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What changed in VALVOLINE INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of VALVOLINE INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+339 added−342 removedSource: 10-K (2023-11-20) vs 10-K (2022-11-23)

Top changes in VALVOLINE INC's 2023 10-K

339 paragraphs added · 342 removed · 234 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

71 edited+24 added−28 removed14 unchanged
Biggest changeThe unit growth of the retail services network of stores over the last five years, in addition to its annual same-store sales growth in each of those years, is summarized below: 7 Company-operated (a) For the years ended September 30 2022 2021 2020 2019 2018 Beginning of period 719 584 519 462 384 Opened 34 30 36 28 17 Acquired 33 57 12 24 3 Conversions between company-operated and franchised 4 50 17 5 58 Closed — (2) — — — End of period 790 719 584 519 462 Franchised (a) (b) For the years ended September 30 2022 2021 2020 2019 2018 Beginning of period 875 878 866 780 743 Opened 60 39 36 65 28 Acquired — 12 — 31 73 Conversions between company-operated and franchised (4) (50) (17) (5) (58) Closed (6) (4) (7) (5) (6) End of period 925 875 878 866 780 Total stores (b) (c) 1,715 1,594 1,462 1,385 1,242 Same store sales growth (a) For the years ended September 30 2022 2021 2020 2019 2018 System-wide 13.7 % 21.2 % 2.3 % 10.1 % 8.3 % Company-operated 11.4 % 19.6 % 2.6 % 9.7 % 8.7 % Franchised (b) 15.5 % 22.4 % 2.1 % 10.4 % 8.0 % (a) Refer to "Key Business Measures" in Item 7 of Part II of this Annual Report on Form 10-K for a description of management's use and determination of key metrics, including store counts and same-store sales.
Biggest changeThe retail services store network and its same-store sales growth in each of the last five years is summarized below: 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.
ITEM 1. BUSINESS Overview Valvoline Inc. is a leader in preventive maintenance delivering convenient and trusted automotive 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.
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.
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 interest in Valvoline in May 2017 (the “Distribution”).
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”).
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 or franchise agreements. Valvoline is subject to laws relating to information security, privacy, cashless payments and customer credit, protection and fraud.
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.
The combination of these efforts enable Valvoline to continue a promote-from-within strategy which has led to 100% 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.
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.
In addition, the North American automotive aftermarket services market is highly fragmented, which creates a significant opportunity for consolidation. Based on industry surveys and management estimates, the U.S.
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.
The Company introduced 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.
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.
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 from September 2017 to June 2019.
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.
Valvoline provides an Introduction to Management program within its VIOC stores multiple times during the year 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.
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.
All such reports are available as soon as reasonably practicable after they are electronically filed with, or electronically furnished to, the Securities and Exchange Commission (the “SEC").
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").
Competition The automobile aftermarket service industry is highly competitive 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.
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 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 notable automobile racing victories by some of the biggest legends of the sport.
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.
Across the 11 organization, including within the VIOC system of company-operated and franchised service center stores, employees are provided voluntary and compulsory regulatory, safety, compliance, customer service, and product training opportunities, based on job role and function, delivered via virtual or in-person classes and e-learning.
Across the organization, 11 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.
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, and the ownership, construction and operation of real property, among others.
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.
(b) Valvoline's franchisees are distinct independent legal entities and Valvoline does not consolidate the results of operations of its franchisees. (c) As of September 30, 2020, one franchised service center store included in the store count was temporarily closed at the discretion of the respective independent operator due to the impacts of COVID-19.
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.
Valvoline also offers and has many partnerships to deliver quality development opportunities, including those with leading universities, research organizations and companies, in addition to opportunities for employees to attend seminars and training programs provided by industry trade and professional organizations.
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.
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. 13 Executive officers of Valvoline The following table sets forth information concerning Valvoline's executive officers as of November 18, 2022: Name Age Title Samuel J.
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. 13 Executive officers of Valvoline The following table sets forth information concerning Valvoline's executive officers as of November 15, 2023: Name Age Title Lori A.
Today, Valvoline operates as an independent corporation that trades on the New York Stock Exchange (“NYSE”) under the symbol “VVV,” focused on delivering quick and convenient vehicle maintenance services to further accelerate its growth.
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.
Valvoline offers the following services at its retail service center stores: Valvoline’s services are offered to a wide range of vehicle types, including: 5 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 improvements in miles driven.
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.
As shown below, Valvoline operates, either directly or through its franchisees, 1,715 service center stores across the U.S. and Canada as of September 30, 2022: l Company-operated l Franchised Valvoline's three-pronged approach to increase its retail network is to grow through 1) opportunistic acquisitions, 2) new store development, and 3) franchisee unit expansion.
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.
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.
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 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. Lori A.
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.
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 acquisition, the business is well-positioned to continue driving increased benefits to the overall system of retail stores.
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.
Following the closing of the sale of Global Products, Valvoline will own the Valvoline brand for all retail services purposes globally, excluding China and certain countries in the Middle East and North Africa, while Global Products will own the Valvoline brand for all products uses globally.
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 is focused on (1) promoting a culture of diversity and inclusion that leverages the talents of all employees, (2) implementing practices that attract, recruit and retain diverse top talent, and (3) 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.
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.
The Company’s focus on aggressively growing the Retail Services system that included the addition of 121 net new system-wide stores in fiscal 2022, creates a critical need for talent to operate those stores. Valvoline utilizes its tools and processes to attract qualified candidates within its Retail Services system, including providing support to franchise sourcing efforts.
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.
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 received 2022 BEST Award winner recognition from the Association for Talent Development.
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.
Yearly, a major focus of Valvoline’s charitable giving programs is the annual employee giving campaign where employees are encouraged to give monthly donations through payroll deduction to the charity of their choice.
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.
Training and development The opportunity to develop and advance, regardless of job role or location, is critical to the success of Valvoline, and a key component of Valvoline'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.
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.
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.
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.
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 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.
Valvoline will partner with Global Products to ensure that once the sale is completed, Valvoline's iconic brand is managed in a consistent and holistic manner. Valvoline trade names and service marks used in its business include Valvoline TM and Valvoline Instant Oil Change SM , among others.
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 Valvoline TM and Valvoline Instant Oil Change SM , among others. Valvoline is also party to arrangements that license its intellectual property to others in return for revenues.
In addition, the Company surveyed employees during the year to solicit feedback and address questions regarding the separation of the businesses and established an intranet page dedicated to communicating and establishing transparency throughout the separation process.
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 is also party to arrangements that license its intellectual property to others in return for revenues. Valvoline owns approximately 500 domain names that are used to promote Valvoline services and provide information about the Company. Product supply and price The products used in Valvoline’s retail service delivery are sourced from Global Products.
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.
Valvoline will continue this arrangement following the sale of Global Products through a long-term supply agreement whereby Valvoline will purchase substantially all lubricant and certain ancillary products for its stores from Global Products (the “Supply Agreement”).
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 also utilizes its digital infrastructure and technology to more efficiently interact with customers, driving customer engagement and retention, acquisition, and to ensure consistency of service.
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 customers and retain current ones, including tailored marketing campaigns directed to specific customers when their next service is estimated to be due.
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.
In addition, the United States Environmental Protection Agency (the "EPA"), under the Resource Conservation and Recovery Act ("RCRA"), as well as various state and local environmental protection agencies, regulate the handling and disposal of certain waste products and other materials.
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 part of the Company's commitment to deposit cash in MDIs, Valvoline has invested approximately $2.0 million of its cash equivalents as of September 30, 2022 with MDIs and is actively working to identify additional MDIs to invest with on an ongoing basis.
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.
Valvoline’s Charitable Giving Committee awards the grants based on the Company’s giving pillars. Available information More information about Valvoline is available on the Company’s website at http://www.valvoline.com .
Available information More information about Valvoline is available on the Company’s website at http://investors.valvoline.com .
The network of retail service center stores grew by more than 50% over the last five years. During this period, Valvoline added 588 net new stores since the beginning of 2018 and expanded its service centers internationally into Canada.
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.
Valvoline believes its scale and large volumes purchased provide beneficial pricing which allows for the arrangement of product supply for its store operations on more favorable terms than could otherwise be achieved. This benefit enhances the value proposition to new and existing independent store operators as well as the profits of Valvoline’s company store operations.
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.
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 "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, and rewards performance.
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.
Valvoline’s continuing operations holds approximately 160 trademarks in more than 50 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.
These trademarks have a perpetual life, are generally subject to renewal every ten years, and are among Valvoline's most protected and valuable assets.
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.
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.
Valvoline’s matching program will match the donations given to the organizations that align with the Company’s giving pillars: (1) disadvantaged families and children, (2) education, (3) the environment, and/or (4) diversity and inclusion. Additionally, Valvoline’s Grant Program offers non-profits the opportunity to submit proposals once a year for specific needs within their organization.
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.
The table below provides the Company's approximate distribution of employees of its continuing operations, which includes its company-operated service center stores, central supporting teams, and excludes contract employees, as of September 30, 2022: 10 Number of employees Technicians 6,850 Store management 950 Customer service 200 Total company-operated store employees 8,000 Area and regional operations 400 Total retail services operations 8,400 Headquarter and virtual corporate team members 500 Total employee headcount 8,900 Valvoline management surveys team members periodically throughout the year to gather real-time feedback from employees and focus on continuous improvement.
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: Number of employees Technicians 8,600 Store management 1,100 Customer service 200 Total company-operated store employees 9,900 Area and regional operations 400 Total retail services operations 10,300 Headquarter and remote corporate team members 600 Total employee headcount 10,900 Valvoline seeks to attract, develop, and retain highly qualified talent as summarized further below.
The Company operates and franchises more than 1,700 service center locations through its Valvoline Instant Oil Change SM (“VIOC”) and Great Canadian Oil Change retail locations and supports over 250 locations through its Express Care platform. Company background Valvoline has a history of innovation spanning more than 155 years that began in 1866 when Dr.
The Company operates and franchises more than 1,850 service center locations through its Valvoline Instant Oil Change SM (“VIOC”) and Valvoline Great Canadian Oil Change (“GCOC”) retail locations and supports nearly 300 locations through its Express Care TM platform.
Prior to joining Valvoline, Ms. Meixelsperger was Senior Vice President and Chief Financial Officer of DSW Inc. from April 2014 to June 2016 and held the roles of Chief Financial Officer, Controller and Treasurer at Shopko Stores from 2006 to 2014. Julie M.
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.
Valvoline’s strategic initiatives include: • Continuing to capture increased market share and drive non-oil change revenue growth in existing stores by building on Valvoline’s strong foundation in technology and data, which enables the Company to be an industry leader in automobile aftermarket services and makes vehicle care easy for customers; • Aggressively growing the retail footprint with company-operated store growth and an increased emphasis on franchisee unit growth; • Developing capabilities to capture new customers through services expansion focused on fleet manager needs and needs of the evolving car parc; and • Executing the sale of Global Products to create value for the Company's shareholders and best position the continuing operations for long-term success. 6 Retail store development Valvoline’s network of retail service centers delivered its 16th consecutive year of system-wide same-store sales growth in fiscal 2022, demonstrating the system's operational excellence.
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.
Valvoline also competes for Express Care operators and customers with national branded companies that offer a professional signage program with limited business model support, similar to Valvoline’s Express Care™ network.
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.
Mitchell, Jr. 61 Chief Executive Officer and Director Mary E. Meixelsperger 62 Chief Financial Officer Julie M. O’Daniel 55 Senior Vice President, Chief Legal Officer and Corporate Secretary Jonathan L. Caldwell 45 Senior Vice President and Chief People Officer Lori A. Flees 52 Senior Vice President and President, Retail Services Thomas A.
Flees 53 President and Chief Executive Officer and Director Mary E. Meixelsperger 63 Chief Financial Officer Julie M. O’Daniel 56 Senior Vice President, Chief Legal Officer and Corporate Secretary Jonathan L. Caldwell 46 Senior Vice President and Chief People Officer R. Travis Dobbins 51 Senior Vice President and Chief Technology Officer Linne R.
The Company also actively sponsors events that promote diversity and utilizes its Diversity, Equity and Inclusion Council, a working committee to help steer diversity and inclusion efforts across the business and its operations. Citizenship Valvoline’s citizenship efforts support social and educational needs within the communities the Company serves.
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.
At various times 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, Building Homes for Heroes, and many more local and global institutions and organizations.
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.
In addition, the structured early learning detailed training plan of SuperPro TM , an internal management system for executing Valvoline's retail services, supported by a proprietary digital learning platform , 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 225 hours of training in the next 140 days that leads to a promotion.
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.
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. 9 Seasonality Overall, seasonality may modestly impact Valvoline’s business.
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.
Valvoline supports inclusive, employee-led networking groups that provide a forum to communicate and exchange ideas, build a network of relationships across the Company, and pursue personal and professional development, such as Valvoline Women’s International Network.
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.
Franchisees are able to take advantage of Valvoline's recruiting and marketing programs, in addition to sharing hiring experiences and best practices across the system to ensure company-operated and franchised locations attract and hire the best candidates to deliver consistent and superior service to Valvoline's customers.
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.
This includes management and leadership programs with approximately 20 hours of live training and development for its new managers.
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.
Flees has served as Valvoline's Senior Vice President and President, Retail Services since April 2022. Prior to joining Valvoline, Ms.
Fulcher 52 Senior Vice President and Chief Operating Officer Dione R. Sturgeon 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.
In addition, 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. Valvoline emphasizes that "safety is always our priority" through one of its core values.
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 recruit and retain the most qualified team members in the industry, Valvoline focuses on treating team members well by paying competitive wages, offering attractive benefit packages and providing robust training and development opportunities, in addition to providing a strong operational support infrastructure with opportunities for upward mobility.
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.
Matheys has served as Valvoline's Senior Vice President, Chief Marketing & Transformation Officer since October 2021. Previously, Ms. Matheys served as Senior Vice President, Chief Marketing Officer of Valvoline from September 2016 to October 2021. Jamal K. Muashsher has served as Senior Vice President and President, Global Products of Valvoline since October 2021. Previously, Mr.
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.
Established in 1866, Valvoline’s heritage spans over 15 decades, during which it has developed powerful recognition across multiple channels. Valvoline has consistently adapted to address changing technologies and customer needs and is well positioned to service evolving vehicle maintenance needs with Valvoline’s iconic products.
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.
Valvoline continues to build its market share by leveraging its stay-in-your-car service model and providing each customer with services that can be seen and experts they can trust. Valvoline technicians utilize its proprietary SuperPro TM system to deliver a superior customer experience and make timely service recommendations based upon vehicle service history and original equipment manufacturer (“OEM”) recommendations.
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.
The BEST Award recognizes organizations that are Building talent, Enterprise-wide and Strategically driving a Talent development culture that delivers results. Total rewards Valvoline believes that happy and well-cared-for team members bring their best selves to work. The Company provides a wide variety of benefits to eligible full-time and part-time employees.
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.
Geographic diversity typically limits weather effects to specific regions, though transaction volumes can moderate along with miles driven during the seasons, which generally trend with the length of daylight hours, weather conditions, and vacation timing. In addition, the periods of time leading into North American holidays can also drive increased miles driven and transaction volumes.
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.
Of these locations, Valvoline operates 790 retail service center stores throughout the U.S. and Canada and supports its store network through centralized teams.
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.
A variety of marketing techniques are utilized by the Company 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.
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.
Discontinued operations On July 31, 2022, the Company entered into a definitive agreement (the “Purchase Agreement”) to sell its former Global Products reportable segment to Aramco Overseas Company B.V. (“Aramco” or the “Buyer”) for a cash purchase price of $2.65 billion, subject to customary adjustments with respect to working capital and net indebtedness (the “Transaction”).
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”).
Thomas A. Gerrald II has served as Senior Vice President and Chief Supply Chain Officer of Valvoline since October 2021. Previously, Mr. Gerrald served as Senior Vice President, Global Products - North America of Valvoline from May 2021 to October 2021, and as Senior Vice President, Core North America of Valvoline from September 2016 to May 2021. Heidi J.
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.
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The quick, easy and trusted name in preventive vehicle maintenance, Valvoline leads the industry with automotive service innovations that simplify customer’s lives and take the worry out of vehicle care. With average customer ratings that indicate high levels of service satisfaction, Valvoline has built the model for transparency and convenience in automotive maintenance.
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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.
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From the signature 15-minute, stay-in-your-car oil change to cabin air filters to battery replacements to tire rotations, the Company’s model offers maintenance solutions for all types of vehicles.
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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.
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The Transaction is subject to standard closing conditions, including regulatory approvals, and is expected to close in early calendar year 2023. Global Products sells engine and automotive 4 products in more than 140 countries and territories to retailers, installers, and commercial customers to service light- and heavy-duty vehicles and equipment.
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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.
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The assets and liabilities associated with the Global Products business have been classified as held for sale, and its financial results are classified as discontinued operations and reported separately for all periods presented herein.
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Valvoline technicians utilize the Company’s proprietary SuperPro TM 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.
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Unless otherwise noted, the description of business in this Annual Report on Form 10-K relates solely to the continuing operations, comprised of the former Retail Services reportable segment. With the reclassification of Global Products to discontinued operations, Valvoline now has one reportable segment, which is reflected herein in the consolidated financial statements.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeValvoline may not be able to refinance its debt or sell additional debt or equity 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. 21 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.
Biggest changeValvoline’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.
Despite employee training and other measures to mitigate them, cyber security 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 or due to error or misconduct by its employees, contractors or third-party service providers.
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 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 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 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.
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 oil changes.
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.
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, local laws, directives, and regulations relating to the collection, use, retention, disclosure, security and transfer of personal data relating to its customers and employees.
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 risk factors could cause future results to differ from those in forward-looking statements and from historical trends. 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.
These risk factors could cause future results to differ from those in forward-looking statements and from historical trends. 14 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.
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 15 wear and tear and lower demand for maintenance, which may lead to customers deferring purchases of Valvoline’s 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.
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 not address any U.S. state, local or non-U.S. tax consequences of the Distribution.
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.
Aspects of that risk include, among others, changes to the global economy, failure to identify acquisition targets or real estate for new stores to grow the Company’s network of retail service center stores, 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 regulatory requirements, failure to maintain a competitive cost structure and other risks outlined in greater detail in this “Risk Factors” section.
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 16 regulatory requirements, failure to maintain a competitive cost structure and other risks outlined in greater detail in this “Risk Factors” section.
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 a material adverse impact on Valvoline’s financial condition and results of operations.
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.
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, 22 disposal and remediation of hazardous substances and waste materials.
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’s revenues and margins could 17 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.
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.
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 future growth projections.
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.
The size of Valvoline’s largest franchisees creates additional risk due to their importance to the Company’s growth strategy, requiring their cooperation and alignment with Valvoline’s initiatives.
The size of Valvoline’s largest franchisees creates additional risk due to 17 their importance to the Company’s growth strategy, requiring their cooperation and alignment with Valvoline’s initiatives.
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, 20 rules 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.
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.
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, and other challenges, including those related to acts of aggression or threatened aggression that can affect the economy and financial markets.
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.
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 funding 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 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.
Due to the lengthy 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, 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.
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.
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 and its brands.
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.
These laws, directives 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 in the state of California.
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.
Business disruptions, including those related to operating hazards inherent in servicing vehicles with lubricants, 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, cyber-security 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.
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.
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 its industry could negatively impact Valvoline’s reputation and business.
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 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, be unable to obtain credit, or repair and maintain their vehicles themselves.
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.
These factors include general economic conditions, including recessions, significant variations in supply and demand, pandemics, weather conditions, currency fluctuations where Valvoline operates, commodity market speculation, labor strikes, including rail strikes, and government regulations.
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.
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-owned and franchise service center stores continued ability to use the intellectual property and on the adequate protection and enforcement of such intellectual property.
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.
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 diversity of Valvoline’s operations subject it to risks. Valvoline has been able to take advantage of its size and global reach as a combined products and services company.
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.
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 service center employees in large numbers, as well as experienced management personnel. Valvoline’s service centers positions are subject to high rates of turnover.
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.
However, Valvoline has limited influence over their operations and t he 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 54% of the Company’s system-wide service center stores as of September 30, 2022.
However, Valvoline has limited influence over its franchisees’ operations and t he 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.
The Transaction will result 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 will be 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.
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.
The Company’s point-of-sale platforms for company-operated and franchisee retail stores could be subject to cyber security threats or data breaches, which could cause possible business interruptions or negatively impact Valvoline.
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.
The anticipated operational, financial, strategic and other benefits may not be achieved upon completion of the Transaction and could have an adverse impact on Valvoline’s business, financial condition and results of operations.
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.
Valvoline uses information technology systems to conduct business, and a cyber security threat, privacy/data breach, or failure of a key information technology system 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.
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 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, regulatory developments and the other risks described in these risk factors.
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.
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 could impact its ability to meet customer demands.
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.
Worsening conditions in the severity and spread of COVID-19, or other 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.
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.
If any efforts to protect the intellectual property are not adequate, or if any third party infringes, misappropriates or violates Valvoline’s intellectual property, the value of its brands may be harmed.
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.
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 repair and maintenance shops, automobile dealerships, and oil change shops.
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.
There are predictions that the U.S. economy may enter a recession; therefore, the recessionary risks discussed above and elsewhere within these risk factors could be more pronounced in such an economic climate.
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.
In connection with the Transaction, the parties have agreed to enter into a brand agreement (the “Brand Agreement”). Pursuant to the Brand Agreement, Valvoline will retain ownership of the Valvoline brand for generally all retail services purposes, and Global Products will own the brand for all product uses.
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.
This risk includes, among other things, compliance with a myriad of U.S. tax 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; economic sanctions and export control laws and regulations, including those administered by the U.S.
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.
Valvoline may not be aware of whether its products do or will infringe on existing or future patents or other intellectual property rights of others. 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.
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.
As a result of the ongoing COVID-19 pandemic, the Company experienced reduced traffic and sales volume due to changes in customer behavior as individuals decreased automobile use and practiced social distancing and other behavioral changes mandated by governmental authorities or independently undertaken out of an abundance of caution.
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 ongoing COVID-19 pandemic continues to impact Valvoline's business, particularly as it relates to congestion in the supply chain and related cost, as well as the disruption in the labor market.
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.
Valvoline expects to use the net proceeds to accelerate return of capital to shareholders through share repurchases, with the remainder used for debt reduction and to invest in growth opportunities in Retail Services. In connection with the sale of Global Products, Valvoline expects to drive growth and shareholder value as a best-in-class, pure-play automotive retail service provider.
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.
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 strategic plans and their ability to secure adequate financing .
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 .
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.
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 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.
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 had strong acquisition growth in fiscal 2021 and 2022 and has developed a pipeline of future viable targets expected to complement the Company’s strong growth initiatives.
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.
Following the Transaction, Valvoline will be dependent on Global Products for its product supply and certain transition services for which Valvoline may be negatively affected if Global Products is unable to provide these products or services. In connection with the Transaction, the parties have agreed to enter into a Supply Agreement and an agreement for certain transition services.
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.
Pursuant to the Supply Agreement, Valvoline will purchase substantially all lubricant and certain ancillary products for its stores from Global Products after the Transaction. Additionally, Valvoline will receive and provide certain transition services to Global Products following the Transaction.
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.
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. 16 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.
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.
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 Retail Services organically and through acquisitions and franchise development.
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.
Certain competitors are larger than Valvoline and have greater financial resources and more diverse 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.
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.
Any interruption, delay, quality issue or other failure in product supply or service could result in disputes between the parties or otherwise have an adverse effect on Valvoline’s business, financial condition, results of operations, or cash flows. 24 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.
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.
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, 2022, Valvoline had outstanding indebtedness of $1.7 billion, which includes $105.0 million required to be repaid in connection with closing the Transaction.
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 be unable to achieve some or all of the strategic and financial benefits that it expects to achieve from the Transaction. After giving effect to estimated taxes and other expenses, Valvoline expects to receive net proceeds of approximately $2.25 billion.
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.
Based on the facilities expected to remain in place following the close of the Transaction, Valvoline has an available borrowing capacity of $470 million as of September 30, 2022. 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 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 earnings could decrease if wage rates increase, whether in response to market demands or new wage legislation. In addition, inflation and economic uncertainty may negatively impact Valvoline’s ability to attract and retain employees. 18 Business disruptions from natural, operational and other catastrophic risks could seriously harm Valvoline’s operations and financial performance.
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 will be dependent on Global Products for product supply and each party will be reliant on one another for transition services.
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.
Removed
Valvoline’s failure to meet one or more of these goals or objectives could negatively impact its business.
Added
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.
Removed
The extent to which the pandemic will continue to impact Valvoline's business results and operations remains uncertain considering the rapidly evolving environment, duration and severity of the spread of COVID-19, emerging variants, 19 vaccine and booster effectiveness, public acceptance of safety protocols, and government measures, including vaccine mandates, implemented at the local and federal levels designed to slow and contain the spread of COVID-19, among others.
Added
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.
Removed
Treasury Department’s Office of Foreign Assets Control (“OFAC”); customs laws; and other laws governing Valvoline’s operations.
Added
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.
Removed
Additionally, in connection with the sale of the Global Products business and based on the manner in which the net proceeds are utilized, a portion of the net proceeds may be utilized to reduce incremental debt.
Added
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.
Removed
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 $68.6 million as of September 30, 2022.
Added
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. 18 Business disruptions from natural, operational and other catastrophic risks could seriously harm Valvoline’s operations and financial performance.
Removed
Risks related to the pending sale of the Global Products business The pending sale of the Global Products business is subject to various risks, uncertainties and conditions and may not be completed on the terms or timeline currently contemplated, if at all.
Added
Valvoline is continuing to expand, upgrade and develop its information technology capabilities, including, the Company’s core-enterprise resource planning system.
Removed
On July 31, 2022, Valvoline entered into the Purchase Agreement to sell its former Global Products reportable segment to Aramco for $2.65 billion in cash, subject to certain customary adjustments. The Purchase Agreement provides that completion of the Transaction is subject to the satisfaction of standard closing conditions, including, among other things, obtaining certain required regulatory and third-party approvals.
Added
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.
Removed
The Transaction is expected to close in early calendar year 2023. There can be no assurance regarding the ultimate timing of the Transaction or that the Transaction will be completed. Unanticipated developments could delay, prevent or otherwise adversely 23 affect the Transaction, including but not limited to potential problems or delays in obtaining various regulatory approvals.
Added
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.
Removed
During the period leading to closing the Transaction, or whether or not the Transaction is completed, the ongoing businesses may be adversely affected, including as a result of one or more of the following: • the diversion of management’s attention from operating and growing the business as a result of the time and effort required to execute the Transaction; • expenses incurred in connection with the Transaction, including the tax effects of the divestiture, in addition to legal, professional advisory and consulting fees to complete the sale and separation of the legal entities and business processes; • challenges in separating the businesses, including separating the assets and liabilities, infrastructure and personnel, potentially resulting in delays and additional costs in achieving the completion of the Transaction; • disruptions to and potential adverse impacts on relationships with suppliers, customers and others with whom Valvoline does business; • challenges in establishing the desired capital structure for the remaining Valvoline business, including challenges accessing the financial markets; • uncertainty among key employees concerning their future with Valvoline or the Buyer, leading to potential distraction, as well as potential difficulty in attracting, retaining or motivating key employees during the pendency of the Transaction and following its completion; • potential adverse impact on credit ratings; and • potential negative reactions from the financial markets if Valvoline fails to complete the Transaction as currently expected.
Added
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.
Added
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.
Added
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.
Added
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditional 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. 25
Biggest changeValvoline 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.
In addition, Valvoline owns or leases the property associated with 790 company-operated retail service center stores under the Valvoline Instant Oil Change SM and Valvoline Great Canadian Oil Change brands throughout the United States and Canada, respectively. Valvoline’s store leases typically have initial terms of 15 to 20 years with renewal options, exercisable at the Company’s discretion.
In addition, Valvoline owns or leases the property associated with 876 company-operated retail service center stores under the Valvoline Instant Oil Change SM 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.
ITEM 2. PROPERTIES Valvoline is headquartered in Lexington, Kentucky, where the Company leases over 210,000 square feet of office and warehouse space to support operations across its business.
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.
Removed
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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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MINE SAFETY DISCLOSURES Not applicable. 25 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 26 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Reserved 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 28 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 49 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 25 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Reserved 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 28 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 47 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis graph assumes an investment in Valvoline common stock and each index were $100 on September 30, 2017 and that all dividends were reinvested. 26 Years ended September 30 Cumulative total returns 2018 2019 2020 2021 2022 Valvoline Inc. $ 92.96 $ 97.28 $ 85.96 $ 143.36 $ 118.31 S&P MidCap 400 Index $ 114.21 $ 111.36 $ 108.96 $ 156.55 $ 132.68 S&P MidCap 400 Consumer Staples Index $ 106.33 $ 105.24 $ 118.28 $ 135.81 $ 129.74 S&P MidCap 400 Specialty Retail Index $ 122.23 $ 108.09 $ 119.71 $ 202.63 $ 136.76 Purchases of Company common stock Repurchases of the Company’s common stock during the three months ended September 30, 2022 pursuant to the May 17, 2021 Board authorization to repurchase up to $300 million of common stock through September 30, 2024 were: Fiscal Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) July 1, 2022 - July 31, 2022 399,001 $ 30.29 399,001 $ 157.5 August 1, 2022 - August 31, 2022 468,161 $ 29.91 468,161 $ 143.5 September 1, 2022- September 30, 2022 476,815 $ 27.46 476,815 $ 130.4 Total 1,343,977 $ 29.15 1,343,977
Biggest changeThis graph assumes an investment in Valvoline common stock and each index were $100 on September 30, 2018 and that all dividends were reinvested. 26 Years ended September 30 Cumulative total returns 2019 2020 2021 2022 2023 Valvoline Inc. $ 104.65 $ 92.47 $ 154.21 $ 127.26 $ 162.54 S&P MidCap 400 Index $ 97.51 $ 95.40 $ 137.07 $ 116.17 $ 134.20 S&P MidCap 400 Specialty Retail Index $ 88.44 $ 97.94 $ 165.79 $ 111.89 $ 125.62 Purchases of Company common stock 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: Fiscal period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Dollar value of shares that may yet be purchased under the plans or programs (in millions) July 1, 2023 - July 31, 2023 — $ — — $ 340.4 August 1, 2023 - August 31, 2023 1,502,820 $ 33.89 1,502,820 $ 289.5 September 1, 2023 - September 30, 2023 2,375,942 $ 32.81 2,375,942 $ 211.5 Total 3,878,762 $ 33.23 3,878,762
In addition, the instruments governing Valvoline’s indebtedness may limit its ability to pay dividends. Therefore, no assurance is 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.
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.
Dividend policy The declaration and payment of dividends to holders of Valvoline common stock will be 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.
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.
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 18, 2022, there were approximately 8,500 registered holders of Valvoline common stock.
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.
The following graph compares the cumulative total stockholder return on a $100 investment in Valvoline common stock, the S&P MidCap 400 Index, the S&P MidCap Specialty Retail Index and the S&P MidCap 400 Consumer Staples Index for the period from September 30, 2017 to September 30, 2022.
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.
As focus further shifts to the growth of Valvoline in connection with the sale of Global Products, Valvoline expects to discontinue the dividend following the December 2022 payment and 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.
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.
Removed
Stock performance graph Valvoline has historically compared the cumulative total return on its common stock with that of the S&P MidCap 400 Consumer Staples Index.
Added
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.
Removed
As a result of the Global Products business being classified as discontinued operations and held for sale, the Company has added the S&P MidCap 400 Specialty Retail Index to reflect more relevant comparisons for the continuing operations. The performance graph below presents the indices used in the prior year and the newly selected index.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeITEM 6. RESERVED 27 Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations Page Business Overview 28 Results of Operations - Consolidated Review 33 Financial Position, Liquidity and Capital Resources 39 New Accounting Pronouncements 44 Critical Accounting Estimates 44
Biggest changeITEM 6. RESERVED 27 Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations Page Business Overview 28 Results of Operations - Consolidated Review 32 Financial Position, Liquidity and Capital Resources 38 New Accounting Pronouncements 41 Critical Accounting Estimates 41

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following reconciles net income from continuing operations to EBITDA and Adjusted EBITDA for each quarter of the fiscal year ended September 30, 2022: First Quarter Second Quarter Third Quarter Fourth Quarter (In millions) 2022 2022 2022 2022 Net income $ 34.2 $ 23.0 $ 39.8 $ 12.4 Income tax expense 10.1 9.3 13.2 2.1 Net interest and other financing expenses 17.0 16.9 17.3 18.1 Depreciation and amortization 16.9 17.6 17.6 19.3 EBITDA 78.2 66.8 87.9 51.9 Net pension and other postretirement plan (income) expense (9.3) (9.2) (9.2) 34.6 Net legacy and separation-related expense 2.8 6.2 9.9 1.6 Suspended operations (0.3) 4.0 (2.2) (0.6) Information technology transition costs 1.0 1.6 — — Adjusted EBITDA $ 72.4 $ 69.4 $ 86.4 $ 87.5 38 The following reconciles net income from continuing operations to EBITDA and Adjusted EBITDA for each quarter of the fiscal year ended September 30, 2021: First Quarter Second Quarter Third Quarter Fourth Quarter (In millions) 2021 2021 2021 2021 Net income $ 18.1 $ 8.3 $ 49.0 $ 124.7 Income tax expense 6.6 2.5 17.3 33.5 Net interest and other financing expenses 20.5 53.8 16.7 17.3 Depreciation and amortization 14.0 15.2 15.8 17.1 EBITDA 59.2 79.8 98.8 192.6 Net pension and other postretirement plan income (13.3) (13.4) (13.7) (87.8) Net legacy and separation-related expense (income) 0.6 0.3 0.8 (25.3) Suspended operations (0.4) (0.1) (0.3) (0.7) Restructuring-related adjustments (0.1) — — — Adjusted EBITDA $ 46.0 $ 66.6 $ 85.6 $ 78.8 2022 compared to 2021 Adjusted EBITDA increased $38.7 million , or 14.0%, for the year ended September 30, 2022 compared to the prior year driven by top-line expansion and partially offset by increased costs due to inflationary pressures and increased operating expenses to support top-line growth. 2021 compared to 2020 Adjusted EBITDA increased $111.0 million, or 66.9% in fiscal 2021 compared to the prior year.
Biggest changeThese 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): First Quarter Second Quarter Third Quarter Fourth Quarter (In millions) 2023 2023 2023 2023 Income from continuing operations $ 27.0 $ 32.9 $ 64.5 $ 75.0 Income tax (benefit) expense (20.1) 11.4 22.9 22.9 Net interest and other financing expenses (income) 18.7 13.3 (4.6) 10.9 Depreciation and amortization 18.5 20.6 21.6 28.1 EBITDA from continuing operations (a) 44.1 78.2 104.4 136.9 Net pension and postretirement plan expense (income) (b) 3.7 3.6 3.7 (38.6) Net legacy and separation-related expenses (c) 25.4 3.8 1.6 2.0 Suspended operations (e) (0.2) 0.1 (0.4) 7.6 Information technology transition costs (d) 0.3 0.4 1.1 1.2 Investment and divestiture-related costs (f) — 1.0 — 0.1 Adjusted EBITDA from continuing operations (a) $ 73.3 $ 87.1 $ 110.4 $ 109.2 First Quarter Second Quarter Third Quarter Fourth Quarter (In millions) 2022 2022 2022 2022 Income from continuing operations $ 34.2 $ 23.0 $ 39.8 $ 12.4 Income tax expense 10.1 9.3 13.2 2.1 Net interest and other financing expenses 17.0 16.9 17.3 18.1 Depreciation and amortization 16.9 17.6 17.6 19.3 EBITDA from continuing operations (a) 78.2 66.8 87.9 51.9 Net pension and postretirement plan (income) expense (b) (9.3) (9.2) (9.2) 34.6 Net legacy and separation-related expenses (c) 2.8 6.2 9.9 1.6 Suspended operations (e) (0.3) 4.0 (2.2) (0.6) Information technology transition costs (d) 1.0 1.6 — — Adjusted EBITDA from continuing operations (a) $ 72.4 $ 69.4 $ 86.4 $ 87.5 37 First Quarter Second Quarter Third Quarter Fourth Quarter (In millions) 2021 2021 2021 2021 Income from continuing operations $ 18.1 $ 8.3 $ 49.0 $ 124.7 Income tax expense 6.6 2.5 17.3 33.5 Net interest and other financing expenses 20.5 53.8 16.7 17.3 Depreciation and amortization 14.0 15.2 15.8 17.1 EBITDA from continuing operations (a) 59.2 79.8 98.8 192.6 Net pension and postretirement plan income (b) (13.3) (13.4) (13.7) (87.8) Net legacy and separation-related expenses (income) (c) 0.6 0.3 0.8 (25.3) Suspended operations (e) (0.4) (0.1) (0.3) (0.7) Restructuring and related adjustments (g) (0.1) — — — Adjusted EBITDA from continuing operations (a) $ 46.0 $ 66.6 $ 85.6 $ 78.8 FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Overview The Company closely manages its liquidity and capital resources.
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 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 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 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 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 net revenues; • 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.
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.
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 2022 Trustees Report of the Social Security Administration Intermediate Alternative as reflected in the MSS-2022 improvement scale.
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 reasonable assessment of current mortality trends and is an appropriate estimate of future mortality projections.
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.
The U.S. 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.
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.
In connection with completing separation transactions, both from Valvoline’s former parent company and expected upon the 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.
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.
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 included in continuing operations.
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.
Free cash flow includes the impact of capital expenditures, providing a supplemental view of cash generation. Discretionary free cash flow includes the impact of 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.
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.
SSS is defined as sales 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 of their first full fiscal year in operation as this period is generally required for new store sales levels to begin to normalize.
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.
Capital expenditures, acquisitions, share repurchases, and dividend payments 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.
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.
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 2022, 2021, or 2020.
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.
Management believes that the Company has sufficient liquidity based on its current cash and cash equivalents position, 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.
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.
Also refer to the “Continuing operations EBITDA and Adjusted EBITDA” section within “Results of Operations” below f or a reconciliation of income from continuing operations to Adjusted EBITDA for each period presented above.
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.
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 sales and operating income, as determined in accordance with U.S. GAAP. Sales are influenced by the number of service center stores and the business performance of those stores.
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.
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and 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, income taxes, and customer incentives.
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.
Accordingly, 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 primarily legacy amounts that are not directly related to the underlying business and do not have an immediate, corresponding impact on the compensation and benefits provided to eligible employees for current service.
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.
Sales are limited to sales at company-operated stores, in addition to royalties and other fees from independent franchised and Express Care stores.
Net revenues are limited to sales at company-operated stores, in addition to royalties and other fees from independent franchised and Express Care stores.
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 4.06% for fiscal 2022.
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.
Summarized below are Valvoline's trends in net income and adjusted EBITDA for the continuing operations over the interim quarterly periods for the last two fiscal years: (a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below.
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: (a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below.
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 in both continuing and discontinued operations 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.
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.
Holding all other assumptions constant, a hypothetical 1.00% change in the expected long-term return on plan assets assumption for the U.S. qualified pension plans would impact fiscal 2022 recurring non-service pension income by $19.2 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.
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.
Refer to Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for further details.
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.
Management believes EBITDA measures provide a meaningful supplemental presentation of Valvoline’s operating performance due to the depreciable assets associated with the nature of the Company’s operations and income tax and interest costs related to Valvoline’s tax and capital structures, respectively.
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.
Target asset allocation percentages as of September 30, 2022 for the U.S. qualified pension plans were 90% fixed income and 10% equity 45 investments.
Target asset allocation percentages as of September 30, 2023 for the qualified pension plans were 90% fixed income and 10% equity investments.
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) 2022 2021 Increase (decrease) in pension and other postretirement plan expense - 1.00% decrease in discount rates: Pension benefits Increase in benefit obligation $ 150.9 $ 247.2 Increased return on plan assets (a) (138.7) $ (211.1) Estimated hypothetical increase in expense 12.2 36.1 Other postretirement benefits Increase in benefit obligation 3.0 4.9 Total estimated hypothetical increase in expense $ 15.2 $ 41.0 (a) The qualified pension plans employ an investing strategy to match the duration of its obligation and investments.
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) 2023 2022 Increase (decrease) in pension and other postretirement plan expense - 1.00% decrease in discount rates: Pension benefits Increase in benefit obligation $ 126.6 $ 144.2 Increased return on plan assets (a) (122.0) $ (138.7) Estimated hypothetical increase in expense 4.6 5.5 Other postretirement benefits Increase in benefit obligation 1.7 2.3 Total estimated hypothetical increase in expense $ 6.3 $ 7.8 (a) The qualified pension plans employ an investing strategy to match the duration of its obligation and investments.
Debt The following table summarizes Valvoline’s continuing operations debt as of September 30: (In millions) 2022 2021 2031 Notes $ 535.0 $ 535.0 2030 Notes 600.0 600.0 Term Loan 460.0 475.0 Trade Receivables Facility 105.0 58.5 Debt issuance costs and discounts (12.4) (13.8) Total debt 1,687.6 1,654.7 Current portion of long-term debt 162.5 — Long-term debt $ 1,525.1 $ 1,639.7 Inclusive of the Company’s interest rate swap agreements, approximately 87% of Valvoline's outstanding borrowings as of September 30, 2022 had fixed rates, with the remainder bearing variable interest rates.
Debt The following table summarizes Valvoline’s continuing operations debt as of September 30: (In millions) 2023 2022 2031 Notes $ 535.0 $ 535.0 2030 Notes 600.0 600.0 Term Loan 463.1 460.0 Trade Receivables Facility — 105.0 Debt issuance costs and discounts (12.0) (12.4) Total debt 1,586.1 1,687.6 Current portion of long-term debt 23.8 162.5 Long-term debt $ 1,562.3 $ 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.
These plans represent 92% of Valvoline’s total continuing and discontinued operations gross pension plan obligation as of September 30, 2022 and 2021. This strategy hedges approximately 100% and 93% of the movement in liabilities related to changes in discount rates as of September 30, 2022 and 2021, respectively.
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.
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.
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.
The weighted-average discount rate at the end of fiscal 2022 was 5.41% for the pension plans and 5.49% for the postretirement health and life plans.
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 non-GAAP information used by management may not be comparable to similar measures disclosed by other companies, because of differing methods used in calculating such measures. 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.
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 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.
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.
Excludes benefit payments from pension plan trust funds. Fiscal 2023 capital expenditures Valvoline is currently forecasting approximately $170.0 million to $200.0 million of capital expenditures for fiscal 2023, funded primarily from operating cash flows. Pension and other postretirement plan obligations The Company makes cash and non-cash contributions and payments for its pension and other postretirement plans.
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.
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) 2022 2021 2020 Income from discontinued operations, net of tax $ 314.9 $ 220.2 $ 247.0 2022 compared to 2021 Net income from discontinued operations, net of tax increased $94.7 million during fiscal 2022 compared to the prior year.
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.
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. 46 Business combinations and intangible assets Description Judgments and uncertainties Effect if actual results differ from assumptions Valvoline acquired 37 service center stores during fiscal 2022 for an aggregate purchase price of $50.7 million included in continuing operations, in addition to acquiring the remaining ownership interest of an equity method investment within discontinued operations.
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 Judgments and uncertainties Effect if actual results differ from assumptions Valvoline acquired 31 service center stores during fiscal 2023 for an aggregate purchase price of $36.3 million.
GAAP and management believes the use of non-GAAP measures provides a useful supplemental presentation of Valvoline's operating performance, enables comparison of financial trends and results between periods where certain items may vary independent of business performance, and allows for transparency with respect to key metrics used by management in operating the business and measuring performance.
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.
Adjusted EBITDA includes t he costs of benefits provided to employees for current service, including pension and other postretirement service costs. Details with respect to the 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.
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.
Valvoline’s fiscal 2022 expense, excluding actuarial gains and losses, for both U.S. and non-U.S. pension plans was determined using the spot discount rate as of the beginning of the fiscal year. The service and interest cost discount rates for fiscal 2022 pension expense were 1.67% and 2.11%, respectively, and 3.77% and 2.11%, respectively, for other postretirement expense.
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 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. 44 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. and in certain countries outside the U.S.
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.
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. Indemnifications among parties regarding tax matters require judgment in determining the timing and measurement of related receivables and payables to resolve these obligations.
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.
Dividend payments and share repurchases During the year ended September 30, 2022, the Company paid $89.2 million of cash dividends for $0.500 per common share and repurchased approximately 4.5 million shares of its common stock for $142.6 million.
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.
Based on current data and assumptions, the Company does not anticipate the need to satisfy any minimum funding requirements to its U.S. qualified pension plans for at least the next 5 years.
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.
Key items may consist of adjustments related to: legacy businesses, including Valvoline’s separation from its former parent company and the impacts of related indemnities; the separation of Valvoline’s current businesses; significant acquisitions or divestitures; restructuring-related matters; and other matters that are non-operational or unusual in nature.
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.
FISCAL 2022 OVERVIEW Key operating highlights from continuing operations are presented below, each of which is discussed more fully in this Annual Report on Form 10-K: 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 three fiscal years: (a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below.
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: (a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below.
As of September 30, 2022, total assets and liabilities associated with the Global Products business classified as held for sale were $1.46 billion and $539.3 million, respectively. 37 Continuing operations EBITDA and Adjusted EBITDA The following reconciles net income from continuing operations to EBITDA and Adjusted EBITDA for the years ended September 30: (In millions) 2022 2021 2020 Net income $ 109.4 $ 200.1 $ 69.6 Income tax expense 34.7 59.9 53.4 Net interest and other financing expenses 69.3 108.3 92.1 Depreciation and amortization 71.4 62.1 40.5 EBITDA 284.8 430.4 255.6 Net pension and other postretirement plan expenses (income) 6.9 (128.2) (55.0) Net legacy and separation-related expenses (income) 20.5 (23.6) (30.0) Suspended operations 0.9 (1.5) (1.3) Information technology transition costs 2.6 — — Restructuring-related adjustments — (0.1) 0.3 Compensated absences benefits change — — (4.9) Acquisition costs — — 1.3 Adjusted EBITDA (a) $ 315.7 $ 277.0 $ 166.0 (a) Net pension and other postretirement plan expenses (income) includes remeasurement gains and losses and recurring non-service pension and other postretirement net periodic income, which consists of interest cost, expected return on plan assets and amortization of prior service credit.
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: (In millions) 2023 2022 2021 2020 Income from continuing operations $ 199.4 $ 109.4 $ 200.1 $ 69.6 Income tax expense 37.1 34.7 59.9 53.4 Net interest and other financing expenses 38.3 69.3 108.3 92.1 Depreciation and amortization 88.8 71.4 62.1 40.5 EBITDA from continuing operations (a) 363.6 284.8 430.4 255.6 Net pension and postretirement plan (income) expense (b) (27.6) 6.9 (128.2) (54.9) Net legacy and separation-related expenses (c) 32.8 20.5 (23.6) (30.0) Suspended operations (e) 7.1 0.9 (1.5) (1.3) Information technology transition costs (d) 3.0 2.6 — — Investment and divestiture-related costs (f) 1.1 — — 1.3 Restructuring and related adjustments (g) — — (0.1) 0.3 Compensated absences benefits change (h) — — — (4.9) Adjusted EBITDA from continuing operations (a) $ 380.0 $ 315.7 $ 277.0 $ 166.1 (a) EBITDA from continuing operations is defined as income from continuing operations, plus income tax expense, net interest and other financing expenses, and depreciation and amortization attributable to continuing operations.
Total pension and other postretirement net periodic benefit expense recognized in fiscal 2022 within continuing operations was $6.9 million, inclusive of a $43.9 million remeasurement loss. Total pension and other postretirement net periodic benefit income of $1.8 million in fiscal 2022 was included in discontinued operations, inclusive of a $3.5 million remeasurement gain.
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.
Growth vs. 2021 2020 System-wide store sales (a) $ 2,360.2 20 % 55 % System-wide store count (a) 1,715 8 % 17 % Years ended September 30 2022 2021 2020 System-wide SSS growth (a) 13.7 % 21.2 % 2.3 % (a) Measures include Valvoline franchisees, which are independent legal entities.
The table below highlights the growth over the last year: (In millions, except store count) Fiscal Year 2023 Growth vs. 2022 System-wide store sales (a) $ 2,761.8 17.0 % System-wide store count (a) 1,852 8.0 % Years ended September 30 2023 2022 System-wide SSS growth (a) 11.9 % 13.7 % (a) Measures include Valvoline franchisees, which are independent legal entities.
The dividend is payable December 15, 2022 to shareholders of record on December 2, 2022. Additionally, the Company repurchased approximately 1.8 million shares for an aggregate amount of $51.2 million from October 1, 2022 through November 18, 2022 pursuant to the 2021 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 following reconciles the year-over-year changes in gross profit: The decline in gross profit margin compared to the prior year was primarily the result of result of higher costs and the dilutive impact from passing through cost increases. 2021 compared to 2020 Gross profit improved driven by higher volumes from the prior year unfavorable impacts of the COVID-19 pandemic.
The following reconciles the year-over-year changes in 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.
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.
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.
Valvoline elected to perform qualitative impairment assessments of goodwill in 2022 and 2020, which indicated that it was more likely than not that the fair values of the reporting units were in excess of carrying amounts.
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. 45 Income taxes Description Judgments and uncertainties Effect if actual results differ from assumptions Valvoline is subject to income taxes in the United States and international jurisdictions where its businesses operate.
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. 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.
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.
For the years ended September 30 (In millions) 2022 2021 2020 Cash flows provided by operating activities $ 134.4 $ 182.2 $ 127.2 Less: Maintenance capital expenditures (19.3) (17.6) (15.2) Discretionary free cash flow 115.1 164.6 112.0 Less: Growth capital expenditures (112.7) (85.5) (78.8) Free cash flow $ 2.4 $ 79.1 $ 33.2 2022 compared to 2021 The decrease in free cash flow from continuing operations over the prior year was driven by lower cash flow provided by operating activities along with increased investments in capital expenditures.
(In millions) 2023 2022 Cash flows provided by operating activities $ 353.0 $ 134.4 Less: Maintenance capital expenditures (29.5) (19.3) Discretionary free cash flow 323.5 115.1 Less: Growth capital expenditures (151.0) (112.7) Free cash flow $ 172.5 $ 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.
The following reconciles the year-over-year changes in net revenues: Gross profit 2022 compared to 2021 Gross profit improved 10.2% driven by increased transactions and higher average ticket from premiumization and non-oil change services, as well as unit growth. These benefits were partially offset by product and labor inflationary cost pressures.
The following reconciles the year-over-year changes in 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.
Adjustments to indemnifications impact pre-tax results and are not directly related to the ongoing business.
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.
(c) Includes interest expense on both variable and fixed rate debt, assuming no prepayments other than for the Accounts Receivable Securitization Facility noted above. Variable interest rates have been assumed to remain constant through payment at the rates that existed as of September 30, 2022. (d) Includes projected benefit payments through fiscal 2032 for Valvoline’s unfunded benefit plans.
Variable interest rates have been assumed to remain constant through payment at the rates that existed as of September 30, 2023. (c) Includes projected benefit payments through fiscal 2033 for Valvoline’s unfunded benefit plans. Excludes benefit payments from pension plan trust funds.
The Company’s investment strategy is 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 variances.
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 Company’s amortizable intangible assets primarily reside within the continuing operations and were $114.9 million, net of $56.0 million of accumulated amortization as of September 30, 2022. Other intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.
Other intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.
Net revenues and adjusted EBITDA increased for the fiscal year ended September 30, 2022 over the prior year periods due to strong top-line performance from system-wide SSS growth driven by contributions from both transactions and average ticket, in addition to acquisitions.
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.
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.
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.
Also refer to the “Continuing operations EBITDA and Adjusted EBITDA” section within “Results of Operations” below f or a reconciliation of income from continuing operations to Adjusted EBITDA for each period presented above. COVID-19 UPDATE Valvoline has substantially maintained its operations, demonstrating growth and strong results, while managing through the effects of the COVID-19 global pandemic.
Also refer to the “Continuing operations EBITDA and Adjusted EBITDA” section within “Results of Operations” below f or a reconciliation of income from continuing operations to Adjusted EBITDA for fiscal years 2023 and 2022.
Net pension and other postretirement plan income 2022 compared to 2021 Net pension and other postretirement plan expense increased $135.1 million from the prior year primarily due to the loss on pension and other postretirement plan remeasurement of $43.9 million compared to a gain of $74.3 million in fiscal 2021.
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.
Refer to the “Key Business Measures” section below for additional details on these key business measures, including management’s definitions.
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.
Income from continuing operations decreased for the 29 fiscal year ended September 30, 2022 compared to the prior year primarily driven by the remeasurement of pension and other postretirement plans that generated losses in fiscal 2022 compared to gains in the prior year, as well as separation-related expenses incurred in fiscal 2022 to evaluate and plan for the separation of the Company’s businesses.
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.
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: 41 (In millions) 2022 2021 2020 Cash provided by (used in): Operating activities $ 149.8 $ 221.7 $ 244.5 Investing activities $ (36.7) $ (41.2) $ (63.2) Financing activities $ 44.0 $ (9.4) $ 105.1 2022 compared to 2021 The decrease in operating cash flows provided by discontinued operations was primarily driven by unfavorable changes in net working capital due to increases in receivables and inventory.
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) 2023 2022 Cash provided by (used in): Operating activities $ (393.8) $ 149.8 Investing activities $ 2,620.9 $ (36.7) Financing activities $ (108.1) $ 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.
Net operating expenses Details of the components of net operating expenses are summarized below for the years ended September 30: Variance Variance (In millions) 2022 2021 $ % 2021 2020 $ % Selling, general and administrative expenses $ 244.7 $ 223.9 $ 20.8 9.3 % $ 223.9 $ 177.2 $ 46.7 26.4 % Net legacy and separation-related expenses (income) 20.5 (23.6) 44.1 (186.9) % (23.6) (30.0) 6.4 (21.3) % Other income, net (9.1) (8.1) (1.0) 12.3 % (8.1) (6.4) (1.7) 26.6 % Net operating expenses $ 256.1 $ 192.2 $ 63.9 33.2 % $ 192.2 $ 140.8 $ 51.4 36.5 % 2022 compared to 2021 Increased selling, general and administrative expenses in the current year resulted from investments to support future growth, including advertising and travel, in addition to inflationary cost increases, and to lesser extent, information technology investments and transitions, costs related to suspended operations, and depreciation and amortization.
Net operating expenses Details of the components of Net operating expenses are summarized below for the years ended September 30: 33 Variance (In millions) 2023 2022 $ % Selling, general and administrative expenses $ 264.5 $ 244.7 $ 19.8 8.1 % Net legacy and separation-related expenses 32.8 20.5 12.3 60.0 % Other income, net — (9.1) 9.1 (100.0) % Net operating expenses $ 297.3 $ 256.1 $ 41.2 16.1 % Selling, general and administrative (“SG&A”) expenses increased $19.8 million in the current year.
Each of these measures is discussed further below. Fiscal year 2022 marked the 16th consecutive year for system-wide same-store-sales ("SSS") growth and added 121 net new stores to the system. The table below highlights the growth over the last two years: (In millions, except store count) Fiscal Year 2022 Growth vs.
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 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. 39 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) 2022 2021 2020 Cash provided by (used in): Operating activities $ 134.4 $ 182.2 $ 127.2 Investing activities $ (170.9) $ (358.7) $ (159.4) Financing activities $ (262.9) $ (526.1) $ 345.2 Operating activities 2022 compared to 2021 The decrease in cash flows from continuing operations provided by operating activities during fiscal 2022 compared to 2021 was largely driven by spend related to evaluating and planning for the separation of the businesses, in addition to unfavorable changes in other assets and liabilities primarily due to cloud computing investments and the timing of certain prepayments. 2021 compared to 2020 The increase in cash flows from continuing operations provided by operating activities during fiscal 2021 compared to 2020 was primarily driven by higher cash earnings, partially offset by unfavorable changes in other assets and liabilities.
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) 2023 2022 Cash provided by (used in): Operating activities $ 353.0 $ 134.4 Investing activities $ (577.2) $ (170.9) Financing activities $ (1,565.5) $ (262.9) Operating activities 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.
Income tax expense The following table summarizes income tax expense and the effective tax rate during the years ended September 30: (In millions) 2022 2021 2020 Income tax expense $ 34.7 $ 59.9 $ 53.4 Effective tax rate percentage 24.1 % 23.0 % 43.4 % 36 2022 compared to 2021 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.
Income tax expense The following table summarizes Income tax expense and the effective tax rate during the years ended September 30: (In millions) 2023 2022 Income tax expense $ 37.1 $ 34.7 Effective tax rate percentage 15.7 % 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.
Valvoline's fiscal year ends on September 30 of each year. RECENT DEVELOPMENTS On July 31, 2022, the Company entered into a definitive agreement to sell its Global Products business to Aramco Overseas Company B.V. (“Aramco”) for a cash purchase price of $2.65 billion, subject to customary adjustments with respect to working capital and net indebtedness (the “Transaction”).
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”).
Average ticket increases were driven by pricing and mix improvements, including the shift to synthetics and higher non-oil change services. Year-over-year system-wide unit growth of 9% also contributed to volumes and sale through the addition of 132 net new stores.
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.
Adjusted EBITDA measures enable comparison of financial trends and results between periods where key items may vary independent of business performance. Key items are often related to legacy matters or market-driven events considered by management to be outside the comparable operational performance of the business.
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.
Refer to Note 3 included in Item 8 of Part II of this Annual Report on Form 10-K for further discussion regarding the divestiture.
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.
The U.S. qualified pension plans comprise the most significant portion of plan assets, and for fiscal 2023, the expected rate of return on assets assumption for the U.S. qualified pension plans in fiscal 2023 will be 4.90%.
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%.
As of September 30, 2022, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity remaining of $470.0 million for its facilities expected to remain in place after closing the Transaction.
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.
Future declarations of quarterly dividends are subject to approval by the Board and may be adjusted as business needs or market conditions change. As focus further shifts to the growth of Valvoline in connection with the sale of Global Products, the Company expects to discontinue the dividend following the December 2022 payment and return value to shareholders through 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.
Estimated net proceeds of approximately $2.25 billion, after taxes and other expenses, are expected to be utilized to accelerate the return of capital to shareholders through share repurchases with the remainder used for debt reduction and to invest in growth opportunities within the retail services 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.
Summary As of September 30, 2022, the continuing operation had cash and cash equivalents of $23.4 million, total debt of $1.7 billion, and remaining borrowing capacity of $470.0 million for facilities expected to remain in place after closing the Transaction.
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.
The Company generally expects to repurchase shares of its common stock up to the full amount of authorization within 18 months of closing the sale of Global Products.
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.
As of September 30, 2022, Valvoline’s net unfunded pension and other postretirement plan liabilities included in the Consolidated Balance Sheet totaled $185.3 million, of which $177.8 million is included in continuing operations and $7.5 million is included in liabilities held for sale.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+2 added−2 removed1 unchanged
Biggest changeThe increase in interest expense for the year ended September 30, 2022 from a hypothetical 100 basis point increase in variable interest rates would be approximately $2.2 million. 49 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.
Biggest changeIn 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.
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. 50
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
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 primarily of forward contracts to hedge non-functional currency denominated balance sheet exposures.
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.
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, 2022, there was not a significant concentration of credit risk related to financial instruments.
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.
Valvoline can mitigate this risk through passing along price increases to its customers; however, the ability to pass on these price increases is largely dependent upon market conditions. In fiscal 2022, results were impacted by rising inflationary costs, a significant portion of which were passed through to customers through a series of price increases.
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.
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.
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.
Inflation and changing prices The cost of materials and labor used in Valvoline’s maintenance services are affected by cost inflation and global commodity prices that could expose Valvoline to risks in its results.
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.
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.
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.
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.
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.
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, 87% of the Company’s outstanding borrowings had fixed rates as of September 30, 2022.
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.
Removed
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, including the potential risks associated with the COVID-19 pandemic.
Added
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.
Removed
Pension and other postretirement plans were underfunded by $177.8 million at September 30, 2022 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 and cash and cash equivalents.
Added
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.

Other VVV 10-K year-over-year comparisons