VALVOLINE INC, 10-Q filed on 8/5/2021
Quarterly Report
v3.21.2
Cover Page - shares
9 Months Ended
Jun. 30, 2021
Jul. 30, 2021
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2021  
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 $0.01 per share  
Trading Symbol VVV  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Smaller Reporting Company false  
Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   180,760,678
Entity Central Index Key 0001674910  
Amendment Flag false  
Current Fiscal Year End Date --09-30  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q3  
v3.21.2
Condensed Consolidated Statements of Comprehensive Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Net Income (Loss) Attributable to Parent [Abstract]        
Sales $ 792 $ 516 $ 2,146 $ 1,701
Cost of sales 533 329 1,412 1,096
Gross profit 259 187 734 605
Selling, general and administrative expenses 136 106 382 319
Net legacy and separation-related expenses 1 1 2 0
Equity and other income, net (9) (8) (36) (23)
Operating income 131 88 386 309
Net pension and other postretirement plan income (14) (9) (41) (27)
Net interest and other financing expenses 17 19 92 73
Income before income taxes 128 78 335 263
Income tax expense 31 19 83 68
Net Income (Loss) Attributable to Parent, Total $ 97 $ 59 $ 252 $ 195
NET EARNINGS PER SHARE        
Basic (usd per share) $ 0.53 $ 0.32 $ 1.38 $ 1.04
Diluted (usd per share) $ 0.53 $ 0.32 $ 1.37 $ 1.04
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING        
Basic (shares) 182 186 183 187
Diluted (shares) 183 186 184 188
COMPREHENSIVE INCOME        
Net income $ 97 $ 59 $ 252 $ 195
Other comprehensive income (loss), net of tax        
Currency translation adjustments 4 10 15 (3)
Amortization of pension and other postretirement plan prior service credit (2) (3) (6) (7)
Other Comprehensive Income (Loss), Cash Flow Hedge, Gain (Loss), Reclassification, after Tax 0 0 1 0
Other comprehensive income (loss) 2 7 10 (10)
Comprehensive income $ 99 $ 66 $ 262 $ 185
v3.21.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2021
Sep. 30, 2020
Assets, Current [Abstract]    
Cash and cash equivalents $ 226 $ 760
Receivables, Net, Current 490 433
Inventories, net 247 199
Prepaid expenses and other current assets 53 46
Total current assets 1,016 1,438
Noncurrent assets    
Property, plant and equipment, net 773 613
Operating Lease, Right-of-Use Asset 311 261
Goodwill and intangibles, net 773 529
Equity method investments 47 44
Deferred income taxes 10 34
Other Assets, Noncurrent 119 132
Total noncurrent assets 2,033 1,613
Total assets 3,049 3,051
Current liabilities    
Current portion of long-term debt 2 0
Trade and other payables 216 189
Accrued expenses and other liabilities 289 255
Total current liabilities 507 444
Noncurrent liabilities    
Long-term debt 1,691 1,962
Employee benefit obligations 272 317
Operating lease liabilities, noncurrent 276 231
Other noncurrent liabilities 280 173
Total noncurrent liabilities 2,519 2,683
Commitments and contingencies
Stockholders’ equity (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; 181 and 185 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively 2 2
Paid-in capital 32 24
Retained deficit (29) (110)
Accumulated other comprehensive income 18 8
Total stockholders’ equity (deficit) 23 (76)
Total liabilities and stockholders’ equity (deficit) $ 3,049 $ 3,051
v3.21.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2021
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) 181,000,000 185,000,000
Common stock outstanding (shares) 181,000,000 185,000,000
v3.21.2
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, 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 195          
Currency translation adjustments (3)          
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent (10)          
Common stock outstanding, at end of period (shares) at Jun. 30, 2020     185      
Balance at end of period at Jun. 30, 2020 (188)   $ 2 20 (211) 1
Common stock outstanding, at beginning of period (shares) at Dec. 31, 2019     188      
Balance at beginning of period at Dec. 31, 2019 (196)   $ 2 16 (231) 17
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 63       63  
Dividends paid (21)       (21)  
Repurchases of common stock (60)       (60)  
Stock Repurchased and Retired During Period, Shares     3      
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent (23)         (23)
Common stock outstanding, at end of period (shares) at Mar. 31, 2020     185      
Balance at end of period at Mar. 31, 2020 $ (237)   $ 2 16 (249) (6)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Dividends paid per common share (usd per share) $ 0.113          
Net income $ 59       59  
Dividends paid (21)       (21)  
Stock-based compensation, net of issuances 4     4    
Currency translation adjustments 10          
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent 7         7
Common stock outstanding, at end of period (shares) at Jun. 30, 2020     185      
Balance at end of period at Jun. 30, 2020 $ (188)   $ 2 20 (211) 1
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      
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          
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 252          
Currency translation adjustments 15          
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent $ 10          
Common stock outstanding, at end of period (shares) at Jun. 30, 2021 181   181      
Balance at end of period at Jun. 30, 2021 $ 23   $ 2 32 (29) 18
Common stock outstanding, at beginning of period (shares) at Dec. 31, 2020     183      
Balance at beginning of period at Dec. 31, 2020 (55)   $ 2 25 (106) 24
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 68       68  
Dividends paid (23)       (23)  
Stock-based compensation, net of issuances 4     4    
Repurchases of common stock (42)       (42)  
Stock Repurchased and Retired During Period, Shares     2      
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent (8)         (8)
Common stock outstanding, at end of period (shares) at Mar. 31, 2021     181      
Balance at end of period at Mar. 31, 2021 $ (56)   $ 2 29 (103) 16
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Dividends paid per common share (usd per share) $ 0.125          
Net income $ 97       97  
Dividends paid (23)       (23)  
Stock-based compensation, net of issuances 3     3    
Currency translation adjustments 4          
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent $ 2         2
Common stock outstanding, at end of period (shares) at Jun. 30, 2021 181   181      
Balance at end of period at Jun. 30, 2021 $ 23   $ 2 $ 32 $ (29) $ 18
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Dividends paid per common share (usd per share) $ 0.125          
v3.21.2
Condensed Consolidated Statements of Stockholders' Deficit (Parenthetical) - $ / shares
3 Months Ended
Jun. 30, 2021
Mar. 31, 2021
Dec. 31, 2020
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Statement of Stockholders' Equity [Abstract]            
Dividends paid per common share (usd per share) $ 0.125 $ 0.125 $ 0.125 $ 0.113 $ 0.113 $ 0.113
v3.21.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Cash flows from operating activities    
Net income $ 252 $ 195
Adjustments to reconcile net income to cash flows from operating activities    
Loss on extinguishment of debt 36 19
Depreciation and amortization 68 48
Deferred income taxes 24 0
Pension contributions (4) (9)
Stock-based compensation expense 10 8
Other, net 1 1
Change in assets and liabilities    
Receivables (55) 13
Inventories (39) 3
Payables and accrued liabilities 59 (10)
Other assets and liabilities (56) 3
Total cash provided by operating activities 296 271
Cash flows from investing activities    
Additions to property, plant and equipment (106) (94)
Notes receivable, net 14 (31)
Acquisitions of businesses, net of cash acquired (267) (18)
Other investing activities, net 8 0
Total cash used in investing activities (351) (143)
Cash flows from financing activities    
Proceeds from borrowings 555 1,547
Payments of debt issuance costs and discounts (7) (16)
Repayments on borrowings (829) (925)
Payment for Debt Extinguishment or Debt Prepayment Cost (26) (15)
Repurchases of common stock (100) (60)
Cash dividends paid (69) (63)
Other financing activities (7) (3)
Total cash (used in) provided by financing activities (483) 465
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash 5 (1)
Increase (decrease) in cash, cash equivalents, and restricted cash (533) 592
Cash, cash equivalents, and restricted cash - beginning of period 761 159
Cash, cash equivalents, and restricted cash - end of period $ 228 $ 751
v3.21.2
Basis of Presentation and Significant Accounting Policies
9 Months Ended
Jun. 30, 2021
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. Certain prior period amounts disclosed herein have been reclassified to conform to the current presentation.

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 Financial Accounting Standards Board ("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 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 was 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 cumulative effect of accounting change, net of tax, 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, 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.
v3.21.2
Fair Value Measurements
9 Months Ended
Jun. 30, 2021
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 June 30, 2021
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$17 $17 $— $— $— 
Time deposits64 — 64 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds12 — — 
Interest rate swap agreements— — — 
Total assets at fair value$97 $17 $72 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations25 — — — 25 
Total liabilities at fair value$27 $— $$— $25 
As of September 30, 2020
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$296 $296 $— $— $— 
Time deposits139 — 139 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds16 — — 
Total assets at fair value$454 $296 $150 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations25 — — — 25 
Total liabilities at fair value$28 $— $$— $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 values of $156 million and $149 million as of June 30, 2021 and September 30, 2020, respectively.

There were no material gains or losses recognized in earnings during the three and nine months ended June 30, 2021 or 2020 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.

June 30, 2021September 30, 2020
(In millions)Fair valueCarrying valueUnamortized
discounts and
issuance costs
Fair valueCarrying valueUnamortized
discounts and
issuance costs
2025 Notes$— $— $— $827 $790 $(10)
2030 Notes621 593 (7)613 592 (8)
2031 Notes535 529 (6)— — — 
Total$1,156 $1,122 $(13)$1,440 $1,382 $(18)

Refer to Note 5 for more information regarding Valvoline’s other debt instruments that have variable interest rates, and accordingly, their carrying amounts approximate fair value.
v3.21.2
Acquisitions and Divestitures
9 Months Ended
Jun. 30, 2021
Business Combinations [Abstract]  
Acquisitions and Divestitures
Retail store acquisitions

The Company acquired 121 service center stores in single and multi-store transactions for an aggregate purchase price of $267 million during the nine months ended June 30, 2021. These acquisitions expand Valvoline's retail
presence in key North American and international markets, increase the Retail Services system to nearly 700 company-operated and nearly 1,600 system-wide service center stores, and included:

Fourteen company-operated 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-operated service center stores in Kansas and Missouri acquired from Westco Lube, Inc. on October 15, 2020;
Twelve company-operated service center stores in Idaho acquired from L&F Enterprises (doing business as Einstein's Oilery) on October 30, 2020;
Twenty-seven Mister Oil Change Express® locations (15 company-operated and 12 franchise-operated) across seven states acquired from Car Wash Partners, Inc. on December 11, 2020;
Sixteen former franchise locations converted to company-operated service center stores in Texas acquired from AWC Premium Automotive Service Ltd. on April 30, 2021;
Seven former franchise and fourteen former joint venture locations converted to company-operated service center stores acquired in single and multi-store transactions; and
Ten company-operated service center stores acquired in single and multi-store transactions.

During the nine months ended June 30, 2020, the Company acquired 21 service center stores in single and multi-store transactions, including 11 former franchise locations, for an aggregate purchase price of $18 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 nine months ended June 30:

(In millions)20212020
Inventories$$— 
Other current assets— 
Property, plant and equipment (a)
93 
Operating lease assets36 — 
Goodwill (b)
203 
Intangible assets (c)
Reacquired franchise rights (d)
54 
Other— 
Other current liabilities (a)
(8)— 
Operating lease liabilities(33)— 
Other noncurrent liabilities (a)
(84)— 
Net assets acquired$267 $18 
(a)Includes $84 million of finance lease assets in property, plant and equipment and finance lease liabilities of $4 million and $80 million in other current and noncurrent liabilities, respectively, for leases acquired during the nine months ended June 30, 2021.
(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 nine months ended June 30, 2021 and 2020 have weighted average amortization periods of 10 years.
(d)Prior to the acquisition of former franchise service center stores, the Company licensed the right to operate franchised service centers, including the use of Valvoline'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 10 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.
v3.21.2
Goodwill and Other Intangibles
9 Months Ended
Jun. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles - INTANGIBLE ASSETS
Goodwill

The following table summarizes changes in the carrying amount of goodwill by reportable segment and in total during the nine months ended June 30, 2021:

(In millions)Retail ServicesGlobal ProductsTotal
Balance at September 30, 2020 (a)
$316 $129 $445 
Acquisitions (b)
201 203 
Dispositions (c)
(10)— (10)
Currency translation— 
Balance at June 30, 2021$510 $131 $641 
(a)Goodwill balances as of September 30, 2020 have been recast to conform to the current period presentation. Refer to Note 10 for further details regarding the Company's change in reportable segments.
(b)Includes acquisitions within the Retail Services reportable segment of 107 service center stores and a former joint venture in the Global Products reportable segment. Refer to Note 3 for additional details.
(c)Derecognition of goodwill associated with the sale of 12 company-owned, franchise-operated service center stores to franchisees.
Other intangible assets

Valvoline’s purchased intangible assets were specifically identified when acquired, have finite lives, and are reported in Goodwill and intangibles, net within the Condensed Consolidated Balance Sheets. The following summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets:

(In millions)June 30, 2021September 30, 2020
Gross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Definite-lived intangible assets
Trademarks and trade names $31 $(8)$23 $30 $(6)$24 
Reacquired franchise rights111 (21)90 57 (14)43 
Customer relationships 23 (9)14 22 (7)15 
Other intangible assets(2)(1)
Total definite-lived intangible assets$172 $(40)$132 $112 $(28)$84 

The table that follows summarizes actual and estimated amortization expense for the Company's current amortizable intangible assets:

ActualEstimated
Nine months ended
June 30
Years ended September 30
(In millions)202120212022202320242025
Amortization expense$12 $16 $17 $16 $15 $13 
v3.21.2
Debt
9 Months Ended
Jun. 30, 2021
Debt Disclosure [Abstract]  
Debt DEBT
The following table summarizes Valvoline’s total debt as of:

(In millions)June 30
2021
September 30
2020
2031 Notes$535 $— 
2030 Notes600 600 
2025 Notes— 800 
Term Loan475 475 
Trade Receivables Facility59 88 
China Construction Facility38 18 
Debt issuance costs and discounts(14)(19)
Total debt1,693 1,962 
Current portion of long-term debt— 
Long-term debt$1,691 $1,962 

Senior Notes
The Company's outstanding fixed rate senior notes as of June 30, 2021 consist of 3.625% senior unsecured notes due 2031 with an aggregate principal amount of $535 million (the “2031 Notes") and 4.250% senior unsecured notes due 2030 with an aggregate principal amount of $600 million (the "2030 Notes" and collectively with the 2031 Notes, the "Senior Notes").

In January 2021, Valvoline issued the 2031 Notes in a private offering for net proceeds of $528 million (after deducting initial purchasers’ discounts and debt issuance costs). The net proceeds, along with cash and cash equivalents on hand, were used to redeem in full Valvoline's 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $800 million (the “2025 Notes"), including an early redemption premium of $26 million, accrued and unpaid interest, as well as related fees and expenses for an aggregate redemption price of approximately $840 million. A loss on extinguishment of the 2025 Notes of $36 million was recognized in Net interest and other financing expenses in the Condensed Consolidated Statements of Comprehensive Income in the nine months ended June 30, 2021, comprised of the early redemption premium and the write-off of related unamortized debt issuance costs and discounts.

The 2031 Notes are subject to customary events of default for similar debt securities, which if triggered may accelerate the payment of principal, any premium, and accrued but unpaid interest. Such events of default include non-payment of principal and interest, non-performance of covenants and obligations, default on other material debt, and bankruptcy or insolvency. If a change of control repurchase event occurs, Valvoline may be required to offer to purchase the 2031 Notes from the holders thereof. The 2031 Notes are not otherwise required to be repaid prior to maturity, although they may be redeemed at the option of Valvoline at any time prior to their maturity in the manner specified in the governing indenture.

Senior Credit Agreement
As of June 30, 2021 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 of which are senior secured credit facilities provided under the senior credit agreement (the “Senior Credit Agreement”). As of June 30, 2021, 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 June 30, 2021, 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 $59 million and $88 million as of June 30, 2021 and September 30, 2020, respectively. During the nine months ended June 30, 2021, Valvoline made payments of $29 million on the Trade Receivables Facility, resulting in $116 million of borrowing capacity remaining as of June 30, 2021. The financing subsidiary owned $291 million
and $267 million of outstanding accounts receivable as of June 30, 2021 and September 30, 2020, respectively, which were reported in Receivables, net in the Company’s Condensed Consolidated Balance Sheets.

In April 2021, Valvoline amended the Trade Receivables Facility to extend its maturity to April 2024 and modify the eligibility requirements for certain receivables. The amendment also reduces the minimum required borrowing to the lesser of (i) 33 percent of the total facility limit or (ii) the borrowing base from the availability of eligible receivables, in addition to permitting up to a 30 consecutive day annual exemption from this requirement. Other relevant terms and conditions of Trade Receivables Facility were substantially unchanged under this amendment.

China Construction Facility
During the nine months ended June 30, 2021, Valvoline borrowed $20 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 at capacity (the "China Construction Facility"). The China Construction Facility had approximately $38 million and $18 million outstanding as of June 30, 2021 and September 30, 2020, respectively. The remaining borrowing capacity under the China Construction Facility was approximately $2 million as of June 30, 2021.

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 June 30, 2021, the China Working Capital Facility had no outstanding borrowings, resulting in its full borrowing capacity of approximately $23 million remaining.
v3.21.2
Income Taxes
9 Months Ended
Jun. 30, 2021
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 endedNine months ended
June 30June 30
(In millions)2021202020212020
Income tax expense$31 $19 $83 $68 
Effective tax rate percentage24.2 %24.4 %24.8 %25.9 %

The decreases in effective tax rates from the prior year periods were principally driven by favorable discrete tax benefits in the current year. In addition, tax reform legislation enacted in the prior year resulted in lower current year taxes and unfavorable discrete activity in the nine months ended June 30, 2020. Higher pre-tax earnings in the three and nine months ended June 30, 2021 more than offset these benefits resulting in increased tax expense for the current year periods.

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.
v3.21.2
Employee Benefit Plans
9 Months Ended
Jun. 30, 2021
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)2021202020212020
Three months ended June 30
Service cost$$$— $— 
Interest cost10 15 — 
Expected return on plan assets(22)(21)— — 
Amortization of prior service credit— — (3)(3)
Net periodic benefit income$(11)$(5)$(2)$(3)
Nine months ended June 30
Service cost$$$— $— 
Interest cost32 46 
Expected return on plan assets(65)(65)— — 
Amortization of prior service credit— — (9)(9)
Net periodic benefit income$(31)$(17)$(8)$(8)
v3.21.2
Litigation, Claims and Contingencies
9 Months Ended
Jun. 30, 2021
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 when 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.
v3.21.2
Earnings Per Share
9 Months Ended
Jun. 30, 2021
Earnings Per Share [Abstract]  
Earnings Per Share EARNINGS PER SHARE
The following table summarizes basic and diluted earnings per share:

Three months endedNine months ended
June 30June 30
(In millions, except per share amounts)2021 202020212020
Numerator 
Net income $97 $59 $252 $195 
Denominator 
Weighted average common shares outstanding182  186 183 187 
Effect of potentially dilutive securities (a)
— 
Weighted average diluted shares outstanding183 186 184 188 
  
Earnings per share 
Basic$0.53  $0.32 $1.38 $1.04 
Diluted$0.53  $0.32 $1.37 $1.04 
(a)There were approximately 2 million and 1 million outstanding securities, primarily stock appreciation rights, not included in the computation of diluted earnings per share for the three and nine months ended June 30, 2020, respectively, because the effect would have been antidilutive.
v3.21.2
Reportable Segment Information
9 Months Ended
Jun. 30, 2021
Segment Reporting [Abstract]  
Reportable Segment Information REPORTABLE SEGMENT INFORMATION
During the third quarter of fiscal 2021, the Company realigned its global operations to support its strategic initiatives to transition to a services-driven business. As a result of the realignment, Valvoline now manages its business through the following two reportable segments:

Retail Services - services the passenger car and light truck quick lube market in the United States and Canada with a broad array of preventive maintenance services and capabilities performed through Valvoline’s retail network of Company-operated, independent franchise, and Express Care stores that service vehicles with Valvoline products.

Global Products - sells engine and automotive preventive maintenance products in more than 140 countries to retailers, installers, and commercial customers, including original equipment manufacturers, to service light- and heavy-duty 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 allocating resources and evaluating performance of the business. Adjusted EBITDA is the primary measure used in making these operating decisions, which Valvoline defines as segment operating income adjusted for depreciation and amortization and certain key items impacting comparability.

In connection with the realignment, the Company changed its allocation of certain indirect expenses for such costs to be recognized in each segment based on the estimated utilization of indirect resources. Costs to support corporate functions and certain non-operational and corporate activity that is not directly attributable to a particular
segment are not included in the segment operating results regularly utilized by the chief operating decision maker. This activity is separately delineated within Corporate to reconcile to consolidated results.

Prior period segment financial information presented herein has been recast on a basis that is consistent with the realignment of Valvoline’s global operations.

Segment financial results

The following table presents sales and adjusted EBITDA for each reportable segment:



(In millions)
Three months endedNine months ended
June 30
June 30
2021202020212020
Sales
Retail Services$330 $199 $869 $629 
Global Products462 317 1,277 1,072 
Consolidated sales$792 $516 $2,146 $1,701 
Adjusted EBITDA
Retail Services$112 $54 $277 $170 
Global Products81 69 255 218 
Total operating segments193123532388
Corporate (a)
(20)(24)(53)(40)
Consolidated Adjusted EBITDA173 99 479 348 
Reconciliation to income before income taxes:
Net interest and other financing expenses(17)(19)(92)(73)
Depreciation and amortization(24)(17)(68)(48)
Key items: (b)
Net pension and other postretirement plan income14 41 27 
Net legacy and separation-related expenses(1)(1)(2)— 
LIFO (charge) credit(17)(26)12 
Business interruption recovery— — — 
Acquisition and divestiture-related costs— — — (2)
Restructuring and related expenses— — — (1)
Income before income taxes$128 $78 $335 $263 
(a)Corporate includes the costs of corporate functions and certain other non-operational matters and corporate activity that is not directly attributable to a particular segment.
(b)Key items represent adjustments to U.S. GAAP results and consist of non-operational matters, including pension and other postretirement plan non-service income and remeasurement adjustments, net legacy and separation-related activity, changes in the last-in, first-out ("LIFO") inventory reserve, and certain other corporate matters excluded from operating results, which management believes impacts the comparability of operational results between periods.
Disaggregation of revenue

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

Three months endedNine months ended
June 30June 30
(In millions)2021202020212020
Retail Services
Company operations$234 $139 $616 $421 
Non-company operations96 60 253 208 
Total Retail Services330 199 869 629 
Global Products
U.S. Do-It-Yourself (DIY)162 137 439 407 
North America installer and other 116 70 316 286 
International184 110522 379
Total Global Products462 317 1,277 1,072 
Consolidated sales$792 $516 $2,146 $1,701 

Sales by reportable segment disaggregated by geographic market follows:

Retail ServicesGlobal ProductsTotal
(In millions)202120202021202020212020
Three months ended June 30
North America (a)
$330 $199 $278 $207 $608 $406 
Europe, Middle East and Africa ("EMEA")— — 56345634
Asia Pacific— — 96659665
Latin America (a)
— — 32113211
Totals$330 $199 $462 $317 $792 $516 
Nine months ended June 30
North America (a)
$869 $629 $755 $693 $1,624 $1,322 
EMEA— — 161125161125
Asia Pacific— — 267193267193
Latin America (a)
— — 94619461
Totals$869 $629 $1,277 $1,072 $2,146 $1,701 
v3.21.2
Supplemental Financial Information
9 Months Ended
Jun. 30, 2021
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 Statements of Cash Flows to the Condensed Consolidated Balance Sheets:

(In millions)June 30
2021
September 30
2020
June 30
2020
Cash and cash equivalents$226 $760 $751 
Restricted cash (a)
— 
Total cash, cash equivalents and restricted cash$228 $761 $751 
(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)June 30
2021
September 30
2020
Current
Trade$469 $409 
Other16 14 
Notes receivable from franchisees (a)
10 13 
Receivables, gross495 436 
Allowance for credit losses(5)(3)
Receivables, net$490 $433 
Non-current (b)
Notes receivable from franchisees (a)
$$13 
Other notes receivable
Noncurrent notes receivable, gross21 
Allowance for losses(3)(4)
Noncurrent notes receivable, net$$17 
(a)Notes receivable from franchisees were primarily issued in fiscal 2020 to provide financial assistance in response to the COVID-19 pandemic. There were no material balances past due as of June 30, 2021.
(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 LIFO method.

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

(In millions)June 30
2021
September 30
2020
Finished products$252 $195 
Raw materials, supplies and work in process47 30 
Reserve for LIFO cost valuation(52)(26)
Total inventories, net$247 $199 

Revenue recognition

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

Three months endedNine months ended
June 30June 30
(In millions)2021202020212020
Sales at a point in time$779 $508 $2,110 $1,673 
Franchised revenues transferred over time13 36 28 
Total consolidated sales$792 $516 $2,146 $1,701 
v3.21.2
Subsequent Events
9 Months Ended
Jun. 30, 2021
Subsequent Events [Abstract]  
Subsequent Events SUBSEQUENT EVENTS
Dividend declared

On July 19, 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 September 15, 2021 to shareholders of record on August 30, 2021.

Share repurchases
Pursuant to the 2021 Share Repurchase Authorization, the Company repurchased approximately 0.4 million shares of Valvoline common stock for $11 million during July 2021.
v3.21.2
Basis of Presentation and Significant Accounting Policies (Policies)
9 Months Ended
Jun. 30, 2021
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. Certain prior period amounts disclosed herein have been reclassified to conform to the current presentation.

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 Financial Accounting Standards Board ("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 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 was 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 cumulative effect of accounting change, net of tax, 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, 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.
v3.21.2
Fair Value Measurements (Tables)
9 Months Ended
Jun. 30, 2021
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 June 30, 2021
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$17 $17 $— $— $— 
Time deposits64 — 64 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds12 — — 
Interest rate swap agreements— — — 
Total assets at fair value$97 $17 $72 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations25 — — — 25 
Total liabilities at fair value$27 $— $$— $25 
As of September 30, 2020
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$296 $296 $— $— $— 
Time deposits139 — 139 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
— — — 
Other noncurrent assets
Non-qualified trust funds16 — — 
Total assets at fair value$454 $296 $150 $— $
Accrued expenses and other liabilities
Currency derivatives (b)
$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations25 — — — 25 
Total liabilities at fair value$28 $— $$— $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 values of $156 million and $149 million as of June 30, 2021 and September 30, 2020, respectively.
Summary of Fair Value of Debt Carrying values shown in the following table are net of unamortized discounts and issuance costs.
June 30, 2021September 30, 2020
(In millions)Fair valueCarrying valueUnamortized
discounts and
issuance costs
Fair valueCarrying valueUnamortized
discounts and
issuance costs
2025 Notes$— $— $— $827 $790 $(10)
2030 Notes621 593 (7)613 592 (8)
2031 Notes535 529 (6)— — — 
Total$1,156 $1,122 $(13)$1,440 $1,382 $(18)