facility, reduce $102 million of outstanding borrowing under the Foreign Accounts Receivable Securitization Facility, and repay the $23 million outstanding balance on its European short-term loan facility during 2022.

2022 Stock repurchase program

On May 25, 2022, Ashland's board of directors authorized a new, evergreen $500 million common share repurchase program (2022 stock repurchase program). The new authorization terminates and replaces the company's 2018 $1 billion share repurchase program, which had $150 million outstanding at the date of termination.

2018 Stock repurchase program

In September 2021, under the 2018 stock repurchase program, Ashland entered into an accelerated share repurchase agreement (2021 ASR Agreement). Under the 2021 ASR Agreement, Ashland paid an initial purchase price of $450 million and received an initial delivery of 3.9 million shares of common stock during September 2021. The bank exercised its early termination option under the 2021 ASR Agreement in February 2022, and an additional 0.7 million shares were repurchased, bringing the total shares repurchased upon settlement to 4.6 million.

On March 1, 2022, under the 2018 stock repurchase program, Ashland entered into an agreement to repurchase an aggregate amount of $200 million of Ashland common stock using open-market purchases under rule 10b-18. On April 8, 2022, Ashland completed repurchases under this agreement repurchasing a total of 2.15 million shares for a total amount of $200 million.

Operational business model changes and restructurings

As previously disclosed, during the second quarter of fiscal year 2020, Ashland changed the manner in which it manages the business moving from a functionally led to a business led organization. This new business-centric operational model required redesign of core operating systems and processes leading to a realignment in both the selling, general and administrative and research and development costs (SARD) associated with each business. In addition to the realignment of SARD, a productivity review with a focus on cost of goods sold (COGS) was also initiated. Based on these initiatives, Ashland targeted the following savings:

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$50 million of incremental SARD cost savings

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$50 million of incremental COGS productivity savings

As of September 30, 2022, Ashland has achieved all of its target run-rate cost savings under these initiatives.

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RESULTS OF OPERATIONS – CONSOLIDATED REVIEW

Consolidated review

Net income

Ashland’s net income (loss) is primarily affected by results within operating income (loss), net interest and other expense, other net periodic benefit income (loss), net income (loss) on acquisitions and divestitures, income tax expense (benefit), discontinued operations and other significant events or transactions that are unusual or nonrecurring.

Key financial results for 2022, 2021 and 2020 included the following:

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Ashland’s net income/loss amounted to income of $927 million in 2022, income of $220 million in 2021 and loss of $508 million in 2020, or income of $16.41, income of $3.59 and loss of $8.39 diluted earnings per share, respectively.

•
Discontinued operations, which are reported net of taxes, resulted in income of $746 million in 2022, and $47 million each in 2021 and 2020. Fiscal 2022 includes a $726 million gain associated with the sale of the Performance Adhesives business.

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Results from continuing operations, which excludes results from discontinued operations, amounted to income of $181 million and $173 million in 2022 and 2021, respectively, and loss of $555 million in 2020. Fiscal 2020 includes a non-cash pre-tax goodwill impairment charge of $530 million.

•
The effective income tax was an income tax expense rate of 12% for 2022, and income tax benefit rates of 28% and 4% for 2021 and 2020, respectively. These rates were impacted by certain tax specific key items and tax discrete items.

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Ashland incurred pre-tax net interest and other expense of $149 million, $56 million and $119 million during 2022, 2021 and 2020, respectively. This includes charges for $16 million and $59 million for debt refinancing costs during fiscal 2021 and 2020, respectively, and $1 million and $8 million for accelerated debt issuance costs during 2021 and 2020, respectively, as well as losses of $102 million and gains of $21 million, and $20 million on restricted investments during 2022, 2021 and 2020, respectively.

•
Other net periodic benefit income (loss) totaled income of $22 million during 2022, loss of $1 million in 2021, and income of $3 million in 2020.

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Operating income/loss amounted to income of $333 million and $192 million in 2022 and 2021, respectively, and loss of $461 million in 2020. Fiscal 2020 included a non-cash goodwill impairment charge of $530 million.

For further information on the items reported above, see the discussion in the comparative Statements of Consolidated Comprehensive Income (Loss) caption review analysis.

Operating income

Operating income/loss was income of $333 million in 2022 compared to income of $192 million and a loss of $461 million in 2021 and 2020, respectively. The current and prior years’ operating income included certain key items that were excluded to arrive at Adjusted EBITDA and are quantified in the table below in the “EBITDA and Adjusted EBITDA” section. These operating key items for the applicable periods are summarized as follows:

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Restructuring, separation and other costs – Ashland periodically implements company-wide 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 E in the Notes to Consolidated Financial Statements for further information on the restructuring activities.

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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

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liabilities and receivables primarily related to previously divested businesses or non-operational sites. See Note N of the Notes to Consolidated Financial Statements for more information.

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Income/loss on acquisitions/divestitures – Ashland recorded income of $42 million during 2022 related to pre-tax gains related to the sale of excess corporate property, and $11 million during 2021. The income in 2021 includes $3 million of expense relating to the Schülke acquisition and a $14 million gain related to the sale of a Specialty Additives facility.

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Inventory adjustments – During 2021, Ashland recorded non-cash charges related to the fair value adjustment of inventory acquired from Schülke at the date of acquisition during the current year. During 2020, Ashland incurred charges associated with a program to reduce overall inventory levels as part of a working capital efficiency program. While successful in managing inventory levels, these actions resulted in increased expense primarily related to abnormal production variances due to plant shutdowns.

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Asset impairments – Ashland recognized impairment charges to certain assets during 2021. See Note E of the Notes to Consolidated Financial Statements for more information.

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Goodwill impairment – During 2020, Ashland realigned its operations into five reportable segments which resulted in a reassessment of the Company’s reporting units used to evaluate goodwill impairment. The impairment test under the new reporting unit structure concluded that the carrying value of the Personal Care and the Specialty Additives reporting units exceeded their fair value, resulting in a $530 million non-cash pre-tax goodwill impairment charge in 2020. See note H and Critical Accounting Policies for additional information.

Operating income/loss for 2022, 2021 and 2020 included depreciation and amortization of $241 million, $244 million and $235 million, respectively.

Non-operating key items affecting EBITDA

During the current and prior years, there were certain key items that were not included in operating income but were excluded to arrive at Adjusted EBITDA. These non-operating key items for the applicable periods are summarized as follows:

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Gain/loss on pension and other postretirement plan remeasurements - Ashland recognized actuarial gains and losses for defined benefit pension and other postretirement benefit plans annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. See Note M of the Notes to Consolidated Financial Statements for more information.

Statements of Consolidated Comprehensive Income (Loss) – caption review

A comparative analysis of the Statements of Consolidated Comprehensive Income (Loss) by caption is provided as follows for the years ended September 30, 2022, 2021 and 2020.

The following table provides a reconciliation of the change in sales between fiscal years 2022 and 2021 and between fiscal years 2021 and 2020.

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Sales for 2022 increased $280 million, or 13%, compared to 2021. Favorable volume, including the acquisition of Schülke within the Personal Care reportable segment, and product pricing/mix associated with cost inflation pricing actions increased sales by $68 million and $289 million, respectively, partially offset by unfavorable foreign currency exchange of $77 million.

Sales for 2021 increased $95 million, or 5%, compared to 2020. The acquisition of Schülke within the Personal Care reportable segment, product pricing/mix and foreign currency exchange increased sales by $32 million, $20 million and $46 million, respectively. These increases were partially offset by unfavorable volume, which decreased sales by $3 million.

Fluctuations in cost of sales are driven primarily by the effects of challenges in shipping and logistics in the current year, the impact of the COVID-19 pandemic, raw material prices, volume and changes in product mix, currency exchange, acquisitions and divestitures and other certain charges incurred as a result of changes or events within the businesses or restructuring activities.

The following table provides a reconciliation of the changes in cost of sales between fiscal years 2022 and 2021 and between fiscal years 2021 and 2020.

Cost of sales for 2022 increased $120 million compared to 2021. Price/mix, which includes cost inflation associated with plant manufacturing and shipping costs, and higher volume, including Schülke, and higher operating costs increased cost of sales by $91 million, $39 million, and $29 million, respectively. These increases were partially offset by foreign currency exchange, which decreased cost of sales by $39 million. Disciplined pricing and mix actions by Ashland's commercial teams continue to improve operating margins as gross profit as a percentage of sales expanded 3.0 percentage points during the current period.

Cost of sales for 2021 increased $24 million compared to 2020. Foreign currency exchange, the Schülke acquisition, and higher volume increased cost of sales by $22 million, $20 million, and $5 million, respectively. These increases were partially offset by the impact of lower price/mix and lower costs which decreased cost of sales by $7 million and $16 million, respectively.

Selling, general and administrative expense for 2022 increased $35 million compared to 2021, while expenses as a percent of sales decreased 0.6 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to 2021 were:

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Expense of $5 million and $10 million comprised of key items for severance, lease abandonment and other restructuring costs during 2022 and 2021, respectively;

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$53 million and $45 million in net environmental-related expenses during 2022 and 2021, respectively (see Note N for more information);

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$10 million related to a capital project impairment during 2021; and

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Increases associated with the following:

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Higher incentive pay of $14 million;

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Lower transition services income from INEOS of $10 million;

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Higher deferred and stock compensation expense of $8 million;

o
Higher expense of $6 million related to the acquisition of the personal care business of Schülke;

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Higher salary, benefits and travel and entertainment expenses of $2 million.

Selling, general and administrative expense for 2021 decreased $42 million compared to 2020, while expenses as a percent of sales decreased 2.8 percentage points. Key drivers of the fluctuation in selling, general and administrative expense compared to 2020 were:

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$45 million and $36 million in net environmental-related expenses during 2021 and 2020, respectively (see Note N for more information);

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$10 million and $58 million of key items for severance, lease abandonment and other restructuring costs during 2021 and 2020, respectively;

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$15 million and $20 million of stranded divestiture costs during 2021 and 2020, respectively;

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$10 million related to a capital project impairment during 2021; and

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Unfavorable currency exchange of $7 million and lower variable compensation expense.

Research and development expense increased $5 million in 2022 compared to 2021 primarily due to increased incentive accruals and the Schülke acquisition. In 2021, the $6 million decrease compared to 2020 was a result of achieved cost savings and other costs.

Amortization expense increased by $4 million in 2022 compared to 2021 primarily due to the amortization of intangible assets associated with the Schülke acquisition.

Amortization expense increased by $6 million in 2021 compared to 2020 primarily due to the amortization of intangible assets associated with the Schülke acquisition.

Equity and other income's decrease in 2022 compared to 2021 was primarily related to a gain on sale of corporate assets of roughly $4 million in 2021, while 2020 included a liquidation gain of $3 million.

Ashland recorded an impairment charge of $530 million in 2020. See Note H Goodwill and Other Intangibles for additional information.

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Income on acquisitions and divestitures during 2022 primarily relates to a $42 million gain on the sale of excess corporate real estate.

Income on acquisitions and divestitures during 2021 primarily relates to a $14 million gain related to the sale of a Specialty Additives facility. This was partially offset by a $3 million expense in transaction net costs associated with the personal care acquisition of Schülke, including a gain of $1 million associated with foreign currency derivatives entered into to mitigate the foreign exchange exposure of the purchase price.

Net income (loss) on divestitures during 2020 primarily related to the sale of corporate assets and post-closing adjustments for certain divestitures.

Net interest and other expense increased by $93 million in 2022 compared to 2021. Interest expense decreased $7 million primarily due to lower debt levels during 2022 compared to 2021. Restricted investments loss of $86 million and income of $33 million included mark-to-market losses of $102 million compared to gains of $21 million for 2022 and 2021, respectively. See Note F for more information on the restricted investments.

Net interest and other expense decreased by $63 million in 2021 compared to 2020. Interest expense decreased by $19 million due to lower average debt levels, lower cost of debt related to the debt restructuring activity during 2020 and lower accelerated debt issuance costs and original issuance discount costs of $7 million in 2021 compared to 2020. Ashland incurred $16 million of debt refinancing costs during 2021 compared to $59 million during 2020. See Note I for more information on the refinancing activity. The investment securities income of $33 million in 2021 compared to $30 million in 2020 represents investment income related to restricted investments discussed in Note F of the Notes to the Consolidated Financial Statements.

Other net periodic benefit income during 2022 primarily included actuarial gains of $25 million and expected return on plan assets of $7 million, offset by interest cost of $10 million.

Other net periodic benefit expense during 2021 primarily included interest cost of $8 million and a $1 million loss on pension and other postretirement plan remeasurements, offset by expected return on plan assets of $8 million.

Other net periodic benefit income during 2020 primarily included interest cost of $9 million, offset by expected return on plan assets of $11 million and a $1 million gain on pension and other postretirement plan remeasurements.

The 2022 effective tax rate was impacted by jurisdictional income mix, as well as favorable discrete items of $15 million primarily related to uncertain tax positions and restructuring activities.

The 2021 effective tax rate was impacted by jurisdictional income mix, as well as favorable discrete items of $59 million primarily related to the sale of a Specialty Additives facility and uncertain tax positions.

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The 2020 effective tax rate was impacted by nondeductible goodwill impairment of $527 million as well as $15 million favorable tax discrete items primarily from the tax benefit related to the Swiss Tax Reform enacted in the first quarter.

Adjusted income tax expense (benefit)

Key items are defined as the financial effects from significant transactions that may have caused short-term fluctuations in net income and/or operating income which Ashland believes do not accurately reflect Ashland’s underlying business performance and trends. 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 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 measure on a consolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results.

The effective tax rates during 2022, 2021 and 2020 were significantly impacted by the following tax specific key items:

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Uncertain tax position - Includes the impact from the settlement of uncertain tax positions with various tax authorities;

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Valuation allowances - Includes the impact from the release of certain foreign tax credit valuation allowances during 2022; and

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Restructuring and separation activity – Includes the impact from company-wide cost reduction programs, and the impact of the sale of a Specialty Additives facility.

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

(a)
See Adjusted EBITDA reconciliation table disclosed below in this Management, Discussion and Analysis 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 below in this Management Discussion and Analysis.

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

The following table provides a reconciliation of tax specific key items within the statutory federal income tax with the provision for income taxes summary disclosed in Note L of the Notes to Consolidated Financial Statements.

As a result of the divestiture of the Performance Adhesives segment and the divestiture of the Composites segment (including the Maleic business) and Marl facility, the related operating results have been reflected as discontinued operations (net of tax) within the Statements of Consolidated Comprehensive Income (Loss). See Note C for more information on these transactions. In

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2022, the sales and pre-tax income included in discontinued operations were $171 million and $33 million, respectively, for the Performance Adhesives segment. In 2021, the sales and pre-tax income included in discontinued operations were $372 million and $83 million, respectively, for the Performance Adhesives segment. In 2020, the sales and pre-tax income included in discontinued operations were $310 million and $74 million for the Performance Adhesives segment, respectively, and $51 million and $9 million for the Composites segment (including the Maleic business) and Marl Facility, respectively. In 2022, a $726 million gain on disposal was recorded associated with the February 28, 2022 closing of the Performance Adhesives business segment divestiture. In 2020, a $29 million gain on disposal was recorded in the fourth quarter associated with the September 30, 2020 closing of the sale of the Maleic business.

Asbestos-related activity during 2022, 2021 and 2020 included after-tax net adjustments to the asbestos reserves and receivables of $14 million of expense, $9 million of expense and $18 million of expense, respectively, including the adjustments for the annual update.

The Valvoline activity within 2022, 2021 and 2020 primarily represents subsequent adjustments that were made in conjunction with the post-closing disputes and Tax Matters Agreement.

The activity for Water Technologies and Distribution were primarily related to post-closing adjustments associated with environment remediation reserves.

Other comprehensive income (loss)

A comparative analysis of the components of other comprehensive income (loss) is provided below for the last three fiscal years ended September 30.

Total other comprehensive income (loss), net of tax, decreased $208 million in 2022 as compared to 2021 as a result of the following components.

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In 2022, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in a loss of $197 million, compared to a gain of $7 million during 2021. The fluctuations in unrealized translation gains and losses were primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars.

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In 2022, a $1 million unrealized loss on commodity hedges was recorded compared to a gain of $4 million during 2021. See Note F for more information.

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In 2022, a $1 million pension and postretirement obligation adjustment was recorded.

Total other comprehensive income (loss), net of tax, decreased $16 million in 2021 as compared to 2020 as a result of the following components.

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In 2021, the change in unrealized gain (loss) from foreign currency translation adjustments resulted in a gain of $7 million, compared to a gain of $27 million during 2020. The fluctuations in unrealized translation gains and losses were primarily due to translating foreign subsidiary financial statements from local currencies to U.S. Dollars.

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In 2021, a $4 million unrealized gain on commodity hedges was recorded. See Note F for more information.

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Use of non-GAAP measures

Ashland has included within this document the following non-GAAP 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 or cash flows from operating activities as a measure of operating performance or cash flows:

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EBITDA – net income (loss), plus income tax expense (benefit), net interest and other expenses, and depreciation and amortization.

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Adjusted EBITDA – EBITDA adjusted for discontinued operations and key items (including remeasurement gains and losses related to pension and other postretirement plans).

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Adjusted EBITDA margin – Adjusted EBITDA divided by sales.

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Adjusted diluted earnings per share (EPS) – income (loss) from continuing operations, adjusted for key items, net of tax, divided by the average outstanding diluted shares for the applicable period.

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Adjusted diluted earnings per share (EPS) excluding intangibles amortization expense – Adjusted earnings per share adjusted for intangibles amortization expense net of tax, divided by the average outstanding diluted shares for the applicable period.

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Free cash flow – operating cash flows less capital expenditures.

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Ongoing free cash flow – operating cash flows less capital expenditures and certain other adjustments as applicable.

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Ongoing free cash flow conversion – ongoing free cash flow divided by adjusted EBITDA.

Management believes the use of EBITDA and Adjusted EBITDA measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance by presenting comparable financial results between periods. Ashland believes that by removing the impact of depreciation and amortization and excluding certain non-cash charges, amounts spent on interest and taxes and certain other charges that are highly variable from year to year, EBITDA and Adjusted EBITDA provide Ashland’s investors with performance measures that reflect the impact to operations from trends in changes in sales, margin and operating expenses, providing a perspective not immediately apparent from net income and operating income. The adjustments Ashland makes to derive the non-GAAP measures of EBITDA and Adjusted EBITDA exclude items which may cause short-term fluctuations in net income and operating income and which Ashland does not consider to be the fundamental attributes or primary drivers of its business. EBITDA and Adjusted EBITDA provide disclosure on the same basis as that used by Ashland’s management to evaluate financial performance on a consolidated and reportable segment basis and provide consistency in our financial reporting, facilitate internal and external comparisons of Ashland’s historical operating performance and its segments and provide continuity to investors for comparability purposes.

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.

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.

The 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 includes 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 has certain limitations, including that it does not reflect adjustment for certain non-discretionary cash flows such as mandatory debt repayments. The amount of mandatory versus discretionary expenditures can vary significantly between periods.

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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 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 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 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 items that impact comparability between periods. In addition, certain financial covenants related to Ashland’s 2022 Credit Agreement are based on similar non-GAAP measures and are defined further in the sections that reference this metric.

In accordance with U.S. GAAP, Ashland recognizes actuarial gains and losses for defined benefit pension and other postretirement benefit plans annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. Actuarial gains and losses occur when actual experience differs from the estimates used to allocate the change in value of pension and other postretirement benefit plans to expense throughout the year or when assumptions change, as they may each year. Significant factors that can contribute to the recognition of actuarial gains and losses include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets and other changes in actuarial assumptions, for example, the life expectancy of plan participants. Management believes Adjusted EBITDA, which includes the expected return on pension plan assets yet excludes both the actual return on pension plan assets and the impact of actuarial gains and losses, provides investors with a meaningful supplemental presentation of Ashland’s operating performance (see the Adjusted EBITDA reconciliation table for additional details on exact amounts included within this non-GAAP measure related to pension and other postretirement plans). Management believes these actuarial gains and losses are primarily financing activities that are more reflective of changes in current conditions in global financial markets (and in particular interest rates) that are not directly related to the underlying business. For further information on the actuarial assumptions and plan assets referenced above, see Note M of the Notes to Consolidated Financial Statements.

M-13

EBITDA and Adjusted EBITDA

EBITDA totaled income of $1,342 million, income of $482 million and a loss of $176 million for 2022, 2021 and 2020, respectively. EBITDA and Adjusted EBITDA results in the following table 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.

(a)
Excludes income of $2 million during 2020, related to ongoing adjustments of previous divestiture transactions.

(b)
Includes $8 million, $6 million and $4 million during 2022, 2021 and 2020, respectively, of net periodic pension and other postretirement expense recognized ratably through the fiscal year. These expenses are comprised of service cost, interest cost, expected return on plan assets, and amortization of prior service credit and are disclosed in further detail in Note M of the Notes to Consolidated Financial Statements.

(c)
Debt refinancing costs during 2021 included a $16 million loss on early retirement of debt and a $1 million charge for accelerated debt issuance costs. Debt refinancing costs during 2020 included $59 million loss on early retirement of debt. All debt refinancing costs were recorded within the net interest and other financing expense caption on the Statements of Consolidated Comprehensive Income (Loss). See Note I of the Notes to Consolidated Financial Statements for more information.

M-14

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 and/or operating income 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 and Adjusted Diluted EPS from continuing operations excluding intangibles amortization expense in the following table have been prepared to illustrate these ongoing effects on Ashland’s operations. Management believes investors and analysts use this financial measure in assessing Ashland's business performance and that presenting this non-GAAP measure on a consolidated basis assists investors in better understanding Ashland’s ongoing business performance and enhancing their ability to compare period-to-period financial results.

(a)
Represents the diluted EPS impact from the tax effect of the key items that are previously 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 expense (benefit) discussion within the following caption review section.

(c)
Amortization expense adjustment (net of tax) tax rates were 20.0%, 20.0% and 21.0% for the years ended 2022, 2021 and 2020, respectively.

M-15

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. The historical segment information has been recast to conform to the current segment structure.

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 income (loss) caption on the Statements of 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. This includes charges in prior years for indirect corporate costs previously allocated to Performance Adhesives. These costs are now reflected in Unallocated and Other for all periods presented.

M-16

The following table shows sales, operating income, depreciation and amortization and EBITDA by reportable segment for each of the last three years ended September 30.

(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 income on acquisitions and divestitures, net for fiscal 2022, 2021 and 2020 within Unallocated and Other. Includes a fixed asset impairment of $3 million related to Personal Care and a capital project impairment of $10 million related to Specialty Additives for the year ended September 30, 2021.

(c)
Excludes income from discontinued operations and other net periodic benefit income (loss). See the Statement of Consolidated Comprehensive Income (Loss) for applicable amounts excluded.

M-17

Life Sciences

Life Sciences is comprised of pharmaceuticals, nutrition, nutraceuticals, 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. Nutraceutical solutions include products for weight management, joint comfort, stomach and intestinal health, sports nutrition and general wellness. The nutraceutical business also provide custom formulation, toll processing and particle engineering solutions. Customers include pharmaceutical, food, beverage, nutraceuticals and supplements manufacturers, hospitals and radiologists and industrial manufacturers.

2022 compared to 2021

Life Sciences' sales for the current year increased $78 million to $815 million compared to 2021. Favorable pricing/mix and higher volume increased sales by $75 million and $28 million, respectively, while unfavorable foreign currency exchange decreased sales by $25 million.

Operating income increased $25 million to $155 million compared to 2021. Favorable price/mix and higher volume increased operating income by $54 million and $10 million, respectively, partially offset by unfavorable foreign currency exchange and higher costs which decreased operating income by $16 million and $23 million, respectively.

EBITDA for the current year increased $24 million to $218 million compared to 2021. Adjusted EBITDA increased $23 million to $218 million. Adjusted EBITDA margin increased 0.2 percentage points in the current period to 26.7%.

2021 compared to 2020

Life Sciences' sales for 2021 increased $29 million to $737 million compared to 2020. Favorable currency exchange, favorable volume and favorable pricing increased sales by $14 million, $11 million and $4 million, respectively.

Operating income increased $7 million to $130 million compared to 2020. Favorable foreign currency exchange and higher volume increased operating income $12 million and $3 million, respectively, offset by unfavorable pricing and higher production costs, and environmental reserve adjustments of $14 million, $4 million, and $1 million, respectively. Additionally, there were $11 million of inventory control costs in 2020 compared to zero in 2021.

EBITDA for 2021 increased $11 million to $194 million compared to 2020. Adjusted EBITDA was flat year over year, while adjusted EBITDA margin decreased 1.0 percentage points in the current period to 26.5%.

EBITDA and Adjusted EBITDA reconciliation

The EBITDA and Adjusted EBITDA amounts presented within this business section are provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for each segment. Each of these non-GAAP measures is defined as follows: EBITDA (operating income plus depreciation and amortization), Adjusted EBITDA (EBITDA adjusted for key items as applicable), and Adjusted EBITDA margin (Adjusted EBITDA divided by sales). Ashland does not allocate items to each reportable segment below operating income, such as interest expense and income taxes. As a result, reportable segment EBITDA and Adjusted EBITDA are reconciled directly to operating income since it is the most directly comparable Statements of Consolidated Comprehensive Income (Loss) caption.

The following EBITDA presentation for the years ended September 30, 2022, 2021 and 2020, is provided as a means to enhance the understanding of financial measurements that Ashland has internally determined to be relevant measures of comparison for the results of Life Sciences.

The key items during year ended September 30, 2021 related to environmental reserve adjustments of $1 million.

M-18

The key items during year ended September 30, 2020 related to inventory control measures of $11 million and restructuring costs of $1 million.

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. Household 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.

On April 30, 2021, Ashland completed the $312 million acquisition of the personal care business from Schülke. The completion of the acquisition is expected to strengthen the profitable growth of the personal care segment, enhance the specialty ingredients solutions and expand the biotechnology and microbiology technical competencies.

2022 compared to 2021

Personal Care's sales for the current year increased $86 million to $678 million compared to 2021. Favorable product pricing/mix and volume, including the impact of the Schülke acquisition, increased sales by $40 million and $68 million, respectively. Unfavorable currency exchange decreased sales by $22 million.

Operating income/loss for the current year increased $29 million to income of $102 million compared to 2021. Favorable price/mix, lower costs and higher volume, including the impact of the Schülke acquisition increased operating income by $16 million, $13 million and $6 million, respectively. Unfavorable currency exchange decreased operating income by $6 million.

EBITDA for the current year increased $32 million to $186 million compared to 2021. Adjusted EBITDA increased $25 million to $186 million. Adjusted EBITDA margin increased 0.2 percentage points in the current period to 27.4%.

2021 compared to 2020

Personal Care's sales for 2021 decreased $23 million to $592 million compared to 2020. Unfavorable volume and product pricing decreased sales by $64 million and $3 million, respectively. These decreases were partially offset by the Schülke acquisition and foreign currency, which increased sales by $32 million and $12 million, respectively.

Operating income/loss for 2021 increased $369 million to income of $73 million compared to 2020. Favorable foreign currency exchange, lower costs, a prior year goodwill impairment and prior year inventory control costs increased operating income by $6 million, $37 million, $356 million and $13 million, respectively. These increases were partially offset by an inventory adjustment related to the Schülke acquisition, lower volume, unfavorable price/mix, a plant restructuring related impairment charge, and storm related unplanned plant shutdown costs which decreased operating income by $4 million, $23 million, $2 million, $3 million, and $11 million, respectively.

EBITDA for 2021 increased $373 million to income of $154 million compared to 2020. Adjusted EBITDA increased $11 million to $161 million. Adjusted EBITDA margin increased 2.8 percentage points in the current period to 27.2%.

M-19

EBITDA and Adjusted EBITDA reconciliation

The following EBITDA presentation (as defined and described in the section above) for the years ended September 30, 2022, 2021 and 2020, 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 during year ended September 30, 2021 related to inventory adjustments of $4 million and an asset impairment of $3 million.

The key items during year ended September 30, 2020 related to a goodwill impairment of $356 million and $13 million in inventory control measures.

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.

2022 compared to 2021

Specialty Additives sales for the current year increased $64 million to $719 million compared to 2021. Favorable product pricing/mix increased sales by $99 million. Unfavorable volume and currency exchange decreased sales by $10 million and $25 million, respectively.

Operating income/loss for the current year increased $42 million to $103 million compared to 2021. Favorable pricing/mix and a capital project impairment in the prior year period increased operating income by $54 million and $10 million, respectively. Higher costs, lower volume and unfavorable foreign currency decreased operating income by $18 million, $2 million and $2 million, respectively.

EBITDA for the current year increased $38 million to $184 million compared to 2021, Adjusted EBITDA increased $27 million to $185 million and Adjusted EBITDA margin increased 1.6 percentage points in 2022 to 25.7%.

2021 compared to 2020

Specialty Additives sales for 2021 increased $66 million to $655 million compared to 2020. Higher volume, favorable currency exchange, and product pricing increased sales by $44 million, $19 million, and $3 million, respectively.

M-20

Operating income/loss for 2021 increased $193 million to $61 million compared to 2020. Higher volume, favorable price/mix, foreign currency exchange, a prior year goodwill impairment charge and prior year inventory control costs increased operating income by $12 million, $14 million, $2 million, $174 million and $18 million, respectively. Those improvements were partially offset by higher production costs and a capital project impairment of $17 million and $10 million, respectively.

EBITDA for 2021 increased $197 to $146 million compared to 2020, Adjusted EBITDA increased $15 million to $158 million and Adjusted EBITDA margin decreased 0.2 percentage points in 2021 to 24.1%.

EBITDA and adjusted EBITDA reconciliation

The following EBITDA presentation (as defined and described in the section above) for the years ended September 30, 2022, 2021 and 2020 below 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 2022 included $1 million related to environmental reserve adjustments within Specialty Additives.

The key items during 2021 included $10 million and $2 million related to a capital project impairment and environmental reserve adjustments within Specialty Additives, respectively.

The key items during 2020 included $174 million related to Goodwill impairment, $18 million for inventory control measures and $2 million of environmental reserve adjustments.

Intermediates

Intermediates is comprised of the production of 1,4 butanediol (BDO) and related derivatives, including n-methylpyrrolidone. 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.

2022 compared to 2021

Intermediates’ sales for 2022 increased $78 million to $256 million compared to 2021. Improved product pricing/mix increased sales by $100 million, partially offset by unfavorable volumes and unfavorable foreign currency exchange which decreases sales by $17 million and $5 million, respectively.

Operating income/loss for 2022 increased $52 million to income of $87 million compared to 2021. Price/mix increased operating income by $75 million, and was partially offset by higher costs, lower volume and unfavorable foreign currency which decreased operating income by $13 million, $6 million and $4 million, respectively.

EBITDA and Adjusted EBITDA for 2022 increased $52 million to $100 million compared to 2021. Adjusted EBITDA margin increased 12.1 percentage points in 2022 to 39.1%.

2021 compared to 2020

Intermediates’ sales for 2021 increased $49 million to $178 million compared to 2020 primarily due to higher product pricing, higher volume, and favorable foreign exchange increasing sales $31 million, $17 million, and $1 million, respectively.

M-21

Operating income/loss for 2021 increased $45 million to income of $35 million compared to 2020. Pricing/mix, lower production costs, prior year inventory adjustments, and favorable foreign exchange increased operating income by $28 million, $9 million, $9 million, and $1 million, respectively. This increase was partially offset by unfavorable volume which decreased operating income by $2 million.

EBITDA for 2021 increased $44 million to $48 million compared to 2020, while Adjusted EBITDA increased $35 million to $48 million. Adjusted EBITDA margin increased 16.9 percentage points in 2021 to 27.0%.

EBITDA and Adjusted EBITDA reconciliation

The following EBITDA presentation (as defined and described in the section above) for the years ended September 30, 2022, 2021 and 2020 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.

Key items for 2020 included inventory control measures of $9 million.

Unallocated and other

The following table summarizes the key components of the Unallocated and other segment’s operating income (loss) for each of the last three years ended September 30.

Unallocated and other recorded expense of $114 million, $107 million and $146 million for 2022, 2021 and 2020 respectively. The charges for restructuring activities of $14 million, $25 million and $78 million during 2022, 2021 and 2020, respectively, were primarily comprised of the following items:

•
$5 million, $10 million and $58 million of severance, lease abandonment and other restructuring costs related to company-wide cost reduction programs during 2022, 2021 and 2020, respectively, and;

•
$9 million, $15 million and $20 million of stranded divestiture costs during 2022, 2021 and 2020, respectively.

The remaining items included: $51 million, $40 million and $33 million for environmental expenses in 2022, 2021 and 2020, respectively, and $2 million for legal settlement reserves in 2020, and income of $42 million, $11 million and $2 million from acquisitions and divestitures in 2022, 2021 and 2020, respectively. See income on acquisitions and divestitures caption review above for additional details.

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

M-22

FINANCIAL POSITION

Liquidity

Ashland had $646 million in cash and cash equivalents as of September 30, 2022, of which $230 million was held by foreign subsidiaries and had no significant limitations that would prohibit remitting the funds to satisfy corporate obligations. In certain circumstances, if such amounts were repatriated to the United States, additional taxes might need to be accrued and paid depending on the source of the earnings remitted. Ashland currently has no plans to repatriate any amounts for which additional taxes would need to be accrued. However, due to the Tax Act enacted in 2018, Ashland may reassess this position as it pertains to future earnings.

Ashland has taken actions and may continue to take actions intended to increase its cash position and preserve financial flexibility in light of current uncertainty in global markets. During July 2022, Ashland enacted an amendment to the 2020 credit agreement. The amended credit agreement (the 2022 Credit Agreement) provides for a $600 million five-year revolving credit facility (the 2022 Revolving Credit Facility). Proceeds of borrowings under the 2022 Revolving Credit Facility are intended to provide ongoing working capital and for other general corporate purposes. During 2022, Ashland prepaid its Term loan A principal balance of $250 million and repaid the existing balance on its European short-term loan facility for $23 million. As of September 30, 2022, Ashland has total remaining borrowing capacity of $680 million available under the Revolving Credit Facility and foreign Accounts Receivable Securitization Facility. Ashland had zero available liquidity under the U.S. Accounts Receivable Sales Program as of September 30, 2022. Ashland has no maturities related to revolving credit facilities or bonds until fiscal 2027. See Note I for more information.

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.

Ashland’s cash flows from operating, investing and financing activities, as reflected in the Statements of Consolidated Cash Flows, are summarized as follows.

Ashland paid income taxes of $406 million, of which $339 million related to discontinued operations, during 2022 compared to $1 million in 2021 and $91 million in 2020. Cash receipts for interest income were $4 million in 2022, and $1 million in 2021 and 2020, respectively, while cash payments for interest expense amounted to $56 million in 2022, $62 million in 2021 and $77 million in 2020.

M-23

Operating activities

The following discloses the cash flows associated with Ashland’s operating activities for 2022, 2021 and 2020, respectively.

(a) Excludes changes resulting from operations acquired or sold.

Cash flows provided by operating activities from continuing operations, a major source of Ashland’s liquidity, amounted to $193 million in 2022, $466 million in 2021 and $227 million in 2020.

Operating Activities - Operating Assets and Liabilities

The cash results during each year were primarily driven by net income, excluding discontinued operation results, adjusted for certain non-cash items including depreciation and amortization (including debt issuance cost amortization), income on acquisitions and divestitures as well as changes in working capital, which are fluctuations within accounts receivable, inventory, trade payables and accrued expenses.

The following details certain changes in key operating assets and liabilities for 2022, 2021 and 2020, respectively.

(a) Excludes changes resulting from operations acquired or sold.

M-24

Changes in net working capital accounted for outflows of $130 million in 2022, and inflows of $116 million in 2021 and $20 million in 2020, and were driven by the following:

•
Accounts receivable – Changes in accounts receivable resulted in outflows of $23 million, and inflows of $72 million, and $2 million in 2022, 2021 and 2020, respectively, and were primarily related to $17 million and $92 million of inflows from the U.S. Accounts Receivable Sales Program in 2022 and 2021, respectively, and to sales volumes in each period.

•
Inventory – Changes in inventory resulted in cash outflows of $141 million in 2022 and inflows of $41 million in 2021 and $64 million in 2020 and were primarily driven by inventory management activities, including significant plant shut-downs in the fourth quarter of 2020. Additionally, 2022 was impacted by cost inflation and management efforts to rebuild inventory levels globally in response to global supply-chain challenges.

•
Trade and other payables – Changes in trade and other payables resulted in cash inflows of $34 million in 2022, cash inflows of $3 million in 2021 and cash outflows of $46 million in 2020, respectively, and primarily related to the timing of certain payments.

The remaining cash outflows of $107 million, $36 million and $11 million in 2022, 2021 and 2020, respectively, were primarily due to income taxes paid or income tax refunds, interest paid, and adjustments to certain accruals and other long-term assets and liabilities such as payments associated with environmental remediation.

Operating Activities - Other

Operating cash flows for 2022 included income from continuing operations of $181 million and significant non-cash adjustments of $241 million for depreciation and amortization, $18 million for stock-based compensation expense, $86 million of losses from restricted investments, $22 million gain on pension and other postretirement plan remeasurements, $35 million for deferred taxes, and $42 million of income on acquisitions and divestitures.

Operating cash flows for 2021 included income from continuing operations of $173 million and significant non-cash adjustments of $244 million for depreciation and amortization, $15 million for stock-based compensation expense, $16 million for losses on early retirement of debt, $33 million of income from restricted investments, $26 million for deferred taxes, $15 million of income on acquisitions and divestitures and $13 million for impairment charges.

Operating cash flows for 2020 included loss from continuing operations of $555 million and significant non-cash adjustments of $530 million for a goodwill impairment charge, $235 million for depreciation and amortization, $59 million loss on early retirement of debt, $15 million original issue discounts and debt issuance cost amortization, $42 million for deferred income taxes, $14 million related for stock-based compensation expense and $30 million income from restricted investments.

Investing activities

The following discloses the cash flows associated with Ashland’s investing activities for 2022, 2021 and 2020.

M-25

Cash used by investing activities was $102 million in 2022 compared to $367 million and $85 million in 2021 and 2020, respectively. The significant cash investing activities for the current year primarily related to cash outflows of $113 million for capital expenditures and $74 million restricted for investment trust purposes for environmental. Additionally, there were inflows of $51 million from the disposal of excess corporate property and reimbursements of $35 million from the restricted renewable annual investment trusts.

The 2021 year included cash outflows of $105 million for capital expenditures and $309 million related to the purchase of the Schülke personal care business. Additionally, there were reimbursements of $33 million from the restricted renewable annual investment trusts and $14 million of proceeds from the sale of a manufacturing facility as well as post-closing adjustments. During the fourth quarter of fiscal 2021, Ashland liquidated $90 million in company owned life insurance contracts to initiate the environmental trust as part of restricted investments.

The 2020 year included cash outflows of $133 million for capital expenditures. Additionally, there were reimbursements of $35 million from the restricted renewable annual investment trusts and $9 million of proceeds from the sale of a manufacturing facility.

Financing activities

The following discloses the cash flows associated with Ashland’s financing activities for 2022, 2021 and 2020, respectively.

Cash used by financing activities was $896 million for 2022, $426 million for 2021, and $9 million inflow for 2020. Significant cash financing activities for 2022 included outflows of $250 million for the full prepayment of the term loan A and short-term debt repayment of $365 million. See note I for additional information. 2022 also included cash dividends paid of $1.27 per share, for a total of $70 million and common stock repurchases of $200 million.

Significant cash financing activities for 2021 included $411 million for the full repayment of the 4.750% notes due 2022, $16 million of premiums paid on the retirement of the aforementioned notes, $450 million of proceeds from the issuance of new 3.375% senior notes due 2031, payments of $6 million of new debt issuance costs, and short-term debt of $84 million. See note I for additional information. 2021 also included cash dividends paid of $1.15 per share, for a total of $70 million and common stock repurchases of $450 million.

Significant cash financing activities for 2020 included proceeds from issuance of long-term debt, repayment of long-term debt, premiums paid on retirement of long-term debt, and debt issuance costs paid of $804 million, $767 million, $59 million and $11 million, respectively, all related to debt refinancing activity. See note I for additional information. 2020 also included short-term cash inflows of $115 million, primarily related to draws on the 2020 Revolving Credit Facility and cash dividends paid of $1.10 per share, for a total of $66 million.

M-26

Cash provided (used) by discontinued operations

The following discloses the cash flows associated with Ashland’s discontinued operations for 2022, 2021 and 2020, respectively.

Cash flows for discontinued operations in 2022, 2021 and 2020 primarily related to net cash inflows of $1.3 billion (which includes net proceeds from the completed sale of the Performance Adhesives business segment of $1.7 billion in 2022) related to the divestiture of the Performance Adhesives business segment including $339 million in cash tax payments associated with the transaction in 2022; Inflows of $88 million related to the Performance Adhesives segment and a $30 million cash inflow for a tax refund associated with the Composites divestiture in 2021; $80 million inflows related to the Performance Adhesives segment, $98 million inflows related to the sale of the Maleic business and $59 million cash outflows for tax payments associated with the sale of the Composites business and Marl facility in 2020. The remaining cash flows for discontinued operations for these years related to other previously divested businesses, including net payments of asbestos and environmental liabilities related to those divested businesses.

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.

(a) Represents activity associated with the U.S. Accounts Receivable Sales Program impacting each period presented.

(b) Restructuring payments incurred during each period.

(c) Represents cash outflows associated with environmental and related litigation payments which will be reimbursed by the environmental trust.

(d) See adjusted EBITDA reconciliation.

(e) Ongoing free cash flow divided by Adjusted EBITDA.

M-27

Working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $1,215 million and $792 million as of September 30, 2022 and September 30, 2021, respectively. The increase in working capital was the primary reason of the $224 million decline in ongoing free cash flow between periods primarily as a result of increased inventories to navigate supply-chain issues as well as cost inflation and increased accounts receivable as a result of higher sales volumes. Higher cash tax payments of $39 million also negatively impacted ongoing free cash flow between periods. Liquid assets (cash, cash equivalents and accounts receivable) amounted to 190% and 65% of current liabilities (excluding current liabilities held for sale) as of September 30, 2022 and September 30, 2021, respectively.

The following summary reflects Ashland’s cash, investment securities and unused borrowing capacity as of September 30, 2022, 2021 and 2020.

(a) Includes $245 million, $333 million and $331 million related to the Asbestos trust and $129 million, $88 million and zero related to the Environmental trust as of September 30, 2022, 2021 and 2020 respectively.

The borrowing capacity remaining under the $600 million revolving credit facility was $581 million due to an outstanding balance of zero, as well as a reduction of $19 million for letters of credit outstanding at September 30, 2022. In total, Ashland’s available liquidity position, which includes cash, the revolving credit facilities and accounts receivable securitization facilities, was $1,326 million at September 30, 2022 as compared to $566 million at September 30, 2021 and $954 million at September 30, 2020. Ashland had zero liquidity available under the U.S. Accounts Receivable Sales Program as of September 30, 2022 compared to $12 million as of September 30, 2021. Ashland also maintained $374 million of restricted investments to pay for future asbestos claims and environmental remediation and litigation. For further information, see Note I within the Notes to Consolidated Financial Statements.

Capital resources

Debt

The following summary reflects Ashland’s debt as of September 30, 2022 and 2021.

(a) Includes $14 million and $17 million of debt issuance cost discounts as of September 30, 2022 and 2021, respectively.

During July 2022, Ashland enacted an amendment to the 2020 credit agreement which provides for a $600 million five-year revolving credit facility. Proceeds of borrowings under the 2022 Revolving Credit Facility are intended to provide ongoing working capital and for other general corporate purposes. During fiscal 2021, Ashland completed the issuance of 3.375% senior unsecured notes due 2031 with an aggregate principal amount of $450 million. Ashland used the net proceeds of the offering to redeem its obligations under the existing 4.750% senior notes due 2022 for a total of $411 million.

Debt as a percent of capital employed was 28% at September 30, 2022 and 42% at September 30, 2021. At September 30, 2022, Ashland’s total debt had an outstanding principal balance of $1,321 million, discounts of $37 million and debt issuance costs of $14 million. Ashland had no long-term debt (excluding debt issuance costs) maturing within the next 4 years and $4 million due in fiscal 2027.

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Credit Agreements and Refinancing

Note Issuances

During August 2021, Ashland, through one of its subsidiaries, completed the issuance of 3.375% senior unsecured notes due 2031 with an aggregate principal amount of $450 million (the 2031 Notes). The notes are guaranteed on an unsecured basis by Ashland. Ashland used the net proceeds of the offering (after deducting initial purchasers' discounts and other fees and expenses) to redeem its obligations under the existing 4.750% senior notes due 2022 described below in debt repayments, and to pay fees and expenses associated therewith.

Ashland incurred $6 million of new debt issuance costs in connection with the 2031 Notes, which is amortized using the effective interest method over the 2031 Notes' term and was included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss).

During January 2020, a subsidiary of Ashland, Ashland Services B.V., completed the issuance of 2.00% senior unsecured notes due 2028 with an aggregate principal amount of €500 million (the 2028 Notes). The notes are senior unsecured obligations of Ashland Services B.V and are guaranteed on an unsecured basis by Ashland.

Ashland incurred $8 million of new debt issuance costs in connection with the 2028 Notes, which is amortized using the effective interest method over the 2028 Notes’ term.

2020 Credit Agreement

During January 2020, Ashland, through two of its subsidiaries, entered into a new senior unsecured credit agreement (the 2020 Credit Agreement) with a group of lenders, replacing the 2017 Credit Agreement. The 2020 Credit Agreement provided for (i) a $600 million unsecured five-year revolving credit facility (the 2020 Revolving Credit Facility) and (ii) a $250 million unsecured five-year term loan facility (the 2020 Term Loan Facility). Proceeds of borrowings under the 2020 Revolving Credit Facility were used to refinance the Ashland’s existing 2017 Credit Agreement, to provide ongoing working capital and for other general corporate purposes.

Ashland incurred $4 million of new debt issuance costs in connection with the 2020 Credit Agreement, of which $1 million was expensed immediately during 2020 within the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). The remaining balance is amortized using the straight-line method.

During July 2022, Ashland, through two of its subsidiaries, enacted an amendment to the 2020 credit agreement. The amended credit agreement (the 2022 Credit Agreement) provides for a $600 million five-year revolving credit facility (the 2022 Revolving Credit Facility). The 2022 Credit Agreement and the obligations of Ashland Services B.V. under the 2022 Revolving Credit Facility are guaranteed by Ashland.

At Ashland’s option, loans issued under the 2022 Credit Agreement will bear interest at (a) in the case of loans denominated in U.S. dollars, either Term SOFR or an alternate base rate and (b) in the case of loans denominated in Euros, EURIBOR, in each case plus the applicable interest rate margin. Loans will initially bear interest at Term SOFR or EURIBOR plus 1.250% per annum, in the case of Term SOFR borrowings or EURIBOR borrowings, respectively, or at the alternate base rate plus 0.250% per annum, in the case of alternate base rate borrowings, through and including the date of delivery of a quarterly compliance certificate and thereafter the interest rate will fluctuate between Term SOFR or EURIBOR plus 1.250% per annum and Term SOFR or EURIBOR plus 1.750% per annum (or between the alternate base rate plus 0.250% per annum and the alternate base rate plus 0.750% per annum), based upon the Consolidated Net Leverage Ratio (as defined in the Credit Agreement) at such time. Term SOFR borrowings are subject to a credit spread adjustment of 0.10% per annum. In addition, the Company will initially be required to pay fees of 0.125% per annum on the daily unused amount of the Revolving Facility through and including the date of delivery of a quarterly compliance certificate, and thereafter the fee rate will fluctuate between 0.125% and 0.275% per annum, based upon the Consolidated Net Leverage Ratio. Borrowings under the 2022 Credit Agreement may be prepaid at any time without premiums.

As a result of the amendment of the 2020 Credit Agreement, Ashland recognized a $1 million charge for accelerated amortization of previously capitalized debt issuance costs during 2022, which is included in the net interest and other expense

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caption of the Statements of Consolidated Comprehensive Income (Loss). Ashland also incurred $2 million of new debt issuance costs in connection with the 2022 Credit Agreement, of which $1 million was expensed immediately during 2022 within the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). The remaining balance is amortized using the straight-line method.

The 2022 Credit Agreement contains financial covenants for leverage and interest coverage ratios akin to those in effect under the 2020 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 indebtedness, further negative pledges, investments, mergers, sale of assets and restricted payments, and other customary limitations.

Debt repayments and repurchases

Cash repatriation

During 2022 and 2021, Ashland repatriated approximately $250 million and $131 million, respectively, in cash that was primarily used to repay existing debt, principally portions of the 4.75% senior notes due 2022, the 6.875% senior notes due 2043 and the 6.5% junior notes in 2020 (as previously discussed).

2022 Debt repayments and repurchases

2020 Credit Agreement

During 2022, Ashland prepaid its Term loan A principal balance of $250 million.

Other Debt

During 2022, Ashland repaid the outstanding balance on its European short-term loan facility for $23 million.

2021 Debt repayments and repurchases

Redemption of 4.750% senior notes due 2022

During 2021, Ashland redeemed all of its outstanding 4.750% senior notes due 2022 (the 2022 Notes), of which approximately $411 million were outstanding. Ashland recognized a $1 million charge related to accelerated accretion on debt discounts and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss).

Total premiums paid for all the tender offers in 2021 noted above were $16 million, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss).

2020 Debt repayments and repurchases

Tender offers of 4.750% senior notes due 2022

During 2020, Ashland executed tender offers of the 2022 Notes. As a result of these repurchases, the carrying values of the 2022 Notes was reduced by $670 million. Ashland recognized a $5 million charge related to accelerated accretion on debt discounts and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss).

Tender offers of 6.875% notes due 2043

During 2020, Ashland executed tender offers of its 6.875% notes due 2043 (the 2043 Notes). As a result of these repurchases, the carrying values of the 2043 Notes was reduced by $92 million. Ashland recognized a $1 million charge related to accelerated accretion on debt premiums and accelerated amortization of previously capitalized debt issuance costs, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss).

Tender offers of 6.500% Junior Subordinated Debentures due 2029

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During 2020, Ashland executed tender offers of Hercules LLC’s 6.500% junior subordinated debentures due 2029 (the 2029 Junior Debentures). As a result of these repurchases, the carrying values of the 2029 Junior Debentures was reduced by $2 million.

Total premiums paid for all the tender offers in 2020 noted above were $59 million, which is included in the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss).

Accounts receivable facilities and off-balance sheet arrangements

U.S. accounts receivable sales program

On March 17, 2021, a wholly-owned, bankruptcy-remote special purpose entity and consolidated Ashland subsidiary (SPE) entered into an agreement with a group of entities (buyers) to sell certain trade receivables, without recourse beyond the pledged receivables, of two other U.S. based Ashland subsidiaries. Under the agreement, Ashland can transfer whole receivables up to a limit established by the buyer, which is currently set at $125 million between February and October of each year and up to $100 million all other times. Ashland’s continuing involvement is limited to servicing the receivables, including billing, collections and remittance of payments to the buyers as well as a limited guarantee on over-collateralization. The arrangement terminates on May 31, 2023, unless terminated earlier pursuant to the terms of the agreement.

Ashland determined that any receivables transferred under this agreement are put presumptively beyond the reach of Ashland and its creditors, even in bankruptcy or other receivership. Ashland received a true sale at law and non-consolidation opinions to support the legal isolation of these receivables. Ashland accounts for the receivables transferred to buyers as sales. Ashland recognizes any gains or losses based on the excess of proceeds received net of buyer’s discounts and fees compared to the carrying value of the assets. Proceeds received, net of buyer’s discounts and fees, are recorded within the operating activities of the Statements of Consolidated Cash Flows. Losses on sale of assets, including related transaction expenses are recorded within the net interest and other expense caption of the Statements of Consolidated Comprehensive Income (Loss). Ashland regularly assesses its servicing obligations and records them as assets or liabilities when appropriate. Ashland also monitors its obligation with regards to the limited guarantee and records the resulting guarantee liability when warranted. When applicable, Ashland discloses the amount of the receivable that serves as over-collateralization as a restricted asset.

Ashland recognized a $1 million loss within the Statements of Consolidated Comprehensive Income (Loss) for 2022 and 2021, respectively, within the net interest and other expense caption associated with sales under the program. Ashland has recorded $110 million of sales against the buyer’s limit, which was $125 million at September 30, 2022, compared to $113 million of sales against the buyer's limit, which was $125 million at September 30, 2021. Ashland transferred $136 million and $167 million in receivables to the SPE as of September 30, 2022 and 2021, respectively. Ashland recorded liabilities related to its service obligations and limited guarantee as of September 30, 2022 and 2021 of less than $1 million. As of September 30, 2022, the year-to-date gross cash proceeds received for receivables transferred and derecognized was $312 million, of which $315 million was collected by Ashland in our capacity as a servicer of the receivables and remitted to the buyer. The difference of $3 million represents the impact of a net reduction in account receivable sales volume during the current year.

2018 foreign accounts receivable securitization

During July 2018, Ashland entered into a €115 million accounts receivable securitization facility (the Program) for the transfer by certain subsidiaries of Ashland (the Sellers) directly or indirectly to Ester Finance Titrisation (the Purchaser), a wholly-owned subsidiary of Crédit Agricole Corporate and Investment Bank (the Arranger), of certain receivables and/or collections originated by the Sellers towards certain corporate debtors located in multiple European jurisdictions and denominated in multiple currencies. The Program originally had a term of two years, but was extended to August 2021 in September 2019. During July 2021, the termination date of the Program was extended to July 2023. During July 2020, the available funding for qualified receivables under the accounts receivable securitization facility decreased from €115 million to €100 million.

Under the Program, each Seller will assign, on an ongoing basis, certain of its accounts receivable and the right to the collections on those accounts receivable to the Purchaser. Under the terms of the Program, the Sellers could, from time to time, obtain up to €100 million from the Purchaser through the sale of an undivided interest in such accounts receivable and collections. Ashland accounts for the securitization facility as secured borrowings, and the receivables sold pursuant to the facility are included in the Consolidated Balance Sheets as accounts receivable. Fundings under the Program will be repaid as accounts

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receivable are collected, with new fundings being advanced (through daily advanced purchase price) as new accounts receivable are originated by the Sellers and assigned to the Purchaser, with settlement occurring monthly. Ashland classifies any borrowings under this facility as a short-term debt instrument within the Consolidated Balance Sheets. Once sold to the Purchaser, the accounts receivable and rights to collection described above are separate and distinct from each Sellers’ own assets and are not available to its creditors should such Sellers become insolvent.

At September 30, 2022 and 2021, the outstanding amount of accounts receivable transferred by Ashland to the Purchaser was $162 million and $152 million, respectively, and there were zero and $117 million, respectively, of borrowings (denominated in multiple currencies) under the facility. The weighted-average interest rate for this instrument was 0.5% and 0.6% for 2022 and 2021, respectively.

Other debt

At September 30, 2022 and 2021, Ashland held other debt totaling $63 million and $83 million, respectively, comprised primarily of a European short-term loan facility, the 6.50% notes due 2029 and other notes.

Available borrowing capacity and liquidity

The borrowing capacity remaining under the $600 million 2022 Revolving Credit Facility was $581 million due to an outstanding balance of zero, as well as a reduction of $19 million for letters of credit outstanding at September 30, 2022. Ashland's total borrowing capacity at September 30, 2022 was $680 million, which included $99 million of available capacity from the foreign 2018 accounts receivable securitization facility.

Additionally, Ashland has zero available liquidity under its current U.S. Accounts Receivable Sales Program.

Covenants related to current Ashland debt agreements

Ashland’s debt 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 September 30, 2022, Ashland was in compliance with all debt agreement covenant restrictions.

The maximum consolidated net leverage ratio permitted under Ashland’s most recent credit agreement (the 2022 Credit Agreement) is 4.0. The 2022 Credit Agreement defines the consolidated net leverage ratio as the ratio of consolidated indebtedness minus unrestricted cash and cash equivalents to consolidated EBITDA (Covenant Adjusted EBITDA) for any measurement period. In general, the 2022 Credit Agreement defines Covenant Adjusted EBITDA as net income plus consolidated interest charges, taxes, depreciation and amortization expense, fees and expenses related to capital market transactions and proposed or actual acquisitions and divestitures, restructuring and integration charges, certain environmental charges, non-cash 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 non-cash gains or other items increasing net income. The computation of Covenant Adjusted EBITDA differs from the calculation of EBITDA and Adjusted EBITDA, which have been reconciled on page M-14. 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 September 30, 2022, Ashland’s calculation of the consolidated net leverage ratio was 1.1.

The minimum required consolidated interest coverage ratio under the 2022 Credit Agreement is 3.0. The 2022 Credit Agreement defines the consolidated interest coverage ratio as the ratio of Covenant Adjusted EBITDA to consolidated interest charges for any measurement period. At September 30, 2022, Ashland’s calculation of the consolidated interest coverage ratio was 10.8.

Any change in Covenant Adjusted EBITDA of $100 million would have an approximate 0.2x effect on the consolidated net leverage ratio and a 1.8x effect on the consolidated interest coverage ratio. Any change in consolidated indebtedness of $100 million would affect the consolidated net leverage ratio by approximately 0.2x.

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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 September 30, 2022, 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.

Additional capital resources

Ashland cash projection

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 the Company’s foreseeable working capital needs, capital expenditures at existing facilities, pending acquisitions, dividend payments and debt service obligations. The Company’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.

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Ashland expects the following material cash funding requirements from known contractual obligations at September 30, 2022:

(a)
Includes raw material and service contracts where minimal committed quantities and prices are fixed.

(b)
Includes estimated funding of Ashland’s qualified U.S. and non-U.S. pension plans for 2022 as well as projected benefit payments through 2030 under Ashland’s unfunded pension and other postretirement benefit plans. Excludes the benefit payments from the pension plan trust funds. See Note M of the Notes to Consolidated Financial Statements for additional information.

(c)
Includes leases for office buildings, transportation equipment, warehouses and storage facilities and other equipment. For further information, see Note K of the Notes to Consolidated Financial Statements.

(d)
Includes interest expense on both variable and fixed rate debt assuming no prepayments. Variable interest rates have been assumed to remain constant through the end of the term at rates that existed as of September 30, 2022.

(e)
Due to uncertainties in the timing of the effective settlement of tax positions with respect to taxing authorities, Ashland is unable to determine the timing of payments related to noncurrent unrecognized tax benefits, including interest and penalties. Therefore, these amounts were included in the “More than 1 year” column.

(f)
As a result of the Tax Act enacted during fiscal year 2018, Ashland has currently recorded a $46 million liability for the one-time transition tax. This liability will be payable over five years.

(g)
Ashland issues various types of letters of credit as part of its normal course of business.

Total Equity

Total equity was $3,220 million and $2,752 million at September 30, 2022 and September 30, 2021, respectively. During 2022, there were increases of $927 million for net income, $8 million for common shares issued under stock incentive plans, and a $1 million gain on pension and postretirement obligation adjustments. The increases were partially offset by decreases of $197 million for deferred translation losses, $1 million for unrealized losses on commodity hedges, $200 million for repurchases of common stock and $70 million for dividends paid during 2022.

Stock repurchase programs

On May 25, 2022, Ashland's board of directors authorized a new, evergreen $500 million common share repurchase program (2022 stock repurchase program). The new authorization terminates and replaces the company's 2018 $1 billion share repurchase program, which had $150 million outstanding at the date of termination. As of September 30, 2022, $500 million remained available for repurchase under the 2022 stock repurchase program.

Stock repurchase program agreements

In September 2021, under the 2018 stock repurchase program, Ashland announced that it entered into an accelerated share repurchase agreement (2021 ASR Agreement). Under the 2021 ASR Agreement, Ashland paid an initial purchase price of $450 million and received an initial delivery of 3.9 million shares of common stock during September 2021. The bank exercised its early termination option under the 2021 ASR Agreement in February 2022, and an additional 0.7 million shares were repurchased, bringing the total shares repurchased upon settlement to 4.6 million.

On March 1, 2022, under the 2018 stock repurchase program, Ashland entered into an agreement to repurchase an aggregate amount of $200 million of Ashland common stock using open-market purchases under rule 10b-18. On April 8, 2022, Ashland completed repurchases under this agreement repurchasing a total of 2.15 million shares for a total amount of $200 million.

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Stockholder dividends

Ashland paid dividends per common share of $1.27, $1.15 and $1.10 during 2022, 2021 and 2020, respectively.

In May 2022, the Board of Directors of Ashland announced a quarterly cash dividend of 33.5 cents per share to eligible stockholders at record, which represented an increase from the previous quarterly cash dividend of 30.0 cents per share. This dividend was paid in the third and fourth quarters of fiscal 2022.

In May 2021, the Board of Directors of Ashland announced a quarterly cash dividend of 30.0 cents per share to eligible stockholders at record, which represented an increase from the previous quarterly cash dividend of 27.5 cents per share. This dividend was paid in the third and fourth quarters of fiscal 2021 and the first and second quarters of fiscal 2022.

In May 2019, the Board of Directors of Ashland announced a quarterly cash dividend of 27.5 cents per share to eligible stockholders at record, which represented an increase from the previous quarterly cash dividend of 25.0 cents per share. This dividend was paid in each quarter of fiscal 2020 and the first and second quarters of fiscal 2021.

Capital expenditures

Capital expenditures were $113 million for 2022 and averaged $117 million during the last three years. Ashland expects capital expenditures over the next three years of approximately $190 million in 2023 and $165 million annually the next two years. A summary of capital expenditures by reportable segment during 2022, 2021 and 2020 follow.

A summary of the capital employed in Ashland’s current operations, which is calculated by adding equity to capital investment, as of the end of the last two years is as follows.

(a)
Excludes the assets and liabilities classified within unallocated and other which primarily includes debt and other long-term liabilities such as asbestos and pension. The net liability in unallocated and other was $1,092 million and $2,313 million as of September 30, 2022 and 2021, respectively. Additionally, net assets held for sale were zero million and $547 million as of September 30, 2022 and 2021, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

As part of its normal course of business, Ashland is a party to various financial guarantees and other commitments. These arrangements involve elements of performance and credit risk that are not included in the Consolidated Balance Sheets. The possibility that Ashland would have to make actual cash expenditures in connection with these obligations is largely dependent on the performance of the guaranteed party, or the occurrence of future events that Ashland is unable to predict. The fair value of these guarantees are not significant.

NEW ACCOUNTING PRONOUNCEMENTS

For a discussion and analysis of recently issued accounting pronouncements and its impact on Ashland, see Note A of Notes to Consolidated Financial Statements.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of Ashland’s 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, environmental remediation, asbestos litigation, the accounting for goodwill and other intangible assets and income taxes. 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.

Environmental remediation and asset retirement obligations

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. At September 30, 2022, such locations included 76 sites where Ashland has been identified as a potentially responsible party under Superfund or similar state laws, 111 current and former operating facilities and about 1,125 service station properties, of which 17 are being actively remediated. See Note N of the Notes to Consolidated Financial Statements for additional information.

Ashland’s reserves for environmental remediation and related environmental litigation amounted to $211 million at September 30, 2022 compared to $207 million at September 30, 2021 of which $157 million at September 30, 2022 and $152 million at September 30, 2021 were classified in other noncurrent liabilities on the Consolidated Balance Sheets. The remaining reserves were classified in accrued expenses and other liabilities on the Consolidated Balance Sheets.

The total reserves for environmental remediation reflect Ashland’s estimates of the most likely costs that will be incurred over an extended period to remediate identified conditions for which the costs are reasonably estimable, without regard to any third-party recoveries. Engineering studies, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated reserves for environmental remediation. Ashland continues to discount certain environmental sites and regularly adjusts its reserves as environmental remediation continues. Ashland has estimated the value of its probable insurance recoveries associated with its environmental reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage. At September 30, 2022 and 2021, Ashland’s recorded receivable for these probable insurance recoveries was $21 million and $16 million, respectively, of which $17 million and $13 million, respectively, were classified in other noncurrent assets in the Consolidated Balance Sheets.

During 2022, 2021 and 2020, Ashland recognized $66 million, $50 million and $48 million of expense, respectively, for certain environmental liabilities related to normal ongoing remediation cost estimate updates for sites, which is consistent with Ashland’s historical environmental accounting policy.

Environmental remediation reserves are subject to uncertainties that affect Ashland’s ability to estimate its share of the costs. Such uncertainties involve the nature and extent of contamination at each site and the extent of required cleanup efforts under existing environmental regulations, with varying costs of alternate cleanup methods. Although it is not possible to predict with certainty the ultimate costs of environmental remediation, Ashland currently estimates that the upper end of the reasonably possible range of future costs for identified sites could be as high as approximately $465 million. The largest reserve for any site is 13% of the remediation reserve.

Asbestos litigation

Ashland and Hercules have liabilities from claims alleging personal injury caused by exposure to asbestos. To assist in developing and annually updating independent reserve estimates for future asbestos claims and related costs, Ashland has retained third party actuarial experts Gnarus Advisors, LLC (Gnarus). The methodology used by Gnarus to project future asbestos costs is based largely on recent experience, including claim-filing and settlement rates, disease mix, open claims and litigation defense. The claim experience of Ashland and Hercules are separately compared to the results of previously conducted third party epidemiological studies estimating the number of people likely to develop asbestos-related diseases. Those studies were undertaken in connection with national analyses of the population expected to have been exposed to asbestos. Using that

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information, Gnarus estimates a range of the number of future claims that may be filed, as well as the related costs that may be incurred in resolving those claims. Changes in asbestos-related liabilities and receivables are recorded on an after-tax basis within the discontinued operations caption in the Statements of Consolidated Comprehensive Income (Loss). See Note N of the Notes to Consolidated Financial Statements for additional information.

Ashland asbestos-related litigation

The claims alleging personal injury caused by exposure to asbestos asserted against Ashland result primarily from indemnification obligations undertaken in 1990 in connection with the sale of Riley, a former subsidiary. The amount and timing of settlements and number of open claims can fluctuate from period to period.

Ashland asbestos-related liability

From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 40-year model developed with the assistance of Gnarus.

During the most recent update completed during 2022, it was determined that the liability for Ashland asbestos-related claims should be increased by $16 million. Total reserves for asbestos claims were $305 million at September 30, 2022 compared to $320 million at September 30, 2021.

Ashland asbestos-related receivables

Ashland has insurance coverage for certain litigation defense and claim settlement costs incurred in connection with its asbestos claims, and coverage-in-place agreements exist with the insurance companies that provide substantially all of the coverage that will be accessed.

For the Ashland asbestos-related obligations, Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. Substantially all of the estimated receivables from insurance companies are expected to be due from domestic insurers, all of which are solvent.

At September 30, 2022, Ashland’s receivable for recoveries of litigation defense and claim settlement costs from insurers amounted to $101 million (excluding the Hercules receivable for asbestos claims). Receivables from insurers amounted to $100 million at September 30, 2021. During 2022, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers, was completed. This model update resulted in a $7 million increase in the receivable for probable insurance recoveries.

Hercules asbestos-related litigation

Hercules has liabilities from claims alleging personal injury caused by exposure to asbestos. Such claims typically arise from alleged exposure to asbestos fibers from resin encapsulated pipe and tank products which were sold by one of Hercules’ former subsidiaries to a limited industrial market. The amount and timing of settlements and number of open claims can fluctuate from period to period.

Hercules asbestos-related liability

From the range of estimates, Ashland records the amount it believes to be the best estimate of future payments for litigation defense and claim settlement costs. Ashland reviews this estimate and related assumptions quarterly and annually updates the results of a non-inflated, non-discounted approximate 40-year model developed with the assistance of Gnarus. As a result of the most recent annual update of this estimate, completed during 2022, it was determined that the liability for Hercules asbestos-related claims should be increased by $15 million. Total reserves for asbestos claims were $213 million at September 30, 2022 compared to $217 million at September 30, 2021.

Hercules asbestos-related receivables

For the Hercules asbestos-related obligations, certain reimbursement obligations pursuant to coverage-in-place agreements with insurance carriers exist. As a result, any increases in the asbestos reserve have been partially offset by probable insurance

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recoveries. Ashland has estimated the value of probable insurance recoveries associated with its asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage, including an assumption that all solvent insurance carriers remain solvent. The estimated receivable consists exclusively of solvent domestic insurers.

As of September 30, 2022 the receivables from insurers amounted to $52 million compared to $47 million as of September 30, 2021. During 2022, the annual update of the model used for purposes of valuing the asbestos reserve and its impact on valuation of future recoveries from insurers was completed. This model update resulted in a $7 million increase in the receivable for probable insurance recoveries.

Asbestos litigation cost projection

Projecting future asbestos costs is subject to numerous variables that are difficult to predict. In addition to the uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant and the related costs incurred in resolving those claims, dismissal rates, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, Ashland believes that the asbestos reserves for Ashland and Hercules represent the best estimate within a range of possible outcomes. As a part of the process to develop these estimates of future asbestos costs, a range of long-term cost models was developed. These models are based on national studies that predict the number of people likely to develop asbestos-related diseases and are heavily influenced by assumptions regarding long-term inflation rates for indemnity payments and legal defense costs, as well as other variables mentioned previously. Ashland has currently estimated in various models ranging from approximately 40 year periods that it is reasonably possible that total future litigation defense and claim settlement costs on an inflated and undiscounted basis could range as high as approximately $456 million for the Ashland asbestos-related litigation (current reserve of $305 million) and approximately $317 million for the Hercules asbestos-related litigation (current reserve of $213 million), depending on the combination of assumptions selected in the various models. If actual experience is worse than projected, relative to the number of claims filed, the severity of alleged disease associated with those claims or costs incurred to resolve those claims, or actuarial refinement or improvements to the assumptions used within these models are initiated, Ashland may need to further increase the estimates of the costs associated with asbestos claims and these increases could be material over time.

Accounting for goodwill and other intangible assets

Goodwill

Ashland accounts for goodwill and other intangible assets acquired in a business combination in conformity with current accounting guidance which does not allow for goodwill and indefinite-lived intangible assets to be amortized.

Ashland reviews goodwill for impairment annually as of July 1 or when events and circumstances indicate an impairment may have occurred. Ashland tests goodwill for impairment by comparing the estimated fair value of the reporting units to the related carrying value. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds fair value. However, the loss recognized cannot exceed the carrying amount of goodwill. Reporting units are defined as either operating segments or one level below the operating segments for which discrete financial information is available and reviewed by the business management. Ashland determined that its reporting units are Life Sciences, Personal Care, Specialty Additives and Intermediates.

Ashland makes various estimates and assumptions in determining the estimated fair value of each reporting unit using a combination of discounted cash flow models and valuations based on earnings multiples for guideline public companies in each reporting unit’s industry peer group, when externally quoted market prices are not readily available. Discounted cash flow models are reliant on various assumptions, including projected business results, long-term growth factors and weighted-average cost of capital. Management judgement is involved in estimating these variables, and they include uncertainties since they are forecasting future events. Ashland performs sensitivity analyses by using a range of inputs to confirm the reasonableness of the long-term growth rate and weighted average cost of capital estimates. Additionally, Ashland compares the indicated equity value to Ashland’s market capitalization and evaluates the resulting implied control premium/discount to determine if the estimated enterprise value is reasonable compared to external market indicators.

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Ashland performed its annual goodwill impairment using the quantitative approach as of July 1, 2022 and concluded there was no impairment as of that date. The impairment test at July 1, 2022 concluded that all reporting units had fair values significantly in excess of its respective carrying amounts. Ashland compared the total fair values of the reporting units to Ashland’s market capitalization at July 1, 2022 to determine if the fair values are reasonable compared to external market indicators. Ashland believes its valuation models are reasonable estimates of fair value and reflect appropriate levels of conservatism. Subsequent to this annual impairment test, no additional indications of an impairment were identified.

Assumptions inherent in the valuation methodologies include estimates of future projected business results (principally revenue and EBITDA), long-term growth rates, and the weighted-average cost of capital. Ashland performed sensitivity analyses by using a range of inputs to confirm the reasonableness of long-term growth rate and weighted average cost of capital estimates. Significant assumptions utilized in the impairment analysis included the weighted-average cost of capital, ranging between 10.5% and 11.8%, and terminal growth rate, ranging between 2.0% and 4.0% depending on the reporting unit. Based on sensitivity analysis performed on two key assumptions in the discounted cash flow model at July 1, 2022, a 1% decrease in the long-term growth factor assumption or a 1% increase in the weighted average cost of capital assumption across each of Ashland’s reporting units would not have resulted in a fair value below the respective reporting units carrying value. For further information, see Note H of Notes to the Consolidated Financial Statements.

Finite-lived intangible assets

Finite-lived intangible assets principally consist of certain trademarks and trade names, intellectual property, and customer relationships. These intangible assets are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 3 to 20 years, intellectual property over 3 to 20 years and customer and supplier relationships over 10 to 24 years. Ashland reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Ashland monitors these changes and events on at least a quarterly basis.

Amortization expense recognized on finite-lived intangible assets was $94 million for 2022, $90 million for 2021 and $84 million for 2020.

Other indefinite-lived intangible assets

Other indefinite-lived intangible assets include certain trademarks and trade names. Ashland reviews these intangible assets for possible impairment annually as of July 1 or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, the asset is written down to its fair value and the amount of the write down is the impairment charge. Similar to its annual assessment for goodwill, Ashland performs a quantitative test for impairment.

When a quantitative analysis is performed, Ashland tests these assets using a “relief-from-royalty” valuation method to determine the fair value. Significant assumptions inherent in the valuation methodologies include, but are not limited to, future projected business results, growth rates, the weighted-average cost of capital for a market participant, and royalty and discount rates.

In conjunction with the July 1 annual assessment of indefinite-lived intangible assets, Ashland’s quantitative approach models did not indicate any impairment, as each indefinite-lived intangible asset’s fair value exceeded their carrying values.

Ashland’s assessment of an impairment on any of these assets classified currently as having indefinite lives, including goodwill, could change in future periods if significant events happen and/or circumstances change that effect the previously mentioned assumptions. Significant assumptions inherent in the valuation methodologies include, but are not limited to, such estimates as future projected business results, growth rates, the weighted average cost of capital for a market participant, and royalty and discount rates. For further information, see Note H of Notes to Consolidated Financial Statements.

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Income taxes

Ashland is subject to income taxes in the United States and numerous foreign jurisdictions. Judgment in the forecasting of taxable income using historical and projected future operating results is required in determining Ashland’s provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable, and deferred taxes. Under U.S. GAAP, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax loss and credit carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the enactment date occurs. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized. Deferred taxes are not provided on the unremitted earnings of subsidiaries outside of the United States when it is expected that these earnings are indefinitely reinvested. In the event that the actual outcome of future tax consequences differs from Ashland’s estimates and assumptions due to changes or future events such as tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans, the resulting change to the provision for income taxes could have a material effect on the Statement of Consolidated Comprehensive Income (Loss) and Consolidated Balance Sheet.

The recoverability of deferred tax assets and the recognition and measurement of uncertain tax positions are subject to various assumptions and judgment by Ashland. If actual results differ from the estimates made by Ashland in establishing or maintaining valuation allowances against deferred tax assets, the resulting change in the valuation allowance would generally impact earnings or other comprehensive income depending on the nature of the respective deferred tax asset. Additionally, the positions taken with regard to tax contingencies may be subject to audit and review by tax authorities, which may result in future taxes, interest and penalties. Positive and negative evidence is considered in determining the need for a valuation allowance against deferred tax assets, which includes such evidence as historical earnings, projected future earnings, tax planning strategies and expected timing of reversal of existing temporary differences.

In determining the recoverability of deferred tax assets Ashland gives consideration to all available positive and negative evidence including reversals of deferred tax liabilities (other than those with an indefinite reversal period), projected future taxable income, tax planning strategies and recent financial operations. Ashland attaches the most weight to historical earnings due to their verifiable nature. In evaluating the objective evidence that historical results provide, Ashland considers three years of cumulative income or loss. In addition, Ashland has reflected increases and decreases in our valuation allowance based on the overall weight of positive versus negative evidence on a jurisdiction by jurisdiction basis.

EFFECTS OF INFLATION AND CHANGING PRICES

Ashland’s financial statements are prepared on the historical cost method of accounting in accordance with U.S. GAAP and, as a result, do not reflect changes in the purchasing power of the U.S. dollar. Monetary assets (such as cash, cash equivalents and accounts receivable) lose purchasing power as a result of inflation, while monetary liabilities (such as accounts payable and indebtedness) result in a gain, because they can be settled with dollars of diminished purchasing power. As of September 30, 2022, Ashland’s monetary assets exceed its monetary liabilities, leaving it currently more exposed to the effects of future inflation. While inflation rose significantly during 2022 and is expected to increase through fiscal 2023, the company managed to reduce its impact on its results of operations and financial liquidity through the use of select derivative programs, disciplined pricing and cost actions. See item 1A - Risk Factors for additional information.

Certain of the industries in which Ashland operates are capital-intensive, and replacement costs for its plant and equipment generally would substantially exceed their historical costs. Accordingly, depreciation and amortization expense would be greater if it were based on current replacement costs. However, because replacement facilities would reflect technological improvements and changes in business strategies, such facilities would be expected to be more productive than existing facilities, mitigating at least part of the increased expense.

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OUTLOOK

Ashland issued its financial outlook for fiscal 2023 as shown in the table below.

Ashland is unable to reconcile forward-looking adjusted EBITDA to forward-looking net income, the most closely comparable GAAP financial measure, because the information needed to provide such reconciliation would require unreasonable efforts.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements including, without limitation, statements made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” (MD&A), within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Ashland has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “objectives,” “may,” “will,” “should,” “plans” and “intends” and the negative of these words or other comparable terminology. Ashland may from time to time make forward-looking statements in its Annual Report to Stockholders, quarterly reports and other filings with the Securities and Exchange Commission (SEC), news releases and other written and oral communications. These forward-looking statements are based on Ashland’s expectations and assumptions, as of the date such statements are made, regarding Ashland’s future operating performance and financial condition and expected effects of the COVID-19 pandemic on Ashland’s business, as well as the economy and other future events or circumstances. Ashland’s expectations and assumptions include, without limitation, those mentioned within the MD&A, internal forecasts and analyses of current and future market conditions and trends, management plans and strategies, operating efficiencies, cost savings and economic conditions (such as prices, supply and demand, cost of raw materials, and the ability to recover raw-material cost increases through price increases), and risks and uncertainties associated with the following: the impact of acquisitions and/or divestitures Ashland has made or may make (including the possibility that Ashland may not realize the anticipated benefits from such transactions); Ashland’s substantial indebtedness (including the possibility that such indebtedness and related restrictive covenants may adversely affect Ashland’s future cash flows, results of operations, financial condition and its ability to repay debt); execution risks associated with our growth strategies; the competitive nature of our business; severe weather, natural disasters, public health crises (including the COVID-19 pandemic), cyber events and legal proceedings and claims (including product recalls, environmental and asbestos matters); the effects of the COVID-19 pandemic and the ongoing Ukraine and Russia conflict on the geographies in which Ashland operates, the end markets Ashland serves and on Ashland’s supply chain and customers; and without limitation, risks and uncertainties affecting Ashland that are contained in “Use of estimates, risks and uncertainties” in Note A of Notes to Consolidated Financial Statements and in Item 1A of this Annual Report Form 10-K. Various risks and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements. The extent and duration of the COVID-19 pandemic on our business and operations remains uncertain. Factors that influence the impact on our business and operations include the duration and extent of the pandemic, the extent of imposed or recommended containment and mitigation measures, and the general economic consequences of the pandemic. Ashland believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected herein will be achieved. Unless legally required, Ashland undertakes no obligation to update any forward-looking statements made in this Form 10-K whether as a result of new information, future events or otherwise. Information on Ashland’s website is not incorporated into or a part of this Form 10-K.

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