☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Kentucky
(State or other jurisdiction of incorporation or organization)
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30-0939371
(I.R.S. Employer Identification No.)
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Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Common stock, par value $0.01 per share | VVV | New York Stock Exchange |
Large Accelerated Filer
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☑
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Accelerated Filer
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☐
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Non-Accelerated Filer
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☐
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Smaller Reporting Company
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☐
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Emerging Growth Company
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☐
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Page
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PART I | |||||||||||
Item 1. | |||||||||||
Item 1A. | |||||||||||
Item 1B. | |||||||||||
Item 2. | |||||||||||
Item 3. | |||||||||||
Item 4. | |||||||||||
PART II | |||||||||||
Item 5. | |||||||||||
Item 6. | |||||||||||
Item 7. | |||||||||||
Item 7A. | |||||||||||
Item 8. | |||||||||||
Item 9. | |||||||||||
Item 9A. | |||||||||||
Item 9B. | |||||||||||
PART III | |||||||||||
Item 10. | |||||||||||
Item 11. | |||||||||||
Item 12. | |||||||||||
Item 13. | |||||||||||
Item 14. | |||||||||||
PART IV | |||||||||||
Item 15. | |||||||||||
Item 16. |
–Oil changes
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–Wiper blade replacement
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–Serpentine belt service
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–Radiator and cooling system service
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–Filter (oil, air, cabin) replacement
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–Fuel and air services (gas and diesel)
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–Brake fluid service
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–Differential and transfer case (gearbox) fluid service
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–Power steering service
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–Transmission system service
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–Tire rotation
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–Engine cleaning service
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–Battery replacement
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–Air conditioning service
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Categories | Description | |||||||
Lubricants | ||||||||
Passenger car / Light duty | Comprehensive assortment of lubricants meeting the needs of passenger car (including electric vehicles), motorcycle and other light duty vehicles, including motor oil, transmission fluid, greases, and gear oil | |||||||
Heavy duty | Lubricating solutions for a wide range of heavy-duty engine types (diesel, natural gas and gasoline) and applications ranging from on-road (Class 4 – Class 8 vehicles) to off-road construction, mining, agricultural, and power generation equipment | |||||||
Antifreeze / Coolants | Antifreeze / coolants for original equipment manufacturers (“OEMs”); full assortment of additive technologies and chemistries to meet virtually all light-duty and heavy-duty engine applications and heat transfer requirements of batteries and fuel cells used to power electric vehicles | |||||||
Chemicals | ||||||||
Maintenance chemicals | Functional and maintenance chemicals ranging from brake fluids and power steering fluids to chemicals specifically designed to clean and maintain optimal performance of fuel, cooling, and drive train systems | |||||||
Coatings | Specialty coatings designed to target rust prevention and sound absorption for automotive and industrial applications | |||||||
Filters | Oil and air filters meeting the needs of light-duty vehicles | |||||||
Other complementary products and royalties | Batteries, windshield wiper blades, light bulbs, serpentine belts, drain plugs, other complementary products and franchisee royalties |
System-wide stores (a) (b)
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For the years ended September 30 | |||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||
Beginning of period | 1,462 | 1385 | 1,242 | 1,127 | 1,068 | ||||||||||||||||||||||||||||||
Opened | 69 | 72 | 93 | 45 | 41 | ||||||||||||||||||||||||||||||
Acquired | 69 | 12 | 55 | 76 | 29 | ||||||||||||||||||||||||||||||
Closed | (6) | (7) | (5) | (6) | (11) | ||||||||||||||||||||||||||||||
End of period | 1,594 | 1,462 | 1,385 | 1,242 | 1,127 | ||||||||||||||||||||||||||||||
Number of stores at end of period | |||||||||||||||||||||||||||||||||||
For the years ended September 30 | |||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||
Company-operated | 719 | 584 | 519 | 462 | 384 | ||||||||||||||||||||||||||||||
Franchised (b) (c)
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875 | 878 | 866 | 780 | 743 | ||||||||||||||||||||||||||||||
Same store sales growth (a)
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For the years ended September 30 | |||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||
System-wide | 21.2 | % | 2.3 | % | 10.1 | % | 8.3 | % | 7.4 | % | |||||||||||||||||||||||||
Company-operated | 19.6 | % | 2.6 | % | 9.7 | % | 8.7 | % | 7.0 | % | |||||||||||||||||||||||||
Franchised | 22.4 | % | 2.1 | % | 10.4 | % | 8.0 | % | 7.5 | % | |||||||||||||||||||||||||
(a) | Refer to "Key Business Measures" in Item 7 of Part II of this Annual Report on Form 10-K for a description of management's use and determination of key metrics, including store counts and same-store sales. | ||||
(b) | System-wide store count includes franchised service center stores. Valvoline's franchisees are distinct independent legal entities and Valvoline does not consolidate the results of operations of its franchisees. | ||||
(c) |
As of September 30, 2020, one franchised service center store included in the store count was temporarily closed at the discretion of the respective independent operator due to the impacts of COVID-19.
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Region | Number of employees | ||||
North America | 8,800 | ||||
Asia Pacific | 685 | ||||
Europe, Middle East and Africa ("EMEA") | 285 | ||||
Latin America | 30 | ||||
Total | 9,800 |
Comparison of cumulative total returns | 09/30/2017 | 09/30/2018 | 09/30/2019 | 09/30/2020 | 09/30/2021 | ||||||||||||||||||||||||||||||||||||
Valvoline Inc. | $ | 100.74 | $ | 93.65 | $ | 98.00 | $ | 86.60 | $ | 144.42 | |||||||||||||||||||||||||||||||
S&P MidCap 400 Index | $ | 117.52 | $ | 134.21 | $ | 130.87 | $ | 128.04 | $ | 183.97 | |||||||||||||||||||||||||||||||
S&P MidCap 400 Consumer Staples Index | $ | 100.34 | $ | 106.69 | $ | 105.60 | $ | 118.69 | $ | 136.27 |
Fiscal Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||||||||||||
July 1, 2021 - July 31, 2021 | 361,822 | $ | 31.12 | 361,822 | $ | 289 | ||||||||||||||||||||
August 1, 2021 - August 31, 2021 | 281,457 | $ | 30.59 | 281,457 | $ | 280 | ||||||||||||||||||||
September 1, 2021- September 30, 2021 | 225,487 | $ | 31.33 | 225,487 | $ | 273 | ||||||||||||||||||||
Total | 868,766 | $ | 31.00 | 868,766 |
Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations | Page | ||||
Critical Accounting Estimates
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27%
Growth in sales
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32%
Increase in net income
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36%
Growth in diluted EPS
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21.2%
Retail Services growth
in system-wide SSS
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9%
Retail Services growth
in system-wide units
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16%
Global Products
volume growth
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28%
Growth in adjusted EBITDA
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$218 million
Returned to shareholders
through dividends and share repurchases
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$404 million
Cash flows from operations
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(In millions, except store count) | Fiscal Year 2021 | Growth vs. | Growth vs. | |||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Segment sales | $ | 1,221 | 38 | % | 49 | % | ||||||||||||||
System-wide store sales | $ | 1,970 | 30 | % | 39 | % | ||||||||||||||
System-wide store count | 1,594 | 9 | % | 15 | % | |||||||||||||||
Operating income | $ | 321 | 54 | % | 57 | % | ||||||||||||||
Adjusted EBITDA | $ | 382 | 55 | % | 60 | % | ||||||||||||||
Years ended September 30 | ||||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||
System-wide SSS growth | 21.2 | % | 2.3 | % | 10.1 | % |
(In millions) | Fiscal Year 2021 | Growth vs. | Growth vs. | |||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Segment sales | $ | 1,760 | 20 | % | 12 | % | ||||||||||||||
Operating income | $ | 298 | 5 | % | 11 | % | ||||||||||||||
Adjusted EBITDA | $ | 327 | 6 | % | 10 | % | ||||||||||||||
Lubricant sales (gallons) | 160.9 | 16 | % | 7 | % |
2021 | 2020 | Variance | ||||||||||||||||||||||||||||||||||||
(In millions) | Amount | % of Sales | Amount | % of Sales | Amount | % Change | ||||||||||||||||||||||||||||||||
Sales | $ | 2,981 | 100.0 | % | $ | 2,353 | 100.0 | % | $ | 628 | 26.7 | % | ||||||||||||||||||||||||||
Gross profit | $ | 980 | 32.9 | % | $ | 863 | 36.7 | % | $ | 117 | 13.6 | % | ||||||||||||||||||||||||||
Net operating expenses | $ | 452 | 15.2 | % | $ | 378 | 16.1 | % | $ | 74 | 19.6 | % | ||||||||||||||||||||||||||
Operating income | $ | 528 | 17.7 | % | $ | 485 | 20.6 | % | $ | 43 | 8.9 | % | ||||||||||||||||||||||||||
Net income | $ | 420 | 14.1 | % | $ | 317 | 13.5 | % | $ | 103 | 32.5 | % |
(In millions) | 2021 Change | |||||||||||||
Volume and mix | $ | 330 | ||||||||||||
Price | 187 | |||||||||||||
Currency exchange | 39 | |||||||||||||
Acquisitions | 72 | |||||||||||||
Change in sales | $ | 628 |
(In millions) | 2021 Change | |||||||||||||
Volume and mix | $ | 170 | ||||||||||||
Change in LIFO reserve | (55) | |||||||||||||
Price and cost | (29) | |||||||||||||
Currency exchange | 12 | |||||||||||||
Acquisitions | 19 | |||||||||||||
Change in gross profit | $ | 117 |
2021 | 2020 | Variance | ||||||||||||||||||||||||||||||||||||
(In millions) | Amount | % of Sales | Amount | % of Sales | Amount | % Change | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | $ | 520 | 17.5 | % | $ | 442 | 18.8 | % | $ | 78 | 17.6 | % | ||||||||||||||||||||||||||
Net legacy and separation-related income | (24) | (0.8) | % | (30) | (1.3) | % | 6 | (20.0) | % | |||||||||||||||||||||||||||||
Equity and other income, net | (44) | (1.5) | % | (34) | (1.4) | % | (10) | 29.4 | % | |||||||||||||||||||||||||||||
Net operating expenses | $ | 452 | 15.2 | % | $ | 378 | 16.1 | % | $ | 74 | 19.6 | % |
(In millions) | 2021 | 2020 | ||||||||||||||||||
Income tax expense | $ | 123 | $ | 134 | ||||||||||||||||
Effective tax rate percentage | 22.7 | % | 29.7 | % |
(In millions) | 2021 | 2020 | ||||||||||||
Net income | $ | 420 | $ | 317 | ||||||||||
Income tax expense | 123 | 134 | ||||||||||||
Net interest and other financing expenses | 111 | 93 | ||||||||||||
Depreciation and amortization | 92 | 66 | ||||||||||||
EBITDA | 746 | 610 | ||||||||||||
Net pension and other postretirement plan income | (126) | (59) | ||||||||||||
Net legacy and separation-related income | (24) | (30) | ||||||||||||
LIFO charge (credit) | 41 | (15) | ||||||||||||
Business interruption recovery | (3) | (2) | ||||||||||||
Compensated absences benefits change | — | (11) | ||||||||||||
Acquisition and divestiture-related costs | — | 2 | ||||||||||||
Adjusted EBITDA (a)
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$ | 634 | $ | 495 | ||||||||||
System-wide stores (a)
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For the years ended September 30 | ||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||
Beginning of period | 1,462 | 1,385 | ||||||||||||||||||
Opened | 69 | 72 | ||||||||||||||||||
Acquired | 69 | 12 | ||||||||||||||||||
Closed | (6) | (7) | ||||||||||||||||||
End of period (b)
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1,594 | 1,462 | ||||||||||||||||||
Number of stores at end of period | ||||||||||||||||||||
For the years ended September 30 | ||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||
Company-operated | 719 | 584 | ||||||||||||||||||
Franchised (b)
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875 | 878 | ||||||||||||||||||
(a) | System-wide store count includes franchised service center stores. Valvoline's franchisees are distinct independent legal entities and Valvoline does not consolidate the results of operations of its franchisees. | ||||
(b) |
As of September 30, 2020, one franchised service center store included in the store count was temporarily closed at the discretion of the respective independent operator due to the impacts of COVID-19.
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Favorable (Unfavorable) | ||||||||||||||||||||||||||||||||
(In millions) | 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||||
Financial information | ||||||||||||||||||||||||||||||||
Retail Services segment sales | $ | 1,221 | $ | 883 | $ | 822 | 38% | 7% | ||||||||||||||||||||||||
System-wide store sales (a)
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$ | 1,970 | $ | 1,520 | $ | 1,419 | 30% | 7% | ||||||||||||||||||||||||
Operating income (b)
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$ | 321 | $ | 208 | $ | 205 | 54% | 1% | ||||||||||||||||||||||||
Key items | — | — | — | |||||||||||||||||||||||||||||
Depreciation and amortization | 61 | 39 | 34 | 56% | 15% | |||||||||||||||||||||||||||
Adjusted EBITDA | $ | 382 | $ | 247 | $ | 239 | 55% | 3% | ||||||||||||||||||||||||
Operating margin (c)
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26.3 | % | 23.6 | % | 24.9 | % | 270 bps | (130) bps | ||||||||||||||||||||||||
Adjusted EBITDA margin (c)
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31.3 | % | 28.0 | % | 29.1 | % | 330 bps | (110) bps | ||||||||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||
Same-store sales growth | ||||||||||||||||||||||||||||||||
Company-operated (d)
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19.6 | % | 2.6 | % | 9.6 | % | ||||||||||||||||||||||||||
Franchised (a) (d)
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22.4 | % | 2.1 | % | 10.4 | % | ||||||||||||||||||||||||||
System-wide (a) (d)
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21.2 | % | 2.3 | % | 10.1 | % | ||||||||||||||||||||||||||
Favorable (Unfavorable) | ||||||||||||||||||||||||||||||||
(In millions) | 2021 | 2020 | 2019 | 2021 vs 2020 | 2020 vs 2019 | |||||||||||||||||||||||||||
Financial information | ||||||||||||||||||||||||||||||||
Sales by geographic region | ||||||||||||||||||||||||||||||||
North America (a)
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$ | 1,052 | $ | 945 | $ | 994 | 11% | (5)% | ||||||||||||||||||||||||
Europe, Middle East and Africa ("EMEA") | 219 | 169 | 181 | 30% | (7)% | |||||||||||||||||||||||||||
Asia Pacific | 358 | 273 | 285 | 31% | (4)% | |||||||||||||||||||||||||||
Latin America (a)
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131 | 83 | 108 | 58% | (23)% | |||||||||||||||||||||||||||
Global Products segment sales | $ | 1,760 | $ | 1,470 | $ | 1,568 | 20% | (6)% | ||||||||||||||||||||||||
Operating income (b)
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$ | 298 | $ | 284 | $ | 269 | 5% | 6% | ||||||||||||||||||||||||
Key items: | ||||||||||||||||||||||||||||||||
Acquisition-related gain | — | — | (4) | |||||||||||||||||||||||||||||
Business interruption expenses | — | — | 6 | |||||||||||||||||||||||||||||
Depreciation and amortization | 29 | 25 | 25 | 16% | —% | |||||||||||||||||||||||||||
Adjusted EBITDA | $ | 327 | $ | 309 | $ | 296 | 6% | 4% | ||||||||||||||||||||||||
Operating margin (c)
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16.9 | % | 19.3 | % | 17.2 | % | (240) bps | 210 bps | ||||||||||||||||||||||||
Adjusted EBITDA margin (c)
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18.6 | % | 21.0 | % | 18.9 | % | (240) bps | 210 bps | ||||||||||||||||||||||||
Volume information | ||||||||||||||||||||||||||||||||
Lubricant sales (gallons) | 160.9 | 139.1 | 150.3 | 16% | (7)% | |||||||||||||||||||||||||||
(In millions) | 2021 | 2020 | ||||||||||||||||||
Cash, cash equivalents, and restricted cash - beginning of period | $ | 761 | $ | 159 | ||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||
Operating activities | 404 | 372 | ||||||||||||||||||
Investing activities | (400) | (222) | ||||||||||||||||||
Financing activities | (536) | 450 | ||||||||||||||||||
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash | 2 | 2 | ||||||||||||||||||
(Decrease) increase in cash, cash equivalents, and restricted cash | (530) | 602 | ||||||||||||||||||
Cash, cash equivalents, and restricted cash - end of period | $ | 231 | $ | 761 |
For the years ended September 30 | ||||||||||||||
(In millions) | 2021 | 2020 | ||||||||||||
Cash flows provided by operating activities | $ | 404 | $ | 372 | ||||||||||
Less: Maintenance capital expenditures | (36) | (30) | ||||||||||||
Discretionary free cash flow | 368 | 342 | ||||||||||||
Less: Growth capital expenditures | (108) | (121) | ||||||||||||
Free cash flow | $ | 260 | $ | 221 |
(In millions) | 2021 | 2020 | ||||||||||||
2031 Notes (a)
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$ | 535 | $ | — | ||||||||||
2030 Notes | 600 | 0 | 600 | |||||||||||
2025 Notes (a)
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— | 800 | ||||||||||||
Term Loan
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475 | 475 | ||||||||||||
Trade Receivables Facility (b)
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59 | 88 | ||||||||||||
China Construction Facility | 39 | 18 | ||||||||||||
Debt issuance costs and discounts
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(14) | (19) | ||||||||||||
Total debt | 1,694 | 1,962 | ||||||||||||
Current portion of long-term debt | 17 | — | ||||||||||||
Long-term debt | $ | 1,677 | $ | 1,962 | ||||||||||
(In millions) | Total |
Less than
1 year |
1-3
years |
3-5
years |
5 years and more | |||||||||||||||||||||||||||
Long-term debt | $ | 1,708 | $ | 17 | $ | 529 | $ | 27 | $ | 1,135 | ||||||||||||||||||||||
Interest payments (a)
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445 | 56 | 105 | 90 | 194 | |||||||||||||||||||||||||||
Operating lease obligations | 380 | 50 | 88 | 68 | 174 | |||||||||||||||||||||||||||
Finance lease obligations | 257 | 18 | 36 | 37 | 166 | |||||||||||||||||||||||||||
Employee benefit obligations (b)
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108 | 13 | 19 | 23 | 53 | |||||||||||||||||||||||||||
Total | $ | 2,898 | $ | 154 | $ | 777 | $ | 245 | $ | 1,722 | ||||||||||||||||||||||
Description | Judgments and uncertainties | Effect if actual results differ from assumptions | ||||||
Valvoline sponsors defined benefit pension and other postretirement plans in the U.S and in certain countries outside the U.S. As of September 30, 2021, Valvoline’s net unfunded pension and other postretirement plan liabilities included in the Consolidated Balance Sheet totaled $197 million, and the U.S. plans represented 94% of this total obligation. Total pension and other postretirement net periodic benefit income recognized in fiscal 2021 was $123 million, inclusive of a $72 million remeasurement gain.
Valvoline recognizes the change in the fair value of plan assets and the net actuarial gains and losses calculated using updated actuarial assumptions as of the measurement date, which for Valvoline is September 30, and when a plan qualifies for an interim remeasurement.
Refer to Note 10 of the Notes to Consolidated Financial Statements included in Item 8 for Part II of this Annual Report on Form 10-K for additional information regarding the Company’s pension and other postretirement plans.
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The Company’s pension and other postretirement benefit costs and obligations are dependent on actuarial valuations and various assumptions that attempt to anticipate future events and are used in calculating the expense and liabilities relating to these plans. These assumptions include estimates and judgments the Company makes about discount rates, expected long-term investment return on plan assets, and mortality, among others. Significant assumptions the Company must review and set annually and at each measurement date related to its pension and other postretirement benefit obligations are described further below.
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Though management considers current market conditions and other relevant factors in establishing these assumptions, the actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, longer or shorter life spans of participants, and differences between the actual and expected return on plan assets. These differences may result in a significant impact to the amount of pension or other postretirement benefits cost recorded or that may be recorded. Changes in assumptions or asset values may have a significant effect on the measurement of expense or income.
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Description | Judgments and uncertainties | Effect if actual results differ from assumptions | ||||||
Valvoline acquired 134 service center stores during fiscal 2021 for an aggregate purchase price of $282 million. The Company allocates the purchase price of an acquired business to its identifiable assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill or if the fair value of the assets acquired and liabilities assumed exceed the purchase price consideration, a bargain purchase gain is recorded.
Goodwill is tested at the reporting unit level for impairment on an annual basis during the fourth fiscal quarter as of July 1 or more frequently if certain events occur indicating that the carrying value of goodwill may be impaired. Valvoline’s reporting units are consistent with its reportable segments of Retail Services and Global Products, and had goodwill of $513 million and $131 million, respectively, as of September 30, 2021.
Total other intangible assets were $131 million, net of $44 million of accumulated amortization as of September 30, 2021. Other intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Various factors are considered in determining whether a trigger requiring impairment assessment has occurred, such as, but not limited to, changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows.
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Purchase price allocations contain uncertainties because they require management to make significant estimates and assumptions and to apply judgment to estimate the fair value of assets acquired and liabilities assumed, particularly with respect to intangible assets.
Management estimates the fair value of assets acquired and liabilities assumed based on quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses.
Critical estimates in valuing intangible assets include, but are not limited to, estimates about: expected future cash flows from customers, including revenue and operating expenses; royalty and customer attrition rates; proprietary technology obsolescence curve; the acquired company's brand awareness and market position; the market awareness of the acquired company's branded technology solutions and services; assumptions about the period of time the brands will continue to be valuable; as well as discount rates. The Company's estimates of fair value are based upon reasonable assumptions, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
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If actual results are materially different than the assumptions used to determine fair value of the assets acquired and liabilities assumed through a business combination, or the useful lives of the acquired intangible assets, it is possible that adjustments to the carrying values of such assets and liabilities will have a material impact on the Company's financial position and results of operations. Furthermore, if actual results are not consistent with estimates or assumptions, the Company may be exposed to an impairment charge that could materially adversely impact its consolidated financial position and results of operations.
There were no impairments to intangible assets recognized by the Company during fiscal 2021, 2020, or 2019. During fiscal 2021, Valvoline performed a quantitative impairment assessment of goodwill and determined that each reporting unit had a fair value that exceeded its carrying value by at least 130% and more. Qualitative and quantitative goodwill impairment assessments performed during fiscal 2020 and 2019, respectively, also indicated no impairments.
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Description | Judgments and uncertainties | Effect if actual results differ from assumptions | ||||||
Valvoline is subject to income taxes in the United States and numerous international jurisdictions. Judgment in forecasting taxable income using historical and projected future operating results is required in determining Valvoline’s provision for income taxes and the related assets and liabilities.
The provision for income taxes includes current income taxes as well as deferred income taxes. Under U.S. GAAP, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the deferred assets or liabilities are expected to be settled or realized. The effect of changes in tax rates on deferred taxes is recognized in the period in which such changes are enacted.
|
Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is based on the evaluation of positive and negative evidence, which includes historical profitability, future market growth, future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company assesses deferred taxes and the adequacy or need for a valuation allowance on a quarterly basis.
The Company is subject to ongoing tax examinations and assessments in various jurisdictions. At any time, multiple tax years are subject to audit by the various tax authorities and a number of years may elapse before a particular matter, for which a liability has been established, is audited and fully resolved or clarified. In evaluating the exposures associated with various tax filing positions, the Company may record liabilities for such exposures. Valvoline generally adjusts its liabilities for unrecognized tax benefits and related indemnification obligations through earnings in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available. Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and may materially increase or decrease the effective tax rate, as well as impact the Company’s operating results.
|
If the Company is unable to generate sufficient future taxable income, there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then Valvoline could be required to increase the valuation allowance against deferred tax assets, resulting in an increase in income tax expense and the effective tax rate.
Each change of income tax expense of $5 million would impact the fiscal 2021 effective tax rate by one percentage point.
|
Index to Financial Statements and Supplementary Data | Page | ||||
Note 5 - Leasing
|
|||||
Note 12 - Stock-Based Compensation Plans
|
|||||
Description of the Matter |
At September 30, 2021, the Company’s aggregate defined benefit pension and other postretirement obligations (together, the “Employee Benefit Obligations”) were $2,252 million and exceeded the fair value of pension plan assets of $2,055 million, resulting in unfunded net Employee Benefit Obligations of $197 million. As explained in Note 10 of the consolidated financial statements, the Company recognizes the change in the net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement to reflect the updated actuarial assumptions. The remaining components of pension and other postretirement benefits cost are recorded ratably throughout the year.
Auditing the valuation of the Employee Benefit Obligations was complex due to the judgmental nature of the actuarial assumptions (e.g., discount rate and mortality rate) used in the measurement process. These assumptions have a significant effect on the projected benefit obligations. |
||||
How We Addressed the Matter in Our Audit |
We tested controls that address the risks of material misstatements related to the valuation of the Employee Benefit Obligations. For example, we tested controls over management’s review of the significant actuarial assumptions and the completeness and accuracy of the data inputs provided to the actuary. Where judgment was exercised by management, our audit procedures included testing controls over management’s evaluation of the assumptions used in developing the Employee Benefit Obligations, including reviews of the selected mortality and discount rates with the Company’s independent actuary.
To test the Employee Benefit Obligations, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions discussed above, and the underlying data used by the Company. We compared the actuarial assumptions used by management to its historical accounting practices and evaluated the change in the Employee Benefit Obligations from the prior year due to the change in service cost, interest cost, actuarial gains and losses, benefit payments, contributions and other activities. In addition, we involved an actuarial specialist to assist with our procedures. For example, the discount rate reflects the rates at which benefits could effectively be settled and is based on current investment yields of high-quality corporate bonds. The Company uses an actuarially-developed full yield curve approach in establishing its discount rate. We evaluated management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments. As part of this assessment, we tested the underlying securities used to develop the yield curve to evaluate whether they were appropriate for use in a yield curve and whether the provided yield curve reasonably followed from those securities. To evaluate the mortality rate, we assessed whether the information was consistent with publicly available information, and whether any market data adjusted for entity-specific adjustments were applied. We also tested the completeness and accuracy of the underlying data, including the participant data. |
Valvoline Inc. and Consolidated Subsidiaries | ||||||||||||||||||||
Consolidated Statements of Comprehensive Income | ||||||||||||||||||||
Years ended September 30 | ||||||||||||||||||||
(In millions, except per share amounts) | 2021 | 2020 | 2019 | |||||||||||||||||
Sales | $ | 2,981 | $ | 2,353 | $ | 2,390 | ||||||||||||||
Cost of sales | 2,001 | 1,490 | 1,580 | |||||||||||||||||
Gross profit | 980 | 863 | 810 | |||||||||||||||||
Selling, general and administrative expenses | 520 | 442 | 449 | |||||||||||||||||
Net legacy and separation-related (income) expenses | (24) | (30) | 3 | |||||||||||||||||
Equity and other income, net | (44) | (34) | (40) | |||||||||||||||||
Operating income | 528 | 485 | 398 | |||||||||||||||||
Net pension and other postretirement plan (income) expenses | (126) | (59) | 60 | |||||||||||||||||
Net interest and other financing expenses | 111 | 93 | 73 | |||||||||||||||||
Income before income taxes | 543 | 451 | 265 | |||||||||||||||||
Income tax expense | 123 | 134 | 57 | |||||||||||||||||
Net income | $ | 420 | $ | 317 | $ | 208 | ||||||||||||||
NET EARNINGS PER SHARE | ||||||||||||||||||||
Basic | $ | 2.30 | $ | 1.70 | $ | 1.10 | ||||||||||||||
Diluted | $ | 2.29 | $ | 1.69 | $ | 1.10 | ||||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||||||
Basic | 182 | 187 | 189 | |||||||||||||||||
Diluted | 183 | 188 | 189 | |||||||||||||||||
COMPREHENSIVE INCOME | ||||||||||||||||||||
Net income | $ | 420 | $ | 317 | $ | 208 | ||||||||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||||||
Currency translation adjustments
|
7 | 7 | (12) | |||||||||||||||||
Amortization of pension and other postretirement plan prior service credits | (9) | (9) | (9) | |||||||||||||||||
Unrealized gain (loss) on cash flow hedges | 2 | (1) | — | |||||||||||||||||
Other comprehensive loss
|
— | (3) | (21) | |||||||||||||||||
Comprehensive income | $ | 420 | $ | 314 | $ | 187 | ||||||||||||||
Valvoline Inc. and Consolidated Subsidiaries | ||||||||||||||
Consolidated Balance Sheets | ||||||||||||||
As of September 30 | ||||||||||||||
(In millions, except per share amounts) | 2021 | 2020 | ||||||||||||
Assets | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | $ | 230 | $ | 760 | ||||||||||
Receivables, net | 496 | 433 | ||||||||||||
Inventories, net | 258 | 199 | ||||||||||||
Prepaid expenses and other current assets | 53 | 46 | ||||||||||||
Total current assets
|
1,037 | 1,438 | ||||||||||||
Noncurrent assets | ||||||||||||||
Property, plant and equipment, net | 817 | 613 | ||||||||||||
Operating lease assets | 307 | 261 | ||||||||||||
Goodwill and intangibles, net | 775 | 529 | ||||||||||||
Equity method investments | 47 | 44 | ||||||||||||
Deferred income taxes | 14 | 34 | ||||||||||||
Other noncurrent assets | 194 | 132 | ||||||||||||
Total noncurrent assets
|
2,154 | 1,613 | ||||||||||||
Total assets | $ | 3,191 | $ | 3,051 | ||||||||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||||||||
Current liabilities | ||||||||||||||
Current portion of long-term debt | $ | 17 | $ | — | ||||||||||
Trade and other payables | 246 | 189 | ||||||||||||
Accrued expenses and other liabilities | 306 | 255 | ||||||||||||
Total current liabilities
|
569 | 444 | ||||||||||||
Noncurrent liabilities | ||||||||||||||
Long-term debt | 1,677 | 1,962 | ||||||||||||
Employee benefit obligations | 258 | 317 | ||||||||||||
Deferred income taxes | 26 | 1 | ||||||||||||
Operating lease liabilities | 274 | 231 | ||||||||||||
Other noncurrent liabilities | 252 | 172 | ||||||||||||
Total noncurrent liabilities
|
2,487 | 2,683 | ||||||||||||
Commitments and contingencies | ||||||||||||||
Stockholders’ equity (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, 180 and 185 shares issued and outstanding at September 30, 2021 and 2020, respectively
|
2 | 2 | ||||||||||||
Paid-in capital | 35 | 24 | ||||||||||||
Retained earnings (deficit) | 90 | (110) | ||||||||||||
Accumulated other comprehensive income | 8 | 8 | ||||||||||||
Total stockholders’ equity (deficit)
|
135 | (76) | ||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 3,191 | $ | 3,051 | ||||||||||
Valvoline Inc. and Consolidated Subsidiaries | ||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||
Paid-in capital | Retained (deficit) earnings |
Accumulated other comprehensive income
|
Totals | |||||||||||||||||||||||||||||||||||
Common stock | ||||||||||||||||||||||||||||||||||||||
(In millions, except per share amounts) | Shares | Amount | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 | 188 | $ | 2 | $ | 7 | $ | (399) | $ | 32 | $ | (358) | |||||||||||||||||||||||||||
Net income | — | — | — | 208 | — | 208 | ||||||||||||||||||||||||||||||||
Dividends paid, $0.424 per common share
|
— | — | — | (80) | — | (80) | ||||||||||||||||||||||||||||||||
Stock-based compensation, net of issuances | — | — | 6 | — | — | 6 | ||||||||||||||||||||||||||||||||
Cumulative effect of adoption of new revenue standard, net of tax | — | — | — | (13) | — | (13) | ||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (21) | (21) | ||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 188 | 2 | 13 | (284) | 11 | (258) | ||||||||||||||||||||||||||||||||
Net income | — | — | — | 317 | — | 317 | ||||||||||||||||||||||||||||||||
Dividends paid, $0.452 per common share
|
— | — | — | (84) | — | (84) | ||||||||||||||||||||||||||||||||
Stock-based compensation, net of issuances | — | — | 11 | — | — | 11 | ||||||||||||||||||||||||||||||||
Repurchase of common stock | (3) | — | — | (60) | — | (60) | ||||||||||||||||||||||||||||||||
Cumulative effect of adoption of new leasing standard, net of tax | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (3) | (3) | ||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | 185 | 2 | 24 | (110) | 8 | (76) | ||||||||||||||||||||||||||||||||
Net income | — | — | — | 420 | — | 420 | ||||||||||||||||||||||||||||||||
Dividends paid, $0.500 per common share
|
— | — | 1 | (91) | — | (90) | ||||||||||||||||||||||||||||||||
Stock-based compensation, net of issuances | — | — | 10 | — | — | 10 | ||||||||||||||||||||||||||||||||
Repurchase of common stock | (5) | — | — | (127) | — | (127) | ||||||||||||||||||||||||||||||||
Cumulative effect of adoption of new credit losses standard, net of tax | — | — | — | (2) | — | (2) | ||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 180 | $ | 2 | $ | 35 | $ | 90 | $ | 8 | $ | 135 |
Valvoline Inc. and Consolidated Subsidiaries | ||||||||||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||||||||||
Years ended September 30 | ||||||||||||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
Net income | $ | 420 | $ | 317 | $ | 208 | ||||||||||||||
Adjustments to reconcile to cash flows from operations | ||||||||||||||||||||
Loss on extinguishment of debt | 36 | 19 | — | |||||||||||||||||
Depreciation and amortization | 92 | 66 | 61 | |||||||||||||||||
Deferred income taxes | 48 | 92 | 23 | |||||||||||||||||
Pension contributions | (5) | (11) | (10) | |||||||||||||||||
(Gain) loss on pension and other postretirement plan remeasurements | (72) | (22) | 69 | |||||||||||||||||
Stock-based compensation expense | 14 | 12 | 9 | |||||||||||||||||
Other, net | 4 | (5) | (5) | |||||||||||||||||
Change in assets and liabilities
|
||||||||||||||||||||
Receivables | (65) | (11) | (30) | |||||||||||||||||
Inventories | (53) | (1) | (10) | |||||||||||||||||
Payables and accrued liabilities | 95 | (3) | 37 | |||||||||||||||||
Other assets and liabilities | (110) | (81) | (27) | |||||||||||||||||
Total cash provided by operating activities | 404 | 372 | 325 | |||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||
Additions to property, plant and equipment | (144) | (151) | (108) | |||||||||||||||||
Notes receivable, net of repayments of $3 million in 2020
|
17 | (31) | (2) | |||||||||||||||||
Acquisitions of businesses, net of cash acquired | (282) | (40) | (78) | |||||||||||||||||
Other investing activities, net | 9 | — | — | |||||||||||||||||
Total cash used in investing activities | (400) | (222) | (188) | |||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Proceeds from borrowings | 555 | 1,558 | 752 | |||||||||||||||||
Payments of debt issuance costs and discounts | (7) | (16) | (2) | |||||||||||||||||
Repayments on borrowings | (829) | (929) | (734) | |||||||||||||||||
Premium paid to extinguish debt | (26) | (15) | — | |||||||||||||||||
Repurchases of common stock | (127) | (60) | — | |||||||||||||||||
Cash dividends paid | (91) | (84) | (80) | |||||||||||||||||
Other financing activities | (11) | (4) | (7) | |||||||||||||||||
Total cash (used in) provided by financing activities | (536) | 450 | (71) | |||||||||||||||||
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash | 2 | 2 | (3) | |||||||||||||||||
(Decrease) increase in cash, cash equivalents and restricted cash | (530) | 602 | 63 | |||||||||||||||||
Cash, cash equivalents and restricted cash - beginning of year | 761 | 159 | 96 | |||||||||||||||||
Cash, cash equivalents and restricted cash - end of year | $ | 231 | $ | 761 | $ | 159 | ||||||||||||||
Supplemental disclosures | ||||||||||||||||||||
Interest paid | $ | 62 | $ | 65 | $ | 67 | ||||||||||||||
Income taxes paid | $ | 72 | $ | 44 | $ | 25 | ||||||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Sales at a point in time | $ | 2,931 | $ | 2,313 | $ | 2,347 | ||||||||||||||
Franchised revenues transferred over time | 50 | 40 | 43 | |||||||||||||||||
Total consolidated sales | $ | 2,981 | $ | 2,353 | $ | 2,390 |
As of September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | Total | Level 1 | Level 2 | Level 3 |
NAV (a)
|
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Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Money market funds | $ | 13 | $ | 13 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Time deposits | 87 | — | 87 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency derivatives | 3 | — | 3 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other noncurrent assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-qualified trust funds | 11 | — | 4 | — | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swap agreements | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets at fair value | $ | 116 | $ | 13 | $ | 96 | $ | — | $ | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and other liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency derivatives | $ | 3 | $ | — | $ | 3 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swap agreements | 1 | — | 1 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other noncurrent liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation obligations | 24 | — | — | — | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities at fair value | $ | 28 | $ | — | $ | 4 | $ | — | $ | 24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
As of September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | Total | Level 1 | Level 2 | Level 3 |
NAV (a)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Money market funds | $ | 296 | $ | 296 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Time deposits | 139 | — | 139 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency derivatives | 3 | — | 3 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other noncurrent assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-qualified trust funds | 16 | — | 8 | — | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets at fair value | $ | 454 | $ | 296 | $ | 150 | $ | — | $ | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and other liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency derivatives | $ | 2 | $ | — | $ | 2 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swap agreements | 1 | — | 1 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other noncurrent liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation obligations | 25 | — | — | — | 25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities at fair value | $ | 28 | $ | — | $ | 3 | $ | — | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||
(In millions) | Fair value |
Carrying value (a)
|
Unamortized discounts and issuance costs | Fair value |
Carrying value (a)
|
Unamortized discounts and issuance costs | ||||||||||||||||||||||||||||||||
2025 Notes | $ | — | $ | — | $ | — | $ | 827 | $ | 790 | $ | (10) | ||||||||||||||||||||||||||
2030 Notes | 622 | 593 | (7) | 613 | 592 | (8) | ||||||||||||||||||||||||||||||||
2031 Notes | 531 | 529 | (6) | — | — | — | ||||||||||||||||||||||||||||||||
Total | $ | 1,153 | $ | 1,122 | $ | (13) | $ | 1,440 | $ | 1,382 | $ | (18) | ||||||||||||||||||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Inventories | $ | 3 | $ | 1 | $ | — | ||||||||||||||
Other current assets | 1 | — | — | |||||||||||||||||
Property, plant and equipment (a)
|
99 | 6 | 19 | |||||||||||||||||
Operating lease assets | 38 | 1 | — | |||||||||||||||||
Goodwill (b)
|
207 | 17 | 50 | |||||||||||||||||
Intangible assets (c)
|
||||||||||||||||||||
Reacquired franchise rights (d)
|
59 | 20 | 5 | |||||||||||||||||
Customer relationships | — | — | 6 | |||||||||||||||||
Trademarks and trade names | — | — | 1 | |||||||||||||||||
Other | 3 | — | 2 | |||||||||||||||||
Other current liabilities (a)
|
(9) | (1) | — | |||||||||||||||||
Operating lease liabilities | (35) | — | — | |||||||||||||||||
Other noncurrent liabilities (a)
|
(84) | (4) | (1) | |||||||||||||||||
Net assets acquired | 282 | 40 | 82 | |||||||||||||||||
Bargain purchase gain (e)
|
— | — | (4) | |||||||||||||||||
Consideration transferred | $ | 282 | $ | 40 | $ | 78 | ||||||||||||||
(In millions) | Location in Consolidated Balance Sheets | 2021 | 2020 | |||||||||||||||||
Assets | ||||||||||||||||||||
Operating lease assets | Operating lease assets | $ | 307 | $ | 261 | |||||||||||||||
Finance lease assets | Property, plant and equipment, net | 198 | 77 | |||||||||||||||||
Amortization of finance lease assets | Property, plant and equipment, net | (21) | (10) | |||||||||||||||||
Total leased assets | $ | 484 | $ | 328 | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Current | ||||||||||||||||||||
Operating lease liabilities | Accrued expenses and other liabilities | $ | 38 | $ | 33 | |||||||||||||||
Finance lease liabilities | Accrued expenses and other liabilities | 9 | 3 | |||||||||||||||||
Noncurrent | ||||||||||||||||||||
Operating lease liabilities | Operating lease liabilities | 274 | 231 | |||||||||||||||||
Finance lease liabilities | Other noncurrent liabilities | 178 | 70 | |||||||||||||||||
Total lease liabilities | $ | 499 | $ | 337 |
(In millions) | Location in Consolidated Statements of Comprehensive Income | 2021 | 2020 | |||||||||||||||||
Operating lease cost | Cost of sales and Selling, general and administrative expenses | $ | 52 | $ | 45 | |||||||||||||||
Finance lease costs | ||||||||||||||||||||
Amortization of lease assets |
Cost of sales (a)
|
11 | 4 | |||||||||||||||||
Interest on lease liabilities | Net interest and other financing expenses | 8 | 3 | |||||||||||||||||
Variable lease cost |
Cost of sales and Selling, general and administrative expenses (a)
|
10 | 6 | |||||||||||||||||
Sublease income | Equity and other income, net | (8) | (6) | |||||||||||||||||
Total lease cost | $ | 73 | $ | 52 |
(In millions) | 2021 | 2020 | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
Operating cash flows from operating leases (a)
|
$ | 50 | $ | 43 | ||||||||||
Operating cash flows from finance leases | $ | 8 | $ | 4 | ||||||||||
Financing cash flows from finance leases | $ | 6 | $ | 1 | ||||||||||
Lease assets obtained in exchange for lease obligations: | ||||||||||||||
Operating leases | $ | 83 | $ | 49 | ||||||||||
Finance leases | $ | 118 | $ | 49 | ||||||||||
(In millions) | Operating leases | Finance leases | ||||||||||||
2022 | $ | 50 | $ | 18 | ||||||||||
2023 | 46 | 18 | ||||||||||||
2024 | 42 | 18 | ||||||||||||
2025 | 37 | 18 | ||||||||||||
2026 | 31 | 19 | ||||||||||||
Thereafter | 174 | 166 | ||||||||||||
Total future lease payments | 380 | 257 | ||||||||||||
Imputed interest | 68 | 70 | ||||||||||||
Present value of lease liabilities | $ | 312 | $ | 187 |
Operating leases | Finance leases | |||||||||||||
Weighted average remaining lease term (in years) | 9.6 | 13.7 | ||||||||||||
Weighted average discount rate | 3.98 | % | 5.20 | % |
(In millions) | 2021 | 2020 | ||||||||||||||||||
Financial position | ||||||||||||||||||||
Current assets | $ | 162 | $ | 143 | ||||||||||||||||
Current liabilities | (89) | (75) | ||||||||||||||||||
Working capital | 73 | 68 | ||||||||||||||||||
Noncurrent assets | 25 | 26 | ||||||||||||||||||
Noncurrent liabilities | (5) | (8) | ||||||||||||||||||
Stockholders’ equity | $ | 93 | $ | 86 |
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Results of operations (a)
|
||||||||||||||||||||
Sales | $ | 375 | $ | 273 | $ | 309 | ||||||||||||||
Income from operations | $ | 60 | $ | 50 | $ | 59 | ||||||||||||||
Net income | $ | 31 | $ | 25 | $ | 24 | ||||||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Equity income (a)
|
$ | 15 | $ | 12 | $ | 12 | ||||||||||||||
Distributions received | $ | 14 | $ | 5 | $ | 9 | ||||||||||||||
Royalty income (a)
|
$ | 10 | $ | 8 | $ | 9 | ||||||||||||||
Sales to (b)
|
$ | 33 | $ | 7 | $ | 12 | ||||||||||||||
Purchases from (b)
|
$ | 14 | $ | 7 | $ | 4 | ||||||||||||||
(In millions) | 2021 | 2020 | ||||||||||||
Accounts receivable (a)
|
$ | 13 | $ | 4 | ||||||||||
Notes receivable (b)
|
$ | — | $ | 5 | ||||||||||
Trade and other payables | $ | 1 | $ | 1 | ||||||||||
(In millions) | Retail Services | Global Products | Total | |||||||||||||||||
Balance at September 30, 2019 (a)
|
$ | 301 | $ | 129 | $ | 430 | ||||||||||||||
Acquisitions
|
17 | — | 17 | |||||||||||||||||
Currency translation | 1 | — | 1 | |||||||||||||||||
Dispositions (b)
|
(3) | — | $ | (3) | ||||||||||||||||
Balance at September 30, 2020 (a)
|
316 | 129 | 445 | |||||||||||||||||
Acquisitions (c)
|
205 | 2 | 207 | |||||||||||||||||
Currency translation | 2 | — | 2 | |||||||||||||||||
Dispositions (b)
|
(10) | — | (10) | |||||||||||||||||
Balance at September 30, 2021 | $ | 513 | $ | 131 | $ | 644 | ||||||||||||||
(In millions) | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||
Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||||||||||||||||
Definite-lived intangible assets | ||||||||||||||||||||||||||||||||||||||
Trademarks and trade names | $ | 30 | $ | (8) | $ | 22 | $ | 30 | $ | (6) | $ | 24 | ||||||||||||||||||||||||||
Reacquired franchise rights | 116 | (25) | 91 | 57 | (14) | 43 | ||||||||||||||||||||||||||||||||
Customer relationships | 23 | (9) | 14 | 22 | (7) | 15 | ||||||||||||||||||||||||||||||||
Other intangible assets | 6 | (2) | 4 | 3 | (1) | 2 | ||||||||||||||||||||||||||||||||
Total definite-lived intangible assets | $ | 175 | $ | (44) | $ | 131 | $ | 112 | $ | (28) | $ | 84 |
(In millions) | Actual | Estimated | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |||||||||||||||||||||||||||||||||
Amortization expense | $ | 16 | $ | 17 | $ | 17 | $ | 16 | $ | 14 | $ | 11 |
(In millions) | 2021 | 2020 | ||||||||||||
2031 Notes | $ | 535 | $ | — | ||||||||||
2030 Notes | 600 | 600 | ||||||||||||
2025 Notes | — | 800 | ||||||||||||
Term Loan | 475 | 475 | ||||||||||||
Trade Receivables Facility | 59 | 88 | ||||||||||||
China Construction Facility | 39 | 18 | ||||||||||||
Debt issuance costs and discounts | (14) | (19) | ||||||||||||
Total debt | 1,694 | 1,962 | ||||||||||||
Current portion of long-term debt | 17 | — | ||||||||||||
Long-term debt | $ | 1,677 | $ | 1,962 | ||||||||||
(In millions) | ||||||||
Years ending September 30 | ||||||||
2022 | $ | 17 | ||||||
2023 | 61 | |||||||
2024 | 468 | |||||||
2025 | 27 | |||||||
2026 | — | |||||||
Thereafter | 1,135 | |||||||
Total | $ | 1,708 |
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Current | ||||||||||||||||||||
Federal
|
$ | 36 | $ | 16 | $ | 10 | ||||||||||||||
State | 14 | 11 | 5 | |||||||||||||||||
Non-U.S. | 25 | 15 | 19 | |||||||||||||||||
75 | 42 | 34 | ||||||||||||||||||
Deferred | ||||||||||||||||||||
Federal | 42 | 62 | 24 | |||||||||||||||||
State | 8 | 26 | — | |||||||||||||||||
Non-U.S. | (2) | 4 | (1) | |||||||||||||||||
48 | 92 | 23 | ||||||||||||||||||
Income tax expense | $ | 123 | $ | 134 | $ | 57 |
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Income before income taxes | ||||||||||||||||||||
United States | $ | 483 | $ | 399 | $ | 212 | ||||||||||||||
Non-U.S. | 60 | 52 | 53 | |||||||||||||||||
Total income before income taxes | $ | 543 | $ | 451 | $ | 265 | ||||||||||||||
U.S. statutory tax rate
|
21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
Income taxes computed at U.S. statutory tax rate | $ | 114 | $ | 95 | $ | 56 | ||||||||||||||
(Decrease) increase in amount computed resulting from: | ||||||||||||||||||||
Unrecognized tax benefits | (5) | 1 | 5 | |||||||||||||||||
State taxes, net of federal benefit | 19 | 16 | 9 | |||||||||||||||||
International rate differential | 3 | 2 | 2 | |||||||||||||||||
Permanent items | (6) | (4) | (3) | |||||||||||||||||
Remeasurement of net deferred taxes
|
— | 1 | (4) | |||||||||||||||||
Return-to-provision adjustments | — | (2) | (6) | |||||||||||||||||
Change in valuation allowances | 1 | 29 | (4) | |||||||||||||||||
Tax Matters Agreement activity | (6) | (6) | 1 | |||||||||||||||||
Other | 3 | 2 | 1 | |||||||||||||||||
Income tax expense | $ | 123 | $ | 134 | $ | 57 | ||||||||||||||
Effective tax rate | 22.7 | % | 29.7 | % | 21.5 | % |
(In millions) | 2021 | 2020 | ||||||||||||
Deferred tax assets | ||||||||||||||
Non-U.S. net operating loss carryforwards (a)
|
$ | 2 | $ | 2 | ||||||||||
State net operating loss carryforwards (b)
|
18 | 18 | ||||||||||||
Employee benefit obligations | 46 | 79 | ||||||||||||
Compensation accruals | 29 | 26 | ||||||||||||
Credit carryforwards (c)
|
12 | 11 | ||||||||||||
Operating lease liabilities | 98 | 69 | ||||||||||||
Other | 23 | 17 | ||||||||||||
Valuation allowances (d)
|
(32) | (30) | ||||||||||||
Net deferred tax assets | 196 | 192 | ||||||||||||
Deferred tax liabilities | ||||||||||||||
Goodwill and other intangibles | 16 | 11 | ||||||||||||
Property, plant and equipment | 109 | 75 | ||||||||||||
Operating lease assets | 78 | 67 | ||||||||||||
Undistributed earnings | 5 | 6 | ||||||||||||
Total deferred tax liabilities | 208 | 159 | ||||||||||||
Total net deferred tax (liabilities) assets (e)
|
$ | (12) | $ | 33 | ||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Gross unrecognized tax benefits as of October 1 | $ | 15 | $ | 14 | $ | 10 | ||||||||||||||
Increases related to tax positions from prior years | 2 | 1 | 5 | |||||||||||||||||
Decreases related to tax positions from prior years | (1) | — | — | |||||||||||||||||
Increases related to tax positions taken during the current year | 1 | 1 | — | |||||||||||||||||
Settlements with tax authorities | (4) | — | — | |||||||||||||||||
Lapses of statutes of limitation | (1) | (1) | (1) | |||||||||||||||||
Gross unrecognized tax benefits as of September 30 (a)
|
$ | 12 | $ | 15 | $ | 14 | ||||||||||||||
(In millions) | Pension benefits | Other postretirement benefits | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||
Net periodic benefit (income) costs | ||||||||||||||||||||||||||||||||||||||
Service cost | $ | 2 | $ | 3 | $ | 2 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
Interest cost | 43 | 61 | 81 | 1 | 1 | 2 | ||||||||||||||||||||||||||||||||
Expected return on plan assets | (86) | (87) | (80) | — | — | — | ||||||||||||||||||||||||||||||||
Amortization of prior service credit (a)
|
— | — | — | (12) | (12) | (12) | ||||||||||||||||||||||||||||||||
Actuarial (gain) loss | (72) | (24) | 61 | — | 2 | 8 | ||||||||||||||||||||||||||||||||
Net periodic benefit (income) costs | $ | (113) | $ | (47) | $ | 64 | $ | (11) | $ | (9) | $ | (2) | ||||||||||||||||||||||||||
Weighted-average plan assumptions (b)
|
||||||||||||||||||||||||||||||||||||||
Discount rate for service cost
|
1.55 | % | 1.49 | % | 2.92 | % | 3.03 | % | 3.12 | % | 3.98 | % | ||||||||||||||||||||||||||
Discount rate for interest cost
|
1.91 | % | 2.79 | % | 4.00 | % | 1.83 | % | 2.69 | % | 3.83 | % | ||||||||||||||||||||||||||
Rate of compensation increase | 3.00 | % | 3.04 | % | 3.06 | % | — | — | — | |||||||||||||||||||||||||||||
Expected long-term rate of return on plan assets | 4.34 | % | 4.64 | % | 4.66 | % | — | — | — | |||||||||||||||||||||||||||||
(In millions) | Pension benefits | Other postretirement benefits | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||
Amortization of prior service credits recognized in Accumulated other comprehensive income | $ | — | $ | — | $ | — | $ | 12 | $ | 12 | $ | 12 | ||||||||||||||||||||||||||
Net periodic benefit income | (113) | (47) | 64 | (11) | (9) | (2) | ||||||||||||||||||||||||||||||||
Total pre-tax amount recognized in comprehensive income | $ | (113) | $ | (47) | $ | 64 | $ | 1 | $ | 3 | $ | 10 |
(In millions) | Pension benefits | Other postretirement benefits | ||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Change in benefit obligations | ||||||||||||||||||||||||||
Benefit obligations as of October 1 | $ | 2,321 | $ | 2,287 | $ | 52 | $ | 55 | ||||||||||||||||||
Service cost | 2 | 3 | — | — | ||||||||||||||||||||||
Interest cost | 43 | 61 | 1 | 1 | ||||||||||||||||||||||
Benefits paid | (133) | (132) | (5) | (6) | ||||||||||||||||||||||
Actuarial (gain) loss | (31) | 107 | — | 2 | ||||||||||||||||||||||
Currency exchange rate changes | 2 | 1 | 1 | — | ||||||||||||||||||||||
Transfers in | 3 | 3 | — | — | ||||||||||||||||||||||
Settlements | (4) | (9) | — | — | ||||||||||||||||||||||
Benefit obligations as of September 30 | $ | 2,203 | $ | 2,321 | $ | 49 | $ | 52 | ||||||||||||||||||
Change in plan assets | ||||||||||||||||||||||||||
Fair value of plan assets as of October 1 | $ | 2,045 | $ | 1,943 | $ | — | $ | — | ||||||||||||||||||
Actual return on plan assets | 128 | 218 | — | — | ||||||||||||||||||||||
Employer contributions | 14 | 22 | 5 | 6 | ||||||||||||||||||||||
Benefits paid | (133) | (133) | (5) | (6) | ||||||||||||||||||||||
Currency exchange rate changes | 2 | 1 | — | — | ||||||||||||||||||||||
Settlements | (4) | (9) | — | — | ||||||||||||||||||||||
Transfers in | 3 | 3 | — | — | ||||||||||||||||||||||
Fair value of plan assets as of September 30 | $ | 2,055 | $ | 2,045 | $ | — | $ | — | ||||||||||||||||||
Unfunded status of the plans as of September 30 | $ | 148 | $ | 276 | $ | 49 | $ | 52 | ||||||||||||||||||
Amounts in the Consolidated Balance Sheets | ||||||||||||||||||||||||||
Noncurrent benefit assets (a)
|
$ | 72 | $ | 1 | $ | — | $ | — | ||||||||||||||||||
Current benefit liabilities (b)
|
9 | 10 | 5 | 5 | ||||||||||||||||||||||
Noncurrent benefit liabilities (c)
|
211 | 267 | 44 | 47 | ||||||||||||||||||||||
Total benefit liabilities | 220 | 277 | 49 | 52 | ||||||||||||||||||||||
Net liabilities recognized | $ | 148 | $ | 276 | $ | 49 | $ | 52 | ||||||||||||||||||
Balance in Accumulated other comprehensive loss | ||||||||||||||||||||||||||
Prior service cost (credit) | $ | 1 | $ | 1 | $ | (21) | $ | (33) | ||||||||||||||||||
Weighted-average plan assumptions | ||||||||||||||||||||||||||
Discount rate | 2.70 | % | 2.59 | % | 2.67 | % | 2.39 | % | ||||||||||||||||||
Rate of compensation increase | 3.00 | % | 3.00 | % | — | — | ||||||||||||||||||||
Healthcare cost trend rate (d)
|
— | — | 6.4 | % | 6.7 | % | ||||||||||||||||||||
(In millions) | 2021 | 2020 | ||||||||||||||||||||||||
Benefit obligation | Plan assets | Benefit obligation | Plan assets | |||||||||||||||||||||||
Plans with projected benefit obligation in excess of plan assets | $ | 1,607 | $ | 1,386 | $ | 2,275 | $ | 1,998 | ||||||||||||||||||
Plans with accumulated benefit obligation in excess of plan assets | $ | 1,593 | $ | 1,374 | $ | 2,253 | $ | 1,978 |
(In millions) | September 30, 2021 | |||||||||||||||||||||||||||||||||||||
Total fair value | Level 1 | Level 2 | Level 3 | Assets measured at NAV | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 136 | $ | 136 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||
U.S. government securities and futures
|
96 | — | 96 | — | — | |||||||||||||||||||||||||||||||||
Other government securities | 58 | — | 58 | — | — | |||||||||||||||||||||||||||||||||
Corporate debt instruments | 1,371 | — | 1,371 | — | — | |||||||||||||||||||||||||||||||||
Insurance contracts | 58 | — | — | 58 | — | |||||||||||||||||||||||||||||||||
Private equity and hedge funds | 11 | — | — | — | 11 | |||||||||||||||||||||||||||||||||
Collective trust funds | 316 | — | — | — | 316 | |||||||||||||||||||||||||||||||||
Other investments | 9 | $ | — | 9 | $ | — | — | |||||||||||||||||||||||||||||||
Total assets at fair value | $ | 2,055 | $ | 136 | $ | 1,534 | $ | 58 | $ | 327 |
(In millions) | September 30, 2020 | |||||||||||||||||||||||||||||||
Total fair value | Level 1 | Level 2 | Level 3 | Assets measured at NAV | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 102 | $ | 102 | $ | — | $ | — | $ | — | ||||||||||||||||||||||
U.S. government securities and futures | 172 | — | 172 | — | — | |||||||||||||||||||||||||||
Other government securities | 47 | — | 47 | — | — | |||||||||||||||||||||||||||
Corporate debt instruments | 1,201 | — | 1,201 | — | — | |||||||||||||||||||||||||||
Insurance contracts | 12 | — | — | 12 | — | |||||||||||||||||||||||||||
Private equity and hedge funds | 13 | — | — | — | 13 | |||||||||||||||||||||||||||
Collective trust funds | 497 | — | — | — | 497 | |||||||||||||||||||||||||||
Other investments | 1 | — | 1 | — | — | |||||||||||||||||||||||||||
Total assets at fair value | $ | 2,045 | $ | 102 | $ | 1,421 | $ | 12 | $ | 510 |
(In millions) | Total Level 3 assets | ||||||||||||||||
Balance at September 30, 2019 | $ | 7 | |||||||||||||||
Purchases | 4 | ||||||||||||||||
Actual return on assets held at end of year | 1 | ||||||||||||||||
Balance at September 30, 2020 | 12 | ||||||||||||||||
Purchases | 48 | ||||||||||||||||
Actual return on assets held at end of year | (2) | ||||||||||||||||
Balance at September 30, 2021 | $ | 58 |
(In millions) | Fair value at NAV | Unfunded commitments |
Redemption frequency
(if currently eligible) |
Redemption notice period | ||||||||||||||||||||||
Long/short hedge funds | $ | 2 | $ | — |
None (a)
|
None (a)
|
||||||||||||||||||||
Relative value hedge funds | 3 | — |
None (b)
|
None (b)
|
||||||||||||||||||||||
Event driven hedge funds | 1 | — |
None (b)
|
None (b)
|
||||||||||||||||||||||
Collective trust funds | 299 | — | Daily |
Up to 3 days
|
||||||||||||||||||||||
9 | — | Monthly | 5 days | |||||||||||||||||||||||
8 | — |
N/A (c)
|
N/A (c)
|
|||||||||||||||||||||||
Private equity | 5 | 2 |
None (d)
|
None (d)
|
||||||||||||||||||||||
$ | 327 | $ | 2 | |||||||||||||||||||||||
Target | 2021 | 2020 | ||||||||||||||||||
Plan assets allocation | ||||||||||||||||||||
Equity securities |
15-25%
|
11 | % | 18 | % | |||||||||||||||
Debt securities |
65-85%
|
85 | % | 80 | % | |||||||||||||||
Other |
0-20%
|
4 | % | 2 | % | |||||||||||||||
Total | 100 | % | 100 | % |
(In millions) | Pension benefits | Other postretirement benefits | ||||||||||||
2022 | $ | 145 | $ | 5 | ||||||||||
2023 | 145 | 4 | ||||||||||||
2024 | 141 | 4 | ||||||||||||
2025 | 139 | 3 | ||||||||||||
2026 | 138 | 3 | ||||||||||||
2027 - 2031 | 651 | 14 | ||||||||||||
Total | $ | 1,359 | $ | 33 |
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Stock appreciation rights | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||
Nonvested stock awards (a)
|
14 | 11 | 9 | |||||||||||||||||
Total stock-based compensation expense, pre-tax
|
15 | 12 | 10 | |||||||||||||||||
Tax benefit | (4) | (3) | (2) | |||||||||||||||||
Total stock-based compensation expense, net of tax | $ | 11 | $ | 9 | $ | 8 | ||||||||||||||
Number of shares
(in thousands) |
Weighted average grant date fair value per share | |||||||||||||
Unvested shares as of September 30, 2020
|
1,668 | $ | 20.89 | |||||||||||
Granted | 520 | $ | 22.33 | |||||||||||
Performance adjustments (a)
|
126 | $ | 22.96 | |||||||||||
Vested | (288) | $ | 22.69 | |||||||||||
Forfeited | (58) | $ | 21.85 | |||||||||||
Unvested shares as of September 30, 2021
|
1,968 | $ | 21.50 | |||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||
Weighted average grant date fair value per share | $ | 21.81 | $ | 23.21 | $ | 21.22 | ||||||||||||||
Assumptions (weighted average) | ||||||||||||||||||||
Risk-free interest rates (a)
|
0.2 | % | 1.6 | % | 2.8 | % | ||||||||||||||
Expected dividend yield | 2.3 | % | 2.1 | % | 1.3 | % | ||||||||||||||
Expected volatility (b)
|
42.0 | % | 26.0 | % | 26.8 | % | ||||||||||||||
Expected term (in years) | 3.0 | 3.0 | 3.0 | |||||||||||||||||
(In millions, except weighted average) | 2021 | 2020 | 2019 | |||||||||||||||||
Total grant date fair value of shares vested | $ | 7 | $ | 5 | $ | 12 | ||||||||||||||
Weighted average grant date fair value | $ | 22.33 | $ | 22.17 | $ | 20.72 |
(In millions, except per share data) | 2021 | 2020 | 2019 | |||||||||||||||||
Numerator | ||||||||||||||||||||
Net income | $ | 420 | $ | 317 | $ | 208 | ||||||||||||||
Denominator | ||||||||||||||||||||
Weighted average common shares outstanding
|
182 | 187 | 189 | |||||||||||||||||
Effect of potentially dilutive securities (a)
|
1 | 1 | — | |||||||||||||||||
Weighted average diluted shares outstanding | 183 | 188 | 189 | |||||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic | $ | 2.30 | $ | 1.70 | $ | 1.10 | ||||||||||||||
Diluted | $ | 2.29 | $ | 1.69 | $ | 1.10 | ||||||||||||||
(In millions) | Unamortized benefit plan credits | Currency translation adjustments | Changes in fair value of cash flow hedges | Total | ||||||||||||||||||||||
Balance as of September 30, 2019 | $ | 34 | $ | (23) | $ | — | $ | 11 | ||||||||||||||||||
Other comprehensive income (loss) before reclassification | — | 6 | (1) | 5 | ||||||||||||||||||||||
(Gain) loss reclassified out of accumulated other comprehensive income | (12) | 1 | — | (11) | ||||||||||||||||||||||
Tax expense | 3 | — | — | 3 | ||||||||||||||||||||||
Balance as of September 30, 2020 | 25 | (16) | (1) | 8 | ||||||||||||||||||||||
Other comprehensive income before reclassification | — | 7 | 3 | 10 | ||||||||||||||||||||||
Gains reclassified out of accumulated other comprehensive income | (12) | — | (1) | (13) | ||||||||||||||||||||||
Tax expense | 3 | — | — | 3 | ||||||||||||||||||||||
Balance as of September 30, 2021 | $ | 16 | $ | (9) | $ | 1 | $ | 8 |
(in millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Amortization of pension and other postretirement plan prior service credits (a)
|
$ | (12) | $ | (12) | $ | (12) | ||||||||||||||
Loss (gain) on liquidation of subsidiaries (b)
|
— | 1 | (1) | |||||||||||||||||
Gain on cash flow hedges (c)
|
(1) | — | — | |||||||||||||||||
Tax effect of reclassifications | 3 | 3 | 3 | |||||||||||||||||
Total amounts reclassified, net of tax | $ | (10) | $ | (8) | $ | (10) | ||||||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Sales | ||||||||||||||||||||
Retail Services
|
$ | 1,221 | $ | 883 | $ | 822 | ||||||||||||||
Global Products
|
1,760 | 1,470 | 1,568 | |||||||||||||||||
Consolidated sales | $ | 2,981 | $ | 2,353 | $ | 2,390 | ||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
Retail Services
|
$ | 382 | $ | 247 | $ | 239 | ||||||||||||||
Global Products
|
327 | 309 | 296 | |||||||||||||||||
Total operating segments | 709 | 556 | 535 | |||||||||||||||||
Corporate (a)
|
(75) | (61) | (57) | |||||||||||||||||
Consolidated Adjusted EBITDA | 634 | 495 | 478 | |||||||||||||||||
Reconciliation to income before income taxes: | ||||||||||||||||||||
Net interest and other financing expenses | (111) | (93) | (73) | |||||||||||||||||
Depreciation and amortization
|
(92) | (66) | (61) | |||||||||||||||||
Key items: (b)
|
||||||||||||||||||||
Net pension and other postretirement plan income (expenses)
|
126 | 59 | (60) | |||||||||||||||||
Net legacy and separation-related income (expenses) | 24 | 30 | (3) | |||||||||||||||||
LIFO (charge) credit | (41) | 15 | — | |||||||||||||||||
Business interruption recovery (expenses) | 3 | 2 | (6) | |||||||||||||||||
Compensated absences benefits change | — | 11 | — | |||||||||||||||||
Acquisition and divestiture-related (costs) income
|
— | (2) | 4 | |||||||||||||||||
Restructuring and related expenses
|
— | — | (14) | |||||||||||||||||
Income before income taxes | $ | 543 | $ | 451 | $ | 265 | ||||||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Retail Services | ||||||||||||||||||||
Company operations | ||||||||||||||||||||
Oil changes | $ | 657 | $ | 450 | $ | 407 | ||||||||||||||
Non-oil changes | 205 | 141 | 124 | |||||||||||||||||
Non-company operations | ||||||||||||||||||||
Franchise fees | 50 | 40 | 43 | |||||||||||||||||
Product sales | 309 | 252 | 248 | |||||||||||||||||
Total Retail Services | $ | 1,221 | $ | 883 | $ | 822 | ||||||||||||||
Global Products | ||||||||||||||||||||
Lubricants | $ | 1,570 | $ | 1,287 | $ | 1,364 | ||||||||||||||
Antifreeze | 119 | 104 | 121 | |||||||||||||||||
Filters | 13 | 13 | 12 | |||||||||||||||||
Chemicals and other | 58 | 66 | 71 | |||||||||||||||||
Total Global Products | $ | 1,760 | $ | 1,470 | $ | 1,568 |
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Retail Services | ||||||||||||||||||||
Company operations | $ | 862 | $ | 591 | $ | 531 | ||||||||||||||
Non-company operations | 359 | 292 | 291 | |||||||||||||||||
Total Retail Services | 1,221 | 883 | 822 | |||||||||||||||||
Global Products | ||||||||||||||||||||
Do-it-Yourself | 626 | 571 | 558 | |||||||||||||||||
Installer and other | 1,134 | 899 | 1,010 | |||||||||||||||||
Total Global Products | 1,760 | 1,470 | 1,568 | |||||||||||||||||
Consolidated sales | $ | 2,981 | $ | 2,353 | $ | 2,390 |
(In millions) | Retail Services | Global Products | Totals | |||||||||||||||||
Year ended September 30, 2021
|
||||||||||||||||||||
North America (a)
|
$ | 1,221 | $ | 1,052 | $ | 2,273 | ||||||||||||||
Europe, Middle East and Africa ("EMEA") | — | 219 | 219 | |||||||||||||||||
Asia Pacific | — | 358 | 358 | |||||||||||||||||
Latin America (a)
|
— | 131 | 131 | |||||||||||||||||
Total | $ | 1,221 | $ | 1,760 | $ | 2,981 | ||||||||||||||
Year ended September 30, 2020
|
||||||||||||||||||||
North America (a)
|
883 | $ | 945 | $ | 1,828 | |||||||||||||||
EMEA | — | 169 | 169 | |||||||||||||||||
Asia Pacific | — | 273 | 273 | |||||||||||||||||
Latin America (a)
|
— | 83 | 83 | |||||||||||||||||
Total | $ | 883 | $ | 1,470 | $ | 2,353 | ||||||||||||||
Year ended September 30, 2019
|
||||||||||||||||||||
North America (a)
|
$ | 822 | $ | 994 | $ | 1,816 | ||||||||||||||
EMEA | — | 181 | 181 | |||||||||||||||||
Asia Pacific | — | 285 | 285 | |||||||||||||||||
Latin America (a)
|
— | 108 | 108 | |||||||||||||||||
Total | $ | 822 | $ | 1,568 | $ | 2,390 | ||||||||||||||
Sales from external customers (a)
|
Property, plant and equipment, net (b)
|
|||||||||||||||||||||||||||||||||||||||||||
(In millions) | 2021 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||
United States | $ | 2,209 | $ | 1,775 | $ | 1,766 | $ | 700 | $ | 512 | ||||||||||||||||||||||||||||||||||
International | 772 | 578 | 624 | 117 | 101 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 2,981 | $ | 2,353 | $ | 2,390 | $ | 817 | $ | 613 | ||||||||||||||||||||||||||||||||||
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Cash and cash equivalents | $ | 230 | $ | 760 | $ | 159 | ||||||||||||||
Restricted cash (a)
|
1 | 1 | — | |||||||||||||||||
Total cash, cash equivalents and restricted cash | $ | 231 | $ | 761 | $ | 159 | ||||||||||||||
(In millions) | 2021 | 2020 | ||||||||||||
Current | ||||||||||||||
Trade | $ | 475 | $ | 409 | ||||||||||
Other | 16 | 14 | ||||||||||||
Notes receivable from franchisees | 10 | 13 | ||||||||||||
Receivables, gross | 501 | 436 | ||||||||||||
Allowance for credit losses | (5) | (3) | ||||||||||||
Receivables, net | $ | 496 | $ | 433 | ||||||||||
Non-current (a)
|
||||||||||||||
Notes receivable from franchisees | $ | — | $ | 13 | ||||||||||
Other notes receivable | 3 | 8 | ||||||||||||
Noncurrent notes receivable, gross | 3 | 21 | ||||||||||||
Allowance for losses | (3) | (4) | ||||||||||||
Noncurrent notes receivable, net | $ | — | $ | 17 | ||||||||||
(In millions) | 2021 | 2020 | ||||||||||||
Finished products | $ | 276 | $ | 195 | ||||||||||
Raw materials, supplies and work in process | 49 | 30 | ||||||||||||
Reserve for LIFO cost valuation | (67) | (26) | ||||||||||||
Total inventories, net | $ | 258 | $ | 199 |
(In millions) | 2021 | 2020 | ||||||||||||
Land | $ | 130 | $ | 96 | ||||||||||
Buildings
|
607 | 412 | ||||||||||||
Machinery and equipment | 564 | 494 | ||||||||||||
Construction in progress | 71 | 101 | ||||||||||||
Total property, plant and equipment | 1,372 | 1,103 | ||||||||||||
Accumulated depreciation | (555) | (490) | ||||||||||||
Net property, plant and equipment | $ | 817 | $ | 613 |
(In millions) | 2021 | 2020 | ||||||||||||
Land | $ | 64 | $ | 34 | ||||||||||
Buildings
|
134 | 43 | ||||||||||||
Total finance lease assets | 198 | 77 | ||||||||||||
Accumulated depreciation | (21) | (10) | ||||||||||||
Net finance lease assets | $ | 177 | $ | 67 |
(In millions) | 2021 | 2020 | 2019 | |||||||||||||||||
Depreciation (includes finance and capital leases) | $ | 76 | $ | 56 | $ | 52 |
3.1 | - | |||||||
3.2 | - | |||||||
4.1 | - | |||||||
4.2 | - | |||||||
4.3 | - | |||||||
4.5* | - |
10.1 | - | |||||||
10.2 | - | |||||||
10.3 | - | |||||||
10.4 | - | |||||||
10.5 | - | |||||||
10.6 | - | |||||||
10.7 | - | |||||||
10.8 | - | |||||||
10.9 | - | |||||||
10.10 | - | |||||||
10.11 | - | |||||||
10.12 | - | |||||||
10.13 | - | |||||||
10.14 | - | |||||||
10.15 | - | |||||||
10.16 | - | |||||||
10.17 | - | |||||||
10.18 | - | |||||||
10.19 | - | |||||||
10.20 | - | |||||||
10.34 | - | |||||||
10.35 | - | |||||||
10.36 | - | |||||||
21* | - | |||||||
23.1* | - | |||||||
24* | - | |||||||
31.1* | - | |||||||
31.2* | - | |||||||
32* | - | |||||||
101.INS | - | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||
101.SCH | - | XBRL Taxonomy Extension Schema Document. | ||||||
101.CAL | - | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||
101.DEF | - | XBRL Taxonomy Extension Definition Linkbase Document. | ||||||
101.LAB | - | XBRL Taxonomy Extension Label Linkbase Document. | ||||||
101.PRE | - | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||
104 | - | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | ||||||
VALVOLINE INC. | ||||||||||||||||||||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||||||||||||||||||||
For the years ended September 30, 2021, 2020 and 2019 | ||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||
(A) | (B) | (C) | (D) | (E) | ||||||||||||||||||||||
Additions | ||||||||||||||||||||||||||
Description | Balance at beginning of period | Charged to expenses | Charged to other accounts | Deductions | Balance at end of period | |||||||||||||||||||||
Current allowance for credit losses | ||||||||||||||||||||||||||
Year ended September 30, 2021 | $ | 3 | $ | 1 | $ | 1 | $ | — | $ | 5 | ||||||||||||||||
Year ended September 30, 2020 | $ | 3 | $ | 1 | $ | (1) | $ | — | $ | 3 | ||||||||||||||||
Year ended September 30, 2019 | $ | 4 | $ | — | $ | — | $ | (1) | $ | 3 | ||||||||||||||||
Allowances for loan losses | ||||||||||||||||||||||||||
Year ended September 30, 2021 | $ | 4 | $ | 1 | $ | (2) | $ | — | $ | 3 | ||||||||||||||||
Year ended September 30, 2020 | $ | 2 | $ | 1 | $ | 1 | $ | — | $ | 4 | ||||||||||||||||
Year ended September 30, 2019 | $ | — | $ | — | $ | 2 | $ | — | $ | 2 | ||||||||||||||||
Inventory excess and obsolete reserves | ||||||||||||||||||||||||||
Year ended September 30, 2021 | $ | 4 | $ | — | $ | — | $ | — | $ | 4 | ||||||||||||||||
Year ended September 30, 2020 | $ | 3 | $ | 1 | $ | — | $ | — | $ | 4 | ||||||||||||||||
Year ended September 30, 2019 | $ | 3 | $ | — | $ | — | $ | — | $ | 3 | ||||||||||||||||
Deferred tax asset valuation allowance | ||||||||||||||||||||||||||
Year ended September 30, 2021 | $ | 30 | $ | 1 | $ | 1 | $ | — | $ | 32 | ||||||||||||||||
Year ended September 30, 2020 | $ | 2 | $ | 29 | $ | — | $ | (1) | $ | 30 | ||||||||||||||||
Year ended September 30, 2019 | $ | 7 | $ | — | $ | — | $ | (5) | $ | 2 |
VALVOLINE INC. | |||||
(Registrant) | |||||
By: | |||||
/s/ Mary E. Meixelsperger | |||||
Mary E. Meixelsperger | |||||
Chief Financial Officer | |||||
Date: November 19, 2021 |
Signatures | Capacity | |||||||
/s/ Samuel J. Mitchell, Jr. | Chief Executive Officer and Director | |||||||
Samuel J. Mitchell, Jr. | (Principal Executive Officer) | |||||||
/s/ Mary E. Meixelsperger | Chief Financial Officer | |||||||
Mary E. Meixelsperger | (Principal Financial Officer) | |||||||
/s/ Michael S. Ryan | Chief Accounting Officer and Controller | |||||||
Michael S. Ryan | (Principal Accounting Officer) | |||||||
* | Chairman of the Board and Director | |||||||
Stephen F. Kirk | ||||||||
* | Director | |||||||
Gerald W. Evans, Jr. | ||||||||
* | Director | |||||||
Richard J. Freeland | ||||||||
* | Director | |||||||
Carol H. Kruse | ||||||||
* | Director | |||||||
Stephen E. Macadam | ||||||||
* | Director | |||||||
Vada O. Manager | ||||||||
* | Director | |||||||
Charles M. Sonsteby | ||||||||
* | Director | |||||||
Mary J. Twinem |
*By: | /s/ Julie M. O’Daniel | ||||
Julie M. O’Daniel | |||||
Attorney-in-Fact | |||||
Date: | November 19, 2021 |
Name | Jurisdiction of Incorporation | ||||
2209196 Alberta Inc. | Alberta, Canada | ||||
10070217 Manitoba LTD. | Manitoba, Canada | ||||
Ellis Enterprises B.V. | Netherlands | ||||
Ellis Enterprises East doo Kruševac | Serbia | ||||
Funding Corp. I | Delaware | ||||
Integral Defense, LLC | Delaware | ||||
LEX Capital LLC | Delaware | ||||
Lubricantes Andinos "Lubrian S. A." | Ecuador | ||||
Lubrival S. A. | Ecuador | ||||
OCH International, Inc. | Oregon | ||||
OCHI Advertising Fund LLC | Oregon | ||||
OCHI Holdings II LLC | Oregon | ||||
OCHI Holdings LLC | Oregon | ||||
PT. Valvoline Lubricants and Chemicals Indonesia | Indonesia | ||||
Qingdao Valvoline Automotive Services Co., Ltd. | China | ||||
Relocation Properties Management LLC | Delaware | ||||
Shanghai VC Lubricating Oil Co., Ltd. | China | ||||
VCA Solutions, LLC | Delaware | ||||
V C Lubricating Oil Co. Ltd. | Hong Kong | ||||
Valvoline (Australia) Pty. Limited | Australia | ||||
Valvoline (Deutschland) GmbH | Germany | ||||
Valvoline (Shanghai) Chemical Co., Ltd | China | ||||
Valvoline (Thailand) Ltd. | Thailand | ||||
Valvoline (Zhangjiagang) Lubricants Co., Ltd. | China | ||||
Valvoline Branded Finance, Inc. | Delaware | ||||
Valvoline Canada Corp. | Nova Scotia | ||||
Valvoline Canada Holdings B.V. | Netherlands | ||||
Valvoline Canadian Franchising Corp. | British Columbia | ||||
Valvoline Cummins Argentina S.A. | Argentina | ||||
Valvoline Cummins Private Limited | India | ||||
Valvoline de Colombia S.A.S. | Colombia | ||||
Valvoline Eurasia LLC | Russian Federation |
Valvoline Europe Holdings LLC | Delaware | ||||
Valvoline Holdings B.V. | Netherlands | ||||
Valvoline Holdings Pte. Ltd. | Singapore | ||||
Valvoline Indonesia Holdings LLC | Delaware | ||||
Valvoline Instant Oil Change Franchising, Inc. | Delaware | ||||
Valvoline International de Mexico, S. de R.L. de C.V. | Mexico | ||||
Valvoline International Holdings Inc. | Delaware | ||||
Valvoline International Servicios de Mexico, S. de R.L. de C.V. | Mexico | ||||
Valvoline International, Inc. | Delaware | ||||
Valvoline Investments B.V. | Netherlands | ||||
Valvoline Italy S.r.l. | Italy | ||||
Valvoline Junior Holdings LLC | Delaware | ||||
Valvoline Licensing and Intellectual Property LLC | Delaware | ||||
Valvoline LLC | Delaware | ||||
Valvoline Lubricants & Solutions India Private Limited | India | ||||
Valvoline New Zealand Limited | New Zealand | ||||
Valvoline Poland Sp. z o.o. | Poland | ||||
Valvoline Pte. Ltd. | Singapore | ||||
Valvoline Quick Lube Corp. | British Columbia | ||||
Valvoline South Africa Proprietary Limited | South Africa | ||||
Valvoline Spain, S.L. | Spain | ||||
Valvoline UK Limited | United Kingdom | ||||
Valvoline US LLC | Delaware | ||||
VIOC Funding, Inc. | Delaware |
/s/ Stephen F. Kirk
|
/s/ Stephen E. Macadam | |||||||
Stephen F. Kirk
|
Stephen E. Macadam | |||||||
Chairman of the Board and Director
|
Director | |||||||
/s/ Gerald W. Evans, Jr. | /s/ Vada O. Manager | |||||||
Gerald W. Evans, Jr. | Vada O. Manager | |||||||
Director | Director | |||||||
/s/ Richard J. Freeland | /s/ Charles M. Sonsteby | |||||||
Richard J. Freeland | Charles M. Sonsteby | |||||||
Director | Director | |||||||
/s/ Carol H. Kruse | /s/ Mary J. Twinem | |||||||
Carol H. Kruse | Mary J. Twinem | |||||||
Director |
Director
|
|||||||
1. | I have reviewed this Annual Report on Form 10-K of Valvoline Inc.; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||||
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Samuel J. Mitchell, Jr. | |||||
Samuel J. Mitchell Jr. | |||||
Chief Executive Officer and Director | |||||
(Principal Executive Officer) |
1. | I have reviewed this Annual Report on Form 10-K of Valvoline Inc.; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||||
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Mary E. Meixelsperger | |||||
Mary E. Meixelsperger | |||||
Chief Financial Officer | |||||
(Principal Financial Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Samuel J. Mitchell, Jr. | |||||
Samuel J. Mitchell, Jr.
Chief Executive Officer and Director
November 19, 2021
|
|||||
|
|||||
/s/ Mary E. Meixelsperger | |||||
Mary E. Meixelsperger
Chief Financial Officer
November 19, 2021
|