vvv-20231231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

FORM 10-Q

(Mark one)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ___________

Commission file number 001-37884

VALVOLINE INC.

(Exact name of registrant as specified in its charter)


Kentucky			30-0939371
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

100 Valvoline Way, Suite 100

Lexington, Kentucky 40509

(Address of principal executive offices) (Zip Code)

Telephone Number (859) 357-7777

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

VVV

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ

At February 1, 2024, there were 129,649,167 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS


			Page
PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Condensed Consolidated Statements of Comprehensive Income			3

Condensed Consolidated Balance Sheets			4

Condensed Consolidated Statements of Cash Flows			5

Condensed Consolidated Statements of Stockholders' Equity			6

Notes to Condensed Consolidated Financial Statements			7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			26

ITEM 4. CONTROLS AND PROCEDURES			26

ITEM 5. OTHER INFORMATION			26

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS			27

ITEM 1A. RISK FACTORS			27

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			27

ITEM 6. EXHIBITS			28

SIGNATURE			29

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Statements of Comprehensive Income


	Three months ended December 31
(In millions, except per share amounts - unaudited)	2023		2022
Net revenues	$	373.4	$	332.8
Cost of sales	238.6		214.0
Gross profit	134.8		118.8

Selling, general and administrative expenses	74.5		66.0
Net legacy and separation-related expenses	0.1		25.4
Other income, net	(2.6)		(1.9)
Operating income	62.8		29.3
Net pension and other postretirement plan expenses	3.4		3.7
Net interest and other financing expenses	13.6		18.7
Income before income taxes	45.8		6.9
Income tax expense (benefit)	11.9		(20.1)
Income from continuing operations	33.9		27.0
(Loss) income from discontinued operations, net of tax	(2.0)		54.9
Net income	$	31.9	$	81.9

Net earnings per share
Basic earnings (loss) per share
Continuing operations	0.26		0.16
Discontinued operations	(0.02)		0.31
Basic earnings per share	$	0.24	$	0.47

Diluted earnings (loss) per share
Continuing operations	0.26		0.15
Discontinued operations	(0.02)		0.31
Diluted earnings per share	$	0.24	$	0.46

Weighted average common shares outstanding
Basic	131.8		175.2
Diluted	132.7		176.3

Comprehensive income
Net income	$	31.9	$	81.9
Other comprehensive income (loss), net of tax
Currency translation adjustments	6.6		15.2
Amortization of pension and other postretirement plan prior service credits	(0.5)		(0.4)
Unrealized loss on cash flow hedges	(1.9)		(1.3)
Other comprehensive income	4.2		13.5
Comprehensive income	$	36.1	$	95.4

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Balance Sheets


(In millions, except per share amounts - unaudited)	December 31 2023		September 30 2023
Assets
Current assets
Cash and cash equivalents	$	420.7	$	409.1
Receivables, net	83.5		81.3
Inventories, net	31.5		33.3
Prepaid expenses and other current assets	55.2		65.5
Short-term investments	119.7		347.5

Total current assets	710.6		936.7
Noncurrent assets
Property, plant and equipment, net	841.5		818.3
Operating lease assets	273.1		266.5
Goodwill and intangibles, net	685.6		680.6

Other noncurrent assets	198.5		187.8

Total noncurrent assets	1,998.7		1,953.2
Total assets	$	2,709.3	$	2,889.9

Liabilities and Stockholders’ Equity
Current liabilities

Current portion of long-term debt	$	23.8	$	23.8
Trade and other payables	77.2		118.7
Accrued expenses and other liabilities	216.4		215.9
Current liabilities held for sale	—		3.9
Total current liabilities	317.4		362.3
Noncurrent liabilities
Long-term debt	1,556.8		1,562.3
Employee benefit obligations	169.9		168.0
Operating lease liabilities	253.9		247.3

Other noncurrent liabilities	346.5		346.8

Total noncurrent liabilities	2,327.1		2,324.4
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value, 40.0 shares authorized; no shares issued and outstanding	—		—
Common stock, par value $0.01 per share, 400.0 shares authorized; 129.6 and 134.8 shares issued and outstanding at December 31, 2023 and September 30, 2023, respectively	1.3		1.3
Paid-in capital	46.3		48.0
Retained (deficit) earnings	(0.2)		140.7


Accumulated other comprehensive income	17.4		13.2
Stockholders' equity	64.8		203.2
Total liabilities and stockholders’ equity	$	2,709.3	$	2,889.9

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Statements of Cash Flows


	Three months ended December 31
(In millions - unaudited)	2023		2022
Cash flows from operating activities
Net income	$	31.9	$	81.9
Adjustments to reconcile net income to cash flows from operating activities:
Loss (income) from discontinued operations	2.0		(54.9)

Depreciation and amortization	24.6		18.5

Deferred income taxes	—		(26.5)





Stock-based compensation expense	2.4		2.9
Other, net	1.0		0.6
Change in operating assets and liabilities
Receivables	2.4		13.4
Inventories	3.0		(1.0)
Payables and accrued liabilities	(43.7)		(17.2)
Other assets and liabilities	(1.7)		30.8
Operating cash flows from continuing operations	21.9		48.5
Operating cash flows from discontinued operations	(2.0)		(57.2)
Total cash provided by (used in) operating activities	19.9		(8.7)
Cash flows from investing activities
Additions to property, plant and equipment	(42.3)		(39.9)

Acquisitions of businesses	(8.3)		(9.6)



Proceeds from maturities of short-term investments	230.0		—
Other investing activities, net	(7.1)		1.1
Investing cash flows from continuing operations	172.3		(48.4)
Investing cash flows from discontinued operations	—		(8.4)
Total cash provided by (used in) investing activities	172.3		(56.8)
Cash flows from financing activities
Proceeds from borrowings	—		250.0

Repayments on borrowings	(5.9)		(119.4)

Repurchases of common stock	(171.7)		(87.4)

Cash dividends paid	—		(21.8)
Other financing activities	(7.1)		(8.9)
Financing cash flows from continuing operations	(184.7)		12.5
Financing cash flows from discontinued operations	—		60.0
Total cash (used in) provided by financing activities	(184.7)		72.5
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash	0.1		2.1
Increase in cash, cash equivalents and restricted cash	7.6		9.1
Cash, cash equivalents and restricted cash - beginning of period	413.1		83.9
Cash, cash equivalents and restricted cash - end of period	$	420.7	$	93.0

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity


	Three months ended December 31, 2023
(In millions, except per share amounts - unaudited)	Common stock			Paid-in capital		Retained earnings (deficit)		Accumulated other comprehensive income		Totals
	Shares	Amount
Balance at September 30, 2023	134.8	$	1.3	$	48.0	$	140.7	$	13.2	$	203.2
Net income	—	—		—		31.9		—		31.9

Stock-based compensation, net of issuances	0.2	—		(1.7)		—		—		(1.7)
Repurchases of common stock	(5.4)	—		—		(172.8)		—		(172.8)
Other comprehensive income, net of tax	—	—		—		—		4.2		4.2
Balance at December 31, 2023	129.6	$	1.3	$	46.3	$	(0.2)	$	17.4	$	64.8






























	Three months ended December 31, 2022
(In millions, except per share amounts - unaudited)	Common stock			Paid-in capital		Retained earnings		Accumulated other comprehensive (loss) income		Totals
	Shares	Amount
Balance at September 30, 2022	176.1	$	1.8	$	44.1	$	282.0	$	(21.3)	$	306.6
Net income	—	—		—		81.9		—		81.9
Dividends paid, $0.125 per common share	—	—		0.1		(21.9)		—		(21.8)
Stock-based compensation, net of issuances	0.3	—		(3.4)		—		—		(3.4)
Repurchases of common stock	(2.9)	(0.1)		—		(87.4)		—		(87.5)

Other comprehensive income, net of tax	—	—		—		—		13.5		13.5
Balance at December 31, 2022	173.5	$	1.7	$	40.8	$	254.6	$	(7.8)	$	289.3

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.


Index to Notes to Condensed Consolidated Financial Statements			Page

Note 1 - Basis of Presentation and Significant Accounting Policies			8
Note 2 - Discontinued Operations			9
Note 3 - Fair Value Measurements			10
Note 4 - Business Combinations			11
Note 5 - Debt			12
Note 6 - Income Taxes			13
Note 7 - Employee Benefit Plans			13
Note 8 - Litigation, Claims and Contingencies			13
Note 9 - Earnings Per Share			14
Note 10 - Supplemental Financial Information			14

Valvoline Inc. and Consolidated Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared by Valvoline Inc. (“Valvoline” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission regulations for interim financial reporting, which do not include all information and footnote disclosures normally included in annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. Certain prior period amounts disclosed herein have been reclassified to conform to the current presentation.

Use of estimates, risks and uncertainties

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent matters. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.

Sale of Global Products business

On March 1, 2023, Valvoline completed the sale of its former Global Products reportable segment (“Global Products”) to Aramco Overseas Company B.V. (“Aramco” or the “Buyer”) (the “Transaction”). The operating results and cash flows associated with and directly attributed to the Global Products disposal group are reflected as discontinued operations within these condensed consolidated financial statements. Refer to Note 2 for additional information regarding the Global Products business, including income from discontinued operations. Unless otherwise noted, disclosures within these remaining Notes to Condensed Consolidated Financial Statements relate solely to the Company's continuing operations.

Recent accounting pronouncements

The following accounting guidance relevant to Valvoline was either issued or adopted in the current fiscal year or is expected to have a meaningful impact on Valvoline in future periods upon adoption.

Issued but not yet adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance that enhances reportable segment disclosures by requiring disclosure of significant reportable segment expenses and other items regularly provided to the Chief Operating Decision Maker (“CODM”) and included within measures of a segment’s profit or loss, inclusive of entities that operate in a single reportable segment. This guidance must be applied retrospectively to all prior periods presented and will become effective for Valvoline beginning with its fiscal 2025 annual financial statements and interim periods starting in fiscal 2026, with early adoption permitted. Valvoline is currently evaluating the impact this guidance will have on the Company and expects adoption will require enhanced disclosures regarding its CODM and the information used in assessing performance and allocating resources, including significant expenses.

In December 2023, the FASB issued guidance which enhances income tax disclosure requirements to include additional disaggregation within the effective tax rate reconciliation and income taxes paid. This guidance will be effective for Valvoline beginning with its fiscal 2026 annual financial statements, with early adoption permitted. The guidance must be applied prospectively, while retrospective application is permitted. The Company is currently assessing the impact of adoption, which is expected to result in enhanced income tax disclosures.

NOTE 2 - DISCONTINUED OPERATIONS

Sale of Global Products

Financial results

On March 1, 2023, Valvoline completed the sale of Global Products for a cash purchase price of $2.650 billion and recognized a pre-tax gain on the sale within Income from discontinued operations, net of tax, during the second quarter of fiscal 2023, coinciding with the completion of the sale. The Transaction was subject to customary closing settlements that were finalized in the third quarter of fiscal 2023 and resulted in the recognition of a pre-tax gain on sale of $1.572 billion during the fiscal year ended September 30, 2023.

The following table summarizes Income from discontinued operations within the Condensed Consolidated Statements of Comprehensive Income:


	Three months ended December 31
(In millions)	2023		2022
Net revenues	$	—	$	705.8
Cost of sales	—		556.6
Gross profit	—		149.2

Selling, general and administrative expenses	—		72.3
Net legacy and separation-related expenses	2.3		6.2
Equity and other income, net	—		(9.2)
Operating (loss) income from discontinued operations	(2.3)		79.9
Net pension and other postretirement plan expense	—		0.1
Net interest and other financing expenses	—		2.3

(Loss) income before income taxes - discontinued operations	(2.3)		77.5
Income tax (benefit) expense	(0.3)		22.6
(Loss) income from discontinued operations, net of tax	$	(2.0)	$	54.9

Post-closing arrangements

Valvoline sources substantially all lubricant and certain ancillary products for its stores through a long-term supply agreement with Global Products. Net revenues within the results of Global Products above include product sales to the Company's continuing operations prior to the closing of the Transaction, which were considered to be effectively settled and were not eliminated. For the three months ended December 31, 2022, these transactions totaled $55.1 million.

Valvoline also entered into a Transition Services Agreement with Global Products, effective March 1, 2023, to provide and receive services including information technology, legal, finance, and human resources support for a period not expected to exceed 18 months. The income and costs associated with these services were not material during the three months ended December 31, 2023.

NOTE 3 - FAIR VALUE MEASUREMENTS

Recurring fair value measurements

The following tables set forth the Company’s financial assets and liabilities by level within the fair value hierarchy for those measured at fair value on a recurring basis:


	As of December 31, 2023
(In millions)	Total		Level 1		Level 2		Level 3		NAV (a)
Cash and cash equivalents
Money market funds	$	235.2	$	235.2	$	—	$	—	$	—
Time deposits	90.9		—		90.9		—		—

Prepaid expenses and other current assets

Interest rate swap agreements	5.2		—		5.2		—		—
Other noncurrent assets
Non-qualified trust funds	1.9		—		—		—		1.9

Deferred compensation investments	20.6		20.6		—		—		—
Total assets at fair value	$	353.8	$	255.8	$	96.1	$	—	$	1.9




Other noncurrent liabilities
Deferred compensation obligations	$	23.0	$	—	$	—	$	—	$	23.0
Total liabilities at fair value	$	23.0	$	—	$	—	$	—	$	23.0


	As of September 30, 2023
(In millions)	Total		Level 1		Level 2		Level 3		NAV (a)
Cash and cash equivalents
Money market funds	$	0.6	$	0.6	$	—	$	—	$	—
Time deposits	277.3		—		277.3		—		—
Prepaid expenses and other current assets
Currency derivatives (b)	0.1		—		0.1		—		—
Interest rate swap agreements	7.8		—		7.8		—		—
Other noncurrent assets
Non-qualified trust funds	2.1		—		—		—		2.1

Deferred compensation investments	19.0		19.0		—		—		—
Total assets at fair value	$	306.9	$	19.6	$	285.2	$	—	$	2.1

Accrued expenses and other liabilities
Currency derivatives (b)	$	0.1	$	—	$	0.1	$	—	$	—

Other noncurrent liabilities
Deferred compensation obligations	20.8		—		—		—		20.8
Total liabilities at fair value	$	20.9	$	—	$	0.1	$	—	$	20.8

(a)Funds measured at fair value using the net asset value ("NAV") per share practical expedient have not been classified in the fair value hierarchy.

(b)The Company had outstanding contracts with notional values of $29.7 million as of September 30, 2023.

Fair value disclosures

The Company’s held-to-maturity U.S. treasury securities and long-term debt are reported in the Condensed Consolidated Balance Sheets at carrying value, rather than fair value, and are therefore excluded from the disclosure above of financial assets and liabilities measured at fair value within the condensed consolidated financial statements on a recurring basis. The following disclosures summarize the fair value of these assets and liabilities at each relevant balance sheet date.

U.S. treasury securities

The fair values of the Company’s U.S. treasury securities summarized below are determined utilizing quoted prices for identical securities from less active markets, which are considered Level 2 inputs within the fair value hierarchy.


	December 31, 2023						September 30, 2023
(In millions)	Amortized cost		Gross unrealized losses		Fair value		Amortized cost		Gross unrealized losses		Fair value
Cash and cash equivalents
U.S. treasury securities (a)	$	—	$	—	$	—	$	2.2	$	—	$	2.2
Short-term investments
U.S. treasury securities (b)	$	119.7	$	(0.1)	$	119.6	$	347.5	$	(0.5)	$	347.0

(a)U.S. treasury securities with original maturity dates of three months or less.

(b)U.S. treasury securities with original maturities greater than three months and less than 12 months.

Long-term debt

The fair values of the Company's outstanding fixed rate senior notes shown below are based on recent trading values, which are considered Level 2 inputs within the fair value hierarchy.

SEC Form 10-Q filed by Valvoline Inc.