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Fair Value Measurements | 6 Months Ended
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Mar. 31, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements | NOTE E – FAIR VALUE MEASUREMENTS Ashland uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value. Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows. Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect Ashland’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include Ashland’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment. For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived using fair value models, such as a discounted cash flow model or other standard pricing models that Ashland deems reasonable. The following table summarizes financial instruments subject to recurring fair value measurements as of March 31, 2022.
|  | Carrying |  |  | Total fair |  |  | Quoted prices in active markets for identical assets |  |  | Significant other observable inputs |  |  | Significant unobservable inputs |
(In millions) |  | value |  |  | value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 964 |  |  | $ | 964 |  |  | $ | 964 |  |  | $ | — |  |  | $ | — |
Restricted investments (a) (b) |  |  | 423 |  |  |  | 423 |  |  |  | 423 |  |  |  | — |  |  |  | — |
Investment of captive insurance company (c) |  |  | 9 |  |  |  | 9 |  |  |  | 9 |  |  |  | — |  |  |  | — |
Foreign currency derivatives (d) |  |  | 3 |  |  |  | 3 |  |  |  | — |  |  |  | 3 |  |  |  | — |
Total return derivative (d) |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Commodity derivatives (d) |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | 5 |  |  |  | — |
Total assets at fair value |  | $ | 1,405 |  |  | $ | 1,405 |  |  | $ | 1,396 |  |  | $ | 9 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives (e) |  | $ | 2 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
Total liabilities at fair value |  | $ | 2 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
(a) Included in restricted investments and $36 million within other current assets in the Condensed Consolidated Balance Sheets. (b) Includes $300 million related to the Asbestos trust and $123 million related to the Environmental trust. (c) Included in other noncurrent assets in the Condensed Consolidated Balance Sheets. (d) Included in accounts receivable in the Condensed Consolidated Balance Sheets. (e) Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets. The following table summarizes financial asset instruments subject to recurring fair value measurements as of September 30, 2021.
|  | Carrying |  |  | Total fair |  |  | Quoted prices in active markets for identical assets |  |  | Significant other observable inputs |  |  | Significant unobservable inputs |
(In millions) |  | value |  |  | value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 210 |  |  | $ | 210 |  |  | $ | 210 |  |  | $ | — |  |  | $ | — |
Restricted investments (a) (b) |  |  | 421 |  |  |  | 421 |  |  |  | 421 |  |  |  | — |  |  |  | — |
Investment of captive insurance company (c) |  |  | 8 |  |  |  | 8 |  |  |  | 8 |  |  |  | — |  |  |  | — |
Foreign currency derivatives (d) |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Commodity derivatives (d) |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | 5 |  |  |  | — |
Total assets at fair value |  | $ | 645 |  |  | $ | 645 |  |  | $ | 639 |  |  | $ | 6 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives (e) |  | $ | 2 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
(a) Included in restricted investments and $37 million within other current assets in the Condensed Consolidated Balance Sheets. (b) Includes $333 million related to the Asbestos trust and $88 million related to the Environmental trust. (c) Included in other noncurrent assets in the Condensed Consolidated Balance Sheets. (d) Included in accounts receivable in the Condensed Consolidated Balance Sheets. (e) Included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets. Restricted investments Investment income and realized gains and losses on these company-restricted investments are reported within the net interest and other expense caption on the Statements of Consolidated Comprehensive Income (Loss). The following table provides a summary of the activity within the investment portfolio as of March 31, 2022 and September 30, 2021:
(In millions) |  | March 31 2022 |  |  | September 30 2021 |
Original cost |  | $ | 335 |  |  | $ | 335 |
Accumulated adjustments, net |  |  | 37 |  |  |  | (50 | )
Adjusted cost, beginning of year (a) |  |  | 372 |  |  |  | 285 |
Investment income (b) |  |  | 10 |  |  |  | 12 |
Net unrealized gain (c) |  |  | 24 |  |  |  | 49 |
Realized gains (c) |  |  | 1 |  |  |  | 17 |
Funds restricted for specific transactions (d) |  |  | 44 |  |  |  | 91 |
Disbursements |  |  | (28 | ) |  |  | (33 | )
Fair value |  | $ | 423 |  |  | $ | 421 |
(a) The adjusted cost of the demand deposits includes accumulated investment income, realized gains, additional funds restricted for specific transactions and disbursements recorded in previous periods. The adjusted cost as of March 31, 2022 includes the $90 million funding to establish the Environmental trust. (b) Investment income relates to the demand deposit and includes interest income as well as dividend income transferred from the equity and fixed income mutual funds. (c) Presented under the original cost method. (d) The March 31, 2022 period included additional contributions to the Environmental trust from proceeds associated with the Performance Adhesives sale and excess land sales. The September 30, 2021 period included $90 million to establish the Environmental trust. The following table presents gross unrealized gains and losses for the restricted investment securities as of March 31, 2022 and September 30, 2021:
|  |  |  |  | Gross |  |  | Gross |  |  |  |
(In millions) |  | Adjusted Cost |  |  | Unrealized Gain |  |  | Unrealized Loss |  |  | Fair Value |
As of March 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Demand deposit |  | $ | 4 |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |
Equity mutual fund |  |  | 160 |  |  |  | 41 |  |  |  | (1 | ) |  |  | 200 |
Fixed income mutual fund |  |  | 235 |  |  |  | — |  |  |  | (16 | ) |  |  | 219 |
Fair value |  | $ | 399 |  |  | $ | 41 |  |  | $ | (17 | ) |  | $ | 423 |
As of September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Demand deposit |  | $ | 6 |  |  | $ | — |  |  | $ | — |  |  | $ | 6 |
Equity mutual fund |  |  | 143 |  |  |  | 44 |  |  |  | (1 | ) |  |  | 186 |
Fixed income mutual fund |  |  | 223 |  |  |  | 7 |  |  |  | (1 | ) |  |  | 229 |
Fair value |  | $ | 372 |  |  | $ | 51 |  |  | $ | (2 | ) |  | $ | 421 |
The following table presents the investment income, net gains and losses realized and disbursements related to the investments within the portfolio for the three and six months ended March 31, 2022 and 2021.
|  | Three months ended |  |  | Six months ended |
|  | March 31 |  |  | March 31 |
(In millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Investment income |  | $ | 2 |  |  | $ | 3 |  |  | $ | 10 |  |  | $ | 8 |
Net gains (losses) |  |  | (28 | ) |  |  | (7 | ) |  |  | (24 | ) |  |  | 11 |
Disbursements |  |  | (21 | ) |  |  | (10 | ) |  |  | (28 | ) |  |  | (18 | )
Foreign currency derivatives Ashland conducts business in a variety of foreign currencies. Accordingly, Ashland regularly uses foreign currency derivative instruments to manage exposure on certain transactions denominated in foreign currencies to curtail potential earnings volatility effects on certain assets and liabilities, including short-term inter-company loans, denominated in currencies other than Ashland’s functional currency of an entity. These derivative contracts generally require exchange of one foreign currency for another at a fixed rate at a future date and generally have maturities of less than twelve months. The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in non-functional currencies. The following table summarizes the net gains and losses recognized during the three and six months ended March 31, 2022 and 2021 within the Statements of Consolidated Comprehensive Income (Loss).
|  | Three months ended |  |  | Six months ended |
|  | March 31 |  |  | March 31 |
(In millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Foreign currency derivative gain (loss) |  | $ | (11 | ) |  | $ | — |  |  | $ | (9 | ) |  | $ | 3 |
The following table summarizes the fair values of the outstanding foreign currency derivatives as of March 31, 2022 and September 30, 2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.
|  | March 31 |  |  | September 30 |
(In millions) |  | 2022 |  |  | 2021 |
Foreign currency derivative assets |  | $ | 3 |  |  | $ | 1 |
Notional contract values |  |  | 202 |  |  |  | 150 |
Foreign currency derivative liabilities |  | $ | 2 |  |  | $ | 2 |
Notional contract values |  |  | 442 |  |  |  | 212 |
Commodity derivatives To manage its exposure to the market price volatility of natural gas consumed by its U.S. plants during the manufacturing process, Ashland regularly enters into forward contracts that are designated as cash flow hedges. The following table summarizes the net gai ns and losses recognized during the three and six months ended March 31, 2022 and 2021 within the cost of sales caption of the Statements of Consolidated Comprehensive Income (Loss).
|  | Three months ended |  |  | Six months ended |
|  | March 31 |  |  | March 31 |
(In millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Commodity derivative gain (loss) |  | $ | 2 |  |  | $ | — |  |  | $ | 4 |  |  | $ | — |
The following table summarizes the fair values of the outstanding commodity derivatives as of March 31, 2022, and September 30, 2021 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.
|  | March 31 |  |  | September 30 |
(In millions) |  | 2022 |  |  | 2021 |
Commodity derivative assets |  | $ | 5 |  |  | $ | 5 |
Notional contract values |  |  | 10 |  |  |  | 6 |
Commodity derivative liabilities |  | $ | — |  |  | $ | — |
Notional contract values |  |  | 1 |  |  |  | — |
Total return derivatives Ashland maintains certain employee stock based compensation programs whereby certain employees receive awards that entitle them to a cash payout based on Ashland's stock price at a future date. To manage its exposure to the changes in fair value of the shares that determine the payout, Ashland entered into a Total Return Swap (TRS) in fiscal year 2022. The company pays a floating rate, based on LIBOR plus an interest rate spread on the notional amount of the TRS. The TRS is designed to substantially offset changes in the stock based compensation liabilities due to the change in the fair value of Ashland's stock. The contract term of the TRS is through December 2022 and is settled on quarterly basis. The following table summarized the net gains and losses recognized for the three and six months ended March 31, 2022 and 2021 within the selling, general and administrative expense caption of the Statements of Consolidated Comprehensive Income (Loss).
|  | Three months ended |  |  | Six months ended |
|  | March 31 |  |  | March 31 |
(In millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Total return swap gain (loss) |  | $ | (1 | ) |  | $ | — |  |  | $ | (1 | ) |  | $ | — |
The following table summarizes the fair values of the outstanding TRS as of March 31, 2022 included in accounts receivable and accrued expenses and other liabilities of the Condensed Consolidated Balance Sheets.
|  | March 31 |  |  | September 30 |
(In millions) |  | 2022 |  |  | 2021 |
Total return swap assets |  | $ | 1 |  |  | $ | — |
Notional contract values |  |  | 8 |  |  |  | — |
Other financial instruments At March 31, 2022 and September 30, 2021, Ashland's long-term debt (including the current portion and excluding debt issuance cost discounts) had a carrying value of $1,352 million and $1,622 million, respectively, compared to a fair value of $1,356 million and $1,794 million, respectively. The fair values of long-term debt are based on quoted market prices or, if market prices are not available, the present values of the underlying cash flows discounted at Ashland’s incremental borrowing rates. The carrying value of long-term debt with variable interest approximated fair value.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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