VALVOLINE INC

Overview

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

Continuing operations cash flows

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

Operating activities

The increase in cash flows provided by operating activities of $24.2 million from the prior year was primarily driven by higher cash earnings, that were moderated by the impact of the Refranchising Transactions, and lower interest payments of $22.1 million due to lower outstanding debt from the repurchase of the 2030 Senior Notes in the prior period. These increases were partially offset by unfavorable changes in net working capital that were attributed to a decrease in payables and accrued liabilities largely driven by acquisition and divestiture-related expenses paid during the period.

Investing activities

The decrease in cash flows from investing activities of $337.9 million from the prior year was substantially driven by a decline in net proceeds from investments of $345.0 million and an increase in current year acquisition activity of $12.3 million that was partially offset by increased net proceeds from the sale of operations of $49.5 million. Lower proceeds from investments were due to maturities in the prior year of short-term investments of the remaining net proceeds from the sale of Global Products, while higher net proceeds from the sale of operations was largely a result of completing a Refranchising Transaction in the first quarter of fiscal 2025 to sell 39 company-operated service center stores to a new franchisee. Further contributing to the increased use of investing cash flows year-over-year were higher capital expenditures of $34.8 million to support store enhancements and growth.

Financing activities

The decrease in cash flows used in financing activities of $633.4 million from the prior year was substantially due to lower net repayments on borrowings of $480.0 million primarily driven by the prior year debt tender offer to purchase the outstanding 2030 Notes. Also contributing to this decrease was lower share repurchase activity of $166.4 million, partially offset by excise tax payments of $16.4 million that were largely due to share repurchases completed in fiscal 2023 under the modified “Dutch auction” tender offer subject to the 1% excise tax of the Inflation Reduction Act that became effective in calendar 2023.

Continuing operations free cash flow

The following table sets forth free cash flow and free cash flow excluding growth capital expenditures reconciled to cash flows from operating activities. As previously noted, these free cash flow measures have certain limitations, including that they do not reflect adjustments for certain non-discretionary cash expenditures, such as mandatory debt repayments. Refer to “Use of Non-GAAP Measures” within this Item 7 for additional information regarding these non-GAAP measures.

The decrease in free cash flow from continuing operations over the prior year was impacted by increased capital expenditures during the current year, which were partially offset by higher cash flows provided by operating activities in the current year as described above. The increase in capital expenditures over the prior year period was primarily driven by higher maintenance capital expenditures, principally attributed to facility and equipment expenditures. Higher growth capital expenditures were primarily driven by new store construction, including the timing and mix of new store additions at the end of the year. The Company continues to focus the majority of its capital spend toward growth, which is expected to drive a high return on invested capital.

Debt

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

Approximately 50% of Valvoline's outstanding borrowings as of September 30, 2025 had fixed rates, with the remainder bearing variable interest rates. As of September 30, 2025, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity remaining of $341.6 million. Refer to Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional details regarding the Company’s debt instruments.

On April 16, 2024, Valvoline completed the Debt Tender Offer with 99.7% of the outstanding principal amount tendered by the holders of the 2030 Notes. The Debt Tender Offer was made to comply with the requirements of the asset sale covenant under the indenture governing the 2030 Notes in connection with the sale of Global Products and Valvoline’s use of the related net proceeds.

The Company used cash and cash equivalents on hand, in addition to borrowing $175.0 million on the Revolver to facilitate the $598.3 million purchase of the 2030 Notes at par, plus accrued and unpaid interest, and cancelled the 2030 Notes accepted for purchase. The Company elected to repurchase the remaining balance outstanding of $1.7 million on April 29, 2024 pursuant to the terms and conditions of the indenture governing the 2030 Notes. In connection with the completion of the Debt Tender Offer, Valvoline recognized a loss on extinguishment of the 2030 Notes of $5.1 million within Net interest and other financing expenses in the Consolidated Statements of Comprehensive Income during the year ended September 30, 2024, comprised of the write-off of related unamortized debt issuance costs and discounts.

Material cash requirements and other commitments

The Company's material cash requirements for the continuing operations include the following contractual obligations and commitments as of September 30, 2025:

(a)Includes interest on both variable and fixed rate debt, assuming no prepayments. Variable interest rates have been assumed to remain constant through payment at the rates that existed as of September 30, 2025.

(b)Includes projected benefit payments through fiscal 2035 for Valvoline’s unfunded benefit plans. Excludes benefit payments from pension plan trust funds.

The Company guaranteed future payments related to certain leases assigned in connection with the Refranchising Transactions and selling Global Products. Valvoline is obligated to perform if the buyers default on the leases, which have remaining terms ranging from three months to 15 years. The undiscounted maximum potential future payments under the lease guarantees were $63.8 million as of September 30, 2025. In addition, the Company guarantees certain outstanding franchisee debt obligations that have remaining terms ranging from one to five years and total $12.4 million as of September 30, 2025. The Company has not recorded a liability for these guarantees as the likelihood of making future payments is not considered probable.

Fiscal 2026 capital expenditures

Valvoline is currently forecasting approximately $250 million to $280 million of capital expenditures for fiscal 2026, funded primarily from operating cash flows.

Pension and other postretirement plan obligations

The Company makes cash and non-cash contributions and benefit payments for its pension and other postretirement plans. During fiscal 2025, the Company made $10.6 million in benefit payments for its non-qualified pension and other postretirement plans, consisting of $5.7 million of cash payments and $4.9 million of non-cash payments. Based on current data and assumptions, the Company does not anticipate the need to satisfy any minimum funding requirements to its qualified pension plans in the near term. Refer to Note 10 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding the Company's U.S. pension and other postretirement plans.

Share repurchases

In July 2024, the Board approved a share repurchase authorization of $400.0 million (the “2024 Share Repurchase Authorization”), which has no expiration date. During the year ended September 30, 2025, the Company repurchased 1.6 million shares of its common stock for $59.8 million. As of September 30, 2025, $325.0 million remained available for share repurchases under the 2024 Share Repurchase Authorization.

The timing and amount of any repurchases of common stock will be solely at the discretion of the Company and is subject to general business and market conditions, as well as other factors. The share repurchase authorization is part of a broader capital allocation framework to deliver value to shareholders by first, driving profitable growth in the business, organically and through acquisitions and franchise development; second, to remain within a ratings agency target adjusted EBITDA net leverage ratio of 2.5 to 3.5 times; and third, to continue returning excess capital to shareholders.

Valvoline announced in the second quarter of fiscal 2025 that it was pausing share repurchase activity in anticipation of completing the Breeze Autocare acquisition. Valvoline will fund the acquisition with a new Term Loan B issuance and accelerate debt repayment after closing the Breeze Autocare acquisition to return to a ratings agency target adjusted EBITDA net leverage ratio of 2.5 to 3.5 times.

Summary

Valvoline’s continuing operations had cash and cash equivalents of $51.6 million, total debt of $1.1 billion, and total remaining borrowing capacity of $341.6 million as of September 30, 2025. Valvoline’s ability to generate positive cash flows from operations is dependent on general economic conditions, the competitive environment in the industry, and is subject to the business and other risk factors described in Item 1A of Part I of this Annual Report on Form 10-K.

Management believes that the Company has sufficient liquidity based on its current cash, cash equivalents, cash generated from business operations and existing financing to meet its pension and other postretirement plan, debt servicing, tax-related and other material cash and operating requirements for the next twelve months.