UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

FORM 10-Q

(Mark one)


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

For the quarterly period ended ~~June 30,~~December 31, 2021


☐			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.

(Exact name of registrant as specified in its charter)


Kentucky			30-0939371
(State or other jurisdiction of incorporation or organization)			(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

VVV

New York Stock Exchange

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

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

Indicate by check mark whether the registrant 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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

At ~~July 30,~~January 31, ~~2021,~~2022, there were ~~180,760,678~~179,356,295 shares of the registrant’s common stock outstanding.

~~VALVOLINE INC. AND CONSOLIDATED SUBSIDIARIES~~

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Statements of Comprehensive Income


		Three months ended June 30				Nine months ended June 30					Three Months Ended December 31
(In millions, except per share amounts - unaudited)	(In millions, except per share amounts - unaudited)	2021		2020		2021		2020		(In millions, except per share amounts - unaudited)	2021		2020
Sales	Sales	$	792	$	516	$	2,146	$	1,701	Sales	$	858	$	653
Cost of sales	Cost of sales	533		329		1,412		1,096		Cost of sales	614		425
Gross profit	Gross profit	259		187		734		605		Gross profit	244		228

Selling, general and administrative expenses	Selling, general and administrative expenses	136		106		382		319		Selling, general and administrative expenses	135		117
Net legacy and separation-related expenses		1		1		2		0
Legacy and separation-related expenses										Legacy and separation-related expenses	3		1
Equity and other income, net	Equity and other income, net	(9)		(8)		(36)		(23)		Equity and other income, net	(15)		(14)
Operating income	Operating income	131		88		386		309		Operating income	121		124
Net pension and other postretirement plan income	Net pension and other postretirement plan income	(14)		(9)		(41)		(27)		Net pension and other postretirement plan income	(9)		(13)
Net interest and other financing expenses	Net interest and other financing expenses	17		19		92		73		Net interest and other financing expenses	17		20

Income before income taxes	Income before income taxes	128		78		335		263		Income before income taxes	113		117
Income tax expense	Income tax expense	31		19		83		68		Income tax expense	26		30
Net income	Net income	$	97	$	59	$	252	$	195	Net income	$	87	$	87

NET EARNINGS PER SHARE	NET EARNINGS PER SHARE									NET EARNINGS PER SHARE
Basic	Basic	$	0.53	$	0.32	$	1.38	$	1.04	Basic	$	0.48	$	0.47
Diluted	Diluted	$	0.53	$	0.32	$	1.37	$	1.04	Diluted	$	0.48	$	0.47

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	WEIGHTED AVERAGE COMMON SHARES OUTSTANDING									WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	Basic	182		186		183		187		Basic	181		185
Diluted	Diluted	183		186		184		188		Diluted	182		186

COMPREHENSIVE INCOME	COMPREHENSIVE INCOME									COMPREHENSIVE INCOME
Net income	Net income	$	97	$	59	$	252	$	195	Net income	$	87	$	87
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Currency translation adjustments	Currency translation adjustments	4		10		15		(3)		Currency translation adjustments	—		18
Amortization of pension and other postretirement plan prior service credit		(2)		(3)		(6)		(7)
Amortization of pension and other postretirement plan prior service credits										Amortization of pension and other postretirement plan prior service credits	—		(2)
Unrealized gain on cash flow hedges	Unrealized gain on cash flow hedges	0		0		1		0		Unrealized gain on cash flow hedges	1		—
Other comprehensive income (loss)		2		7		10		(10)
Other comprehensive income										Other comprehensive income	1		16
Comprehensive income	Comprehensive income	$	99	$	66	$	262	$	185	Comprehensive income	$	88	$	103

See Notes to Condensed Consolidated Financial Statements.

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Balance Sheets


(In millions, except per share amounts - unaudited)	(In millions, except per share amounts - unaudited)	June 30 2021		September 30 2020		(In millions, except per share amounts - unaudited)	December 31 2021		September 30 2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	226	$	760	Cash and cash equivalents	$	152	$	230
Receivables, net	Receivables, net	490		433		Receivables, net	530		496
Inventories, net	Inventories, net	247		199		Inventories, net	264		258
Prepaid expenses and other current assets	Prepaid expenses and other current assets	53		46		Prepaid expenses and other current assets	55		53
Total current assets	Total current assets	1,016		1,438		Total current assets	1,001		1,037
Noncurrent assets	Noncurrent assets					Noncurrent assets
Property, plant and equipment, net	Property, plant and equipment, net	773		613		Property, plant and equipment, net	824		817
Operating lease assets	Operating lease assets	311		261		Operating lease assets	309		307
Goodwill and intangibles, net	Goodwill and intangibles, net	773		529		Goodwill and intangibles, net	782		775
Equity method investments	Equity method investments	47		44		Equity method investments	50		47
Deferred income taxes	Deferred income taxes	10		34		Deferred income taxes	13		14
Other noncurrent assets	Other noncurrent assets	119		132		Other noncurrent assets	204		194
Total noncurrent assets	Total noncurrent assets	2,033		1,613		Total noncurrent assets	2,182		2,154
Total assets	Total assets	$	3,049	$	3,051	Total assets	$	3,183	$	3,191

Liabilities and Stockholders’ Equity (Deficit)
Liabilities and Stockholders’ Equity						Liabilities and Stockholders’ Equity
Current liabilities	Current liabilities					Current liabilities

Current portion of long-term debt	Current portion of long-term debt	$	2	$	0	Current portion of long-term debt	$	32	$	17
Trade and other payables	Trade and other payables	216		189		Trade and other payables	218		246
Accrued expenses and other liabilities	Accrued expenses and other liabilities	289		255		Accrued expenses and other liabilities	291		306
Total current liabilities	Total current liabilities	507		444		Total current liabilities	541		569
Noncurrent liabilities	Noncurrent liabilities					Noncurrent liabilities
Long-term debt	Long-term debt	1,691		1,962		Long-term debt	1,662		1,677
Employee benefit obligations	Employee benefit obligations	272		317		Employee benefit obligations	248		258

Operating lease liabilities	Operating lease liabilities	276		231		Operating lease liabilities	276		274
Deferred income taxes						Deferred income taxes	34		26
Other noncurrent liabilities	Other noncurrent liabilities	280		173		Other noncurrent liabilities	255		252
Total noncurrent liabilities	Total noncurrent liabilities	2,519		2,683		Total noncurrent liabilities	2,475		2,487
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders’ equity (deficit)
Preferred stock, no par value, 40 shares authorized; 0 shares issued and outstanding		0		0
Common stock, par value $0.01 per share, 400 shares authorized; 181 and 185 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively		2		2
Stockholders’ equity						Stockholders’ equity
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding						Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding	—		—
Common stock, par value $0.01 per share, 400 shares authorized; 180 shares issued and outstanding at December 31, 2021 and September 30, 2021						Common stock, par value $0.01 per share, 400 shares authorized; 180 shares issued and outstanding at December 31, 2021 and September 30, 2021	2		2
Paid-in capital	Paid-in capital	32		24		Paid-in capital	33		35
Retained deficit		(29)		(110)
Retained earnings						Retained earnings	123		90

Accumulated other comprehensive income	Accumulated other comprehensive income	18		8		Accumulated other comprehensive income	9		8
Total stockholders’ equity (deficit)		23		(76)
Total liabilities and stockholders’ equity (deficit)		$	3,049	$	3,051
Total stockholders’ equity						Total stockholders’ equity	167		135
Total liabilities and stockholders’ equity						Total liabilities and stockholders’ equity	$	3,183	$	3,191

See Notes to Condensed Consolidated Financial Statements.

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

Nine months ended June 30, 2021
(In millions, except per share amounts - unaudited) Common stock Paid-in capital Retained deficit Accumulated other comprehensive income Totals
Shares Amount
Balance at September 30, 2020 185 $ 2 $ 24 $ (110) $ 8 $ (76)
Net income — — — 87 — 87
Dividends paid, $0.125 per common share — — — (23) — (23)
Stock-based compensation, net of issuances — — 1 — — 1
Repurchases of common stock (2) — — (58) — (58)
Cumulative effect of adoption of new credit losses standard, net of tax — — — (2) — (2)
Other comprehensive income, net of tax — — — — 16 16
Balance at December 31, 2020 183 $ 2 $ 25 $ (106) $ 24 $ (55)
Net income — — — 68 — 68
Dividends paid, $0.125 per common share — — — (23) — (23)
Stock-based compensation, net of issuances — — 4 — — 4
Repurchases of common stock (2) — — (42) — (42)
Other comprehensive loss, net of tax — — — — (8) (8)
Balance at March 31, 2021 181 $ 2 $ 29 $ (103) $ 16 $ (56)
Net income — — — 97 — 97
Dividends paid, $0.125 per common share — — — (23) — (23)
Stock-based compensation, net of issuances — — 3 — — 3
Other comprehensive income, net of tax — — — — 2 2
Balance at June 30, 2021 181 $ 2 $ 32 $ (29) $ 18 $ 23


		Nine months ended June 30, 2020																			Three months ended December 31, 2021
(In millions, except per share amounts - unaudited)	(In millions, except per share amounts - unaudited)	Common stock			Paid-in capital				Retained deficit				Accumulated other comprehensive income (loss)				Totals		(In millions, except per share amounts - unaudited)		Common stock				Paid-in capital		Retained earnings		Accumulated other comprehensive income		Totals
		Shares	Amount												Shares							Amount
Balance at September 30, 2019		188	$	2			$	13			$	(284)			$	11			$	(258)
Balance at September 30, 2021																			Balance at September 30, 2021		180		$	2	$	35	$	90	$	8	$	135
Net income	Net income	—	—		—				73				—				73		Net income		—		—		—		87		—		87
Dividends paid, $0.113 per common share		—	—		—				(21)				—				(21)
Dividends paid, $0.125 per common share																			Dividends paid, $0.125 per common share		—		—		—		(23)		—		(23)
Stock-based compensation, net of issuances	Stock-based compensation, net of issuances	—	—		3				—				—				3		Stock-based compensation, net of issuances		—		—		(2)		—		—		(2)
Cumulative effect of adoption of new leasing standard, net of tax		—	—		—				1				—				1

Repurchases of common stock																			Repurchases of common stock		—		—		—		(31)		—		(31)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				—				6				6		Other comprehensive income, net of tax		—		—		—		—		1		1
Balance at December 31, 2019		188	$	2	$	16			$	(231)			$	17			$	(196)
Net income		—	—		—				63				—				63
Dividends paid, $0.113 per common share		—	—		—				(21)				—				(21)

Repurchases of common stock		(3)	—		—				(60)				—				(60)
Other comprehensive loss, net of tax		—	—		—				—				(23)				(23)

Balance at March 31, 2020		185	$	2	$	16			$	(249)			$	(6)			$	(237)
Net income		—	—		—				59				—				59
Dividends paid, $0.113 per common share		—	—		—				(21)				—				(21)
Stock-based compensation, net of issuances		—	—		4				—				—				4

Other comprehensive income, net of tax		—	—		—				—				7				7

Balance at June 30, 2020		185	$	2	$	20			$	(211)			$	1			$	(188)
Balance at December 31, 2021																			Balance at December 31, 2021		180		$	2	$	33	$	123	$	9	$	167

																					Three months ended December 31, 2020
(In millions, except per share amounts - unaudited)																			(In millions, except per share amounts - unaudited)		Common stock				Paid-in capital		Retained deficit		Accumulated other comprehensive income		Totals
																					Shares		Amount
Balance at September 30, 2020																			Balance at September 30, 2020		185		$	2	$	24	$	(110)	$	8	$	(76)
Net income																			Net income		—		—		—		87		—		87
Dividends paid, $0.125 per common share																			Dividends paid, $0.125 per common share		—		—		—		(23)		—		(23)
Stock-based compensation, net of issuances																			Stock-based compensation, net of issuances		—		—		1		—		—		1
Repurchases of common stock																			Repurchases of common stock		(2)		—		—		(58)		—		(58)
Cumulative effect of adoption of credit losses standard, net of tax																			Cumulative effect of adoption of credit losses standard, net of tax		—		—		—		(2)		—		(2)
Other comprehensive income, net of tax																			Other comprehensive income, net of tax		—		—		—		—		16		16
Balance at December 31, 2020																			Balance at December 31, 2020		183		$	2	$	25	$	(106)	$	24	$	(55)

See Notes to Condensed Consolidated Financial Statements.

Valvoline Inc. and Consolidated Subsidiaries

Condensed Consolidated Statements of Cash Flows


		Nine months ended June 30					Three months ended December 31
(In millions - unaudited)	(In millions - unaudited)	2021		2020		(In millions - unaudited)	2021		2020
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	252	$	195	Net income	$	87	$	87
Adjustments to reconcile net income to cash flows from operating activities	Adjustments to reconcile net income to cash flows from operating activities					Adjustments to reconcile net income to cash flows from operating activities
Loss on extinguishment of debt		36		19

Depreciation and amortization	Depreciation and amortization	68		48		Depreciation and amortization	25		21

Deferred income taxes	Deferred income taxes	24		0		Deferred income taxes	8		—

Pension contributions		(4)		(9)

Stock-based compensation expense	Stock-based compensation expense	10		8		Stock-based compensation expense	3		3
Other, net	Other, net	1		1		Other, net	(1)		(1)
Change in assets and liabilities	Change in assets and liabilities					Change in assets and liabilities
Receivables	Receivables	(55)		13		Receivables	(37)		7
Inventories	Inventories	(39)		3		Inventories	(6)		(4)
Payables and accrued liabilities	Payables and accrued liabilities	59		(10)		Payables and accrued liabilities	(41)		(40)
Other assets and liabilities	Other assets and liabilities	(56)		3		Other assets and liabilities	(6)		6
Total cash provided by operating activities	Total cash provided by operating activities	296		271		Total cash provided by operating activities	32		79
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Additions to property, plant and equipment	Additions to property, plant and equipment	(106)		(94)		Additions to property, plant and equipment	(35)		(35)
Notes receivable, net		14		(31)
Repayments of notes receivable						Repayments of notes receivable	3		9

Acquisitions of businesses, net of cash acquired		(267)		(18)
Acquisitions of businesses						Acquisitions of businesses	(14)		(218)

Other investing activities, net	Other investing activities, net	8		0		Other investing activities, net	—		(1)
Total cash used in investing activities	Total cash used in investing activities	(351)		(143)		Total cash used in investing activities	(46)		(245)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from borrowings	Proceeds from borrowings	555		1,547		Proceeds from borrowings	30		11
Payments of debt issuance costs and discounts		(7)		(16)

Repayments on borrowings	Repayments on borrowings	(829)		(925)		Repayments on borrowings	(31)		—
Premium paid to extinguish debt		(26)		(15)

Repurchases of common stock	Repurchases of common stock	(100)		(60)		Repurchases of common stock	(31)		(58)

Cash dividends paid	Cash dividends paid	(69)		(63)		Cash dividends paid	(23)		(23)
Other financing activities	Other financing activities	(7)		(3)		Other financing activities	(8)		(3)
Total cash (used in) provided by financing activities		(483)		465
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash		5		(1)
(Decrease) increase in cash, cash equivalents, and restricted cash		(533)		592
Cash, cash equivalents, and restricted cash - beginning of period		761		159
Cash, cash equivalents, and restricted cash - end of period		$	228	$	751
Total cash used in financing activities						Total cash used in financing activities	(63)		(73)
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash						Effect of currency exchange rate changes on cash, cash equivalents and restricted cash	—		6
Decrease in cash, cash equivalents and restricted cash						Decrease in cash, cash equivalents and restricted cash	(77)		(233)
Cash, cash equivalents and restricted cash - beginning of period						Cash, cash equivalents and restricted cash - beginning of period	231		761
Cash, cash equivalents and restricted cash - end of period						Cash, cash equivalents and restricted cash - end of period	$	154	$	528

See Notes to Condensed Consolidated Financial Statements.

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, ~~2020.~~2021. Certain prior period amounts disclosed herein have been reclassified to conform to the current presentation.

Use of estimates, risks and uncertainties

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

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

Strategic separation

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

Recent accounting pronouncements

The following ~~standards~~accounting guidance relevant to Valvoline ~~were~~was either issued or adopted in the current year, or ~~are~~is expected to have a meaningful impact on Valvoline in future periods upon adoption. The Financial Accounting Standards Board ("FASB") issued other accounting guidance during the period that is not currently applicable or expected to have a material impact on Valvoline’s condensed consolidated financial statements, and therefore, is not described below.

~~Recently adopted~~

In June 2016, the FASB issued updated guidance that changes the recognition of credit losses from an incurred or probable loss methodology to a current expected credit loss model that results in the immediate recognition of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, principally trade and other receivables for Valvoline. The new credit loss guidance was adopted on October 1, 2020 using the required modified retrospective approach. Under this approach, the new accounting guidance was applied prospectively from the date of adoption through a cumulative effect adjustment in retained deficit, while prior period financial statements continue to be reported in accordance with the previous guidance. Adoption did not have a material impact on the Company's condensed consolidated financial statements and resulted in a $2 million cumulative effect of accounting change, net of tax, that increased retained deficit and allowances for credit losses.

In connection with and following the adoption of this guidance, Valvoline maintains allowances to estimate expected lifetime credit losses that are based on a broad range of reasonable and supportable information and factors, including the length of time receivables are past due, the financial health of its customers, macroeconomic conditions, and historical collection experience. Refer to Note 11 for additional information regarding the Company's trade and other receivables and its allowances for credit losses.

Issued but not yet adopted

In March 2020, the FASB issued guidance ~~regarding~~to simplify the ~~effects~~accounting for arrangements modified as a result of reference rate reform ~~intended to ease financial reporting burdens~~ as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates. This guidance is available to be adopted on a prospective basis through the end of calendar 2022 for qualifying contract modifications and hedging arrangements. The Company has interest rate swap hedging arrangements and U.S.-based variable rate long-term debt ~~as described in Notes 2 and 5, respectively,~~ for which existing payments are based on ~~LIBOR. This guidance is available~~LIBOR tenors expected to ~~be adopted through the end~~cease in June 2023. As of ~~calendar 2022 to simplify the accounting for~~December 31, 2021, 28% of Valvoline’s outstanding total long-term debt and $275 million of its interest rate swap agreements are under existing arrangements

~~modified for the transition~~ that mature following LIBOR cessation and do not contain fallback provisions to alternative reference rates.The Company is evaluating its options for these arrangements and expects to adopt this guidance to the

extent ~~its arrangements~~there are ~~modified for the underlying reference rate~~qualifying contractual modifications prior to the end of calendar ~~2022 and~~2022. Valvoline does not expect ~~adoption will~~any modifications that may apply for this guidance to have a material impact on its condensed consolidated financial statements.

NOTE 2 - FAIR VALUE MEASUREMENTS

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


		As of June 30, 2021											As of December 31, 2021
(In millions)	(In millions)	Total		Level 1		Level 2		Level 3		NAV (a)		(In millions)	Total		Level 1		Level 2		Level 3		NAV (a)
Cash and cash equivalents	Cash and cash equivalents											Cash and cash equivalents
Money market funds	Money market funds	$	17	$	17	$	—	$	—	$	—	Money market funds	$	1	$	1	$	—	$	—	$	—
Time deposits	Time deposits	64		—		64		—		—		Time deposits	36		—		36		—		—
Prepaid expenses and other current assets	Prepaid expenses and other current assets											Prepaid expenses and other current assets
Currency derivatives (b)	Currency derivatives (b)	2		—		2		—		—		Currency derivatives (b)	2		—		2		—		—
Other noncurrent assets	Other noncurrent assets											Other noncurrent assets
Non-qualified trust funds	Non-qualified trust funds	12		—		4		—		8		Non-qualified trust funds	10		—		2		—		8
Interest rate swap agreements	Interest rate swap agreements	2		—		2		—		—		Interest rate swap agreements	4		—		4		—		—
Total assets at fair value	Total assets at fair value	$	97	$	17	$	72	$	—	$	8	Total assets at fair value	$	53	$	1	$	44	$	—	$	8

Accrued expenses and other liabilities	Accrued expenses and other liabilities											Accrued expenses and other liabilities
Currency derivatives (b)	Currency derivatives (b)	$	1	$	—	$	1	$	—	$	—	Currency derivatives (b)	$	1	$	—	$	1	$	—	$	—
Interest rate swap agreements		1		—		1		—		—

Other noncurrent liabilities	Other noncurrent liabilities											Other noncurrent liabilities
Deferred compensation obligations	Deferred compensation obligations	25		—		—		—		25		Deferred compensation obligations	27		—		—		—		27
Total liabilities at fair value	Total liabilities at fair value	$	27	$	—	$	2	$	—	$	25	Total liabilities at fair value	$	28	$	—	$	1	$	—	$	27

109


		As of September 30, 2020											As of September 30, 2021
(In millions)	(In millions)	Total		Level 1		Level 2		Level 3		NAV (a)		(In millions)	Total		Level 1		Level 2		Level 3		NAV (a)
Cash and cash equivalents	Cash and cash equivalents											Cash and cash equivalents
Money market funds	Money market funds	$	296	$	296	$	—	$	—	$	—	Money market funds	$	13	$	13	$	—	$	—	$	—
Time deposits	Time deposits	139		—		139		—		—		Time deposits	87		—		87		—		—
Prepaid expenses and other current assets	Prepaid expenses and other current assets											Prepaid expenses and other current assets
Currency derivatives (b)	Currency derivatives (b)	3		—		3		—		—		Currency derivatives (b)	3		—		3		—		—
Other noncurrent assets	Other noncurrent assets											Other noncurrent assets
Non-qualified trust funds	Non-qualified trust funds	16		—		8		—		8		Non-qualified trust funds	11		—		4		—		7
Interest rate swap agreements												Interest rate swap agreements	2				2		—
Total assets at fair value	Total assets at fair value	$	454	$	296	$	150	$	—	$	8	Total assets at fair value	$	116	$	13	$	96	$	—	$	7

Accrued expenses and other liabilities	Accrued expenses and other liabilities											Accrued expenses and other liabilities
Currency derivatives (b)	Currency derivatives (b)	$	2	$	—	$	2	$	—	$	—	Currency derivatives (b)	$	3	$	—	$	3	$	—	$	—
Interest rate swap agreements	Interest rate swap agreements	1		—		1		—		—		Interest rate swap agreements	1		—		1		—		—
Other noncurrent liabilities	Other noncurrent liabilities											Other noncurrent liabilities
Deferred compensation obligations	Deferred compensation obligations	25		—		—		—		25		Deferred compensation obligations	24		—		—		—		24
Total liabilities at fair value	Total liabilities at fair value	$	28	$	—	$	3	$	—	$	25	Total liabilities at fair value	$	28	$	—	$	4	$	—	$	24

(a)Funds measured at fair value using the net asset value ("NAV") per share practical expedient have not been classified in the fair value hierarchy.

(b)The Company had outstanding contracts with notional values of ~~$156~~$143 million and ~~$149~~$137 million as of ~~June 30,~~December 31, 2021 and September 30, ~~2020,~~2021, respectively.

There were 0no material gains or losses recognized in earnings during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 or 2020 related to these assets and liabilities.

Long-term debt

Long-term debt is reported in the Consolidated Balance Sheets at carrying value, rather than fair value, and is therefore excluded from the disclosure above of financial assets and liabilities measured at fair value within the condensed consolidated financial statements on a recurring basis. The fair values of the ~~Company’s~~Company's outstanding fixed rate senior notes shown ~~in the table~~ below are based on recent trading values, which are considered Level 2 inputs within the fair value hierarchy. ~~Long-term debt is included in the Condensed Consolidated Balance Sheets at carrying value, rather than fair value, and is therefore excluded from the fair value table above.~~


	December 31, 2021						September 30, 2021
(In millions)	Fair value		Carrying value (a)		Unamortized discounts and issuance costs		Fair value		Carrying value (a)		Unamortized discounts and issuance costs
2030 Notes	$	614	$	593	$	(7)	$	622	$	593	$	(7)
2031 Notes	523		529		(6)		531		529		(6)
Total	$	1,137	$	1,122	$	(13)	$	1,153	$	1,122	$	(13)

(a)Carrying values shown ~~in the following table~~ are net of unamortized discounts and debt issuance costs.

June 30, 2021 September 30, 2020
(In millions) Fair value Carrying value Unamortized
discounts and
issuance costs Fair value Carrying value Unamortized
discounts and
issuance costs
2025 Notes $ 0 $ 0 $ 0 $ 827 $ 790 $ (10)
2030 Notes 621 593 (7) 613 592 (8)
2031 Notes 535 529 (6) 0 0 0
Total $ 1,156 $ 1,122 $ (13) $ 1,440 $ 1,382 $ (18)

Refer to Note 54 for ~~more information regarding Valvoline’s~~details of these notes as well as Valvoline's other debt instruments that have variable interest rates ~~and accordingly, their~~with carrying amounts that approximate fair value.

NOTE 3 - ACQUISITIONS ~~AND DIVESTITURES~~

~~Retail store acquisitions~~

The Company acquired ~~121~~12 service center stores in single and multi-store transactions for an aggregate purchase price of ~~$267~~$14 million during the ~~nine~~three months ended ~~June 30,~~December 31, 2021. These acquisitions expand Valvoline's retail

1110

presence in key North American ~~and international~~ markets, increase the number of company-operated service center stores, and contributed to growing the Retail Services system to ~~nearly 700 company-operated and nearly~~over 1,600 system-wide service center ~~stores, and included:~~

•~~NaN company-operated service center stores in Texas acquired from Kent Lubrication Centers Ltd. (doing business as Avis Lube) on October 1, 2020;~~

•~~NaN former franchise locations converted to company-operated service center stores in Kansas and Missouri acquired from Westco Lube, Inc. on October 15, 2020;~~

•~~NaN company-operated service center stores in Idaho acquired from L&F Enterprises (doing business as Einstein's Oilery) on October 30, 2020;~~

•~~NaN Mister Oil Change Express~~® ~~locations (15 company-operated and 12 franchise-operated) across 7 states acquired from Car Wash Partners, Inc. on December 11, 2020;~~

•~~NaN former franchise locations converted to company-operated service center stores in Texas acquired from AWC Premium Automotive Service Ltd. on April 30, 2021;~~

•~~NaN former franchise and 14 former joint venture locations converted to company-operated service center stores acquired in single and multi-store transactions; and~~

•~~NaN company-operated service center stores acquired in single and multi-store transactions.~~stores.

During the ~~nine~~three months ended ~~June 30,~~December 31, 2020, the Company acquired 2181 service center stores in single and multi-store transactions, including 1127 former franchise locations converted to company-owned service center stores and 12 franchise-operated service center stores, for an aggregate purchase price of ~~$18~~$218 million.

The Company’s acquisitions are accounted for as business combinations. A summary follows of the aggregate cash consideration paid and the total assets acquired and liabilities assumed for the ~~nine~~three months ended ~~June 30:~~December 31:


(In millions)	(In millions)	2021		2020		(In millions)	2021		2020

Inventories	Inventories	$	2	$	0	Inventories	$	—	$	2
Other current assets		1		0

Property, plant and equipment ~~(a)~~	Property, plant and equipment ~~(a)~~	93		1		Property, plant and equipment ~~(a)~~	3		79
Operating lease assets	Operating lease assets	36		0		Operating lease assets	4		23
Goodwill ~~(b)~~(a)	Goodwill ~~(b)~~(a)	203		8		Goodwill ~~(b)~~(a)	11		175
Intangible assets ~~(c)~~(b)	Intangible assets ~~(c)~~(b)					Intangible assets ~~(c)~~(b)
Reacquired franchise rights ~~(d)~~(c)	Reacquired franchise rights ~~(d)~~(c)	54		9		Reacquired franchise rights ~~(d)~~(c)	—		33

Other	Other	3		0		Other	—		3

Other current liabilities ~~(a)~~	Other current liabilities ~~(a)~~	(8)		0		Other current liabilities ~~(a)~~	—		(6)
Operating lease liabilities	Operating lease liabilities	(33)		0		Operating lease liabilities	(4)		(21)
Other noncurrent liabilities ~~(a)~~	Other noncurrent liabilities ~~(a)~~	(84)		0		Other noncurrent liabilities ~~(a)~~	—		(70)
Net assets acquired	Net assets acquired	$	267	$	18	Net assets acquired	$	14	$	218

(a)Includes $84 million of finance lease assets in property, plant and equipment and finance lease liabilities of $4 million and $80 million in other current and noncurrent liabilities, respectively, for leases acquired during the nine months ended June 30, 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)~~(b)Intangible assets acquired during the ~~nine~~three months ended ~~June 30, 2021 and~~December 31, 2020 have weighted average amortization periods of 1011 years.

~~(d)~~(c)Prior to the acquisition of former franchise service center stores, the Company licensed the right to operate franchised service centers, including the use of Valvoline's trademarks and trade name. In connection with these acquisitions, Valvoline reacquired those rights and recognized separate definite-lived reacquired franchise rights intangible assets, which are being amortized on a straight-line basis over the weighted average remaining term of approximately 1011 years for the rights reacquired in fiscal 2021. The effective settlement of these arrangements resulted in 0 settlement gain or loss as the contractual terms were at market.

The fair values above are preliminary for up to one year from the date of acquisition as they may be subject to measurement period adjustments if new information is obtained about facts and circumstances that existed as of the acquisition date. The Company does not currently expect any material changes to the preliminary purchase price allocations for acquisitions completed during the last twelve months.

NOTE 4 ~~- INTANGIBLE ASSETS~~

~~Goodwill~~

~~The following table summarizes changes in the carrying amount of goodwill by reportable segment and in total during the nine months ended June 30, 2021:~~

(In millions) Retail Services Global Products Total
Balance at September 30, 2020 (a)
$ 316 $ 129 $ 445
Acquisitions (b)
201 2 203
Dispositions (c)
(10) 0 (10)
Currency translation 3 0 3
Balance at June 30, 2021 $ 510 $ 131 $ 641

~~(a)Goodwill balances as of September 30, 2020 have been recast to conform to the current period presentation. Refer to Note 10 for further details regarding the Company's change in reportable segments.~~

~~(b)~~Includes acquisitions within the Retail Services reportable segment of 107 service center stores and a former joint venture in the Global Products reportable segment. Refer to Note 3 for additional details.

~~(c)Derecognition of goodwill associated with the sale of 12 company-owned, franchise-operated service center stores to franchisees.~~

~~Other intangible assets~~

Valvoline’s purchased intangible assets were specifically identified when acquired, have finite lives, and are reported in Goodwill and intangibles, net within the Condensed Consolidated Balance Sheets. The following summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets:

(In millions) June 30, 2021 September 30, 2020
Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount
Definite-lived intangible assets
Trademarks and trade names $ 31 $ (8) $ 23 $ 30 $ (6) $ 24
Reacquired franchise rights 111 (21) 90 57 (14) 43
Customer relationships 23 (9) 14 22 (7) 15
Other intangible assets 7 (2) 5 3 (1) 2
Total definite-lived intangible assets $ 172 $ (40) $ 132 $ 112 $ (28) $ 84

~~The table that follows summarizes actual and estimated amortization expense for the Company's current amortizable intangible assets:~~

Actual Estimated
Nine months ended
June 30 Years ended September 30
(In millions) 2021 2021 2022 2023 2024 2025
Amortization expense $ 12 $ 16 $ 17 $ 16 $ 15 $ 13

~~NOTE 5~~ - DEBT

The following table summarizes Valvoline’s total debt as of:


(In millions)	(In millions)	June 30 2021		September 30 2020		(In millions)	December 31 2021		September 30 2021
2031 Notes	2031 Notes	$	535	$	0	2031 Notes	$	535	$	535
2030 Notes	2030 Notes	600		600		2030 Notes	600		600
2025 Notes		0		800
Term Loan	Term Loan	475		475		Term Loan	475		475

Trade Receivables Facility		59		88
China Construction Facility		38		18

Revolver (a)						Revolver (a)	—		—
Trade Receivables Facility (b)						Trade Receivables Facility (b)	59		59
China Construction Facility (c)						China Construction Facility (c)	39		39
China Working Capital Facility (d)						China Working Capital Facility (d)	—		—
Debt issuance costs and discounts	Debt issuance costs and discounts	(14)		(19)		Debt issuance costs and discounts	(14)		(14)
Total debt	Total debt	1,693		1,962		Total debt	1,694		1,694

Current portion of long-term debt	Current portion of long-term debt	2		0		Current portion of long-term debt	32		17
Long-term debt	Long-term debt	$	1,691	$	1,962	Long-term debt	$	1,662	$	1,677

(a)

~~Senior Notes~~

The Company's outstanding fixed rate senior notes as of June 30, 2021 consist of 3.625% senior unsecured notes due 2031 with an aggregate principal amount of $535 million (the “2031 Notes") and 4.250% senior unsecured notes due 2030 with an aggregate principal amount of $600 million (the "2030 Notes" and collectively with the 2031 Notes, the "Senior Notes").

In January 2021, Valvoline issued the 2031 Notes in a private offering for net proceeds of $528 million (after deducting initial purchasers’ discounts and debt issuance costs). The net proceeds, along with cash and cash equivalents on hand, were used to redeem in full Valvoline's 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $800 million (the “2025 Notes"), including an early redemption premium of $26 million, accrued and unpaid interest, as well as related fees and expenses for an aggregate redemption price of approximately $840 million. A loss on extinguishment of the 2025 Notes of $36 million was recognized in Net interest and other financing expenses in the Condensed Consolidated Statements of Comprehensive Income in the nine months ended June 30, 2021, comprised of the early redemption premium and the write-off of related unamortized debt issuance costs and discounts.

The 2031 Notes are subject to customary events of default for similar debt securities, which if triggered may accelerate the payment of principal, any premium, and accrued but unpaid interest. 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 2031 Notes from the holders thereof. The 2031 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 governing indenture.

~~Senior Credit Agreement~~

As of June 30, 2021 and September 30, 2020, the term loan facility (the “Term Loan”) had an outstanding principal balance of $475 million, and there were 0 amounts outstanding under the $475 million revolving credit facility (the "Revolver"), both of which are senior secured credit facilities provided under the senior credit agreement (the “Senior Credit Agreement”). As of June 30,December 31, 2021, the total borrowing capacity remaining under the ~~Revolver~~$475 million revolving credit facility was ~~$470~~$471 million due to a reduction of $5$4 million for letters of credit outstanding.

(b)

~~As of June 30, 2021, Valvoline was in compliance with all covenants under the Senior Credit Agreement.~~

~~Trade Receivables Facility~~

The $175 million trade receivables securitization facility (the "Trade Receivables Facility") had an outstanding balance of $59 million and $88 million as of June 30, 2021 and September 30, 2020, respectively. During the nine months ended June 30, 2021, Valvoline made payments of $29 million on the Trade Receivables Facility ~~resulting in~~had $116 million of borrowing capacity remaining ~~as of June 30, 2021. The~~and the wholly-owned financing subsidiary owned ~~$291~~$304 million

~~and~~ ~~$267 million~~ of outstanding accounts receivable as of ~~June 30, 2021 and September 30, 2020, respectively, which were reported in Receivables, net in the Company’s Condensed Consolidated Balance Sheets.~~December 31, 2021.

(c)

In April 2021, Valvoline amended the Trade Receivables Facility to extend its maturity to April 2024 and modify the eligibility requirements for certain receivables. The amendment also reduces the minimum required borrowing to the lesser of (i) 33 percent of the total facility limit or (ii) the borrowing base from the availability of eligible receivables, in addition to permitting up to a 30 consecutive day annual exemption from this requirement. Other relevant terms and conditions of Trade Receivables Facility were substantially unchanged under this amendment.

~~China Construction Facility~~

During the nine months ended June 30, 2021, Valvoline borrowed $20 million under its $40 million credit agreement to finance capital expenditures associated with the preparation of the blending and packaging plant in China for production at capacity (the "China Construction Facility"). The China Construction Facility had approximately $38 million and $18 million outstanding as of June 30, 2021 and September 30, 2020, respectively. The remaining borrowing capacity under the China Construction Facility was approximately $2$4 million as of ~~June 30,~~December 31, 2021.

(d)

~~China Working Capital Facility~~

On November 16, 2020, the Company entered into a one-year revolving credit facility of approximately $23 million to finance working capital needs for the blending and packaging plant in China (the “China Working Capital Facility”). Borrowings will bear interest at the local prime rate less the applicable interest rate margin with interest due monthly and repayment of borrowings due at maturity. As of June 30, 2021, theThe China Working Capital Facility had ~~0 outstanding borrowings, resulting in its full~~a borrowing capacity remaining of approximately ~~$23~~$24 million ~~remaining.~~as of December 31, 2021.

As of December 31, 2021, Valvoline was in compliance with all covenants under its long-term borrowings.

NOTE 65 – 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. The following summarizes income tax expense and the effective tax rate in each interim period:


		Three months ended						Nine months ended							Three months ended
		June 30						June 30							December 31
(In millions)	(In millions)	2021			2020			2021			2020			(In millions)	2021			2020
Income tax expense	Income tax expense	$	31		$	19		$	83		$	68		Income tax expense	$	26		$	30
Effective tax rate percentage	Effective tax rate percentage	24.2		%	24.4		%	24.8		%	25.9		%	Effective tax rate percentage	23.0		%	25.6		%

The decreases in the effective tax ~~rates from the prior year periods~~rate and income tax expense were principally driven by ~~favorable~~ discrete ~~tax~~ benefits in the current ~~year. In addition, tax reform legislation enacted~~year compared to unfavorable discrete impacts in the prior ~~year resulted in lower current year taxes and unfavorable discrete activity in the nine months ended June 30, 2020.Higher pre-tax earnings in the three and nine months ended June 30, 2021 more than offset these benefits resulting in increased tax expense for the current year periods.~~ year.

From a combination of statute expirations and anticipated audit settlements in the next twelve months, Valvoline currently estimates a decrease in the range of $25 million to $35 million in indemnity obligations due to the Company's former parent, which is expected to include certain unrecognized tax benefits.

1512

NOTE 76 – EMPLOYEE BENEFIT PLANS

The following table summarizes the components of pension and other postretirement benefit income:


						Other postretirement benefits					Pension benefits						Other postretirement benefits
		Pension benefits
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)			2021			2020			2021			2020
Three months ended June 30
Three months ended December 31										Three months ended December 31
Service cost	Service cost	$	1	$	1	$	0	$	0	Service cost	$	—		$	1		$	—		$	—
Interest cost	Interest cost	10		15		1		0		Interest cost	11			11			—			—
Expected return on plan assets	Expected return on plan assets	(22)		(21)		0		0		Expected return on plan assets	(20)			(22)			—			—
Amortization of prior service credit		0		0		(3)		(3)

Net periodic benefit income		$	(11)	$	(5)	$	(2)	$	(3)

Nine months ended June 30
Service cost		$	2	$	2	$	0	$	0
Interest cost		32		46		1		1
Expected return on plan assets		(65)		(65)		0		0
Amortization of prior service credit		0		0		(9)		(9)
Amortization of prior service credits										Amortization of prior service credits	—			—			—			(2)

Net periodic benefit income	Net periodic benefit income	$	(31)	$	(17)	$	(8)	$	(8)	Net periodic benefit income	$	(9)		$	(10)		$	—		$	(2)

NOTE 87 – LITIGATION, CLAIMS AND CONTINGENCIES

From time to time, Valvoline is party to lawsuits, claims and other legal proceedings that arise in the ordinary course of business. The Company establishes liabilities for the outcome of such matters where losses are determined to be probable and reasonably estimable. Where appropriate, the Company has recorded liabilities with respect to these matters, which were not material for the periods presented as reflected in the condensed consolidated financial statements herein. There are certain claims and legal proceedings pending where loss is not determined to be probable or reasonably estimable, and therefore, accruals have not been made. In addition, Valvoline discloses 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 exceed 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 proceedings will not have a material adverse effect on its condensed consolidated financial statements.

NOTE 98 - EARNINGS PER SHARE

The following table summarizes basic and diluted earnings per share:


		Three months ended				Nine months ended					Three months ended
		June 30				June 30					December 31
(In millions, except per share amounts)	(In millions, except per share amounts)	2021		2020		2021		2020		(In millions, except per share amounts)	2021		2020
Numerator	Numerator									Numerator
Net income	Net income	$	97	$	59	$	252	$	195	Net income	$	87	$	87

Denominator	Denominator									Denominator

Weighted average common shares outstanding	Weighted average common shares outstanding	182		186		183		187		Weighted average common shares outstanding	181		185
Effect of potentially dilutive securities (a)	Effect of potentially dilutive securities (a)	1		0		1		1		Effect of potentially dilutive securities (a)	1		1
Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	183		186		184		188		Weighted average diluted shares outstanding	182		186

Earnings per share	Earnings per share									Earnings per share
Basic	Basic	$	0.53	$	0.32	$	1.38	$	1.04	Basic	$	0.48	$	0.47
Diluted	Diluted	$	0.53	$	0.32	$	1.37	$	1.04	Diluted	$	0.48	$	0.47

(a)There were approximately ~~2 million and~~ 1 million outstanding ~~securities, primarily~~ stock appreciation rights not included in the computation of diluted earnings per share for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020, ~~respectively,~~ because the effect would have been antidilutive.

NOTE 109 - REPORTABLE SEGMENT INFORMATION

~~During the third quarter of fiscal 2021, the Company realigned its global operations to support its strategic initiatives to transition to a services-driven business. As a result of the realignment,~~ Valvoline ~~now~~ manages its business through the following ~~two~~2 reportable segments:

•Retail Services - ~~services~~services the passenger car and light truck quick lube market in the United States and Canada with a broad array of preventive maintenance services and capabilities performed through Valvoline’s retail network of ~~Company-operated,~~company-operated and independent ~~franchise, and~~franchised service center stores, in addition to independent Express Care stores that service vehicles with Valvoline products.

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

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

~~In connection with the realignment, the Company changed its allocation of certain~~Certain indirect expenses ~~for such costs to be~~are recognized inwithin each segment based on the estimated utilization of indirect resources. Costs to support corporate functions and certain non-operational and corporate activity that is not directly attributable to a particular

segment are not included in the segment operating results regularly utilized by the chief operating decision maker. This activity is separately delineated within Corporate to reconcile to consolidated results.

~~Prior period segment financial information presented herein has been recast on a basis that is consistent with the realignment of Valvoline’s global operations.~~

Segment financial results

The following ~~table~~ presents sales and adjusted EBITDA for each reportable segment:


(In millions)		Three months ended				Nine months ended
		June 30				June 30
		2021		2020		2021		2020
											Three months ended
											December 31
(in millions)										(in millions)	2021		2020
Sales	Sales									Sales
Retail Services	Retail Services	$	330	$	199	$	869	$	629	Retail Services	$	346	$	254
Global Products	Global Products	462		317		1,277		1,072		Global Products	512		399
Consolidated sales	Consolidated sales	$	792	$	516	$	2,146	$	1,701	Consolidated sales	$	858	$	653

Adjusted EBITDA	Adjusted EBITDA									Adjusted EBITDA
Retail Services	Retail Services	$	112	$	54	$	277	$	170	Retail Services	$	98	$	70
Global Products	Global Products	81		69		255		218		Global Products	77		94
Total operating segments	Total operating segments	193		123		532		388		Total operating segments	175		164
Corporate ~~(a)~~	Corporate ~~(a)~~	(20)		(24)		(53)		(40)		Corporate ~~(a)~~	(19)		(15)
Consolidated Adjusted EBITDA	Consolidated Adjusted EBITDA	173		99		479		348		Consolidated Adjusted EBITDA	156		149
Reconciliation to income before income taxes:	Reconciliation to income before income taxes:									Reconciliation to income before income taxes:
Net interest and other financing expenses	Net interest and other financing expenses	(17)		(19)		(92)		(73)		Net interest and other financing expenses	(17)		(20)
Depreciation and amortization	Depreciation and amortization	(24)		(17)		(68)		(48)		Depreciation and amortization	(25)		(21)
Key items: ~~(b)~~(a)	Key items: ~~(b)~~(a)									Key items: ~~(b)~~(a)
Net pension and other postretirement plan income	Net pension and other postretirement plan income	14		9		41		27		Net pension and other postretirement plan income	9		13
Net legacy and separation-related expenses		(1)		(1)		(2)		0
LIFO (charge) credit		(17)		7		(26)		12
Legacy and separation-related expenses										Legacy and separation-related expenses	(3)		(1)
LIFO charge										LIFO charge	(6)		(4)
Information technology transition costs										Information technology transition costs	(1)		—
Business interruption recovery	Business interruption recovery	0		0		3		0		Business interruption recovery	—		1
Acquisition and divestiture-related costs		0		0		0		(2)
Restructuring and related expenses		0		0		0		(1)
Income before income taxes	Income before income taxes	$	128	$	78	$	335	$	263	Income before income taxes	$	113	$	117

(a)~~Corporate includes the costs of corporate functions and certain other non-operational matters and corporate activity that is not directly attributable to a particular segment.~~

~~(b)~~Key items represent adjustments to U.S. GAAP results and consist of non-operational matters, including pension and other postretirement plan non-service income and remeasurement adjustments, ~~net~~ legacy and separation-related activity, changes in the last-in, first-out ("LIFO") inventory reserve, and certain other corporate matters excluded from operating results ~~which~~that management believes impacts the comparability of operational results between periods.

Disaggregation of revenue

~~The following table summarizes sales~~Sales by primary customer channel for the Company’s reportable ~~segments:~~segments are summarized below:


		Three months ended				Nine months ended					Three months ended
		June 30				June 30					December 31
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2021		2020
Retail Services	Retail Services									Retail Services
Company operations	Company operations	$	234	$	139	$	616	$	421	Company operations	$	243	$	178
Non-company operations	Non-company operations	96		60		253		208		Non-company operations	103		76
Total Retail Services	Total Retail Services	330		199		869		629		Total Retail Services	346		254

Global Products	Global Products									Global Products
U.S. Do-It-Yourself (DIY)		162		137		439		407
North America installer and other		116		70		316		286
International		184		110		522		379
Do-It-Yourself										Do-It-Yourself	175		140
Installer and other										Installer and other	337		259
Total Global Products	Total Global Products	462		317		1,277		1,072		Total Global Products	512		399

Consolidated sales	Consolidated sales	$	792	$	516	$	2,146	$	1,701	Consolidated sales	$	858	$	653

Sales by reportable segment disaggregated by geographic market follows:


		Retail Services				Global Products				Total					Retail Services				Global Products				Total
(In millions)	(In millions)	2021		2020		2021		2020		2021		2020		(In millions)	2021		2020		2021		2020		2021		2020
Three months ended June 30
Three months ended December 31														Three months ended December 31
North America (a)	North America (a)	$	330	$	199	$	278	$	207	$	608	$	406	North America (a)	$	346	$	254	$	304	$	235	$	650	$	489
Europe, Middle East and Africa ("EMEA")	Europe, Middle East and Africa ("EMEA")	0		0		56		34		56		34		Europe, Middle East and Africa ("EMEA")	—		—		67		51		67		51
Asia Pacific	Asia Pacific	0		0		96		65		96		65		Asia Pacific	—		—		104		83		104		83
Latin America (a)	Latin America (a)	0		0		32		11		32		11		Latin America (a)	—		—		37		30		37		30
Totals	Totals	$	330	$	199	$	462	$	317	$	792	$	516	Totals	$	346	$	254	$	512	$	399	$	858	$	653

Nine months ended June 30
North America (a)		$	869	$	629	$	755	$	693	$	1,624	$	1,322
EMEA		0		0		161		125		161		125
Asia Pacific		0		0		267		193		267		193
Latin America (a)		0		0		94		61		94		61
Totals		$	869	$	629	$	1,277	$	1,072	$	2,146	$	1,701

(a)Valvoline includes the United States and Canada in its North America region. Mexico is included within the Latin America region.

NOTE 1110 - SUPPLEMENTAL FINANCIAL INFORMATION

Cash, cash equivalents and restricted cash

The following ~~table~~ provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Statements of Cash Flows to the Condensed Consolidated Balance Sheets:


(In millions)	(In millions)	June 30 2021		September 30 2020		June 30 2020		(In millions)	December 31 2021		September 30 2021		December 31 2020
Cash and cash equivalents	Cash and cash equivalents	$	226	$	760	$	751	Cash and cash equivalents	$	152	$	230	$	527
Restricted cash (a)	Restricted cash (a)	2		1		0		Restricted cash (a)	2		1		1
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	228	$	761	$	751	Total cash, cash equivalents and restricted cash	$	154	$	231	$	528

(a)Included in Prepaid expenses and other current assets within the Condensed Consolidated Balance Sheets.

Accounts and other receivables

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


(In millions)	(In millions)	June 30 2021		September 30 2020		(In millions)	December 31 2021		September 30 2021
Current

Trade	Trade	$	469	$	409	Trade	$	513	$	475
Other	Other	16		14		Other	15		16
Notes receivable from franchisees (a)	Notes receivable from franchisees (a)	10		13		Notes receivable from franchisees (a)	7		10
Receivables, gross	Receivables, gross	495		436		Receivables, gross	535		501
Allowance for credit losses	Allowance for credit losses	(5)		(3)		Allowance for credit losses	(5)		(5)
Receivables, net	Receivables, net	$	490	$	433	Receivables, net	$	530	$	496

Non-current (b)
Notes receivable from franchisees (a)		$	3	$	13
Other notes receivable		3		8
Noncurrent notes receivable, gross		6		21
Allowance for losses		(3)		(4)
Noncurrent notes receivable, net		$	3	$	17

(a)Notes receivable from franchisees were primarily issued in fiscal 2020 to provide financial assistance in response to the COVID-19 ~~pandemic~~.pandemic. There were no material balances past due as of ~~June 30,~~December 31, 2021.

~~(b)Included in Other noncurrent assets within the Condensed Consolidated Balance Sheets.~~

Inventories

Inventories are primarily carried at the lower of cost or net realizable value using the weighted average cost method. In addition, certain lubricants are valued at the lower of cost or market using the LIFO method.

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


(In millions)	(In millions)	June 30 2021		September 30 2020		(In millions)	December 31 2021		September 30 2021
Finished products	Finished products	$	252	$	195	Finished products	$	277	$	276
Raw materials, supplies and work in process	Raw materials, supplies and work in process	47		30		Raw materials, supplies and work in process	60		49
Reserve for LIFO cost valuation	Reserve for LIFO cost valuation	(52)		(26)		Reserve for LIFO cost valuation	(73)		(67)

Total inventories, net	Total inventories, net	$	247	$	199	Total inventories, net	$	264	$	258

Revenue recognition

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


		Three months ended				Nine months ended					Three months ended
		June 30				June 30					December 31
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2021		2020
Sales at a point in time	Sales at a point in time	$	779	$	508	$	2,110	$	1,673	Sales at a point in time	$	844	$	642
Franchised revenues transferred over time	Franchised revenues transferred over time	13		8		36		28		Franchised revenues transferred over time	14		11
Total consolidated sales	Total consolidated sales	$	792	$	516	$	2,146	$	1,701	Total consolidated sales	$	858	$	653

NOTE 1211 – SUBSEQUENT EVENTS

Dividend declared

On ~~July 19, 2021,~~January 24, 2022, the Board ~~of Directors of Valvoline~~ declared a quarterly cash dividend of $0.125 per share of Valvoline common stock. The dividend is payable on ~~September~~March 15, ~~2021~~2022 to shareholders of record on ~~August 30, 2021.~~February 28, 2022.

~~Share repurchases~~

~~Pursuant to the 2021 Share Repurchase Authorization, the Company repurchased approximately 0.4 million shares of Valvoline common stock for $11 million during July 2021.~~

2117

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, including estimates, projections, and statements related to the Company’s business plans and operating results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Valvoline has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should,” and “intends” and the negative of these words or other comparable terminology. These forward-looking statements are based on Valvoline’s current expectations, estimates, projections, and assumptions as of the date such statements are made and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q and Valvoline’s most recently filed periodic report on Form 10-K. Valvoline assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future, unless required by law.


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

Business Overview			2218
Results of Operations - Consolidated Review			2622
Results of Operations - Reportable Segment Review			2925
Financial Position, Liquidity and Capital Resources			3327
New Accounting Pronouncements			3630
Critical Accounting Policies and Estimates			3630

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, ~~2020,~~2021, as well as the condensed consolidated financial statements and the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I in this Quarterly Report on Form 10-Q.

BUSINESS OVERVIEW AND PURPOSE

Valvoline Inc. is a ~~worldwide marketer~~global vehicle and ~~supplier~~engine care company that continuously powers the future of ~~engine~~mobility through innovative services and ~~automotive~~products for electric, hybrid and internal combustion powertrains. Valvoline has consistently led the way innovating and reinventing its services and products for changing technologies and customer needs throughout its 155-year history. Valvoline operates a fast-growing, best-in-class network of service center stores, which are well positioned to serve evolving vehicle maintenance ~~products and services. Established in 1866, Valvoline’s heritage spans over 150 years, during which it has developed powerful recognition across multiple product and service channels.~~needs with Valvoline's iconic products. In addition to its quick, easy and trusted quick lube oil change services and the ~~iconic~~legendary 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, fluids, and other complementary products and services, including leading the world's supply of battery fluids ~~designed~~ to ~~improve~~electric vehicle manufacturers, with each solution tailored to help extend vehicle and engine ~~performance~~range 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.~~efficiency.

InValvoline provides vehicle and engine care solutions to a range of customers, including end consumers, OEMs, mass market and automotive parts retailers, small to large installers, vehicle fleets, and distributors, among others. Valvoline operates and franchises more than 1,600 service center locations and is the second and third largest chain in the United States (“U.S.”) and Canada, Valvoline’s products and services are sold through nearly 1,600 company-operated and franchised service center stores, to retailers with over 55,000 retail outlets, and to installer customers with approximately 15,000 locations. Valvoline also has a strong international presence with products soldrespectively, by number of stores. With sales in more than 140 ~~countries. Valvoline serves its global customer base through its sales force~~countries and ~~technical support organization~~territories, Valvoline’s solutions are available for every engine and ~~leverages technology, global customer relationships,~~powertrain, including high-mileage and ~~its diverse supply chain network to meet customer demands locally. This combination of scale~~heavy-duty applications, and ~~strong local presence is critical to the Company’s success.~~

During the third quarter of 2021, Valvoline realigned its global operations to manage its business through two reportable segments, Retail Services and Global Products, with certain corporate and non-operational activity presented in Corporate to reconcile to consolidated results.

are offered at more than 80,000 locations worldwide.

2218

BUSINESS STRATEGY

Valvoline is focused on the following key business and growth strategies in fiscal ~~2021:~~2022:

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

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

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

•~~Accelerating Global Products market share growth through continued development of and investment in key international emerging and high value markets;~~

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

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

RECENT DEVELOPMENTS

Strategic separation

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

COVID-19 update

Valvoline has been able to substantially maintain its operations, ~~to-date~~demonstrating growth and ~~demonstrated solid performance~~strong results, while managing through the effects of the COVID-19 global pandemic. Management is unable to reasonably quantify the impact of COVID-19 on its current ~~results due to their breadth and variability given the current stage and duration of the pandemic.~~year results. The continually evolving COVID-19 pandemic ~~has continued to evolve~~remains uncertain and its future impact on Valvoline will depend on a number of factors, including ~~and~~ among others, the ~~ultimate~~ duration and severity of the ~~pandemic~~spread of COVID-19, emerging variants, vaccine and booster effectiveness, public acceptance of safety protocols, and government measures, including vaccine mandates, implemented at the ~~success of vaccinations~~local and ~~restrictive measures on containing~~federal levels designed to slow and contain the spread ~~and resurgences~~ of ~~the virus.~~COVID-19, among others. While the Company cannot predict the duration or the scale of the COVID-19 pandemic, or the effect it may continue to have on Valvoline's business, results of operations, or liquidity, management continuously monitors the situation, the sufficiency of its responses, and makes adjustments as needed. For more information, refer to Risk Factors included in Item 1A of Part I in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Valvoline has established a return-to-office protocol for its corporate headquarters in Lexington, Kentucky, allowing employees that have been vaccinated to voluntarily return-to-office beginning in July 2021. Many non-U.S. office locations remain closed due to local infection rates, vaccination availability and rates, in addition to resurgences related to the Delta variant. Valvoline is continually monitoring the circumstances surrounding the pandemic and following government guidelines supported by COVID-19 trend data to make decisions regarding the opening of its offices and safety of its facilities and operations.

~~THIRD~~FIRST FISCAL QUARTER ~~2021~~2022 OVERVIEW

The following were the significant events for the ~~third~~first fiscal quarter of ~~2021,~~2022, each of which is discussed more fully in this Quarterly Report on Form 10-Q:

•Valvoline reported net income of ~~$97~~$87 million and diluted earnings per share of ~~$0.53~~$0.48 in the three months ended ~~June 30, 2021, an increase of 64% and 66%, respectively, over~~December 31, 2021. Net income was flat compared to the prior year period ~~which was unfavorably impacted by the COVID-19 pandemic.~~

•~~Valvoline realigned its global operations into the following two reportable segments, Retail Services~~ and ~~Global Products, to accelerate its strategic shift to a services-driven business.~~diluted EPS grew 2%.

•Retail Services sales ~~grew 66%~~increased 36% over the prior year driven by system-wide same-store-sales ("SSS") growth of ~~40.5%~~24.7% and the addition of ~~137~~102 net new stores to the system from the prior year. Operating income and adjusted EBITDA increased ~~120%~~45% and ~~107%~~40%, respectively, over the prior year primarily due to ~~the~~ strong ~~operating performance~~top-line growth and ~~comparisons against the unfavorable impacts from the COVID-19 pandemic in the prior year.~~margin expansion.

•Global Products sales ~~increased 46%~~grew 28% over the prior year primarily attributable to expanded distribution in North America and higher volumes ~~across all regions as recovery continues from the negative impacts of COVID-19.~~in China and EMEA. Operating income and adjusted EBITDA ~~grew 16%~~decreased 20% and ~~17%~~18%, respectively, ~~over~~from the prior year primarily due to transitory supply chain costs and lingering price-cost lag that compared to modestly favorable price-cost lag in the ~~benefits of volume growth that more than offset margin pressure from raw materials cost increases.~~

•~~On May 17, 2021, Valvoline's Board of Directors authorized the repurchase of up to $300 million of the Company's common stock through September 30, 2024 (the "2021 Share Repurchase Authorization").~~prior year.

•The Company returned ~~cash~~$54 million to its shareholders through payment of a cash dividend of $0.125 per share during the ~~quarter.~~quarter and repurchasing approximately 1 million shares of Valvoline common stock.

Use of Non-GAAP Measures

To supplement the financial measures prepared in accordance with U.S. GAAP, certain items within this document are presented on an adjusted basis. These non-GAAP measures, presented both on a consolidated and reportable segment basis, have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, or more meaningful than, the financial statements presented in accordance with U.S. GAAP. The financial results presented in accordance with U.S. GAAP and reconciliations of non-GAAP measures included within this Quarterly Report on Form 10-Q should be carefully evaluated.

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

•EBITDA ~~which management defines~~ - defined as net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and depreciation and amortization;

•Adjusted EBITDA ~~which management defines~~ - defined as EBITDA adjusted for certain unusual, infrequent or non-operational activity not directly attributable to the underlying business, which management believes impacts the comparability of operational results between periods ("key items," as further described below);

•Segment adjusted EBITDA ~~which management defines~~- defined as segment operating income adjusted for depreciation and amortization, in addition to key items impacting comparability;

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

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

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

Management believes EBITDA measures provide a meaningful supplemental presentation of Valvoline’s operating performance due to the depreciable assets associated with the nature of the Company’s operations and interest costs related to Valvoline’s capital structure. Adjusted EBITDA measures exclude the impact of key items, which consist of income or expenses associated with certain unusual, infrequent or non-operational activity not directly

attributable to the underlying business that management believes impacts the comparability of operational results between periods. Adjusted EBITDA measures enable comparison of financial trends and results between periods where key items may vary independent of business performance. Key items are often related to legacy matters or market-driven events considered by management to be outside the comparable operational performance of the business.

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

•Net pension and other postretirement plan expense/income - includes several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets, as well as those that are predominantly legacy in nature and related to prior service to the Company from employees (e.g., retirees, former employees, current employees with frozen benefits). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) actuarial gains/losses, and (iv) amortization of prior service cost/credit. Significant factors that can contribute to changes in these elements include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets, and other changes in actuarial assumptions, such as the life expectancy of plan participants. Accordingly, management considers that these elements are more reflective of changes in current conditions in global 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 includes thethe costs of benefits provided to employees for current service, including pension and other postretirement service costs.

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

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

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

Key Business Measures

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

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

period is generally required for new store sales levels to begin to normalize. Differences in SSS are calculated to determine the percentage change between comparative periods. Retail Services sales are limited to sales at company-operated stores, sales of lubricants and other products to independent franchisees and Express Care operators and royalties and other fees from franchised stores. Although Valvoline does not recognize store-level sales from franchised stores as revenue in its Condensed Consolidated Statements of Comprehensive Income, management believes system-wide and franchised SSS comparisons and store counts are useful to assess market position relative to competitors and overall store and segment operating performance.

Management believes lubricant volumes sold in gallons by its consolidated subsidiaries is a useful measure in evaluating and understanding the operating performance of the Global Products segment. Volumes sold in other units of measure, including liters, are converted to gallons utilizing standard conversions.

RESULTS OF OPERATIONS

Consolidated review

The following ~~table~~ summarizes the results of the Company’s ~~operations:~~operations for the three months ended December 31:


		Three months ended June 30						Nine months ended June 30
		2021			2020			2021			2020				2021				2020				Variance
(In millions)	(In millions)			% of Sales			% of Sales			% of Sales			% of Sales	(In millions)	Amount		% of Sales		Amount		% of Sales		Amount		%
Sales	Sales	$	792	100.0%	$	516	100.0%	$	2,146	100.0%	$	1,701	100.0%	Sales	$	858	100.0	%	$	653	100.0	%	$	205	31.4	%
Gross profit	Gross profit	$	259	32.7%	$	187	36.2%	$	734	34.2%	$	605	35.6%	Gross profit	$	244	28.4	%	$	228	34.9	%	$	16	7.0	%
Net operating expenses	Net operating expenses	$	128	16.2%	$	99	19.2%	$	348	16.2%	$	296	17.4%	Net operating expenses	$	123	14.3	%	$	104	15.9	%	$	19	18.3	%
Operating income	Operating income	$	131	16.5%	$	88	17.1%	$	386	18.0%	$	309	18.2%	Operating income	$	121	14.1	%	$	124	19.0	%	$	(3)	(2.4)	%
Net income	Net income	$	97	12.2%	$	59	11.4%	$	252	11.7%	$	195	11.5%	Net income	$	87	10.1	%	$	87	13.3	%	$	—	—	%

Sales

~~Sales for the three and nine months ended June 30, 2021~~ ~~increased $276 million, or 53%, and $445 million, or 26%,~~ ~~respectively, compared to the prior year periods.~~ The following ~~table~~ provides a reconciliation of the ~~changes:~~increase in sales from the prior year:

Year over year change Year over year change
(In millions) Three months ended June 30, 2021 Nine months ended June 30, 2021
Volume and mix $ 171 $ 263
Price 67 98
Currency exchange 16 33
Acquisitions 22 51
Change in sales $ 276 $ 445


	Year-over-year change
(In millions)	Three months ended December 31, 2021
Volume and mix	$	104

Price	90


Acquisitions	11
Change in sales	$	205

~~The~~Volumes grew across the business and product mix improved, leading to top-line expansion, as demand for Valvoline’s products and services remains robust and market share gains benefited both segments. Additionally, the Company made ongoing progress in the price pass-through of raw material cost increases, inwhich further drove higher sales. Retail Services sales ~~for~~were 36% higher led by SSS that increased nearly 25% across the three and nine months ended June 30, 2021 compared to the prior year periods were primarily driven by volume improvements across both segments, partly due to growth over the prior year impacts of the COVID-19 pandemic when restrictions were the most severe,system, in addition to ~~robust~~growth from unit additions and acquisitions. Global Products sales increased 28% with 13% volume growth and top-line expansion versus pre-COVID periods, demonstrating the strength of the business and its multi-channel model. In addition to volume improvements over the prior year, the benefits from pricing, acquisitions, currency exchange and favorable mix from higher branded product volumes, premium oil changes and non-oil change services contributed to the increases in sales in the three and nine months ended June 30, 2021.across all regions.

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

2622

Gross profit

~~Gross profit~~ ~~increased $72 million for~~ ~~the three months ended June 30, 2021 compared to the prior year period, while gross profit increased $129 million for~~ ~~the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020.~~ The table below provides a reconciliation of the ~~changes:~~increase in gross profit from the prior year:

Year over year change Year over year change
(In millions) Three months ended June 30, 2021 Nine months ended June 30, 2021
Volume and mix $ 77 $ 124
Change in LIFO reserve (24) (38)
Price and cost 8 18
Currency exchange 5 11
Acquisitions 6 14
Change in gross profit $ 72 $ 129


	Year-over-year change
(In millions)	Three months ended December 31, 2021
Volume and mix	$	50

Change in LIFO reserve	(2)
Price and cost	(33)

Acquisitions	1

Change in gross profit	$	16

The ~~increases~~ increase in gross profit ~~for the three and nine months ended June 30, 2021 compared to the prior year periods were~~was primarily driven by higher volumes and mix improvements in both ~~reportable~~ segments, from the prior year unfavorable impacts of the COVID-19 pandemic, in addition to strong growth from pre-pandemic periods. Additional benefits from favorable mix due to higher branded product volumes, premium oil changes and non-oil change services, in addition to acquisitions in Retail Services, the pass-through of price increases and currency exchange were partially offset by the ~~effects of rising~~lag in passing through raw material cost increases, transitory supply chain inefficiencies that included higher logistics and manufacturing costs, ~~which enhanced~~and to a lesser degree, the ~~unfavorable~~negative impact of LIFO adjustments ~~year-over-year.~~in the rising cost environment. Acquisitions contributed a muted benefit to gross profit due to new store ramp up costs.

The declines in gross profit ~~margins~~margin rates were primarily the result of ~~year-over-year changes in~~higher raw material costs, ~~which were declining in~~supply chain challenges, and the prior year and have risen significantly during the current year. These changes in raw material costs resulted in unfavorable year-over-year LIFO inventory adjustments, negatively impacting gross profit margins todilutive impact from passing through cost increases, which more than offset mix ~~benefits. Margin pressure is expected~~improvements. Management continues to ~~continue in~~closely monitor the ~~near term as announced~~ raw material cost ~~increases take effect, continue to impact LIFO inventory valuation,~~environment and ~~lag the pass through~~make progress in ~~pricing. The Company is in the process of executing further pricing actions~~passing through the ~~balance of this calendar year~~cost increases that began in ~~response to recent cost increases.~~fiscal 2021.

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

Net operating expenses

The table below ~~provides details of~~summarizes the components of net operating ~~expenses:~~expenses for the three months ended December 31:


		Three months ended June 30								Nine months ended June 30
		2021				2020				2021				2020					2021				2020				Variance
(In millions)	(In millions)			% of Sales				% of Sales				% of Sales				% of Sales		(In millions)	Amount		% of Sales		Amount		% of Sales		Amount		%
Selling, general and administrative expenses	Selling, general and administrative expenses	$	136	17.2	%	$	106	20.5	%	$	382	17.8	%	$	319	18.8	%	Selling, general and administrative expenses	$	135	15.7	%	$	117	17.9	%	$	18	15.4	%
Net legacy and separation-related expenses		1		—	%	1		0.2	%	2		0.1	%	—		—	%
Legacy and separation-related expenses																		Legacy and separation-related expenses	3		0.3	%	1		0.1	%	$	2	200.0	%
Equity and other income, net	Equity and other income, net	(9)		(1.1)	%	(8)		(1.5)	%	(36)		(1.7)	%	(23)		(1.4)	%	Equity and other income, net	(15)		(1.7)	%	(14)		(2.1)	%	(1)		7.1	%
Net operating expenses	Net operating expenses	$	128	16.1	%	$	99	19.2	%	$	348	16.2	%	$	296	17.4	%	Net operating expenses	$	123	14.3	%	$	104	15.9	%	$	19	18.3	%

Selling, general and administrative expenses increased ~~$30 million and $63 million in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods. The year-over-year increases were~~ primarily related to ~~restrictions on advertising in place during the pandemic last year as the Company focused on liquidity, in addition to~~ investments made to support future growth, including advertising and ~~to a lesser extent, unfavorable currency exchange~~promotion, information technology, and ~~increased costs from the acquisition of Retail Services stores.~~acquisition-related costs.

~~Net legacy~~Legacy and separation-related expenses increased ~~$2 million during the nine months ended June 30, 2021,~~ ~~compared to the prior year periods~~ primarily ~~related to~~ ~~adjustments of indemnities estimated to be~~ due to ~~Valvoline's former parent~~.to costs incurred in the current year in planning for the separation of the Retail Services and Global Products segments. The Company expects to incur incremental costs during fiscal 2022 associated with planning for the proposed separation, including legal, tax and accounting, and other professional advisory and consulting fees. These costs cannot currently reasonably be estimated given the uncertainties in the manner and timing of separation.

The increase in Equity and other income, nenet ~~t increased $1 million and $13 milli~~was~~on for the three and nine months ended June 30, 2021, respectively, compared to the prior year periods. These~~ ~~increases~~ ~~were~~ primarily driven by ~~increased equity and royalty~~ income ~~attributable to the improved performance of the Company's unconsolidated joint ventures, in addition to~~for research lab testing, which was partially offset by lower insurance recoveries ~~and an international subsidy realized during~~in the ~~nine months ended June 30, 2021.~~current year.

Net pension and other postretirement plan income

Net pension and other postretirement plan income ~~for the three and nine months ended June 30, 2021~~ ~~increased $5~~decreased $4 million ~~and $14 million, respectively,~~ from the prior ~~year periods.~~ ~~These increases were driven by~~year. This decline was due to lower ~~interest cost and improved asset performance~~expected returns on plan assets as a result of the ~~most recent annual remeasurement~~shift in asset allocation of the ~~plans.~~U.S. qualified plans toward a higher mix of fixed income securities, in addition to a reduction in the amortization of prior service credits into income from certain other postretirement plan amendments that ceased amortization beginning in fiscal 2022.

Net interest and other financing expenses

Net interest and other financing expenses decreased $2$3 million ~~during the three months ended June 30, 2021 and increased $19 million during the nine months ended June 30, 2021~~ related to lower outstanding borrowings compared to the prior year periods. The decline in the three months ended June 30, 2021 was attributed to the decrease in borrowing activity compared to the prior year, and the increase in the nine months ended June 30, 2021 was driven by higher debt extinguishment costs of $17 million as the expenses associated with the current year redemption of the 2025 Notes exceeded those incurred in connection with the extinguishment of the 2024 Notes in the prior year.

Income tax expense

The following table summarizes income tax expense and the effective tax rate:


		Three months ended June 30						Nine months ended June 30							Three months ended December 31
(In millions)	(In millions)	2021			2020			2021			2020			(In millions)	2021			2020
Income tax expense	Income tax expense	$	31		$	19		$	83		$	68		Income tax expense	$	26		$	30
Effective tax rate percentage	Effective tax rate percentage	24.2		%	24.4		%	24.8		%	25.9		%	Effective tax rate percentage	23.0		%	25.6		%

EBITDA and Adjusted EBITDA

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


		Three months ended June 30				Nine months ended June 30					Three months ended December 31
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2021		2020
Net income	Net income	$	97	$	59	$	252	$	195	Net income	$	87	$	87
Income tax expense	Income tax expense	31		19		83		68		Income tax expense	26		30
Net interest and other financing expenses	Net interest and other financing expenses	17		19		92		73		Net interest and other financing expenses	17		20
Depreciation and amortization	Depreciation and amortization	24		17		68		48		Depreciation and amortization	25		21
EBITDA	EBITDA	169		114		495		384		EBITDA	155		158
Net pension and other postretirement plan income (a)	Net pension and other postretirement plan income (a)	(14)		(9)		(41)		(27)		Net pension and other postretirement plan income (a)	(9)		(13)
Net legacy and separation-related expenses		1		1		2		—
LIFO charge (credit)		17		(7)		26		(12)
Legacy and separation-related expenses										Legacy and separation-related expenses	3		1
LIFO charge										LIFO charge	6		4
Information technology transition costs										Information technology transition costs	1		—
Business interruption recovery	Business interruption recovery	—		—		(3)		—		Business interruption recovery	—		(1)
Acquisition and divestiture-related costs		—		—		—		2
Restructuring and related expenses		—		—		—		1

Adjusted EBITDA	Adjusted EBITDA	$	173	$	99	$	479	$	348	Adjusted EBITDA	$	156	$	149

(a)Net pension and other postretirement plan income includes remeasurement gains and losses, when applicable, and recurring non-service pension and other postretirement net periodic income, which consists of interest cost, expected return on plan assets and amortization of prior service ~~credit.~~credits. Refer to Note 76 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.

Adjusted EBITDA ~~increased $74~~improved $7 million ~~and $131 million for the three and nine months ended June 30, 2021, respectively, over~~from the prior year ~~periods~~ driven by ~~the strength of SSS~~strong top-line growth across both segments from higher volumes and ongoing progress in passing through raw material cost increases. Top-line growth and profit expansion in Retail Services and higher volumes across all regions in Global Products as recovery continues from the negative impact of COVID-19 during the prior year periods. In addition, benefits from recent acquisitions in Retail Services and margin improvements due to favorable pricing impacts were partially offset by ~~the impact of rising raw materials costs~~price-cost lag and ~~higher~~supply chain inefficiencies, in addition to increased operating expenses.

Reportable segment review

~~During the third quarter of fiscal 2021, the~~The Company ~~realigned its global operations to manage~~manages its business through the following two reportable segments:

•Retail Services- services the passenger car and light truck quick lube market in the United States and Canada with a broad array of preventive maintenance services and capabilities performed through Valvoline’s retail network of ~~Company-operated,~~company-operated and independent ~~franchise, and~~franchised service center stores, in addition to independent Express Care stores that service vehicles with Valvoline products.

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

The Company's realignment brought its products business under one segment to enhance the ability to leverage Valvoline's brand equity and product platforms to support growth opportunities in Retail Services with vertical integration and cash generation from the Global Products segment.

Valvoline defines as segment operating income adjusted for depreciation and amortization and certain key items impacting comparability.

In connection with the realignment, the Company changed its allocation of certain indirect expenses for such costs to be recognized in each segment based on the estimated utilization of indirect resources. Costs to support corporate functions and certain non-operational and corporate activity that is not directly attributable to a particular segment are not included in the segment operating results regularly utilized by the chief operating decision maker. This activity is separately delineated within Corporate to reconcile to consolidated results.

Results of Valvoline’s reportable segments are presented based on how operations are managed internally, including how the results are reviewed by the chief operating decision maker. The structure and practices are specific to Valvoline; therefore, the financial results of its reportable segments are not necessarily comparable with similar information for other comparable companies.

~~Prior period segment financial information presented herein has been recast on a basis that is consistent with the realignment of Valvoline’s global operations.~~

Retail Services

Management believes the number of company-operated and franchised service center stores as provided in the following tables is useful to assess the operating performance of the Retail Services reportable segment.


		System-wide stores (a)						System-wide stores (a)
		Third Quarter 2021	Second Quarter 2021	First Quarter 2021	Fourth Quarter 2020	Third Quarter 2020		First Quarter 2022	Fourth Quarter 2021	Third Quarter 2021	Second Quarter 2021	First Quarter 2021
Beginning of period	Beginning of period	1,548	1,533	1,462	1,432	1,419	Beginning of period	1,594	1,569	1,548	1,533	1,462
Opened	Opened	17	13	18	29	13	Opened	32	21	17	13	18
Acquired	Acquired	5	3	54	2	2	Acquired	12	7	5	3	54
Closed	Closed	(1)	(1)	(1)	(1)	(2)	Closed	(3)	(3)	(1)	(1)	(1)
End of period ~~(b)~~	End of period ~~(b)~~	1,569	1,548	1,533	1,462	1,432	End of period ~~(b)~~	1,635	1,594	1,569	1,548	1,533

		Number of stores at end of period						Number of stores at end of period
		Third Quarter 2021	Second Quarter 2021	First Quarter 2021	Fourth Quarter 2020	Third Quarter 2020		First Quarter 2022	Fourth Quarter 2021	Third Quarter 2021	Second Quarter 2021	First Quarter 2021
Company-owned	Company-owned	698	673	663	584	548	Company-owned	738	719	698	673	663
Franchised ~~(b)~~	Franchised ~~(b)~~	871	875	870	878	884	Franchised ~~(b)~~	897	875	871	875	870

(a)System-wide store count includes franchised service center stores. Valvoline franchises are independent legal entities, and Valvoline does not consolidate the results of operations of its franchisees.

~~(b)~~Certain franchised service center stores temporarily closed at the discretion of the respective independent operators due to the impacts of COVID-19 and are included in the store counts at the end of the third and fourth quarters of fiscal 2020. As of June 30, 2020, 5 franchised service center stores were temporarily closed and 1 was as of September 30, 2020. No service center stores were temporarily closed as of June 30, 2021, March 31, 2021, or December 31, 2020.

The year over year change ~~resulted in 137~~of 102 net new company-operated and franchised stores ~~as a~~was the result of 7375 net openings and 6427 acquired stores. Organic service center store growth was ~~primarily related to new~~driven by 25 net company-operated ~~service center store openings and franchisee expansion in key markets.~~

3025

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

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


		Three months ended June 30						Nine months ended June 30							Three months ended December 31						Favorable (Unfavorable)
(In millions)	(In millions)	2021			2020			2021			2020			(In millions)	2021			2020
Financial information	Financial information													Financial information
Retail Services segment sales	Retail Services segment sales	$	330		$	199		$	869		$	629		Retail Services segment sales	$	346		$	254		36	%

Operating income (a)		$	97		$	44		$	233		$	142

Operating income (b)														Operating income (b)	$	81		$	56		45	%
Key items	Key items	—			—			—			—			Key items	—			—

Depreciation and amortization	Depreciation and amortization	15			10			44			28			Depreciation and amortization	17			14			21	%
Adjusted EBITDA	Adjusted EBITDA	$	112		$	54		$	277		$	170		Adjusted EBITDA	$	98		$	70		40	%

Operating income as a percentage of sales		29.4		%	22.1		%	26.8		%	22.6		%
Adjusted EBITDA margin (b)		33.9		%	27.1		%	31.9		%	27.0		%

Same-store sales growth
Operating margin (c)														Operating margin (c)	23.4		%	22.0		%	140	bps
Adjusted EBITDA margin (c)														Adjusted EBITDA margin (c)	28.3		%	27.6		%	70	bps

																		Three months ended December 31
																		2021			2020
Same-store sales growth														Same-store sales growth
Company-operated (c)	Company-operated (c)	36.1		%	(5.2)		%	20.4		%	0.3		%	Company-operated (c)				22.1		%	6.1	%
Franchised (c) (d)		43.9		%	(9.9)		%	22.5		%	0.0		%
System-wide (c) (d)		40.5		%	(8.0)		%	21.6		%	0.2		%
Franchised (a) (d)														Franchised (a) (d)				26.8		%	6.0	%
System-wide (a) (d)														System-wide (a) (d)				24.7		%	6.0	%


~~(a)~~			~~Valvoline does not generally allocate activity below operating income to its operating segments; therefore, the table above reconciles operating income to adjusted EBITDA.~~
~~(b)~~			~~Adjusted EBITDA margin is calculated as adjusted EBITDA divided by sales.~~
~~(c)~~			Beginning in fiscal 2021, Valvoline determines SSS growth as sales by U.S. Retail Services service center stores, with new stores, including franchised conversions, excluded from the metric until the completion of their first full fiscal year in operation. Previously, SSS growth was determined as sales by U.S. Retail Services service center stores, with stores new to the U.S. Retail Services system excluded from the metric until completion of their first full year in operation. Prior period measures have been revised to conform to the current basis of presentation.
~~(d)~~			~~Valvoline franchisees are distinct legal entities and~~(a)Measure includes Valvoline franchisees, which are independent legal entities. Valvoline does not consolidate the results of operations of its franchisees.

(b)Valvoline does not generally allocate activity below operating income to its operating segments; therefore, the table above reconciles operating income to adjusted EBITDA.

(c)Operating margin is calculated as operating income divided by sales, and adjusted EBITDA margin is calculated as adjusted EBITDA divided by sales.

(d)Valvoline determines SSS growth as sales by U.S. Retail Services service center stores, with new stores, including franchise conversions, excluded from the metric until the completion of their first full fiscal year in operation.

Retail Services sales increased ~~$131 million, or 66%, fo~~r36% for the ~~current~~first quarter compared to the prior year ~~quarter. Sales~~ ~~increased $240 million, or 38%, for the nine months ended June 30, 2021~~primarily due to strong SSS performance and unit additions. System-wide SSS grew 24.7% compared to the prior year ~~period.~~

~~Continued SSS growth was driven~~led by ~~strong operational performance, including~~ increased transactions ~~and~~where leveraging data analytics capabilities drove customer base expansion. Solid contributions from growth in average ticket ~~from premiumization, non-oil change services,~~were largely due to pricing and ~~customer base expansion, while growth was also related~~premiumization that further contributed to ~~lower volumes~~system-wide SSS performance and ~~limited travel in the prior year due to the COVID-19 pandemic. Year-over-year unit growth of 10% through the~~highlighted in-store service delivery. The addition of ~~137~~102 net new stores ~~from~~to the system through acquisitions and new service center store openings also contributed to sales ~~growth.~~growth from the prior year.

Operating income and adjusted EBITDA increased ~~$53 million, or 120%, and $58 million, or 107%, respectively, for the three months ended June 30, 2021 compared to~~from the prior year ~~period. Likewise, operating income~~outpacing sales growth and ~~adjusted EBITDA increased $91 million, or 64%, and $107 million, or 63%, respectively, for the nine months ended June 30, 2021. These increases were primarily related to~~driving margin expansion. This growth was driven by the strong ~~SSS~~top-line performance ~~compared~~and improved leverage from mature stores that have been open greater than three years and combined to more than offset the ~~prior year periods as described above, as well as the addition~~ramp up costs of new stores and ~~improved margins, which were unfavorably impacted in the prior year due to the impacts of operating during the most restrictive period~~challenges of the ~~COVID-19 pandemic.~~raw material cost environment.

3126

Global Products

The following table summarizes the results of the Global Products reportable segment:


		Three months ended June 30						Nine months ended June 30							Three months ended December 31						Favorable (Unfavorable)
(In millions)	(In millions)	2021			2020			2021			2020			(In millions)	2021			2020

Financial information	Financial information													Financial information
Sales by geographic region	Sales by geographic region													Sales by geographic region
North America (a)	North America (a)	$	278		$	207		$	755		$	693		North America (a)	$	304		$	235		29	%
Europe, Middle East and Africa ("EMEA")	Europe, Middle East and Africa ("EMEA")	56			34			161			125			Europe, Middle East and Africa ("EMEA")	67			51			31	%
Asia Pacific	Asia Pacific	96			65			267			193			Asia Pacific	104			83			25	%
Latin America (a)	Latin America (a)	32			11			94			61			Latin America (a)	37			30			23	%
Global Products segment sales by geographic region		$	462		$	317		$	1,277		$	1,072
Global Products segment sales														Global Products segment sales	$	512		$	399		28	%

Operating income (b)	Operating income (b)	$	72		$	62		$	233		$	199		Operating income (b)	$	70		$	88		(20)	%
Key items	Key items	—			—			—			—			Key items	—			—

Depreciation and amortization	Depreciation and amortization	9			7			22			19			Depreciation and amortization	7			6			17	%
Adjusted EBITDA	Adjusted EBITDA	$	81		$	69		$	255		$	218		Adjusted EBITDA	$	77		$	94		(18)	%

Operating income as a percentage of sales		15.6		%	19.6		%	18.2		%	18.6		%
Operating margin (c)														Operating margin (c)	13.7		%	22.1		%	(840)	bps
Adjusted EBITDA margin (c)	Adjusted EBITDA margin (c)	17.5		%	21.8		%	20.0		%	20.3		%	Adjusted EBITDA margin (c)	15.0		%	23.6		%	(860)	bps

Volume information	Volume information													Volume information
Lubricant sales (gallons)	Lubricant sales (gallons)	41.8			30.5			119.7			101.2			Lubricant sales (gallons)	43.1			38.0			13	%


(a)			Valvoline includes the United States and Canada in its North America region. Mexico is included within the Latin America region.
(b)			Valvoline does not generally allocate activity below operating income to its operating segments; therefore, the table above reconciles operating income to adjusted EBITDA.
(c)			~~Adjusted~~Operating margin is calculated as operating income divided by sales, and adjusted EBITDA margin is calculated as adjusted EBITDA divided by sales.

Global Products sales increased ~~$145 million, or 46%, and $205 million, or 19%, for the three and nine months ended June 30, 2021 compared to~~from the prior year ~~periods. The increase in sales is~~ due to ~~volume~~ growth across all ~~regions, both as recovery continues~~regions. The ongoing progress in price pass-through of raw material cost increases drove sales growth that outpaced volumes, which were up 13% from the ~~negative~~ prior ~~year impacts of the pandemic~~year. Volume increases were led by expanded distribution in North America and ~~as increased marketing efforts drove~~ growth ~~from the pre-COVID-19 periods. In~~in Asia Pacific, notably China, in addition ~~the pass-through of cost increases, currency exchange, and branded product~~to higher volumes in EMEA. Favorable mix further contributed to the ~~increases~~increase in ~~sales.~~sales over the prior year as a result of higher branded and premium product mix.

Operating income and adjusted EBITDA ~~increased $10 million, or 16%, and $12 million, or 17%, respectively, for the three months ended June 30, 2021 compared~~decreased primarily related to the prior year period. Additionally, operating income and adjusted EBITDA improved $34 million, or 17%, and $37 million, or 17%, respectively, for the nine months ended June 30, 2021. The increases in operating income and adjusted EBITDA were primarilyprice-cost lag due to ~~strong performance as sales growth was driven by higher volumes across all regions. In addition, favorable currency exchange~~raw material cost increases and ~~product mix benefits contributed to results in the current year. These benefits~~supply chain disruptions that were partially offset by higher ~~operating expenses driven by increases in advertising~~volumes and ~~other investments~~product mix benefits. Valvoline expects to ~~support growth, in addition~~continue to ~~the near-term impact of unfavorable price-cost lag, as the pass~~passing through pricing to ~~pricing continues to lag behind~~recover raw material cost increases. ~~Operating income and adjusted EBITDA also benefited from~~ ~~increased contributions from unconsolidated joint ventures~~ ~~during the nine months ended June 30, 2021.~~

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Overview

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

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

Cash flows

~~Valvoline’s cash~~Cash flows as reflected in the Condensed Consolidated Statements of Cash Flows are summarized as follows for the ~~nine~~three months ended ~~June 30:~~December 31:


(In millions)	(In millions)	2021		2020		(In millions)	2021		2020
Cash, cash equivalents, and restricted cash - beginning of period		$	761	$	159
Cash, cash equivalents and restricted cash - beginning of period						Cash, cash equivalents and restricted cash - beginning of period	$	231	$	761

Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	296		271		Operating activities	32		79
Investing activities	Investing activities	(351)		(143)		Investing activities	(46)		(245)
Financing activities	Financing activities	(483)		465		Financing activities	(63)		(73)
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash		5		(1)
(Decrease) increase in cash, cash equivalents, and restricted cash		(533)		592
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash						Effect of currency exchange rate changes on cash, cash equivalents and restricted cash	—		6
Decrease increase in cash, cash equivalents and restricted cash						Decrease increase in cash, cash equivalents and restricted cash	(77)		(233)

Cash, cash equivalents, and restricted cash - end of period		$	228	$	751
Cash, cash equivalents and restricted cash - end of period						Cash, cash equivalents and restricted cash - end of period	$	154	$	528

Operating activities

The ~~increase~~decrease in cash flows provided by operating activities ~~for the nine months ended June 30, 2021 compared to~~of $47 million from the prior year was primarily due to ~~higher cash earnings, partially offset by increased tax and interest payments and~~a timing-related unfavorable ~~changes~~increase in net working capital, ~~which included~~largely attributed to growth in accounts receivable from top-line expansion. In the ~~effects of factoring $59~~current year period, net working capital (current assets, excluding cash and cash equivalents, minus current liabilities, excluding long-term debt due within one year) increased $85 million ~~of receivables~~compared to a $35 million increase in the prior year.

Investing activities

The ~~increase~~decrease in cash flows used in investing activities ~~for the nine months ended June 30, 2021 compared to the prior year~~of $199 million was primarily due to ~~increased investments in Retail Services growth through the expansion~~lower current year acquisition activity of ~~its store network via acquisition and new company-operated service center stores. During the nine months ended June 30, 2021, Valvoline invested nearly $330~~$204 million, ~~in Retail Services through the acquisition and opening~~which was partially offset by repayments of ~~107 and 21 company-operated service center stores, respectively, which compared to 21 and 14, respectively,~~franchisee COVID relief loans that were $6 million higher in the prior year period when the Company focused on cash preservation during the pandemic. These increased investments are expected to continue driving growth and transforming the business model and were partially offset by franchisee repayments of COVID-19 relief loans extended in the prior year, in addition to proceeds from the sale of service center stores to franchisees.year.

Valvoline has invested $106 million in capital expenditures in the nine months ended June 30, 2021 and is currently forecasting approximately $160 million to $170 million for fiscal 2021. The majority of the capital investments to-date have been focused on service center store growth in the Retail Services segment, with maintenance capital representing less than 1% of year-to-date sales.

Financing activities

The ~~increase~~decrease in cash flows used in financing activities of $10 million was primarily due ~~to:~~

•~~Returning $45~~to $27 million ~~more in cash to shareholders through increased~~of lower share repurchases ~~and dividends~~ in the current year, which were partially offset by net proceeds from borrowings that were $12 million higher in the prior year. ~~These increases~~Lower share repurchases were ~~due~~the result of shifting to a consistent share ~~repurchase activity being resumed following~~buyback strategy in the ~~suspension~~second half of fiscal 2021, and higher net proceeds from borrowings in the prior year ~~to preserve liquidity at the onset of the pandemic, and the 11% increase in the dividend rate in the current year.~~

•Increasing net repayments on borrowings in the current year where the net proceeds from the $535 million 2031 Notes and cash and cash equivalents were used to redeem the $800 million 2025 Notes, and the prior year net proceeds primarilylargely related to the ~~issuance of~~China Construction Facility as the ~~$600 million 2030 Notes.~~blending and packaging plant began production in December 2020.

Free cash flow

The following ~~tables set~~sets forth free cash flow and discretionary free cash flow and reconciles cash flows from operating activities to both measures. These free cash flow measures have certain limitations, including that they do not reflect adjustments for certain non-discretionary cash flows, such as mandatory debt repayments. Refer to the “Use of Non-GAAP Measures” section included above in this Item 2 for additional information regarding these non-GAAP measures.


		Nine months ended June 30					Three months ended December 31
(In millions)	(In millions)	2021		2020		(In millions)	2021		2020
Cash flows provided by operating activities	Cash flows provided by operating activities	$	296	$	271	Cash flows provided by operating activities	$	32	$	79

Additions to property, plant and equipment		(106)		(94)
Less: Maintenance capital expenditures						Less: Maintenance capital expenditures	(6)		(5)
Discretionary free cash flow						Discretionary free cash flow	26		74
Less: Growth capital expenditures						Less: Growth capital expenditures	(29)		(30)
Free cash flow	Free cash flow	$	190	$	177	Free cash flow	$	(3)	$	44

As of June 30, 2021, working capital (current assets minus current liabilities, excluding long-term debt due within one year) was $511 million compared to $994 million as of September 30, 2020. Liquid assets (cash, cash equivalents, and receivables) were 141% of current liabilities as of June 30, 2021 and 269% at September 30, 2020. The decrease in ~~working capital is primarily driven by cash and cash equivalents utilized to fund investments in Retail Services expansion through acquisition along with the redemption of the 2025 Notes.~~

~~Discretionary~~ free cash flow

Nine months ended June 30
(In millions) 2021 2020
Cash flows provided by operating activities $ 296 $ 271
Maintenance additions to property, plant and equipment (21) (19)
Discretionary free cash flow $ 275 $ 252

~~Discretionary free cash flow increased $23 million, or 9%,~~ over the prior year ~~period~~was driven by lower cash flows provided by operating activities as maintenance and growth capital expenditures were relatively flat. Management continues to expect strong ~~contributions from operating performance and the relatively low maintenance capital~~free cash flow generation in fiscal 2022 of ~~both Retail Services and Global Products.~~$260 million to $300 million.

Debt

AsInclusive of ~~June 30, 2021 and September 30, 2020,~~ the Company had long-term debt (including the current portion and debt issuance costs and discounts) of $1.7 billion and $2.0 billion, respectively, comprised of loans and revolving facilities. Approximatelyinterest rate swap agreements, approximately 87% of Valvoline's outstanding borrowings ~~inclusive of its interest rate swap agreements,~~at December 31, 2021 had fixed interest rates, ~~as of June 30, 2021.~~

~~In January 2021,~~with the Company completed the issuance of the 2031 Notes and used the net proceeds of $528 million, together with cash and cash equivalents on hand, to fully redeem the 2025 Notes, with a total aggregate redemption price of $840 million. The combination of these transactions reduced Valvoline's gross leverage and cost of capital and lowers ongoing interest expense.

remainder bearing variable rates. Valvoline was in compliance with all covenants of its debt obligations as of ~~June 30,~~December 31, 2021 and had a combined total of ~~$586~~$587 million of remaining borrowing capacity under its Revolver and Trade Receivables Facility. Credit facilities in place in China had approximately ~~$25~~$28 million of combined borrowing capacity remaining, ~~$23~~$24 million under the China Working Capital Facility and $2$4 million under the China Construction Facility. Refer to Note 54 of the Notes to Condensed Consolidated Financial Statements for additional details regarding the Company’s debt instruments.

Dividend payments and share repurchases

During the ~~nine~~three months ended ~~June 30,~~December 31, 2021, the Company paid cash dividends of ~~$0.375~~$0.125 per common share for ~~$69~~$23 million and repurchased ~~over 4~~nearly 1 million shares of its common stock for ~~$100~~$31 million pursuant to ~~complete~~ the May 2021 Board ~~of Directors~~ authorization ~~on November 12, 2020~~ to repurchase up to ~~$100~~$300 million of common stock through September 30, ~~2021. The Company did not repurchase any shares of its common stock during the three months ended June 30, 2021 pursuant to the 2021~~2024 (the “2021 Share Repurchase ~~Authorization.~~Authorization”).

~~The Company repurchased approximately 0.4 million shares of Valvoline common stock for $11 million during July 2021 pursuant to~~On January 24, 2022, the ~~2021 Share Repurchase Authorization, resulting in $289 million of authorization remaining.~~ ~~On July 19, 2021,~~ ~~the~~ Board ~~of Directors of Valvoline~~ declared a quarterly cash dividend of $0.125 per share of Valvoline common stock. The dividend is payable on ~~September~~March 15, ~~2021~~2022 to shareholders of record on ~~August 30, 2021.~~February 28, 2022. Additionally, the Company repurchased shares of Valvoline common stock for $10 million during January 2022, leaving the Company with $232 million in aggregate share repurchase authority remaining under the 2021 Share Repurchase Authorization as of February 1, 2022.

Dividends and share repurchases are part of a broader capital allocation framework to deliver value to shareholders by first driving growth in the business, organically and through acquisitions, and then returning excess cash to shareholders through dividends and share repurchases. Future declarations of quarterly dividends are subject to approval by the Board and may be adjusted as business needs or market conditions change, while the timing and amount of any future share repurchases will be based on the level of Valvoline's liquidity, general business and market conditions and other factors, including alternative investment opportunities.

~~Off-balance sheet arrangements~~

As of June 30, 2021, Valvoline has no contractual obligations that are reasonably likely to have a material effect on the Company’s condensed consolidated financial statements that are not fully recorded within the Condensed Consolidated Balance Sheets or fully disclosed in the Notes to Condensed Consolidated Financial Statements in Item I of Part I of this Quarterly Report on Form 10-Q. As part of Valvoline’s normal course of business, it is a party to certain financial guarantees and other commitments, and while these arrangements involve elements of performance and credit risk, such risk is not currently considered reasonably likely to have a material effect on the Company’s condensed consolidated financial statements. The possibility that Valvoline would have to make actual cash expenditures in connection with these obligations is largely dependent on the performance of the party whose obligations Valvoline guarantees, or the occurrence of future events.

Summary

As of ~~June 30,~~December 31, 2021, cash and cash equivalents totaled ~~$226~~$152 million, total debt was $1.7 billion, and total remaining borrowing capacity under the Company’s Revolver and Trade Receivables Facility was $586 million. Valvoline’s ability to generate positive cash flows from operations is dependent on general economic conditions, the competitive environment in the industry, and is subject to the business and other risk factors described in Item 1A of Part ~~II of this Quarterly Report on Form 10-Q and Item 1A~~I of the Annual Report on Form 10-K for the year ended September 30, ~~2020.~~2021. If the Company is unable to generate sufficient cash flows from operations, or otherwise comply with the terms of its credit facilities, Valvoline may be required to seek additional financing alternatives.

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

3529

postretirement plan contributions, debt servicing obligations, tax-related and other ~~contractual commitments,~~material cash and operating requirements for the next twelve months.

NEW ACCOUNTING PRONOUNCEMENTS

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

CRITICAL ACCOUNTING ~~POLICIES AND~~ ESTIMATES

The Company’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, ~~2020.~~2021. Management reassessed the critical accounting ~~policies~~estimates as disclosed in the Annual Report on Form 10-K and determined there were no changes ~~to critical accounting policies and estimates~~ in the ~~nine~~three months ended ~~June 30,~~December 31, 2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risks are discussed in detail in Item 7A of Part II in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020.~~2021. Management reassessed the quantitative and qualitative market risk disclosures as described in the Annual Report on Form 10-K and determined there were no material changes to market risks in the ~~nine~~three months ended ~~June 30,~~December 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Valvoline’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of management, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), and based upon such evaluation, have concluded that as of the Evaluation Date, the Company’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, and that such information is accumulated and communicated to Valvoline’s management, including the CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control

There were no significant changes in Valvoline’s internal control over financial reporting that occurred during the fiscal quarter ended ~~June 30,~~December 31, 2021 that materially affected, or are reasonably likely to materially affect, Valvoline’s internal control over financial reporting.

3630

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, Valvoline is party to lawsuits, claims and other legal proceedings that arise in the ordinary course of business. For a description of Valvoline's legal proceedings, refer to Note 87 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

~~Information about~~During the ~~Company's~~period covered by this report, there were no material changes from the risk factors ~~is contained in~~previously disclosed Item 1A of Part I in Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020. Other than the addition of the risk factor set forth below, there have been no material changes to the Company's risk factors previously disclosed.~~

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

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

The Company believes that the exclusive forum provision in the Articles benefits the Company by providing increased consistency in the application of Kentucky law for the specified types of actions and may benefit the Company by preventing it from having to litigate claims in multiple jurisdictions (and incur additional expenses) and be subject to potential inconsistent or contrary rulings by different courts, among other considerations. The exclusive forum provision in the Articles, however, may have the effect of discouraging lawsuits against Valvoline's directors, officers or employees as it could increase a shareholder’s cost to bring a claim or limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for such claims. In connection with any applicable action brought against the Company, it is possible that a court could find the forum selection provisions contained in the Articles to be inapplicable or unenforceable in such action. If a court were to render such a finding, the Company may incur additional costs to resolve the action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.2021.

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

The Company ~~did not repurchase~~repurchased shares of its common stock for $31 million during the three months ended ~~June 30, 2021. Pursuant~~December 31, 2021 pursuant to the 2021 Share Repurchase ~~Authorization, $300 million remained available for~~Authorization. Share repurchase ~~as of June 30, 2021.~~activity during the three months ended December 31, 2021 follows:


Monthly Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Dollar value of shares that may yet be purchased under the plans or programs (in millions)
October 1, 2021 - October 31, 2021	325,186	$	33.55	325,186	$	262
November 1, 2021 - November 30, 2021	284,916	$	35.37	284,916	$	252
December 1, 2021 - December 31, 2021	294,475	$	35.55	294,475	$	242
Total	904,577	$	34.78	904,577

ITEM 6. EXHIBITS

Exhibits 10.1 through 10.3 are management compensatory plans or arrangements.













10.1*			Form of Outside Director Restricted Stock Unit Award Agreement pursuant to the 2016 Valvoline Inc. Incentive Plan.
10.2*			Valvoline Severance Pay Plan, as amended and restated, effective January 1, 2022.
10.3*			Valvoline Change in Control Severance Plan, as amended and restated, effective January 1, 2022.
31.1*			Certification of Samuel J. Mitchell, Jr., Chief Executive Officer of Valvoline, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*			Certification of Mary E. Meixelsperger, Chief Financial Officer of Valvoline, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32**			Certification of Samuel J. Mitchell, Jr., Chief Executive Officer of Valvoline, and Mary E. Meixelsperger, Chief Financial Officer of Valvoline, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema Document.
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

™ Trademark, Valvoline or its subsidiaries, registered in various countries.

~~® Register mark, Car Wash Partners, Inc., registered in United States~~

3832

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)

~~August 5, 2021~~February 9, 2022	By:	/s/ Mary E. Meixelsperger
		Mary E. Meixelsperger
		Chief Financial Officer

3933


			Page
PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Condensed Consolidated Statements of Comprehensive Income			3

Condensed Consolidated Balance Sheets			4

Condensed Consolidated Statements of Stockholders' Equity (Deficit)			5

Condensed Consolidated Statements of Cash Flows			76

Notes to Condensed Consolidated Financial Statements			87

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			2218

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			3630

ITEM 4. CONTROLS AND PROCEDURES			3630

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS			3731

ITEM 1A. RISK FACTORS			3731

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			3731

ITEM 6. EXHIBITS			3832

SIGNATURE			3933



	Nine months ended June 30, 2021
(In millions, except per share amounts - unaudited)	Common stock			Paid-in capital		Retained deficit		Accumulated other comprehensive income		Totals
	Shares	Amount
Balance at September 30, 2020	185	$	2	$	24	$	(110)	$	8	$	(76)
Net income	—	—		—		87		—		87
Dividends paid, $0.125 per common share	—	—		—		(23)		—		(23)
Stock-based compensation, net of issuances	—	—		1		—		—		1
Repurchases of common stock	(2)	—		—		(58)		—		(58)

Cumulative effect of adoption of new credit losses standard, net of tax	—	—		—		(2)		—		(2)


Other comprehensive income, net of tax	—	—		—		—		16		16
Balance at December 31, 2020	183	$	2	$	25	$	(106)	$	24	$	(55)
Net income	—	—		—		68		—		68
Dividends paid, $0.125 per common share	—	—		—		(23)		—		(23)
Stock-based compensation, net of issuances	—	—		4		—		—		4
Repurchases of common stock	(2)	—		—		(42)		—		(42)
Other comprehensive loss, net of tax	—	—		—		—		(8)		(8)

Balance at March 31, 2021	181	$	2	$	29	$	(103)	$	16	$	(56)
Net income	—	—		—		97		—		97
Dividends paid, $0.125 per common share	—	—		—		(23)		—		(23)
Stock-based compensation, net of issuances	—	—		3		—		—		3

Other comprehensive income, net of tax	—	—		—		—		2		2

Balance at June 30, 2021	181	$	2	$	32	$	(29)	$	18	$	23


Index to Notes to Condensed Consolidated Financial Statements			Page

Note 1 - Basis of Presentation and Significant Accounting Policies			98
Note 2 - Fair Value Measurements			109
Note 3 - Acquisitions ~~and Divestitures~~			10

Note 4 - Debt			11
Note 4 5 - ~~Intangible Assets~~Income Taxes			12
Note 6 - Employee Benefit Plans			12
Note 7 - Litigation, Claims and Contingencies			13
Note 5 8 - ~~Debt~~Earnings Per Share			13
Note 9 - Reportable Segment Information			14
Note 61 0 - ~~Income Taxes~~			15
~~Note 7 - Employee Benefit Plans~~Supplemental Financial Information			16
Note ~~8 - Litigation, Claims and Contingencies~~1			161
~~Note 9 - Earnings Per Share~~			17
~~Note 10 - Reportable Segment Information~~			17
~~Note 11 - Supplemental Financial Information~~			20
~~Note 12~~ - Subsequent Events			2117


	June 30, 2021						September 30, 2020
(In millions)	Fair value		Carrying value		Unamortized discounts and issuance costs		Fair value		Carrying value		Unamortized discounts and issuance costs
2025 Notes	$	0	$	0	$	0	$	827	$	790	$	(10)
2030 Notes	621		593		(7)		613		592		(8)
2031 Notes	535		529		(6)		0		0		0
Total	$	1,156	$	1,122	$	(13)	$	1,440	$	1,382	$	(18)


	Actual		Estimated
	Nine months ended June 30		Years ended September 30
(In millions)	2021		2021		2022		2023		2024		2025
Amortization expense	$	12	$	16	$	17	$	16	$	15	$	13


	Year over year change		Year over year change
(In millions)	Three months ended June 30, 2021		Nine months ended June 30, 2021
Volume and mix	$	171	$	263

Price	67		98

Currency exchange	16		33
Acquisitions	22		51
Change in sales	$	276	$	445