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 Condensed Consolidated Statements of Cash Flows are summarized as follows for the nine months ended June 30:

Operating activities

Cash flows provided by operating activities increased $104.6 million from the prior year period primarily driven by $80.4 million of higher cash earnings and, to a lesser extent, lower spend on cloud computing implementation in the current year period.

Investing activities

The increase in cash flows used in investing activities of $689.4 million was primarily due to $620.4 million higher net cash consideration paid for acquisitions, mainly related to the Breeze acquisition. In addition, the Company received $57.4 million lower proceeds from the sale of operations during the current year compared to proceeds received from disposition activity in the prior year. Finally, capital expenditures were higher by $12.0 million from increased maintenance capital expenditures related to store technology upgrades.

Financing activities

Cash flows provided by financing activities increased $613.1 million from the prior year substantially driven by an increase in net borrowings, inclusive of payments for debt issuance costs, of $540.6 million. The current year activity is driven by the proceeds from the issuance of the Term Loan B offset by a $50.0 million prepayment on the Term Loan A and net repayments on the Revolver balance. In addition, the Company did not repurchase any shares of its common stock during the nine months ended June 30, 2026 as the Company accelerated debt repayment following the Term Loan B issuance, which resulted in less cash used in financing activities of $76.8 million compared to the prior year.

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 the “Use of Non-GAAP Measures” section included above in this Item 2 for additional information regarding these non-GAAP measures.

The increase in free cash flow from continuing operations over the prior year was due to higher cash flows provided by operating activities as described above, partially offset by increased capital expenditures in the current period. The increase in capital expenditures compared to the prior year was primarily driven by higher maintenance capital expenditures related to store technology upgrades. 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

Approximately 33% of Valvoline's outstanding borrowings at June 30, 2026 had fixed interest rates, with the remainder bearing variable rates. As of June 30, 2026, Valvoline was in compliance with all covenants of its debt obligations and had borrowing capacity of $470.1 million remaining under its Revolver.

In December 2025, Valvoline amended its Senior Credit Agreement to add a seven-year $740.0 million Term Loan B. The proceeds of the Term Loan B were used to fund the Breeze acquisition with the remaining proceeds used to pay down the outstanding balance on the Revolver.

On June 30, 2026, the Company further amended the Senior Credit Agreement to reduce the interest rates applicable to the Term Loan B. Under the amended agreement, at Valvoline’s option, amounts outstanding under the Term Loan B bear interest at either the adjusted term Secured Overnight Financing Rate (“SOFR”) plus 1.75% per year or the base rate plus 0.75% per year.

Additionally, the Company prepaid $50.0 million of principal on the Term Loan A during the three months ended June 30, 2026.

Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements for additional details regarding the Company’s debt instruments.

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 nine months ended June 30, 2026, the Company did not repurchase any shares of its common stock. As of June 30, 2026, $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 net debt to adjusted EBITDA leverage ratio of 1.5 to 2.5 times; and third, to continue returning excess capital to shareholders.

Following the Breeze acquisition, the Company paused share repurchase activity to accelerate debt reduction and support its leverage objectives. Since the acquisition, the Company has made substantial progress in reducing its net debt to adjusted EBITDA leverage ratio. The Company continues to prioritize deleveraging and expects to resume share repurchases in an orderly manner upon achievement of the commitments established at the time of the acquisition.

Summary

Valvoline had cash and cash equivalents of $84.2 million, total debt of $1,602.0 million, and total remaining borrowing capacity of $470.1 million under its Revolver as of June 30, 2026. Valvoline’s ability to continue 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 the Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

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.