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Stock Incentive Plans | 12 Months Ended
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Sep. 30, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Stock Incentive Plans | NOTE Q – STOCK INCENTIVE PLANS Ashland has stock incentive plans under which key employees or directors are granted stock appreciation rights (SARs), performance share awards or nonvested stock awards. Each program is typically a long-term incentive plan designed to link employee compensation with increased shareholder value or reward superior performance and encourage continued employment with Ashland. Ashland recognizes compensation expense for the grant date fair value of stock-based awards over the applicable vesting period and accounts for forfeitures when they occur across all stock-based awards. The components of Ashland’s pretax stock-based awards (net of forfeitures) and associated income tax benefits are as follows:
(In millions) |  | 2019 |  | (a) | 2018 |  | (b) | 2017 |  | (c)
SARs |  | $ | 7 |  |  | $ | 7 |  |  | $ | 5 |  |
Nonvested stock awards |  |  | 18 |  |  |  | 24 |  |  |  | 15 |  |
Performance share awards |  |  | 1 |  |  |  | 13 |  |  |  | 8 |  |
|  | $ | 26 |  |  | $ | 44 |  |  | $ | 28 |  |
Income tax benefit |  | $ | 6 |  |  | $ | 14 |  |  | $ | 11 |  |
(a) | The year ended September 30, 2019 included $5 million and zero of expense related to cash-settled nonvested restricted stock awards and cash-settled performance units, respectively.
(b) | The year ended September 30, 2018 included $9 million and $8 million of expense related to cash-settled nonvested restricted stock awards and cash-settled performance units, respectively.
(c) | The year ended September 30, 2017 included $5 million and $3 million of expense related to cash-settled nonvested restricted stock awards and cash-settled performance units, respectively.
Conversion of Equity Awards Outstanding from Valvoline Distribution On May 12, 2017, the date of the final distribution of Valvoline common stock, certain of Ashland's outstanding equity awards held by Valvoline Inc. employees were converted to equivalent equity awards, as applicable, with respect to Valvoline Inc.’s common stock. These modified awards otherwise retained substantially the same terms and conditions, including term and vesting provisions, as the existing Ashland equity awards had at the time of conversion. Ashland transferred all Valvoline awards and will not incur any future compensation cost related to the conversion of Ashland equity awards held by Valvoline Inc. employees and directors in connection with the final Valvoline Inc. distribution. Additionally, in connection with this transaction, Ashland proportionately adjusted the number and exercise prices of SARs, nonvested stock awards and performance awards granted to Ashland employees and directors that were outstanding at the time of this transaction to maintain the approximate aggregate intrinsic value of such awards. To calculate the exchange ratio for all outstanding stock based compensation awards, Ashland utilized a 10-day volume weighted average stock price (VWAP), using the 10 consecutive trading days following the distribution. The ratio used to adjust these awards differs slightly from the exchange ratio that would have resulted had the ratio been calculated based on Ashland's stock price immediately following the transaction. On the date of the final distribution, and in accordance with U.S. GAAP, Ashland reassessed all outstanding equity awards to determine if additional compensation expense had been incurred due to the transaction causing a modification to the outstanding equity awards. The additional stock compensation expense as a result of this modification and assessment performed during 2017 for all outstanding equity awards was not significant. Stock Appreciation Rights SARs are granted to employees or directors at a price equal to the fair market value of the stock on the date of grant and typically become exercisable over periods of one to three years. Unexercised SARs lapse ten years after the date of grant. Ashland estimates the fair value of SARs granted using the Black-Scholes option-pricing model. This model requires several assumptions, which Ashland has developed and updates based on historical trends and current market observations. The accuracy of these assumptions is critical to the estimate of fair value for these equity instruments. The following table illustrates the weighted-average of key assumptions used within the Black-Scholes option-pricing model. The risk-free interest rate assumption was based on the U.S. Treasury yield curve in effect at the time of the grant for the expected term of the instrument. The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated increases. The volatility assumption was calculated by utilizing peer companies because historical volatility was not considered reflective of future volatility as a result of the Valvoline IPO discussed in Note B. The expected life is based on the mid-point of the weighted average time to vest and contractual term.
(In millions except per share data) |  | 2019 |  |  | 2018 |  |  | 2017 |
Weighted-average fair value per share of SARs granted (a) |  | $ | 21.95 |  |  | $ | 19.62 |  |  | $ | 21.25 |
Assumptions (weighted-average) |  |  |  |  |  |  |  |  |  |  |  |
Risk-free interest rate |  |  | 3.0 | % |  |  | 2.1 | % |  |  | 1.8 | %
Expected dividend yield |  |  | 1.2 | % |  |  | 1.3 | % |  |  | 1.4 | %
Expected volatility |  |  | 25.9 | % |  |  | 31.8 | % |  |  | 22.8 | %
Expected life (in years) |  |  | 6 |  |  |  | 6 |  |  |  | 5 |
(a) | The weighted-average fair values per share are as of the grant date and have not been adjusted for the Valvoline separation if the SARs were granted prior to the final distribution on May 12, 2017.
A progression of activity and various other information relative to SARs and previously issued and vested stock options is presented in the following table.
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Number |  |  | Weighted- |  |  | Number |  |  | Weighted- |  |  | Number |  |  | Weighted- |
|  | of |  |  | average |  |  | of |  |  | average |  |  | of |  |  | average |
|  | common |  |  | exercise price |  |  | common |  |  | exercise price |  |  | common |  |  | exercise price |
(In thousands except per share data) |  | shares |  |  | per share |  |  | shares |  |  | per share |  |  | shares |  |  | per share |
Outstanding - beginning of year |  |  | 2,263 |  |  | $ | 53.21 |  |  |  | 2,261 |  |  | $ | 47.98 |  |  |  | 1,511 |  |  | $ | 83.64 |
Granted |  |  | 299 |  |  |  | 82.34 |  |  |  | 470 |  |  |  | 67.16 |  |  |  | 422 |  |  |  | 109.15 |
Exercised |  |  | (380 | ) |  |  | 46.15 |  |  |  | (421 | ) |  |  | 40.10 |  |  |  | (330 | ) |  |  | 70.55 |
Forfeitures and expirations |  |  | (80 | ) |  |  | 71.38 |  |  |  | (47 | ) |  |  | 58.73 |  |  |  | (70 | ) |  |  | 105.98 |
Transfer to Valvoline Inc. (a) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (352 | ) |  |  | 94.28 |
Conversion adjustment (b) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,080 |  |  |  | — |
Outstanding - end of year (c) |  |  | 2,102 |  |  |  | 57.94 |  |  |  | 2,263 |  |  |  | 53.21 |  |  |  | 2,261 |  |  |  | 47.98 |
Exercisable - end of year |  |  | 1,579 |  |  |  | 53.04 |  |  |  | 1,472 |  |  |  | 47.76 |  |  |  | 1,456 |  |  |  | 42.10 |
(a) | Represents the transfer of SARs held by Valvoline Inc. employees at the time of the final Valvoline Inc. distribution in 2017.
(b) | The number and exercise prices of SARs outstanding at the time of the final Valvoline Inc. distribution in 2017 were proportionately adjusted to maintain the aggregate intrinsic value before and after the transaction.
(c) | Exercise prices per share for SARs outstanding at September 30, 2019 ranged from $20.02 to $29.5 for 172 thousand shares, from $37.37 to $47.63 for 350 thousand shares, from $57.96 to $59.95 for 871 thousand shares, and from $62.33 to $82.34 for 709 thousand shares. The weighted-average remaining contractual life of outstanding SARs and stock options was 6.2 years and exercisable SARs and stock options was 5.4 years.
The total intrinsic value of SARs exercised was $12 million in 2019, $15 million in 2018 and $14 million in 2017. The actual tax benefit realized from the exercised SARs was $3 million in 2019, $5 million in 2018 and $2 million in 2017. The total grant date fair value of SARs that vested during 2019, 2018 and 2017 was $8 million, $4 million and $8 million, respectively. As of September 30, 2019, there was $6 million of total unrecognized compensation costs related to SARs. That cost is expected to be recognized over a weighted-average period of 1.6 years. As of September 30, 2019, the aggregate intrinsic value of outstanding SARs was $42 million and exercisable SARs was $38 million. Nonvested stock awards Nonvested stock awards are granted to employees or directors at a price equal to the fair market value of the stock on the date of grant and generally vest over a one-to-five-year period. However, such shares or units are subject to forfeiture upon termination of service before the vesting period ends. Beginning in 2016, these awards were primarily granted as stock units that will convert to shares upon vesting, while the grants in prior years were generally made in nonvested shares. Only nonvested stock awards granted in the form of shares entitle employees or directors to vote the shares. Dividends on nonvested stock awards granted are in the form of additional units or shares of nonvested stock awards, which are subject to vesting and forfeiture provisions. A progression of activity and various other information relative to nonvested stock awards is presented in the following table.
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Number |  |  | Weighted- |  |  | Number |  |  | Weighted- |  |  | Number |  |  | Weighted- |
|  | of |  |  | average |  |  | of |  |  | average |  |  | of |  |  | average |
|  | common |  |  | grant date |  |  | common |  |  | grant date |  |  | common |  |  | grant date |
(In thousands except per share data) |  | shares |  |  | fair value |  |  | shares |  |  | fair value |  |  | shares |  |  | fair value |
Nonvested - beginning of year |  |  | 291 |  |  | $ | 66.98 |  |  |  | 219 |  |  | $ | 59.16 |  |  |  | 293 |  |  | $ | 109.12 |
Granted |  |  | 96 |  |  |  | 81.31 |  |  |  | 192 |  |  |  | 71.36 |  |  |  | 92 |  |  |  | 105.10 |
Vested |  |  | (151 | ) |  |  | 66.24 |  |  |  | (107 | ) |  |  | 59.46 |  |  |  | (189 | ) |  |  | 99.69 |
Forfeitures |  |  | (21 | ) |  |  | 73.63 |  |  |  | (13 | ) |  |  | 62.22 |  |  |  | (24 | ) |  |  | 104.19 |
Transfer to Valvoline Inc. (a) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (71 | ) |  |  | 111.97 |
Conversion adjustment (b) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 118 |  |  |  | — |
Nonvested - end of year |  |  | 215 |  |  |  | 73.26 |  |  |  | 291 |  |  |  | 66.98 |  |  |  | 219 |  |  |  | 59.16 |
(a) | Represents the transfer of nonvested stock awards held by Valvoline Inc. employees at the time of the final Valvoline Inc. distribution in 2017.
(b) | The number and exercise prices of nonvested stock awards outstanding at the time of the final Valvoline Inc. distribution in 2017 were proportionately adjusted to maintain the aggregate intrinsic value before and after the transaction.
The total fair value of nonvested stock awards that vested during 2019, 2018 and 2017 was $10 million, $6 million and $19 million, respectively. As of September 30, 2019, there was $6 million of total unrecognized compensation costs related to nonvested stock awards. That cost is expected to be recognized over a weighted-average period of 1.9 years. Executive performance incentive and retention program During 2016, certain executives were granted 260 thousand performance-based restricted shares of Ashland in order to provide an incentive to remain employed in the period after the full separation of Ashland and Valvoline. At September 30, 2019, total nonvested shares outstanding were 30 thousand shares, which include forfeitures and the cumulative value of forfeitable dividends. The expense recognition for these awards commenced upon completing the full separation of Valvoline which occurred on May 12, 2017, as discussed further in Note B, and resulted in expense of $3 million, $6 million and $3 million during 2019, 2018 and 2017, respectively. As of September 30, 2019, there was less than $1 million of total unrecognized compensation costs related to these awards. Cash-settled nonvested stock awards Certain nonvested stock awards are granted to employees and are settled in cash upon vesting. As of September 30, 2019, 95 thousand cash-settled nonvested stock awards were outstanding. The value of these cash-settled nonvested stock awards changes in connection with changes in the fair market value of the Ashland Common Stock. These awards generally vest over a period of three years. The expense recognized related to cash-settled nonvested stock awards was $5 million, $9 million, and $5 million during 2019, 2018 and 2017, respectively. Performance awards Ashland sponsors a long-term incentive plan that awards performance shares/units to certain key employees that are tied to Ashland’s overall financial performance relative to the financial performance of selected industry peer groups and/or internal targets. Awards are granted annually, with each award covering a three-year vesting period. Nonvested performance shares/units do not entitle employees to vote the shares or to receive any dividends thereon. For awards granted in 2019, 2018 and 2017, upon vesting, each performance unit will be settled in stock or cash based on the fair market value of Ashland common stock. The awards granted in 2019 and 2018 are settled in stock and recorded as a component of stockholders’ equity while the awards granted in 2017 are settled in cash and recorded within the other liabilities caption in the Consolidated Balance Sheets. For these awards, the performance measure used to determine the actual number of performance units issuable upon vesting is the financial performance of Ashland compared to award targets. The financial performance award metric is considered a performance condition under applicable U.S. GAAP. Additionally, the actual number of performance units issuable upon vesting can be potentially increased or decreased based on a total shareholder return (TSR) performance modifier relative to peers for Ashland. The following table shows the performance shares/units granted for all plans that award Ashland Common Stock or cash.
|  |  |  |  |  |  |  |  | Weighted- |  |
|  |  |  | Target |  |  |  | average |  |
|  |  |  | shares/units |  |  |  | fair value per |  |
(In thousands) |  | Vesting period |  | granted |  | (a) |  | share/unit |  | (a)
Fiscal Year 2019 |  | October 1, 2018 - September 30, 2021 |  |  | 78 |  |  |  | $ | 84.93 |  |
Fiscal Year 2018 |  | October 1, 2017 - September 30, 2020 |  |  | 101 |  |  |  | $ | 68.93 |  |
Fiscal Year 2017 |  | October 1, 2016 - September 30, 2019 |  |  | 56 |  |  |  | $ | 103.72 |  |
(a) | At the end of the performance period, the actual number of shares/units awarded can range from zero to 200% of the target shares/units granted, which is assumed to be 100%. Both the shares granted and weighted-average fair value per share/unit are as of the grant date and have not been adjusted for the Valvoline separation that occurred during 2017.
For awards granted in 2016, the fair value of the ROI portion of the performance share awards is equal to the fair market value of Ashland’s Common Stock on the date of the grant discounted for the dividends forgone during the vesting period of the three-year performance cycle. For awards granted in 2018 and 2017, the fair value of the performance unit awards is equal to the fair market value of Ashland’s Common Stock as of the end of each reporting period. Compensation cost is recognized over the requisite service period if it is probable that the performance condition will be satisfied. The fair values of the TSR portion of the performance share awards and TSR modifier of the performance unit awards are calculated using a Monte Carlo simulation valuation model using key assumptions included in the following table. Compensation cost is recognized over the requisite service period regardless of whether the market condition is satisfied.
|  | 2019 |  |  | 2018 |  |  | 2017 |
Risk-free interest rate |  | 2.9 |  |  | 1.6% - 1.8% |  |  | 1.3% - 1.4% |
Expected dividend yield |  | 1.3% |  |  | 1.4% |  |  | 1.4% |
Expected life (in years) |  |  | 3 |  |  |  | 3 |  |  |  | 3 |
Expected volatility |  | 24.6% |  |  | 25.0% |  |  | 25.1% |
The following table shows changes in nonvested performance shares/units for all plans that award Ashland Common Stock or cash.
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  |  |  |  |  | Weighted- |  |  |  |  |  |  | Weighted- |  |  |  |  |  |  | Weighted- |
|  |  |  |  |  | average |  |  |  |  |  |  | average |  |  |  |  |  |  | average |
|  | Shares/ |  |  | grant date |  |  | Shares/ |  |  | grant date |  |  | Shares/ |  |  | grant date |
(In thousands except per share data) |  | Units |  |  | fair value |  |  | Units |  |  | fair value |  |  | Units |  |  | fair value |
Nonvested - beginning of year |  |  | 260 |  |  | $ | 64.55 |  |  |  | 268 |  |  | $ | 63.00 |  |  |  | 199 |  |  | $ | 106.91 |
Granted (a) |  |  | 78 |  |  |  | 84.93 |  |  |  | 101 |  |  |  | 68.93 |  |  |  | 71 |  |  |  | 99.86 |
Vested (a) |  |  | (68 | ) |  |  | 61.67 |  |  |  | (104 | ) |  |  | 65.53 |  |  |  | (69 | ) |  |  | 85.86 |
Forfeitures (b) |  |  | (10 | ) |  |  | 65.16 |  |  |  | (5 | ) |  |  | 66.24 |  |  |  | (54 | ) |  |  | 75.52 |
Transfer to Valvoline Inc. (c) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (21 | ) |  |  | 115.68 |
Conversion adjustment (d) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 142 |  |  |  | — |
Nonvested - end of year |  |  | 260 |  |  |  | 76.59 |  |  |  | 260 |  |  |  | 64.55 |  |  |  | 268 |  |  |  | 63.00 |
(a) | 2017 includes 15 thousand additional shares from the fiscal year 2014 since a portion of the payouts for this plan was in excess of the initial 100% target.
(b) | During 2017, Ashland determined that zero percent of the TSR portion of the fiscal year 2016 plan will be paid out upon vesting which resulted in the forfeiture of 35 thousand shares.
(c) | Represents the transfer of performance shares from the fiscal year 2016 plans held by Valvoline Inc. employees at the time of the final Valvoline Inc. distribution in 2017.
(d) | The number and exercise prices of performance shares/units outstanding at the time of the final Valvoline Inc. distribution in 2017 were proportionately adjusted to maintain the aggregate intrinsic value before and after the transaction.
As of September 30, 2019, there was $3 million of total unrecognized compensation costs related to nonvested performance share/unit awards. That cost is expected to be recognized over a weighted-average period of approximately 1.5 years.

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