NOTE C – ACQUISITIONS AND DIVESTITURES

Pharmachem

Background

On May 17, 2017, Ashland completed its acquisition of the stock of Pharmachem Laboratories, Inc. (Pharmachem), a leading provider of quality ingredients to the global health and wellness industries and high-value differentiated products to fragrance and flavor houses. At the acquisition date, Pharmachem had approximately $300 million in annual revenues and 14 manufacturing facilities located in the United States and Mexico. New Jersey-based Pharmachem develops, manufactures and supplies custom and branded nutritional and fragrance products. Ashland has included Pharmachem within the Specialty Ingredients reportable segment.

Purchase price allocation

The acquisition was recorded by Ashland using the purchase method of accounting in accordance with applicable U.S. GAAP whereby the total purchase price was allocated to tangible and intangible assets and liabilities acquired based on respective fair values. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes.

The all-cash purchase price of Pharmachem was $680 million which included working capital adjustments of approximately $20 million. The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition.

	At
	May 17, 2017
Purchase price allocation (in millions)	As Adjusted
Assets:
Accounts receivable	$	52
Inventory		74
Other current assets		4
Intangible assets		330
Goodwill		290
Property, plant and equipment		94
Other noncurrent assets		20
Liabilities:
Accounts payable		(33	)
Deferred tax - net		(137	)
Other noncurrent liabilities		(14	)
Total purchase price	$	680

As of June 30, 2018, the purchase price allocation for the acquisition was finalized. During the nine months ended June 30, 2018, there were subsequent adjustments of $3 million to property, plant and equipment, $1 million to accounts payable and $1 million to deferred tax liabilities. The combined impact of these adjustments resulted in an increase to goodwill of $3 million.

Intangible assets identified

The purchase price allocation included $330 million of certain definite-lived intangible assets which are being amortized over the estimated useful life in proportion to the economic benefits consumed. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future cash flows of the combined company. In addition, Ashland reviewed certain technological trends and considered the relative stability in the current Pharmachem customer base.

The following details the total intangible assets identified as of May 17, 2017.

Vornia Limited

In January 2018, Ashland completed the acquisition of Vornia Limited for $12 million, of which $1 million will be paid in future periods. Vornia Limited’s principal activity is the design, development and fabrication of customized biomaterial solutions. The purchase price allocation primarily included $8 million of intellectual property and $4 million of goodwill and has been included within the Specialty Ingredients reportable segment.

Specialty Ingredients Joint Venture

During September 2016, Ashland entered into a definitive sale agreement to sell its ownership interest in a Specialty Ingredients joint venture in China, which primarily served the construction end market. Ashland recognized a loss of $12 million before tax in 2016 to recognize the assets at fair value less cost to sell, using Level 2 nonrecurring fair value measurements.

During June 2017, Ashland completed the transfer of its ownership interest in the joint venture and recognized an additional loss of $4 million during the three and nine months ended June 30, 2017 primarily related to a license fee and tax adjustments. The loss was reported within the net loss on acquisitions and divestitures caption within the Statement of Consolidated Comprehensive Income (Loss).

Ashland determined this transaction did not qualify for discontinued operations treatment since it did not represent a strategic shift that had or will have a major effect on Ashland’s operations and financial results.

Specialty Ingredients Facility

During the three months ended June 30, 2017, Ashland committed to a plan to reorganize certain operations within the Specialty Ingredients reportable segment resulting in the closure of a manufacturing facility that was previously operational. As a result of this closure, the remaining value for primarily machinery and equipment related to this facility was written off, which resulted in an $11 million charge for these assets as well as an additional $2 million reserve for employee costs associated with the facility closure during the three and nine months ended June 30, 2017.

During the three months ended June 30, 2018, Ashland was in the process of finalizing the sale of the facility. As a result, Ashland recognized a loss of $2 million before tax to recognize the building and land at fair value less cost to sell, using Level 2 nonrecurring fair value measurements. The loss was reported within the net loss on acquisitions and divestitures caption within the Statement of Consolidated Comprehensive Income (Loss) for the three and nine months ended June 30, 2018.

Weighted-average

amortization period

Intangible asset type (in millions)

Trademarks and trade names

Intellectual property

Customer and supplier relationships