Company Quick10K Filing
Valvoline
Price21.88 EPS1
Shares189 P/E20
MCap4,135 P/FCF13
Net Debt1,192 EBIT265
TEV5,327 TEV/EBIT20
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
10-Q 2019-12-31 Filed 2020-02-04
10-K 2019-09-30 Filed 2019-11-22
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-02
10-Q 2018-12-31 Filed 2019-02-07
10-K 2018-09-30 Filed 2018-11-21
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-03
10-Q 2017-12-31 Filed 2018-02-08
10-K 2017-09-30 Filed 2017-11-17
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-04-28
10-Q 2016-12-31 Filed 2017-02-13
10-K 2016-09-30 Filed 2016-12-19
8-K 2020-07-07 Regulation FD, Other Events
8-K 2020-06-04
8-K 2020-05-22
8-K 2020-05-08
8-K 2020-05-06
8-K 2020-04-23
8-K 2020-04-22
8-K 2020-03-24
8-K 2020-03-24
8-K 2020-02-25
8-K 2020-02-10
8-K 2020-02-03
8-K 2020-01-30
8-K 2019-11-14
8-K 2019-11-06
8-K 2019-09-04
8-K 2019-07-30
8-K 2019-07-17
8-K 2019-05-16
8-K 2019-05-01
8-K 2019-04-12
8-K 2019-02-06
8-K 2019-01-31
8-K 2018-11-19
8-K 2018-11-05
8-K 2018-08-01
8-K 2018-07-13
8-K 2018-05-17
8-K 2018-05-02
8-K 2018-05-02
8-K 2018-02-07
8-K 2018-01-31

VVV 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Leasing
Note 3 - Fair Value Measurements
Note 4 - Acquisitions and Divestitures
Note 5 - Intangible Assets
Note 6 - Restructuring Activities
Note 7 - Debt
Note 8 - Income Taxes
Note 9 - Employee Benefit Plans
Note 10 - Litigation, Claims and Contingencies
Note 11 - Earnings per Share
Note 12 - Reportable Segment Information
Note 13 - Supplemental Financial Information
Note 14 - Guarantor Financial Information
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 exhibit101-thirdamendm.htm
EX-31.1 exhibit311-certificati.htm
EX-31.2 exhibit312-certificati.htm
EX-32 exhibit32-certificatio.htm

Valvoline Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.11.61.10.60.1-0.42017201820192020
Assets, Equity
0.70.50.40.20.1-0.12017201820192020
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32017201820192020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
______________________
FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 001-37884
VALVOLINE INC.

vvv-20200331_g1.jpg

Kentucky

30-0939371

(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
100 Valvoline Way
Lexington, Kentucky 40509
Telephone Number (859) 357-7777
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareVVVNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes þ     No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).         Yes þ     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes      No þ
At April 30, 2020, there were 185,030,319 shares of the registrants common stock outstanding.



VALVOLINE INC. AND CONSOLIDATED SUBSIDIARIES
TABLE OF CONTENTS


Page
PART I – FINANCIAL INFORMATION
PART II – OTHER INFORMATION




PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive Income

Three months ended March 31Six months ended March 31
(In millions, except per share data - unaudited) 2020201920202019
Sales$578  $591  $1,185  $1,148  
Cost of sales371  388  767  762  
Gross profit207  203  418  386  
Selling, general and administrative expenses96  113  213  218  
Net legacy and separation-related expenses (income)  3  (1) 3  
Equity and other income, net(6) (9) (15) (18) 
Operating income117  96  221  183  
Net pension and other postretirement plan income(9) (3) (18) (5) 
Net interest and other financing expenses38  19  54  36  
Income before income taxes88  80  185  152  
Income tax expense25  17  49  36  
Net income$63  $63  $136  $116  
NET EARNINGS PER SHARE
Basic$0.33  $0.33  $0.72  $0.61  
Diluted$0.33  $0.33  $0.72  $0.61  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic188  189  188  189  
Diluted188  189  189  189  
COMPREHENSIVE INCOME
Net income$63  $63  $136  $116  
Other comprehensive (loss) income, net of tax
Currency translation adjustments(21) 2  (13) (2) 
Amortization of pension and other postretirement plan prior service credit(2) (2) (4) (4) 
Other comprehensive loss(23)   (17) (6) 
Comprehensive income$40  $63  $119  $110  

See Notes to Condensed Consolidated Financial Statements.
3


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(In millions, except per share amounts - unaudited)March 31
2020
September 30
2019
Assets
Current assets
Cash and cash equivalents$774  $159  
Accounts receivable, net352  401  
Inventories, net209  194  
Prepaid expenses and other current assets49  43  
Total current assets1,384  797  
Noncurrent assets
Property, plant and equipment, net509  498  
Operating lease assets254    
Goodwill and intangibles, net503  504  
Equity method investments37  34  
Deferred income taxes99  123  
Other noncurrent assets131  108  
Total noncurrent assets1,533  1,267  
Total assets$2,917  $2,064  
Liabilities and Stockholders’ Deficit
Current liabilities
Current portion of long-term debt$  $15  
Trade and other payables186  171  
Accrued expenses and other liabilities215  237  
Total current liabilities401  423  
Noncurrent liabilities
Long-term debt2,003  1,327  
Employee benefit obligations361  387  
Operating lease liabilities226    
Other noncurrent liabilities163  185  
Total noncurrent liabilities2,753  1,899  
Commitments and contingencies
Stockholders deficit
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding
    
Common stock, par value $0.01 per share, 400 shares authorized; 185 and 188 shares issued and outstanding at March 31, 2020 and September 30, 2019, respectively
2  2  
Paid-in capital16  13  
Retained deficit(249) (284) 
Accumulated other comprehensive (loss) income(6) 11  
Total stockholders’ deficit(237) (258) 
Total liabilities and stockholders deficit
$2,917  $2,064  

See Notes to Condensed Consolidated Financial Statements.
4


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Stockholders’ Deficit
Six months ended March 31, 2020
Accumulated other comprehensive income (loss)
(In millions, except per share amounts)Common stockPaid-in capitalRetained deficit
(Unaudited)SharesAmountTotals
Balance at September 30, 2019188  $2  $13  $(284) $11  $(258) 
Net income—  —  —  73  —  73  
Dividends paid, $0.113 per common share
—  —  —  (21) —  (21) 
Stock-based compensation, net of issuances—  —  3  —  —  3  
Cumulative effect of adoption of new leasing standard, net of tax—  —  —  1  —  1  
Currency translation adjustments—  —  —  —  8  8  
Amortization of pension and other postretirement prior service credits in income, net of tax—  —  —  —  (2) (2) 
Balance at December 31, 2019188  $2  $16  $(231) $17  $(196) 
Net income—  —  —  63  —  63  
Dividends paid, $0.113 per common share
—  —  —  (21) —  (21) 
Repurchase of common stock(3) —  —  (60) —  (60) 
Currency translation adjustments—  —  —  —  (21) (21) 
Amortization of pension and other postretirement prior service credits in income, net of tax—  —  —  —  (2) (2) 
Balance at March 31, 2020185  $2  $16  $(249) $(6) $(237) 
5


Six months ended March 31, 2019
Accumulated other comprehensive income
(In millions, except per share amounts)Common stockPaid-in capitalRetained deficit
(Unaudited)SharesAmountTotals
Balance at September 30, 2018188  $2  $7  $(399) $32  $(358) 
Net income—  —  —  53  —  53  
Dividends paid, $0.106 per common share
—  —  —  (20) —  (20) 
Stock-based compensation, net of issuances—  —  1  —  —  1  
Cumulative effect of adoption of new revenue standard, net of tax—  —  —  (13) —  (13) 
Currency translation adjustments—  —  —  —  (4) (4) 
Amortization of pension and other postretirement prior service credits in income, net of tax—  —  —  —  (2) (2) 
Balance at December 31, 2018188  $2  $8  $(379) $26  $(343) 
Net income—  —  —  63  —  63  
Dividends paid, $0.106 per common share
—  —  —  (20) —  (20) 
Stock-based compensation, net of issuances—  —  2    —  2  
Currency translation adjustments—  —  —  —  2  2  
Amortization of pension and other postretirement prior service credits in income, net of tax—  —  —  —  (2) (2) 
Balance at March 31, 2019188  $2  $10  $(336) $26  $(298) 

See Notes to Condensed Consolidated Financial Statements.
6


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six months ended
March 31
(In millions - unaudited)20202019
Cash flows from operating activities
Net income$136  $116  
Adjustments to reconcile net income to cash flows from operating activities
Loss on extinguishment of debt19    
Depreciation and amortization31  28  
Equity income from unconsolidated affiliates, net of distributions
(1) (2) 
Pension contributions(5) (2) 
Stock-based compensation expense3  5  
Other, net3  1  
Change in assets and liabilities
Accounts receivable44  7  
Inventories(20) (4) 
Payables and accrued liabilities(40) (13) 
Other assets and liabilities(16) (2) 
Total cash provided by operating activities154  134  
Cash flows from investing activities
Additions to property, plant and equipment(57) (48) 
Acquisitions, net of cash acquired(11) (35) 
Other investing activities, net(3) (2) 
Total cash used in investing activities(71) (85) 
Cash flows from financing activities
Proceeds from borrowings, net of issuance costs1,132  162  
Repayments on borrowings(475) (137) 
Premium paid to extinguish debt(15)   
Repurchases of common stock(60)   
Cash dividends paid(42) (40) 
Other financing activities(3) (5) 
Total cash provided by (used in) financing activities537  (20) 
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash(4)   
Increase in cash, cash equivalents, and restricted cash616  29  
Cash, cash equivalents, and restricted cash - beginning of period159  96  
Cash, cash equivalents, and restricted cash - end of period$775  $125  

See Notes to Condensed Consolidated Financial Statements.
7



Index to Notes to Condensed Consolidated Financial StatementsPage

8


Valvoline Inc. and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 – 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, 2019. Certain prior period amounts 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 on global economies.

In late December 2019, COVID-19 was identified in Wuhan, China and since that time it has continued to spread globally, including to the United States, leading the World Health Organization to declare a global pandemic and recommend containment and mitigation actions worldwide in March 2020. Since March 31, 2020, the COVID-19 pandemic has continued, and various governments have issued or extended shelter-in-place orders. As of the date of this filing, certain restrictions are in the early phases of being reduced with the resulting impacts being monitored. Valvoline has substantially maintained its operations during the pandemic, and precautionary measures have been taken to protect the Company's employees and customers, maintain liquidity and manage the impacts of reduced volumes.

While the COVID-19 pandemic affected Valvoline's results of operations for the three and six months ended March 31, 2020, the impacts were not material. Adverse impacts from COVID-19 are expected in future periods, which Valvoline is unable to predict 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.

Recently adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued accounting guidance, which outlined a comprehensive lease accounting model that requires lessees to recognize a right-of-use asset and a corresponding lease liability on the balance sheet and superseded previous lease accounting guidance. Valvoline adopted this new lease accounting guidance on October 1, 2019 using the optional transition approach. Under this approach, the new lease accounting guidance has been applied prospectively from the date of adoption, while prior period financial statements continue to be reported in accordance with the previous guidance. Lease expense is recognized similar to prior accounting guidance with operating leases resulting in straight-line expense and finance leases resulting in accelerated expense recognition similar to the prior accounting for capital leases. The accounting for lessor arrangements is not significantly changed by the new guidance.

9


Valvoline elected certain practical expedients permitted by the new guidance, including the package of practical expedients that allows for previous accounting conclusions regarding lease identification and classification to be carried forward for leases which commenced prior to adoption, as well as the practical expedient to not separate lease and non-lease components and account for them as a single lease component. The Company did not elect the hindsight or short-term lease practical expedients.

As a result of adoption, the Company recognized operating lease assets and liabilities inclusive of a reclassified build-to-suit arrangement, derecognized assets and liabilities related to the build-to-suit arrangement, and carried forward existing capital leases as finance lease assets and liabilities. This resulted in a material impact on the Condensed Consolidated Balance Sheet and the recognition of total incremental lease assets, inclusive of prepaid lease balances and deferred rent liabilities, of $219 million and incremental lease liabilities of $214 million, with an immaterial cumulative effect adjustment to reduce Retained deficit as a result of the build-to-suit lease transition requirements. The impact of adoption was not material to the Condensed Consolidated Statements of Comprehensive Income, Cash Flows, or Stockholders’ Deficit, and did not impact the Company's compliance with any of its existing debt covenants. Refer to Note 2 for additional information regarding Valvoline's adoption of this new guidance.

Issued but not yet adopted

In June 2016, the FASB issued updated guidance that introduces a forward-looking approach based on expected losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments including trade and other receivables. The new guidance will require entities to incorporate historical, current, and forecasted information into their estimates of expected credit losses. This guidance also includes expanded disclosure requirements and will become effective for Valvoline on October 1, 2020. The Company is evaluating the effect of adopting this new accounting guidance, including changes to its related processes, and does not currently expect adoption will have a material impact on its Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Comprehensive Income. The impact of adoption will be largely dependent on the credit quality of the Company's receivables outstanding at adoption. The Company evaluates creditworthiness when negotiating contracts, and as the Company's receivables are generally short-term in nature, the timing and amount of credit loss recognized under existing guidance and the new guidance is not expected to differ materially.

The FASB issued other accounting guidance during the period that is not currently applicable or expected to have a material impact on Valvoline’s condensed consolidated financial statements, and therefore, is not described above.

NOTE 2 - LEASING

As described in Note 1, Valvoline adopted new lease accounting guidance effective October 1, 2019 and changed its policy for lease accounting prospectively for lease agreements entered into or reassessed from the date of adoption as described herein.

Lessee arrangements

Certain of the properties Valvoline utilizes, including quick-lube service center stores, offices, blending and warehouse facilities, in addition to certain equipment, are leased. Valvoline determines if an arrangement contains a lease at inception primarily based on whether or not the Company has the right to control the asset during the contract period. For all agreements where it is determined that a lease exists, including those with an initial term of 12 months or less, the related lease assets and liabilities are recognized on the Condensed Consolidated Balance Sheet as either operating or finance leases at the commencement date. The lease liability is measured at the present value of future lease payments over the lease term, and the right-of-use asset is measured at the lease liability amount, adjusted for prepaid lease payments, lease incentives and the lessee’s initial direct costs (e.g., commissions). The lease term includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.
10



Fixed payments, including variable payments based on a rate or index, are included in the determination of the lease liability, while other variable payments are recognized in the Condensed Consolidated Statements of Comprehensive Income in the period in which the obligation for those payments is incurred. Many leases contain lease components requiring rental payments and other components that require payment for taxes, insurance, operating expenses and maintenance. In instances where these other components are fixed, they are included in the measurement of the lease liability due to Valvoline's election to combine lease and non-lease components. Otherwise, these other components are expensed as incurred and comprise the majority of Valvoline's variable lease costs.

As most leases do not provide the rate implicit in the lease, the Company estimates its incremental borrowing rate to best approximate the rate of interest that Valvoline would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Valvoline applies the incremental borrowing rate to groups of leases with similar lease terms in determining the present value of future payments. In determining the incremental borrowing rate, the Company considers information available at commencement date, including lease term, interest rate yields for specific interest rate environments and the Company's credit spread.

The following table presents the Company's lease balances:

(In millions)Location in Condensed Consolidated Balance SheetMarch 31, 2020
Assets
Operating lease assetsOperating lease assets$254  
Finance lease assets Property, plant and equipment, net47  
Amortization of finance lease assetsProperty, plant and equipment, net(8) 
Total leased assets$293  
Liabilities
Current:
Operating lease liabilitiesAccrued expenses and other liabilities$30  
Finance lease liabilitiesAccrued expenses and other liabilities2  
Noncurrent:
Operating lease liabilitiesOperating lease liabilities226  
Finance lease liabilitiesOther noncurrent liabilities41  
Total lease liabilities$299  

11


The following table presents the components of total lease costs:

(In millions)Location in Condensed Consolidated Statements of Comprehensive IncomeThree months ended March 31, 2020Six months ended March 31, 2020
Operating lease cost
Cost of sales and Selling, general and administrative expenses (a)
$11  $22  
Finance lease costs
Amortization of lease assets
Cost of sales (a)
1  1  
Interest on lease liabilitiesNet interest and other financing expenses1  2  
Variable lease cost
Cost of sales and Selling, general and administrative expenses (a)
1  2  
Sublease incomeEquity and other income, net(2) (3) 
Total lease cost$12  $24  
(a) Supply chain and retail-related amounts are included in Cost of sales.

Other information related to the Company's leases follows:

(In millions)Three months ended March 31, 2020Six months ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (a)
$11  $21  
Operating cash flows from finance leases$1  $2  
Financing cash flow from finance leases$