Valvoline

2022 Annual Report
The Next Chapter

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Julie M. O’Daniel
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Michael S. Ryan
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Valvoline is governed by a nine-member board of directors, eight of whom are independent directors under New York Stock Exchange (NYSE) 
guidelines. The board operates the following committees, all of which consist entirely of outside directors: Audit; Compensation; and Governance 
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companies annually certify that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. Valvoline’s
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Richard J. Freeland 2, 3
Chairman of the Board; Retired President and 
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Stephen E. Macadam 2, 3
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EnPro Industries, Inc.

Jennifer L. Slater 2, 3
Vice President and General Manager, Global
Heavy Vehicle and Off-Road Business, Sensata

Vada O. Manager 1, 2a, 3
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Manager Global Consulting Holdings LLC;
Chief Strategist & Board Director of Think TRUE

Samuel J. Mitchell, Jr.
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Charles M. Sonsteby 1a, 2, 3
Retired Vice Chairman,
The Michaels Companies

Mary J. Twinem 1, 2, 3a
Retired Executive Vice President and Chief 
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Gerald W. Evans Jr. 2, 3
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Hanesbrands Inc.

Carol H. Kruse 2, 3
Former Senior Vice President and Chief 
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ESPN and Cambia Health Solutions

Committees
1. Audit
2. Governance and Nominating
3. Compensation
a. Committee Chair

Forward-Looking Statements:
Certain statements in this Annual Report, other 
than statements of historical fact, including 
estimates, projections and statements related 
to our business plans and operating results, are 
forward-looking statements within the meaning 
of the Private Securities Litigation Reform Act 
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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 our 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 
our Form 10-K, which has been included in this
Annual Report and is available on our website
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and on the SEC’s website at http://www.sec.
gov.  We assume no obligation to update or 
revise these forward-looking statements for
any reason, even if new information becomes 
available in the future, unless required by law. 

Non-GAAP Measures:
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measures that do not conform to generally 

accepted accounting principles in the U.S. (U.S.
GAAP), and should not be construed as an
alternative to the reported results determined
in accordance with U.S. GAAP. Management 
believes including this non-GAAP information
assists investors in understanding the ongoing 
operating performance of Valvoline’s business 
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between periods. The non-GAAP information 
provided may not be consistent with the
methodologies used by other companies.
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calculations and reconciliation of non-GAAP 
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Form 10-K, which has been enclosed with this
Annual Report.

Dear Fellow Stakeholders:

Fiscal year 2022 was a transformative year for Valvoline with the successful conclusion of our separation review 

and the announced sale of our Global Products business for $2.65B. This transaction marks the completion of 

Valvoline’s transformation into a pure-play automotive retail service business with best-in-class service, operations, 

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With the success of our service delivery model, our former Retail Services segment has grown to a point where 

it can thrive as an independent business. The sale of our former Global Products segment will position both 

businesses with the opportunity to focus on their own investment attributes, strategic priorities, and growth and 

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The new Valvoline is a high-growth, high-margin business, making it a top-tier consumer services growth stock 

and investment opportunity. We will have both the capital structure and capital allocation strategy that enables 

targeted investments to capture opportunities in an evolving car parc. Our retail services business is poised to 

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knowledge into the position. 

This year marks 16 consecutive years of system-wide same-store sales growth in our retail business. With such a 

strong foundation, we are focusing on three key strategies:

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1. Driving full potential in our core business. We continue to invest in our people, processes, and technology  

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The result is consistent growth in ticket and market share (vehicles served per day), both driven by increases in  

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2. Accelerating our network growth. We anticipate growing our network footprint from more than 1,700 retail  

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(cid:85)(cid:72)(cid:81)(cid:72)(cid:90)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:70)(cid:85)(cid:88)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:73)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:76)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:76)(cid:86)(cid:72)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:403)(cid:81)(cid:71)(cid:3) 

opportunities to drive more growth. 

3. Preparing for the future. (cid:58)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3) 

(cid:70)(cid:68)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:70)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:72)(cid:85)(cid:3)(cid:90)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:40)(cid:57)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:83)(cid:76)(cid:79)(cid:82)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:40)(cid:57)(cid:3)(cid:83)(cid:72)(cid:81)(cid:72)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) 

car parc is currently around 1% nationally, Valvoline is focused on enhancing its leading preventive automotive  

  maintenance service to customers regardless of their vehicle type. 

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vehicle more frequently serviced and with a more than 20% higher average ticket than a consumer vehicle.  We 

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I want to thank our global Valvoline team, both in our Global Products and Retail Services businesses, for their 

hard work, tenacity and winning approach this past year.  Both businesses delivered strong growth against a 

challenging macro-economic backdrop, in addition to focusing on our corporate strategic actions.  At Valvoline, 

we say it all starts with our people and once again, they have delivered above and beyond this past year. 

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(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:72)(cid:71)(cid:76)(cid:70)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:403)(cid:87)(cid:15)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:372)(cid:82)(cid:90)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:72)(cid:75)(cid:76)(cid:70)(cid:79)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:68)(cid:86)(cid:92)(cid:3)(cid:69)(cid:92)(cid:3)

(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:52)(cid:88)(cid:76)(cid:70)(cid:78)(cid:15)(cid:3)(cid:40)(cid:68)(cid:86)(cid:92)(cid:3)(cid:9)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:79)(cid:82)(cid:92)(cid:68)(cid:79)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)

(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:17)(cid:3)(cid:58)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:80)(cid:76)(cid:81)(cid:71)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:79)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:80)(cid:82)(cid:80)(cid:72)(cid:81)(cid:87)(cid:88)(cid:80)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:403)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:17)

Sincerely, 

Samuel J. Mitchell, Jr.
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

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

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

For the fiscal year ended September 30, 2022

OR

For the transition period from _________ to ___________

Commission file number 001-37884
VALVOLINE INC.

Kentucky
(State or other jurisdiction of incorporation or organization)

30-0939371
(I.R.S. Employer Identification No.)

100 Valvoline Way,
Lexington, Kentucky 40509
Telephone Number (859) 357-7777

Title of each class

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

Name of each exchange on which registered

Common stock, par value $0.01 per share

VVV

New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☑ No ☐

Yes ☐ No ☑

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

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

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

Large accelerated filer

Non-accelerated filer

☑

☐

Accelerated filer

Smaller reporting company

Emerging growth company

☐

☐

☐

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☑

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

The aggregate market value of voting common stock held by non-affiliates at March 31, 2022 was approximately $5.6 billion. At November 18, 2022,
there were 174,620,302 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2023 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference
into Part III of this Annual Report on Form 10-K and will be filed within 120 days of the registrant’s fiscal year end.

Page

4
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25
26

26

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28

49

51

95

95
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97
97

98
102

TABLE OF CONTENTS

PART I

Business

Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.

Properties
Legal Proceedings
Mine Safety Disclosures

PART II

Item 5.

Item 6.

Item 7.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of
Operation

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Item 9.

Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

Item 9A. Controls and Procedures
Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary

2

Forward-Looking Statements

Certain statements in this Annual Report on Form 10-K, other than statements of historical fact, including estimates,
projections, statements related to the Company’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. Factors that might cause such differences include, but are not limited to, those discussed under the
headings “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K, “Management’s Discussion and
Analysis of Financial Condition and Results of Operation” in Item 7 of Part II of this Annual Report on Form 10-K
and “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of Part II of this Annual Report on Form
10-K. Valvoline assumes no obligation to update or revise these forward-looking statements for any reason, even if
new information becomes available in the future, unless required by law.

3

PART I

ITEM 1. BUSINESS

Overview

Valvoline Inc. is a leader in preventive maintenance delivering convenient and trusted automotive services in its
retail stores throughout the United States (“U.S.”) and Canada. The terms “Valvoline,” the “Company,” “we,” “us,”
“management,” and “our” as used herein refer to Valvoline Inc., its predecessors and its consolidated subsidiaries,
except where the context indicates otherwise.

Established in 1866, Valvoline’s heritage spans over 15 decades, during which it has developed powerful
recognition across multiple channels. Valvoline has consistently adapted to address changing technologies and
customer needs and is well positioned to service evolving vehicle maintenance needs with Valvoline’s iconic
products. The quick, easy and trusted name in preventive vehicle maintenance, Valvoline leads the industry with
automotive service innovations that simplify customer’s lives and take the worry out of vehicle care. With average
customer ratings that indicate high levels of service satisfaction, Valvoline has built the model for transparency and
convenience in automotive maintenance. From the signature 15-minute, stay-in-your-car oil change to cabin air
filters to battery replacements to tire rotations, the Company’s model offers maintenance solutions for all types of
vehicles. The Company operates and franchises more than 1,700 service center locations through its Valvoline
Instant Oil ChangeSM (“VIOC”) and Great Canadian Oil Change retail locations and supports over 250 locations
through its Express Care platform.

Company background

Valvoline has a history of innovation spanning more than 155 years that began in 1866 when Dr. John Ellis founded
Valvoline by discovering the lubricating properties of distilled crude oil and formulated the world's first petroleum-
based lubricant. Valvoline was trademarked seven years later in 1873, making it the first trademarked motor oil
brand in the U.S. Soon thereafter, as vehicle ownership rapidly grew, Valvoline became widely known in the
automotive world through racing victories and as a recommended oil for the iconic Ford Model T, while expanding
its product offerings and global reach through its innovative automotive maintenance and heavy-duty engine
applications.

Valvoline was acquired by Ashland (currently doing business as Ashland Inc., and together with its predecessors
and consolidated subsidiaries, referred to herein as “Ashland,”) in 1950 and continued accelerating through the
development of all-climate and racing motor oils, in addition to notable automobile racing victories by some of the
biggest legends of the sport. By the late 1980s, Valvoline began operating and franchising VIOC service center
stores, expanding into consumer-focused automotive preventive maintenance and quick lube services. Valvoline
maintained its focus on innovating for evolving vehicle technologies and the needs of customers through the late
1990s and early 2000s by introducing synthetic and high-mileage motor oils.

Valvoline was incorporated in May 2016 as a subsidiary of Ashland, followed by the transfer of the Valvoline
business and certain other legacy Ashland assets and liabilities from Ashland to Valvoline. Valvoline completed its
initial public offering of common stock in September 2016, and Ashland distributed its remaining interest in Valvoline
in May 2017 (the “Distribution”). Today, Valvoline operates as an independent corporation that trades on the New
York Stock Exchange (“NYSE”) under the symbol “VVV,” focused on delivering quick and convenient vehicle
maintenance services to further accelerate its growth.

Discontinued operations

On July 31, 2022, the Company entered into a definitive agreement (the “Purchase Agreement”) to sell its former
Global Products reportable segment to Aramco Overseas Company B.V. (“Aramco” or the “Buyer”) for a cash
purchase price of $2.65 billion, subject to customary adjustments with respect to working capital and net
indebtedness (the “Transaction”). The Transaction is subject to standard closing conditions, including regulatory
approvals, and is expected to close in early calendar year 2023. Global Products sells engine and automotive

4

products in more than 140 countries and territories to retailers, installers, and commercial customers to service light-
and heavy-duty vehicles and equipment.

The assets and liabilities associated with the Global Products business have been classified as held for sale, and its
financial results are classified as discontinued operations and reported separately for all periods presented herein.
Unless otherwise noted, the description of business in this Annual Report on Form 10-K relates solely to the
continuing operations, comprised of the former Retail Services reportable segment. With the reclassification of
Global Products to discontinued operations, Valvoline now has one reportable segment, which is reflected herein in
the consolidated financial statements.

Valvoline’s retail services

The quick, easy and trusted name in preventive vehicle maintenance, Valvoline leads the industry with automotive
service innovations that simplify customer’s lives and take the worry out of vehicle care. Valvoline continues to build
its market share by leveraging its stay-in-your-car service model and providing each customer with services that can
be seen and experts they can trust. Valvoline technicians utilize its proprietary SuperProTM system to deliver a
superior customer experience and make timely service recommendations based upon vehicle service history and
original equipment manufacturer (“OEM”) recommendations.

Valvoline offers the following services at its retail service center stores:

Valvoline’s services are offered to a wide range of vehicle types, including:

5

Industry overview

Demand for automotive aftermarket services benefits from the growing number and age of vehicles in operation as
well as increasing vehicle complexity and ongoing improvements in miles driven. In addition, the North American
automotive aftermarket services market is highly fragmented, which creates a significant opportunity for
consolidation. Based on industry surveys and management estimates, the U.S. Do It For Me (“DIFM”) oil change
addressable market depicted below demonstrates the magnitude of the opportunity for Valvoline’s retail services:

Business and growth strategies

Continuing Valvoline’s shift to services as a trusted leader in preventive automotive maintenance, the Company will
continue growing through ongoing improvements in service to drive same store sales and investments in network
expansion, while continuing to develop capabilities for an evolving car parc. Valvoline’s strategic initiatives include:

•

•

•

•

Continuing to capture increased market share and drive non-oil change revenue growth in existing stores by
building on Valvoline’s strong foundation in technology and data, which enables the Company to be an
industry leader in automobile aftermarket services and makes vehicle care easy for customers;

Aggressively growing the retail footprint with company-operated store growth and an increased emphasis
on franchisee unit growth;

Developing capabilities to capture new customers through services expansion focused on fleet manager
needs and needs of the evolving car parc; and

Executing the sale of Global Products to create value for the Company's shareholders and best position the
continuing operations for long-term success.

6

Retail store development

Valvoline’s network of retail service centers delivered its 16th consecutive year of system-wide same-store sales
growth in fiscal 2022, demonstrating the system's operational excellence. As shown below, Valvoline operates,
either directly or through its franchisees, 1,715 service center stores across the U.S. and Canada as of
September 30, 2022:

Valvoline's three-pronged approach to increase its retail network is to grow through 1) opportunistic acquisitions, 2)
new store development, and 3) franchisee unit expansion. The network of retail service center stores grew by more
than 50% over the last five years. During this period, Valvoline added 588 net new stores since the beginning of
2018 and expanded its service centers internationally into Canada. The unit growth of the retail services network of
stores over the last five years, in addition to its annual same-store sales growth in each of those years, is
summarized below:

l Company-operated

l Franchised

7

Beginning of period

Opened

Acquired
Conversions between company-
operated and franchised

Closed

End of period

2022

719

34

33

4

—

790

Company-operated (a)
For the years ended September 30

2021

2020

2019

2018

584

30

57

50

(2)

719

519

36

12

17

—
584

462

28

24

5

—
519

Franchised (a) (b)
For the years ended September 30

384

17

3

58

—
462

Beginning of period

Opened

Acquired
Conversions between company-
operated and franchised

Closed

End of period

Total stores (b) (c)

System-wide

Company-operated
Franchised (b)

2022

2021

2020

2019

2018

875

60

—

(4)

(6)

925

878

39

12

(50)

(4)

875

866

36

—

(17)

(7)
878

780

65

31

(5)

(5)
866

743

28

73

(58)

(6)
780

1,715

1,594

1,462

1,385

1,242

Same store sales growth (a)
For the years ended September 30

2022

2021

2020

2019

2018

13.7 %

11.4 %

15.5 %

21.2 %

19.6 %

22.4 %

2.3 %

2.6 %

2.1 %

10.1 %

9.7 %

10.4 %

8.3 %

8.7 %

8.0 %

(a) Refer to "Key Business Measures" in Item 7 of Part II of this Annual Report on Form 10-K for a description of management's use and

determination of key metrics, including store counts and same-store sales.

(b) Valvoline's franchisees are distinct independent legal entities and Valvoline does not consolidate the results of operations of its

franchisees.

(c) As of September 30, 2020, one franchised service center store included in the store count was temporarily closed at the discretion of the

respective independent operator due to the impacts of COVID-19.

Competition

The automobile aftermarket service industry is highly competitive and Valvoline faces competition across its service
categories and subcategories. Competition is based on several key criteria, including brand recognition, product
selection, quality of service, price, convenience, speed, location, and customer experience, in addition to the ability
to deliver innovative services to meet evolving customer needs.

Valvoline’s retail stores compete for consumers and franchisees with other major franchised brands that offer a turn-
key operations management system, such as Jiffy Lube, Grease Monkey, Take 5 Oil Change, Express Oil Change,
and Mr. Lube in Canada. Valvoline also competes for Express Care operators and customers with national branded
companies that offer a professional signage program with limited business model support, similar to Valvoline’s
Express Care™ network. Automotive dealerships and service centers, as well as regional players that are not
directly affiliated with a major brand, provide quick lube and other preventive maintenance services, that Valvoline
competes for customers with.

8

Marketing and customer experience

Valvoline places a high priority on delivering an in-store customer experience that is quick, easy, and trusted.
Marketing plays an important role in showing customers the differentiated experience that Valvoline offers as well as
provides information on location, pricing and services. Marketing efforts are focused on both the acquisition of new
customers and retention of existing customers. Valvoline’s digital modeling marketing efforts are efficient and yield
strong rates of return. A variety of marketing techniques are utilized by the Company to build awareness of, and
create demand for its automotive preventive maintenance services. Valvoline markets through search and direct
response channels and invests in advertising through social and digital media.

Valvoline leverages its digital tools to obtain customer feedback across the retail network of stores, which is
frequently measured and monitored to ensure that opportunities are quickly addressed to maintain high levels of
customer satisfaction. Valvoline also utilizes its digital infrastructure and technology to more efficiently interact with
customers, driving customer engagement and retention, acquisition, and to ensure consistency of service. The
Company's strengths in digital marketing and data analytics are leveraged to attract new customers and retain
current ones, including tailored marketing campaigns directed to specific customers when their next service is
estimated to be due.

Intellectual property

Valvoline owns the rights to use certain trademarks, service marks and trade names that are registered in the
United States and other jurisdictions. Following the closing of the sale of Global Products, Valvoline will own the
Valvoline brand for all retail services purposes globally, excluding China and certain countries in the Middle East
and North Africa, while Global Products will own the Valvoline brand for all products uses globally. Valvoline’s
continuing operations holds approximately 160 trademarks in more than 50 countries across the world, including the
Valvoline and “V” brand logo trademarks. These trademarks have a perpetual life, are generally subject to renewal
every ten years, and are among Valvoline's most protected and valuable assets. Valvoline will partner with Global
Products to ensure that once the sale is completed, Valvoline's iconic brand is managed in a consistent and holistic
manner.

Valvoline trade names and service marks used in its business include ValvolineTM and Valvoline Instant Oil
ChangeSM, among others. Valvoline is also party to arrangements that license its intellectual property to others in
return for revenues. Valvoline owns approximately 500 domain names that are used to promote Valvoline services
and provide information about the Company.

Product supply and price

The products used in Valvoline’s retail service delivery are sourced from Global Products. Valvoline will continue
this arrangement following the sale of Global Products through a long-term supply agreement whereby Valvoline will
purchase substantially all lubricant and certain ancillary products for its stores from Global Products (the “Supply
Agreement”).

Valvoline believes its scale and large volumes purchased provide beneficial pricing which allows for the
arrangement of product supply for its store operations on more favorable terms than could otherwise be achieved.
This benefit enhances the value proposition to new and existing independent store operators as well as the profits
of Valvoline’s company store operations. Valvoline’s arrangement of product supply for its independent operators
provides recurring fees and margins that benefit ongoing results. As Valvoline continues to grow organically and
through acquisition, the business is well-positioned to continue driving increased benefits to the overall system of
retail stores.

Valvoline works diligently to adjust its pricing to react to changes in costs and to preserve its margins. The customer
value proposition in Retail Services focuses on convenience and quality service which provides the ability to
leverage pricing power to raise prices while maintaining customer loyalty. Pricing adjustments to products sold to
Valvoline's independent operators are made pursuant to their contracts and are generally based on movements in
published base oil indices.

9

Seasonality

Overall, seasonality may modestly impact Valvoline’s business. Geographic diversity typically limits weather effects
to specific regions, though transaction volumes can moderate along with miles driven during the seasons, which
generally trend with the length of daylight hours, weather conditions, and vacation timing. In addition, the periods of
time leading into North American holidays can also drive increased miles driven and transaction volumes.

Regulatory and environmental matters

Valvoline operates to maintain compliance with various federal, provincial, state, and local laws and governmental
regulations relating to the operation of its business, including those regarding employment and labor practices,
workplace safety, building and zoning requirements, the handling, storage and disposal of hazardous substances
contained in the products used in service, and the ownership, construction and operation of real property, among
others. Valvoline maintains policies and procedures to control risks and monitor compliance with applicable laws
and regulations. These laws and regulations require Valvoline to obtain and comply with permits, registrations or
other authorizations issued by governmental authorities. These authorities can modify or revoke the Company’s
permits, registrations or other authorizations and can enforce compliance through fines, sanctions and injunctions.
The Company is also subject to regulation by various U.S. federal regulatory agencies and by the applicable
regulatory authorities in locations in which Valvoline’s services are offered. Such regulations principally relate to the
operation of its service centers, advertising and marketing of Valvoline’s services.

Valvoline stores lubricating and vehicle maintenance products and handles used automotive oils and filters.
Accordingly, Valvoline is subject to numerous federal, provincial, state, and local environmental laws including the
Comprehensive Environmental Response Compensation and Liability Act. In addition, the United States
Environmental Protection Agency (the "EPA"), under the Resource Conservation and Recovery Act ("RCRA"), as
well as various state and local environmental protection agencies, regulate the handling and disposal of certain
waste products and other materials.

As a franchisor, Valvoline is subject to various state and provincial laws, and the Federal Trade Commission (the
“FTC”) regulates franchising activities in the U.S. The FTC requires that franchisors make extensive disclosure to
prospective franchisees before the execution of a franchise agreement. Certain jurisdictions require registration or
specific disclosure in connection with franchise offers and sales, or have laws that limit franchisor rights with regard
to the termination, renewal or transfer or franchise agreements.

Valvoline is subject to laws relating to information security, privacy, cashless payments and customer credit,
protection and fraud. An increasing number of governments and industry groups have established data privacy laws
and standards for the protection of personal information, including financial information (e.g., credit card numbers),
social security numbers, and health information. The Company is also subject to labor and employment laws,
including regulations established by the U.S. Department of Labor and other local regulatory agencies, which sets
laws governing working conditions, paid leave, workplace safety, wage and hour standards, and hiring and
employment practices.

Human capital

"It all starts with our people" is one of Valvoline's core values, and the Company endeavors to create an
environment that promotes safety, fosters diversity, encourages creativity, and rewards performance. In order to
recruit and retain the most qualified team members in the industry, Valvoline focuses on treating team members
well by paying competitive wages, offering attractive benefit packages and providing robust training and
development opportunities, in addition to providing a strong operational support infrastructure with opportunities for
upward mobility. Valvoline is committed to actively creating an environment where each team member is
empowered to learn, grow, and maximize their personal contribution.

Valvoline’s retail network of stores is comprised of nearly 2,000 locations, including independent franchised and
Express Care stores. Of these locations, Valvoline operates 790 retail service center stores throughout the U.S. and
Canada and supports its store network through centralized teams. The table below provides the Company's
approximate distribution of employees of its continuing operations, which includes its company-operated service
center stores, central supporting teams, and excludes contract employees, as of September 30, 2022:

10

Technicians

Store management

Customer service

Total company-operated store employees

Area and regional operations

Total retail services operations

Headquarter and virtual corporate team members

Total employee headcount

Number of employees

6,850

950

200

8,000

400

8,400

500

8,900

Valvoline management surveys team members periodically throughout the year to gather real-time feedback from
employees and focus on continuous improvement. In response to feedback gathered in its most recent employee
engagement survey, a cross-functional team developed a series of interactive workshops aimed to assist
employees in identifying and developing a plan to achieve career goals at Valvoline. The Company introduced a
three-step process to career development planning, along with several resources designed to aid employees in
assessing competencies and designing a development plan specific to their goals. In addition, the Company
surveyed employees during the year to solicit feedback and address questions regarding the separation of the
businesses and established an intranet page dedicated to communicating and establishing transparency throughout
the separation process. Valvoline believes employee survey results are important to evaluate areas for improved
communication and are meaningful to recruit and retain top talent, believing satisfied employees are more likely to
have a positive impact in the workplace and deliver great customer service.

There are several ways in which Valvoline seeks to attract, develop, and retain highly qualified talent as
summarized further below.

Talent acquisition

Valvoline fosters a workplace culture that attracts and retains top, diverse talent at every level. Valvoline's talent
acquisition is based on qualifications and experiences of target employees, including "building block" traits and
capabilities that support strong development early in an employee's career with the Company. Valvoline utilizes
innovative technology and structured processes intended to attract qualified candidates, including engaging job
descriptions designed to reach a larger audience, a quick and mobile-friendly application process, online chat
features to proactively address applicant questions, and video storytelling that offers a view of Valvoline's culture
through the lens of its own employees. These tools have been created to convey what makes Valvoline unique as
an employer to better attract diverse and ideal candidates, and these strong branding and sourcing efforts allow
Valvoline to select among the very best.

The Company’s focus on aggressively growing the Retail Services system that included the addition of 121 net new
system-wide stores in fiscal 2022, creates a critical need for talent to operate those stores. Valvoline utilizes its tools
and processes to attract qualified candidates within its Retail Services system, including providing support to
franchise sourcing efforts. Franchisees are able to take advantage of Valvoline's recruiting and marketing programs,
in addition to sharing hiring experiences and best practices across the system to ensure company-operated and
franchised locations attract and hire the best candidates to deliver consistent and superior service to Valvoline's
customers.

Valvoline is committed to delivering an original experience for its candidates and was named a 2022 Talent Board
Candidate Experience ("CandE") Award Winner in North America for the fourth consecutive year. The CandE
Awards recognize companies with the highest positive candidate ratings in Talent Board's comprehensive
benchmark research.

Training and development

The opportunity to develop and advance, regardless of job role or location, is critical to the success of Valvoline,
and a key component of Valvoline's talent development approach is to provide each team member with the
necessary tools and training opportunities to develop within their area of subject matter knowledge. Across the

11

organization, including within the VIOC system of company-operated and franchised service center stores,
employees are provided voluntary and compulsory regulatory, safety, compliance, customer service, and product
training opportunities, based on job role and function, delivered via virtual or in-person classes and e-learning. This
includes management and leadership programs with approximately 20 hours of live training and development for its
new managers. In addition, the structured early learning detailed training plan of SuperProTM, an internal
management system for executing Valvoline's retail services, supported by a proprietary digital learning platform,
provides new VIOC employees 270 hours of training that is generally completed within the first 60 days of
employment leading to their first certification and another 225 hours of training in the next 140 days that leads to a
promotion.

Valvoline provides an Introduction to Management program within its VIOC stores multiple times during the year
where assistant managers who qualify as potential store managers meet for three days to interact with leadership
team members and peers from other stores to learn about Valvoline's culture, share best practices, and receive
management training to prepare them for career advancement. The combination of these efforts enable Valvoline to
continue a promote-from-within strategy which has led to 100% of service center managers, area managers, and
market manager promotions in the last year being earned by team members who started in hourly positions at
VIOC.

Valvoline also offers and has many partnerships to deliver quality development opportunities, including those with
leading universities, research organizations and companies, in addition to opportunities for employees to attend
seminars and training programs provided by industry trade and professional organizations. Valvoline provides tuition
assistance for employees enrolled in higher education programs directed at improving their performance or helping
them prepare for a future role within the Company. By engaging team members early, Valvoline provides them with
the necessary tools to learn and acquire new skills which increases their value as an employee and, most
importantly, affords them the opportunity to advance their careers.

Valvoline received 2022 BEST Award winner recognition from the Association for Talent Development. The BEST
Award recognizes organizations that are Building talent, Enterprise-wide and Strategically driving a Talent
development culture that delivers results.

Total rewards

Valvoline believes that happy and well-cared-for team members bring their best selves to work. The Company
provides a wide variety of benefits to eligible full-time and part-time employees. These benefits help support
Valvoline’s strategy to provide competitive programs, aligning to the changing business environment and meeting
employee needs. This includes attraction, retention, inclusion, motivation, development, promotion, engagement,
and well-being (mental, financial, and personal health).

The Company’s benefits offered to its employees consist of defined contribution matching, tuition reimbursement,
and paid time off, including holiday pay, paid family leave and other leave programs. Valvoline’s benefits also
include progressive and affordable healthcare plans and life, disability, and accident insurance coverage. In
addition, the Company provides a variety of physical, financial, and mental health resources to support taking care
of the whole employee.

Health and safety

One of Valvoline's top priorities is protecting the health and safety of its team members, known as its "Vamily."
Valvoline offers employer-sponsored health and wellness benefits to its full-time employees and their families. In
addition, Valvoline strives to create workplaces and practices in all environments that team members work in to help
foster a safe and secure environment for every employee and customer. Valvoline emphasizes that "safety is
always our priority" through one of its core values.

Since the start of the COVID-19 pandemic, the well-being of the Company’s team members has remained a priority.
During the early stages of the COVID-19 pandemic, Valvoline formed a COVID-19 Steering Team that has been
leading and coordinating the Company's overall response. This team has continued to follow and communicate
guidance provided by national and local public health authorities, as well as track all relevant state and local
government guidelines, directives and regulations as a part of Valvoline’s continued response and focus on

12

mitigating the spread of COVID-19. The Company continues to support employees through its expanded employee
assistance, telehealth services and well-being plans, new remote work policy, and individual paid time off and family
leave, including paid sick or pandemic leave for quarantined employees.

Diversity and inclusion

The Company believes in an inclusive workforce, where diverse backgrounds are represented, engaged and
empowered to inspire innovative ideas and decisions. Valvoline is focused on (1) promoting a culture of diversity
and inclusion that leverages the talents of all employees, (2) implementing practices that attract, recruit and retain
diverse top talent, and (3) demonstrating an investment in diversity and inclusion through diverse supplier spend,
depositing cash in federally-insured minority depository institutions ("MDIs") and through the Company's charitable
giving. As part of the Company's commitment to deposit cash in MDIs, Valvoline has invested approximately $2.0
million of its cash equivalents as of September 30, 2022 with MDIs and is actively working to identify additional
MDIs to invest with on an ongoing basis.

Valvoline supports inclusive, employee-led networking groups that provide a forum to communicate and exchange
ideas, build a network of relationships across the Company, and pursue personal and professional development,
such as Valvoline Women’s International Network. The Company also actively sponsors events that promote
diversity and utilizes its Diversity, Equity and Inclusion Council, a working committee to help steer diversity and
inclusion efforts across the business and its operations.

Citizenship

Valvoline’s citizenship efforts support social and educational needs within the communities the Company serves. At
various times throughout the year, Valvoline supports its employees in volunteering their time and talents to give
back to their communities. Valvoline employees support the United Way, Red Cross, Children’s Miracle Network,
Habitat for Humanity, Big Brothers Big Sisters, Building Homes for Heroes, and many more local and global
institutions and organizations.

Valvoline's Charitable Giving Program encourages its team members to support the communities in which they live
and in which the Company operates, through hands-on service, focused generosity and the continuous pursuit of
innovative and sustainable solutions. Yearly, a major focus of Valvoline’s charitable giving programs is the annual
employee giving campaign where employees are encouraged to give monthly donations through payroll deduction
to the charity of their choice. Valvoline’s matching program will match the donations given to the organizations that
align with the Company’s giving pillars: (1) disadvantaged families and children, (2) education, (3) the environment,
and/or (4) diversity and inclusion. Additionally, Valvoline’s Grant Program offers non-profits the opportunity to submit
proposals once a year for specific needs within their organization. Valvoline’s Charitable Giving Committee awards
the grants based on the Company’s giving pillars.

Available information

More information about Valvoline is available on the Company’s website at http://www.valvoline.com. On this
website, Valvoline makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and any amendments to those reports, as well as any beneficial ownership
reports of officers and directors filed on Forms 3, 4 and 5. All such reports are available as soon as reasonably
practicable after they are electronically filed with, or electronically furnished to, the Securities and Exchange
Commission (the “SEC"). Valvoline also makes available, free of charge on its website, its Amended and Restated
Articles of Incorporation, By-Laws, Corporate Governance Guidelines, Board Committee Charters, Director
Independence Standards and the Global Standards of Business Conduct that apply to Valvoline’s directors, officers
and employees. These documents are also available in print to any shareholder who requests them. The
information contained on Valvoline’s website is not part of this Annual Report on Form 10-K and is not incorporated
by reference in this document. References to website addresses are provided as inactive textual references only.
The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and other information and
statements regarding issuers, including Valvoline, that file electronically with the SEC.

13

Executive officers of Valvoline

The following table sets forth information concerning Valvoline's executive officers as of November 18, 2022:

Name

Samuel J. Mitchell, Jr.

Mary E. Meixelsperger

Julie M. O’Daniel

Jonathan L. Caldwell

Lori A. Flees

Thomas A. Gerrald II

Heidi J. Matheys

Jamal K. Muashsher

Michael S. Ryan

Age Title

61 Chief Executive Officer and Director

62 Chief Financial Officer

55 Senior Vice President, Chief Legal Officer and Corporate Secretary

45 Senior Vice President and Chief People Officer

52 Senior Vice President and President, Retail Services

58 Senior Vice President and Chief Supply Chain Officer

50 Senior Vice President, Chief Marketing & Transformation Officer

47 Senior Vice President and President, Global Products

55 Chief Accounting Officer and Controller

Samuel J. Mitchell, Jr. was appointed as a director and Chief Executive Officer of Valvoline in May 2016 and
September 2016, respectively. He served as Senior Vice President of Ashland from 2011 to September 2016 and
as President of Valvoline from 2002 to September 2016.

Mary E. Meixelsperger has served as Valvoline's Chief Financial Officer since June 2016. Prior to joining Valvoline,
Ms. Meixelsperger was Senior Vice President and Chief Financial Officer of DSW Inc. from April 2014 to June 2016
and held the roles of Chief Financial Officer, Controller and Treasurer at Shopko Stores from 2006 to 2014.

Julie M. O’Daniel has served as Senior Vice President, Chief Legal Officer and Corporate Secretary of Valvoline
since January 2017. Ms. O’Daniel served as General Counsel and Corporate Secretary of Valvoline from
September 2016 to January 2017 and as Lead Commercial Counsel of Valvoline from April 2014 to September
2016.

Jonathan L. Caldwell has served as Valvoline's Senior Vice President and Chief People Officer since April 2020.
Mr. Caldwell served as Senior Director, Human Resources of Valvoline from March 2018 to April 2020 and as
Senior Director, Global Talent Management of Valvoline from October 2016 to March 2018.

Lori A. Flees has served as Valvoline's Senior Vice President and President, Retail Services since April 2022. Prior
to joining Valvoline, Ms. Flees held leadership positions at Walmart Inc., serving as Senior Vice President and Chief
Operating Officer of Health & Wellness from August 2020 to March 2022; Senior Vice President and General
Merchandising Manager, Sam’s Club Health & Wellness from June 2018 to August 2020; and Senior Vice
President, Next Generation Retail and Principal from September 2017 to June 2019.

Thomas A. Gerrald II has served as Senior Vice President and Chief Supply Chain Officer of Valvoline since
October 2021. Previously, Mr. Gerrald served as Senior Vice President, Global Products - North America of
Valvoline from May 2021 to October 2021, and as Senior Vice President, Core North America of Valvoline from
September 2016 to May 2021.

Heidi J. Matheys has served as Valvoline's Senior Vice President, Chief Marketing & Transformation Officer since
October 2021. Previously, Ms. Matheys served as Senior Vice President, Chief Marketing Officer of Valvoline from
September 2016 to October 2021.

Jamal K. Muashsher has served as Senior Vice President and President, Global Products of Valvoline since
October 2021. Previously, Mr. Muashsher served as Senior Vice President, Global Products - International of
Valvoline from May 2021 to October 2021; as Senior Vice President, International of Valvoline from March 2019 to
May 2021; and as Vice President, Marketing, Digital and Customer Experience, Core North America of Valvoline
from June 2016 to March 2019.

14

Michael S. Ryan has served as Valvoline's Chief Accounting Officer and Controller since September 2019. Prior to
joining Valvoline, Mr. Ryan was Senior Vice President, Financial Operations and Chief Accounting Officer at Utz
Quality Foods, LLC from 2017 to 2019.

ITEM 1A. RISK FACTORS

The following risks could materially and adversely affect Valvoline’s business, operations, financial position or future
financial performance. This information should be considered when reviewing this Annual Report on Form 10-K,
including Management’s Discussion and Analysis of Financial Condition and Results of Operations, in addition to
the consolidated financial statements and related notes thereto. These risk factors could cause future results to
differ from those in forward-looking statements and from historical trends.

Risks related to the industries in which Valvoline operates

Valvoline faces significant competition from other companies, which places downward pressure
on prices and margins and may adversely affect Valvoline’s business and results of operations.

Valvoline operates in a highly competitive market, competing against a wide variety of companies across the
automotive services industry. Competition is based on several key criteria, including brand recognition, quality,
price, customer service, and the ability to bring innovative services to the marketplace. Competitors include
international, national, regional and local repair and maintenance shops, automobile dealerships, and oil change
shops. Certain competitors are larger than Valvoline and have greater financial resources and more diverse
portfolios, leading to greater operating and financial flexibility. As a result, these competitors may be better able to
withstand adverse changes in conditions within the industry, market dynamics, the price of supplies or general
economic conditions. In addition, competitors’ pricing decisions could compel Valvoline to decrease its prices, which
could negatively affect Valvoline’s margins and profitability.

Rising and volatile supply costs and supply chain constraints or disruptions could adversely
affect Valvoline’s results of operations.

Valvoline’s service center locations require large quantities of automotive products and supplies. The Company’s
success depends in part on the ability to anticipate and react to changes in supply costs, and the Company is
susceptible to increases in primary and secondary supply costs as a result of factors beyond its control. These
factors include general economic conditions, including recessions, significant variations in supply and demand,
pandemics, weather conditions, currency fluctuations where Valvoline operates, commodity market speculation,
labor strikes, including rail strikes, and government regulations. Higher product and supply costs could reduce the
Company’s profits, which in turn may adversely affect the business and results of operations for both company-
operated and franchised stores.

Additionally, should conditions such as supply chain congestion or availability related to severe weather or climate
conditions become severe or last for an extended period of time, Valvoline's inventory of supplies could impact its
ability to meet customer demands. Government regulations related to the manufacture or transport of products
provided by the supplier may also impede Valvoline’s ability to obtain those supplies on commercially reasonable
terms. If Valvoline is unable to obtain and retain product supply under commercially acceptable terms, its ability to
deliver services in a competitive and profitable manner or grow its business successfully could be adversely
affected.

Demand for Valvoline’s services could be adversely affected by spending trends, declining
economic conditions, industry trends and a number of other factors, all of which are beyond its
control.

Demand for Valvoline’s services may be affected by a number of factors it cannot control, including the number and
age of vehicles in current service, regulation and legislation, technological advances in the automotive industry and
changes in engine technology, including the adoption rate of electric or other alternative engine technologies,
changing automotive OEM specifications and longer recommended intervals between oil changes. In addition,
during periods of declining economic conditions, including recessions, customers may defer vehicle maintenance.
Similarly, increases in energy prices or other factors may cause miles driven to decline, resulting in less vehicle

15

wear and tear and lower demand for maintenance, which may lead to customers deferring purchases of Valvoline’s
services. All of these factors, which impact metrics such as drain intervals and vehicles served per day, could result
in a decline in the demand for Valvoline’s services and adversely affect its sales, cash flows and overall financial
condition.

Failure to develop and market new services and technologies could impact Valvoline’s
competitive position and have an adverse effect on its business and results of operations.

Valvoline’s efforts to respond to changes in customer demand in a timely and cost-efficient manner to drive growth
could be adversely affected by difficulties or delays in service innovation, including the inability to identify or gain
market acceptance of new service techniques. Due to the lengthy development process and intense competition,
there can be no assurance that any of the services Valvoline is currently developing, or could develop in the future,
will achieve substantial commercial success. Moreover, Valvoline may experience operating losses for new services
after they are introduced and commercialized because of start-up costs or lack of demand.

The automotive maintenance service industry is subject to periodic technological change and ongoing product
improvements. The adoption of electric vehicles is increasing, which reduces demand for lubricant services, but
expands the opportunity for other services required by electric vehicles, including coolants, fluids and greases. If
Valvoline is unable to develop and market services for electric vehicles, its business and results of operations could
be adversely impacted. As automotive technologies evolve, Valvoline could be required to comply with any new or
stricter laws or regulations, which could require additional expenditures by Valvoline that could adversely impact
business results.

Damage to Valvoline’s brand and reputation could have an adverse effect on its business.

Maintaining Valvoline’s strong reputation with customers is a key component of its business. Liability claims, false
advertising claims, service complaints, and governmental investigations could result in substantial and unexpected
expenditures and affect consumer or customer confidence in Valvoline's services, which may materially and
adversely affect its business operations, decrease sales and increase costs. Additionally, as customers are shifting
to more environmentally-conscious electric and hybrid vehicles, the inability of Valvoline to continue its development
of new services to adapt to those changing demands could affect the Company's reputation as an environmentally
friendly choice for vehicle care and could reduce demand for its services. Further, legislators, customers, investors
and other stakeholders are increasingly focusing on environmental, social and governance policies of companies.
This focus could result in new or increased legislation or disclosure requirements. In the event that such
requirements result in increased costs or a negative perception of the Company, there could be an adverse effect
on the business or its results of operations.

If allegations are made that Valvoline’s automotive maintenance services were not provided in a manner consistent
with its vision and values, the public may develop a negative perception of Valvoline and its brands. In addition, if
Valvoline’s franchise or Express Care operators experience service failures or do not successfully operate their
service centers in a manner consistent with Valvoline’s standards, its brand, image and reputation could be harmed,
which in turn could negatively impact its business and operating results. A negative public perception of Valvoline’s
brands, whether justified or not, could impair its reputation, involve it in litigation, damage its brand equity and have
a material adverse effect on its business. In addition, damage to the reputation of Valvoline’s competitors or others
in its industry could negatively impact Valvoline’s reputation and business.

In connection with the Transaction, the parties have agreed to enter into a brand agreement (the “Brand
Agreement”). Pursuant to the Brand Agreement, Valvoline will retain ownership of the Valvoline brand for generally
all retail services purposes, and Global Products will own the brand for all product uses. The brand sharing
arrangement may increase the risk of inconsistency in its use, messaging, or overall damage to the brand, which
could have an adverse impact on Valvoline’s reputation and business.

16

Risks related to executing Valvoline’s strategy

Valvoline has set aggressive growth goals for its business, including increasing sales, cash flow,
market share, margins and number of service center stores, to achieve its long-term strategic
objectives. Execution of Valvoline’s growth strategies and business plans to facilitate that growth
involves a number of risks.

Valvoline has set aggressive growth goals for its business to meet its long-term strategic objectives and improve
shareholder value by aggressively growing Retail Services organically and through acquisitions and franchise
development. Valvoline’s failure to meet one or more of these goals or objectives could negatively impact its
business. Aspects of that risk include, among others, changes to the global economy, failure to identify acquisition
targets or real estate for new stores to grow the Company’s network of retail service center stores, construction
costs or delays limiting new store growth, changes to the competitive landscape, including those related to
automotive maintenance recommendations and customer preferences, entry of new competitors, attraction and
retention of skilled employees, failure to successfully develop and implement digital platforms to support the
Company’s growth initiatives, failure to comply with existing or new regulatory requirements, failure to maintain a
competitive cost structure and other risks outlined in greater detail in this “Risk Factors” section.

Valvoline's performance is highly dependent on attracting and retaining appropriately qualified employees in its
service center stores and corporate offices. A tight labor market in recent years has led to challenges in staffing
service center stores due to labor shortages as a number of trends conflate reflecting changing demographics,
governmental policies, employee sentiment, and technological change. In response, Valvoline made labor
investments and enhanced its recruiting programs to attract new employees. As trends in the labor market evolve,
the Company may experience future challenges in recruiting and retaining talent in various locations. Valvoline
operates in a competitive labor market, and failure to recruit or retain qualified employees in the future, or the
Company's inability to implement corresponding adjustments to its labor model, including compensation and benefit
packages, could impair the Company's ability to grow and meet its strategic goals.

Valvoline may be unable to execute its growth strategy, and acquisitions, investments and
strategic partnerships could result in operating difficulties, dilution and other harmful
consequences that may adversely impact Valvoline’s business and results of operations.

Acquisitions are an important element of Valvoline’s overall growth strategy. Valvoline had strong acquisition growth
in fiscal 2021 and 2022 and has developed a pipeline of future viable targets expected to complement the
Company’s strong growth initiatives. An insufficient quantity of strategic acquisition targets in the marketplace with
limited targets remaining, or the inability of Valvoline to successfully acquire those targets, may have a negative
impact on Valvoline's ability to achieve future growth projections. Valvoline expects to continue to evaluate and
enter into discussions regarding a wide array of potential strategic transactions and to continue to grow organically
and through acquisitions. An inability to execute these plans could have a material adverse impact on Valvoline’s
financial condition and results of operations. In addition, the anticipated benefits of Valvoline’s acquisitions may not
be realized and the process of integrating an acquired company, business, or product may create unforeseen
operating difficulties or expenditures.

Valvoline’s acquisitions, investments and strategic partnerships could also result in dilutive issuances of its equity
securities, the incurrence of debt, contingent liabilities or amortization expenses, impairment of goodwill or
purchased long-lived assets and restructuring charges, any of which could harm its financial condition, results of
operations and cash flows.

The business model for Valvoline is affected by the financial results of its franchisees.

Valvoline’s business is made up of a network of both company-operated and franchised stores. Valvoline’s success
relies in part on the operational and financial success, as well as the cooperation of, its franchisees to implement
the Company’s strategic plans and their ability to secure adequate financing. However, Valvoline has limited
influence over their operations and the quality of franchised store operations may be diminished by a number of
factors beyond the Company’s control. Valvoline’s franchisees manage their businesses independently and are
responsible for the day-to-day operations of approximately 54% of the Company’s system-wide service center
stores as of September 30, 2022. Valvoline’s royalty, product, and other revenues from franchised stores are largely
dependent on franchisee sales and compliance with franchise agreements. Valvoline’s revenues and margins could

17

be negatively affected should franchisees experience limited or no sales growth, or if the franchisee fails to renew
its franchise agreements or otherwise fulfill its obligations under negotiated business development, franchise, or
supply agreements with Valvoline. Additionally, ifif the f
franchisees are impacted by weak economic conditions and
are unable to secure adequate sources fof ffinancing, their ffinancial health may worsen, and Valvoline’s revenues
may decline. If sales or business performance trends worsen for franchisees, their financial results may deteriorate,
which could result in, among other things, store closures, delayed or reduced royalties and purchases and reduced
growth in the number of service center stores.

hi

Valvoline’s success also depends on the willingness and ability of its independent franchisees to implement major
initiatives, which may require additional investment by them, and to remain aligned with Valvoline on operating,
promotional and capital-intensive reinvestment plans. The ability of Valvoline’s franchisees to contribute to the
achievement of Valvoline’s overall plans is dependent in large part on the availability of funding to its franchisees at
reasonable interest rates and may be negatively impacted by the financial markets in general or the
creditworthiness of individual franchisees. The size of Valvoline’s largest franchisees creates additional risk due to
their importance to the Company’s growth strategy, requiring their cooperation and alignment with Valvoline’s
financing necessary to complete planned
initiatives. Furthermore, ifif the f
remodel and construction projects, they may be f
Company’s ability to grow and expand the Valvoline retail ffootprint.
C

forced to postpone or cancel such projects, impacting the

franchisees are not able to obtain the fi

hi

d

i

’

Risks related to operating Valvoline's business

Changes in economic conditions that impact customer spending could harm Valvoline’s
business.

downturns, including a recession, may reduce customer demand or inhibit Valvoline’s ability to provide its

services. Valvoline’s business and operating results are sensitive to declining economic conditions, credit market
tightness, declining customer and business confidence, volatile exchange and interest rates, and other challenges,
including those related to acts of aggression or threatened aggression that can affect the economy and financial
markets. In the event of adverse developments or stagnation in the economy or financial markets, Valvoline’s
customers may defer vehicle maintenance, oil changes, or other services, be unable to obtain credit, or repair and
maintain their vehicles themselves.

In a prolonged economic downturn or recession, these risks and uncertainties could have a material negative
impact on Valvoline’s business, financial condition and results of operations. The severity and duration of a
downturn in economic and financial market conditions, as well as the timing, strength, and sustainability of a
recovery, are unknown and are not within the Company’s control. There are predictions that the U.S. economy may
enter a recession; therefore, the recessionary risks discussed above and elsewhere within these risk factors could
be more pronounced in such an economic climate.

Economic weakness and uncertainty may cause changes in customer preferences and habits, and if such economic
conditions persist for an extended period of time, this may result in customers making long-lasting changes to their
spending behaviors, which could unfavorably impact Valvoline’s business, its results of operations and cash flows.
Additionally, during periods of favorable economic conditions, customers may be more likely to purchase new
vehicles rather than maintaining and servicing older vehicles, which could also have an adverse impact on
Valvoline’s business, results of operations, cash flows and strategic objectives.

If Valvoline does not attract, train and retain quality employees in appropriate numbers, including
key employees and management, performance could be adversely affected.

Valvoline’s performance is dependent on recruiting, developing, training and retaining quality service center
employees in large numbers, as well as experienced management personnel. Valvoline’s service centers positions
are subject to high rates of turnover. Valvoline’s ability to meet labor needs while controlling costs is subject to
external factors, such as unemployment levels, prevailing wage rates, wage legislation, and changes in rules
governing eligibility for overtime and changing demographics. In the event of increasing wage rates, if Valvoline
does not increase wages competitively, staffing levels and customer service could suffer because of declining
workforce quality. Valvoline’s earnings could decrease if wage rates increase, whether in response to market
demands or new wage legislation. In addition, inflation and economic uncertainty may negatively impact Valvoline’s
ability to attract and retain employees.

18

Business disruptions from natural, operational and other catastrophic risks could seriously harm
Valvoline’s operations and financial performance. In addition, a catastrophic event at one of
Valvoline’s service center stores or involving its services or employees could lead to liabilities
that could further impair its operations and financial performance.

Business disruptions, including those related to operating hazards inherent in servicing vehicles with lubricants,
natural disasters, severe weather conditions, climate change, supply or logistics disruptions, increasing costs for
energy, temporary store and/or power outages, information technology systems and network disruptions, cyber-
security breaches, terrorist attacks, armed conflicts, war, pandemic diseases, fires, floods or other catastrophic
events, could seriously harm Valvoline’s operations, as well as the operations of Valvoline’s customers and
suppliers, and may adversely impact Valvoline’s financial performance. Although it is impossible to predict the
occurrence or consequences of any such events, they could result in reduced demand for Valvoline’s services or
make it difficult or impossible for Valvoline to deliver services to its customers. In addition to leading to a serious
disruption of Valvoline’s businesses, a catastrophic event at one of Valvoline’s service center stores or involving its
employees could lead to substantial legal liability to or claims by parties allegedly harmed by the event.

While Valvoline maintains business continuity plans that are intended to allow it to continue operations or mitigate
the effects of events that could disrupt its business, Valvoline cannot provide assurances that its plans would fully
protect it from all such events. In addition, insurance maintained by Valvoline to protect against property damage,
loss of business and other related consequences resulting from catastrophic events is subject to significant
retentions and coverage limitations, depending on the nature of the risk insured. This insurance may not be
sufficient to cover all of Valvoline’s damages or damages to others in the event of a catastrophe. In addition,
insurance related to these types of risks may not be available now or, if available, may not be available in the future
at commercially reasonable rates.

The limited diversity of Valvoline’s operations subject it to risks.

Valvoline has been able to take advantage of its size and global reach as a combined products and services
company. The Transaction will result in Valvoline being a smaller, less diversified company, potentially making it
more vulnerable to changing market, regulatory and economic conditions. Following completion of the Transaction,
Valvoline will be more concentrated geographically in the U.S. and Canada and in serving the automotive
aftermarket through company-operated, independent franchise and Express Care stores that service vehicles with
Valvoline products. In addition, as a smaller company, Valvoline may be unable to obtain goods or services at
prices or on terms that are as favorable as those obtained by Valvoline prior to the Transaction, and Valvoline’s
ability to absorb costs or unexpected expenses whether due to contingencies or other risks as described herein,
may be negatively impacted. Any of these factors could have an adverse effect on Valvoline’s business, financial
condition, results of operations, or cash flows.

Operating in numerous locations in the U.S. and Canada increases the scrutiny on Valvoline’s reputation for safety,
quality, friendliness, trustworthy service, integrity and business ethics. Any negative publicity about these or other
areas involving the business, including Valvoline’s response or lack thereof to external events involving civil unrest,
social justice, and political issues, whether or not based in fact, could damage Valvoline’s reputation and the value
of the brand.

Pandemics, epidemics or disease outbreaks, such as the novel coronavirus, may disrupt
Valvoline’s business and operations, which could materially affect Valvoline’s financial condition,
results of operations and forward-looking expectations.

Disruptions caused by pandemics, epidemics or disease outbreaks, such as COVID-19, in the United States or
Canada, could materially affect Valvoline's results of operations, financial condition and forward-looking
expectations. The ongoing COVID-19 pandemic continues to impact Valvoline's business, particularly as it relates to
congestion in the supply chain and related cost, as well as the disruption in the labor market. As a result of the
ongoing COVID-19 pandemic, the Company experienced reduced traffic and sales volume due to changes in
customer behavior as individuals decreased automobile use and practiced social distancing and other behavioral
changes mandated by governmental authorities or independently undertaken out of an abundance of caution. The
extent to which the pandemic will continue to impact Valvoline's business results and operations remains uncertain
considering the rapidly evolving environment, duration and severity of the spread of COVID-19, emerging variants,

19

vaccine and booster effectiveness, public acceptance of safety protocols, and government measures, including
vaccine mandates, implemented at the local and federal levels designed to slow and contain the spread of
COVID-19, among others.

Worsening conditions in the severity and spread of COVID-19, or other pandemics, epidemics, or disease
outbreaks, could result in the resurgence of lockdowns or stay-at-home guidelines which could adversely affect
Valvoline’s ability to implement its growth plans, including, without limitation, delay the construction or acquisition of
service center stores, or negatively impact Valvoline’s ability to successfully execute plans to enter into new
markets; reduce demand for Valvoline’s services; affect the ability and cost to attract and retain talent within the
labor market; reduce sales or profitability; negatively impact Valvoline’s ability to maintain operations; or lead to
significant disruption of financial markets in which the Company operates, and may reduce Valvoline’s ability to
access capital and, in the future, negatively affect the Company’s liquidity.

Valvoline uses information technology systems to conduct business, and a cyber security threat,
privacy/data breach, or failure of a key information technology system could adversely affect
Valvoline’s business and reputation.

Valvoline relies on its information technology systems, including systems which are managed or provided by third-
party service providers, to conduct its business. The Company’s point-of-sale platforms for company-operated and
franchisee retail stores could be subject to cyber security threats or data breaches, which could cause possible
business interruptions or negatively impact Valvoline. Any security breach involving the point-of-sale or other
systems within the Valvoline network could result in a loss of consumer confidence or costs associated with data
recovery or breaches of data security laws.

Despite employee training and other measures to mitigate them, cyber security threats to its information technology
systems, and those of its third-party service providers, are increasing and becoming more advanced and breaches
have occurred and could occur as a result of denial-of-service attacks or other cyber-attacks, hacking, phishing,
viruses, malicious software, ransomware, computer malware, social engineering, break-ins, security breaches or
due to error or misconduct by its employees, contractors or third-party service providers. The data breaches that
have occurred have not resulted in a material loss to Valvoline; however, a material breach of or failure of
Valvoline’s information technology systems, including systems in which data is stored or may be transferred across
third-party platforms, could lead to the loss and destruction of trade secrets, confidential information, proprietary
data, intellectual property, customer and supplier data, and employee personal information, and could disrupt
business operations which could adversely affect Valvoline’s relationships with business partners and harm its
brands, reputation and financial results.

Valvoline’s customer and vendor data may include names, addresses, phone numbers, email addresses and
payment account information, among other information. Depending on the nature of the customer data that is
compromised, Valvoline may also have obligations to notify users, law enforcement or payment companies about
the incident and may need to provide some form of remedy, such as refunds for the individuals affected by the
incident. Valvoline could also face fines and penalties should it fail to adequately notify affected parties pursuant to
new and evolving privacy laws in various jurisdictions in which it does business, as outlined in greater detail in the
"Regulatory, legal, and financial risks" section below.

Regulatory, legal, and financial risks

Data protection requirements could increase operating costs and requirements and a breach in
information privacy or other related risks could negatively impact operations.

Valvoline is subject to federal, state, local laws, directives, and regulations relating to the collection, use, retention,
disclosure, security and transfer of personal data relating to its customers and employees. These laws, directives
and regulations, and their interpretation and enforcement continue to evolve and may be inconsistent from
jurisdiction to jurisdiction. For example, the California Consumer Privacy Act ("CCPA") applies to Valvoline's
activities conducted in the state of California. Complying with the CCPA and similar emerging and changing privacy
and data protection requirements may cause Valvoline to incur substantial costs or disruption to its operations.

Noncompliance with these legal obligations relating to privacy and data protection could damage Valvoline's
reputation and affect its ability to retain and attract customers. Additionally, any failure or perceived failure by
Valvoline or any third parties with which it does business, to comply with these privacy and data protection laws,

20

rules and regulations, or with respect to similar obligations to which Valvoline may be or become subject, may result
in actions against Valvoline by governmental entities, private claims and litigation, fines, penalties or other liabilities.
Any such action would be expensive to defend, damage Valvoline’s reputation and adversely affect business,
operating results, financial position and cash flows.

The impact of changing laws or regulations or the manner of interpretation or enforcement of
existing laws or regulations could adversely impact Valvoline’s financial performance and restrict
its ability to operate its business or execute its strategies.

New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or
enforcement, could increase Valvoline’s cost of doing business and restrict its ability to operate its business or
execute its strategies. This risk includes, among other things, compliance with a myriad of U.S. tax laws and
regulations; anti-competition laws and regulations; product compliance regulations; anti-corruption and anti-bribery
laws, including the Foreign Corrupt Practices Act (“FCPA”); anti-money-laundering laws; economic sanctions and
export control laws and regulations, including those administered by the U.S. Treasury Department’s Office of
Foreign Assets Control (“OFAC”); customs laws; and other laws governing Valvoline’s operations.

Although Valvoline has implemented policies and procedures to ensure compliance with these laws and regulations,
it cannot be sure that its policies and procedures are sufficient or that directors, officers, employees,
representatives, consultants and agents have not engaged and will not engage in conduct for which Valvoline may
be held responsible, nor can Valvoline be sure that its business partners, including franchisees, have not engaged
and will not engage in conduct that could materially affect their ability to perform their contractual obligations to
Valvoline or even result in Valvoline being held liable for such conduct. Violations of these laws or regulations may
result in severe criminal or civil sanctions or penalties, or significant changes in existing laws and regulations may
subject Valvoline to other liabilities, which could have a material adverse effect on its business, financial condition,
cash flows and results of operations.

Valvoline’s substantial indebtedness may adversely affect its business, results of operations and
financial condition.

Valvoline has substantial indebtedness and financial obligations. As of September 30, 2022, Valvoline had
outstanding indebtedness of $1.7 billion, which includes $105.0 million required to be repaid in connection with
closing the Transaction. Additionally, in connection with the sale of the Global Products business and based on the
manner in which the net proceeds are utilized, a portion of the net proceeds may be utilized to reduce incremental
debt. Based on the facilities expected to remain in place following the close of the Transaction, Valvoline has an
available borrowing capacity of $470 million as of September 30, 2022. Valvoline may incur substantial additional
debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other
general corporate purposes.

Valvoline's substantial indebtedness could adversely affect its business, results of operations and financial condition
by, among other things: requiring Valvoline to dedicate a substantial portion of its cash flows to pay principal and
interest on its debt, which would reduce the availability of its cash flow to fund working capital, capital expenditures,
acquisitions, execution of its growth strategy and other general corporate purposes; limiting Valvoline’s ability to
borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements,
execution of its growth strategy and other general corporate purposes; making Valvoline more vulnerable to
adverse changes in general economic, industry and regulatory conditions and in its business by limiting its flexibility
in planning for or reacting to changing conditions; placing Valvoline at a competitive disadvantage compared with its
competitors that have less debt and lower debt service requirements; making Valvoline more vulnerable to
increases in interest rates since some of its indebtedness is subject to variable rates of interest; and making it more
difficult for Valvoline to satisfy its financial obligations.

In addition, Valvoline may not be able to generate sufficient cash flows to repay its indebtedness when it becomes
due and to meet its other cash needs. If Valvoline is not able to pay its debts as they become due, it could be in
default under the terms of its indebtedness. Valvoline might also be required to pursue one or more alternative
strategies to repay indebtedness, such as selling assets, refinancing or restructuring its indebtedness or selling
additional debt or equity securities. Valvoline may not be able to refinance its debt or sell additional debt or equity
securities or its assets on favorable terms, if at all, and if it must sell its assets, it may negatively affect Valvoline’s
ability to generate revenues.

21

Valvoline’s pension and other postretirement benefit plan obligations are currently underfunded,
and Valvoline may have to make significant cash payments to some or all of these plans, which
would reduce the cash available for its business.

In connection with Valvoline’s separation from Ashland, Valvoline assumed certain of Ashland’s historical pension
and other postretirement benefit plans and related liabilities. The most significant of these plans, the U.S. qualified
pension plans, are estimated to be underfunded by $68.6 million as of September 30, 2022. The funded status of
Valvoline's pension plans is dependent upon many factors, including returns on invested assets, the level of certain
market interest rates and the discount rate used to determine pension obligations. Valvoline has taken a number of
actions to reduce the risk and volatility associated with the pension plans, however, changing market conditions or
laws and regulations could require material increases in the expected cash contributions to these plans in future
years. Specifically, unfavorable returns on plan assets or unfavorable changes in applicable laws or regulations
could materially change the timing and amount of required plan funding. In addition, a decrease in the discount rate
used to determine pension obligations could result in an increase in the valuation of pension obligations, which
could affect the reported funded status of Valvoline’s pension plans and future contributions. Similarly, an increase
in discount rates could increase the periodic pension cost in subsequent fiscal years. If any of these events occur,
Valvoline may have to make cash payments to its pension plans, which would reduce the cash available for its
business. Finally, Valvoline’s policy to recognize changes in the fair value of the pension assets and liabilities
annually and as otherwise required through mark to market accounting could result in volatility in Valvoline’s
earnings, which could be material.

Valvoline may fail to adequately protect its intellectual property rights or may be accused of
infringing the intellectual property rights of third parties.

Valvoline relies heavily upon its trademarks, domain names and logos to market its brands and to build and
maintain brand loyalty and recognition. The Company’s success depends on the continued ability of Valvoline’s
company-owned and franchise service center stores continued ability to use the intellectual property and on the
adequate protection and enforcement of such intellectual property. Valvoline also relies on a combination of laws
and contractual restrictions with employees, customers, suppliers, affiliates and others, to establish and protect its
various intellectual property rights.

There can be no assurance that steps taken to protect and maintain the rights in Valvoline’s intellectual property will
be adequate, or that third parties will not infringe, misappropriate or violate the intellectual property. If any efforts to
protect the intellectual property are not adequate, or if any third party infringes, misappropriates or violates
Valvoline’s intellectual property, the value of its brands may be harmed. The occurrence of any of these events
could result in the erosion of Valvoline’s brands and limit its ability to market its brands using its various trademarks,
cause Valvoline to lose such trade secrets, as well as impede its ability to effectively compete against competitors
with similar products and services, any of which could adversely affect its business, financial condition and results of
operations.

From time to time, Valvoline has been subject to legal proceedings and claims, including claims of alleged
infringement of trademarks, copyrights, patents and other intellectual property rights held by third parties. In the
future, third parties may sue Valvoline for alleged infringement of their proprietary or intellectual property rights.
Valvoline may not be aware of whether its products do or will infringe on existing or future patents or other
intellectual property rights of others. In addition, litigation may be necessary to enforce Valvoline’s intellectual
property rights, protect its trade secrets or determine the validity and scope of proprietary rights claimed by others.
Any litigation or other intellectual property proceedings of this nature, regardless of outcome or merit, could result in
substantial costs and diversion of management and technical resources, or loss of rights in Valvoline’s intellectual
property, any of which could adversely affect Valvoline’s business, financial condition and results of operations.

Valvoline has incurred, and will continue to incur, costs as a result of Environmental Health and
Safety (“EHS”) compliance requirements, which could adversely impact Valvoline’s cash flow,
results of operations or financial condition.

Valvoline is subject to extensive federal, state, local and non-U.S. laws, regulations, rules and ordinances relating to
pollution, protection of the environment and human health and safety, as well as the storage, handling, treatment,

22

disposal and remediation of hazardous substances and waste materials. Valvoline has incurred, and will continue to
incur, costs and capital expenditures to comply with these laws and regulations.

EHS regulations change frequently, and such regulations and their enforcement have tended to become more
stringent over time. Accordingly, changes in EHS laws and regulations and the enforcement of such laws and
regulations could interrupt Valvoline’s operations, require modifications to its facilities or cause it to incur significant
liabilities, costs or losses that could adversely affect its profitability. Actual or alleged violations of EHS laws and
regulations could result in restrictions or prohibitions on service center operations as well as substantial damages,
penalties, fines, civil or criminal sanctions and remediation costs.

Valvoline’s business involves the purchase, storage and transportation of hazardous substances. Under some
environmental laws, Valvoline may be strictly liable and/or jointly and severally liable for environmental damages
caused by releases of hazardous substances and waste materials into the environment. For instance, under
relevant laws and regulations Valvoline may be deemed liable for soil and/or groundwater contamination at sites it
currently owns and/or operates even though the contamination was caused by a third party such as a former owner
or operator, and at sites it formerly owned and operated if the release of hazardous substances or waste materials
was caused by it or by a third party during the period it owned and/or operated the site. Valvoline also may be
deemed liable for soil and/or groundwater contamination at sites to which it sent hazardous wastes for treatment or
disposal, notwithstanding that the original treatment or disposal activity accorded with all applicable regulatory
requirements.

The Company’s Amended and Restated Articles of Incorporation (the “Articles”) designate the
Fayette County Circuit Court of the Commonwealth of Kentucky as the sole and exclusive forum
for substantially all disputes between the Company and its shareholders, which may limit a
shareholder’s ability to bring a claim in a favorable judicial forum for disputes with the Company
and its directors, officers or employees.

The Company’s Articles specify that the Fayette County Circuit Court of the Commonwealth of Kentucky shall be
the sole and exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action
asserting a breach of a fiduciary duty, any action asserting a claim arising pursuant to the Kentucky Business
Corporation Act, or any action asserting a claim governed by the internal affairs doctrine. This exclusive forum
provision does not apply to suits brought to enforce any duty or liability created by the Exchange Act or by the
Securities Act of 1933, as amended.

The Company believes that the exclusive forum provision in the Articles benefits the Company by providing
increased consistency in the application of Kentucky law for the specified types of actions and may benefit the
Company by preventing it from having to litigate claims in multiple jurisdictions (and incur additional expenses) and
be subject to potential inconsistent or contrary rulings by different courts, among other considerations. The
exclusive forum provision in the Articles, however, may have the effect of discouraging lawsuits against Valvoline's
directors, officers or employees as it could increase a shareholder’s cost to bring a claim or limit a shareholder’s
ability to bring a claim in a judicial forum that it finds favorable for such claims. In connection with any applicable
action brought against the Company, it is possible that a court could find the forum selection provisions contained in
the Articles to be inapplicable or unenforceable in such action. If a court were to render such a finding, the
Company may incur additional costs to resolve the action in other jurisdictions, which could adversely affect
Valvoline’s business, financial condition or results of operations.

Risks related to the pending sale of the Global Products business

The pending sale of the Global Products business is subject to various risks, uncertainties and
conditions and may not be completed on the terms or timeline currently contemplated, if at all.

On July 31, 2022, Valvoline entered into the Purchase Agreement to sell its former Global Products reportable
segment to Aramco for $2.65 billion in cash, subject to certain customary adjustments. The Purchase Agreement
provides that completion of the Transaction is subject to the satisfaction of standard closing conditions, including,
among other things, obtaining certain required regulatory and third-party approvals. The Transaction is expected to
close in early calendar year 2023. There can be no assurance regarding the ultimate timing of the Transaction or
that the Transaction will be completed. Unanticipated developments could delay, prevent or otherwise adversely

23

affect the Transaction, including but not limited to potential problems or delays in obtaining various regulatory
approvals.

During the period leading to closing the Transaction, or whether or not the Transaction is completed, the ongoing
businesses may be adversely affected, including as a result of one or more of the following:

•

•

•

•

•

•

•
•

the diversion of management’s attention from operating and growing the business as a result of the time
and effort required to execute the Transaction;
expenses incurred in connection with the Transaction, including the tax effects of the divestiture, in addition
to legal, professional advisory and consulting fees to complete the sale and separation of the legal entities
and business processes;
challenges in separating the businesses, including separating the assets and liabilities, infrastructure and
personnel, potentially resulting in delays and additional costs in achieving the completion of the
Transaction;
disruptions to and potential adverse impacts on relationships with suppliers, customers and others with
whom Valvoline does business;
challenges in establishing the desired capital structure for the remaining Valvoline business, including
challenges accessing the financial markets;
uncertainty among key employees concerning their future with Valvoline or the Buyer, leading to potential
distraction, as well as potential difficulty in attracting, retaining or motivating key employees during the
pendency of the Transaction and following its completion;
potential adverse impact on credit ratings; and
potential negative reactions from the financial markets if Valvoline fails to complete the Transaction as
currently expected.

Valvoline may be unable to achieve some or all of the strategic and financial benefits that it
expects to achieve from the Transaction.

After giving effect to estimated taxes and other expenses, Valvoline expects to receive net proceeds of
approximately $2.25 billion. Valvoline expects to use the net proceeds to accelerate return of capital to shareholders
through share repurchases, with the remainder used for debt reduction and to invest in growth opportunities in
Retail Services. In connection with the sale of Global Products, Valvoline expects to drive growth and shareholder
value as a best-in-class, pure-play automotive retail service provider.

The anticipated operational, financial, strategic and other benefits may not be achieved upon completion of the
Transaction and could have an adverse impact on Valvoline’s business, financial condition and results of
operations. The anticipated benefits are based on a number of assumptions, some of which may prove incorrect,
and could be affected by a number of factors beyond Valvoline’s control, including, without limitation, general
economic conditions, increased operating costs, regulatory developments and the other risks described in these risk
factors.

Following the Transaction, Valvoline will be dependent on Global Products for its product supply
and certain transition services for which Valvoline may be negatively affected if Global Products
is unable to provide these products or services.

In connection with the Transaction, the parties have agreed to enter into a Supply Agreement and an agreement for
certain transition services. Pursuant to the Supply Agreement, Valvoline will purchase substantially all lubricant and
certain ancillary products for its stores from Global Products after the Transaction. Additionally, Valvoline will
receive and provide certain transition services to Global Products following the Transaction. Valvoline will be
dependent on Global Products for product supply and each party will be reliant on one another for transition
services. Any interruption, delay, quality issue or other failure in product supply or service could result in disputes
between the parties or otherwise have an adverse effect on Valvoline’s business, financial condition, results of
operations, or cash flows.

24

Risks related to Valvoline’s separation from Ashland

The Distribution could result in significant tax liability to Ashland, and in certain circumstances,
Valvoline could be required to indemnify Ashland for material taxes pursuant to indemnification
obligations.

Ashland obtained a written opinion of counsel to the effect that the Distribution should qualify for non-recognition of
gain and loss under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”). The opinion does
not address any U.S. state, local or non-U.S. tax consequences of the Distribution. The opinion assumes that the
Distribution is completed according to the terms of certain agreements entered into between Ashland and Valvoline
and the accuracy of certain assumptions and representations and covenants made by the parties. The opinion is
not binding on the Internal Revenue Service (the “IRS”) or the courts, and thus there can be no assurance that the
IRS or a court will not take a contrary position.

If the Distribution were determined not to qualify for non-recognition of gain and loss, then Ashland would recognize
a gain as if it had sold its Valvoline common stock in a taxable transaction in an amount up to the fair market value
of the common stock it distributed in the Distribution. In addition, certain reorganization transactions undertaken in
connection with the separation and the Distribution could be determined to be taxable, which could result in
additional taxable gain. Under certain circumstances, Valvoline could have joint and several liability for gain
recognition relating to the separation from Ashland, and/or a substantial indemnification obligation to Ashland with
respect to the tax associated with some or all of such gain, which could have a material adverse impact on
Valvoline's financial condition.

Ashland has agreed to indemnify Valvoline for certain liabilities. However, there can be no
assurance that the indemnity will be sufficient to insure Valvoline against the full amount of such
liabilities, or that Ashland’s ability to satisfy its indemnification obligation will not be impaired in
the future.

Pursuant to the terms of the Separation Agreement and certain other agreements with Ashland, Ashland agreed to
indemnify Valvoline for certain liabilities. However, third parties could also seek to hold Valvoline responsible for any
of the liabilities that Ashland agreed to retain, and there can be no assurance that the indemnity from Ashland will
be sufficient to protect Valvoline against the full amount of such liabilities, or that Ashland will be able to fully satisfy
its indemnification obligations in the future. Even if Valvoline ultimately succeeded in recovering from Ashland any
amounts for which Valvoline is held liable, Valvoline may be temporarily required to bear these losses. Each of
these risks could negatively affect Valvoline’s business, financial position, results of operations and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Valvoline is headquartered in Lexington, Kentucky, where the Company leases over 210,000 square feet of office
and warehouse space to support operations across its business. In addition, Valvoline owns or leases the property
associated with 790 company-operated retail service center stores under the Valvoline Instant Oil ChangeSM and
Valvoline Great Canadian Oil Change brands throughout the United States and Canada, respectively. Valvoline’s
store leases typically have initial terms of 15 to 20 years with renewal options, exercisable at the Company’s
discretion.

Valvoline believes its physical properties are suitable and adequate for the Company’s business, and none of the
property owned by Valvoline is subject to any major known encumbrances. Additional information regarding lease
obligations may be found in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of
this Annual Report on Form 10-K.

25

ITEM 3. LEGAL PROCEEDINGS

From time to time, Valvoline is party to lawsuits, claims and other legal proceedings that arise in the ordinary course
of business. For a description of Valvoline's legal proceedings, refer to Note 11 of the Notes to Consolidated
Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES

Market information

Valvoline common stock is listed on the NYSE and trades under the symbol “VVV.” As of November 18, 2022, there
were approximately 8,500 registered holders of Valvoline common stock.

Dividend policy

The declaration and payment of dividends to holders of Valvoline common stock will be at the discretion of
Valvoline's Board of Directors (the “Board”) after taking into account various factors, including Valvoline’s financial
condition, operating results, current and anticipated cash needs, cash flows, impact on Valvoline’s effective tax rate,
indebtedness, legal requirements and other factors that the Board considers relevant. In addition, the instruments
governing Valvoline’s indebtedness may limit its ability to pay dividends. Therefore, no assurance is given that
Valvoline will pay any dividends to its stockholders, or as to the amount of any such dividends if the Board
determines to do so. As focus further shifts to the growth of Valvoline in connection with the sale of Global Products,
Valvoline expects to discontinue the dividend following the December 2022 payment and return value to
shareholders through share repurchases, the timing and amount of which will be at the discretion of the Company
and based on Valvoline’s liquidity, general business and market conditions, and other factors, including alternative
investment opportunities.

Stock performance graph

Valvoline has historically compared the cumulative total return on its common stock with that of the S&P MidCap
400 Consumer Staples Index. As a result of the Global Products business being classified as discontinued
operations and held for sale, the Company has added the S&P MidCap 400 Specialty Retail Index to reflect more
relevant comparisons for the continuing operations. The performance graph below presents the indices used in the
prior year and the newly selected index.

The following graph compares the cumulative total stockholder return on a $100 investment in Valvoline common
stock, the S&P MidCap 400 Index, the S&P MidCap Specialty Retail Index and the S&P MidCap 400 Consumer
Staples Index for the period from September 30, 2017 to September 30, 2022. This graph assumes an investment
in Valvoline common stock and each index were $100 on September 30, 2017 and that all dividends were
reinvested.

26

Five-year cumulative total shareholder returns

$200.00

$180.00

$160.00

$140.00

$120.00

$100.00

$80.00

09/30/17

09/30/18

09/30/19

09/30/20

09/30/21

09/30/22

Cumulative total returns
Valvoline Inc.

S&P MidCap 400 Index

Years ended September 30

2018

2019

2020

2021

2022

$

92.96 $

97.28 $

85.96 $ 143.36 $ 118.31

$ 114.21 $ 111.36 $ 108.96 $ 156.55 $ 132.68

S&P MidCap 400 Consumer Staples Index

$ 106.33 $ 105.24 $ 118.28 $ 135.81 $ 129.74

S&P MidCap 400 Specialty Retail Index

$ 122.23 $ 108.09 $ 119.71 $ 202.63 $ 136.76

Purchases of Company common stock

Repurchases of the Company’s common stock during the three months ended September 30, 2022 pursuant to the
May 17, 2021 Board authorization to repurchase up to $300 million of common stock through September 30, 2024
were:

Total Number of
Shares
Purchased

Average Price
Paid per Share

Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs

Dollar Value of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs (in
millions)

399,001 $

468,161 $

476,815 $

1,343,977 $

30.29

29.91

27.46

29.15

399,001 $

468,161 $

476,815 $

1,343,977

157.5

143.5

130.4

Fiscal Period

July 1, 2022 - July 31, 2022

August 1, 2022 - August 31, 2022

September 1, 2022- September 30, 2022

Total

ITEM 6. RESERVED

27

Index to Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Business Overview

Results of Operations - Consolidated Review

Financial Position, Liquidity and Capital Resources

New Accounting Pronouncements

Critical Accounting Estimates

Page

28

33

39

44

44

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and the
accompanying Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on
Form 10-K.

BUSINESS OVERVIEW AND PURPOSE

The quick, easy, and trusted name in preventive vehicle maintenance, Valvoline leads the industry with vehicle
service innovations that simplify customer’s lives and take the worry out of car care. With average customer ratings
that indicate high levels of service satisfaction, Valvoline has built a new model for transparency in vehicle
maintenance. From the signature 15-minute stay-in-your-car oil change to cabin air filters to battery replacements to
tire rotations, the Company’s model offers maintenance solutions for all types of vehicles. The Company operates
and franchises more than 1,700 service center locations that operate in 47 states in the United States (U.S.”) and
five provinces in Canada and is the second and third largest chain in the U.S. and Canada, respectively, by number
of stores through its Valvoline Instant Oil ChangeSM and Great Canadian Oil Change retail locations.

Valvoline is focused on expanding its footprint and driving a best-in-class customer experience, while evolving its
service offerings to capture growing opportunities in the market by growing non-oil change services, services for the
future of mobility, and pursuing fleet service solutions to address medium and heavy-duty vehicles that require
comprehensive maintenance needs.

Valvoline's fiscal year ends on September 30 of each year.

RECENT DEVELOPMENTS

On July 31, 2022, the Company entered into a definitive agreement to sell its Global Products business to Aramco
Overseas Company B.V. (“Aramco”) for a cash purchase price of $2.65 billion, subject to customary adjustments
with respect to working capital and net indebtedness (the “Transaction”). The Transaction is subject to standard
closing conditions, including regulatory approvals and is expected to close in early calendar year 2023. The
divestiture of the Global Products business allows the Company to focus exclusively on its retail business and
represents a strategic shift in operations. The assets and liabilities associated with Global Products have been
classified as held for sale within the Consolidated Balance Sheets, and the Global Products operations have been
classified as discontinued operations and are reported separately for all periods presented herein. Refer to Note 3
included in Item 8 of Part II of this Annual Report on Form 10-K for further discussion regarding the divestiture.

Once the Transaction closes, Valvoline will retain the Valvoline brand for all retail services purposes globally,
excluding China and certain countries in the Middle East and North Africa, while Global Products will own the
Valvoline brand for all product uses globally. Based on this brand-sharing arrangement, there will be no licensing

28

fees between the parties. In addition, Valvoline will procure motor oil and related products from the Global Products
business through a long-term supply agreement that will be effective following the close of the Transaction.

Estimated net proceeds of approximately $2.25 billion, after taxes and other expenses, are expected to be utilized
to accelerate the return of capital to shareholders through share repurchases with the remainder used for debt
reduction and to invest in growth opportunities within the retail services business. Valvoline anticipates enhancing
its capital structure through targeting a 2.5 to 3.5 times adjusted EBITDA net leverage ratio to allow for both
investment in the business as well as delivery of returns to shareholders through share repurchases.

FISCAL 2022 OVERVIEW

Key operating highlights from continuing operations are presented below, each of which is discussed more fully in
this Annual Report on Form 10-K:

Summarized below are Valvoline's trends in the results of its continuing operations net revenues, income from
continuing operations, and adjusted EBITDA over the last three fiscal years:

Net revenues
(In millions)

Income from continuing
operations
(In millions)

Adjusted EBITDA (a)
(In millions)

$1,037.2

$1,236.1

$727.0

$200.1

$109.4

$166.0

$69.6

$277.0

$315.7

2020

2021

2022

2020

2021

2022

2020

2021

2022

(a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below. Also refer
to the “Continuing operations EBITDA and Adjusted EBITDA” section within “Results of Operations” below for a reconciliation of income
from continuing operations to Adjusted EBITDA for each period presented above.

Net revenues and adjusted EBITDA increased for the fiscal year ended September 30, 2022 over the prior year
periods due to strong top-line performance from system-wide SSS growth driven by contributions from both
transactions and average ticket, in addition to acquisitions. Income from continuing operations decreased for the

29

fiscal year ended September 30, 2022 compared to the prior year primarily driven by the remeasurement of pension
and other postretirement plans that generated losses in fiscal 2022 compared to gains in the prior year, as well as
separation-related expenses incurred in fiscal 2022 to evaluate and plan for the separation of the Company’s
businesses. Each of these measures is discussed further below.

Fiscal year 2022 marked the 16th consecutive year for system-wide same-store-sales ("SSS") growth and added
121 net new stores to the system. The table below highlights the growth over the last two years:

(In millions, except store count)
System-wide store sales (a)
System-wide store count (a)

System-wide SSS growth (a)

Fiscal Year
2022

$

2,360.2

1,715

Growth vs.
2021

Growth vs.
2020

20 %

8 %

55 %

17 %

Years ended September 30
2021

2020

2022

13.7 %

21.2 %

2.3 %

(a) Measures include Valvoline franchisees, which are independent legal entities. Refer to the “Key Business Measures” section below for

additional details on these key business measures, including management’s definitions.

Summarized below are Valvoline's trends in net income and adjusted EBITDA for the continuing operations over the
interim quarterly periods for the last two fiscal years:

Continuing operations interim results trends
(In millions)

$150.0

$100.0

$50.0

$100.0

$75.0

$50.0

$25.0

Q1’21

Q2’21

Q3’21

Q4’21

Q1’22

Q2’22

Q3’22

Q4’22

Adjusted EBITDA (a)

Income from continuing operations

(a) Adjusted EBITDA is a non-GAAP measure, further described and defined within the “Use of Non-GAAP Measures” section below. Also refer
to the “Continuing operations EBITDA and Adjusted EBITDA” section within “Results of Operations” below for a reconciliation of income
from continuing operations to Adjusted EBITDA for each period presented above.

COVID-19 UPDATE

Valvoline has substantially maintained its operations, demonstrating growth and strong results, while managing
through the effects of the COVID-19 global pandemic. Valvoline’s global offices and locations have established
protocols based on continuous monitoring of the circumstances and trend data surrounding the pandemic. During
fiscal 2022, Valvoline updated its protocols, easing restrictions. Employees are allowed to more broadly travel for
business and are encouraged to reconnect and collaborate on-site in locations and circumstances where protocols
support in-person work, while the flexibility and convenience for employees to work remotely has been maintained
in many locations.

30

Management is unable to reasonably quantify the impact of COVID-19 on its current year results. The continually
evolving COVID-19 pandemic remains uncertain and its future impact on Valvoline will depend on a number of
factors, including among others, the duration and severity of the spread of COVID-19, emerging variants, vaccine
and booster effectiveness, public acceptance of safety protocols, and government measures, including vaccine and
mask mandates, among others. While the Company cannot predict the duration or the scale of the COVID-19
pandemic, or the effect it may continue to have on Valvoline's business, results of operations, or liquidity,
management continuously monitors the situation, the sufficiency of its responses, and makes adjustments as
needed.

Use of Non-GAAP Measures

To aid in the understanding of Valvoline’s ongoing business performance, certain items within this document are
presented on an adjusted, non-GAAP basis. These non-GAAP measures have limitations as analytical tools and
should not be considered in isolation from, or as an alternative to, or more meaningful than, the financial statements
presented in accordance with U.S. GAAP. The financial results presented in accordance with U.S. GAAP and
reconciliations of non-GAAP measures included within this Annual Report on Form 10-K should be carefully
evaluated.

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

•

EBITDA - net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and
depreciation and amortization;

• Adjusted EBITDA - EBITDA adjusted for certain unusual, infrequent or non-operational activity not directly

attributable to the underlying business, which management believes impacts the comparability of
operational results between periods ("key items," as further described below);

• Adjusted EBITDA margin - adjusted EBITDA divided by net revenues;

•

Free cash flow - cash flows from operating activities less capital expenditures and certain other
adjustments as applicable; and

• Discretionary free cash flow - cash flows from operating activities less maintenance capital expenditures

and certain other adjustments as applicable.

These measures are not prepared in accordance with U.S. GAAP and management believes the use of non-GAAP
measures provides a useful supplemental presentation of Valvoline's operating performance, enables comparison
of financial trends and results between periods where certain items may vary independent of business performance,
and allows for transparency with respect to key metrics used by management in operating the business and
measuring performance. The non-GAAP information used by management may not be comparable to similar
measures disclosed by other companies, because of differing methods used in calculating such measures. For a
reconciliation of the most comparable U.S. GAAP measures to the non-GAAP measures, refer to the “Results of
Operations” and “Financial Position, Liquidity and Capital Resources” sections below.

Management believes EBITDA measures provide a meaningful supplemental presentation of Valvoline’s operating
performance due to the depreciable assets associated with the nature of the Company’s operations and income tax
and interest costs related to Valvoline’s tax and capital structures, respectively. Adjusted EBITDA measures exclude
the impact of key items, which consist of income or expenses associated with certain unusual, infrequent or non-
operational activity not directly attributable to the underlying business that management believes impacts the
comparability of operational results between periods. Adjusted EBITDA measures enable comparison of financial
trends and results between periods where key items may vary independent of business performance. Key items are
often related to legacy matters or market-driven events considered by management to be outside the comparable
operational performance of the business.

Key items may consist of adjustments related to: legacy businesses, including Valvoline’s separation from its former
parent company and the impacts of related indemnities; the separation of Valvoline’s current businesses; significant
acquisitions or divestitures; restructuring-related matters; and other matters that are non-operational or unusual in
nature. Key items also include:

31

Net pension and other postretirement plan expense/income - 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, and 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/credit.
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 markets (in particular, interest rates), 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. Adjusted EBITDA includes the costs of benefits provided to employees for
current service, including pension and other postretirement service costs.

Details with respect to the composition of key items recognized during the respective periods presented herein are
set forth below in the “EBITDA and Adjusted EBITDA” section of “Results of Operations” that follows.

Management uses free cash flow and discretionary free cash flow as additional non-GAAP metrics of cash flow
generation. By including capital expenditures and certain other adjustments, as applicable, management is able to
provide an indication of the ongoing cash being generated that is ultimately available for both debt and equity
holders as well as other investment opportunities. Free cash flow includes the impact of capital expenditures,
providing a supplemental view of cash generation. Discretionary free cash flow includes the impact of maintenance
capital expenditures, which are routine uses of cash that are necessary to maintain the Company's operations and
provides a supplemental view of cash flow generation to maintain operations before discretionary investments in
growth. Free cash flow and discretionary free cash flow have certain limitations, including that they do not reflect
adjustments for certain non-discretionary cash flows, such as mandatory debt repayments.

Key Business Measures

Valvoline tracks its operating performance and manages its business using certain key measures, including system-
wide, company-operated and franchised store counts and SSS and system-wide store sales. Management believes
these measures are useful to evaluating and understanding Valvoline’s operating performance and should be
considered as supplements to, not substitutes for, Valvoline's sales and operating income, as determined in
accordance with U.S. GAAP.

Sales are influenced by the number of service center stores and the business performance of those stores. Stores
are considered open upon acquisition or opening for business. Temporary store closings remain in the respective
store counts with only permanent store closures reflected in the activity and end of period store counts. SSS is
defined as sales by U.S. stores (company-operated, franchised and the combination of these for system-wide SSS),
with new stores, including franchised conversions, excluded from the metric until the completion of their first full
fiscal year in operation as this period is generally required for new store sales levels to begin to normalize.

Sales are limited to sales at company-operated stores, in addition to royalties and other fees from independent
franchised and Express Care stores. Although Valvoline does not recognize store-level sales from franchised stores
as sales in its Consolidated Statements of Comprehensive Income, management believes system-wide and
franchised SSS comparisons, store counts, and total system-wide store sales are useful to assess market position
relative to competitors and overall operating performance.

32

RESULTS OF OPERATIONS

The following summarizes the results of the Company’s continuing operations for the years ended September 30:

(In millions)

Net revenues

Gross profit

2022

2021

$

%

2021

2020

$

%

2022 vs. 2021

2021 vs. 2020

$1,236.1 $1,037.2 $ 198.9

19.2 % $1,037.2 $ 727.0

$ 310.2

$476.4

$432.3

44.1

10.2 % $ 432.3

$ 301.0

$ 131.3

42.7 %

43.6 %

Gross profit margin

38.5 %

41.7 %

Net operating expenses

$256.1

$192.2

Percentage of net revenues

20.7 %

18.5 %

$220.3

$240.1

(320) bps

41.7 %

41.4 %

30 bps

63.9

33.2 % $ 192.2

$ 140.8

220 bps

18.5 %

19.4 %

(19.8)

(8.2)% $ 240.1

$ 160.2

$

$

51.4

36.5 %

(90) bps

79.9

49.9 %

$

$

$

Operating income

Operating margin

Income from continuing
operations

17.8 %

23.1 %

(530) bps

23.1 %

22.0 %

110 bps

$109.4

$200.1

$

(90.7)

(45.3)% $ 200.1

$ 69.6

$ 130.5

187.5 %

EBITDA

$284.8

$430.4

$ (145.6)

(33.8)% $ 430.4

$ 255.6

$ 174.8

Adjusted EBITDA

$315.7

$277.0

$

38.7

14.0 % $ 277.0

$ 166.0

$ 111.0

68.4 %

66.9 %

Adjusted EBITDA margin

25.5 %

26.7 %

(120) bps

26.7 %

22.8 %

390 bps

Net revenues

2022 compared to 2021

Net revenues increased 19.2% over the prior year period due to system-wide SSS growth and unit acquisitions.
Valvoline marked its 16th consecutive year of system-wide SSS growth, delivering 13.7% growth compared to the
prior year driven by contributions from both transactions and average ticket. Net revenues also benefited from unit
additions of 121 net new stores. The following reconciles the year-over-year changes in net revenues:

2021 to 2022 changes in Net revenues
(In millions)

$1,037.2

40.3

36.0

(0.7)

(3.3)

98.7

27.9

$1,236.1

2021 Net
revenues

Mix

Acquisitions

Volume

Price

Currency
exchange

Suspended
operations

2022 Net
revenues

2021 compared to 2020

Net revenues in 2021 increased 42.7% due to volume growth compared to the prior year COVID-19 lows due to
strong SSS, unit growth, and benefits from acquisitions completed. System-wide SSS grew 21.2% compared to the
prior year period driven by increased transactions and high single-digit growth in average ticket. Transactions
benefited from customer base expansion in addition to recovery from the most significant restrictions and limited

33

travel during the onset of the pandemic in the prior year. Average ticket increases were driven by pricing and mix
improvements, including the shift to synthetics and higher non-oil change services. Year-over-year system-wide unit
growth of 9% also contributed to volumes and sale through the addition of 132 net new stores. The following
reconciles the year-over-year changes in net revenues:

2020 to 2021 changes in Net revenues
(In millions)

120.0

36.7

2.6

4.5

$1,037.2

76.7

69.7

$727.0

2020 Net
revenues

Mix

Acquisitions

Volume

Price

Currency
exchange

Suspended
operations

2021 Net
revenues

Gross profit

2022 compared to 2021

Gross profit improved 10.2% driven by increased transactions and higher average ticket from premiumization and
non-oil change services, as well as unit growth. These benefits were partially offset by product and labor inflationary
cost pressures. The following reconciles the year-over-year changes in gross profit:

2021 to 2022 changes in Gross profit
(In millions)

$432.3

18.8

47.7

$476.4

(0.7)

(20.7)

(0.3)

(0.7)

2021
Gross
profit

Mix

Acquisitions

Volume

Price and
cost

Currency
exchange

Suspended
operations

2022
Gross
profit

The decline in gross profit margin compared to the prior year was primarily the result of result of higher costs and
the dilutive impact from passing through cost increases.

2021 compared to 2020

Gross profit improved driven by higher volumes from the prior year unfavorable impacts of the COVID-19 pandemic.
Benefits included higher average ticket from the ongoing shift to synthetics as well as unit growth primarily driven by
acquisitions made during the year. The following reconciles the year-over-year changes in gross profit:

34

2020 to 2021 changes in Gross profit
(In millions)

29.8

9.1

$301.0

64.1

29.1

1.0

$432.3

(1.8)

2020
Gross
profit

Mix

Acquisitions

Volume

Price and
cost

Currency
exchange

Suspended
operations

2021
Gross
profit

Gross profit margin slightly increased compared to the prior year primarily due to premiumization benefits realized
partially offset by labor investments made during the period.

Net operating expenses

Details of the components of net operating expenses are summarized below for the years ended September 30:

(In millions)

2022

2021

$

%

2021

2020

$

%

Variance

Variance

Selling, general and administrative
expenses

Net legacy and separation-related
expenses (income)

$ 244.7 $ 223.9 $ 20.8

9.3 % $ 223.9 $ 177.2 $ 46.7

26.4 %

20.5

(23.6)

44.1

(186.9)% (23.6)

(30.0)

6.4

(21.3)%

Other income, net

(9.1)

(8.1)

(1.0)

12.3 %

(8.1)

(6.4)

(1.7)

26.6 %

Net operating expenses

$ 256.1 $ 192.2 $ 63.9

33.2 % $ 192.2 $ 140.8 $ 51.4

36.5 %

2022 compared to 2021

Increased selling, general and administrative expenses in the current year resulted from investments to support
future growth, including advertising and travel, in addition to inflationary cost increases, and to lesser extent,
information technology investments and transitions, costs related to suspended operations, and depreciation and
amortization.

Net legacy and separation-related expenses incurred in the current year were primarily related to evaluating and
planning for the separation of the Company’s businesses. These costs included legal, tax and accounting, and other
professional advisory and consulting fees, which were generally incurred in the period prior to entering into the
Purchase Agreement to sell the Global Products business. The combination of these expenses and legacy-related
matters, including settlement benefits recognized, resulted in $20.5 million of expense in fiscal 2022. The prior year
included favorable adjustments of tax-related indemnity obligations as a result of the settlement of tax examinations.

The modest increase in other income, net was primarily driven by an economic incentive received during fiscal
2022.

35

2021 compared to 2020

The increase in selling, general and administrative expenses was primarily due to higher advertising expenses that
were restricted in fiscal 2020 due to the severity of the COVID-19 pandemic, increased variable compensation
driven by the Company’s strong performance in fiscal 2021, in addition to investments made to support future
growth, including acquisitions of service center stores.

Net legacy and separation-related income was lower in fiscal 2021 as adjustments of tax-related indemnity
obligations related to the settlement of tax examinations resulted in lower reductions than the prior year adjustments
for the change in utilization expectations of certain legacy attributes.

The increase in other income, net was primarily driven by recoveries related to the settlement of a legal matter.

Net pension and other postretirement plan income

2022 compared to 2021

Net pension and other postretirement plan expense increased $135.1 million from the prior year primarily due to the
loss on pension and other postretirement plan remeasurement of $43.9 million compared to a gain of $74.3 million
in fiscal 2021. The loss in fiscal 2022 was primarily driven by lower-than-expected performance of plan assets in the
current year remeasurement, which more than offset reduced plan obligations from remeasurement at higher
discount rates. Additionally, lower recurring non-service income during the year of $16.9 million included $9.7 million
of reduced amortization of prior service credits into income from certain other postretirement plan amendments that
ceased amortization beginning in fiscal 2022 and also attributed to the increase in expense during the year.

2021 compared to 2020

Net pension and other postretirement plan income increased $73.3 million in fiscal 2021 from the prior year primarily
due to the gain on pension and other postretirement plan remeasurement of $74.3 million compared to a gain of
$18.6 million in fiscal 2020. This increased gain was primarily attributed to higher discount rates in the fiscal 2021
plan remeasurement. In addition, lower interest cost recognized throughout fiscal 2021 drove higher recurring non-
service income.

Net interest and other financing expenses

2022 compared to 2021

Net interest and other financing expense decreased $39.0 million during fiscal 2022 compared to the prior year. The
decrease was driven by debt extinguishment costs of $36.4 million associated with the prior year redemption of the
4.375% senior unsecured notes due 2025 with an aggregate principal amount of $800.0 million (the “2025 Notes”).

2021 compared to 2020

Net interest and other financing expense increased $16.2 million in fiscal 2021 compared to fiscal 2020. The
increase was driven by higher debt extinguishment costs of $17.0 million as the expense associated with the
redemption of the 2025 Notes in fiscal 2021 exceeded those incurred in connection with the extinguishment of the
5.500% senior unsecured notes due 2024 with an aggregate principal amount of $375.0 million (the “2024 Notes”)
in the prior year.

Income tax expense

The following table summarizes income tax expense and the effective tax rate during the years ended September
30:

(In millions)

Income tax expense

Effective tax rate percentage

2022

2021

2020

34.7

$

24.1 %

59.9

$

23.0 %

53.4

43.4 %

$

36

2022 compared to 2021

The higher effective tax rate in fiscal 2022 from the prior year was principally driven by tax benefits recognized
during the prior year period as a result of audit settlements. Lower pre-tax income in fiscal 2022 resulted in lower
current year tax expense over the prior year.

2021 compared to 2020

The lower year-over-year effective tax rate in fiscal 2021 was primarily driven by increased expense recognized in
fiscal 2020 to establish a $28.5 million valuation allowance on certain legacy tax attributes, which did not recur in
fiscal 2021. Additionally, increased pre-tax income in fiscal 2021 resulted in higher income tax expense over fiscal
2020.

Income from discontinued operations, net of tax

Income from discontinued operations, net of tax for the years ended September 30 are as follows:

(In millions)

2022

2021

2020

Income from discontinued operations, net of tax

$

314.9 $

220.2 $

247.0

2022 compared to 2021

Net income from discontinued operations, net of tax increased $94.7 million during fiscal 2022 compared to the prior
year. The increase was driven by a $99.1 million deferred income tax benefit related to the realization of the book-
tax basis differences in the non-US entities that will be sold with the Global Products business. This benefit was
partially offset by increased costs due to the inflationary raw material cost environment which were moderated by
strong top-line growth from passing through raw material cost increases in pricing.

2021 compared to 2020

Income from discontinued operations, net of tax decreased $26.8 million during fiscal 2021 compared to the prior
year. The decrease was driven by significant raw material costs increases in the second half of fiscal 2021 and
higher operating expenses to support market growth partially offset by net revenues growth driven by higher
volumes across all regions, product mix benefits, improved equity income, as well as currency exchange.

Fiscal 2023

As discussed herein, on July 31, 2022, the Company entered into a definitive agreement to sell its Global Products
business for a cash purchase price of $2.65 billion, subject to customary adjustments with respect to working capital
and net indebtedness. The Transaction is subject to standard closing conditions, including regulatory approvals and
is expected to close in early calendar year 2023. Valvoline expects to recognize a substantial gain upon closing this
Transaction within Income from discontinued operations. As of September 30, 2022, total assets and liabilities
associated with the Global Products business classified as held for sale were $1.46 billion and $539.3 million,
respectively.

37

Continuing operations EBITDA and Adjusted EBITDA

The following reconciles net income from continuing operations to EBITDA and Adjusted EBITDA for the years
ended September 30:

(In millions)
Net income
Income tax expense

Net interest and other financing expenses

Depreciation and amortization

EBITDA

Net pension and other postretirement plan expenses (income)

Net legacy and separation-related expenses (income)

Suspended operations

Information technology transition costs
Restructuring-related adjustments

Compensated absences benefits change
Acquisition costs
Adjusted EBITDA (a)

2022

2021

2020

$

109.4 $

200.1 $

34.7

69.3

71.4

284.8

6.9

20.5

0.9

2.6

—

59.9

108.3

62.1

430.4

(128.2)

(23.6)

(1.5)

—

(0.1)

—
—
315.7 $

—
—
277.0 $

$

69.6

53.4

92.1

40.5

255.6

(55.0)

(30.0)

(1.3)

—

0.3

(4.9)
1.3
166.0

(a) Net pension and other postretirement plan expenses (income) includes remeasurement gains and losses and recurring non-service pension
and other postretirement net periodic income, which consists of interest cost, expected return on plan assets and amortization of prior
service credit. Refer to Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on
Form 10-K for further details.

The following reconciles net income from continuing operations to EBITDA and Adjusted EBITDA for each quarter
of the fiscal year ended September 30, 2022:

(In millions)
Net income
Income tax expense

Net interest and other financing expenses

Depreciation and amortization

EBITDA

Net pension and other postretirement plan (income) expense

Net legacy and separation-related expense

Suspended operations

Information technology transition costs

Adjusted EBITDA

First
Quarter
2022

Second
Quarter
2022

Third
Quarter
2022

Fourth
Quarter
2022

$

34.2 $

23.0 $

39.8 $

10.1

17.0

16.9

78.2

(9.3)

2.8

(0.3)

1.0

9.3

16.9

17.6

66.8

(9.2)

6.2

4.0

1.6

13.2

17.3

17.6

87.9

(9.2)

9.9

(2.2)

—

$

72.4 $

69.4 $

86.4 $

12.4

2.1

18.1

19.3

51.9

34.6

1.6

(0.6)

—

87.5

38

The following reconciles net income from continuing operations to EBITDA and Adjusted EBITDA for each quarter
of the fiscal year ended September 30, 2021:

(In millions)
Net income
Income tax expense

Net interest and other financing expenses

Depreciation and amortization

EBITDA

First
Quarter

2021

Second
Quarter

2021

Third
Quarter

2021

Fourth
Quarter

2021

$

18.1 $

8.3 $

49.0 $

124.7

6.6

20.5

14.0

59.2

2.5

53.8

15.2

79.8

17.3

16.7

15.8

98.8

33.5

17.3

17.1

192.6

(87.8)

(25.3)

(0.7)

—

78.8

Net pension and other postretirement plan income

(13.3)

(13.4)

(13.7)

Net legacy and separation-related expense (income)

Suspended operations

Restructuring-related adjustments

Adjusted EBITDA

2022 compared to 2021

0.6

(0.4)

(0.1)

0.3

(0.1)

—

0.8

(0.3)

—

$

46.0 $

66.6 $

85.6 $

Adjusted EBITDA increased $38.7 million, or 14.0%, for the year ended September 30, 2022 compared to the prior
year driven by top-line expansion and partially offset by increased costs due to inflationary pressures and increased
operating expenses to support top-line growth.

2021 compared to 2020

Adjusted EBITDA increased $111.0 million, or 66.9% in fiscal 2021 compared to the prior year. Exceptional system-
wide SSS growth due to increased transactions over the effects of the COVID-19 slowdown in fiscal 2020 and
improved average ticket, in addition to benefits from acquisitions were partially offset by increased operating
expenses principally to support growth.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Overview

The Company closely manages its liquidity and capital resources. Valvoline’s liquidity requirements depend on key
variables, including the level of investment needed to support business strategies, the performance of the business,
capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, acquisitions,
share repurchases, and dividend payments are components of the Company’s cash flow and capital management
strategy, which to a large extent, can be adjusted in response to economic and other changes in the business
environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key
priorities that support Valvoline’s business and growth strategies and returning capital to shareholders, while
funding ongoing operations.

39

Continuing operations cash flows

Valvoline’s continuing operations cash flows as reflected in the Consolidated Statements of Cash Flows are
summarized as follows for the years ended September 30:

(In millions)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities

Operating activities

2022 compared to 2021

2022

2021

2020

$
$
$

134.4 $
(170.9) $
(262.9) $

182.2 $
(358.7) $
(526.1) $

127.2
(159.4)
345.2

The decrease in cash flows from continuing operations provided by operating activities during fiscal 2022 compared
to 2021 was largely driven by spend related to evaluating and planning for the separation of the businesses, in
addition to unfavorable changes in other assets and liabilities primarily due to cloud computing investments and the
timing of certain prepayments.

2021 compared to 2020

The increase in cash flows from continuing operations provided by operating activities during fiscal 2021 compared
to 2020 was primarily driven by higher cash earnings, partially offset by unfavorable changes in other assets and
liabilities.

Investing activities

2022 compared to 2021

The decrease in cash flows from continuing operations used in investing activities for fiscal 2022 compared to 2021
was primarily due to lower current year acquisition activity of $231.0 million, partially offset by higher current year
additions to property, plant, and equipment of $28.9 million.

2021 compared to 2020

The increase in cash flows from continuing operations used in investing activities for fiscal 2021 compared to 2020
was primarily due to higher acquisition activity of $241.6 million in fiscal 2021, partially offset by franchisee
COVID-19 relief loan activity where repayments in fiscal 2021 compared to lending in fiscal 2020 to generate a
$44.6 million year-over-year source of cash.

Financing activities

2022 compared to 2021

The decrease in cash flows from continuing operations used in financing activities for fiscal 2022 compared to 2021
was primarily due to:

•

•

Returning $14.0 million more in cash to shareholders through an increase in share repurchases.

Net repayments on borrowings were $283.2 million less during the current fiscal year due to the prior year
redemption of the $800.0 million 2025 Notes using proceeds from the issuance of the $535.0 million 2031
Notes in combination with cash and cash equivalents.

40

2021 compared to 2020

The increase in cash flows from continuing operations used in financing activities for fiscal 2021 compared to 2020
was primarily due to:

•

•

Returning $73.7 million more in cash to shareholders through increased share repurchases and dividends
in fiscal 2021. These increases were due to the resumption of share repurchase activity following the
suspension in the prior year at the onset of the COVID-19 pandemic to preserve liquidity along with an 11%
increase in the dividend rate during fiscal 2021.

Increased net repayments on borrowings during fiscal 2021 due to net proceeds from the $535.0 million
2031 Notes and cash and cash equivalents used to redeem the $800.0 million 2025 Notes. During fiscal
2020, net proceeds primarily related to the issuance of the 4.250% senior unsecured notes due 2030 with
an aggregate principal amount of $600.0 million (the “2030 Notes”).

Continuing operations free cash flow

The following table sets forth free cash flow and discretionary cash flow from continuing operations and reconciles
cash flows from operating activities to both measures. As previously noted, free cash flow has certain limitations,
including that it does not reflect adjustments for certain non-discretionary cash flows, such as mandatory debt
repayments. Refer to “Use of Non-GAAP Measures” within this Item 7 for additional information regarding this non-
GAAP measure.

(In millions)
Cash flows provided by operating activities
Less: Maintenance capital expenditures

Discretionary free cash flow

Less: Growth capital expenditures

Free cash flow

2022 compared to 2021

For the years ended September 30

2022

2021

2020

$

$

134.4 $
(19.3)
115.1
(112.7)

2.4 $

182.2 $
(17.6)
164.6
(85.5)
79.1 $

127.2
(15.2)
112.0
(78.8)
33.2

The decrease in free cash flow from continuing operations over the prior year was driven by lower cash flow
provided by operating activities along with increased investments in capital expenditures. Cash flow from operating
activities includes increased spend in the current year related to evaluating and planning the separation of
Valvoline’s businesses, while higher capital expenditures primarily related growth-related investments in new store
construction within the United States.

2021 compared to 2020

The increase in free cash flow from continuing operations for fiscal 2021 compared to fiscal 2020 was driven by
higher cash flow provided by operating activities, partially offset by increased capital expenditures during fiscal
2021, primarily related to new store construction and capital improvements for acquired stores.

Discontinued operations cash flows

Valvoline has historically satisfied its short-term working capital and operational needs, in addition to indebtedness
and other obligations, through the earnings, assets and cash flows generated by its consolidated operations.
Following the Transaction, Valvoline will not be able to rely on the earnings, assets or cash flows that are
attributable to the Global Products business. The cash flows of the discontinued operation are reflected in the
Consolidated Statements of Cash Flows and are summarized below for the years ended September 30:

41

(In millions)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities

2022 compared to 2021

2022

2021

2020

$
$
$

149.8 $
(36.7) $
44.0 $

221.7 $
(41.2) $
(9.4) $

244.5
(63.2)
105.1

The decrease in operating cash flows provided by discontinued operations was primarily driven by unfavorable
changes in net working capital due to increases in receivables and inventory. Investing activities of the discontinued
operation were lower in fiscal 2022 primarily related to decreased capital expenditures due to higher spend in fiscal
2021 as the China blending and packaging facility commenced operation. Financing activities provided cash in
fiscal 2022 due to net proceeds from borrowings under the Accounts Receivable Securitization Facility, while the
prior year had net repayment activity primarily attributed to the Accounts Receivable Securitization Facility that more
than offset borrowings under the China Construction Facility.

2021 compared to 2020

The decrease in cash flows provided from operating activities by discontinued operations was driven by lower
income from discontinued operations during fiscal 2021 primarily attributed to raw material cost inflation. Investing
activities of the discontinued operation were lower in fiscal 2021 compared to fiscal 2020 driven by lower capital
expenditures related to the China blending and packaging facility, which was being constructed during fiscal 2020.
Financing activities were a use of cash in fiscal 2021 due to net repayments driven by the Accounts Receivable
Securitization Facility partially offset by borrowings under the China Construction Facility, while both facilities
provided net proceeds during fiscal 2020 in support of maintaining liquidity during the COVID-19 pandemic and
construction of the China blending and packaging plant.

Debt

The following table summarizes Valvoline’s continuing operations debt as of September 30:

(In millions)

2031 Notes

2030 Notes

Term Loan

Trade Receivables Facility

Debt issuance costs and discounts

Total debt

Current portion of long-term debt

Long-term debt

2022

2021

$

535.0 $

600.0

460.0

105.0

(12.4)

1,687.6

162.5

535.0

600.0

475.0

58.5

(13.8)

1,654.7

—

$

1,525.1 $

1,639.7

Inclusive of the Company’s interest rate swap agreements, approximately 87% of Valvoline's outstanding
borrowings as of September 30, 2022 had fixed rates, with the remainder bearing variable interest rates. As of
September 30, 2022, Valvoline was in compliance with all covenants of its debt obligations and had borrowing
capacity remaining of $470.0 million for its facilities expected to remain in place after closing the Transaction. Refer
to Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on
Form 10-K for additional details regarding the Company’s debt instruments.

42

Material cash requirements

The Company's material cash requirements for the continuing operations include the following contractual
obligations and commitments as of September 30, 2022:

(In millions)
Long-term debt (a) (b)
Interest payments (a) (c)
Operating lease obligations
Finance lease obligations
Employee benefit obligations (d)

Total

Total

Less than
1 year

1-3
years

3-5
years

$

$

1,700.0 $
392.0
315.8
270.9
95.8
2,774.5 $

162.5 $

58.1
36.8
20.1
9.0
286.5 $

402.5 $

— $

95.2
68.2
40.7
20.7

89.8
60.8
42.1
21.1

627.3 $

213.8 $

5 years
and more
1,135.0
148.9
150.0
168.0
45.0
1,646.9

(a)

In connection the sale of the Global Products business, outstanding borrowings and interest under the Accounts Receivable Securitization
Facility are required to be repaid and are presented within the less than 1 year categories above. The cash flows associated with these
repayments will be reported as cash flows attributed to the discontinued operation.

(b) A portion of the net proceeds from the sale of Global Products may be utilized to reduce debt that is classified in the table above based on

(c)

(d)

its current contractual maturity.
Includes interest expense on both variable and fixed rate debt, assuming no prepayments other than for the Accounts Receivable
Securitization Facility noted above. Variable interest rates have been assumed to remain constant through payment at the rates that existed
as of September 30, 2022.
Includes projected benefit payments through fiscal 2032 for Valvoline’s unfunded benefit plans. Excludes benefit payments from pension
plan trust funds.

Fiscal 2023 capital expenditures

Valvoline is currently forecasting approximately $170.0 million to $200.0 million of capital expenditures for fiscal
2023, funded primarily from operating cash flows.

Pension and other postretirement plan obligations

The Company makes cash and non-cash contributions and payments for its pension and other postretirement
plans. During fiscal 2022, these were $16.2 million, consisting of $7.9 million in cash payments, for U.S. plans within
the continuing operations and $2.5 million of cash contributions and payments for non-U.S. plans attributed to the
discontinued operation. Based on current data and assumptions, the Company does not anticipate the need to
satisfy any minimum funding requirements to its U.S. qualified pension plans for at least the next 5 years. Refer to
Note 10 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K
for additional information regarding the Company's U.S. pension and other postretirement plans.

Dividend payments and share repurchases

During the year ended September 30, 2022, the Company paid $89.2 million of cash dividends for $0.500 per
common share and repurchased approximately 4.5 million shares of its common stock for $142.6 million. Share
repurchases were made pursuant to the May 17, 2021 Board to repurchase up to $300 million of common stock
through September 30, 2024 (the "2021 Share Repurchase Authorization").

On November 21, 2022, the Board approved a quarterly cash dividend of $0.125 per share of common stock. The
dividend is payable December 15, 2022 to shareholders of record on December 2, 2022. Additionally, the Company
repurchased approximately 1.8 million shares for an aggregate amount of $51.2 million from October 1, 2022
through November 18, 2022 pursuant to the 2021 Share Repurchase Authorization.

The Company announced on November 15, 2022 that its Board approved a share repurchase authorization of $1.6
billion (the “2022 Share Repurchase Authorization”). The Board approved the 2022 Share Repurchase
Authorization to effectuate a significant return of capital to shareholders of a substantial portion of the expected net
proceeds from the sale of the Global Products business. The Company generally expects to repurchase shares of
its common stock up to the full amount of authorization within 18 months of closing the sale of Global Products.
However, the timing and amount of any repurchases of common stock will be solely at the discretion of the
Company and is subject to general business and market conditions, including closing the sale of Global Products,

43

as well as other factors, including legal and regulatory restrictions. The 2022 Share Repurchase Authorization is in
addition to the 2021 Share Repurchase Authorization of which $79.2 million remained as of November 18, 2022.

The dividend and share repurchase authorization is part of a broader capital allocation framework to deliver value to
shareholders by first driving growth in the business, organically and through acquisitions and franchise
development, and then returning excess cash to shareholders through dividends and share repurchases. Future
declarations of quarterly dividends are subject to approval by the Board and may be adjusted as business needs or
market conditions change. As focus further shifts to the growth of Valvoline in connection with the sale of Global
Products, the Company expects to discontinue the dividend following the December 2022 payment and return value
to shareholders through share repurchases. The timing and amount of any share repurchases will be at the
discretion of the Company and based on Valvoline's liquidity, general business and market conditions, and other
factors, including alternative investment opportunities.

Summary

As of September 30, 2022, the continuing operation had cash and cash equivalents of $23.4 million, total debt of
$1.7 billion, and remaining borrowing capacity of $470.0 million for facilities expected to remain in place after closing
the Transaction. Valvoline’s ability to generate positive cash flows from operations is dependent on general
economic conditions, the competitive environment in the industry, and is subject to the business and other risk
factors described in Item 1A of Part I of this Annual Report on Form 10-K. Valvoline’s ability to generate sufficient
cash flows to repay its indebtedness and other obligations and to maintain sufficient working capital will depend on
Valvoline’s ability to generate cash following the Transaction. If the Company is unable to generate sufficient cash
flows from operations, or otherwise comply with the terms of its credit facilities, Valvoline may be required to seek
additional financing alternatives.

Management believes that the Company has sufficient liquidity based on its current cash and cash equivalents
position, cash generated from business operations, and existing financing in place, to meet its pension and other
postretirement plan requirements, debt servicing obligations, tax-related and other material cash and operating
requirements for the next twelve months.

NEW ACCOUNTING PRONOUNCEMENTS

For a discussion and analysis of recently issued and adopted accounting pronouncements and the impact on
Valvoline, refer to Note 2 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual
Report on Form 10-K.

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, income taxes, and
customer incentives.

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.

44

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. and in certain countries
outside the U.S. As of September 30, 2022, Valvoline’s
net unfunded pension and other postretirement plan
liabilities included in the Consolidated Balance Sheet
totaled $185.3 million, of which $177.8 million is included
in continuing operations and $7.5 million is included in
liabilities held for sale. Total pension and other
postretirement net periodic benefit expense recognized in
fiscal 2022 within continuing operations was $6.9 million,
inclusive of a $43.9 million remeasurement loss. Total
pension and other postretirement net periodic benefit
income of $1.8 million in fiscal 2022 was included in
discontinued operations, inclusive of a $3.5 million
remeasurement gain.

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
included in continuing operations.

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, expected
long-term investment
return on plan assets, 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.

Though management
considers current market
conditions and other
relevant factors in
establishing these
assumptions, the actuarial
assumptions used may
differ materially from
actual results due to
changing market and
economic conditions,
longer or shorter life spans
of participants, and
differences between the
actual and expected 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 in both continuing and discontinued operations are:

•

Expected long-term return on plan assets — The expected long-term return on plan assets assumption
reflects the long-term average rate of return plan assets are expected to earn. This assumption is
determined considering each plan's asset allocation targets and overall expected performance, including
evaluation of the most recent long-term historical returns, as applicable. The weighted-average long-term
expected rate of return on assets assumption was 4.06% for fiscal 2022. In fiscal 2022, the global pension
plan assets generated an actual weighted-average negative return of 22.5%, primarily driven by a
challenging market environment and unfavorable performance of the plan assets of the U.S. qualified
pension plans. The Company’s investment strategy is 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. The expected return on plan assets is designed to be a long-term
assumption, and therefore, actual returns will be subject to year-to-year variances. The U.S. qualified
pension plans comprise the most significant portion of plan assets, and for fiscal 2023, the expected rate of
return on assets assumption for the U.S. qualified pension plans in fiscal 2023 will be 4.90%. The expected
long-term return on plan assets assumption has no impact on the reported net liability or net actuarial gains
or losses upon remeasurement but does impact the recurring non-service net periodic income recognized
ratably throughout the year.

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 investment goal of the pension plans is to achieve an adequate net investment
return to provide for future benefit payments to its participants. Target asset allocation percentages as
of September 30, 2022 for the U.S. qualified pension plans were 90% fixed income and 10% equity

45

investments. The U.S. 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. Valvoline’s investment strategy and management
practices relative to plan assets of non-U.S. plans generally are consistent except in those countries where
investment of plan assets is dictated by applicable regulations. Holding all other assumptions constant, a
hypothetical 1.00% change in the expected long-term return on plan assets assumption for the U.S.
qualified pension plans would impact fiscal 2022 recurring non-service pension income by $19.2 million.

• 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 2022 expense, excluding actuarial gains
and losses, for both U.S. and non-U.S. pension plans was determined using the spot discount rate as of the
beginning of the fiscal year. The service and interest cost discount rates for fiscal 2022 pension expense
were 1.67% and 2.11%, respectively, and 3.77% and 2.11%, respectively, for other postretirement expense.
The weighted-average discount rate at the end of fiscal 2022 was 5.41% for the pension plans and 5.49%
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)
Increase (decrease) in pension and other postretirement plan expense - 1.00% decrease in
discount rates:

2022

2021

Pension benefits

Increase in benefit obligation
Increased return on plan assets (a)

Estimated hypothetical increase in expense

Other postretirement benefits

Increase in benefit obligation

$

150.9 $
(138.7) $
12.2

3.0

Total estimated hypothetical increase in expense

$

15.2 $

247.2
(211.1)
36.1

4.9

41.0

(a) The qualified pension plans employ an investing strategy to match the duration of its obligation and investments. These plans represent
92% of Valvoline’s total continuing and discontinued operations gross pension plan obligation as of September 30, 2022 and 2021. This
strategy hedges approximately 100% and 93% of the movement in liabilities related to changes in discount rates as of September 30, 2022
and 2021, respectively. 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 U.S. pension and other postretirement plans is utilizes

the Society of Actuaries PRI-2012 mortality base tables and a mortality improvement scale that follows the
2022 Trustees Report of the Social Security Administration Intermediate Alternative as reflected in the
MSS-2022 improvement scale. Valvoline's international plans utilize mortality assumptions similar to the
U.S., whereby the assumptions are generally based upon country-specific base mortality tables updated for
the most currently available improvement scales that have been published by reliable authorities in each
jurisdiction. Valvoline believes the updated mortality improvement scales provide a reasonable assessment
of current mortality trends and is an appropriate estimate of future mortality projections.

Other assumptions, including the rate of compensation increase and 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.

46

Business combinations and intangible assets

Description

Valvoline acquired 37 service center stores
during fiscal 2022 for an aggregate purchase
price of $50.7 million included in continuing
operations, in addition to acquiring the remaining
ownership interest of an equity method
investment within discontinued operations. 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
Company’s annual impairment assessment,
Valvoline’s reporting units were consistent with
its former reportable segments of Retail Services
and Global Products. Subsequent to this annual
assessment and as a result of classifying the
former Global Products reportable segment as a
discontinued operation, the Company has
determined it has one reporting unit as of
September 30, 2022.

The Company’s amortizable intangible assets
primarily reside within the continuing operations
and were $114.9 million, net of $56.0 million of
accumulated amortization as of September 30,
2022. 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.

Effect if actual results differ
from assumptions

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
2022, 2021, or 2020. Valvoline
elected to perform qualitative
impairment assessments of
goodwill in 2022 and 2020,
which indicated that it was
more likely than not that the
fair values of the reporting
units were in excess of
carrying amounts. Though no
qualitative factors were present
that indicated the existence of
a potential impairment,
Valvoline performed a
quantitative assessment during
fiscal 2021 and determined
that each reporting unit had a
fair value that exceeded its
carrying value by 130% and
more.

Judgments and uncertainties

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.

47

Income taxes

Description

Judgments and uncertainties

Valvoline is subject to income
taxes in the United States and
numerous international
jurisdictions where its businesses
operate.

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.

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 from
continuing operations 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.

In connection with completing
separation transactions, both
from Valvoline’s former parent
company and expected upon the
closing of the sale of Global
Products, the parties generally
indemnify one another for various
tax matters between the
businesses that may arise
following the transactions.

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.

Indemnifications among parties regarding tax
matters require judgment in determining the
timing and measurement of related receivables
and payables to resolve these obligations.

Effect if actual results differ
from assumptions

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 change of $1.4 million
and $4.3 million for the
continuing operations and
consolidated income tax
provisions, respectively,
would impact the respective
fiscal 2022 effective tax
rates by one percentage
point.

48

Customer incentives

Description

Judgments and uncertainties

Valvoline records revenue for the
amount that reflects the
consideration the Company is
expected to be entitled to based on
when control of the promised good
or service is transferred to the
customer. The nature of Valvoline’s
contracts with customers often give
rise to variable consideration that
generally decrease the transaction
price and consist primarily of
promotional rebates and customer
pricing discounts based on achieving
certain levels of sales activity.

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.

Effect if actual results differ from
assumptions

The cost of these programs
recognized as a reduction of
revenues totaled $459.2 million,
$401.6 million and $332.4 million in
the Consolidated Statements of
Comprehensive Income for the years
ended September 30, 2022, 2021
and 2020, respectively. Over 60% of
these costs are attributed to the
Global Products business.

A 10% change in the reserves for
customer incentive programs as of
September 30, 2022 would have
affected net earnings by
approximately $7.3 million in fiscal
2022, comprised of $7.0 million
attributed to discontinued operations
and $0.3 million related to continuing
operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Valvoline is exposed to market risks arising from adverse changes in:

•
•
•
•

Inflation and changing prices;
Interest rates;
Credit risk; and
Currency exchange rates.

These market risks are described further below. In addition, refer to Item 1A of Part I in this Annual Report on Form
10-K for additional discussion of these and other risks, including the potential risks associated with the COVID-19
pandemic.

Inflation and changing prices

The cost of materials and labor used in Valvoline’s maintenance services are affected by cost inflation and global
commodity prices that could expose Valvoline to risks in its results. Valvoline can mitigate this risk through passing
along price increases to its customers; however, the ability to pass on these price increases is largely dependent
upon market conditions. In fiscal 2022, results were impacted by rising inflationary costs, a significant portion of
which were passed through to customers through a series of price increases. Contracts with Valvoline’s
independent operators are generally indexed to accommodate changes in material prices. Valvoline may not always
be able to raise prices in response to increased costs or may experience delays in passing through such costs, as
its ability to do so is largely dependent upon market conditions.

Interest rate risk

The Company is subject to modest interest rate risk in relation to its variable-rate debt. Inclusive of the Company's
interest rate swap agreements, 87% of the Company’s outstanding borrowings had fixed rates as of September 30,
2022. The increase in interest expense for the year ended September 30, 2022 from a hypothetical 100 basis point
increase in variable interest rates would be approximately $2.2 million.

49

In addition, the Company is exposed to market risk relative to the impact of changes in interest rates and
investment returns on its pension and other postretirement plans. Declines in the discount rates used in measuring
the Company's pension and other postretirement plan obligations result in a higher obligation and decrease the
funded status. The pension plans hold a variety of investments designed to diversify risk, protect against declines in
interest rates, and achieve an adequate net investment return to provide for future benefit payments to its
participants. These investments are subject to variability that can be caused by fluctuations in general economic
conditions. Decreases in the fair value of plan assets and discount rates increase net pension and other
postretirement plan expense and can also result in requirements to make contributions to the plans. Pension and
other postretirement plans were underfunded by $177.8 million at September 30, 2022 as the projected benefit
obligation exceeded the fair value of plan assets.

Credit risk

The Company is potentially subject to concentrations of credit risk on financial instruments, such as derivative
instruments and cash and cash equivalents. Credit risk includes the risk of nonperformance by counterparties, and
the maximum potential loss may exceed the amount recognized within the Consolidated Balance Sheets. Exposure
to credit risk is managed by selecting highly-rated financial institutions as counterparties to transactions and
monitoring procedures. As of September 30, 2022, there was not a significant concentration of credit risk related to
financial instruments.

Currency exchange risk

Substantially all of Valvoline’s operations and sales of its continuing operation occur in the U.S., resulting in limited
exposure to currency exchange. Valvoline uses derivatives not designated as hedging instruments consisting
primarily of forward contracts to hedge non-functional currency denominated balance sheet exposures. These
contracts are recorded within the Consolidated Balance Sheets as assets or liabilities at fair market value. Changes
in the fair value of these derivatives are recognized in income to offset the gain or loss on the hedged item. The
Company utilizes derivative instruments that are purchased exclusively from highly-rated financial institutions.

50

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Supplementary Data

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders’ Equity (Deficit)

Notes to Consolidated Financial Statements

Note 1 - Description of Business and Basis of Presentation

Note 2 - Significant Accounting Policies

Note 3 - Discontinued Operations

Note 4 - Fair Value Measurements

Note 5 - Business Combinations
Note 6 - Leasing

Note 7 - Intangible Assets

Note 8 - Debt

Note 9 - Income Taxes

Note 10 - Employee Benefit Plans

Note 11 - Litigation, Claims and Contingencies

Note 12 - Stock-Based Compensation Plans

Note 13 - Earnings Per Share

Note 14 - Accumulated Other Comprehensive Income (Loss)

Note 15 - Supplemental Balance Sheet Information

Note 16 - Quarterly Financial Information

Note 17 - Subsequent Events

52

54

55

56

57

58

58

58

68

70

72
74

75

76

79

83

88

89

91

91

92

94

94

51

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of
Valvoline Inc. and Consolidated Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Valvoline Inc. and Consolidated Subsidiaries
(the Company) as of September 30, 2022 and 2021, the related consolidated statements of comprehensive income,
stockholders’ equity (deficit) and cash flows for each of the three years in the period ended September 30, 2022,
and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at September 30, 2022 and 2021, and the results of its
operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with
U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), and our report dated November 23, 2022,
expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which
it relates.

52

Description of the Matter At September 30, 2022, the Company’s aggregate defined benefit pension and other

Valuation of Employee Benefit Obligations

How We Addressed the
Matter in Our Audit

postretirement obligations (together, the “Employee Benefit Obligations”) were $1,615.9
million and exceeded the fair value of pension plan assets of $1,438.1 million, resulting in
unfunded net Employee Benefit Obligations of $177.8 million. As explained in Note 10 of the
consolidated financial statements, the Company recognizes the change in the net actuarial
gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is
determined to qualify for a remeasurement to reflect the updated actuarial assumptions. The
remaining components of pension and other postretirement benefits cost are recorded
ratably throughout the year.

Auditing the valuation of the Employee Benefit Obligations was complex due to the
judgmental nature of the actuarial assumptions (e.g., discount rate and mortality rate) used
in the measurement process. These assumptions have a significant effect on the projected
benefit obligations.

We obtained an understanding, evaluated the design and tested the operating effectiveness
of controls over the Company’s process to value the Employee Benefit Obligations. For
example, we tested controls over management’s review of the significant actuarial
assumptions and the completeness and accuracy of the data provided to the actuary.
Where judgment was exercised by management, our audit procedures included testing
controls over management’s evaluation of the assumptions used in developing the
Employee Benefit Obligations, including reviews of the selected mortality and discount rates
with the Company’s independent actuary.

To test the Employee Benefit Obligations, our audit procedures included, among others,
evaluating the methodology used, the significant actuarial assumptions discussed above,
and the underlying data used by the Company. We compared the actuarial assumptions
used by management to its historical accounting practices and evaluated the change in the
Employee Benefit Obligations from the prior year. In addition, we involved an actuarial
specialist to assist with our procedures. For example, the discount rate reflects the rates at
which benefits could effectively be settled and is based on current investment yields of high-
quality corporate bonds. The Company uses an actuarially-developed full yield curve
approach in establishing its discount rate. We evaluated management’s methodology for
determining the discount rate that reflects the maturity and duration of the benefit payments.
As part of this assessment, we tested the underlying securities used to develop the yield
curve to evaluate whether they were appropriate for use in a yield curve and whether the
provided yield curve reasonably followed from those securities. To evaluate the mortality
rate, we assessed whether the information was consistent with publicly available
information, and whether any market data adjusted for entity-specific adjustments were
applied. We also tested the completeness and accuracy of the participant data.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.

Louisville, Kentucky
November 23, 2022

53

Valvoline Inc. and Consolidated Subsidiaries
Consolidated Statements of Comprehensive Income

(In millions, except per share amounts)
Net revenues

Cost of sales
Gross profit

Selling, general and administrative expenses

Net legacy and separation-related expenses (income)

Other income, net
Operating income
Net pension and other postretirement plan expenses (income)

Net interest and other financing expenses
Income before income taxes
Income tax expense

Income from continuing operations

Income from discontinued operations, net of tax
Net income

NET EARNINGS PER SHARE

Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share

Diluted earnings per share

Continuing operations
Discontinued operations
Diluted earnings per share

Years ended September 30

2022

2021

2020

$

1,236.1 $

1,037.2 $

759.7

476.4

244.7

20.5

(9.1)

220.3

6.9

69.3

144.1

34.7

109.4

604.9

432.3

223.9

(23.6)

(8.1)

240.1

(128.2)

108.3

260.0

59.9

200.1

314.9
424.3 $

220.2
420.3 $

0.61 $
1.76
2.37 $

0.61 $
1.74
2.35 $

1.10 $
1.20
2.30 $

1.09 $
1.20
2.29 $

$

$

$

$

$

727.0

426.0

301.0

177.2

(30.0)

(6.4)

160.2

(54.9)

92.1

123.0

53.4

69.6

247.0
316.6

0.38
1.32
1.70

0.37
1.32
1.69

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Basic
Diluted

179.1
180.4

182.5
183.5

187.0
187.5

COMPREHENSIVE INCOME
Net income

Other comprehensive (loss) income, net of tax

Currency translation adjustments
Amortization of pension and other postretirement plan prior
service credits
Unrealized gain (loss) on cash flow hedges

Other comprehensive loss

Comprehensive income

$

424.3 $

420.3 $

316.6

(39.6)

(1.7)

12.5

(28.8)

6.6

(9.0)

1.7

(0.7)

6.7

(8.9)

(0.9)

(3.1)

$

395.5 $

419.6 $

313.5

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

54

Valvoline Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets

(In millions, except per share amounts)
Assets
Current assets
Cash and cash equivalents

Receivables, net

Inventories, net

Prepaid expenses and other current assets

Current assets held for sale

Total current assets

Noncurrent assets
Property, plant and equipment, net

Operating lease assets

Goodwill and intangibles, net
Deferred tax assets

Other noncurrent assets

Noncurrent assets held for sale

Total noncurrent assets

Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt

Trade and other payables

Accrued expenses and other liabilities

Current liabilities held for sale

Total current liabilities
Noncurrent liabilities
Long-term debt

Employee benefit obligations

Operating lease liabilities

Other noncurrent liabilities

Noncurrent liabilities held for sale

Total noncurrent liabilities

Commitments and contingencies
Stockholders’ equity
Preferred stock, no par value, 40 shares authorized; no shares issued and
outstanding
Common stock, par value $0.01 per share, 400.0 shares authorized, 176.1 and
180.3 shares issued and outstanding at September 30, 2022 and 2021,
respectively
Paid-in capital

Retained earnings

Accumulated other comprehensive (loss) income

Total stockholders’ equity

Total liabilities and stockholders’ equity

As of September 30

2022

2021

$

23.4 $

122.6

66.1

29.4

38.0

1,464.2

1,621.1

668.6

248.1

663.1
61.6

154.3

—

65.3

27.4

27.3

794.5

1,037.1

559.8

226.1

642.2
—

163.1

562.7

$

$

1,795.7
3,416.8 $

2,153.9
3,191.0

162.5 $

45.0

172.6

539.3

919.4

15.0

38.6

139.2

375.9

568.7

1,525.1

1,639.7

199.4

229.2

237.1

—

245.1

208.0

262.5

132.5

2,190.8

2,487.8

—

1.8

44.1

282.0

(21.3)

—

1.8

35.2

90.0

7.5

306.6
3,416.8 $

134.5
3,191.0

$

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

55

Valvoline Inc. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows

(In millions)
Cash flows from operating activities
Net income
Adjustments to reconcile to cash flows from operations

Income from discontinued operations
Loss on extinguishment of debt
Depreciation and amortization
Deferred income taxes
Loss (gain) on pension and other postretirement plan
remeasurements
Stock-based compensation expense
Other, net

Change in assets and liabilities

Receivables
Inventories
Payables and accrued liabilities
Other assets and liabilities

Operating cash flows from continuing operations
Operating cash flows from discontinued operations

Total cash provided by operating activities

Cash flows from investing activities
Additions to property, plant and equipment
Notes receivable, net of repayments of $2.7 million in 2020
Acquisitions of businesses, net of cash acquired
Other investing activities, net

Investing cash flows from continuing operations
Investing cash flows from discontinued operations

Total cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings, net of issuance costs of $7.1 million and
$15.5 million in 2021 and 2020, respectively
Repayments on borrowings
Premium paid to extinguish debt
Repurchases of common stock
Cash dividends paid
Other financing activities

Financing cash flows from continuing operations
Financing cash flows from discontinued operations

Total cash (used in) provided by financing activities
Effect of currency exchange rate changes on cash, cash
equivalents and restricted cash

(Decrease) increase in cash, cash equivalents and restricted
cash
Cash, cash equivalents and restricted cash - beginning of year
Cash, cash equivalents and restricted cash - end of year
Supplemental disclosures
Interest paid
Income taxes paid

$

$
$

Years ended September 30
2021

2022

2020

$

424.3 $

420.3 $

316.6

(314.9)
—
71.4
18.0

43.9
14.4
4.2

(17.5)
(5.4)
24.5
(128.5)
134.4
149.8
284.2

(132.0)
11.2
(50.7)
0.6
(170.9)
(36.7)
(207.6)

23.0
(38.1)
—
(142.6)
(89.2)
(16.0)
(262.9)
44.0
(218.9)

(220.2)
36.4
62.1
56.9

(74.3)
13.7
3.4

(17.4)
(5.3)
26.7
(120.1)
182.2
221.7
403.9

(103.1)
16.9
(281.7)
9.2
(358.7)
(41.2)
(399.9)

527.9
(800.0)
(26.2)
(126.9)
(90.9)
(10.0)
(526.1)
(9.4)
(535.5)

(5.2)

2.4

(147.5)
231.4

83.9 $

(529.1)
760.5
231.4 $

59.4 $
73.9 $

62.1 $
72.3 $

(247.0)
19.4
40.6
68.7

(18.6)
12.1
(4.2)

1.7
(2.3)
3.2
(63.0)
127.2
244.5
371.7

(94.0)
(27.7)
(40.1)
2.4
(159.4)
(63.2)
(222.6)

1,434.5
(926.4)
(15.5)
(59.8)
(84.3)
(3.3)
345.2
105.1
450.3

1.7

601.1
159.4
760.5

64.9
43.6

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

56

Valvoline Inc. and Consolidated Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)

(In millions, except per share amounts)
Balance at September 30, 2019
Net income

Dividends paid, $0.452 per common share

Stock-based compensation, net of issuances

Repurchases of common stock
Cumulative effect of adoption of leasing
standard, net of tax
Other comprehensive loss, net of tax
Balance at September 30, 2020
Net income

Dividends paid, $0.500 per common share

Stock-based compensation, net of issuances

Repurchases of common stock
Cumulative effect of adoption of credit losses
standard, net of tax

Other comprehensive loss, net of tax
Balance at September 30, 2021
Net income

Dividends paid, $0.500 per common share

Stock-based compensation, net of issuances

Repurchases of common stock
Other comprehensive loss, net of tax
Balance at September 30, 2022

Common stock

Shares Amount

Paid-in
capital

Retained
(deficit)
earnings

Accumulated
other
comprehensive
income (loss)

Totals

188.3 $

1.9 $ 13.8

$ (284.8) $

11.3 $(257.8)

—

—

—

(3.2)

—

—

185.1

—

—
—

—

—

—

—

—

—

1.9

—

—
—

(4.8)

(0.1)

—

—
180.3

—

—

0.3

(4.5)

—

—

—
1.8

—

—

—

—

—

—

0.4

10.3

—

—

—

24.5

—

0.6
10.1

—

—

—
35.2

—

0.5

8.4

—

—

316.6

(84.7)

—

(59.8)

2.1

—

(110.6)

420.3

(91.5)
—

(126.9)

(1.3)

—
90.0

424.3

(89.7)

—

(142.6)

—

— 316.6

—

—

—

—

(3.1)

8.2

(84.3)

10.3

(59.8)

2.1

(3.1)

(76.0)

— 420.3

—
—

(90.9)
10.1

— (127.0)

(1.3)

(0.7)

—

(0.7)
7.5

134.5
— 424.3

—

—

(89.2)

8.4

— (142.6)

(28.8)

(28.8)

176.1 $

1.8 $ 44.1

$ 282.0 $

(21.3) $ 306.6

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

57

Valvoline Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of business

Valvoline Inc. (“Valvoline” or the “Company”) is a leader in vehicle care delivering quick, easy, and trusted
preventive maintenance services in its stores throughout the United States (“U.S.”) and Canada. The Company
operates and franchises over 1,700 service center locations and is the second and third largest chain in the U.S.
and Canada, respectively, by number of stores through its Valvoline Instant Oil Change and Great Canadian Oil
Change retail locations. From cabin air filters to battery replacements to tire rotations, the Company’s stay-in-your-
car service model offers a vast array of solutions for all types of vehicles.

Established in 1866, Valvoline’s heritage spans more than 155 years, during which it has developed recognition
across multiple channels. Valvoline's services performed at its retail stores using Valvoline-branded passenger car
motor oils and complementary products are designed to serve evolving maintenance needs and improve vehicle
and engine performance and lifespan.

Strategic separation

On July 31, 2022, the Company entered into a definitive agreement to sell its Global Products business to Aramco
for a cash purchase price of $2.65 billion, subject to customary adjustments with respect to working capital and net
indebtedness. The transaction is subject to standard closing conditions, including regulatory approvals and is
expected to close in early calendar year 2023. Global Products sells engine and automotive products in more than
140 countries and territories to retailers, installers, and commercial customers to service light- and heavy-duty
vehicles and equipment.

In all periods presented within these consolidated financial statements, the assets and liabilities associated with the
Global Products disposal group have been classified as held for sale within the Consolidated Balance Sheets and
its operations have been classified as discontinued operations within the Consolidated Statements of
Comprehensive Income and Cash Flows. Refer to Note 3 for additional information regarding the Global Products
business, including the assets and liabilities held for sale and income from discontinued operations. Unless
otherwise noted, disclosures within the remaining notes to these consolidated financial statements relate solely to
the Company's continuing operations.

As a result of classifying the former Global Products reportable segment as a discontinued operation, the Company
has determined that it now operates a single reportable segment as the chief operating decision maker allocates
resources and assesses performance on a consolidated basis for the continuing operations.

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.

58

NOTE 2 – 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.

Held for sale and discontinued operations

The Company classifies assets and liabilities to be sold (disposal group) as held for sale in the period when all of
the applicable criteria are met, including: (i) management commits to a plan to sell, (ii) the disposal group is
available to sell in its present condition, (iii) there is an active program to locate a buyer, (iv) the disposal group is
being actively marketed at a reasonable price in relation to its fair value, (v) significant changes to the plan to sell
are unlikely, and (vi) the sale of the disposal group is generally probable of being completed within one year.
Management performs an assessment at least quarterly or when events or changes in business circumstances
indicate that a change in classification may be necessary.

Assets and liabilities held for sale are presented separately within the Consolidated Balance Sheets with any
adjustments necessary to measure the disposal group at the lower of its carrying value or fair value less costs to
sell. Depreciation of property, plant and equipment and amortization of intangible and right-of-use assets are not
recorded while these assets are classified as held for sale. For each period the disposal group remains classified as
held for sale, its recoverability is reassessed and any necessary adjustments are made to its carrying value.

The Company reports the results of operations of a business as discontinued operations if a disposal represents a
strategic shift that will have a major effect on its operations and financial results. The results of discontinued
operations are reported as Income from discontinued operations, net of tax in the Consolidated Statements of
Comprehensive Income for the current and prior periods commencing in the period in which the held for sale criteria
are met. Income from discontinued operations includes direct costs attributable to the divested business and
excludes any cost allocations associated with any shared or corporate functions unless otherwise dedicated to the
divested business. Income from discontinued operations will include any gain or loss recognized upon disposition or
from adjustment of the carrying amount to fair value less costs to sell while classified as held for sale.

Transactions between the businesses held for sale and businesses held for use that are expected to continue after
the disposal are not eliminated in order to appropriately reflect the continuing operations as well as the activity to be
disposed of. Interest costs are included as a component of Income from discontinued operations for debt
specifically attributable to the discontinued operation or debt that is obligated to be repaid in connection with the
completion of the divestiture. Activity within comprehensive income directly associated with a divested business is
not realized as a component of Income from discontinued operations until completion of the sale or disposition.

Cash and cash equivalents

All short-term, highly liquid investments having original maturities of three months or less are considered to be cash
equivalents.

59

Receivables and allowance for credit losses

The majority of Valvoline’s sales are tendered at the point of service in its retail stores, and its receivables are
generally limited to those with its fleet customers and independent store operators, in addition to credit card
receivables. Valvoline recognizes a receivable within its Consolidated Balance Sheets once control is transferred,
typically upon the completion of services, 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 changed 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 comprised of purchased finished goods that are carried at the lower of cost or net realizable value
using the weighted average cost method. 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, 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 seven to twenty years and machinery
and equipment typically have five to seven 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 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, and storage 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

60

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. Goodwill has been assigned to reporting units for purposes of impairment testing based upon the
relative fair value of the asset to each reporting unit. At the time of Company’s annual impairment assessment,
Valvoline’s reporting units were consistent with its former reportable segments of Retail Services and Global
Products. Subsequent to this annual assessment and as a result of classifying the former Global Products
reportable segment as a discontinued operation, the Company has determined it has one reporting unit as of
September 30, 2022.

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

61

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.

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.

Pension and other postretirement benefit plans

Valvoline sponsors defined benefit pension and other postretirement plans in the U.S. 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. 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. All
components of net periodic benefit income or costs 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

62

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 services

Valvoline generates all revenues from contracts with customers, primarily as a result of delivery of automotive
maintenance services through the following two principal activities: (i) company-operated service center operations
and (ii) independent service center operations. Valvoline’s revenues from delivering preventive vehicle maintenance
and related services are from end consumers, independent franchisees and operators, and other end customers,
including fleet managers and others that require service solutions to address medium and heavy-duty vehicles.

Valvoline's net revenues are predominantly derived at a point in time with approximately 95% recognized either
through services delivered at company-operated service centers or fees for arranging product supply to
independent store operators. The remainder of the Company's sales generally relate to 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)

Net revenues transferred at a point in time

Franchised revenues transferred over time

Net revenues

2022

2021

2020

$

$

1,177.2 $

58.9

986.8 $

50.4

1,236.1 $

1,037.2 $

686.7

40.3

727.0

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

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.

Non-company operated service center operations

The primary performance obligations related to independent service center operations include arrangement of
product supply 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

63

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.

Valvoline is the agent in arranging product supply for its independent operators as the continuing operations has no
control of the products prior to transfer to the customer. Accordingly, revenue is recognized on a net basis for the
fees charged for this service. The Company determines the point in time at which service delivery occurs 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 from the supplier to the independent operators.

Customer payment terms vary by customer and are generally 30 to 60 days after service 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.

Revenue disaggregation

The following table summarizes net revenues by category for the years ended September 30:

(In millions)

Oil changes and related fees

Non-oil changes and related fees

Franchise fees and other

Total

2022

2021

2020

$

$

906.7 $

756.7 $

248.3

81.1

207.9

72.6

1,236.1 $

1,037.2 $

527.0

142.5

57.5

727.0

The following presents net revenues by geographic area where services are delivered for the years ended
September 30:

(In millions)

United States

Non-U.S.

Total

2022

2021

2020

$

$

1,191.8 $

44.3

997.3 $

39.9

1,236.1 $

1,037.2 $

698.7

28.3

727.0

Valvoline did not have a single customer that represented 10% or more of consolidated net revenues in fiscal 2022,
2021 or 2020.

Variable consideration

The nature of Valvoline’s transactions with its customers often gives rise to variable consideration consisting of
customer discounts, incentives or rebates. The Company determines transaction price as the amount of
consideration it expects to be entitled to in exchange for fulfilling the performance obligations, including variable
consideration to the extent it is probable that a significant future reversal will not occur. 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
and similar programs. Variable consideration is reassessed at each reporting date and adjustments are made, when
necessary.

The reduction of revenues due to customer incentives was $176.5 million, $140.1 million, and $106.0 million in the
Consolidated Statements of Comprehensive Income for the years ended September 30, 2022, 2021, and 2020,
respectively. Reserves for these customer programs and incentives were $2.8 million and $2.4 million as of
September 30, 2022 and 2021, respectively, and are recorded within Accrued expenses and other liabilities in the
Consolidated Balance Sheets.

64

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 revenue commensurate with the transfer of control to the customer.

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 product, labor and benefits, store operating and occupancy,
and depreciation expenses. Selling, general and administrative expenses are recognized as incurred and include
sales and marketing costs, advertising, customer support, and other corporate and administrative costs. Advertising
costs were $54.8 million in fiscal 2022, $48.1 million in fiscal 2021 and $35.2 million in fiscal 2020.

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. Substantially all of the awards granted
by the Company are routine annual grants. Management evaluates its award grants and modifications and will
adjust the fair value if any are determined to be spring-loaded.

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.

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.

Once the consolidated income tax provision is computed, the tax effect of pre-tax income from continuing
operations 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.

65

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 (loss) 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 (loss) 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

66

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 generally 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 (loss) 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.

67

Recent accounting pronouncements

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

Issued but not yet adopted

In March 2020, the FASB issued guidance related to reference rate reform that simplifies the accounting for contract
modifications and hedging arrangements 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 variable rate long-term debt for which existing payments are based on LIBOR tenors
expected to cease in June 2023. As of September 30, 2022, 34% of Valvoline’s outstanding total long-term debt
and interest rate swap agreements with a total notional amount of $275 million are under existing arrangements that
mature following LIBOR cessation and do not contain fallback provisions to alternative reference rates. The
Company expects to adopt this guidance to the extent there are qualifying contractual modifications prior to the end
of calendar 2022 and does not expect application of this guidance to 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.

NOTE 3 – DISCONTINUED OPERATIONS

The following table summarizes Income from discontinued operations, net of tax included in the Consolidated
Statements of Comprehensive Income for the years ended September 30:

(In millions)
Net revenues
Cost of sales

Gross profit

Selling, general and administrative expenses
Legacy and separation-related expenses
Equity and other income, net
Operating income from discontinued operations
Net pension and other postretirement plan (income) expense
Net interest and other financing expenses
Income from discontinued operations before income
taxes
Income tax (benefit) expense
Net income from discontinued operations

2022

2021

2020

$

2,695.2 $
2,134.7

2,086.7 $
1,540.9

560.5

304.3
7.0
(33.4)
282.6
(3.4)
4.6

281.4
(33.5)
314.9 $

$

545.8

294.7
—
(36.3)
287.4
1.9
2.5

283.0
62.8

220.2 $

1,728.8
1,167.6

561.2

264.2
—
(27.7)
324.7
(3.9)
1.1

327.5
80.5
247.0

The products used in Valvoline’s service delivery are sourced from Global Products. Valvoline will continue this
arrangement following the sale of Global Products through a long-term supply agreement whereby Valvoline will
purchase substantially all lubricant and certain ancillary products for its stores from Global Products. Net revenues
within the results of Global Products above include product sales to the Company's continuing operations which are
considered to be effectively settled at the time of the transaction and have not been eliminated. These transactions
total the following for the years ended September 30:

(In millions)

Net revenues

2022

2021

2020

$

218.1 $

143.1 $

102.9

68

Additionally, certain transition services are expected between the businesses following the close of the sale, which
are not expected to be material to the consolidated financial statements.

A summary of the held for sale assets and liabilities included in the Consolidated Balance Sheets follows as of
September 30:

(In millions)
Current assets
Cash and cash equivalents
Receivables, net
Inventories, net
Prepaid expenses and other current assets

Current assets held for sale (a)

Noncurrent assets
Property, plant and equipment, net
Goodwill and intangibles, net
Other noncurrent assets

Noncurrent assets held for sale (a)

Total assets held for sale

Current liabilities
Trade and other payables
Accrued expenses and other liabilities
Current liabilities held for sale (a)

Noncurrent liabilities
Long-term debt
Other noncurrent liabilities

Noncurrent liabilities held for sale (a)

Total liabilities held for sale

2022

2021

$

59.0 $

524.3
290.1
35.0
908.4

257.4
139.8
158.6
555.8
1,464.2 $

264.9 $
166.9
431.8

30.7
76.8
107.5
539.3 $

$

$

$

107.4
430.8
230.2
26.1
794.5

257.1
132.4
173.2
562.7
1,357.2

206.8
169.1
375.9

37.6
94.9
132.5
508.4

(a) Assets and liabilities of Global Products are presented as current in the Consolidated Balance Sheet at September 30, 2022, as the

Company expects to complete the disposition within one year.

69

Equity method investments

Summarized financial information for the equity method investments of the Global Products business follows as of
and for the years ended September 30:

(In millions)
Financial position
Current assets
Current liabilities
Working capital
Noncurrent assets
Noncurrent liabilities
Stockholders’ equity

(In millions)
Results of operations (a)
Sales
Income from operations
Net income

2022

2021

$

$

153.4 $
(84.4)
69.0
24.2
(1.8)
91.4 $

2022

2021

2020

$
$
$

399.1 $
59.4 $
30.9 $

375.2 $
60.4 $
31.3 $

161.7
(89.4)
72.3
24.9
(4.6)
92.6

272.9
50.2
24.6

(a)

Includes the results of equity method investments during the Company's period of ownership.

NOTE 4 – 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:

(In millions)
Cash and cash equivalents

Money market funds
Time deposits

Prepaid expenses and other current assets

Currency derivatives

Interest rate swap agreements

Other noncurrent assets
Non-qualified trust funds
Interest rate swap agreements
Total assets at fair value

Accrued expenses and other liabilities

Currency derivatives

Other noncurrent liabilities

Deferred compensation obligations
Total liabilities at fair value

$

$

$

$

As of September 30, 2022

Total

Level 1

Level 2

Level 3

NAV (a)

0.4 $

13.3

0.4 $
—

— $

13.3

— $
—

6.0

5.2

6.4
12.6

—

—

—

6.0

5.2

—
12.6

—

—

—

—
—

—

—

6.4

43.9 $

0.4 $

37.1

$

— $

6.4

5.2 $

— $

5.2

$

— $

—

19.6

24.8 $

—

— $

—

5.2

$

—

— $

19.6

19.6

70

(In millions)

Cash and cash equivalents

Money market funds

Time deposits

Prepaid expenses and other current assets

Currency derivatives

Other noncurrent assets

Non-qualified trust funds

Interest rate swap agreements
Total assets at fair value

Accrued expenses and other liabilities

Currency derivatives

Interest rate swap agreements

Other noncurrent liabilities

Deferred compensation obligations
Total liabilities at fair value

$

$

$

$

As of September 30, 2021

Total

Level 1

Level 2

Level 3

NAV (a)

12.8 $

86.1

12.8 $
—

2.7

11.0

1.6

—

—

—

— $

— $

86.1

2.7

4.0

1.6

—

—

—

—

114.2 $

12.8 $

94.4

$

— $

3.3 $

0.6

22.7
26.6 $

— $

—

—
— $

3.3

0.6

—
3.9

$

$

— $

—

—
— $

22.7
22.7

—

—

—

7.0

—

7.0

—

—

(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 $150.5 million and $136.7 million
as of September 30, 2022 and 2021, 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. There were no significant redemption restrictions or unfunded commitments on
these mutual fund investments as of September 30, 2022. 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 $350.0 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, 2022 and current
circumstances, estimates that there will not be material reclassifications into earnings over the next twelve months.

71

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, 2022. 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.

(In millions)

2030 Notes

2031 Notes

Total

September 30, 2022

September 30, 2021

Fair value

Carrying
value (a)

Unamortized
discounts and
issuance costs

Fair value

Carrying
value (a)

Unamortized
discounts and
issuance costs

$

$

568.5 $

593.7 $

(6.3) $

622.4 $

593.0 $

400.5

529.2

(5.8)

531.3

528.6

969.0 $ 1,122.9 $

(12.1) $ 1,153.7 $ 1,121.6 $

(7.0)

(6.4)

(13.4)

(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.

NOTE 5 – BUSINESS COMBINATIONS

Fiscal 2022

The Company acquired 37 service center stores in single and multi-store transactions, including four former
franchise locations and five former Express Care locations converted to company-operated service center stores,
for an aggregate purchase price of $50.7 million during the twelve months ended September 30, 2022. These
acquisitions contribute to Valvoline's retail presence in key North American markets and increase Valvoline’s retail
footprint to over 1,700 system-wide service center stores.

Fiscal 2021

During fiscal 2021, Valvoline acquired 134 service center stores in single and multi-store transactions, including 50
former franchise locations converted to company-operated service centers stores and 12 franchise-operated service
center stores, for an aggregate purchase price of $281.7 million. These acquisitions provided an opportunity to
expand Valvoline's system of service center stores within key markets 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;

72

•

•

•

•

•

•

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

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 $40.1 million. These acquisitions provide an opportunity to expand Valvoline’s system within key markets.

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)
Inventories

Other current assets
Property, plant and equipment (a)
Operating lease assets
Goodwill (b)
Intangible assets (c)
Reacquired franchise rights (d)
Customer relationships

Other

Other current liabilities

Operating lease liabilities
Other noncurrent liabilities (a)
Total net assets acquired

2022

2021

2020

$

— $

2.8 $

0.2

10.0

9.6

39.1

2.8

—

0.4

(0.8)

(8.9)

(1.7)

0.1

98.6

36.4

204.4

58.6

0.1

3.1

(8.3)

(33.5)

(80.6)

$

50.7 $

281.7 $

0.8

—

6.4

0.6

17.2

20.4

—

—

(0.7)

—

(4.6)

40.1

(a)

Includes finance lease assets in property, plant and equipment and finance lease liabilities in other current and noncurrent liabilities. During
the years ended September 30, 2022, 2021 and 2020, finance lease assets acquired were $1.8 million, $84.3 million and $4.1 million,
respectively; finance lease liabilities in other current liabilities were $0.1 million, $3.7 million and $0.1 million, respectively; and finance lease
liabilities in other noncurrent liabilities were $1.7 million, $80.6 million and $4.0 million, respectively.

(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 is 9 years for fiscal 2022 and 10 years for fiscal 2021 and 2020.
(d) Prior to the acquisition of former franchise service center stores, Valvoline licensed the right to operate franchised 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 each period presented above. The effective settlement of
these arrangements resulted in no settlement gain or loss as the contractual terms were at market.

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 did not record any material measurement period adjustments and does not
expect any material changes to the preliminary purchase price allocations summarized above for acquisitions
completed during the last twelve months.

73

NOTE 6 – LEASE COMMITMENTS

The following table presents the Company's lease balances as of September 30:

Location in Consolidated Balance Sheets

2022

2021

(In millions)
Assets
Operating lease assets

Operating lease assets

Finance lease assets

Property, plant and equipment, net

Property, plant and equipment, net

Amortization of finance
lease assets

Total leased assets

Liabilities
Current

Operating lease liabilities

Accrued expenses and other liabilities

Finance lease liabilities

Accrued expenses and other liabilities

Noncurrent

Operating lease liabilities Operating lease liabilities

Finance lease liabilities

Other noncurrent liabilities

Total lease liabilities

$

$

$

$

248.1 $

217.1

(34.2)

431.0 $

26.8 $

10.6

229.2

189.8

456.4 $

226.1

195.4

(20.1)

401.4

24.5

8.8

208.0

177.4

418.7

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

Location in Consolidated Statements of
Comprehensive Income

Cost of sales and Selling, general and
administrative expenses

2022

2021

$

36.8 $

33.6

Cost of sales

Net interest and other financing expenses

Cost of sales and Selling, general and
administrative expenses
Equity and other income, net

14.1

9.3

2.4

(5.9)

$

56.7 $

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

(In millions)

2022

2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases (a)

Operating cash flows from finance leases

Financing cash flows from finance leases

Lease assets obtained in exchange for lease obligations:

Operating leases

Finance leases

$

$

$

$

$

34.9 $

9.3 $

8.8 $

46.8 $

18.6 $

(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.

74

11.2

8.1

2.3

(5.3)

49.9

32.2

8.1

6.2

63.0

118.6

(In millions)

Operating lease cost

Finance lease costs

Amortization of lease
assets
Interest on lease
liabilities

Variable lease cost

Sublease income

Total lease cost

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, 2022:

(In millions)

2023

2024

2025

2026

2027

Thereafter

Total future lease payments

Imputed interest

Present value of lease liabilities

Operating leases

Finance leases

$

36.8 $

35.1

33.1

31.6

29.2

150.0

315.8

59.8

$

256.0 $

20.1

20.3

20.4

21.0

21.1

168.0

270.9

70.5

200.4

As of September 30, 2022, Valvoline has additional leases primarily related to its retail service center stores that
have not yet commenced with approximately $32.2 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, 2022 were:

Weighted average remaining lease term (in years)

Weighted average discount rate

NOTE 7 – INTANGIBLE ASSETS

Goodwill

Operating leases

Finance leases

9.9

4.2 %

12.9

5.2 %

The following summarizes the changes in the carrying amount of goodwill during fiscal 2022 and 2021:

(In millions)
Balance at September 30, 2020
Acquisitions

Currency translation
Dispositions (a)
Balance at September 30, 2021
Acquisitions

Currency translation
Balance at September 30, 2022

$

$

316.1

204.4

2.2
(9.9)

512.8

39.1

(3.7)

548.2

(a) 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.

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:

75

(In millions)
Definite-lived intangible assets
Trademarks and trade names

Reacquired franchise rights

Customer relationships

Other intangible assets

2022

2021

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

$

29.6 $

(9.2) $

20.4 $

30.3 $

(7.9) $

118.0

16.6

6.7

(36.5)

(6.9)

(3.4)

81.5

9.7

3.3

115.2

17.5

6.4

(24.1)

(5.7)

(2.2)

22.4

91.1

11.8

4.2

Total definite-lived intangible assets

$ 170.9 $

(56.0) $ 114.9 $ 169.4 $

(39.9) $ 129.5

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)
Amortization expense

NOTE 8 – DEBT

Actual

2022

2023

2024

2025

2026

2027

Estimated

$

16.6 $

16.4 $

15.9 $

13.9 $

10.8 $

10.3

The following table summarizes Valvoline’s debt as of September 30:

(In millions)

2031 Notes

2030 Notes

Term Loan

Trade Receivables Facility

Debt issuance costs and discounts

Total debt

Current portion of long-term debt

Long-term debt

Senior Notes

2022

2021

$

535.0 $

600.0

460.0

105.0

(12.4)

1,687.6

162.5

$

1,525.1 $

535.0

600.0

475.0

58.5

(13.8)

1,654.7

15.0

1,639.7

The Company's outstanding fixed rate senior notes as of September 30, 2022 consist of 3.625% senior unsecured
notes due 2031 with an aggregate principal amount of $535.0 million (the “2031 Notes”) and 4.250% senior
unsecured notes due 2030 with an aggregate principal amount of $600.0 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 Notes

In January 2021, Valvoline issued the 2031 Notes in a private offering for net proceeds of $527.5 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 $800.0 million (the “2025 Notes”), including an early redemption premium of $26.3

76

million, accrued and unpaid interest, as well as related fees and expenses for an aggregate redemption price of
approximately $840.7 million. A loss on extinguishment of the 2025 Notes of $36.4 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 $592.1 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 $375.0 million (the
“2024 Notes”), plus an early redemption premium of $15.5 million, accrued and unpaid interest, as well as related
fees and expenses for an aggregate redemption price of $393.7 million. A loss on extinguishment of the 2024 Notes
of $19.4 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 $100.0 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 $1,050.0 million in senior secured credit
facilities, comprised of (i) a five-year $575.0 million term loan facility (the “Term Loan”) and (ii) a 5-year $475.0
million revolving credit facility (the “Revolver”), including a $100.0 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, 2022 and 2021, the Term Loan had an outstanding balance of $460.0 million and $475.0
million, respectively, and there were no amounts outstanding under the Revolver. During fiscal 2022, Valvoline
made payments on the Term Loan of $15.0 million with approximately $14.4 million due each quarter remaining
through maturity. The total borrowing capacity remaining under the Revolver was $470.0 million as of
September 30, 2022, due to a reduction of $5.0 million for letters of credit outstanding.

Trade Receivables Facility

Key terms and conditions

In April 2021, Valvoline amended its $175.0 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.

77

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 1.9% and 1.0% for the years
ended September 30, 2022 and 2021, respectively.

Summary of activity

The financing subsidiary owned $387.9 million and $300.9 million of outstanding accounts receivable as of
September 30, 2022 and 2021, respectively. These outstanding accounts receivable substantially relate to the
Global Products business and were reported in Current assets held for sale, with a smaller portion reported within
Receivables, net in the Company’s Consolidated Balance Sheets. The Trade Receivables Facility had an
outstanding balance of $105.0 million and $58.5 million as of September 30, 2022 and 2021, respectively, with
$70.0 million of borrowing capacity remaining as of September 30, 2022. The outstanding obligation under the
Trade Receivables Facility is classified within Current portion of long-term debt within the Consolidated Balance
Sheet as of September 30, 2022 due to the payment requirement in connection with the sale of Global Products.

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, 2022 and 2021, 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, 2022, excluding debt issuance costs and discounts,
are as follows:

78

(In millions)

Years ending September 30
2023

2024

2025

2026

2027
Thereafter (a)
Total

$

$

162.5

402.5

—

—

—
1,135.0

1,700.0

(a)

In connection with the sale of the Global Products business, a portion of the net proceeds may be utilized to reduce debt that is classified in
the table above based on its current contractual maturity.

NOTE 9 – INCOME TAXES

Components of income tax expense

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

(In millions)
Current

Federal

State

Non-U.S.

Deferred

Federal

State

Non-U.S.

2022

2021

2020

$

9.4 $

(0.9) $

4.3

3.0

16.7

16.2

1.3

0.5

18.0

2.1

1.8

3.0

47.7

9.0

0.2

56.9

Income tax expense

$

34.7 $

59.9 $

(14.4)

(2.6)

1.7

(15.3)

43.8

24.8

0.1

68.7

53.4

79

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)

Income before income taxes

United States

Non-U.S.

Total income before income taxes

U.S. statutory tax rate

Income taxes computed at U.S. statutory tax rate

(Decrease) increase in amount computed resulting from:

Unrecognized tax benefits

State taxes, net of federal benefit

International rate differential

Permanent items

Remeasurement of net deferred taxes

Return-to-provision adjustments

Change in valuation allowances

Tax Matters Agreement activity

Other

Income tax expense

Effective tax rate

2022

2021

2020

$

$

$

$

$

$

$

$

119.1

25.0

144.1

21 %

30.3

0.1

5.2

(0.4)

(1.0)

(0.5)

(0.4)

1.8

—

(0.4)

34.7

24.1 %

250.8

9.2

260.0

21 %

54.6

$

$

$

0.8

9.3

—

0.5

0.1

0.6

—

(5.6)

(0.4)

59.9

$

23.0 %

115.6

7.4

123.0

21 %

25.8

0.6

3.7

0.2

0.4

1.0

(0.8)

28.7

(6.4)

0.2

53.4

43.4 %

The higher effective tax rate in fiscal 2022 from the prior year was principally driven by tax benefits recognized
during the prior year period as a result audit settlements. Lower pre-tax income in fiscal 2022 resulted in lower
current year tax expense over the prior year.

The lower year-over-year effective tax rate in fiscal 2021 was primarily driven by increased expense recognized in
fiscal 2020 to establish a $28.5 million valuation allowance on certain legacy tax attributes, which did not recur in
fiscal 2021. Additionally, increased pre-tax income in fiscal 2021 resulted in higher tax expense over fiscal 2020.

80

Deferred taxes

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

(In millions)
Deferred tax assets
Non-U.S. net operating loss carryforwards (a)
State net operating loss carryforwards (b)

Employee benefit obligations

Compensation accruals
Credit carryforwards (c)

Operating lease liabilities
Outside basis difference (d)

Other
Valuation allowances (e)

Net deferred tax assets
Deferred tax liabilities

Goodwill and other intangibles

Property, plant and equipment

Operating lease assets

Total deferred tax liabilities
Total net deferred tax assets (liabilities) (f)

2022

2021

$

0.7 $

17.5

43.6

22.8

12.3

99.6

99.1

23.0

(33.3)

285.3

18.7

131.6

74.5

224.8

$

60.5 $

0.6

17.6

45.5

25.0

12.4

90.9

—

18.7

(31.8)

178.9

18.1

111.5

70.5

200.1

(21.2)

(a) Gross non-U.S. net operating loss carryforwards of $2.4 million expire in fiscal years 2039 to 2042.
(b) Apportioned gross state net operating loss carryforwards of $361.3 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) Outside tax over GAAP basis difference recorded through discontinued operations.
(e) Valuation allowances at September 30, 2022 primarily relate to state net operating loss carryforwards and certain other federal legacy tax

attributes that are not expected to be realized or realizable.

(f) 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 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
common stock. On May 12, 2017, Ashland distributed its interest in Valvoline to Ashland stockholders through a pro
rata dividend on shares of Ashland common stock outstanding (the "Distribution"), which marked the completion of
Valvoline's separation from Ashland.

For the periods prior to the Distribution, Valvoline was included in Ashland’s consolidated U.S. and state income tax
returns and in the income tax returns of certain Ashland international subsidiaries (collectively, the “Ashland Group
Returns”). For the taxable periods that began on and after the Distribution, Valvoline files tax returns that include
only Valvoline and its subsidiaries.

81

Key terms and conditions

An agreement (the "Tax Matters Agreement") was entered into in September 2016 between Valvoline and Ashland,
that generally provides that Valvoline indemnify Ashland for the following items:

•
•

•

•

•
•

The utilization of certain legacy tax attributes transferred from Ashland as the result of the Contribution;
Taxes for the pre-IPO period that arise on audit or examination and are directly attributable to the Valvoline
business;
Certain U.S. federal, state or local taxes for the pre-IPO period of Ashland and/or its subsidiaries that arise on
audit or examination and are not directly attributable to either the Valvoline business or the Ashland chemicals
business;
Taxes of Valvoline for the period between the IPO and Distribution that are not attributable to Ashland Group
Returns (as defined above);
Taxes of Valvoline for all taxable periods that begin on or after the day after the date of the Distribution; and
Certain taxes and expenses resulting from the failure of the Contribution or Distribution to qualify for the
intended tax-free treatment.

Summary of activity

Adjustments to the net obligations to Ashland under the Tax Matters Agreement 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. Amounts
recognized in the current period are not material.

During fiscal 2021, the Company reduced its indemnity obligations to Ashland by $33.0 million, principally due to
settlement for fiscal 2014 to 2016 federal audit examinations. This reduction resulted in pre-tax income of
$26.8 million and an income tax benefit of $5.8 million attributable to the Valvoline stand-alone business.

During fiscal 2020, the Company determined it did not expect to utilize certain tax attributes that were transferred
from Ashland as a result of the Contribution. Accordingly, the Company recognized income tax expense of
$28.5 million to establish a valuation allowance for these tax attributes with an offsetting reduction in its indemnity
obligation, the combined effects of which had no impact on net income in the fiscal year ended September 30,
2020.

Total liabilities related to obligations owed to Ashland under the Tax Matters Agreement are primarily recorded in
Other noncurrent liabilities in the Consolidated Balance Sheets and were $0.6 million and $1.3 million as of
September 30, 2022 and 2021, respectively. Given the indemnification of Ashland for periods in which Valvoline
was included in Ashland Group Returns, a portion of the Company's liability for unrecognized tax benefits is
included in the Tax Matters Agreement obligation. The periods under indemnity that currently remain open to
examination include certain U.S. state jurisdictions from fiscal 2011.

82

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)
Gross unrecognized tax benefits as of October 1
Increases related to tax positions from prior years

Decreases related to tax positions from prior years

Increases related to tax positions taken during the current year

Settlements with tax authorities

Lapses of statutes of limitation
Gross unrecognized tax benefits as of September 30 (a)

2022

2021

2020

8.7 $

13.4 $

12.4

0.1

(0.6)

0.8

—

(0.8)
8.2 $

1.5

(1.3)

0.7

(4.2)

(1.4)
8.7 $

0.5

—

0.9

—

(0.4)
13.4

$

$

(a) These unrecognized tax benefits would favorably impact the continuing operations and discontinued operations effective income tax rates, if
recognized. Accruals for interest and penalties were $1.2 million as of September 30, 2022 and $1.1 million as of September 30, 2021.

The Company's U.S. federal income tax returns and Canada remain open to examination from fiscal 2018 forward.
Fiscal years including and after 2017 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 2023. 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 2023.

NOTE 10 – EMPLOYEE BENEFIT PLANS

Pension and other postretirement plans

The components of pension and other postretirement plans net periodic benefit costs (income) and the assumptions
used in this determination are summarized below for the years ended September 30:

(In millions)

2022

2021

2020

2022

2021

2020

Pension benefits

Other postretirement benefits

Net periodic benefit costs (income)

Interest cost

$

43.0

$

41.2

$

59.6

$

Expected return on plan assets

Amortization of prior service cost (credit)

Actuarial loss (gain)

Net periodic benefit costs (income)

$

Weighted-average plan assumptions

(78.6)

0.1

49.5

14.0

(84.0)

0.1

(75.1)

(85.3)

0.1

(21.6)

$ (117.8)

$ (47.2)

$

0.7

—

(2.2)

(5.6)

(7.1)

$

0.7

—

$

1.1

—

(11.9)

(11.8)

0.8

3.0

$ (10.4)

$

(7.7)

Discount rate for interest cost

2.10%

1.91%

2.80%

1.92%

1.76%

2.68 %

Expected long-term rate of return on plan
assets

4.10%

4.40%

4.70%

—

—

—

Valvoline recognizes the change in the fair value of plan assets and net actuarial gains and losses annually in the
fourth quarter of each fiscal year and whenever a plan is determined to qualify for remeasurement. These gains and
losses are reported within Net pension and other postretirement plan income in the Consolidated Statements of
Comprehensive Income and included a loss of $43.9 million for the year ended September 30, 2022 and gains of
$74.3 million and $18.6 million for the years ended September 30, 2021 and 2020, respectively.

83

This fiscal 2022 loss was primarily attributed to lower-than-expected returns on plan assets, partially offset by higher
discount rates. The fiscal 2021 gain was primarily attributed to higher-than-expected returns on plan assets and an
increase in discount rates. The fiscal 2020 gain was primarily attributed to higher-than-expected returns on plan
assets and favorable changes in mortality assumptions, which more than offset the impacts of lower discount rates.

The following table summarizes the net periodic benefit income and the amortization of prior service credits
recognized during the years ended September 30:

(In millions)
Amortization of prior service credits
recognized in Accumulated other
comprehensive income
Net periodic benefit loss (income)
Total pre-tax amount recognized in
comprehensive loss (income)

$

$

Obligations and funded status

Pension benefits

Other postretirement benefits

2022

2021

2020

2022

2021

2020

(0.1) $

(0.1) $

(0.1) $

2.2 $

11.9 $

11.8

14.0

(117.8)

(47.2)

(7.1)

(10.4)

(7.7)

13.9 $ (117.9) $

(47.3) $

(4.9) $

1.5 $

4.1

Changes in benefit obligations and the fair value of plan assets, as well as key assumptions used to determine the
benefit obligations, and the amounts in the Consolidated Balance Sheets for the Company’s pension and other
postretirement benefit plans are summarized below as of September 30:

(In millions)
Change in benefit obligations
Benefit obligations as of October 1

Interest cost

Benefits paid

Actuarial (gain) loss

Transfers in

Settlements

Benefit obligations as of September 30
Change in plan assets
Fair value of plan assets as of October 1

Actual return on plan assets

Employer contributions

Benefits paid

Settlements

Transfers in

Pension benefits

Other postretirement
benefits

2022

2021

2022

2021

$ 2,132.9

$ 2,251.7

$

43.0

(128.0)

(458.3)

0.5

(4.9)

41.2

(130.3)

(31.7)

3.2

(1.2)

$ 1,585.2

$ 2,132.9

$ 1,987.0

$ 1,977.9

(429.5)

13.0

(128.0)

(4.9)

0.5

127.7

9.7

(130.3)

(1.2)

3.2

$

$

$

$

$

38.9

0.7

(3.3)

(5.6)

—

—

41.6

0.7

(4.1)

0.7

—

—

30.7

$

38.9

— $

—

3.3

(3.3)

—

—

— $

—

—

4.1

(4.1)

—

—

—

30.7

$

38.9

Fair value of plan assets as of September 30

$ 1,438.1

$ 1,987.0

Unfunded status of the plans as of September 30

$

147.1

$

145.9

84

(In millions)
Amounts in the Consolidated Balance Sheets
Noncurrent benefit assets (a)

Current benefit liabilities (b)
Noncurrent benefit liabilities (c)
Total benefit liabilities

Pension benefits

2022

2021

Other postretirement
2021
2022

f

$

33.7

$

71.5

$

— $

—

9.1

171.7

180.8

9.3

208.1

217.4

4.4

26.3

30.7

4.2

34.7

38.9

Net liabilities recognized

$

147.1

$

145.9

$

30.7

$

38.9

Balance in Accumulated other comprehensive loss
Prior service cost (credit)

$

1.2

$

1.3

$

(18.9)

$

(21.1)

Weighted-average plan assumptions
Discount rate
Healthcare cost trend rate (d)

5.58%
—

2.70%
—

5.56 %

5.6 %

2.53 %

5.7 %

(a) Noncurrent benefit assets are recorded in Other noncurrent assets within the Consolidated Balance Sheets,
(b) Current benefit liabilities are recorded in Accrued expenses and other liabilities within the Consolidated Balance Sheets.
(c) Noncurrent benefit liabilities are recorded in Employee benefit obligations within the Consolidated Balance Sheets.
(d) The assumed pre-65 health care cost trend rate continues to be reduced to 4.0% in 2040 and thereafter.

Accumulated benefit obligation

The accumulated benefit obligation for all pension plans was $1.6 billion and $2.1 billion as of September 30, 2022
and 2021, respectively. Pension plans with projected and accumulated benefit obligations in excess of the fair value
of plan assets follows for the Company’s plans as of September 30:

(In millions)
Plans with projected and accumulated benefit obligations in
excess of plan assets

Plan assets

2022

2021

Benefit
obligation

Plan
assets

Benefit
obligation

Plan
assets

$ 1,177.7 $

996.9 $ 1,591.5 $ 1,374.0

Pension plan asset investments and their level within the fair value hierarchy is summarized below as of:

(In millions)

Cash and cash equivalents
U.S. government securities and
futures
Other government securities

Corporate debt instruments

Private equity and hedge funds

Collective trust funds

Other investments

September 30, 2022

Total fair
value

Level 1

Level 2

Level 3

Assets
measured at
NAV

$

56.9 $

56.9 $

— $

— $

73.8

36.1

1,066.9

13.3

190.3

0.8

—

—

—

—

—

—

73.8

36.1

1,066.9

—

—

0.8

—

—

—

—

—

—

—

—

—

—

13.3

190.3

—

203.6

Total assets at fair value

$

1,438.1 $

56.9 $

1,177.6 $

— $

85

(In millions)

Total fair
value

Level 1

Level 2

Level 3

Assets
measured at
NAV

September 30, 2021

Cash and cash equivalents

$

134.4 $

134.4 $

— $

— $

U.S. government securities and
futures

Other government securities

Corporate debt instruments

Private equity and hedge funds

Collective trust funds

Other investments
Total assets at fair value

Cash and cash equivalents

95.5

58.3

1,370.7

10.9

308.1

—

—

—

—

—

95.5

58.3

1,370.7

—

—

—

—

—

—

—

9.1
1,987.0 $

$

—
134.4 $

9.1
1,533.6 $

—
— $

—

—

—

—

10.9

308.1
—
319.0

The carrying value of cash and cash equivalents approximates fair value.

Government securities

Government securities are valued based on Level 2 inputs, which include yields available for comparable securities
of issuers with similar credit ratings.

Corporate debt instruments

Corporate debt instruments are valued based on Level 2 inputs that are observable in the market or may be derived
principally from, or corroborated by, recently executed transactions, observable market data such as pricing for
similar securities, cash flow models with yield curves, counterparty credit ratings, and credit spreads applied using
the maturity and coupon interest rate terms of the debt instrument.

Private equity and hedge funds

Private equity and hedge funds primarily represent alternative investments not traded on an active market which are
valued at the NAV per share determined by the manager of the fund based on the fair value of the underlying net
assets owned by the fund divided by the number of shares or units outstanding.

Collective trust funds

Collective trust funds are comprised of a diversified portfolio of investments across various asset classes, including
U.S. and international equities, fixed-income securities, commodities and currencies. The collective trust funds are
valued using a NAV provided by the manager of each fund, which is based on the underlying net assets owned by
the fund, divided by the number of shares outstanding.

86

The following summarizes investments for which fair value is measured using the NAV per share practical expedient
as of September 30, 2022:

(In millions)

Long/short hedge funds

Relative value hedge funds
Event driven hedge funds

Collective trust funds

Private equity

Fair value at
NAV

Unfunded
commitments

$

4.4 $

3.1
0.4

190.3

5.4

$

203.6 $

—

—
—

—

1.6

1.6

Redemption
frequency
(if currently eligible)
None (a)
None (b)
None (b)
Daily
None (c)

Redemption
notice period
None (a)
None (b)
None (b)
Up to 3 days
None (c)

(a) These hedge funds are in the process of liquidation over the next year.
(b) These hedge funds are in the process of liquidation and the timing is unknown.
(c) These private equity instruments are estimated to be liquidated over the next 1 to 5 years.

Investments and strategy

In developing an investment strategy for its defined benefit plans, Valvoline considered the following factors: the
nature of the liabilities of the plans; the allocation of liabilities between active, deferred and retired plan participants;
the funded status of the plans; the applicable investment horizon; the respective size of the plans; and historical and
expected investment returns. Valvoline’s pension plan assets are managed by outside investment managers,
which are monitored against investment benchmark returns and Valvoline's established investment strategy.
Investment managers are selected based on an analysis of, among other things, their investment process, historical
investment results, frequency of management turnover, cost structure, and assets under management. Assets are
periodically reallocated between investment managers to optimize returns and maintain an appropriate asset mix
and diversification of investments.

The current target asset allocation for the plans is 90% fixed income securities and 10% equity-based securities.
Fixed income securities are liability matching assets that primarily include long duration, high grade corporate debt
obligations. Equity-based securities are return-seeking assets that include both traditional equities as well as a mix
of non-traditional assets such as hedge and commingled funds and private equity. Investment managers may
employ a limited use of futures or other derivatives to manage risk within the portfolio through efficient exposure to
markets. Valvoline’s pension plans hold a variety of investments designed to diversify risk and achieve an adequate
net investment return to provide for future benefit payments to its participants.

The weighted-average asset allocations for Valvoline’s plans by asset category follow as of September 30:

Plan assets allocation

Equity securities

Debt securities

Other

Total

Target

2022

2021

3-10%

80-100%

0-10%

7%

92%

1%

100%

11%

88%

1%

100%

The basis for determining the expected long-term rate of return is a combination of future return assumptions for the
various asset classes in Valvoline’s investment portfolio based on active management, historical analysis of
previous returns, market indices, and a projection of inflation, net of plan expenses.

Funding and benefit payments

Valvoline contributed $13.0 million and $9.7 million to its pension plans during fiscal 2022 and 2021, respectively.
Valvoline does not plan to contribute to its qualified pension plans in fiscal 2023 and expects to contribute
approximately $9.0 million to its non-qualified pension plans.

87

The following benefit payments, which reflect future service expectations, are projected to be paid in each of the
next five fiscal years ended September 30 and the five fiscal years thereafter in aggregate:

(In millions)

2023

2024

2025

2026

2027

2028 - 2032

Total

Other plans

Pension benefits

Other postretirement
benefits

$

$

141.9 $

137.7

136.4

135.1

133.2

622.5

1,306.8 $

4.3

3.6

3.2

2.8

2.6

11.0

27.5

Defined contribution and other defined benefit plans

Valvoline sponsors certain defined contribution savings plans that provide matching contributions. Expense
associated with these plans was $15.9 million in fiscal 2022, $6.0 million in fiscal 2021 and $5.2 million in fiscal
2020.

Valvoline also sponsors a long-term disability benefit plan. Total liabilities associated with this plan were $1.9 million
and $2.6 million as of September 30, 2022 and 2021, respectively.

Multiemployer pension plans

Valvoline participates in two multiemployer pension plans that provide pension benefits to certain union-represented
employees under the terms of collective bargaining agreements. Valvoline assumed responsibility for contributions
to these plans in connection with the separation from its former parent company. Contributions to these plans were
not material for any period presented herein.

Incentive plans

Reserves for incentive plans were $13.6 million and $18.4 million as of September 30, 2022 and 2021, respectively.

NOTE 11 – LITIGATION, CLAIMS AND CONTINGENCIES

From time to time, Valvoline is party to lawsuits, claims and other legal proceedings that arise in the ordinary course
of business. The Company establishes liabilities for the outcome of such matters where losses are determined to be
probable and reasonably estimable. Where appropriate, the Company has recorded liabilities with respect to these
matters, which were not material for the periods presented as reflected in the consolidated financial statements
herein. There are certain claims and legal proceedings pending where loss is not determined to be probable or
reasonably estimable, and therefore, accruals have not been made. In addition, there are currently no matters for
which management believes a material loss is at least reasonably possible.

In all instances, management has assessed each matter based on current information available and made a
judgment concerning its potential outcome, giving due consideration to the amount and nature of the claim and the
probability of success. The Company believes it has established adequate accruals for liabilities that are probable
and reasonably estimable.

Although the ultimate resolution of these matters cannot be predicted with certainty and there can be no assurances
that the actual amounts required to satisfy liabilities from these matters will not exceed the amounts reflected in the
consolidated financial statements, based on information available at this time, it is the opinion of management that
such pending claims or proceedings will not have a material adverse effect on its consolidated financial statements.

88

NOTE 12 – STOCK-BASED COMPENSATION PLANS

Valvoline has approved stock-based incentive plans that authorize 21.0 million shares of common stock to be
issued, with approximately 10.5 million shares of common stock remaining available for issuance as of September
30, 2022. The Valvoline stock-based incentive plans authorize the grant of stock options, stock appreciation rights
(“SARs”), and nonvested stock awards, principally in the form of restricted stock, restricted stock units, and
performance share units. The following summarizes stock-based compensation expense recognized by the
Company during the years ended September 30:

(In millions)
Stock appreciation rights

Nonvested stock awards

Total stock-based compensation expense, pre-tax

Tax benefit

Total stock-based compensation expense, net of tax

Stock appreciation rights

2022

2021

2020

1.5 $

1.3 $

8.4

9.9

(2.5)

7.9

9.2

(2.3)

7.4 $

6.9 $

1.2

7.5

8.7

(2.2)

6.5

$

$

SARs are granted to certain Valvoline employees to provide vested award holders with the ability to profit from the
appreciation in value of a set number of shares of common stock over a period of time by receiving the differential
between the value of the Company's common stock price at the grant and exercise dates. SARs typically vest and
become exercisable over a period of one to three years and are subject to pre-vesting forfeiture upon service
termination. Unexercised SARs generally lapse ten years after the grant date. Stock-based compensation expense
for SARs is determined using the Black-Scholes option-pricing model to estimate the grant date fair value of new or
modified awards.

Nonvested stock awards

Nonvested stock awards in the form of Restricted Stock Awards ("RSAs") and Restricted Stock Units ("RSUs") are
granted to certain Valvoline employees and directors. These awards can have service-based or both service and
performance-based vesting conditions. Nonvested stock awards generally vest over a one to three-year period and
are subject to forfeiture upon termination of service prior to vesting. Nonvested stock awards are primarily granted
as RSUs that settle in shares upon vesting, while RSAs result in share issuance at grant, which entitles award
holders to voting rights that are restricted until vesting. Nonvested stock awards with service-only vesting conditions
receive dividend equivalents in the form of additional units or shares, which are subject to vesting and forfeiture
provisions.

Nonvested stock awards with both service and performance conditions vest through continued employee service
and upon the achievement of specific financial targets subject to adjustment relative to performance among
selected industry peer groups. These awards are granted annually and subject to a three-year performance and
vesting period. Each performance share unit is convertible to one share of common stock, the actual number of
which is dependent upon performance compared to financial and market performance targets at the end of each
performance period. Compensation cost for performance-based nonvested stock awards is recognized at fair value
over the requisite service period based on the probable achievement of the financial performance conditions.

89

The following summarizes nonvested stock award activity during the year ended September 30, 2022:

Unvested shares as of September 30, 2021

Granted
Performance adjustments (a)
Vested

Forfeited

Unvested shares as of September 30, 2022

Number of
shares
(in thousands)

Weighted average grant
date fair value per share

1,968.1 $

421.9 $
25.0 $
(517.8) $

(79.9) $

1,817.3 $

21.50

35.32
25.71

22.44

25.46

25.53

(a) Adjustments based on current attainment expectations of performance targets.

The fair value of new or modified nonvested stock awards with service-only conditions was determined based on
the closing market price of Valvoline common stock on the grant date, and the fair value of performance-based
nonvested stock awards that include both financial and market performance conditions was determined using a
Monte Carlo simulation valuation model with the following key assumptions:

Weighted average grant date fair value per share

$

33.98

$

21.81

$

23.21

2022

2021

2020

Assumptions (weighted average)

Risk-free interest rates (a)

Expected dividend yield
Expected volatility (b)

Expected term (in years)

1.6 %

1.8 %

41.5 %

3.0

0.2 %

2.3 %

42.0 %

3.0

1.6 %

2.1 %

26.0 %

3.0

(a) Based on the U.S. Treasury yield curve in effect at the time of grant or modification for the expected term of the award. The range of risk-
free interest rates used for performance awards was 1.14% to 1.88% in fiscal 2022, 0.13% to 0.23% in fiscal 2021, and 1.55% to 1.59% in
fiscal 2020.

(b) Expected volatility is based on historical volatilities over periods commensurate with the expected term. In recent years, Valvoline utilized its

historical daily closing price over this period.

The total grant date fair value of nonvested stock awards vested and the weighted average grant date fair value of
nonvested stock awards granted follows for the years ended September 30:

(In millions, except weighted average)

2022

2021

2020

Total grant date fair value of shares vested

Weighted average grant date fair value

$

$

11.2 $

35.32 $

6.5 $

22.33 $

4.6

22.17

As of September 30, 2022, there was $11.3 million of total unrecognized compensation costs related to nonvested
stock awards, which is expected to be recognized over a weighted average period of 1.8 years. The aggregate
intrinsic value of nonvested stock awards as of September 30, 2022 is $46.0 million.

90

NOTE 13 - EARNINGS PER SHARE

The following summarizes basic and diluted EPS for the years ended September 30:

(In millions, except per share data)
Numerator
Income from continuing operations
Income from discontinued operations, net of tax

Net income
Denominator
Weighted average common shares outstanding
Effect of potentially dilutive securities (a)

Weighted average diluted shares outstanding

Basic earnings per share
Continuing operations
Discontinued operations

Basic earnings per share

Diluted earnings per share
Continuing operations
Discontinued operations

Diluted earnings per share

2022

2021

2020

109.4 $
314.9
424.3 $

179.1
1.3
180.4

0.61 $
1.76
2.37 $

0.61 $
1.74
2.35 $

200.1 $
220.2
420.3 $

182.5
1.0
183.5

1.10 $
1.20
2.30 $

1.09 $
1.20
2.29 $

69.6
247.0
316.6

187.0
0.5
187.5

0.38
1.32
1.70

0.37
1.32
1.69

$

$

$

$

$

$

(a) There were approximately 1.0 million outstanding securities, primarily SARs, not included in the computation of diluted earnings per share in

the year ended September 30, 2020 because the effect would have been antidilutive.

NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in Accumulated other comprehensive income (loss) by component for fiscal years 2022 and 2021 were as
follows:

(In millions)

Balance as of September 30, 2020
Other comprehensive income (loss)
before reclassification
Gains reclassified out of accumulated
other comprehensive income

Tax benefit (expense)

Balance as of September 30, 2021
Other comprehensive income (loss)
before reclassification

Gains reclassified out of accumulated
other comprehensive income

Tax benefit (expense)

Unamortized
benefit plan
credits

Currency
translation
adjustments

Changes in fair
value of cash
flow hedges

Total

$

25.8 $

(16.7) $

(0.9) $

—

(11.8)

2.8

16.8

—

(2.2)

0.5

6.8

—

(0.2)

(10.1)

(40.0)

—

0.4

2.9

(0.7)

(0.5)

0.8

15.4

1.4

(4.3)

Balance as of September 30, 2022

$

15.1 $

(49.7) $

13.3 $

8.2

9.7

(12.5)

2.1

7.5

(24.6)

(0.8)

(3.4)

(21.3)

Amounts reclassified from Accumulated other comprehensive income (loss) follow for the years ended September
30:

91

(in millions)
Amortization of pension and other postretirement plan
prior service credits (a)
Loss on liquidation of subsidiaries (b)
Loss (gain) on cash flow hedges (c)
Tax effect of reclassifications

Total amounts reclassified, net of tax

$

$

2022

2021

2020

(2.2) $

(11.8) $

—

1.4

(3.4)

—

(0.7)

2.1

(4.2) $

(10.4) $

(11.8)

0.6

—

3.0

(8.2)

(a) Amortization of unrecognized prior service credits included in net periodic benefit income for pension and other postretirement plans was
reported in Net pension and other postretirement plan (income) expenses within the Consolidated Statements of Comprehensive Income.
The Company releases the income tax effects from Accumulated other comprehensive income as benefit plan credits are amortized into
earnings.

(b) Represents the realization of cumulative translation adjustments in Equity and other income, net within the Consolidated Statements of

Comprehensive Income as a result of the liquidation of certain non-U.S. subsidiaries.

(c) Represents the realization of gains from cash flow hedges reported in Net interest and other financing expenses within the Consolidated

Statements of Comprehensive Income.

NOTE 15 – SUPPLEMENTAL BALANCE SHEET INFORMATION

Cash and cash equivalents

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
Consolidated Balance Sheets to the totals shown within the Consolidated Statements of Cash Flows for the years
ended September 30:

(In millions)
Cash and cash equivalents - continuing operations

Cash and cash equivalents - discontinued operations
Restricted cash - continuing operations (a)
Restricted cash - discontinued operations (b)

Total cash, cash equivalents and restricted cash

$

$

2022

2021

2020

23.4 $
59.0
—

1.5
83.9 $

122.6 $
107.4
—

1.4

231.4 $

639.7
119.9
0.3

0.6

760.5

(a)
(b)

Included in Prepaid expenses and other current assets within the Consolidated Balance Sheets.
Included in Current assets held for sale with the Consolidated Balance Sheets.

Accounts and other receivables

The following summarizes Valvoline’s accounts and other receivables in the Consolidated Balance Sheets as of
September 30:

(In millions)
Current
Trade

Other

Notes receivable from franchisees

Receivables, gross

Allowance for credit losses

Receivables, net

2022

2021

$

$

56.2 $

14.3

0.2

70.7

(4.6)

66.1 $

50.0

5.4

10.2

65.6

(0.3)

65.3

92

Property, plant and equipment

The following table summarizes the various components of property, plant and equipment within the Consolidated
Balance Sheets as of September 30:

(In millions)

Land

Buildings

Machinery and equipment

Construction in progress

Total property, plant and equipment

Accumulated depreciation

Net property, plant and equipment

2022

2021

$

134.7 $

562.8

236.0

82.4

1,015.9

(347.3)

$

668.6 $

119.3

471.2

211.6

53.5

855.6

(295.8)

559.8

The following table summarizes finance lease assets included in net property, plant and equipment as of September
30:

(In millions)

Land

Buildings

Total finance lease assets

Accumulated depreciation

Net finance lease assets

2022

2021

75.3 $

141.8

217.1

(34.2)

182.9 $

63.9

131.5

195.4

(20.1)

175.3

$

$

Non-cash transactions, including finance leases, recognized within total property, plant and equipment were $23.2
million and $126.3 million during the years ended September 30, 2022 and 2021, respectively.

The following summarizes expense associated with property, plant and equipment recognized within the
Consolidated Statements of Comprehensive Income for the years ended September 30:

(In millions)

2022

2021

2020

Depreciation (includes finance leases)

$

54.7 $

46.8 $

31.2

Long-lived assets

The following presents long-lived assets comprised of net property, plant and equipment and operating lease assets
by geographic area in which the assets physically reside for the years ended September 30:

(In millions)

United States

Non-U.S.

Total

Property, plant and equipment, net

Operating lease assets

2022

2021

2022

2021

$

$

647.7 $

20.9

668.6 $

550.8 $

9.0

559.8 $

229.0 $

19.1

248.1 $

208.1

18.0

226.1

93

NOTE 16 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents quarterly financial information and per share data:

(In millions, except per share
amounts)
Net revenues

Gross profit

Operating income

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2022

2021

2022

2021

2022

2021

2022

2021

$ 287.3 $ 215.5 $ 296.0 $ 244.9 $ 317.4 $ 281.6 $ 335.4 $ 295.2

$ 112.2 $ 81.4 $ 107.3 $ 105.5 $ 127.8 $ 126.0 $ 129.1 $ 119.4

$ 52.0 $ 31.9 $ 40.0 $ 51.2 $ 61.1 $ 69.3 $ 67.2 $ 87.7

Income before income taxes

$ 44.3 $ 24.7 $ 32.3 $ 10.8 $ 53.0 $ 66.3 $ 14.5 $ 158.2

Income from continuing operations

$ 34.2 $ 18.1 $ 23.0 $

8.3 $ 39.8 $ 49.0 $ 12.4 $ 124.7

Income from discontinued
operations, net of tax
Net income

Net earnings per share
Basic

$ 52.8 $ 68.6 $ 58.4 $ 59.5 $ 58.4 $ 47.9 $ 145.3 $ 44.2

$ 87.0 $ 86.7 $ 81.4 $ 67.8 $ 98.2 $ 96.9 $ 157.7 $ 168.9

Continuing operations

$ 0.19 $ 0.10 $ 0.13 $ 0.05 $ 0.22 $ 0.27 $ 0.07 $ 0.69

Discontinued operations

0.29

0.37

0.32

0.32

0.33

0.26

0.82

0.24

Basic earnings per share

$ 0.48 $ 0.47 $ 0.45 $ 0.37 $ 0.55 $ 0.53 $ 0.89 $ 0.93

Diluted

Continuing operations

$ 0.19 $ 0.10 $ 0.13 $ 0.05 $ 0.22 $ 0.27 $ 0.07 $ 0.68

Discontinued operations

0.29

0.37

0.32

0.32

0.33

0.26

0.81

0.24

Diluted earnings per share

$ 0.48 $ 0.47 $ 0.45 $ 0.37 $ 0.55 $ 0.53 $ 0.88 $ 0.92

NOTE 17 – SUBSEQUENT EVENTS

Dividend declaration

On November 21, 2022, the Board approved a quarterly cash dividend of $0.125 per share of common stock. The
dividend is payable December 15, 2022 to shareholders of record on December 2, 2022.

Share repurchases

The Company repurchased approximately 1.8 million shares for an aggregate amount of $51.2 million from October
1, 2022 through November 18, 2022 pursuant to the May 17, 2021 Board authorization to repurchase up to
$300.0 million of common stock through September 30, 2024 (the "2021 Share Repurchase Authorization").

The Company announced on November 15, 2022 that its Board approved a share repurchase authorization of
$1.6 billion (the “2022 Share Repurchase Authorization”). The Board approved the 2022 Share Repurchase
Authorization to effectuate a significant return of capital to shareholders of a substantial portion of the expected net
proceeds from the sale of the Global Products business. The Company generally expects to repurchase shares of
its common stock up to the full amount of the authorization within 18 months of the closing of the sale of Global
Products. However, the timing and amount of any repurchases of common stock will be solely at the discretion of
the Company and subject to general business and market conditions, including closing the sale of Global Products,
as well as other factors, including legal and regulatory restrictions. The 2022 Share Repurchase Authorization is in
addition to the 2021 Share Repurchase Authorization of which $79.2 million remained as of November 18, 2022.

94

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Valvoline’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of management,
has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), as of the end
of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”), and based upon such evaluation,
have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective.
These controls are designed to ensure that information required to be disclosed in the reports that are filed or
submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is
accumulated and communicated to Valvoline’s management, including the CEO and CFO, to allow timely decisions
regarding required disclosure.

Management’s report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management assessed the effectiveness of the
Company’s internal control over financial reporting as of September 30, 2022 based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control -
Integrated Framework. Based on this assessment, management concluded that the Company’s internal control over
financial reporting was effective as of September 30, 2022 based on those criteria. The Company’s internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Valvoline’s
independent registered public accounting firm, Ernst & Young LLP, has issued an audit report with respect to the
effectiveness of the Company’s internal control over financial reporting as of September 30, 2022, which appears
herein.

Changes in internal control

The Company entered into a definitive agreement to sell its Global Products business on July 31, 2022, which
triggered classification and presentation of this business as held for sale and a discontinued operation within
Valvoline’s consolidated financial statements. Management designed and implemented responsive control
procedures related to its financial reporting, which were assessed as of September 30, 2022 during the annual
operation of these controls.

There were no other changes that occurred during the fourth fiscal quarter ended September 30, 2022 that
materially affected, or are reasonably likely to materially affect, Valvoline’s internal control over financial reporting.

95

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of
Valvoline Inc. and Consolidated Subsidiaries

Opinion on Internal Control Over Financial Reporting

We have audited Valvoline Inc. and Consolidated Subsidiaries’ internal control over financial reporting as of
September 30, 2022, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Valvoline Inc. and Consolidated Subsidiaries (the Company) maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2022 and 2021,
the related consolidated statements of comprehensive income, stockholders’ equity (deficit) and cash flows for each
of the three years in the period ended September 30, 2022, and the related notes and financial statement schedule
listed in the Index at Item 15(a), and our report dated November 23, 2022, expressed an unqualified opinion
thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

/s/ Ernst & Young LLP

Louisville, Kentucky
November 23, 2022

96

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

A list of Valvoline’s executive officers and related information appears under the caption “Executive Officers of
Valvoline” in Item 1 of Part I of this Annual Report on Form 10-K. The other information required by this item will be
included in the Proxy Statement, which will be filed with the SEC within 120 days of September 30, 2022 and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2022 and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2022 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2022 and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item will be included in the Proxy Statement, which will be filed with the SEC within
120 days of September 30, 2022 and is incorporated herein by reference.

97

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

(a) Documents filed as part of this Report

(1) Financial statements

The consolidated financial statements of Valvoline filed as part of this Annual Report on Form 10-K are
included in Item 8 of Part II.

Separate financial statements of unconsolidated affiliates are omitted because none of these companies
constitute significant subsidiaries using the 20% tests when considered individually. Summarized financial
information for all unconsolidated affiliates is disclosed in Note 3 of the Notes to Consolidated Financial
Statements.

(2) Financial statement schedules

Financial Statement Schedule II - Valuation and Qualifying Accounts included within this Item 15 in this
Annual Report on Form 10-K. All other schedules are not required under the related instructions or are not
applicable.

(3) Exhibits

Refer to Item 15(b) included in this Annual Report on Form 10-K.

(b) Documents required by Item 601 of Regulation S-K

2.1

3.1

3.2

4.1

4.2

4.3

4.4

-

-

-

-

-

-

Equity Purchase Agreement, dated as of July 31, 2022 among Valvoline Inc., Gateway Velocity
Holding Corp. and Aramco Overseas Company B.V. (incorporated by reference to Exhibit 2.1 to
Valvoline’s Current Report on Form 8-K (File No. 001-37884) filed on August 1, 2022).
Amended and Restated Articles of Incorporation of Valvoline Inc. (incorporated by reference to
Exhibit 3.1 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November
17, 2017).

Amended and Restated By-laws of Valvoline Inc. (incorporated by reference to Exhibit 3.2 to
Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December 19, 2016).

Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to Valvoline’s Registration
Statement on Form S-1 (File No. 333-211720) filed on September 12, 2016).

Indenture, dated as of February 25, 2020, among Valvoline Inc. the guarantors party thereto and
U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Valvoline's
Current Report on Form 8-K (File No. 001-37884) filed on February 25, 2020.

Indenture, dated as of January 4, 2021, among Valvoline Inc. the guarantors party thereto and
U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Valvoline's
Current Report on Form 8-K (File No. 001-37884) filed on January 4, 2021.

- Description of Securities (incorporated by reference to Exhibit 4.5 to Valvoline’s Annual Report on

10-K (File No. 001-37884) filed on November 19, 2021).

The following Exhibits 10.1 through 10.23 are contracts, compensatory plans or arrangements, or management
contracts required to be filed as exhibits pursuant to Items 601(b)(10)(ii)(A) and 601(b)(10)(iii)(A) and (B) of
Regulations S-K.

10.1

-

Valvoline Inc. 2016 Deferred Compensation Plan for Employees (incorporated by reference to
Exhibit 10.1 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December
19, 2016).

98

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Valvoline Inc. 2016 Deferred Compensation Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.6 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on
December 19, 2016).

2016 Valvoline Inc. Incentive Plan, as Amended (incorporated by reference to Exhibit 10.1 to
Valvoline's Current Report on Form 8-K (File No. 001-37884) filed on February 5, 2019.

Valvoline Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to
Valvoline’s Current Report on Form 8-K (File No. 001-37884) filed on February 5, 2018).

Form of (Outside Directors) Restricted Stock Award Agreement pursuant to the 2016 Valvoline
Inc. Incentive Plan (incorporated by reference to Exhibit 10.3 to Valvoline's Annual Report on
Form 10-K (File No. 001-37884) filed on December 19, 2016).

Form of Performance Unit Award Agreement pursuant to the 2016 Valvoline Inc. Incentive Plan
(incorporated by reference to Exhibit 10.5 to Valvoline's Current Report on Form 8-K (File No.
001-37884) filed on May 15, 2017).

Form of Stock Appreciation Right Award Agreement pursuant to the 2016 Valvoline Inc. Incentive
Plan (incorporated by reference to Exhibit 10.6 to Valvoline's Current Report on Form 8-K (File
No. 001-37884) filed on May 15, 2017).

Form of Stock Appreciation Right Award Agreement pursuant to the 2016 Valvoline Inc. Incentive
Plan, as Amended, for awards granted after fiscal 2020 (incorporated by reference to Exhibit 10.8
to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November 24, 2020).

Form of Restricted Stock Unit Award Agreement pursuant to the 2016 Valvoline Inc. Incentive
Plan (incorporated by reference to Exhibit 10.7 to Valvoline's Annual Report on Form 10-K (File
No. 001-37884) filed on November 17, 2017).

Form of Restricted Stock Unit Award Agreement (Cash-Settled) pursuant to the 2016 Valvoline
Inc. Incentive Plan (incorporated by reference to Exhibit 10.8 to Valvoline's Current Report on
Form 8-K (File No. 001-37884) filed on May 15, 2017).

Form of Outside Director Restricted Stock Unit Award Agreement pursuant to the 2016 Valvoline
Inc. Incentive Plan (incorporated by reference to Exhibit 10.1 to Valvoline’s Quarterly Report on
Form 10-Q (File No. 001-37884) filed on February 9, 2022).

Valvoline Inc. Nonqualified Defined Contribution Plan (incorporated by reference to Exhibit 10.4 to
Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December 19, 2016).

Ashland Inc. Nonqualified Excess Benefit Pension Plan (incorporated by reference to Exhibit
10.12 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November 17,
2017).

Amendment to Ashland Inc. Nonqualified Excess Benefit Pension Plan, effective as of September
1, 2016 (incorporated by reference to Exhibit 10.7 to Valvoline's Annual Report on Form 10-K
(File No. 001-37884) filed on December 19, 2016).

Amendment to Ashland Inc. Nonqualified Excess Benefit Pension Plan, effective as of September
30, 2016 (incorporated by reference to Exhibit 10.9 to Valvoline's Annual Report on Form 10-K
(File No. 001-37884) filed on December 19, 2016).

Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (“Ashland SERP”)
(incorporated by reference to Exhibit 10.15 to Valvoline's Annual Report on Form 10-K (File No.
001-37884) filed on November 17, 2017).

Amendment to Ashland SERP, effective as of January 1, 2015 (incorporated by reference to
Exhibit 10.16 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November
17, 2017).

Amendment to Ashland SERP, effective as of September 1, 2016 (incorporated by reference to
Exhibit 10.17 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on November
17, 2017).

Amendment to Ashland SERP, effective as of September 30, 2016 (incorporated by reference to
Exhibit 10.8 to Valvoline's Annual Report on Form 10-K (File No. 001-37884) filed on December
19, 2016).

99

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27*

10.28

10.29

10.30

10.31

10.32

-

-

-

-

Form of CEO Change in Control Agreement (incorporated by reference to Exhibit 10.1 to
Valvoline's Current Report on Form 8-K (File No. 001-37884) filed on May 15, 2017).

Form of Executive Officer Change in Control Agreement (incorporated by reference to Exhibit
10.2 to Valvoline's Current Report on Form 8-K (File No. 001-37884) filed on May 15, 2017).

Valvoline Change in Control Severance Plan, as amended and restated, effective January 1,
2022 (incorporated by reference to Exhibit 10.3 to Valvoline's Quarterly Report on Form 10-Q
(File No. 001-37884) filed on February 9, 2022).

Valvoline Severance Pay Plan, as amended and restated, effective January 1, 2022 (incorporated
by reference to Exhibit 10.4 to Valvoline's Quarterly Report on Form 10-Q (File No. 001-37884)
filed on February 9, 2022).

- Credit Agreement dated as of July 11, 2016, among Valvoline Finco One LLC, as Initial Borrower,

The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer,
Citibank, N.A., as Syndication Agent, and the Lenders from time to time party thereto (“Valvoline
Credit Agreement”) (incorporated by reference to Exhibit 10.9 to Valvoline’s Registration
Statement on Form S-1 (File No. 333-211720) filed on September 12, 2016).

-

-

-

-

-

-

-

Amendment No. 1, dated as of September 21, 2016, to Valvoline Credit Agreement (incorporated
by reference to Exhibit 10.11 to Valvoline's Annual Report on Form 10-K (File No. 001-37884)
filed on December 19, 2016).

Amendment and Restatement Agreement, dated as of April 12, 2019, among Valvoline Inc.
("Valvoline"), as the Borrower, the subsidiaries of Valvoline party thereto, The Bank of Nova
Scotia, as Administrative Agent, and the Lenders party thereto (including Exhibit A - Amended
and Restated Credit Agreement, dated as of April 12, 2019, among Valvoline, the Administrative
Agent, Citibank N.A., as Syndication Agent, and the other Lenders party thereto) (incorporated by
reference to Exhibit 10.1 to Valvoline's Quarterly Report on Form 10-Q (File No. 001-37884) filed
on May 2, 2019).

Amendment No. 2, dated as of November 10, 2022, to Valvoline Credit Agreement.

Transfer and Administration Agreement, dated as of November 29, 2016, among LEX Capital
LLC, Valvoline LLC, and each other entity from time to time party hereto as an Originator, as
Originators, Valvoline LLC, as initial Master Servicer, PNC Bank, National Association, as the
Agent, a Letter of Credit Issuer, a Managing Agent and a Committed Investor, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., New York Branch, as a Managing Agent, an Administrator and a Committed
Investor, Gotham Funding Corporation, as a Conduit Investor and an Uncommitted Investor, PNC
Capital Markets, LLC, as Structuring Agent and the various investor groups, managing agents,
letter of credit issuers and Administrators from time to time parties thereto (incorporated by
reference to Exhibit 10.1 to Valvoline’s Current Report on Form 8-K (File No. 001-37884) filed on
December 2, 2016).

First Amendment to the Transfer and Administration Agreement, dated as of November 20, 2017,
among Valvoline LLC, Lex Capital LLC, the Originators, the Investors, Letter of Credit Issuers,
Managing Agents and Administrators party thereto, and PNC Bank National Association, as agent
for the Investors (incorporated by reference to Exhibit 10.1 to Valvoline's Current Report on Form
10-Q (File No. 001-37884) filed on February 8, 2018).

Second Amendment to the Transfer and Administration Agreement, dated as of January 31,
2020, among Valvoline LLC, Lex Capital LLC, the Originators, the Investors, Letter of Credit
Issuers, Managing Agents and Administrators party thereto, and PNC Bank National Association,
as agent for the Investors (incorporated by reference to Exhibit 10.1 to Valvoline's Current Report
on Form 8-K (File No. 001-37884) filed on February 4, 2020).

Third Amendment to the Transfer and Administration Agreement, dated as of April 22, 2020,
among Valvoline LLC, Lex Capital LLC, the Originators, the Investors, Letter of Credit Issuers,
Managing Agents and Administrators party thereto, and PNC Bank National Association, as agent
for the Investors (incorporated by reference to Exhibit 10.1 to Valvoline's Current Report on Form
10-Q (File No. 001-37884) filed on May 7, 2020).

Fourth Amendment, dated as of April 27, 2021, to the Transfer and Administration Agreement,
dated as of November 29, 2016, among Valvoline LLC, Lex Capital LLC, the Originators, the
Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and PNC
Bank National Association, as agent for the Investors (incorporated by reference to Exhibit 10.1 to
Valvoline's Current Report on Form 8-K (File No. 001-37884) filed on April 29, 2021).

100

10.33

10.34

10.35

10.36

10.37

21*

23.1*

24*

31.1*

31.2*

32**

-

-

-

-

-

-

Sale Agreement, dated as of November 29, 2016, by and between Valvoline LLC and LEX Capital
LLC (incorporated by reference to Exhibit 10.2 to Valvoline Current Report on Form 8-K (File No.
001-37884) filed on December 2, 2016).

Parent Undertaking, dated as of November 29, 2016, by Valvoline Inc. in favor of PNC Bank
National Association and the Secured Parties. (incorporated by reference to Exhibit 10.3 to
Valvoline’s Current Report on Form 8-K (File No. 001-37884) filed on December 2, 2016.

Separation Agreement, dated as of September 22, 2016, by and between Ashland Inc. and
Valvoline Inc. (incorporated by reference to Exhibit 10.15 to Valvoline's Annual Report on Form
10-K (File No. 001-37884) filed on December 19, 2016).

Tax Matters Agreement, dated as of September 22, 2016, by and between Ashland Inc. and
Valvoline Inc. (incorporated by reference to Exhibit 10.18 to Valvoline's Annual Report on Form
10-K (File No. 001-37884) filed on December 19, 2016).

Employee Matters Agreement, dated as of September 22, 2016, by and between Ashland Inc.
and Valvoline Inc. (incorporated by reference to Exhibit 10.19 to Valvoline's Annual Report on
Form 10-K (File No. 001-37884) filed on December 19, 2016).

List of Subsidiaries.

- Consent of Ernst & Young LLP.

-

Power of Attorney.

- Certification of Samuel J. Mitchell, Jr., Chief Executive Officer of Valvoline, pursuant to Section

302 of the Sarbanes-Oxley Act of 2002.

- Certification of Mary E. Meixelsperger, Chief Financial Officer of Valvoline, pursuant to Section

302 of the Sarbanes-Oxley Act of 2002.

- Certification of Samuel J. Mitchell, Jr., Chief Executive Officer of Valvoline, and Mary E.

Meixelsperger, Chief Financial Officer of Valvoline, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

-

-

-

-

-

-

XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

104

- Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*
**
SM

™
†

Filed herewith.
Furnished herewith.
Service mark, Valvoline or its subsidiaries, registered in various countries.
Trademark, Valvoline or its subsidiaries, registered in various countries.
Trademark owned by a third party.

Upon written or oral request, a copy of the above exhibits will be furnished at cost.

101

VALVOLINE INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For the years ended September 30, 2022, 2021 and 2020

(A)

(In millions)

(B)

(C)

Additions

(D)

(E)

Description
Current allowance for credit losses

Balance at
beginning
of period

Charged to
expenses

Charged to
other
accounts

Deductions

Balance at
end of
period

Year ended September 30, 2022

Year ended September 30, 2021

Year ended September 30, 2020

$

$

$

Deferred tax asset valuation allowance

Year ended September 30, 2022
Year ended September 30, 2021

Year ended September 30, 2020

$
$

$

0.3

0.3

0.9

31.8
29.7

2.0

$

$

$

$
$

$

4.5 $

— $

— $

1.5 $
0.9 $

28.9 $

(0.2)

$

— $

(0.6)

$

— $
$
1.2

— $

— $

— $

— $

— $
— $

(1.2)

$

4.6

0.3

0.3

33.3
31.8

29.7

ITEM 16.

FORM 10-K SUMMARY

None.

102

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

VALVOLINE INC.

(Registrant)

By:

/s/ Mary E. Meixelsperger

Mary E. Meixelsperger

Chief Financial Officer

Date: November 23, 2022

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant, in the capacities indicated, on November 23, 2022.

Signatures
/s/ Samuel J. Mitchell, Jr.

Samuel J. Mitchell, Jr.

/s/ Mary E. Meixelsperger

Mary E. Meixelsperger

/s/ Michael S. Ryan

Michael S. Ryan

*

Richard J. Freeland

*

Gerald W. Evans, Jr.

*

Carol H. Kruse

*

Stephen E. Macadam

*

Vada O. Manager

*

Jennifer L. Slater
*

Charles M. Sonsteby

*

Mary J. Twinem

*By:

/s/ Julie M. O’Daniel

Julie M. O’Daniel

Attorney-in-Fact

Date: November 23, 2022

Capacity
Chief Executive Officer and Director

(Principal Executive Officer)

Chief Financial Officer

(Principal Financial Officer)

Chief Accounting Officer and Controller

(Principal Accounting Officer)

Chairman of the Board and Director

Director

Director

Director

Director

Director

Director

Director

103

[THIS PAGE INTENTIONALLY LEFT BLANK]

Shareholder Information

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(cid:7)(cid:22)(cid:26)(cid:17)(cid:22)(cid:28)
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(cid:20)(cid:21)(cid:18)(cid:21)(cid:28)(cid:18)(cid:21)(cid:19)(cid:21)(cid:20)
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