UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
______________________
FORM 10-Q
(Mark one)
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 20172021

OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 001-37884
vvv-20211231_g1.jpg
VALVOLINE INC.

(Exact name of registrant as specified in its charter)
vvvlogoa06.jpg
Kentucky
30-0939371
(State or other jurisdiction of incorporation or organization)
30-0939371
(I.R.S. Employer Identification No.)
100 Valvoline Way
Lexington, Kentucky 40509
(Address of principal executive offices) (Zip Code)

Telephone Number (859) 357-7777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareVVVNew York Stock Exchange
Indicate by check mark whether the Registrantregistrant (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 þNoo

Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 Registrantregistrant was required to submit and post such files).Yes þ Noo

Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☑Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large Accelerated Filer þ
Emerging growth company
Accelerated Filer o
Non-Accelerated Filer o
Smaller Reporting Company o
(Do not check if a smaller reporting company)
Emerging Growth Company o
☐
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. o☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o☐    No þ

At February 1, 2018, January 31, 2022, there were 200,065,752179,356,295 shares of the Registrantregistrant’s common stock outstanding.

VALVOLINE INC. AND CONSOLIDATED SUBSIDIARIES


TABLE OF CONTENTS


Page
PART I – FINANCIAL INFORMATION


Page
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Comprehensive Income
                         For the three months ended December 31, 2017 and 2016
3
Condensed Consolidated Balance Sheets
                         As of December 31, 2017 and September 30, 2017
4
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
5
Condensed Consolidated Statements of Cash Flows
                         For the three months ended December 31, 2017 and 2016
56
Notes to Condensed Consolidated Financial Statements
67
2518
4330
4330
PART II – OTHER INFORMATION
4431
4431
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
4431
4532
33





2


PART I - FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
 Three months ended December 31
(In millions except per share data - unaudited)2017 2016
Sales$545
 $489
Cost of sales350
 304
Gross profit195
 185
    
Selling, general and administrative expenses114
 95
Separation costs2
 6
Equity and other income(9) (10)
Operating income88
 94
Net pension and other postretirement plan non-service income and remeasurement adjustments(10) (26)
Net interest and other financing expense14
 10
Income before income taxes84
 110
Income tax expense94
 38
Net (loss) income$(10) $72
    
NET (LOSS) INCOME PER SHARE   
             Basic$(0.05) $0.35
             Diluted$(0.05) $0.35
    
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING   
             Basic202
 205
             Diluted202
 205
    
DIVIDENDS PAID PER COMMON SHARE$0.07
 $0.05
    
COMPREHENSIVE (LOSS) INCOME   
Net (loss) income$(10) $72
Other comprehensive income (loss), net of tax   
Unrealized translation gain (loss)1
 (9)
Pension and other postretirement obligation adjustment(2) (2)
Other comprehensive loss(1) (11)
Comprehensive (loss) income$(11) $61
    


Three Months Ended
December 31
(In millions, except per share amounts - unaudited)20212020
Sales$858 $653 
Cost of sales614 425 
Gross profit244 228 
Selling, general and administrative expenses135 117 
Legacy and separation-related expenses3 1 
Equity and other income, net(15)(14)
Operating income121 124 
Net pension and other postretirement plan income(9)(13)
Net interest and other financing expenses17 20 
Income before income taxes113 117 
Income tax expense26 30 
Net income$87 $87 
NET EARNINGS PER SHARE
Basic$0.48 $0.47 
Diluted$0.48 $0.47 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic181 185 
Diluted182 186 
COMPREHENSIVE INCOME
Net income$87 $87 
Other comprehensive income (loss), net of tax
Currency translation adjustments— 18 
Amortization of pension and other postretirement plan prior service credits— (2)
Unrealized gain on cash flow hedges1 — 
Other comprehensive income1 16 
Comprehensive income$88 $103 

See Notes to Condensed Consolidated Financial Statements.



3


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(In millions except per share amounts - unaudited)December 31
2017		 September 30
2017
Assets   
Current assets   
Cash and cash equivalents$115
 $201
Accounts receivable, net418
 385
Inventories, net170
 175
Other current assets32
 29
Total current assets735
 790
Noncurrent assets   
Property, plant and equipment, net384
 391
Goodwill and intangibles, net393
 335
Equity method investments33
 30
Deferred income taxes196
 281
Other noncurrent assets86
 88
Total noncurrent assets1,092
 1,125
Total assets$1,827
 $1,915
    
Liabilities and Stockholders’ Deficit   
Current liabilities   
Short-term debt$—
 $75
Current portion of long-term debt19
 15
Trade and other payables141
 192
Accrued expenses and other liabilities208
 196
Total current liabilities368
 478
Noncurrent liabilities   
Long-term debt1,147
 1,034
Employee benefit obligations331
 342
Other noncurrent liabilities175
 178
Total noncurrent liabilities1,653
 1,554
Commitments and contingencies
 
Stockholders’ deficit
   
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding—
 —
Common stock, par value $0.01 per share, 400 shares authorized; 201 and 203 shares issued and outstanding at December 31, 2017 and September 30, 20172
 2
Paid-in capital—
 5
Retained deficit(238) (167)
Accumulated other comprehensive income42
 43
Total stockholders’ deficit(194) (117)
Total liabilities and stockholders’ deficit
$1,827
 $1,915
    


(In millions, except per share amounts - unaudited)December 31
2021		September 30
 2021
Assets
Current assets
Cash and cash equivalents$152 $230 
Receivables, net530 496 
Inventories, net264 258 
Prepaid expenses and other current assets55 53 
Total current assets1,001 1,037 
Noncurrent assets
Property, plant and equipment, net824 817 
Operating lease assets309 307 
Goodwill and intangibles, net782 775 
Equity method investments50 47 
Deferred income taxes13 14 
Other noncurrent assets204 194 
Total noncurrent assets2,182 2,154 
Total assets$3,183 $3,191 
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt$32 $17 
Trade and other payables218 246 
Accrued expenses and other liabilities291 306 
Total current liabilities541 569 
Noncurrent liabilities
Long-term debt1,662 1,677 
Employee benefit obligations248 258 
Operating lease liabilities276 274 
Deferred income taxes34 26 
Other noncurrent liabilities255 252 
Total noncurrent liabilities2,475 2,487 
Commitments and contingencies00
Stockholders’ equity
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding— — 
Common stock, par value $0.01 per share, 400 shares authorized; 180 shares issued and outstanding at December 31, 2021 and September 30, 20212 2 
Paid-in capital33 35 
Retained earnings123 90 
Accumulated other comprehensive income9 8 
Total stockholders’ equity167 135 
Total liabilities and stockholders’ equity$3,183 $3,191 

See Notes to Condensed Consolidated Financial Statements.



4


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

Three months ended December 31, 2021
(In millions, except per share amounts - unaudited)Common stockPaid-in capitalRetained earningsAccumulated other comprehensive incomeTotals
SharesAmount
Balance at September 30, 2021180 $2 $35 $90 $8 $135 
Net income— — — 87 — 87 
Dividends paid, $0.125 per common share— — — (23)— (23)
Stock-based compensation, net of issuances— — (2)— — (2)
Repurchases of common stock— — — (31)— (31)
Other comprehensive income, net of tax— — — — 1 1 
Balance at December 31, 2021180 $2 $33 $123 $9 $167 
Three months ended December 31, 2020
(In millions, except per share amounts - unaudited)Common stockPaid-in capitalRetained deficitAccumulated other comprehensive incomeTotals
SharesAmount
Balance at September 30, 2020185 $2 $24 $(110)$8 $(76)
Net income— — — 87 — 87 
Dividends paid, $0.125 per common share— — — (23)— (23)
Stock-based compensation, net of issuances— — 1 — — 1 
Repurchases of common stock(2)— — (58)— (58)
Cumulative effect of adoption of credit losses standard, net of tax— — — (2)— (2)
Other comprehensive income, net of tax— — — — 16 16 
Balance at December 31, 2020183 $2 $25 $(106)$24 $(55)

See Notes to Condensed Consolidated Financial Statements.
5


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows

Three months ended
December 31		Three months ended
December 31
(In millions - unaudited)2017 2016(In millions - unaudited)20212020
Cash flows from operating activities   Cash flows from operating activities
Net (loss) income$(10) $72
Adjustments to reconcile net income (loss) to cash flows from operating activities   
Net incomeNet income$87 $87 
Adjustments to reconcile net income to cash flows from operating activitiesAdjustments to reconcile net income to cash flows from operating activities
Depreciation and amortization11
 9
Depreciation and amortization25 21 
Debt issuance cost and discount amortization1
 1
Deferred income taxes85
 —
Deferred income taxes8 — 
Equity income from affiliates(5) (4)
Distributions from equity affiliates3
 —
Pension contributions(3) (3)
Gain on pension and other postretirement plan remeasurements—
 (8)
Stock-based compensation expense4
 1
Stock-based compensation expense3 3 
Change in assets and liabilities (a)
   
Accounts receivable(34) 10
Other, netOther, net(1)(1)
Change in assets and liabilitiesChange in assets and liabilities
ReceivablesReceivables(37)7 
Inventories7
 (2)Inventories(6)(4)
Payables and accrued liabilities(40) 23
Payables and accrued liabilities(41)(40)
Other assets and liabilities1
 (11)Other assets and liabilities(6)6 
Total cash provided by operating activities20
 88
Total cash provided by operating activities32 79 
Cash flows from investing activities   Cash flows from investing activities
Additions to property, plant and equipment(14) (9)Additions to property, plant and equipment(35)(35)
Acquisitions, net of cash acquired(60) —
Repayments of notes receivableRepayments of notes receivable3 9 
Acquisitions of businessesAcquisitions of businesses(14)(218)
Other investing activities, net—
 (1)Other investing activities, net— (1)
Total cash used in investing activities(74) (10)Total cash used in investing activities(46)(245)
Cash flows from financing activities   Cash flows from financing activities
Net transfers to Ashland—
 (2)
Proceeds from borrowings, net of issuance costs44
 75
Proceeds from borrowingsProceeds from borrowings30 11 
Repayments on borrowings(4) (79)Repayments on borrowings(31)— 
Repurchase of common stock(37) —
Purchase of additional ownership in subsidiary(15) —
Repurchases of common stockRepurchases of common stock(31)(58)
Cash dividends paid(15) (10)Cash dividends paid(23)(23)
Other financing activities(4) —
Other financing activities(8)(3)
Total cash used in financing activities(31) (16)Total cash used in financing activities(63)(73)
Effect of currency exchange rate changes on cash and cash equivalents(1) 2
(Decrease) increase in cash and cash equivalents(86) 64
Cash and cash equivalents - beginning of period201
 172
Cash and cash equivalents - end of period$115
 $236
Effect of currency exchange rate changes on cash, cash equivalents and restricted cashEffect of currency exchange rate changes on cash, cash equivalents and restricted cash— 6 
Decrease in cash, cash equivalents and restricted cashDecrease in cash, cash equivalents and restricted cash(77)(233)
Cash, cash equivalents and restricted cash - beginning of periodCash, cash equivalents and restricted cash - beginning of period231 761 
Cash, cash equivalents and restricted cash - end of periodCash, cash equivalents and restricted cash - end of period$154 $528 
   
(a) Excludes changes resulting from operations acquired or sold.


See Notes to Condensed Consolidated Financial Statements.

6

Index to Notes to Condensed Consolidated Financial StatementsPage
8
9
10
11
12
12
13
13
14
16
17


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5


Valvoline Inc. and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES


The accompanying unaudited condensed consolidated financial statements have been prepared by Valvoline Inc. (“Valvoline” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission (“SEC”) regulations for interim financial reporting, which do not include all information and footnote disclosures normally included in annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017. 2021. Certain prior period amounts disclosed herein have been reclassified to conform to the current presentation.


Use of estimates, risks and uncertainties

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. In the opinion of management, all adjustments considered necessary for a fair presentation have been included herein, and the assumptions underlying the condensed consolidated financial statements for these interim periods are reasonable.reasonable, and all adjustments considered necessary for a fair presentation have been made and are of a normal recurring nature unless otherwise disclosed herein. The results for the interim periods are not necessarily indicative of resultsthose to be expected for the entire year.year, particularly in light of the novel coronavirus ("COVID-19") global pandemic and its effects.


Valvoline has substantially maintained its operations throughout the 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. Current and future impacts as a result of the pandemic cannot be reasonably quantified or estimated due to its unprecedented nature, breadth, and uncertainties, including the ultimate duration and severity of the pandemic.

Strategic separation

On October 12, 2021, Valvoline announced its intention to pursue a separation of its two reportable segments, Retail Services and Global Products. Valvoline is evaluating the alternatives to accomplish the separation of these two businesses, and consummation of the separation will be subject to final approval by Valvoline's Board of Directors (the “Board”). No timetable has currently been established for completion of the separation, which is expected to enable the two businesses to enhance focus on their distinct customer bases, strategies and operational needs.

Recent accounting pronouncements


A description of new U.S. GAAPThe following accounting standards issued and adopted during the current year is required in interim financial reporting. A detailed listing of recent accounting standardsguidance relevant to Valvoline is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2017. The following standards relevant to Valvoline werewas either issued or adopted in the current period,year, or areis expected to have a meaningful impact on Valvoline in future periods.

Recently adopted

In the first fiscal quarter of 2018, Valvoline adopted the following:

In July 2015, theperiods upon adoption. The Financial Accounting Standards Board (“FASB”("FASB") issued other accounting guidance to simplify the subsequent measurement of certain inventories by replacing the current lower of cost or market test with a lower of cost or net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in, first out (“LIFO”) and retail inventory methods. Valvoline adopted this guidance prospectively on October 1, 2017. Valvoline utilizes LIFO to value approximately 70% of its gross inventory and there were no material differences in the Company's previous valuation methodology for its remaining inventory using lower of cost or market to lower of cost or net realizable value.

In March 2017, the FASB issued accounting guidance that changed how employers who sponsor defined benefit pension and/or postretirement benefit plans present the net periodic benefit cost in the Condensed Consolidated Statements of Comprehensive Income. This guidance requires employers to present the service cost component of net periodic benefit cost in the same caption as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost are presented separately outside of the operating income caption. Valvoline retrospectively adopted this guidanceperiod that is not currently applicable or expected to have a material impact on October 1, 2017. Accordingly, Net pensionValvoline’s condensed consolidated financial statements, and other postretirement plan non-service income and remeasurement adjustments has been reclassified to non-operating income for all periods presented within the Condensed Consolidated Statements of Comprehensive Income, which reduced previously reported operating income by $26 million for the three months ended December 31, 2016.
therefore, is not described below.


Issued but not yet adopted


In May 2014,March 2020, the FASB issued accounting guidance outlining a single comprehensive model for entities to use insimplify the accounting for revenue arisingarrangements modified as a result of reference rate reform as the market transitions from contracts with customers, which supersedes most current revenue recognition guidance.the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates. This guidance introducesis available to be adopted on a five-step modelprospective basis through the end of calendar 2022 for revenue recognitionqualifying contract modifications and hedging arrangements. The Company has interest rate swap hedging arrangements and U.S.-based variable rate long-term debt for which existing payments are based on LIBOR tenors expected to cease in June 2023. As of December 31, 2021, 28% of Valvoline’s outstanding total long-term debt and $275 million of its interest rate swap agreements are under existing arrangements that focuses on transfer of control, as opposedmature following LIBOR cessation and do not contain fallback provisions to transfer of risk and rewards under current guidance.alternative reference rates. The Company is evaluating the effect of adopting the new revenueits options for these arrangements and expects to adopt this guidance on its

to the
6
8



financial statements andextent there are qualifying contractual modifications prior to the end of calendar 2022. Valvoline does not currently expect itany modifications that may apply for this guidance to have a material effect to net earnings. Basedimpact on an evaluation of current contracts and revenue streams to-date, Valvoline believes that most revenue transactions recorded under the new guidance will be substantially consistent with treatment under existing guidance, with certain reclassifications expected within the Condensed Consolidated Statements of Comprehensive Earnings and certain minimal changes to the timing of the recognition of revenues. The Company's revenue transactions generally consist of a single performance obligation to transfer promised goods and are not accounted for under industry-specific guidance. The Company anticipates expanded footnote disclosures under the new guidance.its condensed consolidated financial statements.


Management will continue to complete its assessment of revenue streams and implementation plans, including monitoring developments, and plans to substantially complete the Company's implementation assessment in early 2018 and finalize conclusions by the fourth quarter of fiscal 2018. Valvoline will adopt this standard in the first quarter of fiscal 2019 and will provide updated disclosures of the anticipated impacts of adoption in future filings.

In February 2016, the FASB issued new accounting guidance related to lease transactions. The primary objective of this guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. The Company expects to adopt the new guidance in the first quarter of fiscal 2020 using the modified retrospective method. While adoption is expected to lead to a material increase in the assets and liabilities recorded on the Condensed Consolidated Balance Sheet and an increase in footnote disclosures related to leases, the Company is in the process of developing assessment and implementation plans to determine the specific impacts, including those on the Condensed Consolidated Statements of Comprehensive Earnings.

NOTE 2 - FAIR VALUE MEASUREMENTS


The following table setstables set forth by level within the fair value hierarchy, the Company'sCompany’s financial assets and liabilities that were accounted for at fair value on a recurring basis:

 December 31, 2017 September 30, 2017
   Quoted prices in active markets for identical assets   Quoted prices in active markets for identical assets
(In millions)Fair Value Level 1 Fair Value Level 1
Assets       
Cash equivalents (a)
$24
 $24
 $46
 $46
Foreign currency derivatives (b)
1
 1
 1
 1
Non-qualified trust funds (c)
30
 30
 30
 30
Total assets at fair value$55
 $55
 $77
 $77
        
Liabilities       
Foreign currency derivatives (d)
$1
 $1
 $1
 $1
Total liabilities at fair value$1
 $1
 $1
 $1
        
(a) Included in Cash and cash equivalents in the Condensed Consolidated Balance Sheets.
(b)
Included in Other current assets in the Condensed Consolidated Balance Sheets.
(c)
As of December 31, 2017, $2 million of this balance is included in Other current assets, with the remainder included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. As of September 30, 2017, this balance is included in Other noncurrent assets in the Condensed Consolidated Balance Sheets.
(d)
Included in Accrued expense and other liabilities in the Condensed Consolidated Balance Sheets.

There were no Level 2 or 3 financial assets or liabilities that were accounted for at fair value on a recurring basis as of December 31, 2017 or September 30, 2017. Additionally, there were no transfers between levels ofby level within the fair value hierarchy during the three months ending December 31, 2017 or 2016.hierarchy:


As of December 31, 2021
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$1 $1 $— $— $— 
Time deposits36 — 36 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
2 — 2 — — 
Other noncurrent assets
Non-qualified trust funds10 — 2 — 8 
Interest rate swap agreements4 — 4 — — 
Total assets at fair value$53 $1 $44 $— $8 
Accrued expenses and other liabilities
Currency derivatives (b)
$1 $— $1 $— $— 
Other noncurrent liabilities
Deferred compensation obligations27 — — — 27 
Total liabilities at fair value$28 $— $1 $— $27 
7
9



Cash equivalents
As of September 30, 2021
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$13 $13 $— $— $— 
Time deposits87 — 87 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
3 — 3 — — 
Other noncurrent assets
Non-qualified trust funds11 — 4 — 7 
Interest rate swap agreements2 2 — 
Total assets at fair value$116 $13 $96 $— $7 
Accrued expenses and other liabilities
Currency derivatives (b)
$3 $— $3 $— $— 
Interest rate swap agreements1 — 1 — — 
Other noncurrent liabilities
Deferred compensation obligations24 — — — 24 
Total liabilities at fair value$28 $— $4 $— $24 
A portion of the Company's excess cash is held in highly liquid investments with maturities of three months or less. Cash equivalents generate interest income and are(a)Funds measured at fair value using prevailing market rates.
Derivatives

The Company uses derivativesthe net asset value ("NAV") per share practical expedient have not designated as hedging instruments consisting primarily of forward contracts to hedge foreign currency denominated balance sheet exposures and exchange one foreign currency for another for a fixed rate at a future date of twelve months or less. Gains and losses recognized for changesbeen classified in the fair value hierarchy.
(b)The Company had outstanding contracts with notional values of these instruments$143 million and $137 million as of December 31, 2021 and September 30, 2021, respectively.

There were notno material gains or losses recognized in earnings during the three months ended December 31, 2017 and 2016 and are included in Selling, general and administrative expense in the Condensed Consolidated Statements of Comprehensive Income to offset the gain2021 or loss on the hedged item in the same period as the remeasurement losses and gains of the related foreign currency-denominated exposures. The Company had outstanding contracts with highly-rated financial institutions with notional values of $43 million and $47 million as of December 31, 2017 and September 30, 2017, respectively.
Non-qualified trust funds
The Company maintains a non-qualified trust to fund benefit payments for certain of its U.S. non-qualified pension plans, which primarily consists of highly liquid fixed income U.S. government bonds. Gains and losses2020 related to these investments are immediately recognized within Selling, generalassets and administrative expense in the Condensed Consolidated Statements of Comprehensive Income.liabilities.

Long-term debt
The Company's outstanding fixed rate senior notes consist of 5.500% senior unsecured notes due 2024 with an aggregate principal amount of $375 million issued in July 2016 (the “2024 Notes”) and 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $400 million issued in August 2017 (the “2025 Notes” and together with the 2024 Notes, “Senior Notes”).
The fair values shown in the table below are based on the prices at which the bonds have recently traded in the market as well as the overall market conditions on the date of valuation, stated coupon rates, the number of coupon payments each year and the maturity dates. Long-term debt is includedreported in the Condensed 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 table above. within the condensed consolidated financial statements on a recurring basis. The fair values of the Company's outstanding fixed rate senior notes shown below are based on recent trading values, which are considered Level 2 inputs within the fair value hierarchy.

December 31, 2021September 30, 2021
(In millions)Fair value
Carrying value (a)
Unamortized
discounts and
issuance costs		Fair value
Carrying value (a)
Unamortized
discounts and
issuance costs
2030 Notes$614 $593 $(7)$622 $593 $(7)
2031 Notes523 529 (6)531 529 (6)
Total$1,137 $1,122 $(13)$1,153 $1,122 $(13)
(a)Carrying values shown in the following table are net of unamortized discounts and debt issuance costs.
 December 31, 2017 September 30, 2017
(In millions)Fair value Carrying value Unamortized discount and issuance costs Fair value Carrying value Unamortized discount and issuance costs
2024 Notes$399
 $370
 $5
 $401
 $370
 $5
2025 Notes404
 395
 5
 408
 394
 6
Total$803
 $765
 $10
 $809
 $764
 $11


Refer to Note 74 for more information on the Senior Notes anddetails of these notes as well as Valvoline's other debt instruments that have variable interest rates and accordingly, theirwith carrying amounts that approximate fair value.







8


NOTE 3 - ACQUISITIONS


Henley Bluewater acquisitionThe Company acquired 12 service center stores in single and multi-store transactions for an aggregate purchase price of $14 million during the three months ended December 31, 2021. These acquisitions expand Valvoline's retail

10

On October 2, 2017,presence in key North American markets, increase the number of company-operated service center stores, and contributed to growing the Retail Services system to over 1,600 system-wide service center stores.

During the three months ended December 31, 2020, the Company completed the acquisitionacquired 81 service center stores in single and multi-store transactions, including 27 former franchise locations converted to company-owned service center stores and 12 franchise-operated service center stores, for an aggregate purchase price of 56 Quick Lubes franchise service centers from Henley Bluewater LLC$218 million.

The Company’s acquisitions are accounted for $60 million. These stores build on the infrastructure and talent baseas business combinations. A summary follows of the existing Company-owned operationsaggregate cash consideration paid and the total assets acquired and liabilities assumed for the three months ended December 31:

(In millions)20212020
Inventories$— $2 
Property, plant and equipment3 79 
Operating lease assets4 23 
Goodwill (a)
11 175 
Intangible assets (b)
Reacquired franchise rights (c)
— 33 
Other— 3 
Other current liabilities— (6)
Operating lease liabilities(4)(21)
Other noncurrent liabilities— (70)
Net assets acquired$14 $218 
(a)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 northern Ohio and adds Company-owned locationseconomic benefits in Michigan.the respective markets of the acquisitions.

(b)Intangible assets acquired during the three months ended December 31, 2020 have weighted average amortization periods of 11 years.
(c)Prior to the acquisition Valvolineof former franchise service center stores, the Company licensed the right to operate quick lubefranchised service centers, including the use of the Company'sValvoline's trademarks and trade name, to the franchisee whose assets were acquired.name. In connection with the acquisition,these acquisitions, Valvoline reacquired those rights and recognized a separate definite-lived reacquired franchise rights intangible assetassets, which was assigned a preliminary fair value of $22 million that will beare being amortized on a straight-line basis over the weighted average remaining term of approximately eight years.11 years for the rights reacquired in fiscal 2021. The effective settlement of these arrangements resulted in no0 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 resulted in $36 million of goodwillas they may be subject to measurement period adjustments if new information is obtained about facts and the remaindercircumstances that existed as of the acquisition date. The Company does not currently expect any material changes to the preliminary purchase price was allocated to working capital and property, plant and equipment. Goodwill is primarily attributed toallocations for acquisitions completed during the potential growth of the business in the northern Ohio and Michigan markets, has been allocated to the Company's Quick Lubes reportable segment, and is expected to be deductible for income tax purposes.last twelve months.


Remaining ownership interest in subsidiary


Valvoline historically owned a 70% controlling interest and consolidated the financial results of its subsidiary in Thailand. In December 2017, Valvoline purchased the remaining 30% interest for total consideration of approximately $16 million, making it a wholly-owned subsidiary of the Company. This interest was not material to the current or prior period financial statements for presentation and disclosure as a noncontrolling interest, which was eliminated as a result of this purchase through a net charge to Paid-in capital and Retained deficit.

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NOTE 4 - ACCOUNTS RECEIVABLEDEBT

The following summarizes Valvoline’s accounts receivable:

(In millions)December 31
2017		 September 30
2017
Trade and other accounts receivable$424
 $390
Less: Allowance for doubtful accounts(6) (5)
 $418
 $385

Prior to May 2017 when Valvoline's former parent company, Ashland Global Holdings Inc. (which together with its predecessors and consolidated subsidiaries is referred to as “Ashland”), distributed its net investment in Valvoline (the “Distribution”), Ashland was party to an agreement to sell certain Valvoline customer accounts receivable in the form of drafts or bills of exchange to a financial institution. Each draft constituted an order to pay for obligations of the customer to Ashland arising from the sale of goods to the customer. The intention of the arrangement was to decrease the time accounts receivable was outstanding and increase cash flows as Ashland in turn remitted payment to Valvoline. During the three months ended December 31, 2016, $11 million of accounts receivable were sold to the financial institution under this agreement.

Following the Distribution, Valvoline became party to the arrangement to sell certain customer accounts receivable in the form of draft or bills of exchange to the financial institution. During the three months ended December 31, 2017, Valvoline did not sell accounts receivable to the financial institution.



9


NOTE 5 - INVENTORIES

Certain lubricants are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method. Remaining inventories are carried at the lower of cost or net realizable value using the weighted average cost method.

The following summarizes Valvoline’s inventories:
(In millions)December 31
2017		 September 30
2017
Finished products$178
 $180
Raw materials, supplies and work in process28
 31
LIFO reserves(33) (33)
Obsolete inventory reserves(3) (3)
 $170
 $175

NOTE 6 - GOODWILL AND OTHER INTANGIBLES

Goodwill

The following table summarizes the changes in the carrying amount of goodwill by reportable segment and in total during the three months ended December 31, 2017.
(In millions)Core North America Quick Lubes International Total
September 30, 2017$89
 $201
 $40
 $330
Acquisitions (a)
—
 30
 —
 30
December 31, 2017$89
 $231
 $40
 $360
        
(a) Relates to the acquisition of Henley Bluewater LLC during the three months ended December 31, 2017 and adjustments related to prior year acquisitions.

Other Intangible Assets

Valvoline's purchased intangible assets were specifically identified when acquired and have finite lives. Intangible assets were $37 million in gross carrying amount, net of $4 million in accumulated amortization as of December 31, 2017 and were reported in Goodwill and intangibles, net on the Condensed Consolidated Balance Sheet. Amortization expense recognized on intangible assets during the three months ended December 31, 2017 and 2016 was not material. Amortization expense expected in the next five fiscal years is as follows:

(In millions)  
Years ending September 30 (estimated)   
2018  $5
2019  $5
2020  $5
2021  $4
2022  $4
   


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NOTE 7 - DEBT OBLIGATIONS


The following table summarizes Valvoline’s short-term borrowings and long-term debt:total debt as of:

(In millions)
December 31
2017
 September 30 2017
2025 Notes$400
 $400
2024 Notes375
 375
Term Loans281
 285
Trade Receivables Facility120
 75
Revolver—
 —
Other (a)
(10) (11)
Total debt$1,166
 $1,124
Short-term debt—
 75
Current portion of long-term debt19
 15
Long-term debt$1,147
 $1,034
    
(In millions)December 31
2021		September 30 2021
2031 Notes$535 $535 
2030 Notes600 600 
Term Loan475 475 
Revolver (a)
— — 
Trade Receivables Facility (b)
59 59 
China Construction Facility (c)
39 39 
China Working Capital Facility (d)
— — 
Debt issuance costs and discounts(14)(14)
Total debt1,694 1,694 
Current portion of long-term debt32 17 
Long-term debt$1,662 $1,677 
 
(a) At December 31, 2017, Other includes $12 million of debt issuance cost discounts and $2 million of debt acquired through acquisitions. At September 30, 2017, Other included $13 million of debt issuance cost discounts and $2 million of debt acquired through acquisitions.

Senior Notes

During August 2017, Valvoline completed the issuance of 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $400 million. The net proceeds from the offering of the 2025 Notes was $394 million (after deducting initial purchasers' discounts and debt issuance costs), which were used to make a voluntary contribution to the Company's qualified U.S. pension plan.

During July 2016, Valvoline completed the issuance of 5.500% senior unsecured notes due 2024 with an aggregate principal amount of $375 million. The net proceeds from the offering of the 2024 Notes was $370 million (after deducting initial purchasers’ discounts and debt issuance costs), which were transferred to Valvoline's former parent, Ashland.

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 on the notes. Such events of default include non-payment of principal and interest, non-performance of covenants and obligations, default on other material debt, and bankruptcy or insolvency. 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 their maturity in the manner specified in the indentures governing the notes. The notes are guaranteed by each of Valvoline's subsidiaries that guarantee obligations under the existing senior secured credit facility described below.

In December 2017, Valvoline completed registered exchange offers for the Senior Notes.

Senior Credit Agreement

The 2016 Senior Credit Agreement provides for an aggregate principal amount of $1,325 million in senior secured credit facilities (“2016 Credit Facilities”), composed of (i) a five-year $875 million term loan facility (“Term Loans”), and (ii) a five-year $450 million revolving credit facility (including a $100 million letter of credit sublimit) (“Revolver”). At December 31, 2017 and September 30, 2017, the Term Loans had outstanding principal balances of $281 million and $285 million, respectively. At December 31, 2017 and September 30, 2017, there were no amounts outstanding under the Revolver. As of December 31, 2017, total borrowing capacity remaining under the Revolver was $439 million due to a reduction of $11 million for letters of credit outstanding.


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The outstanding principal balance of the Term Loans is required to be repaid in quarterly installments of approximately $4 million for fiscal 2018, $8 million for fiscal 2019 and 2020, and $15 million for fiscal 2021, with the balance due at maturity. At Valvoline’s option, amounts outstanding under the 2016 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 1.500% per annum and LIBOR plus 2.500% per annum (or between the alternate base rate plus 0.500% per annum and the alternate base rate plus 1.500% annum), based upon Valvoline’s corporate credit ratings or the consolidated first lien net leverage ratio (as defined in the 2016 Senior Credit Agreement).

The 2016 Credit Facilities are guaranteed by Valvoline’s existing and future subsidiaries (other than certain immaterial subsidiaries, joint ventures, special purpose financing subsidiaries, regulated subsidiaries, foreign subsidiaries and certain other subsidiaries), and are 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 foreign subsidiaries. The 2016 Credit Facilities may be prepaid at any time without premium.

The 2016 Senior Credit Agreement contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as financial covenants (including maintenance of a maximum consolidated net leverage ratio and a minimum consolidated interest coverage ratio). As of the end of any fiscal quarter, the maximum consolidated net leverage ratio and minimum consolidated interest coverage ratio permitted under the 2016 Senior Credit Agreement are 4.5 and 3.0, respectively. As of December 31, 2017, Valvoline was in compliance with all covenants under the 2016 Senior Credit Agreement.

Trade Receivables Facility

On November 29, 2016, Valvoline entered into a $125 million, one-year revolving trade receivables securitization facility (“Trade Receivables Facility”) with certain financial institutions. On November 20, 2017, the Company amended the Trade Receivables Facility to extend the maturity date to November 19, 2020 and increase the maximum funding under the facility to $175 million based on the availability of eligible receivables and other customary factors and conditions.

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, and advances by the lenders to that subsidiary (in the form of cash or letters of credit) are secured by those 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 creditors of the Company. The Company includes the assets, liabilities and results of operations of this financing subsidiary in its condensed consolidated financial statements.

During the first fiscal quarter of 2017, Valvoline borrowed $75 million under the Trade Receivables Facility and used the net proceeds to repay an equal amount of the Term Loans. During the first fiscal quarter of 2018, Valvoline borrowed $45 million under the Trade Receivables Facility and used the proceeds to supplement the daily cash needs of the Company's operations. The Company accounts for the Trade Receivables Facility as secured borrowings. Based upon the maturity dates in place in each respective period, as of December 31, 2017, the $120 million balance outstanding was classified as Long-term debt and the $75 million balance outstanding as of September 30, 2017 was classified as Short-term debt in the Condensed Consolidated Balance Sheets. Based on the availability of eligible receivables, the total borrowing capacity remaining under the $475 million revolving credit facility was $471 million due to a reduction of $4 million for letters of credit outstanding.
(b)The Trade Receivables Facility at December 31, 2017 was $39 million. Thehad $116 million of borrowing capacity remaining and the wholly-owned financing subsidiary owned $253 million and $247$304 million of outstanding accounts receivable as of December 31, 2017 and September 30, 2017, respectively, and these amounts are included in Accounts receivable, net in the Company’s Condensed Consolidated Balance Sheets.2021.

(c)The financing subsidiary pays customary fees to the lenders, and advances by a lenderremaining borrowing capacity under the Trade ReceivablesChina Construction Facility accrue interest for which the weighted average interest rates were 2.2% and 1.5% for the three months endedwas approximately $4 million as of December 31, 2017 and 2016, respectively. 2021.
(d)The Trade ReceivablesChina Working Capital Facility contains various customary affirmative and negativehad a borrowing capacity remaining of approximately $24 million as of December 31, 2021.

As of December 31, 2021, Valvoline was in compliance with all covenants and default and termination provisions, which provide for acceleration of amounts owed under the Trade Receivables Facility in circumstances including, but not limited to, the failure to pay interest or other amounts when due, defaults on certain other indebtedness, certain insolvency events, and breach of representation.its long-term borrowings.


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NOTE 85 – INCOME TAXES


Income tax provisions for interim quarterly periods are based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual discrete items related specifically to interim periods. Income tax expense for the three months ended December 31, 2017 was $94 million, an effective tax rate of 111.9% compared to expense of $38 million and an effective tax rate of 34.5% for the three months ended December 31, 2016. The increase infollowing summarizes income tax expense and the effective tax rate wasin each interim period:

Three months ended
December 31
(In millions)20212020
Income tax expense$26 $30 
Effective tax rate percentage23.0 %25.6 %

The decreases in the effective tax rate and income tax expense were principally driven by the enactment of tax reform legislationdiscrete benefits in the U.S. in December 2017, which resulted in a net increase in income tax expense of approximately $68 million that more than offset benefits relatedcurrent year compared to the reductionunfavorable discrete impacts in the estimated annual effective tax rate for fiscal 2018.prior year.


U.S. tax reform legislation

On December 22, 2017, the President of the United States signed into law tax reform legislation (the “Act”), which is generally effective January 1, 2018. The Act includes a number of provisions, including lowering the U.S. corporate federal income tax rate from a maximum of 35% to 21% and changing or limiting certain tax deductions. While the Company expects this rate reduction will ultimately benefit Valvoline, the Act also includes provisions that are expected to offset some of the benefit of the rate reduction, including the repeal of the deduction for domestic production activities and the expansion of the limitation on the deduction of certain executive compensation. In addition, the Act alters the landscape of taxation of non-U.S. operations and provides immediate deductions for certain new investments, among other provisions. Based on the Company's provisional estimates of the impacts of the Act, the Company expects the Act will result in a lower estimated annual effective tax rate for Valvoline in fiscal 2018 and beyond and decrease the Company's cash taxes, particularly in years beyond fiscal 2018.

During the three months ended December 31, 2017, enactment of the Act resulted in the following provisional impacts on income tax expense, which are described further below:

The remeasurement of net deferred tax assets at the lower enacted corporate tax rate resulted in a net $67 million increase in income tax expense;
The deemed repatriation tax on unremitted non-U.S. earnings and profits resulted in a $4 million increase in income tax expense; and
The remeasurement of net indemnity liabilities associated with the Tax Matters Agreement increased pre-tax expense by $7 million and generated a $3 million tax benefit primarily related to the higher expected utilization of tax attributes payable to Ashland.

The estimated impacts of the Act recorded during the three months ended December 31, 2017 are provisional in nature, and the Company will continue to assess the impact of the Act and will record adjustments through the income tax provision in the relevant period as amounts are known and reasonably estimable during the measurement period. Accordingly, the impact of the Act may differ from the Company's provisional estimates due to and among other factors, information currently not available, changes in interpretations and the issuance of additional guidance, as well as changes in assumptions the Company has currently made, including actions the Company may take in future periods as a result of the Act.

In particular, there is currently a lack of clarity regarding the application of the executive compensation deduction limitations and state tax implications as a result of the Act. The Company currently estimates that the effect of the Act on executive compensation deduction limitations will primarily be effective in future periods. With regard to state tax implications, the Company generally expects taxable state income will increase as a result of deduction limitations associated with the Act, though the impact is not currently reasonably estimable as most U.S. state tax jurisdictions have not responded to the specific effects of the Act. The Company will make relevant updates to management's estimates and assumptions as additional information becomes available.

Given the effective date of the rate reduction in the Act, the Company's statutory federal corporate tax rate for fiscal 2018 will be a blended rate of 24.5% and will decline to 21% for fiscal 2019 and beyond.



13
12


Deferred tax remeasurement

The Company's net deferred income taxes represent benefits that will be used to reduce corporate taxes expected to be paid as well as differences between the tax bases and carrying amounts of assets and liabilities that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary 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.

The Company’s net deferred tax assets of $281 million were determined at September 30, 2017 based on the then-current enacted income tax rates prior to the passage of the Act. As a result of the reduction in the federal corporate income tax rate from 35% to 21% under the Act, the Company revalued its net deferred tax assets as of December 31, 2017, which resulted in a reduction in the value of net deferred tax assets of approximately $67 million that was recorded as additional income tax expense in the Company’s Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2017.

Deemed repatriation

The Act implements a new territorial tax system that imposes a one-time transition tax, or deemed repatriation, on unremitted earnings of certain non-U.S. subsidiaries that is based in part on the amount of these earnings held in cash and other specified assets. The mandatory deemed repatriation resulted in a $22 million gross liability, but allows for the realization of $18 million of previously unrecognized foreign tax credits related to taxes previously paid in relevant local jurisdictions. The net result was $4 million of income tax expense which was recognized during the three months ended December 31, 2017.

The Company has historically intended to indefinitely reinvest undistributed earnings of its non-U.S. subsidiaries. As undistributed earnings of the Company's non-U.S. subsidiaries were subject to the one-time deemed repatriation tax, the Company began to reevaluate its intentions to indefinitely reinvest its non-U.S. undistributed earnings. The Company now plans to repatriate up to $45 million of previously undistributed earnings of certain non-U.S. subsidiaries where the withholding tax implications are expected to be minimal. The Company is presently not aware of any significant restrictions on the repatriation of these funds and additional taxes and other costs that may arise between the deemed and actual distribution dates are not estimated to be material.

The Company's intent is to continue to indefinitely reinvest the remainder of its undistributed earnings of non-U.S. subsidiaries. Upon any future determination to distribute these earnings, the Company would be subject to certain income and withholding taxes, the amount of which is not practicable to determine given the complexities associated with such a hypothetical calculation, including dependencies on income tax laws and other circumstances in place at the time amounts are distributed.

Tax Matters Agreement

Total liabilities related to obligations owed to Ashland under the Tax Matters Agreement were $67 million and $62 million at December 31, 2017 and September 30, 2017, respectively. At December 31, 2017 and September 30, 2017, $1 million was recorded in Accrued expenses and other liabilities, and $66 million and $61 million was recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017, respectively.

Under the Tax Matters Agreement, Valvoline has net indemnification obligations for a number of tax matters, including certain taxes that arise upon audit or examination related to the periods prior to Distribution and Valvoline's utilization of legacy tax attributes contributed as part of the separation from Ashland. During the three months ended December 31, 2017, Valvoline recognized $7 million of expense in Selling, general and administrative expenses for the estimated increase in net amounts due. The estimated increase in net amounts due was a result of the reduction in the federal tax rate primarily related to the reduced federal benefit of state tax deductions, which drove increases in estimated taxes payable upon audit or examination as well as the expected utilization of legacy tax attributes, which also resulted in an income tax benefit of $3 million during the period.

14




Uncertainties in income taxes

The Company records reserves related to its uncertain tax positions when it is more likely than not that the tax position may not be sustained on examination by the taxing authorities. As of December 31, 2017, the Condensed Consolidated Balance Sheet includes a $10 million liability for uncertain income tax positions, and during the three months ended December 31, 2017, there were no significant changes in Valvoline's uncertain tax positions or related reserves. As tax examinations are completed or settled, statutes of limitations expire, or other new information becomes available, the Company will adjust its liabilities for uncertain tax positions in the respective period through payment or through the income tax provision. The Company has provided adequate reserves for its income tax uncertainties in all open tax years based on the recognition and measurement considerations in the relevant accounting principles and any adjustments are not expected to have a material effect on its condensed consolidated financial statements at this time; however, it is reasonably possible that there could be changes to the Company's reserves related to its uncertain tax positions due to activities of the taxing authorities, resolution of examination issues, or reassessment of existing uncertain tax positions.

Although the timing and nature of the resolution and/or closure of examinations cannot be predicted with certainty, management estimates that it is reasonably possible that reserves related to uncertain tax positions may decrease by as much as $3 million from the resolution of tax examinations in U.S. jurisdictions during the next twelve months.

NOTE 96 – EMPLOYEE BENEFIT PLANS


The total pension and other postretirement benefit income was $10 million and $25 million during the three months ended December 31, 2017 and 2016, respectively.

Contributions to the U.S. non-qualified and non-U.S. pension plans during the three months ended December 31, 2017 were $3 million. For the remainder of fiscal 2018, Valvoline expects to contribute approximately $11 million to these plans, for a total of $14 million in fiscal 2018.

Components of net periodic benefit income

For segment reporting purposes, service cost is proportionately allocated to each reportable segment, while all other components of net periodic benefit income are recognized below operating income within Net pension and other postretirement plan non-service income and remeasurement adjustments in the Condensed Consolidated Statements of Comprehensive Income.

Effective January 1, 2017, Valvoline discontinued certain other postretirement health and life insurance benefits. The effect of these plan amendments resulted in a remeasurement gain of $8 million during the three months ended December 31, 2016 as shown in the table below. The following table summarizes the components of pension and other postretirement benefit income for the three months ended December 31:income:

Pension benefitsOther postretirement benefits
(In millions)(In millions)2021202020212020
Three months ended December 31Three months ended December 31
Service costService cost$— $1 $— $— 
Interest costInterest cost11 11 — — 
Expected return on plan assetsExpected return on plan assets(20)(22)— — 
Amortization of prior service creditsAmortization of prior service credits— — — (2)
Net periodic benefit incomeNet periodic benefit income$(9)$(10)$— $(2)
     Other postretirement benefits
 Pension benefits 
(In millions) 2017 2016 2017 2016
Service cost $—
 $1
 $—
 $—
Interest cost 19
 21
 —
 —
Expected return on plan assets (26) (36) —
 —
Amortization of prior service credit —
 —
 (3) (3)
Actuarial gain —
 —
 —
 (8)
Net periodic benefit income $(7) $(14)
$(3) $(11)


15



NOTE 107 – COMMITMENTSLITIGATION, CLAIMS AND CONTINGENCIES


From time to time, Valvoline is involved inparty to lawsuits, claims and other legal actionsproceedings that arise in the ordinary course of business. While Valvoline cannot predict with certaintyThe Company establishes liabilities for the outcome costs recognizedof such matters where losses are determined to be probable and reasonably estimable. Where appropriate, the Company has recorded liabilities with respect to such actionsthese matters, which were immaterial duringnot material for the three months ended December 31, 2017.periods presented as reflected in the condensed 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, Valvoline doesdiscloses matters when 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 have any currentlyexceed the amounts reflected in the condensed consolidated financial statements, based on information available at this time, it is the opinion of management that such pending claims or litigation which Valvoline believes, individually or in the aggregate,proceedings will not have a material adverse effect on its condensed consolidated financial position, results of operations, liquidity or capital resources. While Valvoline cannot predict with certainty the outcome of such matters, where appropriate, adequate reserves have been recorded, which were not material as of December 31, 2017 and September 30, 2017. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these matters; however, Valvoline currently believes that such potential losses will not be material.statements.



13

NOTE 118 - EARNINGS PER SHARE


The following istable summarizes basic and diluted earnings per share:

Three months ended
December 31
(In millions, except per share amounts)20212020
Numerator 
Net income$87 $87 
Denominator 
Weighted average common shares outstanding181  185 
Effect of potentially dilutive securities (a)
1 1 
Weighted average diluted shares outstanding182 186 
  
Earnings per share 
Basic$0.48  $0.47 
Diluted$0.48  $0.47 
(a)There were approximately 1 million outstanding stock appreciation rights not included in the computation of basic and diluted EPSearnings per share for the three months ended December 31, 2017 and 2016. EPS is reported under2020, because the treasury stock method.

  Three months ended
  December 31
(In millions except per share data) 2017 2016
Numerator    
Net (loss) income $(10) $72
Denominator    
Weighted average shares used to compute basic EPS 202
 205
Effect of dilutive securities (a)
 —
 —
Weighted average shares used to compute diluted EPS 202
 205
     
(Loss) earnings per share    
Basic $(0.05) $0.35
Diluted $(0.05) $0.35
     
(a) For the three months ended December 31, 2017, due to the net loss attributable to Valvoline common stockholders, potential common shares primarily related to stock-based compensation plans of approximately 1 million were excluded from the diluted share count because their effect would have been anti-dilutive. During the three months ended December 31, 2016, there was not a significant dilutive impact from potential common shares.antidilutive.




16


NOTE 12 - STOCKHOLDERS’ DEFICIT

Changes in stockholders' deficit in the three months ended December 31, 2017 were as follows:
(In millions) 
Balance as of September 30, 2017$(117)
   
 Net loss(10)
 
Repurchases of common stock (a)
(39)
 Stock-based compensation plans2
 Dividends paid, $0.0745 per common share(15)
 
Purchase of remaining ownership interest in subsidiary (b)
(14)
 Accumulated other comprehensive income, net of tax: 
 Unrealized currency translation gain1
 
Amortization of pension and other postretirement prior service credits in income (c)
(2)
   
Balance as of December 31, 2017$(194)
   
(a)     During the three months ended December 31, 2017, the Company repurchased approximately 2 million shares of its common stock for $39 million. Upon repurchase, shares are retired.
(b)Refer to Note 3 for details regarding the Company's purchase of the remaining ownership interest in a controlled and consolidated subsidiary during the three months ended December 31, 2017.
(c)
Amortization of unrecognized prior service credits is included in net periodic benefit income within Net pension and other postretirement plan non-service income and remeasurement adjustments in the Condensed Consolidated Statements of Comprehensive Income.

NOTE 13 – RELATED PARTY TRANSACTIONS

At December 31, 2017, Valvoline had total net obligations due to Ashland of $81 million, of which $3 million was recorded in Accrued expenses and other liabilities and the remainder was primarily recorded and Other noncurrent liabilities in the Condensed Consolidated Balance Sheets.

At September 30, 2017, Valvoline had total net obligations due to Ashland of $74 million, of which $2 million was recorded in Accrued expenses and other liabilities and the remainder was primarily recorded and Other noncurrent liabilities in the Condensed Consolidated Balance Sheets.

These liabilities generally relate to net obligations due to Ashland under the Tax Matters Agreement as well as reimbursements payable to Ashland for certain other contractual obligations, including those related to transition services and other obligations that are intended to transfer to Valvoline as part of the Distribution of Ashland's remaining interest in Valvoline. The increase in total net obligations due to Ashland from September 30, 2017 is primarily related to the change in obligations estimated as due under the Tax Matters Agreement related to the enactment of U.S. tax reform legislation in December 2017. Refer to Note 8 for additional details regarding the Tax Matters Agreement and related obligations.

17




NOTE 149 - REPORTABLE SEGMENT INFORMATION


Valvoline manages and reports withinits business through the following three2 reportable segments:


Core North America •Retail Services- sells Valvoline and other branded products and solutions in the United States and Canada to heavy-duty customers and retailers for consumers to perform their own automotive and engine maintenance, as well as to installer customers who use Valvoline products to service vehicles.
Quick Lubes - servicesservices the passenger car and light truck quick lube market through: Company-owned and franchised Valvoline Instant Oil Change (“VIOC”) retail quick lube service stores; and its Express Care stores for independent operators to purchase Valvoline motor oil and other products and display Valvoline branded signage.
International - sells Valvoline and other branded products in approximately 140 countries outside of the United States and Canada for thewith a broad array of preventive maintenance services and capabilities performed through Valvoline’s retail network of consumercompany-operated and independent franchised service center stores, in addition to independent Express Care stores that service vehicles with Valvoline products.

•Global Products- sells engine and automotive preventive maintenance products in more than 140 countries and territories to mass market and automotive parts retailers, installers, and commercial customers, including original equipment manufacturers (“OEM”), to service light- and heavy-duty vehicles and equipment.


These segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in assessingallocating resources and evaluating performance of the business. Adjusted EBITDA is the primary measure used in making these operating decisions, which Valvoline defines as segment performance and in allocating the Company's resources. Sales and operating income adjusted for depreciation and amortization and certain key items impacting comparability.

Certain indirect expenses are recognized within each segment based on the primary measures evaluated in assessing each reportable segment’s financial performance. Intersegment salesestimated utilization of indirect resources. Costs to support corporate functions and certain non-operational and corporate activity that is not directly attributable to a particular segment are not material, and assets are not regularly included in the assessment of segment performance; consequently, these items are not disclosed by segment herein.

To maintain operating focus on business performance, certain corporate and non-operational items, including adjustments related to legacy businesses that no longer are attributed to Valvoline, are excluded from the segment operating results regularly utilized by the chief operating decision maker in evaluating segment performance and aremaker. This activity is separately delineated within Unallocated and otherCorporate to reconcile to total reported Operating income as shown in the table below.consolidated results.


14

Segment financial results

The following table presents sales and operating incomeadjusted EBITDA for each reportable segment:


Three months ended
December 31
(in millions)20212020
Sales
Retail Services$346 $254 
Global Products512 399 
Consolidated sales$858 $653 
Adjusted EBITDA
Retail Services$98 $70 
Global Products77 94 
Total operating segments175 164
Corporate(19)(15)
Consolidated Adjusted EBITDA156 149 
Reconciliation to income before income taxes:
Net interest and other financing expenses(17)(20)
Depreciation and amortization(25)(21)
Key items: (a)
Net pension and other postretirement plan income9 13 
Legacy and separation-related expenses(3)(1)
LIFO charge(6)(4)
Information technology transition costs(1)— 
Business interruption recovery— 1 
Income before income taxes$113 $117 
(a)Key items represent adjustments to U.S. GAAP results and consist of non-operational matters, including pension and other postretirement plan non-service income and remeasurement adjustments, legacy and separation-related activity, changes in the last-in, first-out ("LIFO") inventory reserve, and certain other corporate matters excluded from operating results that management believes impacts the comparability of operational results between periods.

15


(In millions)
Three months ended December 31
2017 2016
Sales   
Core North America$251
 $237
Quick Lubes154
 127
International140
 125
Consolidated sales$545
 $489
    
Operating income (loss)   
Core North America$43
 $51
Quick Lubes35
 29
International19
 20
Total operating segments$97
 $100
Unallocated and other (a)
(9) (6)
Consolidated operating income$88
 $94
    
(a)Unallocated and other includes $7 million of expense in the three months ended December 31, 2017 related to adjustments associated with Ashland tax indemnities driven by tax reform legislation, as well as separation costs of $2 million and $6 million for the three months ending December 31, 2017 and 2016, respectively.


18



Disaggregation of revenue

Sales by primary customer channel for the Company’s reportable segments are summarized below:

Three months ended
December 31
(In millions)20212020
Retail Services
Company operations$243 $178 
Non-company operations103 76 
Total Retail Services346 254 
Global Products
Do-It-Yourself175 140 
Installer and other337 259 
Total Global Products512 399 
Consolidated sales$858 $653 

Sales by reportable segment disaggregated by geographic market follows:

Retail ServicesGlobal ProductsTotal
(In millions)202120202021202020212020
Three months ended December 31
North America (a)
$346 $254 $304 $235 $650 $489 
Europe, Middle East and Africa ("EMEA")— — 67 51 6751 
Asia Pacific— — 104 83 10483 
Latin America (a)
— — 37 30 3730 
Totals$346 $254 $512 $399 $858 $653 
(a)Valvoline includes the United States and Canada in its North America region. Mexico is included within the Latin America region.

NOTE 1510 - GUARANTORSUPPLEMENTAL FINANCIAL INFORMATION


The Senior Notes are general unsecured senior obligations of Valvoline Inc.Cash, cash equivalents and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by the combined “Guarantor Subsidiaries.” Other subsidiaries (the “Non-Guarantor Subsidiaries”) largely represent the international operations of the Company, which do not guarantee the Senior Notes. Under the terms of the indentures, Valvoline Inc. and the Guarantor Subsidiaries each fully and unconditionally, jointly and severally, guarantee the payment of interest, principal and premium, if any, on each of the notes included in the Senior Notes. Refer to Note 7 for additional information.restricted cash

The Guarantor Subsidiaries are subject to release in certain circumstances, including (i) the sale of all of the capital stock of the subsidiary, (ii) the designation of the subsidiary as an “Unrestricted Subsidiary” under the indentures governing the Senior Notes; or (iii) the release of the subsidiary as a guarantor from the Company's 2016 Senior Credit Agreement described further in Note 7.

In connection with the registered exchange offers for the Senior Notes completed in December 2017, the Company is required to comply with Rule 3-10 of SEC Regulation S-X (“Rule 3-10”), and has therefore included the accompanying condensed consolidating financial statements in accordance with Rule 3-10(f) of SEC Regulation S-X.


The following tables present, onprovides a consolidating basis, the condensed statements of comprehensive income; condensed balance sheets; and condensed statementsreconciliation of cash, flows forcash equivalents and restricted cash reported within the parent issuerCondensed Consolidated Statements of these Senior Notes,Cash Flows to the Guarantor Subsidiaries on a combined basis,Condensed Consolidated Balance Sheets:

(In millions)December 31
2021		September 30
 2021		December 31
2020
Cash and cash equivalents$152 $230 $527 
Restricted cash (a)
2 1 1 
Total cash, cash equivalents and restricted cash$154 $231 $528 
(a)Included in Prepaid expenses and other current assets within the Non-Guarantor Subsidiaries on a combined basis and the eliminations necessary to arrive at the Company's consolidated results.Condensed Consolidated Balance Sheets.


16
Condensed Consolidating Statements of Comprehensive Income      
For the three months ended December 31, 2017        
(In millions)Valvoline Inc.
(Parent Issuer)		 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Sales$—
 $422
 $134
 $(11) $545
Cost of sales—
 263
 98
 (11) 350
Gross profit—
 159
 36
 —
 195
          
Selling, general and administrative expense9
 83
 22
 —
 114
Separation costs1
 1
 —
 —
 2
Equity and other (income) expenses—
 (12) 3
 —
 (9)
Operating (loss) income(10) 87
 11
 —
 88
Net pension and other postretirement plan non-service income and remeasurement adjustments—
 (10) —
 —
 (10)
Net interest and other financing expense12
 1
 1
 —
 14
(Loss) income before income taxes(22) 96
 10
 —
 84
Income tax expense21
 70
 3
 —
 94
Equity in net income of subsidiaries33
 7
 —
 (40) —
Net (loss) income$(10) $33
 $7
 $(40) $(10)
          
Total comprehensive (loss) income$(11) $32
 $8
 $(40) $(11)

19



Condensed Consolidating Statements of Comprehensive Income      
For the three months ended December 31, 2016        
(In millions)Valvoline Inc.
(Parent Issuer)		 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Sales$—
 $377
 $124
 $(12) $489
Cost of sales—
 224
 92
 (12) 304
Gross profit—
 153
 32
 —
 185
          
Selling, general and administrative expense2
 69
 24
 —
 95
Separation costs—
 6
 —
 —
 6
Equity and other (income) expenses—
 (13) 3
 —
 (10)
Operating (loss) income(2) 91
 5
 —
 94
Net pension and other postretirement plan non-service income and remeasurement adjustments—
 (26) —
 —
 (26)
Net interest and other financing expense9
 1
 —
 —
 10
(Loss) income before income taxes(11) 116
 5
 —
 110
Income tax (benefit) expense(4) 38
 4
 —
 38
Equity in net income of subsidiaries79
 1
 —
 (80) —
Net income (loss)$72
 $79
 $1
 $(80) $72
          
Total comprehensive income (loss)$61
 $68
 $(7) $(61) $61
Accounts and other receivables


20The following summarizes Valvoline’s accounts and other receivables in the Condensed Consolidated Balance Sheets as of:



(In millions)December 31
2021		September 30
 2021
Trade$513 $475 
Other15 16 
Notes receivable from franchisees (a)
7 10 
Receivables, gross535 501 
Allowance for credit losses(5)(5)
Receivables, net$530 $496 
(a)Notes receivable from franchisees were primarily issued in fiscal 2020 to provide financial assistance in response to the COVID-19 pandemic. There were no material balances past due as of December 31, 2021.
Inventories
Condensed Consolidating Balance Sheets        
As of December 31, 2017        
(In millions) Valvoline Inc.
(Parent Issuer)		 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Assets          
Current assets          
Cash and cash equivalents $—
 $18
 $97
 $—
 $115
Accounts receivable, net —
 84
 435
 (101) 418
Inventories, net —
 94
 76
 —
 170
Other current assets —
 29
 3
 —
 32
Total current assets —
 225
 611
 (101) 735
Noncurrent assets          
Property, plant and equipment, net —
 346
 38
 —
 384
Goodwill and intangibles, net —
 391
 2
 —
 393
Equity method investments —
 33
 —
 —
 33
Investment in subsidiaries 622
 444
 —
 (1,066) —
Deferred income taxes 127
 55
 14
 —
 196
Other noncurrent assets 254
 78
 6
 (252) 86
Total noncurrent assets 1,003
 1,347
 60
 (1,318) 1,092
Total assets $1,003
 $1,572
 $671
 $(1,419) $1,827
           
Liabilities and Stockholders' Deficit          
Current Liabilities          
Current portion of long-term debt $19
 $—
 $—
 $—
 $19
Trade and other payables —
 192
 50
 (101) 141
Accrued expenses and other liabilities 119
 55
 34
 —
 208
Total current liabilities 138
 247
 84
 (101) 368
Noncurrent liabilities          
Long-term debt 1,025
 2
 120
 —
 1,147
Employee benefit obligations —
 309
 22
 —
 331
Other noncurrent liabilities 34
 392
 1
 (252) 175
Total noncurrent liabilities 1,059
 703
 143
 (252) 1,653
Commitments and contingencies 
 
 
 
 
Stockholders' (deficit) equity (194) 622
 444
 (1,066) (194)
Total liabilities and stockholders' deficit/equity $1,003
 $1,572
 $671
 $(1,419) $1,827


The following summarizes Valvoline’s inventories in the Condensed Consolidated Balance Sheets as of:


21
(In millions)December 31
2021		September 30
 2021
Finished products$277 $276 
Raw materials, supplies and work in process60 49 
Reserve for LIFO cost valuation(73)(67)
Total inventories, net$264 $258 



Revenue recognition

The following disaggregates the Company’s sales by timing of recognition:

Three months ended
December 31
(In millions)20212020
Sales at a point in time$844 $642 
Franchised revenues transferred over time14 11 
Total consolidated sales$858 $653 

Condensed Consolidating Balance Sheets        
As of September 30, 2017        
(In millions) Valvoline Inc.
(Parent Issuer)		 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Assets          
Current assets          
Cash and cash equivalents $—
 $99
 $102
 $—
 $201
Accounts receivable, net —
 57
 389
 (61) 385
Inventories, net —
 94
 81
 —
 175
Other current assets —
 25
 4
 —
 29
Total current assets —
 275
 576
 (61) 790
Noncurrent assets          
Property, plant and equipment, net —
 353
 38
 —
 391
Goodwill and intangibles, net —
 333
 2
 —
 335
Equity method investments —
 30
 —
 —
 30
Investment in subsidiaries 606
 447
 —
 (1,053) —
Deferred income taxes 145
 122
 14
 —
 281
Other noncurrent assets 314
 80
 6
 (312) 88
Total noncurrent assets 1,065
 1,365
 60
 (1,365) 1,125
Total assets $1,065
 $1,640
 $636
 $(1,426) $1,915
           
Liabilities and Stockholders' Deficit          
Current Liabilities          
Short-term debt $—
 $—
 $75
 $—
 $75
Current portion of long-term debt 15
 —
 —
 —
 15
Trade and other payables 2
 198
 53
 (61) 192
Accrued expenses and other liabilities 103
 60
 33
 —
 196
Total current liabilities 120
 258
 161
 (61) 478
Noncurrent liabilities          
Long-term debt 1,032
 2
 —
 —
 1,034
Employee benefit obligations —
 321
 21
 —
 342
Other noncurrent liabilities 30
 453
 7
 (312) 178
Total noncurrent liabilities 1,062
 776
 28
 (312) 1,554
Commitments and contingencies 
 
 
 
 
Stockholders' (deficit) equity (117) 606
 447
 (1,053) (117)
Total liabilities and stockholders' deficit/equity $1,065
 $1,640
 $636
 $(1,426) $1,915


22


Condensed Consolidating Statements of Cash Flows      
For the three months ended December 31, 2017        
(In millions)Valvoline Inc.
(Parent Issuer)		 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Cash flow provided by (used in) operating activities$(2) $52
 $(30) $—
 $20
Cash flows from investing activities         
Additions to property, plant and equipment—
 (13) (1) —
 (14)
Acquisitions, net of cash required—
 (60) —
 —
 (60)
Return of advance from subsidiary60
 —
 —
 (60) —
Total cash provided by (used in) investing activities60
 (73) (1) (60) (74)
Cash flows from financing activities         
Proceeds from borrowings, net of issuance costs of $1—
 —
 44
 —
 44
Repayments on borrowings(4) —
 —
 —
 (4)
Repurchase of common stock(37) —
 —
 —
 (37)
Purchase of additional ownership in subsidiary—
 —
 (15) —
 (15)
Cash dividends paid(15) —
 —
 —
 (15)
Other financing activities(2) —
 (2) —
 (4)
Other intercompany activity, net—
 (60) —
 60
 —
Total cash (used in) provided by financing activities(58) (60) 27
 60
 (31)
Effect of currency exchange rate changes on cash and cash equivalents—
 —
 (1) —
 (1)
Decrease in cash and cash equivalents—
 (81) (5) —
 (86)
Cash and cash equivalents - beginning of year—
 99
 102
 —
 201
Cash and cash equivalents - end of period$—
 $18
 $97
 $—
 $115
          


23


Condensed Consolidating Statements of Cash Flows      
For the three months ended December 31, 2016        
(In millions)Valvoline Inc.
(Parent Issuer)		 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Cash flows provided by (used in) operating activities$89
 $75
 $(76) $—
 $88
Cash flows from investing activities         
Additions to property, plant and equipment—
 (9) —
 —
 (9)
Other investing activities, net—
 (1) —
 —
 (1)
Total cash used in investing activities—
 (10) —
 —
 (10)
Cash flows from financing activities         
Net transfers to Ashland(2) —
 —
 —
 (2)
Proceeds from borrowings—
 —
 75
 —
 75
Repayments on borrowings(79) —
 —
 —
 (79)
Cash dividends paid(10) —
 —
 —
 (10)
Other intercompany activity, net2
 (2) —
 —
 —
Total cash (used in) provided by financing activities(89) (2) 75
 —
 (16)
Effect of currency exchange rate changes on cash and cash equivalents—
 —
 2
 —
 2
Increase in cash and cash equivalents—
 63
 1
 —
 64
Cash and cash equivalents - beginning of year—
 94
 78
 —
 172
Cash and cash equivalents - end of period$—
 $157
 $79
 $—
 $236


NOTE 1611 – SUBSEQUENT EVENTS


Dividend declared


On January 31, 2018,24, 2022, the Board of Directors of Valvoline declared a quarterly cash dividend of $0.0745$0.125 per share onof Valvoline common stock. The dividend is payable on March 15, 20182022 to shareholders of record on March 1, 2018.February 28, 2022.


Share repurchases

The Company repurchased over 1 million shares for an aggregate amount of $29 million in the period from January 1, 2018 through February 6, 2018. The Company has $32 million in aggregate share repurchase authorization remaining under the $150 million share repurchase authorization approved by the Board of Directors on April 24, 2017 (the “2017 Share Repurchase Authorization”).

In addition, on January 31, 2018, the Board of Directors of Valvoline authorized the Company to repurchase up to $300 million of its common stock through September 30, 2020, which amount is in addition to the amount remaining under the 2017 Share Repurchase Authorization. The timing and amount of any purchases of shares of common stock will be based on available liquidity, general business and market conditions and other factors, including alternative investment opportunities.



24
17



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


Certain statements in this Quarterly Report on Form 10-Q, other than statements of historical facts,fact, including estimates, projections, and statements related to the Company'sCompany’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”“should,” and “intends” and the negative of these words or other comparable terminology. These forward-looking statements are based on Valvoline’s current expectations, estimates, projections, and assumptions as of the date such statements are made and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. Additional information regarding these risks and uncertaintiesFactors that might cause such differences include, but are described in Valvoline’s filings withnot limited to, those discussed under the Securities and Exchange Commission, including in theheadings “Risk Factors” and Management’sFactors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections ofOperations,” and “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q and Valvoline’s most recently filed periodic reportsreport on Forms 10-K and Form 10-Q, which are available on Valvoline’s website at http://investors.valvoline.com/sec-filings or on the SEC’s website at http://www.sec.gov.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.future, unless required by law.




ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended September 30, 2017,2021, as well as the Condensed Consolidated Financial Statementscondensed consolidated financial statements and the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I in this Quarterly Report on Form 10-Q.

BUSINESS OVERVIEW AND PURPOSE


Valvoline Inc. (“Valvoline” or the “Company”) is a worldwide producer, marketerglobal vehicle and supplierengine care company that continuously powers the future of enginemobility through innovative services and automotiveproducts for electric, hybrid and internal combustion powertrains. Valvoline has consistently led the way innovating and reinventing its services and products for changing technologies and customer needs throughout its 155-year history. Valvoline operates a fast-growing, best-in-class network of service center stores, which are well positioned to serve evolving vehicle maintenance products and services. Established in 1866, Valvoline’s heritage spans over 150 years, during which it has developed powerful name recognition across multiple product and service channels.needs with Valvoline's iconic products. In addition to its quick, easy and trusted quick lube oil change services and the iconiclegendary Valvoline-branded passenger car motor oils, and other automotive lubricant products, Valvoline provides a wide array of lubricants, usedchemicals, fluids, and other complementary products and services, including leading the world's supply of battery fluids to electric vehicle manufacturers, with each solution tailored to help extend vehicle and engine range and efficiency.

Valvoline provides vehicle and engine care solutions to a range of customers, including end consumers, OEMs, mass market and automotive parts retailers, small to large installers, vehicle fleets, and distributors, among others. Valvoline operates and franchises more than 1,600 service center locations and is the second and third largest chain in heavy duty equipment, as well as automotive chemicals and fluids designed to improve engine performance and lifespan. Valvoline’s premium branded product offerings enhance its high quality reputation and provide customers with solutions that address a wide variety of needs.
In the United States (“U.S.”) and Canada, Valvoline's productsrespectively, by number of stores. With sales in more than 140 countries and servicesterritories, Valvoline’s solutions are sold to retailers with over 30,000 retail outlets, to installer customers with over 12,000available for every engine and powertrain, including high-mileage and heavy-duty applications, and are offered at more than 80,000 locations and through 1,139 Valvoline branded franchised and company-owned stores. Valvoline also has a strong international presence with products sold in approximately 140 countries.worldwide.
Valvoline has three reportable segments: Core North America, Quick Lubes, and International, with certain corporate and non-operational items included in Unallocated and Other to reconcile to consolidated results.
18


BUSINESS STRATEGY


To deliverValvoline is focused on Valvoline'sthe following key business and growth strategies in 2018,fiscal 2022:

•Executing the strategic separation of Valvoline's two business segments, Retail Services and Global Products, to create sustainable value for the Company's stakeholders and best position the segments for continued long-term success by allowing Retail Services to continue its growth and focus on leveraging its world class service model and providing Global Products with the opportunity to focus and allocate capital to its own strategic priorities;

•Aggressively growing Retail Services through organic service center expansion, opportunistic acquisitions, and franchisee growth, while rapidly diversifying and expanding retail service offerings and capabilities through a quick, easy, and trusted customer experience delivered by hands-on experts;

•Accelerating Global Products market share growth through continued development of and investment in key global emerging and high value markets by fully leveraging brand equity and product platforms to drive speed, efficiency, and value across the business and customer interactions, while increasing penetration of Valvoline’s full product portfolio;

•Expanding capabilities to serve future transport vehicles by continuing to develop relationships with electric vehicle OEMs and leveraging innovation in the delivery of future services and products in direct and adjacent markets; and

•Building a strong foundation enabled by data and technology to make Valvoline easy to do business with.

RECENT DEVELOPMENTS

Strategic separation

On October 12, 2021, Valvoline announced its intention to pursue a separation of its two reportable segments, Retail Services and Global Products. Valvoline is making progress and evaluating alternatives to accomplish the separation of these two strong businesses. Consummation of the separation will be subject to final approval by Valvoline's Board, and no timetable has currently been established for completion of the separation. Valvoline’s results this quarter highlight the independent strengths of both of its reportable segments, and separation is expected to enable the two businesses to enhance focus on their distinct customer bases, strategies for continued growth, and operational needs.

COVID-19 update

Valvoline has been able to substantially maintain its operations, demonstrating growth and strong results, while managing through the effects of the COVID-19 global pandemic. 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 mandates, implemented at the local and federal levels designed to slow and contain the spread of COVID-19, among others. While the Company is focused on: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. For more information, refer to Risk Factors included in Item 1A of Part I in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

growing and strengthening Valvoline’s quick lube network through organic store expansion, opportunistic, high-quality acquisitions in both core and new markets within the Valvoline Instant Oil Change (“VIOC”) system and strong sales efforts to partner with new Express Care operators, in addition to continued same-store sales growth and profitability within Valvoline’s existing VIOC system stores by attracting new customers and increasing customer satisfaction, customer loyalty and average transaction size;

accelerating international growth across key markets where demand for premium lubricants is growing, such as China, India and select countries in Latin America, by building strong distribution channels in under-served

geographies, replacing less successful distributors and improving brand awareness among installer customers in those regions; and

leveraging innovation, both in terms of product development, packaging, marketing and the implementation of Valvoline’s new digital infrastructure, to strengthen market share and profitability.


FIRST FISCAL QUARTER 20182022 OVERVIEW


The following were the significant events for the first fiscal quarter of 2018,2022, each of which is discussed more fully in this Quarterly Report on Form 10-Q as referenced below:10-Q:

19

First quarter results were
•Valvoline reported net income of $87 million and diluted earnings per share of $0.48 in the three months ended December 31, 2021. Net income was flat compared to the prior year period and diluted EPS grew 2%.

•Retail Services sales increased 36% over the prior year driven by strong sales led by same-store salessystem-wide same-store-sales ("SSS") growth in VIOC, growth in premium product mix across all reportable segmentsof 24.7% and continued volume gains in international markets. The Company also continuesthe addition of 102 net new stores to be focused on margin expansionthe system from the prior year. Operating income and cost management to drive profitability improvements. Valvoline's gross profit as a percentage of sales (i.e.adjusted EBITDA increased 45% and 40%, gross margin) was 35.8% and declinedrespectively, over the prior year primarily due to increased raw material, new packagingstrong top-line growth and margin expansion.

•Global Products sales grew 28% over the prior year primarily attributable to expanded distribution in North America and higher volumes in China and EMEA. Operating income and adjusted EBITDA decreased 20% and 18%, respectively, from the prior year primarily due to transitory supply chain costs and lingering price-cost lag that compared to modestly favorable price-cost lag in the current quarter.prior year.
Tax reform legislation was enacted in the first fiscal quarter
•The Company returned $54 million to its shareholders through payment of 2018 and although Valvoline expects to ultimately benefit from the legislation, expenses were recordeda cash dividend of $0.125 per share during the first quarter including pre-tax expenseand repurchasing approximately 1 million shares of $7 million and income tax expense of $68 million primarily related to the reduction in the federal statutory tax rate. Refer to the “Tax-Related Commitments” section in this Management's Discussion and Analysis of Financial Condition and Results of Operations below as well as Note 8 of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I in this Quarterly Report on Form 10-Q for additional information.Valvoline common stock.
Valvoline acquired 56 company-owned stores within the Quick Lubes reportable segment in connection with the acquisition of business assets from Henley Bluewater LLC. Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I in this Quarterly Report on Form 10-Q for additional information.
Valvoline extended the maturity date by three years and increased the maximum funding capacity of the trade receivables securitization facility to $175 million and borrowed an additional $45 million during the quarter. Refer to Note 7 and the Financial Position, Liquidity and Capital Resources section below for more details.


Use of Non-GAAP Measures


To aidsupplement the financial measures prepared in the understanding of Valvoline's ongoing business performance,accordance with U.S. GAAP, certain items within this document are presented on an adjusted non-GAAP basis. These non-GAAP measures, presented both on both a consolidated and reportable segment basis, arehave limitations as analytical tools and should not defined withinbe 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 do not purport toreconciliations of non-GAAP measures included within this Quarterly Report on Form 10-Q should be alternatives to net income/loss or cash flows from operating activities as measures of operating performance or cash flows. carefully evaluated.

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


Earnings before interest, taxes, depreciation and amortization (“EBITDA”), which management defines•EBITDA - defined as net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and depreciation and amortization;

•Adjusted EBITDA which management defines - defined as 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,below);

•Segment adjusted EBITDA - defined as segment operating income adjusted for depreciation and net pension and other postretirement plan non-service income and remeasurement adjustments; andamortization, in addition to key items impacting comparability;

•Free cash flow which management defines-defined as operating cash flows from operating activities less capital expenditures and certain other adjustments as applicable.applicable; and


•Discretionary free cash flow - defined as 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 contain management’s best estimates of cost allocations and shared resource costs. Managementmanagement believes the use of non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoingprovides a useful supplemental presentation of Valvoline's operating performance, enables comparison of Valvoline’s business by presenting comparable financial trends and results between periods.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 provided is used by Valvoline’s management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating EBITDA, Adjusted EBITDA and free cash flow. EBITDA, Adjusted EBITDA, and free cash flow provide a supplemental presentation of Valvoline’s operating performance.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.



DueManagement 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'sCompany’s operations and interest costs associated with Valvoline'srelated to Valvoline’s capital structure, management believes EBITDA is an important supplemental measure to evaluate the Company's consolidated and reportable segment operating results between periods on a comparable basis.

Management believesstructure. Adjusted EBITDA provides investors with a meaningful supplemental presentation of Valvoline’s operating performance. Adjusted EBITDA excludesmeasures exclude the impact of the following:
Keykey items, - Key itemswhich consist of income or expenses associated with certain unusual, infrequent or non-operational income or expensesactivity not directly
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attributable to the underlying business whichthat 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: the impairment of an equity investment; legacy businesses, including the separation from AshlandValvoline's former parent company and associated impacts of related indemnities; significant acquisitions or dispositions,divestitures; restructuring-related matters,matters; and other matters that are non-operational or unusual in nature. Key items are considered by management to be outsidealso include the comparable operational performance of the business and are also often related to legacy matters or market-driven events that are not directly related to the underlying business and do not have an immediate, corresponding impact on the Company's ongoing performance. 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.following:

•Net pension and other postretirement plan non-service expense/income and remeasurement adjustments - Net pension and other postretirement plan non-service income and remeasurement adjustments include includes several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets, as well as those that are predominantly legacy in nature and related to prior service to the Company from employees (e.g., retirees, former employees, current employees with frozen benefits). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) actuarial gains/losses, and (iv) amortization of prior service cost.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 financial markets (in particular, interest rates) and are outside the operational performance of the business and are also primarily legacy amounts that are not directly related to the underlying business and do not have an immediate, corresponding impact on the compensation and benefits provided to eligible employees for current service. Adjusted EBITDA will continue to include pension and other postretirement service costs related to current employee service as well asincludes the costs of other benefits provided to employees for current service.service, including pension and other postretirement service costs.

•Changes in the last-in, first-out ("LIFO") inventory reserve - charges or credits recognized in Cost of sales to value certain lubricant inventories at the lower of cost or market using the LIFO method. During inflationary or deflationary pricing environments, the application of LIFO can result in variability of the cost of sales recognized each period as the most recent costs are matched against current sales, while preceding costs are retained in inventories. LIFO adjustments are determined based on published prices, which are difficult to predict and largely dependent on future events. The application of LIFO can impact comparability and enhance the lag period effects between changes in inventory costs and relating pricing adjustments.

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

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 lubricant volumes sold. Management believes these measures are useful to evaluating and understanding Valvoline’s results of operations are presented based on Valvoline’s management structure and internal accounting practices. The structure and practices are specific to Valvoline; therefore, Valvoline’s financial results, EBITDA, Adjusted EBITDA and free cash flow are not necessarily comparable with similar information for other comparable companies. EBITDA, Adjusted EBITDA and free cash flow each have limitations as analytical toolsoperating performance and should not be considered in isolation from, or as an alternativesupplements to, or more meaningful than, netnot substitutes for, Valvoline's sales and operating income, and cash flows from operating activities as determined in accordance with U.S. GAAP. Because

21

Sales in the Retail Services reportable segment 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. Retail Services service center stores (company-operated, franchised and the combination of these limitations, you should rely primarily on net incomefor 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. Differences in SSS are calculated to determine the percentage change between comparative periods. Retail Services sales are limited to sales at company-operated stores, sales of lubricants and cash flowsother products to independent franchisees and Express Care operators and royalties and other fees from franchised stores. Although Valvoline does not recognize store-level sales from franchised stores as revenue in its Condensed Consolidated Statements of Comprehensive Income, management believes system-wide and franchised SSS comparisons and store counts are useful to assess market position relative to competitors and overall store and segment operating activities as determinedperformance.

Management believes lubricant volumes sold in accordance with U.S. GAAPgallons by its consolidated subsidiaries is a useful measure in evaluating and use EBITDA, Adjusted EBITDA, and free cash flow only as supplements. In evaluating EBITDA, Adjusted EBITDA, and free cash flow, you should be aware thatunderstanding the operating performance of the Global Products segment. Volumes sold in the future Valvoline may incur expenses/income similarother units of measure, including liters, are converted to those for which adjustments are made in calculating EBITDA, Adjusted EBITDA, and free cash flow. Valvoline’s presentation of EBITDA, Adjusted EBITDA, and free cash flow should not be construed as a basis to infer that Valvoline’s future results will be unaffected by unusual or nonrecurring items.gallons utilizing standard conversions.


RESULTS OF OPERATIONS


Consolidated Reviewreview


The following table summarizes the results of the Company'sCompany’s operations for the three months ended December 31, 2017 and 2016:31:

 Three months ended
 December 31
 2017 201620212020Variance
(In millions)   % of Sales   % of Sales(In millions)Amount% of SalesAmount% of SalesAmount%
Sales $545
 100.0% $489
 100.0%Sales$858 100.0 %$653 100.0 %$205 31.4 %
Gross profit $195
 35.8% $185
 37.8%Gross profit$244 28.4 %$228 34.9 %$16 7.0 %
Net operating expenses $107
 19.6% $91
 18.6%Net operating expenses$123 14.3 %$104 15.9 %$19 18.3 %
Operating income $88
 16.1% $94
 19.2%Operating income$121 14.1 %$124 19.0 %$(3)(2.4)%
Net (loss) income $(10) (1.8)% $72
 14.7%
Net incomeNet income$87 10.1 %$87 13.3 %$— — %


Sales
Sales for the three months ended December 31, 2017 increased $56 million, or 11%, compared to the three months ended December 31, 2016.
The following table provides a reconciliation of the changeincrease in sales:sales from the prior year:

Year-over-year change
(In millions) Three months ended December 31, 2021
Volume and mix$104 
Price90 
Acquisitions11 
Change in sales$205 
(In millions)  Year over year change - Quarter
Pricing $20
Volume 10
Product mix 6
Currency exchange 7
Acquisitions 13
Change in sales $56

The primary drivers of this increase were higher product pricingVolumes grew across the business and higher volume levels, which increased sales by $20 million, or 4%, and $10 million, or 2%, respectively. During the current quarter, lubricant gallons sold increased 2% to 43.8 million. Favorable changes in product mix with increasesimproved, leading to top-line expansion, as demand for Valvoline’s products and services remains robust and market share gains benefited both segments. Additionally, the Company made ongoing progress in the percentageprice pass-through of raw material cost increases, which further drove higher sales. Retail Services sales of premium lubricantswere 36% higher led by SSS that increased nearly 25% across the system, in addition to growth from unit additions and acquisitions. Global Products sales increased 28% with 13% volume growth and top-line expansion across all reportable segments and favorable foreign currency exchange increased sales by $6 million and $7 million, respectively. Acquisitions within the Quick Lubes reportable segment increased sales by $13 million, or 3%, in the current quarter.regions.


The changes to reportable segment sales and the drivers thereof are discussed in further detail in the “Reportable Segment Review” section below.

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Gross profit


Gross profit margin was 35.8% for the three months ended December 31, 2017 compared to 37.8% in the prior year quarter. Gross profit increased $10 million and theThe table below provides a reconciliation of the change:increase in gross profit from the prior year:

Year-over-year change
(In millions) Three months ended December 31, 2021
Volume and mix$50 
Change in LIFO reserve(2)
Price and cost(33)
Acquisitions1 
Change in gross profit$16 
(In millions)  Year over year change - Quarter
Volume and product mix $7
Acquisitions 3
Currency exchange 2
Price and cost (2)
Change in gross profit $10


The increase in gross profit was primarily driven by higher volume levelsvolumes and favorable changesmix improvements in product mixboth segments, partially offset by the lag in passing through raw material cost increases, transitory supply chain inefficiencies that included higher logistics and manufacturing costs, and to a lesser degree, the negative impact of $7 million, or 4%. Additional profits generated by acquisitions of Quick Lubes locations and favorable foreign currency exchange increasedLIFO adjustments in the rising cost environment. Acquisitions contributed a muted benefit to gross profit by $3 million and $2 million, respectively. Lower product marginsdue to new store ramp up costs.

The declines in gross profit margin rates were primarily the result of $2 million were attributed to higher product costs primarily driven by new product packaging as well as increased raw material costs, associated withsupply chain challenges, and the hurricanesdilutive impact from passing through cost increases, which more than offset mix improvements. Management continues to closely monitor the raw material cost environment and make progress in passing through the late summer of 2017.cost increases that began in fiscal 2021.


The changes to reportable segment gross profit and the drivers thereof are discussed in further detail in the “Reportable Segment Review” section below.


Net operating expenses


NetThe table below summarizes the components of net operating expenses were $107 million or 19.6% of sales for the three months ended December 31, 2017 compared to $91 million or 18.6% for the three months ended December 31, 2016. The table below provides further details of the components of net operating expenses during each period:31:

 Three months ended
 December 31
 2017 201620212020Variance
(In millions)   % of Sales   % of Sales(In millions)Amount% of SalesAmount% of SalesAmount%
Selling, general and administrative expenses $114
 20.9 % $95
 19.4 %Selling, general and administrative expenses$135 15.7 %$117 17.9 %$18 15.4 %
Separation costs 2
 0.4 % 6
 1.2 %
Equity and other income (9) (1.7)% (10) (2.0)%
Legacy and separation-related expensesLegacy and separation-related expenses3 0.3 %1 0.1 %$2 200.0 %
Equity and other income, netEquity and other income, net(15)(1.7)%(14)(2.1)%(1)7.1 %
Net operating expenses $107
 19.6 % $91
 18.6 %Net operating expenses$123 14.3 %$104 15.9 %$19 18.3 %


Selling, general and administrative expenses were $114 million, or 20.9% of sales, in the three months ended December 31, 2017 as compared to $95 million, or 19.4% of sales, in the three months ended December 31, 2016. Adjustments in the estimates of the amounts payable to Ashlandincreased primarily related to indemnities under the Tax Matters Agreement as a result of tax reform legislationinvestments made to support future growth, including advertising and promotion, information technology, and acquisition-related costs.

Legacy and separation-related expenses increased selling, general and administrative expense by $7 millionprimarily due to to costs incurred in the current quarter. Acquisitions, depreciation and foreign currency exchange also contributed $4 million to the year-over-year increaseyear in selling, general and administrative expenses. The remaining increase was primarily the result of planned increased spend related to the Company's investments in its teams and shared infrastructure expenses necessary to operate independently subsequent toplanning for the separation from Ashland, which phased inof the Retail Services and Global Products segments. The Company expects to incur incremental costs during fiscal 2017,2022 associated with planning for the proposed separation, including investmentslegal, tax and accounting, and other professional advisory and consulting fees. These costs cannot currently reasonably be estimated given the uncertainties in salesthe manner and marketing to drive growth and profitability.timing of separation.



The Company incurred $2 million of costs during the current period related to the separation from Ashland. The decline from the prior year quarter is due to the substantial completion of separation-related activities as Ashland distributed all of its remaining interestincrease in Valvoline in May 2017, marking the completion of Valvoline's separation from Ashland.

Equity and other income, decreased $1 million during the current year period compared to the prior year periodnet was primarily driven by a decrease of $2 million in income generated byfor research and developmentlab testing, which was partially offset by an increase of $1 millionlower insurance recoveries in equity income.the current year.


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Net pension and other postretirement plan non-service income and remeasurement adjustments


Net pension and other postretirement plan non-service income and remeasurement adjustments decreased by $16$4 million from the prior year periodyear. This decline was due to lower expected returns on plan assets as a decreaseresult of $8 millionthe shift in pension andasset allocation of the U.S. qualified plans toward a higher mix of fixed income securities, in addition to a reduction in the amortization of prior service credits into income from certain other postretirement plan non-service income primarily attributed to the pension de-risking actions taken by the Companyamendments that ceased amortization beginning in late fiscal 2017 to shift the U.S. qualified plan's target asset allocation toward more fixed income securities and better match the asset duration to that of the pension plan obligations, which resulted in a decrease in related recurring income. In addition, during the prior year quarter, a gain on other postretirement plan remeasurement of $8 million was recorded due to the discontinuation of certain postretirement health and life insurance benefits, compared to none during the current year period as there were no changes requiring remeasurement.2022.

Net interest and other financing expenseexpenses


Net interest and other financing expense increased by $4expenses decreased $3 million during the three months ended December 31, 2017 related to lower outstanding borrowings compared to the three months ended December 31, 2016. There was an increase in interest associated with higher outstanding debt at December 31, 2017 compared to December 31, 2016 primarily related to the borrowing to fund the U.S. qualified pension plan in the aggregate principal amount of $400 million during the fourth fiscal quarter of 2017 and $45 million in new borrowings on the trade receivables securitization facility entered into during the three months ended December 31, 2017.prior year.


Income tax expense


Income tax expense for the three months ended December 31, 2017 was $94 million or an effective tax rate of 111.9% compared to an expense of $38 million or an effective tax rate of 34.5% for the three months ended December 31, 2016. The increase infollowing table summarizes income tax expense and the effective tax rate:

Three months ended December 31
(In millions)20212020
Income tax expense$26 $30 
Effective tax rate percentage23.0 %25.6 %

The decreases in the effective tax rate and income tax expense were principally driven by discrete benefits in the current year was primarily attributedcompared to the enactment of U.S. tax reform legislation during the period, which resulted in a net increase in income tax expense of approximately $68 million that more than offset benefits related to the reductionunfavorable discrete impacts in the estimated annual effective tax rate for fiscal 2018. Specifically, the Company recorded provisional one-time adjustments to income tax expense of $67 million related to the remeasurement of net deferred tax assets due to the income tax rate reduction and $4 million for the deemed repatriation tax on unremitted non-U.S. earnings and profits, net of benefits related to the rate reduction, including $3 million as a result of adjustments to the estimates of the net amounts payable related to indemnities under the Tax Matters Agreement, as well as a reduction in the estimated annual blended effective tax rate for fiscal 2018 . Refer to the “Tax-Related Commitments” section in this Management's Discussion and Analysis of Financial Condition and Results of Operations below for additional details regarding tax reform legislation and its estimated impacts to Valvoline.prior year.



EBITDA and Adjusted EBITDA


The following table reconciles net income to EBITDA and Adjusted EBITDA to netEBITDA:

Three months ended December 31
(In millions)20212020
Net income$87 $87 
Income tax expense26 30 
Net interest and other financing expenses17 20 
Depreciation and amortization25 21 
EBITDA155 158 
Net pension and other postretirement plan income (a)
(9)(13)
Legacy and separation-related expenses3 1 
LIFO charge6 4 
Information technology transition costs1 — 
Business interruption recovery— (1)
Adjusted EBITDA$156 $149 
   
(a)Net pension and other postretirement plan income for the interim periods presented:

     
  Three months ended December 31
(In millions) 2017 2016
Net (loss) income $(10) $72
Income tax expense 94
 38
Net interest and other financing expense 14
 10
Depreciation and amortization 11
 9
EBITDA 109
 129
Separation costs 2
 6
Adjustment associated with Ashland tax indemnity 7
 —
Non-service pension and other postretirement plan net periodic income (a)
 (10) (18)
Gain on pension and other postretirement plan remeasurements —
 (8)
Adjusted EBITDA $108
 $109
     
(a) Recurringincludes remeasurement gains and losses, when applicable, 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.credits. Refer to Note 96 in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I in this Quarterly Report on Form 10-Q for further details.


The decrease in Adjusted EBITDA of $1improved $7 million was primarily due tofrom the performance of the Company's operatingprior year driven by strong top-line growth across both segments notablyfrom higher planned investmentsvolumes and ongoing progress in selling, general and administrative expenses and higherpassing through raw material costs related to new product packagingcost increases. Top-line growth and the hurricanesprofit expansion in Retail Services were partially offset by higher volume levelsprice-cost lag and favorable changessupply chain inefficiencies, in product mix.addition to increased operating expenses.


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Reportable segment review
The changes to reportable segment EBITDA and Adjusted EBITDA and the drivers thereof are discussed in further detail in “Reportable Segment Review” below.
Reportable Segment Review

Valvoline’sCompany manages its business is managed withinthrough the following threetwo reportable segments:
Core North America - sells Valvoline and other branded products and solutions in the United States and Canada to heavy-duty customers and retailers for consumers to perform their own automotive and engine maintenance, as well as to installer customers who use Valvoline products to service vehicles.

Quick Lubes•Retail Services - services the passenger car and light truck quick lube market through: Company-owned and franchised VIOC retail quick lube service stores; and its Express Care stores for independent operators to purchase Valvoline motor oil and other products and display Valvoline branded signage.
International - sells Valvoline and other branded products in approximately 140 countries outside of the United States and Canada for thewith a broad array of preventive maintenance services and capabilities performed through Valvoline’s retail network of consumercompany-operated and independent franchised service center stores, in addition to independent Express Care stores that service vehicles with Valvoline products.

•Global Products - sells engine and automotive preventive maintenance products in more than 140 countries to retailers, installers, and commercial customers, including OEMs, to service light- and heavy-duty vehicles and equipment.

These segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in allocating resources and evaluating performance of the business. Adjusted EBITDA is the primary measure used in making these operating decisions, which Valvoline defines as segment operating income adjusted for depreciation and amortization and certain key items impacting comparability.

Costs to support corporate functions and certain non-operational and corporate activity that is not directly attributable to a particular segment are not included in the segment operating results regularly utilized by the chief operating decision maker. This activity is separately delineated within Corporate to reconcile to consolidated results.

Results of Valvoline’s reportable segments are presented based on how operations are managed internally, including how the results are reviewed by the chief operating decision maker. The structure and practices are specific to Valvoline; therefore, the financial results of its reportable segments are not necessarily comparable with similar information for other comparable companies. Valvoline's reportable segments are measured for profitability based on operating income; therefore, Valvoline does not generally allocate items to each reportable segment below operating income, such as non-service pension and other postretirement income and remeasurement adjustments, interest expense or income tax expense. Valvoline allocates all items above operating income to its reportable segments except for certain significant corporate and non-operational matters, including, but not limited to, company-wide restructuring activities and costs or adjustments that relate to former businesses


that Valvoline no longer operates. The service cost component of pension and other postretirement benefit plans is allocated to each reportable segment on a ratable basis, while the remaining non-service and remeasurement components of pension and other postretirement benefits costs are recorded below operating income and attributed to Unallocated and other.Retail Services
The EBITDA and Adjusted EBITDA amounts presented within this section are provided as a means to enhance the understanding of financial measurements that Valvoline has internally determined to be relevant measures of comparison for each reportable segment. Each of these non-GAAP measures is defined as follows: EBITDA (operating income plus depreciation and amortization) and Adjusted EBITDA (EBITDA adjusted for key items, which may include adjustments for significant acquisitions or divestitures, as applicable). As Valvoline does not allocate items to each reportable segment below operating income, reportable segment EBITDA and Adjusted EBITDA are reconciled directly to operating income since it is the most directly comparable Condensed Consolidated Statements of Comprehensive Income caption.


The following table presents sales, operating income and statistical operating information by reportable segment for the three months ended December 31, 2017 and 2016:
  Three months ended December 31
(In millions) 2017 2016
Sales    
Core North America $251
 $237
Quick Lubes 154
 127
International 140
 125
  $545
 $489
Operating income (loss)    
Core North America $43
 $51
Quick Lubes 35
 29
International 19
 20
Total operating segments 97
 100
Unallocated and other (9) (6)
  $88
 $94
Depreciation and amortization    
Core North America $4
 $3
Quick Lubes 6
 5
International 1
 1
  $11
 $9
Operating information    
Core North America    
Lubricant sales gallons 23.8
 24.1
Premium lubricants (percent of U.S. branded volumes) 47.8% 43.8%
Gross profit as a percent of sales (a)
 37.7% 40.9%
Quick Lubes    
Lubricant sales gallons 5.7
 5.3
Premium lubricants (percent of U.S. branded volumes) 61.5% 58.6%
Gross profit as a percent of sales (a)
 40.4% 40.1%
International    
Lubricant sales gallons (b)
 14.3
 13.7
Lubricant sales gallons, including unconsolidated joint ventures 25.1
 23.0
Premium lubricants (percent of lubricant volumes) 27.7% 27.4%
Gross profit as a percent of sales (a)
 28.2% 30.7%
     
(a) Gross profit as a percent of sales is defined as sales, less cost of sales, divided by sales.
(b) Excludes volumes from unconsolidated joint ventures.


Core North America

Core North America sales increased $14 million, or 6%, to $251 million during the current quarter compared to the prior year quarter. This increase was primarily driven by higher product pricing and favorable changes in product mix of $13 million, or 5%, and $4 million, or 2%, respectively. These increases were partially offset by volume declines of approximately $4 million.

Gross profit decreased $2 million compared to the prior year quarter. Higher raw material costs decreased gross profit by $3 million and overall decreases in volume related to the timing of promotions drove declines in non-branded product sales which decreased gross profit by $2 million. These decreases were partially offset by gains in premium product mix which increased gross profit by $3 million. Gross profit margin decreased 3.2 percentage points to 37.7% for the quarter ended December 31, 2017 driven largely by incremental costs associated with the launch of new packaging and higher raw material costs attributed to the hurricanes in late 2017.

Selling, general and administrative expenses, which include corporate expense allocations of costs, increased $3 million, or 6%, during the current quarter compared to the prior year quarter due to planned increases related to the Company's investments in its teams and shared infrastructure expenses.

Operating income totaled $43 million in the current quarter compared to $51 million in the prior year quarter. EBITDA decreased $7 million to $47 million in the current quarter. EBITDA margin decreased 4.1 percentage points to 18.7%.
Core North America - EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation is provided as a means to enhance the understanding of financial measurements that the Company has internally determined to be relevant measures of comparison for the results of Core North America. There were no unusual or key items that affected comparability for Adjusted EBITDA during the three months ended December 31, 2017 and 2016.
  Three months ended December 31
(In millions)  2017 2016
Operating income $43
 $51
Depreciation and amortization 4
 3
EBITDA $47
 $54

Quick Lubes

Quick Lubes sales increased $27 million, or 21%, to $154 million during the current quarter compared to the prior year quarter. Volume increased sales by $8 million as lubricant sales gallons increased to 5.7 million gallons during the quarter. Increased pricing and favorable changes in product mix increased sales $5 million and $1 million, respectively. Acquisitions increased sales by $13 million.

Gross profit increased $11 million during the current quarter compared to the prior year quarter. Increases in volumes and higher premium product mix combined to increase gross profit by approximately $4 million. Favorable pricing increased gross profit by $4 million, while acquisitions increased gross profit by $3 million. Gross profit margin during the current quarter increased 0.3 percentage points to 40.4% as a percentage of sales for the quarter, driven primarily by favorable margins due to increased ticket as a result of pricing improvements coupled with effective store execution, including increased transactions.

Selling, general and administrative expenses, which include corporate expense allocations of costs, increased $6 million, or 27%, during the current quarter compared to the prior year quarter. The increase was primarily a result of planned increases related to the Company's investments in its teams and shared infrastructure expenses of $3 million, an increase of $1 million in operating costs as a result of acquisitions and an increase of $1 million in advertising costs.

Operating income totaled $35 million in the current quarter as compared to $29 million in the prior year quarter. EBITDA increased $7 million to $41 million in the current quarter. EBITDA margin decreased 0.2 percentage points to 26.6% in the current quarter.

Quick Lubes - Additional growth and sales information

Quick Lubes sales are influenced byManagement believes the number of company-ownedcompany-operated and franchised service center stores andas provided in the businessfollowing tables is useful to assess the operating performance of thosethe Retail Services reportable segment.

System-wide stores (a)
First Quarter 2022Fourth Quarter 2021Third Quarter 2021Second Quarter 2021First Quarter 2021
Beginning of period1,594 1,569 1,548 1,533 1,462 
Opened32 21 17 13 18 
Acquired12 7 5 3 54 
Closed(3)(3)(1)(1)(1)
End of period1,635 1,594 1,569 1,548 1,533 
Number of stores at end of period
First Quarter 2022Fourth Quarter 2021Third Quarter 2021Second Quarter 2021First Quarter 2021
Company-owned738 719 698 673 663 
Franchised897 875 871 875 870 
(a)System-wide store count includes franchised service center stores. Through Quick Lubes, Valvoline sells products to and receives royalty fees from VIOC franchisees. As a result, Quick Lubes salesfranchises are influenced by the number of units owned by franchisees and the business performance of franchisees. The following tables provide supplemental information regarding company-owned stores and franchisees that Valvoline believes is relevant to an understanding of the Quick Lubes business.

   Company-owned
   First Quarter 2018 Fourth Quarter 2017 Third Quarter 2017 Second Quarter 2017 First Quarter 2017
            
 Beginning of period384
 383
 374
 347
 342
  Opened2
 2
 1
 —
 —
  Acquired—
 1
 —
 28
 —
  Conversions between company-owned and franchise56
 —
 9
 —
 5
  Closed—
 (2) (1) (1) —
 End of period442
 384
 383
 374
 347
            
  Franchise
   First Quarter 2018 Fourth Quarter 2017 Third Quarter 2017 Second Quarter 2017 First Quarter 2017
            
 Beginning of period743
 730
 734
 729
 726
  Opened11
 15
 6
 7
 10
  Acquired—
 —
 —
 —
 —
  Conversions between company-owned and franchise(56) —
 (9) —
 (5)
  Closed(1) (2) (1) (2) (2)
 End of period697
 743
 730
 734
 729
            
 Total VIOC Stores1,139
 1,127
 1,113
 1,108
 1,076

The year over year change from December 31, 2017 to December 31, 2016 is primarily driven by opening new company-owned stores and franchise locations, including the acquisition of Time-It Lube in the second quarter of 2017, which added 28 company-owned locations. In addition, the acquisition of 56 Henley Bluewater stores converted from franchises in the first quarter of 2018.

  Three months ended December 31
  2017 2016
Same-Store Sales Growth** - Company-owned 8.2% 9.5%
Same-Store Sales Growth** - Franchisee* 7.7% 8.9%
Same-Store Sales Growth** - Combined* 7.9% 9.0%
     
* Valvoline’s franchisees are distinctindependent legal entities, and Valvoline does not consolidate the results of operations of its franchisees.
**
The year over year change of 102 net new company-operated and franchised stores was the result of 75 net openings and 27 acquired stores. Organic service center store growth was driven by 25 net company-operated
25

service center store openings and 50 net new franchisee store openings from expansion in key markets. In addition, 23 net stores converted within the system from franchise to company-operated.

The following summarizes the results of the Retail Services reportable segment:

Three months ended
December 31		Favorable (Unfavorable)
(In millions)20212020
Financial information
Retail Services segment sales$346 $254 36 %
Operating income (b)
$81 $56 45 %
Key items— — 
Depreciation and amortization17 14 21 %
Adjusted EBITDA$98 $70 40 %
Operating margin (c)
23.4 %22.0 %140  bps
Adjusted EBITDA margin (c)
28.3 %27.6 %70  bps
Three months ended
December 31
20212020
Same-store sales growth
Company-operated (c)
22.1 %6.1 %
Franchised (a) (d)
26.8 %6.0 %
System-wide (a) (d)
24.7 %6.0 %
(a)Measure includes Valvoline has historically determined same-storefranchisees, which are independent legal entities. Valvoline does not consolidate the results of operations of its franchisees.
(b)Valvoline does not generally allocate activity below operating income to its operating segments; therefore, the table above reconciles operating income to adjusted EBITDA.
(c)Operating margin is calculated as operating income divided by sales, and adjusted EBITDA margin is calculated as adjusted EBITDA divided by sales.
(d)Valvoline determines SSS growth on a fiscal year basis,as sales by U.S. Retail Services service center stores, with new stores, including franchise conversions, excluded from the metric until the completion of their first full fiscal year in operation.

Quick Lubes - EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation is provided as a means to enhance the understanding of financial measurements that the Company has internally determined to be relevant measures of comparisonRetail Services sales increased 36% for the results of Quick Lubes. There were no unusual or key items that affected comparability for Adjusted EBITDA during the three months ended December 31, 2017 and 2016.
  Three months ended December 31
(In millions)  2017 2016
Operating income $35
 $29
Depreciation and amortization 6
 5
EBITDA $41
 $34
International

International sales increased $15 million, or 12%, to $140 million during the currentfirst quarter compared to the prior year quarter. Higher volume levelsprimarily due to strong SSS performance and changes in product mix combined to increase sales by $6 million, or 5%. Favorable foreign currency exchange increased sales by $6 million and favorable product pricing increased sales $3 million.

Gross profit increased $1 million, or 3%, during the current quarterunit additions. System-wide SSS grew 24.7% compared to the prior year quarter. Increasesled by increased transactions where leveraging data analytics capabilities drove customer base expansion. Solid contributions from growth in volumesaverage ticket were largely due to pricing and favorable changes in product mix combinedpremiumization that further contributed to increase gross profits by $2 million. Favorable foreign currency exchangesystem-wide SSS performance and highlighted in-store service delivery. The addition of 102 net new stores to the system through acquisitions and new service center store openings also contributed to sales growth from the prior year.

Operating income and adjusted EBITDA increased gross profit by $1 million, while higher product and supply chain costs resulted in a $2 million decrease in gross profit. Gross profit margin decreased by 2.5 percentage points to 28.2% compared tofrom the prior year quarter largelyoutpacing sales growth and driving margin expansion. This growth was driven by higherthe strong top-line performance and improved leverage from mature stores that have been open greater than three years and combined to more than offset the ramp up costs of new stores and challenges of the raw material and supply chain costs in some markets and the lower contribution from higher-margin geographies.cost environment.


Selling, general and administrative expenses, which include corporate expense allocations of costs, increased $3 million, or 12%, during the current quarter compared to the prior year quarter. The increase was primarily related to $2 million of planned increases related to the Company's investments in its teams and shared infrastructure expenses, and a $1 million increase in employee costs. Equity and other income increased $1 million compared to the prior year quarter primarily as a result of increased equity and royalty income from the Company's investments in joint ventures, which had increased volumes during the quarter.

Operating income totaled $19 million in the current quarter as compared to $20 million in the prior year quarter. EBITDA decreased $1 million to $20 million in the current quarter. EBITDA margin decreased 2.5 percentage points to 14.3% in the current quarter.

International - EBITDA and Adjusted EBITDA reconciliation

The following EBITDA presentation is provided as a means to enhance the understanding of financial measurements that Valvoline has internally determined to be relevant measures of comparison for the results of International. There were no unusual or key items that affected comparability for Adjusted EBITDA during the three months ended December 31, 2017 and 2016.


26

  Three months ended December 31
(In millions)  2017 2016
Operating income $19
 $20
Depreciation and amortization 1
 1
EBITDA $20
 $21
     
Global Products


Unallocated and Other

Unallocated and other operating income/loss generally includes items such as certain other corporate and non-operational matters, such as company-wide restructuring activities and legacy costs, including those associated with the separation from Ashland. The following table summarizes the componentsresults of Unallocatedthe Global Products reportable segment:

Three months ended
December 31		Favorable (Unfavorable)
(In millions)20212020
Financial information
Sales by geographic region
North America (a)
$304 $235 29 %
Europe, Middle East and Africa ("EMEA")67 51 31 %
Asia Pacific104 83 25 %
Latin America (a)
37 30 23 %
Global Products segment sales$512 $399 28 %
Operating income (b)
$70 $88 (20)%
Key items— — 
Depreciation and amortization7 6 17 %
Adjusted EBITDA$77 $94 (18)%
Operating margin (c)
13.7 %22.1 %(840) bps
Adjusted EBITDA margin (c)
15.0 %23.6 %(860) bps
Volume information
Lubricant sales (gallons)43.1 38.0 13 %
(a)Valvoline includes the United States and Canada in its North America region. Mexico is included within the Latin America region.
(b)Valvoline does not generally allocate activity below operating income to its operating segments; therefore, the table above reconciles operating income to adjusted EBITDA.
(c)Operating margin is calculated as operating income divided by sales, and adjusted EBITDA margin is calculated as adjusted EBITDA divided by sales.

Global Products sales increased from the prior year due to growth across all regions. The ongoing progress in price pass-through of raw material cost increases drove sales growth that outpaced volumes, which were up 13% from the prior year. Volume increases were led by expanded distribution in North America and other operating income/loss forgrowth in Asia Pacific, notably China, in addition to higher volumes in EMEA. Favorable mix further contributed to the three months ended December 31, 2017 and 2016:

  Three months ended December 31
(In millions)  2017 2016
Separation costs $(2) $(6)
Adjustments associated with Ashland tax indemnity (7) —
Operating loss $(9) $(6)
     

Unallocated and other had operating loss of $9 million and loss of $6 million duringincrease in sales over the three months ended December 31, 2017 and 2016, respectively. The increased operating loss is primarily the result of increased expense related to adjustments recorded for indemnities associated with the Tax Matters Agreement primarilyprior year as a result of tax reform legislation,higher branded and premium product mix.

Operating income and adjusted EBITDA decreased primarily related to price-cost lag due to raw material cost increases and supply chain disruptions that were partially offset by decreased separation costs from the prior year as the separation from Ashland was completed in May 2017.higher volumes and product mix benefits. Valvoline expects to continue to passing through pricing to recover raw material cost increases.


FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES


Overview


The Company closely manages its liquidity and capital resources. Valvoline'sValvoline’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'sCompany’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
27

priorities that support Valvoline'sValvoline’s business and growth strategies and returning capital to shareholders, while funding ongoing operations.

As of December 31, 2017, the Company had $115 million in Cash and cash equivalents, of which approximately $96 million was held by Valvoline's non-U.S. subsidiaries. The Company utilizes a variety of strategies to deploy available cash in locations where it is needed, and the Company has historically intended to indefinitely reinvest undistributed earnings of

its non-U.S. subsidiaries. As a result of the enactment of tax reform legislation in December 2017, undistributed earnings of the Company's non-U.S. subsidiaries were subject to the one-time deemed repatriation tax, which provides certain expected opportunities to repatriate with lower tax consequences. Consequently, the Company began to reevaluate its intentions to indefinitely reinvest its non-U.S. undistributed earnings. The Company now plans to repatriate up to approximately $45 million of previously undistributed earnings of certain non-U.S. subsidiaries where the withholding tax implications are expected to be minimal. The Company is presently not aware of any significant restrictions on the repatriation of these funds and additional taxes and other costs that may arise between the deemed and actual distribution dates are not estimated to be material.

The Company's intent is to continue to indefinitely reinvest the remainder of its undistributed earnings of non-U.S. subsidiaries. Upon any future determination to distribute these earnings, the Company would be subject to certain income and withholding taxes, the amount of which is not practicable to determine given the complexities associated with such a hypothetical calculation, including dependencies on income tax laws and other circumstances in place at the time amounts are distributed.


Cash Flowflows


Valvoline’s cashCash flows as reflected in the Condensed Consolidated Statements of Cash Flows are summarized as follows for the three months ended December 31, 2017 and 2016:31:


(In millions)2021 2020
Cash, cash equivalents and restricted cash - beginning of period$231 $761 
Cash provided by (used in): 
Operating activities32 79 
Investing activities(46)(245)
Financing activities(63)(73)
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash— 6 
Decrease increase in cash, cash equivalents and restricted cash(77)(233)
Cash, cash equivalents and restricted cash - end of period$154 $528 
 Three months ended December 31
 
(In millions)2017 2016
Cash provided by (used in):   
Operating activities$20
 $88
Investing activities(74) (10)
Financing activities(31) (16)
Effect of currency exchange rate changes on cash and cash equivalents(1) 2
(Decrease) increase in cash and cash equivalents$(86) $64


Operating activities


The decrease in cash flows provided by operating activities for the three months ended December 31, 2017 compared toof $47 million from the prior year period was primarily relateddue to the timing of cash settlements of both asset and liabilitya timing-related unfavorable increase in net working capital, largely attributed to growth in accounts including those relatedreceivable from top-line expansion. In the current year period, net working capital (current assets, excluding cash and cash equivalents, minus current liabilities, excluding long-term debt due within one year) increased $85 million compared to Valvoline's separation from Ashland that drove higher operating cash flowsa $35 million increase in the prior year period . Specifically, in the three months ended December 31, 2016, Valvoline received $23 million from Ashland in customer payments on certain Valvoline receivables that were collected by Ashland and remitted to Valvoline during the period. In addition, Valvoline's accrued liabilities increased by approximately $40 million during the three months ended December 31, 2016 related primarily to transition services, tax sharing and other miscellaneous billings from Ashland. Also, as described further in Note 4 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, during the three months ended December 31, 2016, the Company sold $11 million of accounts receivables to a financial institution and did not sell accounts receivable during the three months ended December 31, 2017.year.

Investing activities


The increasedecrease in cash flows used in investing activities for the three months ended December 31, 2017 comparedof $199 million was primarily due to lower current year acquisition activity of $204 million, which was partially offset by repayments of franchisee COVID relief loans that were $6 million higher in the prior year period was primarily related to the acquisition of 56 franchise service centers from Henley Bluewater LLC for $60 million, combined with a moderate increase in capital expenditures due to planned investments. Valvoline is currently forecasting approximately$80 million to $90 million of capital expenditures for full year fiscal 2018, funded primarily from operating cash flows.year.


Financing activities


The increasedecrease in cash flows used in financing activities for the three months ended December 31, 2017 comparedof $10 million was primarily due to the prior year period was related to transactions that occurred$27 million of lower share repurchases in the current year, including payments related to the repurchase of common stock of $37 million, the purchase of the remaining ownership interest in a consolidated subsidiary for $15 million, lower borrowings in the period related to the trade receivables securitization facility, and the increase in dividends that resulted in an incremental $5 million payment. These increases in cash usagewhich were partially offset by reduced repaymentsnet proceeds from borrowings that were $12 million higher in the prior year. Lower share repurchases were the result of shifting to a consistent share buyback strategy in the second half of fiscal 2021, and higher net proceeds from borrowings in the currentprior year period.largely related to the China Construction Facility as the blending and packaging plant began production in December 2020.


Free cash flow and other liquidity information


The following table sets forth free cash flow for the disclosed periodsand discretionary free cash flow and reconciles cash flows provided byfrom operating activities to free cash flow. As previously noted,both measures. These free cash flow hasmeasures have certain limitations, including that it doesthey do not reflect adjustments for certain non-discretionary cash flows, such as mandatory debt repayments, and includes pension and other postretirement plan remeasurement gains/losses.repayments. Refer to the “Use of Non-GAAP Measures” section previously included above in this Item 2 for additional information.

information regarding these non-GAAP measures.
28

  Three months ended December 31
(In millions)  2017 2016
Cash flows provided by operating activities $20
 $88
Additions to property, plant and equipment (14) (9)
Free cash flow $6
 $79


Three months ended
December 31
(In millions) 20212020
Cash flows provided by operating activities$32 $79 
Less: Maintenance capital expenditures(6)(5)
Discretionary free cash flow26 74 
Less: Growth capital expenditures(29)(30)
Free cash flow$(3)$44 
Free
The decrease in free cash flow was lower for the three months ended December 31, 2017 as compared toover the prior year periodwas driven by lower cash flows fromprovided by operating activities as described above, coupled with highermaintenance and growth capital expenditures duewere relatively flat. Management continues to planned investments.expect strong free cash flow generation in fiscal 2022 of $260 million to $300 million.


AsDebt

Inclusive of the interest rate swap agreements, approximately 87% of Valvoline's outstanding borrowings at December 31, 2017, working capital (current assets minus current liabilities, excluding long-term debt due within one year) amounted to $386 million, compared to $327 million at September 30, 2017. Liquid assets, (cash, cash equivalents, and accounts receivable) was145% of current liabilities as of December 31, 2017 and 123% at September 30, 2017.

Debt
The following summary reflects Valvoline’s debt as of:
 December 31 September 30
(In millions)2017 2017
Short-term debt$—
 $75
Long-term debt (including current portion and debt issuance cost discounts) (a)
1,166
 1,049
Total debt$1,166
 $1,124
    
(a)Amount includes $2 million of debt acquired through acquisitions and is net of $12 million and $13 million of debt issuance cost discounts as of December 31 and September 30, 2017, respectively, which are direct reductions from the carrying amount of debt.

As of December 31, 2017,2021 had fixed interest rates, with the senior secured credit facility consisted of a term loan facility with an aggregate principal outstanding balance of $281 million and a $450 million revolving credit facility with no outstanding balance. The revolving credit facility also allows a portion of the availability to be used for outstanding letters of credit, and as of December 31, 2017, there were $11 million in letters of credit outstanding. As of September 30, 2017, the outstanding principal balance of the term loan facility was $285 million and there was no outstanding balance on the revolving facility.


As of December 31 and September 30, 2017, the Company had outstanding $400 million in aggregate principal balance of 4.375% senior unsecured notes due in 2025 and $375 million in aggregate principal balance of 5.500% senior unsecured notes due in 2024. In December 2017, the Company completed registered exchange offers for the senior notes.

During the first fiscal quarter of 2018, the Company amended the trade receivables securitization facility to extend the maturity date to November 19, 2020 and increase the maximum funding under the facility to $175 million. Valvoline borrowed an additional $45 million under this facility during the three months ended December 31, 2017 and used the proceeds to supplement the daily cash needs of the Company's operations. As of December 31, 2017, $120 million remains outstanding under this facility. As of September 30, 2017, the Company had $75 million outstanding under this facility.

Debt covenant restrictions

Valvoline’s debt contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as financial covenants (including maintenance of a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio). As of the end of any fiscal quarter, the maximum consolidated net leverage ratio and minimum consolidated interest coverage ratio permitted under the 2016 Senior Credit Agreement are 4.5 and 3.0, respectively. As of December 31, 2017,remainder bearing variable rates. Valvoline was in compliance with all covenants of its debt obligations.

Pension and Other Postretirement Plan Obligations

During fiscal 2018, the Company expects to make contributionsobligations as of approximately $14 million to its pension plans related to its U.S. non-qualified and non-U.S. pension plans, of which contributions of $3 million were made during the three months ended December 31, 2017.2021 and had a combined total of $587 million of remaining borrowing capacity under its Revolver and Trade Receivables Facility. Credit facilities in place in China had approximately $28 million of combined borrowing capacity remaining, $24 million under the China Working Capital Facility and $4 million under the China Construction Facility. Refer to Note 94 of the Notes to Condensed Consolidated Financial Statements for additional information.details regarding the Company’s debt instruments.


Tax-related CommitmentsDividend payments and share repurchases

On December 22, 2017, the President of the United States signed into law tax reform legislation (the “Act”), which is generally effective January 1, 2018. The Act includes a number of provisions, including lowering the U.S. corporate federal income tax rate from a maximum of 35% to 21% and changing or limiting certain tax deductions. While the Company expects the Act will ultimately benefit Valvoline, it also includes provisions that are expected to offset some of the benefit of the rate reduction, including the repeal of the deduction for domestic production activities and the expansion of the limitation on the deduction of certain executive compensation. In addition, the Act alters the landscape of taxation of non-U.S. operations and provides immediate deductions for certain new investments, among other provisions.


During the three months ended December 31, 2017, enactment of the Act resulted in pre-tax expense of $7 million and income tax expense of $68 million due to the following:

The remeasurement of net deferred tax assets at the lower enacted corporate tax rate resulted in a net $67 million increase in income tax expense;
The deemed repatriation tax on unremitted non-U.S. earnings and profits resulted in a $4 million increase in income tax expense; and
The remeasurement of net indemnity liabilities associated with the Tax Matters Agreement increased pre-tax expense by $7 million and generated a $3 million tax benefit related to the higher expected utilization of tax attributes payable to Ashland.

Based on the Company's provisional estimates of the impacts of the Act, management expects there will be a net favorable impact on Valvoline and its U.S. operations primarily due to the reduction in the federal statutory income tax rate. Set forth below is a discussion of certain provisions of the Act and the Company's preliminary assessment of the impact of such provisions on Valvoline's consolidated financial statements:


Given the effective date of the rate reduction in the Act, the Company's statutory federal corporate tax rate for fiscal 2018 will be a blended rate of 24.5%, with the federal statutory rate of 21% beginning in fiscal 2019. Inclusive of the reduction of the annual estimated effective tax rate and combined with income tax expense recorded in the three months ended December 31, 2017 related to the enactment of the Act, the Company currently anticipates an estimated consolidated effective tax rate between 44% and 45% for fiscal 2018. The reduced federal tax rate is expected to result in overall lower income tax expense in fiscal 2019, and the Company currently expects that its consolidated effective tax rate for fiscal 2019 will be between 25% and 26%. Such estimates are based on management’s current assumptions with respect to, among other things, the Company’s earnings, state income tax levels and tax deductions.

The Act implements a new territorial tax system and imposes a one-time U.S. tax on the deemed repatriation of certain accumulated non-U.S. earnings and profits. The Company currently expects to settle the related gross liability of approximately $22 million through utilization of foreign tax credits of $18 million, resulting in a net impact of $4 million which was recorded as income tax expense in the three months ended December 31, 2017. As a result of certain opportunities to repatriate with estimated lower tax consequences, the Company now intends to repatriate up to approximately $45 million of previously undistributed non-U.S. earnings in the foreseeable future.  

The Act expands the limitation on the deduction of certain executive compensation. This expansion is subject to transition rules that provide grandfather relief. The Company has currently estimated that these deduction limitations will primarily be effective in future periods.

The Act repeals the deduction for domestic manufacturing production activities. With Valvoline’s domestic manufacturing footprint, the repeal will have an unfavorable impact beginning in fiscal 2019. 

The Act includes a new incentive for U.S. companies to produce goods and services domestically and sell them abroad, which the Company expects will have a favorable impact on Valvoline beginning in fiscal 2019.

The Act provides for an election of 100 percent tax depreciation on certain property expenditures through 2022. The depreciation percentage will be phased down beginning in 2023 through 2026, when the prior depreciation rules will return. The Company expects to benefit from this provision related to the timing of deductions for investments.

Given the Company's present financial profile, management expects to fully deduct interest expense under the present and future limitation rules under the Act.

The Company generally expects taxable state income will increase as a result of deduction limitations associated with the Act. However, the impact is not currently reasonably estimable as most U.S. state tax jurisdictions have not responded to the specific effects of the Act.

As summarized above, based on the Company's provisional estimates of the impacts of the Act, management expects there will be a net favorable impact on Valvoline, taking into account the impact on profitability and improved capital generation, which will provide the Company the opportunity to evaluate the potential utilization of the expected savings to increase or accelerate investments in its business and growth.

The estimated impacts of the Act recorded during the three months ended December 31, 2017 as well as the forward-looking estimates are provisional in nature, and the Company will continue to assess the impact of the Act and provide additional information and record adjustments through the income tax provision in the relevant period as amounts are known and reasonably estimable during the measurement period. Accordingly, the impact of the Act may differ from the Company's provisional estimates due to and among other factors, information currently not available, changes in interpretations and the issuance of additional guidance, as well as changes in assumptions the Company has currently made, including actions the Company may take in future periods as a result of the Act.


Dividend Payments and Share Repurchases

For the three months ended December 31, 2017,2021, the Company paid cash dividends of $0.0745$0.125 per common share for $15 million. On$23 million and repurchased nearly 1 million shares of its common stock for $31 million pursuant to the May 2021 Board authorization to repurchase up to $300 million of common stock through September 30, 2024 (the “2021 Share Repurchase Authorization”).

On January 31, 2018,24, 2022, the Valvoline Board of Directors declared a quarterly cash dividend of $0.0745$0.125 per share onof Valvoline common stock. The dividend is payable on March 15, 20182022 to shareholders of record on MarchFebruary 28, 2022. Additionally, the Company repurchased shares of Valvoline common stock for $10 million during January 2022, leaving the Company with $232 million in aggregate share repurchase authority remaining under the 2021 Share Repurchase Authorization as of February 1, 2018.2022.

Future declarations of quarterly dividends are subject to approval by the Board of Directors and may be adjusted as business needs or market conditions change. Forchange, while the three months ended December 31, 2016,timing and amount of any future share repurchases will be based on the Company paid cash dividendslevel of $0.049 per common share for $10 million.

For the three months ended December 31, 2017, the Company repurchased approximately 2 million shares for $39 million under the $150 million share repurchase authorization approved by the Board of Directors on April 24, 2017 (the “2017 Share Repurchase Authorization”). As of December 31, 2017, there was $61 million of share repurchase authority remaining under the 2017 Share Repurchase Authorization. This repurchase authority allows the Company to repurchase its stock from time to time in the openValvoline's liquidity, general business and market or in privately negotiated transactions depending upon market priceconditions and other factors. Repurchases were and will continue to be in accordance with all applicable securities laws and regulations and funded from available liquidity. The Company did not repurchase shares during the three months ended December 31, 2016.factors, including alternative investment opportunities.

On January 31, 2018, the Board of Directors of Valvoline:

Declared a quarterly cash dividend of $0.0745 per share on Valvoline common stock that is payable on March 15, 2018 to shareholders of record on March 1, 2018; and
Authorized the Company to repurchase up to $300 million of its common stock through September 30, 2020, which amount is in addition to the 2017 Share Repurchase Authorization.

Off-Balance Sheet Arrangements and Contractual Obligations

Other than the matters disclosed in this Quarterly Report on Form 10-Q and in the ordinary course of business since the end of fiscal 2017, there have been no material changes in the Company's contractual obligations. See the Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for additional information regarding the Company's off-balance-sheet arrangements and contractual obligations.


Summary


As of December 31, 2017,2021, cash and cash equivalents totaled $115$152 million, and total debt was $1.2 billion. Valvoline's$1.7 billion, and total remaining borrowing capacity under the Company’s Revolver and Trade Receivables Facility was $586 million. Valvoline’s ability to generate positive cash flows from operations is dependent on general economic conditions, and the competitive environment in the industry, and is subject to the business and other risk factors described in Item 1A of Part I of the Annual Report on Form 10-K for the year ended September 30, 2017.2021. 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. Valvoline's financial position has enabled it to achieve a Moody's rating of Ba2 and a Standard & Poor’s rating of BB+, which was upgraded in the fourth fiscal quarter of 2017. Subsequent changes to ratings may have an effect on Valvoline's borrowing rate or ability to access capital markets in the future. Borrowing capacity under the 2016 Senior Credit Agreement was $439 million (due to a $11 million reduction for letters of credit) and based on the availability of eligible receivables, $39 million under the trade receivables securitization facility as of December 31, 2017.


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 to meet its required pension and other
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postretirement plan contributions, debt servicing obligations, tax-related and other contractual commitments, as well asmaterial cash and operating requirements for the next twelve months.

RECENT
NEW ACCOUNTING PRONOUNCEMENTS

For a discussion and analysis of recently issued accounting pronouncements and the impactimpacts on Valvoline, refer to Note 1 in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I inof this Quarterly Report on Form 10-Q.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The Company'sCompany’s critical accounting policies and estimates are discussed in detail in Item 7 of Part II in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017. As described in Note 1 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I in this Quarterly Report on Form 10-Q, the Company adopted accounting policy changes related to the classification of non-service pension and other postretirement net periodic income effective October 1, 2017. Accordingly, Net pension and other postretirement plan non-service income and remeasurement adjustments for all periods presented has been reclassified from within operating income to non-operating income within the Condensed Consolidated Statements of Comprehensive Income.

2021. Management reassessed the critical accounting policiesestimates as disclosed in the Annual Report on Form 10-K and determined there were no other changes to critical accounting policies in the three months ended December 31, 2017. There were also no significant changes in estimates associated with those policies.2021.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company'sCompany’s market risks are discussed in detail in Item 7A of Part II in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2021. Management reassessed the quantitative and qualitative market risk disclosures as described in the Annual Report on Form 10-K and determined there were no material changes to market risks in the three months ended December 31, 2017.2021.


ITEM 4.  CONTROLS AND PROCEDURES


Disclosure Controls and Procedures


Valvoline'sValvoline’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of management, have evaluated the effectiveness of the Company'sCompany’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(the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), and based upon such evaluation, have concluded that as of the Evaluation Date, the Company'sCompany’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'sValvoline’s management, including the CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control


There were no significant changes in Valvoline’s internal control over financial reporting that occurred during the three monthsfiscal quarter ended December 31, 20172021 that have materially affected, or are reasonably likely to materially affect, Valvoline’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS


From time to time, Valvoline is involved inparty to lawsuits, claims and other legal actionsproceedings that arise in the ordinary course of business. While Valvoline cannot predict with certaintyFor a description of Valvoline's legal proceedings, refer to Note 7 of the outcome, costs recognized with respectNotes to such actions were immaterial during the three months ended December 31, 2017. Valvoline does not have any currently pending claims or litigation which Valvoline believes, individually orCondensed Consolidated Financial Statements included in the aggregate, will have a material adverse effectItem 1 of Part I of this Quarterly Report on its financial position, results of operations, liquidity or capital resources. While Valvoline cannot predict with certainty the outcome of such matters, where appropriate, adequate reserves have been recorded, which were not material as of December 31, 2017. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these matters; however, Valvoline currently believes that such potential losses will not be material.Form 10-Q.


ITEM 1A. RISK FACTORS


During the period covered by this report, there were no material changes from the risk factors previously disclosed Item 1A of Part I in Valvoline'sValvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2021.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


DuringThe Company repurchased shares of its common stock for $31 million during the three months ended December 31, 2017,2021 pursuant to the Company repurchased 1.6 million shares of its common stock for $39 million under the 20172021 Share Repurchase Authorization. Under the authorization, shares may be repurchased on the open market, through Rule 10b5-1 trading plans, Rule 10b-18 repurchase programs and accelerated share acquisition programs. As of December 31, 2017, $61 million remains available for repurchase under this authorization, and on January 31, 2018, the Board of Directors of Valvoline authorized the Company to repurchase up to $300 million of its common stock through September 30, 2020, which amount is in addition to the 2017 Share Repurchase Authorization.

Share repurchase activity during the three months ended December 31, 2017 was as2021 follows:


Monthly PeriodTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programsDollar value of shares that may yet be purchased
under the plans or programs
(in millions)
October 1, 2021 - October 31, 2021325,186 $33.55 325,186 $262 
November 1, 2021 - November 30, 2021284,916 $35.37 284,916 $252 
December 1, 2021 - December 31, 2021294,475 $35.55 294,475 $242 
Total904,577 $34.78 904,577 
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Fiscal Period 
Total Number of Shares Purchased (1)
 Average Price Paid per Share, including Commission 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) (2)
October 1, 2017 to
October 31, 2017
 —
 $—
 —
 $100
November 1, 2017 to November 30, 2017 747,265
 $24.04
 737,629
 $82
December 1, 2017 to
December 31, 2017
 875,728
 $24.58
 875,728
 $61
Total 1,622,993
    1,613,357
   


(1) Total number of shares purchased includes both shares repurchased under the Board of Directors authorization described above, as well as vested restricted stock awards purchased to cover withholding taxes.
(2)Further information regarding the Company's share repurchases can be found in Note 12 of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.


ITEM 6.  EXHIBITS


Exhibits 10.1 through 10.3 are management compensatory plans or arrangements.

10.1*
10.2*
31.1*10.3*
31.1*
31.2*
32**
101101.INSXBRL Instance Document - the instance document does not appear in the Interactive data files pursuant to Rule 405 of Regulation S-T: (i)Data File because its XBRL tags are embedded within the Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2017Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as inline XBRL and 2016, (ii) the Condensed Consolidated Balance Sheets at December 31, 2017 and September 30, 2017, (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2017 and 2016, and (iv) the Notes to Condensed Consolidated Financial Statements.contained in Exhibit 101).
* Filed herewith.
SM Service mark, Valvoline or its subsidiaries, registered in various countries.** Furnished herewith.
™ Trademark, Valvoline or its subsidiaries, registered in various countries.
† Trademark owned by a third party.



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SIGNATURE




Pursuant to the requirements 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.


VALVOLINE INC.
(Registrant)
February 9, 2022VALVOLINE INC.
By:(Registrant)
February 8, 2018By:/s/ Mary E. Meixelsperger
Mary E. Meixelsperger
Chief Financial Officer



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