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

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

BUSINESS OVERVIEW

Valvoline is a worldwide marketer and supplier of engine and automotive maintenance products and services. Established in 1866, Valvoline’s heritage spans over 150 years, during which it has developed powerful name recognition across multiple product and service channels. In addition to the iconic Valvoline-branded passenger car motor oils and other automotive lubricant products, Valvoline provides a wide array of lubricants used in heavy duty equipment, as well as automotive chemicals and fluids designed to improve engine performance and lifespan. Valvoline’s premium branded product offerings enhance its high-quality reputation and provide customers with solutions that address a wide variety of needs.

In the United States and Canada, Valvoline’s products and services are sold to retailers with over 55,000 retail outlets, to installer customers with approximately 15,000 locations, and through 1,462 franchised and company-owned stores. Valvoline also has a strong international presence with products sold in more than 140 countries. Valvoline serves its customer base through its sales force and technical support organization, allowing Valvoline to leverage its technology portfolio and customer relationships globally, while meeting customer demands locally. This combination of scale and strong local presence is critical to the Company’s success.

Valvoline's fiscal year ends on September 30 of each year and Valvoline has three reportable segments: Quick Lubes, Core North America, and International, with certain corporate and non-operational items included in Unallocated and Other to reconcile to consolidated results. Refer to Item 1 included in Part I of this Annual Report on Form 10-K for a description of Valvoline's reportable segments.

RECENT DEVELOPMENTS

The outbreak of COVID-19 was concentrated in China in late January 2020 and spread quickly, resulting in the World Health Organization declaring a global pandemic on March 11, 2020. COVID-19 has created significant volatility in the global economy and led to reduced economic activity. There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the spread of COVID-19 in most regions throughout the world, including restricting non-essential travel, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to modify or cease normal operations to minimize personal interaction and contact. While certain regions began to relax restrictions beginning in March, a resurgence in cases has led to reinstated limitations across the globe. The duration and extent of restrictions that will remain in place currently remains unclear.

The COVID-19 pandemic led to significant economic disruption which impacted Valvoline's business and results during the fiscal year ended September 30, 2020. Management cannot reasonably quantify the financial impacts on full year results; however, believes that the pandemic resulted in an overall immaterial unfavorable impact to earnings. The most substantial negative effects were estimated to have occurred during the third fiscal quarter of

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2020 when restrictions were the most severe and miles driven and volumes significantly declined. The Company also experienced certain benefits in its costs, some of which is believed to have been prolonged due to or as a result of the pandemic and coupled with the recovery in miles driven, which remain behind prior year trends, is estimated to have minimized the severity of the impact on fiscal 2020 results. 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, it is important to share the impact to-date, how the Company's response is progressing and how Valvoline's results and financial condition could be impacted going forward.

Retail and Manufacturing Operations

As automotive maintenance has generally been deemed essential business during the pandemic, Valvoline has substantially maintained its operations and continued to serve its customers to help engines run and keep vehicles reliably on the road. Valvoline’s wholly-owned lubricant blending and packaging plants and Quick Lubes retail service center stores have substantially remained open and operational during the pandemic. Over 98% of Valvoline's system-wide service center stores have remained open during the pandemic to-date. The Company remains committed to operating safely and keeping as many of its stores open as possible for the communities they serve.

Short-term incremental pay and benefit programs, including additional paid sick leave and increased pay rates for hourly and salaried store employees were introduced in Quick Lubes to recognize team members who continued to service customers throughout pandemic. In response to the abrupt decline in miles driven due to COVID-19 restrictions and the resulting significant volume and sales declines in the second half of March and continuing through late April, Valvoline responded quickly by flexing store labor at company-owned retail service center stores and adjusting shifts across its lubricant blending and packaging plants and throughout its distribution networks. In China, construction on the lubricants plant resumed after a temporary suspension and was recently completed.

Remote Work Arrangements

Valvoline took global actions designed to help further prevent the spread of COVID-19, including implementing work-from-home arrangements. Beginning March 18, 2020, employees, other than those in Valvoline's retail service center stores, production and distribution facilities, began working remotely in nearly all locations globally, except China where work-from-home protocols were implemented earlier and substantially ended in March. These remote work arrangements remain in place and have been designed to allow for continued operation of certain business-critical functions, including financial reporting systems and internal control, which have incorporated remote work arrangements using appropriate digital tools.

Valvoline is continually monitoring the global COVID-19 situation and following the White House Guidelines supported by COVID-19 trend data to make decisions regarding the reopening of corporate offices. Valvoline has developed a set of criteria and guidelines that will be used in returning to the office to ensure the safety and well- being of the Company's employees, including social distancing, enhanced cleaning procedures and availability of personal protective equipment. All return-to-office decisions will be made based on the COVID-19 trends in the countries, states and locations where the Company's offices are located.

Liquidity

Valvoline's revenues are primarily generated from the sale and service delivery of engine and automotive maintenance products to its customers. Accordingly, declines in miles driven as a result of a reduction in the ability or willingness to travel due to the COVID-19 pandemic has and is expected to continue to adversely impact Valvoline's volumes and results of operations. Miles driven were significantly lower due to the COVID-19 pandemic, which is estimated to have impacted most of Valvoline's key markets by late March 2020 and continued during most of April 2020, with trends steadily improving throughout the remainder of the fiscal year but still below pre-COVID-19 levels. While management believes Valvoline has sufficient liquidity to meet its operating cash needs, required pension and other postretirement plan contributions, debt servicing obligations, and tax-related and other contractual commitments for the next twelve months, certain precautionary steps were taken as outlined herein to strengthen the Company's cash position in response to the COVID-19 pandemic.

As a precautionary measure to enhance financial flexibility in response to the uncertainty resulting from the COVID-19 pandemic, the Company borrowed under its revolving and trade receivables facilities to increase its cash balance by $540 million in late March. The Company subsequently paid its revolving facility borrowings in May 2020

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with the net proceeds from the offering of $400 million senior notes due 2025 and cash and cash equivalents on hand. As of September 30, 2020, Valvoline had $760 million in cash and cash equivalents available for working capital, general corporate purposes, or other purposes permitted under its borrowing facilities. Further, Valvoline temporarily suspended its share repurchase program and took other steps to preserve cash, including limiting or deferring certain non-essential operating expenses and delaying certain capital expenditures, while continuing to invest in high-return, long-term strategic growth initiatives. Since drawing on its credit facilities in March, the Company has maintained its liquidity and generated positive cash flows from operations during the year ended September 30, 2020.

As of September 30, 2020, the Company has access to more than $1.3 billion in total liquidity, with no meaningful maturities of its outstanding borrowings until 2024.

COVID-19 Relief

On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Among other provisions, the CARES Act includes forms of payroll and income tax relief for corporations. The Company continues to examine the impacts the CARES Act may have on its business and consolidated financial statements and continues to expect modest cash flow benefits in fiscal 2020 and 2021 related to the deferred payment of certain employer payroll-related taxes and accelerated tax deductions. Additionally, other non-U.S. governments are providing various forms of COVID-19 relief, which Valvoline is monitoring and evaluating to determine whether the Company may qualify for additional benefits. The CARES Act and other global COVID-19 relief efforts did not have a material impact on the Company's consolidated financial statements for the year ended September 30, 2020, though modest cash flow and profitability benefits were realized related to the deferred payment of certain employer payroll-related taxes, non-US subsidies received, and expanded tax deductions related to bonus depreciation.

Enhanced Safety Standards

Valvoline's priority remains the health and safety of its employees, customers and business partners. Quick Lubes' drive-through, stay-in-your-car service experience previously produced minimal contact with customers, and the Company took additional actions to modify in-store procedures to further reduce contact between store teams and customers. Procedures in Valvoline's plants, service center stores and offices have also been modified to encourage social distancing and proper handwashing, increase cleaning cycles, adjust labor and shifts, and provide personal protective equipment. Valvoline has taken actions designed to help further prevent the spread of COVID-19, including restricting travel and implementing broad work-from-home protocols, in addition to following government regulations in each of its locations.

Franchisee Support

Valvoline is providing its franchisees with flexibility to respond to the evolving circumstances of the COVID-19 pandemic. Certain franchisees elected to reduce store operating hours or temporarily close some stores in order to better align to local changes in demand. Additionally, other operational changes were made to in-store operating procedures, enhancing the safe operating environment already afforded through Valvoline's stay-in-your-car service experience. Valvoline's franchises were provided access to detailed information on stimulus-related provisions and federal employee assistance programs that may be utilized to provide financial relief.

Valvoline also provided various types of financial assistance to support the long-term health of its Quick Lubes franchisee network, including low-interest term loans, waiving royalties for one-and-a-half months, and the temporary extension of payment terms to provide increased financial flexibility and enable franchisees to better support their employees and customers as a result of the impact of the COVID-19 pandemic. These actions have not and are not expected to have an impact on Valvoline's ability to meet its cash needs in the ordinary course, or to comply with the covenants under its debt obligations.

COVID-19 Support

Valvoline made contributions to relief and response funds in the U.S. and China and donated personal protective equipment in China, India and the U.S. Valvoline's support also extended to its customers, as orders were supplied and delivered with the same on-time metrics through no-contact deliveries, and in some cases, extended payment terms were permitted. Valvoline provided benefits to its employees to cover the cost of COVID-19 testing, promoted

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its telehealth benefits, amended its 401(k) savings plan to enhance hardship loan eligibility and payment terms, and provided additional paid sick leave for quarantined employees.

FISCAL 2020 OVERVIEW

The following were the significant events for fiscal 2020, each of which is discussed more fully in this Annual Report on Form 10-K:

•The durability of the Valvoline business model was reflected in the Company’s rapid improvement from the significant headwinds during depths of the COVID-19 pandemic, leading to strong year-over-year growth in profitability. For the full year, net income increased $109 million to $317 million, while diluted earnings per share of $1.69 increased $0.59 versus the prior year.

•Quick Lubes sales grew 7% to $883 million in fiscal 2020 with system-wide same-store sales growth of 2.3% year-over-year, the 14th consecutive year of same-store sales growth. System-wide same-store sales in the fourth fiscal quarter grew 8.3%, returning to pre-COVID-19 growth rates. This growth was driven by average ticket and transaction growth attributable to favorable premium mix, increased revenue from non-oil change services, new customer acquisition and strong in-store execution of the Company's safety-focused, stay-in-your-car service model. The Quick Lubes system added 77 net new stores in fiscal 2020, including 36 newly-built company-owned service center stores.

•Core North America operating income increased by 33% from the prior year and was driven by favorable channel and product mix, lower raw material costs and benefits from the cost savings program that began in fiscal 2019. Improved unit margins combined with expense reductions implemented during the early stages of the COVID-19 pandemic offset lower volume from the installer customer channel.

•International sales and volume decreased due to impacts from COVID-19 across all regions, particularly in Latin America. Volume in unconsolidated joint ventures also declined due to pandemic impacts, particularly in India, which was partially offset by growth in the China joint venture.

•The Company completed two issuances of senior unsecured notes during the year ended September 30, 2020 with $600 million issued in February 2020 and $400 million issued in May 2020. Net proceeds from the two issuances, as well as cash and cash equivalents, were used to redeem $375 million of senior unsecured notes due in 2024 and pay an early redemption premium of $15 million, to prepay $100 million of its term loan, and repay $450 million under its senior secured revolving credit facility.

•During fiscal 2020, Valvoline returned $144 million of capital to shareholders through dividends and share repurchases.

Results for Fiscal 2019 compared to Fiscal 2018

For comparisons of Valvoline's consolidated and segment results of operations and consolidated cash flows for the fiscal years ended September 30, 2019 to September 30, 2018, refer Item 7 of Part II of the Annual Report on Form 10-K for the fiscal year ended September 30, 2019, filed with the SEC on November 22, 2019.

Use of Non-GAAP Measures

To aid in the understanding of Valvoline’s ongoing business performance, certain items within this document are presented on an adjusted, non-GAAP basis. These non-GAAP measures are not defined within U.S. GAAP and do not purport to be alternatives to net income/loss or cash flows from operating activities as measures of operating performance or cash flows. The following are the non-GAAP measures management has included and how management defines them:

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

•Adjusted EBITDA, which management defines as EBITDA adjusted for key items, as further described below, and net pension and other postretirement plan expense/income; and

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•Free cash flow, which management defines as operating cash flows less 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 assists investors in understanding the ongoing operating performance of Valvoline’s business by presenting comparable financial results between periods. The non-GAAP information provided is used by Valvoline’s management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating EBITDA, Adjusted EBITDA and free cash flow. EBITDA, Adjusted EBITDA, and free cash flow provide a supplemental presentation of Valvoline’s operating performance. For a reconciliation of non-GAAP measures, refer to the “Results of Operations” and “Financial Position, Liquidity and Capital Resources” sections below.

Due to depreciable assets associated with the nature of the Company’s operations and interest costs related to Valvoline’s capital structure, management believes EBITDA is an important supplemental measure to evaluate the Company’s operating results between periods on a comparable basis.

Management also believes Adjusted EBITDA provides investors with a meaningful supplemental presentation of Valvoline’s operating performance. Adjusted EBITDA excludes the impact of the following:

•Key items - Key items consist of income or expenses associated with certain unusual, infrequent or non-operational income or expenses not directly attributable to the underlying business, which management believes impacts the comparability of operational results between periods. Key items may consist of adjustments related to: the impairment of an equity investment; legacy businesses, including the separation from Ashland and associated impacts of related indemnities; significant acquisitions or divestitures; restructuring-related matters; and other matters that are non-operational or unusual in nature. Key items are considered by management to be outside the comparable operational performance of the business and are also often related to legacy matters or market-driven events that are not directly related to the underlying business and do not have an immediate, corresponding impact on the Company’s ongoing performance. Details with respect to the composition of key items recognized during the respective periods presented herein are set forth below in the “EBITDA and Adjusted EBITDA” section of “Results of Operations” that follows.

•Net pension and other postretirement plan expense/income - 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 will continue to include pension and other postretirement service costs related to current employee service as well as the costs of other benefits provided to employees for current service.

Management uses free cash flow as an additional non-GAAP metric 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. Unlike cash flow from operating activities, free cash flow includes the impact of capital expenditures, providing a supplemental view of cash generation. Free cash flow has certain limitations, including that it does 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.

Valvoline’s results of operations are presented based on Valvoline’s management structure and internal accounting practices. The structure and practices are specific to Valvoline; therefore, Valvoline’s financial results, EBITDA,

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Adjusted EBITDA and free cash flow are not necessarily comparable with similar information for other comparable companies. EBITDA, Adjusted EBITDA and free cash flow each have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, or more meaningful than, net income and cash flows from operating activities as determined in accordance with U.S. GAAP. Because of these limitations, net income and cash flows from operating activities should primarily be relied upon as determined in accordance with U.S. GAAP, and EBITDA, Adjusted EBITDA, and free cash flow should only be used as supplements. In evaluating EBITDA, Adjusted EBITDA, and free cash flow, one should be aware that in the future Valvoline may incur expenses/income similar to those for which adjustments are made in calculating EBITDA, Adjusted EBITDA, and free cash flow. Valvoline’s presentation of EBITDA, Adjusted EBITDA, and free cash flow should not be construed as a basis to infer that Valvoline’s future results will be unaffected by unusual or nonrecurring items.

Key Business Measures

Valvoline tracks its operating performance and manages its business using certain key measures, including system-wide, company-owned and franchised store counts and same-store sales; lubricant volumes sold by unconsolidated joint ventures; and total lubricant volumes sold and percentage of premium lubricants 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 Quick Lubes 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 end of period store counts and activity. Same-store-sales ("SSS") is defined as sales by U.S. Quick Lubes service center stores (company-owned, franchised and the combination of these for system-wide SSS), with new stores 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. Quick Lubes revenue is limited to sales at company-owned 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 Consolidated Statements of Comprehensive Income, management believes system-wide and franchised SSS comparisons and store counts are useful to assess the operating performance of the Quick Lube reportable segment and the operating performance of an average Quick Lubes store.

Lubricant volumes sold by unconsolidated joint ventures are used to measure the operating performance of the International operating segment. Valvoline does not record lubricant sales from unconsolidated joint ventures as International reportable segment revenue. International revenue is limited to sales by Valvoline's consolidated affiliates. Although Valvoline does not record sales by unconsolidated joint ventures as revenue in its Consolidated Statements of Comprehensive Income, management believes lubricant volumes including and sold by unconsolidated joint ventures is useful to assess the operating performance of its investments in joint ventures.

Management also evaluates lubricant volumes sold in gallons by each of its reportable segments and premium lubricant percentage, defined as premium lubricant gallons sold as a percentage of U.S. branded lubricant volumes for the Quick Lubes and Core North America segments and as a percentage of total segment lubricant volume for the International segment. Premium lubricant products generally provide a higher contribution to segment profitability and the percentage of premium volumes is useful to evaluating and understanding Valvoline’s operating performance.

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RESULTS OF OPERATIONS

Consolidated review

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

(In millions) Amount % of Sales Amount % of Sales Amount % Change

Sales

The following table provides a reconciliation of the changes in sales from fiscal 2019 to 2020:

(In millions) 2020 Change

Mix and price $ 66

Currency exchange (11)

Acquisitions 12

Change in sales $ (37)

Total sales were down 2% year-over-year and lubricant volumes decreased 6% from the prior year, primarily driven by the significant impacts of COVID-19 restrictions, particularly in the third quarter. Declines in Core North America and International were partially offset by increases in Quick Lubes with unit growth and full year system-wide same-store sales increases of 2.3%. The decline in Core North America volumes from COVID-19 was partially offset by improved channel and product mix, while International volumes were down across most regions due to COVID-19 impacts. The changes to reportable segment sales and the drivers thereof are discussed in further detail in “Reportable Segment Review” below.

Gross profit

The following table provides a reconciliation of the changes in gross profit from fiscal 2019 to 2020:

(In millions) 2020 Change

Volume and mix $ (14)

Price and cost 69

Currency exchange (3)

Acquisitions 1

Change in gross profit $ 53

Despite lower volumes, gross profit increased compared to the prior year driven by the benefit of mix improvements in Quick Lubes and Core North America, and lower costs, which included a favorable raw material cost environment, benefits from the cost savings program that began in fiscal 2019, and the favorable impact from the resumed operations at the Company's second largest domestic blending facility that was temporarily shut down in the prior year due to a nearby third-party fire.

The increase in gross profit margin of 2.8% compared to the prior year period was driven by a more favorable cost structure primarily as a result of the cost savings program and benefits from the raw material and cost environment.

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

Net operating expenses

The table below provides details of the components of net operating expenses during the years ended September 30:

(In millions) Amount % of Sales Amount % of Sales Amount % Change

Equity and other income, net (34) (1.4) % (40) (1.7) % 6 (15.0) %

The decrease in selling, general and administrative expenses was primarily due to the benefits recognized related to the compensated absences benefits change rolled out during the fourth fiscal quarter of 2020. Lower costs in fiscal 2020 related to the substantial completion of restructuring activities associated with the cost savings program commenced in the prior year and lower expenses due to controlled spending, which included reduced travel expenses resulting from the impacts of the COVID-19 pandemic, were largely offset by higher incentive compensation-related costs due to improved Company performance and an increase in rent expense due to the reclassification of a build-to-suit arrangement in adoption of the lease accounting standard.

The decrease in net legacy and separation-related expenses was driven by the reduction of the estimated indemnity obligation under the Tax Matters Agreement related to management's determination that it is no longer more likely than not to realize certain legacy tax attributes which were transferred from Ashland as a result of the Contribution. This benefit was offset by a valuation allowance recorded in income tax expense for no net impact to earnings in the fiscal year ended September 30, 2020.

The decrease in equity and other income, net was primarily driven by other income recognized during the prior year related to the bargain purchase gain in connection with the acquisition of an Eastern European lubricant production company, incentives for operating in a free trade zone outside the U.S., and fees associated with the termination of certain contracts, in addition to lower profit contributions from unconsolidated joint ventures as a result of the COVID-19 pandemic. These decreases were partially offset by a business interruption recovery received in the fourth fiscal quarter of 2020.

Net pension and other postretirement plan expense

Net pension and other postretirement plan expense decreased $119 million from the prior year primarily due to a gain on pension and other postretirement plan remeasurement of $22 million compared to a loss of $69 million in fiscal 2019. This change was primarily attributed to higher than expected returns on plan assets and favorable changes in mortality assumptions, which were partially offset by decreases in discount rates.

Net interest and other financing expenses

Net interest and other financing expense increased $20 million during fiscal 2020 compared to 2019. The increase was primarily due to the loss on extinguishment in connection with the redemption of the 2024 Notes in March 2020.

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Income tax expense

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

Income tax expense $ 134 $ 57

Effective tax rate percentage 29.7 % 21.5 %

Higher income tax expense in fiscal 2020 from the prior year was principally driven by higher pre-tax earnings and income tax expense recognized during the year to establish a $30 million valuation allowance on certain legacy tax attributes. This increase in expense coupled with prior year benefits from the release of a valuation allowance and the clarification of certain provisions of Kentucky tax reform legislation led to a higher effective tax rate in fiscal 2020.

EBITDA and Adjusted EBITDA

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

Net interest and other financing expenses 93 73

Depreciation and amortization 66 61

Net pension and other postretirement plan (income) expenses (59) 60

Net legacy and separation-related (income) expenses (30) 3

Compensated absences benefits change (11) —

Business interruption (recovery) expenses (2) 6

Acquisition and divestiture-related costs (income) 2 (4)

Restructuring and related expenses — 14

Adjusted EBITDA (a) $ 510 $ 478

(a)Net pension and other postretirement plan income includes remeasurement gains and losses and recurring non-service pension and other postretirement net periodic income, which consists of interest cost, expected return on plan assets and amortization of prior service credit. Refer to Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for further details.

The increase in Adjusted EBITDA of $32 million in fiscal 2020 was driven by the performance of Core North America, which included product and channel mix benefits and favorable costs, inclusive of lower raw material costs and benefits from the costs savings initiative program, which more than offset lower volumes attributed to the COVID-19 pandemic and increased incentive compensation-related costs.

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Reportable Segment Review

Valvoline’s business is managed within the following three reportable segments:

•Quick Lubes - services the passenger car and light truck quick lube market through company-owned and independent franchised retail quick lube service center stores and independent Express Care stores that service vehicles with Valvoline products, as well as through investment in a joint venture in China to pilot expansion of retail quick lube service center stores outside of North America.

•Core North America - sells engine and automotive maintenance products in the United States and Canada to retailers, installers, and heavy-duty customers to service vehicles and equipment.

•International - sells engine and automotive products in more than 140 countries outside of the United States and Canada for the maintenance of consumer and commercial vehicles and equipment.

Valvoline’s reportable segments are measured for profitability based on operating income; therefore, Valvoline does not generally allocate items to each reportable segment below operating income, such as net pension and other postretirement plan expense, net interest and other financing expenses or income tax expense. Operating income by segment includes the allocation of shared corporate costs, which are allocated consistently based on each segment’s proportional contribution to various financial measures. Valvoline does not allocate certain significant corporate and non-operational matters, including, but not limited to, company-wide restructuring activities and costs or adjustments that relate to former businesses that Valvoline no longer operates. These matters are attributed to Unallocated and other. 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.

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Quick Lubes

Management believes the number of company-owned and franchised service center stores as provided in the following tables is useful to assess the operating performance of the Quick Lubes reporting segment.

Company-owned

For the years ended September 30

Conversions between company-owned and franchised 17 5

Closed — —

Franchised (a)

For the years ended September 30

Acquired — 31

Conversions between company-owned and franchised (17) (5)

Closed (7) (5)

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

(b)Included in the store counts at September 30, 2020 was one franchised service center store temporarily closed at the discretion of the independent operator due to the impacts of COVID-19.

The Quick Lubes system added 77 net new company-owned and franchised stores in fiscal 2020. Company-owned store growth was comprised of 36 newly constructed stores and 29 acquired stores and franchised stores added 12 net new stores.

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The following table summarizes the results of the Quick Lubes reportable segment for the years ended September 30:

Depreciation and amortization $ 43 $ 36

Gross profit as a percent of sales (a) 37.9 % 39.1 %

Operating income as a percent of sales 19.1 % 21.7 %

Operating information

Lubricant sales gallons 28.9 28.1

Premium lubricants (percent of U.S. branded volumes) 67.6 % 65.0 %

Same-store sales growth (b) - Company-owned 2.6 % 9.7 %

Same-store sales growth (b) - Franchised (c) 2.1 % 10.4 %

Same-store sales growth (b) - Combined (c) 2.3 % 10.1 %

(a)Gross profit as a percent of sales is defined as sales, less cost of sales, divided by sales.

(b)Valvoline determines same-store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation.

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

Quick Lubes sales increased $61 million, or 7%, during fiscal 2020. Same-store sales grew 2.3% system-wide driven by favorable pricing, premium mix improvements and increased revenue from non-oil change services, which combined to improve average ticket and increase sales. Unit growth of 6% across the Quick Lubes system also contributed to the increase in sales. Volumes were impacted by a decline in miles driven as shelter-in-place directives implemented across North America limited travel in response to the COVID-19 pandemic. Substantially all service center stores remained open, with fewer transactions adversely impacting sales.

Gross profit margin decreased 1.2% during fiscal 2020 compared to fiscal 2019. Gross profit margin was negatively impacted by a temporary increase in labor costs earlier in the fiscal year, as well as higher costs associated with the ramp up phase of newly built company stores within their first year of operation.

Operating income decreased $9 million, or 5%, during fiscal 2020. Lower transactions resulting from the COVID-19 pandemic combined with increased costs, including labor and the allocation of shared corporate costs, drove lower operating income.

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Core North America

The following table summarizes the results of the Core North America reportable segment for the years ended September 30:

Depreciation and amortization $ 16 $ 18

Gross profit as a percent of sales (a) 38.9 % 33.0 %

Operating income as a percent of sales 21.4 % 15.3 %

Operating information

Lubricant sales gallons 84.4 92.1

Premium lubricants (percent of U.S. branded volumes) 58.0 % 52.6 %

(a) Gross profit as a percent of sales is defined as sales, less cost of sales, divided by sales.

Core North America sales decreased $49 million, or 5%, during fiscal 2020 primarily related to reduced volumes due to the COVID-19 pandemic, particularly in the installer channel where recovery was slower due to the decline in miles driven. These declines were partially offset by improved channel and product mix in addition to favorable adjustments to trade and promotion cost estimates.

Gross profit margin increased 5.9% during fiscal 2020 compared to fiscal 2019. The primary drivers for increased gross profit margin were favorable channel and product mix and price-cost lag, in addition to benefits from the operating expense reduction program launched last fiscal year.

Operating income increased $50 million, or 33%, during fiscal 2020, which benefited from margin improvement and reduced expenses. This increase was largely driven by favorable product and channel mix in addition to cost structure benefits driven by lower raw material costs and the operating expense reduction program. Improved margins combined with the expense reductions implemented during the early stages of the COVID-19 pandemic offset the impact of lower installer channel volume.

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International

The following tables summarizes the results of the International reportable segment for the years ended September 30:

Operating income $ 73 $ 85

Depreciation and amortization $ 7 $ 7

Gross profit as a percent of sales (a) 29.7 % 28.1 %

Operating income as a percent of sales 13.9 % 14.8 %

Operating information

Lubricant sales gallons (b) 54.7 58.2

Lubricant sales gallons, including unconsolidated joint ventures (c) 91.7 99.0

Premium lubricants (percent of lubricant volume) 25.9 % 28.2 %

(a)Gross profit as a percent of sales is defined as sales, less cost of sales, divided by sales.

(b)Excludes volumes from unconsolidated subsidiaries.

(c)Valvoline's unconsolidated joint ventures are distinct legal entities and Valvoline does not consolidate the result of operations of its unconsolidated joint ventures.

International sales decreased $49 million, or 9%, in fiscal 2020. The decline in sales was largely attributable to lower volumes and unfavorable currency exchange that more than offset the benefits from the Eastern European acquisition completed in late fiscal 2019. The majority of the volume decline occurred in Latin America where recovery is lagging due to extended COVID-19 impacts. Partially offsetting this decline was solid volume growth in the Asia-Pacific region, notably China and Australia, during the fourth quarter of 2020.

Gross profit margin increased 1.6% during fiscal 2020 compared to fiscal 2019, which was primarily driven by favorable geographic mix and the benefits from a more stable and favorable raw material cost environment, including the impact from resumed operations at the Company's second largest domestic blending facility that was temporarily shut down in the prior year due to a nearby third-party fire.

Operating income decreased $12 million during fiscal 2020, primarily due to lower volumes attributed to the COVID-19 pandemic, as well as other income recognized during the prior year related to a bargain purchase gain resulting from an acquisition and incentives received for operating in a free trade zone outside the U.S. These declines were partially offset by overall gross margin improvements.

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.

As of September 30, 2020, the Company had $760 million in cash and cash equivalents, of which approximately $122 million was held by Valvoline’s non-U.S. subsidiaries. The Company has various means to deploy cash with low tax consequences in the locations where it is needed due to U.S. tax reform legislation enacted in fiscal 2018.

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Cash flows

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

Cash provided by (used in):

Operating activities $ 372 $ 325

Investing activities (222) (188)

Financing activities 450 (71)

Increase in cash, cash equivalents, and restricted cash $ 602 $ 63

Operating activities

The increase in cash flows provided by operating activities during fiscal 2020 compared to 2019 was primarily due to higher cash earnings which was partially offset by an increase in cash paid for income taxes of $19 million.

Investing activities

The increase in cash flows used in investing activities for fiscal 2020 compared to 2019 was primarily due to increases in capital expenditures of $43 million related to investments in new stores and the blending and packaging plant in China, and the COVID-19 relief loans extended to franchisees of approximately $30 million, partially offset by lower cash consideration paid for acquisitions of $38 million.

Financing activities

The increase in cash flows from financing activities for fiscal 2020 compared to 2019 was primarily driven by the issuance of the 2030 Notes and borrowings under the Trade Receivables Facility in response to the COVID-19 pandemic to provide enhanced financial flexibility. In addition, share repurchases and transaction costs associated with borrowing activities in fiscal 2020 led to higher cash outflows.

Free cash flow and other liquidity information

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

For the years ended September 30

Cash flows provided by operating activities $ 372 $ 325

Additions to property, plant and equipment (151) (108)

At September 30, 2020, working capital (current assets minus current liabilities, excluding long-term debt due within one year) was $994 million compared to $389 million in 2019. Liquid assets (cash, cash equivalents, and accounts receivable) were 269% of current liabilities as of September 30, 2020 and 132% as of September 30, 2019. The increase in working capital is primarily related to increases in cash primarily due to increased borrowing activity taken as a precautionary measure by the Company to preserve liquidity in response to the COVID-19 pandemic.

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Debt

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

Trade Receivables Facility (c) 88 —

China Credit Facility (d) 18 —

Other (e) — 1

(a)Issued 4.250% senior notes in February 2020 with the net proceeds used to redeem the 2024 Notes, repay $100 million on the Term Loan, and the remainder preserved to maintain liquidity and expected to be used for general corporate purposes, including acquisitions, repayment of indebtedness, working capital needs, and capital expenditures.

(b)Comprised of two issuances of 4.375% $400 million senior notes, one issued in August 2017, and the other in May 2020 when the net proceeds, together with cash and cash equivalents on hand, were utilized to repay $450 million in borrowings from the revolving credit facility under the Senior Credit Agreement, which had a remaining borrowing capacity of $469 million as of September 30, 2020. These borrowings were a precautionary measure to further strengthen the Company's liquidity position and provide financial flexibility in response to the COVID-19 pandemic.

(c)Amendments in fiscal 2020 to extend maturity to November 2021 and modify the eligibility requirements for certain receivables, which increased the remaining eligible borrowing capacity. During fiscal 2020, Valvoline borrowed $90 million to proactively increase its cash position and enhance financial agility in light of the uncertainty resulting from the COVID-19 pandemic. As of September 30, 2020, the remaining borrowing capacity was $79 million based on the availability of eligible receivables.

(d)Five-year credit agreement entered into in May 2020 for approximately $40 million to finance the completion of construction of the blending and packaging plant in China. The proceeds are restricted for capital expenditures directly related to the construction of the plant. As of September 30, 2020, the China Credit Facility had remaining borrowing capacity of approximately $22 million.

(e)Other includes debt acquired through acquisitions.

As of September 30, 2020, Valvoline was in compliance with all covenants of its debt obligations. Following the interest rate swap agreements Valvoline entered into during fiscal 2020, approximately 88% of its outstanding borrowings as of September 30, 2020 had fixed rates, with the remainder bearing variable interest rates. Refer to Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional details regarding the Company’s debt instruments.

On November 16, 2020, the Company entered into a one-year revolving credit facility of approximately $23 million to finance the working capital needs of the blending and packaging plant in China, as needed. 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.

Guarantor financial information

Valvoline has outstanding fixed rate senior notes as of September 30, 2020, which consist of 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $800 million (the "2025 Notes"). The 2025 Notes are comprised of two issuances from Valvoline Inc., as the parent company, of 4.375% senior unsecured notes due 2025 each with an aggregate principal amount of $400 million, one issuance that was completed in August 2017 (the "Existing 2025 Notes") and the other that was completed in May 2020 (the "Additional 2025 Notes"). The 2025 Notes were registered in exchange offers in which no additional proceeds were received. The exchange offer for the Existing 2025 Notes was completed in December 2017, and the exchange offer for the Additional 2025 Notes was completed in August 2020. The 2025 Notes remain subject to Rule 3-10 of SEC Regulation S-X.

The 2025 Notes are guaranteed on a senior unsecured basis, jointly and severally, by certain wholly-owned subsidiaries of the Company (the "Guarantor Subsidiaries"). Refer to Exhibit 22 for a summary of the Company's Guarantor Subsidiaries. Other subsidiaries (the "Non-guarantor Subsidiaries") largely represent the international operations of the Company, which do not guarantee the 2025 Notes. Under the terms of the indentures, governing the 2025 Notes, Valvoline Inc. and the Guarantor Subsidiaries (the "Obligor Group") each fully and unconditionally, jointly and severally, guarantee the payment of interest, principal and premium, if any, on the 2025 Notes. Refer to

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Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding the 2025 Notes.

The Guarantor Subsidiaries are subject to release in certain circumstances, including (i) the sale of all of the capital stock of the subsidiary, (ii) the designation of the subsidiary as an "Unrestricted Subsidiary" under the indenture governing the 2025 Notes, or (iii) the release of the subsidiary as a guarantor from the Company's Senior Credit Agreement described further in Note 9.

In March 2020, the SEC adopted final rules that amend the financial disclosure requirements for subsidiary issuers and guarantees of registered debt securities under Rule 3-10 of Regulation S-X, permitting registrants to disclose summarized financial information for each subsidiary issuer and guarantor. These final rules were codified in Rule 13-01 of Regulation S-X and Valvoline has early adopted this guidance. In compliance thereof, the Company is including summarized financial information for the Obligor Group on a combined basis after transactions and balances within the combined entities have been eliminated.

The following table presents the summarized statement of comprehensive income for the period ended September 30, 2020:

(In millions) Obligor Group

Intercompany revenue with non-obligor subsidiaries, net $ 37

Gross profit $ 710

Operating income $ 441

Net income attributable to group $ 281

The following table presents the summarized balance sheet for the period ended September 30, 2020:

(In millions) Obligor Group

Assets

Current assets $ 863

Intercompany receivable $ 42

Noncurrent assets $ 1,365

Liabilities

Current liabilities $ 334

Noncurrent liabilities $ 2,534

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Contractual obligations and other commitments

The following table sets forth Valvoline’s obligations and commitments to make future payments under existing contracts at September 30, 2020. Excluded from the table are contractual obligations for which the ultimate settlement of quantities or prices are not fixed and determinable.

(In millions) Total Less than 1 Year 1-3 years 3-5 years More than 5 years

Contractual obligations (a)

Purchase commitments 10 8 2 — —

(a)Other long-term liabilities of approximately $103 million are excluded from this table as the uncertainty related to the amount and period of cash settlements prevents the Company from making a reasonably reliable estimate. These other long-term liabilities include the Company’s net obligations to its former parent company, deferred compensation, unrecognized tax benefits, and self-insurance liabilities that primarily related to workers’ compensation claims, among others.

(b)Includes interest expense on both variable and fixed rate debt assuming no prepayments. Variable interest rates have been assumed to remain constant through the end of the term at the rates that existed as of September 30, 2020.

(c)Includes estimated funding of pension plans for fiscal 2021, as well as projected benefit payments through fiscal 2030 for Valvoline’s unfunded pension plans. Excludes benefit payments from pension plan trust funds.

Pension and other postretirement plan obligations

During fiscal 2020, the Company made cash and non-cash contributions of approximately $22 million to its U.S. non-qualified and non-U.S. pension plans. Refer to Note 11 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for additional information relating to the Company's pension and other postretirement plans.

Dividend payments and share repurchases

During the year ended September 30, 2020, the Company paid $84 million of cash dividends for $0.452 per common share and repurchased approximately 3 million shares of its common stock for $60 million. Share repurchases were made pursuant to the Board authorization on January 31, 2018 to repurchase up to $300 million of common stock that expired September 30, 2020.

On November 12, 2020, the Board declared a quarterly cash dividend of $0.125 per share of Valvoline common stock, which is payable on December 15, 2020 to shareholders of record on November 30, 2020. Also on November 12, 2020, the Board authorized Valvoline to repurchase up to $100 million of its common stock through September 30, 2021. The dividend and share repurchase authorization is part of a broader capital allocation framework to deliver value to shareholders by first driving growth in the business, organically and through acquisitions, and 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. The timing and amount of any share repurchases will be based on the level of Valvoline's liquidity, general business and market conditions and other factors, including alternative investment opportunities.

Restructuring and related expenses

In the second fiscal quarter of 2019, the Company outlined a broad-based restructuring and cost-savings program that is expected to reduce costs, simplify processes and focus the organization’s structure and resources on key growth initiatives. Part of this program includes employee separation actions, which were generally completed during fiscal 2019, with the associated termination benefits substantially paid by the end of 2020.

Since program inception, Valvoline recognized cumulative costs of $14 million that were primarily recognized during the year ended September 30, 2019. Restructuring expenses include employee severance and termination benefits

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provided to employees pursuant to the restructuring program. Restructuring-related expenses consist of those costs beyond those normally included in restructuring and incremental to the Company’s normal operating costs. These restructuring-related costs were expensed as incurred and primarily related to third-party professional service fees incurred in connection with execution of the restructuring program. The Company does not expect to incur material remaining costs from these actions.

Results by segment do not include these restructuring and related expenses, which is consistent with the manner by which management assesses the performance and evaluates the results of each segment. Accordingly, these expenses were included in Unallocated and other.

Valvoline’s restructuring actions are expected to generate annualized pre-tax savings in the anticipated range of approximately $40 million to $50 million from the end of fiscal 2020 with significant benefits delivered during fiscal 2020. The ongoing annual savings are anticipated to benefit operating expenses, including Cost of sales and Selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income, with a portion expected to be reinvested in the business to provide flexibility to address market dynamics in Core North America and to invest in growth opportunities.

Refer to Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional details regarding this restructuring program.

Summary

As of September 30, 2020, cash and cash equivalents totaled $760 million, total debt was $2.0 billion, and total remaining borrowing capacity was $548 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 I of this Annual Report on Form 10-K. 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 postretirement plan contributions, debt servicing obligations, tax-related and other contractual commitments, and operating requirements for the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2020, Valvoline has no contractual obligations that are reasonably likely to have a material effect on the Company’s consolidated financial statements that are not fully recorded within the Consolidated Balance Sheets or fully disclosed in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. 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 that are not included in the Consolidated Balance Sheets, such risk is not currently considered reasonably likely to have a material effect on the Company’s 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.

NEW ACCOUNTING PRONOUNCEMENTS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of Valvoline’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and the disclosures of contingent matters. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including intangible assets and goodwill), customer incentives, employee benefit obligations and income taxes. Although management bases its estimates on historical

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experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.

Valuation of goodwill and other intangible assets

Goodwill and other intangible assets are primarily established based on the allocation of purchase consideration to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. Valvoline acquired 35 service center stores during fiscal 2020 for an aggregate purchase price of $40 million. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill or if the fair value of the assets acquired and liabilities assumed exceed the purchase price consideration, a bargain purchase gain is recorded. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, particularly with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Identifiable intangible assets are primarily comprised of trademarks and trade names, reacquired franchise rights, and customer relationships.

Goodwill

Goodwill is tested at the reporting unit level for impairment on an annual basis during the fourth fiscal quarter as of July 1 or more frequently if certain events occur indicating that the carrying value of goodwill may be impaired. Judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, a decision to sell a business, unanticipated competition, or slower growth rates, among others. Valvoline’s reporting units are consistent with its reportable segments of Quick Lubes ($316 million in goodwill as of September 30, 2020), Core North America ($89 million in goodwill as of September 30, 2020), and International ($40 million in goodwill as of September 30, 2020).

In evaluating goodwill for impairment, Valvoline has the option to first perform a qualitative "step zero" assessment to determine whether further impairment testing is necessary or to perform a quantitative "step one" assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. Qualitative factors include macroeconomic conditions, industry and market conditions, cost factors, and overall financial performance, among others. The consideration of these factors requires significant judgment and estimates and application of alternative assumptions could produce different results.

Under the step one assessment, if the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured under "step two" of the impairment analysis. In step two of the analysis, an impairment loss will be recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value. Fair values of the reporting units are estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of a discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes. Several of these assumptions vary among reporting units, and the cash flow forecasts are generally based on approved strategic operating plans. The market approach is performed using the Guideline Public Companies method which is based on earnings multiple data. The Company also performs a reconciliation between market capitalization and the estimate of the aggregate fair value of the reporting units, including consideration of a control premium.

Valvoline elected to perform a qualitative assessment during fiscal 2020 and determined that it is more likely than not that the fair values of Valvoline’s reporting units are in excess of carrying amounts. Valvoline performed a quantitative assessment during fiscal 2019, though no qualitative factors were present that indicated the existence of a potential impairment, and determined that each reporting unit had a fair value that exceeded its carrying value by 130% and more.

Valvoline’s goodwill impairment assessment could change in future periods if any or all of the following events were to occur with respect to a particular reporting unit: a significant change in projected business results, a divestiture

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decision, significant changes to certain cash flow assumptions, economic deterioration that is more severe or of a longer duration than anticipated, or other significant economic events.

Other intangible assets

Total other intangible assets were $84 million, net of $28 million of accumulated amortization as of September 30, 2020. Other intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Various factors are considered in determining whether a trigger requiring impairment assessment has occurred, such as changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows.

If a trigger requiring impairment assessment occurred and the future undiscounted cash flows result in a value that is less than the carrying value, the intangible asset is considered impaired and a loss is recognized based on the amount by which the carrying amount exceeds the estimated fair value. Fair value is determined based on the highest and best use of the assets considered from the perspective of market participants, which may be different than the Company’s actual intended use of the assets. Judgment is involved in identifying impairment triggering events, determining asset groups, future undiscounted cash flows and the fair value of asset groups.

There were no significant impairments recognized by the Company during fiscal 2020, 2019, or 2018.

Customer incentives

Valvoline records revenue for the amount that reflects the consideration the Company is expected to be entitled to based on when control of the promised good or service is transferred to the customer. The nature of Valvoline’s contracts with customers often give rise to variable consideration that generally decrease the transaction price and consist primarily of promotional rebates and customer pricing discounts based on achieving certain levels of sales activity. Variable consideration is recorded as a reduction of the transaction price at the time of sale and is primarily estimated utilizing the most likely amount method that is expected to be earned as the Company is able to estimate the anticipated discounts within a sufficiently narrow range of possible outcomes based on its extensive historical experience with certain customers, similar programs and management’s judgment with respect to estimating customer participation and performance levels. Variable consideration is reassessed at each reporting date and adjustments are made, when necessary. The cost of these programs recognized as a reduction of sales totaled $332 million, $346 million and $357 million in the Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 and 2018, respectively. A 10% change in the reserves for customer incentive programs as of September 30, 2020 would have affected net earnings by approximately $6 million in fiscal 2020.

Employee benefit obligations

Valvoline sponsors defined benefit pension and other postretirement plans in the U.S and in certain countries outside the U.S. The majority of these plans were transferred to and assumed by the Company in the Contribution of certain of Ashland’s pension and other postretirement benefit obligations and plan assets in late fiscal 2016. As of September 30, 2020, Valvoline’s net unfunded pension and other postretirement plan liabilities included in the Consolidated Balance Sheet totaled $328 million, and the U.S. plans represented 96% of this total obligation. Total pension and other postretirement net periodic benefit income included in the Consolidated Statements of Comprehensive Income for the year ended September 30, 2020 was comprised of the following:

Service costs $ 3

Non-service pension and other postretirement net periodic income (a) (37)

Gain on pension and other postretirement plans remeasurement (b) (22)

Total pension and other postretirement net periodic benefit income $ (56)

(a)Non-service pension and other postretirement net periodic income includes the expected return on plan assets and amortization of prior service credit, net of interest costs.

(b)Gains on pension and other postretirement plans remeasurement include the change in the actual return on plan assets and net actuarial gains upon remeasurement as of September 30, 2020.

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Valvoline recognizes the change in the fair value of plan assets and the net actuarial gains and losses calculated using updated actuarial assumptions as of the measurement date, which for Valvoline is September 30, and when a plan qualifies for an interim remeasurement. The remaining components of pension and other postretirement benefits income are recorded ratably on a quarterly basis. Due to the freeze of U.S. pension benefits effective September 30, 2016, continuing service costs are limited to certain international pension plans, and are reported in the same caption of the Consolidated Statements of Comprehensive Income as the related employee payroll expenses. All components of net periodic benefit income other than service cost are recognized below operating income within Net pension and other postretirement plan income in the Consolidated Statements of Comprehensive Income. The gain on pension and other postretirement plans remeasurement of $22 million in fiscal 2020 was primarily attributed to higher than expected returns on plan assets and favorable changes in mortality assumptions, partially offset by decreases in discount rates.

Actuarial assumptions

The Company’s pension and other postretirement benefit costs and obligations are dependent on actuarial valuations and various assumptions that attempt to anticipate future events and are used in calculating the expense and liabilities relating to these plans. These assumptions include estimates and judgments the Company makes about interest rates, expected long-term investment return on plan assets, and mortality. Though management considers current market conditions and other relevant factors in establishing these assumptions, the actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, longer or shorter life spans of participants, and differences between the actual and expected return on plan assets. These differences may result in a significant impact to the amount of pension or other postretirement benefits cost recorded or that may be recorded.

Changes in assumptions or asset values may have a significant effect on the measurement of expense or income. Significant assumptions the Company must review and set annually and at each measurement date related to its pension and other postretirement benefit obligations are:

•Expected long-term return on plan assets — Based on long-term historical actual asset return information, the mix of investments that comprise plan assets and future estimates of long-term investment returns. The Company also deducts various expenses using the fair value of plan assets to estimate expense. The weighted-average long-term expected rate of return on assets assumption was 4.64% for fiscal 2020. In fiscal 2020, the global pension plan assets generated an actual weighted-average return of 14.1%, primarily driven by the market performance of U.S. plan assets based on the Company’s investment strategy to hedge plan assets with the movement in liabilities related to changes in the interest rates. However, the expected return on plan assets is designed to be a long-term assumption, and therefore, actual returns will be subject to year-to-year variances. The U.S. pension plans comprise the most significant portion of plan assets, and for fiscal 2021, the expected rate of return on assets assumption for the U.S. pension plans will be 4.40%. The expected long-term return on plan assets assumption has no impact on the reported net liability or net actuarial gains or losses upon remeasurement, but does impact the recognition of recurring non-service net periodic income recorded ratably on a quarterly basis.

Valvoline’s pension plans hold a variety of investments designed to diversify risk. Plan assets are invested in equity securities, government and agency securities, corporate debt, and other non-traditional assets such as hedge funds. The investment goal of the pension plans is to achieve an adequate net investment return to provide for future benefit payments to its participants. U.S. target asset allocation percentages as of September 30, 2020 were 25% equity and 75% fixed income investments. The U.S. pension plans are managed by professional investment managers that operate under investment management contracts that include specific investment guidelines, requiring among other actions, adequate diversification and prudent use of risk management practices such as portfolio constraints relating to established benchmarks. Valvoline’s investment strategy and management practices relative to plan assets of non-U.S. plans generally are consistent except in those countries where investment of plan assets is dictated by applicable regulations.

•Discount rate — Reflects the rates at which benefits could effectively be settled and is based on current investment yields of high-quality corporate bonds. Consistent with historical practice, the Company uses an actuarially-developed full yield curve approach, the above mean yield curve, to match the timing of cash flows of expected future benefit payments from the plans by applying specific spot rates along the yield curve to determine the assumed discount rate. Valvoline’s fiscal 2020 expense, excluding actuarial gains

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and losses, for both U.S. and non-U.S. pension plans was determined using the spot discount rate as of the beginning of the fiscal year. The service cost and interest cost discount rates for fiscal 2020 pension expense were 1.49% and 2.79%, respectively, and 3.12% and 2.69%, respectively, for other postretirement expense. The weighted-average discount rate at the end of fiscal 2020 was 2.59% for the pension plans and 2.39% for the postretirement health and life plans.

The following table illustrates the estimated impact on hypothetical pension and other postretirement expense that would have resulted from a one percentage point change in discount rates in isolation of impacts on other significant assumptions in the years ended September 30:

Increase in pension expense from:

Decrease in the discount rate of 1.00% $ 263 $ 268

Increase in other postretirement expense from:

Decrease in the discount rate of 1.00% $ 5 $ 5

The U.S. qualified pension plans comprise a substantial portion of Valvoline’s total employee benefit plan obligation, where the investing strategy for plan assets is targeted to match the duration of the obligation and hedge approximately 90% of the movement in liabilities related to changes in interest rates.

•Mortality — Based on the Society of Actuaries PRI-2012 mortality base tables and a mortality improvement scale that follows the 2020 Trustees Report of the Social Security Administration Intermediate Alternative as reflected in the MSS-2020 improvement scale. Valvoline believes the updated mortality improvement scales provide a reasonable assessment of current mortality trends and is an appropriate estimate of future mortality projections.

Other assumptions, including the rate of compensation increase and healthcare cost trend rate, do not have a significant impact on Valvoline's pension and other postretirement benefit plan costs and obligations based upon current plan provisions that have generally frozen benefits and limited costs.

Income taxes

Valvoline is subject to income taxes in the United States and numerous international jurisdictions. Judgment in forecasting taxable income using historical and projected future operating results is required in determining Valvoline’s provision for income taxes and the related assets and liabilities. Each increase of $5 million to income tax expense would impact the fiscal 2020 effective tax rate by one percentage point.

The provision for income taxes includes current income taxes as well as deferred income taxes. Under U.S. GAAP, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the deferred assets or liabilities are expected to be settled or realized. The effect of changes in tax rates on deferred taxes is recognized in the period in which such changes are enacted.

Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is based on the evaluation of positive and negative evidence, which includes historical profitability, future market growth, future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company assesses deferred taxes and the adequacy or need for a valuation allowance on a quarterly basis. As of September 30, 2020, the Company had $192 million of deferred tax assets, including $30 million in valuation allowances. If the Company is unable to generate sufficient future taxable income, there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then Valvoline could be required to increase the valuation allowance against deferred tax assets, resulting in an increase in income tax expense and the effective tax rate.

As a result of the separation from Ashland, Valvoline agreed to indemnify Ashland for certain income tax matters. As of September 30, 2020, Valvoline’s liability for these estimated indemnification obligations is $34 million. Valvoline

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generally records a liability when it is probable and reasonably estimable that indemnification will be due to Ashland and makes adjustments through earnings in the period that changes are known. Certain of these judgments require management to estimate its use of tax attributes generated in the pre-Distribution periods, as well as to evaluate the likelihood and potential magnitude of tax positions taken in consolidated Ashland returns in the periods prior to Distribution expected to be sustained upon examination by the taxing authorities.

The Company is subject to ongoing tax examinations and assessments in various jurisdictions, including those in the pre-Distribution periods. At any time, multiple tax years are subject to audit by the various tax authorities and a number of years may elapse before a particular matter, for which a liability has been established, is audited and fully resolved or clarified. In evaluating the exposures associated with various tax filing positions, including its indemnification obligations to Ashland, the Company may record liabilities for such exposures. The Company’s liabilities for these matters are currently largely recorded within its indemnification obligation to Ashland. Valvoline generally adjusts its liabilities for unrecognized tax benefits and related indemnification obligations through earnings in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available. Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and may materially increase or decrease the effective tax rate, as well as impact the Company’s operating results.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

•Currency exchange rates;

•Inflation and changing prices;

•Interest rates; and

•Credit risk.

Currency exchange risk

A significant portion of Valvoline’s operations and revenue occur outside the U.S., and in currencies other than the U.S. Dollar, and the Company’s results can be significantly impacted by changes in currency exchange rates. Valvoline’s currency risk is primarily limited to the Euro, Australian Dollar, Canadian Dollar and Chinese Yuan with respect to sales, profits, and assets and liabilities denominated in currencies other than the U.S. Dollar. Although the Company uses financial instruments to hedge certain currency risks, Valvoline is not fully protected against currency fluctuations and reported results of operations could be affected by changes in currency exchange rates. Valvoline believes its currency risk is limited as 75% of Valvoline’s revenue during fiscal 2020, 74% during the year ended fiscal 2019 and 72% during fiscal 2018 are attributed to the sales in the United States. Valvoline does not have material exposures to market risk with respect to investments.

To manage exposures and mitigate the impact of currency fluctuations on the operations of non-U.S. subsidiaries, the Company uses derivatives not designated as hedging instruments consisting primarily of forward contracts to hedge currency denominated balance sheet exposures. For these derivatives, changes in the fair value are recognized in income to offset the gain or loss on the hedged item in the same period as the remeasurement losses and gains of the related currency-denominated exposures. The Company utilizes derivative instruments that are purchased exclusively from highly-rated financial institutions. These contracts are recorded on the Consolidated Balance Sheets as assets or liabilities at fair market value based upon market price quotations. The Company did not transact or have open any hedging contracts with respect to commodities as of and for the year ended September 30, 2020, nor does Valvoline employ derivatives for trading or speculative purposes.

For purposes of analyzing potential risk, sensitivity analysis is used to quantify potential impacts that market rate changes may have on the fair values of the Company’s derivative portfolio. The sensitivity analysis represents the hypothetical changes in value of the derivative and does not reflect the related gain or loss on the forecasted underlying exposure. A 10% appreciation or depreciation in the value of the U.S. Dollar against non-U.S. currencies from the prevailing market rates would have resulted in a corresponding increase or decrease of $13 million as of September 30, 2020 in the fair value of open derivative contracts. The Company expects that any increase or decrease in the fair value of the portfolio would be substantially offset by increases or decreases in the underlying exposures.

The U.S. Dollar was stronger in fiscal 2020 compared to 2019 based on comparable weighted averages for the Company’s functional currencies. This had an unfavorable impact of 0.5% on fiscal 2020 revenue versus 2019 revenue. This excludes the effects of derivative activities and other financial measures, and therefore, does not reflect the actual impact of fluctuations in exchange rates on the Company’s operating income.

Inflation and changing prices

Valvoline’s financial statements are prepared on the historical cost method of accounting in accordance with U.S. GAAP, and as a result, do not reflect changes in the purchasing power of the U.S. Dollar. Monetary assets (such as cash, cash equivalents and accounts receivable) lose purchasing power as a result of inflation, while monetary liabilities (such as accounts payable and indebtedness) gain because they can be settled with dollars of diminished purchasing power. As of September 30, 2020, Valvoline’s monetary assets were less than its monetary liabilities, leaving the Company currently less exposed to the effects of future inflation.

Replacement costs for Valvoline’s plants and equipment generally would exceed their historical costs. Accordingly, depreciation expense would be greater if it were based on current replacement costs. However, because replacement facilities and assets would reflect technological improvements and changes in business strategies,

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these would be expected to be more productive than existing assets, mitigating at least part of the risk of changing prices.

Valvoline uses the last-in, first-out (“LIFO”) method to value a portion of its inventories to provide a better matching of revenues with current costs, though utilizing LIFO during inflationary periods values such inventories below their replacement costs.

Interest rate risk

The Company is subject to interest rate risk in relation to variable-rate debt. During fiscal 2020, the Company entered into four interest rate swap agreements with notional amounts totaling $350 million to manage exposure to changes in cash flows associated with its variable rate term loan. The swap agreements qualify and are designated as cash flow hedges, converting the floating interest rate to a fixed interest rate plus a spread from the effective date through the term of the Company's existing credit facility. As a result of those agreements entered into during the year, the Company's outstanding borrowings with fixed rates increased to approximately 88% as of September 30, 2020. The increase in pre-tax interest expense for the year ended September 30, 2020 from a hypothetical 100 basis point increase in variable interest rates would be approximately $2 million.

In addition, the Company is exposed to market risk relative to the impact of changes in interest rates and investment returns on its pension and other postretirement plans. Declines in the discount rates used in measuring the Company's pension and other postretirement plan obligations result in a higher obligation and decrease the funded status. The pension plans hold a variety of investments designed to diversify risk, protect against declines in interest rates, and achieve an adequate net investment return to provide for future benefit payments to its participants. These investments are subject to volatility that can be caused by fluctuations in general economic conditions. Decreases in the fair value of plan assets and discount rates increase net pension and other postretirement plan expense and can also result in requirements to make contributions to the plans. Pension and other postretirement plans were underfunded by $328 million at September 30, 2020 as the projected benefit obligation exceeded the fair value of plan assets.

Concentrations of credit risk

The Company is potentially subject to concentrations of credit risk on accounts receivable and financial instruments, such as derivative instruments and cash and cash equivalents. Credit risk includes the risk of nonperformance by counterparties. The maximum potential loss may exceed the amount recognized on the Consolidated Balance Sheet. Exposure to credit risk is managed through credit approvals, credit limits, selecting highly-rated financial institutions as counterparties to transactions and monitoring procedures. To mitigate losses in the event of nonperformance by counterparties in derivative transactions, Valvoline has entered into master netting arrangements that allow settlement with counterparties on a net basis.

Valvoline’s business often involves large transactions with customers for which the Company does not require collateral. If one or more of those customers were to default in its obligations under applicable contractual arrangements, the Company could be exposed to potentially significant losses. Moreover, a prolonged downturn in the global economy could have an adverse impact on the ability of customers to pay their obligations on a timely basis. The Company believes that the reserves for potential losses are adequate. As of September 30, 2020, there was not a significant concentration of credit risk related to financial instruments.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Supplementary Data Page

Report of Independent Registered Public Accounting Firm 60

Consolidated Statements of Comprehensive Income 62

Consolidated Balance Sheets 63

Consolidated Statements of Stockholders’ Deficit 64

Consolidated Statements of Cash Flows 65

Notes to Consolidated Financial Statements 66

Note 1 - Description of Business and Basis of Presentation 66

Note 2 - Significant Accounting Policies 66

Note 3 - Leasing 77

Note 4 - Fair Value Measurements 80

Note 5 - Acquisitions and Divestitures 82

Note 6 - Equity Method Investments 83

Note 7 - Intangible Assets 84

Note 8 - Restructuring Activities 85

Note 9 - Debt 86

Note 10 - Income Taxes 90

Note 11 - Employee Benefit Plans 93

Note 12 - Litigation, Claims and Contingencies 100

Note 13 - Stock-Based Compensation Plans 100

Note 14 - Earnings Per Share 103

Note 15 - Accumulated Other Comprehensive Income 104

Note 16 - Reportable Segment Information 105

Note 17 - Supplemental Balance Sheet Information 108

Note 18 - Quarterly Financial Information 110

Note 19 - Subsequent Events 110

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

Valvoline Inc. and Consolidated Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Valvoline Inc. and Consolidated Subsidiaries (the Company) as of September 30, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ deficit and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 24, 2020, expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases in 2020 and changed its method of accounting for revenue in 2019.

Basis for Opinion

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

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

Critical Audit Matter

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

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Valuation of Employee Benefit Obligations

/s/ Ernst & Young LLP

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

Cincinnati, Ohio

November 24, 2020

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Valvoline Inc. and Consolidated Subsidiaries

Consolidated Statements of Comprehensive Income

Years ended September 30

Selling, general and administrative expenses 442 449 430

Net legacy and separation-related (income) expenses (30) 3 14

Equity and other income, net (34) (40) (33)

Net pension and other postretirement plan (income) expenses (59) 60 —

Net interest and other financing expenses 93 73 63

NET EARNINGS PER SHARE

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

COMPREHENSIVE INCOME

Other comprehensive income (loss), net of tax

Currency translation adjustments 7 (12) (10)

Unrealized loss on cash flow hedges (1) — —

Other comprehensive loss (3) (21) (19)

See Notes to Consolidated Financial Statements.

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Valvoline Inc. and Consolidated Subsidiaries

Consolidated Balance Sheets

As of September 30

(In millions, except per share amounts) 2020 2019

Assets

Current assets

Cash and cash equivalents $ 760 $ 159

Prepaid expenses and other current assets 46 43

Noncurrent assets

Property, plant and equipment, net 613 498

Operating lease assets 261 —

Goodwill and intangibles, net 529 504

Equity method investments 44 34

Deferred income taxes 34 123

Other noncurrent assets 132 108

Liabilities and Stockholders’ Deficit

Current liabilities

Current portion of long-term debt $ — $ 15

Trade and other payables 189 171

Accrued expenses and other liabilities 255 237

Total current liabilities 444 423

Noncurrent liabilities

Employee benefit obligations 317 387

Operating lease liabilities 231 —

Other noncurrent liabilities 173 185

Commitments and contingencies

Stockholders’ deficit

Paid-in capital 24 13

Accumulated other comprehensive income 8 11

Total stockholders’ deficit (76) (258)

Total liabilities and stockholders’ deficit $ 3,051 $ 2,064

See Notes to Consolidated Financial Statements.

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Valvoline Inc. and Consolidated Subsidiaries

Consolidated Statements of Stockholders’ Deficit

Common stock

(In millions, except per share amounts) Shares Amount

Dividends paid, $0.298 per common share — — — (58) — (58)

Stock-based compensation, net of issuances — — 9 — — 9

Repurchase of common stock (15) — — (325) — (325)

Purchase of remaining ownership in subsidiary — — (7) (7) — (14)

Reclassification of income tax effects of U.S. tax reform — — — (8) 8 —

Other comprehensive loss, net of tax — — — — (19) (19)

Dividends paid, $0.424 per common share — — — (80) — (80)

Stock-based compensation, net of issuances — — 6 — — 6

Other comprehensive loss, net of tax — — — — (21) (21)

Dividends paid, $0.452 per common share — — — (84) — (84)

Stock-based compensation, net of issuances — — 11 — — 11

Repurchase of common stock (3) — — (60) — (60)

Cumulative effect of adoption of new leasing standard, net of tax — — — 1 — 1

Other comprehensive loss, net of tax — — — — (3) (3)

See Notes to Consolidated Financial Statements.

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Valvoline Inc. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows Years ended September 30

Cash flows from operating activities

Adjustments to reconcile to cash flows from operations

Loss on extinguishment of debt 19 — —

Depreciation and amortization 66 61 54

Equity income from unconsolidated affiliates, net of distributions (7) (3) (4)

Pension contributions (11) (10) (16)

(Gain) loss on pension and other postretirement plan remeasurements (22) 69 38

Stock-based compensation expense 12 9 12

Other, net 2 (2) 4

Change in assets and liabilities

Inventories (1) (10) (4)

Payables and accrued liabilities (3) 37 (2)

Other assets and liabilities (81) (27) (35)

Total cash provided by operating activities 372 325 320

Cash flows from investing activities

Additions to property, plant and equipment (151) (108) (93)

Notes receivable, net of repayments (31) (2) —

Acquisitions of businesses (40) (78) (125)

Other investing activities, net — — 5

Total cash used in investing activities (222) (188) (213)

Cash flows from financing activities

Payments of debt issuance costs and discounts (16) (2) (1)

Premium paid to extinguish debt (15) — —

Repurchases of common stock (60) — (325)

Payments for purchase of additional ownership in subsidiary — (1) (15)

Cash dividends paid (84) (80) (58)

Other financing activities (4) (6) (7)

Total cash provided by (used in) financing activities 450 (71) (209)

Increase (decrease) in cash, cash equivalents, and restricted cash 602 63 (105)

Cash, cash equivalents, and restricted cash - beginning of year 159 96 201

Cash, cash equivalents, and restricted cash - end of year $ 761 $ 159 $ 96

Supplemental disclosures

Income taxes paid $ 44 $ 25 $ 26

See Notes to Consolidated Financial Statements.

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Valvoline Inc. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of business

Valvoline Inc. (“Valvoline” or the “Company”) is a worldwide marketer and supplier of engine and automotive maintenance products and services. Valvoline is one of the most recognized premium consumer brands in the global automotive lubricant and preventative maintenance industry, known for its high quality products and superior levels of service. Established in 1866, Valvoline’s heritage spans over 150 years, during which it has developed name recognition across multiple product and service channels.

Basis of presentation and consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and U.S. Securities and Exchange Commission (“SEC”) regulations. The financial statements are presented on a consolidated basis for all periods presented and include the operations of the Company and its majority-owned and controlled subsidiaries. All intercompany transactions and balances within Valvoline have been eliminated in consolidation.

Certain prior period amounts have been reclassified in the accompanying consolidated financial statements and notes thereto to conform to the current period presentation.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Valvoline’s significant accounting policies, which conform to U.S. GAAP and are applied on a consistent basis in all periods presented, except when otherwise disclosed, are described below.

Use of estimates, risks and uncertainties

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent matters. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including intangible assets and goodwill), customer incentives, employee benefit obligations and income taxes. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.

In late December 2019, coronavirus ("COVID-19") was identified in Wuhan, China and since that time it has continued to spread, including to the United States, leading the World Health Organization to declare a global pandemic and recommend containment and mitigation actions worldwide in March 2020. The Company has substantially maintained its operations during the pandemic to-date, and precautionary measures have been taken to protect the Company's employees and customers, maintain liquidity, support its franchisees, and manage through currently known impacts of the pandemic. Given the unprecedented nature of the pandemic, the extent of future impacts cannot be reasonably estimated at this time due to numerous uncertainties, including the duration and severity of the pandemic.

Cash and cash equivalents

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

Receivables and allowance for doubtful accounts

Valvoline invoices customers once or as performance obligations are satisfied, at which point payment becomes unconditional. As the majority of the Company’s performance obligations are satisfied at a point in time and customers typically do not make material payments in advance, nor does Valvoline have a right to consideration in advance of control transfer, the Company has no contract assets or contract liabilities. The Company recognizes a

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receivable on its Consolidated Balance Sheets when the Company performs a service or transfers a product in advance of receiving consideration and its right to consideration is unconditional and only the passage of time is required before payment of that consideration is due.

Receivables are recorded at net realizable value, and Valvoline records an allowance for doubtful accounts as a best estimate of the amount of probable credit losses. Valvoline estimates the allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, the financial health of its customers, macroeconomic conditions, past transaction history with the customer, and changes in customer payment terms. If the financial condition of its customers deteriorates or other circumstances occur that result in an impairment of customers’ ability to make payments, the Company records additional allowances as needed. The Company writes off uncollectible receivables against the allowance when collection efforts have been exhausted and/or any legal action taken by the Company has concluded.

Inventories

Inventories are 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 last-in, first-out (“LIFO”) method to provide matching of revenues with current costs. Costs include materials, labor and manufacturing overhead related to the purchase and production of inventories. The Company regularly reviews inventory quantities on hand and the estimated utilization of inventory. Excess and obsolete reserves are established when inventory is estimated to not be usable based on forecasted usage, product demand and life cycle, as well as utility.

Property, plant and equipment

Property, plant and equipment is recorded at cost and is depreciated using the straight-line method over the estimated useful lives of the assets. Buildings are depreciated principally over 10 to 25 years and machinery and equipment is generally depreciated over 5 to 30 years. Building and leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from which the date the assets are placed in service to the end of the lease term, as appropriate. Property, plant and equipment is relieved of the cost and related accumulated depreciation when assets are disposed of or otherwise retired. Gains or losses on the dispositions of property, plant and equipment are included in the Consolidated Statements of Comprehensive Income and generally reported in Equity and other income, net.

Property, plant and equipment carrying values are evaluated for recoverability when impairment indicators are present and are conducted at the lowest level of identifiable cash flows. Such indicators could include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of property, plant and equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).

Leases

Lessee arrangements

Certain of the properties Valvoline utilizes, including quick-lube service center stores, offices, blending and warehouse facilities, in addition to certain equipment, are leased. Valvoline determines if an arrangement contains a lease at inception primarily based on whether or not the Company has the right to control the asset during the contract period. For all agreements where it is determined that a lease exists, the related lease assets and liabilities are recognized on the Consolidated Balance Sheet as either operating or finance leases at the commencement date.

The lease liability is measured at the present value of future lease payments over the lease term, and the right-of-use asset is measured at the lease liability amount, adjusted for prepaid lease payments, lease incentives, and the lessee's initial direct costs (e.g., commissions). Valvoline includes leases with an initial term of 12 months or less in the measurement of its right-of-use asset and lease liability balances, which generally have terms ranging from less than one year to more than 20 years. The lease term includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

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Fixed payments, including variable payments based on a rate or index, are included in the determination of the lease liability, while other variable payments are recognized in the Consolidated Statements of Comprehensive Income in the period in which the obligation for those payments is incurred. Many leases contain lease components requiring rental payments and other components that require payment for taxes, insurance, operating expenses and maintenance. In instances where these other components are fixed, they are included in the measurement of the lease liability due to Valvoline's election to combine lease and non-lease components and account for them as a single lease component. Otherwise, these other components are expensed as incurred and comprise the majority of Valvoline's variable lease costs.

As most leases do not provide the rate implicit in the lease, the Company estimates its incremental borrowing rate to best approximate the rate of interest that Valvoline would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Valvoline applies the incremental borrowing rate to groups of leases with similar lease terms in determining the present value of future payments. In determining the incremental borrowing rate, the Company considers information available at the commencement date, including lease term, interest rate yields for specific interest rate environments and the Company's credit spread.

Lessor arrangements

Valvoline is the lessor in arrangements to sublease and lease certain properties and equipment. Activity associated with these leases is not material.

Business combinations

The Company allocates the purchase consideration to the identifiable assets acquired and liabilities assumed in business combinations based on their acquisition-date fair values. The excess of the purchase consideration over the amounts assigned to the identifiable assets and liabilities is recognized as goodwill, or if the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase gain is recorded. Factors giving rise to goodwill generally include operational synergies that are anticipated as a result of the business combination and growth expected to result in economic benefits from access to new customers and markets. The fair values of identifiable intangible assets acquired in business combinations are generally determined using an income approach, requiring financial forecasts and estimates as well as market participant assumptions.

The incremental financial results of the businesses that Valvoline has acquired are included in the Company’s consolidated financial results from the respective dates of each acquisition.

Goodwill and other intangible assets

Valvoline tests goodwill for impairment annually as of July 1 or when events and circumstances indicate an impairment may have occurred. This annual assessment consists of Valvoline determining each reporting unit’s current fair value compared to its current carrying value. Valvoline’s reporting units are Quick Lubes, Core North America, and International.

In evaluating goodwill for impairment, Valvoline has the option to first perform a qualitative "step zero" assessment to determine whether further impairment testing is necessary or to perform a quantitative "step one" assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. Qualitative factors include macroeconomic conditions, industry and market conditions, cost factors, and overall financial performance, among others.

Under the step one assessment, if the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured under "step two" of the impairment analysis. In step two of the analysis, an impairment loss will be recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value. Fair values of the reporting units are estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of a discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate, weighted average cost of capital, terminal

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values and working capital changes. Several of these assumptions vary among reporting units, and the cash flow forecasts are generally based on approved strategic operating plans. The market approach is performed using the Guideline Public Companies method which is based on earnings multiple data. The Company also performs a reconciliation between market capitalization and the estimate of the aggregate fair value of the reporting units, including consideration of a control premium.

Valvoline elected to perform a qualitative assessment during fiscal 2020 and determined that it is not more likely than not that the fair values of Valvoline’s reporting units are less than carrying amounts.

Acquired finite-lived intangible assets principally consist of certain trademarks and trade names, reacquired franchise rights and customer relationships. Intangible assets acquired in an asset acquisition are carried at cost, less accumulated amortization. For intangible assets acquired in a business combination, the estimated fair values of the assets acquired are used to establish the carrying values, which are determined using assumptions from the perspective of a market participant and generally an income approach. These intangible assets are amortized on a straight-line basis over their estimated useful lives. Valvoline evaluates finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, and any assets not expected to be recovered through undiscounted future net cash flows are written down to current fair value.

Equity method investments

Investments in companies, including joint ventures, where Valvoline has the ability to exert significant influence over, but not control, operating and financial policies of the investee are accounted for using the equity method of accounting. Judgment regarding the level of influence over each investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, and participation in policy-making decisions. The Company’s proportionate share of the net income or loss of these companies is included within Equity and other income, net in the Consolidated Statements of Comprehensive Income.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time and extent to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.

Pension and other postretirement benefit plans

Valvoline sponsors defined benefit pension and other postretirement plans in the U.S and in certain countries outside the U.S. Valvoline recognizes the funded status of each applicable plan on the Consolidated Balance Sheets whereby each underfunded plan is recognized as a liability. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation. Changes in the fair value of plan assets and net actuarial gains or losses are recognized upon remeasurement as of September 30, the annual measurement date, and whenever a remeasurement is triggered. The remaining components of pension and other postretirement benefits expense / income are recorded ratably on a quarterly basis. The fair value of plan assets represents the current market value of assets held by irrevocable trust funds for the sole benefit of participants, and the benefit obligation is the actuarial present value of the benefits expected to be paid upon retirement, death, or other distributable event based on estimates. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain key assumptions that require significant judgment, including, but not limited to, estimates of discount rates, rate of compensation increases, interest rates and mortality rates. Actuarial gains and losses may be related to actual results that differ from assumptions as well as changes in assumptions, which may occur each year.

Due to the freeze of U.S. pension benefits effective September 30, 2016, continuing service costs are limited to certain international pension plans, and are reported in the same caption of the Consolidated Statements of Comprehensive Income as the related employee payroll expenses. All components of net periodic benefit cost / income other than service cost are recognized below operating income within Net pension and other postretirement plan expense / income in the Consolidated Statements of Comprehensive Income.

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Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred and are recorded in Selling, general and administrative expensesin the Consolidated Statements of Comprehensive Income.

Revenue recognition

Revenue is recognized for the amount that reflects the consideration the Company is expected to be entitled to receive based on when control of the promised good or service is transferred to the customer. Revenue recognition is evaluated through the following five steps: (i) identification of the contract(s) with a customer; (ii) identification of the performance obligation(s) in the contract(s); (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligation(s) in the contract(s); and (v) recognition of revenue when or as a performance obligation is satisfied.

Nature of goods and services

Valvoline generates all revenues from contracts with customers, primarily as a result of the sale and service delivery of engine and automotive maintenance products to customers. Valvoline derives its sales from its broad line of products and complementary services through the following three principal activities managed across its three reportable segments: (i) engine and automotive maintenance products, (ii) company-owned quick-lube operations, and (iii) franchised quick-lube operations. Valvoline’s sales are generally to retail, installer, industrial, distributor, franchise, and end consumers to facilitate vehicle and equipment service and maintenance.

Valvoline's sales are predominantly comprised of products and services sold at a point in time with approximately 98% recognized either through ship-and-bill performance obligations or company-owned quick-lube operations. The remainder of the Company's sales generally relate to franchise fees transferred over time. The following table summarizes Valvoline's sales by timing of revenue recognized for the fiscal years ended September 30:

Franchised revenues transferred over time 40 44 29

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

Engine and automotive maintenance products

Engine and automotive maintenance products primarily include lubricants, antifreeze, chemicals, filters, and other complementary products for use across a wide array of vehicles and engines. The Company’s customers typically enter into a sales agreement which outlines a framework of terms and conditions that apply to all current and future purchase orders for the customer submitted under such sales agreement. In these situations, the Company’s contract with the customer is the sales agreement combined with the customer purchase order as specific products and quantities are not indicated until a purchase order is submitted. As the Company’s contract with the customer is typically for a single purchase order under the supply agreement to be delivered at a point in time, the duration of the contract is almost always one year or less. The Company’s products are distinct and separately identifiable on customer purchase orders, with each product sale representing a separate performance obligation that is generally delivered simultaneously. Valvoline is the principal to these contracts as the Company has control of the products prior to transfer to the customer. Accordingly, revenue is recognized on a gross basis.

The Company determines the point in time at which control is transferred and the performance obligation is satisfied by considering when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the product, which generally coincides with the transfer of title and risk of loss to the customer and is typically determined based on delivery terms within the underlying contract.

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Customer payment terms vary by region and customer and are generally 30 to 60 days after delivery. Valvoline does not provide extended payment terms greater than one year.

Company-owned quick-lube operations

Performance obligations related to company-owned quick-lube operations primarily include the sale of engine and automotive maintenance products and related services. These performance obligations are distinct and are delivered simultaneously at a point in time. Accordingly, revenue from company-owned quick-lube operations is recognized when payment is tendered at the point of sale, which coincides with the completion of product and service delivery and the transfer of control and benefits from the performance obligations to the customer.

Franchised quick-lube operations

The primary performance obligations related to franchised quick-lube operations include product sales as described above and the license of intellectual property, which provides access to the Valvoline brand and proprietary information to operate service center stores over the term of a franchise agreement. Other franchise performance obligations do not result in material revenue. Each performance obligation is distinct, and franchisees generally receive and consume the benefits provided by the Company’s performance over the course of the franchise agreement, which typically ranges from 10 to 15 years. Billings and payments occur monthly.

In exchange for the license of Valvoline intellectual property, franchisees generally remit initial fees upon opening a service center store and royalties at a contractual rate of the applicable service center store sales over the term of the franchise agreement. The license provides access to the intellectual property over the term of the franchise agreement and is considered a right-to-access license of symbolic intellectual property as substantially all of its utility is derived from association with the Company’s past and ongoing activities. The license granted to operate each franchised service center store is the predominant item to which the royalties relate and represents a distinct performance obligation which is recognized over time as the underlying sales occur, as this is the most appropriate measure of progress toward complete satisfaction of the performance obligation.

Variable consideration

The Company only offers an assurance-type warranty with regard to the intended functionality of products sold, which does not represent a distinct performance obligation within the context of the contract. Product returns and refunds are generally not material and are not accepted unless the item is defective as manufactured. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is adjusted for known trends to arrive at the amount of consideration to which Valvoline expects to receive.

The nature of Valvoline’s contracts with customers often give rise to variable consideration consisting primarily of promotional rebates and customer pricing discounts based on achieving certain levels of sales activity that generally decrease the transaction price. The Company determines the transaction price as the amount of consideration it expects to be entitled to in exchange for fulfilling the performance obligations, including the effects of any variable consideration, or amounts payable to the customer when there is a basis to reasonably estimate the amount and it is probable there will not be a significant reversal. Variable consideration is recorded as a reduction of the transaction price at the time of sale and is primarily estimated utilizing the most likely amount method that is expected to be earned as the Company is able to estimate the anticipated discounts within a sufficiently narrow range of possible outcomes based on its extensive historical experience with certain customers, similar programs and management’s judgment with respect to estimating customer participation and performance levels. Variable consideration is reassessed at each reporting date and adjustments are made, when necessary.

The reduction of transaction price due to customer incentives was $332 million, $346 million, and $357 million in the Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019, and 2018, respectively. Reserves for these customer programs and incentives were $64 million and $72 million as of September 30, 2020 and 2019, respectively, and are recorded within Accrued expenses and other liabilities in the Consolidated Balance Sheets.

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Allocation of transaction price

In each contract with multiple performance obligations, Valvoline allocates the transaction price, including variable consideration, to each performance obligation on a relative standalone selling price basis, which is generally determined based on the directly observable data of the Company’s standalone sales of the performance obligations in similar circumstances to similar customers. In the absence of directly observable standalone prices, the Company may utilize prices charged by competitors selling similar products or use an expected cost-plus margin approach. The amount allocated to each performance obligation is recognized as revenue as control is transferred to the customer.

Policy elections

•Sales and use-based taxes - The Company excludes taxes collected from customers from sales. These amounts are, however, reflected in accrued expenses until remitted to the appropriate governmental authority.

•Shipping and handling costs - Valvoline elected to account for shipping and handling activities that occur after the customer has obtained control as fulfillment activities (i.e., an expense) rather than as a performance obligation.Accordingly, amounts billed for shipping and handling are a component of the transaction price included in net sales, while costs incurred are included in cost of sales. Shipping and handling costs recorded in sales were $9 million in fiscal 2020 and $10 million both fiscal 2019 and 2018.

•Significant financing component - Valvoline does not adjust the promised amount of consideration for the effects of a significant financing component as the period between transfer of a promised product or service to a customer and when the customer pays for that product or service is expected to be one year or less.

•Remaining performance obligations - The Company elected to omit disclosures of remaining performance obligations for contracts which have an initial expected term of one year or less. In addition, the Company has elected to not disclose remaining performance obligations for its franchise agreements with variable consideration based on service center store sales.

•Incremental costs of obtaining a contract - The Company expenses incremental direct costs of obtaining a contract, primarily sales commissions, when incurred due to the short-term nature of individual contracts, which would result in amortization periods of one year or less. These costs are not material and are recorded in Selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income.

Expense recognition

Cost of sales are expensed as incurred andinclude material and production costs, as well as the costs of inbound and outbound freight, purchasing and receiving, inspection, warehousing, and all other distribution network costs.Selling, general and administrative expenses are expensed as incurred and include sales and marketing costs, research and development costs, advertising, customer support, and administrative costs. Advertising costs were $72 million in fiscal 2020, $73 million in fiscal 2019 and $63 million in fiscal 2018, and research and development costs were $13 million in both fiscal 2020 and 2019 and $14 million in fiscal 2018.

Stock-based compensation

Stock-based compensation expense is recognized within Selling, general and administrative expense in the Consolidated Statements of Comprehensive Income and is principally based on the grant date fair value of new or modified awards over the requisite vesting period. The Company’s outstanding stock-based compensation awards are primarily classified as equity, with certain liability-classified awards based on award terms and conditions. Valvoline accounts for forfeitures when they occur.

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Restructuring