A N N U A L R E P O R T
2 0 2 3
Forward-Looking Statements:
Certain statements in this Annual Report, other than statements of historical fact, including estimates, projections and statements related to
our business plans and operating results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. We have identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is
likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should,” and “intends” and the negative of these words or other comparable
terminology. These forward-looking statements are based on our current expectations, estimates, projections and assumptions as of the date
such statements are made and are subject to risks and uncertainties that may cause results to differ materially from those expressed or
implied in the forward-looking statements. Additional information regarding these risks and uncertainties are described in our Form 10-K,
which has been included in this Annual Report and is available on our website at http://investors.valvoine.com/sec-filings and on the SEC’s
website at http://www.sec.gov. We assume no obligation to update or revise these forward-looking statements for any reason, even if new
information becomes available in the future, unless required by law.
Non-GAAP Measures:
This Annual Report includes certain financial measures that do not conform to generally accepted accounting principles in the U.S. (U.S.
GAAP), and should not be construed as an alternative to the reported results determined in accordance with U.S. GAAP. Management believes
including this non-GAAP information assists investors in understanding the ongoing operating performance of Valvoline’s business by
presenting comparable financial results between periods. The non-GAAP information provided may not be consistent with the methodologies
used by other companies. Information regarding Valvoline’s definitions, calculations and reconciliation of non-GAAP measures is included in
the fiscal 2023 form 10-K, which has been enclosed with this Annual Report.
DEAR VALVOLINE INC. STAKEHOLDERS,
Fiscal year 2023 was a transformational year for Valvoline Inc., as it was our first year as a pure play retail business. We added 137 stores
to bring our total system store count to 1,852 service centers. Revenues increased nearly 17% to $1.4 billion from 17% higher system-
wide store sales which increased to $2.8 billion. System-wide same store sales saw strong and consistent growth across the network of
11.9%. From a profit perspective, income from continuing operations grew over 80% to $199 million and adjusted EBITDA expanded 20%
to $380 million.
In addition to delivering strong results, we completed the sale of our Global Products business for $2.65 billion in cash and made
substantial progress on our commitment to increase shareholder value by returning $1.5 billion to shareholders through share
repurchases made this year. We also successfully completed a leadership transition with former CEO Sam Mitchell’s retirement in
September after a stellar 21-year legacy of leading the Valvoline business.
As the leader in automotive preventive maintenance, Valvoline has a proven track record of growth, with fiscal 2023 marking a
phenomenal 17th consecutive year of positive system-wide same-store sales. We have a simple, but highly effective formula for
continuing to deliver long-term value for our shareholders, including:
1. Drive full potential in the core business. We continue to invest in our people, processes and technology to strengthen our ability to
efficiently deliver Quick, Easy, Trusted service across all of our stores – every day. The result is a consistent customer experience which
drives retention and ticket growth. In addition, our marketing sophistication continues to be a standout in the automotive services industry.
This, along with our strong brand, helps us drive new customer acquisition.
2. Accelerate network growth. Both our team and our franchise partners recognize the significant opportunity we have to expand our
store footprint. Auto care remains a growing, highly fragmented market that offers significant whitespace for expansion. We see potential
to grow our store network to 3,500 plus stores, with a focus on accelerated franchise growth. We continue to target 250 new store openings
by 2027 with 150 of those coming from franchise. There are multiple levers to fuel this growth including partnering with our existing
franchisees, adding new franchise partners and building ground-up stores and opportunistic acquisitions.
3. Target customer & service expansion. As a more than 150-year-old brand, Valvoline has a history of innovating to meet the changing
needs of the customer and the evolving car parc. One example today is the opportunity to continue growth in our fleet business. Our
quick, easy, trusted service is not only convenient for fleet owners but helps keep their vehicles safe and on the road. Another focus is on
our non-oil-change service penetration. As we think about the needs of an evolving car parc, it will be increasingly important for us to
help customers understand the preventive maintenance needs of their vehicle, regardless of engine type (ICE, EV or hybrid) and offer a
convenient, trusted way to meet those needs.
This proven formula will drive higher revenue, strong margins, free cash flow and attractive return on invested capital.
The key to this success starts with our people. I want to sincerely thank our talented team of more than 10,000 and our strong franchise
partners for the hard work that delivered these results in fiscal 2023.
We have a resilient and durable business and I’m excited about the momentum we are taking into fiscal 2024!
Sincerely,
Lori Flees
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ 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
For the fiscal year ended September 30, 2023
OR
For the transition period from _________ to ___________
Commission file number 001-37884
VALVOLINE INC.
Kentucky
(State or other jurisdiction of incorporation or organization)
30-0939371
(I.R.S. Employer Identification No.)
100 Valvoline Way, Suite 100
Lexington, Kentucky 40509
Telephone Number (859) 357-7777
Title of each class
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
Name of each exchange on which registered
Common stock, par value $0.01 per share
VVV
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☑ No ☐
Yes ☐ No ☑
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 ☑ No ☐
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 ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer
Non-accelerated filer
☑
☐
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of voting common stock held by non-affiliates at March 31, 2023 was approximately $5.9 billion. At November 15, 2023,
there were 130,650,040 shares of common stock outstanding.
Portions of the registrant’s definitive proxy statement for its 2024 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference
into Part III of this Annual Report on Form 10-K and will be filed within 120 days of the registrant’s fiscal year end.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of
Operation
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
2
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K, other than statements of historical fact, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may include, without limitation, executing on its growth strategy to create shareholder value by driving
the full potential in the Company’s core business, accelerating network growth and innovating to meet the needs of
customers and the evolving car parc; realizing the benefits from the sale of Global Products; and future
opportunities for the remaining stand-alone retail business; and any other statements regarding Valvoline's future
operations, financial or operating results, capital allocation, debt leverage ratio, anticipated business levels, dividend
policy, anticipated growth, market opportunities, strategies, competition, and other expectations and targets for
future periods. Valvoline has identified some of these forward-looking statements with words such as “anticipates,”
“believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should,” and “intends,”
and the negative of these words or other comparable terminology. These forward-looking statements are based on
Valvoline’s current expectations, estimates, projections, and assumptions as of the date such statements are made
and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied
in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those
discussed under the headings “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K,
“Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Item 7 of Part II of this
Annual Report on Form 10-K and “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of Part II
of this Annual Report on Form 10-K. Valvoline assumes no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes available in the future, unless required by law.
3
PART I
ITEM 1. BUSINESS
Overview
Valvoline Inc. is a leader in automotive preventive maintenance delivering convenient and trusted services in its
retail stores throughout the United States (“U.S.”) and Canada. The terms “Valvoline,” the “Company,” “we,” “us,”
“management,” and “our” as used herein refer to Valvoline Inc., its predecessors and its consolidated subsidiaries,
except where the context indicates otherwise.
As the quick, easy, trusted leader in automotive preventive maintenance, Valvoline is creating shareholder value by
driving the full potential of its core business, accelerating network growth and innovating to meet the needs of
customers and the evolving car parc. With average customer ratings that indicate high levels of service satisfaction,
Valvoline and the Company’s franchise partners keep customers moving with 15-minute stay-in-your-car oil
changes; battery, bulb and wiper replacements; tire rotations; and other manufacturer recommended maintenance
services. The Company operates and franchises more than 1,850 service center locations through its Valvoline
Instant Oil ChangeSM (“VIOC”) and Valvoline Great Canadian Oil Change (“GCOC”) retail locations and supports
nearly 300 locations through its Express CareTM platform. For over 15 decades, Valvoline has consistently adapted
to address changing technologies and customer needs and is well positioned to service evolving vehicle
maintenance needs with its growing network of stores.
Company background
Established in 1866, Valvoline has a history of innovation spanning more than 155 years when Dr. John Ellis
founded Valvoline by discovering the lubricating properties of distilled crude oil and formulated the world's first
petroleum-based lubricant. Valvoline was trademarked seven years later in 1873, making it the first trademarked
motor oil brand in the U.S. Soon thereafter, as vehicle ownership rapidly grew, Valvoline became widely known in
the automotive world through racing victories and as a recommended oil for the iconic Ford Model T, while
expanding its product offerings and global reach through its innovative automotive maintenance and heavy-duty
engine applications.
Valvoline was acquired by Ashland (currently doing business as Ashland Inc., and together with its predecessors
and consolidated subsidiaries, referred to herein as “Ashland”), in 1950 and continued accelerating through the
development of all-climate and racing motor oils, in addition to supporting notable automobile racing victories by
some of the biggest legends of the sport. By the late 1980s, Valvoline began operating and franchising VIOC
service center stores, expanding into consumer-focused automotive preventive maintenance and quick lube
services. Valvoline maintained its focus on innovating for evolving vehicle technologies and the needs of customers
through the late 1990s and early 2000s by introducing synthetic and high-mileage motor oils.
Valvoline was incorporated in May 2016 as a subsidiary of Ashland, followed by the transfer of the Valvoline
business and certain other legacy Ashland assets and liabilities from Ashland to Valvoline. Valvoline completed its
initial public offering of common stock in September 2016, and Ashland distributed its remaining ownership interest
in Valvoline in May 2017 (the “Distribution”). Today, Valvoline operates as an independent corporation that trades
on the New York Stock Exchange (“NYSE”) under the symbol “VVV,” as a pure play automotive retail services
provider focused on delivering quick and convenient vehicle maintenance services to further accelerate its growth.
Discontinued operations
On March 1, 2023, Valvoline completed the sale of its former Global Products reportable segment (“Global
Products”) to Aramco Overseas Company B.V. (“Aramco” or the “Buyer”) (the “Transaction”). Refer to Note 3
included within the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on
Form 10-K for additional information regarding the Global Products business, including the assets and liabilities
divested and income from discontinued operations.
4
Valvoline’s retail services
Valvoline operates and franchises more than 1,850 service center locations through its VIOC and GCOC retail
locations and supports nearly 300 locations through its Express Care platform. The Company has built a reputation
as the quick, easy, trusted name in automotive preventive maintenance and continues to build its market share by
leveraging its stay-in-your-car service model and providing each customer with service that can be seen by experts
they can trust. Valvoline technicians utilize the Company’s proprietary SuperProTM system to deliver a superior
customer experience and make timely service recommendations based upon vehicle service history and original
equipment manufacturer (“OEM”) recommendations. The SuperPro system is utilized in both company-operated
and franchised service center locations, creating a consistent service experience for customers.
The following summarizes the primary services Valvoline offers at its retail service center stores:
Valvoline’s services are offered to a wide range of vehicle types, including fleets, as shown below:
Industry overview
Demand for automotive aftermarket services benefits from the growing number and age of vehicles in operation as
well as increasing vehicle complexity and ongoing increases in miles driven. In addition, the resilient North
American automotive aftermarket services market is highly fragmented, which creates a significant opportunity for
5
consolidation. Based on industry surveys and management estimates, the U.S. Do It For Me (“DIFM”) total
addressable market depicted below demonstrates the magnitude of the opportunity in the U.S. for Valvoline:
(a) VIOC oil changes in fiscal year 2023 (U.S. company and franchised stores)
(b) Management estimates developed utilizing internal and industry data for U.S. passenger car and light truck quick lube and DIFM oil
changes
Business and growth strategies
As a pure play automotive retail services provider and the trusted leader in preventive automotive maintenance,
Valvoline is well positioned to create long-term shareholder value through executing the Company’s strategic
initiatives, which include:
•
•
•
Driving the full potential of the core business through increasing market share and non-oil change revenue
growth in existing stores by building on Valvoline’s strong foundation in marketing, technology, and data.
Aggressively growing the retail footprint with company-operated store growth and an increased emphasis
on franchisee store growth; and
Developing capabilities to capture new customers through services expansion focused on fleet manager
needs and needs of the evolving car parc.
6
Retail store development
Valvoline’s network of retail service centers delivered its 17th consecutive year of system-wide same-store sales
(“SSS”) growth in fiscal 2023, demonstrating the system's operational excellence. As shown below, Valvoline
operates, either directly or through its franchisees, 1,852 service center stores across the U.S. and Canada as of
September 30, 2023:
l Company-operated
l Franchised
Valvoline utilizes a three-pronged approach to grow its retail network through 1) franchisee store expansion 2)
opportunistic acquisitions, and 3) new store development. This approach drove system-wide store growth of more
than 30% over the last five years. During this period, Valvoline added 467 net new stores to the system and
expanded its service centers internationally into Canada. The retail services store network and its same-store sales
growth in each of the last five years is summarized below:
System-wide Store Count (a)
System-wide SSS Growth (a)
1,385
866
1,462
878
519
584
1,594
875
1,715
925
1,852
976
21.2%
719
790
876
10.1%
13.7%
11.9%
2019
2020
2021
2022
2023
2.3%
Company (b)
Franchise
2019
2020
2021
2022
2023
7
(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 SSS. Measures include franchisees, which 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.
Competition
The automotive aftermarket service industry is highly fragmented and Valvoline faces competition across its service
categories and subcategories. Competition is based on several key criteria, including brand recognition, product
selection, quality of service, price, convenience, speed, location, and customer experience, in addition to the ability
to deliver innovative services to meet evolving customer needs. Valvoline competes for customers with automotive
dealerships, automotive repair and maintenance centers, as well as other regional and independent quick lube
operators.
Additionally, Valvoline’s retail stores compete for consumers and franchisees with other major franchised brands
that offer a turn-key operations management system, such as Jiffy Lube, Grease Monkey, Take 5 Oil Change,
Express Oil Change, and Mr. Lube in Canada. Valvoline competes with other franchisors in automotive services and
across other industries on the basis of the expected return on investment and the value propositions offered to
franchisees.
Valvoline also competes for Express Care operators and customers with national branded companies that offer an
independent quick lube platform with a professional signage program and limited business model support.
Marketing and customer experience
Valvoline places a high priority on delivering an in-store customer experience that is quick, easy, and trusted. To
both acquire and retain customers, marketing plays an important role in demonstrating the differentiated experience
that Valvoline offers customers, as well as providing information on locations, pricing and services offered.
Techniques utilized by the Company are intended to build awareness of and create demand for its automotive
preventive maintenance services. Valvoline markets through search and direct response channels and invests in
advertising through social and digital media. The Company’s digital modeling marketing strategies are efficient and
yield strong rates of return.
Valvoline leverages its digital tools to obtain customer feedback across the retail network of stores. Customer
feedback is frequently measured and monitored to ensure that any service issues are quickly addressed to maintain
high levels of customer satisfaction. Valvoline also utilizes its digital infrastructure and technology to more efficiently
interact with customers, driving customer engagement, acquisition and retention, and consistency. The Company's
strengths in digital marketing and data analytics are leveraged to attract new and retain existing customers,
including tailored marketing campaigns directed to specific customers when their next service is estimated to be
due.
Intellectual property
Valvoline holds approximately 260 trademarks in more than 60 countries across the world, including the Valvoline
and “V” brand logo trademarks. These trademarks have a perpetual life, are generally subject to renewal every ten
years, and are among Valvoline's most protected and valuable assets. With the completion of the sale of Global
Products, Valvoline owns the Valvoline brand for all global retail services, excluding China and certain countries in
the Middle East and North Africa, while Global Products owns the Valvoline brand for all products uses globally.
Valvoline partners with Global Products to ensure that Valvoline's iconic brand is managed in a consistent and
holistic manner.
Valvoline trade names and service marks used in its business include ValvolineTM and Valvoline Instant Oil
ChangeSM, among others. Valvoline is also party to arrangements that license its intellectual property to others in
return for revenues. Valvoline owns approximately 700 domain names that are used to promote Valvoline services
and provide information about the Company.
8
Product supply and price
The products used in Valvoline’s retail service delivery are principally sourced from Global Products. In connection
with the sale of its former reportable segment, Valvoline entered into a long-term supply agreement for the purchase
of substantially all lubricant and certain ancillary products for its stores from Global Products (the “Supply
Agreement”).
Valvoline is able to leverage its scale, as well as the scale of its suppliers, for favorable terms in the arrangement of
product supply for its store operations across the network. This benefit enhances the value proposition to new and
existing independent store operators as well as to the profits of Valvoline’s company store operations. Valvoline’s
arrangement of product supply for its independent operators provides recurring fees and margins that benefit
ongoing results. As Valvoline continues to grow organically and through acquisitions, the business is well-positioned
to continue driving increased benefits to the overall system of retail stores.
Valvoline works diligently to preserve margins by adjusting its pricing in response to changes in costs. The
Company’s customer value proposition focuses on convenience and quality service which provides the ability to
leverage pricing power to raise prices while maintaining customer loyalty. Pricing adjustments to products sold to
Valvoline's independent operators are made pursuant to their contracts and are generally based on movements in
published base oil indices.
Seasonality
Valvoline’s business is moderately impacted by seasonality. Transaction volumes follow driving patterns of
customers, which generally trend with the length of daylight hours, North American holidays, and vacation timing.
Weather conditions can modestly affect transaction volumes, and geographic variation typically limits weather
impacts to specific regions. As a result, the second half of the fiscal year ordinarily is more robust as miles driven
tends to be higher.
Regulatory and environmental matters
Valvoline operates to maintain compliance with various federal, provincial, state, and local laws and governmental
regulations relating to the operation of its business, including those regarding employment and labor practices;
workplace safety; building and zoning requirements; the handling, storage and disposal of hazardous substances
contained in the products used in service, including used motor oil and lead-acid batteries; and the ownership,
construction and operation of real property, among others. Valvoline maintains policies and procedures to control
risks and monitor compliance with applicable laws and regulations. These laws and regulations require Valvoline to
obtain and comply with permits, registrations or other authorizations issued by governmental authorities. These
authorities can modify or revoke the Company’s permits, registrations or other authorizations and can enforce
compliance through fines, sanctions and injunctions. The Company is also subject to regulation by various U.S.
federal regulatory agencies and by the applicable regulatory authorities in locations in which Valvoline’s services are
offered. Such regulations principally relate to the operation of its service centers, advertising and marketing of
Valvoline’s services.
Valvoline stores lubricating and vehicle maintenance products and handles used automotive oils and filters.
Accordingly, Valvoline is subject to numerous federal, provincial, state, and local environmental laws including the
Comprehensive Environmental Response Compensation and Liability Act. In addition, the U.S. Environmental
Protection Agency under the Resource Conservation and Recovery Act, as well as various state and local
environmental protection agencies, regulate the handling and disposal of certain waste products and other
materials.
As a franchisor, Valvoline is subject to various state and provincial laws, and the Federal Trade Commission (the
“FTC”) regulates franchising activities in the U.S. The FTC requires that franchisors make extensive disclosure to
prospective franchisees before the execution of a franchise agreement. Certain jurisdictions require registration or
specific disclosure in connection with franchise offers and sales, or have laws that limit franchisor rights with regard
to the termination, renewal or transfer of franchise agreements.
9
Valvoline is subject to laws relating to information security, privacy, cashless payments and customer credit,
protection and fraud. An increasing number of governments and industry groups have established data privacy laws
and standards for the protection of personal information, including financial information (e.g., credit card numbers),
social security numbers, and health information. The Company is also subject to labor and employment laws,
including regulations established by the U.S. Department of Labor and other local regulatory agencies, which sets
laws governing working conditions, paid leave, workplace safety, wage and hour standards, and hiring and
employment practices.
Human capital management
"It all starts with our people" is one of Valvoline's core values, and the Company endeavors to create an
environment that promotes safety, fosters diversity, encourages creativity, rewards performance, and emphasizes
culture and purpose. To recruit and retain the most qualified team members, Valvoline focuses on treating team
members well by paying competitive wages, offering an attractive benefit package, and providing robust training
and career development opportunities. Valvoline is committed to actively creating an environment where each team
member is empowered to learn, grow, and maximize their personal contribution.
As of September 30, 2023, Valvoline had more than 10,000 employees (excluding contract employees) in the U.S.
and Canada, including approximately 9,600 full-time employees. Valvoline operates 876 company-owned retail
service center stores throughout the U.S. and Canada and supports its network of over 1,850 stores through
centralized teams.
The table below provides the Company's approximate distribution of employees, which includes its company-
operated service center stores, central supporting teams, and excludes independent contractors:
Technicians
Store management
Customer service
Total company-operated store employees
Area and regional operations
Total retail services operations
Headquarter and remote corporate team members
Total employee headcount
Number of employees
8,600
1,100
200
9,900
400
10,300
600
10,900
Valvoline seeks to attract, develop, and retain highly qualified talent as summarized further below.
Employee communication and feedback
In an ongoing effort to understand employees’ needs and deliver on the Company’s values of trust, accountability
and collaboration, Valvoline remains focused on transparency and employee feedback. The Company regularly
hosts company-wide town halls in which Valvoline’s Chief Executive Officer and other members of senior
management inform employees about performance, strategic initiatives, activities, and policies along with providing
opportunities for them to ask questions. In addition, Valvoline management is focused on listening understand what
is on the minds of employees by regularly surveying team members to gather real-time feedback as well as
identifying opportunities for continuous improvement. During fiscal 2023, the Company also surveyed employees to
solicit feedback and address questions regarding the Transaction and maintained an intranet page dedicated to
communicating and establishing transparency throughout the separation process. Valvoline believes employee
survey results are important to evaluate areas for improved communication and are meaningful to recruit and retain
top talent, believing satisfied employees are more likely to have a positive impact in the workplace and deliver great
customer service.
10
Diversity, equity and inclusion (“DEI”)
Valvoline is committed to creating an inclusive and welcoming environment for its employees and customers by
fostering a strong sense of belonging, where diverse backgrounds are represented, engaged and empowered to
inspire innovative ideas and decisions. To help further promote an inclusive culture and to better serve customers,
the Company is focused on:
•
•
•
Promoting a culture of diversity and inclusion that leverages the talents of all employees,
Implementing practices that attract, recruit and retain diverse top talent.and
Demonstrating an investment in diversity and inclusion through diverse supplier spend, depositing cash in
federally-insured minority depository institutions ("MDIs") and through the Company's charitable giving
efforts.
As part of the Company's commitment to deposit cash in MDIs, Valvoline has invested $2.5 million of its cash
equivalents as of September 30, 2023 with MDIs.
In connection with the focus on equity, inclusion and belonging, Valvoline supports employee-led networking groups
(Employee Resource Groups or “ERGs”), which are open to all employees and include the Women’s, LGBTQ+,
African American/Black, and Veteran’s Networks. These ERGs provide a forum to communicate and exchange
ideas, build a network of relationships across the Company, and pursue personal and professional development.
Each ERG has four purpose pillars which include Engage, Educate, Development, and Impact.
The Company also actively sponsors events that promote diversity and utilizes its DEI Council, a working committee
to help steer diversity and inclusion efforts across the business and its operations. In fiscal 2023, Valvoline
established the Environmental, Social and Governance (“ESG”) and Equality Council (the “Council”), comprised of
senior leaders from the Company and a member of the Valvoline Board of Directors (the “Board”), to support
continued progress on ESG initiatives. The Council is overseen by and reports to the Board’s Governance and
Nominating Committee and works closely with Valvoline’s employee-driven DEI Council to focus on strengthening
Valvoline’s commitment to diversity, equity and inclusion. The Council works to further Valvoline’s efforts to
integrate sustainability into the Company’s business operations.
Talent acquisition
Valvoline strives to foster a workplace culture that attracts and retains top, diverse talent at every level. Valvoline's
talent acquisition is based on qualifications and experiences of target employees, including "building block" traits
and capabilities that support strong development early in an employee's career with the Company. In fiscal 2023,
Valvoline invested heavily in the talent acquisition team to ensure the Company has the right skill set to attract and
recruit exceptional diverse talent along with supporting technology to increase efficiency in staffing stores. Valvoline
utilizes innovative technology and structured processes intended to attract qualified candidates, including engaging
job descriptions designed to reach a larger audience, a quick and mobile-friendly application process, online chat
features to proactively address applicant questions, and video storytelling that offers a view of Valvoline's culture
through the lens of its own employees. These tools have been created to convey what makes Valvoline unique as
an employer to better attract diverse and ideal candidates, and these strong branding and sourcing efforts allow
Valvoline to select among the very best.
The Company’s focus on aggressive growth, including the addition of 137 net new system-wide stores in fiscal
2023, creates a critical need for talent to operate those stores. Valvoline utilizes its tools and processes to attract
qualified candidates, including providing support to franchise sourcing efforts. Franchisees collaborate through
periodic sharing of hiring experiences and best practices to ensure company-operated and franchised locations
attract and hire the best candidates to deliver consistent and superior service to Valvoline’s customers.
Training and development
The opportunity to develop and advance, regardless of job role or location, is critical to the success of Valvoline. A
key component of the Company’s talent development approach is to provide each team member with the necessary
tools and training opportunities to develop within their area of subject matter knowledge. The Company follows a
three-step process to career development planning, along with several resources designed to aid employees in
assessing competencies and designing a development plan specific to their goals. Across the organization,
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including within the VIOC and GCOC systems of company-operated and franchised service center stores,
employees are provided voluntary and compulsory regulatory, safety, compliance, customer service, and product
training opportunities. Training is based on job role and function, delivered via virtual or in-person classes and e-
learning. This includes management and leadership programs with approximately 20 hours of live training and
development for its new managers. In addition, an internal management system for executing Valvoline's retail
services provides a structured and detailed early learning training plan supported by a proprietary digital learning
platform. This plan provides new VIOC employees 270 hours of training that is generally completed within the first
60 days of employment leading to their first certification and another 240 hours of training in the next 140 days that
supports promotability.
Throughout the year, Valvoline provides an Introduction to Management program within its VIOC stores where
assistant managers who qualify as potential store managers meet for three days to interact with leadership team
members and peers from other stores to learn about Valvoline's culture, share best practices, and receive
management training to prepare them for career advancement. The combination of these efforts enable Valvoline to
continue a promote-from-within strategy which has led to a majority of service center managers, area managers,
and market manager promotions in the last year being earned by team members who started in hourly positions at
VIOC.
Valvoline also offers and has many partnerships to deliver quality development opportunities, including those with
leading universities, research organizations and companies. Employees have opportunities to attend seminars and
training programs provided by industry trade and professional organizations. Valvoline provides tuition assistance
for employees enrolled in higher education programs directed at improving their performance or helping them
prepare for a future role within the Company. By engaging team members early, Valvoline provides them with the
necessary tools to learn and acquire new skills which increases their value as an employee and, most importantly,
affords them the opportunity to advance their careers.
Valvoline has been presented with Training magazine’s Training APEX Award 11 times, which ranks companies
that are unsurpassed in harnessing human capital and reflects the winners’ journey to attain peak performance in
employee training and development and organizational success. Additionally, the Company is a ten-time recipient of
the BEST Award from The Association for Talent Development, that recognizes organizations that are Building
talent, Enterprise-wide and Strategically driving a Talent development culture that delivers results.
Total rewards
Taking care of the whole person is a guiding principle of Valvoline’s total rewards philosophy. The Company offers
competitive comprehensive compensation and benefits packages designed to care for the physical, emotional, and
financial well-being of its employees as well as to attract, retain and recognize its employees and is committed to
aligning rewards to performance. By compensating employees fairly and consistently based on their role, location,
and performance, Valvoline can ensure that employees are not paid based on factors like gender, race, or ethnicity.
The Company’s Compensation Committee of the Board is actively involved in determining competitive
compensation strategies to help Valvoline continually improve in attracting, developing and retaining top talent.
The Company provides a wide variety of benefits to eligible full-time and part-time employees. Valvoline’s strategy
is to provide competitive benefit programs which align to the changing business environment and meet the needs of
employees through all stages of life, which includes:
•
•
•
•
•
•
•
Affordable healthcare plans (medical, prescription, dental, vision, maternity, fertility, adoption and
telehealth)
Life, disability, and accident insurance coverage
Health savings account (HSA) with company contributions
401(k) retirement savings plans with generous company basic and matching contributions
Personalized well-being programs (physical, mental and financial) to support taking care of the whole
employee and family
Tuition reimbursement
Paid time off, plus holiday pay, paid disability, paid maternity and family leave, and other leave programs.
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Health and safety
Valvoline is committed to a zero-incident culture for its employees, vendors, and customers. The Company designs,
builds and operates its facilities to promote and protect the health and safety of its team members, known as its
"Vamily." Valvoline strives to create workplaces and practices in all environments that team members work in to
help foster a safe and secure environment for every employee and customer, which includes a sense of belonging
that enables them to deliver V-class service to customers. In order to help reduce the number of incidents at the
Company, Valvoline employs safety-specific education as part of its training programs. Employees will begin this
training on day one to instill safety precautions and best practices. As part of the broader training course, team
members are required to successfully complete execution reports confirming a strong understanding of Valvoline
safety measures.
In response to the COVID-19 pandemic, the Company implemented additional personal safety measures in all its
offices and facilities by offering expanded employee assistance, telehealth services, well-being plans, and a remote/
hybrid work policy. The Company continues to follow and communicate guidance provided by national, state and
local public and occupational health authorities.
Citizenship
Valvoline’s citizenship efforts support social and educational needs within the communities the Company serves.
Throughout the year, Valvoline supports its employees in volunteering their time and talents to give back to their
communities. Valvoline employees support the United Way, Red Cross, Children’s Miracle Network, Habitat for
Humanity, Big Brothers Big Sisters, and many more national and local organizations.
Valvoline's Charitable Giving Program encourages its team members to support the communities in which they live
and in which the Company operates, through hands-on service, focused generosity and the continuous pursuit of
innovative and sustainable solutions. A major focus of Valvoline’s charitable giving programs is the annual
employee giving campaign where employees are encouraged to donate to the charity of their choice. Valvoline’s
matching program will match the donations given to the organizations that align with at least one of the Company’s
giving pillars: (1) disadvantaged families and children, (2) education, (3) environment, (4) health care, and/or (5)
diversity, equity and inclusion. In fiscal 2023, the Company offered participation within the Valvoline Grant Program
which offered non-profits the opportunity to submit proposals for specific needs within their organization. Valvoline’s
Charitable Giving Committee awards the grants based on the Company’s giving pillars.
Additionally, Valvoline employees support a program that assists company employees during times of personal
hardship by providing short-term financial assistance to eligible service center and corporate employees in
immediate financial need because of an accident, illness, injury, death, natural disaster, or other catastrophic or
emergency event.
Available information
More information about Valvoline is available on the Company’s website at http://investors.valvoline.com. On this
website, Valvoline makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and any amendments to those reports, as well as any beneficial ownership
reports of officers and directors filed on Forms 3, 4 and 5. All such reports are available as soon as reasonably
practicable after they are electronically filed with, or electronically furnished to, the U.S. Securities and Exchange
Commission (the “SEC"). Valvoline also makes available, free of charge on its website, its Amended and Restated
Articles of Incorporation, By-Laws, Corporate Governance Guidelines, Board Committee Charters, Director
Independence Standards and the Global Standards of Business Conduct that apply to Valvoline’s directors, officers
and employees. These documents are also available in print to any shareholder who requests them. The
information contained on Valvoline’s website is not part of this Annual Report on Form 10-K and is not incorporated
by reference in this document. References to website addresses are provided as inactive textual references only.
The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and other information and
statements regarding issuers, including Valvoline, that file electronically with the SEC.
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Executive officers of Valvoline
The following table sets forth information concerning Valvoline's executive officers as of November 15, 2023:
Name
Lori A. Flees
Mary E. Meixelsperger
Julie M. O’Daniel
Jonathan L. Caldwell
R. Travis Dobbins
Linne R. Fulcher
Dione R. Sturgeon
Age Title
53 President and Chief Executive Officer and Director
63 Chief Financial Officer
56 Senior Vice President, Chief Legal Officer and Corporate Secretary
46 Senior Vice President and Chief People Officer
51 Senior Vice President and Chief Technology Officer
52 Senior Vice President and Chief Operating Officer
46 Chief Accounting Officer and Controller
Lori A. Flees has served as a director and President and Chief Executive Officer of Valvoline since October 2023.
Ms. Flees served as President, Retail Services of Valvoline from April 2022 to September 2023. Prior to joining
Valvoline, Ms. Flees held leadership positions at Walmart Inc., serving as Senior Vice President and Chief
Operating Officer of Health & Wellness from August 2020 to March 2022; Senior Vice President and General
Merchandising Manager, Sam’s Club Health & Wellness from June 2018 to August 2020; and Senior Vice
President, Next Generation Retail and Principal Store No.8 from September 2017 to June 2019.
Mary E. Meixelsperger has served as Valvoline's Chief Financial Officer since June 2016. Prior to joining Valvoline,
Ms. Meixelsperger was Senior Vice President and Chief Financial Officer of DSW Inc. from April 2014 to June 2016.
Julie M. O’Daniel has served as Senior Vice President, Chief Legal Officer and Corporate Secretary of Valvoline
since January 2017. Ms. O’Daniel served as General Counsel and Corporate Secretary of Valvoline from
September 2016 to January 2017 and as Lead Commercial Counsel of Valvoline from April 2014 to September
2016.
Jonathan L. Caldwell has served as Valvoline's Senior Vice President and Chief People Officer since April 2020.
Mr. Caldwell served as Senior Director, Human Resources of Valvoline from March 2018 to April 2020 and as
Senior Director, Global Talent Management of Valvoline from October 2016 to March 2018.
R. Travis Dobbins has served as Valvoline's Senior Vice President and Chief Technology Officer since March
2023. Mr. Dobbins served as Vice President of Information Technology of Valvoline from January 2019 to February
2023 and as Information Technology Director, Commercial Solutions from September 2016 to January 2019.
Linne R. Fulcher has served as Valvoline's Senior Vice President and Chief Operating Officer since October 2023.
Mr. Fulcher served as Vice President, Central Operations and Customer Experience Optimization from August 2022
to September 2023. Prior to joining Valvoline, Mr. Fulcher held leadership positions at Walmart Inc., serving as Vice
President Customer Strategy, Science and Journeys from October 2019 to August 2021; and Vice President
Returns from February 2017 to October 2019.
Dione R. Sturgeon has served as Valvoline's Chief Accounting Officer and Controller since March 2023. Ms.
Sturgeon served as Vice President, Corporate Controller from March 2022 to February 2023; as Senior Director,
Global Accounting, Reporting & Controls from October 2020 to March 2022; and as Director, Corporate Accounting
of Valvoline from August 2016 to October 2020.
ITEM 1A. RISK FACTORS
The following risks could materially and adversely affect Valvoline’s business, operations, financial position or future
financial performance. This information should be considered when reviewing this Annual Report on Form 10-K,
including Management’s Discussion and Analysis of Financial Condition and Results of Operations, in addition to
the consolidated financial statements and related notes thereto. These risk factors could cause future results to
differ from those in forward-looking statements and from historical trends.
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Risks related to the industries in which Valvoline operates
Valvoline faces significant competition from other companies, which places downward pressure
on prices and margins and may adversely affect Valvoline’s business and results of operations.
Valvoline operates in a highly competitive market, competing against a wide variety of companies across the
automotive services industry. Competition is based on several key criteria, including brand recognition, quality,
price, customer service, and the ability to bring innovative services to the marketplace. Competitors include
international, national, regional and local automotive repair and maintenance shops, automobile dealerships, and oil
change shops. Certain competitors are larger than Valvoline and have greater financial resources and more
diversified portfolios, leading to greater operating and financial flexibility. As a result, these competitors may be
better able to withstand adverse changes in conditions within the industry, market dynamics, the price of supplies or
general economic conditions. In addition, competitors’ pricing decisions could compel Valvoline to decrease its
prices, which could negatively affect Valvoline’s margins and profitability.
Rising and volatile supply costs and supply chain constraints or disruptions could adversely
affect Valvoline’s results of operations.
Valvoline’s service center locations require large quantities of automotive products and supplies. The Company’s
success depends in part on the ability to anticipate and react to changes in supply costs, and the Company is
susceptible to increases in primary and secondary supply costs as a result of factors beyond its control. These
factors include general economic conditions, including recessions, significant variations in supply and demand,
pandemics, armed conflicts, war, weather conditions, currency fluctuations where Valvoline operates, commodity
market speculation, labor strikes, including rail strikes, and government regulations. Higher product and supply
costs could reduce the Company’s profits, which in turn may adversely affect the business and results of operations
for both company-operated and franchised stores.
Additionally, should conditions such as supply chain congestion or availability related to severe weather or climate
conditions become severe or last for an extended period of time, Valvoline's inventory of supplies may not be
sufficient to meet customer demands. Government regulations related to the manufacture or transport of products
provided by the supplier may also impede Valvoline’s ability to obtain those supplies on commercially reasonable
terms. If Valvoline is unable to obtain and retain product supply under commercially acceptable terms, its ability to
deliver services in a competitive and profitable manner or grow its business successfully could be adversely
affected.
Demand for Valvoline’s services could be adversely affected by spending trends, declining
economic conditions, industry trends and a number of other factors, all of which are beyond its
control.
Demand for Valvoline’s services may be affected by a number of factors it cannot control, including the number and
age of vehicles in current service, regulation and legislation, technological advances in the automotive industry and
changes in engine technology, including the adoption rate of electric or other alternative engine technologies,
changing automotive OEM specifications and longer recommended intervals between services. In addition, during
periods of declining economic conditions, including recessions, customers may defer vehicle maintenance.
Similarly, increases in energy prices or other factors may cause miles driven to decline, resulting in less vehicle
wear and tear and lower demand for maintenance, which may lead to customers deferring purchases of Valvoline’s
services. All of these factors, which impact metrics such as drain intervals and vehicles served per day, could result
in a decline in the demand for Valvoline’s services and adversely affect its sales, cash flows and overall financial
condition.
Failure to develop and market new services and technologies could impact Valvoline’s
competitive position and have an adverse effect on its business and results of operations.
Valvoline’s efforts to respond to changes in customer demand in a timely and cost-efficient manner to drive growth
could be adversely affected by difficulties or delays in service innovation, including the inability to identify or gain
market acceptance of new service techniques. Due to the rigorous development process and intense competition,
there can be no assurance that any of the services Valvoline is currently developing, or could develop in the future,
15
will achieve substantial commercial success. Moreover, Valvoline may experience operating losses for new services
after they are introduced and commercialized because of start-up costs or lack of demand.
The automotive maintenance service industry is subject to periodic technological change and ongoing product
improvements. The adoption of electric vehicles is increasing, which reduces demand for lubricant services, but
expands the opportunity for other services required by electric vehicles, including coolants, fluids and greases. If
Valvoline is unable to develop and market services for electric vehicles, its business and results of operations could
be adversely impacted. As automotive technologies evolve, Valvoline could be required to comply with any new or
stricter laws or regulations, which could require additional expenditures by Valvoline that could adversely impact
business results.
Damage to Valvoline’s brand and reputation could have an adverse effect on its business.
Maintaining Valvoline’s strong reputation with customers is a key component of its business. Liability claims, false
advertising claims, service complaints, and governmental investigations could result in substantial and unexpected
expenditures and affect consumer or customer confidence in Valvoline's services, which may materially and
adversely affect its business operations, decrease sales and increase costs. Additionally, as customers are shifting
to more environmentally-conscious electric and hybrid vehicles, the inability of Valvoline to continue its development
of new services to adapt to those changing demands could affect the Company's reputation as an environmentally
friendly choice for vehicle care and could reduce demand for its services. Further, legislators, customers, investors
and other stakeholders are increasingly focusing on environmental, social and governance policies of companies.
This focus could result in new or increased legislation or disclosure requirements. In the event that such
requirements result in increased costs or a negative perception of the Company, there could be an adverse effect
on the business or its results of operations.
If allegations are made that Valvoline’s automotive maintenance services were not provided in a manner consistent
with its vision and values, the public may develop a negative perception of Valvoline, its brands, image and
reputation. In addition, if Valvoline’s franchise or Express Care operators experience service failures or do not
successfully operate their service centers in a manner consistent with Valvoline’s standards, its brand, image and
reputation could be harmed, which in turn could negatively impact its business and operating results. A negative
public perception of Valvoline’s brands, whether justified or not, could impair its reputation, involve it in litigation,
damage its brand equity and have a material adverse effect on its business. In addition, damage to the reputation of
Valvoline’s competitors or others in the automotive maintenance services industry could negatively impact
Valvoline’s reputation and business.
In connection with the sale of Global Products, the parties entered into a brand agreement (the “Brand Agreement”).
Pursuant to the Brand Agreement, Valvoline retains ownership of the Valvoline brand for generally all retail services
purposes, and Global Products owns the brand for all product uses. The brand sharing arrangement may increase
the risk of inconsistency in its use, messaging, or overall damage to the brand, which could have an adverse impact
on Valvoline’s reputation and business and result in lengthy and expensive litigation or settlements.
Risks related to executing Valvoline’s strategy
Valvoline has set aggressive growth goals for its business, including increasing sales, cash flow,
market share, margins and number of service center stores, to achieve its long-term strategic
objectives. Execution of Valvoline’s growth strategies and business plans to facilitate that growth
involves a number of risks.
Valvoline has set aggressive growth goals for its business to meet its long-term strategic objectives and improve
shareholder value by aggressively growing through new store development, opportunistic acquisitions and
increased emphasis on franchise development. Valvoline’s failure to meet one or more of these goals or objectives
could negatively impact its business. Aspects of that risk include, among others, changes to the global economy,
availability of or failure to identify acquisition targets or real estate for new stores to grow the Company’s network of
retail service center stores, real estate and construction costs or delays limiting new store growth, changes to the
competitive landscape, including those related to automotive maintenance recommendations and customer
preferences, entry of new competitors, attraction and retention of skilled employees, failure to successfully develop
and implement digital platforms to support the Company’s growth initiatives, failure to comply with existing or new
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regulatory requirements, failure to maintain a competitive cost structure and other risks outlined in greater detail in
this “Risk Factors” section.
Valvoline's performance is highly dependent on attracting and retaining appropriately qualified employees in its
service center stores and corporate offices. A tight labor market in recent years has led to challenges in staffing
service center stores due to labor shortages as a number of trends conflate reflecting changing demographics,
governmental policies, employee sentiment, and technological change. In response, Valvoline made labor
investments and enhanced its recruiting programs to attract new employees. As trends in the labor market evolve,
the Company may experience future challenges in recruiting and retaining talent in various locations. Valvoline
operates in a competitive labor market, and failure to recruit or retain qualified employees in the future, or the
Company's inability to implement corresponding adjustments to its labor model, including compensation and benefit
packages, could impair the Company's ability to grow and meet its strategic goals.
Valvoline may be unable to execute its growth strategy, and acquisitions, investments and
strategic partnerships could result in operating difficulties, dilution and other harmful
consequences that may adversely impact Valvoline’s business and results of operations.
Acquisitions are an important element of Valvoline’s overall growth strategy. Valvoline has completed a significant
number of acquisitions in recent years and has developed a pipeline of future viable targets expected to
complement the Company’s growth initiatives. An insufficient quantity of strategic acquisition targets in the
marketplace with limited targets remaining, or the inability of Valvoline to successfully acquire those targets, may
have a negative impact on Valvoline's ability to achieve its future growth projections. Valvoline expects to continue
to evaluate and enter into discussions regarding a wide array of potential strategic transactions and to continue to
grow organically and through acquisitions. An inability to execute these plans could have an adverse impact on
Valvoline’s financial condition and results of operations. In addition, the anticipated benefits of Valvoline’s
acquisitions may not be realized and the process of integrating an acquired company, business, or product may
create unforeseen operating difficulties or expenditures.
Valvoline’s acquisitions, investments and strategic partnerships could also result in dilutive issuances of its equity
securities, the incurrence of debt, contingent liabilities or amortization expenses, impairment of goodwill or
purchased long-lived assets and restructuring charges, any of which could harm its financial condition, results of
operations and cash flows.
The business model for Valvoline is affected by the financial results of its franchisees.
Valvoline’s business is made up of a network of both company-operated and franchised stores. Valvoline’s success
relies in part on the operational and financial success, as well as the cooperation of, its franchisees to implement
the Company’s growth strategy, which may be dependent upon their ability to secure adequate financing to meet
store development requirements. However, Valvoline has limited influence over its franchisees’ operations and the
quality of franchised store operations may be diminished by a number of factors beyond the Company’s control.
Valvoline’s franchisees manage their businesses independently and are responsible for the day-to-day operations
of approximately 53% of the Company’s system-wide service center stores as of September 30, 2023. Valvoline’s
royalty, product, and other revenues from franchised stores are largely dependent on franchisee sales and
compliance with franchise agreements. Valvoline’s revenues and margins could be negatively affected should
franchisees experience limited or no sales growth, or if the franchisee fails to renew its franchise agreements or
otherwise fulfill its obligations under negotiated business development, franchise, or supply agreements with
Valvoline. Additionally, if the franchisees are impacted by weak economic conditions and are unable to secure
adequate sources of financing, their financial health may worsen, and Valvoline’s revenues may decline. If sales or
business performance trends worsen for franchisees, their financial results may deteriorate, which could result in,
among other things, store closures, delayed or reduced royalties and purchases and reduced growth in the number
of service center stores.
Valvoline’s success also depends on the willingness and ability of its independent franchisees to implement major
initiatives, which may require additional investment by them, and to remain aligned with Valvoline on operating,
promotional and capital-intensive reinvestment plans. The ability of Valvoline’s franchisees to contribute to the
achievement of Valvoline’s overall plans is dependent in large part on the availability of financing to its franchisees
at reasonable interest rates and may be negatively impacted by the financial markets in general or the
creditworthiness of individual franchisees. The size of Valvoline’s largest franchisees creates additional risk due to
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their importance to the Company’s growth strategy, requiring their cooperation and alignment with Valvoline’s
initiatives. Furthermore, if the franchisees are not able to obtain the financing necessary to complete planned
remodel and construction projects, they may be forced to postpone or cancel such projects, impacting the
Company’s ability to grow and expand the Valvoline retail footprint.
Risks related to operating Valvoline's business
Changes in economic conditions that impact customer spending could harm Valvoline’s
business.
Economic downturns, including a recession, may reduce customer demand or inhibit Valvoline’s ability to provide its
services. Valvoline’s business and operating results are sensitive to declining economic conditions, credit market
tightness, declining customer and business confidence, volatile exchange and interest rates, continuing inflation and
other challenges, including those related to acts of aggression or threatened aggression that can affect the
economy and financial markets. In the event of adverse developments or stagnation in the economy or financial
markets, Valvoline’s customers may defer vehicle maintenance, oil changes, or other services, may repair and
maintain their vehicles themselves or be unable to obtain credit reducing their ability to spend.
In a prolonged economic downturn or recession, these risks and uncertainties could have a material negative
impact on Valvoline’s business, financial condition and results of operations. The severity and duration of a
downturn in economic and financial market conditions, as well as the timing, strength, and sustainability of a
recovery, are unknown and are not within the Company’s control. If the U.S. economy were to enter a recession,
the recessionary risks discussed above and elsewhere within these risk factors could be more pronounced in such
an economic climate.
Economic weakness and uncertainty may cause changes in customer preferences and habits, and if such economic
conditions persist for an extended period of time, this may result in customers making long-lasting changes to their
spending behaviors, which could unfavorably impact Valvoline’s business, its results of operations and cash flows.
Additionally, during periods of favorable economic conditions, customers may be more likely to purchase new
vehicles rather than maintaining and servicing older vehicles, which could also have an adverse impact on
Valvoline’s business, results of operations, cash flows and strategic objectives.
If Valvoline does not attract, train and retain quality employees in appropriate numbers, including
key employees and management, performance could be adversely affected.
Valvoline’s performance is dependent on recruiting, developing, training, and retaining quality and diverse service
center employees in large numbers. Valvoline’s service centers positions are subject to high rates of turnover.
Valvoline’s ability to meet labor needs while controlling costs is subject to external factors, such as unemployment
levels, prevailing wage rates, wage legislation, and changes in rules governing eligibility for overtime and changing
demographics. In the event of increasing wage rates, if Valvoline does not increase wages competitively, staffing
levels and customer service could suffer because of declining workforce quality. Valvoline’s earnings could
decrease if wage rates increase, whether in response to market demands or new wage legislation, and Valvoline is
unable to adjust pricing to offset the additional costs. In addition, inflation and economic uncertainty may negatively
impact Valvoline’s ability to attract and retain employees.
Valvoline’s success also depends on the efforts of key management personnel. Valvoline’s failure to develop an
adequate succession plan for one or more of these key positions could reduce Valvoline’s institutional knowledge
base and competitive advantage during a transition. The loss or limited availability of the services of one or more
key management personnel, or Valvoline’s inability to recruit and retain qualified diverse candidates in the future,
could, at least temporarily, have an adverse effect on Valvoline’s operating results and financial condition.
Additionally, turnover in other key positions can disrupt progress in implementing business strategies, result in a
loss of institutional knowledge, cause greater workload demands for remaining team members and divert attention
away from key areas of the business, or otherwise negatively impact the Company’s growth prospects or future
operating results.
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Business disruptions from natural, operational and other catastrophic risks could seriously harm
Valvoline’s operations and financial performance. In addition, a catastrophic event at one of
Valvoline’s service center stores or involving its services or employees could lead to liabilities
that could further impair its operations and financial performance.
Business disruptions, including those related to operating hazards inherent in servicing vehicles, natural disasters,
severe weather conditions, climate change, supply or logistics disruptions, increasing costs for energy, temporary
store and/or power outages, information technology systems and network disruptions, cybersecurity breaches,
terrorist attacks, armed conflicts, war, pandemic diseases, fires, floods or other catastrophic events, could seriously
harm Valvoline’s operations, as well as the operations of Valvoline’s customers and suppliers, and may adversely
impact Valvoline’s financial performance. Although it is impossible to predict the occurrence or consequences of any
such events, they could result in reduced demand for Valvoline’s services or make it difficult or impossible for
Valvoline to deliver services to its customers. In addition to leading to a serious disruption of Valvoline’s businesses,
a catastrophic event at one of Valvoline’s service center stores or involving its employees could lead to substantial
legal liability to or claims by parties allegedly harmed by the event.
While Valvoline maintains business continuity plans that are intended to allow it to continue operations or mitigate
the effects of events that could disrupt its business, Valvoline cannot provide assurances that its plans would fully
protect it from all such events. In addition, insurance maintained by Valvoline to protect against property damage,
loss of business and other related consequences resulting from catastrophic events is subject to significant
retentions and coverage limitations, depending on the nature of the risk insured. This insurance may not be
sufficient to cover all of Valvoline’s damages or damages to others in the event of a catastrophe. In addition,
insurance related to these types of risks may not be available now or, if available, may not be available in the future
at commercially reasonable rates.
The limited diversification of Valvoline’s operations subjects it to risks.
Historically, Valvoline has been able to take advantage of its size and global reach as a combined products and
services company. The Transaction has resulted in Valvoline being a smaller, less diversified company, potentially
making it more vulnerable to changing market, regulatory and economic conditions. Following completion of the
Transaction, Valvoline is more concentrated geographically in the U.S. and Canada and in serving the automotive
aftermarket through company-operated, independent franchise and Express Care stores that service vehicles with
Valvoline products. In addition, as a smaller company, Valvoline may be unable to obtain goods or services at
prices or on terms that are as favorable as those obtained by Valvoline prior to the Transaction, and Valvoline’s
ability to absorb costs or unexpected expenses whether due to contingencies or other risks as described herein,
may be negatively impacted. Any of these factors could have an adverse effect on Valvoline’s business, financial
condition, results of operations, or cash flows.
Operating in numerous locations in the U.S. and Canada increases the scrutiny on Valvoline’s reputation for safety,
quality, friendliness, trustworthy service, integrity and business ethics. Any negative publicity about these or other
areas involving the business, including Valvoline’s response or lack thereof to external events involving civil unrest,
social justice, and political issues, whether or not based in fact, could damage Valvoline’s reputation and the value
of the brand.
Pandemics, epidemics or disease outbreaks, such as the novel coronavirus, may disrupt
Valvoline’s business and operations, which could materially affect Valvoline’s financial condition,
results of operations and forward-looking expectations.
Disruptions caused by pandemics, epidemics or disease outbreaks, such as COVID-19, in the United States or
Canada, could materially affect Valvoline's results of operations, financial condition and forward-looking
expectations. These events could impact Valvoline's business, particularly as it relates to congestion in the supply
chain and related cost, as well as disruptions in the labor market. The Company could experience reduced traffic
and sales volume due to changes in customer behavior as individuals may decrease automobile use and practice
social distancing and other behavioral changes which may be mandated by governmental authorities or
independently undertaken out of an abundance of caution. The extent to which these events could impact
Valvoline's business results and operations depends upon the duration and severity, emerging variants, vaccine
and booster effectiveness, public acceptance of safety protocols, and governmental measures, including vaccine
mandates, among others.
19
Worsening conditions in the severity and spread of pandemics, epidemics, or disease outbreaks, could result in the
resurgence of lockdowns or stay-at-home guidelines which could adversely affect Valvoline’s ability to implement its
growth plans, including, without limitation, delay the construction or acquisition of service center stores, or
negatively impact Valvoline’s ability to successfully execute plans to enter into new markets; reduce demand for
Valvoline’s services; affect the ability and cost to attract and retain talent within the labor market; reduce sales or
profitability; negatively impact Valvoline’s ability to maintain operations; or lead to significant disruption of financial
markets in which the Company operates, and may reduce Valvoline’s ability to access capital and, in the future,
negatively affect the Company’s liquidity.
Valvoline uses information technology systems to conduct business, and a cybersecurity threat,
privacy/data breach, failure of a key information technology system, or inability to enhance its
capabilities could adversely affect Valvoline’s business and reputation.
Valvoline relies on its information technology systems, including systems which are managed or provided by third-
party service providers, to conduct its business. The Company’s point-of-sale platforms for company-operated and
franchisee retail stores could be subject to cybersecurity threats or data breaches, which could cause business
interruptions or negatively impact Valvoline. Any security breach involving the point-of-sale or other systems within
the Valvoline network could result in a loss of consumer confidence or costs associated with data recovery or
breaches of data security laws.
Despite employee training and other measures to mitigate them, cybersecurity threats to its information technology
systems, and those of its third-party service providers, are increasing and becoming more advanced and breaches
have occurred and could occur as a result of denial-of-service attacks or other cyber-attacks, hacking, phishing,
viruses, malicious software, ransomware, computer malware, social engineering, break-ins, security breaches due
to error or misconduct by its employees, contractors or third-party service providers. The data breaches that have
occurred have not resulted in a material loss to Valvoline; however, a material breach of or failure of Valvoline’s
information technology systems, including systems in which data is stored or may be transferred across third-party
platforms, could lead to the loss and destruction of trade secrets, confidential information, proprietary data,
intellectual property, customer and supplier data, and employee personal information, and could disrupt business
operations which could adversely affect Valvoline’s relationships with business partners and harm its brands,
reputation and financial results.
Valvoline’s customer and vendor data may include names, addresses, phone numbers, email addresses and
payment account information, among other information. Depending on the nature of the customer data that is
compromised, Valvoline may also have obligations to notify users, law enforcement or payment companies about
the incident and may need to provide some form of remedy, such as refunds for the individuals affected by the
incident. Valvoline could also face fines and penalties should it fail to adequately notify affected parties pursuant to
new and evolving privacy laws in various jurisdictions in which it does business, as outlined in greater detail in the
"Regulatory, legal, and financial risks" section below.
Valvoline is continuing to expand, upgrade and develop its information technology capabilities, including, the
Company’s core-enterprise resource planning system. If the Company is unable to adequately transition its
information technology organization’s skills and capabilities rapidly enough, including the ability to capitalize on the
advancements in Artificial Intelligence software and platforms, it may not effectively support the modernization of
Valvoline’s technology architecture and environment. This could hinder Valvoline’s ability to keep pace with its
growth and digital initiatives for the consumer-oriented, data driven, mobility enabled nature of the business.
Consequently, this might inhibit Valvoline’s ability to meet stakeholder needs and preferences.
Regulatory, legal, and financial risks
Data protection requirements could increase operating costs and requirements and a breach in
information privacy or other related risks could negatively impact operations.
Valvoline is subject to federal, state and local laws, and regulations relating to the collection, use, retention,
disclosure, security and transfer of personal data relating to its customers and employees. These laws and
regulations, and their interpretation and enforcement continue to evolve and may be inconsistent from jurisdiction to
jurisdiction. For example, the California Consumer Privacy Act ("CCPA") applies to Valvoline's activities conducted
20
in the state of California. Complying with the CCPA and similar emerging and changing privacy and data protection
requirements may cause Valvoline to incur substantial costs or disruption to its operations.
Noncompliance with these legal obligations relating to privacy and data protection could damage Valvoline's
reputation and affect its ability to retain and attract customers. Additionally, any failure or perceived failure by
Valvoline or any third parties with which it does business, to comply with these privacy and data protection laws and
regulations, or with respect to similar obligations to which Valvoline may be or become subject, may result in actions
against Valvoline by governmental entities, private claims and litigation, fines, penalties or other liabilities. Any such
action would be expensive to defend, damage Valvoline’s reputation and adversely affect business, operating
results, financial position and cash flows.
The impact of changing laws or regulations or the manner of interpretation or enforcement of
existing laws or regulations could adversely impact Valvoline’s financial performance and restrict
its ability to operate its business or execute its strategies.
New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or
enforcement, could increase Valvoline’s cost of doing business and restrict its ability to operate its business or
execute its strategies. This risk includes, among other things, compliance with a myriad of U.S. tax laws and
regulations; franchise laws and regulations; environmental laws and regulations; labor laws and regulations; anti-
competition laws and regulations; product compliance regulations; anti-corruption and anti-bribery laws, including
the Foreign Corrupt Practices Act (“FCPA”); anti-money-laundering laws; and other laws governing Valvoline’s
operations.
Although Valvoline has implemented policies and procedures to ensure compliance with these laws and regulations,
it cannot be sure that its policies and procedures are sufficient or that directors, officers, employees,
representatives, consultants and agents have not engaged and will not engage in conduct for which Valvoline may
be held responsible, nor can Valvoline be sure that its business partners, including franchisees, have not engaged
and will not engage in conduct that could materially affect their ability to perform their contractual obligations to
Valvoline or even result in Valvoline being held liable for such conduct. Violations of these laws or regulations may
result in severe criminal or civil sanctions or penalties, or significant changes in existing laws and regulations may
subject Valvoline to other liabilities, which could have a material adverse effect on its business, financial condition,
cash flows and results of operations.
Valvoline’s substantial indebtedness may adversely affect its business, results of operations and
financial condition.
Valvoline has substantial indebtedness and financial obligations. As of September 30, 2023, Valvoline had
outstanding indebtedness of $1.586 billion and available borrowing capacity of $471.6 million under its revolving
credit facility. Valvoline may incur substantial additional debt from time to time to finance working capital, capital
expenditures, investments or acquisitions, or for other general corporate purposes.
Valvoline's substantial indebtedness could adversely affect its business, results of operations and financial condition
by, among other things: requiring Valvoline to dedicate a substantial portion of its cash flows to pay principal and
interest on its debt, which would reduce the availability of its cash flow to fund working capital, capital expenditures,
acquisitions, execution of its growth strategy and other general corporate purposes; limiting Valvoline’s ability to
borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements,
execution of its growth strategy and other general corporate purposes; making Valvoline more vulnerable to
adverse changes in general economic, industry and regulatory conditions and in its business by limiting its flexibility
in planning for or reacting to changing conditions; placing Valvoline at a competitive disadvantage compared with its
competitors that have less debt and lower debt service requirements; making Valvoline more vulnerable to
increases in interest rates since some of its indebtedness is subject to variable rates of interest; and making it more
difficult for Valvoline to satisfy its financial obligations.
In addition, Valvoline may not be able to generate sufficient cash flows to repay its indebtedness when it becomes
due and to meet its other cash needs. If Valvoline is not able to pay its debts as they become due, it could be in
default under the terms of its indebtedness. Valvoline might also be required to pursue one or more alternative
strategies to repay indebtedness, such as selling assets, refinancing or restructuring its indebtedness or selling
additional debt or equity securities. Valvoline may not be able to refinance its debt or sell additional debt or equity
21
securities or its assets on favorable terms, if at all, and if it must sell its assets, it may negatively affect Valvoline’s
ability to generate revenues.
Adverse developments and instability in financial institutions and markets may adversely impact
Valvoline’s business and financial condition.
The global macroeconomic environment could be negatively affected by, among other things, disruptions to the
banking system and financial market volatility resulting from bank failures and actions to reduce inflation. The
Company utilizes and maintains material balances of cash, cash equivalents, and short-term investments and is
therefore reliant on banks and financial institutions to safeguard and allow ready access to these assets.
Specifically, the Company has $409.1 million of cash and cash equivalents and $347.5 million of short-term
investments as of September 30, 2023 held by various financial institutions, the majority of which represent the
remaining net proceeds from the sale of Global Products with a significant portion of such investments held in U.S.
government securities.
The failure of a bank, or other adverse conditions in the financial markets, impacting the institutions or
counterparties with which the Company, or its customers or vendors, maintain deposits or financing activities, could
impact Valvoline’s timely access to liquid assets or its financial performance. There are no assurances or
guarantees that deposits greater than the Federal Deposit Insurance Corporation limits will be protected by the U.S.
government or that any bank, government or financial institution will be able to obtain the needed liquidity in the
event of a failure or similar crisis. If financial institutions are unable to provide timely access to deposits and funds,
the Company, its vendors, customers, or lenders could be required to seek additional sources of liquidity to maintain
operating and cash requirements. As a result of uncertainty in the broader financial markets, there may be
additional impacts to Valvoline’s business that cannot be predicted at this time.
Valvoline’s pension and other postretirement benefit plan obligations are currently underfunded,
and Valvoline may have to make significant cash payments to some or all of these plans, which
would reduce the cash available for its business.
In connection with Valvoline’s separation from Ashland, Valvoline assumed certain of Ashland’s historical pension
and other postretirement benefit plans and related liabilities. The most significant of these plans, the U.S. qualified
pension plans, are estimated to be underfunded by $54.2 million as of September 30, 2023. The funded status of
Valvoline's pension plans is dependent upon many factors, including returns on invested assets, the level of certain
market interest rates and the discount rate used to determine pension obligations. Valvoline has taken a number of
actions to reduce the risk and volatility associated with the pension plans, however, changing market conditions or
laws and regulations could require material increases in the expected cash contributions to these plans in future
years. Specifically, unfavorable returns on plan assets or unfavorable changes in applicable laws or regulations
could materially change the timing and amount of required plan funding. In addition, a decrease in the discount rate
used to determine pension obligations could result in an increase in the valuation of pension obligations, which
could affect the reported funded status of Valvoline’s pension plans and future contributions. Similarly, an increase
in discount rates could increase the periodic pension cost in subsequent fiscal years. If any of these events occur,
Valvoline may have to make cash payments to its pension plans, which would reduce the cash available for its
business. Finally, Valvoline’s policy to recognize changes in the fair value of the pension assets and liabilities
annually and as otherwise required through mark to market accounting could result in volatility in Valvoline’s
earnings, which could be material.
Valvoline may fail to adequately protect its intellectual property rights or may be accused of
infringing the intellectual property rights of third parties.
Valvoline relies heavily upon its trademarks, domain names and logos to market its brands and to build and
maintain brand loyalty and recognition. The Company’s success depends on the continued ability of Valvoline’s
company-operated and franchised service center stores to use the intellectual property and on the adequate
protection and enforcement of such intellectual property. Valvoline also relies on a combination of laws and
contractual restrictions with employees, customers, suppliers, affiliates and others, to establish and protect its
various intellectual property rights.
There can be no assurance that steps taken to protect and maintain the rights in Valvoline’s intellectual property will
be adequate, or that third parties will not infringe, misappropriate or violate the intellectual property. If any efforts to
22
protect the intellectual property are not adequate, or if any third party infringes, misappropriates or violates
Valvoline’s intellectual property, or if brand standards are not upheld in connection with the Brand Agreement, the
value of its brands may be harmed. The occurrence of any of these events could result in the erosion of Valvoline’s
brands and limit its ability to market its brands using its various trademarks, cause Valvoline to lose such trade
secrets, as well as impede its ability to effectively compete against competitors with similar products and services,
any of which could adversely affect its business, financial condition and results of operations.
From time to time, Valvoline has been subject to legal proceedings and claims, including claims of alleged
infringement of trademarks, copyrights, patents and other intellectual property rights held by third parties. In the
future, third parties may sue Valvoline for alleged infringement of their proprietary or intellectual property rights. In
addition, litigation may be necessary to enforce Valvoline’s intellectual property rights, protect its trade secrets or
determine the validity and scope of proprietary rights claimed by others. Any litigation or other intellectual property
proceedings of this nature, regardless of outcome or merit, could result in substantial costs and diversion of
management and technical resources, or loss of rights in Valvoline’s intellectual property, any of which could
adversely affect Valvoline’s business, financial condition and results of operations.
Valvoline has incurred, and will continue to incur, costs as a result of Environmental Health and
Safety (“EHS”) compliance requirements, which could adversely impact Valvoline’s cash flow,
results of operations or financial condition.
Valvoline is subject to extensive federal, state, local and non-U.S. laws, regulations, rules and ordinances relating to
pollution, protection of the environment and human health and safety, as well as the storage, handling, treatment,
disposal and remediation of hazardous substances and waste materials. Valvoline has incurred, and will continue to
incur, costs and capital expenditures to comply with these laws and regulations.
EHS regulations change frequently, and such regulations and their enforcement have tended to become more
stringent over time. Accordingly, changes in EHS laws and regulations and the enforcement of such laws and
regulations could interrupt Valvoline’s operations, require modifications to its facilities or cause it to incur significant
liabilities, costs or losses that could adversely affect its profitability. Actual or alleged violations of EHS laws and
regulations could result in restrictions or prohibitions on service center operations as well as substantial damages,
penalties, fines, civil or criminal sanctions and remediation costs.
Valvoline’s business involves the purchase, storage and transportation of hazardous substances. Under some
environmental laws, Valvoline may be strictly liable and/or jointly and severally liable for environmental damages
caused by releases of hazardous substances and waste materials into the environment. For instance, under
relevant laws and regulations Valvoline may be deemed liable for soil and/or groundwater contamination at sites it
currently owns and/or operates even though the contamination was caused by a third party such as a former owner
or operator, and at sites it formerly owned and operated if the release of hazardous substances or waste materials
was caused by it or by a third party during the period it owned and/or operated the site. Valvoline also may be
deemed liable for soil and/or groundwater contamination at sites to which it sent hazardous wastes for treatment or
disposal, notwithstanding that the original treatment or disposal activity accorded with all applicable regulatory
requirements.
The Company’s Amended and Restated Articles of Incorporation (the “Articles”) designate the
Fayette County Circuit Court of the Commonwealth of Kentucky as the sole and exclusive forum
for substantially all disputes between the Company and its shareholders, which may limit a
shareholder’s ability to bring a claim in a favorable judicial forum for disputes with the Company
and its directors, officers or employees.
The Company’s Articles specify that the Fayette County Circuit Court of the Commonwealth of Kentucky shall be
the sole and exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action
asserting a breach of a fiduciary duty, any action asserting a claim arising pursuant to the Kentucky Business
Corporation Act, or any action asserting a claim governed by the internal affairs doctrine. This exclusive forum
provision does not apply to suits brought to enforce any duty or liability created by the Exchange Act or by the
Securities Act of 1933, as amended.
The Company believes that the exclusive forum provision in the Articles benefits the Company by providing
increased consistency in the application of Kentucky law for the specified types of actions and may benefit the
23
Company by preventing it from having to litigate claims in multiple jurisdictions (and incur additional expenses) and
be subject to potential inconsistent or contrary rulings by different courts, among other considerations. The
exclusive forum provision in the Articles, however, may have the effect of discouraging lawsuits against Valvoline's
directors, officers or employees as it could increase a shareholder’s cost to bring a claim or limit a shareholder’s
ability to bring a claim in a judicial forum that it finds favorable for such claims. In connection with any applicable
action brought against the Company, it is possible that a court could find the forum selection provisions contained in
the Articles to be inapplicable or unenforceable in such action. If a court were to render such a finding, the
Company may incur additional costs to resolve the action in other jurisdictions, which could adversely affect
Valvoline’s business, financial condition or results of operations.
Risks related to the sale of the Global Products business
Valvoline may be unable to achieve some or all of the strategic and financial benefits that it
expects to achieve from the Transaction.
In connection with completing the sale of its former Global Products reportable segment, Valvoline received net
proceeds of $2.383 billion. Valvoline is focused on accelerating the return of capital to shareholders through share
repurchases, reductions of debt, and investments in attractive retail service growth opportunities. In connection with
the completion of the sale of Global Products, Valvoline expects to drive growth and shareholder value as a best-in-
class, pure-play automotive retail service provider.
The anticipated operational, financial, strategic and other benefits may not be achieved from the Transaction, which
could have an adverse impact on Valvoline’s business, financial condition and results of operations. The anticipated
benefits are based on a number of assumptions, some of which may prove incorrect and could be affected by a
number of factors beyond Valvoline’s control, including without limitation, general economic conditions, increased
operating costs, challenges in separating the businesses information technology infrastructure and processes,
regulatory developments and the other risks described in these risk factors.
Valvoline is dependent on Global Products for its product supply and certain transition services
and certain indemnities have been agreed to with the Buyer, for which the Company may be
negatively impacted if Global Products is unable to provide these products and services or is
unable to satisfy its indemnification obligations.
In connection with the Transaction, the parties entered into a Supply Agreement and an agreement for certain
transition services. Pursuant to the Supply Agreement, Valvoline purchases substantially all lubricant and certain
ancillary products for its stores from Global Products. Additionally, Valvoline receives and provides certain transition
services to Global Products. Valvoline is dependent on Global Products for product supply and each party is reliant
on one another for transition services. Any interruption, delay, quality issue or other failure in product supply or
service could result in disputes between the parties. In addition, if either party does not have in place its own
systems and processes, or if there are not agreements with other providers of these services in place once
transition services expire, Valvoline may not be able to operate its business effectively which could cause adverse
effects to its financial condition, results of operations, or cash flows.
Also as part of the Transaction, the parties have agreed to indemnify one another for various matters. If either party
is unable to satisfy their indemnification obligations, there are no guarantees that these indemnities will sufficiently
protect Valvoline against these exposures or potential liability claims from third parties. There can also be no
assurance that Global Products can fulfill its indemnification obligations in the future. Valvoline could experience
negative impacts on its business, financial position, and cash flows due to these risks.
Risks related to Valvoline’s separation from Ashland
The Distribution could result in significant tax liability to Ashland, and in certain circumstances,
Valvoline could be required to indemnify Ashland for material taxes pursuant to indemnification
obligations.
Ashland obtained a written opinion of counsel to the effect that the Distribution should qualify for non-recognition of
gain and loss under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”). The opinion does
24
not address any U.S. state, local or non-U.S. tax consequences of the Distribution. The opinion assumes that the
Distribution is completed according to the terms of certain agreements entered into between Ashland and Valvoline
and the accuracy of certain assumptions and representations and covenants made by the parties. The opinion is
not binding on the Internal Revenue Service (the “IRS”) or the courts, and thus there can be no assurance that the
IRS or a court will not take a contrary position.
If the Distribution were determined not to qualify for non-recognition of gain and loss, then Ashland would recognize
a gain as if it had sold its Valvoline common stock in a taxable transaction in an amount up to the fair market value
of the common stock it distributed in the Distribution. In addition, certain reorganization transactions undertaken in
connection with the separation and the Distribution could be determined to be taxable, which could result in
additional taxable gain. Under certain circumstances, Valvoline could have joint and several liability for gain
recognition relating to the separation from Ashland, and/or a substantial indemnification obligation to Ashland with
respect to the tax associated with some or all of such gain, which could have a material adverse impact on
Valvoline's financial condition.
Ashland has agreed to indemnify Valvoline for certain liabilities. However, there can be no
assurance that the indemnity will be sufficient to insure Valvoline against the full amount of such
liabilities, or that Ashland’s ability to satisfy its indemnification obligation will not be impaired in
the future.
Pursuant to the terms of the Separation Agreement and certain other agreements with Ashland, Ashland agreed to
indemnify Valvoline for certain liabilities. However, third parties could also seek to hold Valvoline responsible for any
of the liabilities that Ashland agreed to retain, and there can be no assurance that the indemnity from Ashland will
be sufficient to protect Valvoline against the full amount of such liabilities, or that Ashland will be able to fully satisfy
its indemnification obligations in the future. Even if Valvoline ultimately succeeded in recovering from Ashland any
amounts for which Valvoline is held liable, Valvoline may be temporarily required to bear these losses. Each of
these risks could negatively affect Valvoline’s business, financial position, results of operations and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Valvoline is headquartered in Lexington, Kentucky, where the Company leases over 157,000 square feet of office
and warehouse space to support operations across its business, which excludes certain properties that the
Company currently subleases to others. In addition, Valvoline owns or leases the property associated with 876
company-operated retail service center stores under the Valvoline Instant Oil ChangeSM and Valvoline Great
Canadian Oil Change brands throughout the United States and Canada, respectively. Valvoline’s store leases
typically have initial terms of up to 15 years with renewal options, exercisable at the Company’s discretion.
Valvoline believes its physical properties are suitable and adequate for the Company’s business, and none of the
property owned by Valvoline is subject to any major known encumbrances. Additional information regarding lease
obligations may be found in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of
this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Valvoline is party to lawsuits, claims and other legal proceedings that arise in the ordinary course
of business. For a description of Valvoline's legal proceedings, refer to Note 11 of the Notes to Consolidated
Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market information
Valvoline common stock is listed on the NYSE and trades under the symbol “VVV.” As of November 15, 2023, there
were approximately 7,900 registered holders of Valvoline common stock.
Dividend policy
The declaration and payment of dividends to holders of Valvoline common stock is at the discretion of Valvoline's
Board of Directors (the “Board”) after taking into account various factors, including Valvoline’s financial condition,
operating results, current and anticipated cash needs, cash flows, impact on Valvoline’s effective tax rate,
indebtedness, legal requirements and other factors that the Board considers relevant. In addition, the instruments
governing Valvoline’s indebtedness may limit its ability to pay dividends. Therefore, no assurance are given that
Valvoline will pay any dividends to its stockholders, or as to the amount of any such dividends if the Board
determines to do so.
Following the sale of Global Products, the Company discontinued its dividend after the December 2022 payment
until such time, if any, as the Board may determine in its sole discretion. The Company currently does not anticipate
declaring or paying any cash dividends for the foreseeable future. Valvoline has continued to return value to
shareholders through share repurchases, the timing and amount of which will be at the discretion of the Company
and based on Valvoline’s liquidity, general business and market conditions, and other factors, including alternative
investment opportunities.
Stock performance graph
The following graph compares the cumulative total shareholder return on a $100 investment in Valvoline common
stock, the S&P MidCap 400 Index, and the S&P MidCap 400 Specialty Retail Index for the period from September
30, 2018 to September 30, 2023. This graph assumes an investment in Valvoline common stock and each index
were $100 on September 30, 2018 and that all dividends were reinvested.
26
Five-year cumulative total shareholder returns
$200.00
$180.00
$160.00
$140.00
$120.00
$100.00
$80.00
09/30/18
09/30/19
09/30/20
09/30/21
09/30/22
09/30/23
VVV
S&P MidCap 400 Index
S&P MidCap 400 Specialty Retail Index
Cumulative total returns
Valvoline Inc.
S&P MidCap 400 Index
S&P MidCap 400 Specialty Retail Index
Purchases of Company common stock
Years ended September 30
2019
2020
2021
2022
2023
$ 104.65 $
92.47 $ 154.21 $ 127.26 $ 162.54
$
$
97.51 $
95.40 $ 137.07 $ 116.17 $ 134.20
88.44 $
97.94 $ 165.79 $ 111.89 $ 125.62
Repurchases of the Company’s common stock during the three months ended September 30, 2023 pursuant to the
November 15, 2022 Board authorization to repurchase up to $1.6 billion of common stock through September 30,
2024 were:
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)
— $
1,502,820 $
2,375,942 $
3,878,762 $
—
33.89
32.81
33.23
— $
1,502,820 $
2,375,942 $
3,878,762
340.4
289.5
211.5
Fiscal period
July 1, 2023 - July 31, 2023
August 1, 2023 - August 31, 2023
September 1, 2023 - September 30, 2023
Total
ITEM 6. RESERVED
27
Index to Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Business Overview
Results of Operations - Consolidated Review
Financial Position, Liquidity and Capital Resources
New Accounting Pronouncements
Critical Accounting Estimates
Page
28
32
38
41
41
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and the
accompanying Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on
Form 10-K.
BUSINESS OVERVIEW AND PURPOSE
As the quick, easy, trusted leader in automotive preventive maintenance, Valvoline is creating shareholder value by
driving the full potential of its core business, accelerating network growth and innovating to meet the needs of
customers and the evolving car parc. With average customer ratings that indicate high levels of service satisfaction,
Valvoline and the Company’s franchise partners keep customers moving with 15-minute stay-in-your-car oil
changes; battery, bulb and wiper replacements; tire rotations; and other manufacturer recommended maintenance
services. The Company operates and franchises more than 1,850 service center locations through its Valvoline
Instant Oil ChangeSM (“VIOC”) and Valvoline Great Canadian Oil Change (“GCOC”) retail locations and supports
nearly 300 locations through its Express CareTM platform.
Valvoline's fiscal year ends on September 30 of each year.
RECENT DEVELOPMENTS
Sale of Global Products business
On March 1, 2023, Valvoline completed the sale of its former Global Products reportable segment (“Global
Products”) to Aramco Overseas Company B.V. (“Aramco”) for a cash purchase price of $2.650 billion, subject to
certain customary adjustments as set forth in the Purchase Agreement (the “Transaction”). Refer to Note 3 of the
Notes to Consolidated Financial Statements included in Item 8 of Part II in this Annual Report on Form 10-K for
further details regarding the Global Products business.
With the net proceeds of $2.383 billion from the Transaction, Valvoline is focused on accelerating the return of
capital to shareholders through share repurchases, reductions of debt, and investments in attractive retail service
growth opportunities. Commensurate with closing of the Transaction, Valvoline repaid the pre-existing Trade
Receivables Facility, in addition to amounts that were outstanding at that time under the Revolver. In June 2023, the
Company completed a modified “Dutch auction” tender offer (the “Tender Offer”) and accepted for payment 27.0
million shares for an aggregate purchase price of $1.024 billion, excluding fees and expenses. The Tender Offer
utilized a substantial portion of the authorization from the Board for the Company to repurchase up to $1.6 billion of
its common stock announced on November 15, 2022 (the “2022 Share Repurchase Authorization”), and in
combination with other share repurchases made throughout the fiscal year, leaves $211.5 million of authorization
remaining as of September 30, 2023. Additionally, the Company earned $44.0 million in interest income on invested
net proceeds during fiscal 2023.
FISCAL 2023 OVERVIEW
28
Key operating highlights from continuing operations are presented below, each of which is discussed more fully in
this Annual Report on Form 10-K:
17%
Growth in Net revenues
$247.2 million
Operating income from continuing
operations
102%
Growth in Diluted EPS
$2.8 billion
System-wide store sales (a)
$1.5 billion
Returned to shareholders through share
repurchases
$353.0 million
Cash flows from operations
1,852
System-wide stores (a) with 8.0% annual
growth
17 years
of consecutive system-wide same-store
sales growth (b)
20.4%
Growth in adjusted EBITDA (c)
(a) Measures include Valvoline franchisees, which are independent legal entities. Valvoline does not consolidate the results of operations of its
franchisees.
(b) Valvoline determines same-store sales (“SSS”) growth as sales by U.S. stores, with new stores, including franchised conversions, excluded
from the metric until the completion of their first full fiscal year in operation.
(c) Represents a non-GAAP measure. Refer to “Use of Non-GAAP Measures” and the Appendix for additional details.
Summarized below are Valvoline's trends in the results of its continuing operations Net revenues, Income from
continuing operations, and Adjusted EBITDA over the last four fiscal years:
Net revenues
(In millions)
Income from continuing
operations
(In millions)
Adjusted EBITDA (a)
(In millions)
$1,443.5
$1,236.1
$1,037.2
$727.0
$200.1
$199.4
$69.6
$109.4
$166.1
$380.0
$277.0
$315.7
2020
2021
2022
2023
2020
2021
2022
2023
2020
2021
2022
2023
(a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below. Also refer
to the “Continuing operations EBITDA and Adjusted EBITDA” section within “Results of Operations” below for a reconciliation of income
from continuing operations to Adjusted EBITDA for fiscal years 2023 and 2022. For reconciliations of fiscal 2021 and 2020, refer to Item 7 of
Part II of the Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Exchange
Commission on November 23, 2022.
Net revenues and Adjusted EBITDA trends have shown a significant increase over the past four fiscal years largely
due to strong system-wide SSS growth driven by contributions from increased transactions, average ticket, and
non-oil change penetration in addition to acquisitions and overall store growth. Income from continuing operations
has also trended upward due to strong top-line performance except for fiscal 2022 where the decrease was
29
primarily driven by a loss recorded for remeasurement of pension and other postretirement plans, as well as higher
separation-related expenses related to the separation of the Company’s businesses.
Summarized below are Valvoline's trends in income from continuing operations and Adjusted EBITDA for the
continuing operations over the interim quarterly periods for the last three fiscal years:
Continuing operations interim results trends
(In millions)
i
g
n
u
n
i
t
n
o
c
m
o
r
f
e
m
o
c
n
I
s
n
o
i
t
a
r
e
p
o
$200.0
$150.0
$100.0
$50.0
$—
$125.0
$100.0
$75.0
$50.0
j
A
d
u
s
t
e
d
E
B
T
D
A
I
$25.0
(
a
)
$—
Q1’21 Q2’21 Q3’21 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23
Income from continuing operations
Adjusted EBITDA (a)
(a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below. Also refer
to the “Continuing operations EBITDA and Adjusted EBITDA” section within “Results of Operations” below for a reconciliation of Income
from continuing operations to Adjusted EBITDA for each period presented above.
Results for Fiscal 2022 compared to Fiscal 2021
For comparisons of Valvoline's consolidated results of operations and cash flows for the fiscal years ended
September 30, 2022 to September 30, 2021, refer to Item 7 of Part II of the Annual Report on Form 10-K for the
fiscal year ended September 30, 2022, filed with the Securities and Exchange Commission on November 23, 2022.
Use of Non-GAAP Measures
To aid in the understanding of Valvoline’s ongoing business performance, certain items within this document are
presented on an adjusted, non-GAAP basis. These non-GAAP measures have limitations as analytical tools and
should not be considered in isolation from, or as an alternative to, or more meaningful than, the financial statements
presented in accordance with U.S. GAAP. The financial results presented in accordance with U.S. GAAP and
reconciliations of non-GAAP measures included within this Annual Report on Form 10-K should be carefully
evaluated.
The following are the non-GAAP measures management has included and how management defines them:
•
EBITDA - net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and
depreciation and amortization;
• Adjusted EBITDA - EBITDA adjusted for the impacts of certain unusual, infrequent or non-operational
activity not directly attributable to the underlying business, which management believes impacts the
comparability of operational results between periods ("key items," as further described below);
• Adjusted EBITDA margin - adjusted EBITDA divided by adjusted net revenues;
• Adjusted net revenues - reported net revenues adjusted for key items;
30
•
Free cash flow - cash flows from operating activities less capital expenditures and certain other
adjustments as applicable; and
• Discretionary free cash flow - cash flows from operating activities less maintenance capital expenditures
and certain other adjustments as applicable.
Non-GAAP include adjustments from results based on U.S. GAAP that management believes enables comparison
of certain financial trends and results between periods and provides a useful supplemental presentation of
Valvoline's operating performance, that allows for transparency with respect to key metrics used by management in
operating the business and measuring performance. The manner used to compute non-GAAP information used by
management may differ from the methods used by other companies, and may not be comparable. For a
reconciliation of the most comparable U.S. GAAP measures to the non-GAAP measures, refer to the “Results of
Operations” and “Financial Position, Liquidity and Capital Resources” sections below.
Management believes EBITDA measures provide a meaningful supplemental presentation of Valvoline’s operating
performance between periods on a comparable basis due to the depreciable assets associated with the nature of
the Company’s operations as well as income tax and interest costs related to Valvoline’s tax and capital structures,
respectively. Adjusted EBITDA measures enable comparison of financial trends and results between periods where
certain items may not be reflective of the Company’s underlying and ongoing operations performance or vary
independent of business performance.
Management uses free cash flow and discretionary free cash flow as additional non-GAAP metrics of cash flow
generation. By including capital expenditures and certain other adjustments, as applicable, management is able to
provide an indication of the ongoing cash being generated that is ultimately available for both debt and equity
holders as well as other investment opportunities. Free cash flow includes the impact of capital expenditures,
providing a supplemental view of cash generation. Discretionary free cash flow includes maintenance capital
expenditures, which are routine uses of cash that are necessary to maintain the Company's operations and
provides a supplemental view of cash flow generation to maintain operations before discretionary investments in
growth. Free cash flow and discretionary free cash flow have certain limitations, including that they do not reflect
adjustments for certain non-discretionary cash flows, such as mandatory debt repayments.
The non-GAAP measures used by management exclude key items. Key items are often related to legacy matters or
market-driven events considered by management to not be reflective of the ongoing operating performance. Key
items may consist of adjustments related to: legacy businesses, including the separation from Valvoline's former
parent company, the former Global Products reportable segment, and associated impacts of related activity and
indemnities; non-service pension and other postretirement plan activity; restructuring-related matters, including
organizational restructuring plans, the separation of Valvoline’s businesses, significant acquisitions or divestitures,
debt extinguishment and modification, and tax reform legislation; in addition to other matters that management
considers non-operational, infrequent or unusual in nature.
Details with respect to the description and composition of key items recognized during the respective periods
presented herein are set forth below in the “EBITDA and Adjusted EBITDA” section of “Results of Operations” that
follows.
Key Business Measures
Valvoline tracks its operating performance and manages its business using certain key measures, including system-
wide, company-operated and franchised store counts and SSS; and system-wide store sales. Management believes
these measures are useful to evaluating and understanding Valvoline's operating performance and should be
considered as supplements to, not substitutes for, Valvoline's net revenues and operating income, as determined in
accordance with U.S. GAAP.
Net revenues are influenced by the number of service center stores and the business performance of those stores.
Stores are considered open upon acquisition or opening for business. Temporary store closings remain in the
respective store counts with only permanent store closures reflected in the activity and end of period store counts.
SSS is defined as net revenues by U.S. stores (company-operated, franchised and the combination of these for
system-wide SSS), with new stores, including franchised conversions, excluded from the metric until the completion
31
of their first full fiscal year in operation as this period is generally required for new store sales levels to begin to
normalize.
Net revenues are limited to sales at company-operated stores, in addition to royalties and other fees from
independent franchised and Express Care stores. Although Valvoline does not recognize store-level sales from
franchised stores as net revenues in its Statements of Consolidated Income, management believes system-wide
and franchised SSS comparisons, store counts, and total system-wide store sales are useful to assess market
position relative to competitors and overall store and operating performance.
RESULTS OF OPERATIONS
The following summarizes the results of the Company’s continuing operations for the years ended September 30:
(In millions)
Net revenues
Gross profit
Gross profit margin
Net operating expenses
Percentage of net revenues
Operating income
Operating margin
Income from continuing operations
EBITDA (a)
Adjusted EBITDA (a)
Adjusted EBITDA margin (a)
2023
2022
$1,443.5
$1,236.1
$ 544.5
$ 476.4
37.7 %
38.5 %
$ 297.3
$ 256.1
20.6 %
20.7 %
$ 247.2
$ 220.3
17.1 %
17.8 %
$ 199.4
$ 109.4
$ 363.6
$ 284.8
$ 380.0
$ 315.7
2023 vs. 2022
$
207.4
68.1
%
16.8 %
14.3 %
(80) bps
41.2
16.1 %
(10) bps
26.9
12.2 %
(70) bps
90.0
82.3 %
78.8
64.3
27.7 %
20.4 %
$
$
$
$
$
$
$
26.3 %
25.8 %
50 bps
(a) Refer to the “Use of Non-GAAP Measures” and Continuing operations EBITDA and Adjusted EBITDA for management’s definitions of the
metrics presented above and reconciliation to the corresponding GAAP measures, where applicable.
Fiscal 2023 marked the 17th consecutive year for system-wide same-store-sales ("SSS") growth and added 137 net
new stores to the system. The table below highlights the growth over the last year:
(In millions, except store count)
System-wide store sales (a)
System-wide store count (a)
System-wide SSS growth (a)
Fiscal Year
2023
$
2,761.8
1,852
Growth vs.
2022
17.0 %
8.0 %
Years ended September 30
2023
2022
11.9 %
13.7 %
(a) Measures include Valvoline franchisees, which are independent legal entities. Refer to the “Key Business Measures” section above for
additional details on these key business measures, including management’s definitions.
Net revenues
Net revenues increased 16.8% over the prior year period due to system-wide SSS growth and store acquisitions.
Valvoline delivered system-wide SSS growth of 11.9% compared to the prior year from increased average ticket as
a result of pricing actions, increased non-oil change service penetration and premiumization, as well as higher
transactions. Year-over-year system-wide store growth of 8.0% also contributed to net revenues and volumes
through the addition of 137 net new stores. Partially offsetting these benefits were lower net revenues of
32
$11.5 million from operations suspended in the prior year of a former Global Products business that was not
included in the sale. The following reconciles the year-over-year changes in Net revenues:
2022 to 2023 changes in Net revenues
(In millions)
$1,236.1
33.5
28.1
63.8
95.4
$1,443.5
(1.9)
(11.5)
2022 Net
revenues
Mix
Acquisitions
Volume
Price
Currency
exchange
Suspended
operations
2023 Net
revenues
Gross profit
Gross profit improved 14.3% driven by top-line growth from increased average ticket due to pricing actions as well
as non-oil change services penetration and premiumization. Additionally, higher transactions and store growth were
benefits to gross profit which were all partially offset by higher product and store operating costs, including
depreciation, as well as increased labor expense. The following reconciles the year-over-year changes in Gross
profit:
2022 to 2023 changes in Gross profit
(In millions)
$476.4
26.8
4.9
12.1
27.1
$544.5
(0.8)
(2.0)
2022
Gross
profit
Mix
Acquisitions
Volume
Price and
cost
Currency
exchange
Suspended
operations
2023
Gross
profit
The decline in gross profit margin rate compared to the prior year was due to the dilutive impact from passing
through cost increases in company store operations, higher product costs, and increased depreciation driven by
store growth and investments in new store technology. Additionally, waste oil headwinds were partially offset by
base oil declines, improved labor efficiency, and benefits from pricing and mix.
Net operating expenses
Details of the components of Net operating expenses are summarized below for the years ended September 30:
33
(In millions)
2023
2022
$
Selling, general and administrative expenses
$
264.5 $
244.7 $
Net legacy and separation-related expenses
Other income, net
Net operating expenses
32.8
—
20.5
(9.1)
$
297.3 $
256.1 $
19.8
12.3
9.1
41.2
%
8.1 %
60.0 %
(100.0)%
16.1 %
Variance
Selling, general and administrative (“SG&A”) expenses increased $19.8 million in the current year. SG&A
investments combined to increase expense by $23.3 million and were primarily within advertising, talent, and
process improvements to support future growth. Partially offsetting this increased expense were lower costs of $2.6
million associated with operations of a former Global Products business which was not included in the sale that
were suspended in fiscal 2022.
Net legacy and separation-related expenses incurred in the current year were primarily related to the increased
indemnity obligation of $25.7 million as a result of the amendment of the Tax Matters Agreement and certain legacy
tax attributes that are payable to Valvoline’s former parent company upon utilization. This increased expense more
than offset the reduction of the costs incurred in the prior year to evaluate and plan for the separation of the
Company. In the current year, these expenses were generally attributed to the discontinued operations.
Other income, net decreased $9.1 million primarily driven by an impairment charges related to suspended
operations of $8.1 million and an investment impairment of $1.1 million, as well as an economic incentive of $0.9
million realized in the prior year that did not recur. These unfavorable impacts were partially offset by higher rental
income in the current fiscal year.
Net pension and other postretirement plan (income) expense
Net pension and other postretirement plan income increased $34.5 million from the prior year primarily due to the
gain on pension and other postretirement plan remeasurement of $41.6 million compared to a loss of $43.9 million
in fiscal 2022, partially offset by higher interest costs recognized during the year that more than offset recurring
expected returns on plan assets which are lower year-over-year based on a lower risk asset mix and prior year
asset returns. The fiscal 2023 gain was primarily attributed to increase in discount rates, partially offset by lower-
than-expected returns on plan assets. The loss in fiscal 2022 was primarily driven by lower-than-expected
performance of plan assets in the current year remeasurement, which more than offset reduced plan obligations
from remeasurement at higher discount rates.
Net interest and other financing expenses
Net interest and other financing expense decreased $31.0 million during fiscal 2023 compared to the prior year.
Interest income of $44.0 million earned on invested net proceeds from the sale of Global Products more than offset
modestly higher interest expense due to increased variable-rate borrowings during the fiscal year.
Income tax expense
The following table summarizes Income tax expense and the effective tax rate during the years ended September
30:
(In millions)
Income tax expense
Effective tax rate percentage
2023
2022
$
37.1
$
15.7 %
34.7
24.1 %
The lower effective tax rate in fiscal 2023 from the prior year was primarily attributed to the release of valuation
allowances due to the change in expectations regarding the utilization of certain legacy tax attributes as described
further below. Higher pre-tax income in fiscal 2023 resulted in higher current year tax expense over the prior year.
34
Legacy tax attributes
In connection with amending the Tax Matters Agreement, management expects the Company is currently more
likely than not to realize certain legacy tax attributes that were transferred from its former parent prior to Valvoline’s
initial public offering in late fiscal 2016. As a result, the Company recognized an income tax benefit of $29.0 million
during fiscal 2023 in connection with releasing its valuation allowance. Additionally, Valvoline recognized
$25.7 million of expense within Net legacy and separation-related expenses in the Consolidated Statement of
Comprehensive Income during fiscal 2023 to reflect the increased estimated indemnity obligation to its former
parent company as a result of the terms of the amended Tax Matters Agreement.
Income from discontinued operations, net of tax
Income from discontinued operations, net of tax for the years ended September 30 are as follows:
(In millions)
2023
2022
Income from discontinued operations, net of tax
$
1,220.3 $
314.9
Income from discontinued operations, net of tax increased $905.4 million during fiscal 2023 compared to the prior
year. The increase is primarily due to recognition of the pre-tax gain in connection with the sale of the Global
Products business of $1.572 billion. This gain was partially offset by lower pre-tax earnings of $153.4 million due to
the current year including the results of the underlying business for a partial year in the pre-closing period,
increased costs of $46.7 million incurred during fiscal 2023 directly related to completing the sale and separation of
the businesses, and higher income tax expense of $466.1 million. Higher income tax expense is due to the tax of
$424.3 million on the gain on sale, in addition to the substantially lower benefits of $94.3 million from the realization
of the book-tax basis differences in the non-US entities of the business that was primarily recognized in the prior
year, and both of these increases were partially offset by lower tax expense on the lower underlying earnings of the
business due to the partial year results in the pre-closing period.
Continuing operations adjusted net revenues
The following reconciles Net revenues to Adjusted net revenues for the years ended September 30:
(In millions)
Reported net revenues
Key items:
Suspended operations (a)
Adjusted net revenues (b) (c)
2023
2022
1,443.5 $
1,236.1
(0.2)
1,443.3 $
(11.6)
1,224.5
$
$
(a) Represents the results of a former Global Products business where operations were suspended during fiscal 2022 that were not included in
the sale.
(b) Adjusted net revenues is defined as net revenue adjusted for key items.
(c) Represents a non-GAAP measure. Refer to “Use of Non-GAAP Measures” for management’s definitions of the metrics presented above.
35
Continuing operations EBITDA and Adjusted EBITDA
The following reconciles Income from continuing operations to EBITDA and Adjusted EBITDA for the years ended
September 30:
2023
2022
2021
2020
(In millions)
Income from continuing operations
Income tax expense
Net interest and other financing expenses
Depreciation and amortization
EBITDA from continuing operations (a)
Net pension and postretirement plan (income)
expense (b)
Net legacy and separation-related expenses (c)
Suspended operations (e)
Information technology transition costs (d)
Investment and divestiture-related costs (f)
Restructuring and related adjustments (g)
Compensated absences benefits change (h)
$
199.4 $
109.4 $
200.1 $
37.1
38.3
88.8
363.6
(27.6)
32.8
7.1
3.0
1.1
—
—
34.7
69.3
71.4
284.8
6.9
20.5
0.9
2.6
—
—
—
59.9
108.3
62.1
430.4
(128.2)
(23.6)
(1.5)
—
—
(0.1)
—
Adjusted EBITDA from continuing operations (a)
$
380.0 $
315.7 $
277.0 $
69.6
53.4
92.1
40.5
255.6
(54.9)
(30.0)
(1.3)
—
1.3
0.3
(4.9)
166.1
(a) EBITDA from continuing operations is defined as income from continuing operations, plus income tax expense, net interest and other
(b)
financing expenses, and depreciation and amortization attributable to continuing operations. Adjusted EBITDA from continuing operations is
EBITDA adjusted for key items attributable to continuing operations.
Includes several elements impacted by changes in plan assets and obligations that are primarily driven by the debt and equity markets,
including remeasurement gains and losses, when applicable; and recurring non-service pension and other postretirement net periodic
activity, which consists of interest cost, expected return on plan assets and amortization of prior service credits. Management considers that
these elements are more reflective of changes in current conditions in global markets (in particular, interest rates), outside the operational
performance of the business, and are also legacy amounts that are not directly related to the underlying business and do not have an
impact on the compensation and benefits provided to eligible employees for current service. Refer to Note 10 in the Notes to Consolidated
Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K for further details.
(c) Activity associated with legacy businesses and the separation from Valvoline’s former parent company and its former Global Products
reportable segment. This activity includes the recognition of and adjustments to indemnity obligations to its former parent company; certain
legal, financial, professional advisory and consulting fees; and other expenses incurred by the continuing operations in connection with and
directly related to these separation transactions and legacy matters. This incremental activity directly attributable to legacy matters and
separation transactions is not considered reflective of the underlying operating performance of the Company’s continuing operations. Of
specific note, the Company recognized $25.7 million of pre-tax expense during the year ended September 30, 2023 to reflect its increased
estimated indemnity obligation, which also resulted in an income tax benefit of $29.0 million to reflect the release of valuation allowances in
connection with the amendment of the Tax Matters Agreement with Valvoline’s former parent company.
(d) Consists of redundant expenses incurred from duplicative technology platforms required while implementing the Company’s stand-alone
enterprise resource planning software system during fiscal 2023 and transitioning its data centers during fiscal 2022. These expenses are
reflective of incremental costs directly associated with technology transitions and are not considered to be reflective of the ongoing
expenses of operating the Company’s technology platforms.
(e) Represents the results of a former Global Products business where operations were suspended during fiscal 2022 that were not sold with
the Global Products business. These results included an impairment loss of $8.1 million recognized in the fourth quarter of fiscal 2023 upon
classifying the suspended operations as held for sale. These results are not indicative of the operating performance of the Company’s
ongoing continuing operations.
(f) Expense recognized to reduce the carrying value of an investment interest determined to be impaired. This cost is not considered to be
reflective of the underlying performance of the Company’s ongoing continuing operations.
(g) Adjustments to employee termination benefits recognized over remaining employee service periods as a result of company-wide
restructuring activities that are not considered reflective of the underlying operating performance of the Company’s ongoing operations. .
(h) Adjustment associated with the Company’s change in its policy for benefits associated with compensated absences, the results of which are
not indicative of the operating performance of the Company’s underlying operations.
Adjusted EBITDA increased $64.3 million, or 20.4%, for the year ended September 30, 2023 compared to the prior
year driven by strong system-wide SSS growth due to continued gains in vehicles served and higher ticket from
pricing actions and aided by non-oil change service penetration and premiumization. These benefits were partially
offset by increased SG&A investments to support future growth.
36
The following reconciles Income from continuing operations to EBITDA and Adjusted EBITDA for each quarter of
fiscal 2023, 2022 and 2021 (refer to the footnote references in the annual table above for the corresponding
descriptions of the captions noted below):
(In millions)
Income from continuing operations
Income tax (benefit) expense
Net interest and other financing expenses
(income)
Depreciation and amortization
EBITDA from continuing operations (a)
Net pension and postretirement plan expense
(income) (b)
Net legacy and separation-related expenses (c)
Suspended operations (e)
Information technology transition costs (d)
Investment and divestiture-related costs (f)
Adjusted EBITDA from continuing operations (a)
(In millions)
Income from continuing operations
Income tax expense
Net interest and other financing expenses
Depreciation and amortization
EBITDA from continuing operations (a)
Net pension and postretirement plan (income)
expense (b)
Net legacy and separation-related expenses (c)
Suspended operations (e)
Information technology transition costs (d)
Adjusted EBITDA from continuing operations (a)
First
Quarter
2023
Second
Quarter
2023
Third
Quarter
2023
Fourth
Quarter
2023
27.0 $
(20.1)
18.7
18.5
44.1
3.7
25.4
(0.2)
0.3
—
32.9 $
11.4
13.3
20.6
78.2
3.6
3.8
0.1
0.4
1.0
64.5 $
22.9
(4.6)
21.6
104.4
3.7
1.6
(0.4)
1.1
—
75.0
22.9
10.9
28.1
136.9
(38.6)
2.0
7.6
1.2
0.1
73.3 $
87.1 $
110.4 $
109.2
First
Quarter
2022
Second
Quarter
2022
Third
Quarter
2022
Fourth
Quarter
2022
$
$
$
12.4
2.1
18.1
19.3
51.9
34.6
1.6
(0.6)
—
87.5
34.2 $
23.0 $
39.8 $
10.1
17.0
16.9
78.2
(9.3)
2.8
(0.3)
1.0
9.3
16.9
17.6
66.8
(9.2)
6.2
4.0
1.6
13.2
17.3
17.6
87.9
(9.2)
9.9
(2.2)
—
$
72.4 $
69.4 $
86.4 $
37
(In millions)
Income from continuing operations
Income tax expense
Net interest and other financing expenses
Depreciation and amortization
EBITDA from continuing operations (a)
Net pension and postretirement plan income (b)
Net legacy and separation-related expenses
(income) (c)
Suspended operations (e)
Restructuring and related adjustments (g)
First
Quarter
2021
Second
Quarter
2021
Third
Quarter
2021
Fourth
Quarter
2021
$
18.1 $
8.3 $
49.0 $
124.7
6.6
20.5
14.0
59.2
2.5
53.8
15.2
79.8
17.3
16.7
15.8
98.8
(13.3)
(13.4)
(13.7)
0.6
(0.4)
(0.1)
0.3
(0.1)
—
0.8
(0.3)
—
33.5
17.3
17.1
192.6
(87.8)
(25.3)
(0.7)
—
78.8
Adjusted EBITDA from continuing operations (a)
$
46.0 $
66.6 $
85.6 $
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company closely manages its liquidity and capital resources. Valvoline’s liquidity requirements depend on key
variables, including the level of investment needed to support business strategies, the performance of the business,
capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, acquisitions,
and share repurchases are components of the Company’s cash flow and capital management strategy, which to a
large extent, can be adjusted in response to economic and other changes in the business environment. The
Company has a disciplined approach to capital allocation, which focuses on investing in key priorities that support
Valvoline’s business and growth strategies and returning capital to shareholders, while funding ongoing operations.
Continuing operations cash flows
Valvoline’s continuing operations cash flows as reflected in the Consolidated Statements of Cash Flows are
summarized as follows for the years ended September 30:
(In millions)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating activities
2023
2022
$
$
$
353.0 $
(577.2) $
(1,565.5) $
134.4
(170.9)
(262.9)
The increase in cash flows provided by operating activities of $218.6 million was largely driven by higher cash
earnings and favorable changes in net working capital, primarily due to timing-related growth in payables and
accruals as a result of the sale of Global Products. These favorable changes were partially offset by increased
interest and tax payments during the current year.
Investing activities
The increase in cash flows used in investing activities of $406.3 million from the prior year was principally related to
the purchase of investments for $440.4 million, which included U.S. treasury securities classified as held-to-maturity
short-term investments and a deferred compensation investment fund. In addition, increased capital expenditures of
$48.5 million driven by growth investments primarily related to new store construction, and lower net cash inflows
from franchisee loans receivable of $11.6 million also contributed to the increased cash flows used in investing
activities. The combination of these changes increased cash flows used in investing activities and were partially
38
offset by an increase in proceeds from maturities of short-term investments of $80.0 million and a $14.4 million
reduction in current year acquisition activity and related spend.
Financing activities
The increase in cash flows used in financing activities of $1.303 billion from the prior year was primarily due to
returning $1.382 billion more in cash to shareholders through share repurchases, which included $1.030 billion in
principal and fees related to completing the Tender Offer in June 2023. This increased use of cash from the prior
year was partially offset by a $15.2 million increase in cash inflows from net borrowing activity, in addition to lower
dividends paid of $67.4 million.
Continuing operations free cash flow
The following table sets forth free cash flow and discretionary free cash flow from continuing operations and
reconciles cash flows from operating activities to both measures. As previously noted, free cash flow has certain
limitations, including that it does not reflect adjustments for certain non-discretionary cash flows, such as mandatory
debt repayments. Refer to “Use of Non-GAAP Measures” within this Item 7 for additional information regarding this
non-GAAP measure.
(In millions)
Cash flows provided by operating activities
Less: Maintenance capital expenditures
Discretionary free cash flow
Less: Growth capital expenditures
Free cash flow
2023
2022
$
$
353.0 $
(29.5)
323.5
(151.0)
172.5 $
134.4
(19.3)
115.1
(112.7)
2.4
The increase in free cash flow from continuing operations over the prior year was driven by higher cash flow
provided by operating activities, partially offset by increased capital expenditures. Higher capital expenditures were
primarily due to growth investments related to new store construction.
Discontinued operations cash flows
Valvoline has historically satisfied its short-term working capital and operational needs, in addition to indebtedness
and other obligations, through the earnings, assets and cash flows generated by its consolidated operations.
Following the Transaction, Valvoline will not be able to rely on the earnings, assets or cash flows that are
attributable to the Global Products business. The cash flows of the discontinued operation are reflected in the
Consolidated Statements of Cash Flows and are summarized below for the years ended September 30:
(In millions)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
2023
2022
$
$
$
(393.8) $
2,620.9 $
(108.1) $
149.8
(36.7)
44.0
The decrease in operating cash flows provided by discontinued operations was largely due to tax payments of
$300.8 million relating to the gain on sale of discontinued operations, in addition to payments of separation-related
costs attributed to the sale of the Global Products business, including the success fee which coincided with the
close of the Transaction on March 1, 2023. Additionally, changes in net working capital during the pre-close period
drove unfavorable operating cash flows primarily due to trade and other payables activity in the cost inflationary
environment and growth in accounts receivables from increased sales compared to the prior year. These items,
along with the partial period of operational results due to the sale of the business in the current year, drove the
decline in year-over-year operating cash flows for the discontinued operation.
39
Cash flows provided by investing activities of discontinued operations were significantly higher in the current year
period due to the aggregate cash consideration received, net of cash transferred to Global Products entities, of
$2.634 billion in connection with the completion of the Transaction and sale of the business.
The increase in cash flows used in financing activities of discontinued operations was primarily due to higher net
repayments on borrowings during the current period, driven by the extinguishment of the $175.0 million Trade
Receivables Facility.
Debt
The following table summarizes Valvoline’s continuing operations debt as of September 30:
(In millions)
2031 Notes
2030 Notes
Term Loan
Trade Receivables Facility
Debt issuance costs and discounts
Total debt
Current portion of long-term debt
Long-term debt
2023
2022
$
535.0 $
600.0
463.1
—
(12.0)
1,586.1
23.8
$
1,562.3 $
535.0
600.0
460.0
105.0
(12.4)
1,687.6
162.5
1,525.1
Inclusive of the Company’s interest rate swap agreements, approximately 82% of Valvoline's outstanding
borrowings as of September 30, 2023 had fixed rates, with the remainder bearing variable interest rates. As of
September 30, 2023, Valvoline was in compliance with all covenants of its debt obligations and had borrowing
capacity remaining of $471.6 million. Refer to Note 8 of the Notes to Consolidated Financial Statements included in
Item 8 of Part II of this Annual Report on Form 10-K for additional details regarding the Company’s debt
instruments.
Material cash requirements
The Company's material cash requirements for the continuing operations include the following contractual
obligations and commitments as of September 30, 2023:
(In millions)
Long-term debt (a)
Interest payments (b)
Operating lease obligations
Finance lease obligations
Employee benefit obligations (c)
Total
Total
Less than
1 year
1-3
years
3-5
years
$
$
1,598.1 $
430.6
346.7
283.8
77.9
2,737.1 $
23.8 $
71.3
41.1
22.5
8.3
167.0 $
47.5 $
139.1
77.7
46.0
18.9
329.2 $
391.8 $
123.8
68.1
46.4
17.1
647.2 $
5 years
and more
1,135.0
96.4
159.8
168.9
33.6
1,593.7
(a) The bonds are classified in the table above based on the current contractual maturity. However, there is a current expectation than an offer
(b)
(c)
to repurchase the 2030 Senior Notes will be made during the second quarter of fiscal 2024. See Note 8 for further details.
Includes interest expense on both variable and fixed rate debt, assuming no prepayments. Variable interest rates have been assumed to
remain constant through payment at the rates that existed as of September 30, 2023.
Includes projected benefit payments through fiscal 2033 for Valvoline’s unfunded benefit plans. Excludes benefit payments from pension
plan trust funds.
Fiscal 2024 capital expenditures
Valvoline is currently forecasting approximately $185 million to $215 million of capital expenditures for fiscal 2024,
funded primarily from operating cash flows.
40
Pension and other postretirement plan obligations
The Company makes cash and non-cash contributions and benefit payments for its pension and other
postretirement plans. During fiscal 2023, the Company made $20.8 million in benefit payments for its non-qualified
pension and other postretirement plans, consisting of $6.0 million of cash payments. Based on current data and
assumptions, the Company does not anticipate the need to satisfy any minimum funding requirements to its
qualified pension plans for at least the next 5 years. Refer to Note 10 of the Notes to Consolidated Financial
Statements in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding the
Company's U.S. pension and other postretirement plans.
Dividend payments and share repurchases
During the year ended September 30, 2023, the Company paid cash dividends of $0.125 per common share for
$21.8 million and repurchased 41.8 million shares of its common stock for $1.519 billion. These repurchases utilized
the remaining $130.4 million under the $300 million share repurchase authorization approved by the Board on May
17, 2021 and $1.389 billion under the 2022 Share Repurchase Authorization. As of September 30, 2023, $211.5
million remained available for repurchase under the 2022 Share Repurchase Authorization. Additionally, the
Company repurchased 4.2 million shares for an aggregate amount of $130.1 million from October 1, 2023 through
November 15, 2023 pursuant to the 2022 Share Repurchase Authorization, leaving $81.4 million in aggregate
repurchase authority remaining as of November 15, 2023.
The share repurchase activity in the year ended September 30, 2023 includes the Company’s completion of a
modified “Dutch auction” tender offer for the purchase of 27.0 million shares of Valvoline common stock at $38.00
per share for an aggregate purchase price of $1.024 billion, excluding related fees and expenses. For further
information regarding the Tender Offer, refer to Note 14 of the Notes to Consolidated Financial Statements.
The dividend and share repurchase authorization is part of a broader capital allocation framework to deliver value to
shareholders by first driving growth in the business, organically and through acquisitions and franchise
development, and then returning excess cash to shareholders through dividends and share repurchases. As focus
further shifts to the growth of Valvoline following the sale of Global Products, the Company discontinued its dividend
after the first quarter of fiscal 2023 and has continued to return value to shareholders through share repurchases.
The Company anticipates repurchasing shares of its common stock up to the full amount remaining under the 2022
Share Repurchase Authorization in early fiscal 2024, subject to market conditions.
Summary
Valvoline’s continuing operations had cash and cash equivalents of $409.1 million, short-term investments of
$347.5 million, total debt of $1.6 billion, and total remaining borrowing capacity of $471.6 million as of
September 30, 2023. Valvoline’s ability to generate positive cash flows from operations is dependent on general
economic conditions, the competitive environment in the industry, and is subject to the business and other risk
factors described in Item 1A of Part I of this Annual Report on Form 10-K.
Management believes that the Company has sufficient liquidity based on its current cash and cash equivalents
position, short-term investments, cash generated from business operations, and existing financing in place, to meet
its pension and other postretirement plan requirements, debt servicing obligations, tax-related and other material
cash and operating requirements for the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion and analysis of recently issued and adopted accounting pronouncements and the impact on
Valvoline, refer to Note 2 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual
Report on Form 10-K.
CRITICAL ACCOUNTING ESTIMATES
The preparation of Valvoline’s consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and
41
expenses, and the disclosures of contingent matters. Significant items that are subject to such estimates and
assumptions include, but are not limited to, employee benefit obligations, business combinations, and income taxes.
Although management bases its estimates on historical experience and various other assumptions that are believed
to be reasonable under the circumstances, actual results could differ significantly from the estimates under different
assumptions or conditions. Valvoline’s significant accounting policies are discussed in Note 2 of the Notes to
Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. The Company believes
the accounting estimates listed below are the most critical to aid in fully understanding and evaluating the reported
financial results, and require the most difficult, subjective, or complex judgments, resulting from the need to make
estimates about the effects of matters that are inherently uncertain.
Employee benefit obligations
Description
Judgments and
uncertainties
Effect if actual results
differ from assumptions
Valvoline sponsors defined benefit pension and other
postretirement plans in the U.S. As of September 30,
2023, Valvoline’s net unfunded pension and other
postretirement plan liabilities included in the Consolidated
Balance Sheet totaled $139.4 million. Total pension and
other postretirement net periodic benefit income
recognized in fiscal 2023 was $27.6 million, inclusive of a
$41.6 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.
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.
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.
Actuarial assumptions
Significant assumptions the Company must review and set annually and at each measurement date related to its
pension and other postretirement benefit obligations are:
•
Expected long-term return on plan assets — The expected long-term return on plan assets assumption
reflects the long-term average rate of return plan assets are expected to earn. This assumption is
determined considering each plan's asset allocation targets and overall expected performance, including
evaluation of the most recent long-term historical returns, as applicable. The weighted-average long-term
expected rate of return on assets assumption was 4.90% for fiscal 2023. In fiscal 2023, the pension plan
assets generated an actual weighted-average return of 2.56%, primarily driven by the market performance
of the plan assets of the qualified pension plans based on the Company’s investment strategy to hedge the
movement in liabilities related to changes in discount rates with investments of a matched duration that
provide offsetting returns aligned with changes in interest rates. The expected return on plan assets is
designed to be a long-term assumption, and therefore, actual returns will be subject to year-to-year
42
variances. For fiscal 2024, the expected rate of return on assets assumption for the qualified pension plans
will be 5.30%. The expected long-term return on plan assets assumption has no impact on the reported net
liability or net actuarial gains or losses upon remeasurement but does impact the recurring non-service net
periodic income recognized ratably throughout the year.
Valvoline’s pension plans hold a variety of investments designed to diversify risk. Plan assets are invested
in equity securities, government and agency securities, corporate debt, and other non-traditional assets
such as hedge funds. The investment goal of the pension plans is to achieve an adequate net investment
return to provide for future benefit payments to its participants. Target asset allocation percentages as
of September 30, 2023 for the qualified pension plans were 90% fixed income and 10% equity investments.
The qualified pension plans are managed by professional investment managers that operate under
investment management contracts that include specific investment guidelines, requiring among other
actions, adequate diversification and prudent use of risk management practices such as portfolio
constraints relating to established benchmarks. Holding all other assumptions constant, a hypothetical
1.00% change in the expected long-term return on plan assets assumption for the qualified pension plans
would impact fiscal 2023 recurring non-service pension income by $13.7 million.
• Discount rate — Reflects the rates at which benefits could effectively be settled and is based on current
investment yields of high-quality corporate bonds. Consistent with historical practice, the Company uses an
actuarially-developed full yield curve approach, the above mean yield curve, to match the timing of cash
flows of expected future benefit payments from the plans by applying specific spot rates along the yield
curve to determine the assumed discount rate. Valvoline’s fiscal 2023 expense, excluding actuarial gains
and losses, for pension plans was determined using the spot discount rates as of the beginning of the fiscal
year. The interest cost discount rates for fiscal 2023 pension expense and other postretirement expense
were 5.45% and 5.41%, respectively. The weighted-average discount rate at the end of fiscal 2023 was
5.98% for the pension plans and 5.98% for the postretirement health and life plans.
The following table illustrates the estimated impact on hypothetical pension and other postretirement
expense that would have resulted from a one percentage point change in discount rates in isolation of
impacts on other significant assumptions in the years ended September 30:
(In millions)
Increase (decrease) in pension and other postretirement plan expense - 1.00% decrease in
discount rates:
2023
2022
Pension benefits
Increase in benefit obligation
Increased return on plan assets (a)
Estimated hypothetical increase in expense
Other postretirement benefits
Increase in benefit obligation
Total estimated hypothetical increase in expense
$
$
126.6 $
(122.0) $
4.6
144.2
(138.7)
5.5
1.7
6.3 $
2.3
7.8
(a) The qualified pension plans employ an investing strategy to match the duration of its obligation and investments. These plans represent
95% of Valvoline’s total gross pension plan obligation as of September 30, 2023 and 2022. This strategy hedges approximately 100% of
the movement in liabilities related to changes in discount rates as of September 30, 2023 and 2022, respectively. Therefore, when discount
rates change, asset returns generally mirror the impacts, minimizing the net impact to the consolidated financial statements. This estimated
impact does not include increased returns of other plan assets that may also benefit from increased interest rates.
• Mortality — The mortality assumption for Valvoline's U.S. pension and other postretirement plans is utilizes
the Society of Actuaries PRI-2012 mortality base tables and a mortality improvement scale that follows the
2023 Trustees Report of the Social Security Administration Intermediate Alternative as reflected in the
MSS-2023 improvement scale. Valvoline believes the updated mortality improvement scales provide a
43
reasonable assessment of current mortality trends and is an appropriate estimate of future mortality
projections.
Other assumptions, including the rate of compensation increase and healthcare cost trend rate, do not have a
significant impact on Valvoline's pension and other postretirement benefit plan costs and obligations based upon
current plan provisions that have generally frozen benefits and limited costs.
44
Business combinations and intangible assets
Description
Valvoline acquired 31 service center stores
during fiscal 2023 for an aggregate purchase
price of $36.3 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. At the time of
the Company’s annual impairment assessment,
Valvoline consisted of a singular reporting unit,
Retail Services, after the completion of the sale
of Global Products.
The Company’s amortizable intangible assets
were $102.6 million, net of $72.8 million of
accumulated amortization as of September 30,
2023. 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, technology or
development of alternative assets, economic
conditions, operating performance, and expected
future cash flows.
Effect if actual results differ
from assumptions
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
2023 or 2022. Valvoline
elected to perform qualitative
impairment assessments of
goodwill in 2023 and 2022,
which indicated that it was
more likely than not that the
fair values of the reporting unit
in fiscal 2023 and the reporting
units in fiscal 2022 were in
excess of carrying amounts.
Judgments and uncertainties
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.
45
Income taxes
Description
Judgments and uncertainties
Valvoline is subject to income taxes
in the United States and international
jurisdictions where its businesses
operate.
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.
Once the consolidated income tax
provision is computed, the tax effect
of pre-tax income is determined
without consideration of the current
year pre-tax income or loss from
other financial statement
components, including discontinued
operations. The portion of total
income tax that remains after the
attribution of tax to continuing
operations is allocated to the
remaining components.
The separation from Global Products
resulted in a pre-tax gain of $1.572
billion and related income tax
expense of $424.3 million which
includes federal, state, and
international considerations for the
jurisdictions where the proceeds
were allocated and the respective tax
bases of the net assets transferred.
In connection with completing
separation transactions, both from
Valvoline’s former parent company
and closing of the sale of Global
Products, the parties generally
indemnify one another for various tax
matters between the businesses that
may arise following the transactions.
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.
Income tax impacts associated with the gain on the
sale of Global Products were complex and included
high degree of judgment due to the pre-sale
restructuring transactions completed to facilitate the
sale in additional to the large volume of federal, state,
and international jurisdictions that were required to
be evaluated and completed.
Indemnifications among parties regarding tax matters
require judgment in determining the timing and
measurement of related receivables and payables to
resolve these obligations.
Effect if actual
results differ from
assumptions
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.
Adjustments to
indemnifications
impact pre-tax
results and are not
directly related to the
ongoing business.
These adjustments
may also affect the
income tax provision
of the continuing
operation dependent
on the nature of the
underlying issue.
Each change of $2.4
million and $18.9
million for continuing
operations and
consolidated income
tax provisions,
respectively, would
impact the respective
fiscal 2023 effective
tax rates by one
percentage point.
46
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Valvoline is exposed to market risks arising from adverse changes in:
•
•
•
•
Inflation and changing prices;
Interest rates;
Credit risk; and
Currency exchange rates.
These market risks are described further below. In addition, refer to Item 1A of Part I in this Annual Report on Form
10-K for additional discussion of these and other risks.
Inflation and changing prices
The cost of materials and labor used in Valvoline’s automotive preventive maintenance services are affected by
cost inflation and global commodity prices that could expose Valvoline to risks in its results. Valvoline can mitigate
this risk by passing along price increases to its customers; however, the ability to pass on these price increases is
largely dependent upon market conditions. Results were impacted by rising inflationary costs in fiscal 2022 and
through the first half of fiscal 2023, a significant portion of which were passed through to customers through a series
of price increases. Contracts with Valvoline’s independent operators are generally indexed to accommodate
changes in material prices. Valvoline may not always be able to raise prices in response to increased costs or may
experience delays in passing through such costs, as its ability to do so is largely dependent upon market conditions.
Interest rate risk
The Company is subject to modest interest rate risk in relation to its variable-rate debt. Inclusive of the Company's
interest rate swap agreements, 82% of the Company’s outstanding borrowings had fixed rates as of September 30,
2023. The increase in interest expense for the year ended September 30, 2023 from a hypothetical 100 basis point
increase in variable interest rates would be approximately $2.9 million.
In addition, the Company is exposed to market risk relative to the impact of changes in interest rates and
investment returns on its pension and other postretirement plans. Declines in the discount rates used in measuring
the Company's pension and other postretirement plan obligations result in a higher obligation and decrease the
funded status. The pension plans hold a variety of investments designed to diversify risk, protect against declines in
interest rates, and achieve an adequate net investment return to provide for future benefit payments to its
participants. These investments are subject to variability that can be caused by fluctuations in general economic
conditions. Decreases in the fair value of plan assets and discount rates increase net pension and other
postretirement plan expense and can also result in requirements to make contributions to the plans. Pension and
other postretirement plans were underfunded by $139.4 million at September 30, 2023 as the projected benefit
obligation exceeded the fair value of plan assets.
Credit risk
The Company is potentially subject to concentrations of credit risk on financial instruments, such as derivative
instruments, cash and cash equivalents and short-term investments. Credit risk includes the risk of nonperformance
by counterparties, and the maximum potential loss may exceed the amount recognized within the Consolidated
Balance Sheets. Exposure to credit risk is managed by selecting highly-rated financial institutions as counterparties
to transactions and monitoring procedures. As of September 30, 2023, there was not a significant concentration of
credit risk related to financial instruments.
Currency exchange risk
Substantially all of Valvoline’s operations and sales of its continuing operation occur in the U.S., resulting in limited
exposure to currency exchange. Valvoline uses derivatives not designated as hedging instruments consisting
47
primarily of forward contracts to hedge certain non-functional currency denominated balance sheet exposures.
These contracts are recorded within the Consolidated Balance Sheets as assets or liabilities at fair market value.
Changes in the fair value of these derivatives are recognized in income to offset the gain or loss on the hedged
item. The Company utilizes derivative instruments that are purchased exclusively from highly-rated financial
institutions.
48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Data
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity (Deficit)
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Basis of Presentation
Note 2 - Significant Accounting Policies
Note 3 - Discontinued Operations and Held for Sale
Note 4 - Fair Value Measurements
Note 5 - Business Combinations
Note 6 - Leasing
Note 7 - Intangible Assets
Note 8 - Debt
Note 9 - Income Taxes
Note 10 - Employee Benefit Plans
Note 11 - Litigation, Claims and Contingencies
Note 12 - Stock-Based Compensation Plans
Note 13 - Earnings Per Share
Note 14 - Stockholders' Equity
Note 15 - Supplemental Balance Sheet Information
Note 16 - Subsequent Events
50
53
54
55
56
57
57
57
67
70
72
74
75
76
79
83
88
89
91
91
93
95
49
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Valvoline Inc. and Consolidated Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Valvoline Inc. and Consolidated Subsidiaries
(the Company) as of September 30, 2023 and 2022, the related consolidated statements of comprehensive income,
stockholders’ equity (deficit) and cash flows for each of the three years in the period ended September 30, 2023,
and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at September 30, 2023 and 2022, and the results of its
operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2023, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), and our report dated November 20, 2023,
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
50
Description of the Matter At September 30, 2023, the Company’s aggregate defined benefit pension and other
Accounting for pension and other postretirement benefit obligations
How We Addressed the
Matter in Our Audit
postretirement obligations (together, the “Employee Benefit Obligations”) were $1,500.4
million and exceeded the fair value of pension plan assets of $1,361.0 million, resulting in
unfunded Employee Benefit Obligations of $139.4 million. As disclosed 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.
We obtained an understanding, evaluated the design and tested the operating effectiveness
of controls to measure and value 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 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 estimating the Employee Benefit
Obligations, including reviews of the selected discount and mortality rates with the
Company’s independent actuary.
To test the Employee Benefit Obligations, we performed audit procedures that included,
among others, evaluating the methodology used, the significant actuarial assumptions
discussed above, and testing the completeness and accuracy of the underlying data used by
management, including participant data. In addition, we involved our actuarial specialists to
assist with our procedures. 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. 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.
51
Description of the Matter As disclosed in Note 1 and Note 3 of the consolidated financial statements, the
Accounting for the income tax impacts on the sale of Global Products
How We Addressed the
Matter in Our Audit
Company closed on the sale of its former Global Products reportable segment on
March 1, 2023. This transaction resulted in a pre-tax gain of $1,571.6 million and
related income tax expense of $424.3 million. The pre-tax gain on sale reflects the
proceeds received by the Company after the derecognition of the carrying values
associated with the net assets transferred at the time of the sale. The income tax
expense includes the federal, state and international considerations for the jurisdictions
where the proceeds were allocated and the respective tax bases of the net assets
transferred.
Auditing the income tax impacts associated with the pre-tax gain on sale was complex
due to the high degree of auditor judgment, subjectivity, and effort in performing
procedures and evaluating audit evidence, which involved the use of professionals with
specialized skill and knowledge. This included evaluation of pre-sale restructuring
transaction steps completed by the Company to facilitate the sale and the high volume
of federal, state and international jurisdictions that were required to be evaluated to
audit the taxable nature of the pre-tax gain on the sale
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls to record the income tax expense associated with the pre-tax
gain on sale. For example, we tested controls over management’s evaluation of the
terms of the sale agreement, the allocation of the proceeds, the taxable nature of the
pre-tax gain on the sale by jurisdiction, and the mathematical accuracy of the
calculations. Where judgment was exercised by management, our audit procedures
included testing controls over management’s evaluation of the application of the
jurisdictional tax laws and regulations used in calculating the income tax expense.
To test the income tax expense on the pre-tax gain on sale, our audit procedures
included, among others, evaluating the information, including third-party opinions, tax
law, and other relevant evidence used by management to support its positions
regarding the income tax impacts of the pre-tax gain on sale. Professionals with
specialized skill and knowledge were used to assist in the evaluation of the taxable
nature of the pre-tax gain on the sale.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Louisville, Kentucky
November 20, 2023
52
Valvoline Inc. and Consolidated Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions, except per share amounts)
Net revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Net legacy and separation-related expenses (income)
Other income, net
Operating income
Net pension and other postretirement plan (income) expense
Net interest and other financing expense
Income before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of tax
Net income
NET EARNINGS PER SHARE
Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations
Discontinued operations
Diluted earnings per share
Years ended September 30
2023
2022
2021
$
1,443.5 $
1,236.1 $
1,037.2
899.0
544.5
264.5
32.8
—
247.2
(27.6)
38.3
236.5
37.1
199.4
1,220.3
759.7
476.4
244.7
20.5
(9.1)
220.3
6.9
69.3
144.1
34.7
109.4
314.9
$
1,419.7 $
424.3 $
$
$
$
$
1.24 $
7.55
8.79 $
1.23 $
7.50
8.73 $
0.61 $
1.76
2.37 $
0.61 $
1.74
2.35 $
604.9
432.3
223.9
(23.6)
(8.1)
240.1
(128.2)
108.3
260.0
59.9
200.1
220.2
420.3
1.10
1.20
2.30
1.09
1.20
2.29
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic
Diluted
161.6
162.6
179.1
180.4
182.5
183.5
COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss), net of tax
Currency translation adjustments
Amortization of pension and other postretirement plan prior
service credits
Unrealized (loss) gain on cash flow hedges
Other comprehensive income (loss)
Comprehensive income
$
1,419.7 $
424.3 $
420.3
43.7
(1.7)
(7.5)
34.5
(39.6)
(1.7)
12.5
(28.8)
6.6
(9.0)
1.7
(0.7)
$
1,454.2 $
395.5 $
419.6
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
53
Valvoline Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
A
Assets
Current assets
Cash and cash equivalents
Receivables, net
Inventories, net
Prepaid expenses and other current assets
Short-term investments
Current assets held for sale
Total current assets
Noncurrent assets
Property, plant and equipment, net
Operating lease assets
Goodwill and intangibles, net
Other noncurrent assets
Total noncurrent assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt
Trade and other payables
Accrued expenses and other liabilities
Current liabilities held for sale
Total current liabilities
Noncurrent liabilities
Long-term debt
Employee benefit obligations
Operating lease liabilities
Other noncurrent liabilities
Total noncurrent liabilities
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value, 40 shares authorized; no shares issued and
outstanding
Common stock, par value $0.01 per share, 400.0 shares authorized, 134.8 and
176.1 shares issued and outstanding at September 30, 2023 and 2022,
respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Stockholders' equity
Total liabilities and stockholders’ equity
As of September 30
2023
2022
$
409.1 $
81.3
33.3
65.5
347.5
—
936.7
818.3
266.5
680.6
187.8
23.4
66.1
29.4
38.0
—
1,464.2
1,621.1
668.6
248.1
663.1
215.9
$
$
1,953.2
2,889.9 $
1,795.7
3,416.8
23.8 $
118.7
215.9
3.9
362.3
162.5
45.0
172.6
539.3
919.4
1,562.3
1,525.1
168.0
247.3
346.8
199.4
229.2
237.1
2,324.4
2,190.8
—
—
1.3
48.0
140.7
13.2
1.8
44.1
282.0
(21.3)
203.2
2,889.9 $
306.6
3,416.8
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
54
Valvoline Inc. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to cash flows from operating
activities:
Income from discontinued operations
Loss on extinguishment of debt
Depreciation and amortization
Deferred income taxes
(Gain) loss on pension and other postretirement plan
remeasurements
Stock-based compensation expense
Other, net
Change in assets and liabilities
Receivables
Inventories
Payables and accrued liabilities
Other assets and liabilities
Operating cash flows from continuing operations
Operating cash flows from discontinued operations
Total cash (used in) provided by operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Acquisitions of businesses
Purchases of investments
Proceeds from maturities of short-term investments
Other investing activities, net
Investing cash flows from continuing operations
Investing cash flows from discontinued operations
Total cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from borrowings, net of issuance costs of $3.0 million and
$7.1 million in 2023 and 2021, respectively
Repayments on borrowings
Premium paid to extinguish debt
Repurchases of common stock
Cash dividends paid
Other financing activities
Financing cash flows from continuing operations
Financing cash flows from discontinued operations
Total cash used in financing activities
Effect of currency exchange rate changes on cash, cash
equivalents and restricted cash
Increase (decrease) in cash, cash equivalents and restricted
cash
Cash, cash equivalents and restricted cash - beginning of year
Cash, cash equivalents and restricted cash - end of year
Supplemental disclosures
Interest paid
Income taxes paid
Years ended September 30
2022
2023
2021
$
1,419.7 $
424.3 $
420.3
(1,220.3)
—
88.8
33.6
(41.6)
12.2
11.9
26.4
(3.3)
111.3
(85.7)
353.0
(393.8)
(40.8)
(180.5)
(36.3)
(440.4)
80.0
—
(577.2)
2,620.9
2,043.7
921.0
(920.9)
—
(1,524.8)
(21.8)
(19.0)
(1,565.5)
(108.1)
(1,673.6)
(314.9)
—
71.4
18.0
43.9
14.4
4.2
(17.5)
(5.4)
24.5
(128.5)
134.4
149.8
284.2
(132.0)
(50.7)
—
—
11.8
(170.9)
(36.7)
(207.6)
23.0
(38.1)
—
(142.6)
(89.2)
(16.0)
(262.9)
44.0
(218.9)
(220.2)
36.4
62.1
56.9
(74.3)
13.7
3.4
(17.4)
(5.3)
26.7
(120.1)
182.2
221.7
403.9
(103.1)
(281.7)
—
—
26.1
(358.7)
(41.2)
(399.9)
527.9
(800.0)
(26.2)
(126.9)
(90.9)
(10.0)
(526.1)
(9.4)
(535.5)
(0.1)
(5.2)
2.4
329.2
83.9
(147.5)
231.4
413.1 $
83.9 $
(529.1)
760.5
231.4
69.6 $
373.8 $
59.4 $
73.9 $
62.1
72.3
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
55
Valvoline Inc. and Consolidated Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
(In millions, except per share amounts)
Balance at September 30, 2020
Net income
Dividends paid, $0.500 per common share
Stock-based compensation, net of issuances
Repurchases of common stock
Cumulative effect of adoption of credit losses
standard, net of tax
Other comprehensive loss, net of tax
Balance at September 30, 2021
Net income
Dividends paid, $0.500 per common share
Stock-based compensation, net of issuances
Repurchases of common stock
Other comprehensive loss, net of tax
Balance at September 30, 2022
Net income
Dividends paid, $0.125 per common share
Stock-based compensation, net of issuances
Repurchases of common stock
Other comprehensive income, net of tax
Balance at September 30, 2023
Common stock
Shares Amount
Paid-in
capital
Retained
(deficit)
earnings
Accumulated
other
comprehensive
income (loss)
Totals
185.1 $
1.9 $ 24.5
$ (110.6) $
8.2 $ (76.0)
—
—
—
—
—
—
(4.8)
(0.1)
—
—
180.3
—
—
0.3
(4.5)
—
—
—
1.8
—
—
—
—
—
—
0.6
10.1
—
—
—
35.2
—
0.5
8.4
—
—
176.1
1.8
44.1
420.3
(91.5)
—
(126.9)
(1.3)
—
90.0
424.3
(89.7)
—
(142.6)
—
282.0
—
—
0.5
(41.8)
—
—
—
—
(0.5)
—
— 1,419.7
0.1
3.8
(21.9)
—
— (1,539.1)
—
—
134.8 $
1.3 $ 48.0
$ 140.7 $
—
—
—
420.3
(90.9)
10.1
— (127.0)
—
(0.7)
7.5
—
—
—
(1.3)
(0.7)
134.5
424.3
(89.2)
8.4
— (142.6)
(28.8)
(28.8)
(21.3)
306.6
— 1,419.7
—
—
(21.8)
3.8
— (1,539.6)
34.5
34.5
13.2 $ 203.2
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
56
Valvoline Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of business
Valvoline Inc. (“Valvoline” or the “Company”) is a leader in automotive preventive maintenance delivering
convenient and trusted services in its retail stores throughout the United States (“U.S.”) and Canada. The Company
operates and franchises more than 1,850 service center locations through its Valvoline Instant Oil ChangeSM
(“VIOC”) and Valvoline Great Canadian Oil Change (“GCOC”) retail locations and supports nearly 300 locations
through its Express CareTM platform.
As the quick, easy, trusted leader in automotive preventive maintenance, Valvoline is creating shareholder value by
driving the full potential of its core business, accelerating network growth and innovating to meet the needs of
customers and the evolving car parc. With average customer ratings that indicate high levels of service satisfaction,
Valvoline and the Company’s franchise partners keep customers moving with 15-minute stay-in-your-car oil
changes; battery, bulb and wiper replacements; tire rotations; and other manufacturer recommended maintenance
services.For over 15 decades, Valvoline has consistently adapted to address changing technologies and customer
needs and is well positioned to service evolving vehicle maintenance needs with its growing network of stores.
Sale of Global Products business
On March 1, 2023, Valvoline completed the sale of its former Global Products reportable segment (“Global
Products”) to Aramco Overseas Company B.V. (“Aramco or the “Buyer”) (the”Transaction”). As a result, in all prior
periods presented within these consolidated financial statements, the assets and liabilities associated with the
Global Products disposal group have been classified as held for sale within the Consolidated Balance Sheet and its
operations have been classified as discontinued operations within the Consolidated Statements of Comprehensive
Income and Cash Flows.
The operating results and cash flows of the Global Products business have been reported through February 28,
2023, the date immediately prior to the closing date of the Transaction. Refer to Note 3 for additional information
regarding the Global Products business, including the assets and liabilities divested and income from discontinued
operations. Unless otherwise noted, disclosures within these remaining Notes to Consolidated Financial Statements
relate solely to the Company's continuing operations.
Basis of presentation and consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission
(“SEC”) regulations. The financial statements are presented on a consolidated basis for all periods presented and
include the operations of the Company and its majority-owned and controlled subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Certain prior period amounts have been reclassified in the accompanying consolidated financial statements and
notes thereto to conform to the current period presentation.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Valvoline’s significant accounting policies, which conform to U.S. GAAP and are applied on a consistent basis in all
periods presented, except when otherwise disclosed, are described below.
Use of estimates, risks and uncertainties
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
57
the disclosures of contingent matters. Although management bases its estimates on historical experience and
various other assumptions that are believed to be reasonable under the circumstances, actual results could differ
significantly from the estimates under different assumptions or conditions.
Held for sale and discontinued operations
The Company classifies assets and liabilities to be sold (disposal group) as held for sale in the period when all of
the applicable criteria are met, including: (i) management commits to a plan to sell, (ii) the disposal group is
available to sell in its present condition, (iii) there is an active program to locate a buyer, (iv) the disposal group is
being actively marketed at a reasonable price in relation to its fair value, (v) significant changes to the plan to sell
are unlikely, and (vi) the sale of the disposal group is generally probable of being completed within one year.
Management performs an assessment at least quarterly or when events or changes in business circumstances
indicate that a change in classification may be necessary.
Assets and liabilities held for sale are presented separately within the Consolidated Balance Sheets with any
adjustments necessary to measure the disposal group at the lower of its carrying value or fair value less costs to
sell. Depreciation of property, plant and equipment and amortization of intangible and right-of-use assets are not
recorded while these assets are classified as held for sale. For each period the disposal group remains classified as
held for sale, its recoverability is reassessed and any necessary adjustments are made to its carrying value.
The Company reports the results of operations of a business as discontinued operations if a disposal represents a
strategic shift that will have a major effect on its operations and financial results. The results of discontinued
operations are reported as Income from discontinued operations, net of tax in the Consolidated Statements of
Comprehensive Income for the current and prior periods commencing in the period in which the held for sale criteria
are met. Income from discontinued operations, net of tax includes direct costs attributable to the divested business
and excludes any cost allocations associated with any shared or corporate functions unless otherwise dedicated to
the divested business. Income from discontinued operations, net of tax will include any gain or loss recognized
upon disposition or from adjustment of the carrying amount to fair value less costs to sell while classified as held for
sale.
Transactions between the businesses held for sale and businesses held for use that are expected to continue after
the disposal are not eliminated in order to appropriately reflect the continuing operations as well as the activity to be
disposed of. Interest costs are included as a component of Income from discontinued operations, net of tax for debt
specifically attributable to the discontinued operation or debt that is obligated to be repaid in connection with the
completion of the divestiture. Activity within comprehensive income directly associated with a divested business is
not realized as a component of Income from discontinued operations, net of tax until completion of the sale or
disposition.
Cash and cash equivalents
All short-term, highly liquid investments having original maturities of three months or less are considered to be cash
equivalents.
Short-term investments
U.S. treasury securities with a maturity of greater than three months and less than one year are considered to be
short-term investments. Valvoline determines the classification of these securities as trading, available for sale or
held-to-maturity at the time of purchase and evaluates those determinations at each balance sheet date. The
Company’s short-term investments are stated at amortized cost within the Consolidated Balance Sheet and
classified as held-to-maturity based on the intent and ability to hold to these investments to maturity.
Receivables and allowance for credit losses
The majority of Valvoline’s sales are tendered at the point of service in its retail stores, and its receivables are
generally limited to those with its fleet customers and independent store operators, in addition to credit card
receivables. Valvoline recognizes a receivable within its Consolidated Balance Sheets once control is transferred,
typically upon the completion of services, at which point its right to consideration becomes unconditional and only
the passage of time is required before payment of that consideration is due. As the majority of the Company’s
58
performance obligations are satisfied at a point in time and customers typically do not make material payments in
advance, nor does Valvoline have a right to consideration in advance of control transfer, the Company has no
contract assets or contract liabilities.
Valvoline recognizes credit losses following the current expected credit loss model, which results in the immediate
recognition of losses that are expected to occur over the life of the financial instruments, principally trade and other
receivables. Allowances are maintained to estimate expected lifetime credit losses that are based on a broad range
of reasonable and supportable information and factors, including the length of time receivables are past due, the
financial health of its customers, macroeconomic conditions, and historical collection experience. If the financial
condition of its customers deteriorates or other circumstances occur that result in an impairment of customers’
ability to make payments, the Company records additional allowances as needed. The Company writes off
uncollectible receivables against the allowance when collection efforts have been exhausted and/or any legal action
taken by the Company has concluded.
Inventories
Inventories are comprised of purchased finished goods that are carried at the lower of cost or net realizable value
using the weighted average cost method. The Company regularly reviews inventory quantities on hand and the
estimated utilization of inventory. Excess and obsolete reserves are established when inventory is estimated to not
be usable based on forecasts, demand, life cycle, or utility.
Property, plant and equipment
Property, plant and equipment is recorded at cost and is depreciated using the straight-line method over the
estimated useful lives of the assets. Buildings generally have useful lives of seven to 20 years and machinery and
equipment typically have five to seven year useful lives, dependent on the nature and utility of the assets. Building
and leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from
which the date the assets are placed in service to the end of the lease term, as appropriate. Depreciation expense
is recognized in Cost of sales or Selling, general and administrative expenses within the Consolidated Statements
of Comprehensive Income based on the function the underlying asset supports. Property, plant and equipment is
relieved of the cost and related accumulated depreciation when assets are disposed of or otherwise retired. Gains
or losses on the dispositions of property, plant and equipment are included in the Consolidated Statements of
Comprehensive Income and generally reported in Other income, net.
Property, plant and equipment carrying values are evaluated for recoverability at the lowest level of identifiable cash
flows when impairment indicators are present. Such indicators could include, among other factors, operating losses,
unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of long-
lived assets that are not expected to be recovered through undiscounted future net cash flows are written down to
fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or
net realizable value (assets held for sale).
Cloud computing arrangements
The Company periodically enters into cloud computing arrangements to access and use third-party software in
support of its operations. The Company assesses its cloud computing arrangements to determine whether the
contract meets the definition of a service contract or conveys a software license. For cloud computing arrangements
that meet the definition of a service contract, the Company capitalizes implementation costs incurred during the
application development stage and amortizes the costs on a straight-line basis over the term of the service contract.
As of September 30, 2023 and 2022, the Company had capitalized implementation costs, net of amortization, of
$20.5 million and $21.9 million, respectively, included in Other noncurrent assets within the Consolidated Balance
Sheets. Amortization expense for the implementation costs was $3.3 million, $3.0 million and $1.5 million for fiscal
2023, 2022 and 2021, respectively, and is included in Selling, general and administrative expenses within the
Consolidated Statements of Comprehensive Income.
59
Leases
Certain of the properties Valvoline utilizes, including its retail service center stores, offices, and storage 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, the related lease assets and liabilities are recognized within
the Consolidated Balance Sheets as either operating or finance leases at the commencement date.
The lease liability is measured based on the present value of future payments over the lease term, and the right-of-
use asset is measured as the lease liability, adjusted for prepaid lease payments, lease incentives, and initial direct
costs (e.g., commissions). Valvoline's leases generally have terms ranging from less than one year to more than 20
years, and leases with an initial term of 12 months or less are included in the measurement of its right-of-use asset
and lease liability balances. The lease term includes options to extend or terminate the lease when it is reasonably
certain that the option will be exercised.
Fixed rental payments, including variable payments based on a rate or index, are included in the determination of
the lease liability. Many leases also require the payment of 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 and account for them as a single
component. Otherwise, these components are recognized along with other variable lease payments in the
Consolidated Statements of Comprehensive Income in the period in which the obligation for those payments is
incurred.
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 the
commencement date, including lease term, interest rate yields for specific interest rate environments and the
Company's credit spread.
Lessor arrangements
Valvoline is the lessor in arrangements to sublease and lease certain properties and equipment. Sublease income
is recognized in Other income, net within the Company’s Consolidated Statements of Comprehensive Income.
Business combinations
The Company allocates the purchase consideration to the identifiable assets acquired and liabilities assumed in
business combinations based on their acquisition-date fair values. The excess of the purchase consideration over
the amounts assigned to the identifiable assets and liabilities is recognized as goodwill, or if the fair value of the net
assets acquired exceeds the purchase consideration, a bargain purchase gain is recorded. Factors giving rise to
goodwill generally include operational synergies that are anticipated as a result of the business combination and
growth expected to result in economic benefits from access to new customers and markets. The fair values of
identifiable intangible assets acquired in business combinations are generally determined using an income
approach, requiring financial forecasts and estimates as well as market participant assumptions. The fair values are
preliminary for up to one year from the date of acquisition as they are subject to measurement period adjustments
as new information is obtained about facts and circumstances that existed as of the acquisition date.
The incremental financial results of the businesses that Valvoline has acquired are included in the Company’s
consolidated financial results from the respective dates of each acquisition.
Goodwill and other intangible assets
Valvoline evaluates goodwill for impairment annually as of July 1 or when events and circumstances indicate an
impairment may have occurred by monitoring for the existence of potential impairment indicators throughout the
fiscal year. This assessment consists of evaluating a reporting unit’s fair value compared to its carrying value.
Reporting units may be operating segments as a whole or an operation one level below an operating segment,
60
referred to as a component. Goodwill is assigned to reporting units for purposes of impairment testing based upon
the relative fair value of the asset to reporting units. The Company determined that it has one reporting unit in fiscal
2023.
In evaluating goodwill for impairment, Valvoline has the option to first perform a qualitative assessment to determine
whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value
of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, the Company is not
required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that
its fair value is less than its carrying amount. Qualitative factors considered include macroeconomic conditions,
industry and market conditions, cost factors, and overall financial performance, among others.
Under the quantitative assessment, if the fair value of a reporting unit is less than its carrying amount, then the
amount of the impairment loss, if any, is measured as the excess of the carrying value of the reporting unit’s
goodwill over its fair value, not to exceed the total goodwill allocated to the reporting unit. Fair values of the
reporting units are estimated using a weighted methodology considering the output from both the income and
market approaches. The income approach incorporates the use of a discounted cash flow (“DCF”) analysis, and a
number of significant assumptions and estimates are involved in the application of the DCF model to forecast
operating cash flows, including markets and market shares, sales volumes and prices, costs to produce, tax rates,
capital spending, discount rate, weighted average cost of capital, terminal values, and working capital changes.
Several of these assumptions vary among reporting units, and the cash flow forecasts are generally based on
approved strategic operating plans. The market approach is performed using the Guideline Public Companies
method based on earnings multiple data. The Company also performs a reconciliation between market
capitalization and the estimated aggregate fair value of the reporting units, including consideration of a control
premium.
Acquired finite-lived intangible assets principally consist of certain trademarks and trade names, reacquired
franchise rights, and customer relationships. Intangible assets acquired in an asset acquisition are carried at cost,
less accumulated amortization. For intangible assets acquired in a business combination, the estimated fair values
of the assets acquired are used to establish the carrying values, which are determined using assumptions from the
perspective of a market participant and generally an income approach. These intangible assets are amortized on a
straight-line basis over their estimated useful lives. Valvoline evaluates finite-lived intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable,
and any assets not expected to be recovered through undiscounted future net cash flows are written down to
current fair value.
Pension and other postretirement benefit plans
Valvoline sponsors defined benefit pension and other postretirement plans in the U.S. The Company's U.S. pension
plans are closed to new participants and the accrual of pension benefits has been frozen since September 30,
2016. Valvoline also sponsors retiree healthcare and life insurance plans for certain qualifying participants with
amendments effective in fiscal 2017 to limit annual per capita costs.
Valvoline recognizes the funded status of each applicable plan within the Consolidated Balance Sheets whereby
each unfunded plan is recognized as a liability and each funded plan is recognized as either an asset or liability
based on its funded status. The funded status is measured as the difference between the fair value of plan assets
and the benefit obligation. Changes in the fair value of plan assets and net actuarial gains or losses are recognized
upon remeasurement as of September 30, the annual measurement date, and whenever a remeasurement is
triggered. The remaining components of pension and other postretirement benefits income or expense are recorded
ratably throughout the year.
The fair value of plan assets represents the current market value of assets held by irrevocable trust funds for the
sole benefit of participants, and the benefit obligation is the actuarial present value of the benefits expected to be
paid upon retirement, death, or other distributable event based on estimates. These valuations reflect the terms of
the plans and use participant-specific information such as compensation, age and years of service, as well as
certain key assumptions that require significant judgment, including, but not limited to, estimates of discount rates,
rate of compensation increases, interest rates and mortality rates. Actuarial gains and losses may be related to
actual results that differ from assumptions as well as changes in assumptions, which may occur each year. All
61
components of net periodic benefit income or costs are recognized below operating income within Net pension and
other postretirement plan (income) expenses in the Consolidated Statements of Comprehensive Income.
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are
recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred
and are recorded in Selling, general and administrative expenses in the Consolidated Statements of
Comprehensive Income.
Revenue recognition
Revenue is recognized for the amount that reflects the consideration the Company is expected to be entitled to
receive based on when control of the promised good or service is transferred to the customer. Revenue recognition
is evaluated through the following five steps: (i) identification of the contract(s) with a customer; (ii) identification of
the performance obligation(s) in the contract(s); (iii) determination of the transaction price; (iv) allocation of the
transaction price to the performance obligation(s) in the contract(s); and (v) recognition of revenue when or as a
performance obligation is satisfied.
Nature of services
Valvoline generates all revenues from contracts with customers, primarily as a result of delivery of automotive
maintenance services through the following two principal activities: (i) company-operated service center operations
and (ii) independent service center operations. Valvoline’s revenues from delivering preventive vehicle maintenance
and related services are from end consumers, independent franchisees and operators, and other end customers,
including fleet managers and others that require service solutions to address light and medium-duty vehicles.
Valvoline's net revenues are predominantly derived at a point in time with approximately 95% recognized either
through services delivered at company-operated service centers or fees for arranging product supply to
independent store operators. The remainder of the Company's sales generally relate to fees, including royalties,
transferred over time. The following table summarizes Valvoline's sales by timing of revenue recognized for the
fiscal years ended September 30:
(In millions)
Net revenues transferred at a point in time
Franchised revenues transferred over time
Net revenues
2023
2022
2021
$
$
1,375.0 $
1,177.2 $
68.5
58.9
986.8
50.4
1,443.5 $
1,236.1 $
1,037.2
Below is a summary of the key considerations for Valvoline's material revenue-generating activities:
Company-operated service center operations
Performance obligations related to company-operated service center operations primarily include the sale of engine
and automotive maintenance products and related services. These performance obligations are distinct and are
delivered simultaneously at a point in time. Accordingly, sales from company-operated service center operations is
recognized when payment is tendered at the point of sale, which coincides with the completion of product and
service delivery and the transfer of control and benefits from the performance obligations to the customer.
Non-company operated service center operations
The primary performance obligations related to independent service center operations include arrangement of
product supply and the license of intellectual property, which provides access to the Valvoline brand and proprietary
information to operate service center stores over the term of a franchise agreement. Other franchise performance
obligations do not result in material revenue. Each performance obligation is distinct, and franchisees generally
receive and consume the benefits provided by the Company’s performance over the course of the franchise
62
agreement, which typically ranges from 10 to 15 years. Billings and payments occur monthly. Variable consideration
is not disclosed as remaining performance obligations qualify for the sales-based royalty and usage-based
exemptions.
In exchange for the license of Valvoline intellectual property, franchisees generally remit initial fees upon opening a
service center store and royalties at a contractual rate of the applicable service center store sales over the term of
the franchise agreement. The license provides access to the intellectual property over the term of the franchise
agreement and is considered a right-to-access license of symbolic intellectual property as substantially all of its
utility is derived from association with the Company’s past and ongoing activities. The license granted to operate
each franchised service center store is the predominant item to which the royalties relate and represents a distinct
performance obligation which is recognized over time as the underlying sales occur, as this is the most appropriate
measure of progress toward complete satisfaction of the performance obligation.
Valvoline is the agent in arranging product supply for its independent operators as the Company has no control of
the products prior to transfer to the customer. Accordingly, revenue is recognized on a net basis for the fees
charged for this service. The Company determines the point in time at which service delivery occurs and the
performance obligation is satisfied by considering when the customer has the ability to direct the use of and obtain
substantially all of the remaining benefits of the product, which generally coincides with the transfer of title and risk
of loss from the supplier to the independent operators.
Customer payment terms vary by customer and are generally 30 to 60 days after service delivery. Valvoline does
not provide extended payment terms greater than one year and therefore, does not adjust the promised amount of
consideration for the effects of a significant financing component.
Revenue disaggregation
The following table summarizes net revenues by category for the years ended September 30:
(In millions)
Oil changes and related fees
Non-oil changes and related fees
Franchise fees and other (a)
Total
2023
2022
2021
$
$
1,074.3 $
913.4 $
297.6
71.6
248.3
74.4
762.3
207.9
67.0
1,443.5 $
1,236.1 $
1,037.2
(a)
Includes $0.2 million, $11.6 million, and $14.9 million of net revenues associated with suspended operations of a former Global Products
business which was not included in the sale for the years ended September 30, 2023, 2022, and 2021, respectively.
The following presents net revenues by geographic area where services are delivered for the years ended
September 30:
(In millions)
United States
Non-U.S. (a)
Total
2023
2022
2021
$
$
1,407.7 $
1,191.8 $
35.8
44.3
997.3
39.9
1,443.5 $
1,236.1 $
1,037.2
(a)
Includes the amounts noted above in each fiscal year of net revenues associated with suspended operations of a former Global Products
business which was not included in the sale.
Valvoline did not have a single customer that represented 10% or more of consolidated net revenues in fiscal 2023,
2022 or 2021.
Variable consideration
The nature of Valvoline’s transactions with its customers often gives rise to variable consideration consisting of
customer discounts, incentives or rebates. The Company determines transaction price as the amount of
consideration it expects to be entitled to in exchange for fulfilling the performance obligations, including variable
consideration to the extent it is probable that a significant future reversal will not occur. Variable consideration is
63
recorded as a reduction of the transaction price at the time of sale and is primarily estimated utilizing the most likely
amount method that is expected to be earned as the Company is able to estimate the anticipated discounts within a
sufficiently narrow range of possible outcomes based on its extensive historical experience with certain customers
and similar programs. Variable consideration is reassessed at each reporting date and adjustments are made, when
necessary.
The reduction of revenues due to customer incentives was $190.3 million, $176.5 million, and $140.1 million in the
Consolidated Statements of Comprehensive Income for the years ended September 30, 2023, 2022, and 2021,
respectively. Reserves for these customer programs and incentives were $3.2 million and $2.8 million as of
September 30, 2023 and 2022, respectively, and are recorded within Accrued expenses and other liabilities in the
Consolidated Balance Sheets.
Allocation of transaction price
In each contract with multiple performance obligations, Valvoline allocates the transaction price, including variable
consideration, to each performance obligation on a relative standalone selling price basis, which is generally
determined based on the directly observable data of the Company’s standalone sales of the performance
obligations in similar circumstances to similar customers. The amount allocated to each performance obligation is
recognized as revenue commensurate with the transfer of control to the customer.
The Company excludes taxes collected from customers from sales, which are reflected in accrued expenses until
remitted to the appropriate governmental authority. Incremental direct costs of obtaining a contract, primarily sales
commissions, are expensed when incurred due to the short-term nature of individual contracts, which would result in
amortization periods of one year or less. These costs are not material and are recorded within Selling, general and
administrative expenses in the Consolidated Statements of Comprehensive Income.
Expense recognition
Cost of sales are expensed as incurred and include product, labor and benefits, store operating and occupancy,
and depreciation expenses. Selling, general and administrative expenses are recognized as incurred and include
sales and marketing costs, advertising, customer support, and other corporate and administrative costs. Advertising
costs were $60.5 million in fiscal 2023, $54.8 million in fiscal 2022 and $48.1 million in fiscal 2021.
Stock-based compensation
The Company recognizes expense related to stock-based compensation, net of actual forfeitures, over the requisite
vesting period based on the grant date fair value of new or modified awards. Substantially all of the awards granted
by the Company are routine annual grants. Management evaluates its award grants and modifications and will
adjust the fair value if any are determined to be spring-loaded.
Income taxes
Income tax expense is provided based on income before income taxes. The Company estimates its tax expense
based on current tax laws in the statutory jurisdictions in which it operates. These estimates include judgments
about the recognition and realization of deferred tax assets and liabilities resulting from the expected future tax
consequences of events that have been included in the financial statements. Under this method, deferred tax
assets and liabilities are determined based on the difference between the financial statement carrying amounts and
tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected
to be recovered or settled. As changes in tax laws or rates occur, deferred tax assets and liabilities are adjusted in
the period changes are enacted through income tax expense. Valvoline records valuation allowances related to its
deferred income tax assets when it is more likely than not that some portion or all of the deferred income tax assets
will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities based on the technical merits of the position. The
tax benefits recognized in the consolidated financial statements from such a position are measured based on the
largest benefit that has a greater than fifty percent likelihood of being sustained upon examination by authorities.
Interest and penalties related to unrecognized tax benefits are recognized as part of the provision for income taxes
64
and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law
and until such time that the related tax benefits are recognized. Interest and penalties were not material to any of
the periods presented herein.
Once the consolidated income tax provision is computed, the tax effect of pre-tax income from continuing
operations is determined without consideration of the current year pre-tax income or loss from other financial
statement components, including discontinued operations. The portion of total income tax that remains after the
attribution of tax to continuing operations is allocated to the remaining components.
Derivatives
Valvoline’s derivative instruments consist of currency exchange and interest rate swap agreements, each of which
is described further below.
Currency derivatives
The Company's currency exchange contracts are used to manage non-functional currency denominated balance
sheet exposures and exchange on currency for another at a fixed rate on a future date of generally a month or less.
These contracts are not designated as hedging instruments and are accounted for as either assets or liabilities in
the Consolidated Balance Sheets at fair value with the resulting gains or losses recognized as adjustments to
earnings within Selling, general and administrative expenses in the Consolidated Statements of Comprehensive
Income. Gains and losses are recognized as exchange rates change the fair value of these instruments and upon
settlement to offset the remeasurement gain or loss on the related currency-denominated exposures in the same
period. The Company classifies its cash flows related to currency exchange contracts as investing activities in the
Consolidated Statements of Cash Flows.
Interest rate swap agreements
The Company's interest rate swap agreements effectively modify its exposure to interest rate risk by converting
floating rate debt to a fixed rate for the term of the swap agreements, reducing the impact of interest rate changes
on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate
interest payments over the life of the agreement without an exchange of the underlying principal amount.
Valvoline's interest rate swap agreements are designated as cash flow hedges with effectiveness of the hedges
assessed at inception and quarterly thereafter. To the extent the hedging relationship is highly effective, the
unrealized gains or losses on the swaps are recorded in Accumulated other comprehensive income (loss) and
reclassified into earnings within Net interest and other financing expense when the payments occur. The Company
classifies its cash flows related to interest rate swap agreements as operating activities in the Consolidated
Statements of Cash Flows.
The fair values of the interest rate swaps are reflected as an asset or liability in the Consolidated Balance Sheets
and the change in fair value is reported in Accumulated other comprehensive income (loss). The fair values of the
interest rate swaps are estimated as the net present value of projected cash flows based upon forward interest
rates at the balance sheet date. The Company does not offset fair value amounts recognized in its Consolidated
Balance Sheets for presentation purposes.
Fair value measurements
Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount
paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such,
fair value is a market-based measurement determined based on assumptions that market participants would use in
pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance prioritizes the
inputs used to measure fair value into the following three-tier fair value hierarchy for which an instrument’s
classification within the fair value hierarchy is based upon the lowest level of input that is significant to the
instrument’s fair value measurement:
•
Level 1 - Observable inputs such as unadjusted quoted prices in active markets for identical assets or
liabilities.
65
•
•
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and
quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity at the
measurement date. Unobservable inputs reflect the Valvoline's assumptions about what market participants
would use to price the asset or liability. The inputs are developed based on the best information available in
the circumstances, which may include the Company's own financial data, such as internally developed
pricing models, DCF methodologies, as well as instruments for which the fair value determination requires
significant management judgment.
Certain investments which measure fair value using the net asset value (“NAV”) per share practical expedient are
not classified within the fair value hierarchy and are separately disclosed.
Valvoline measures its financial assets and financial liabilities at fair value based on one or more of the following
three valuation techniques:
• Market approach: Prices and other relevant information generated by market transactions involving
identical or comparable assets or liabilities
• Cost approach: Amount that would be required to replace the service capacity of an asset (replacement
cost)
•
Income approach: Techniques to convert future amounts to a single present amount based upon market
expectations (including present value techniques, option pricing and excess earnings models)
The Company generally uses a market approach, when practicable, in valuing financial instruments. In certain
instances, when observable market data is lacking, the Company uses valuation techniques consistent with the
income approach whereby future cash flows are converted to a single discounted amount. The Company uses
multiple sources of pricing as well as trading and other market data in its process of reporting fair values.
The fair values of accounts receivables and accounts payable approximate their carrying values due to the relatively
short-term nature of the instruments. Valvoline's notes receivable consist of fixed and variable-rate interest term
loans extended to franchisees to provide financial assistance. These notes bear interest comparable with the
market rates within Valvoline's variable rate borrowings, and accordingly, their carrying amounts approximate fair
value.
The methods described above may produce a fair value that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and
consistent with other market participants, the use of different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a different fair value measurement.
Currency translation
Operations outside the United States are measured generally using the local currency as the functional
currency. Upon consolidation, the results of operations of the subsidiaries and affiliates whose functional currency is
other than the U.S. dollar are translated into U.S. dollars at the average exchange rates for the year while assets
and liabilities are translated at year-end exchange rates. Adjustments to translate assets and liabilities into U.S.
dollars are recorded in the Stockholders’ Equity section of the Consolidated Balance Sheets as a component of
Accumulated other comprehensive income (loss) and are included in net earnings only upon sale or substantial
liquidation of the underlying non-U.S. subsidiary or affiliated company.
Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted-average number of common
shares outstanding during the reported period. Diluted EPS is calculated similar to basic EPS, except that the
weighted-average number of shares outstanding includes the number of shares that would have been outstanding
66
had potentially dilutive common shares been issued. Potentially dilutive securities include stock appreciation rights
and nonvested stock-based awards. Nonvested market and performance-based share awards are included in the
weighted-average diluted shares outstanding each period if established market or performance criteria have been
met at the end of the respective periods.
Share repurchases
Shares that are repurchased are retired and returned to the status of authorized, unissued shares. The excess of
the repurchase price over the par value of shares acquired is recognized in Retained earnings.
Inflation Reduction Act of 2022
The Inflation Reduction Act (the “IRA”) was enacted in the United States in August 2022, which includes, among
other provisions, a 15% alternative minimum tax on corporate adjusted income in excess of certain thresholds for
taxable years beginning after December 31, 2022. The Company does not expect this provision will have a material
impact on its consolidated financial statements.
The IRA also imposes an excise tax of one percent on share repurchases that occur after December 31, 2022.
Corporations are permitted to credit certain new stock issuances against their stock repurchases during the same
taxable period. Valvoline has repurchased 38.9 million shares of its common stock for $1,431.5 million since
January 1, 2023 and recognized excise taxes of $14.3 million in Retained earnings as incremental costs to
complete the repurchases during the nine months ended September 30, 2023.
Recent accounting pronouncements
The following standards relevant to Valvoline were either issued or are expected to have a meaningful impact on
Valvoline in future periods.
In March 2020, the Financial Accounting Standards Board (“FASB”) issued guidance related to reference rate
reform that simplifies the accounting for contract modifications and hedging arrangements as the market transitions
from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference
rates. In December 2022, FASB issued guidance to extend the temporary transition period which now can be
applied on a prospective basis through the end of December 2024 for qualifying modified arrangements.
Valvoline amended its Credit Agreement, effective upon the sale of Global Products on March 1, 2023. This
amendment includes the transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”) or an alternate
base rate, among other modifications. Refer to Note 8 for additional details. Concurrent with the amendment of the
Credit Agreement, Valvoline modified its interest rate swap agreements solely to change the reference rates from
LIBOR to SOFR and applied the optional expedients available under the reference rate reform accounting
guidance. This modification aligns with changes to its variable rate debt under the Credit Agreement amendment.
Valvoline expects these hedges to continue to effectively hedge its exposure risk to interest rates.
As of September 30, 2023, Valvoline has no outstanding long-term debt or interest rate swap agreements with
payments based on LIBOR.
NOTE 3 – DISCONTINUED OPERATIONS AND HELD FOR SALE
Sale of Global Products
Financial results
On July 31, 2022, the Company entered into a definitive agreement to sell Global Products to Aramco. On March 1,
2023, Valvoline completed the sale of Global Products for a cash purchase price of $2.650 billion and recognized a
pre-tax gain on the sale of $1.572 billion that was recognized in Income from discontinued operations, net of tax
within the Consolidated Statements of Comprehensive Income.
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The following table summarizes Income from discontinued operations, net of tax included in the Consolidated
Statements of Comprehensive Income for the years ended September 30:
(In millions)
Net revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Net legacy and separation-related expenses
Equity and other income, net
Operating income from discontinued operations
Net pension and other postretirement plan expense (income)
Net interest and other financing expenses
Gain on sale of discontinued operations (a)
Income before income taxes - discontinued operations
Income tax expense (benefit) (b)
Income from discontinued operations, net of tax
$
2023
2022
2021
$
1,174.4 $
924.2
2,695.2 $
2,134.7
250.2
124.9
53.7
(14.2)
85.8
0.1
4.4
(1,571.6)
1,652.9
432.6
1,220.3 $
560.5
304.3
7.0
(33.4)
282.6
(3.4)
4.6
—
281.4
(33.5)
314.9 $
2,086.7
1,540.9
545.8
294.7
—
(36.3)
287.4
1.9
2.5
—
283.0
62.8
220.2
(a) The gain on sale realized in fiscal 2023 includes the release of Accumulated other comprehensive income of $30.7 million associated with
(b)
the realization of cumulative translation losses attributed to the Global Products business.
Includes the income tax effects of the gain on sale, which were $424.3 million comprised of current and deferred expense of $335.6 million
and $88.7 million, respectively.
A summary of the held for sale assets and liabilities included in the Consolidated Balance Sheet follows as of
September 30:
(In millions)
Current assets
Cash and cash equivalents
Receivables, net
Inventories, net
Prepaid expenses and other current assets
Property, plant and equipment, net
Goodwill and intangibles, net
Other noncurrent assets
Current assets held for sale
Current liabilities
Trade and other payables
Accrued expenses and other liabilities
Long-term debt
Other current liabilities
Current liabilities held for sale
Post-closing arrangements
2022
59.0
524.3
290.1
35.0
257.4
139.8
158.6
1,464.2
264.9
166.9
30.7
76.8
539.3
$
$
$
$
The products used in Valvoline’s service delivery are sourced from Global Products. Valvoline has entered into a
long-term supply agreement whereby Valvoline purchases substantially all lubricant and certain ancillary products
for its stores from Global Products. Net revenues within the results of Global Products above include product sales
to the Company's continuing operations which are considered to be effectively settled at the time of the transaction
and have not been eliminated. These transactions total the following for the years ended September 30:
68
(In millions)
Net revenues
2023
2022
2021
$
89.7 $
218.1 $
143.1
Valvoline also entered into a Transition Services Agreement with Global Products, effective March 1, 2023, to
provide and receive services including information technology, legal, finance, and human resources support for a
period not expected to exceed 18 months. The income and costs associated with these services were not material
during fiscal 2023.
As part of the Transaction, the Company recognized an estimated obligation of $17.1 million, predominantly within
Accrued expenses and other liabilities in the Consolidated Balance Sheet as of September 30, 2023 related to
certain pre-closing employee matters reimbursable to the Buyer.
Asset group held for sale
A former Global Products business, whose operations were suspended during fiscal 2022, was classified as held for
sale as of September 30, 2023. As a result, the Company recognized a pre-tax impairment loss of $8.1 million,
within Other income, net in the Consolidated Statement of Comprehensive Income during the year ended
September 30, 2023. The Company completed the sale of this business in the first quarter of fiscal 2024.
A summary of the held for sale assets and liabilities included in the Consolidated Balance Sheet follows as of
September 30:
(In millions)
Current assets
Cash
Prepaid expenses and other current assets
Reserve on assets held for sale
Current assets held for sale
Current liabilities
Accrued expenses and other liabilities
Current liabilities held for sale
2023
4.0
0.2
(4.2)
—
3.9
3.9
$
$
$
$
69
NOTE 4 – FAIR VALUE MEASUREMENTS
Recurring fair value measurements
The Company’s financial assets and liabilities accounted for at fair value on a recurring basis are summarized below
by level within the fair value hierarchy:
(In millions)
Cash and cash equivalents
Money market funds
Time deposits
Prepaid expenses and other current assets
Currency derivatives
Interest rate swap agreements
Other noncurrent assets
Non-qualified trust funds
Deferred compensation investments
Total assets at fair value
Accrued expenses and other liabilities
Currency derivatives
Other noncurrent liabilities
Deferred compensation obligations
Total liabilities at fair value
(In millions)
Cash and cash equivalents
Money market funds
Time deposits
Prepaid expenses and other current assets
Currency derivatives
Interest rate swap agreements
Other noncurrent assets
Non-qualified trust funds
Interest rate swap agreements
Total assets at fair value
Accrued expenses and other liabilities
Currency derivatives
Other noncurrent liabilities
Deferred compensation obligations
Total liabilities at fair value
$
$
$
$
$
$
$
As of September 30, 2023
Total
Level 1
Level 2
Level 3
NAV (a)
$
0.6 $
277.3
0.1
7.8
2.1
19.0
0.6 $
—
— $
277.3
— $
—
—
—
—
19.0
0.1
7.8
—
—
—
—
—
—
306.9 $
19.6 $
285.2
$
— $
—
—
—
—
2.1
—
2.1
0.1 $
— $
0.1
$
— $
—
20.8
20.9 $
—
— $
—
0.1
$
—
— $
20.8
20.8
As of September 30, 2022
Total
Level 1
Level 2
Level 3
NAV (a)
0.4 $
13.3
0.4 $
—
6.0
5.2
6.4
12.6
—
—
—
—
43.9 $
0.4 $
— $
— $
13.3
6.0
5.2
—
12.6
37.1
—
—
—
—
—
$
— $
—
—
—
—
6.4
—
6.4
5.2 $
— $
5.2
$
— $
—
19.6
24.8 $
—
— $
—
5.2
$
—
— $
19.6
19.6
(a) Funds measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy.
Money market funds
Money market funds trade in an active market and are valued using quoted market prices, which are Level 1 inputs.
70
Time deposits
Time deposits are balances held with financial institutions at face value plus accrued interest, which approximates
fair value and are categorized as Level 2.
Currency derivatives
The Company had outstanding currency forward contracts with notional values of $29.7 million and $150.5 million
as of September 30, 2023 and 2022, respectively. The fair value of these outstanding contracts are recorded as
assets and liabilities on a gross basis measured using readily observable market inputs to estimate the fair value for
similar derivative instruments and are classified as Level 2. Gains and losses recognized related to these
instruments were not material in any period presented herein.
Non-qualified trust funds
The Company maintains a non-qualified trust that is utilized to fund benefit payments for certain of its U.S. non-
qualified pension plans. This trust is invested in mutual funds which are measured at fair value using the NAV per
share practical expedient. There were no significant redemption restrictions or unfunded commitments on these
mutual fund investments as of September 30, 2023. Gains and losses related to these investments are immediately
recognized within Selling, general and administrative expenses in the Consolidated Statements of Comprehensive
Income and were not material in any periods presented herein.
Interest rate swap agreements
Interest rate swap agreements with a notional amount of $175.0 million matured during fiscal 2023. The Company
remains party to two interest rate swap agreements with four year maturities to exchange interest rate payments on
$175.0 million of variable rate term loan borrowings to fixed interest rates. The Company expects these hedges to
be highly effective and based on interest rates as of September 30, 2023 and current circumstances, estimates that
there will not be material reclassifications into earnings over the next twelve months.
The fair value of interest rate swap agreements represents the difference in the present value of cash flows
calculated at the contracted interest rates and at current market interest rates at the end of the period. The
Company utilizes Level 2 observable inputs such as interest rate yield curves to estimate fair value for the interest
rate swap agreements.
Deferred compensation investments
The Company established an investment fund in April 2023 that is primarily comprised of mutual funds traded in
active markets and valued using quoted (unadjusted) prices, which are Level 1 inputs. Gains and losses related to
these investments are immediately recognized in the Consolidated Statement of Comprehensive Income within
Selling, general and administrative expenses and were not material for the period ended September 30, 2023.
Deferred compensation obligations
The Company has an unfunded deferred compensation plan that is valued based on the underlying participant-
directed investments. The fair value of underlying investments in collective trust funds is determined using the NAV
provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee
based upon the fair value of the underlying assets owned by the fund, less its liabilities, divided by outstanding
units. There were no significant redemption restrictions or unfunded commitments on these investments as of
September 30, 2023. Changes in the fair values are recognized in the Consolidated Statements of Comprehensive
Income within Selling, general and administrative expenses and were not material for the periods presented herein.
U.S. treasury securities
During fiscal 2023, the Company purchased U.S. treasury securities which are carried at amortized cost within the
Consolidated Balance Sheet and classified as held-to-maturity based on the intent and ability to hold these
investments to maturity. The fair value of these investments summarized below is determined utilizing quoted prices
for identical securities from less active markets, which are considered Level 2 inputs within the fair value hierarchy.
71
(In millions)
Cash and cash equivalents
U.S. treasuries (a)
Short-term investments
U.S. treasuries (b)
September 30, 2023
Gross unrealized
losses
Fair value
Amortized cost
$
$
2.2 $
— $
2.2
347.5 $
(0.5) $
347.0
(a) U.S. treasury securities with original maturity dates of three months or less.
(b) U.S. treasury securities with original maturities greater than three months and less than 12 months.
Fair value of long-term debt
Long-term debt is reported in the Consolidated Balance Sheets at carrying value, rather than fair value, and is
therefore excluded from the disclosure above of financial assets and liabilities measured at fair value within the
consolidated financial statements on a recurring basis. The fair values of the Company's outstanding fixed rate
senior notes shown in the table below are based on recent trading values, which are considered Level 2 inputs
within the fair value hierarchy.
(In millions)
2030 Notes
2031 Notes
Total
September 30, 2023
September 30, 2022
Fair value
Carrying
value (a)
Unamortized
discounts and
issuance costs
Fair value
Carrying
value (a)
Unamortized
discounts and
issuance costs
$
589.8 $
594.5 $
(5.5) $
568.5 $
593.7 $
416.6
529.9
(5.2)
400.5
529.2
$ 1,006.4 $ 1,124.4 $
(10.7) $
969.0 $ 1,122.9 $
(6.3)
(5.8)
(12.1)
(a) Carrying values shown are net of unamortized discounts and issuance costs.
Refer to Note 8 for details of these notes as well as Valvoline's other debt instruments that have variable interest
rates with carrying amounts that approximate fair value.
NOTE 5 – BUSINESS COMBINATIONS
Fiscal 2023
The Company acquired 31 service center stores in single and multi-store transactions for an aggregate purchase
price of $36.3 million during the year ended September 30, 2023. These acquisitions expand Valvoline’s retail
presence in key North American markets, increase the number of company-operated service center stores, and
contribute to growing the retail footprint to 1,852 system-wide service center stores.
Fiscal 2022
The Company acquired 37 service center stores in single and multi-store transactions, including four former
franchise locations and five former Express Care locations, which converted to company-operated service center
stores, for an aggregate purchase price of $50.7 million during the year ended September 30, 2022.
Fiscal 2021
During fiscal 2021, Valvoline acquired 134 service center stores in single and multi-store transactions, including 50
former franchise locations converted to company-operated service centers stores and 12 franchise-operated service
center stores, for an aggregate purchase price of $281.7 million. These acquisitions provided an opportunity to
expand Valvoline's system of service center stores within key markets and included:
72
•
•
•
•
•
•
•
Fourteen company-operated service center stores in Texas acquired from Kent Lubrication Centers Ltd.
(doing business as Avis Lube) on October 1, 2020;
Twenty-one former franchise locations converted to company-operated service center stores in Kansas and
Missouri acquired from Westco Lube, Inc. on October 15, 2020;
Twelve company-operated service center stores in Idaho acquired from L&F Enterprises (doing business as
Einstein's Oilery) on October 30, 2020;
Twenty-seven Mister Oil Change Express® locations (15 company-operated and 12 franchise-operated)
across seven states acquired from Car Wash Partners, Inc. on December 11, 2020;
Sixteen former franchise locations converted to company-operated service center stores in Texas acquired
from AWC Premium Automotive Service Ltd. on April 30, 2021;
Thirteen former franchise and fourteen former joint venture locations converted to company-operated
service center stores acquired in single and multi-store transactions; and
Eleven company-operated service center stores and six former Express Care locations acquired in single
and multi-store transactions.
Summary
The following table summarizes the aggregate cash consideration paid and the total assets acquired and liabilities
assumed for the years ended September 30:
(In millions)
Inventories
Other current assets
Property, plant and equipment (a)
Operating lease assets
Goodwill (b)
Intangible assets (c)
Reacquired franchise rights (d)
Customer relationships
Other
Other current liabilities
Operating lease liabilities
Other noncurrent liabilities (a)
Total net assets acquired
2023
2022
2021
$
0.4 $
— $
—
6.4
9.7
29.0
4.0
—
0.3
(0.7)
(9.1)
(3.7)
0.2
10.0
9.6
39.1
2.8
—
0.4
(0.8)
(8.9)
(1.7)
$
36.3 $
50.7 $
2.8
0.1
98.6
36.4
204.4
58.6
0.1
3.1
(8.3)
(33.5)
(80.6)
281.7
(a)
Includes finance lease assets in Property, plant and equipment and finance lease liabilities in Other current and noncurrent liabilities. During
the years ended September 30, 2023, 2022 and 2021, finance lease assets acquired were $3.8 million, $1.8 million and $84.3 million,
respectively; finance lease liabilities in Other current liabilities were $0.2 million, $0.1 million and $3.7 million, respectively; and finance lease
liabilities in Other noncurrent liabilities were $3.7 million, $1.7 million and $80.6 million, respectively.
(b) Goodwill is generally expected to be deductible for income tax purposes and is primarily attributed to the operational synergies and potential
growth expected to result in economic benefits in the respective markets of the acquisitions.
(c) Weighted average amortization period of intangible assets acquired is 9 years for fiscal 2023 and fiscal 2022 and 10 years for fiscal 2021.
(d) Prior to the acquisition of former franchise service center stores, Valvoline licensed the right to operate franchised service centers, including
use of the Company’s trademarks and trade name. In connection with these acquisitions, Valvoline reacquired those rights and recognized
separate definite-lived reacquired franchise rights intangible assets, which are being amortized on a straight-line basis over the weighted
average remaining term of approximately 9 years for fiscal 2023 and 10 years for fiscal 2022 and fiscal 2021. The effective settlement of
these arrangements resulted in no settlement gain or loss as the contractual terms were at market.
The Company did not record any material measurement period adjustments and does not expect any material
changes to the preliminary purchase price allocations summarized above for acquisitions completed during the last
twelve months.
73
NOTE 6 – LEASE COMMITMENTS
The following table presents the Company's lease balances as of September 30:
Location in Consolidated Balance Sheets
2023
2022
(In millions)
Assets
Operating lease assets
Operating lease assets
Finance lease assets
Property, plant and equipment, net
Property, plant and equipment, net
Amortization of finance
lease assets
Total leased assets
Liabilities
Current
Operating lease liabilities
Accrued expenses and other liabilities
Finance lease liabilities
Accrued expenses and other liabilities
Noncurrent
Operating lease liabilities Operating lease liabilities
Finance lease liabilities
Other noncurrent liabilities
Total lease liabilities
$
$
$
$
266.5 $
240.0
(50.0)
456.5 $
29.2 $
12.3
247.3
198.9
487.7 $
248.1
217.1
(34.2)
431.0
26.8
10.6
229.2
189.8
456.4
The following table presents the components of total lease costs for the years ended September 30:
Location in Consolidated Statements of
Comprehensive Income
Cost of sales and Selling, general and
administrative expenses
2023
2022
$
40.7 $
36.8
Cost of sales
Net interest and other financing expenses
Cost of sales and Selling, general and
administrative expenses
Other income, net
15.8
10.2
3.7
(7.6)
$
62.8 $
Other information related to the Company's leases follows for the years ended September 30:
(In millions)
2023
2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (a)
Operating cash flows from finance leases
Financing cash flows from finance leases
Lease assets obtained in exchange for lease obligations:
Operating leases
Finance leases
$
$
$
$
$
38.7 $
10.2 $
10.8 $
46.4 $
21.3 $
(a)
Included within the change in Other assets and liabilities within the Consolidated Statements of Cash Flows offset by noncash operating
lease asset amortization and liability accretion.
74
14.1
9.3
2.4
(5.9)
56.7
34.9
9.3
8.8
46.8
18.6
(In millions)
Operating lease cost
Finance lease costs
Amortization of lease
assets
Interest on lease
liabilities
Variable lease cost
Sublease income
Total lease cost
The following table reconciles the undiscounted cash flows for the next five fiscal years ended September 30 and
thereafter to the operating and finance lease liabilities recorded within the Consolidated Balance Sheet as of
September 30, 2023:
(In millions)
2024
2025
2026
2027
2028
Thereafter
Total future lease payments
Imputed interest
Present value of lease liabilities
Operating leases
Finance leases
$
41.1 $
39.6
38.1
35.4
32.7
159.8
346.7
70.2
$
276.5 $
22.5
22.7
23.3
23.1
23.3
168.9
283.8
72.6
211.2
As of September 30, 2023, Valvoline has additional leases primarily related to its retail service center stores that
have not yet commenced with approximately $61.0 million in undiscounted future lease payments that are not
included in the table above. These leases are expected to commence over the next twelve months and generally
have lease terms of 15 years.
The weighted average remaining lease terms and interest rates as of September 30, 2023 were:
Weighted average remaining lease term (in years)
Weighted average discount rate
NOTE 7 – INTANGIBLE ASSETS
Goodwill
Operating leases
Finance leases
9.6
4.6 %
12.1
5.3 %
The following summarizes the changes in the carrying amount of goodwill during fiscal 2023 and 2022:
(In millions)
Balance at September 30, 2021
Acquisitions
Currency translation
Balance at September 30, 2022
Acquisitions
Currency translation
Balance at September 30, 2023
Other intangible assets
$
$
512.8
39.1
(3.7)
548.2
29.0
0.8
578.0
Valvoline’s purchased intangible assets were specifically identified when acquired, have finite lives, and are
reported in Goodwill and intangibles, net within the Consolidated Balance Sheets. The following summarizes the
gross carrying amounts and accumulated amortization of the Company’s intangible assets as of September 30:
75
(In millions)
Definite-lived intangible assets
Trademarks and trade names
Reacquired franchise rights
Customer relationships
Other intangible assets
2023
2022
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
$
29.6 $
(10.5) $
19.1 $
29.6 $
(9.2) $
122.1
16.8
6.9
(49.4)
(8.3)
(4.6)
72.7
8.5
2.3
118.0
16.6
6.7
(36.5)
(6.9)
(3.4)
20.4
81.5
9.7
3.3
Total definite-lived intangible assets
$ 175.4 $
(72.8) $ 102.6 $ 170.9 $
(56.0) $ 114.9
The table that follows summarizes amortization expense (actual and estimated) for the Company's current
intangible assets for the years ended September 30:
(In millions)
Amortization expense
NOTE 8 – DEBT
Actual
2023
2024
2025
2026
2027
2028
Estimated
$
16.8 $
16.5 $
14.5 $
11.3 $
10.8 $
10.7
The following table summarizes Valvoline’s debt as of September 30:
(In millions)
2031 Notes
2030 Notes
Term Loan
Trade Receivables Facility
Debt issuance costs and discounts
Total debt
Current portion of long-term debt
Long-term debt
Senior Notes
2023
2022
$
535.0 $
600.0
463.1
—
(12.0)
1,586.1
23.8
$
1,562.3 $
535.0
600.0
460.0
105.0
(12.4)
1,687.6
162.5
1,525.1
The Company's outstanding fixed rate senior notes as of September 30, 2023 consist of 3.625% senior unsecured
notes due 2031 with an aggregate principal amount of $535.0 million (the “2031 Notes”) and 4.250% senior
unsecured notes due 2030 with an aggregate principal amount of $600.0 million (the “2030 Notes” and collectively
with the 2031 Notes, the “Senior Notes”). The Senior Notes are subject to customary events of default for similar
debt securities, which if triggered may accelerate payment of principal, premium, if any, and accrued but unpaid
interest. If a change of control repurchase event occurs, Valvoline may be required to offer to purchase the Senior
Notes from the holders thereof. The Senior Notes are not otherwise required to be repaid prior to maturity, although
they may be redeemed at the option of Valvoline at any time prior to maturity in the manner specified in the
governing indentures.
2031 Notes
In January 2021, Valvoline issued the 2031 Notes in a private offering for net proceeds of $527.5 million (after
deducting initial purchasers’ discounts and debt issuance costs). The net proceeds, along with cash and cash
equivalents on hand, were used to redeem in full Valvoline's 4.375% senior unsecured notes due 2025 with an
aggregate principal amount of $800.0 million (the “2025 Notes”), including an early redemption premium of $26.3
million, accrued and unpaid interest, as well as related fees and expenses for an aggregate redemption price of
76
approximately $840.7 million. A loss on extinguishment of the 2025 Notes of $36.4 million was recognized in Net
interest and other financing expenses in the Consolidated Statements of Comprehensive Income during the year
ended September 30, 2021, comprised of the early redemption premium and the write-off of related unamortized
debt issuance costs and discounts.
2030 Notes
In February 2020, Valvoline issued the 2030 Notes in a private offering for net proceeds of $592.1 million (after
deducting initial purchasers’ discounts and debt issuance costs). A portion of the net proceeds were used to redeem
in full Valvoline's 5.500% senior unsecured notes due 2024 at the aggregate principal amount of $375.0 million (the
“2024 Notes”), plus an early redemption premium of $15.5 million, accrued and unpaid interest, as well as related
fees and expenses for an aggregate redemption price of $393.7 million. A loss on extinguishment of the 2024 Notes
of $19.4 million was recognized in Net interest and other financing expenses in the Consolidated Statements of
Comprehensive Income during the year ended September 30, 2020, comprised of the early redemption premium
and the write-off of related unamortized debt issuance costs and discounts.
A portion of the net proceeds from the offering of the 2030 Notes were also utilized to prepay $100.0 million of
indebtedness from the Company's term loan facility under the Senior Credit Agreement, with the remainder of the
net proceeds used for general corporate purposes. In response to the COVID-19 pandemic, the Company
preserved the remaining proceeds during fiscal 2020 to maintain its liquidity.
The bond indenture for the 2030 Senior Notes contains an asset sale covenant that requires Valvoline to make an
offer to holders to purchase the 2030 Senior Notes at par, plus any accrued and unpaid interest with any Excess
Proceeds from an Asset Sale, each as defined in the indenture. Valvoline currently expects that the sale of Global
Products will require the Company to offer to repurchase all of the 2030 Senior Notes during the second quarter of
fiscal 2024, absent an amendment to the indenture or other transaction related to these Senior Notes.
Senior Credit Agreement
Key terms and conditions
In December 2022, Valvoline amended the Senior Credit Agreement, which became effective March 1, 2023
commensurate with the sale of the Global Products business. The Senior Credit Agreement provides an aggregate
principal amount of $950.0 million in senior secured credit facilities comprised of (i) a five-year $475.0 million term
loan facility (the “Term Loan”) and (ii) a five-year $475.0 million revolving credit facility (the “Revolver”), including a
$100.0 million letter of credit sublimit.
The principal amount of the Term Loan under the Senior Credit Agreement is required to be repaid in quarterly
installments of approximately $5.9 million beginning with the first fiscal quarter after the sale of Global Products,
with the remainder due at maturity and prepayment required in the amount of the net cash proceeds from certain
events. Amounts outstanding under the Senior Credit Agreement may be prepaid at any time, and from time to time,
in whole or part, without premium or penalty. At Valvoline’s option, amounts outstanding under the Senior Credit
Agreement will bear interest at either SOFR or an alternate base rate, in each case plus the applicable interest rate
margin. The interest rate will fluctuate between SOFR plus 1.375% per year and SOFR plus 2.250% per year (or
between the alternate base rate plus 0.375% per year and the alternate base rate plus 1.250% per year), based
upon Valvoline’s consolidated total net leverage ratio.
Proceeds from the Term Loan, in addition to a portion of the proceeds from the sale of the Global Products
business, were used to pay in full the outstanding borrowings under the prior Credit Agreement, including the
principal balance of the term loan facility of $445.6 million and outstanding borrowings under the revolving credit
facility of $290.0 million, as well as accrued and unpaid interest and fees and expenses related to the amendment.
The Company recognized $1.1 million of expense within Net interest and other financing expenses in the
Condensed Consolidated Statements of Comprehensive Income during the year ended September 30, 2023
associated with the modification of the Credit Agreement, which included accelerated amortization of previously
capitalized debt issuance costs.
77
Covenants and guarantees
The amended Senior Credit Agreement contains covenants and provisions that became effective March 1, 2023.
These terms and conditions are generally consistent with the prior Credit Agreement, including the maintenance of
financial covenants as of the end of each fiscal quarter and guarantees from certain of Valvoline’s existing and
future subsidiaries.
Summary of activity
As of September 30, 2023 and 2022, the Term Loan had an outstanding balance of $463.1 million and $460.0
million, respectively, and there were no amounts outstanding under the Revolver. Excluding the refinancing of the
Term Loan described above, Valvoline made payments on the Term Loan of $11.9 million and $15.0 million during
fiscal 2023 and 2022, respectively. The total borrowing capacity remaining under the Revolver was $471.6 million
as of September 30, 2023, due to a reduction of $3.4 million for letters of credit outstanding.
Trade Receivables Facility
Commensurate with the sale of Global Products on March 1, 2023, Valvoline was removed as an originator and
assigned all of its rights, title and interests under the Trade Receivables Facility to the divested business.
Concurrently, the Company repaid its outstanding balance of $175.0 million and recognized a loss on
extinguishment of the obligation of $1.0 million in Income from discontinued operations in the Consolidated
Statements of Comprehensive Income during the year ended September 30, 2023.
Summary of activity
As of September 30, 2022, prior to assigning all of the rights, title and interests of the facility to the divested
business during fiscal 2023, the Trade Receivables Facility had an outstanding balance of $105.0 million classified
within Current portion of long-term debt within the Consolidated Balance Sheet due to the payment requirement in
connection with the sale of Global Products. The financing subsidiary owned $387.9 million of outstanding accounts
receivable as of September 30, 2022. These outstanding accounts receivable substantially relate to the Global
Products business and were reported in Current assets held for sale, with a smaller portion reported within
Receivables, net in the Company’s Consolidated Balance Sheet.
Covenants and guarantees
The Company is required to satisfy certain covenants pursuant to its long-term borrowings. These covenants
contain customary limitations, including limitations on liens, additional indebtedness, investments, restricted
payments, asset sales, mergers, and affiliate transactions. The maintenance of financial covenants as of the end of
each fiscal quarter is required, as defined in the Senior Credit Agreement, including: i) a maximum net leverage
ratio of 4.5, which is calculated as net debt divided by Adjusted EBITDA and ii) a minimum interest coverage ratio of
3.0, which is calculated as Adjusted EBITDA divided by net interest expense. Cross-default provisions also exist
between certain debt instruments. As of September 30, 2023 and 2022, the Company was in compliance with all
debt covenants.
Valvoline’s existing and future subsidiaries (other than certain immaterial subsidiaries, joint ventures, special
purpose financing subsidiaries, regulated subsidiaries, non-U.S. subsidiaries and certain other subsidiaries)
guarantee obligations under the Senior Credit Agreement, which is also secured by a first-priority security interest in
substantially all the personal property assets and certain real property assets of Valvoline and the guarantors,
including all or a portion of the equity interests of certain of Valvoline’s domestic subsidiaries and first-tier non-U.S.
subsidiaries, and in certain cases, a portion of the equity interests of other non-U.S. subsidiaries. Valvoline's
subsidiaries that guarantee obligations under its Senior Credit Agreement also guarantee the Senior Notes, which
have not been and are not expected to be registered in exchange offers as debt securities.
Long-term debt maturities
The future maturities of debt outstanding as of September 30, 2023, excluding debt issuance costs and discounts,
are as follows:
78
(In millions)
Years ending September 30
2024
2025
2026
2027
2028
Thereafter
Total
$
$
23.8
23.8
23.7
23.7
368.1
1,135.0
1,598.1
NOTE 9 – INCOME TAXES
Components of income tax expense
Income tax expense consisted of the following for the years ended September 30:
(In millions)
Current
Federal
State
Non-U.S.
Deferred
Federal
State
Non-U.S.
2023
2022
2021
$
8.0 $
9.4 $
(5.5)
1.0
3.5
36.8
(3.2)
—
33.6
4.3
3.0
16.7
16.2
1.3
0.5
18.0
Income tax expense
$
37.1 $
34.7 $
(0.9)
2.1
1.8
3.0
47.7
9.0
0.2
56.9
59.9
79
The following presents pre-tax income and the principal components of the reconciliation between the effective tax
rate and the U.S. federal statutory income tax rate in effect for the years ended September 30:
(In millions)
Income before income taxes
United States
Non-U.S.
Total income before income taxes
U.S. statutory tax rate
Income taxes computed at U.S. statutory tax rate
(Decrease) increase in amount computed resulting from:
Unrecognized tax benefits
State taxes, net of federal benefit
International rate differential
Permanent items
Remeasurement of net deferred taxes
Return-to-provision adjustments
Change in valuation allowances
Tax Matters Agreement activity
Other
Income tax expense
Effective tax rate
2023
2022
2021
$
$
$
$
242.7
(6.2)
236.5
21 %
49.7
$
$
$
0.1
11.2
0.1
0.1
(1.1)
(0.9)
(27.7)
5.4
0.2
37.1
$
15.7 %
$
$
$
$
119.1
25.0
144.1
21 %
30.3
0.1
5.2
(0.4)
(1.0)
(0.5)
(0.4)
1.8
—
(0.4)
34.7
24.1 %
250.8
9.2
260.0
21 %
54.6
0.8
9.3
—
0.5
0.1
0.6
—
(5.6)
(0.4)
59.9
23.0 %
The lower effective tax rate in fiscal 2023 from the prior year was primarily attributed to the release of valuation
allowances due to the change in expectations regarding the utilization of certain legacy tax attributes as described
further below. Higher pre-tax income in fiscal 2023 resulted in higher current year tax expense over the prior year.
The higher effective tax rate in fiscal 2022 from the prior year was principally driven by tax benefits recognized
during the prior year period as a result of audit settlements. Lower pre-tax income in fiscal 2022 resulted in lower
current year tax expense over the prior year.
80
Deferred taxes
A summary of the deferred tax assets and liabilities included in the Consolidated Balance Sheets follows as of
September 30:
(In millions)
Deferred tax assets
Non-U.S. net operating loss carryforwards (a)
State net operating loss carryforwards (b)
Employee benefit obligations
Compensation accruals
Credit carryforwards (c)
Operating lease liabilities
Outside basis difference (d)
Other
Valuation allowances (e)
Net deferred tax assets
Deferred tax liabilities
Goodwill and other intangibles
Property, plant and equipment
Operating lease assets
Other
Total deferred tax liabilities
2023
2022
$
1.1 $
8.2
34.6
17.9
0.3
95.2
—
12.4
(3.0)
166.7
19.1
134.7
68.1
0.3
222.2
Total net deferred tax (liabilities) assets (f)
$
(55.5) $
(a) Gross non-U.S. net operating loss carryforwards of $3.9 million expire in fiscal years 2039 to 2043.
(b) Apportioned gross state net operating loss carryforwards of $154.9 million expire in fiscal years 2029 through 2037.
(c) Credit carryforwards consist primarily of state tax credits that generally expire in fiscal years 2024 through 2032.
(d) Outside tax over GAAP basis difference recorded through discontinued operations.
(e) Valuation allowances at September 30, 2023 primarily relate to nondeductible executive compensation and state net operating loss
carryforwards that are not expected to be realized or realizable.
(f) Balances are presented in the Consolidated Balance Sheets based on the net position of each tax jurisdiction.
Tax Matters Agreement
Background
0.7
17.5
43.6
22.8
12.3
99.6
99.1
23.0
(33.3)
285.3
18.7
131.6
74.5
—
224.8
60.5
Prior to its initial public offering (the "IPO") in September 2016, the Valvoline business operated as a wholly-owned
subsidiary of Ashland Inc. (which together with its predecessors and consolidated subsidiaries is referred to herein
as “Ashland”). In advance of the IPO, the Valvoline business and certain other legacy Ashland assets and liabilities
were transferred from Ashland to Valvoline as a reorganization of entities under common Ashland control (the
"Contribution"). In connection with the IPO, Ashland retained 83% of the total outstanding shares of Valvoline's
common stock. On May 12, 2017, Ashland distributed its interest in Valvoline to Ashland stockholders through a pro
rata dividend on shares of Ashland common stock outstanding (the "Distribution"), which marked the completion of
Valvoline's separation from Ashland.
For the periods prior to the Distribution, Valvoline was included in Ashland’s consolidated U.S. and state income tax
returns and in the income tax returns of certain Ashland international subsidiaries (collectively, the “Ashland Group
Returns”). For the taxable periods that began on and after the Distribution, Valvoline files tax returns that include
only Valvoline and its subsidiaries.
81
Key terms and conditions
An agreement (the "Tax Matters Agreement") was entered into in September 2016 between Valvoline and Ashland,
that generally provides that Valvoline indemnify Ashland for the following items:
•
•
•
•
•
•
The utilization of certain legacy tax attributes transferred from Ashland as the result of the Contribution;
Taxes for the pre-IPO period that arise on audit or examination and are directly attributable to the Valvoline
business;
Certain U.S. federal, state or local taxes for the pre-IPO period of Ashland and/or its subsidiaries that arise on
audit or examination and are not directly attributable to either the Valvoline business or the Ashland chemicals
business;
Taxes of Valvoline for the period between the IPO and Distribution that are not attributable to Ashland Group
Returns (as defined above);
Taxes of Valvoline for all taxable periods that begin on or after the day after the date of the Distribution; and
Certain taxes and expenses resulting from the failure of the Contribution or Distribution to qualify for the
intended tax-free treatment.
Summary of activity
Adjustments to the net obligations to Ashland under the Tax Matters Agreement are recorded within Net legacy and
separation-related expenses (income), with any resulting impacts to Valvoline's stand-alone income tax provision
recorded in Income tax expense within the Consolidated Statements of Comprehensive Income.
In connection with amending the Tax Matters Agreement, management expects the Company is currently more
likely than not to realize certain legacy tax attributes that were transferred from its former parent prior to Valvoline’s
initial public offering in late fiscal 2016. As a result, Valvoline recognized an income tax benefit of $29.0 million
during fiscal 2023 in connection with releasing its valuation allowance. Additionally, Valvoline recognized
$25.7 million of expense within Net legacy and separation-related expenses in the Consolidated Statement of
Comprehensive Income during fiscal 2023 to reflect its increased estimated indemnity obligation to its former parent
as a result of the terms of the amended Tax Matters Agreement.
During fiscal 2021, the Company reduced its indemnity obligations to Ashland by $33.0 million, principally due to
settlement for fiscal 2014 to 2016 federal audit examinations. This reduction resulted in pre-tax income of
$26.8 million and an income tax benefit of $5.8 million attributable to the Valvoline stand-alone business.
Total liabilities related to obligations owed to Ashland under the Tax Matters Agreement are primarily recorded in
Other noncurrent liabilities in the Consolidated Balance Sheets and were $10.8 million and $0.6 million as of
September 30, 2023 and 2022, respectively. Given the indemnification of Ashland for periods in which Valvoline
was included in Ashland Group Returns, a portion of the Company's liability for unrecognized tax benefits is
included in the Tax Matters Agreement obligation. The periods under indemnity that currently remain open to
examination include certain U.S. state jurisdictions from fiscal 2016.
82
Unrecognized tax benefits
The aggregate changes in the balance of gross unrecognized tax benefits were as follows for the years ended
September 30:
(In millions)
Gross unrecognized tax benefits as of October 1
Increases related to tax positions from prior years
Decreases related to tax positions from prior years
Increases related to tax positions taken during the current year
Settlements with tax authorities
Lapses of statutes of limitation
Gross unrecognized tax benefits as of September 30 (a)
$
$
2023
2022
2021
8.2 $
8.7 $
0.6
(0.6)
27.7
—
(0.2)
35.7 $
0.1
(0.6)
0.8
—
(0.8)
8.2 $
13.4
1.5
(1.3)
0.7
(4.2)
(1.4)
8.7
(a) These unrecognized tax benefits would favorably impact the continuing operations and discontinued operations effective income tax rates, if
recognized. Accruals for interest and penalties were $1.8 million and $1.2 million as of September 30, 2023 and 2022, respectively.
In connection with the sale of Global Products, Valvoline established reserves of $27.5 million for gross
unrecognized tax benefits during fiscal 2023. If realized, these unrecognized tax benefits would favorably impact the
discontinued operations effective income tax rate.
The Company's U.S. federal income tax returns remain open to examination from fiscal 2018 forward and Canada
from fiscal 2019 and forward. Fiscal years including and after 2018 remain open to examination by certain U.S.
state jurisdictions.
Because Valvoline is routinely under examination by various taxing authorities, it is reasonably possible that the
amount of unrecognized tax benefits will change during fiscal 2024. Due to the complexity and number of open
years, it is not practical to estimate the amount or range of such change at this time. Based on current information
available, management does not expect a material change to the Company's gross unrecognized tax benefits within
fiscal 2024.
NOTE 10 – EMPLOYEE BENEFIT PLANS
Pension and other postretirement plans
The components of pension and other postretirement plans net periodic benefit (income) costs and the assumptions
used in this determination are summarized below for the years ended September 30:
(In millions)
2023
2022
2021
2023
2022
2021
Pension benefits
Other postretirement benefits
Net periodic benefit (income) costs
Interest cost
$
81.8
$
43.0
$
41.2
$
Expected return on plan assets
Amortization of prior service cost (credit)
Actuarial (gain) loss
(66.9)
0.1
(35.0)
Net periodic benefit (income) costs
$ (20.0)
$
(78.6)
0.1
49.5
14.0
(84.0)
0.1
(75.1)
$ (117.8)
$
1.2
—
(2.2)
(6.6)
(7.6)
$
$
0.7
—
(2.2)
(5.6)
(7.1)
$
0.7
—
(11.9)
0.8
$ (10.4)
Weighted-average plan assumptions
Discount rate for interest cost
5.45%
2.10%
1.91%
5.41%
1.92%
1.76 %
Expected long-term rate of return on plan
assets
4.90%
4.10%
4.40%
—
—
—
83
Valvoline recognizes the change in the fair value of plan assets and net actuarial gains and losses annually in the
fourth quarter of each fiscal year and whenever a plan is determined to qualify for remeasurement. These gains and
losses are reported within Net pension and other postretirement plan (income) expense in the Consolidated
Statements of Comprehensive Income and included a gain of $41.6 million for the year ended September 30, 2023,
a loss of $43.9 million for the year ended September 30, 2022, and a gain of $74.3 million for the year ended
September 30, 2021.
The fiscal 2023 gain was primarily attributed to increase in discount rates, partially offset by lower-than-expected
returns on plan assets. The fiscal 2022 loss was primarily attributed to lower-than-expected returns on plan assets,
partially offset by higher discount rates. The fiscal 2021 gain was primarily attributed to higher-than-expected
returns on plan assets and an increase in discount rates.
The following table summarizes the net periodic benefit income and the amortization of prior service credits
recognized during the years ended September 30:
(In millions)
Amortization of prior service credits
recognized in Accumulated other
comprehensive income
Net periodic benefit loss (income)
Total pre-tax amount recognized in
comprehensive loss (income)
Obligations and funded status
Pension benefits
Other postretirement benefits
2023
2022
2021
2023
2022
2021
$
(0.1) $
(0.1) $
(0.1) $
2.2 $
2.2 $
11.9
(20.0)
14.0
(117.8)
(7.6)
(7.1)
(10.4)
$
(20.1) $
13.9 $ (117.9) $
(5.4) $
(4.9) $
1.5
Changes in benefit obligations and the fair value of plan assets, as well as key assumptions used to determine the
benefit obligations, and the amounts in the Consolidated Balance Sheets for the Company’s pension and other
postretirement benefit plans are summarized below as of September 30:
(In millions)
Change in benefit obligations
Benefit obligations as of October 1
Interest cost
Benefits paid
Actuarial gain
Transfers in
Settlements
Benefit obligations as of September 30
Change in plan assets
Fair value of plan assets as of October 1
Actual return on plan assets
Employer contributions
Benefits paid
Settlements
Pension benefits
Other postretirement
benefits
2023
2022
2023
2022
$ 1,585.2
$ 2,132.9
81.8
(130.4)
(52.7)
4.4
(10.2)
43.0
(128.0)
(458.3)
0.5
(4.9)
$ 1,478.1
$ 1,585.2
$ 1,438.1
$ 1,987.0
41.3
17.8
(130.4)
(10.2)
(429.5)
13.0
(128.0)
(4.9)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
30.7
1.2
(3.0)
(6.6)
—
—
38.9
0.7
(3.3)
(5.6)
—
—
22.3
$
30.7
— $
—
3.0
(3.0)
—
—
— $
—
—
3.3
(3.3)
—
—
—
22.3
$
30.7
Transfers in
Fair value of plan assets as of September 30
4.4
$ 1,361.0
0.5
$ 1,438.1
Unfunded status of the plans as of September 30
$
117.1
$
147.1
84
(In millions)
Amounts in the Consolidated Balance Sheets
Noncurrent benefit assets (a)
Current benefit liabilities (b)
Noncurrent benefit liabilities (c)
Total benefit liabilities
Pension benefits
Other postretirement
benefits
2023
2022
2023
2022
$
38.6
$
33.7
$
— $
—
7.7
148.0
155.7
9.1
171.7
180.8
2.6
19.7
22.3
4.4
26.3
30.7
Net liabilities recognized
$
117.1
$
147.1
$
22.3
$
30.7
Balance in Accumulated other comprehensive loss
Prior service cost (credit)
$
1.1
$
1.2
$
(16.7)
$
(18.9)
Weighted-average plan assumptions
Discount rate
Healthcare cost trend rate (d)
5.98%
—
5.58%
—
5.98 %
5.5 %
5.56 %
5.6 %
(a) Noncurrent benefit assets are recorded in Other noncurrent assets within the Consolidated Balance Sheets,
(b) Current benefit liabilities are recorded in Accrued expenses and other liabilities within the Consolidated Balance Sheets.
(c) Noncurrent benefit liabilities are recorded in Employee benefit obligations within the Consolidated Balance Sheets.
(d) The assumed pre-65 health care cost trend rate continues to be reduced to 4.0% in 2040 and thereafter.
Accumulated benefit obligation
The accumulated benefit obligation for all pension plans was $1.5 billion and $1.6 billion as of September 30, 2023
and 2022, respectively. Pension plans with projected and accumulated benefit obligations in excess of the fair value
of plan assets follows for the Company’s plans as of September 30:
(In millions)
Plans with projected and accumulated benefit obligations in
excess of plan assets
2023
2022
Benefit
obligation
Plan
assets
Benefit
obligation
Plan
assets
$ 1,101.7 $
946.0 $ 1,177.7 $
996.9
85
Plan assets
Pension plan asset investments and their level within the fair value hierarchy is summarized below as of:
(In millions)
Cash and cash equivalents
U.S. government securities and
futures
Other government securities
Corporate debt instruments
Private equity and hedge funds
Collective trust funds
Other investments
September 30, 2023
Total fair
value
Level 1
Level 2
Level 3
Assets
measured at
NAV
$
21.5 $
21.5 $
— $
— $
63.1
33.1
1,055.4
4.4
176.9
6.6
—
—
—
—
—
—
63.1
33.1
1,055.4
—
—
6.6
—
—
—
—
—
—
—
—
—
—
4.4
176.9
—
181.3
Total assets at fair value
$
1,361.0 $
21.5 $
1,158.2 $
— $
(In millions)
Total fair
value
Level 1
Level 2
Level 3
Assets
measured at
NAV
September 30, 2022
Cash and cash equivalents
$
56.9 $
56.9 $
— $
— $
U.S. government securities and
futures
Other government securities
Corporate debt instruments
Private equity and hedge funds
Collective trust funds
Other investments
Total assets at fair value
Cash and cash equivalents
73.8
36.1
1,066.9
13.3
190.3
—
—
—
—
—
73.8
36.1
1,066.9
—
—
—
—
—
—
—
0.8
1,438.1 $
$
—
56.9 $
0.8
1,177.6 $
—
— $
—
—
—
—
13.3
190.3
—
203.6
The carrying value of cash and cash equivalents approximates fair value.
Government securities
Government securities are valued based on Level 2 inputs, which include yields available for comparable securities
of issuers with similar credit ratings.
Corporate debt instruments
Corporate debt instruments are valued based on Level 2 inputs that are observable in the market or may be derived
principally from, or corroborated by, recently executed transactions, observable market data such as pricing for
similar securities, cash flow models with yield curves, counterparty credit ratings, and credit spreads applied using
the maturity and coupon interest rate terms of the debt instrument.
Private equity and hedge funds
Private equity and hedge funds primarily represent alternative investments not traded on an active market which are
valued at the NAV per share determined by the manager of the fund based on the fair value of the underlying net
assets owned by the fund divided by the number of shares or units outstanding.
86
Collective trust funds
Collective trust funds are comprised of a diversified portfolio of investments across various asset classes, including
U.S. and international equities, fixed-income securities, commodities and currencies. The collective trust funds are
valued using a NAV provided by the manager of each fund, which is based on the underlying net assets owned by
the fund, divided by the number of shares outstanding.
The following summarizes investments for which fair value is measured using the NAV per share practical expedient
as of September 30, 2023:
(In millions)
Relative value hedge funds
Event driven hedge funds
Collective trust funds
Private equity
Fair value at
NAV
Unfunded
commitments
$
$
0.2
0.3
176.9
3.9
181.3 $
—
—
—
1.6
1.6
Redemption
frequency
(if currently eligible)
None (a)
None (a)
Daily
None (b)
Redemption
notice period
None (a)
None (a)
Up to 3 days
None (b)
(a) These hedge funds are in the process of liquidation and the timing is unknown.
(b) These private equity instruments are estimated to be liquidated over the next 1 to 5 years.
Investments and strategy
In developing an investment strategy for its defined benefit plans, Valvoline considered the following factors: the
nature of the liabilities of the plans; the allocation of liabilities between active, deferred and retired plan participants;
the funded status of the plans; the applicable investment horizon; the respective size of the plans; and historical and
expected investment returns. Valvoline’s pension plan assets are managed by outside investment managers,
which are monitored against investment benchmark returns and Valvoline's established investment strategy.
Investment managers are selected based on an analysis of, among other things, their investment process, historical
investment results, frequency of management turnover, cost structure, and assets under management. Assets are
periodically reallocated between investment managers to optimize returns and maintain an appropriate asset mix
and diversification of investments.
The current target asset allocation for the plans is 90% fixed income securities and 10% equity-based securities.
Fixed income securities are liability matching assets that primarily include long duration, high grade corporate debt
obligations. Equity-based securities are return-seeking assets that include both traditional equities as well as a mix
of non-traditional assets such as hedge and commingled funds and private equity. Investment managers may
employ a limited use of futures or other derivatives to manage risk within the portfolio through efficient exposure to
markets. Valvoline’s pension plans hold a variety of investments designed to diversify risk and achieve an adequate
net investment return to provide for future benefit payments to its participants.
The weighted-average asset allocations for Valvoline’s plans by asset category follow as of September 30:
Plan assets allocation
Equity securities
Debt securities
Other
Total
Target
2023
2022
3-10%
80-100%
0-10%
7%
92%
1%
100%
7%
92%
1%
100%
The basis for determining the expected long-term rate of return is a combination of future return assumptions for the
various asset classes in Valvoline’s investment portfolio based on active management, historical analysis of
previous returns, market indices, and a projection of inflation, net of plan expenses.
87
Funding and benefit payments
Valvoline contributed $17.8 million and $13.0 million to its pension plans during fiscal 2023 and 2022, respectively.
Valvoline does not plan to contribute to its qualified pension plans in fiscal 2024 and expects to contribute
approximately $7.7 million to its non-qualified pension plans.
The following benefit payments, which reflect future service expectations, are projected to be paid in each of the
next five fiscal years ended September 30 and the five fiscal years thereafter in aggregate:
(In millions)
2024
2025
2026
2027
2028
2028 - 2032
Total
Other plans
Pension benefits
Other postretirement
benefits
$
$
139.5 $
137.8
135.6
133.3
129.5
600.0
1,275.7 $
2.7
2.4
2.2
2.0
1.9
8.7
19.9
Defined contribution and other defined benefit plans
Valvoline sponsors certain defined contribution savings plans that provide matching contributions. Expense
associated with these plans was $12.5 million in fiscal 2023, $15.9 million in fiscal 2022 and $6.0 million in fiscal
2021.
Valvoline also sponsors a long-term disability benefit plan. Total liabilities associated with this plan were $1.0 million
and $1.9 million as of September 30, 2023 and 2022, respectively.
Incentive plans
Reserves for incentive plans were $16.4 million and $13.6 million as of September 30, 2023 and 2022, respectively.
NOTE 11 – LITIGATION, CLAIMS AND CONTINGENCIES
From time to time, Valvoline is party to lawsuits, claims and other legal proceedings that arise in the ordinary course
of business. The Company establishes liabilities for the outcome of such matters where losses are determined to be
probable and reasonably estimable. Where appropriate, the Company has recorded liabilities with respect to these
matters, which were not material for the periods presented as reflected in the consolidated financial statements
herein. There are certain claims and legal proceedings pending where loss is not determined to be probable or
reasonably estimable, and therefore, accruals have not been made. In addition, there are currently no matters for
which management believes a material loss is at least reasonably possible.
In all instances, management has assessed each matter based on current information available and made a
judgment concerning its potential outcome, giving due consideration to the amount and nature of the claim and the
probability of success. The Company believes it has established adequate accruals for liabilities that are probable
and reasonably estimable.
Although the ultimate resolution of these matters cannot be predicted with certainty and there can be no assurances
that the actual amounts required to satisfy liabilities from these matters will not exceed the amounts reflected in the
consolidated financial statements, based on information available at this time, it is the opinion of management that
such pending claims or proceedings will not have a material adverse effect on its consolidated financial statements.
88
NOTE 12 – STOCK-BASED COMPENSATION PLANS
Valvoline has approved stock-based incentive plans that authorize 21.0 million shares of common stock to be
issued, with approximately 10.3 million shares of common stock remaining available for issuance as of September
30, 2023. The Valvoline stock-based incentive plans authorize the grant of stock options, stock appreciation rights
(“SARs”), and nonvested stock awards, principally in the form of restricted stock, restricted stock units, and
performance share units. The following summarizes stock-based compensation expense recognized by the
Company during the years ended September 30:
(In millions)
Stock appreciation rights
Nonvested stock awards
Total stock-based compensation expense, pre-tax
Tax benefit
Total stock-based compensation expense, net of tax
Stock appreciation rights
2023
2022
2021
1.2 $
1.5 $
12.6
13.8
(3.5)
8.4
9.9
(2.5)
10.3 $
7.4 $
1.3
7.9
9.2
(2.3)
6.9
$
$
SARs are granted to certain Valvoline employees to provide vested award holders with the ability to profit from the
appreciation in value of a set number of shares of common stock over a period of time by receiving the differential
between the value of the Company's common stock price at the grant and exercise dates. SARs typically vest and
become exercisable over a period of one to three years and are subject to pre-vesting forfeiture upon service
termination. Unexercised SARs generally lapse ten years after the grant date. Stock-based compensation expense
for SARs is determined using the Black-Scholes option-pricing model to estimate the grant date fair value of new or
modified awards.
Nonvested stock awards
Nonvested stock awards in the form of Restricted Stock Awards ("RSAs") and Restricted Stock Units ("RSUs") are
granted to certain Valvoline employees and directors. These awards can have service-based or both service and
performance-based vesting conditions. Nonvested stock awards generally vest over a one to three-year period and
are subject to forfeiture upon termination of service prior to vesting. Nonvested stock awards are primarily granted
as RSUs that settle in shares upon vesting, while RSAs result in share issuance at grant, which entitles award
holders to voting rights that are restricted until vesting. Nonvested stock awards with service-only vesting conditions
receive dividend equivalents in the form of additional units or shares, which are subject to vesting and forfeiture
provisions.
Nonvested stock awards with both service and performance conditions vest through continued employee service
and upon the achievement of specific financial targets subject to adjustment relative to performance among
selected industry peer groups. These awards are granted annually and subject to a three-year performance and
vesting period. Each performance share unit is convertible to one share of common stock, the actual number of
which is dependent upon performance compared to financial and market performance targets at the end of each
performance period. Compensation cost for performance-based nonvested stock awards is recognized at fair value
over the requisite service period based on the probable achievement of the financial performance conditions.
89
The following summarizes nonvested stock award activity during the year ended September 30, 2023:
Unvested shares as of September 30, 2022
Granted
Performance adjustments (a)
Vested
Forfeited
Modified (b)
Unvested shares as of September 30, 2023
Number of
shares
(in thousands)
Weighted average grant
date fair value per share
1,817.3 $
525.5 $
(2.2) $
(609.4) $
(252.8) $
(127.8) $
1,350.6 $
25.53
33.98
30.58
25.68
33.94
35.48
33.35
(a) Adjustments based on current attainment expectations of performance targets.
(b) Equity-based awards previously granted to certain Global Products employees were modified in connection with the sale of business, which
resulted in the recognition of incremental expense that was not material.
The fair value of new or modified nonvested stock awards with service-only conditions was determined based on
the closing market price of Valvoline common stock on the grant date, and the fair value of performance-based
nonvested stock awards that include both financial and market performance conditions was determined using a
Monte Carlo simulation valuation model with the following key assumptions:
Weighted average grant date fair value per share
$
35.94
$
33.98
$
21.81
2023
2022
2021
Assumptions (weighted average)
Risk-free interest rates (a)
Expected dividend yield
Expected volatility (b)
Expected term (in years)
4.3 %
— %
43.0 %
3.0
1.6 %
1.8 %
41.5 %
3.0
0.2 %
2.3 %
42.0 %
3.0
(a) Based on the U.S. Treasury yield curve in effect at the time of grant or modification for the expected term of the award. The range of risk-
free interest rates used for performance awards was 4.24% to 4.78% in fiscal 2023, 1.14% to 1.88% in fiscal 2022, and 0.13% to 0.23% in
fiscal 2021.
(b) Expected volatility is based on historical volatilities over periods commensurate with the expected term. In recent years, Valvoline utilized its
historical daily closing price over this period.
The total grant date fair value of nonvested stock awards vested and the weighted average grant date fair value of
nonvested stock awards granted follows for the years ended September 30:
Total grant date fair value of shares vested
Weighted average grant date fair value
2023
2022
2021
$
$
15.7 $
33.98 $
11.2 $
35.32 $
6.5
22.33
As of September 30, 2023, there was $5.6 million of total unrecognized compensation costs related to nonvested
stock awards, which is expected to be recognized over a weighted average period of 1.9 years. The aggregate
intrinsic value of nonvested stock awards as of September 30, 2023 is $45.0 million.
90
NOTE 13 - EARNINGS PER SHARE
The following summarizes basic and diluted EPS for the years ended September 30:
(In millions, except per share data)
Numerator
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Denominator
Weighted average common shares outstanding
Effect of potentially dilutive securities (a)
Weighted average diluted shares outstanding
Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations
Discontinued operations
Diluted earnings per share
2023
2022
2021
$
$
$
$
$
$
199.4 $
1,220.3
1,419.7 $
161.6
1.0
162.6
1.24 $
7.55
8.79 $
1.23 $
7.50
8.73 $
109.4 $
314.9
424.3 $
179.1
1.3
180.4
0.61 $
1.76
2.37 $
0.61 $
1.74
2.35 $
200.1
220.2
420.3
182.5
1.0
183.5
1.10
1.20
2.30
1.09
1.20
2.29
(a) There were 0.2 million outstanding securities, primarily SARs, not included in the computation of diluted earnings per share in each year
presented above because the effect would have been antidilutive.
NOTE 14 - STOCKHOLDERS' EQUITY
Modified “Dutch auction” tender offer
During May 2023, Valvoline commenced the Tender Offer to repurchase up to $1.0 billion in value of shares of its
common stock. Upon completion of the Tender Offer during June 2023, the Company accepted 27.0 million shares
at $38.00 per share, for an aggregate purchase price of $1.024 billion, excluding fees and related expenses.
Included within the 27.0 million shares were 0.6 million shares that the Company elected to repurchase pursuant to
its right to repurchase up to an additional 2% of its outstanding shares of common stock. Valvoline incurred $16.4
million in fees and expenses associated with the Tender Offer, which included $10.2 million for excise taxes on
share repurchases in accordance with the IRA. These costs were recognized within Retained earnings during the
year ended September 30, 2023 as costs to repurchase the Company’s common stock. Shares repurchased were
retired and returned to the status of authorized, unissued shares.
The Tender Offer was made pursuant to the authorization from Valvoline’s Board of Directors (the “Board”) for the
Company to repurchase up to $1.6 billion of its common stock announced on November 15, 2022 (the “2022 Share
Repurchase Authorization”). The Tender Offer utilized a substantial portion of the 2022 Share Repurchase
Authorization and in combination with other share repurchases made throughout the fiscal year, leaves $211.5
million of authorization remaining as of September 30, 2023.
91
Accumulated other comprehensive income (loss)
Changes in Accumulated other comprehensive income (loss) by component for fiscal years 2023 and 2022 were as
follows:
(In millions)
Balance as of September 30, 2021
Other comprehensive (loss) income
before reclassification
(Gain) loss reclassified out of
accumulated other comprehensive
income
Tax benefit (expense)
Balance as of September 30, 2022
Other comprehensive (loss) income
before reclassification
(Gain) loss reclassified out of
accumulated other comprehensive
income
Tax benefit (expense)
Unamortized
benefit plan
credits
Currency
translation
adjustments
Changes in fair
value of cash
flow hedges
Total
$
16.8 $
(10.1) $
0.8 $
—
(40.0)
15.4
(2.2)
0.5
15.1
—
(2.2)
0.5
—
0.4
(49.7)
13.1
30.7
(0.1)
(6.0) $
1.4
(4.3)
13.3
(22.8)
12.7
2.6
5.8 $
7.5
(24.6)
(0.8)
(3.4)
(21.3)
(9.7)
41.2
3.0
13.2
Balance as of September 30, 2023
$
13.4 $
Amounts reclassified from Accumulated other comprehensive income (loss) follow for the years ended September
30:
(in millions)
Amortization of pension and other postretirement plan
prior service credits (a)
Business disposal (b)
Loss (gain) on cash flow hedges (c)
Tax effect of reclassifications
Total amounts reclassified, net of tax
$
$
2023
2022
2021
(2.1) $
(2.2) $
30.6
12.7
3.0
—
1.4
(3.4)
44.2 $
(4.2) $
(11.8)
—
(0.7)
2.1
(10.4)
(a) Amortization of unrecognized prior service credits included in net periodic benefit income for pension and other postretirement plans was
reported in Net pension and other postretirement plan (income) expense within the Consolidated Statements of Comprehensive Income.
The Company releases the income tax effects from Accumulated other comprehensive income as benefit plan credits are amortized into
earnings.
(b) Represents the realization of currency translation losses and unamortized pension prior service credits of $30.7 million and $0.1 million,
respectively, recognized within Income from discontinued operations, net of tax within the Consolidated Statement of Comprehensive
Income in connection with the sale of the Global Products business.
(c) Represents the realization of gains from cash flow hedges reported in Net interest and other financing expense within the Consolidated
Statements of Comprehensive Income.
92
NOTE 15 – SUPPLEMENTAL BALANCE SHEET INFORMATION
Cash and cash equivalents
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
Consolidated Balance Sheets to the totals shown within the Consolidated Statements of Cash Flows for the years
ended September 30:
(In millions)
Cash and cash equivalents - continuing operations
Cash and cash equivalents - held for sale (a)
Cash and cash equivalents - discontinued operations
Restricted cash - discontinued operations (b)
Total cash, cash equivalents and restricted cash
$
$
2023
2022
2021
409.1 $
4.0
—
—
413.1 $
23.4 $
—
59.0
1.5
83.9 $
122.6
—
107.4
1.4
231.4
(a) Refer to Note 3 for additional information regarding the asset group classified as held for sale at September 30, 2023.
(b)
Included in Current assets held for sale with the Consolidated Balance Sheets.
Accounts and other receivables
The following summarizes Valvoline’s accounts and other receivables in the Consolidated Balance Sheets as of
September 30:
(In millions)
Current
Trade
Other
Notes receivable from franchisees
Receivables, gross
Allowance for credit losses
Receivables, net
Non-current (a)
Notes receivable
Other
Noncurrent notes receivable, gross
Allowance for losses
Noncurrent notes receivable, net
(a) Included in Other noncurrent assets within the Consolidated Balance Sheets.
2023
2022
$
$
$
$
64.0 $
17.9
—
81.9
(0.6)
81.3 $
2.3 $
7.5
9.8
(2.4)
7.4 $
56.2
14.3
0.2
70.7
(4.6)
66.1
2.1
0.1
2.2
(2.2)
—
93
Property, plant and equipment
The following table summarizes the various components of property, plant and equipment within the Consolidated
Balance Sheets as of September 30:
(In millions)
Land
Buildings
Machinery and equipment
Construction in progress
Total property, plant and equipment
Accumulated depreciation
Net property, plant and equipment
2023
2022
$
148.5 $
725.1
302.6
57.6
1,233.8
(415.5)
$
818.3 $
134.7
562.8
236.0
82.4
1,015.9
(347.3)
668.6
The following table summarizes finance lease assets included in net property, plant and equipment as of September
30:
(In millions)
Land
Buildings
Total finance lease assets
Accumulated depreciation
Net finance lease assets
2023
2022
85.4 $
154.6
240.0
(50.0)
190.0 $
75.3
141.8
217.1
(34.2)
182.9
$
$
Non-cash transactions, including finance leases, recognized within total property, plant and equipment were $17.5
million and $23.2 million during the years ended September 30, 2023 and 2022, respectively.
The following summarizes expense associated with property, plant and equipment recognized within the
Consolidated Statements of Comprehensive Income for the years ended September 30:
(In millions)
2023
2022
2021
Depreciation (includes finance leases)
$
72.0 $
54.7 $
46.8
Long-lived assets
The following presents long-lived assets comprised of net property, plant and equipment and operating lease assets
by geographic area in which the assets physically reside for the years ended September 30:
(In millions)
United States
Non-U.S.
Total
Property, plant and equipment, net
Operating lease assets
2023
2022
2023
2022
$
$
774.4 $
43.9
818.3 $
647.7 $
20.9
668.6 $
247.2 $
19.3
266.5 $
229.0
19.1
248.1
94
NOTE 16 – SUBSEQUENT EVENTS
Share repurchases
The Company repurchased 4.2 million shares for an aggregate amount of $130.1 million from October 1, 2023
through November 15, 2023 pursuant to the 2022 Share Repurchase Authorization. The Company has $81.4 million
in aggregate repurchase authority remaining under the 2022 Share Repurchase Authorization as of November 15,
2023.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Valvoline’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of management,
has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), as of the end
of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”), and based upon such evaluation,
have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective.
These controls are designed to ensure that information required to be disclosed in the reports that are filed or
submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is
accumulated and communicated to Valvoline’s management, including the CEO and CFO, to allow timely decisions
regarding required disclosure.
Management’s report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management assessed the effectiveness of the
Company’s internal control over financial reporting as of September 30, 2023 based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control -
Integrated Framework. Based on this assessment, management concluded that the Company’s internal control over
financial reporting was effective as of September 30, 2023 based on those criteria. The Company’s internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Valvoline’s
independent registered public accounting firm, Ernst & Young LLP, has issued an audit report with respect to the
effectiveness of the Company’s internal control over financial reporting as of September 30, 2023, which appears
herein.
Changes in internal control
There were no significant changes in Valvoline’s internal control over financial reporting that occurred during the
fiscal quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect,
Valvoline’s internal control over financial reporting.
95
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Valvoline Inc. and Consolidated Subsidiaries
Opinion on Internal Control Over Financial Reporting
We have audited Valvoline Inc. and Consolidated Subsidiaries’ internal control over financial reporting as of
September 30, 2023, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Valvoline Inc. and Consolidated Subsidiaries (the Company) maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2023 and 2022,
the related consolidated statements of comprehensive income, stockholders’ equity (deficit) and cash flows for each
of the three years in the period ended September 30, 2023, and the related notes and financial statement schedule
listed in the Index at Item 15(a), and our report dated November 20, 2023, expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Ernst & Young LLP
Louisville, Kentucky
November 20, 2023
96
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Plans
From time to time, the Company’s officers and directors enter into equity trading plans with their brokers, which are
intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities and Exchange Act of
1934 (a “Rule 10b5-1 Trading Plan”). A Rule 10b5-1 Trading Plan is a written agreement between the officer or
director and such person’s broker that pre-establishes the formula for determining the amounts, prices, and dates of
Valvoline common stock and does not permit the officer or director to exercise any subsequent influence over how,
when or whether to effect purchases or sales. In addition, the officer or director must represent that he or she is not
aware of any material nonpublic information concerning Valvoline or its common stock upon execution of the Rule
10b5-1 Trading Plan. The Company’s insider trading policy requires a 90-day cooling-off period before transactions
may be executed pursuant an officer’s or director’s Rule 10b5-1 Trading Plan.
During the three months ended September 30, 2023, Mr. Samuel J. Mitchell, Jr., the Company’s retired Chief
Executive Officer and Director entered into a Rule 10b5-1 Trading Plan with his broker on August 17, 2023, to
exercise up to 33,358 stock appreciation rights related to Valvoline common stock. Mr. Mitchell’s Rule 10b5-1
Trading Plan expires upon the earlier of November 17, 2023 or the date all transactions pursuant to such trading
plan are executed.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
A list of Valvoline’s executive officers and related information appears under the caption “Executive Officers of
Valvoline” in Item 1 of Part I of this Annual Report on Form 10-K. The other information required by this item will be
included in the Proxy Statement, which will be filed with the SEC within 120 days of September 30, 2023 and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2023 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2023 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2023 and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2023 and is incorporated herein by reference.
97
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents filed as part of this Report
(1) Financial statements
The consolidated financial statements of Valvoline filed as part of this Annual Report on Form 10-K are
included in Item 8 of Part II.
Separate financial statements of unconsolidated affiliates are omitted because none of these companies
constitute significant subsidiaries using the 20% tests when considered individually.
(2) Financial statement schedules
Financial Statement Schedule II - Valuation and Qualifying Accounts included within this Item 15 in this
Annual Report on Form 10-K. All other schedules are not required under the related instructions or are not
applicable.
(3) Exhibits
Refer to Item 15(b) included in this Annual Report on Form 10-K.
(b) Documents required by Item 601 of Regulation S-K
3.1
3.2
4.1
4.2
4.3
4.4
-
-
-
-
-
Amended and Restated Articles of Incorporation of Valvoline Inc. (incorporated by reference to
Exhibit 3.1 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November
17, 2017).
Amended and Restated By-laws of Valvoline Inc. (incorporated by reference to Exhibit 3.2 to
Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December 19, 2016).
Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to Valvoline’s Registration
Statement on Form S-1 (File No. 333-211720) filed on September 12, 2016).
Indenture, dated as of February 25, 2020, among Valvoline Inc. the guarantors party thereto and
U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Valvoline's
Current Report on Form 8-K (File No. 001-37884) filed on February 25, 2020.
Indenture, dated as of January 4, 2021, among Valvoline Inc. the guarantors party thereto and
U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Valvoline's
Current Report on Form 8-K (File No. 001-37884) filed on January 4, 2021.
- Description of Securities (incorporated by reference to Exhibit 4.5 to Valvoline’s Annual Report on
10-K (File No. 001-37884) filed on November 19, 2021).
The following Exhibits 10.1 through 10.22 are contracts, compensatory plans or arrangements, or management
contracts required to be filed as exhibits pursuant to Items 601(b)(10)(ii)(A) and 601(b)(10)(iii)(A) and (B) of
Regulations S-K.
10.1
10.2
-
-
Valvoline Inc. 2016 Deferred Compensation Plan for Employees (incorporated by reference to
Exhibit 10.1 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December
19, 2016).
Valvoline Inc. 2016 Deferred Compensation Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.6 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on
December 19, 2016).
98
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2016 Valvoline Inc. Incentive Plan, as Amended (incorporated by reference to Exhibit 10.1 to
Valvoline's Current Report on Form 8-K (File No. 001-37884) filed on February 5, 2019.
Valvoline Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to
Valvoline’s Current Report on Form 8-K (File No. 001-37884) filed on February 5, 2018).
Form of (Outside Directors) Restricted Stock Award Agreement pursuant to the 2016 Valvoline
Inc. Incentive Plan (incorporated by reference to Exhibit 10.3 to Valvoline's Annual Report on
Form 10-K (File No. 001-37884) filed on December 19, 2016).
Form of Performance Unit Award Agreement pursuant to the 2016 Valvoline Inc. Incentive Plan
(incorporated by reference to Exhibit 10.5 to Valvoline's Current Report on Form 8-K (File No.
001-37884) filed on May 15, 2017).
Form of Stock Appreciation Right Award Agreement pursuant to the 2016 Valvoline Inc. Incentive
Plan (incorporated by reference to Exhibit 10.6 to Valvoline's Current Report on Form 8-K (File
No. 001-37884) filed on May 15, 2017).
Form of Stock Appreciation Right Award Agreement pursuant to the 2016 Valvoline Inc. Incentive
Plan, as Amended, for awards granted after fiscal 2020 (incorporated by reference to Exhibit 10.8
to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November 24, 2020).
Form of Restricted Stock Unit Agreement pursuant to the 2016 Valvoline Inc. Incentive Plan, as
Amended, for awards granted after fiscal 2020 (incorporated by reference to Exhibit 10.11 to
Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November 24, 2020).
Form of Outside Director Restricted Stock Unit Award Agreement pursuant to the 2016 Valvoline
Inc. Incentive Plan (incorporated by reference to Exhibit 10.1 to Valvoline’s Quarterly Report on
Form 10-Q (File No. 001-37884) filed on February 9, 2022).
Valvoline Inc. Nonqualified Defined Contribution Plan (incorporated by reference to Exhibit 10.4 to
Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December 19, 2016).
Ashland Inc. Nonqualified Excess Benefit Pension Plan (incorporated by reference to Exhibit
10.12 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November 17,
2017).
Amendment to Ashland Inc. Nonqualified Excess Benefit Pension Plan, effective as of September
1, 2016 (incorporated by reference to Exhibit 10.7 to Valvoline's Annual Report on Form 10-K
(File No. 001-37884) filed on December 19, 2016).
Amendment to Ashland Inc. Nonqualified Excess Benefit Pension Plan, effective as of September
30, 2016 (incorporated by reference to Exhibit 10.9 to Valvoline's Annual Report on Form 10-K
(File No. 001-37884) filed on December 19, 2016).
Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (“Ashland SERP”)
(incorporated by reference to Exhibit 10.15 to Valvoline's Annual Report on Form 10-K (File No.
001-37884) filed on November 17, 2017).
Amendment to Ashland SERP, effective as of January 1, 2015 (incorporated by reference to
Exhibit 10.16 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November
17, 2017).
Amendment to Ashland SERP, effective as of September 1, 2016 (incorporated by reference to
Exhibit 10.17 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November
17, 2017).
Amendment to Ashland SERP, effective as of September 30, 2016 (incorporated by reference to
Exhibit 10.8 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December
19, 2016).
Form of CEO Change in Control Agreement (incorporated by reference to Exhibit 10.1 to
Valvoline's Current Report on Form 8-K (File No. 001-37884) filed on May 15, 2017).
Form of Executive Officer Change in Control Agreement (incorporated by reference to Exhibit
10.2 to Valvoline's Current Report on Form 8-K (File No. 001-37884) filed on May 15, 2017).
99
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31*
21*
23.1*
24*
31.1*
31.2*
32**
97.1*
101.INS
-
-
-
-
-
-
-
-
-
-
-
-
Valvoline Change in Control Severance Plan, as amended and restated, effective January 1,
2022 (incorporated by reference to Exhibit 10.3 to Valvoline's Quarterly Report on Form 10-Q
(File No. 001-37884) filed on February 9, 2022).
Valvoline Severance Pay Plan, as amended and restated, effective January 1, 2022 (incorporated
by reference to Exhibit 10.4 to Valvoline's Quarterly Report on Form 10-Q (File No. 001-37884)
filed on February 9, 2022).
Amendment and Restatement Agreement, dated as of December 12, 2022, among Valvoline Inc.
(“Valvoline”), certain subsidiaries of Valvoline party thereto, The Bank of Nova Scotia, as
Administrative Agent, swing line lender and an L/C issuer, and the lenders party thereto (including
Exhibit A – Amended and Restated Credit Agreement, among Valvoline, The Bank of Nova
Scotia, as Administrative Agent, swing line lender and an L/C issuer, and the lenders party
thereto) (incorporated by reference to Exhibit 10.1 to Valvoline Current Report on Form 8-K (File
No. 001-37884) filed on December 13, 2022.
Separation Agreement, dated as of September 22, 2016, by and between Ashland Inc. and
Valvoline Inc. (incorporated by reference to Exhibit 10.15 to Valvoline's Annual Report on Form
10-K (File No. 001-37884) filed on December 19, 2016).
Tax Matters Agreement, dated as of September 22, 2016, by and between Ashland Inc. and
Valvoline Inc. (incorporated by reference to Exhibit 10.18 to Valvoline's Annual Report on Form
10-K (File No. 001-37884) filed on December 19, 2016).
Amendment to Tax Matters Agreement, dated as of January 13, 2023, between Ashland Inc. and
Valvoline Inc. (incorporated by reference to Exhibit 10.1 to Valvoline’s Current Report on Form 8-
K (File No. 001-37884) filed on January 20, 2023).
Employee Matters Agreement, dated as of September 22, 2016, by and between Ashland Inc.
and Valvoline Inc. (incorporated by reference to Exhibit 10.19 to Valvoline's Annual Report on
Form 10-K (File No. 001-37884) filed on December 19, 2016).
Amended and Restated Equity Purchase Agreement (“Equity Purchase Agreement”), dated as of
March 1, 2023, among Valvoline Inc., Gateway Velocity Holding Corp., and, solely for the
purposes set forth therein, Aramco Overseas Company B.V. (incorporated by reference to Exhibit
10.1 to Valvoline Current Report on Form 8-K (File No. 001-37884) filed on March 1, 2023).
Supply Agreement by and between VGP Holdings LLC, Valvoline Inc. and Valvoline LLC,
effective as of March 1, 2023 (incorporated by reference to Exhibit 10.1 to Valvoline’s Quarterly
Report on Form 10-Q (File No. 001-37884) filed on May 10, 2023).
Trademark Co-Existence Agreement by and between, on the one hand, Valvoline LLC, Valvoline
Licensing and Intellectual Property LLC, and Valvoline Inc. and, on the other hand, VGP Holdings
LLC and VGP IPCo LLC, dated as of March 1, 2023 (incorporated by reference to Exhibit 10.2 to
Valvoline’s Quarterly Report on Form 10-Q (File No. 001-37884) filed on May 10, 2023).
Letter Agreement to Equity Purchase Agreement, dated as of September 25, 2023, by and among
Valvoline Inc., Aramco Valvoline Global Holding Corp., and Aramco Overseas B.V.
List of Subsidiaries.
- Consent of Ernst & Young LLP.
-
Power of Attorney.
- Certification of Lori A. Flees, Chief Executive Officer of Valvoline, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
- Certification of Mary E. Meixelsperger, Chief Financial Officer of Valvoline, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
- Certification of Lori A. Flees, Chief Executive Officer of Valvoline, and Mary E. Meixelsperger,
Chief Financial Officer of Valvoline, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-
-
Valvoline Inc. Executive Compensation Recovery (Clawback) Policy
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.
100
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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-
-
-
-
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
104
- Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
*
**
SM
™
†
Filed herewith.
Furnished herewith.
Service mark, Valvoline Inc. or its subsidiaries, registered in various countries.
Trademark, Valvoline Inc. or its subsidiaries, registered in various countries.
Trademark owned by a third party.
Upon written or oral request, a copy of the above exhibits will be furnished at cost.
101
VALVOLINE INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 2023, 2022 and 2021
(A)
(B)
(In millions)
(C)
Additions
(D)
(E)
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, 2023
Year ended September 30, 2022
Year ended September 30, 2021
Allowances for loan losses
Year ended September 30, 2023
Year ended September 30, 2022
$
$
$
$
$
4.6
0.3
0.3
2.2
2.1
Year ended September 30, 2021
2.0
Inventory excess and obsolete reserves
2.0
Year ended September 30, 2023
$
$
Year ended September 30, 2022
Year ended September 30, 2021
$
$
0.8
0.6
Deferred tax asset valuation allowance
Year ended September 30, 2023
Year ended September 30, 2022
Year ended September 30, 2021
$
$
$
33.3
31.8
29.7
$
$
$
$
$
$
$
$
$
$
$
$
(0.6) $
4.5 $
— $
— $
— $
— $
(0.3) $
1.2 $
0.2 $
(30.3) $
1.5 $
0.9 $
(3.4) (a) $
$
(0.2)
—
0.2
0.1
0.1
$
$
$
$
(0.6) (a) $
$
—
—
—
—
1.2
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
0.6
4.6
0.3
2.4
2.2
2.1
1.1
2.0
0.8
3.0
33.3
31.8
(a) Includes currency translation and balances reclassified to held for sale within the Consolidated Balance Sheet.
ITEM 16.
FORM 10-K SUMMARY
None.
102
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
VALVOLINE INC.
(Registrant)
By:
/s/ Mary E. Meixelsperger
Mary E. Meixelsperger
Chief Financial Officer
Date: November 20, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant, in the capacities indicated, on November 20, 2023.
Signatures
/s/ Lori A. Flees
Lori A. Flees
/s/ Mary E. Meixelsperger
Mary E. Meixelsperger
/s/ Dione R. Sturgeon
Dione R. Sturgeon
*
Richard J. Freeland
*
Gerald W. Evans, Jr.
*
Carol H. Kruse
*
Vada O. Manager
*
Patrick S. Pacious
*
Jennifer L. Slater
*
Charles M. Sonsteby
*
Mary J. Twinem
*By:
/s/ Julie M. O’Daniel
Julie M. O’Daniel
Attorney-in-Fact
Date: November 20, 2023
Capacity
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer and Controller
(Principal Accounting Officer)
Chairman of the Board and Director
Director
Director
Director
Director
Director
Director
Director
103
Shareholder Information
Financial Information
Valvoline's annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K
and any amendments to those reports, as well as
any beneficial ownership reports of officers and
directors are available at http://
investors.valvoline.com/sec-filings after they are
filed with the Securities and Exchange Commission.
Paper copies are also available upon request and at
no charge. Requests for these and other
shareholder and security analyst inquires should be
directed to:
Investor Relations
Valvoline Inc.
100 Valvoline Way, Suite 100
Lexington, KY 40509
+1 (859) 357-3155
IR@valvoline.com
Ticker Symbol: VVV
Fiscal 2023 closing stock prices per common share:
High:
Low:
Year-end:
$39.45
(cid:7)25(cid:17)05
$32.24
07/26/2023
10(cid:18)12(cid:18)2022
09/29/2023
Annual Meeting
The annual meeting of shareholders will be held at
Valvoline's Corporate Headquarters, 100 Valvoline
Way, Lexington, Kentucky at 8:00 a.m. ET, Thursday,
January 25, 2024.
Independent Registered
Public Accounting Firm
Ernst & Young LLP
400 West Market Street, Suite 1200
Louisville, KY 40202
Media Inquiries
media@valvoline.com
Corporate Headquarters
Valvoline Inc.
100 Valvoline Way, Suite 100
Lexington, KY 40509
+1 (859) 357-7777
www.valvoline.com
Stock Information
Valvoline Inc. is incorporated under the laws of the
Commonwealth of Kentucky. Valvoline common
stock is listed on the New York Stock Exchange
under the symbol "VVV".
Questions regarding shareholder accounts should
be directed to Valvoline's transfer agent and
registrar:
EQ Shareowner Services
1110 Centre Point Curve, Suite 101
Mendota Heights, MN 55120
Mailing Address:
EQ Shareowner Services
PO Box 64874
St. Paul, MN 55164-0874
+1 (800) 468-9716 toll-free (U.S.)
+1 (651) 450-4064 (non-U.S.)
www.shareowneronline.com