Ashland Inc. Reports Operating Results (10-Q)
Ashland Inc. has a market cap of $4.12 billion; its shares were traded at around $52.49 with a P/E ratio of 12.9 and P/S ratio of 0.5. The dividend yield of Ashland Inc. stocks is 1.1%.ASH is in the portfolios of John Keeley of Keeley Fund Management, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations:Combined with previous operational redesigns (2008 Program) completed during 2009, Ashland has achieved run rate cost reductions of $425 million through June 30, 2010, an increase of $70 million from the September 30, 2009 run rate cost reductions achieved, which exceeds the previous targeted run rate cost savings of $400 million estimated for these cost reduction initiatives. The cumulative effect of these restructuring activities has resulted in 12 permanent facility closings through the end of the June 30, 2010 quarter, and in total has reduced the global workforce by over 2,000 employees, or approximately 13%, exceeding the previous estimate by over 100 employees. The total restructuring cost incurred under the cost-structure efficiency programs for the three and nine months ended June 30, 2010 was income of $2 million and expense of $1 million, respectively, and was classified within the selling, general and administrative expenses caption. The total restructuring cost incurred under the cost-structure efficiency programs for the three and nine months ended June 30, 2009 was $16 million and $73 million, respectively, of which $4 million and $39 million, respectively, was classified within the selling, general and administrative expenses caption and $9 million and $13 million were charged to the cost of sales caption. For the three and nine months ended June 30, 2009, the remaining cost of $3 million and $21 million, respectively, related to established severance reserves associated with Hercules personnel which qualified for purchase method of
On March 31, 2010, as part of a refinancing of its then-existing senior credit facilities, Ashland entered into a Credit Agreement with Bank of America, N.A., as Administrative Agent, The Bank of Nova Scotia, as Syndication Agent, and the other Lenders party thereto, (the “Senior Credit Agreement”). The Senior Credit Agreement provided for an aggregate principal amount of $850 million in senior secured credit facilities (the “Senior Credit Facilities”), consisting of a $300 million four-year Term Loan A facility and a $550 million revolving credit facility. The proceeds from the borrowings from the Term Loan A facility were used, together with proceeds from the accounts receivable securitization facility described below, and cash on hand to repay all amounts outstanding under Ashland s previous senior secured facilities and to pay for fees and expenses incurred in connection with the Senior Credit Facilities and the related transactions. The new revolving credit facility will provide ongoing working capital and will be used for other general corporate purposes as well as support for the issuance of letters of credit. The new Senior Credit Agreement has more favorable terms as compared to the previously existing senior credit facility, including less restrictive covenants, which includes the removal of covenants associated with consolidated net worth and capital expenditure limits, and lower interest rates. In conjunction with the new Senior Credit Agreement, Ashland expanded the availability of the accounts receivable securitization from $200 million to $350 million, subject to available funding from qualifying receivables. For further information on the new Senior Credit Agreement and accounts receivable securitization, see the “Liquidity” section of the “Financial Position” discussion and Note G within the Notes to Condensed Consolidated Financial Statements.
In January 2010, Ashland sold its refined wood rosin and natural wood terpenes business, formerly known as Pinova, a business unit of Functional Ingredients, to TorQuest Partners in a transaction valued at approximately $75 million before tax, which was comprised of $60 million in cash and a $15 million promissory note from TorQuest Partners. The Pinova business, with annual revenues of approximately $85 million a year, has approximately 200 employees along with an associated manufacturing facility located in Brunswick, Georgia. The transaction resulted in a pretax gain of less than $1 million, which was included in the net gain on acquisitions and divestitures caption on the Statements of Consolidated Income for the quarter ended March 2010. As part of this sale agreement, TorQuest Partners has agreed to continue to manufacture certain products on behalf of Ashland.
Current Quarter – Ashland recorded net income of $148 million, or $1.85 per diluted earnings per share, for the three months ended June 30, 2010 as compared to a net income of $50 million, or $.66 per diluted earnings per share, for the three months ended June 30, 2009. Included in net income for the current period is a $23 million pretax gain ($20 million after tax), or $.25 per diluted earnings per share, as a result of remeasuring Ashland s previously held 50% equity interest in Ara Quimica.
Operating income for the June 2010 and 2009 quarters included depreciation and amortization of $74 million and $88 million (which includes $8 million of asset impairment and accelerated depreciation charges for the ongoing integration and reorganization from the Hercules acquisition and other cost reduction programs), respectively. EBITDA totaled $237 million for the June 2010 quarter as compared to $240 million for the June 2009 quarter. As a result of certain key items in the prior year quarter, adjusted EBITDA results in the table below have been prepared to illustrate the exclusion of these charges.
Ashland incurred net interest and other financing expense of $26 million for the June 2010 quarter, as compared to $62 million in the prior quarter, which included an additional $10 million of accelerated amortization for debt issuance costs assumed with the bridge loan facility payoff in May of 2009. Excluding this accelerated amortization charge, interest expense decreased by $26 million during the quarter, primarily due to the $572 million decline in debt outstanding compared to the prior quarter. Net gain on acquisitions and divestitures was $23 million for the current quarter as compared to $1 million in the prior year, as the current quarter reflects a $23 million pretax gain as a result of remeasuring Ashland s previously held 50% equity interest in Ara Quimica. Ashland s effective tax rate was 16.3% for the three months ended June 30, 2010 as compared to 44.3% for the prior period as both periods were significantly impacted by discrete tax items discussed further in the income tax section within the Management s Discussion and Analysis. The current quarter included income from discontinued operations in the amount of $14 million, or $.18 diluted earnings per share, as compared to a loss of $1 million, or $.02 per diluted earnings per share, for the prior period. Both periods discontinued operations results included favorable adjustments to the net asbestos reserve as a result of Ashland s ongoing assessment of these matters; however, the prior quarter s benefit was more than offset by tax adjustments associated with the previous sale of former Ashland divisions.
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