Valvoline Reports Second-Quarter Fiscal 2018 Results

For the quarter, Valvoline Instant Oil Change (VIOC) delivers system-wide same-store sales (SSS) growth of 9.6 percent, Core North America premium mix increases 320 basis points and International volume, including unconsolidated joint ventures, grows 3 percent

  • Reported net income of $67 million and earnings per diluted share (EPS) of $0.33
  • Adjusted EPS of $0.34 and a 6 percent increase in adjusted EBITDA to $122 million
  • Lubricant volume growth of 1 percent to 45.5 million gallons
  • VIOC system-wide SSS growth of 9.6 percent
  • Repurchased 3.7 million shares for $87 million
  • Narrows adjusted EBITDA guidance to $480 to $490 million

LEXINGTON, Ky. - (BUSINESS WIRE) - May 02, 2018 - Valvoline Inc. (NYSE: VVV), a leading supplier of premium branded lubricants and automotive services, today reported financial results for its second fiscal quarter ended March 31, 2018.

Reported second-quarter 2018 net income and EPS were $67 million and $0.33, respectively. These results included after-tax income of $7 million ($0.03 per diluted share) related to non-service pension and other post-employment benefit (OPEB) income and after-tax expenses of $6 million ($0.03 per diluted share) for legacy and other separation-related costs and $2 million ($0.01 per diluted share) related to U.S. tax reform.

Reported second-quarter 2017 net income and EPS were $71 million and $0.35, respectively, which included after-tax income of $10 million ($0.05 per diluted share) related to non-service pension and OPEB income and after-tax expenses of $4 million ($0.02 per diluted share) for legacy and other separation-related costs.

Adjusted second-quarter 2018 net income and adjusted EPS, excluding the impact of tax reform, pension income and legacy and other separation-related costs, were $68 million and $0.34, respectively, compared to adjusted net income of $65 million and adjusted EPS of $0.32 in the prior year period. (See Table 7 for reconciliation of adjusted net income and adjusted EPS.)

Second-quarter results were driven by the ongoing strength of SSS in VIOC and strong margin and joint venture performance in International, which were partially offset by weaker Core North America branded volumes and margin. Adjusted EBITDA of $122 million grew 6 percent compared to the prior year period.

"Overall performance in the second quarter was in line with our expectations," said Chief Executive Officer Sam Mitchell. "The benefit of our multi-channel model was evident in the quarter with strong performance in Quick Lubes and International, offsetting results in Core North America where short-term margin pressure negatively impacted profitability.

"In keeping with our capital allocation framework, we returned $102 million of cash to shareholders through dividends and share repurchases during the quarter."

Operating Segment Results for the Second Quarter

Core North America

  • Lubricant volume was flat at 24.6 million gallons
  • Branded premium mix increased 320 basis points to 49.7%
  • Operating income declined 19% to $46 million, EBITDA declined 17% to $50 million

Core North America's total lubricant volume was flat in the quarter, resulting from gains in non-branded volume, offset by a modest decline in branded volume. The decline in branded volume was in the DIY channel.

Branded premium mix continued to improve, increasing by 320 basis points to 49.7 percent. Benefits of premium mix and pricing actions were offset by transitory items, including the timing of promotional expenses, costs related to the transition to new packaging and negative price-cost lag. These factors, combined with unfavorable channel mix, led to the decline in segment profitability.

Valvoline expects volume growth, favorable mix and normalized expenses to drive improved Core North America performance in the second half of the year.

Quick Lubes

  • VIOC SSS increased 9.6% overall, 11.2% for company-owned stores and 8.5% for franchised stores
  • Operating income grew 23% to $38 million and EBITDA grew 28% to $46 million
  • VIOC ended the quarter with 1,141 total stores, a net increase of 2 during the period and 33 over the prior year

The Quick Lubes operating segment, a key growth engine for the company, had an exceptional quarter. Growth in SSS was the result of both increased transactions and average ticket. Transactions benefited from the strength of VIOC's ongoing customer acquisition and retention programs, while pricing and record premium mix in the quarter were the primary drivers of improvements in average ticket.

Sales and segment EBITDA growth were driven by increased SSS and the addition of 33 net new stores as compared to the prior year, as well as the acquisition of 56 franchise locations in the first quarter.

International

  • Lubricant volume grew 1% to 15.0 million gallons, 3% including unconsolidated joint ventures
  • Lubricant volume from unconsolidated joint ventures grew 5%, to 9.6 million gallons
  • Operating income grew 33% to $24 million, EBITDA grew 37% to $26 million

International segment EBITDA grew $7 million in the quarter, with $5 million resulting from pricing actions, improved margins and strong performance from our joint ventures in India and China, along with a $2 million benefit from foreign exchange.

Volume grew modestly compared to strong volume in the prior year period, although less than the company's long-term growth expectations. Valvoline anticipates stronger second-half volume, leading to mid-single digit volume growth for the full year.

Balance Sheet and Cash Flow

  • Total debt of approximately $1.2 billion and net debt of approximately $1.1 billion
  • Year-to-date cash flow from operations of $108 million and free cash flow of $78 million
  • Repurchased 3.7 million shares for $87 million in the second quarter

The $38 million increase in year-to-date cash flow from operations versus the prior period was primarily driven by lower cash tax payments.

Corporate Developments

Valvoline today announced plans to build its first packaging and blending plant in China, as part of its strategy to accelerate growth across key markets where demand for premium lubricants is growing. The approximate $70 million investment will create a more efficient and effective local supply chain and enable faster-to-market new products and packaging to help meet the growing demand for premium lubricants and coolants in China. Valvoline expects the plant to begin production by the end of calendar 2020 with annual capacity in excess of 30 million gallons of lubricants.

Fiscal 2018 Outlook

"We anticipate strong volume and SSS growth in the second half," Mitchell said. "We are narrowing our fiscal 2018 adjusted EBITDA guidance to $480 to $490 million, which reflects the modest negative impact of the current raw material cost environment.

"We expect our Quick Lubes and International businesses to continue their momentum, and we have initiatives in place which we believe will drive improved results in Core North America."

Fiscal 2018 updated full-year expectations:

                                                                                               
                                                                         

          Updated          

                 

          Prior          

                                                                         

          Outlook          

                 

          Outlook          

Operating Segments                                                                                              
Lubricant gallons                                                                         no change                   3-4%
Revenues                                                                         no change                   10-12%
New stores                                                                                              
VIOC company-owned (excluding franchise conversions)                                                                         no change                   23-25
VIOC franchised (excluding franchise conversions)                                                                         no change                   25-35
VIOC same-store sales                                                                         6.5-7.5%                   5-7%
Adjusted EBITDA (excluding pension & OPEB income)                                                                         $480-$490 million                   $480-$500 million
Corporate Items                                                                                              
Pension & OPEB income (excluding remeasurements)                                                                         no change                   $40 million
Adjusted effective tax rate                                                                         no change                   27-28%
Diluted adjusted EPS (excluding pension & OPEB income)                                                                         $1.31-$1.38                   $1.30-$1.38
Capital expenditures                                                                         $85-$95 million                   $80-$90 million
Free cash flow                                                                         $260-$280 million                   $260-$290 million
                                                                                               

Valvoline's outlook for adjusted EBITDA, diluted adjusted EPS and the adjusted effective tax rate are non-GAAP financial measures that exclude or will otherwise be adjusted for items impacting comparability. Valvoline is unable to reconcile these forward-looking non-GAAP financial measures to GAAP net income and diluted EPS without unreasonable efforts, as the company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP net income and diluted EPS in 2018 but would not impact non-GAAP adjusted results.

Conference Call Webcast

Valvoline will host a live audio webcast of its second-quarter fiscal 2018 conference call at 9 a.m. ET on Thursday, May 3, 2018. The webcast and supporting materials will be accessible through Valvoline's website at http://investors.valvoline.com. Following the live event, an archived version of the webcast and supporting materials will be available for 12 months.

Basis of Presentation

For periods following Valvoline's initial public offering in September 2016, various assets and liabilities were transferred to Valvoline from its former parent company, Ashland Global Holdings Inc. ("Ashland"), and Valvoline operated as a stand-alone business with arms-length transition service agreements with Ashland. On May 12, 2017, Ashland distributed its remaining interest in Valvoline to Ashland shareholders, completing Valvoline's separation from Ashland (the "Separation").

Valvoline's consolidated and segment results for periods prior to the Separation are not necessarily indicative of the company's future performance and do not reflect what the company's financial performance would have been had it been an independent public company during the period presented.

Additionally, certain prior-year amounts have been reclassified to conform to current-year presentation. In particular, Valvoline early adopted new accounting guidance, effective for fiscal 2018, which reclassifies non-service pension and OPEB income as non-operating income.

Use of Non-GAAP Measures

To aid in the understanding of Valvoline's ongoing business performance, certain items within this news release are presented on an adjusted basis. These non-GAAP measures, presented on both a consolidated and operating segment basis, which are not defined within U.S. GAAP and do not purport to be alternatives to net income/loss, earnings/loss per share or cash flows from operating activities as a measure of operating performance or cash flows. For a reconciliation of non-GAAP measures, refer to Tables 4, 7, 8 and 9 of this news release.

The following are the non-GAAP measures management has included and how management defines them:

  • EBITDA, which management defines as net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and depreciation and amortization;
  • Adjusted EBITDA, which management defines as EBITDA adjusted for certain non-operational items, including net pension and other postretirement plan non-service income and remeasurement adjustments; impairment of equity investment; and other items (which can include costs related to the separation from Ashland, impact of significant acquisitions or divestitures, restructuring costs, or other non-operational income/costs not directly attributable to the underlying business);
  • Free cash flow, which management defines as operating cash flows less capital expenditures and certain other adjustments as applicable;
  • Adjusted net income, which management defines as net income/loss adjusted for certain key items impacting comparability as noted in the definition of Adjusted EBITDA, above, as well as the estimated net impact of the enactment of tax reform; and
  • Adjusted EPS, which management defines as earnings per diluted share calculated using adjusted net income.

These measures are not prepared in accordance with U.S. GAAP, and contain management’s best estimates of cost allocations and shared resource costs. Management believes the use of non-GAAP measures on a consolidated and operating segment basis assists investors in understanding the ongoing operating performance of Valvoline’s business by presenting comparable financial results between periods. The non-GAAP information provided is used by Valvoline’s management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income, and Adjusted EPS. These non-GAAP measures provide a supplemental presentation of Valvoline’s operating performance.

Adjusted EBITDA, Adjusted net income, and Adjusted EPS generally include adjustments for unusual, non-operational or restructuring-related activities, which impact the comparability of results between periods. Management believes these non-GAAP measures provide investors with a meaningful supplemental presentation of Valvoline’s operating performance. These measures include adjustments for net pension and other postretirement plan non-service income and remeasurement adjustments, which includes several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets, as well as those that are predominantly legacy in nature and related to prior service to the Company from employees (e.g., retirees, former employees, current employees with frozen benefits). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) actuarial gains/losses, and (iv) amortization of prior service cost. Significant factors that can contribute to changes in these elements include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets, and other changes in actuarial assumptions, such as the life expectancy of plan participants. Accordingly, management considers that these elements are more reflective of changes in current conditions in global financial markets (in particular, interest rates) and are outside the operational performance of the business and are also primarily legacy amounts that are not directly related to the underlying business and do not have an immediate, corresponding impact on the compensation and benefits provided to eligible employees for current service. These measures will continue to include pension and other postretirement service costs related to current employee service as well as the costs of other benefits provided to employees for current service.

Management uses free cash flow as an additional non-GAAP metric of cash flow generation. By deducting capital expenditures and certain other adjustments, as applicable, management is able to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Unlike cash flow from operating activities, free cash flow includes the impact of capital expenditures, providing a more complete picture of cash generation. Free cash flow has certain limitations, including that it does not reflect adjustments for certain non-discretionary cash flows, such as mandatory debt repayments. The amount of mandatory versus discretionary expenditures can vary significantly between periods.

Valvoline’s results of operations are presented based on Valvoline’s management structure and internal accounting practices. The structure and practices are specific to Valvoline; therefore, Valvoline’s financial results, EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted EPS are not necessarily comparable with similar information for other comparable companies. EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted EPS each have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, or more meaningful than, net income and cash flows from operating activities as determined in accordance with U.S. GAAP. Because of these limitations, you should rely primarily on net income and cash flows provided from operating activities as determined in accordance with U.S. GAAP and use EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted EPS only as supplements. In evaluating EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted EPS, you should be aware that in the future Valvoline may incur expenses/income similar to those for which adjustments are made in calculating EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted EPS. Valvoline’s presentation of EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted EPS should not be construed as a basis to infer that Valvoline’s future results will be unaffected by unusual or nonrecurring items.

About ValvolineTM

Valvoline Inc. (NYSE: VVV) is a leading worldwide marketer and supplier of premium branded lubricants and automotive services, with sales in more than 140 countries. Established in 1866, Valvoline's heritage spans over 150 years, during which it has developed powerful brand recognition across multiple product and service channels. The highly trusted brand ranks as the No. 3 passenger car motor oil brand in the DIY market by volume and the No. 2 quick-lube chain by number of stores in the United States. The company operates and franchises more than 1,100 Valvoline Instant Oil ChangeSM centers in the United States. It also markets Valvoline lubricants and automotive chemicals, including the new ValvolineTM Modern Engine Full Synthetic Motor Oil, which is specifically engineered to protect against carbon build-up in Gasoline Direct Injection (GDI), turbo and other engines manufactured since 2012; Valvoline High Mileage with MaxLife technology motor oil for engines over 75,000 miles; Valvoline Synthetic motor oil; and ZerexTM antifreeze. To learn more, visit www.valvoline.com.

Forward-Looking Statements

Certain statements in this news release, other than statements of historical fact, including estimates, projections, statements related to Valvoline's business plans and operating results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Valvoline has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should” and “intends” and the negative of these words or other comparable terminology. These forward-looking statements are based on Valvoline’s current expectations, estimates, projections and assumptions as of the date such statements are made, and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. Additional information regarding these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Valvoline's most recently filed periodic reports on Forms 10-K and Form 10-Q, which are available on Valvoline’s website at http://investors.valvoline.com/sec-filings. Valvoline assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

TMTrademark, Valvoline or its subsidiaries, registered in various countries
SMService mark, Valvoline or its subsidiaries, registered in various countries

   
Valvoline Inc. and Consolidated Subsidiaries Table 1
STATEMENTS OF CONSOLIDATED INCOME
(In millions except per share data - preliminary and unaudited)
                   
      Three months ended   Six months ended
      March 31   March 31
     

      2018      

 

      2017      

 

      2018      

 

       2017       

Sales   $ 569     $ 514     $ 1,114     $ 1,003  
Cost of sales   362     316     712     620  
GROSS PROFIT   207     198     402     383  
Selling, general and administrative expenses   111     97     218     192  
Legacy and separation-related expenses, net   8     6     17     12  
Equity and other income   (12 )   (5 )   (21 )   (15 )
OPERATING INCOME   100     100     188     194  
Net pension and other postretirement plan non-service income and remeasurement adjustments   (10 )   (17 )   (20 )   (43 )
Net interest and other financing expenses   16     8     30     18  
INCOME BEFORE INCOME TAXES   94     109     178     219  
Income tax expense   27     38     121     76  
NET INCOME   $ 67     $ 71     $ 57     $ 143  
                   
NET EARNINGS PER SHARE                
BASIC   $ 0.33     $ 0.35     $ 0.28     $ 0.70  
DILUTED   $ 0.33     $ 0.35     $ 0.28     $ 0.70  
                   
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING            
BASIC   200     205     201     205  
DILUTED   200     205     202     205  
                         

 

 

Valvoline Inc. and Consolidated Subsidiaries

Table 2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - preliminary and unaudited)
                         

       March 31       

   

  September 30  

                          2018     2017
ASSETS                          
  Current assets                          
    Cash and cash equivalents                   $ 127       $ 201  
    Accounts receivable, net                   435       385  
    Inventories, net                   194       175  
    Other current assets                   39       29  
  Total current assets                   795       790  
                                 
  Noncurrent assets                          
    Property, plant and equipment, net                   390       391  
    Goodwill and intangibles, net                   396       335  
    Equity method investments                   34       30  
    Deferred income taxes                   171       281  
    Other noncurrent assets                   83       88  
  Total noncurrent assets                   1,074       1,125  
                                 
  Total assets                   $ 1,869       $ 1,915  
                                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                          
  Current liabilities                          
    Short-term debt                   $       $ 75  
    Current portion of long-term debt                   23       15  
    Trade and other payables                   194       192  
    Accrued expenses and other liabilities                   198       196  
  Total current liabilities                   415       478  
                                 
  Noncurrent liabilities                          
    Long-term debt                   1,183       1,034  
    Employee benefit obligations                   316       342  
    Other noncurrent liabilities                   181       178  
  Total noncurrent liabilities                   1,680       1,554  
                                 
  Stockholders’ deficit                   (226 )     (117 )
                                 
  Total liabilities and stockholders' deficit                   $ 1,869       $ 1,915  
                                     

 

     
Valvoline Inc. and Consolidated Subsidiaries   Table 3
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - preliminary and unaudited)
 
              Six months ended
              March 31
             

        2018        

   

        2017        

CASH FLOWS FROM OPERATING ACTIVITIES                
  Net income         $ 57       $ 143  
  Adjustments to reconcile net income to cash flows from operating activities                
    Depreciation and amortization         25       18  
    Debt issuance cost and discount amortization         1       2  
    Deferred income taxes         65        
    Equity income from affiliates         (9 )     (7 )
    Distributions from equity affiliates         5       3  
    Pension contributions         (9 )     (10 )
    Gain on pension and other postretirement plan remeasurements               (8 )
    Gain on sale of assets         (4 )      
    Foreign currency exchange loss         1        
    Stock-based compensation expense         7       3  
    Change in operating assets and liabilities (a)         (31 )     (74 )
Total cash provided by operating activities         108       70  
                     
CASH FLOWS FROM INVESTING ACTIVITIES                
  Additions to property, plant and equipment         (30 )     (27 )
  Acquisitions, net of cash acquired         (67 )     (48 )
  Proceeds from sale of operations         5        
  Other investing activities, net         1       (1 )
Total cash used in investing activities         (91 )     (76 )
                     
CASH FLOWS FROM FINANCING ACTIVITIES                
  Net transfers to Ashland               (2 )
  Proceeds from borrowings, net of issuance costs         95       75  
  Repayments on borrowings         (15 )     (83 )
  Repurchases of common stock         (123 )      
  Purchase of additional ownership in subsidiary         (15 )      
  Cash dividends paid         (30 )     (20 )
  Other financing activities         (5 )      
Total cash used in financing activities         (93 )     (30 )
  Effect of currency exchange rate changes on cash and cash equivalents         2       (1 )
DECREASE IN CASH AND CASH EQUIVALENTS         (74 )     (37 )
Cash and cash equivalents - beginning of period         201       172  
CASH AND CASH EQUIVALENTS - END OF PERIOD         $ 127       $ 135  

(a)

 

Excludes changes resulting from operations acquired or sold.

     

 

         
Valvoline Inc. and Consolidated Subsidiaries Table 4
FINANCIAL INFORMATION BY OPERATING SEGMENT
(In millions - preliminary and unaudited)
 
    Three months ended
    March 31
    2018   2017
        Operating   Depreciation           Operating   Depreciation    
        income   and           income   and    
    Sales   (loss)   amortization   EBITDA   Sales   (loss)   amortization   EBITDA
Core North America   $ 258     $ 46     $ 4     $ 50     $ 253     $ 57     $ 3     $ 60  
Quick Lubes   158     38     8     46     128     31     5     36  
International   153     24     2     26     133     18     1     19  
Total operating segments   569     108     14     122     514     106     9     115  
Unallocated and other (a)       (8 )       2         (6 )       11  
Total results   569     100     14     124     514     100     9     126  
Key items:                                
Pension and other postretirement plan non-service income               (10 )               (17 )
Legacy and separation-related expenses, net       8         8         6         6  
Adjusted results   $ 569     $ 108     $ 14     $ 122     $ 514     $ 106     $ 9     $ 115  
                                 
    Six months ended
    March 31
    2018   2017
        Operating   Depreciation           Operating   Depreciation    
        income   and           income   and    
    Sales   (loss)   amortization   EBITDA   Sales   (loss)   amortization   EBITDA
Core North America   $ 509     $ 89     $ 8     $ 97     $ 490     $ 108     $ 6     $ 114  
Quick Lubes   312     73     14     87     255     60     10     70  
International   293     43     3     46     258     38     2     40  
Total operating segments   1,114     205     25     230     1,003     206     18     224  
Unallocated and other (a)       (17 )       3         (12 )       31  
Total results   1,114     188     25     233     1,003     194     18     255  
Key items:                                
Pension and other postretirement plan non-service income               (20 )               (35 )
Legacy and separation-related expenses, net       17         17         12         12  
Gain on pension and other postretirement plan remeasurements                               (8 )
Adjusted results   $ 1,114     $ 205     $ 25     $ 230     $ 1,003     $ 206     $ 18     $ 224  

(a)

 

Unallocated and other includes pension and other postretirement plan non-service income and remeasurement adjustments, separation costs and certain other corporate and non-operational costs.

     

 

   
Valvoline Inc. and Consolidated Subsidiaries Table 5
INFORMATION BY OPERATING SEGMENT
(In millions - preliminary and unaudited)
                     
        Three months ended   Six months ended
        March 31   March 31
       

   2018   

 

   2017   

 

   2018   

 

   2017   

CORE NORTH AMERICA                
  Lubricant sales (gallons)   24.6     24.6     48.4     48.7  
  Premium lubricants (percent of U.S. branded volumes)   49.7 %   46.5 %   48.8 %   45.2 %
  Gross profit as a percent of sales (a)   37.6 %   42.2 %   37.7 %   41.6 %
QUICK LUBES                
  Lubricant sales (gallons)   5.9     5.5     11.6     10.8  
  Premium lubricants (percent of U.S. branded volumes)   62.2 %   59.5 %   61.8 %   59.1 %
  Gross profit as a percent of sales (a)   40.1 %   39.7 %   40.3 %   39.9 %
  Valvoline operated same-store sales   11.2 %   2.1 %   9.6 %   5.7 %
  Franchised same-store sales   8.5 %   4.7 %   8.3 %   6.7 %
INTERNATIONAL                
  Lubricant sales (gallons) (b)   15.0     14.9     29.3     28.6  
  Lubricant sales (gallons), including unconsolidated joint ventures   24.6     24.0     49.7     47.0  
  Premium lubricants (percent of lubricant volumes)   26.3 %   26.6 %   27.0 %   27.0 %
  Gross profit as a percent of sales (a)   29.6 %   30.5 %   28.9 %   30.6 %

(a)

 

Gross profit as a percent of sales is defined as sales, less cost of sales, divided by sales.

(b)

 

Excludes volumes from unconsolidated joint ventures.

     

 

             
Valvoline Inc. and Consolidated Subsidiaries Table 6
QUICK LUBES STORE INFORMATION
(Preliminary and unaudited)
                     
            Company-owned
            Second   First   Fourth   Third   Second
           

   Quarter   

 

   Quarter   

 

   Quarter   

 

   Quarter   

 

   Quarter   

            2018   2018   2017   2017   2017
                             
  Beginning of period       442     384     383     374     347  
    Opened           2     2     1      
    Acquired       2         1         28  
    Net conversions between company-owned and franchise       1     56         9      
    Closed               (2 )   (1 )   (1 )
  End of period       445     442     384     383     374  
                             
          Franchise
            Second   First   Fourth   Third   Second
            Quarter   Quarter   Quarter   Quarter   Quarter
            2018   2018   2017   2017   2017
                             
  Beginning of period       697     743     730     734     729  
    Opened       2     11     15     6     7  
    Acquired                        
    Net conversions between company-owned and franchise       (1 )   (56 )       (9 )    
    Closed       (2 )   (1 )   (2 )   (1 )   (2 )
  End of period       696     697     743     730     734  
                             
  Total VIOC Stores       1,141     1,139     1,127     1,113     1,108  
                             
            Express Care
            Second   First   Fourth   Third   Second
            Quarter   Quarter   Quarter   Quarter   Quarter
            2018   2018   2017   2017   2017
                             
  Number of locations at end of period       323     320     316     316     313  
                                     

 

                     
Valvoline Inc. and Consolidated Subsidiaries Table 7
RECONCILIATION OF NON-GAAP DATA - NET INCOME AND DILUTED EARNINGS PER SHARE
(In millions, except per share data - preliminary and unaudited)
                         
            Three months ended  

   Six months ended   

            March 31   March 31
           

   2018   

  2017  

   2018   

  2017
                         
Reported net income       $ 67     $ 71     $ 57     $ 143  
  Adjustments:                    
    Pension and other postretirement plan non-service income       (10 )   (17 )   (20 )   (35 )
    Legacy and separation-related expenses, net       8     6     17     12  
    Gain on pension and other postretirement plan remeasurements                   (8 )
  Total adjustments, pre-tax       (2 )   (11 )   (3 )   (31 )
    Income tax expense of adjustments       1     5         13  
    U.S. tax reform legislation       2         73      
  Total adjustments, after tax       1     (6 )   70     (18 )
Adjusted net income       $ 68     $ 65     $ 127     $ 125  
                     
Reported diluted earnings per share       $ 0.33     $ 0.35     $ 0.28     $ 0.70  
Adjusted diluted earnings per share       $ 0.34     $ 0.32     $ 0.63     $ 0.61  
                     
Weighted average diluted common shares outstanding       200     205     202     205  
                             

 

Valvoline Inc. and Consolidated Subsidiaries Table 8
RECONCILIATION OF NON-GAAP DATA - ADJUSTED EBITDA
(In millions - preliminary and unaudited)
 
          Three months ended  

   Six months ended   

          March 31   March 31
         

     2018     

 

     2017     

 

     2018     

 

     2017     

Adjusted EBITDA - Valvoline                    
Net income       $ 67     $ 71     $ 57     $ 143  
Add:                    
  Income tax expense       27     38     121     76  
  Net interest and other financing expenses       16     8     30     18  
  Depreciation and amortization       14     9     25     18  
EBITDA       124     126     233     255  
Key items: (a)                    
  Pension and other postretirement plan non-service income       (10 )   (17 )   (20 )   (35 )
  Legacy and separation-related expenses, net       8     6     17     12  
  Gain on pension and other postretirement plan remeasurements                   (8 )
Adjusted EBITDA       $ 122     $ 115     $ 230     $ 224  
                     
Adjusted EBITDA - Unallocated and Other                    
Operating loss       $ (8 )   $ (6 )   $ (17 )   $ (12 )
Add:                    
  Depreciation and amortization                    
  Pension and other postretirement plan non-service income       10     17     20     35  
  Gain on pension and other postretirement plan remeasurements                   8  
EBITDA       2     11     3     31  
  Pension and other postretirement plan non-service income       (10 )   (17 )   (20 )   (35 )
  Legacy and separation-related expenses, net       8     6     17     12  
  Gain on pension and other postretirement plan remeasurements                   (8 )
Adjusted EBITDA       $     $     $     $  

(a)

 

All key items were recorded in Unallocated and Other. The table above reconciles Unallocated and Other operating loss and relevant other items below operating loss, as applicable, to EBITDA and Adjusted EBITDA.

     

 

             
Valvoline Inc. and Consolidated Subsidiaries Table 9
RECONCILIATION OF NON-GAAP DATA - FREE CASH FLOW
(In millions - preliminary and unaudited)
               
          Six months ended
          March 31
Free cash flow (a)      

          2018          

 

          2017          

Total cash flows provided by operating activities       $ 108     $ 70  
Adjustments:            
  Additions to property, plant and equipment       (30 )   (27 )
Free cash flow       $ 78     $ 43  
               
              Fiscal year
Free cash flow (a)           2018 Outlook
Total cash flows provided by operating activities           $345 - $375
Adjustments:            
  Additions to property, plant and equipment           (85 - 95)
Free cash flow           $260 - $280
             

(a) Free cash flow is defined as cash flows from operating activities less capital expenditures and certain other adjustments as applicable.

Contacts:

Sean T. Cornett
Valvoline Inc.
Investor Relations
+1 859-357-2798
scornett@valvoline.com

Valerie Schirmer
Valvoline Inc.
Media Relations
+1 859-357-3235
vschirmer@valvoline.com

SOURCE Valvoline Inc.

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