ITEM 1. BUSINESS
GENERAL
Ashland Global Holdings Inc. is a Delaware corporation, with its principal executive offices located at 50 E. RiverCenter Boulevard, Covington, Kentucky 41011 (Telephone: (859) 815-3333). Ashland Global Holdings Inc. was incorporated in 2016 as the successor to a Kentucky corporation named Ashland Inc. organized in 2004 (now known as Ashland LLC), which was itself organized as the successor to a Kentucky corporation of the same name organized in 1936. The new holding company structure was put in place to allow Ashland Inc. to reincorporate in Delaware and to help facilitate the separation of the Valvoline business from the specialty chemicals businesses, creating two independent, publicly held companies (the Reorganization). As a result of the Reorganization, Ashland Global Holdings Inc. replaced Ashland Inc. as the publicly held corporation, and Ashland Inc. was converted to a Kentucky limited liability company and is now an indirect, wholly owned subsidiary of Ashland Global Holdings Inc. The terms “Ashland” and the “Company” as used herein include Ashland Global Holdings Inc., its predecessors and its consolidated subsidiaries, except where the context indicates otherwise. As a result of the Reorganization, Ashland is the successor issuer to Ashland Inc. pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the Exchange Act) and will file periodic and other reports required by the Exchange Act.
Ashland is a global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets, including adhesives, architectural coatings, automotive, construction, energy, food and beverage, personal care and pharmaceutical. Ashland also maintains a controlling interest in Valvoline Inc., a premium consumer-branded lubricant supplier. With approximately 11,000 employees worldwide (including approximately 5,000 employees of Valvoline Inc.), Ashland serves customers in more than 100 countries.
Ashland has three reportable segments: Specialty Ingredients, Performance Materials and Valvoline, which is included within a majority-owned, publicly traded subsidiary, Valvoline Inc. As of September 30, 2016, and as described below under “Corporate Developments”, Ashland owned approximately 83% of the outstanding shares of Valvoline Inc.’s common stock. Since Ashland’s ownership interest in Valvoline Inc., which includes the operations of the Valvoline reportable segment, is now less than 100%, the outside stockholders’ interests in Valvoline Inc. are presented separately as a noncontrolling interest within Ashland’s equity in the Consolidated Balance Sheet. The amount of consolidated net income attributable to Ashland and the noncontrolling interest are both presented within the Statement of Consolidated Comprehensive Income. Financial information about Ashland’s three reportable segments for each of the fiscal years in the three-year period ended September 30, 2016 is set forth in Note R of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, including sales, equity income, other income, operating income and assets. International data, such as sales to external customers, net assets and property, plant and equipment, are set forth in Note R as well.
Specialty Ingredients is a global leader in cellulose ethers, vinyl pyrrolidones and biofunctionals. It offers industry-leading products, technologies and resources for solving formulation and product-performance challenges. Specialty Ingredients uses natural, synthetic and semisynthetic polymers derived from cellulose ethers, vinyl pyrrolidones, acrylic polymers, polyester and polyurethane-based adhesives, and plant and seed extract. Specialty Ingredients includes two divisions, Consumer Specialties and Industrial Specialties, that offer comprehensive and innovative solutions for today’s demanding consumer and industrial applications. Key customers include: pharmaceutical companies; makers of personal care products, food and beverages; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield service companies.
Performance Materials is a global leader in unsaturated polyester resins and vinyl ester resins. The business unit has leading positions in gelcoats, maleic anhydride, butanediol, tetrahydrofuran, N-Methylpyrrolidone and other intermediates and solvents. Key customers include: manufacturers of residential and commercial building products; industrial product specifiers and manufacturers; wind blade and pipe manufacturers; automotive and truck OEM suppliers; boatbuilders; engineered plastics and electronic producers; and specialty chemical manufacturers.
Valvoline is a leading worldwide producer and distributor of premium-branded automotive, commercial and industrial lubricants, and automotive chemicals. In 2016, it ranks as the #2 quick-lube chain by number of stores and #3 passenger car motor oil in the “Do-It-Yourself” market by volume brand in the United States. The brand operates and franchises 1,068 Valvoline Instant Oil ChangeSM centers in the United States. It also markets ValvolineTM lubricants and automotive chemicals; MaxLifeTM lubricants created for higher-mileage engines; SynPowerTM synthetic motor oil; and ZerexTM antifreeze. Key customers include: retail auto parts stores and mass merchandisers who sell to consumers; installers, such as car dealers, repair shops and quick lubes; commercial fleets; and distributors. During February 2016, Ashland completed the acquisition of Oil Can Henry’s resulting in the addition of 89 quick-lube stores. On September 28, 2016, Valvoline Inc. completed an initial public offering of 34.5 million shares of its common stock, with Ashland continuing to own 170 million shares of Valvoline Inc.’s common stock, representing approximately 83% of the total outstanding shares of Valvoline Inc.’s common stock. Valvoline Inc.’s common stock began trading September 23, 2016, on the New York Stock Exchange under the symbol “VVV.” For additional information on the separation and acquisition,
see “Corporate Developments” below and the “Key Developments” section of Management’s Discussion and Analysis in this annual report on Form 10-K.
Available Information - Ashland’s Internet address is http://www.ashland.com. On this website, Ashland makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as well as any beneficial ownership reports of officers and directors filed on Forms 3, 4 and 5. All such reports are available as soon as reasonably practicable after they are electronically filed with, or electronically furnished to, the Securities and Exchange Commission (SEC). Ashland also makes available, free of charge on its website, its Corporate Governance Guidelines, Board Committee Charters, Director Independence Standards and code of business conduct that applies to Ashland’s directors, officers and employees. These documents are also available in print to any stockholder who requests them. Information contained on Ashland’s website is not part of this annual report on Form 10-K and is not incorporated by reference in this document. The public may read and copy any materials Ashland files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
CORPORATE DEVELOPMENTS
On September 22, 2015, Ashland announced that the Board of Directors approved proceeding with a plan to separate Ashland into two independent, publicly traded companies comprising of the Valvoline business and the specialty chemicals businesses.
In connection with the separation, in May 2016, Ashland filed a proxy statement/prospectus for a proposal to reorganize under a new public holding company to facilitate its reincorporation in the State of Delaware and to help facilitate the separation process. Upon completing the Reorganization in September 2016, Ashland Global Holdings Inc. replaced Ashland Inc. as the publicly held corporation and, through its subsidiaries, conducts all of the operations previously conducted by Ashland Inc. Each outstanding share of Ashland Inc. common stock was converted into the right to receive one share of Ashland Global Holdings Inc. common stock. Ashland Inc. was converted to a limited liability company and is now an indirect, wholly owned subsidiary of Ashland Global Holdings Inc.
Following the closing of the Reorganization, Ashland took steps to transfer the Valvoline business to Valvoline Inc. On September 22, 2016, Ashland and Valvoline Inc. announced the pricing of the initial public offering (IPO) of 30 million shares of Valvoline Inc.’s common stock at a price to the public of $22.00 per share and closed the IPO on September 28, 2016. The underwriters exercised an option to purchase an additional 4.5 million shares of Valvoline Inc.’s common stock to cover overallotments. After completing the IPO, Ashland owns 170 million shares of Valvoline Inc.’s common stock, representing approximately 83% of the total outstanding shares of Valvoline Inc.’s common stock. The total net proceeds, after underwriters discount and other offering expenses, received from the IPO were $712 million. Valvoline Inc.’s common stock is listed on the New York Stock Exchange under the symbol “VVV”. Ashland presently intends to distribute the remaining Valvoline Inc. shares in 2017 to Ashland’s stockholders following the release of March-quarter earnings results by both Ashland and Valvoline Inc.
During 2016, certain financing related activities were executed for both Ashland and Valvoline in connection with the separation process. See further discussion in Management’s Discussion and Analysis and Note J of Notes to Consolidated Financial Statements in this annual report on Form 10-K.
Transferring of Assets and Liabilities
As of September 30, 2016, Valvoline Inc. includes substantially all of the Valvoline business as historically reported by Ashland, as well as certain other assets and liabilities transferred to Valvoline Inc. by Ashland. The largest transferred liabilities are the net pension and other postretirement plan liabilities, which include a substantial portion of the largest U.S. qualified pension plan and non-qualified U.S. pension plans. Other transferred assets and liabilities primarily consist of deferred compensation, certain Ashland legacy business insurance reserves, tax attributes, and certain trade payables. Additionally, any deferred tax assets and liabilities that relate specifically to these assets and liabilities have been transferred to Valvoline Inc. as well as certain other tax liabilities as a result of the Tax Matters Agreement entered into between Ashland Global Holdings Inc. and Valvoline Inc. For purposes of Ashland’s 2016 segment reporting and consistent with prior periods, these transferred assets and liabilities remain included within Unallocated and other.
ASHLAND SPECIALTY INGREDIENTS
Ashland Specialty Ingredients (Specialty Ingredients) offers industry-leading products, technologies and resources for solving formulation and product-performance challenges. Using natural, synthetic and semisynthetic polymers derived from cellulose
ethers, vinyl pyrrolidones, acrylic polymers, polyester and polyurethane-based adhesives, and plant and seed extract, Specialty Ingredients offers comprehensive and innovative solutions for consumer and industrial applications.
Key customers include pharmaceutical companies; makers of personal care products, food and beverages; manufacturers of paint, coatings and construction materials; packaging and converting; and oilfield service companies. Certain customer relationships are significant, and the loss of any one of those customers could have a material adverse effect on the Specialty Ingredients reportable segment.
Specialty Ingredients’ areas of expertise include: organic and synthetic chemistry, polymer chemistry, surface and colloid science, rheology, structural analysis and microbiology.