VALVOLINE INC (VVV) FY 2023 MD&A

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

As the quick, easy, trusted leader in automotive preventive maintenance, Valvoline is creating shareholder value by driving the full potential of its core business, accelerating network growth and innovating to meet the needs of customers and the evolving car parc. With average customer ratings that indicate high levels of service satisfaction, Valvoline and the Company’s franchise partners keep customers moving with 15-minute stay-in-your-car oil changes; battery, bulb and wiper replacements; tire rotations; and other manufacturer recommended maintenance services. The Company operates and franchises more than 1,850 service center locations through its Valvoline Instant Oil ChangeSM (“VIOC”) and Valvoline Great Canadian Oil Change (“GCOC”) retail locations and supports nearly 300 locations through its Express CareTM platform.

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

RECENT DEVELOPMENTS

Sale of Global Products business

On March 1, 2023, Valvoline completed the sale of its former Global Products reportable segment (“Global Products”) to Aramco Overseas Company B.V. (“Aramco”) for a cash purchase price of $2.650 billion, subject to certain customary adjustments as set forth in the Purchase Agreement (the “Transaction”). Refer to Note 3 of the Notes to Consolidated Financial Statements included in Item 8 of Part II in this Annual Report on Form 10-K for further details regarding the Global Products business.

With the net proceeds of $2.383 billion from the Transaction, Valvoline is focused on accelerating the return of capital to shareholders through share repurchases, reductions of debt, and investments in attractive retail service growth opportunities. Commensurate with closing of the Transaction, Valvoline repaid the pre-existing Trade Receivables Facility, in addition to amounts that were outstanding at that time under the Revolver. In June 2023, the Company completed a modified “Dutch auction” tender offer (the “Tender Offer”) and accepted for payment 27.0 million shares for an aggregate purchase price of $1.024 billion, excluding fees and expenses. The Tender Offer utilized a substantial portion of the authorization from the Board for the Company to repurchase up to $1.6 billion of its common stock announced on November 15, 2022 (the “2022 Share Repurchase Authorization”), and in combination with other share repurchases made throughout the fiscal year, leaves $211.5 million of authorization remaining as of September 30, 2023. Additionally, the Company earned $44.0 million in interest income on invested net proceeds during fiscal 2023.

FISCAL 2023 OVERVIEW

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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 four fiscal years:

(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 fiscal years 2023 and 2022. For reconciliations of fiscal 2021 and 2020, refer to Item 7 of Part II of the Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Exchange Commission on November 23, 2022.

Net revenues and Adjusted EBITDA trends have shown a significant increase over the past four fiscal years largely due to strong system-wide SSS growth driven by contributions from increased transactions, average ticket, and non-oil change penetration in addition to acquisitions and overall store growth. Income from continuing operations has also trended upward due to strong top-line performance except for fiscal 2022 where the decrease was

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primarily driven by a loss recorded for remeasurement of pension and other postretirement plans, as well as higher separation-related expenses related to the separation of the Company’s businesses.

Summarized below are Valvoline's trends in income from continuing operations and Adjusted EBITDA for the continuing operations over the interim quarterly periods for the last three fiscal years:

(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.

Results for Fiscal 2022 compared to Fiscal 2021

For comparisons of Valvoline's consolidated results of operations and cash flows for the fiscal years ended

September 30, 2022 to September 30, 2021, refer to Item 7 of Part II of the Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Exchange Commission on November 23, 2022.

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 the impacts of 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 adjusted net revenues;

•Adjusted net revenues - reported net revenues adjusted for key items;

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•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.

Non-GAAP include adjustments from results based on U.S. GAAP that management believes enables comparison of certain financial trends and results between periods and provides a useful supplemental presentation of Valvoline's operating performance, that allows for transparency with respect to key metrics used by management in operating the business and measuring performance. The manner used to compute non-GAAP information used by management may differ from the methods used by other companies, and may not be comparable. 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 between periods on a comparable basis due to the depreciable assets associated with the nature of the Company’s operations as well as income tax and interest costs related to Valvoline’s tax and capital structures, respectively. Adjusted EBITDA measures enable comparison of financial trends and results between periods where certain items may not be reflective of the Company’s underlying and ongoing operations performance or vary independent of business performance.

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 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.

The non-GAAP measures used by management exclude key items. Key items are often related to legacy matters or market-driven events considered by management to not be reflective of the ongoing operating performance. Key items may consist of adjustments related to: legacy businesses, including the separation from Valvoline's former parent company, the former Global Products reportable segment, and associated impacts of related activity and indemnities; non-service pension and other postretirement plan activity; restructuring-related matters, including organizational restructuring plans, the separation of Valvoline’s businesses, significant acquisitions or divestitures, debt extinguishment and modification, and tax reform legislation; in addition to other matters that management considers non-operational, infrequent or unusual in nature.

Details with respect to the description and 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.

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 net revenues and operating income, as determined in accordance with U.S. GAAP.

Net revenues 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 net revenues 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

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of their first full fiscal year in operation as this period is generally required for new store sales levels to begin to normalize.

Net revenues 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 net revenues in its Statements of Consolidated 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 store and operating performance.

RESULTS OF OPERATIONS

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

(a)Refer to the “Use of Non-GAAP Measures” and Continuing operations EBITDA and Adjusted EBITDA for management’s definitions of the metrics presented above and reconciliation to the corresponding GAAP measures, where applicable.

Fiscal 2023 marked the 17th consecutive year for system-wide same-store-sales ("SSS") growth and added 137 net new stores to the system. The table below highlights the growth over the last year:

Net revenues

Net revenues increased 16.8% over the prior year period due to system-wide SSS growth and store acquisitions. Valvoline delivered system-wide SSS growth of 11.9% compared to the prior year from increased average ticket as a result of pricing actions, increased non-oil change service penetration and premiumization, as well as higher transactions. Year-over-year system-wide store growth of 8.0% also contributed to net revenues and volumes through the addition of 137 net new stores. Partially offsetting these benefits were lower net revenues of

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$11.5 million from operations suspended in the prior year of a former Global Products business that was not included in the sale. The following reconciles the year-over-year changes in Net revenues:

Gross profit

Gross profit improved 14.3% driven by top-line growth from increased average ticket due to pricing actions as well as non-oil change services penetration and premiumization. Additionally, higher transactions and store growth were benefits to gross profit which were all partially offset by higher product and store operating costs, including depreciation, as well as increased labor expense. The following reconciles the year-over-year changes in Gross profit:

The decline in gross profit margin rate compared to the prior year was due to the dilutive impact from passing through cost increases in company store operations, higher product costs, and increased depreciation driven by store growth and investments in new store technology. Additionally, waste oil headwinds were partially offset by base oil declines, improved labor efficiency, and benefits from pricing and mix.

Net operating expenses

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

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Selling, general and administrative (“SG&A”) expenses increased $19.8 million in the current year. SG&A investments combined to increase expense by $23.3 million and were primarily within advertising, talent, and process improvements to support future growth. Partially offsetting this increased expense were lower costs of $2.6 million associated with operations of a former Global Products business which was not included in the sale that were suspended in fiscal 2022.

Net legacy and separation-related expenses incurred in the current year were primarily related to the increased indemnity obligation of $25.7 million as a result of the amendment of the Tax Matters Agreement and certain legacy tax attributes that are payable to Valvoline’s former parent company upon utilization. This increased expense more than offset the reduction of the costs incurred in the prior year to evaluate and plan for the separation of the Company. In the current year, these expenses were generally attributed to the discontinued operations.

Other income, net decreased $9.1 million primarily driven by an impairment charges related to suspended operations of $8.1 million and an investment impairment of $1.1 million, as well as an economic incentive of $0.9 million realized in the prior year that did not recur. These unfavorable impacts were partially offset by higher rental income in the current fiscal year.

Net pension and other postretirement plan (income) expense

Net pension and other postretirement plan income increased $34.5 million from the prior year primarily due to the gain on pension and other postretirement plan remeasurement of $41.6 million compared to a loss of $43.9 million in fiscal 2022, partially offset by higher interest costs recognized during the year that more than offset recurring expected returns on plan assets which are lower year-over-year based on a lower risk asset mix and prior year asset returns. The fiscal 2023 gain was primarily attributed to increase in discount rates, partially offset by lower-than-expected returns on plan assets. 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.

Net interest and other financing expenses

Net interest and other financing expense decreased $31.0 million during fiscal 2023 compared to the prior year. Interest income of $44.0 million earned on invested net proceeds from the sale of Global Products more than offset modestly higher interest expense due to increased variable-rate borrowings during the fiscal year.

Income tax expense

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

The lower effective tax rate in fiscal 2023 from the prior year was primarily attributed to the release of valuation allowances due to the change in expectations regarding the utilization of certain legacy tax attributes as described further below. Higher pre-tax income in fiscal 2023 resulted in higher current year tax expense over the prior year.

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Legacy tax attributes

In connection with amending the Tax Matters Agreement, management expects the Company is currently more likely than not to realize certain legacy tax attributes that were transferred from its former parent prior to Valvoline’s initial public offering in late fiscal 2016. As a result, the Company recognized an income tax benefit of $29.0 million during fiscal 2023 in connection with releasing its valuation allowance. Additionally, Valvoline recognized $25.7 million of expense within Net legacy and separation-related expenses in the Consolidated Statement of Comprehensive Income during fiscal 2023 to reflect the increased estimated indemnity obligation to its former parent company as a result of the terms of the amended Tax Matters Agreement.

Income from discontinued operations, net of tax

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

Income from discontinued operations, net of tax increased $905.4 million during fiscal 2023 compared to the prior year. The increase is primarily due to recognition of the pre-tax gain in connection with the sale of the Global Products business of $1.572 billion. This gain was partially offset by lower pre-tax earnings of $153.4 million due to the current year including the results of the underlying business for a partial year in the pre-closing period, increased costs of $46.7 million incurred during fiscal 2023 directly related to completing the sale and separation of the businesses, and higher income tax expense of $466.1 million. Higher income tax expense is due to the tax of $424.3 million on the gain on sale, in addition to the substantially lower benefits of $94.3 million from the realization of the book-tax basis differences in the non-US entities of the business that was primarily recognized in the prior year, and both of these increases were partially offset by lower tax expense on the lower underlying earnings of the business due to the partial year results in the pre-closing period.

Continuing operations adjusted net revenues

The following reconciles Net revenues to Adjusted net revenues for the years ended September 30:

(a)Represents the results of a former Global Products business where operations were suspended during fiscal 2022 that were not included in the sale.

(b)Adjusted net revenues is defined as net revenue adjusted for key items.

(c)Represents a non-GAAP measure. Refer to “Use of Non-GAAP Measures” for management’s definitions of the metrics presented above.

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Continuing operations EBITDA and Adjusted EBITDA

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

(a)EBITDA from continuing operations is defined as income from continuing operations, plus income tax expense, net interest and other financing expenses, and depreciation and amortization attributable to continuing operations. Adjusted EBITDA from continuing operations is EBITDA adjusted for key items attributable to continuing operations.

(b)Includes several elements impacted by changes in plan assets and obligations that are primarily driven by the debt and equity markets, including remeasurement gains and losses, when applicable; and recurring non-service pension and other postretirement net periodic activity, which consists of interest cost, expected return on plan assets and amortization of prior service credits. 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 legacy amounts that are not directly related to the underlying business and do not have an impact on the compensation and benefits provided to eligible employees for current service. Refer to Note 10 in the Notes to Consolidated Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K for further details.

(c)Activity associated with legacy businesses and the separation from Valvoline’s former parent company and its former Global Products reportable segment. This activity includes the recognition of and adjustments to indemnity obligations to its former parent company; certain legal, financial, professional advisory and consulting fees; and other expenses incurred by the continuing operations in connection with and directly related to these separation transactions and legacy matters. This incremental activity directly attributable to legacy matters and separation transactions is not considered reflective of the underlying operating performance of the Company’s continuing operations. Of specific note, the Company recognized $25.7 million of pre-tax expense during the year ended September 30, 2023 to reflect its increased estimated indemnity obligation, which also resulted in an income tax benefit of $29.0 million to reflect the release of valuation allowances in connection with the amendment of the Tax Matters Agreement with Valvoline’s former parent company.

(d)Consists of redundant expenses incurred from duplicative technology platforms required while implementing the Company’s stand-alone enterprise resource planning software system during fiscal 2023 and transitioning its data centers during fiscal 2022. These expenses are reflective of incremental costs directly associated with technology transitions and are not considered to be reflective of the ongoing expenses of operating the Company’s technology platforms.

(e)Represents the results of a former Global Products business where operations were suspended during fiscal 2022 that were not sold with the Global Products business. These results included an impairment loss of $8.1 million recognized in the fourth quarter of fiscal 2023 upon classifying the suspended operations as held for sale. These results are not indicative of the operating performance of the Company’s ongoing continuing operations.

(f)Expense recognized to reduce the carrying value of an investment interest determined to be impaired. This cost is not considered to be reflective of the underlying performance of the Company’s ongoing continuing operations.

(g)Adjustments to employee termination benefits recognized over remaining employee service periods as a result of company-wide restructuring activities that are not considered reflective of the underlying operating performance of the Company’s ongoing operations. .

(h)Adjustment associated with the Company’s change in its policy for benefits associated with compensated absences, the results of which are not indicative of the operating performance of the Company’s underlying operations.

Adjusted EBITDA increased $64.3 million, or 20.4%, for the year ended September 30, 2023 compared to the prior year driven by strong system-wide SSS growth due to continued gains in vehicles served and higher ticket from pricing actions and aided by non-oil change service penetration and premiumization. These benefits were partially offset by increased SG&A investments to support future growth.

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The following reconciles Income from continuing operations to EBITDA and Adjusted EBITDA for each quarter of fiscal 2023, 2022 and 2021 (refer to the footnote references in the annual table above for the corresponding descriptions of the captions noted below):

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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, and share repurchases 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.

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:

Operating activities

The increase in cash flows provided by operating activities of $218.6 million was largely driven by higher cash earnings and favorable changes in net working capital, primarily due to timing-related growth in payables and accruals as a result of the sale of Global Products. These favorable changes were partially offset by increased interest and tax payments during the current year.

Investing activities

The increase in cash flows used in investing activities of $406.3 million from the prior year was principally related to the purchase of investments for $440.4 million, which included U.S. treasury securities classified as held-to-maturity short-term investments and a deferred compensation investment fund. In addition, increased capital expenditures of $48.5 million driven by growth investments primarily related to new store construction, and lower net cash inflows from franchisee loans receivable of $11.6 million also contributed to the increased cash flows used in investing activities. The combination of these changes increased cash flows used in investing activities and were partially

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offset by an increase in proceeds from maturities of short-term investments of $80.0 million and a $14.4 million reduction in current year acquisition activity and related spend.

Financing activities

The increase in cash flows used in financing activities of $1.303 billion from the prior year was primarily due to returning $1.382 billion more in cash to shareholders through share repurchases, which included $1.030 billion in principal and fees related to completing the Tender Offer in June 2023. This increased use of cash from the prior year was partially offset by a $15.2 million increase in cash inflows from net borrowing activity, in addition to lower dividends paid of $67.4 million.

Continuing operations free cash flow

The following table sets forth free cash flow and discretionary free 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.

The increase in free cash flow from continuing operations over the prior year was driven by higher cash flow provided by operating activities, partially offset by increased capital expenditures. Higher capital expenditures were primarily due to growth investments related to new store construction.

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:

The decrease in operating cash flows provided by discontinued operations was largely due to tax payments of $300.8 million relating to the gain on sale of discontinued operations, in addition to payments of separation-related costs attributed to the sale of the Global Products business, including the success fee which coincided with the close of the Transaction on March 1, 2023. Additionally, changes in net working capital during the pre-close period drove unfavorable operating cash flows primarily due to trade and other payables activity in the cost inflationary environment and growth in accounts receivables from increased sales compared to the prior year. These items, along with the partial period of operational results due to the sale of the business in the current year, drove the decline in year-over-year operating cash flows for the discontinued operation.

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Cash flows provided by investing activities of discontinued operations were significantly higher in the current year period due to the aggregate cash consideration received, net of cash transferred to Global Products entities, of $2.634 billion in connection with the completion of the Transaction and sale of the business.

The increase in cash flows used in financing activities of discontinued operations was primarily due to higher net repayments on borrowings during the current period, driven by the extinguishment of the $175.0 million Trade Receivables Facility.

Debt

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

Inclusive of the Company’s interest rate swap agreements, approximately 82% of Valvoline's outstanding borrowings as of September 30, 2023 had fixed rates, with the remainder bearing variable interest rates. As of September 30, 2023, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity remaining of $471.6 million. 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.

Material cash requirements

The Company's material cash requirements for the continuing operations include the following contractual obligations and commitments as of September 30, 2023:

(a)The bonds are classified in the table above based on the current contractual maturity. However, there is a current expectation than an offer to repurchase the 2030 Senior Notes will be made during the second quarter of fiscal 2024. See Note 8 for further details.

(b)Includes interest expense on both variable and fixed rate debt, assuming no prepayments. Variable interest rates have been assumed to remain constant through payment at the rates that existed as of September 30, 2023.

(c)Includes projected benefit payments through fiscal 2033 for Valvoline’s unfunded benefit plans. Excludes benefit payments from pension plan trust funds.

Fiscal 2024 capital expenditures

Valvoline is currently forecasting approximately $185 million to $215 million of capital expenditures for fiscal 2024, funded primarily from operating cash flows.

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Pension and other postretirement plan obligations

The Company makes cash and non-cash contributions and benefit payments for its pension and other postretirement plans. During fiscal 2023, the Company made $20.8 million in benefit payments for its non-qualified pension and other postretirement plans, consisting of $6.0 million of cash payments. Based on current data and assumptions, the Company does not anticipate the need to satisfy any minimum funding requirements to its 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, 2023, the Company paid cash dividends of $0.125 per common share for $21.8 million and repurchased 41.8 million shares of its common stock for $1.519 billion. These repurchases utilized the remaining $130.4 million under the $300 million share repurchase authorization approved by the Board on May 17, 2021 and $1.389 billion under the 2022 Share Repurchase Authorization. As of September 30, 2023, $211.5 million remained available for repurchase under the 2022 Share Repurchase Authorization. Additionally, the Company repurchased 4.2 million shares for an aggregate amount of $130.1 million from October 1, 2023 through November 15, 2023 pursuant to the 2022 Share Repurchase Authorization, leaving $81.4 million in aggregate repurchase authority remaining as of November 15, 2023.

The share repurchase activity in the year ended September 30, 2023 includes the Company’s completion of a modified “Dutch auction” tender offer for the purchase of 27.0 million shares of Valvoline common stock at $38.00 per share for an aggregate purchase price of $1.024 billion, excluding related fees and expenses. For further information regarding the Tender Offer, refer to Note 14 of the Notes to Consolidated Financial Statements.

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. As focus further shifts to the growth of Valvoline following the sale of Global Products, the Company discontinued its dividend after the first quarter of fiscal 2023 and has continued to return value to shareholders through share repurchases. The Company anticipates repurchasing shares of its common stock up to the full amount remaining under the 2022 Share Repurchase Authorization in early fiscal 2024, subject to market conditions.

Summary

Valvoline’s continuing operations had cash and cash equivalents of $409.1 million, short-term investments of $347.5 million, total debt of $1.6 billion, and total remaining borrowing capacity of $471.6 million as of September 30, 2023. 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.

Management believes that the Company has sufficient liquidity based on its current cash and cash equivalents position, short-term investments, 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

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expenses, and the disclosures of contingent matters. Significant items that are subject to such estimates and assumptions include, but are not limited to, employee benefit obligations, business combinations, and income taxes.

Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions. Valvoline’s significant accounting policies are discussed in Note 2 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. The Company believes the accounting estimates listed below are the most critical to aid in fully understanding and evaluating the reported financial results, and require the most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain.

Employee benefit obligations

Actuarial assumptions

Significant assumptions the Company must review and set annually and at each measurement date related to its pension and other postretirement benefit obligations are:

•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 4.90% for fiscal 2023. In fiscal 2023, the pension plan assets generated an actual weighted-average return of 2.56%, primarily driven by the market performance of the plan assets of the qualified pension plans based on the Company’s investment strategy to hedge the movement in liabilities related to changes in discount rates with investments of a matched duration that provide offsetting returns aligned with changes in interest rates. 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

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variances. For fiscal 2024, the expected rate of return on assets assumption for the qualified pension plans will be 5.30%. 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, 2023 for the qualified pension plans were 90% fixed income and 10% equity investments. The qualified pension plans are managed by professional investment managers that operate under investment management contracts that include specific investment guidelines, requiring among other actions, adequate diversification and prudent use of risk management practices such as portfolio constraints relating to established benchmarks. Holding all other assumptions constant, a hypothetical 1.00% change in the expected long-term return on plan assets assumption for the qualified pension plans would impact fiscal 2023 recurring non-service pension income by $13.7 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 2023 expense, excluding actuarial gains and losses, for pension plans was determined using the spot discount rates as of the beginning of the fiscal year. The interest cost discount rates for fiscal 2023 pension expense and other postretirement expense were 5.45% and 5.41%, respectively. The weighted-average discount rate at the end of fiscal 2023 was 5.98% for the pension plans and 5.98% 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:

•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 2023 Trustees Report of the Social Security Administration Intermediate Alternative as reflected in the MSS-2023 improvement scale. Valvoline believes the updated mortality improvement scales provide a

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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.

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Business combinations and intangible assets

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Income taxes

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