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, 20172022

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
VALVOLINE INC.

vvv-20221231_g1.jpg
(Exact name of registrant as specified in its charter)
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, 2023, there were 200,065,752171,935,576 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 Cash Flows
                         For the three months ended December 31, 2017 and 2016
5
Condensed Consolidated Statements of Stockholders' Equity
6
Notes to Condensed Consolidated Financial Statements
67
2517
4327
4327
PART II – OTHER INFORMATION
4429
4429
4429
4530
31





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
    

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
    

See Notes to Condensed Consolidated Financial Statements.



4


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash FlowsComprehensive Income
Three months ended
December 31
(In millions, except per share amounts - unaudited)20222021
Net revenues$332.8 $287.3 
Cost of sales214.0 175.1 
Gross profit118.8 112.2 
Selling, general and administrative expenses66.0 60.2 
Net legacy and separation-related expenses25.4 2.8 
Other income, net(1.9)(2.8)
Operating income29.3 52.0 
Net pension and other postretirement plan expense (income)3.7 (9.3)
Net interest and other financing expenses18.7 17.0 
Income before income taxes6.9 44.3 
Income tax (benefit) expense(20.1)10.1 
Income from continuing operations27.0 34.2 
Income from discontinued operations54.9 52.8 
Net income$81.9 $87.0 
NET EARNINGS PER SHARE
Basic earnings per share
Continuing operations0.16 0.19 
Discontinued operations0.31 0.29 
Basic earnings per share$0.47 $0.48 
Diluted earnings per share
Continuing operations0.15 0.19 
Discontinued operations0.31 0.29 
Diluted earnings per share$0.46 $0.48 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic175.2 180.5 
Diluted176.3 182.0 
COMPREHENSIVE INCOME
Net income$81.9 $87.0 
Other comprehensive income (loss), net of tax
Currency translation adjustments15.2 0.3 
Amortization of pension and other postretirement plan prior service credits(0.4)(0.4)
Unrealized (loss) gain on cash flow hedges(1.3)2.2 
Other comprehensive income13.5 2.1 
Comprehensive income$95.4 $89.1 
 Three months ended
December 31
(In millions - unaudited)2017 2016
Cash flows from operating activities   
Net (loss) income$(10) $72
Adjustments to reconcile net income (loss) to cash flows from operating activities   
Depreciation and amortization11
 9
Debt issuance cost and discount amortization1
 1
Deferred income taxes85
 —
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
Change in assets and liabilities (a)
   
Accounts receivable(34) 10
Inventories7
 (2)
Payables and accrued liabilities(40) 23
Other assets and liabilities1
 (11)
Total cash provided by operating activities20
 88
Cash flows from investing activities   
Additions to property, plant and equipment(14) (9)
Acquisitions, net of cash acquired(60) —
Other investing activities, net—
 (1)
Total cash used in investing activities(74) (10)
Cash flows from financing activities   
Net transfers to Ashland—
 (2)
Proceeds from borrowings, net of issuance costs44
 75
Repayments on borrowings(4) (79)
Repurchase of common stock(37) —
Purchase of additional ownership in subsidiary(15) —
Cash dividends paid(15) (10)
Other financing activities(4) —
Total cash used in 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
Cash and cash equivalents - beginning of period201
 172
Cash and cash equivalents - end of period$115
 $236
    
(a) Excludes changes resulting from operations acquired or sold.


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
2022		September 30
 2022
Assets
Current assets
Cash and cash equivalents$21.0 $23.4 
Receivables, net56.9 66.1 
Inventories, net31.2 29.4 
Prepaid expenses and other current assets38.7 38.0 
Current assets held for sale1,553.6 1,464.2 
Total current assets1,701.4 1,621.1 
Noncurrent assets
Property, plant and equipment, net693.3 668.6 
Operating lease assets253.5 248.1 
Goodwill and intangibles, net668.2 663.1 
Deferred tax assets82.2 61.6 
Other noncurrent assets152.9 154.3 
Total noncurrent assets1,850.1 1,795.7 
Total assets$3,551.5 $3,416.8 
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt$224.5 $162.5 
Trade and other payables46.6 45.0 
Accrued expenses and other liabilities175.2 172.6 
Current liabilities held for sale478.1 539.3 
Total current liabilities924.4 919.4 
Noncurrent liabilities
Long-term debt1,656.1 1,525.1 
Employee benefit obligations200.5 199.4 
Operating lease liabilities234.5 229.2 
Other noncurrent liabilities246.7 237.1 
Total noncurrent liabilities2,337.8 2,190.8 
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value, 40.0 shares authorized; no shares issued and outstanding— — 
Common stock, par value $0.01 per share, 400.0 shares authorized; 173.5 and 176.1 shares issued and outstanding at December 31, 2022 and September 30, 2022, respectively1.7 1.8 
Paid-in capital40.8 44.1 
Retained earnings254.6 282.0 
Accumulated other comprehensive loss(7.8)(21.3)
Stockholders' equity289.3 306.6 
Total liabilities and stockholders’ equity$3,551.5 $3,416.8 
See Notes to Condensed Consolidated Financial Statements.




4


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three months ended
December 31
(In millions - unaudited)20222021
Cash flows from operating activities
Net income$81.9 $87.0 
Adjustments to reconcile to cash flows from operations
Income from discontinued operations(54.9)(52.8)
Depreciation and amortization18.5 16.9 
Deferred income taxes(26.5)7.5 
Stock-based compensation expense2.9 3.2 
Other, net0.6 0.6 
Change in assets and liabilities
Receivables13.4 (4.7)
Inventories(1.0)3.1 
Payables and accrued liabilities(17.2)(22.3)
Other assets and liabilities30.8 (0.8)
Operating cash flows from continuing operations48.5 37.7 
Operating cash flows from discontinued operations(57.2)(5.9)
Total cash (used in) provided by operating activities(8.7)31.8 
Cash flows from investing activities
Additions to property, plant and equipment(39.9)(32.0)
Notes receivable, net of repayments(0.5)3.0 
Acquisitions of businesses, net of cash acquired(9.6)(13.6)
Other investing activities, net1.6 (0.1)
Investing cash flows from continuing operations(48.4)(42.7)
Investing cash flows from discontinued operations(8.4)(3.1)
Total cash used in investing activities(56.8)(45.8)
Cash flows from financing activities
Proceeds from borrowings, net of issuance costs250.0 — 
Repayments on borrowings(119.4)— 
Repurchases of common stock(87.4)(31.5)
Cash dividends paid(21.8)(22.5)
Other financing activities(8.9)(8.9)
Financing cash flows from continuing operations12.5 (62.9)
Financing cash flows from discontinued operations60.0 (0.9)
Total cash provided by (used in) financing activities72.5 (63.8)
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash2.1 0.1 
Increase (decrease) in cash, cash equivalents and restricted cash9.1 (77.7)
Cash, cash equivalents and restricted cash - beginning of period83.9 231.4 
Cash, cash equivalents and restricted cash - end of period$93.0 $153.7 
See Notes to Condensed Consolidated Financial Statements.
5


Valvoline Inc. and Consolidated Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
Three months ended December 31, 2022
(In millions, except per share amounts - unaudited)Common stockPaid-in capitalRetained earningsAccumulated other comprehensive Income (loss)Totals
SharesAmount
Balance at September 30, 2022176.1 $1.8 $44.1 $282.0 $(21.3)$306.6 
Net income— — — 81.9 — 81.9 
Dividends paid, $0.125 per common share— — 0.1 (21.9)— (21.8)
Stock-based compensation, net of issuances0.3 — (3.4)— — (3.4)
Repurchases of common stock(2.9)(0.1)— (87.4)— (87.5)
Other comprehensive income, net of tax— — — — 13.5 13.5 
Balance at December 31, 2022173.5 $1.7 $40.8 $254.6 $(7.8)$289.3 
Three months ended December 31, 2021
(In millions, except per share amounts - unaudited)Common stockPaid-in capitalRetained deficitAccumulated other comprehensive incomeTotals
SharesAmount
Balance at September 30, 2021180.3 $1.8 $35.2 $90.0 $7.5 $134.5 
Net income— — — 87.0 — 87.0 
Dividends paid, $0.125 per common share— — 0.1 (22.6)— (22.5)
Stock-based compensation, net of issuances0.2 — (2.4)— — (2.4)
Repurchases of common stock(0.9)— — (31.4)— (31.4)
Other comprehensive income, net of tax— — — — 2.1 2.1 
Balance at December 31, 2021179.6 $1.8 $32.9 $123.0 $9.6 $167.3 
See Notes to Condensed Consolidated Financial Statements.
6

Index to Notes to Condensed Consolidated Financial StatementsPage
8
9
11
12
13
14
14
14
15
15
16

7

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. 2022. Certain prior period amounts disclosed herein have been reclassified to conform to the current presentation.


Use of estimates, risks and uncertainties

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make use of estimates and assumptionsjudgments that affect the reported amounts of assets, liabilities, revenues 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,expenses, and the disclosures of contingent matters. Although management bases its estimates on historical experience and various other assumptions underlyingthat are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.

Valvoline has substantially maintained its operations throughout the novel coronavirus ("COVID-19") pandemic to-date and has continued precautionary measures to protect the Company's employees and customers and manage through the currently known impacts on its business. Given the unprecedented nature of the pandemic, the extent of future impacts cannot be reasonably estimated at this time due to numerous uncertainties, including the ultimate duration and severity of the pandemic.

Strategic separation

In fiscal 2022, Valvoline entered into a definitive agreement to sell its former Global Products reportable segment (“Global Products”) to Aramco Overseas Company B.V. (“Aramco”). In all periods presented within these condensed consolidated financial statements, the assets and liabilities associated with the Global Products disposal group have been classified as held for sale within the Condensed Consolidated Balance Sheets and its operations have been classified as discontinued operations within the Condensed Consolidated Statements of Comprehensive Income and Cash Flows. Refer to Note 2 for additional information regarding the Global Products business, including the assets and liabilities held for sale and income from discontinued operations. Unless otherwise noted, disclosures within the remaining notes to these interim periodscondensed consolidated financial statements relate solely to the Company's continuing operations.

Inflation Reduction Act of 2022

The Inflation Reduction Act (the “IRA”) was enacted in the United States in August 2022, which includes, among other provisions, a 15% alternative minimum tax on corporate adjusted income in excess of certain thresholds for taxable years beginning after December 31, 2022. The Company is evaluating the impact this provision will have on its condensed consolidated financial statements.

The IRA also imposes an excise tax of one percent share repurchases that occur after December 31, 2022. Corporations are reasonable.  The results forpermitted to credit certain new stock issuances against their stock repurchases during the interim periods are not necessarily indicativesame taxable period. Based on current share repurchase expectations, Valvoline anticipates this excise tax will have a significant impact on its Retained earnings and cash flows related to the timing of results to be expected for the entire year.payments.


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.periods upon adoption.


Recently
8

Issued but not yet adopted


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

In July 2015,March 2020, the Financial Accounting Standards Board (“FASB”) issued guidance related to reference rate reform that simplifies the accounting for contract modifications and hedging arrangements as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates. The Company has interest rate swap hedging arrangements and variable rate long-term debt for which existing payments are based on LIBOR tenors expected to cease in June 2023. In December 2022, FASB issued guidance to simplifyextend the subsequent measurementtemporary transition period which now can be applied on a prospective basis through the end of certain inventories by replacing the current lowerDecember 2024 for qualifying modified arrangements.

As of cost or market testDecember 31, 2022, 31% of Valvoline’s outstanding total long-term debt and interest rate swap agreements with a lowertotal notional amount of cost$275 million are under existing arrangements that mature following LIBOR cessation and do not contain fallback provisions to alternative reference rates. On December 12, 2022, Valvoline entered into an agreement to amend its existing Credit Agreement, which will be effective upon the sale of Global Products and includes the transition from LIBOR to Secured Overnight Financing Rate (“SOFR”) or net realizable value test. The guidance appliesan alternate base rate. This amendment is described further in Note 5 and will leave the $275 million of interest rate swap agreements remaining which mature following LIBOR cessation without fallback provisions to alternative rates. Valvoline expects to modify its interest rate swap agreements for the reference rates 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 incommensurate with 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 componentsclosing of the sale of Global Products and apply the simplification guidance to this modification.

NOTE 2 - DISCONTINUED OPERATIONS

On July 31, 2022, the Company entered into a definitive agreement to sell Global Products to Aramco for a cash purchase price of $2.65 billion, subject to customary adjustments with respect to working capital and net periodic benefit cost are presented separately outside of the operating income caption. Valvoline retrospectively adopted this guidance on October 1, 2017. Accordingly, Net pensionindebtedness (the “Transaction”). The Transaction is subject to standard closing conditions, including regulatory approvals and other postretirement plan non-service income and remeasurement adjustments has been reclassifiedis expected to non-operating income for all periods presentedclose in early calendar year 2023.

The following table summarizes Income from discontinued operations within the Condensed Consolidated Statements of Comprehensive Income,Income:

Three months ended
December 31
(In millions)20222021
Net revenues$705.8 $619.0 
Cost of sales556.6 488.1 
Gross profit149.2 130.9 
Selling, general and administrative expenses72.3 74.1 
Net legacy and separation-related expense6.2 — 
Equity and other income, net(9.2)(12.2)
Operating income from discontinued operations79.9 69.0 
Net pension and other postretirement plan expense0.1 — 
Net interest and other financing expenses2.3 0.7 
Income from discontinued operations before income taxes77.5 68.3 
Income tax expense22.6 15.5 
Income from discontinued operations$54.9 $52.8 

The products used in Valvoline’s service delivery are sourced from Global Products. Valvoline will continue this arrangement following the sale of Global Products through a long-term supply agreement whereby Valvoline will purchase substantially all lubricant and certain ancillary products for its stores from Global Products. Net revenues within the results of Global Products above include product sales to the Company's continuing operations which reduced previously reported operating income by $26 million forare considered to be effectively settled at the three months ended December 31, 2016.
time of the transaction and have not been eliminated. The following table summarizes these transactions:

Issued but not yet adopted

In May 2014, the FASB issued accounting guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which supersedes most current revenue recognition guidance. This guidance introduces a five-step model for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards under current guidance. The Company is evaluating the effect of adopting the new revenue guidance on its


6
9



financial statements and does not currently expect it to have a material effect to net earnings. Based 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
Three months ended
December 31
(In millions)20222021
Net revenues$55.1 $48.4 

A summary of the recognition of revenues. The Company's revenue transactions generally consist of a single performance obligation to transfer promised goods and are not accountedheld for under industry-specific guidance. The Company anticipates expanded footnote disclosures under the new guidance.

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 recognizesale 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 guidanceincluded 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.Sheets follows:


(In millions)December 31
2022		September 30
 2022
Current assets
Cash and cash equivalents$70.5 $59.0 
Receivables, net576.1 524.3 
Inventories, net296.5 290.1 
Prepaid expenses and other current assets40.9 35.0 
Property, plant and equipment, net264.2 257.4 
Goodwill and intangibles, net139.8 139.8 
Other noncurrent assets165.6 158.6 
Current assets held for sale$1,553.6 $1,464.2 
Current liabilities
Current portion of long-term debt$5.2 $— 
Trade and other payables216.4 264.9 
Accrued expenses and other liabilities154.0 166.9 
Long-term debt28.0 30.7 
Other current liabilities74.5 76.8 
Current liabilities held for sale$478.1 $539.3 
10

NOTE 23 - 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:


7
As of December 31, 2022
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$0.4 $0.4 $— $— $— 
Time deposits8.6 — 8.6 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
2.6 — 2.6 — — 
Interest rate swap agreements4.0 — 4.0 — — 
Other noncurrent assets
Non-qualified trust funds5.7 — — — 5.7 
Interest rate swap agreements12.0 — 12.0 — — 
Total assets at fair value$33.3 $0.4 $27.2 $— $5.7 
Accrued expenses and other liabilities
Currency derivatives (b)
$2.7 $— $2.7 $— $— 
Other noncurrent liabilities
Deferred compensation obligations20.5 — — — 20.5 
Total liabilities at fair value$23.2 $— $2.7 $— $20.5 


As of September 30, 2022
(In millions)TotalLevel 1Level 2Level 3
NAV (a)
Cash and cash equivalents
Money market funds$0.4 $0.4 $— $— $— 
Time deposits13.3 — 13.3 — — 
Prepaid expenses and other current assets
Currency derivatives (b)
6.0 — 6.0 — — 
Interest rate swap agreements5.2— 5.2— — 
Other noncurrent assets
Non-qualified trust funds6.4 — — — 6.4 
Interest rate swap agreements12.6 — 12.6 — — 
Total assets at fair value$43.9 $0.4 $37.1 $— $6.4 
Accrued expenses and other liabilities
Currency derivatives (b)
$5.2 $— $5.2 $— $— 
Other noncurrent liabilities
Deferred compensation obligations19.6 — — — 19.6 
Total liabilities at fair value$24.8 $— $5.2 $— $19.6 
Cash equivalents
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$154.5 million and $150.5 million as of December 31, 2022 and September 30, 2022, 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 gain2022 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 losses2021 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
11

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, 2022September 30, 2022
(In millions)Fair value
Carrying value (a)
Unamortized
discounts and
issuance costs		Fair value
Carrying value (a)
Unamortized
discounts and
issuance costs
2030 Notes$586.1 $593.9 $(6.1)$568.5 $593.7 $(6.3)
2031 Notes433.1 529.4 (5.6)400.5 529.2 (5.8)
Total$1,019.2 $1,123.3 $(11.7)$969.0 $1,122.9 $(12.1)
(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 75 for more information on the Senior Notes anddetails of these senior 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 34 - ACQUISITIONSBUSINESS COMBINATIONS


Henley Bluewater acquisitionThe Company acquired 7 service center stores in single and multi-store transactions for an aggregate purchase price of $9.6 million during the three months ended December 31, 2022. These acquisitions contribute to Valvoline's retail presence in key North American markets and its increased footprint to 1,746 system-wide service center stores.


On October 2, 2017,During the three months ended December 31, 2021, the Company completed the acquisitionacquired 12 service center stores in single and multi-store transactions for an aggregate purchase price of 56 Quick Lubes franchise service centers from Henley Bluewater LLC$13.6 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)20222021
Inventories$0.3 $— 
Property, plant and equipment (a)
2.0 2.3 
Operating lease assets2.1 4.3 
Goodwill (b)
6.1 11.2 
Intangible assets (c)
Reacquired franchise rights (d)
2.3 — 
Other0.1 0.1 
Other current liabilities(0.2)(0.2)
Operating lease liabilities(2.0)(4.1)
Other noncurrent liabilities(1.1)— 
Total net assets acquired$9.6 $13.6 
(a)Includes $1.1 million of finance lease assets in northern Ohioproperty, plant and adds Company-owned locationsequipment and finance lease liabilities of $1.1 million in Michigan.noncurrent liabilities for leases acquired during the three months ended December 31, 2022. No finance lease assets or liabilities were acquired during the three months ended December 31, 2021.

(b)Goodwill is generally expected to be deductible for income tax purposes and is primarily attributed to the operational synergies and potential growth expected to result in economic benefits in the respective markets of the acquisitions.
(c)Intangible assets acquired during the three months ended December 31, 2022 and 2021 have weighted average amortization periods of 9 and 5 years, respectively.
(d)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.10 years for the rights reacquired in fiscal 2023. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market.


12

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.

NOTE 4 - ACCOUNTS RECEIVABLE

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 - INVENTORIESDEBT

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
   


10


NOTE 7 - DEBT OBLIGATIONS


The following table summarizes Valvoline’s short-termtotal debt as of:

(In millions)December 31
2022		September 30
 2022
2031 Notes$535.0 $535.0 
2030 Notes600.0 600.0 
Term Loan445.6 460.0 
Revolver (a)
145.0 — 
Trade Receivables Facility (b)
167.0 105.0 
Debt issuance costs and discounts(12.0)(12.4)
Total debt1,880.6 1,687.6 
Current portion of long-term debt224.5 162.5 
Long-term debt$1,656.1 $1,525.1 
 
(a)As of December 31, 2022, the total borrowing capacity remaining under the $475.0 million revolving credit facility was $324.6 million due to a reduction of $145.0 million for borrowings and long-term debt:$5.4 million for letters of credit outstanding.
(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
    
(a) At(b)These outstanding accounts receivable substantially relate to the Global Products business and were reported in Current assets held for sale, with a smaller portion reported within Receivables, net in the Company’s Condensed Consolidated Balance Sheets. The Trade Receivables Facility had $8.0 million of borrowing capacity remaining and the wholly-owned financing subsidiary owned $357.6 million of outstanding accounts receivable as of December 31, 2017, Other includes $12 million2022.

As 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.December 31, 2022, Valvoline was in compliance with all existing covenants under its long-term borrowings.


Senior NotesCredit Agreement


During August 2017,Key terms and conditions

In December 2022, Valvoline completedamended the issuanceSenior Credit Agreement (the “2022 Credit Agreement”), which will be effective upon the sale of 4.375% senior unsecured notes due 2025 withthe Global Products business. The 2022 Credit Agreement will provide 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$950.0 million in senior secured credit facilities (“2016 Credit Facilities”), composedcomprised of (i) a five-year $875$475.0 million term loan facility (“Term Loans”(the “Term Loan”), and (ii) a five-year $450$475.0 million revolving credit facility (including(the “Revolver”), including a $100$100.0 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.sublimit.


11



The outstanding principal balanceamount of the Term Loans isLoan under the 2022 Credit Agreement will be required to be repaid in quarterly installments of approximately $4$5.9 million for fiscal 2018, $8 million for fiscal 2019 and 2020, and $15 million for fiscal 2021beginning with the balancefirst fiscal quarter after the sale of Global Products, with the remainder due at maturity.maturity and prepayment required in the amount of the net cash proceeds from certain events. Amounts outstanding under the 2022 Credit Agreement may be prepaid at any time, and from time to time, in whole or part, without premium or penalty. At Valvoline’s option, amounts outstanding under the 2016 Senior2022 Credit Agreement will bear interest at either LIBORSOFR or an alternatealternative base rate, in each case plus the applicable interest rate margin. The interest rate fluctuateswill fluctuate between LIBORSOFR plus 1.500%1.375% per annumyear and LIBORSOFR plus 2.500%2.250% per annumyear (or between the alternatealternative base rate plus 0.500%0.375% per annumyear and the alternatealternative base rate plus 1.500% annum)1.250% per year), based upon Valvoline’s corporate credit ratings or the consolidated first lientotal net leverage ratio (as definedratio.

Effective upon completion of the sale of the Global Products business, proceeds from the borrowings under the 2022 Credit Agreement are expected to be used to pay in full the 2016 Seniorprincipal amounts of the current Term Loan and Revolver borrowings under the existing Credit Agreement).Agreement, in addition to accrued and unpaid interest and fees, as well as expenses related to the amendment. The remaining proceeds from the 2022 Credit Agreement, including the capacity under its Revolver, are expected to fund general corporate purposes and working capital needs.


13

Covenants and guarantees

The 20162022 Credit FacilitiesAgreement contains covenants and provisions that will be effective upon the sale of Global Products. These terms and conditions are guaranteed byconsistent with the existing Credit Agreement, including the maintenance of financial covenants as of the end of each fiscal quarter and guarantees from certain of 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 Trade Receivables Facility at December 31, 2017 was $39 million. The financing subsidiary owned $253 million and $247 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.

The financing subsidiary pays customary fees to the lenders, and advances by a lender under the Trade Receivables Facility accrue interest for which the weighted average interest rates were 2.2% and 1.5% for the three months ended December 31, 2017 and 2016, respectively. The Trade Receivables Facility contains various customary affirmative and negative 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.

12



NOTE 86 – 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 was principally driven by the enactment of tax reform legislationin each interim period:

Three months ended
December 31
(In millions)20222021
Income tax (benefit) expense$(20.1)$10.1 
Effective tax rate percentage(291.3)%22.8 %

The favorable changes 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 related to the reduction in the estimated annualprovision and effective tax rate for fiscal 2018.

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, enactment2022 were primarily attributed to release of valuation allowances due to the Act resultedchange in expectations regarding the following provisional impacts on incomeutilization of certain legacy tax expense, which areattributes as described further below:below.


The remeasurement of net deferredLegacy tax assets at the lower enacted corporate tax rate resulted in a net $67 million increase in income tax expense;attributes
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 associatedIn connection with amending the Tax Matters Agreement, increased pre-tax expense by $7 million and generated a $3 million tax benefit primarily relatedmanagement expects the Company is currently more likely than not to the higher expected utilization ofrealize certain legacy 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 differthat were transferred 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


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 ratesits former parent prior to the passage of the Act.Valvoline's initial public offering in late fiscal 2016. 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 9 – EMPLOYEE BENEFIT PLANS

The total pension and other postretirement benefit income was $10 million and $25$26.5 million during the three months ended December 31, 20172022 in connection with releasing its valuation allowance. Additionally, Valvoline recognized $24.4 million of expense within Net legacy and 2016, respectively.

Contributions toseparation-related expenses in the U.S. non-qualified and non-U.S. pension plansCondensed Consolidated Statement of Comprehensive Income during the three months ended December 31, 2017 were $3 million. For2022 to reflect its increased estimated indemnity obligation due to its former parent company as a result of the remainderterms of fiscal 2018, Valvoline expects to contribute approximately $11 million to these plans, for a total of $14 million in fiscal 2018.the amended Tax Matters Agreement.


Components of net periodic benefit income

NOTE 7 – EMPLOYEE BENEFIT PLANS
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:costs (income):

      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)
Pension benefitsOther postretirement benefits
(In millions)2022202120222021
Three months ended December 31
Interest cost$20.6 $10.8 $0.4 $0.2 
Expected return on plan assets(16.8)(19.7)— — 
Amortization of prior service credits— — (0.5)(0.6)
Net periodic benefit costs (income)$3.8 $(8.9)$(0.1)$(0.4)


15



NOTE 108 – 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
14

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.


NOTE 119 - EARNINGS PER SHARE


The following istable summarizes basic and diluted earnings per share:

Three months ended
December 31
(In millions, except per share amounts)20222021
Numerator
Income from continuing operations$27.0 $34.2 
Income from discontinued operations54.9 52.8 
Net income$81.9 $87.0 
Denominator
Weighted average common shares outstanding175.2 180.5 
Effect of potentially dilutive securities (a)
1.1 1.5 
Weighted average diluted shares outstanding176.3 182.0 
 
Basic earnings per share
Continuing operations$0.16 $0.19 
Discontinued operations0.31 0.29 
Basic earnings per share$0.47 $0.48 
Diluted earnings per share
Continuing operations$0.15 $0.19 
Discontinued operations0.31 0.29 
Diluted earnings per share$0.46 $0.48 
(a)There were 0.2 million and 0.1 million outstanding stock appreciation rights not included in the computation of basic and diluted EPS for the three months ended December 31, 2017 and 2016. EPS is reported under 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 dilutedearnings per 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.



16


NOTE 12 - STOCKHOLDERS’ DEFICIT

Changes in stockholders' deficit in the three months ended December 31, 2017 were as follows:2022 and 2021, respectively, because the effect would have been antidilutive.

(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 TRANSACTIONS10 - SUPPLEMENTAL FINANCIAL INFORMATION


At December 31, 2017, Valvoline had total net obligations dueCash, cash equivalents and restricted cash

The following provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Statements of Cash Flows to Ashland of $81 million, of which $3 million was recordedthe Condensed Consolidated Balance Sheets:

(In millions)December 31
2022		September 30
 2022		December 31
2021
Cash and cash equivalents - continuing operations$21.0 $23.4 $42.8 
Cash and cash equivalents - discontinued operations (a)
70.5 59.0 108.9 
Restricted cash - discontinued operations (a)
1.5 1.5 2.0 
Total cash, cash equivalents and restricted cash$93.0 $83.9 $153.7 
(a)Included in Accrued expensesCurrent assets held for sale with the Condensed Consolidated Balance Sheets.

Accounts and other liabilitiesreceivables

The following summarizes Valvoline’s accounts and the remainder was primarily recorded and Other noncurrent liabilitiesother receivables in the Condensed Consolidated Balance Sheets.Sheets as of:


At September 30, 2017, Valvoline had total
(In millions)December 31
2022		September 30
 2022
Trade$56.4 $56.2 
Other4.1 14.5 
Receivables, gross60.5 70.7 
Allowance for credit losses(3.6)(4.6)
Receivables, net$56.9 $66.1 

Revenue recognition

The following disaggregates the Company’s net obligations due to Ashlandrevenues by timing 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.revenue recognized:


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.
Three months ended
December 31
(In millions)20222021
Net revenues transferred at a point in time$317.2 $273.7 
Franchised revenues transferred over time15.6 13.6 
Net revenues$332.8 $287.3 

17




NOTE 14 - REPORTABLE SEGMENT INFORMATION

Valvoline manages and reports within the following three 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 - services 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 the maintenance of consumer and commercial 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 assessing segment performance and in allocating the Company's resources. Sales and operating income are the primary measures evaluated in assessing each reportable segment’s financial performance. Intersegment sales 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 utilized by the chief operating decision maker in evaluating segment performance and are separately delineated within Unallocated and other to reconcile to total reported Operating income as shown in the table below.


The following table presents salessummarizes net revenues by category:

Three months ended
December 31
(In millions)20222021
Oil changes and related fees$247.2 $211.5 
Non-oil changes and related fees69.8 58.3 
Franchise fees and other (a)
15.8 17.5 
Total$332.8 $287.3 
(a)Includes $0.2 million and operating income for each reportable segment:$3.7 million of net revenues associated with suspended operations.


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



NOTE 15 - GUARANTOR FINANCIAL INFORMATION

The Senior Notes are general unsecured senior obligations of Valvoline Inc. 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.

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, on a consolidating basis, the condensed statements of comprehensive income; condensed balance sheets; and condensed statements of cash flows for the parent issuer of these Senior Notes, the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis and the eliminations necessary to arrive at the Company's consolidated results.

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

20


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


21


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, the Board of Directors of Valvoline declared a quarterly cash dividend of $0.0745 per share on Valvoline common stock. The dividend is payable on March 15, 2018 to shareholders of record on March 1, 2018.


Share repurchases


The Company repurchased over 11.6 million shares for an aggregate amount of $29$54.9 million in the period from January 1, 20182023 through February 6, 2018. The Company has $32January 31, 2023, utilizing the remaining $43.0 million in aggregate share repurchase authorization remainingauthority under the $150 million share repurchaseMay 17, 2021 Board 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$300.0 million of its common stock through September 30, 2020, which amount is(the “2021 Share Repurchase Authorization”) and leaving the Company with $1,588.1 million in addition to the amountaggregate share repurchase authority remaining under the 2017 Share Repurchase Authorization. The timing and amount of any purchases of sharesNovember 15, 2022 Board authorization to repurchase up to $1.6 billion of common stock will be based on available liquidity, general business and market conditions and other factors, including alternative investment opportunities.


(the “2022 Share Repurchase Authorization”) as of February 1, 2023.
24
16



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 reportsAnnual Report 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, 2017,2022, 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


The quick, easy, and trusted name in preventive vehicle maintenance, Valvoline Inc. (“Valvoline” orleads the “Company”)industry with vehicle service innovations that simplify customer’s lives and take the worry out of car care. With average customer ratings that indicate high levels of service satisfaction, Valvoline has built a new model for transparency in vehicle maintenance. From the signature 15-minute stay-in-your-car oil change to cabin air filters to battery replacements to tire rotations, the Company’s model offers maintenance solutions for all types of vehicles. The Company operates and franchises more than 1,700 service center locations and is a worldwide producer, marketerthe second and supplier of engine and automotive maintenance products and services. Establishedthird largest chain in 1866, Valvoline’s heritage spans over 150 years, during which it has developed powerful name recognition across multiple product and service channels. In addition to the iconic Valvoline-branded passenger car motor oils and other automotive lubricant products, Valvoline provides a wide array of lubricants used 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 through its Valvoline Instant Oil ChangeSM and Great Canadian Oil Change retail locations.

Valvoline is focused on expanding its footprint and driving a best-in-class customer experience, while evolving its service offerings to capture growing opportunities in the market by growing non-oil change services, are soldservices for the future of mobility, and pursuing fleet service solutions to retailers with over 30,000 retail outlets, to installer customers with over 12,000 locations,address medium 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.heavy-duty vehicles that require comprehensive maintenance needs.
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.
BUSINESS STRATEGY


To deliver on Valvoline's key business and growth strategies
17

Continuing Valvoline’s shift to services as a trusted leader in 2018,preventive automotive maintenance, the Company is focused on:

will continue growing and strengthening Valvoline’s quick lube network through organic store expansion, opportunistic, high-quality acquisitionsongoing improvements in both core and new markets within the Valvoline Instant Oil Change (“VIOC”) system and strong sales effortsservice to partner with new Express Care operators, in addition to continueddrive same-store sales growth and profitability withininvestments in network expansion, while continuing to develop capabilities for an evolving car parc. Valvoline’s existing VIOC system stores by attracting new customers and increasing customer satisfaction, customer loyalty and average transaction size;strategic initiatives include:


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


FIRST FISCAL QUARTER 2018 OVERVIEW•Aggressively growing the retail footprint with company-operated store growth and an increased emphasis on franchisee unit growth;


The following were•Developing capabilities to capture new customers through services expansion focused on fleet manager needs and needs of the significant eventsevolving car parc; and

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

RECENT DEVELOPMENTS

Strategic separation

In fiscal quarter2022, the Company entered into a definitive agreement to sell its Global Products business to Aramco for a cash purchase price of 2018, each of$2.65 billion. Valvoline is focused on finalizing the regulatory and administrative steps necessary to complete the pre-closing conditions and complete the Transaction, which is discussed more fully in this Quarterly Report on Form 10-Q as referenced below:

First quarter results were driven by strong sales led by same-store sales growth in VIOC, growth in premium product mix across all reportable segments and continued volume gains in international markets. The Company alsomanagement continues to be focused on margin expansion and cost managementexpect to drive profitability improvements. Valvoline's gross profit as a percentage of sales (i.e., gross margin) was 35.8% and declined due to increased raw material, new packaging and supply chain costsoccur in the current quarter.
Tax reform legislation was enacted in the first fiscal quarter of 2018 and although Valvoline expects to ultimately benefit from the legislation, expenses were recorded during the first quarter, including pre-tax expense of $7 million and income tax expense of $68 million primarily related to the reduction in the federal statutory tax rate.early calendar year 2023. 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 82 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I in this Quarterly Report on Form 10-Q for additional information.further details regarding the Global Products business.

COVID-19 update

Valvoline acquired 56 company-owned stores withinhas substantially maintained its operations, demonstrating growth and strong results, while managing through the Quick Lubes reportable segment in connection with the acquisition of business assets from Henley Bluewater LLC. Refer to Note 3effects of the NotesCOVID-19 global pandemic. Valvoline’s offices and locations have established protocols based on continuous monitoring of the circumstances and trend data surrounding the pandemic.

Management is unable to Condensed Consolidated Financial Statementsreasonably quantify the impact of COVID-19 on its current year results. The continually evolving COVID-19 pandemic remains uncertain and while the Company cannot predict the duration or scale of the pandemic, it will continue to monitor the ongoing impacts and its effects on business, results of operations, and liquidity. The Company will continue to implement and adjust its procedures and processes as needed. For more information, refer to Risk Factors included in Item 11A of Part I in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

FIRST FISCAL QUARTER 2023 OVERVIEW

The following were the significant events for the first fiscal quarter of 2023, each of which is discussed more fully in this Quarterly Report on Form 10-Q for additional information.10-Q:
Valvoline extended
•Valvoline’s net revenues grew 16% over the maturity dateprior year period driven by three yearssystem-wide same-store sales ("SSS") growth of 11.9% and increased the maximum funding capacityaddition of 111 net new stores to the trade receivables securitization facilitysystem from the prior year.

•Net income from continuing operations declined 21% to $175$27.0 million and borroweddiluted earnings per share decreased 21% to $0.15 in the three months ended December 31, 2022 compared to the prior year, primarily related to increased pension and other postretirement non-service expense.

•Adjusted EBITDA increased 1% over the prior year period due to strong top-line growth offset by an additional $45inflationary cost environment as well as investments in selling, general and administrative expenses.

18

•The Company returned $109.2 million to its shareholders during the quarter. Refer to Note 7quarter through payment of a $0.125 per share cash dividend totaling $21.8 million and the Financial Position, Liquidity and Capital Resources section belowrepurchases of 2.9 million shares of Valvoline common stock for more details.$87.4 million.


Use of Non-GAAP Measures


To aid in the understanding of Valvoline'sValvoline’s ongoing business performance, certain items within this document are presented on an adjusted, non-GAAP basis. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, or more meaningful than, the financial statements presented on both a consolidated and reportable segment basis are not defined withinin 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 as •EBITDA - net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and depreciation and amortization;

•Adjusted EBITDA which management defines as - EBITDA adjusted for certain 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, andbelow);

•Adjusted EBITDA margin - adjusted EBITDA divided by net pension and other postretirement plan non-service income and remeasurement adjustments; andrevenues;

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


•Discretionary free cash flow - cash flows from operating activities less maintenance capital expenditures and certain other adjustments as applicable.

These measures are not prepared in accordance with U.S. GAAP and contain management’s best estimates of cost allocations and shared resource costs. Managementmanagement believes the use of non-GAAP measures onprovides a consolidated and reportable segment basis assists investors in understanding the ongoinguseful 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 income tax and interest costs associated with Valvoline'srelated to Valvoline’s tax and 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 believesstructures, respectively. 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 expensesnonoperational activity not directly attributable to the underlying business whichthat management believes impacts the comparability of operational results between periods. KeyAdjusted EBITDA measures enable comparison of financial trends and results between periods where key items may consistvary independent of adjustments related to: the impairment of an equity investment; legacy businesses, including the separation from Ashland and associated impacts of related indemnities; significant acquisitions or dispositions, restructuring-related matters, and other matters that are non-operational or unusual in nature.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 businessbusiness.

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

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.
Netalso include net pension and other postretirement plan non-service income and remeasurement adjustments - Net pension and other postretirement plan non-service income and remeasurement adjustments includeexpense/income: Includes several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets, as well as those that are predominantly legacy in nature and related to prior service to the Company from employees (e.g., retirees, former employees, and current employees with frozen benefits). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) actuarial gains/losses, and (iv) amortization of prior service cost.
19

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.

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. The amount of mandatory versus discretionary expenditures can vary significantly between periods.repayments.

Key Business Measures

Valvoline tracks its operating performance and manages its business using certain key measures, including system-wide, company-operated and franchised store counts and SSS and system-wide store sales. Management believes these measures are useful to evaluating and understanding Valvoline’s 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,not substitutes for, Valvoline's net incomerevenues and cash flows from operating activitiesincome, as determined in
accordance with U.S. GAAP. Because

Net revenues are influenced by the number of service center stores and the business performance of those stores. Stores are considered open upon acquisition or opening for business. Temporary store closings remain in the respective store counts with only permanent store closures reflected in the activity and end of period store counts. SSS is defined as net revenues by U.S. stores (company-operated, franchised and the combination of these limitations, you should rely primarily onfor 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.

Net revenues are limited to sales at company-operated stores, in addition to royalties and other fees from independent franchised and Express Care stores. Although Valvoline does not recognize store-level sales from franchised stores as net incomerevenues in its Condensed Consolidated Statements of Comprehensive Income, management believes system-wide and cash flows fromfranchised SSS comparisons, store counts, and total system-wide store sales are useful to assess market position relative to competitors and overall operating activities as determined in accordance with U.S. GAAP 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 that in the future Valvoline may incur expenses/income similar 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.performance.


20

RESULTS OF OPERATIONS


Consolidated ReviewThe following summarizes the results of the Company’s continuing operations for the period ended December 31:


Three months ended December 31
20222021
(In millions)Amount% of Net revenuesAmount% of Net revenues
Net revenues$332.8 100.0%$287.3 100.0%
Gross profit$118.8 35.7%$112.2 39.1%
Net operating expenses$89.5 26.9%$60.2 21.0%
Operating income$29.3 8.8%$52.0 18.1%
Income from continuing operations$27.0 8.1%$34.2 11.9%

Net revenues

Net revenues increased $45.5 million, or 16%, over the prior year period due to system-wide SSS growth and acquisitions. System-wide SSS grew 11.9% compared to the prior year largely from increased ticket as a result of pricing actions taken during the prior fiscal year and increased premiumization and non-oil change services supported by investments in process execution. Additionally, net revenue growth was aided by continued gains in vehicles served and the addition of 111 net new stores over the prior year. The following reconciles the year-over-year change in net revenues:

vvv-20221231_g2.jpg

Gross profit

Gross profit increased $6.6 million, or 6%, for the three months ended December 31, 2022 compared to the prior year driven by increased non-oil change services and premiumization, in addition to unit growth through acquisitions. These benefits more than offset inflationary product and labor costs and expenses due to company store growth over the prior year that combined to pressure the top-line expansion from pricing and volumes. The following reconciles the year-over-year change in gross profit:

21

vvv-20221231_g3.jpg

The decline in gross profit margin compared to the prior year period was primarily the result of the dilutive impact from passing through cost increases in company store operations, in addition to increased labor and product expenses, which included higher additive costs and delivery fees. To a lesser extent, a higher relative weighting of company operations also unfavorably impacted gross profit margins year-over-year.

Net operating expenses

Details of the components of net operating expenses are summarized below for the periods ended December 31:

Three months ended December 31
20222021
(In millions)Amount% of Net revenuesAmount% of Net revenues
Selling, general and administrative expenses$66.0 19.8 %$60.2 21.0 %
Net legacy and separation-related expenses25.4 7.6 %2.8 1.0 %
Other income, net(1.9)(0.5)%(2.8)(1.0)%
Net operating expenses$89.5 26.9 %$60.2 21.0 %

Selling, general and administrative expenses increased $5.8 million in the three months ended December 31, 2022 compared to the prior year period. This increase was driven by investments in advertising and labor to support future growth, including the expanded store footprint and attraction and retention of customers.

Net legacy and separation-related expenses increased $22.6 million compared to the prior year primarily due to the increased indemnity obligation of $24.4 million in the three months ended December 31, 2022 as a result of the amendment of the Tax Matters Agreement in January 2023 and the Company’s expected utilization of certain legacy tax attributes, which are payable to Valvoline’s former parent company.

Other income, net decreased $0.9 million due to an economic incentive realized in the prior year that did not recur in the current year period.

Net pension and other postretirement plan expense (income)

Net pension and other postretirement plans had increased expense of $13.0 million in the three months ended December 31, 2022 compared to the prior year period. The increase was primarily due to higher interest costs of the rate environment as a result of the most recent annual remeasurement of the plans. The higher interest costs more than offset recurring expected returns on plan assets, which declined based on prior year asset returns and a lower risk asset mix.
22


Net interest and other financing expenses

Net interest and other financing expensesincreased $1.7 million during the three months ended December 31, 2022 due to higher outstanding borrowings compared to the prior year.

Income tax (benefit) expense

The following table summarizes income tax (benefit) expense and the resultseffective tax rate:

Three months ended December 31
(In millions)20222021
Income tax (benefit) expense$(20.1)$10.1 
Effective tax rate percentage(291.3)%22.8 %

The favorable changes in the income tax provision and effective tax rate in the three months ended December 31, 2022 were primarily attributed to release of valuation allowances due to the change in expectations regarding the utilization of certain legacy tax attributes as described further below. The Company expects an estimated effective tax rate of approximately 25.5% to 26.5% in fiscal 2023, exclusive of discrete activity.

Legacy tax attributes

In connection with amending the Tax Matters Agreement, management expects the Company is currently more likely than not to realize certain legacy tax attributes that were transferred from its former parent prior to Valvoline's initial public offering in late fiscal 2016. As a result, the Company recognized an income tax benefit of $26.5 million during the three months ended December 31, 2022 in connection with releasing its valuation allowance. Additionally, Valvoline recognized $24.4 million of expense within Net legacy and separation-related expenses in the Condensed Consolidated Statement of Comprehensive Income during the three months ended December 31, 2022 to reflect its increased estimated indemnity obligation due to its former parent company as a result of the Company'sterms of the amended Tax Matters Agreement. Payments of the indemnity obligation are currently expected to begin in future periods of fiscal 2023 as management amends its related income tax returns and begins reflecting utilization of these legacy tax attributes.

Income from discontinued operations

Income from discontinued operations for the three months ended December 31, 2017 and 2016:are as follows:

  Three months ended
  December 31
  2017 2016
(In millions)   % of Sales   % of Sales
Sales $545
 100.0% $489
 100.0%
Gross profit $195
 35.8% $185
 37.8%
Net operating expenses $107
 19.6% $91
 18.6%
Operating income $88
 16.1% $94
 19.2%
Net (loss) income $(10) (1.8)% $72
 14.7%
(In millions)20222021
Income from discontinued operations$54.9 $52.8 


Sales
Sales for the three months ended December 31, 2017Income from discontinued operations increased $56$2.1 million or 11%, compared to the three months ended December 31, 2016. The following table provides a reconciliation of the change in sales:
(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 pricing 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 increases in the percentage of sales of premium lubricants 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.

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


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 the table below provides a reconciliation of the change:
(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 levels and favorable changes in product mix of $7 million, or 4%. Additional profits generated by acquisitions of Quick Lubes locations and favorable foreign currency exchange increased gross profit by $3 million and $2 million, respectively. Lower product margins of $2 million were attributed to higher product costs primarily driven by new product packaging as well as increased raw material costs associated with the hurricanes in the late summer of 2017.

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

Net operating expenses

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:
  Three months ended
  December 31
  2017 2016
(In millions)   % of Sales   % of Sales
Selling, general and administrative expenses $114
 20.9 % $95
 19.4 %
Separation costs 2
 0.4 % 6
 1.2 %
Equity and other income (9) (1.7)% (10) (2.0)%
Net operating expenses $107
 19.6 % $91
 18.6 %

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 Ashland related to indemnities under the Tax Matters Agreement as a result of tax reform legislation increased selling, general and administrative expense by $7 million in the current quarter. Acquisitions, depreciation and foreign currency exchange also contributed $4 million to the year-over-year increase 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 to the separation from Ashland, which phased in during fiscal 2017, including investments in sales and marketing to drive growth and profitability.


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 interest 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 period2022 compared to the prior year period primarily driven by a decrease of $2 millionstrong top-line growth. Growth in income generated by research and development testing, partiallyrevenues were more than offset by an increaseincreased costs, including those driven by the inflationary environment, as well as those related to the divestiture of $1the Global Products business; specifically, expenses incurred to consummate the separation of $6.2 million and income tax expense of $4.9 million related to the current estimated book-tax basis differences in equity income.the non-U.S. entities that will be sold with the Global Products business.


The sale of the Global Products business remains on track with closing expected in early calendar year 2023. Refer to Note 2 for further information.

23

Continuing operations EBITDA and Adjusted EBITDA

The following table reconciles Income from continuing operations to EBITDA and Adjusted EBITDA:

Three months ended
December 31
(In millions)20222021
Income from continuing operations$27.0 $34.2 
Income tax (benefit) expense(20.1)10.1 
Net interest and other financing expenses18.7 17.0 
Depreciation and amortization18.5 16.9 
EBITDA44.1 78.2 
Net pension and other postretirement plan expense (income) (a)
3.7 (9.3)
Net legacy and separation-related expenses25.4 2.8 
Information technology transition costs0.3 1.0 
Suspended operations(0.2)(0.3)
Adjusted EBITDA from continuing operations$73.3 $72.4 
   
(a)Net pension and other postretirement plan non-service incomeexpense (income) includes remeasurement gains and remeasurement adjustments

Net pensionlosses, when applicable, and other postretirement plan non-service income and remeasurement adjustments decreased by $16 million from the prior year period due to a decrease of $8 million in pension and other postretirement plan non-service income primarily attributed to the pension de-risking actions taken by the Company 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.
Net interest and other financing expense

Net interest and other financing expense increased by $4 million during the three months ended December 31, 2017 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.

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 in income tax expense and the effective tax rate in the current year was primarily attributed 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 reduction 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.


EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to net 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) 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 97 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 $1 million was primarily due to the performance of the Company's operating segments, notably higher planned investments in selling, general and administrative expenses and higher raw material costs related to new product packaging and the hurricanes partially offset by higher volume levels and favorable changes in product mix.

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’s business is managed within the following three 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 - 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 the maintenance of consumer and commercial vehicles and equipment.
Results of Valvoline’s reportable segments are presented based on howfrom continuing 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.
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 segmentincreased 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 quarter2022 compared to the prior year quarter. This increase was primarilyperiod driven by higher product pricingrobust SSS growth across the system primarily due to ticket and favorable changes in product mix of $13 million, or 5%, and $4 million, or 2%, respectively. These increases were partially offsetaided 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 bycontinued gains in premium product mix which increased gross profit by $3 million. Gross profit margin decreased 3.2 percentage pointsvehicles served. These improvements led 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 by the number of company-owned stores and the business performance of those stores. Through Quick Lubes, Valvoline sells products to and receives royalty fees from VIOC franchisees. As a result, Quick Lubes sales 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 distinct legal entities and Valvoline does not consolidate the results of operations of its franchisees.
** Valvoline has historically determined same-store sales growth on a fiscal year basis, with new stores 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 comparison 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 current quarter compared to the prior year quarter. Higher volume levels 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 quarter compared to the prior year quarter. Increases in volumes and favorable changes in product mix combined to increase gross profits by $2 million. Favorable foreign currency exchange 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 to the prior year quarter largely driven by higher raw material and supply chain costs in some markets and the lower contribution from higher-margin geographies.

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$0.9 million increase in employee costs. Equityadjusted EBITDA year-over-year, which was pressured by an inflationary cost environment 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.business.


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.

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

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 components of Unallocated and other operating income/loss for 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 during 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 primarily as a result of tax reform legislation, partially offset by decreased separation costs from the prior year as the separation from Ashland was completed in May 2017.

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 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 andContinuing operations 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 offlows

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 Flow


Valvoline’s continuing operations cash 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)2022 2021
Cash provided by (used in): 
Operating activities$48.5 $37.7 
Investing activities$(48.4)$(42.7)
Financing activities$12.5 $(62.9)

24
 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 decreaseincrease in cash flows from continuing operations provided by operating activities for the three months ended December 31, 2017 compared toof $10.8 million from the prior year period was primarily relateddue to the timing of cash settlements of both asset and liabilityfavorable changes in net working capital, accounts, including those related to Valvoline's separation from Ashland that drove higher operating cash flows in the prior year period . Specifically, in the three months ended December 31, 2016, Valvoline received $23 million from Ashland in customerprimarily receivables and payables, which were partially offset by increased interest and tax 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.current year.

Investing activities


The increase in cash flows used in investing activities for the three months ended December 31, 2017 compared toof $5.7 million from the prior year period was primarily relateddue to the acquisition of 56 franchise service centers from Henley Bluewater LLC for $60 million, combined with a moderate increase inincreased capital expenditures due to planned investments. Valvoline is currently forecasting approximately$80of $7.9 million, to $90 milliondriven by growth investments, namely new store construction, and lower net repayments of capital expenditures for fullfranchisee loans receivable of $3.5 million. The combination of these changes increased cash flows used in investing activities and were partially offset by lower current year fiscal 2018, funded primarily from operating cash flows.acquisition activity of $4.0 million.


Financing activities


The increasedecrease in cash flows used in financing activities for the three months ended December 31, 2017 compared toof $75.4 million from the prior year period was relatedprimarily due to transactions that occurred in theincreased net proceeds from current year including payments related tonet borrowings of $130.6 million that were used for general corporate purposes and funding working capital needs. This increased source of cash from 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 usage wereprior year was partially offset by reduced repayments of borrowingsreturning $55.9 million more in the current year period.cash to shareholders through increased share repurchases.


FreeContinuing operations 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.


Three months ended
December 31
(In millions) 20222021
Cash flows provided by operating activities$48.5 $37.7 
Less: Maintenance capital expenditures(4.3)(4.2)
Discretionary free cash flow44.2 33.5 
Less: Growth capital expenditures(35.6)(27.8)
Free cash flow$8.6 $5.7 
  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


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

Discontinued operations cash flows

Valvoline has historically satisfied its short-term working capital and operational needs, in addition to indebtedness and other obligations, through the earnings, assets and cash flows generated by its consolidated operations. Following the Transaction, Valvoline will not be able to rely on the earnings, assets or cash flows that are attributable to the Global Products business. The cash flows of the discontinued operation are reflected in the Condensed Consolidated Statements of Cash Flows and are summarized below for the three months ended December 31, 2017 as31:

25

(In millions)20222021
Cash provided by (used in):
Operating activities$(57.2)$(5.9)
Investing activities$(8.4)$(3.1)
Financing activities$60.0 $(0.9)

The decrease in operating cash flows provided by discontinued operations was largely due to unfavorable changes in net working capital driven by growth in accounts receivables from increased sales compared to the prior period, in addition to declines in trade and other payables. Cash flows used by investing activities of the discontinued operations were higher in the current period due to increased capital expenditures, primarily related to maintenance capital expenditures. Financing activities provided cash in the current year period driven by lower cash flows from operating activities as described above, coupled with higher capital expenditures due to planned investments.net proceeds from borrowings under the Accounts Receivable Securitization Facility, while the prior year period activity consisted of repayments under the China Construction Facility.


Debt

Inclusive of the interest rate swap agreements, approximately 78% of Valvoline's outstanding borrowings at December 31, 2022 had fixed interest rates, with the remainder bearing variable rates. As of 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, 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, 2017,2022, Valvoline was in compliance with all covenants of its debt obligations.obligations and had borrowing capacity remaining of $324.6 million for its current facilities in effect expected to remain in place after closing the Transaction.


PensionIn December 2022, Valvoline amended the Senior Credit Agreement (the 2019 Credit Agreement, as amended, the “2022 Credit Agreement”), which will become effective upon the sale of Global Products. The 2022 Credit Agreement provides for an aggregate principal amount of $950.0 million in senior secured credit facilities comprised of (i) a five-year $475.0 million term loan facility (the “Term Loan”) and Other Postretirement Plan Obligations(ii) a five-year $475.0 million revolving credit facility (the “Revolver”), including a $100.0 million letter of credit sublimit.


During fiscal 2018, the Company expects to make contributions 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. Refer to Note 95 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, 2017,2022, the Company paid cash dividends of $0.0745$0.125 per common share for $15 million. On$21.8 million and repurchased 2.9 million shares of its common stock for $87.4 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”). The Company announced on November 15, 2022 that its Board approved a share repurchase authorization of $1.6 billion (the “2022 Share Repurchase Authorization”) and subject to market conditions, expects to repurchase shares of its common stock up to the full amount of the share repurchase authorization within 18 months of closing the sale of Global Products. As of December 31, 2022, approximately $43.0 million and $1.6 billion remained available for share repurchases under the 2021 Share Repurchase Authorization and 2022 Share Repurchase Authorization, respectively.

From January 1, 2023 through January 31, 2018,2023, the Valvoline BoardCompany repurchased 1.6 million shares for an aggregate amount of Directors declared a quarterly cash dividend$54.9 million, utilizing the remaining share repurchase authority under the 2021 Share Repurchase Authorization and leaving the Company with $1,588.1 million in aggregate share repurchase authority remaining under the 2022 Share Repurchase Authorization as of $0.0745 per share on Valvoline common stock. February 1, 2023.

The dividend and share repurchase authorization is payable on March 15, 2018part of a broader capital allocation framework to deliver value to shareholders of record on March 1, 2018.
by first driving growth in the business, organically and through acquisitions and franchise development, and then returning excess cash to shareholders through dividends and share repurchases. Future declarations of quarterly dividends are subject to approval by the Board of Directors and may be adjusted as business needs or market conditions change. ForAs focus further shifts to the three months ended December 31, 2016,growth of Valvoline in connection with the sale of Global Products, the Company paid cash dividends 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 Companyexpects to repurchasediscontinue its stock from time to time in the open market or in privately negotiated transactions depending upon market price and other factors. Repurchases weredividend 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.

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, 2018return value to shareholders through share repurchases. The timing and amount of record on March 1, 2018; and
Authorizedany share repurchases will be at the discretion of 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.and based on Valvoline's liquidity, general business and market conditions, and other factors, including alternative investment opportunities.


Off-Balance Sheet Arrangements and Contractual Obligations
26


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,Valvoline’s continuing operations had cash and cash equivalents totaled $115of $21.0 million, total debt of $1.9 billion, and total debt was $1.2 billion. Valvoline'sremaining borrowing capacity of $324.6 million for facilities expected to remain in place after closing the Transaction as of December 31, 2022. 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 fiscal year ended September 30, 2017.2022. 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 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.

2022. 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.2022.



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’sValvoline's Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022. 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, 2017.2022.


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 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.

27

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, 20172022 that have materially affected, or are reasonably likely to materially affect, Valvoline’s internal control over financial reporting.

28


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 8 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 in Valvoline'sItem 1A of Part I in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022.


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


DuringRepurchases of the three months ended December 31, 2017, the Company repurchased 1.6 million shares of itsCompany’s common stock for $39 million under the 2017 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 as follows:2022 pursuant to the 2021 Share Repurchase Authorization were:


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, 2022 - October 31, 20221,205,348 $26.89 1,205,348 $98.0 
November 1, 2022 - November 30, 2022873,849 $31.70 873,849 $70.3 
December 1, 2022 - December 31, 2022852,579 $32.03 852,579 $43.0 
Total2,931,776 $29.82 2,931,776 
29
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


10.1*
First Amendment to the Transfer and Administration Agreement, dated as of November 20, 2017, among Valvoline LLC, Lex Capital LLC, the Originators, the Investors, Letter of Credit Issuers, Managing Agents and Administrators party thereto, and PNC Bank National Association, as agent for the Investors.
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.SM Service mark, Valvoline or its subsidiaries, registered in various countries.



30

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 7, 2023VALVOLINE INC.
By:(Registrant)
February 8, 2018By:/s/ Mary E. Meixelsperger
Mary E. Meixelsperger
Chief Financial Officer



46
31