VALVOLINE INCVVV
VALVOLINE INC Income Taxes Disclosure
INCOME TAXES
Components of income tax expense
Income tax expense consisted of the following for the years ended September 30:
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current | ||||||||||||||||||||
Federal | $ | 24.5 | $ | 34.7 | $ | 8.0 | ||||||||||||||
| State | 11.7 | 8.3 | (5.5) | |||||||||||||||||
| Non-U.S. | 3.0 | 2.6 | 1.0 | |||||||||||||||||
| 39.2 | 45.6 | 3.5 | ||||||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | 31.5 | 20.8 | 36.8 | |||||||||||||||||
| State | 5.8 | 2.7 | (3.2) | |||||||||||||||||
| Non-U.S. | 1.0 | — | — | |||||||||||||||||
| 38.3 | 23.5 | 33.6 | ||||||||||||||||||
| Income tax expense | $ | 77.5 | $ | 69.1 | $ | 37.1 | ||||||||||||||
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) | 2025 | 2024 | 2023 | |||||||||||||||||
| Income before income taxes | ||||||||||||||||||||
| United States | $ | 281.4 | $ | 286.5 | $ | 242.7 | ||||||||||||||
| Non-U.S. | 10.9 | (2.9) | (6.2) | |||||||||||||||||
| Total income before income taxes | $ | 292.3 | $ | 283.6 | $ | 236.5 | ||||||||||||||
U.S. statutory tax rate | 21 | % | 21 | % | 21 | % | ||||||||||||||
| Income taxes computed at U.S. statutory tax rate | $ | 61.4 | $ | 59.6 | $ | 49.7 | ||||||||||||||
| (Decrease) increase in amount computed resulting from: | ||||||||||||||||||||
| Unrecognized tax benefits | — | 0.1 | 0.1 | |||||||||||||||||
| State taxes, net of federal benefit | 15.0 | 9.2 | 11.2 | |||||||||||||||||
| International rate differential | 0.7 | (0.1) | 0.1 | |||||||||||||||||
| Permanent items | 1.3 | 1.7 | 0.1 | |||||||||||||||||
Remeasurement of net deferred taxes | — | (0.1) | (1.1) | |||||||||||||||||
| Return-to-provision adjustments | (0.1) | (0.7) | (0.9) | |||||||||||||||||
| Change in valuation allowances | 0.1 | (1.7) | (27.7) | |||||||||||||||||
| Tax Matters Agreement activity | (0.1) | — | 5.4 | |||||||||||||||||
| Other | (0.8) | 1.1 | 0.2 | |||||||||||||||||
| Income tax expense | $ | 77.5 | $ | 69.1 | $ | 37.1 | ||||||||||||||
| Effective tax rate | 26.5 | % | 24.4 | % | 15.7 | % | ||||||||||||||
The higher effective tax rate in fiscal 2025 primarily reflects decreases in the favorable impact of return to provision adjustments and valuation allowance activity. The higher effective tax rate in fiscal 2024 compared to fiscal 2023 reflects more normalized activity, as fiscal 2023 included a $29.0 million income tax benefit from releasing a valuation allowance under the amended tax matters agreement with Valvoline’s former parent company.
Deferred taxes
A summary of the deferred tax assets and liabilities included in the Consolidated Balance Sheets follows as of September 30:
| (In millions) | 2025 | 2024 | ||||||||||||
| Deferred tax assets | ||||||||||||||
U.S. net operating loss carryforwards | $ | 3.2 | $ | — | ||||||||||
Non-U.S. net operating loss carryforwards (a) | 0.5 | 2.9 | ||||||||||||
State net operating loss carryforwards (b) | 5.7 | 6.9 | ||||||||||||
| Employee benefit obligations | 37.6 | 33.9 | ||||||||||||
| Compensation accruals | 16.6 | 15.8 | ||||||||||||
Credit carryforwards (c) | — | 0.3 | ||||||||||||
| Operating lease liabilities | 123.3 | 107.9 | ||||||||||||
| Other | 14.5 | 10.3 | ||||||||||||
Valuation allowances (d) | (4.8) | (1.0) | ||||||||||||
| Net deferred tax assets | 196.6 | 177.0 | ||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Goodwill and other intangibles | 33.6 | 25.9 | ||||||||||||
| Property, plant and equipment | 196.0 | 154.1 | ||||||||||||
| Operating lease assets | 84.0 | 75.4 | ||||||||||||
Other | — | 0.2 | ||||||||||||
| Total deferred tax liabilities | 313.6 | 255.6 | ||||||||||||
Total net deferred tax liabilities (e) | $ | (117.0) | $ | (78.6) | ||||||||||
(a)Gross non-U.S. net operating loss carryforwards of $1.7 million expire in fiscal years 2043 to 2044.
(b)Apportioned gross state net operating loss carryforwards of $108.1 million expire in fiscal years 2029 to 2045.
(c)Credit carryforwards consist primarily of state tax credits that generally expire in fiscal years 2025 through 2032.
(d)Valuation allowances at September 30, 2025 primarily relate to nondeductible executive compensation and net operating loss carryforwards 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.
Prepaid income taxes of $22.3 million and $25.1 million are included in Prepaid expenses and other current assets within the Consolidated Balance Sheets as of September 30, 2025 and 2024, respectively.
Tax indemnities
In connection with Valvoline’s separation from Ashland Global Holdings Inc. (“Ashland”) in fiscal 2017, the Company entered into an agreement (the “Tax Matters Agreement”) with Ashland in September 2016, which provided that Valvoline indemnify Ashland for certain tax matters. Similarly, in connection with the sale of VGO in fiscal 2023, the purchase agreement provided for certain indemnities between Valvoline and VGO. Adjustments to these net indemnities are recorded within Net legacy and separation-related expenses (income), with any resulting impacts to Valvoline's stand-alone income tax provision recorded in Income tax expense within the Consolidated Statements of Comprehensive Income.
During fiscal 2023, Valvoline recognized an income tax benefit of $29.0 million in connection with releasing its valuation allowance and $25.7 million of pre-tax expense within Net legacy and separation-related expenses in the Consolidated Statement of Comprehensive Income, reflecting its increased estimated indemnity obligation under the terms of the amended Tax Matters Agreement to Ashland.
Unrecognized tax benefits
The aggregate changes in the balance of gross unrecognized tax benefits were as follows for the years ended September 30:
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Gross unrecognized tax benefits as of October 1 | $ | 33.1 | $ | 35.7 | $ | 8.2 | ||||||||||||||
| Increases related to tax positions from prior years | — | 0.1 | 0.6 | |||||||||||||||||
| Decreases related to tax positions from prior years | — | (2.1) | (0.6) | |||||||||||||||||
| Increases related to tax positions taken during the current year | — | — | 27.7 | |||||||||||||||||
| Lapses of statutes of limitation | (0.3) | (0.6) | (0.2) | |||||||||||||||||
Gross unrecognized tax benefits as of September 30 (a) | $ | 32.8 | $ | 33.1 | $ | 35.7 | ||||||||||||||
(a)These unrecognized tax benefits would favorably impact the effective income tax rate, primarily for discontinued operations, if recognized. Accruals for interest and penalties were $6.5 million and $1.8 million as of September 30, 2025 and 2024, respectively.
The Company's U.S. federal income tax returns remain open to examination from fiscal 2019 forward and Canada from fiscal 2021 and forward. Fiscal years including and after 2019 remain open to examination by certain U.S. state jurisdictions.
Because Valvoline is routinely under examination by various taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during fiscal 2026. Due to the complexity and number of open years, it is not practical to estimate the amount or range of such change at this time. Based on current information available, management does not expect a material change to the Company's gross unrecognized tax benefits within fiscal 2026.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Nov 21, 2025 | Showing above |
| 2024 | Nov 22, 2024 | |
| 2023 | Nov 20, 2023 | |
| 2021 | Nov 19, 2021 | |
| 2020 | Nov 24, 2020 | |
| 2019 | Nov 22, 2019 | |
| 2018 | Nov 21, 2018 | |
| 2017 | Nov 17, 2017 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.