VALVOLINE INC
For the period ended Sep 30, 2025. Filed Nov 21, 2025.
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FY2025 · Filed Nov 21, 2025
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Critical Accounting
CRITICAL ACCOUNTING ESTIMATES
The preparation of Valvoline’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and the disclosures of contingent matters. Significant items that are subject to such estimates and assumptions include, but are not limited to, employee benefit obligations, business combinations, and income taxes.
Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions. Valvoline’s significant accounting policies are discussed in Note 2 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. The Company believes the accounting estimates listed below are the most critical to aid in fully understanding and evaluating the reported financial results, and require the most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain.
Employee benefit obligations
| Description | Judgments and uncertainties | Effect if actual results differ from assumptions |
|---|---|---|
| Valvoline sponsors defined benefit pension and other postretirement plans in the U.S. As of September 30, 2025, Valvoline’s net unfunded pension and other postretirement plan liabilities included in the Consolidated Balance Sheet totaled $151.7 million. Total pension and other postretirement net periodic benefit income recognized in fiscal 2025 was $23.6 million, inclusive of a $26.6 million remeasurement loss. Valvoline recognizes the change in the fair value of plan assets and the net actuarial gains and losses calculated using updated actuarial assumptions as of the measurement date, which for Valvoline is September 30, and when a plan qualifies for an interim remeasurement. Refer to Note 10 of the Notes to Consolidated Financial Statements included in Item 8 for Part II of this Annual Report on Form 10-K for additional information regarding the Company’s pension and other postretirement plans. | The Company’s pension and other postretirement benefit costs and obligations are dependent on actuarial valuations and various assumptions that attempt to anticipate future events and are used in calculating the expense and liabilities relating to these plans. These assumptions include estimates and judgments the Company makes about discount rates and mortality, among others. Significant assumptions the Company must review and set annually and at each measurement date related to its pension and other postretirement benefit obligations are described further below.The fair value of plan assets represents the current market value of assets held by irrevocable trust funds for the sole benefit of participants. Valvoline’s pension plans hold a variety of investments designed to diversify risk. Plan assets are invested in equity securities, government and agency securities, corporate debt, and other non-traditional assets such as hedge funds. The pension plan assets are subject to valuation risk and generated an actual weighted-average return of 2.65% in fiscal 2025 primarily driven by the market performance of the plan assets of the qualified pension plans based on the Company’s investment strategy to hedge the movement in liabilities related to changes in discount rates with investments of a matched duration that provide offsetting returns aligned with changes in interest rates. Target asset allocation percentages as of September 30, 2025 for the qualified pension plans were 90% fixed income and 10% equity investments. The qualified pension plans are managed by professional investment managers that operate under investment management contracts that include specific investment guidelines, requiring among other actions, adequate diversification and prudent use of risk management practices such as portfolio constraints relating to established benchmarks. | Though management considers current market conditions and other relevant factors in establishing these assumptions and year-end values, the actuarial assumptions used and ultimate asset values may differ materially from current results due to changing market and economic conditions, longer or shorter life spans of participants, and differences between the actual long-term return on plan assets. These differences may result in a significant impact to the amount of pension or other postretirement benefits cost recorded or that may be recorded. Changes in assumptions or asset values may have a significant effect on the measurement of expense or income. |
Actuarial assumptions
Significant assumptions the Company must review and set annually and at each measurement date related to its pension and other postretirement benefit obligations are:
Discount rate— Reflects the rates at which benefits could effectively be settled and is based on current investment yields of high-quality corporate bonds. Consistent with historical practice, the Company uses an actuarially-developed full yield curve approach, the above mean yield curve, to match the timing of cash flows of expected future benefit payments from the plans by applying specific spot rates along the yield curve to determine the assumed discount rate. Valvoline’s fiscal 2025 expense, excluding actuarial gains and losses, for pension plans was determined using the spot discount rates as of the beginning of the fiscal year. The interest cost discount rates for fiscal 2025 pension and other postretirement plans were 4.65% and 4.63%, respectively. The weighted-average discount rate at the end of fiscal 2025 was 5.22% for the pension plans and 5.14% for the postretirement health and life plans.
The following table illustrates the estimated impact on hypothetical pension and other postretirement expense that would have resulted from a one percentage point change in discount rates in isolation of impacts on other significant assumptions in the years ended September 30:
| (In millions) · 2025 · 2024 | |||
|---|---|---|---|
| Increase (decrease) in pension and other postretirement plan expense - 1.00% decrease in discount rates: | |||
| Pension benefits | |||
| Increase in benefit obligation | $129.8 | $142.6 | |
| Increased return on plan assets (a) | (125.8) | (138.0) | |
| Estimated hypothetical increase in expense | 4.0 | 4.6 | |
| Other postretirement benefits | |||
| Increase in benefit obligation | 1.7 | 1.9 | |
| Total estimated hypothetical increase in expense | $5.7 | $6.5 | |
| (a) | The qualified pension plans employ an investing strategy to match the duration of its obligation and investments. These plans represent approximately 96% and 95% of Valvoline’s total gross pension plan obligation as of September 30, 2025 and 2024, respectively. This strategy hedges approximately 100% of the movement in liabilities related to changes in discount rates as of September 30, 2025 and 2024. Therefore, when discount rates change, asset returns generally mirror the impacts, minimizing the net impact to the consolidated financial statements. This estimated impact does not include increased returns of other plan assets that may also benefit from increased interest rates. | ||
Mortality — The mortality assumption for Valvoline's pension and other postretirement plans utilizes the Society of Actuaries PRI-2012 mortality base tables and a mortality improvement scale that follows the 2025 Trustees Report of the Social Security Administration Intermediate Alternative as reflected in the MSS-2025 improvement scale. Valvoline believes the updated mortality improvement scale provides a reasonable assessment of current mortality trends and an appropriate estimate of future mortality projections.
Other assumptions, including the healthcare cost trend rate, do not have a significant impact on Valvoline's pension and other postretirement benefit plan costs and obligations based upon current plan provisions that have generally frozen benefits and limited costs.
Business combinations and intangible assets
| Description | Judgments and uncertainties | Effect if actual results differ from assumptions |
|---|---|---|
| The Company completed multiple acquisitions during fiscal 2025 for an aggregate purchase price of $65.5 million. These acquisitions included 33 service center stores comprised of six former franchise and three former Express Care locations that were converted to company-operated service center stores and 24 service center stores acquired in single and multi-store transactions. The Company also acquired NuWash, Inc. (doing business as NuBrakes), which offers mobile automotive maintenance services including brake repair. The Company allocates the purchase price of an acquired business to its identifiable assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill or if the fair value of the assets acquired and liabilities assumed exceed the purchase price consideration, a bargain purchase gain is recorded.Goodwill is tested at the reporting unit level for impairment on an annual basis during the fourth fiscal quarter as of July 1 or more frequently if certain events occur indicating that the carrying value of goodwill may be impaired. At the time of the Company’s annual impairment assessment, Valvoline consisted of a singular reporting unit, Retail Services. The Company’s gross amortizable intangible assets and accumulated amortization were $173.9 million and $91.4 million, respectively, as of September 30, 2025. Other intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Various factors are considered in determining whether a trigger requiring impairment assessment has occurred, such as, but not limited to, changes in the expected use of the assets, technology or development of alternative assets, economic conditions, operating performance, and expected future cash flows. | Purchase price allocations contain uncertainties because they require management to make significant estimates and assumptions and to apply judgment to estimate the fair value of assets acquired and liabilities assumed, particularly with respect to intangible assets.Management estimates the fair value of assets acquired and liabilities assumed based on quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses.Critical estimates in valuing intangible assets include, but are not limited to, estimates about: expected future cash flows from customers, including revenue and operating expenses; royalty and customer attrition rates; proprietary technology obsolescence curve; the acquired company's brand awareness and market position; the market awareness of the acquired company's branded technology solutions and services; assumptions about the period of time the brands will continue to be valuable; as well as discount rates. The Company's estimates of fair value are based upon reasonable assumptions, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. | If actual results are materially different than the assumptions used to determine fair value of the assets acquired and liabilities assumed through a business combination, or the useful lives of the acquired intangible assets, it is possible that adjustments to the carrying values of such assets and liabilities will have a material impact on the Company's financial position and results of operations. Furthermore, if actual results are not consistent with estimates or assumptions, the Company may be exposed to an impairment charge that could materially adversely impact its consolidated financial position and results of operations.There were no impairments to intangible assets recognized by the Company during fiscal 2025 or 2024. Valvoline elected to perform a qualitative impairment assessment of goodwill in 2025, which indicated that it was more likely than not that the fair value of the reporting unit was in excess of the carrying amount. Though no qualitative factors were present that indicated the existence of a potential impairment, Valvoline performed a quantitative assessment during fiscal 2024 and determined that its reporting unit had a fair value that was in excess of its carrying value. |
Income taxes
| Description | Judgments and uncertainties | Effect if actual results differ from assumptions |
|---|---|---|
| Valvoline is subject to income taxes in the United States and international jurisdictions where its businesses operate. The provision for income taxes includes current income taxes as well as deferred income taxes. Under U.S. GAAP, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the deferred assets or liabilities are expected to be settled or realized. The effect of changes in tax rates on deferred taxes is recognized in the period in which such changes are enacted. Once the consolidated income tax provision is computed, the tax effect of pre-tax income is determined without consideration of the current year pre-tax income or loss from other financial statement components, including discontinued operations. The portion of total income tax that remains after the attribution of tax to continuing operations is allocated to the remaining components. The separation from Global Products resulted in a pre-tax gain of $1.572 billion during fiscal 2023 and related income tax expense recognized to-date of $419.1 million which includes federal, state, and international considerations for the jurisdictions where the proceeds were allocated and the respective tax bases of the net assets transferred. In connection with completing separation transactions, both from Valvoline’s former parent company and the sale of Global Products, the parties generally indemnify one another for various tax matters between the businesses. | Judgment in forecasting taxable income using historical and projected future operating results is required in determining Valvoline’s provision for income taxes and the related assets and liabilities. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is based on the evaluation of positive and negative evidence, which includes historical profitability, future market growth, future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company assesses deferred taxes and the adequacy or need for a valuation allowance on a quarterly basis. The Company is subject to ongoing tax examinations and assessments in various jurisdictions. At any time, multiple tax years are subject to audit by the various tax authorities and a number of years may elapse before a particular matter, for which a liability has been established, is audited and fully resolved or clarified. In evaluating the exposures associated with various tax filing positions, the Company may record liabilities for such exposures. Valvoline generally adjusts its liabilities for unrecognized tax benefits and related indemnification obligations through earnings in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available. Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and may materially increase or decrease the effective tax rate, as well as impact the Company’s operating results.Income tax impacts associated with the gain on the sale of Global Products were complex and included a high degree of judgment due to the pre-sale restructuring transactions completed to facilitate the sale in addition to the large volume of federal, state, and international jurisdictions that were required to be evaluated.Indemnifications among parties regarding tax matters require judgment in determining the timing and measurement of related receivables and payables to resolve these obligations. | If the Company is unable to generate sufficient future taxable income, there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then Valvoline could be required to increase the valuation allowance against deferred tax assets, resulting in an increase in income tax expense and the effective tax rate. Adjustments to indemnifications impact pre-tax results and are not directly related to the ongoing business. These adjustments may also affect the income tax provision of the continuing operation dependent on the nature of the underlying issue.Each income tax expense change of $2.9 million would impact the fiscal 2025 effective tax rates for continuing operations and the consolidated business by one percentage point. |
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