VALVOLINE INC, 10-K filed on 11/22/2019
Annual Report
v3.19.3
Cover Page - USD ($)
$ in Billions
12 Months Ended
Sep. 30, 2019
Nov. 15, 2019
Mar. 31, 2019
Cover page.      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Sep. 30, 2019    
Document Transition Report false    
Entity File Number 001-37884    
Entity Registrant Name VALVOLINE INC    
Entity Incorporation, State or Country Code KY    
Entity Tax Identification Number 30-0939371    
Entity Address, Address Line One 100 Valvoline Way    
Entity Address, City or Town Lexington    
Entity Address, State or Province KY    
Entity Address, Postal Zip Code 40509    
City Area Code 859    
Local Phone Number 357-7777    
Title of 12(b) Security Common stock, par value $0.01 per share    
Trading Symbol VVV    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 3.5
Entity Common Stock, Shares Outstanding   188,395,670  
Amendment Flag false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001674910    
Current Fiscal Year End Date --09-30    
Documents Incorporated by Reference Portions of the Registrant’s definitive proxy statement (“Proxy Statement”) for its 2020 Annual Meeting of Shareholders, which will be filed within 120 days of the Registrant’s fiscal year end, are incorporated by reference into Part III of this Annual Report on Form 10-K.    
v3.19.3
Consolidated Statements of Comprehensive Income - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2017
Net Income (Loss) Attributable to Parent [Abstract]      
Sales $ 2,390 $ 2,285 $ 2,084
Cost of sales 1,580 1,479 1,308
Gross profit 810 806 776
Selling, general and administrative expenses 449 430 396
Net legacy and separation-related expenses 3 14 11
Equity and other income, net (40) (33) (25)
Operating income 398 395 394
Net pension and other postretirement plan expense (income) 60 0 (138)
Net interest and other financing expenses 73 63 42
Income before income taxes 265 332 490
Income tax expense 57 166 186
Net income $ 208 $ 166 $ 304
NET INCOME PER SHARE      
Net income per share, basic (usd per share) $ 1.10 $ 0.84 $ 1.49
Net income per share, diluted (usd per share) $ 1.10 $ 0.84 $ 1.49
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING      
Weighted average common shares outstanding, basic (in shares) 189 197 204
Weighted average common shares outstanding, diluted (in shares) 189 197 204
Dividends paid per common share (usd per share) $ 0.424 $ 0.298 $ 0.196
COMPREHENSIVE INCOME      
Net income $ 208 $ 166 $ 304
Other comprehensive (loss) income, net of tax      
Currency translation adjustments (12) (10) 7
Amortization of pension and other postretirement plan prior service credit (9) (9) (8)
Other comprehensive loss (21) (19) (1)
Comprehensive income $ 187 $ 147 $ 303
v3.19.3
Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2019
Sep. 30, 2018
Current assets    
Cash and cash equivalents $ 159 $ 96
Accounts receivable, net 401 409
Inventories, net 194 176
Prepaid expenses and other current assets 43 44
Total current assets 797 725
Noncurrent assets    
Property, plant and equipment, net 498 420
Goodwill and intangibles, net 504 448
Equity method investments 34 31
Deferred income taxes 123 138
Other noncurrent assets 108 92
Total noncurrent assets 1,267 1,129
Total assets 2,064 1,854
Current liabilities    
Current portion of long-term debt 15 30
Trade and other payables 171 178
Accrued expenses and other liabilities 237 203
Total current liabilities 423 411
Noncurrent liabilities    
Long-term debt 1,327 1,292
Employee benefit obligations 387 333
Other noncurrent liabilities 185 176
Total noncurrent liabilities 1,899 1,801
Commitments and contingencies
Stockholders’ deficit    
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding 0 0
Common stock, par value $0.01 per share, 400 shares authorized, 188 shares issued and outstanding at September 30, 2019 and 2018 2 2
Paid-in capital 13 7
Retained deficit (284) (399)
Accumulated other comprehensive income 11 32
Total stockholders’ deficit (258) (358)
Total liabilities and stockholders’ deficit $ 2,064 $ 1,854
v3.19.3
Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2019
Sep. 30, 2018
Statement of Financial Position [Abstract]    
Preferred stock authorized (in shares) 40,000,000 40,000,000
Preferred stock issued (in shares) 0 0
Preferred stock outstanding (in shares) 0 0
Common stock, par value (usd per share) $ 0.01 $ 0.01
Common stock authorized (in shares) 400,000,000 400,000,000
Common stock issued (in shares) 188,000,000 188,000,000
Common stock outstanding (in shares) 188,000,000 188,000,000
v3.19.3
Consolidated Statements of Stockholders' Deficit - USD ($)
shares in Millions
Total
Common stock
Paid-in capital
Retained deficit
Accumulated other comprehensive (loss) income
Ashland’s net investment
Common stock outstanding, beginning balance (in shares) at Sep. 30, 2016   205        
Balance at beginning of period at Sep. 30, 2016 $ (330,000,000) $ 2,000,000 $ 710,000,000 $ 0 $ (3,000,000) $ (1,039,000,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 304,000,000     304,000,000    
Contribution of net liabilities from Ashland (10,000,000)     (55,000,000) 47,000,000 (2,000,000)
Net transfers from Ashland 5,000,000         5,000,000
Distribution of Ashland's net investment 0   (710,000,000) (326,000,000)   1,036,000,000
Dividends paid (40,000,000)     (40,000,000)    
Stock-based compensation, net of issuances $ 5,000,000   5,000,000      
Repurchase of common stock (in shares) (2) (2)        
Repurchase of common stock $ (50,000,000)     (50,000,000)    
Currency translation adjustments 7,000,000       7,000,000  
Amortization of pension and other postretirement prior service credits in income (8,000,000)       (8,000,000)  
Common stock outstanding, ending balance (in shares) at Sep. 30, 2017   203        
Balance at end of period at Sep. 30, 2017 (117,000,000) $ 2,000,000 5,000,000 (167,000,000) 43,000,000 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 166,000,000     166,000,000    
Dividends paid (58,000,000)     (58,000,000)    
Stock-based compensation, net of issuances $ 9,000,000   9,000,000      
Repurchase of common stock (in shares) (15) (15)        
Repurchase of common stock $ (325,000,000)     (325,000,000)    
Purchase of remaining ownership in subsidiary (14,000,000)   (7,000,000) (7,000,000)    
Reclassification of income tax effects of U.S. tax reform 0     (8,000,000) 8,000,000  
Currency translation adjustments (10,000,000)       (10,000,000)  
Amortization of pension and other postretirement prior service credits in income $ (9,000,000)       (9,000,000)  
Common stock outstanding, ending balance (in shares) at Sep. 30, 2018 188 188        
Balance at end of period at Sep. 30, 2018 $ (358,000,000) $ 2,000,000 7,000,000 (399,000,000) 32,000,000 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 208,000,000     208,000,000    
Dividends paid (80,000,000)     (80,000,000)    
Stock-based compensation, net of issuances $ 6,000,000   6,000,000      
Repurchase of common stock (in shares) 0          
Repurchase of common stock $ 0          
Currency translation adjustments (12,000,000)       (12,000,000)  
Amortization of pension and other postretirement prior service credits in income $ (9,000,000)       (9,000,000)  
Common stock outstanding, ending balance (in shares) at Sep. 30, 2019 188 188        
Balance at end of period at Sep. 30, 2019 $ (258,000,000) $ 2,000,000 $ 13,000,000 $ (284,000,000) $ 11,000,000 $ 0
v3.19.3
Consolidated Statements of Stockholders' Deficit (Parenthetical) - $ / shares
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2017
Statement of Stockholders' Equity [Abstract]      
Dividends paid per common share (usd per share) $ 0.424 $ 0.298 $ 0.196
v3.19.3
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities      
Net income $ 208 $ 166 $ 304
Adjustments to reconcile to cash flows from operations      
Depreciation and amortization 61 54 42
Deferred income taxes 23 145 117
Equity income from unconsolidated affiliates, net of distributions (3) (4) (4)
Pension contributions (10) (16) (412)
Loss (gain) on pension and other postretirement plan remeasurements 69 38 (68)
Stock-based compensation expense 9 12 9
Other, net (2) 4 3
Change in assets and liabilities      
Accounts receivable [1] (30) (38) (22)
Inventories [1] (10) (4) (35)
Payables and accrued liabilities [1] 37 (2) 0
Other assets and liabilities [1] (27) (35) (64)
Total cash provided by (used in) operating activities 325 320 (130)
Cash flows from investing activities      
Additions to property, plant and equipment (108) (93) (68)
Acquisitions, net of cash acquired (78) (125) (68)
Other investing activities, net (2) 5 1
Total cash used in investing activities (188) (213) (135)
Cash flows from financing activities      
Net transfers from Ashland 0 0 5
Proceeds from borrowings, net of issuance costs 750 304 470
Repayments on borrowings (734) (108) (90)
Repurchases of common stock 0 (325) (50)
Purchase of additional ownership in subsidiary (1) (15) 0
Cash dividends paid (80) (58) (40)
Other financing activities (6) (7) 0
Total cash (used in) provided by financing activities (71) (209) 295
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash (3) (3) (1)
Increase (decrease) in cash, cash equivalents, and restricted cash 63 (105) 29
Cash, cash equivalents, and restricted cash - beginning of year 96 201 172
Cash, cash equivalents, and restricted cash - end of year 159 96 201
Supplemental disclosures      
Interest paid 67 53 35
Income taxes paid $ 25 $ 26 $ 26
[1] Excludes changes resulting from operations acquired or sold.
v3.19.3
Description of Business and Basis of Presentation
12 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Description of Business and Basis of Presentation 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 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.

Prior to its initial public offering (the "IPO") in September 2016, the Valvoline business operated as a wholly-owned subsidiary of Ashland Global Holdings Inc. (which together with its predecessors and consolidated subsidiaries is referred to herein as “Ashland”). Valvoline was incorporated in May 2016 and in advance of the IPO, the Valvoline business and certain other legacy Ashland assets and liabilities were transferred from Ashland to Valvoline as a reorganization of entities under common Ashland control (the "Contribution"). In connection with the IPO, Ashland retained 83% of the total outstanding shares of Valvoline's common stock. On May 12, 2017, Ashland distributed its interest in Valvoline to Ashland stockholders through a pro rata dividend on shares of Ashland common stock outstanding at the close of business on the record date of May 5, 2017 (the "Distribution"). Based on the shares of Ashland common stock outstanding on the record date, each share of Ashland common stock received 2.745338 shares of Valvoline common stock in the Distribution. The Distribution marked the completion of Valvoline's separation from Ashland as Ashland no longer owned any shares of Valvoline common stock and Valvoline was no longer a controlled and consolidated subsidiary of Ashland.

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. 

All transactions and balances between Valvoline and Ashland have been reported in the accompanying consolidated financial statements, which reflect the transfer of various assets and liabilities from Ashland on a carryover basis (historical cost). Ashland’s net investment in Valvoline included net income through the completion of the IPO and net cash transfers to and from Ashland through the Distribution. Concurrent with the Distribution, Ashland’s net investment in Valvoline was reduced to zero with a corresponding adjustment to Paid-in capital and Retained deficit.
Certain prior period amounts have been reclassified in the accompanying consolidated financial statements and notes thereto to conform to the current period presentation.
v3.19.3
Significant Accounting Policies
12 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies SIGNIFICANT ACCOUNTING POLICIES
Valvoline’s significant accounting policies, which conform to U.S. GAAP and are applied on a consistent basis in all years 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.

Cash and cash equivalents
All short-term, highly liquid investments having original maturities of three months or less are considered to be cash equivalents.
Accounts receivable 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 had no contract assets or contract liabilities. The Company recognizes a receivable on its Consolidated Balance Sheet when the Company performs a service or transfers a product in advance of receiving consideration, and the Company’s right to consideration is unconditional and only the passage of time is required before payment of that consideration is due.

Accounts receivable 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 for accounts receivable. 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 accounts receivable against the allowance for doubtful accounts 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 5 to 25 years and machinery and equipment principally over 5 to 30 years. 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 identifiable level of 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
Certain of Valvoline's properties, including retail, office, blending and warehouse locations, in addition to certain equipment, are leased. The initial terms of these leases vary in length and in many cases, include renewal options and require the payment of taxes, insurance and maintenance, in addition to rent. Certain leases contain escalation clauses and rent allowances, which have been reflected in rent expense on a straight-line basis over the lease term, with the difference recognized as deferred rent. Deferred rent was $5 million and $3 million as of September 30, 2019 and 2018, respectively.

Capital and financing leases are recorded as assets and an obligation at the present value of the minimum lease payments during the lease term. A financing lease is recorded when Valvoline is deemed the owner of the leased property. Capitalized and financing lease obligations are primarily included in Other noncurrent liabilities with related assets in Property, plant and equipment, net within the Consolidated Balance Sheets. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the lease term.
Business combinations
The financial results of the businesses that Valvoline has acquired are included in the Company’s consolidated financial results from the respective dates of the acquisitions. The Company allocates the purchase consideration to the identifiable assets acquired and liabilities assumed in the business combination 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 synergies that are anticipated as a result of the business combination, including 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.

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 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.

Although there were no circumstances indicating a potential impairment, Valvoline elected to perform a quantitative assessment during fiscal 2019 and determined that the fair values of the Company's reporting units were substantially in excess of carrying values and no impairment existed.

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. 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. Valvoline accounts for these obligations as single-employer plans for which Valvoline recognizes the net liabilities and the full amount of any costs or gains.

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, which is at least annually as of September 30, the 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.

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 expenses in 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 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 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. Approximately 98% of Valvoline’s net sales are products and services sold at a point in time through either ship-and-bill performance obligations or company-owned quick-lube operations. The remaining 2% of Valvoline’s net sales generally relate to franchise fees.
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.

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. Franchise revenue included within sales was $44 million, $29 million, and $28 million during fiscal 2019, 2018, and 2017, respectively.

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 $346 million, $357 million, and $360 million in the Consolidated Statements of Comprehensive Income for the years ended September 30, 2019, 2018, and 2017, respectively. Reserves for these customer programs and incentives were $72 million and $57 million as of September 30, 2019 and 2018, respectively, and are recorded within Accrued expenses and other liabilities in the Consolidated Balance Sheets.

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.

Practical expedients and policy elections
Sales and use-based taxes - The Company excludes taxes collected from customers from net 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 $10 million in both fiscal 2019 and 2018 and $16 million in fiscal 2017.

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 and include 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 $73 million in fiscal 2019, $63 million in fiscal 2018 and $61 million in fiscal 2017, and research and development costs were $13 million in fiscal 2019, $14 million in fiscal 2018 and $13 million in fiscal 2017.
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.

Restructuring
The timing of recognition and related measurement of an employee termination benefit liability associated with a non-recurring benefit arrangement depends on whether employees are required to render service beyond a minimum retention period until they are terminated in order to receive the termination benefits. For employees who are not required to render service until they are terminated or provide service beyond the minimum retention period in order to receive the termination benefits, the Company records a liability for the termination benefits at the communication date. If employees are required to render service beyond the minimum retention period until they are terminated in order to receive the termination benefits, the Company measures the liability for termination benefits at the communication date and recognizes the expense and liability ratably over the future service period.

Income taxes
Income tax expense is provided based on income before income taxes. The Company estimates its tax expense based on current tax laws in the statutory jurisdictions in which it operates. These estimates include judgments about the recognition and realization of deferred tax assets and liabilities resulting from the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates occur, deferred tax assets and liabilities are adjusted in the period changes are enacted through income tax expense. Valvoline records valuation allowances related to its deferred income tax assets when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being sustained upon examination by authorities. Interest and penalties related to unrecognized tax benefits are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law and until such time that the related tax benefits are recognized. Interest and penalties were not material to any of the periods presented herein.

Derivatives
Valvoline’s derivative instruments consist of currency exchange contracts, which are accounted for as either assets or liabilities in the Consolidated Balance Sheets at fair value and the resulting gains or losses are recognized as adjustments to earnings. Valvoline does not currently have any derivative instruments that are designated and qualify as hedging instruments. The Company classifies its cash flows for these transactions as investing activities in the Consolidated Statements of Cash Flows.

Fair value measurements
Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance prioritizes the inputs used to measure fair value into the following three-tier fair value hierarchy for which an instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement:
Level 1 - Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Valvoline's assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which may include the Company's own financial data, such as internally developed pricing models, DCF methodologies, as well as instruments for which the fair value determination requires significant management judgment.
Certain investments which measure fair value using the net asset value (“NAV”) per share practical expedient are not classified within the fair value hierarchy and are separately disclosed.
Valvoline measures its financial assets and financial liabilities at fair value based on one or more of the following three valuation techniques:

Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities
Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost)
Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option pricing and excess earnings models)

The Company generally uses a market approach, when practicable, in valuing financial instruments. In certain instances, when observable market data is lacking, the Company uses valuation techniques consistent with the income approach whereby future cash flows are converted to a single discounted amount. The Company uses multiple sources of pricing as well as trading and other market data in its process of reporting fair values. The fair values of accounts receivables and accounts payable approximate their carrying values due to the relatively short-term nature of the instruments.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Currency translation
Operations outside the United States are measured primarily using the local currency as the functional currency. Upon consolidation, the results of operations of the subsidiaries and affiliates whose functional currency is other than the U.S. dollar are translated into U.S. dollars at the average exchange rates for the year while assets and liabilities are translated at year-end exchange rates. Adjustments to translate assets and liabilities into U.S. dollars are recorded in the stockholders’ equity section of the Consolidated Balance Sheets as a component of Accumulated other comprehensive income and are included in net earnings only upon sale or substantial liquidation of the underlying non-U.S. subsidiary or affiliated company.

Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted-average number of common shares outstanding during the reported period. Diluted EPS is calculated similar to basic EPS, except that the weighted-average number of shares outstanding includes the number of shares that would have been outstanding had potentially dilutive common shares been issued. Potentially dilutive securities include stock appreciation rights and nonvested share-based awards. Nonvested market and performance-based share awards are included in the weighted-average diluted shares outstanding each period if established market or performance criteria have been met at the end of the respective periods.

Recent accounting pronouncements
The following standards relevant to Valvoline were either issued or adopted in the current year, or are expected to have a meaningful impact on Valvoline in future periods.

Recently adopted
During fiscal 2019, Valvoline adopted the following:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance, which established a single comprehensive model for entities to use in accounting for revenue from contracts with customers and superseded most industry-specific revenue recognition guidance. This new guidance introduced the five-step model for revenue recognition focused on the transfer of control, as opposed to the transfer of risk and rewards under prior guidance. Valvoline adopted this new revenue recognition guidance on October 1, 2018 using the modified retrospective method applied to those contracts that were not completed at the date of adoption. Under this method, the new revenue recognition guidance has been applied prospectively from the date of adoption, while prior period financial statements continue to be reported in accordance with the previous guidance. The cumulative effect of the changes at adoption was recognized through an increase to retained deficit of $13 million, net of tax, related to the timing of certain sales to distributors. Revenue transactions recorded under the new guidance are substantially consistent with the treatment under prior guidance, and the impact of adoption was not material to the consolidated financial statements as of and for the year ended September 30, 2019 and is not expected to be material on an ongoing basis. As part of the adoption, Valvoline modified certain control procedures and processes, none of which had a material effect on the Company’s internal control over financial reporting. Refer to Note 3 for additional information regarding Valvoline’s adoption of this new guidance.

In August 2016, the FASB issued new accounting guidance regarding the classification of certain cash receipts and payments in the statement of cash flows. The Company adopted the accounting guidance on October 1, 2018 using a retrospective approach and made an accounting policy election to classify distributions received from equity method investments based on the nature of the activities of the investee that generated the distribution, which is consistent with the Company’s previous classification as cash flows from operating activities. The other cash flow classification matters addressed in this guidance were either not relevant or material to Valvoline’s current activities. The adoption of this guidance did not have a material impact on the Company’s Consolidated Statements of Cash Flows.

In November 2016, the FASB issued new accounting guidance, which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Valvoline adopted this guidance retrospectively on October 1, 2018. The application of this guidance did not have a material impact on the Consolidated Statements of Cash Flows, nor did it require retrospective adjustment to the prior period financial statements as Valvoline did not have restricted cash or restricted cash equivalents in the prior periods presented. During fiscal 2019, Valvoline held deposits with financial institutions, which was generally restricted and utilized in completing an acquisition. As of September 30, 2019, no significant restricted cash remained in Prepaid expenses and other current assets within the Consolidated Balance Sheet or within the end-of-period balances shown within the Consolidated Statement of Cash Flows for the year ended September 30, 2019.

In January 2017, the FASB issued new accounting guidance, which clarifies the definition of a business used across several areas of accounting, including the evaluation of whether a transaction should be accounted for as an acquisition (or disposal) of assets or as a business combination. The new guidance clarifies that a business must have at least one substantive process and also narrows the definition of outputs by more closely aligning with how outputs are described in the new revenue recognition standard. Valvoline adopted this guidance on October 1, 2018 with prospective application. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued accounting guidance that amended the scope of modification accounting for share-based payment awards. The new guidance requires modification accounting if the fair value, vesting condition, or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. Valvoline adopted this guidance prospectively on October 1, 2018, and the Company did have certain modifications of share-based awards in connection with the restructuring activities described in Note 11; however, the award modifications and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued new accounting guidance related to fees paid by a customer in a cloud computing arrangement, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service arrangement with the existing capitalization guidance for implementation costs incurred to develop or obtain internal-use software. Valvoline adopted this guidance prospectively on October 1, 2018 and capitalized approximately $4 million of cloud computing arrangement implementation costs during fiscal 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Issued but not yet adopted
In February 2016, the FASB issued new accounting guidance, which outlines a comprehensive lease accounting model that requires lessees to recognize a right-of-use asset and a corresponding lease liability on the balance sheet. The lease liability will be measured at the present value of future lease payments, and the right-of-use asset will be measured at the
lease liability amount, adjusted for prepaid lease payments, lease incentives received and the lessee’s initial direct costs (e.g., commissions). Lease expense will be recognized similar to current accounting guidance with operating leases resulting in straight-line expense and finance leases resulting in accelerated expense recognition similar to the existing accounting for capital leases. The accounting for lessor arrangements is not significantly changed by the new guidance.

Valvoline elected certain practical expedients permitted by the new guidance, including the package of practical expedients that allows for previous accounting conclusions regarding lease identification and classification to be carried forward for leases which commenced prior to adoption, as well as the practical expedient to not separate lease and non-lease components and account for them as a single lease component. The Company did not elect the hindsight or short-term lease practical expedients.

The Company has substantially completed its assessment and implementation efforts, including the identification and assessment of all forms of its leases, implementing an enterprise-wide lease management system, and evaluating additional changes to business processes and internal controls to ensure the reporting and disclosure requirements of the new guidance are met. This new guidance will be adopted with election of the optional transition approach through recognition of the cumulative effect as an adjustment to retained deficit at adoption on October 1, 2019 without retrospective application to prior period financial statements.

On October 1, 2019, the Company expects to recognize operating lease assets and liabilities largely attributed to the Company's service center store locations, derecognize existing finance lease assets and liabilities related to a build-to-suit arrangement in accordance with the transition requirements, and carry forward existing capital lease assets and liabilities. As a result, the Company expects to recognize total incremental lease assets, inclusive of prepaid lease payments, in the range of $220 million to $235 million and lease liabilities in the range of $210 million to $225 million, with an immaterial cumulative effect adjustment to Retained deficit expected primarily as a result of the build-to-suit lease transition guidance. The Company does not currently anticipate a material impact on the Consolidated Statements of Comprehensive Income, Cash Flows, or Stockholders’ Deficit, nor does the Company expect an impact related to compliance with any of its existing debt covenants. While Valvoline is substantially complete with the process of implementing the new guidance, the Company's efforts will be finalized during the first quarter of 2020 and its estimates are subject to change as adoption is finalized.

In June 2016, the FASB issued updated guidance that introduces a forward-looking approach based on expected losses, rather than incurred loses, to estimate credit losses on certain types of financial instruments including trade and other receivables. The estimate of expected credit losses will require entities to incorporate historical, current, and forecasted information. This guidance also includes expanded disclosure requirements and is effective for Valvoline on October 1, 2020. The Company is evaluating the effect of adopting this new accounting guidance, including changes to related processes, but does not expect adoption will have a material impact on the Company’s financial position or results of operations.

The FASB issued other accounting guidance during the period that is not currently applicable or expected to have a material impact on Valvoline’s financial statements, and therefore, is not described above.
v3.19.3
Revenue Recognition
12 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition REVENUE RECOGNITION
As described in Note 2, Valvoline adopted new revenue recognition accounting guidance effective October 1, 2018. The new revenue recognition guidance has been applied prospectively from the date of adoption, while prior period financial statements continue to be reported in accordance with the previous guidance.

Impacts on financial statements

The adoption of the new revenue accounting guidance did not have a significant impact on the Company’s consolidated financial statements. As a result of the Company’s adoption using the modified retrospective adoption approach, the Company recorded an adjustment to its Consolidated Balance Sheet as of October 1, 2018 related to the timing of certain sales to distributors.
The following table reconciles the Consolidated Balance Sheet line items impacted by the cumulative effect of adoption of the new revenue recognition accounting guidance on October 1, 2018:

(In millions)September 30, 2018
as reported
AdjustmentsBalances at October 1, 2018
Accounts receivable, net$409  $(33) $376  
Inventory, net$176  $14  $190  
Deferred income taxes$138  $ $144  
Retained deficit$399  $13  $412  

Most revenue transactions and activities recorded under the new revenue recognition accounting guidance are substantially consistent with the treatment under prior guidance. The following tables summarize the impact of the new revenue accounting guidance on Valvoline’s Consolidated Balance Sheet and Consolidated Statement of Comprehensive Income as of and for the year ended September 30, 2019:

Impact of Changes to Consolidated Balance Sheet
As of September 30, 2019  
(In millions)As reported  
Adjustments (a)
Under prior guidance  
Accounts receivable, net$401  $37  $438  
Inventories, net$194  $(15) $179  
Deferred income taxes$123  $(6) $117  
Accrued expenses and other liabilities$237  $(1) $236  
Retained deficit$284  $(15) $269  

(a)Adjustments include the opening retained deficit adjustments as detailed in the table above.

Impact of Changes to Consolidated Statement of Comprehensive Income
Year ended September 30, 2019
(In millions)As reportedAdjustmentsUnder prior guidance
Sales$2,390  $(50) $2,340  
Cost of sales 1,580  (59) 1,521  
Gross profit $810  $ $819  
Selling, general and administrative expenses$449  $ $456  
Equity and other income, net$40  $ $41  
Operating income$398  $ $401  
Income before income taxes$265  $ $268  
Income tax expense$57  $ $58  
Net income$208  $ $210  
Basic earnings per share$1.10  $0.01  $1.11  
Diluted earnings per share$1.10  $0.01  $1.11  
Disaggregation of revenue

The following summarizes sales by primary customer channel for the Company’s reportable segments:

Year ended
(In millions)September 30, 2019
Quick Lubes
Company-owned operations$531  
Non-company owned operations291
Total Quick Lubes822
Core North America
Retail543
Installer and other451
Total Core North America994
International574
Consolidated sales$2,390  

Sales by reportable segment disaggregated by geographic market follows for the year ended September 30, 2019:

(In millions)Quick LubesCore North AmericaInternationalTotals
North America (a)
$822  $994  $—  $1,816  
Europe, Middle East and Africa ("EMEA")—  —  181  181  
Asia Pacific—  —  285  285  
Latin America (a)
—  —  108  108  
Total$822  $994  $574  $2,390  
(a)Valvoline includes the United States and Canada in its North America region. Mexico is included within the Latin America region.

The following disaggregates the Company’s sales by timing of revenue recognized:

Year ended
(In millions)September 30, 2019
Sales at a point in time$2,346  
Franchised revenues transferred over time44  
Consolidated sales$2,390  
v3.19.3
Fair Value Measurements
12 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements FAIR VALUE MEASUREMENTS
The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy as of September 30:

(In millions)Fair value hierarchy20192018
Cash and cash equivalents
Money market fundsLevel 1  $—  $ 
Time depositsLevel 2  59  22  
Prepaid expenses and other current assets
Currency derivativesLevel 2  —   
Other noncurrent assets
Non-qualified trust fundsLevel 1  20  25  
Total assets at fair value$79  $53  
Accrued expenses and other liabilities
Currency derivativesLevel 2  $—  $ 
Total liabilities at fair value$—  $ 

Money market funds
Money market funds trade in an active market and are valued using quoted market prices, which are Level 1 inputs.

Time deposits
Time deposits are balances held with financial institutions at face value plus accrued interest, which approximates fair value and are categorized as Level 2. Time deposits with original maturities of three months or less are classified within Cash and cash equivalents and those with original maturities of one year or less are classified within Prepaid expenses and other current assets.

Currency derivatives
The Company uses derivatives not designated as hedging instruments consisting of forward contracts to hedge non-U.S. currency denominated balance sheet exposures and exchange one currency for another for a fixed rate on a future date of one year or less. The Company had outstanding contracts with notional values of $111 million and $74 million as of September 30, 2019 and 2018, respectively. The fair value of these outstanding contracts are recorded as assets and liabilities on a gross basis measured using readily observable market inputs to estimate the fair value for similar derivative instruments and are classified as Level 2. Valvoline has entered into master netting arrangements to mitigate losses in the event of nonperformance by counterparties that allow settlement on a net basis, the effect of which was not material to the recorded assets and liabilities as of September 30, 2019 or 2018.

Gains and losses on these instruments are recognized in Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income as exchange rates change the fair value of these instruments and upon settlement to offset the remeasurement gain or loss on the related foreign currency-denominated exposures in the same period. Gains and losses recognized related to these instruments were not material in any period presented herein.

Non-qualified trust funds
The Company maintains a non-qualified trust to fund benefit payments for certain of its U.S. non-qualified pension plans. This fund is classified as Level 1 as it primarily consists of highly liquid fixed income U.S. government bonds that trade with sufficient frequency and volume to enable pricing information to be obtained on an ongoing basis. Gains and losses related to these investments are immediately recognized within Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income and were not material in any period presented herein.

Long-term debt
The Company’s outstanding fixed rate senior notes consist of 5.500% senior unsecured notes due 2024 with an aggregate principal amount of $375 million issued in July 2016 (the “2024 Notes”) and 4.375% senior unsecured notes
due 2025 with an aggregate principal amount of $400 million issued in August 2017 (the “2025 Notes” and together with the 2024 Notes, the “Senior Notes”).
The fair values of the Senior Notes shown in the table below are based on recent trading values, which are considered Level 2 inputs within the fair value hierarchy. Long-term debt is included in the Consolidated Balance Sheets at carrying value, rather than fair value, and is therefore excluded from the fair value table above. Carrying values shown in the following table are net of unamortized discounts and issuance costs.
September 30, 2019September 30, 2018
(In millions)Fair valueCarrying valueUnamortized discount and issuance costsFair valueCarrying valueUnamortized discount and issuance costs
2024 Notes$390  $371  $(4) $376  $370  $(5) 
2025 Notes407  395  (5) 376  395  (5) 
Total$797  $766  $(9) $752  $765  $(10) 

Refer to Note 12 for details of other debt instruments that have variable interest rates, and accordingly, their carrying amounts approximate fair value.

Pension plan assets
Pension plan assets are measured at fair value at least annually on September 30. Refer to Note 15 for disclosures regarding the fair value of plan assets, including classification within the fair value hierarchy.
v3.19.3
Acquisitions and Divestitures
12 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Acquisitions and Divestitures ACQUISITIONS AND DIVESTITURES
Acquisitions
Valvoline acquired 60 service center stores and a lubricant production company during fiscal 2019 for an aggregate purchase price of $78 million. These acquisitions included 31 franchise service center stores in Canada acquired from Oil Changers Inc. on October 31, 2018, five former franchise service centers stores, and 24 service center stores acquired in single and multi-store transactions within the Quick Lubes reportable segment. The Company also acquired an Eastern European lubricant production company, including its manufacturing facility, within the International reportable segment. These acquisitions provide an opportunity to further grow Valvoline's Quick Lubes system within key markets and expand Valvoline’s presence in Eastern Europe, including additional investment in the Company’s regional European supply chain capabilities.

During fiscal 2018, the Company acquired 136 service center stores for an aggregate purchase price of $125 million within the Quick Lubes reportable segment. These acquisitions included 56 former franchise service center stores acquired from Henley Bluewater LLC for $60 million on October 2, 2017 and 73 franchise service center stores acquired from Great Canadian Oil Change Ltd. for $53 million on July 13, 2018. Fiscal 2018 acquisitions also included four former franchise service center stores and three service center stores acquired in single and multi-store transactions.

The Company acquired 43 service center stores within the Quick Lubes reportable segment during fiscal 2017 for an aggregate purchase price of $72 million, of which $4 million was paid in fiscal 2016. These acquisitions included 28 service center stores acquired from Time-It Lube LLC and Time-It Lube of Texas, LP on January 31, 2017 for $49 million. Acquisitions during fiscal 2017 also included 14 former franchise service center stores and one service center store acquired in single and multi-store transactions.

The Company’s acquisitions are accounted for such that the assets acquired and liabilities assumed are recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill, or if the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase gain is recorded. Goodwill is generally expected to be deductible for income tax purposes and is primarily attributed to the operational synergies and potential growth expected to result in economic benefits in the respective markets of the acquisitions.
A summary follows of the aggregate cash consideration paid and the total assets acquired and liabilities assumed for the years ended September 30:

(In millions)201920182017
Inventories$—  $ $ 
Other current assets—   —  
Property, plant and equipment19    
Goodwill (a)
50  58  60  
Intangible assets (b)
Reacquired franchise rights (a) (c)
 26   
Customer relationships   
Trademarks and trade names 27   
Other —  —  
Other noncurrent liabilities(1) —  —  
Net assets acquired82  125  72  
Bargain purchase gain (d)
(4) —  —  
Consideration transferred$78  $125  $72  
(a)During fiscal 2018, the preliminary purchase price allocation for the acquisition of certain former franchise service center stores during fiscal 2017 was adjusted to reduce goodwill and increase reacquired franchise rights by $6 million.
(b)Weighted average amortization period of intangible assets acquired in fiscal 2019 is 10 years.
(c)Prior to the acquisition of former franchise service center stores, Valvoline licensed the right to operate franchised quick lube service centers, including use of the Company’s trademarks and trade name. In connection with these acquisitions, Valvoline reacquired those rights and recognized separate definite-lived reacquired franchise rights intangible assets, which are being amortized on a straight-line basis over the weighted average remaining term of approximately 9 years. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market.
(d)Recorded in Equity and other income, net within the Consolidated Statement of Comprehensive Income.

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

The incremental results of operations of acquisitions, which were not material to the Company’s consolidated results, have been included in the consolidated financial statements from the date of each acquisition, and accordingly, pro forma disclosure of financial information has not been presented.

Remaining ownership interest in subsidiary
Valvoline historically owned a 70% controlling interest and consolidated the financial results of its subsidiary in Thailand. In December 2017, Valvoline purchased the remaining 30% interest for total consideration of approximately $16 million, making it a wholly-owned subsidiary of the Company. This interest was not material to the financial statements for presentation and disclosure as a noncontrolling interest, which was eliminated as a result of this purchase through an adjustment to Paid-in capital and Retained deficit.

Dispositions
Valvoline liquidated one of its subsidiaries in fiscal 2019 and recorded a $1 million gain in Equity and other income, net in the Consolidated Statement of Comprehensive Income. During fiscal 2018, Valvoline completed the liquidation of another subsidiary within the International reportable segment and sold two service center stores to a franchisee within the Quick Lubes reportable segment. These transactions resulted in a net gain of $2 million, which was recognized in Equity and other income, net in the Consolidated Statement of Comprehensive Income during the year ended September 30, 2018.
v3.19.3
Equity Method Investments
12 Months Ended
Sep. 30, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments EQUITY METHOD INVESTMENTSValvoline has a strategic relationship with Cummins, Inc. (“Cummins”), a leading supplier of engines and related component products, which includes co-branding products for heavy duty consumers and a 50% interest in joint ventures in India, China, and Argentina. Valvoline also has joint ventures with other partners in Latin America and China. Valvoline’s
investments in these unconsolidated affiliates were $34 million and $31 million as of September 30, 2019 and 2018, respectively.

Valvoline’s stockholders’ deficit included $32 million and $30 million of undistributed earnings from affiliates accounted for under the equity method as of September 30, 2019 and 2018, respectively. Summarized financial information for Valvoline’s equity method investments follows as of and for the years ended September 30:

(In millions)20192018
Financial position
Current assets$123  $116  
Current liabilities(77) (76) 
Working capital46  40  
Noncurrent assets23  23  
Noncurrent liabilities(2) (1) 
Stockholders’ equity$67  $62  

(In millions)201920182017
Results of operations
Sales$309  $313  $289  
Income from operations$59  $62  $53  
Net income$24  $27  $25  

The Company’s transactions with affiliate companies accounted for under the equity method were as follows for the years ended September 30:
(In millions)201920182017
Equity income (a)
$12  $14  $12  
Distributions received$ $10  $ 
Royalty income (a)
$ $ $ 
Sales to$12  $12  $12  
Purchases from$ $ $—  
(a)Equity and royalty income are recognized in Equity and other income, net in the Consolidated Statements of Comprehensive Income and are primarily recorded within the International reportable segment.

Valvoline has outstanding receivable balances with affiliates accounted for under the equity method of $6 million for the years ended September 30, 2019 and 2018, which are included in Accounts receivable, net within the Consolidated Balance Sheets.
v3.19.3
Accounts Receivable
12 Months Ended
Sep. 30, 2019
Receivables [Abstract]  
Accounts Receivable ACCOUNTS RECEIVABLE
The following summarizes Valvoline’s accounts receivable in the Consolidated Balance Sheets as of September 30:

(In millions)20192018
Trade$392  $390  
Other15  26  
Accounts receivable, gross407  416  
Allowance for doubtful accounts(6) (7) 
Total accounts receivable, net$401  $409  

Valvoline is party to an agreement to sell certain trade accounts receivable in the form of drafts or bills of exchange to a financial institution. Each draft constitutes an order to pay Valvoline for obligations of the customer arising from the sale of goods. The intention of the arrangement is to decrease the time accounts receivable is outstanding and increase cash
flows. During the years ended September 30, 2019 and 2018, Valvoline sold $75 million and $129 million, respectively, of accounts receivable to the financial institution.
v3.19.3
Inventories
12 Months Ended
Sep. 30, 2019
Inventory Disclosure [Abstract]  
Inventories INVENTORIES
Inventories are primarily carried at the lower of cost or net realizable value using the weighted average cost method. In addition, certain lubricants with a replacement cost of $107 million at September 30, 2019 and $89 million at September 30, 2018 are valued at the lower of cost or market using the LIFO method.

The following summarizes Valvoline’s inventories in the Consolidated Balance Sheets as of September 30:

(In millions)20192018
Finished products$203  $186  
Raw materials, supplies and work in process32  30  
Reserve for LIFO cost valuation(41) (40) 
Total inventories, net$194  $176  
v3.19.3
Property, Plant and Equipment
12 Months Ended
Sep. 30, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the various components of property, plant and equipment within the Consolidated Balance Sheets as of September 30:

(In millions)20192018
Land$58  $51  
Buildings (a)
348  292  
Machinery and equipment475  442  
Construction in progress72  62  
Total property, plant and equipment
953  847  
Accumulated depreciation (b)
(455) (427) 
Net property, plant and equipment
$498  $420  
(a)Includes $61 million and $54 million of assets under capitalized and financing leases as of September 30, 2019 and 2018 respectively.
(b)Includes $11 million and $7 million for assets under capitalized and financing leases as of September 30, 2019 and 2018, respectively.

Non-cash accruals included in total property, plant and equipment were $10 million and $13 million during the years ended September 30, 2019 and 2018, respectively.

The following summarizes property, plant and equipment charges included within the Consolidated Statements of Comprehensive Income.

(In millions)201920182017
Depreciation (includes capital and financing leases)$52  $49  $42  
v3.19.3
Goodwill and Other Intangibles
12 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles GOODWILL AND OTHER INTANGIBLES
Goodwill
The following summarizes the changes in the carrying amount of goodwill for each reportable segment and in total during fiscal 2019 and 2018:

(In millions)Quick LubesCore North AmericaInternationalTotal
Balance at September 30, 2017$201  $89  $40  $330  
Acquisitions (a)
52  —  —  52  
Dispositions (b)
(1) —  —  $(1) 
Balance at September 30, 2018252  89  40  381  
Acquisitions (c)
50  —  —  50  
Currency translation(1) —  —  (1) 
Balance at September 30, 2019$301  $89  $40  $430  
(a)Activity associated with the acquisitions of Great Canadian Oil Change, Henley Bluewater, seven additional service center stores, and adjustments related to prior year acquisitions. Refer to Note 5 for further details.
(b)Activity associated with the derecognition of goodwill as a result of the sale and disposition of two quick lube service center stores. Refer to Note 5 for details regarding the disposition.
(c)Activity associated with the acquisitions of Oil Changers and 29 additional service center stores. Refer to Note 5 for further details.

Other intangible assets
Valvoline’s purchased intangible assets were specifically identified when acquired, have finite lives, and are reported in Goodwill and intangibles, net on the Consolidated Balance Sheets. The following summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets as of September 30:

(In millions)20192018
Gross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Definite-lived intangible assets
Trademarks and trade names $30  $(4) $26  $29  $(2) $27  
Reacquired franchise rights37  (8) 29  32  (4) 28  
Customer relationships 22  (5) 17  14  (3) 11  
Other intangible assets (1)   —   
Total definite-lived intangible assets$92  $(18) $74  $76  $(9) $67  

The table that follows summarizes amortization expense (actual and estimated) for intangible assets, assuming no additional amortizable intangible assets, for the years ended September 30:

ActualEstimated
(In millions)201920202021202220232024
Amortization expense$ $ $ $ $ $ 
v3.19.3
Restructuring Activities
12 Months Ended
Sep. 30, 2019
Restructuring and Related Activities [Abstract]  
Restructuring Activities RESTRUCTURING ACTIVITIES
In the second fiscal quarter of 2019, Valvoline 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 anticipated to be substantially paid by the end of 2020.

During the year ended September 30, 2019, Valvoline recognized $12 million of expense for employee termination benefits, which includes severance and other benefits provided to employees pursuant to the restructuring program. These expenses were recognized in Selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income. The Company expects that it will incur additional employee termination expenses of approximately $1 million during the first fiscal quarter of 2020.

The results by segment, as disclosed in Note 21, do not include these restructuring expenses, which is consistent with the manner by which management assesses the performance and evaluates the results of each segment. Accordingly, these expenses are included in Unallocated and other.

The following table represents the expenses recognized related to employee termination benefits during the year ended September 30, 2019 and the estimated remaining liability, which is included in the Consolidated Balance Sheet primarily within Accrued expenses and other liabilities:

(In millions)Employee Termination Benefits
Balance at September 30, 2018$—  
Expenses recognized during the period13  
Payments(3) 
Changes in estimates (a)
(1) 
Balance at September 30, 2019$ 
(a)Changes in estimate of previously-recognized expenses primarily due to modifications of employee remaining service periods.
v3.19.3
Debt
12 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Debt DEBT
The following table summarizes Valvoline’s debt as of September 30:

(In millions)20192018
2025 Notes$400  $400  
2024 Notes375  $375  
Term Loans575  270  
Revolvers—  147  
Trade Receivables Facility—  140  
Other (a)
(8) (10) 
Total debt$1,342  $1,322  
Current portion of long-term debt15  30  
Long-term debt$1,327  $1,292  
(a)As of September 30, 2019 and 2018, other includes $9 million and $11 million of debt issuance costs and discounts, respectively and $1 million of debt primarily acquired through acquisitions.
Senior Notes
During August 2017, Valvoline completed the issuance of 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $400 million. The net proceeds from the offering of the 2025 Notes were $394 million (after deducting
initial purchasers' discounts and debt issuance costs), which were used to make a voluntary contribution to the Company's qualified U.S. pension plan.
During July 2016, Valvoline completed the issuance of 5.500% senior unsecured notes due 2024 with an aggregate principal amount of $375 million. The net proceeds from the offering of the 2024 Notes was $370 million (after deducting initial purchasers' discounts and debt issuance costs), which were transferred to Valvoline's former parent, Ashland.
The Senior Notes are subject to customary events of default for similar debt securities, which if triggered may accelerate the payment of principal, premium, if any, and accrued but unpaid interest on the notes. Such events of default include non-payment of principal and interest, non-performance of covenants and obligations, default on other material debt, and bankruptcy or insolvency. If a change of control repurchase event occurs, Valvoline may be required to offer to purchase the Senior Notes from the holders thereof. The Senior Notes are not otherwise required to be repaid prior to maturity, although they may be redeemed at the option of Valvoline at any time prior to their maturity in the manner specified in the governing indentures. The Senior Notes are guaranteed by each of Valvoline’s subsidiaries that guarantee obligations under the existing senior credit facility described below.
Valvoline completed registered exchange offers for the Senior Notes in December 2017 for which no additional proceeds were received.

Senior Credit Agreement

In fiscal 2016, Valvoline entered into a Senior Credit Agreement (the “2016 Credit Agreement”), which provided an aggregate principal amount of $1,325 million in senior secured credit facilities, comprised of (i) a five-year $875 million term loan facility (the “2016 Term Loan”) and (ii) a five-year $450 million revolving credit facility (the “2016 Revolver”), including a $100 million letter of credit sublimit. As of September 30, 2018, the 2016 Term Loan had an outstanding principal balance of $270 million, and there was $147 million outstanding on the 2016 Revolver.

On April 12, 2019, Valvoline amended the 2016 Credit Agreement (the 2016 Credit Agreement, as amended, the “2019 Credit Agreement”) to extend the maturity to 2024, provide additional capacity under the revolving facility, and lower interest rates, among other modifications. This 2019 Credit Agreement provides for an aggregate principal amount of $1,050 million in senior secured credit facilities, comprised of (i) a five-year $575 million term loan facility (the “2019 Term Loan”) and (ii) a five-year $475 million revolving credit facility (the “2019 Revolver”), including a $100 million letter of credit sublimit. As a result of the amendment, the Company recognized immaterial expense related to the accelerated amortization of previously capitalized debt issuance costs, which is included in Net interest and other financing expenses in the Consolidated Statements of Comprehensive Income for the year ended September 30, 2019.

Prior to the amendment in fiscal 2019, the Company made payments of $15 million to the 2016 Term Loan consistent with its payment schedule and had net borrowings of $39 million under the 2016 Revolver. The 2019 Term Loan proceeds of $575 million were used to pay the outstanding principal balance of the 2016 Term Loan of $255 million, the outstanding 2016 Revolver balance of $186 million, and $120 million on the Trade Receivables Facility, as defined below, in addition to accrued and unpaid interest and fees, as well as expenses related to the amendment. Remaining proceeds, including the remaining capacity under the 2019 Revolver, are expected to fund general corporate purposes and working capital needs. During the year ended September 30, 2019, the Company borrowed and repaid $6 million on the 2019 Revolver. As of September 30, 2019, there were no amounts outstanding under the 2019 Revolver, which had total borrowing capacity remaining of $466 million due to a reduction of $9 million for letters of credit outstanding.

The outstanding principal balance of the 2019 Term Loan is required to be repaid in quarterly installments of approximately $7 million beginning June 30, 2020 and approximately $14 million beginning June 30, 2021, with the balance due at maturity on April 12, 2024, and prepayment due in the amount of the net cash proceeds from certain events. Amounts outstanding under the 2019 Credit Agreement may be prepaid at any time, and from time to time, in whole or part, without premium or penalty. At Valvoline’s option, amounts outstanding under the 2019 Credit Agreement bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate fluctuates between LIBOR plus 1.375% per annum and LIBOR plus 2.000% per annum (or between the alternate base rate plus 0.375% per annum and the alternate base rate plus 1.000% per annum), based upon Valvoline’s corporate credit ratings or its consolidated net leverage ratio, whichever yields the lowest rate.

Valvoline’s existing and future subsidiaries (other than certain immaterial subsidiaries, joint ventures, special purpose financing subsidiaries, regulated subsidiaries, non-U.S. subsidiaries and certain other subsidiaries) guarantee the 2019 Credit Agreement, which is also secured by a first-priority security interest in substantially all the personal property assets, and certain real property assets, of Valvoline and the guarantors, including all or a portion of the equity interests of certain
of Valvoline’s domestic subsidiaries and first-tier non-U.S. subsidiaries, and in certain cases, a portion of the equity interests of other non-U.S. subsidiaries.

The 2019 Credit Agreement contains usual and customary representations, warranties, events of default, and affirmative and negative covenants, including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as the maintenance of financial covenants as of the end of each fiscal quarter, including a maximum consolidated net leverage ratio of 4.5 and a minimum consolidated interest coverage ratio of 3.0. As of September 30, 2019, Valvoline was in compliance with all covenants under the 2019 Credit Agreement.

Trade Receivables Facility

On November 29, 2016, Valvoline entered into a $125 million, one-year revolving trade receivables securitization facility (“Trade Receivables Facility”) with certain financial institutions. On November 20, 2017, the Company amended the Trade Receivables Facility to extend the maturity date to November 19, 2020 and increase the maximum funding under the facility to $175 million based on the availability of eligible receivables and other customary factors and conditions.

Under the Trade Receivables Facility, Valvoline sells and/or transfers a majority of its U.S. trade receivables to a wholly-owned, bankruptcy-remote subsidiary as they are originated, and advances by the lenders to that subsidiary (in the form of cash or letters of credit) are secured by those trade receivables. Accordingly, the Company accounts for borrowings under the Trade Receivables Facility as secured borrowings. The assets of this financing subsidiary are restricted as collateral for the payment of its obligations under the Trade Receivables Facility, and its assets and credit are not available to satisfy the debts and obligations owed to the creditors of the Company. The Company includes the assets, liabilities and results of operations of this financing subsidiary in its consolidated financial statements.

As of September 30, 2019, there were no amounts outstanding under the Trade Receivables Facility, and as of September 30, 2018, there was $140 million outstanding. During the year ended September 30, 2019, Valvoline borrowed $84 million and made payments of $224 million, including the payment made with a portion of the proceeds from the 2019 Term Loan.

Based on the availability of eligible receivables, the total borrowing capacity of the Trade Receivables Facility at September 30, 2019 was $168 million. The financing subsidiary owned $259 million and $275 million of outstanding accounts receivable as of September 30, 2019 and 2018, respectively, and these amounts are included in Accounts receivable, net in the Company’s Consolidated Balance Sheets.

The financing subsidiary pays customary fees to the lenders, and advances by a lender under the Trade Receivables Facility accrue interest for which the weighted average interest rates were 3.4% and 2.8% for the years ended September 30, 2019 and 2018, respectively. The Trade Receivables Facility contains various customary affirmative and negative covenants and default and termination provisions, which provide for acceleration of amounts owed under the Trade Receivables Facility in circumstances including, but not limited to, the failure to pay interest or other amounts when due, defaults on certain other indebtedness, certain insolvency events, and breach of representation.

Long-term debt maturities

The future maturities of debt outstanding as of September 30, 2019, excluding debt issuance costs and discounts, are as follows:

(In millions)
Years ending September 30  
2020  $15  
2021  43  
2022  58  
2023  58  
2024  777  
Thereafter  400  
Total  $1,351  
v3.19.3
Lease Commitments
12 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Lease Commitments LEASE COMMITMENTS
Future minimum lease payments for noncancelable operating and capital leases and financing obligations as of September 30, 2019 are as follows for the fiscal years ending September 30:

(In millions)
Operating leases (a)
Capital leases and financing obligations
2020$36  $ 
202132   
202229   
202327   
202423   
Thereafter120  50  
Total future minimum lease payments$267  84  
Imputed interest29  
Present value of minimum lease payments$55  
(a)Minimum payments have not been reduced by minimum sublease rental income of approximately $26 million due under future noncancelable subleases.

The composition of net rent expense for all operating leases, including leases of property and equipment, was as follows for the years ended September 30:

(In millions)201920182017
Minimum rentals
$34  $25  $18  
Contingent rentals   
Sublease rental income
(5) (2) (1) 
Net rent expense$31  $25  $19  
v3.19.3
Income Taxes
12 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Components of income tax expense

Income tax expense consisted of the following for the years ended September 30:
(In millions)201920182017
Current
Federal (a)
$10  $(2) $47  
State   
Non-U.S. 19  17  14  
34