VALVOLINE INC, 10-K filed on 11/19/2021
Annual Report
v3.21.2
Cover Page - USD ($)
$ in Billions
12 Months Ended
Sep. 30, 2021
Nov. 15, 2021
Mar. 31, 2021
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Sep. 30, 2021    
Current Fiscal Year End Date --09-30    
Document Transition Report false    
Entity File Number 001-37884    
Entity Registrant Name VALVOLINE INC    
Entity Incorporation, State or Country Code KY    
Entity Tax Identification Number 30-0939371    
Entity Address, Address Line One 100 Valvoline Way    
Entity Address, City or Town Lexington    
Entity Address, State or Province KY    
Entity Address, Postal Zip Code 40509    
City Area Code 859    
Local Phone Number 357-7777    
Title of 12(b) Security Common stock, par value $0.01 per share    
Trading Symbol VVV    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 4.7
Entity Common Stock, Shares Outstanding   180,039,902  
Amendment Flag false    
Document Fiscal Year Focus 2021    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001674910    
Documents Incorporated by Reference Portions of the registrant’s definitive proxy statement for its 2022 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K and    
v3.21.2
Consolidated Statements of Comprehensive Income - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2019
Net Income (Loss) Attributable to Parent [Abstract]      
Sales $ 2,981 $ 2,353 $ 2,390
Cost of sales 2,001 1,490 1,580
Gross profit 980 863 810
Selling, general and administrative expenses 520 442 449
Net legacy and separation-related (income) expenses (24) (30) 3
Equity and other income, net (44) (34) (40)
Operating income 528 485 398
Net pension and other postretirement plan (income) expenses (126) (59) 60
Net interest and other financing expenses 111 93 73
Income before income taxes 543 451 265
Income tax expense 123 134 57
Net income $ 420 $ 317 $ 208
NET EARNINGS PER SHARE      
Net income per share, basic (usd per share) $ 2.30 $ 1.70 $ 1.10
Net income per share, diluted (usd per share) $ 2.29 $ 1.69 $ 1.10
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING      
Weighted average common shares outstanding, basic (in shares) 182 187 189
Weighted average common shares outstanding, diluted (in shares) 183 188 189
COMPREHENSIVE INCOME      
Net income $ 420 $ 317 $ 208
Other comprehensive income (loss), net of tax      
Currency translation adjustments 7 7 (12)
Amortization of pension and other postretirement plan prior service credits (9) (9) (9)
Unrealized gain (loss) on cash flow hedges 2 (1) 0
Other comprehensive loss 0 (3) (21)
Comprehensive income $ 420 $ 314 $ 187
v3.21.2
Consolidated Balance Sheets - USD ($)
shares in Millions, $ in Millions
Sep. 30, 2021
Sep. 30, 2020
Current assets    
Cash and cash equivalents $ 230 $ 760
Receivables, net 496 433
Inventories, net 258 199
Prepaid expenses and other current assets 53 46
Total current assets 1,037 1,438
Noncurrent assets    
Property, plant and equipment, net 817 613
Operating lease assets 307 261
Goodwill and intangibles, net 775 529
Equity method investments 47 44
Deferred income taxes 14 34
Other noncurrent assets 194 132
Total noncurrent assets 2,154 1,613
Total assets 3,191 3,051
Current liabilities    
Current portion of long-term debt 17 0
Trade and other payables 246 189
Accrued expenses and other liabilities 306 255
Total current liabilities 569 444
Noncurrent liabilities    
Long-term debt 1,677 1,962
Employee benefit obligations 258 317
Deferred income taxes 26 1
Operating lease liabilities 274 231
Other noncurrent liabilities 252 172
Total noncurrent liabilities 2,487 2,683
Commitments and contingencies
Stockholders’ equity (deficit)    
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding 0 0
Common stock, par value $0.01 per share, 400 shares authorized, 180 and 185 shares issued and outstanding at September 30, 2021 and 2020, respectively 2 2
Paid-in capital 35 24
Retained earnings (deficit) 90 (110)
Accumulated other comprehensive income 8 8
Total stockholders’ equity (deficit) 135 (76)
Total liabilities and stockholders’ equity (deficit) $ 3,191 $ 3,051
Common stock issued (in shares) 180 185
Common stock outstanding (in shares) 180 185
v3.21.2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2021
Sep. 30, 2020
Statement of Financial Position [Abstract]    
Preferred stock authorized (in shares) 40,000,000 40,000,000
Preferred stock issued (in shares) 0 0
Preferred stock outstanding (in shares) 0 0
Common stock, par value (usd per share) $ 0.01 $ 0.01
Common stock authorized (in shares) 400,000,000 400,000,000
Common stock issued (in shares) 180,000,000 185,000,000
Common stock outstanding (in shares) 180,000,000 185,000,000
v3.21.2
Consolidated Statements of Stockholders' Deficit - USD ($)
shares in Millions, $ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common stock
Paid-in capital
Retained (deficit) earnings
Retained (deficit) earnings
Cumulative Effect, Period of Adoption, Adjustment [Member]
Accumulated other comprehensive income
Common stock outstanding, beginning balance (in shares) at Sep. 30, 2018     188        
Balance at beginning of period at Sep. 30, 2018 $ (358)   $ 2 $ 7 $ (399)   $ 32
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income $ 208       208    
Dividends paid per common share (usd per share) $ 0.424            
Dividends paid $ (80)       (80)    
Stock-based compensation, net of issuances 6     6      
Common stock outstanding, ending balance (in shares) at Sep. 30, 2019     188        
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent (21)           (21)
Balance at end of period at Sep. 30, 2019 (258) $ (13) $ 2 13 (284) $ (13) 11
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income $ 317       317    
Dividends paid per common share (usd per share) $ 0.452            
Dividends paid $ (84)       (84)    
Stock-based compensation, net of issuances 11     11      
Repurchase of common stock (in shares)     (3)        
Repurchase of common stock $ (60)       (60)    
Common stock outstanding, ending balance (in shares) at Sep. 30, 2020 185   185        
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent $ (3)           (3)
Balance at end of period at Sep. 30, 2020 (76) 1 $ 2 24 (110) $ 1 8
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income $ 420       420    
Dividends paid per common share (usd per share) $ 0.500            
Dividends paid $ (90)       (91)    
Stock-based compensation, net of issuances 10     10      
Repurchase of common stock (in shares)     (5)        
Repurchase of common stock $ (127)       (127)    
Common stock outstanding, ending balance (in shares) at Sep. 30, 2021 180   180        
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent $ 0            
APIC, Share-based Payment Arrangement, Increase for Cost Recognition       1      
Balance at end of period at Sep. 30, 2021 $ 135 $ (2) $ 2 $ 35 $ 90   $ 8
v3.21.2
Consolidated Statements of Stockholders' Deficit (Parenthetical) - $ / shares
12 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2019
Statement of Stockholders' Equity [Abstract]      
Dividends paid per common share (usd per share) $ 0.500 $ 0.452 $ 0.424
v3.21.2
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities      
Net income $ 420 $ 317 $ 208
Adjustments to reconcile to cash flows from operations      
Loss on extinguishment of debt 36 19 0
Depreciation and amortization 92 66 61
Deferred income taxes 48 92 23
Pension contributions (5) (11) (10)
(Gain) loss on pension and other postretirement plan remeasurements (72) (22) 69
Stock-based compensation expense 14 12 9
Other, net 4 (5) (5)
Change in assets and liabilities      
Receivables (65) (11) (30)
Inventories (53) (1) (10)
Payables and accrued liabilities 95 (3) 37
Other assets and liabilities (110) (81) (27)
Total cash provided by operating activities 404 372 325
Cash flows from investing activities      
Additions to property, plant and equipment (144) (151) (108)
Notes receivable, net of repayments of $3 million in 2020 17 (31) (2)
Acquisitions of businesses, net of cash acquired (282) (40) (78)
Other investing activities, net 9 0 0
Total cash used in investing activities (400) (222) (188)
Cash flows from financing activities      
Proceeds from borrowings 555 1,558 752
Payments of debt issuance costs and discounts (7) (16) (2)
Repayments on borrowings (829) (929) (734)
Premium paid to extinguish debt (26) (15) 0
Repurchases of common stock (127) (60) 0
Cash dividends paid (91) (84) (80)
Other financing activities (11) (4) (7)
Total cash (used in) provided by financing activities (536) 450 (71)
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash 2 2 (3)
(Decrease) increase in cash, cash equivalents and restricted cash (530) 602 63
Cash, cash equivalents and restricted cash - beginning of year 761 159 96
Cash, cash equivalents and restricted cash - end of year 231 761 159
Interest paid 62 65 67
Income taxes paid $ 72 $ 44 $ 25
v3.21.2
Consolidated Statements of Cash Flows (Parenthetical)
$ in Millions
12 Months Ended
Sep. 30, 2020
USD ($)
Statement of Cash Flows [Abstract]  
Proceeds from repayment of notes receivable $ 3
v3.21.2
Description of Business and Basis of Presentation
12 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Description of Business and Basis of Presentation DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of business

Valvoline Inc. (“Valvoline” or the “Company”) is a global vehicle and engine care company that powers the future of mobility through innovative services and products for electric, hybrid, and internal combustion powertrains. Established in 1866, Valvoline’s heritage spans 155 years, during which it has developed recognition across multiple service and product channels. Valvoline's services performed at its retail stores, Valvoline-branded passenger car motor oils, and complementary products are designed to serve evolving maintenance needs and improve vehicle and engine performance and lifespan.

Valvoline operates and franchises approximately 1,600 service center locations and is the second and third largest chain in the United States (“U.S.”) and Canada, respectively, by number of stores. With sales in more than 140 countries and territories, Valvoline’s solutions are available for every engine and powertrain, including high-mileage and heavy-duty applications, and are offered at more than 80,000 locations worldwide.

Basis of presentation and consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission (“SEC”) regulations. The financial statements are presented on a consolidated basis for all periods presented and include the operations of the Company and its majority-owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. 
Certain prior period amounts have been reclassified in the accompanying consolidated financial statements and notes thereto to conform to the current period presentation.
v3.21.2
Significant Accounting Policies
12 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Significant Accounting Policies SIGNIFICANT ACCOUNTING POLICIES
Valvoline’s significant accounting policies, which conform to U.S. GAAP and are applied on a consistent basis in all periods presented, except when otherwise disclosed, are described below.

Use of estimates, risks and uncertainties

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and 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.

Valvoline has substantially maintained its operations throughout the novel coronavirus ("COVID-19") pandemic to-date and has continued precautionary measures to protect the Company's employees and customers and manage through the currently known impacts on its business. Given the unprecedented nature of the pandemic, the extent of future impacts cannot be reasonably estimated at this time due to numerous uncertainties, including the ultimate duration and severity of the pandemic.

Cash and cash equivalents

All short-term, highly liquid investments having original maturities of three months or less are considered to be cash equivalents.
Receivables and allowance for credit losses

Valvoline invoices customers and recognizes a receivable within its Consolidated Balance Sheets once the Company performs a service or transfers control of a product, at which point its right to consideration becomes unconditional and only the passage of time is required before payment of that consideration is due. As the majority of the Company’s performance obligations are satisfied at a point in time and customers typically do not make material payments in advance, nor does Valvoline have a right to consideration in advance of control transfer, the Company has no contract assets or contract liabilities.

Valvoline adopted guidance in fiscal 2021 that changes the recognition of credit losses from an incurred or probable loss methodology to a current expected credit loss model, which results in the immediate recognition of losses that are expected to occur over the life of the financial instruments, principally trade and other receivables. Allowances are maintained to estimate expected lifetime credit losses that are based on a broad range of reasonable and supportable information and factors, including the length of time receivables are past due, the financial health of its customers, macroeconomic conditions, and historical collection experience. If the financial condition of its customers deteriorates or other circumstances occur that result in an impairment of customers’ ability to make payments, the Company records additional allowances as needed. The Company writes off uncollectible receivables against the allowance when collection efforts have been exhausted and/or any legal action taken by the Company has concluded.

Inventories

Inventories are primarily carried at the lower of cost or net realizable value using the weighted average cost method. In addition, certain lubricants are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method to provide matching of revenues with current costs. Inventory costs include materials, labor and manufacturing overhead related to the purchase and production of inventories. The Company regularly reviews inventory quantities on hand and the estimated utilization of inventory. Excess and obsolete reserves are established when inventory is estimated to not be usable based on forecasts, product demand, life cycle, or utility.

Property, plant and equipment

Property, plant and equipment is recorded at cost and is depreciated using the straight-line method over the estimated useful lives of the assets. Buildings generally have useful lives of ten to twenty-five years and machinery and equipment typically have two to thirty year useful lives, dependent on the nature and utility of the assets. Building and leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from which the date the assets are placed in service to the end of the lease term, as appropriate. Depreciation expense is recognized in Cost of sales or Selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income based on the function the underlying asset supports. Property, plant and equipment is relieved of the cost and related accumulated depreciation when assets are disposed of or otherwise retired. Gains or losses on the dispositions of property, plant and equipment are included in the Consolidated Statements of Comprehensive Income and generally reported in Equity and other income, net.

Property, plant and equipment carrying values are evaluated for recoverability at the lowest level of identifiable cash flows when impairment indicators are present. Such indicators could include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of long-lived assets that are not expected to be recovered through undiscounted future net cash flows are written down to fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).

Leases

Certain of the properties Valvoline utilizes, including its retail service center stores, offices, blending and warehouse facilities, in addition to certain equipment, are leased, with a small portion subleased primarily to Valvoline's franchisees. In fiscal 2020, Valvoline adopted new guidance related to leases using the optional transition approach, with prospective application from adoption on October 1, 2019 and the financial statements prior to
adoption reported in accordance with the previous guidance. Valvoline's policies under the new guidance are outlined below.

Valvoline determines if an arrangement contains a lease at inception primarily based on whether or not the Company has the right to control the asset during the contract period. For all agreements where it is determined that a lease exists, the related lease assets and liabilities are recognized within the Consolidated Balance Sheets as either operating or finance leases at the commencement date.

The lease liability is measured based on the present value of future payments over the lease term, and the right-of-use asset is measured as the lease liability, adjusted for prepaid lease payments, lease incentives, and initial direct costs (e.g., commissions). Valvoline's leases generally have terms ranging from less than one year to more than 20 years, and leases with an initial term of 12 months or less are included in the measurement of its right-of-use asset and lease liability balances. The lease term includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

Fixed rental payments, including variable payments based on a rate or index, are included in the determination of the lease liability. Many leases also require the payment of taxes, insurance, operating expenses, and maintenance. In instances where these other components are fixed, they are included in the measurement of the lease liability due to Valvoline's election to combine lease and non-lease components and account for them as a single component. Otherwise, these components are recognized along with other variable lease payments in the Consolidated Statements of Comprehensive Income in the period in which the obligation for those payments is incurred.

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

Business combinations

The Company allocates the purchase consideration to the identifiable assets acquired and liabilities assumed in business combinations based on their acquisition-date fair values. The excess of the purchase consideration over the amounts assigned to the identifiable assets and liabilities is recognized as goodwill, or if the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase gain is recorded. Factors giving rise to goodwill generally include operational synergies that are anticipated as a result of the business combination and growth expected to result in economic benefits from access to new customers and markets. The fair values of identifiable intangible assets acquired in business combinations are generally determined using an income approach, requiring financial forecasts and estimates as well as market participant assumptions.

The incremental financial results of the businesses that Valvoline has acquired are included in the Company’s consolidated financial results from the respective dates of each acquisition.

Goodwill and other intangible assets

Valvoline evaluates goodwill for impairment annually as of July 1 or when events and circumstances indicate an impairment may have occurred. This assessment consists of evaluating each reporting unit’s fair value compared to its carrying value. Valvoline's historical reporting units were evaluated as a result of the realignment of its global operations during the third quarter of fiscal 2021. As a result, Valvoline determined its reporting units were Retail Services and Global Products, consistent with its realigned operating and reportable segments. In connection with the identification of its current operating and reportable segments and reporting units, goodwill balances and activity presented herein were reclassified to conform to the current presentation and were subject to assessment for goodwill impairment at the reporting unit level.

In evaluating goodwill for impairment, Valvoline has the option to first perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value
of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, the Company is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. Qualitative factors considered include macroeconomic conditions, industry and market conditions, cost factors, and overall financial performance, among others.

Under the quantitative assessment, if the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, is measured as the excess of the carrying value of the reporting unit’s goodwill over its fair value, not to exceed the total goodwill allocated to the reporting unit. Fair values of the reporting units are estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of a discounted cash flow (“DCF”) analysis, and a number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate, weighted average cost of capital, terminal values, and working capital changes. Several of these assumptions vary among reporting units, and the cash flow forecasts are generally based on approved strategic operating plans. The market approach is performed using the Guideline Public Companies method based on earnings multiple data. The Company also performs a reconciliation between market capitalization and the estimated aggregate fair value of the reporting units, including consideration of a control premium.

Valvoline performed a quantitative assessment during fiscal 2021 and determined that the fair values of the Company's reporting units were substantially in excess of carrying values and no impairment existed.

Acquired finite-lived intangible assets principally consist of certain trademarks and trade names, reacquired franchise rights, and customer relationships. Intangible assets acquired in an asset acquisition are carried at cost, less accumulated amortization. For intangible assets acquired in a business combination, the estimated fair values of the assets acquired are used to establish the carrying values, which are determined using assumptions from the perspective of a market participant and generally an income approach. These intangible assets are amortized on a straight-line basis over their estimated useful lives. Valvoline evaluates finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, and any assets not expected to be recovered through undiscounted future net cash flows are written down to current fair value.

Equity method investments

Investments in companies, including joint ventures, where Valvoline has the ability to exert significant influence over, but not control, operating and financial policies of the investee are accounted for using the equity method of accounting. Judgment regarding the level of influence over each investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, and participation in policy-making decisions. The Company’s proportionate share of the net income or loss of these companies is included within Equity and other income, net in the Consolidated Statements of Comprehensive Income.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. Factors considered by the Company when reviewing an equity method investment for other-than-temporary impairment include the length of time and extent to which the fair value of the equity method investment has been less than its carrying amount, the investee’s financial condition and near-term prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.

Pension and other postretirement benefit plans

Valvoline sponsors defined benefit pension and other postretirement plans in the U.S and in certain other countries. The Company's U.S. pension plans are closed to new participants and the accrual of pension benefits has been frozen since September 30, 2016. In addition, most international pension plans are closed to new participants while those that remain open relate to areas where local laws require such plans. Valvoline also sponsors retiree healthcare and life insurance plans for certain qualifying participants with amendments effective in fiscal 2017 to limit annual per capita costs.
Valvoline recognizes the funded status of each applicable plan within the Consolidated Balance Sheets whereby each unfunded plan is recognized as a liability and each funded plan is recognized as either an asset or liability based on its funded status. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation. Changes in the fair value of plan assets and net actuarial gains or losses are recognized upon remeasurement as of September 30, the annual measurement date, and whenever a remeasurement is triggered. The remaining components of pension and other postretirement benefits income or expense are recorded ratably throughout the year.

The fair value of plan assets represents the current market value of assets held by irrevocable trust funds for the sole benefit of participants, and the benefit obligation is the actuarial present value of the benefits expected to be paid upon retirement, death, or other distributable event based on estimates. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain key assumptions that require significant judgment, including, but not limited to, estimates of discount rates, rate of compensation increases, interest rates and mortality rates. Actuarial gains and losses may be related to actual results that differ from assumptions as well as changes in assumptions, which may occur each year.

Due to the freeze of U.S. pension benefits effective September 30, 2016, continuing service costs are limited to certain international pension plans, and are reported in the same caption of the Consolidated Statements of Comprehensive Income as the related employee costs. All components of net periodic benefit income or costs other than service cost are recognized below operating income within Net pension and other postretirement plan (income) expenses in the Consolidated Statements of Comprehensive Income.

Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred and are recorded in Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income. 

Revenue recognition

Revenue is recognized for the amount that reflects the consideration the Company is expected to be entitled to receive based on when control of the promised good or service is transferred to the customer. Revenue recognition is evaluated through the following five steps: (i) identification of the contract(s) with a customer; (ii) identification of the performance obligation(s) in the contract(s); (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligation(s) in the contract(s); and (v) recognition of revenue when or as a performance obligation is satisfied.

Nature of goods and services

Valvoline generates all revenues from contracts with customers, primarily as a result of the sale and service delivery of engine and automotive maintenance products to its customers. Valvoline derives its sales from its broad line of products and complementary services through the following three principal activities managed across its two reportable segments: (i) engine and automotive maintenance products, (ii) company-operated service center operations, and (iii) franchised service center operations. Valvoline’s sales are generally to mass market and auto parts retail, installer, industrial, distributor, franchise, and end consumers to facilitate vehicle and equipment preventive maintenance.

Valvoline's sales are predominantly comprised of products and services sold at a point in time with approximately 98% recognized either through ship-and-bill performance obligations or company-operated service center operations. The remainder of the Company's sales generally relate to franchise fees, including royalties, transferred over time. The following table summarizes Valvoline's sales by timing of revenue recognized for the fiscal years ended September 30:
(In millions)202120202019
Sales at a point in time$2,931 $2,313 $2,347 
Franchised revenues transferred over time50 40 43 
Total consolidated sales$2,981 $2,353 $2,390 

Below is a summary of the key considerations for Valvoline's material revenue-generating activities:

Engine and automotive maintenance products

Engine and automotive maintenance products primarily include lubricants, antifreeze, chemicals, filters, and other complementary products for use across a wide array of vehicles and engines. The Company’s customers typically enter into a sales agreement which outlines a framework of terms and conditions that apply to all current and future purchase orders for the customer submitted under such sales agreement. In these situations, the Company’s contract with the customer is the sales agreement combined with the customer purchase order as specific products and quantities are not indicated until a purchase order is submitted. As the Company’s contract with the customer is typically for a single purchase order under the supply agreement to be delivered at a point in time, the duration of the contract is almost always one year or less.

The Company’s products are distinct and separately identifiable on customer purchase orders, with each product sale representing a separate performance obligation that is generally delivered simultaneously. The Company has elected to not disclose information about remaining performance obligations as substantially all of the Company's product sales contracts have a duration of one year or less. Valvoline is the principal to these contracts as the Company has control of the products prior to transfer to the customer. Accordingly, revenue is recognized on a gross basis.

The Company determines the point in time at which control is transferred and the performance obligation is satisfied by considering when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the product, which generally coincides with the transfer of title and risk of loss to the customer and is typically determined based on delivery terms within the underlying contract.

Customer payment terms vary by region and customer and are generally 30 to 60 days after delivery. Valvoline does not provide extended payment terms greater than one year and therefore, does not adjust the promised amount of consideration for the effects of a significant financing component.

Company-operated service center operations

Performance obligations related to company-operated service center operations primarily include the sale of engine and automotive maintenance products and related services. These performance obligations are distinct and are delivered simultaneously at a point in time. Accordingly, sales from company-operated service center operations is recognized when payment is tendered at the point of sale, which coincides with the completion of product and service delivery and the transfer of control and benefits from the performance obligations to the customer.

Franchised service center operations

The primary performance obligations related to franchised service center operations include product sales as described above and the license of intellectual property, which provides access to the Valvoline brand and proprietary information to operate service center stores over the term of a franchise agreement. Other franchise performance obligations do not result in material revenue. Each performance obligation is distinct, and franchisees generally receive and consume the benefits provided by the Company’s performance over the course of the franchise agreement, which typically ranges from 10 to 15 years. Billings and payments occur monthly. Variable consideration is not disclosed as remaining performance obligations qualify for the sales-based royalty and usage-based exemptions.

In exchange for the license of Valvoline intellectual property, franchisees generally remit initial fees upon opening a service center store and royalties at a contractual rate of the applicable service center store sales over the term of the franchise agreement. The license provides access to the intellectual property over the term of the franchise agreement and is considered a right-to-access license of symbolic intellectual property as substantially all of its
utility is derived from association with the Company’s past and ongoing activities. The license granted to operate each franchised service center store is the predominant item to which the royalties relate and represents a distinct performance obligation which is recognized over time as the underlying sales occur, as this is the most appropriate measure of progress toward complete satisfaction of the performance obligation.

Variable consideration

The Company only offers an assurance-type warranty with regard to the intended functionality of products sold, which does not represent a distinct performance obligation within the context of the contract. Product returns and refunds are generally not material and are not accepted unless the item is defective as manufactured. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is adjusted for known trends to arrive at the amount of consideration to which Valvoline expects to receive.

The nature of Valvoline’s contracts with customers often give rise to variable consideration consisting primarily of promotional rebates and customer pricing discounts based on achieving certain levels of sales activity that generally decrease the transaction price. The Company determines the transaction price as the amount of consideration it expects to be entitled to in exchange for fulfilling the performance obligations, including the effects of any variable consideration, or amounts payable to the customer when there is a basis to reasonably estimate the amount and it is probable there will not be a significant reversal. Variable consideration is recorded as a reduction of the transaction price at the time of sale and is primarily estimated utilizing the most likely amount method that is expected to be earned as the Company is able to estimate the anticipated discounts within a sufficiently narrow range of possible outcomes based on its extensive historical experience with certain customers, similar programs and management’s judgment with respect to estimating customer participation and performance levels. Variable consideration is reassessed at each reporting date and adjustments are made, when necessary.

The reduction of transaction price due to customer incentives was $402 million, $332 million, and $346 million in the Consolidated Statements of Comprehensive Income for the years ended September 30, 2021, 2020, and 2019, respectively. Reserves for these customer programs and incentives were $71 million and $64 million as of September 30, 2021 and 2020, respectively, and are recorded within Accrued expenses and other liabilities in the Consolidated Balance Sheets.

Allocation of transaction price

In each contract with multiple performance obligations, Valvoline allocates the transaction price, including variable consideration, to each performance obligation on a relative standalone selling price basis, which is generally determined based on the directly observable data of the Company’s standalone sales of the performance obligations in similar circumstances to similar customers. The amount allocated to each performance obligation is recognized as sales commensurate with the transfer of control to the customer.

Shipping and handling activities that occur after the customer has obtained control are treated as fulfillment activities (i.e., an expense) rather than as a performance obligation. Accordingly, amounts billed for shipping and handling are a component of the transaction price included in net sales, while costs incurred are included in cost of sales. Shipping and handling costs recorded in sales were $10 million in fiscal 2021, $9 million in fiscal 2020, and $10 million in fiscal 2019. Furthermore, the Company excludes taxes collected from customers from sales, which are reflected in accrued expenses until remitted to the appropriate governmental authority.

Incremental direct costs of obtaining a contract, primarily sales commissions, are expensed when incurred due to the short-term nature of individual contracts, which would result in amortization periods of one year or less. These costs are not material and are recorded within Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income.

Expense recognition

Cost of sales are expensed as incurred and include costs associated with operation of the Company's plants, distribution network and retail service center stores, including depreciation, occupancy, labor and benefits, material and production, inbound and outbound freight, purchasing and receiving, inspection, warehousing, and all other distribution network costs. Selling, general and administrative expenses are recognized as incurred and include
sales and marketing costs, research and development costs, advertising, customer support, and other administrative costs. Advertising costs were $90 million in fiscal 2021, $72 million in fiscal 2020 and $73 million in fiscal 2019, and research and development costs were $15 million in fiscal 2021 and $13 million in both fiscal 2020 and 2019.

Stock-based compensation

The Company recognizes expense related to stock-based compensation, net of actual forfeitures, over the requisite vesting period based on the grant date fair value of new or modified awards. The Company’s outstanding stock-based compensation awards are primarily classified as equity, with a small portion of liability-classified awards based on award terms and conditions.

Income taxes

Income tax expense is provided based on income before income taxes. The Company estimates its tax expense based on current tax laws in the statutory jurisdictions in which it operates. These estimates include judgments about the recognition and realization of deferred tax assets and liabilities resulting from the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates occur, deferred tax assets and liabilities are adjusted in the period changes are enacted through income tax expense. Valvoline records valuation allowances related to its deferred income tax assets when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

Valvoline records estimated incremental withholding taxes on undistributed earnings to account for certain of its non-U.S. subsidiaries as being immediately subject to tax, while certain other outside basis differences restricted by regulations, operational or investing needs for non-U.S. subsidiaries are indefinitely reinvested. If these outside basis differences were no longer to be indefinitely reinvested in the future, the Company may be subject to additional income and withholding taxes, which are not practicable to estimate.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being sustained upon examination by authorities. Interest and penalties related to unrecognized tax benefits are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law and until such time that the related tax benefits are recognized. Interest and penalties were not material to any of the periods presented herein.

Derivatives

Valvoline’s derivative instruments consist of currency exchange and interest rate swap agreements, each of which is described further below.

Currency derivatives

The Company's currency exchange contracts are used to manage non-functional currency denominated balance sheet exposures and exchange on currency for another at a fixed rate on a future date of generally a month or less. These contracts are not designated as hedging instruments and are accounted for as either assets or liabilities in the Consolidated Balance Sheets at fair value with the resulting gains or losses recognized as adjustments to earnings within Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income. Gains and losses are recognized as exchange rates change the fair value of these instruments and upon settlement to offset the remeasurement gain or loss on the related currency-denominated exposures in the same period. The Company classifies its cash flows related to currency exchange contracts as investing activities in the Consolidated Statements of Cash Flows.
Interest rate swap agreements

The Company's interest rate swap agreements effectively modify its exposure to interest rate risk by converting floating rate debt to a fixed rate for the term of the swap agreements, reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount.

Valvoline's interest rate swap agreements are designated as cash flow hedges with effectiveness of the hedges assessed at inception and quarterly thereafter. To the extent the hedging relationship is highly effective, the unrealized gains or losses on the swaps are recorded in Accumulated other comprehensive income and reclassified into earnings within Net interest and other financing expenses when the payments occur. The Company classifies its cash flows related to interest rate swap agreements as operating activities in the Consolidated Statements of Cash Flows.

The fair values of the interest rate swaps are reflected as an asset or liability in the Consolidated Balance Sheets and the change in fair value is reported in Accumulated other comprehensive income. The fair values of the interest rate swaps are estimated as the net present value of projected cash flows based upon forward interest rates at the balance sheet date. The Company does not offset fair value amounts recognized in its Consolidated Balance Sheets for presentation purposes.

Fair value measurements

Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance prioritizes the inputs used to measure fair value into the following three-tier fair value hierarchy for which an instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement:

Level 1 - Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Valvoline's assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which may include the Company's own financial data, such as internally developed pricing models, DCF methodologies, as well as instruments for which the fair value determination requires significant management judgment.

Certain investments which measure fair value using the net asset value (“NAV”) per share practical expedient are not classified within the fair value hierarchy and are separately disclosed.

Valvoline measures its financial assets and financial liabilities at fair value based on one or more of the following three valuation techniques:

Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities

Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost)

Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option pricing and excess earnings models)
The Company generally uses a market approach, when practicable, in valuing financial instruments. In certain instances, when observable market data is lacking, the Company uses valuation techniques consistent with the income approach whereby future cash flows are converted to a single discounted amount. The Company uses multiple sources of pricing as well as trading and other market data in its process of reporting fair values.

The fair values of accounts receivables and accounts payable approximate their carrying values due to the relatively short-term nature of the instruments. Valvoline's notes receivable primarily consist of variable-rate interest term loans extended to franchisees to provide financial assistance as a response to the COVID-19 pandemic. These notes bear interest comparable with the market rates within Valvoline's variable rate borrowings, and accordingly, their carrying amounts approximate fair value.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Currency translation

Operations outside the United States are measured primarily using the local currency as the functional currency. Upon consolidation, the results of operations of the subsidiaries and affiliates whose functional currency is other than the U.S. dollar are translated into U.S. dollars at the average exchange rates for the year while assets and liabilities are translated at year-end exchange rates. Adjustments to translate assets and liabilities into U.S. dollars are recorded in the stockholders’ equity section of the Consolidated Balance Sheets as a component of Accumulated other comprehensive income and are included in net earnings only upon sale or substantial liquidation of the underlying non-U.S. subsidiary or affiliated company.

Earnings per share

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted-average number of common shares outstanding during the reported period. Diluted EPS is calculated similar to basic EPS, except that the weighted-average number of shares outstanding includes the number of shares that would have been outstanding had potentially dilutive common shares been issued. Potentially dilutive securities include stock appreciation rights and nonvested stock-based awards. Nonvested market and performance-based share awards are included in the weighted-average diluted shares outstanding each period if established market or performance criteria have been met at the end of the respective periods.

Share repurchases

Shares that are repurchased are retired and returned to the status of authorized, unissued shares. The excess of the repurchase price over the par value of shares acquired is recognized in Retained earnings.

Recent accounting pronouncements

The following standards relevant to Valvoline were either issued or adopted in the current year, or are expected to have a meaningful impact on Valvoline in future periods.

Recently adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued updated guidance that changes the recognition of credit losses from an incurred or probable loss methodology to a current expected credit loss model that results in the immediate recognition of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, principally trade and other receivables for Valvoline. The new credit loss guidance was adopted on October 1, 2020 using the required modified retrospective approach. Under this approach, the new accounting guidance is applied prospectively from the date of adoption through a cumulative effect adjustment in retained deficit, while prior period financial statements continue to be reported in accordance with the previous guidance. Adoption did not have a material impact on the Company's consolidated financial statements and resulted in a $2 million, net of tax, cumulative effect of accounting change that increased retained
deficit and allowances for credit losses. Refer to Note 16 for additional information regarding the Company's trade and other receivables and its allowances for credit losses.

Issued but not yet adopted

In March 2020, the FASB issued guidance regarding the effects of reference rate reform on financial reporting. This guidance provides temporary optional expedients and exceptions to accounting guidance for certain contract modifications and hedging arrangements to ease financial reporting burdens as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates.
The Company has interest rate swap hedging arrangements and long-term debt as described in Notes 3 and 8 in the Notes to Consolidated Financial Statements, respectively, for which existing payments are LIBOR-based. This guidance is available to be adopted on a prospective basis through the end of calendar 2022 to simplify the accounting for arrangements modified for the transition to alternative reference rates. The Company expects to adopt this guidance to the extent its arrangements are modified for the underlying reference rate prior to the end of calendar 2022 and does not expect adoption will have a material impact on its condensed consolidated financial statements.

The FASB issued other accounting guidance during the period that is not currently applicable or not expected to have a material impact on Valvoline’s financial statements, and therefore, is not described above.
v3.21.2
Fair Value Measurements
12 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements FAIR VALUE MEASUREMENTS
Recurring fair value measurements

The Company’s financial assets and liabilities accounted for at fair value on a recurring basis are summarized below by level within the fair value hierarchy:

As of September 30, 2021
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$13 $13 $— $— $— 
Time deposits87 — 87 — — 
Prepaid expenses and other current assets
Currency derivatives— — — 
Other noncurrent assets
Non-qualified trust funds11 — — 
Interest rate swap agreements
Total assets at fair value$116 $13 $96 $— $
Accrued expenses and other liabilities
Currency derivatives$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations24 — — — 24 
Total liabilities at fair value$28 $— $$— $24 
As of September 30, 2020
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$296 $296 $— $— $— 
Time deposits139 — 139 — — 
Prepaid expenses and other current assets
Currency derivatives— — — 
Other noncurrent assets
Non-qualified trust funds16 — — 
Total assets at fair value$454 $296 $150 $— $
Accrued expenses and other liabilities
Currency derivatives$$— $$— $— 
Interest rate swap agreements— — — 
Other noncurrent liabilities
Deferred compensation obligations25 — — — 25 
Total liabilities at fair value$28 $— $$— $25 
(a)Funds measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy.

Money market funds

Money market funds trade in an active market and are valued using quoted market prices, which are Level 1 inputs.
Time deposits

Time deposits are balances held with financial institutions at face value plus accrued interest, which approximates fair value and are categorized as Level 2.

Currency derivatives

The Company had outstanding currency forward contracts with notional values of $137 million and $149 million as of September 30, 2021 and 2020, respectively. The fair value of these outstanding contracts are recorded as assets and liabilities on a gross basis measured using readily observable market inputs to estimate the fair value for similar derivative instruments and are classified as Level 2. Gains and losses recognized related to these instruments were not material in any period presented herein.

Non-qualified trust funds

The Company maintains a non-qualified trust that is utilized to fund benefit payments for certain of its U.S. non-qualified pension plans. This trust is primarily invested in fixed income U.S. government bonds and mutual funds that are measured at fair value based upon Level 2 inputs corroborated by observable market data and using the NAV per share practical expedient, respectively. There were no significant redemption restrictions or unfunded commitments on these mutual fund investments as of September 30, 2021. Gains and losses related to these investments are immediately recognized within Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income and were not material in any period presented herein.

Interest rate swap agreements

The Company is party to four interest rate swap agreements with three to four year maturities to exchange interest rate payments on $350 million of variable rate term loan borrowings to fixed interest rates. The Company expects these hedges to be highly effective and based on interest rates as of September 30, 2021 and current circumstances, estimates that there will not be material reclassifications into earnings over the next twelve months.

The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. The Company utilizes Level 2 observable inputs such as interest rate yield curves to estimate fair value for the interest rate swap agreements.

Deferred compensation obligations

The Company has an unfunded deferred compensation plan that is valued based on the underlying participant-directed investments. The fair value of underlying investments in collective trust funds is determined using the NAV provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee based upon the fair value of the underlying assets owned by the fund, less its liabilities, divided by outstanding units. There were no significant redemption restrictions or unfunded commitments on these investments as of September 30, 2021. Changes in the fair values are recognized in the Consolidated Statements of Comprehensive Income within Selling, general and administrative expenses and were not material for the periods presented herein.     

Fair value of long-term debt

Long-term debt is reported in the Consolidated Balance Sheets at carrying value, rather than fair value, and is therefore excluded from the disclosure above of financial assets and liabilities measured at fair value within the consolidated financial statements on a recurring basis. The fair values of the Company's outstanding fixed rate senior notes shown in the table below are based on recent trading values, which are considered Level 2 inputs within the fair value hierarchy.
September 30, 2021September 30, 2020
(In millions)Fair value
Carrying value (a)
Unamortized discounts and issuance costsFair value
Carrying value (a)
Unamortized discounts and issuance costs
2025 Notes$— $— $— $827 $790 $(10)
2030 Notes622 593 (7)613 592 (8)
2031 Notes531 529 (6)— — — 
Total$1,153 $1,122 $(13)$1,440 $1,382 $(18)
(a)Carrying values shown are net of unamortized discounts and issuance costs.

Refer to Note 8 for details of these notes as well as Valvoline's other debt instruments that have variable interest rates with carrying amounts that approximate fair value.
v3.21.2
Acquisitions and Divestitures
12 Months Ended
Sep. 30, 2021
Business Combinations [Abstract]  
Acquisitions and Divestitures ACQUISITIONS AND DIVESTITURES
Acquisitions

Fiscal 2021 acquisitions

The Company acquired 134 service center stores in single and multi-store transactions for an aggregate purchase price of $282 million during fiscal 2021. These acquisitions expand Valvoline's services presence in key North American and international markets, increase the Retail Services system to more than 700 company-operated and nearly 1,600 system-wide service center stores, and included:

Fourteen company-operated service center stores in Texas acquired from Kent Lubrication Centers Ltd. (doing business as Avis Lube) on October 1, 2020;
Twenty-one former franchise locations converted to company-operated service center stores in Kansas and Missouri acquired from Westco Lube, Inc. on October 15, 2020;
Twelve company-operated service center stores in Idaho acquired from L&F Enterprises (doing business as Einstein's Oilery) on October 30, 2020;
Twenty-seven Mister Oil Change Express® locations (15 company-operated and 12 franchise-operated) across seven states acquired from Car Wash Partners, Inc. on December 11, 2020;
Sixteen former franchise locations converted to company-operated service center stores in Texas acquired from AWC Premium Automotive Service Ltd. on April 30, 2021;
Thirteen former franchise and fourteen former joint venture locations converted to company-operated service center stores acquired in single and multi-store transactions; and
Eleven company-operated service center stores and six former Express Care locations acquired in single and multi-store transactions.

Fiscal 2020 acquisitions

During fiscal 2020, Valvoline acquired 35 service center stores in single and multi-store transactions, including 23 former franchise locations converted to company-operated service centers stores, for an aggregate purchase price of $40 million within the Retail Services reportable segment. These acquisitions provide an opportunity to expand Valvoline's Retail Services system within key markets.

Fiscal 2019 acquisitions

Valvoline acquired 60 service center stores and a lubricant production company during fiscal 2019 for an aggregate purchase price of $78 million. These acquisitions included 31 franchise service center stores in Canada acquired from Oil Changers Inc. on October 31, 2018, five former franchise locations converted to company-operated service centers stores, and 24 company-operated service center stores acquired in single and multi-store transactions within the Retail Services reportable segment. The Company also acquired an Eastern European lubricant production company, including its manufacturing facility, within the Global Products segment. These acquisitions provided an opportunity to grow Valvoline's Retail Services system within key markets and expand Valvoline’s presence and supply chain capabilities in Eastern Europe.
Summary

The following table summarizes the aggregate cash consideration paid and the total assets acquired and liabilities assumed for the years ended September 30:

(In millions)202120202019
Inventories$$$— 
Other current assets— — 
Property, plant and equipment (a)
99 19 
Operating lease assets38 — 
Goodwill (b)
207 17 50 
Intangible assets (c)
Reacquired franchise rights (d)
59 20 
Customer relationships— — 
Trademarks and trade names— — 
Other— 
Other current liabilities (a)
(9)(1)— 
Operating lease liabilities(35)— — 
Other noncurrent liabilities (a)
(84)(4)(1)
Net assets acquired282 40 82 
Bargain purchase gain (e)
— — (4)
Consideration transferred$282 $40 $78 
(a)Includes $84 million of finance lease assets in property, plant and equipment and finance lease liabilities of $4 million and $80 million in other current and noncurrent liabilities, respectively, for leases acquired during the year ended September 30, 2021.
(b)Goodwill is generally expected to be deductible for income tax purposes and is primarily attributed to the operational synergies and potential growth expected to result in economic benefits in the respective markets of the acquisitions.
(c)Weighted average amortization period of intangible assets acquired in each period presented above is 10 years.
(d)Prior to the acquisition of former franchise service center stores, Valvoline licensed the right to operate franchised quick lube service centers, including use of the Company’s trademarks and trade name. In connection with these acquisitions, Valvoline reacquired those rights and recognized separate definite-lived reacquired franchise rights intangible assets, which are being amortized on a straight-line basis over the weighted average remaining term of approximately 10 years for the rights reacquired in fiscal 2021 and 2020 and nine years for the rights reacquired in fiscal 2019. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market.
(e)Recorded in Equity and other income, net within the Consolidated Statements of Comprehensive Income.

The fair values above are preliminary for up to one year from the date of acquisition as they are subject to measurement period adjustments as new information is obtained about facts and circumstances that existed as of the acquisition date. The Company does not expect any material changes to the preliminary purchase price allocations summarized above for acquisitions completed during the last twelve months.
v3.21.2
Lease Commitments
12 Months Ended
Sep. 30, 2021
Leases [Abstract]  
Lease Commitments LEASE COMMITMENTS
The following table presents the Company's lease balances as of September 30:

(In millions)Location in Consolidated Balance Sheets20212020
Assets
Operating lease assetsOperating lease assets$307 $261 
Finance lease assets Property, plant and equipment, net198 77 
Amortization of finance lease assetsProperty, plant and equipment, net(21)(10)
Total leased assets$484 $328 
Liabilities
Current
Operating lease liabilitiesAccrued expenses and other liabilities$38 $33 
Finance lease liabilitiesAccrued expenses and other liabilities
Noncurrent
Operating lease liabilitiesOperating lease liabilities274 231 
Finance lease liabilitiesOther noncurrent liabilities178 70 
Total lease liabilities$499 $337 

The following table presents the components of total lease costs for the years ended September 30:

(In millions)Location in Consolidated Statements of Comprehensive Income20212020
Operating lease costCost of sales and Selling, general and administrative expenses$52 $45 
Finance lease costs
Amortization of lease assets
Cost of sales (a)
11 
Interest on lease liabilitiesNet interest and other financing expenses
Variable lease cost
Cost of sales and Selling, general and administrative expenses (a)
10 
Sublease incomeEquity and other income, net(8)(6)
Total lease cost$73 $52 

Other information related to the Company's leases follows for the years ended September 30:

(In millions)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (a)
$50 $43 
Operating cash flows from finance leases$$
Financing cash flows from finance leases$$
Lease assets obtained in exchange for lease obligations:
Operating leases$83 $49 
Finance leases$118 $49 
(a)Included within the change in Other assets and liabilities within the Consolidated Statements of Cash Flows offset by noncash operating lease asset amortization and liability accretion.
The following table reconciles the undiscounted cash flows for the next five fiscal years ended September 30 and thereafter to the operating and finance lease liabilities recorded within the Consolidated Balance Sheet as of September 30, 2021:

(In millions) Operating leasesFinance leases
2022$50 $18 
202346 18 
202442 18 
202537 18 
202631 19 
Thereafter174 166 
Total future lease payments380 257 
Imputed interest68 70 
Present value of lease liabilities$312 $187 

As of September 30, 2021, Valvoline has additional leases primarily related to its retail service center stores that have not yet commenced with approximately $101 million in undiscounted future lease payments that are not included in the table above. These leases are expected to commence over the next twelve months and generally have lease terms of 15 years.

The weighted average remaining lease terms and interest rates as of September 30, 2021 were:

Operating leasesFinance leases
Weighted average remaining lease term (in years)9.613.7
Weighted average discount rate3.98 %5.20 %
Lease Commitments LEASE COMMITMENTS
The following table presents the Company's lease balances as of September 30:

(In millions)Location in Consolidated Balance Sheets20212020
Assets
Operating lease assetsOperating lease assets$307 $261 
Finance lease assets Property, plant and equipment, net198 77 
Amortization of finance lease assetsProperty, plant and equipment, net(21)(10)
Total leased assets$484 $328 
Liabilities
Current
Operating lease liabilitiesAccrued expenses and other liabilities$38 $33 
Finance lease liabilitiesAccrued expenses and other liabilities
Noncurrent
Operating lease liabilitiesOperating lease liabilities274 231 
Finance lease liabilitiesOther noncurrent liabilities178 70 
Total lease liabilities$499 $337 

The following table presents the components of total lease costs for the years ended September 30:

(In millions)Location in Consolidated Statements of Comprehensive Income20212020
Operating lease costCost of sales and Selling, general and administrative expenses$52 $45 
Finance lease costs
Amortization of lease assets
Cost of sales (a)
11 
Interest on lease liabilitiesNet interest and other financing expenses
Variable lease cost
Cost of sales and Selling, general and administrative expenses (a)
10 
Sublease incomeEquity and other income, net(8)(6)
Total lease cost$73 $52 

Other information related to the Company's leases follows for the years ended September 30:

(In millions)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (a)
$50 $43 
Operating cash flows from finance leases$$
Financing cash flows from finance leases$$
Lease assets obtained in exchange for lease obligations:
Operating leases$83 $49 
Finance leases$118 $49 
(a)Included within the change in Other assets and liabilities within the Consolidated Statements of Cash Flows offset by noncash operating lease asset amortization and liability accretion.
The following table reconciles the undiscounted cash flows for the next five fiscal years ended September 30 and thereafter to the operating and finance lease liabilities recorded within the Consolidated Balance Sheet as of September 30, 2021:

(In millions) Operating leasesFinance leases
2022$50 $18 
202346 18 
202442 18 
202537 18 
202631 19 
Thereafter174 166 
Total future lease payments380 257 
Imputed interest68 70 
Present value of lease liabilities$312 $187 

As of September 30, 2021, Valvoline has additional leases primarily related to its retail service center stores that have not yet commenced with approximately $101 million in undiscounted future lease payments that are not included in the table above. These leases are expected to commence over the next twelve months and generally have lease terms of 15 years.

The weighted average remaining lease terms and interest rates as of September 30, 2021 were:

Operating leasesFinance leases
Weighted average remaining lease term (in years)9.613.7
Weighted average discount rate3.98 %5.20 %
v3.21.2
Equity Method Investments
12 Months Ended
Sep. 30, 2021
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments EQUITY METHOD INVESTMENTSValvoline has a strategic relationship with Cummins, Inc. (“Cummins”), a leading supplier of engines and related component products, which includes co-branding products for heavy duty consumers and a 50 percent interest in joint ventures in India, China and Argentina. Valvoline also had investments in joint ventures with other partners in Latin and North America, as well as China. Valvoline’s investments in these unconsolidated affiliates were $47 million and $44 million as of September 30, 2021 and 2020, respectively.
Undistributed earnings from affiliates accounted for under the equity method included in Valvoline’s stockholders’ equity (deficit) were $42 million and $39 million as of September 30, 2021 and 2020, respectively. Summarized financial information for Valvoline’s equity method investments follows as of and for the years ended September 30:

(In millions)20212020
Financial position
Current assets$162 $143 
Current liabilities(89)(75)
Working capital73 68 
Noncurrent assets25 26 
Noncurrent liabilities(5)(8)
Stockholders’ equity$93 $86 
(In millions)202120202019
Results of operations (a)
Sales$375 $273 $309 
Income from operations$60 $50 $59 
Net income$31 $25 $24 
(a)Includes the results of equity method investments during the Company's period of ownership.

The Company’s transactions with affiliate companies accounted for under the equity method were as follows for the years ended September 30:

(In millions)202120202019
Equity income (a)
$15 $12 $12 
Distributions received$14 $$
Royalty income (a)
$10 $$
Sales to (b)
$33 $$12 
Purchases from (b)
$14 $$
(a)Equity and royalty income from affiliates accounted for under the equity method of accounting are recognized in Equity and other income, net in the Consolidated Statements of Comprehensive Income and are primarily related to the Global Products reportable segment.
(b)Transactions with affiliates accounted for under the equity method of accounting are eliminated commensurate with Valvoline's ownership percentage until realized through sale to an independent third party.

Transactions with affiliate companies accounted for under the equity method resulted in the following balances within the Consolidated Balance Sheets as of September 30:

(In millions)20212020
Accounts receivable (a)
$13 $
Notes receivable (b)
$— $
Trade and other payables$$
(a)Included in Receivables, net within the Consolidated Balance Sheets.
(b)Included in Other noncurrent assets within the Consolidated Balance Sheets.
v3.21.2
Goodwill and Other Intangibles
12 Months Ended
Sep. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles INTANGIBLE ASSETS
Goodwill

The following summarizes the changes in the carrying amount of goodwill for each reportable segment and in total during fiscal 2021 and 2020:

(In millions)Retail ServicesGlobal ProductsTotal
Balance at September 30, 2019 (a)
$301 $129 $430 
Acquisitions
17 — 17 
Currency translation— 
Dispositions (b)
(3)— $(3)
Balance at September 30, 2020 (a)
316 129 445 
Acquisitions (c)
205 207 
Currency translation— 
Dispositions (b)
(10)— (10)
Balance at September 30, 2021$513 $131 $644 
(a)Goodwill balances as of September 30, 2019 and 2020 have been recast to conform to the current period presentation. Refer to Note 15 for further details regarding the Company's change in reportable segments during fiscal 2021.
(b)Derecognition of goodwill as a result of the sale of service center stores to franchisees, which included 12 company-owned, franchise-operated locations in fiscal 2021 and six company-owned and operated locations in fiscal 2020.
(c)Includes acquisitions within the Retail Services reportable segment of 120 service center stores and a former joint venture in the Global Products reportable segment. Refer to Note 4 for additional details.

Other intangible assets

Valvoline’s purchased intangible assets were specifically identified when acquired, have finite lives, and are reported in Goodwill and intangibles, net within the Consolidated Balance Sheets. The following summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets as of September 30:

(In millions)20212020
Gross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Definite-lived intangible assets
Trademarks and trade names $30 $(8)$22 $30 $(6)$24 
Reacquired franchise rights116 (25)91 57 (14)43 
Customer relationships 23 (9)14 22 (7)15 
Other intangible assets(2)(1)
Total definite-lived intangible assets$175 $(44)$131 $112 $(28)$84 

The table that follows summarizes amortization expense (actual and estimated) for the Company's current intangible assets for the years ended September 30:

(In millions)ActualEstimated
202120222023202420252026
Amortization expense$16 $17 $17 $16 $14 $11 
v3.21.2
Debt
12 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Debt DEBT
The following table summarizes Valvoline’s debt as of September 30:

(In millions)20212020
2031 Notes$535 $— 
2030 Notes600 600 
2025 Notes— 800 
Term Loan475 475 
Trade Receivables Facility59 88 
China Construction Facility39 18 
Debt issuance costs and discounts(14)(19)
Total debt1,694 1,962 
Current portion of long-term debt17 — 
Long-term debt$1,677 $1,962 

Senior Notes

The Company's outstanding fixed rate senior notes as of September 30, 2021 consist of 3.625% senior unsecured notes due 2031 with an aggregate principal amount of $535 million (the “2031 Notes”) and 4.250% senior unsecured notes due 2030 with an aggregate principal amount of $600 million (the “2030 Notes” and collectively with the 2031 Notes, the “Senior Notes”). The Senior Notes are subject to customary events of default for similar debt securities, which if triggered may accelerate payment of principal, premium, if any, and accrued but unpaid interest. If a change of control repurchase event occurs, Valvoline may be required to offer to purchase the Senior Notes from the holders thereof. The Senior Notes are not otherwise required to be repaid prior to maturity, although they may be redeemed at the option of Valvoline at any time prior to maturity in the manner specified in the governing indentures.

2031 and 2025 Notes

In January 2021, Valvoline issued the 2031 Notes in a private offering for net proceeds of $528 million (after deducting initial purchasers’ discounts and debt issuance costs). The net proceeds, along with cash and cash equivalents on hand, were used to redeem in full Valvoline's 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $800 million (the “2025 Notes”), including an early redemption premium of $26 million, accrued and unpaid interest, as well as related fees and expenses for an aggregate redemption price of approximately $840 million. A loss on extinguishment of the 2025 Notes of $36 million was recognized in Net interest and other financing expenses in the Consolidated Statements of Comprehensive Income during the year ended September 30, 2021, comprised of the early redemption premium and the write-off of related unamortized debt issuance costs and discounts.

2030 Notes

In February 2020, Valvoline issued the 2030 Notes in a private offering for net proceeds of $592 million (after deducting initial purchasers’ discounts and debt issuance costs). A portion of the net proceeds were used to redeem in full Valvoline's 5.500% senior unsecured notes due 2024 at the aggregate principal amount of $375 million (the “2024 Notes”), plus an early redemption premium of $15 million, accrued and unpaid interest, as well as related fees and expenses for an aggregate redemption price of $394 million. A loss on extinguishment of the 2024 Notes of $19 million was recognized in Net interest and other financing expenses in the Consolidated Statements of Comprehensive Income during the year ended September 30, 2020, comprised of the early redemption premium and the write-off of related unamortized debt issuance costs and discounts.

A portion of the net proceeds from the offering of the 2030 Notes were also utilized to prepay $100 million of indebtedness from the Company's term loan facility under the Senior Credit Agreement, with the remainder of the
net proceeds used for general corporate purposes. In response to the COVID-19 pandemic, the Company preserved the remaining proceeds during fiscal 2020 to maintain its liquidity.

Senior Credit Agreement

Key terms and conditions

The Senior Credit Agreement provides an aggregate principal amount of $1,050 million in senior secured credit facilities, comprised of (i) a five-year $575 million term loan facility (the “Term Loan”) and (ii) a five-year $475 million revolving credit facility (the “Revolver”), including a $100 million letter of credit sublimit.

The outstanding principal balance of the Term Loan is required to be repaid in quarterly installments, with the balance due at maturity in April 2024, and prepayment of the net cash proceeds due from certain events. Amounts outstanding under the Senior Credit Agreement may be prepaid at any time, and from time to time, in whole or part, without premium or penalty. At Valvoline’s option, amounts outstanding under the Senior Credit Agreement bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate fluctuates between LIBOR plus 1.375% per year and LIBOR plus 2.000% per year (or between the alternate base rate plus 0.375% per year and the alternate base rate plus 1.000% per year), based upon Valvoline’s corporate credit ratings or its consolidated net leverage ratio, whichever yields the lowest rate.

Summary of activity

As of September 30, 2021 and 2020, the Term Loan had an outstanding balance of $475 million, and there were no amounts outstanding under the Revolver. The total borrowing capacity remaining under the Revolver was $470 million as of September 30, 2021, due to a reduction of $5 million for letters of credit outstanding.

Following the Term Loan prepayment in fiscal 2020 with a portion of the proceeds from the offering of the 2030 Notes, quarterly principal payments will resume with $1 million due on June 30, 2022 and approximately $14 million due each quarter beginning with September 30, 2022 through maturity.

Trade Receivables Facility

Key terms and conditions

In April 2021, Valvoline amended its $175 million trade receivables securitization facility (the “Trade Receivables Facility”), to extend its maturity to April 2024 and modify the eligibility requirements for certain receivables. The amendment also reduced the minimum required borrowing to the lesser of (i) 33 percent of the total facility limit or (ii) the borrowing base from the availability of eligible receivables, in addition to permitting up to a 30 consecutive day annual exemption from this requirement. The Trade Receivables Facility is subject to customary default and termination provisions.

Under the Trade Receivables Facility, Valvoline sells and/or transfers a majority of its U.S. trade receivables to a wholly-owned, bankruptcy-remote subsidiary as they are originated. Advances by the lenders to that subsidiary (in the form of cash or letters of credit) are secured by its trade receivables. The assets of this financing subsidiary are restricted as collateral for the payment of its obligations under the Trade Receivables Facility, and its assets and credit are not available to satisfy the debts and obligations owed to the Company's other creditors. The Company includes the assets, liabilities and results of operations of this financing subsidiary in its consolidated financial statements.

The financing subsidiary pays customary fees to the lenders, and advances by a lender under the Trade Receivables Facility accrue interest for which the weighted average interest rates were 1.0% and 1.4% for the years ended September 30, 2021 and 2020, respectively.

Summary of activity

The Trade Receivables Facility had an outstanding balance of $59 million and $88 million as of September 30, 2021 and 2020, respectively. During fiscal 2021, Valvoline made payments of $29 million, resulting in $116 million of
borrowing capacity remaining as of September 30, 2021. The financing subsidiary owned $301 million and $267 million of outstanding accounts receivable as of September 30, 2021 and 2020, respectively, which are reported in Receivables, net in the Company’s Consolidated Balance Sheets.

China Construction Facility

In May 2020, the Company entered into a five-year credit agreement for approximately $40 million to finance the preparation of the blending and packaging plant in China for production (the “China Construction Facility”). The China Construction Facility had an outstanding balance of $39 million and $18 million as of September 30, 2021 and 2020, respectively. Borrowings bear interest at the local prime rate less the applicable interest rate margin, which was 4.35% for the years ended September 30, 2021 and 2020. The proceeds from the China Construction Facility are restricted to finance capital expenditures associated with the preparation of the blending and packaging plant in China for production at capacity, and borrowings are secured by the assets underlying the project. Borrowings are required to be repaid in semiannual installments, which total approximately $2 million in fiscal 2022, $4 million in fiscal 2023, and $7 million in fiscal 2024, with the remaining balance due in fiscal 2025.

China Working Capital Facility

In November 2020, the Company entered into a revolving credit facility with a two-year term for approximately $23 million to finance working capital needs for the blending and packaging plant in China (the “China Working Capital Facility”). Borrowings will bear interest at the local prime rate less the applicable interest rate margin with interest due monthly and repayment of borrowings due at maturity. As of September 30, 2021, the China Working Capital Facility had no outstanding borrowings, leaving its full borrowing capacity of approximately $23 million remaining.

Covenants and guarantees

The Company is required to satisfy certain covenants pursuant to its long-term borrowings. These covenants contain customary limitations, including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, and affiliate transactions. The maintenance of financial covenants as of the end of each fiscal quarter is required, as defined in the Senior Credit Agreement, including: i) a maximum net leverage ratio of 4.5, which is calculated as net debt divided by Adjusted EBITDA and ii) a minimum interest coverage ratio of 3.0, which is calculated as Adjusted EBITDA divided by net interest expense. Cross-default provisions also exist between certain debt instruments. As of September 30, 2021 and 2020, the Company was in compliance with all debt covenants.

Valvoline’s existing and future subsidiaries (other than certain immaterial subsidiaries, joint ventures, special purpose financing subsidiaries, regulated subsidiaries, non-U.S. subsidiaries and certain other subsidiaries) guarantee obligations under the Senior Credit Agreement, which is also secured by a first-priority security interest in substantially all the personal property assets and certain real property assets of Valvoline and the guarantors, including all or a portion of the equity interests of certain of Valvoline’s domestic subsidiaries and first-tier non-U.S. subsidiaries, and in certain cases, a portion of the equity interests of other non-U.S. subsidiaries. Valvoline's subsidiaries that guarantee obligations under its Senior Credit Agreement also guarantee the Senior Notes, which have not been and are not expected to be registered in exchange offers as debt securities.

Long-term debt maturities

The future maturities of debt outstanding as of September 30, 2021, excluding debt issuance costs and discounts, are as follows:
(In millions)
Years ending September 30
2022$17 
202361 
2024468 
202527 
2026— 
Thereafter1,135 
Total$1,708 
v3.21.2
Income Taxes
12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Components of income tax expense

Income tax expense consisted of the following for the years ended September 30:

(In millions)202120202019
Current
Federal
$36 $16 $10 
State14 11 
Non-U.S. 25 15 19 
75 42 34 
Deferred
Federal42 62 24 
State26 — 
Non-U.S.(2)(1)
48 92 23 
Income tax expense$123 $134 $57 
The following presents pre-tax income and the principal components of the reconciliation between the effective tax rate and the U.S. federal statutory income tax rate in effect for the years ended September 30:

(In millions)202120202019
Income before income taxes
United States$483 $399 $212 
Non-U.S.60 52 53 
Total income before income taxes$543 $451 $265 
U.S. statutory tax rate
21.0 %21.0 %21.0 %
Income taxes computed at U.S. statutory tax rate$114 $95 $56 
(Decrease) increase in amount computed resulting from:
Unrecognized tax benefits(5)
State taxes, net of federal benefit19 16 
International rate differential
Permanent items(6)(4)(3)
Remeasurement of net deferred taxes
— (4)
Return-to-provision adjustments— (2)(6)
Change in valuation allowances29 (4)
Tax Matters Agreement activity(6)(6)
Other
Income tax expense$123 $134 $57 
Effective tax rate22.7 %29.7 %21.5 %

The lower income tax expense and effective tax rate in fiscal 2021 from the prior year was principally driven by tax benefits recognized during the year as a result of audit settlements. This decrease in expense coupled with prior year income tax expense recognized to establish a $30 million valuation allowance on certain legacy tax attributes led to a lower effective tax rate in fiscal 2021.
Deferred taxes

A summary of the deferred tax assets and liabilities included in the Consolidated Balance Sheets follows as of September 30:

(In millions)20212020
Deferred tax assets
Non-U.S. net operating loss carryforwards (a)
$$
State net operating loss carryforwards (b)
18 18 
Employee benefit obligations46 79 
Compensation accruals29 26 
Credit carryforwards (c)
12 11 
Operating lease liabilities98 69 
Other23 17 
Valuation allowances (d)
(32)(30)
Net deferred tax assets196 192 
Deferred tax liabilities
Goodwill and other intangibles 16 11 
Property, plant and equipment109 75 
Operating lease assets78 67 
Undistributed earnings
Total deferred tax liabilities208 159 
Total net deferred tax (liabilities) assets (e)
$(12)$33 
(a)Gross non-U.S. net operating loss carryforwards of $7 million expire in fiscal years 2023 to 2040.
(b)Apportioned gross state net operating loss carryforwards of $361 million expire in fiscal years 2023 through 2034.
(c)Credit carryforwards consist primarily of U.S. tax credits that generally expire in fiscal years 2025 through 2036.
(d)Valuation allowances at September 30, 2021 primarily relate to state net operating loss carryforwards and certain other federal legacy tax attributes that are not expected to be realized or realizable.
(e)Balances are presented in the Consolidated Balance Sheets based on the net position of each tax jurisdiction.

Tax Matters Agreement

Background

Prior to its initial public offering (the "IPO") in September 2016, the Valvoline business operated as a wholly-owned subsidiary of Ashland Global Holdings Inc. (which together with its predecessors and consolidated subsidiaries is referred to herein as “Ashland”). In advance of the IPO, the Valvoline business and certain other legacy Ashland assets and liabilities were transferred from Ashland to Valvoline as a reorganization of entities under common Ashland control (the "Contribution"). In connection with the IPO, Ashland retained 83% of the total outstanding shares of Valvoline's co