VALVOLINE INC, 10-Q filed on 2/4/2021
Quarterly Report
v3.20.4
Cover Page - shares
3 Months Ended
Dec. 31, 2020
Jan. 31, 2021
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Dec. 31, 2020  
Document Transition Report false  
Entity File Number 001-37884  
Entity Registrant Name VALVOLINE INC.  
Entity Incorporation, State or Country Code KY  
Entity Tax Identification Number 30-0939371  
Entity Address, Address Line One 100 Valvoline Way  
Entity Address, City or Town Lexington  
Entity Address, State or Province KY  
Entity Address, Postal Zip Code 40509  
City Area Code 859  
Local Phone Number 357-7777  
Title of 12(b) Security Common stock, par value $0.01 per share  
Trading Symbol VVV  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Smaller Reporting Company false  
Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   181,421,240
Entity Central Index Key 0001674910  
Amendment Flag false  
Current Fiscal Year End Date --09-30  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
v3.20.4
Condensed Consolidated Statements of Comprehensive Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Net Income (Loss) Attributable to Parent [Abstract]    
Sales $ 653 $ 607
Cost of sales 425 396
Gross profit 228 211
Selling, general and administrative expenses 117 117
Net legacy and separation-related expenses (income) 1 (1)
Equity and other income, net (14) (9)
Operating income 124 104
Net pension and other postretirement plan income (13) (9)
Net interest and other financing expenses 20 16
Income before income taxes 117 97
Income tax expense 30 24
Net Income (Loss) Attributable to Parent, Total $ 87 $ 73
NET EARNINGS PER SHARE    
Basic (usd per share) $ 0.47 $ 0.39
Diluted (usd per share) $ 0.47 $ 0.39
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING    
Basic (shares) 185 189
Diluted (shares) 186 189
COMPREHENSIVE INCOME    
Net income $ 87 $ 73
Other comprehensive income (loss), net of tax    
Currency translation adjustments 18 8
Amortization of pension and other postretirement plan prior service credit (2) (2)
Other comprehensive income 16 6
Comprehensive income $ 103 $ 79
v3.20.4
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2020
Sep. 30, 2020
Assets, Current [Abstract]    
Cash and cash equivalents $ 527 $ 760
Receivables, Net, Current 430 433
Inventories, net 213 199
Prepaid expenses and other current assets 44 46
Total current assets 1,214 1,438
Noncurrent assets    
Property, plant and equipment, net 713 613
Operating Lease, Right-of-Use Asset 293 261
Goodwill and intangibles, net 739 529
Equity method investments 46 44
Deferred income taxes 28 34
Other Assets, Noncurrent 123 132
Total noncurrent assets 1,942 1,613
Total assets 3,156 3,051
Current liabilities    
Current portion of long-term debt 88 0
Trade and other payables 158 189
Accrued expenses and other liabilities 260 255
Total current liabilities 506 444
Noncurrent liabilities    
Long-term debt 1,887 1,962
Employee benefit obligations 303 317
Operating lease liabilities, noncurrent 260 231
Other noncurrent liabilities 255 173
Total noncurrent liabilities 2,705 2,683
Commitments and contingencies
Stockholders’ deficit    
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding 0 0
Common stock, par value $0.01 per share, 400 shares authorized; 183 and 185 shares issued and outstanding at December 31, 2020 and September 30, 2020, respectively 2 2
Paid-in capital 25 24
Retained deficit (106) (110)
Accumulated other comprehensive income 24 8
Total stockholders’ deficit (55) (76)
Total liabilities and stockholders’ deficit $ 3,156 $ 3,051
v3.20.4
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2020
Sep. 30, 2020
Statement of Financial Position [Abstract]    
Preferred stock authorized (shares) 40,000,000 40,000,000
Preferred stock issued (shares) 0 0
Preferred stock outstanding (shares) 0 0
Common stock, par value (usd per share) $ 0.01 $ 0.01
Common stock authorized (shares) 400,000,000 400,000,000
Common stock issued (shares) 183,000,000 185,000,000
Common stock outstanding (shares) 183,000,000 185,000,000
v3.20.4
Condensed Consolidated Statements of Stockholders' Deficit - USD ($)
shares in Millions, $ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Common stock outstanding, at beginning of period (shares) at Sep. 30, 2019     188      
Balance at beginning of period at Sep. 30, 2019 $ (258) $ 1 $ 2 $ 13 $ (284) $ 11
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 73       73  
Dividends paid (21)       (21)  
Stock-based compensation, net of issuances 3     3    
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent 6         6
Common stock outstanding, at end of period (shares) at Dec. 31, 2019     188      
Balance at end of period at Dec. 31, 2019 $ (196)   $ 2 16 (231) 17
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Dividends paid per common share (usd per share) $ 0.113          
Common stock outstanding, at beginning of period (shares) at Sep. 30, 2020 185   185      
Balance at beginning of period at Sep. 30, 2020 $ (76) $ (2) $ 2 24 (110) 8
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 87       87  
Dividends paid (23)       (23)  
Stock-based compensation, net of issuances 1     1    
Repurchases of common stock (58)          
Stock Repurchased and Retired During Period, Shares     2      
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent $ 16         16
Common stock outstanding, at end of period (shares) at Dec. 31, 2020 183   183      
Balance at end of period at Dec. 31, 2020 $ (55)   $ 2 $ 25 $ (106) $ 24
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Dividends paid per common share (usd per share) $ 0.125          
v3.20.4
Condensed Consolidated Statements of Stockholders' Deficit (Parenthetical) - $ / shares
3 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Dividends paid per common share (usd per share) $ 0.125 $ 0.113
v3.20.4
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Cash flows from operating activities    
Net income $ 87 $ 73
Adjustments to reconcile net income to cash flows from operating activities    
Depreciation and amortization 21 16
Equity income from unconsolidated affiliates, net of distributions 0 (2)
Pension contributions (1) (4)
Stock-based compensation expense 3 4
Other, net 0 2
Change in assets and liabilities    
Receivables 7 7
Inventories (4) 4
Payables and accrued liabilities (40) (47)
Other assets and liabilities 6 6
Total cash provided by operating activities 79 59
Cash flows from investing activities    
Additions to property, plant and equipment (35) (28)
Notes receivable, net 9 0
Acquisitions of businesses (218) (6)
Other investing activities, net (1) (1)
Total cash used in investing activities (245) (35)
Cash flows from financing activities    
Proceeds from borrowings 11 0
Repurchases of common stock (58) 0
Cash dividends paid (23) (21)
Other financing activities (3) (2)
Total cash used in financing activities (73) (23)
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash 6 3
Increase (decrease) in cash, cash equivalents, and restricted cash (233) 4
Cash, cash equivalents, and restricted cash - beginning of period 761 159
Cash, cash equivalents, and restricted cash - end of period $ 528 $ 163
v3.20.4
Basis of Presentation and Significant Accounting Policies
3 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared by Valvoline Inc. (“Valvoline” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission (“SEC”) regulations for interim financial reporting, which do not include all information and footnote disclosures normally included in annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. In the opinion of management, the assumptions underlying the condensed consolidated financial statements for these interim periods are reasonable, and all adjustments considered necessary for a fair presentation have been made and are of a normal recurring nature unless otherwise disclosed herein. The results for interim periods are not necessarily indicative of those to be expected for the entire year, particularly in light of the novel coronavirus ("COVID-19") global pandemic and its effects.

Valvoline has substantially maintained its operations throughout the COVID-19 pandemic to-date and has continued precautionary measures to protect the Company's employees and customers and manage through the currently known impacts on its business. Given the unprecedented nature of the pandemic, the extent of future impacts cannot be reasonably estimated at this time due to numerous uncertainties, including the duration and severity of the pandemic.

Recent accounting pronouncements

The following standards relevant to Valvoline were either issued or adopted in the current year, or are expected to have a meaningful impact on Valvoline in future periods upon adoption. The FASB issued other accounting guidance during the period that is not currently applicable or expected to have a material impact on Valvoline’s condensed consolidated financial statements, and therefore, is not described below.

Recently adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued updated guidance that changes the recognition of credit losses from an incurred or probable loss methodology to a current expected credit loss model that results in the immediate recognition of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, principally trade and other receivables for Valvoline. The new credit loss guidance was adopted on October 1, 2020 using the required modified retrospective approach. Under this approach, the new accounting guidance is applied prospectively from the date of adoption through a cumulative effect adjustment in retained deficit, while prior period financial statements continue to be reported in accordance with the previous guidance. Adoption did not have a material impact on the Company's condensed consolidated financial statements and resulted in a $2 million, net of tax, cumulative effect of accounting change that increased retained deficit and allowances for credit losses.

In connection with and following the adoption of this guidance, Valvoline maintains allowances to estimate expected lifetime credit losses that are based on a broad range of reasonable and supportable information and factors, including the length of time receivables are past due, the financial health of its customers, macroeconomic conditions, and historical collection experience. Refer to Note 11 for additional information regarding the Company's trade and other receivables and its allowances for credit losses.

Issued but not yet adopted

In March 2020, the FASB issued guidance regarding the effects of reference rate reform intended to ease financial reporting burdens as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates. The Company has interest rate swap hedging arrangements and long-term debt as described in Notes 2 and 5 to the Condensed Consolidated Financial Statements, respectively, for which existing payments are based on LIBOR. This guidance is available to be adopted through the end of
calendar 2022 to simplify the accounting for arrangements modified for the transition to alternative reference rates. The Company expects to adopt this guidance to the extent its arrangements are modified for the underlying reference rate prior to the end of calendar 2022 and does not expect adoption will have a material impact on its condensed consolidated financial statements.
v3.20.4
Fair Value Measurements
3 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements FAIR VALUE MEASUREMENTS
The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy:

As of December 31, 2020
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$189 $189 $— $— $— 
Time deposits36 — 36 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds15 — — 
Total assets at fair value$241 $189 $43 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations27 — — — 27 
Total liabilities at fair value$29 $— $$— $27 
As of September 30, 2020
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$296 $296 $— $— $— 
Time deposits139 — 139 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds16 — — 
Total assets at fair value$454 $296 $150 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations25 — — — 25 
Total liabilities at fair value$28 $— $$— $25 
(a)Funds measured at fair value using the net asset value ("NAV") per share practical expedient have not been classified in the fair value hierarchy.
(b)The Company had outstanding contracts with notional value of $139 million and $149 million as of December 31, 2020 and September 30, 2020, respectively.

There were no material gains or losses recognized in earnings during the three months ended December 31, 2020 or 2019 related to these assets and liabilities.

Long-term debt

The fair values of the Company’s outstanding fixed rate senior notes shown in the table below are based on recent trading values, which are considered Level 2 inputs within the fair value hierarchy. Long-term debt is included in the Condensed Consolidated Balance Sheets at carrying value, rather than fair value, and is therefore excluded from the fair value table above. Carrying values shown in the following table are net of unamortized discounts and issuance costs.
December 31, 2020September 30, 2020
(In millions)Fair valueCarrying valueUnamortized
discounts and
issuance costs
Fair valueCarrying valueUnamortized
discounts and
issuance costs
2025 Notes$826 $790 $(10)$827 $790 $(10)
2030 Notes635 592 (7)613 592 (8)
Total$1,461 $1,382 $(17)$1,440 $1,382 $(18)

Refer to Note 5 for more information on Valvoline’s other debt instruments that have variable interest rates, and accordingly, their carrying amounts approximate fair value.
v3.20.4
Acquisitions and Divestitures
3 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Acquisitions and Divestitures
Quick Lubes store acquisitions

During the three months ended December 31, 2020, the Company acquired 81 service center stores in single and multi-store transactions, including 27 former franchise locations converted to company-owned service center stores and 12 franchise-operated service center stores, for an aggregate purchase price of $218 million. These acquisitions expanded Valvoline's Quick Lubes system in key markets to more than 650 and 1,500 company-owned and system-wide service center stores, respectively, and included:

Fourteen company-owned service center stores in Texas acquired from Kent Lubrication Centers Ltd. (doing business as Avis Lube) on October 1, 2020;
Twenty-one former franchise locations converted to company-owned service center stores in Kansas and Missouri acquired from Westco Lube, Inc. on October 15, 2020;
Twelve company-owned service center stores in Idaho acquired from L&F Enterprises (doing business as Einstein's Oilery) on October 30, 2020; and
Twenty-seven Mister Oil Change Express® locations across seven states (15 company-owned and 12 franchise-operated) acquired from Car Wash Partners, Inc. on December 11, 2020.

During the three months ended December 31, 2019, the Company acquired nine service center stores in single and multi-store transactions, including two former franchise locations converted to company-owned service center stores, for a total of $6 million.

The Company’s acquisitions are accounted for as business combinations. A summary follows of the aggregate cash consideration paid and the total assets acquired and liabilities assumed for the three months ended December 31:
(In millions)20202019
Inventories$$— 
Property, plant and equipment (a)
79 — 
Operating lease assets23 — 
Goodwill (b)
175 
Intangible assets (c)
Reacquired franchise rights (d)
33 
Other— 
Other current liabilities (a)
(6)— 
Operating lease liabilities(21)— 
Other noncurrent liabilities (a)
(70)— 
Net assets acquired$218 $
(a)Includes $73 million of finance lease assets in property, plant and equipment and finance lease liabilities of $3 million and $70 million in other current and noncurrent liabilities, respectively, for leases acquired during the three months ended December 31, 2020.
(b)Goodwill is generally expected to be deductible for income tax purposes and is primarily attributed to the operational synergies and potential growth expected to result in economic benefits in the respective markets of the acquisitions.
(c)Intangible assets acquired during the three months ended December 31, 2020 and 2019 have weighted average amortization periods of 11 and six years, respectively.
(d)Prior to the acquisition of former franchise service center stores, Valvoline licensed the right to operate franchised quick lube service centers, including use of the Company’s trademarks and trade name. In connection with these acquisitions, Valvoline reacquired those rights and recognized separate definite-lived reacquired franchise rights intangible assets, which are being amortized on a straight-line basis over the weighted average remaining term of approximately 11 years for the rights reacquired in fiscal 2021. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market.

The fair values above are preliminary for up to one year from the date of acquisition as they may be subject to measurement period adjustments if new information is obtained about facts and circumstances that existed as of the acquisition date. The Company does not currently expect any material changes to the preliminary purchase price allocations for acquisitions completed during the last twelve months.
v3.20.4
Goodwill and Other Intangibles
3 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles INTANGIBLE ASSETS
Goodwill

The following table summarizes the changes in the carrying amount of goodwill by reportable segment and in total during the three months ended December 31, 2020:
(In millions)Quick LubesCore North AmericaInternationalTotal
Balance at September 30, 2020$316 $89 $40 $445 
Acquisitions (a)
175 — — 175 
Currency translation— — 
Balance at December 31, 2020$492 $89 $40 $621 
(a) Refer to Note 3 for details regarding the acquisitions completed during the three months ended December 31, 2020.

Other intangible assets

Valvoline’s purchased intangible assets were specifically identified when acquired, have finite lives, and are reported in Goodwill and intangibles, net on the Condensed Consolidated Balance Sheets. The following summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets:
(In millions)December 31, 2020September 30, 2020
Gross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Definite-lived intangible assets
Trademarks and trade names $31 $(6)$25 $30 $(6)$24 
Reacquired franchise rights90 (16)74 57 (14)43 
Customer relationships 22 (7)15 22 (7)15 
Other intangible assets(2)(1)
Total definite-lived intangible assets$149 $(31)$118 $112 $(28)$84 
v3.20.4
Debt
3 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Debt DEBT
The following table summarizes Valvoline’s total debt:

(In millions)December 31
2020
September 30
2020
2030 Notes$600 $600 
2025 Notes800 800 
Term Loan475 475 
Trade Receivables Facility88 88 
China Credit Facility30 18 
Debt issuance costs and discounts(18)(19)
Total debt1,975 1,962 
Current portion of long-term debt88 — 
Long-term debt$1,887 $1,962 

Senior Notes
The Company's outstanding fixed rate senior notes as of December 31, 2020 consist of 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $800 million (the “2025 Notes") and 4.250% senior unsecured notes due 2030 with an aggregate principal amount of $600 million (the "2030 Notes," and collectively with the 2025 Notes, the "Senior Notes").

On December 15, 2020, Valvoline executed its call option to redeem the 2025 Notes, conditional upon closing the offering of 3.625% senior unsecured notes due 2031 with an aggregate principal amount of $535 million (the “2031 Notes") in January 2021. The Company intends to utilize the net proceeds of $528 million (after deducting initial purchasers’ discounts and debt issuance costs), together with cash and cash equivalents on hand, to fully redeem the 2025 Notes at an aggregate redemption price of approximately $840 million, which will include an early redemption premium of $26 million and accrued and unpaid interest, in addition to paying related fees and expenses.
Senior Credit Agreement
As of December 31, 2020 and September 30, 2020, the term loan facility (the “Term Loan”) had an outstanding principal balance of $475 million and there were no amounts outstanding under the $475 million revolving credit facility (the "Revolver"), both senior secured credit facilities provided under the senior credit agreement (the “Senior Credit Agreement”). As of December 31, 2020, the total borrowing capacity remaining under the Revolver was $470 million due to a reduction of $5 million for letters of credit outstanding.

As of December 31, 2020, Valvoline was in compliance with all covenants under the Senior Credit Agreement.

Trade Receivables Facility
The $175 million trade receivables securitization facility (the "Trade Receivables Facility") had an outstanding balance of $88 million as of December 31, 2020 and September 30, 2020. Based on the availability of eligible receivables, the remaining borrowing capacity of the Trade Receivables Facility as of December 31, 2020 was $36 million. As of December 31, 2020 and September 30, 2020, the financing subsidiary owned $214 million and $267 million, respectively, of outstanding accounts receivable, which are included in Receivables, net in the Company’s Condensed Consolidated Balance Sheets.

China Credit Facility
During the first fiscal quarter of 2021, Valvoline borrowed $11 million under its $40 million credit agreement to finance capital expenditures associated with the preparation of the blending and packaging plant in China for production (the "China Credit Facility"). The China Credit Facility had $30 million and $18 million outstanding as of December 31, 2020 and September 30, 2020, respectively. The remaining borrowing capacity under the China Credit Facility was approximately $10 million as of December 31, 2020.

China Working Capital Facility

On November 16, 2020, the Company entered into a one-year revolving credit facility of approximately $23 million to finance working capital needs for the blending and packaging plant in China (the “China Working Capital Facility”). Borrowings will bear interest at the local prime rate less the applicable interest rate margin with interest due monthly and repayment of borrowings due at maturity. As of December 31, 2020, the China Working Capital Facility had no outstanding borrowings, leaving its full borrowing capacity of approximately $23 million remaining.
v3.20.4
Income Taxes
3 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income tax provisions for interim quarterly periods are based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual discrete items related specifically to interim periods. The following summarizes income tax expense and the effective tax rate in each interim period:

Three months ended
December 31
(In millions)20202019
Income tax expense$30 $24 
Effective tax rate percentage25.6 %24.7 %

The increase in income tax expense and the effective tax rate over the prior year was principally driven by an increase in pre-tax income and unfavorable discrete items compared to favorable discrete items in the prior year.

From a combination of statute expirations and anticipated audit settlements in the next twelve months, Valvoline currently estimates a decrease in the range of $25 million to $35 million in indemnity obligations due to the Company's former parent, which is expected to include certain unrecognized tax benefits.
v3.20.4
Employee Benefit Plans
3 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Employee Benefit Plans EMPLOYEE BENEFIT PLANS
The following table summarizes the components of pension and other postretirement benefit income:

Other postretirement benefits
Pension benefits
(In millions)2020201920202019
Three months ended December 31
Service cost$$$— $— 
Interest cost11 16 — — 
Expected return on plan assets(22)(22)— — 
Amortization of prior service credit— — (2)(3)
Net periodic benefit income$(10)$(5)$(2)$(3)
v3.20.4
Litigation, Claims and Contingencies
3 Months Ended
Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Litigation, Claims and Contingencies LITIGATION, CLAIMS AND CONTINGENCIES
From time to time, Valvoline is party to lawsuits, claims and other legal proceedings that arise in the ordinary course of business. The Company establishes liabilities for the outcome of such matters where losses are determined to be probable and reasonably estimable. Where appropriate, the Company has recorded liabilities with respect to these matters, which were not material for the periods presented as reflected in the condensed consolidated financial statements herein. There are certain claims and legal proceedings pending where loss is not determined to be probable or reasonably estimable, and therefore, accruals have not been made. In addition, Valvoline discloses matters for which management believes a material loss is at least reasonably possible.

In all instances, management has assessed each matter based on current information available and made a judgment concerning its potential outcome, giving due consideration to the amount and nature of the claim and the probability of success. The Company believes it has established adequate accruals for liabilities that are probable and reasonably estimable.

Although the ultimate resolution of these matters cannot be predicted with certainty and there can be no assurances that the actual amounts required to satisfy liabilities from these matters will not exceed the amounts reflected in the condensed consolidated financial statements, based on information available at this time, it is the opinion of management that such pending claims or proceedings will not have a material adverse effect on its condensed consolidated financial statements.
v3.20.4
Earnings Per Share
3 Months Ended
Dec. 31, 2020
Earnings Per Share [Abstract]  
Earnings Per Share EARNINGS PER SHARE
The following table summarizes basic and diluted earnings per share:

Three months ended
December 31
(In millions, except per share amounts)2020 2019
Numerator 
Net income $87 $73 
Denominator 
Weighted average common shares outstanding185  189 
Effect of potentially dilutive securities (a)
 — 
Weighted average diluted shares outstanding186 189 
  
Earnings per share 
Basic$0.47  $0.39 
Diluted$0.47  $0.39 
(a)For the three months ended December 31, 2020 and 2019, there were approximately 1 million outstanding stock appreciation rights not included in the computation of diluted earnings per share because the effect would have been antidilutive.
v3.20.4
Reportable Segment Information
3 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
Reportable Segment Information REPORTABLE SEGMENT INFORMATION
Valvoline manages and reports within the following three segments:

Quick Lubes services the passenger car and light truck quick lube market in the United States and Canada through company-owned and independent franchised retail quick lube service center stores and independent Express Care stores that service vehicles with Valvoline products.

Core North America sells engine and automotive maintenance products in the United States and Canada to retailers, installers, and heavy-duty customers to service vehicles and equipment.

International sells engine and automotive maintenance products in more than 140 countries outside of the United States and Canada for the maintenance of consumer and commercial vehicles and equipment.

These segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in assessing segment performance and in allocating resources. Sales and operating income are the primary U.S. GAAP measures evaluated in assessing each reportable segment’s financial performance. Operating income by segment includes the allocation of shared corporate costs, which are allocated consistently based on each segment’s proportional contribution to various financial measures. Intersegment sales are not material, and assets are not allocated and included in the assessment of segment performance; consequently, these items are not disclosed by segment herein.

To maintain operating focus on business performance, certain corporate and non-operational items, including adjustments related to legacy businesses that no longer are attributed to Valvoline, are excluded from the segment operating results utilized by the chief operating decision maker in evaluating segment performance and are separately delineated within Unallocated and other to reconcile to total reported Operating income as shown in the table below.

Segment financial results

The following table presents sales and operating income for each reportable segment:



(In millions)
Three months ended
December 31
20202019
Sales
Quick Lubes$254 $218 
Core North America235 248 
International164 141 
Consolidated sales$653 $607 
Operating income
Quick Lubes$43 $38 
Core North America47 46 
International34 20 
Total operating segments124 104 
Unallocated and other (a)
— — 
Consolidated operating income$124 $104 
(a)Unallocated and other includes net legacy and separation-related activity and certain other corporate matters not allocated to the reportable segments.
Disaggregation of revenue

The following table summarizes sales by primary customer channel for the Company’s reportable segments:

Three months ended
December 31
(In millions)20202019
Quick Lubes
Company-owned operations$178 $142 
Non-company owned operations76 76 
Total Quick Lubes254 218 
Core North America
Retail135 137 
Installer and other100 111 
Total Core North America235 248 
International164 141 
Consolidated sales$653 $607 

Sales by reportable segment disaggregated by geographic market follows:

Quick LubesCore North AmericaInternationalTotal
(In millions)20202019202020192020201920202019
Three months ended December 31
North America (a)
$254 $218 $235 $248 $— $— $489 $466 
Europe, Middle East and Africa ("EMEA")— — — — 51 47 51 47 
Asia Pacific— — — — 83 70 83 70 
Latin America (a)
— — — — 30 24 30 24 
Totals$254 $218 $235 $248 $164 $141 $653 $607 
v3.20.4
Supplemental Financial Information
3 Months Ended
Dec. 31, 2020
Supplemental Financial Information [Abstract]  
Supplemental Financial Information SUPPLEMENTAL FINANCIAL INFORMATION
Cash, cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totals shown within the Condensed Consolidated Statements of Cash Flows:

(In millions)December 31
2020
September 30
2020
December 31
2019
Cash and cash equivalents$527 $760 $162 
Restricted cash (a)
Total cash, cash equivalents and restricted cash$528 $761 $163 
(a)Included in Prepaid expenses and other current assets within the Condensed Consolidated Balance Sheets.
Accounts and other receivables

The following table summarizes Valvoline’s accounts and other receivables in the Condensed Consolidated Balance Sheets:

(In millions)December 31
2020
September 30
2020
Current
Trade$410 $409 
Other13 14 
Notes receivable from franchisees (a)
11 13 
Receivables, gross434 436 
Allowance for credit losses(4)(3)
Receivables, net$430 $433 
Non-current (b)
Notes receivable from franchisees (a)
$$13 
Other notes receivable
Noncurrent notes receivable, gross16 21 
Allowance for losses(5)(4)
Noncurrent notes receivable, net$11 $17 
(a)Notes receivable from franchisees were primarily issued in fiscal 2020 to provide financial assistance in response to the COVID-19 pandemic. No material balances were past due as of December 31, 2020.
(b)Included in Other noncurrent assets within the Condensed Consolidated Balance Sheets.

Inventories

Inventories are primarily carried at the lower of cost or net realizable value using the weighted average cost method. In addition, certain lubricants are valued at the lower of cost or market using the last-in, first-out ("LIFO") method.

The following table summarizes Valvoline’s inventories in the Condensed Consolidated Balance Sheets:

(In millions)December 31
2020
September 30
2020
Finished products$204 $195 
Raw materials, supplies and work in process39 30 
Reserve for LIFO cost valuation(30)(26)
Total inventories, net$213 $199 

Revenue recognition

The following table disaggregates the Company’s sales by timing of recognition:

Three months ended
December 31
(In millions)20202019
Sales at a point in time$642 $596 
Franchised revenues transferred over time11 11 
Total consolidated sales$653 $607 
v3.20.4
Subsequent Events
3 Months Ended
Dec. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events SUBSEQUENT EVENTS
Debt refinancing

In January 2021, the Company completed the issuance of the 2031 Notes and used the net proceeds of $528 million, together with $312 million of cash and cash equivalents on hand, to fully redeem the 2025 Notes, with an aggregate redemption price of approximately $840 million. The Company expects to recognize a loss on extinguishment of the 2025 Notes of $36 million during the second quarter of fiscal 2021, comprised of the early redemption premium and the write-off of related unamortized debt issuance costs and discounts.

Dividend declared

On January 28, 2021, the Board of Directors of Valvoline declared a quarterly cash dividend of $0.125 per share of Valvoline common stock. The dividend is payable on March 15, 2021 to shareholders of record on February 26, 2021.

Share repurchases
The Company repurchased over 1 million shares for an aggregate amount of $33 million from January 1, 2021 through January 31, 2021 pursuant to the Board of Directors authorization on November 12, 2020 to repurchase up to $100 million of common stock through September 30, 2021 (the “2020 Share Repurchase Authorization”). The Company has $9 million in aggregate share repurchase authority remaining under the 2020 Share Repurchase Authorization as of January 31, 2021.
v3.20.4
Basis of Presentation and Significant Accounting Policies (Policies)
3 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Valvoline Inc. (“Valvoline” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission (“SEC”) regulations for interim financial reporting, which do not include all information and footnote disclosures normally included in annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. In the opinion of management, the assumptions underlying the condensed consolidated financial statements for these interim periods are reasonable, and all adjustments considered necessary for a fair presentation have been made and are of a normal recurring nature unless otherwise disclosed herein. The results for interim periods are not necessarily indicative of those to be expected for the entire year, particularly in light of the novel coronavirus ("COVID-19") global pandemic and its effects.

Valvoline has substantially maintained its operations throughout the COVID-19 pandemic to-date and has continued precautionary measures to protect the Company's employees and customers and manage through the currently known impacts on its business. Given the unprecedented nature of the pandemic, the extent of future impacts cannot be reasonably estimated at this time due to numerous uncertainties, including the duration and severity of the pandemic.
Recent accounting pronouncements
The following standards relevant to Valvoline were either issued or adopted in the current year, or are expected to have a meaningful impact on Valvoline in future periods upon adoption. The FASB issued other accounting guidance during the period that is not currently applicable or expected to have a material impact on Valvoline’s condensed consolidated financial statements, and therefore, is not described below.

Recently adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued updated guidance that changes the recognition of credit losses from an incurred or probable loss methodology to a current expected credit loss model that results in the immediate recognition of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, principally trade and other receivables for Valvoline. The new credit loss guidance was adopted on October 1, 2020 using the required modified retrospective approach. Under this approach, the new accounting guidance is applied prospectively from the date of adoption through a cumulative effect adjustment in retained deficit, while prior period financial statements continue to be reported in accordance with the previous guidance. Adoption did not have a material impact on the Company's condensed consolidated financial statements and resulted in a $2 million, net of tax, cumulative effect of accounting change that increased retained deficit and allowances for credit losses.

In connection with and following the adoption of this guidance, Valvoline maintains allowances to estimate expected lifetime credit losses that are based on a broad range of reasonable and supportable information and factors, including the length of time receivables are past due, the financial health of its customers, macroeconomic conditions, and historical collection experience. Refer to Note 11 for additional information regarding the Company's trade and other receivables and its allowances for credit losses.

Issued but not yet adopted

In March 2020, the FASB issued guidance regarding the effects of reference rate reform intended to ease financial reporting burdens as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates. The Company has interest rate swap hedging arrangements and long-term debt as described in Notes 2 and 5 to the Condensed Consolidated Financial Statements, respectively, for which existing payments are based on LIBOR. This guidance is available to be adopted through the end of
calendar 2022 to simplify the accounting for arrangements modified for the transition to alternative reference rates. The Company expects to adopt this guidance to the extent its arrangements are modified for the underlying reference rate prior to the end of calendar 2022 and does not expect adoption will have a material impact on its condensed consolidated financial statements.
v3.20.4
Fair Value Measurements (Tables)
3 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Schedule of Assets and Liabilities at Fair Value
The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy:

As of December 31, 2020
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$189 $189 $— $— $— 
Time deposits36 — 36 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds15 — — 
Total assets at fair value$241 $189 $43 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations27 — — — 27 
Total liabilities at fair value$29 $— $$— $27 
As of September 30, 2020
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$296 $296 $— $— $— 
Time deposits139 — 139 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds16 — — 
Total assets at fair value$454 $296 $150 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations25 — — — 25 
Total liabilities at fair value$28 $— $$— $25 
(a)Funds measured at fair value using the net asset value ("NAV") per share practical expedient have not been classified in the fair value hierarchy.
(b)The Company had outstanding contracts with notional value of $139 million and $149 million as of December 31, 2020 and September 30, 2020, respectively.
Summary of Fair Value of Debt Carrying values shown in the following table are net of unamortized discounts and issuance costs.
December 31, 2020September 30, 2020
(In millions)Fair valueCarrying valueUnamortized
discounts and
issuance costs
Fair valueCarrying valueUnamortized
discounts and
issuance costs
2025 Notes$826 $790 $(10)$827 $790 $(10)
2030 Notes635 592 (7)613 592 (8)
Total$1,461 $1,382 $(17)$1,440 $1,382 $(18)
v3.20.4
Acquisitions and Divestitures (Tables)
3 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Summary of Consideration Paid and Assets and Liabilities Acquired :
(In millions)20202019
Inventories$$— 
Property, plant and equipment (a)
79 — 
Operating lease assets23 — 
Goodwill (b)
175 
Intangible assets (c)
Reacquired franchise rights (d)
33 
Other— 
Other current liabilities (a)
(6)— 
Operating lease liabilities(21)— 
Other noncurrent liabilities (a)
(70)— 
Net assets acquired$218 $
v3.20.4
Goodwill and Other Intangibles (Tables)
3 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill
The following table summarizes the changes in the carrying amount of goodwill by reportable segment and in total during the three months ended December 31, 2020:
(In millions)Quick LubesCore North AmericaInternationalTotal
Balance at September 30, 2020$316 $89 $40 $445 
Acquisitions (a)
175 — — 175 
Currency translation— — 
Balance at December 31, 2020$492 $89 $40 $621 
(a) Refer to Note 3 for details regarding the acquisitions completed during the three months ended December 31, 2020.
Schedule of Definite-Lived Intangible Assets The following summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets:
(In millions)December 31, 2020September 30, 2020
Gross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Definite-lived intangible assets
Trademarks and trade names $31 $(6)$25 $30 $(6)$24 
Reacquired franchise rights90 (16)74 57 (14)43 
Customer relationships 22 (7)15 22 (7)15 
Other intangible assets(2)(1)
Total definite-lived intangible assets$149 $(31)$118 $112 $(28)$84 
Schedule of Definite-Lived Intangible Assets, Actual and Estimated Amortization Expense
The table that follows summarizes amortization expense (actual and estimated) for intangible assets, assuming no additional amortizable intangible assets:

ActualEstimated
Three months ended
December 31
Years ended September 30
(In millions)202020212022202320242025
Amortization expense$$15 $14 $14 $13 $11 
v3.20.4
Debt (Tables)
3 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Schedule of Total Debt
The following table summarizes Valvoline’s total debt:

(In millions)December 31
2020
September 30
2020
2030 Notes$600 $600 
2025 Notes800 800 
Term Loan475 475 
Trade Receivables Facility88 88 
China Credit Facility30 18 
Debt issuance costs and discounts(18)(19)
Total debt1,975 1,962 
Current portion of long-term debt88 — 
Long-term debt$1,887 $1,962 
v3.20.4
Income Taxes (Tables)
3 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Schedule of Income Tax Expense and Effective Tax Rate The following summarizes income tax expense and the effective tax rate in each interim period:
Three months ended
December 31
(In millions)20202019
Income tax expense$30 $24 
Effective tax rate percentage25.6 %24.7 %
v3.20.4
Employee Benefit Plans (Tables)
3 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Components of Pension and Other Postretirement Benefit Income
The following table summarizes the components of pension and other postretirement benefit income:

Other postretirement benefits
Pension benefits
(In millions)2020201920202019
Three months ended December 31
Service cost$$$— $— 
Interest cost11 16 — — 
Expected return on plan assets(22)(22)— — 
Amortization of prior service credit— — (2)(3)
Net periodic benefit income$(10)$(5)$(2)$(3)
v3.20.4
Earnings Per Share (Tables)
3 Months Ended
Dec. 31, 2020
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted :
Three months ended
December 31
(In millions, except per share amounts)2020 2019
Numerator 
Net income $87 $73 
Denominator 
Weighted average common shares outstanding185  189 
Effect of potentially dilutive securities (a)
 — 
Weighted average diluted shares outstanding186 189 
  
Earnings per share 
Basic$0.47  $0.39 
Diluted$0.47  $0.39 
(a)For the three months ended December 31, 2020 and 2019, there were approximately 1 million outstanding stock appreciation rights not included in the computation of diluted earnings per share because the effect would have been antidilutive.
v3.20.4
Reportable Segment Information (Tables)
3 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information
The following table presents sales and operating income for each reportable segment:



(In millions)
Three months ended