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• | In July 2015, the Financial Accounting Standards Board (“FASB”) issued accounting guidance to simplify the subsequent measurement of certain inventories by replacing the current lower of cost or market test with a lower of cost or net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in, first out (“LIFO”) and retail inventory methods. Valvoline adopted this guidance prospectively on October 1, 2017. Valvoline utilizes LIFO to value approximately 70% of its gross inventory and there were no material differences in the Company's previous valuation methodology for its remaining inventory using lower of cost or market to lower of cost or net realizable value. |
• | In March 2017, the FASB issued accounting guidance that changed how employers who sponsor defined benefit pension and/or postretirement benefit plans present the net periodic benefit cost in the Condensed Consolidated Statements of Comprehensive Income. This guidance requires employers to present the service cost component of net periodic benefit cost in the same caption as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost are presented separately outside of the operating income caption. Valvoline retrospectively adopted this guidance on October 1, 2017. Accordingly, Net pension and other postretirement plan non-service income and remeasurement adjustments has been reclassified to non-operating income for all periods presented within the Condensed Consolidated Statements of Comprehensive Income, which reduced previously reported operating income by $26 million for the three months ended December 31, 2016. |
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December 31, 2017 | September 30, 2017 | ||||||||||||||
Quoted prices in active markets for identical assets | Quoted prices in active markets for identical assets | ||||||||||||||
(In millions) | Fair Value | Level 1 | Fair Value | Level 1 | |||||||||||
Assets | |||||||||||||||
Cash equivalents (a) | $ | 24 | $ | 24 | $ | 46 | $ | 46 | |||||||
Foreign currency derivatives (b) | 1 | 1 | 1 | 1 | |||||||||||
Non-qualified trust funds (c) | 30 | 30 | 30 | 30 | |||||||||||
Total assets at fair value | $ | 55 | $ | 55 | $ | 77 | $ | 77 | |||||||
Liabilities | |||||||||||||||
Foreign currency derivatives (d) | $ | 1 | $ | 1 | $ | 1 | $ | 1 | |||||||
Total liabilities at fair value | $ | 1 | $ | 1 | $ | 1 | $ | 1 | |||||||
(b) | Included in Other current assets in the Condensed Consolidated Balance Sheets. |
(c) | As of December 31, 2017, $2 million of this balance is included in Other current assets, with the remainder included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. As of September 30, 2017, this balance is included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. |
(d) | Included in Accrued expense and other liabilities in the Condensed Consolidated Balance Sheets. |
December 31, 2017 | September 30, 2017 | ||||||||||||||||||||||
(In millions) | Fair value | Carrying value | Unamortized discount and issuance costs | Fair value | Carrying value | Unamortized discount and issuance costs | |||||||||||||||||
2024 Notes | $ | 399 | $ | 370 | $ | 5 | $ | 401 | $ | 370 | $ | 5 | |||||||||||
2025 Notes | 404 | 395 | 5 | 408 | 394 | 6 | |||||||||||||||||
Total | $ | 803 | $ | 765 | $ | 10 | $ | 809 | $ | 764 | $ | 11 |
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(In millions) | December 31 2017 | September 30 2017 | |||||
Trade and other accounts receivable | $ | 424 | $ | 390 | |||
Less: Allowance for doubtful accounts | (6 | ) | (5 | ) | |||
$ | 418 | $ | 385 |
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(In millions) | December 31 2017 | September 30 2017 | |||||
Finished products | $ | 178 | $ | 180 | |||
Raw materials, supplies and work in process | 28 | 31 | |||||
LIFO reserves | (33 | ) | (33 | ) | |||
Obsolete inventory reserves | (3 | ) | (3 | ) | |||
$ | 170 | $ | 175 |
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(In millions) | Core North America | Quick Lubes | International | Total | |||||||||||
September 30, 2017 | $ | 89 | $ | 201 | $ | 40 | $ | 330 | |||||||
Acquisitions (a) | — | 30 | — | 30 | |||||||||||
December 31, 2017 | $ | 89 | $ | 231 | $ | 40 | $ | 360 | |||||||
(In millions) | ||||
Years ending September 30 (estimated) | ||||
2018 | $ | 5 | ||
2019 | $ | 5 | ||
2020 | $ | 5 | ||
2021 | $ | 4 | ||
2022 | $ | 4 | ||
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(In millions) | December 31 2017 | September 30 2017 | ||||||
2025 Notes | $ | 400 | $ | 400 | ||||
2024 Notes | 375 | 375 | ||||||
Term Loans | 281 | 285 | ||||||
Trade Receivables Facility | 120 | 75 | ||||||
Revolver | — | — | ||||||
Other (a) | (10 | ) | (11 | ) | ||||
Total debt | $ | 1,166 | $ | 1,124 | ||||
Short-term debt | — | 75 | ||||||
Current portion of long-term debt | 19 | 15 | ||||||
Long-term debt | $ | 1,147 | $ | 1,034 | ||||
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• | The remeasurement of net deferred tax assets at the lower enacted corporate tax rate resulted in a net $67 million increase in income tax expense; |
• | The deemed repatriation tax on unremitted non-U.S. earnings and profits resulted in a $4 million increase in income tax expense; and |
• | The remeasurement of net indemnity liabilities associated with the Tax Matters Agreement increased pre-tax expense by $7 million and generated a $3 million tax benefit primarily related to the higher expected utilization of tax attributes payable to Ashland. |
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Other postretirement benefits | ||||||||||||||||
Pension benefits | ||||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | — | $ | 1 | $ | — | $ | — | ||||||||
Interest cost | 19 | 21 | — | — | ||||||||||||
Expected return on plan assets | (26 | ) | (36 | ) | — | — | ||||||||||
Amortization of prior service credit | — | — | (3 | ) | (3 | ) | ||||||||||
Actuarial gain | — | — | — | (8 | ) | |||||||||||
Net periodic benefit income | $ | (7 | ) | $ | (14 | ) | $ | (3 | ) | $ | (11 | ) |
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(In millions) | ||||
Balance as of September 30, 2017 | $ | (117 | ) | |
Net loss | (10 | ) | ||
Repurchases of common stock (a) | (39 | ) | ||
Stock-based compensation plans | 2 | |||
Dividends paid, $0.0745 per common share | (15 | ) | ||
Purchase of remaining ownership interest in subsidiary (b) | (14 | ) | ||
Accumulated other comprehensive income, net of tax: | ||||
Unrealized currency translation gain | 1 | |||
Amortization of pension and other postretirement prior service credits in income (c) | (2 | ) | ||
Balance as of December 31, 2017 | $ | (194 | ) | |
(a) | During the three months ended December 31, 2017, the Company repurchased approximately 2 million shares of its common stock for $39 million. Upon repurchase, shares are retired. |
(b) | Refer to Note 3 for details regarding the Company's purchase of the remaining ownership interest in a controlled and consolidated subsidiary during the three months ended December 31, 2017. |
(c) | Amortization of unrecognized prior service credits is included in net periodic benefit income within Net pension and other postretirement plan non-service income and remeasurement adjustments in the Condensed Consolidated Statements of Comprehensive Income. |
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• | Core North America - sells Valvoline and other branded products and solutions in the United States and Canada to heavy-duty customers and retailers for consumers to perform their own automotive and engine maintenance, as well as to installer customers who use Valvoline products to service vehicles. |
• | Quick Lubes - services the passenger car and light truck quick lube market through: Company-owned and franchised Valvoline Instant Oil Change (“VIOC”) retail quick lube service stores; and its Express Care stores for independent operators to purchase Valvoline motor oil and other products and display Valvoline branded signage. |
• | International - sells Valvoline and other branded products in approximately 140 countries outside of the United States and Canada for the maintenance of consumer and commercial vehicles and equipment. |
(In millions) | Three months ended December 31 | ||||||
2017 | 2016 | ||||||
Sales | |||||||
Core North America | $ | 251 | $ | 237 | |||
Quick Lubes | 154 | 127 | |||||
International | 140 | 125 | |||||
Consolidated sales | $ | 545 | $ | 489 | |||
Operating income (loss) | |||||||
Core North America | $ | 43 | $ | 51 | |||
Quick Lubes | 35 | 29 | |||||
International | 19 | 20 | |||||
Total operating segments | $ | 97 | $ | 100 | |||
Unallocated and other (a) | (9 | ) | (6 | ) | |||
Consolidated operating income | $ | 88 | $ | 94 | |||
(a) | Unallocated and other includes $7 million of expense in the three months ended December 31, 2017 related to adjustments associated with Ashland tax indemnities driven by tax reform legislation, as well as separation costs of $2 million and $6 million for the three months ending December 31, 2017 and 2016, respectively. |
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Condensed Consolidating Statements of Comprehensive Income | |||||||||||||||||||
For the three months ended December 31, 2017 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Sales | $ | — | $ | 422 | $ | 134 | $ | (11 | ) | $ | 545 | ||||||||
Cost of sales | — | 263 | 98 | (11 | ) | 350 | |||||||||||||
Gross profit | — | 159 | 36 | — | 195 | ||||||||||||||
Selling, general and administrative expense | 9 | 83 | 22 | — | 114 | ||||||||||||||
Separation costs | 1 | 1 | — | — | 2 | ||||||||||||||
Equity and other (income) expenses | — | (12 | ) | 3 | — | (9 | ) | ||||||||||||
Operating (loss) income | (10 | ) | 87 | 11 | — | 88 | |||||||||||||
Net pension and other postretirement plan non-service income and remeasurement adjustments | — | (10 | ) | — | — | (10 | ) | ||||||||||||
Net interest and other financing expense | 12 | 1 | 1 | — | 14 | ||||||||||||||
(Loss) income before income taxes | (22 | ) | 96 | 10 | — | 84 | |||||||||||||
Income tax expense | 21 | 70 | 3 | — | 94 | ||||||||||||||
Equity in net income of subsidiaries | 33 | 7 | — | (40 | ) | — | |||||||||||||
Net (loss) income | $ | (10 | ) | $ | 33 | $ | 7 | $ | (40 | ) | $ | (10 | ) | ||||||
Total comprehensive (loss) income | $ | (11 | ) | $ | 32 | $ | 8 | $ | (40 | ) | $ | (11 | ) |
Condensed Consolidating Statements of Comprehensive Income | |||||||||||||||||||
For the three months ended December 31, 2016 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Sales | $ | — | $ | 377 | $ | 124 | $ | (12 | ) | $ | 489 | ||||||||
Cost of sales | — | 224 | 92 | (12 | ) | 304 | |||||||||||||
Gross profit | — | 153 | 32 | — | 185 | ||||||||||||||
Selling, general and administrative expense | 2 | 69 | 24 | — | 95 | ||||||||||||||
Separation costs | — | 6 | — | — | 6 | ||||||||||||||
Equity and other (income) expenses | — | (13 | ) | 3 | — | (10 | ) | ||||||||||||
Operating (loss) income | (2 | ) | 91 | 5 | — | 94 | |||||||||||||
Net pension and other postretirement plan non-service income and remeasurement adjustments | — | (26 | ) | — | — | (26 | ) | ||||||||||||
Net interest and other financing expense | 9 | 1 | — | — | 10 | ||||||||||||||
(Loss) income before income taxes | (11 | ) | 116 | 5 | — | 110 | |||||||||||||
Income tax (benefit) expense | (4 | ) | 38 | 4 | — | 38 | |||||||||||||
Equity in net income of subsidiaries | 79 | 1 | — | (80 | ) | — | |||||||||||||
Net income (loss) | $ | 72 | $ | 79 | $ | 1 | $ | (80 | ) | $ | 72 | ||||||||
Total comprehensive income (loss) | $ | 61 | $ | 68 | $ | (7 | ) | $ | (61 | ) | $ | 61 |
Condensed Consolidating Balance Sheets | ||||||||||||||||||||
As of December 31, 2017 | ||||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 18 | $ | 97 | $ | — | $ | 115 | ||||||||||
Accounts receivable, net | — | 84 | 435 | (101 | ) | 418 | ||||||||||||||
Inventories, net | — | 94 | 76 | — | 170 | |||||||||||||||
Other current assets | — | 29 | 3 | — | 32 | |||||||||||||||
Total current assets | — | 225 | 611 | (101 | ) | 735 | ||||||||||||||
Noncurrent assets | ||||||||||||||||||||
Property, plant and equipment, net | — | 346 | 38 | — | 384 | |||||||||||||||
Goodwill and intangibles, net | — | 391 | 2 | — | 393 | |||||||||||||||
Equity method investments | — | 33 | — | — | 33 | |||||||||||||||
Investment in subsidiaries | 622 | 444 | — | (1,066 | ) | — | ||||||||||||||
Deferred income taxes | 127 | 55 | 14 | — | 196 | |||||||||||||||
Other noncurrent assets | 254 | 78 | 6 | (252 | ) | 86 | ||||||||||||||
Total noncurrent assets | 1,003 | 1,347 | 60 | (1,318 | ) | 1,092 | ||||||||||||||
Total assets | $ | 1,003 | $ | 1,572 | $ | 671 | $ | (1,419 | ) | $ | 1,827 | |||||||||
Liabilities and Stockholders' Deficit | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Current portion of long-term debt | $ | 19 | $ | — | $ | — | $ | — | $ | 19 | ||||||||||
Trade and other payables | — | 192 | 50 | (101 | ) | 141 | ||||||||||||||
Accrued expenses and other liabilities | 119 | 55 | 34 | — | 208 | |||||||||||||||
Total current liabilities | 138 | 247 | 84 | (101 | ) | 368 | ||||||||||||||
Noncurrent liabilities | ||||||||||||||||||||
Long-term debt | 1,025 | 2 | 120 | — | 1,147 | |||||||||||||||
Employee benefit obligations | — | 309 | 22 | — | 331 | |||||||||||||||
Other noncurrent liabilities | 34 | 392 | 1 | (252 | ) | 175 | ||||||||||||||
Total noncurrent liabilities | 1,059 | 703 | 143 | (252 | ) | 1,653 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Stockholders' (deficit) equity | (194 | ) | 622 | 444 | (1,066 | ) | (194 | ) | ||||||||||||
Total liabilities and stockholders' deficit/equity | $ | 1,003 | $ | 1,572 | $ | 671 | $ | (1,419 | ) | $ | 1,827 |
Condensed Consolidating Balance Sheets | ||||||||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 99 | $ | 102 | $ | — | $ | 201 | ||||||||||
Accounts receivable, net | — | 57 | 389 | (61 | ) | 385 | ||||||||||||||
Inventories, net | — | 94 | 81 | — | 175 | |||||||||||||||
Other current assets | — | 25 | 4 | — | 29 | |||||||||||||||
Total current assets | — | 275 | 576 | (61 | ) | 790 | ||||||||||||||
Noncurrent assets | ||||||||||||||||||||
Property, plant and equipment, net | — | 353 | 38 | — | 391 | |||||||||||||||
Goodwill and intangibles, net | — | 333 | 2 | — | 335 | |||||||||||||||
Equity method investments | — | 30 | — | — | 30 | |||||||||||||||
Investment in subsidiaries | 606 | 447 | — | (1,053 | ) | — | ||||||||||||||
Deferred income taxes | 145 | 122 | 14 | — | 281 | |||||||||||||||
Other noncurrent assets | 314 | 80 | 6 | (312 | ) | 88 | ||||||||||||||
Total noncurrent assets | 1,065 | 1,365 | 60 | (1,365 | ) | 1,125 | ||||||||||||||
Total assets | $ | 1,065 | $ | 1,640 | $ | 636 | $ | (1,426 | ) | $ | 1,915 | |||||||||
Liabilities and Stockholders' Deficit | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Short-term debt | $ | — | $ | — | $ | 75 | $ | — | $ | 75 | ||||||||||
Current portion of long-term debt | 15 | — | — | — | 15 | |||||||||||||||
Trade and other payables | 2 | 198 | 53 | (61 | ) | 192 | ||||||||||||||
Accrued expenses and other liabilities | 103 | 60 | 33 | — | 196 | |||||||||||||||
Total current liabilities | 120 | 258 | 161 | (61 | ) | 478 | ||||||||||||||
Noncurrent liabilities | ||||||||||||||||||||
Long-term debt | 1,032 | 2 | — | — | 1,034 | |||||||||||||||
Employee benefit obligations | — | 321 | 21 | — | 342 | |||||||||||||||
Other noncurrent liabilities | 30 | 453 | 7 | (312 | ) | 178 | ||||||||||||||
Total noncurrent liabilities | 1,062 | 776 | 28 | (312 | ) | 1,554 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Stockholders' (deficit) equity | (117 | ) | 606 | 447 | (1,053 | ) | (117 | ) | ||||||||||||
Total liabilities and stockholders' deficit/equity | $ | 1,065 | $ | 1,640 | $ | 636 | $ | (1,426 | ) | $ | 1,915 |
Condensed Consolidating Statements of Cash Flows | |||||||||||||||||||
For the three months ended December 31, 2017 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Cash flow provided by (used in) operating activities | $ | (2 | ) | $ | 52 | $ | (30 | ) | $ | — | $ | 20 | |||||||
Cash flows from investing activities | |||||||||||||||||||
Additions to property, plant and equipment | — | (13 | ) | (1 | ) | — | (14 | ) | |||||||||||
Acquisitions, net of cash required | — | (60 | ) | — | — | (60 | ) | ||||||||||||
Return of advance from subsidiary | 60 | — | — | (60 | ) | — | |||||||||||||
Total cash provided by (used in) investing activities | 60 | (73 | ) | (1 | ) | (60 | ) | (74 | ) | ||||||||||
Cash flows from financing activities | |||||||||||||||||||
Proceeds from borrowings, net of issuance costs of $1 | — | — | 44 | — | 44 | ||||||||||||||
Repayments on borrowings | (4 | ) | — | — | — | (4 | ) | ||||||||||||
Repurchase of common stock | (37 | ) | — | — | — | (37 | ) | ||||||||||||
Purchase of additional ownership in subsidiary | — | — | (15 | ) | — | (15 | ) | ||||||||||||
Cash dividends paid | (15 | ) | — | — | — | (15 | ) | ||||||||||||
Other financing activities | (2 | ) | — | (2 | ) | — | (4 | ) | |||||||||||
Other intercompany activity, net | — | (60 | ) | — | 60 | — | |||||||||||||
Total cash (used in) provided by financing activities | (58 | ) | (60 | ) | 27 | 60 | (31 | ) | |||||||||||
Effect of currency exchange rate changes on cash and cash equivalents | — | — | (1 | ) | — | (1 | ) | ||||||||||||
Decrease in cash and cash equivalents | — | (81 | ) | (5 | ) | — | (86 | ) | |||||||||||
Cash and cash equivalents - beginning of year | — | 99 | 102 | — | 201 | ||||||||||||||
Cash and cash equivalents - end of period | $ | — | $ | 18 | $ | 97 | $ | — | $ | 115 | |||||||||
Condensed Consolidating Statements of Cash Flows | |||||||||||||||||||
For the three months ended December 31, 2016 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Cash flows provided by (used in) operating activities | $ | 89 | $ | 75 | $ | (76 | ) | $ | — | $ | 88 | ||||||||
Cash flows from investing activities | |||||||||||||||||||
Additions to property, plant and equipment | — | (9 | ) | — | — | (9 | ) | ||||||||||||
Other investing activities, net | — | (1 | ) | — | — | (1 | ) | ||||||||||||
Total cash used in investing activities | — | (10 | ) | — | — | (10 | ) | ||||||||||||
Cash flows from financing activities | |||||||||||||||||||
Net transfers to Ashland | (2 | ) | — | — | — | (2 | ) | ||||||||||||
Proceeds from borrowings | — | — | 75 | — | 75 | ||||||||||||||
Repayments on borrowings | (79 | ) | — | — | — | (79 | ) | ||||||||||||
Cash dividends paid | (10 | ) | — | — | — | (10 | ) | ||||||||||||
Other intercompany activity, net | 2 | (2 | ) | — | — | — | |||||||||||||
Total cash (used in) provided by financing activities | (89 | ) | (2 | ) | 75 | — | (16 | ) | |||||||||||
Effect of currency exchange rate changes on cash and cash equivalents | — | — | 2 | — | 2 | ||||||||||||||
Increase in cash and cash equivalents | — | 63 | 1 | — | 64 | ||||||||||||||
Cash and cash equivalents - beginning of year | — | 94 | 78 | — | 172 | ||||||||||||||
Cash and cash equivalents - end of period | $ | — | $ | 157 | $ | 79 | $ | — | $ | 236 |
|
|
• | In July 2015, the Financial Accounting Standards Board (“FASB”) issued accounting guidance to simplify the subsequent measurement of certain inventories by replacing the current lower of cost or market test with a lower of cost or net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in, first out (“LIFO”) and retail inventory methods. Valvoline adopted this guidance prospectively on October 1, 2017. Valvoline utilizes LIFO to value approximately 70% of its gross inventory and there were no material differences in the Company's previous valuation methodology for its remaining inventory using lower of cost or market to lower of cost or net realizable value. |
• | In March 2017, the FASB issued accounting guidance that changed how employers who sponsor defined benefit pension and/or postretirement benefit plans present the net periodic benefit cost in the Condensed Consolidated Statements of Comprehensive Income. This guidance requires employers to present the service cost component of net periodic benefit cost in the same caption as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost are presented separately outside of the operating income caption. Valvoline retrospectively adopted this guidance on October 1, 2017. Accordingly, Net pension and other postretirement plan non-service income and remeasurement adjustments has been reclassified to non-operating income for all periods presented within the Condensed Consolidated Statements of Comprehensive Income, which reduced previously reported operating income by $26 million for the three months ended December 31, 2016. |
|
December 31, 2017 | September 30, 2017 | ||||||||||||||
Quoted prices in active markets for identical assets | Quoted prices in active markets for identical assets | ||||||||||||||
(In millions) | Fair Value | Level 1 | Fair Value | Level 1 | |||||||||||
Assets | |||||||||||||||
Cash equivalents (a) | $ | 24 | $ | 24 | $ | 46 | $ | 46 | |||||||
Foreign currency derivatives (b) | 1 | 1 | 1 | 1 | |||||||||||
Non-qualified trust funds (c) | 30 | 30 | 30 | 30 | |||||||||||
Total assets at fair value | $ | 55 | $ | 55 | $ | 77 | $ | 77 | |||||||
Liabilities | |||||||||||||||
Foreign currency derivatives (d) | $ | 1 | $ | 1 | $ | 1 | $ | 1 | |||||||
Total liabilities at fair value | $ | 1 | $ | 1 | $ | 1 | $ | 1 | |||||||
(b) | Included in Other current assets in the Condensed Consolidated Balance Sheets. |
(c) | As of December 31, 2017, $2 million of this balance is included in Other current assets, with the remainder included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. As of September 30, 2017, this balance is included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. |
(d) | Included in Accrued expense and other liabilities in the Condensed Consolidated Balance Sheets. |
December 31, 2017 | September 30, 2017 | ||||||||||||||||||||||
(In millions) | Fair value | Carrying value | Unamortized discount and issuance costs | Fair value | Carrying value | Unamortized discount and issuance costs | |||||||||||||||||
2024 Notes | $ | 399 | $ | 370 | $ | 5 | $ | 401 | $ | 370 | $ | 5 | |||||||||||
2025 Notes | 404 | 395 | 5 | 408 | 394 | 6 | |||||||||||||||||
Total | $ | 803 | $ | 765 | $ | 10 | $ | 809 | $ | 764 | $ | 11 |
|
(In millions) | December 31 2017 | September 30 2017 | |||||
Trade and other accounts receivable | $ | 424 | $ | 390 | |||
Less: Allowance for doubtful accounts | (6 | ) | (5 | ) | |||
$ | 418 | $ | 385 |
|
(In millions) | December 31 2017 | September 30 2017 | |||||
Finished products | $ | 178 | $ | 180 | |||
Raw materials, supplies and work in process | 28 | 31 | |||||
LIFO reserves | (33 | ) | (33 | ) | |||
Obsolete inventory reserves | (3 | ) | (3 | ) | |||
$ | 170 | $ | 175 |
|
(In millions) | Core North America | Quick Lubes | International | Total | |||||||||||
September 30, 2017 | $ | 89 | $ | 201 | $ | 40 | $ | 330 | |||||||
Acquisitions (a) | — | 30 | — | 30 | |||||||||||
December 31, 2017 | $ | 89 | $ | 231 | $ | 40 | $ | 360 | |||||||
(In millions) | ||||
Years ending September 30 (estimated) | ||||
2018 | $ | 5 | ||
2019 | $ | 5 | ||
2020 | $ | 5 | ||
2021 | $ | 4 | ||
2022 | $ | 4 | ||
|
(In millions) | December 31 2017 | September 30 2017 | ||||||
2025 Notes | $ | 400 | $ | 400 | ||||
2024 Notes | 375 | 375 | ||||||
Term Loans | 281 | 285 | ||||||
Trade Receivables Facility | 120 | 75 | ||||||
Revolver | — | — | ||||||
Other (a) | (10 | ) | (11 | ) | ||||
Total debt | $ | 1,166 | $ | 1,124 | ||||
Short-term debt | — | 75 | ||||||
Current portion of long-term debt | 19 | 15 | ||||||
Long-term debt | $ | 1,147 | $ | 1,034 | ||||
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Other postretirement benefits | ||||||||||||||||
Pension benefits | ||||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | — | $ | 1 | $ | — | $ | — | ||||||||
Interest cost | 19 | 21 | — | — | ||||||||||||
Expected return on plan assets | (26 | ) | (36 | ) | — | — | ||||||||||
Amortization of prior service credit | — | — | (3 | ) | (3 | ) | ||||||||||
Actuarial gain | — | — | — | (8 | ) | |||||||||||
Net periodic benefit income | $ | (7 | ) | $ | (14 | ) | $ | (3 | ) | $ | (11 | ) |
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(In millions) | ||||
Balance as of September 30, 2017 | $ | (117 | ) | |
Net loss | (10 | ) | ||
Repurchases of common stock (a) | (39 | ) | ||
Stock-based compensation plans | 2 | |||
Dividends paid, $0.0745 per common share | (15 | ) | ||
Purchase of remaining ownership interest in subsidiary (b) | (14 | ) | ||
Accumulated other comprehensive income, net of tax: | ||||
Unrealized currency translation gain | 1 | |||
Amortization of pension and other postretirement prior service credits in income (c) | (2 | ) | ||
Balance as of December 31, 2017 | $ | (194 | ) | |
(a) | During the three months ended December 31, 2017, the Company repurchased approximately 2 million shares of its common stock for $39 million. Upon repurchase, shares are retired. |
(b) | Refer to Note 3 for details regarding the Company's purchase of the remaining ownership interest in a controlled and consolidated subsidiary during the three months ended December 31, 2017. |
(c) | Amortization of unrecognized prior service credits is included in net periodic benefit income within Net pension and other postretirement plan non-service income and remeasurement adjustments in the Condensed Consolidated Statements of Comprehensive Income. |
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(In millions) | Three months ended December 31 | ||||||
2017 | 2016 | ||||||
Sales | |||||||
Core North America | $ | 251 | $ | 237 | |||
Quick Lubes | 154 | 127 | |||||
International | 140 | 125 | |||||
Consolidated sales | $ | 545 | $ | 489 | |||
Operating income (loss) | |||||||
Core North America | $ | 43 | $ | 51 | |||
Quick Lubes | 35 | 29 | |||||
International | 19 | 20 | |||||
Total operating segments | $ | 97 | $ | 100 | |||
Unallocated and other (a) | (9 | ) | (6 | ) | |||
Consolidated operating income | $ | 88 | $ | 94 | |||
(a) | Unallocated and other includes $7 million of expense in the three months ended December 31, 2017 related to adjustments associated with Ashland tax indemnities driven by tax reform legislation, as well as separation costs of $2 million and $6 million for the three months ending December 31, 2017 and 2016, respectively. |
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Condensed Consolidating Statements of Comprehensive Income | |||||||||||||||||||
For the three months ended December 31, 2017 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Sales | $ | — | $ | 422 | $ | 134 | $ | (11 | ) | $ | 545 | ||||||||
Cost of sales | — | 263 | 98 | (11 | ) | 350 | |||||||||||||
Gross profit | — | 159 | 36 | — | 195 | ||||||||||||||
Selling, general and administrative expense | 9 | 83 | 22 | — | 114 | ||||||||||||||
Separation costs | 1 | 1 | — | — | 2 | ||||||||||||||
Equity and other (income) expenses | — | (12 | ) | 3 | — | (9 | ) | ||||||||||||
Operating (loss) income | (10 | ) | 87 | 11 | — | 88 | |||||||||||||
Net pension and other postretirement plan non-service income and remeasurement adjustments | — | (10 | ) | — | — | (10 | ) | ||||||||||||
Net interest and other financing expense | 12 | 1 | 1 | — | 14 | ||||||||||||||
(Loss) income before income taxes | (22 | ) | 96 | 10 | — | 84 | |||||||||||||
Income tax expense | 21 | 70 | 3 | — | 94 | ||||||||||||||
Equity in net income of subsidiaries | 33 | 7 | — | (40 | ) | — | |||||||||||||
Net (loss) income | $ | (10 | ) | $ | 33 | $ | 7 | $ | (40 | ) | $ | (10 | ) | ||||||
Total comprehensive (loss) income | $ | (11 | ) | $ | 32 | $ | 8 | $ | (40 | ) | $ | (11 | ) |
Condensed Consolidating Statements of Comprehensive Income | |||||||||||||||||||
For the three months ended December 31, 2016 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Sales | $ | — | $ | 377 | $ | 124 | $ | (12 | ) | $ | 489 | ||||||||
Cost of sales | — | 224 | 92 | (12 | ) | 304 | |||||||||||||
Gross profit | — | 153 | 32 | — | 185 | ||||||||||||||
Selling, general and administrative expense | 2 | 69 | 24 | — | 95 | ||||||||||||||
Separation costs | — | 6 | — | — | 6 | ||||||||||||||
Equity and other (income) expenses | — | (13 | ) | 3 | — | (10 | ) | ||||||||||||
Operating (loss) income | (2 | ) | 91 | 5 | — | 94 | |||||||||||||
Net pension and other postretirement plan non-service income and remeasurement adjustments | — | (26 | ) | — | — | (26 | ) | ||||||||||||
Net interest and other financing expense | 9 | 1 | — | — | 10 | ||||||||||||||
(Loss) income before income taxes | (11 | ) | 116 | 5 | — | 110 | |||||||||||||
Income tax (benefit) expense | (4 | ) | 38 | 4 | — | 38 | |||||||||||||
Equity in net income of subsidiaries | 79 | 1 | — | (80 | ) | — | |||||||||||||
Net income (loss) | $ | 72 | $ | 79 | $ | 1 | $ | (80 | ) | $ | 72 | ||||||||
Total comprehensive income (loss) | $ | 61 | $ | 68 | $ | (7 | ) | $ | (61 | ) | $ | 61 |
Condensed Consolidating Statements of Comprehensive Income | |||||||||||||||||||
For the three months ended December 31, 2017 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Sales | $ | — | $ | 422 | $ | 134 | $ | (11 | ) | $ | 545 | ||||||||
Cost of sales | — | 263 | 98 | (11 | ) | 350 | |||||||||||||
Gross profit | — | 159 | 36 | — | 195 | ||||||||||||||
Selling, general and administrative expense | 9 | 83 | 22 | — | 114 | ||||||||||||||
Separation costs | 1 | 1 | — | — | 2 | ||||||||||||||
Equity and other (income) expenses | — | (12 | ) | 3 | — | (9 | ) | ||||||||||||
Operating (loss) income | (10 | ) | 87 | 11 | — | 88 | |||||||||||||
Net pension and other postretirement plan non-service income and remeasurement adjustments | — | (10 | ) | — | — | (10 | ) | ||||||||||||
Net interest and other financing expense | 12 | 1 | 1 | — | 14 | ||||||||||||||
(Loss) income before income taxes | (22 | ) | 96 | 10 | — | 84 | |||||||||||||
Income tax expense | 21 | 70 | 3 | — | 94 | ||||||||||||||
Equity in net income of subsidiaries | 33 | 7 | — | (40 | ) | — | |||||||||||||
Net (loss) income | $ | (10 | ) | $ | 33 | $ | 7 | $ | (40 | ) | $ | (10 | ) | ||||||
Total comprehensive (loss) income | $ | (11 | ) | $ | 32 | $ | 8 | $ | (40 | ) | $ | (11 | ) |
Condensed Consolidating Statements of Comprehensive Income | |||||||||||||||||||
For the three months ended December 31, 2016 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Sales | $ | — | $ | 377 | $ | 124 | $ | (12 | ) | $ | 489 | ||||||||
Cost of sales | — | 224 | 92 | (12 | ) | 304 | |||||||||||||
Gross profit | — | 153 | 32 | — | 185 | ||||||||||||||
Selling, general and administrative expense | 2 | 69 | 24 | — | 95 | ||||||||||||||
Separation costs | — | 6 | — | — | 6 | ||||||||||||||
Equity and other (income) expenses | — | (13 | ) | 3 | — | (10 | ) | ||||||||||||
Operating (loss) income | (2 | ) | 91 | 5 | — | 94 | |||||||||||||
Net pension and other postretirement plan non-service income and remeasurement adjustments | — | (26 | ) | — | — | (26 | ) | ||||||||||||
Net interest and other financing expense | 9 | 1 | — | — | 10 | ||||||||||||||
(Loss) income before income taxes | (11 | ) | 116 | 5 | — | 110 | |||||||||||||
Income tax (benefit) expense | (4 | ) | 38 | 4 | — | 38 | |||||||||||||
Equity in net income of subsidiaries | 79 | 1 | — | (80 | ) | — | |||||||||||||
Net income (loss) | $ | 72 | $ | 79 | $ | 1 | $ | (80 | ) | $ | 72 | ||||||||
Total comprehensive income (loss) | $ | 61 | $ | 68 | $ | (7 | ) | $ | (61 | ) | $ | 61 |
Condensed Consolidating Balance Sheets | ||||||||||||||||||||
As of December 31, 2017 | ||||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 18 | $ | 97 | $ | — | $ | 115 | ||||||||||
Accounts receivable, net | — | 84 | 435 | (101 | ) | 418 | ||||||||||||||
Inventories, net | — | 94 | 76 | — | 170 | |||||||||||||||
Other current assets | — | 29 | 3 | — | 32 | |||||||||||||||
Total current assets | — | 225 | 611 | (101 | ) | 735 | ||||||||||||||
Noncurrent assets | ||||||||||||||||||||
Property, plant and equipment, net | — | 346 | 38 | — | 384 | |||||||||||||||
Goodwill and intangibles, net | — | 391 | 2 | — | 393 | |||||||||||||||
Equity method investments | — | 33 | — | — | 33 | |||||||||||||||
Investment in subsidiaries | 622 | 444 | — | (1,066 | ) | — | ||||||||||||||
Deferred income taxes | 127 | 55 | 14 | — | 196 | |||||||||||||||
Other noncurrent assets | 254 | 78 | 6 | (252 | ) | 86 | ||||||||||||||
Total noncurrent assets | 1,003 | 1,347 | 60 | (1,318 | ) | 1,092 | ||||||||||||||
Total assets | $ | 1,003 | $ | 1,572 | $ | 671 | $ | (1,419 | ) | $ | 1,827 | |||||||||
Liabilities and Stockholders' Deficit | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Current portion of long-term debt | $ | 19 | $ | — | $ | — | $ | — | $ | 19 | ||||||||||
Trade and other payables | — | 192 | 50 | (101 | ) | 141 | ||||||||||||||
Accrued expenses and other liabilities | 119 | 55 | 34 | — | 208 | |||||||||||||||
Total current liabilities | 138 | 247 | 84 | (101 | ) | 368 | ||||||||||||||
Noncurrent liabilities | ||||||||||||||||||||
Long-term debt | 1,025 | 2 | 120 | — | 1,147 | |||||||||||||||
Employee benefit obligations | — | 309 | 22 | — | 331 | |||||||||||||||
Other noncurrent liabilities | 34 | 392 | 1 | (252 | ) | 175 | ||||||||||||||
Total noncurrent liabilities | 1,059 | 703 | 143 | (252 | ) | 1,653 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Stockholders' (deficit) equity | (194 | ) | 622 | 444 | (1,066 | ) | (194 | ) | ||||||||||||
Total liabilities and stockholders' deficit/equity | $ | 1,003 | $ | 1,572 | $ | 671 | $ | (1,419 | ) | $ | 1,827 |
Condensed Consolidating Balance Sheets | ||||||||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 99 | $ | 102 | $ | — | $ | 201 | ||||||||||
Accounts receivable, net | — | 57 | 389 | (61 | ) | 385 | ||||||||||||||
Inventories, net | — | 94 | 81 | — | 175 | |||||||||||||||
Other current assets | — | 25 | 4 | — | 29 | |||||||||||||||
Total current assets | — | 275 | 576 | (61 | ) | 790 | ||||||||||||||
Noncurrent assets | ||||||||||||||||||||
Property, plant and equipment, net | — | 353 | 38 | — | 391 | |||||||||||||||
Goodwill and intangibles, net | — | 333 | 2 | — | 335 | |||||||||||||||
Equity method investments | — | 30 | — | — | 30 | |||||||||||||||
Investment in subsidiaries | 606 | 447 | — | (1,053 | ) | — | ||||||||||||||
Deferred income taxes | 145 | 122 | 14 | — | 281 | |||||||||||||||
Other noncurrent assets | 314 | 80 | 6 | (312 | ) | 88 | ||||||||||||||
Total noncurrent assets | 1,065 | 1,365 | 60 | (1,365 | ) | 1,125 | ||||||||||||||
Total assets | $ | 1,065 | $ | 1,640 | $ | 636 | $ | (1,426 | ) | $ | 1,915 | |||||||||
Liabilities and Stockholders' Deficit | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Short-term debt | $ | — | $ | — | $ | 75 | $ | — | $ | 75 | ||||||||||
Current portion of long-term debt | 15 | — | — | — | 15 | |||||||||||||||
Trade and other payables | 2 | 198 | 53 | (61 | ) | 192 | ||||||||||||||
Accrued expenses and other liabilities | 103 | 60 | 33 | — | 196 | |||||||||||||||
Total current liabilities | 120 | 258 | 161 | (61 | ) | 478 | ||||||||||||||
Noncurrent liabilities | ||||||||||||||||||||
Long-term debt | 1,032 | 2 | — | — | 1,034 | |||||||||||||||
Employee benefit obligations | — | 321 | 21 | — | 342 | |||||||||||||||
Other noncurrent liabilities | 30 | 453 | 7 | (312 | ) | 178 | ||||||||||||||
Total noncurrent liabilities | 1,062 | 776 | 28 | (312 | ) | 1,554 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Stockholders' (deficit) equity | (117 | ) | 606 | 447 | (1,053 | ) | (117 | ) | ||||||||||||
Total liabilities and stockholders' deficit/equity | $ | 1,065 | $ | 1,640 | $ | 636 | $ | (1,426 | ) | $ | 1,915 |
Condensed Consolidating Statements of Cash Flows | |||||||||||||||||||
For the three months ended December 31, 2017 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Cash flow provided by (used in) operating activities | $ | (2 | ) | $ | 52 | $ | (30 | ) | $ | — | $ | 20 | |||||||
Cash flows from investing activities | |||||||||||||||||||
Additions to property, plant and equipment | — | (13 | ) | (1 | ) | — | (14 | ) | |||||||||||
Acquisitions, net of cash required | — | (60 | ) | — | — | (60 | ) | ||||||||||||
Return of advance from subsidiary | 60 | — | — | (60 | ) | — | |||||||||||||
Total cash provided by (used in) investing activities | 60 | (73 | ) | (1 | ) | (60 | ) | (74 | ) | ||||||||||
Cash flows from financing activities | |||||||||||||||||||
Proceeds from borrowings, net of issuance costs of $1 | — | — | 44 | — | 44 | ||||||||||||||
Repayments on borrowings | (4 | ) | — | — | — | (4 | ) | ||||||||||||
Repurchase of common stock | (37 | ) | — | — | — | (37 | ) | ||||||||||||
Purchase of additional ownership in subsidiary | — | — | (15 | ) | — | (15 | ) | ||||||||||||
Cash dividends paid | (15 | ) | — | — | — | (15 | ) | ||||||||||||
Other financing activities | (2 | ) | — | (2 | ) | — | (4 | ) | |||||||||||
Other intercompany activity, net | — | (60 | ) | — | 60 | — | |||||||||||||
Total cash (used in) provided by financing activities | (58 | ) | (60 | ) | 27 | 60 | (31 | ) | |||||||||||
Effect of currency exchange rate changes on cash and cash equivalents | — | — | (1 | ) | — | (1 | ) | ||||||||||||
Decrease in cash and cash equivalents | — | (81 | ) | (5 | ) | — | (86 | ) | |||||||||||
Cash and cash equivalents - beginning of year | — | 99 | 102 | — | 201 | ||||||||||||||
Cash and cash equivalents - end of period | $ | — | $ | 18 | $ | 97 | $ | — | $ | 115 | |||||||||
Condensed Consolidating Statements of Cash Flows | |||||||||||||||||||
For the three months ended December 31, 2016 | |||||||||||||||||||
(In millions) | Valvoline Inc. (Parent Issuer) | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Cash flows provided by (used in) operating activities | $ | 89 | $ | 75 | $ | (76 | ) | $ | — | $ | 88 | ||||||||
Cash flows from investing activities | |||||||||||||||||||
Additions to property, plant and equipment | — | (9 | ) | — | — | (9 | ) | ||||||||||||
Other investing activities, net | — | (1 | ) | — | — | (1 | ) | ||||||||||||
Total cash used in investing activities | — | (10 | ) | — | — | (10 | ) | ||||||||||||
Cash flows from financing activities | |||||||||||||||||||
Net transfers to Ashland | (2 | ) | — | — | — | (2 | ) | ||||||||||||
Proceeds from borrowings | — | — | 75 | — | 75 | ||||||||||||||
Repayments on borrowings | (79 | ) | — | — | — | (79 | ) | ||||||||||||
Cash dividends paid | (10 | ) | — | — | — | (10 | ) | ||||||||||||
Other intercompany activity, net | 2 | (2 | ) | — | — | — | |||||||||||||
Total cash (used in) provided by financing activities | (89 | ) | (2 | ) | 75 | — | (16 | ) | |||||||||||
Effect of currency exchange rate changes on cash and cash equivalents | — | — | 2 | — | 2 | ||||||||||||||
Increase in cash and cash equivalents | — | 63 | 1 | — | 64 | ||||||||||||||
Cash and cash equivalents - beginning of year | — | 94 | 78 | — | 172 | ||||||||||||||
Cash and cash equivalents - end of period | $ | — | $ | 157 | $ | 79 | $ | — | $ | 236 |
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