VALVOLINE INC, 10-Q filed on 8/1/2019
Quarterly Report
v3.19.2
Cover Page - shares
9 Months Ended
Jun. 30, 2019
Jul. 30, 2019
Cover page.    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 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 $0.01 per share  
Trading Symbol VVV  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Smaller Reporting Company false  
Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   188,189,958
Entity Central Index Key 0001674910  
Amendment Flag false  
Current Fiscal Year End Date --09-30  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
v3.19.2
Condensed Consolidated Statements of Comprehensive Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Net Income (Loss) Attributable to Parent [Abstract]        
Sales $ 613 $ 577 $ 1,761 $ 1,691
Cost of sales 406 376 1,168 1,088
Gross profit 207 201 593 603
Selling, general and administrative expenses 116 110 334 328
Net legacy and separation-related (income) expenses 0 (3) 3 14
Equity and other income, net (11) (8) (29) (29)
Operating income 102 102 285 290
Net pension and other postretirement plan income (2) (10) (7) (30)
Net interest and other financing expenses 19 15 55 45
Income before income taxes 85 97 237 275
Income tax expense 20 33 56 154
Net income $ 65 $ 64 $ 181 $ 121
NET INCOME PER SHARE        
Basic (usd per share) $ 0.34 $ 0.33 $ 0.96 $ 0.61
Diluted (usd per share) $ 0.34 $ 0.33 $ 0.96 $ 0.61
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING        
Basic (shares) 189 195 189 199
Diluted (shares) 189 196 189 200
COMPREHENSIVE INCOME        
Net income $ 65 $ 64 $ 181 $ 121
Other comprehensive income (loss), net of tax        
Currency translation adjustments 1 (13) (1) (9)
Amortization of pension and other postretirement plan prior service credit (3) (3) (7) (7)
Other comprehensive loss (2) (16) (8) (16)
Comprehensive income $ 63 $ 48 $ 173 $ 105
v3.19.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2019
Sep. 30, 2018
Current assets    
Cash and cash equivalents $ 126 $ 96
Accounts receivable, net 423 409
Inventories, net 200 176
Prepaid expenses and other current assets 52 44
Total current assets 801 725
Noncurrent assets    
Property, plant and equipment, net 455 420
Goodwill and intangibles, net 490 448
Equity method investments 35 31
Deferred income taxes 113 138
Other noncurrent assets 106 92
Total noncurrent assets 1,199 1,129
Total assets 2,000 1,854
Current liabilities    
Current portion of long-term debt 7 30
Trade and other payables 163 178
Accrued expenses and other liabilities 242 203
Total current liabilities 412 411
Noncurrent liabilities    
Long-term debt 1,334 1,292
Employee benefit obligations 322 333
Other noncurrent liabilities 184 176
Total noncurrent liabilities 1,840 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 June 30, 2019 and September 30, 2018 2 2
Paid-in capital 13 7
Retained deficit (291) (399)
Accumulated other comprehensive income 24 32
Total stockholders’ deficit (252) (358)
Total liabilities and stockholders’ deficit $ 2,000 $ 1,854
v3.19.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2019
Sep. 30, 2018
Statement of Financial Position [Abstract]    
Preferred stock authorized (shares) 40,000,000 40,000,000
Preferred stock issued (shares) 0 0
Preferred stock outstanding (shares) 0 0
Common stock, par value (usd per share) $ 0.01 $ 0.01
Common stock authorized (shares) 400,000,000 400,000,000
Common stock issued (shares) 188,000,000 188,000,000
Common stock outstanding (shares) 188,000,000 188,000,000
v3.19.2
Condensed Consolidated Statements of Stockholders' Deficit - USD ($)
shares in Millions, $ in Millions
Total
Common stock
Paid-in capital
Retained deficit
Accumulated other comprehensive income
Common stock outstanding, at beginning of period (shares) at Sep. 30, 2017   203      
Balance at beginning of period at Sep. 30, 2017 $ (117) $ 2 $ 5 $ (167) $ 43
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) (10)     (10)  
Dividends paid (15)     (15)  
Stock-based compensation 2   2    
Repurchases of common stock (shares)   (2)      
Repurchases of common stock (39)     (39)  
Currency translation adjustments 1       1
Noncontrolling Interest, Decrease from Redemptions or Purchase of Interests (14)   (7) (7)  
Amortization of pension and other postretirement prior service credits in income, net of tax (2)       (2)
Common stock outstanding, at end of period (shares) at Dec. 31, 2017   201      
Balance at end of period at Dec. 31, 2017 (194) $ 2 0 (238) 42
Common stock outstanding, at beginning of period (shares) at Sep. 30, 2017   203      
Balance at beginning of period at Sep. 30, 2017 (117) $ 2 5 (167) 43
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 121        
Currency translation adjustments (9)        
Amortization of pension and other postretirement prior service credits in income, net of tax (7)        
Common stock outstanding, at end of period (shares) at Jun. 30, 2018   193      
Balance at end of period at Jun. 30, 2018 (288) $ 2 6 (323) 27
Common stock outstanding, at beginning of period (shares) at Dec. 31, 2017   201      
Balance at beginning of period at Dec. 31, 2017 (194) $ 2 0 (238) 42
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 67     67  
Dividends paid (15)     (15)  
Stock-based compensation 2   3 (1)  
Repurchases of common stock (shares)   (4)      
Repurchases of common stock (87)     (87)  
Currency translation adjustments 3       3
Amortization of pension and other postretirement prior service credits in income, net of tax (2)       (2)
Common stock outstanding, at end of period (shares) at Mar. 31, 2018   197      
Balance at end of period at Mar. 31, 2018 (226) $ 2 3 (274) 43
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 64     64  
Dividends paid (15)     (15)  
Stock-based compensation 3   3    
Repurchases of common stock (shares)   (4)      
Repurchases of common stock (98)     (98)  
Currency translation adjustments (13)       (13)
Amortization of pension and other postretirement prior service credits in income, net of tax (3)       (3)
Common stock outstanding, at end of period (shares) at Jun. 30, 2018   193      
Balance at end of period at Jun. 30, 2018 $ (288) $ 2 6 (323) 27
Common stock outstanding, at beginning of period (shares) at Sep. 30, 2018 188 188      
Balance at beginning of period at Sep. 30, 2018 $ (358) $ 2 7 (399) 32
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 53     53  
Dividends paid (20)     (20)  
Stock-based compensation 1   1    
Currency translation adjustments (4)       (4)
Amortization of pension and other postretirement prior service credits in income, net of tax (2)       (2)
Common stock outstanding, at end of period (shares) at Dec. 31, 2018   188      
Balance at end of period at Dec. 31, 2018 $ (343) $ 2 8 (379) 26
Common stock outstanding, at beginning of period (shares) at Sep. 30, 2018 188 188      
Balance at beginning of period at Sep. 30, 2018 $ (358) $ 2 7 (399) 32
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 181        
Currency translation adjustments (1)        
Amortization of pension and other postretirement prior service credits in income, net of tax $ (7)        
Common stock outstanding, at end of period (shares) at Jun. 30, 2019 188 188      
Balance at end of period at Jun. 30, 2019 $ (252) $ 2 13 (291) 24
Common stock outstanding, at beginning of period (shares) at Dec. 31, 2018   188      
Balance at beginning of period at Dec. 31, 2018 (343) $ 2 8 (379) 26
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 63     63  
Dividends paid (20)     (20)  
Stock-based compensation 2   2    
Currency translation adjustments 2       2
Amortization of pension and other postretirement prior service credits in income, net of tax (2)       (2)
Common stock outstanding, at end of period (shares) at Mar. 31, 2019   188      
Balance at end of period at Mar. 31, 2019 (298) $ 2 10 (336) 26
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 65     65  
Dividends paid (20)     (20)  
Stock-based compensation 3   3    
Currency translation adjustments 1       1
Amortization of pension and other postretirement prior service credits in income, net of tax $ (3)       (3)
Common stock outstanding, at end of period (shares) at Jun. 30, 2019 188 188      
Balance at end of period at Jun. 30, 2019 $ (252) $ 2 $ 13 $ (291) $ 24
v3.19.2
Condensed Consolidated Statements of Stockholders' Deficit (Parenthetical) - $ / shares
3 Months Ended
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Statement of Stockholders' Equity [Abstract]            
Dividends paid per common share (usd per share) $ 0.106 $ 0.106 $ 0.106 $ 0.0745 $ 0.0745 $ 0.0745
v3.19.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities    
Net income $ 181 $ 121
Adjustments to reconcile net income to cash flows from operating activities    
Depreciation and amortization 43 39
Debt issuance cost and discount amortization 2 2
Deferred income taxes 0 71
Equity income from unconsolidated affiliates, net of distributions (4) (4)
Pension contributions (7) (13)
Stock-based compensation expense 8 10
Other operating activities, net 0 (1)
Change in assets and liabilities    
Accounts receivable [1] (48) (80)
Inventories [1] (11) (23)
Payables and accrued liabilities [1] 34 12
Other assets and liabilities [1] 16 47
Total cash provided by operating activities 214 181
Cash flows from investing activities    
Additions to property, plant and equipment (73) (51)
Acquisitions, net of cash acquired (50) (71)
Other investing activities, net (1) 5
Total cash used in investing activities (124) (117)
Cash flows from financing activities    
Proceeds from borrowings, net of issuance costs 743 170
Repayments on borrowings (727) (39)
Repurchases of common stock 0 (220)
Payments for purchase of additional ownership in subsidiary (1) (15)
Cash dividends paid (60) (45)
Other financing activities (4) (6)
Total cash used in financing activities (49) (155)
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash 0 (3)
Increase (decrease) in cash, cash equivalents, and restricted cash 41 (94)
Cash, cash equivalents, and restricted cash - beginning of period 96 201
Cash, cash equivalents, and restricted cash - end of period $ 137 $ 107
[1] Excludes changes resulting from operations acquired.
v3.19.2
Basis of Presentation and Significant Accounting Policies
9 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared by Valvoline Inc. (“Valvoline” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission (“SEC”) regulations for interim financial reporting, which do not include all information and footnote disclosures normally included in annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with Valvoline’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. In the opinion of management, the assumptions underlying the condensed consolidated financial statements for these interim periods are reasonable, and all adjustments considered necessary for a fair presentation have been made and are of a normal recurring nature unless otherwise disclosed herein. The results for interim periods are not necessarily indicative of those to be expected for the entire year. Certain prior period amounts have been reclassified to conform to the current presentation.

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

In the first fiscal quarter of 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 a 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 opening 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 condensed consolidated financial statements as of and for the three and nine months ended June 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 2 for additional information regarding Valvoline’s updated accounting policy for revenue from contracts with customers and 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 Condensed 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 Condensed 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. As of June 30, 2019, Valvoline had $11 million of deposits held with financial institutions, which is generally restricted for use in completing an acquisition, and is included in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheet. This restricted cash has been included within the end-of-period total amounts shown within the Condensed Consolidated Statement of Cash Flows for the nine months ended June 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 condensed 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 8; however, the award modifications and the adoption of this guidance did not have a material impact on the Company’s condensed 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 $3 million of cloud computing arrangement implementation costs during the nine months ended June 30, 2019. The adoption of this guidance did not have a material impact on the Company’s condensed 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.

Management will finalize its assessment and adopt the new guidance in the first fiscal quarter of 2020. This new guidance is expected to 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. While the Company is finalizing its determinations, Valvoline
expects to elect 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 commence 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 does not currently expect to elect the hindsight or short-term lease practical expedients.

The Company has made progress in 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. At this time, the Company cannot estimate the specific quantitative impact of adopting this new guidance; however, adoption is expected to have a material impact on the Condensed Consolidated Balance Sheet as Valvoline has a significant number of operating leases, including many of its service center store locations, which will be recognized as right-of-use assets with associated lease liabilities upon adoption. The Company does not currently anticipate a material impact on the Condensed Consolidated Statements of Comprehensive Income, Cash Flows, or Stockholders’ Deficit.
v3.19.2
Revenue Recognition
9 Months Ended
Jun. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition REVENUE RECOGNITION
As described in Note 1, Valvoline adopted new revenue recognition accounting guidance effective October 1, 2018, and accordingly, changed its accounting policy for revenue recognition prospectively from the date of adoption as described herein.

Impacts on financial statements

The adoption of the new revenue accounting guidance did not have a significant impact on the Company’s condensed consolidated financial statements. As a result of the Company’s adoption using the modified retrospective adoption approach, the Company recorded an adjustment to its Condensed Consolidated Balance Sheet as of October 1, 2018 related to the timing of certain sales to distributors.

The following table reconciles the Condensed 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
Adjustments Balances at October 1, 2018
Accounts receivable, net$409 $(33)$376 
Inventories, 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 Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Comprehensive Income as of and for the three and nine months ended June 30, 2019:
June 30, 2019
Impact of Changes to Condensed Consolidated Balance SheetAs reported
Adjustments (a)
Under prior guidance
(In millions)
Accounts receivable, net$423 $37 $460 
Inventories, net$200 $(15)$185 
Deferred income taxes$113 $(6)$107 
Accrued expenses and other liabilities$242 $(1)$241 
Retained deficit$291 $(15)$276 
(a) Adjustments include the opening retained deficit adjustments as detailed in the table above.

Three months ended June 30, 2019
Impact of Changes to Condensed Consolidated Statement of Comprehensive IncomeAs reportedAdjustmentsUnder prior guidance
(In millions)
Sales$613 $(10)$603 
Cost of sales406 (14)392 
Gross profit$207 $$211 
Selling, general and administrative expenses$116 $$119 
Equity and other income, net$11 $$12 
Operating income$102 $$104 
Income before income taxes$85 $$87 
Income tax expense$20 $$21 
Net income$65 $$66 
Basic earnings per share$0.34 $0.01 $0.35 
Diluted earnings per share$0.34 $0.01 $0.35 
Nine months ended June 30, 2019
Impact of Changes to Condensed Consolidated Statement of Comprehensive IncomeAs reportedAdjustmentsUnder prior guidance
(In millions)
Sales$1,761 $(34)$1,727 
Cost of sales1,168 (42)1,126 
Gross profit$593 $$601 
Selling, general and administrative expenses$334 $$340 
Equity and other income, net$29 $$30 
Operating income$285 $$288 
Income before income taxes$237 $$240 
Income tax expense$56 $$57 
Net income$181 $$183 
Basic earnings per share$0.96 $0.01 $0.97 
Diluted earnings per share$0.96 $0.01 $0.97 

Disaggregation of revenue

The following summarizes sales by primary customer channel for the Company’s reportable segments:
(In millions)Three months ended June 30, 2019Nine months ended June 30, 2019
Quick Lubes
Company-owned operations$136 $388 
Non-company owned operations75 212 
Total Quick Lubes211 600 
Core North America
Retail 143 399 
Installer and other117 336 
Total Core North America260 735 
International142 426 
Consolidated sales$613 $1,761 
Sales by reportable segment disaggregated by geographic market follows for the three and nine months ended June 30, 2019:
(In millions)Quick LubesCore North AmericaInternationalTotals
Three months ended
North America (a)
$211 $260 $— $471 
Europe, Middle East and Africa ("EMEA")— — 43 43 
Asia Pacific— — 72 72 
Latin America (a)
— — 27 27 
Total$211 $260 $142 $613 
Nine months ended
North America (a)
$600 $735 $— $1,335 
Europe, Middle East and Africa ("EMEA")— — 134 134 
Asia Pacific— — 212 212 
Latin America (a)
— — 80 80 
Total$600 $735 $426 $1,761 
(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:

(In millions)Three months ended June 30, 2019Nine months ended June 30, 2019
Sales at a point in time$602 $1,730 
Franchised revenues transferred over time11 31 
Consolidated sales$613 $1,761 
Nature of goods and services

Valvoline generates all operating 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.

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 obligations in the contract(s); (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract(s); and (v) recognition of revenue when or as a performance obligation is satisfied. 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 range from 10 to 15 years. Billings and payments occur monthly.

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

Variable consideration

The Company only offers an assurance-type warranty with regard to the intended functionality of products sold, which therefore, 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.

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.

Contract balances

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 recorded within its Condensed Consolidated Balance Sheet at adoption or as of June 30, 2019. The Company recognizes a receivable on its Condensed 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.
Practical expedients and accounting policies

Valvoline elected the following practical expedients and policy elections in accordance with the new revenue recognition accounting guidance adopted beginning in fiscal 2019:

Significant financing component – The promised amount of consideration has not been adjusted as the Company does not have significant financing arrangements with its customers. The Company expects that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

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 Condensed Consolidated Statements of Comprehensive Income.

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.

Sales and use-based taxes - Valvoline excludes from its revenue any amounts collected from customers for sales (and similar) taxes. These amounts are, however, reflected in accrued expenses until remitted to the appropriate governmental authority.

Disclosure of remaining performance obligations - The Company elected to apply the practical expedient 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.
v3.19.2
Fair Value Measurements
9 Months Ended
Jun. 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:

(In millions)Fair Value HierarchyJune 30
2019
September 30
2018
Cash and cash equivalents
Money market fundsLevel 1 $$
Time deposits (a)
Level 2 34 22 
Prepaid expenses and other current assets
Currency derivatives (b)
Level 2 
Time deposits (a)
Level 2 — 
Other noncurrent assets
Non-qualified trust fundsLevel 1 21 25 
Total assets at fair value$60 $53 
Accrued expenses and other liabilities
Currency derivatives (b)
Level 2 $$
Total liabilities at fair value$$
(a) Time deposits with original maturities of three months or less are classified within cash equivalents and those with original maturities of one year or less are classified within Prepaid expenses and other current assets.
(b) The Company had outstanding contracts with notional values of $82 million and $74 million as of June 30, 2019 and September 30, 2018, respectively.

There have been no changes in the nature of inputs or valuation approaches relative to the Company’s financial assets and liabilities that are accounted for at fair value on a recurring basis from those as of September 30, 2018. There were no material gains or losses recognized in earnings during the three and nine months ended June 30, 2019 or 2018 related to these assets and liabilities.

Long-term debt

The fair values of the Company’s outstanding fixed rate senior notes shown in the table below are based on recent trading values, which are considered Level 2 inputs within the fair value hierarchy. Long-term debt is included in the Condensed Consolidated Balance Sheets at carrying value, rather than fair value, and is therefore excluded from the fair value table above. Carrying values shown in the following table are net of unamortized discounts and issuance costs.
June 30, 2019September 30, 2018
(In millions)Fair valueCarrying valueUnamortized discount and
issuance costs
Fair valueCarrying valueUnamortized
discount and
issuance costs
2024 Notes$388 $371 $$376 $370 $
2025 Notes401 395 376 395 
Total$789 $766 $$752 $765 $10 

Refer to Note 9 for more information on Valvoline’s other debt instruments that have variable interest rates, and accordingly, their carrying amounts approximate fair value.
v3.19.2
Acquisitions and Divestitures
9 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
Acquisitions and Divestitures ACQUISITIONS AND DIVESTITURES
During the nine months ended June 30, 2019, the Company acquired 54 service center stores for $50 million. These acquisitions included 31 franchise service center stores acquired from Oil Changers Inc. on October 31, 2018, 18 service center stores acquired in single and multi-store transactions, and five former franchise service centers stores. During the nine months ended June 30, 2018, the Company acquired 63 service center stores, of which 60 were former franchise service center stores, for $71 million.

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. 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 nine months ended June 30:

(In millions)20192018
Inventories$— $
Property, plant and equipment
Goodwill34 42 
Intangible assets (a)
Reacquired franchise rights26 
Customer relationships— 
Trademarks and trade names— 
Other— 
Net assets acquired$50 $71 
(a) Intangible assets acquired during the nine months ended June 30, 2019 have a weighted average amortization period of 10 years.

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 currently expect any material changes to the preliminary purchase price allocations for acquisitions completed during the last twelve months.

The incremental results of operations of the acquired stores, which were not material to the Company’s consolidated results, have been included in the condensed consolidated financial statements from the date of each acquisition, and accordingly, pro forma disclosure of financial information has not been presented.
v3.19.2
Accounts Receivable
9 Months Ended
Jun. 30, 2019
Receivables [Abstract]  
Accounts Receivable ACCOUNTS RECEIVABLE
The following summarizes Valvoline’s accounts receivable as of:

(In millions)June 30
2019
September 30
2018
Trade$412 $390 
Other16 26 
Accounts receivable, gross428 416 
Allowance for doubtful accounts(5)(7)
Total accounts receivable, net$423 $409 
During the nine months ended June 30, 2019 and 2018, Valvoline sold accounts receivable to a financial institution of $63 million and $50 million, respectively.
v3.19.2
Inventories
9 Months Ended
Jun. 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 are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method.

The following summarizes Valvoline’s inventories as of:

(In millions)June 30
2019
September 30
2018
Finished products$210 $189 
Raw materials, supplies and work in process34 30 
Reserve for LIFO cost valuation(41)(40)
Excess and obsolete inventory reserves(3)(3)
Total inventories, net$200 $176 
v3.19.2
Goodwill and Other Intangibles
9 Months Ended
Jun. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles GOODWILL AND OTHER INTANGIBLES
Goodwill

The following table summarizes the changes in the carrying amount of goodwill by reportable segment and in total during the nine months ended June 30, 2019:

(In millions)Quick LubesCore North AmericaInternationalTotal
Balance at September 30, 2018$252 $89 $40 $381 
Acquisitions (a)
34 — — 34 
Balance at June 30, 2019$286 $89 $40 $415 
(a) Refer to Note 4 for details regarding acquisitions completed during the nine months ended June 30, 2019.
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 Condensed Consolidated Balance Sheets. The following summarizes the gross carrying amounts and accumulated amortization of the Company’s intangible assets as of:

June 30, 2019September 30, 2018
(In millions)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 (7)30 32 (4)28 
Customer relationships21 (4)17 14 (3)11 
Other intangible assets(1)— 
Total definite-lived intangible assets$91 $(16)$75 $76 $(9)$67 
v3.19.2
Restructuring Activities
9 Months Ended
Jun. 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 are expected to be generally completed by the end of 2019, with the associated termination benefits anticipated to be substantially paid by the end of 2020.

During the three and nine months ended June 30, 2019, Valvoline recognized $4 million and $10 million of expense, respectively, for employee termination benefits, which includes severance and other benefits that will be paid to employees pursuant to the restructuring program. These expenses were recognized in Selling, general and administrative expenses within the Condensed Consolidated Statements of Comprehensive Income. The Company expects that it will incur additional employee termination expenses of approximately $3 million to $5 million, primarily during the fourth fiscal quarter of 2019.

The results by segment, as disclosed in Note 14, do not include these and 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 nine months ended June 30, 2019 and the estimated remaining liability, which is included in the Condensed Consolidated Balance Sheet primarily within Accrued expenses and other liabilities:

(In millions)Employee Termination Benefits
Balance at September 30, 2018$— 
Expenses recognized during the period10 
Payments (1)
Balance at June 30, 2019$
v3.19.2
Debt
9 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Debt DEBT
The following table summarizes Valvoline’s total debt as of:

(In millions)June 30
2019
September 30 2018 
2025 Notes$400 $400 
2024 Notes375 375 
Term Loans575 270 
Revolvers— 147 
Trade Receivables Facility— 140 
Other (a)
(9)(10)
Total debt$1,341 $1,322 
Current portion of long-term debt30 
Long-term debt$1,334 $1,292 
 
(a) Other includes debt issuance costs and discounts of $10 million and $11 million as of June 30, 2019 and September 30, 2018, respectively. In addition, Other includes $1 million of debt as of June 30, 2019 and September 30, 2018 which was primarily acquired through acquisitions.

Senior Notes

The Company’s outstanding fixed rate senior notes consist of 4.375% senior unsecured notes due 2025 with an aggregate principal amount of $400 million issued in August 2017 (the “2025 Notes”) and 5.500% senior unsecured notes due 2024 with an aggregate principal amount of $375 million issued in July 2016 (the “2024 Notes” and together with the 2025 Notes, the “Senior Notes”).

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.

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 Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended June 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 securitization facility described 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. As of June 30, 2019, the total borrowing capacity remaining under the 2019 Revolver was $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 June 30, 2019, Valvoline was in compliance with all covenants under the 2019 Credit Agreement.

Trade Receivables Facility

As of June 30, 2019, there were no amounts outstanding under the $175 million trade receivables securitization facility (the “Trade Receivables Facility”), and as of September 30, 2018, there was $140 million outstanding. During the nine months ended June 30, 2019, Valvoline borrowed $82 million and made payments of $222 million, including the payment made with a portion of the proceeds from the 2019 Term Loan.

Based on the availability of eligible receivables, the full capacity of the Trade Receivables Facility was available as of June 30, 2019. The financing subsidiary owned $274 million and $275 million of outstanding accounts receivable as of June 30, 2019 and September 30, 2018, respectively, and these amounts are included in Accounts receivable, net in the Company’s Condensed Consolidated Balance Sheets.
v3.19.2
Income Taxes
9 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income tax provisions for interim quarterly periods are based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items related specifically to interim periods. The following summarizes income tax expense and the effective tax rate in each interim period:

Three months ended June 30Nine months ended June 30
(In millions)2019201820192018
Income tax expense$20 $33 $56 $154 
Effective tax rate percentage23.5 %34.0 %23.6 %56.0 %
The decreases in income tax expense and the effective tax rate from the prior year periods were principally driven by the prior year enactment of U.S. and Kentucky tax reform legislation, which resulted in the full benefit of lower corporate statutory income tax rates in fiscal 2019 and expense of approximately $6 million and $76 million recognized during the three and nine months ended June 30, 2018, respectively, primarily related to the remeasurement of net deferred tax assets at the lower corporate statutory income tax rates. Furthermore, a benefit of $5 million was recognized in the nine months ended June 30, 2019 related to the expected utilization of tax attributes as a result of the clarification of certain provisions of Kentucky tax reform legislation.

The Company finalized its provisional estimates of the impacts of U.S. tax reform legislation during the three months ended December 31, 2018, which resulted in no significant adjustments.
v3.19.2
Employee Benefit Plans
9 Months Ended
Jun. 30, 2019
Retirement Benefits [Abstract]  
Employee Benefit Plans EMPLOYEE BENEFIT PLANS
The following table summarizes the components of pension and other postretirement benefit cost (income):

Other postretirement benefits
Pension benefits
(In millions)2019201820192018
Three months ended June 30
Service cost$— $— $— $— 
Interest cost21 19 — — 
Expected return on plan assets(20)(26)— — 
Amortization of prior service credit— — (3)(3)
Net periodic benefit cost (income)$$(7)$(3)$(3)
Nine months ended June 30
Service cost$$$— $— 
Interest cost61 56 
Expected return on plan assets(60)(78)— — 
Amortization of prior service credit— — (9)(9)
Net periodic benefit cost (income)$$(21)$(8)$(8)
v3.19.2
Litigation, Claims and Contingencies
9 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Litigation, Claims and Contingencies LITIGATION, CLAIMS AND CONTINGENCIES
From time to time, Valvoline is party to lawsuits, claims, and other legal proceedings that arise in the ordinary course of business. The Company establishes liabilities for the outcome of such matters where losses are determined to be probable and reasonably estimable. Where appropriate, the Company has recorded liabilities with respect to these matters, which were immaterial for the periods presented as reflected in the condensed consolidated financial statements herein. There are certain claims and legal proceedings pending where loss is not determined to be probable or reasonably estimable, and therefore, accruals have not been made. In addition, Valvoline discloses matters for which management believes a material loss is at least reasonably possible.

In all instances, management has assessed each matter based on current information available and made a judgment concerning its potential outcome, giving due consideration to the amount and nature of the claim and the probability of success. The Company believes it has established adequate accruals for liabilities that are probable and reasonably estimable.

Although the ultimate resolution of these matters cannot be predicted with certainty and there can be no assurances that the actual amounts required to satisfy liabilities from these matters will not exceed the amounts reflected in the condensed consolidated financial statements, based on information available at this time, it is the
opinion of management that such pending claims or proceedings will not have a material adverse effect on its condensed consolidated financial statements.
v3.19.2
Earnings Per Share
9 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
Earnings Per Share EARNINGS PER SHARE
The following table summarizes basic and diluted earnings per share for the following periods:

Three months endedNine months ended
June 30June 30
(In millions, except per share data)2019 201820192018
Numerator 
Net income $65 $64 $181 $121 
Denominator 
Weighted average common shares outstanding189  195 189 199 
Effect of potentially dilutive securities (a)
—  — 
Weighted average diluted shares outstanding189 196 189 200 
  
Earnings per share 
Basic$0.34  $0.33 $0.96 $0.61 
Diluted$0.34  $0.33 $0.96 $0.61 
(a) Approximately 1 million and 2 million outstanding stock appreciation rights were not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three and nine months ended June 30, 2019, respectively.
v3.19.2
Reportable Segment Information
9 Months Ended
Jun. 30, 2019
Segment Reporting [Abstract]  
Reportable Segment Information REPORTABLE SEGMENT INFORMATION
Valvoline manages and reports within the following three segments: 

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

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

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

These segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in assessing segment performance and in allocating the Company’s resources. Sales and operating income are the primary U.S. GAAP measures evaluated in assessing each reportable segment’s financial performance. Operating income by segment includes the allocation of shared corporate costs, which are allocated consistently based on each segment’s proportional contribution to various financial measures. Intersegment sales are not material, and assets are not allocated and included in the assessment of segment performance; consequently, these items are not disclosed by segment herein.
To maintain operating focus on business performance, certain corporate and non-operational items, including restructuring and related expenses, as well as adjustments related to legacy businesses that no longer are attributed to Valvoline, are excluded from the segment operating results utilized by the chief operating decision maker in evaluating segment performance and are separately delineated within Unallocated and other to reconcile to total reported Operating income as shown in the table below.

The following table presents sales and operating income for each reportable segment:

Three months endedNine months ended


(In millions)
June 30
June 30
2019201820192018
Sales
Quick Lubes
$211 $167 $600 $479 
Core North America
260 264 735 773 
International
142 146 426 439 
Consolidated sales$613 $577 $1,761 $1,691 
Operating income
Quick Lubes
$48 $38 $130 $111 
Core North America
38 41 109 130 
International
20 20 61 63 
Total operating segments
106 99 300 304 
Unallocated and other (a)
(4)(15)(14)
Consolidated operating income$102 $102 $285 $290 
(a) Unallocated and other includes Legacy and separation-related expenses, net, and restructuring and related expenses.
v3.19.2
Guarantor Financial Information
9 Months Ended
Jun. 30, 2019
Condensed Financial Information Disclosure [Abstract]  
Guarantor Financial Information GUARANTOR FINANCIAL INFORMATION
The Senior Notes detailed in Note 9 are general unsecured senior obligations of Valvoline Inc. and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by the combined “Guarantor Subsidiaries.” Other subsidiaries (the “Non-Guarantor Subsidiaries”) largely represent the international operations of the Company, which do not guarantee the Senior Notes.

The following tables present, on a consolidating basis, the condensed statements of comprehensive income, condensed balance sheets, and condensed statements of cash flows for the parent issuer of these Senior Notes, the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis, and the eliminations necessary to arrive at the Company’s consolidated results.

Condensed Consolidating Statements of Comprehensive Income
For the three months ended June 30, 2019
(In millions)Valvoline Inc.
(Parent Issuer)
Guarantor SubsidiariesNon-Guarantor SubsidiariesEliminationsConsolidated
Sales$— $491 $140 $(18)$613 
Cost of sales— 324 100 (18)406 
Gross profit— 167 40 — 207 
Selling, general and administrative expenses87 26 — 116 
Net legacy and separation-related expenses— — — — — 
Equity and other (income) expenses, net— (16)— (11)
Operating (loss) income(3)96 — 102 
Net pension and other postretirement plan income— (2)— — (2)
Net interest and other financing expenses17 — — 19 
(Loss) income before income taxes(20)96 — 85 
Income tax (benefit) expense (5)24 — 20 
Equity in net income of subsidiaries(80)(8)— 88 — 
Net income$65 $80 $$(88)$65 
Total comprehensive income$63 $78 $$(87)$63 
Condensed Consolidating Statements of Comprehensive Income
For the three months ended June 30, 2018
(In millions)Valvoline Inc.
(Parent Issuer)
Guarantor SubsidiariesNon-Guarantor SubsidiariesEliminationsConsolidated
Sales$— $456 $137 $(16)$577 
Cost of sales— 294 98 (16)376 
Gross profit— 162 39 — 201 
Selling, general and administrative expenses81 26 — 110 
Net legacy and separation-related income(3)— — — (3)
Equity and other (income) expenses, net— (11)— (8)
Operating income— 92 10 — 102 
Net pension and other postretirement plan income— (10)— — (10)
Net interest and other financing expenses14 — — 15 
(Loss) income before income taxes(14)101 10 — 97 
Income tax (benefit) expense(1)30 — 33 
Equity in net income of subsidiaries(77)(6)— 83 — 
Net income$64 $77 $$(83)$64 
Total comprehensive income$48 $61 $(5)$(56)$48 
Condensed Consolidating Statements of Comprehensive Income
For the nine months ended June 30, 2019
(In millions)Valvoline Inc.
(Parent Issuer)
Guarantor SubsidiariesNon-Guarantor SubsidiariesEliminationsConsolidated
Sales$— $1,396 $415 $(50)$1,761 
Cost of sales— 917 301 (50)1,168 
Gross profit— 479 114 — 593 
Selling, general and administrative expenses258 68 — 334 
Net legacy and separation-related expenses— — — 
Equity and other (income) expenses, net— (43)14 — (29)
Operating (loss) income(11)264 32 — 285 
Net pension and other postretirement plan income— (7)— — (7)
Net interest and other financing expenses47