VALVOLINE INC, 10-Q filed on 2/13/2017
Quarterly Report
Document Entity Information
3 Months Ended
Dec. 31, 2016
Jan. 31, 2017
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
Valvoline Inc. 
 
Entity Central Index Key
0001674910 
 
Document Type
10-Q 
 
Document Period End Date
Dec. 31, 2016 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--09-30 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Non-accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
204,530,203 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q1 
 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Operating Income (Loss) [Abstract]
 
 
Sales
$ 489 
$ 456 
Cost of sales
304 
280 
Gross profit
185 
176 
Selling, general and administrative expense
95 
87 
Non-service income and gains on pension and other postretirement plans
(26)
(2)
Separation costs
Equity and other income
(10)
(5)
Operating income
120 
96 
Net interest and other financing expense
10 
Income before income taxes
110 
96 
Income tax expense
38 
31 
Net income
72 
65 
NET INCOME PER SHARE
 
 
Net income per share, basic and diluted (usd per share)
$ 0.35 
$ 0.32 
AVERAGE SHARES OUTSTANDING
 
 
Average shares outstanding, basic and diluted (shares)
205 
205 
Dividends paid per common share (usd per share)
$ 0.05 
$ 0.00 
COMPREHENSIVE INCOME (LOSS)
 
 
Net income
72 
65 
Other comprehensive income (loss), net of tax
 
 
Unrealized translation loss
(9)
(4)
Pension and other postretirement obligation adjustment
(2)
Other comprehensive loss
(11)
(4)
Comprehensive income
$ 61 
$ 61 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2016
Sep. 30, 2016
Current assets
 
 
Cash and cash equivalents
$ 236 
$ 172 
Accounts receivable
353 
363 
Inventories
141 
139 
Other assets
29 
56 
Total current assets
759 
730 
Noncurrent assets
 
 
Cost
739 
727 
Accumulated depreciation
408 
403 
Net property, plant and equipment
331 
324 
Goodwill and intangibles
270 
267 
Equity method investments
30 
26 
Deferred income taxes
386 
389 
Other assets
89 
89 
Total noncurrent assets
1,106 
1,095 
Total assets
1,865 
1,825 
Current liabilities
 
 
Short-term debt
75 
Current portion of long-term debt
15 
19 
Trade and other payables
146 
177 
Accrued expenses and other liabilities
257 
204 
Total current liabilities
493 
400 
Noncurrent liabilities
 
 
Long-term debt
650 
724 
Employee benefit obligations
854 
886 
Deferred income taxes
Other liabilities
152 
143 
Total noncurrent liabilities
1,658 
1,755 
Commitments and contingencies
   
   
Preferred stock, no par value, 40 shares authorized; no shares issued and outstanding
Common stock, par value $0.01 per share, 400 shares authorized; 205 shares issued and outstanding at December 31, 2016 and September 30, 2016
Paid-in capital
710 
710 
Retained earnings
62 
Parent company investment
(1,052)
(1,039)
Accumulated other comprehensive loss
(8)
(3)
Total stockholders’ (deficit) equity
(286)
(330)
Total liabilities and stockholders’ (deficit) equity
$ 1,865 
$ 1,825 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2016
Sep. 30, 2016
Statement of Financial Position [Abstract]
 
 
Preferred stock authorized (shares)
40,000,000 
40,000,000 
Preferred stock issued (shares)
Preferred stock outstanding (shares)
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)
205,000,000 
205,000,000 
Common stock outstanding (shares)
205,000,000 
205,000,000 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities
 
 
Net income
$ 72 
$ 65 
Adjustments to reconcile income to cash flows from operating activities
 
 
Depreciation and amortization
Debt issuance cost amortization
Equity income from affiliates
(4)
(3)
Distributions from equity affiliates
Pension contributions
(3)
(1)
Gain on pension and other postretirement plan remeasurements
(8)
Stock-based compensation expense
Change in assets and liabilities
 
 
Accounts receivable
10 1
13 1
Inventories
(2)1
(2)1
Payables and accrued liabilities
23 1
(37)1
Other assets and liabilities
(11)1
(8)1
Total cash provided by operating activities
88 
40 
Cash flows from investing activities
 
 
Additions to property, plant and equipment
(9)
(5)
Purchase of operations - net of cash acquired
(4)
Other investing activities
(1)
Total cash used in investing activities
(10)
(9)
Cash flows from financing activities
 
 
Net transfers to parent
(2)
(31)
Proceeds from borrowings
75 
Repayments on borrowings
(79)
Cash dividends paid
(10)
Total cash used in financing activities
(16)
(31)
Effect of currency exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents
64 
Cash and cash equivalents - beginning of period
172 
Cash and cash equivalents - end of period
$ 236 
$ 0 
Basis of Presentation
Basis of Presentation
BASIS OF PRESENTATION

Valvoline Inc. (“Valvoline” or the “Company”) is a subsidiary of Ashland Global Holdings Inc. (which together with its predecessors and consolidated subsidiaries is referred to as “Ashland” or “Parent”). On September 22, 2015, Ashland announced that its Board of Directors approved proceeding with a plan to separate Ashland into two independent, publicly traded companies comprising of the Valvoline business and the specialty chemicals businesses (the “Separation”). Following a series of restructuring steps, Valvoline was incorporated in May 2016, and prior to the completion of the Company’s initial public offering (“IPO”) on September 28, 2016, substantially all of the historical Valvoline business reported by Ashland, as well as certain other legacy Ashland assets and liabilities, were transferred to Valvoline. After completing the IPO, Ashland owns approximately 83% of the total outstanding shares of Valvoline’s common stock. Subject to market conditions and other factors, Ashland presently intends to distribute the remaining Valvoline shares in 2017 following the release of March-quarter earnings results by both Ashland and Valvoline.

The contribution of the Valvoline business by Ashland to Valvoline was treated as a reorganization of entities under common Ashland control. As a result, Valvoline is retrospectively presenting the condensed consolidated financial statements of Valvoline and its subsidiaries for periods presented prior to the completion of the IPO, which have been prepared a stand-alone basis and derived from Ashland’s consolidated financial statements and accounting records using the historical results of operations, and assets and liabilities attributed to Valvoline’s operations, and includes allocations of expenses from Ashland. The condensed consolidated financial statements for periods presented subsequent to the completion of the IPO reflect the consolidated operations of Valvoline and its majority-owned subsidiaries as a separate, stand-alone entity.

For periods prior to the completion of the IPO, transactions between Valvoline and Ashland were considered to be effectively settled for cash at the time the transactions were recorded. These transactions and net cash transfers to and from Ashland’s centralized cash management system are reflected as a component of Parent company investment on the Condensed Consolidated Balance Sheets and as a financing activity within the accompanying Condensed Consolidated Statements of Cash Flows. The Parent company investment on the Condensed Consolidated Balance Sheets represents the cumulative net investment by Ashland in Valvoline, including net income through the completion of the IPO and net cash transfers to and from Ashland.

The accompanying unaudited condensed consolidated financial statements have been prepared by Valvoline in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and Securities and Exchange Commission 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, 2016. Certain prior period amounts have been reclassified to conform to current presentation.

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, all adjustments considered necessary for a fair presentation have been included herein, and the assumptions underlying the condensed consolidated financial statements for these interim periods are reasonable.  The results for the interim periods are not necessarily indicative of results to be expected for the entire year.

New accounting standards

A description of new U.S. GAAP accounting standards issued and adopted during the current year is required in interim financial reporting. A detailed listing of all new accounting standards relevant to Valvoline is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2016. The following standard relevant to Valvoline was adopted in the current period.

In April 2015, the FASB issued accounting guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. Cloud computing arrangements represent the delivery of hosted services over the internet which includes software, platforms, infrastructure and other hosting arrangements. Under the guidance, customers that gain access to software in a cloud computing arrangement account for the software as internal-use software only if the arrangement includes a software license. Valvoline adopted this standard on a prospective basis on October 1, 2016. As a result, certain costs related to these arrangements will be expensed when incurred.
Accounts Receivable
Accounts Receivable
ACCOUNTS RECEIVABLE

The following summarizes Valvoline’s accounts receivable as of the Condensed Consolidated Balance Sheet dates:

(In millions)
December 31
2016
 
September 30
2016
Trade and other accounts receivable
$
359

 
$
368

Less: Allowance for doubtful accounts
(6
)
 
(5
)
 
$
353

 
$
363

Inventories
Inventories
INVENTORIES

Inventories are carried at the lower of cost or market value.  Inventories are primarily stated at cost using the weighted-average cost method. In addition, certain lubricants are valued at cost using the last-in, first-out (“LIFO”) method. 

The following summarizes Valvoline’s inventories as of the Condensed Consolidated Balance Sheet dates:
(In millions)
December 31
2016
 
September 30
2016
Finished products
$
147

 
$
149

Raw materials, supplies and work in process
24

 
21

LIFO reserves
(28
)
 
(29
)
Obsolete inventory reserves
(2
)
 
(2
)
 
$
141

 
$
139

Debt
Debt
DEBT

The following table summarizes Valvoline’s current and long-term debt as of the dates reported in the Condensed Consolidated Balance Sheets:
(In millions)
December 31 2016
September 30 2016
Senior Notes
$
375

$
375

Term Loan A
296

375

Accounts Receivable Securitization
75


Revolver


Other (a)
(6
)
(7
)
Total debt
$
740

$
743

Short-term debt
75


Current portion of long-term debt
15

19

Long-term debt
$
650

$
724

 
 
 
(a) At December 31, 2016, Other includes $8 million of debt issuance cost discounts and $2 million of debt acquired through acquisitions. At September 30, 2016, Other included $9 million of debt issuance cost discounts and $2 million of debt acquired through acquisitions.

At December 31, 2016, Valvoline’s long-term debt (including current portion and excluding debt issuance costs) had a carrying value of $673 million, compared to a fair value of $688 million.  At September 30, 2016, Valvoline’s long-term debt (including current portion and excluding debt issuance costs) had a carrying value of $752 million, compared to a fair value of $771 million.  Borrowings under the Term Loans (as defined below) are at variable interest rates and accordingly their carrying amounts approximate fair value. The fair value of the 5.500% senior unsecured notes due 2024 (“Senior Notes”) is based on quoted market prices, which are Level 1 inputs within the fair value hierarchy.

Accounts Receivable Securitization

In November 2016, Valvoline entered into a $125 million accounts receivable securitization facility (the “2017 Accounts Receivable Securitization Facility”) with various financial institutions. The Company may from time to time, obtain up to $125 million (in the form of cash or letters of credit) through the sale of an undivided interest in its accounts receivable. The agreement has a term of one year but is extendable at the discretion of the Company and the financial institutions. The Company accounts for the 2017 Accounts Receivable Securitization Facility as secured borrowings, which are classified as Short-term debt and the receivables sold are included in Accounts receivable in the Condensed Consolidated Balance Sheets. 

During the first quarter of 2017, Valvoline borrowed $75 million under the 2017 Accounts Receivable Securitization Facility and used the net proceeds to repay an equal amount of the Term Loan A. As a result, the Company recognized an immaterial charge related to the accelerated amortization of previously capitalized debt issuance costs, which is included in Net interest and other financing expense in the Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2016. The weighted-average interest rate for this instrument during the period borrowings were outstanding in the first quarter of 2017 was 1.5%

Senior Credit Agreement

The 2016 Senior Credit Agreement provided for an aggregate principal amount of $1,325 million in senior secured credit facilities (“2016 Credit Facilities”), composed of (i) a five years $875 million term loan A facility (“Term Loans”) and (ii) a five years $450 million revolving credit facility (including a $100 million letter of credit sublimit) (“Revolver”). At December 31, 2016, there were no borrowings under the Revolver and the total borrowing capacity remaining under the Revolver was $428 million, due to a reduction of $22 million for letters of credit outstanding.

The 2016 Senior Credit Agreement contains usual and customary representations and warranties, and usual and customary 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 financial covenants (including maintenance of a maximum consolidated net leverage ratio and a minimum consolidated interest coverage ratio). As of the end of any fiscal quarter, the maximum consolidated net leverage ratio and minimum consolidated interest coverage ratio permitted under the 2016 Senior Credit Agreement are 4.5 and 3.0, respectively. As of December 31, 2016, Valvoline is in compliance with all covenants under the 2016 Senior Credit Agreement.
Income Taxes
Income Taxes
INCOME TAXES

Current Fiscal year

Valvoline’s estimated annual effective income tax rate used to determine income tax expense in interim financial reporting for the year ending September 30, 2017 is 34.6%. The overall effective tax rate was 34.5% for the three months ended December 31, 2016 and was impacted by a net favorable benefit of discrete items.

Prior Fiscal year

Valvoline’s annual effective income tax rate used to determine income tax expense in interim financial reporting for the year ended September 30, 2016 was 33.7%. The overall effective tax rate was 32.3% for the three months ended December 31, 2015. The prior tax rate for the period was favorably impacted primarily by the reinstatement of the research and development tax credit.

Unrecognized tax benefits

Valvoline recognized less than $1 million of uncertain tax positions for the three months ended December 31, 2016, all of which related to increases in positions taken in the current year. Valvoline expects no decrease in the amount of accrual for uncertain tax positions in the next twelve months. However, it is reasonably possible that there could be material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues, reassessment of existing uncertain tax positions, or the expiration of applicable statute of limitations; however, Valvoline is not able to estimate the impact of these items at this time.

Tax Matters Agreement

For the periods prior to Separation from Ashland, Valvoline will be included in Ashland’s consolidated U.S. and state income tax returns and in tax returns of certain Ashland international subsidiaries (collectively, the “Ashland Group Returns”). Under the Tax Matters Agreement between Valvoline and Ashland that was entered into on September 22, 2016, Ashland will generally make all necessary tax payments to the relevant tax authorities with respect to Ashland Group Returns, and Valvoline will make tax sharing payments to Ashland, inclusive of tax attributes utilized. The amount of the tax sharing payments will generally be determined as if Valvoline and each of its relevant subsidiaries included in the Ashland Group Returns filed their own consolidated, combined or separate tax returns for the periods prior to Separation that include only Valvoline and/or its relevant subsidiaries, as the case may be. Total net liabilities related to these and other obligations owed to Ashland under the Tax Matters Agreement are $83 million and $66 million at December 31, 2016 and September 30, 2016, respectively. The net liability at December 31, 2016 consisted of receivables from Parent of $5 million recorded in other current assets, $20 million included in Accrued expenses and other liabilities, and $68 million recorded in other long-term liabilities in the Condensed Consolidated Balance Sheets. As of September 30, 2016, the net liability consisted of receivables from Parent of $5 million recorded in other current assets and $71 million recorded in other long-term liabilities in the Condensed Consolidated Balance Sheets.
Employee Benefit Plans
Employee Benefit Plans
EMPLOYEE BENEFIT PLANS

During September 2016, Ashland transferred a substantial portion of its U.S. qualified pension and non-qualified U.S. pension plans as well as certain other postretirement obligations to Valvoline as part of the separation process. Prior to the transfer, Valvoline accounted for its participation in the Ashland sponsored pension and other postretirement benefit plans as multi-employer plans. For purposes of these financial statements, costs for multi-employer plans were allocated based on Valvoline employee’s participation in the plan prior to September 1, 2016. Subsequent to the transfer from Ashland, Valvoline accounts for the plans as single-employer plans recognizing the full amount of any costs, gains, and net liabilities within the condensed consolidated financial statements. The total pension and other postretirement benefit income accounted for under the single employer plan method was $25 million during the three months ended December 31, 2016 primarily recognized within Non-service income and gains on pension and other postretirement plans in the Condensed Consolidated Statements of Comprehensive Income. The total pension income allocated to Valvoline related to multi-employer pension plans was income of $1 million for the three months ended December 31, 2015 primarily within Non-service income and gains on pension and other postretirement plans in the Condensed Consolidated Statements of Comprehensive Income. The net periodic benefit costs for the pension and other postretirement benefit plans are disclosed in further below.

Contributions to the pension plans were approximately $3 million during the three months ended December 31, 2016. Expected contributions to pension plans for the remainder of 2017 are approximately $12 million.

Plan amendments and remeasurements

Effective January 1, 2017, Valvoline discontinued certain other postretirement health and life insurance benefits. The effect of these plan amendments resulted in a remeasurement gain of $8 million within Non-service income and gains on pension and other postretirement plans in the Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2016.

Components of net periodic benefit costs (income)

For segment reporting purposes, service cost is proportionately allocated to each reportable segment, while all other components of net periodic benefit income are recognized within Unallocated and other.

The following table summarizes the components of pension and other postretirement benefit income. For the three months ended December 31, 2015, these amounts were generally related to allocations to Valvoline under a multi-employer plan.
 
 
 
 
 
Other postretirement benefits
 
Pension benefits
 
(In millions)
2016
 
2015
 
2016
 
2015
Three months ended December 31
 
 
 
 
 
 
 
Service cost
$
1

 
$
2

 
$

 
$

Interest cost
21

 
6

 

 

Expected return on plan assets
(36
)
 
(9
)
 

 

Amortization of prior service credit

 

 
(3
)
 

Actuarial gain

 

 
(8
)
 

Net periodic benefit income
$
(14
)

$
(1
)

$
(11
)
 
$

 
 
 
 
 
 
 
 

Deferred compensation investments

Deferred compensation investments consist of Level 1 measurements within the fair value hierarchy, which are observable inputs such as unadjusted quoted prices in active markets for identical assets and liabilities. Valvoline had $34 million of non-qualified benefit plan investments as of December 31 and September 30, 2016, which primarily consist of fixed income U.S government bonds and are classified as other noncurrent assets in the Condensed Consolidated Balance Sheets. Gains and losses related to deferred compensation investments are immediately recognized within the Condensed Consolidated Statements of Comprehensive Income.
Litigation, Claims and Contingencies
Litigation, Claims and Contingencies
LITIGATION, CLAIMS AND CONTINGENCIES

There are various claims, lawsuits and administrative proceedings pending or threatened against Valvoline and its various subsidiary companies. Such actions are with respect to commercial and tax disputes, product liability, toxic tort liability, environmental, and other matters which seek remedies or damages, in some cases in substantial amounts. While Valvoline cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded where appropriate and losses already recognized with respect to such actions were not material as of December 31, 2016 and September 30, 2016.  There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Valvoline currently believes that such potential losses will not be material.
Earnings Per Share
Earnings Per Share
EARNINGS PER SHARE

The following is the computation of basic and diluted earnings per share (“EPS”). Earnings per share is reported under the treasury stock method.

 
 
Three months ended
 
 
December 31
(In millions except per share data)
 
2016
 
2015
Numerator
 
 
 
 
Net income
 
$
72

 
$
65

Denominator
 
 
 
 
Weighted-average shares used to compute basic EPS
 
205

 
205

Effect of dilutive securities (a)
 

 

Weighted-average shares used to compute diluted EPS
 
205


205

 
 
 
 
 
Earnings per share
 
 
 
 
Basic
 
$
0.35

 
$
0.32

Diluted
 
$
0.35

 
$
0.32

 
 
 
 
 
(a) During the three months ended December 31, 2016, the Company issued share-based awards to six non-employee directors. These awards had no material impact on earnings per share.
Stockholders' Equity
Stockholders' Equity
STOCKHOLDERS’ EQUITY

Stockholder dividends

On November 15, 2016, the Company’s Board of Directors announced a quarterly cash dividend of $0.049 per share of common stock to eligible shareholders of record as of December 5, 2016. A total amount of $10 million was paid on December 20, 2016. Of this $10 million dividend payment, $8 million was paid to Ashland as they hold approximately 83% of the outstanding common stock of Valvoline.

Accumulated other comprehensive income (loss)

Components of other comprehensive income (loss) recorded in the Condensed Consolidated Statements of Comprehensive Income are presented in the following table, before tax and net of tax effects.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
2015
(In millions)
Before tax
 
Tax expense
 
Net of tax
 
Before tax
 
Tax expense
 
Net of tax
Three months ended December 31
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Unrealized translation loss
$
(9
)
 
$

 
$
(9
)
 
$
(5
)
 
$
1

 
$
(4
)
Pension obligation adjustment:
 
 
 
 


 
 
 
 
 
 
Amortization of unrecognized prior service credits included in net income (a)
(3
)
 
1

 
(2
)
 

 

 

Total other comprehensive (loss) income
$
(12
)
 
$
1

 
$
(11
)
 
$
(5
)
 
$
1

 
$
(4
)
 
 
 
 
 
 
 
 
 
 
 
 
 (a) Amortization of unrecognized prior service credits are included in net periodic benefit income for pension and other postretirement plans and are included in Non-service income and gains on pension and other postretirement plans in the Condensed Consolidated Statements of Comprehensive Income.

In accordance with U.S. GAAP, as disclosed in the table above, certain pension costs are amortized from accumulated other comprehensive loss and recognized in net income. See Note 6 of Notes to Condensed Consolidated Financial Statements for more information.
Related Party Transactions
Related Party Transactions
RELATED PARTY TRANSACTIONS

Financial assets

Ashland is party to an agreement to sell accounts receivable for a Valvoline customer in the form of drafts or bills of exchange to a financial institution. Each draft constitutes an order to pay for obligations of the customer to Ashland arising from the sale of goods to the customer. The intention of the arrangement is to decrease the time accounts receivable is outstanding and increase cash flows as Ashland in turn remits payment to Valvoline.  At December 31, 2016 and September 30, 2016, the amount of accounts receivable sold by Ashland to the financial institution was $11 million and $29 million, respectively.

Derivative instruments

Until the IPO, Valvoline participated in Ashland’s centralized derivative programs that engage in certain hedging activities, which Ashland used to manage its exposure to fluctuations in foreign currencies. Gains and losses related to a hedge were either recognized in Ashland’s income immediately, to offset the gain or loss on the hedged item, or deferred and recorded in the equity section of Ashland’s balance sheet as a component of accumulated other comprehensive loss and subsequently recognized in Ashland’s income when the underlying hedged item was recognized in earnings. As a result, gains or losses on hedges during the three months ended December 31, 2015 were not material and are reflected in Valvoline’s Condensed Consolidated Statements of Comprehensive Income through allocation from Ashland in Selling, general and administrative expense.  

Valvoline began its own hedging program in late September 2016 to manage exposure to fluctuations in foreign currency with an outstanding notional contract value of $22 million as of December 31, 2016. All derivative instruments are recognized as either assets or liabilities on the Condensed Consolidated Balance Sheets and are measured at fair value. As of December 31 and September 30, 2016, these balances were not material. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows or a hedge of a net investment in a foreign operation. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item, or deferred and recorded in the stockholders’ equity section of the Condensed Consolidated Balance Sheets as a component of accumulated other comprehensive income and subsequently recognized in the Condensed Consolidated Statements of Comprehensive Income when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge is recognized in income immediately. Gains and losses recognized during the three months ended December 31, 2016 were not material and were recorded in Selling, general and administrative expense in the Condensed Consolidated Statements of Comprehensive Income.

Stock incentive plans

Valvoline has historically participated in Ashland’s stock incentive plans for key employees and directors, primarily in the form of stock appreciation rights (“SARs”), restricted stock, performance shares and other non-vested stock awards. Equity-based compensation expense has been either directly reported by or allocated to Valvoline based on the awards and terms previously granted to Ashland’s employees. Stock-based compensation expense recorded by Valvoline during the three months ended December 31, 2016 and 2015 were $1 million and $3 million, respectively. For the three months ended December 31, 2016 and 2015, these costs were primarily included within the Selling, general and administrative caption of the Condensed Consolidated Statements of Comprehensive Income. Compensation expense for stock incentive plans is generally based on the grant-date fair value over the appropriate vesting period. Ashland utilizes several industry-accepted valuation models to determine the fair value. Until the Separation occurs, Valvoline will continue to participate in Ashland’s equity-based compensation plans and record equity-based compensation expense based on the historical allocation of cost. Upon Separation, Ashland intends to convert these equity-based awards to Valvoline-based awards.

Related party receivables and payables

At December 31, 2016, Valvoline had receivables from Parent of $5 million recorded in other current assets on the Condensed Consolidated Balance Sheets. Also, at December 31, 2016, Valvoline had recorded payables to Parent of $44 million which was included in Accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets, and $69 million which was recorded other long-term liabilities in the Condensed Consolidated Balance Sheets. The current liability relates primarily to current obligations owed to Ashland under the Tax Matters Agreement, transition services and other miscellaneous billings. The long-term liability relates primarily to the obligations under the Tax Matters Agreement.

At September 30, 2016, Valvoline had receivables from Parent of $30 million recorded in other current assets on the Condensed Consolidated Balance Sheets. Also, at September 30, 2016, Valvoline had recorded obligations to Parent of $73 million, of which $2 million is in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets and $71 million was recorded in other noncurrent liabilities in the Condensed Consolidated Balance Sheets. The long-term liability related primarily to the obligations under the Tax Matters Agreement.

Corporate allocations

Prior to the completion of the IPO, Valvoline has historically utilized centralized functions of Ashland to support its operations, and in return, Ashland allocated certain of its expenses to Valvoline. Such expenses represent costs related, but not limited to, treasury, legal, accounting, insurance, information technology, payroll administration, human resources, incentive plans and other services. These costs, together with an allocation of Ashland overhead costs, are included within the Selling, general and administrative caption of the Condensed Consolidated Statements of Comprehensive Income. Where it was possible to specifically attribute such expenses to activities of Valvoline, amounts have been charged or credited directly to Valvoline without allocation or apportionment. Allocation of all other such expenses was based on a reasonable reflection of the utilization of service provided or benefits received by Valvoline during the periods presented on a consistent basis, such as headcount, square footage, tangible assets or sales. Valvoline’s management supports the methods used in allocating expenses and believes these methods to be reasonable estimates.

There were no general corporate expenses allocated to Valvoline during the three months ended December 31, 2016 while there were $21 million allocated during the three months ended December 31, 2015. The following table summarizes the centralized and administrative support costs of Ashland that were allocated to Valvoline for the three months ended December 31, 2015.

 
 
Three months ended December 31
(In millions)
 
2015
Information technology
 
$
5

Financial and accounting
 
3

Building services
 
3

Legal and environmental
 
2

Human resources
 
1

Shared services
 
1

Other general and administrative
 
6

Total
 
$
21

Reportable Segment Information
Reportable Segment Information
REPORTABLE SEGMENT INFORMATION

Valvoline’s business is managed within reportable segments based on how operations are managed internally for the products and services sold to customers, including how the results are reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. Valvoline’s operating segments are identical to its reportable segments. Operating income is the primary measure reviewed by the chief operating decision maker in assessing each reportable segment’s financial performance. Valvoline’s businesses are managed within three reportable operating segments:  Core North America, Quick Lubes, and International. Additionally, to reconcile to total consolidated Operating income, certain corporate and other non-operational costs are included in Unallocated and other.

Reportable segment business descriptions
The Core North America business segment sells Valvoline™ and other branded products in the United States and Canada to both consumers who perform their own automotive maintenance, referred to as “Do-It-Yourself” or “DIY” consumers, as well as to installer customers who use Valvoline products to service vehicles owned by “Do-It-For Me” or “DIFM” consumers. Valvoline sells to its DIY consumers through national retail auto parts stores, leading mass merchandisers and independent auto part stores. Valvoline sells to its DIFM consumers through installers in the United States and Canada. Installer customers include car dealers, general repair shops, and third-party quick lube chains. Valvoline directly serves these customers as well as through a network of distributors. Valvoline’s installer channel also sells branded products and solutions to heavy duty customers such as on-highway fleets and construction companies.

Through its Quick Lubes business segment, Valvoline operates Valvoline Instant Oil Change (“VIOC”), a quick-lube service chain involving both Company-owned and franchised stores. Valvoline also sells its products and provides Valvoline branded signage to independent quick lube operators through its Express Care program.

The International business segment sells Valvoline™ and Valvoline’s other branded products in approximately 140 countries outside of the United States and Canada. Valvoline’s key international markets include China, India, EMEA, Latin America and Australia Pacific. The International business segment sells products for both consumer and commercial vehicles and equipment, and is served by company-owned plants in the United States, Australia and the Netherlands, a joint venture-owned plant in India and third-party warehouses and toll manufacturers in other regions. In most of the countries where Valvoline’s products are sold, Valvoline goes to market via independent distributors.
Unallocated and other generally includes items such as components of pension and other postretirement benefit plan expenses (excluding service costs, which are allocated to the reportable segments), certain significant company-wide restructuring activities and legacy costs or adjustments that relate to divested businesses, including $6 million of separation costs during the three months ended December 31, 2016.

Reportable segment results

Results of Valvoline’s reportable segments are presented based on how operations are managed internally for the products and services sold to customers, including how the results are reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments.  The structure and practices are specific to Valvoline; therefore, the financial results of Valvoline’s reportable segments are not necessarily comparable with similar information for other companies.  Valvoline allocates all costs to its reportable segments except for certain significant company-wide restructuring activities, such as the restructuring plans and/or other costs or adjustments that relate to former businesses that Valvoline no longer operates. The service cost component of pension and other postretirement benefits costs has historically been allocated to each reportable segment on a ratable basis (going forward the only plans with ongoing service costs will be international plans within the international segment), while the remaining components of pension and other postretirement benefits costs are recorded to Unallocated and other.  

During the three months ended December 31, 2016, the Company completed the acquisition of five locations within the Quick Lubes reportable segment. During the fourth quarter of fiscal 2016, the Company paid $4 million related to this acquisition, which has primarily been recorded in Goodwill and intangibles on the Condensed Consolidated Balance Sheets.

The following table presents various financial information for each reportable segment:



(In millions)
For the three months ended December 31
2016
 
2015
Sales
 
 
 
Core North America
$
237

 
$
241

Quick Lubes
127

 
100

International
125

 
115

 
$
489

 
$
456

Operating Income
 
 
 
Core North America
$
51

 
$
53

Quick Lubes
29

 
23

International
20

 
16

Total operating segments
$
100

 
$
92

Unallocated and other (a)
20

 
4

 
$
120

 
$
96

 
 
 
 
(a)
During the three months ended December 31, 2016, Unallocated and other includes a gain of $8 million related to other postretirement plan actuarial remeasurement and $6 million of separation costs.
Subsequent Events
Subsequent Events
SUBSEQUENT EVENTS

Dividend declared

On January 24, 2017, the Board of Directors of Valvoline Inc. declared a quarterly cash dividend of $0.049 per share on Valvoline common stock. The dividend is payable on March 15, 2017 to shareholders of record on March 1, 2017.

Time-It Lube Acquisition

On January 31, 2017, Valvoline completed the previously announced acquisition of the business assets related to 28 quick-lube stores from Time-It Lube LLC and Time-It Lube of Texas, LP for $48 million.
Basis of Presentation (Policies)
BASIS OF PRESENTATION

Valvoline Inc. (“Valvoline” or the “Company”) is a subsidiary of Ashland Global Holdings Inc. (which together with its predecessors and consolidated subsidiaries is referred to as “Ashland” or “Parent”). On September 22, 2015, Ashland announced that its Board of Directors approved proceeding with a plan to separate Ashland into two independent, publicly traded companies comprising of the Valvoline business and the specialty chemicals businesses (the “Separation”). Following a series of restructuring steps, Valvoline was incorporated in May 2016, and prior to the completion of the Company’s initial public offering (“IPO”) on September 28, 2016, substantially all of the historical Valvoline business reported by Ashland, as well as certain other legacy Ashland assets and liabilities, were transferred to Valvoline. After completing the IPO, Ashland owns approximately 83% of the total outstanding shares of Valvoline’s common stock. Subject to market conditions and other factors, Ashland presently intends to distribute the remaining Valvoline shares in 2017 following the release of March-quarter earnings results by both Ashland and Valvoline.

The contribution of the Valvoline business by Ashland to Valvoline was treated as a reorganization of entities under common Ashland control. As a result, Valvoline is retrospectively presenting the condensed consolidated financial statements of Valvoline and its subsidiaries for periods presented prior to the completion of the IPO, which have been prepared a stand-alone basis and derived from Ashland’s consolidated financial statements and accounting records using the historical results of operations, and assets and liabilities attributed to Valvoline’s operations, and includes allocations of expenses from Ashland. The condensed consolidated financial statements for periods presented subsequent to the completion of the IPO reflect the consolidated operations of Valvoline and its majority-owned subsidiaries as a separate, stand-alone entity.

For periods prior to the completion of the IPO, transactions between Valvoline and Ashland were considered to be effectively settled for cash at the time the transactions were recorded. These transactions and net cash transfers to and from Ashland’s centralized cash management system are reflected as a component of Parent company investment on the Condensed Consolidated Balance Sheets and as a financing activity within the accompanying Condensed Consolidated Statements of Cash Flows. The Parent company investment on the Condensed Consolidated Balance Sheets represents the cumulative net investment by Ashland in Valvoline, including net income through the completion of the IPO and net cash transfers to and from Ashland.

The accompanying unaudited condensed consolidated financial statements have been prepared by Valvoline in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and Securities and Exchange Commission 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, 2016. Certain prior period amounts have been reclassified to conform to current presentation.

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, all adjustments considered necessary for a fair presentation have been included herein, and the assumptions underlying the condensed consolidated financial statements for these interim periods are reasonable.  The results for the interim periods are not necessarily indicative of results to be expected for the entire year.

New accounting standards

A description of new U.S. GAAP accounting standards issued and adopted during the current year is required in interim financial reporting. A detailed listing of all new accounting standards relevant to Valvoline is included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2016. The following standard relevant to Valvoline was adopted in the current period.

In April 2015, the FASB issued accounting guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. Cloud computing arrangements represent the delivery of hosted services over the internet which includes software, platforms, infrastructure and other hosting arrangements. Under the guidance, customers that gain access to software in a cloud computing arrangement account for the software as internal-use software only if the arrangement includes a software license. Valvoline adopted this standard on a prospective basis on October 1, 2016. As a result, certain costs related to these arrangements will be expensed when incurred.
INVENTORIES

Inventories are carried at the lower of cost or market value.  Inventories are primarily stated at cost using the weighted-average cost method. In addition, certain lubricants are valued at cost using the last-in, first-out (“LIFO”) method. 
Earnings per share is reported under the treasury stock method.
Derivative instruments

Until the IPO, Valvoline participated in Ashland’s centralized derivative programs that engage in certain hedging activities, which Ashland used to manage its exposure to fluctuations in foreign currencies. Gains and losses related to a hedge were either recognized in Ashland’s income immediately, to offset the gain or loss on the hedged item, or deferred and recorded in the equity section of Ashland’s balance sheet as a component of accumulated other comprehensive loss and subsequently recognized in Ashland’s income when the underlying hedged item was recognized in earnings. As a result, gains or losses on hedges during the three months ended December 31, 2015 were not material and are reflected in Valvoline’s Condensed Consolidated Statements of Comprehensive Income through allocation from Ashland in Selling, general and administrative expense.  

Valvoline began its own hedging program in late September 2016 to manage exposure to fluctuations in foreign currency with an outstanding notional contract value of $22 million as of December 31, 2016. All derivative instruments are recognized as either assets or liabilities on the Condensed Consolidated Balance Sheets and are measured at fair value. As of December 31 and September 30, 2016, these balances were not material. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows or a hedge of a net investment in a foreign operation. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item, or deferred and recorded in the stockholders’ equity section of the Condensed Consolidated Balance Sheets as a component of accumulated other comprehensive income and subsequently recognized in the Condensed Consolidated Statements of Comprehensive Income when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge is recognized in income immediately. Gains and losses recognized during the three months ended December 31, 2016 were not material and were recorded in Selling, general and administrative expense in the Condensed Consolidated Statements of Comprehensive Income.

Accounts Receivable (Tables)
Summary of Accounts Receivable
The following summarizes Valvoline’s accounts receivable as of the Condensed Consolidated Balance Sheet dates:

(In millions)
December 31
2016
 
September 30
2016
Trade and other accounts receivable
$
359

 
$
368

Less: Allowance for doubtful accounts
(6
)
 
(5
)
 
$
353

 
$
363

Inventories (Tables)
Summary of Inventory
The following summarizes Valvoline’s inventories as of the Condensed Consolidated Balance Sheet dates:
(In millions)
December 31
2016
 
September 30
2016
Finished products
$
147

 
$
149

Raw materials, supplies and work in process
24

 
21

LIFO reserves
(28
)
 
(29
)
Obsolete inventory reserves
(2
)
 
(2
)
 
$
141

 
$
139

Debt (Tables)
Schedule of Long-term Debt
The following table summarizes Valvoline’s current and long-term debt as of the dates reported in the Condensed Consolidated Balance Sheets:
(In millions)
December 31 2016
September 30 2016
Senior Notes
$
375

$
375

Term Loan A
296

375

Accounts Receivable Securitization
75


Revolver


Other (a)
(6
)
(7
)
Total debt
$
740

$
743

Short-term debt
75


Current portion of long-term debt
15

19

Long-term debt
$
650

$
724

 
 
 
(a) At December 31, 2016, Other includes $8 million of debt issuance cost discounts and $2 million of debt acquired through acquisitions. At September 30, 2016, Other included $9 million of debt issuance cost discounts and $2 million of debt acquired through acquisitions.
Employee Benefit Plans (Tables)
Components of Benefit Costs
The following table summarizes the components of pension and other postretirement benefit income. For the three months ended December 31, 2015, these amounts were generally related to allocations to Valvoline under a multi-employer plan.
 
 
 
 
 
Other postretirement benefits
 
Pension benefits
 
(In millions)
2016
 
2015
 
2016
 
2015
Three months ended December 31
 
 
 
 
 
 
 
Service cost
$
1

 
$
2

 
$

 
$

Interest cost
21

 
6

 

 

Expected return on plan assets
(36
)
 
(9
)
 

 

Amortization of prior service credit

 

 
(3
)
 

Actuarial gain

 

 
(8
)
 

Net periodic benefit income
$
(14
)

$
(1
)

$
(11
)
 
$

 
 
 
 
 
 
 
 
Earnings Per Share (Tables)
Schedule of Earnings Per Share, Basic and Diluted
The following is the computation of basic and diluted earnings per share (“EPS”). Earnings per share is reported under the treasury stock method.

 
 
Three months ended
 
 
December 31
(In millions except per share data)
 
2016
 
2015
Numerator
 
 
 
 
Net income
 
$
72

 
$
65

Denominator
 
 
 
 
Weighted-average shares used to compute basic EPS
 
205

 
205

Effect of dilutive securities (a)
 

 

Weighted-average shares used to compute diluted EPS
 
205


205

 
 
 
 
 
Earnings per share
 
 
 
 
Basic
 
$
0.35

 
$
0.32

Diluted
 
$
0.35

 
$
0.32

 
 
 
 
 
(a) During the three months ended December 31, 2016, the Company issued share-based awards to six non-employee directors. These awards had no material impact on earnings per share.
Stockholders' Equity (Tables)
Components of Other Comprehensive Income (Loss)
Components of other comprehensive income (loss) recorded in the Condensed Consolidated Statements of Comprehensive Income are presented in the following table, before tax and net of tax effects.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
2015
(In millions)
Before tax
 
Tax expense
 
Net of tax
 
Before tax
 
Tax expense
 
Net of tax
Three months ended December 31
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Unrealized translation loss
$
(9
)
 
$

 
$
(9
)
 
$
(5
)
 
$
1

 
$
(4
)
Pension obligation adjustment:
 
 
 
 


 
 
 
 
 
 
Amortization of unrecognized prior service credits included in net income (a)
(3
)
 
1

 
(2
)
 

 

 

Total other comprehensive (loss) income
$
(12
)
 
$
1

 
$
(11
)
 
$
(5
)
 
$
1

 
$
(4
)
 
 
 
 
 
 
 
 
 
 
 
 
 (a) Amortization of unrecognized prior service credits are included in net periodic benefit income for pension and other postretirement plans and are included in Non-service income and gains on pension and other postretirement plans in the Condensed Consolidated Statements of Comprehensive Income.
Related Party Transactions (Tables)
Summary of Allocated Centralized and Administrative Support Costs
The following table summarizes the centralized and administrative support costs of Ashland that were allocated to Valvoline for the three months ended December 31, 2015.

 
 
Three months ended December 31
(In millions)
 
2015
Information technology
 
$
5

Financial and accounting
 
3

Building services
 
3

Legal and environmental
 
2

Human resources
 
1

Shared services
 
1

Other general and administrative
 
6

Total
 
$
21

Reportable Segment Information (Tables)
Schedule of Segment Reporting Information
The following table presents various financial information for each reportable segment:



(In millions)
For the three months ended December 31
2016
 
2015
Sales
 
 
 
Core North America
$
237

 
$
241

Quick Lubes
127

 
100

International
125

 
115

 
$
489

 
$
456

Operating Income
 
 
 
Core North America
$
51

 
$
53

Quick Lubes
29

 
23

International
20

 
16

Total operating segments
$
100

 
$
92

Unallocated and other (a)
20

 
4

 
$
120

 
$
96

 
 
 
 
(a)
During the three months ended December 31, 2016, Unallocated and other includes a gain of $8 million related to other postretirement plan actuarial remeasurement and $6 million of separation costs.
Basis of Presentation (Details) (Ashland)
Dec. 31, 2016
Ashland
 
Related Party Transaction [Line Items]
 
Ashland ownership percentage
83.00% 
Accounts Receivable (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2016
Sep. 30, 2016
Receivables [Abstract]
 
 
Trade and other accounts receivable
$ 359 
$ 368 
Less: Allowance for doubtful accounts
(6)
(5)
Accounts receivable
$ 353 
$ 363 
Inventories (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2016
Sep. 30, 2016
Inventory Disclosure [Abstract]
 
 
Finished products
$ 147 
$ 149 
Raw materials, supplies and work in process
24 
21 
LIFO reserves
(28)
(29)
Obsolete inventory reserves
(2)
(2)
Inventories
$ 141 
$ 139 
Debt - Schedule of Long Term Debt (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2016
Sep. 30, 2016
Debt Instrument [Line Items]
 
 
Debt gross
$ 673 
$ 752 
Short-term debt
75 
Other
(6)
(7)
Total debt
740 
743 
Current portion of long-term debt
15 
19 
Long-term debt
650 
724 
Debt issuance cost discounts
Debt acquired through acquisitions
Line of Credit |
Revolver
 
 
Debt Instrument [Line Items]
 
 
Debt gross
 
Short-term debt
2024 Notes |
Senior Notes
 
 
Debt Instrument [Line Items]
 
 
Debt gross
375 
375 
Term Loan A Facility |
Line of Credit |
Secured Debt
 
 
Debt Instrument [Line Items]
 
 
Debt gross
296 
375 
2017 Accounts Receivable Securitization Facility |
Line of Credit |
Secured Debt
 
 
Debt Instrument [Line Items]
 
 
Short-term debt
$ 75 
$ 0 
Debt (Details) (USD $)
3 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended 3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Sep. 30, 2016
Dec. 31, 2016
2024 Notes
Senior Notes
Sep. 30, 2016
2024 Notes
Senior Notes
Dec. 31, 2016
2016 Credit Facilities
Dec. 31, 2016
2016 Credit Facilities
Line of Credit
Dec. 31, 2016
Secured Debt
2017 Accounts Receivable Securitization Facility
Nov. 30, 2016
Secured Debt
2017 Accounts Receivable Securitization Facility
Nov. 30, 2016
Secured Debt
2017 Accounts Receivable Securitization Facility
Line of Credit
Dec. 31, 2016
Secured Debt
2017 Accounts Receivable Securitization Facility
Line of Credit
Dec. 31, 2016
Secured Debt
Term Loan A Facility
Dec. 31, 2016
Secured Debt
Term Loan A Facility
Line of Credit
Sep. 30, 2016
Secured Debt
Term Loan A Facility
Line of Credit
Dec. 31, 2016
Revolver
Dec. 31, 2016
Revolver
Line of Credit
Dec. 31, 2016
Letter of Credit
Dec. 31, 2016
Letter of Credit
2016 Credit Facilities
Line of Credit
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt gross
$ 673,000,000 
 
$ 752,000,000 
$ 375,000,000 
$ 375,000,000 
 
 
 
 
 
 
 
$ 296,000,000 
$ 375,000,000 
 
$ 0 
 
 
Long-term debt, fair value
688,000,000 
 
771,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate of debt
 
 
 
5.50% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal amount of line of credit
 
 
 
 
 
1,325,000,000 
 
 
125,000,000 
 
 
875,000,000 
 
 
450,000,000 
 
100,000,000 
 
Term of debt
 
 
 
 
 
 
 
 
 
1 year 
 
 
5 years 
 
 
5 years 
 
 
Proceeds from borrowings
75,000,000 
 
 
 
 
 
75,000,000 
 
 
 
 
 
 
 
 
 
 
Weighted-average interest rate
 
 
 
 
 
 
 
 
 
 
1.50% 
 
 
 
 
 
 
 
Remaining borrowing capacity
 
 
 
 
 
428,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Letters of credit outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 22,000,000 
Maximum consolidated leverage ratio
 
 
 
 
 
 
4.5 
 
 
 
 
 
 
 
 
 
 
 
Minimum consolidated interest coverage ratio
 
 
 
 
 
 
3.0 
 
 
 
 
 
 
 
 
 
 
 
Income Taxes - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended 12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Sep. 30, 2016
Sep. 30, 2016
Ashland
Dec. 31, 2016
Ashland
Other current assets
Sep. 30, 2016
Ashland
Other current assets
Dec. 31, 2016
Ashland
Accrued expenses and other liabilities
Sep. 30, 2016
Ashland
Accrued expenses and other liabilities
Dec. 31, 2016
Ashland
Other long-term liabilities
Sep. 30, 2016
Ashland
Other long-term liabilities
Dec. 31, 2016
Tax Matters Agreement
Ashland
Sep. 30, 2016
Tax Matters Agreement
Ashland
Dec. 31, 2016
Tax Matters Agreement
Ashland
Other current assets
Sep. 30, 2016
Tax Matters Agreement
Ashland
Other current assets
Dec. 31, 2016
Tax Matters Agreement
Ashland
Accrued expenses and other liabilities
Dec. 31, 2016
Tax Matters Agreement
Ashland
Other long-term liabilities
Sep. 30, 2016
Tax Matters Agreement
Ashland
Other long-term liabilities
Sep. 30, 2017
Scenario, Forecast
Income Tax Contingency [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
34.50% 
32.30% 
33.70% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34.60% 
Uncertain tax positions from increases in positions taken in the current year
$ 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations to related party
 
 
 
73 
 
 
44 
69 
71 
83 
66 
 
 
20 
68 
71 
 
Receivables from related party
 
 
 
 
$ 5 
$ 30 
 
 
 
 
 
 
$ 5 
$ 5 
 
 
 
 
Employee Benefit Plans - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 3 Months Ended
Dec. 31, 2016
Dec. 31, 2016
U.S government bonds
Level 1
Sep. 30, 2016
U.S government bonds
Level 1
Dec. 31, 2016
Pension plan
Dec. 31, 2015
Pension plan
Dec. 31, 2016
Other postretirement benefit plan
Dec. 31, 2015
Other postretirement benefit plan
Dec. 31, 2015
Multi-employer pension plan
Defined Benefit Plan Disclosure [Line Items]
 
 
 
 
 
 
 
 
Pension and other postretirement benefit income
$ 25 
 
 
$ 14 
$ 1 
$ 11 
$ 0 
$ 1 
Pension plan contributions
 
 
 
 
 
 
 
Expected pension contributions for the remainder of 2017
 
 
 
12 
 
 
 
 
Gain from actuarial remeasurements
 
 
 
 
 
 
 
Non-qualified benefit plan investments
 
$ 34 
$ 34 
 
 
 
 
 
Employee Benefit Plans - Pension and Other Postretirement Benefit Costs (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
 
 
Net periodic benefit cost (income)
$ (25)
 
Pension benefits
 
 
Defined Benefit Plan Disclosure [Line Items]
 
 
Service cost
Interest cost
21 
Expected return on plan assets
(36)
(9)
Amortization of prior service credit
Actuarial gain
Net periodic benefit cost (income)
(14)
(1)
Other postretirement benefits
 
 
Defined Benefit Plan Disclosure [Line Items]
 
 
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
(3)
Actuarial gain
(8)
Net periodic benefit cost (income)
$ (11)
$ 0 
Earnings Per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Dec. 31, 2016
director
Dec. 31, 2015
Earnings Per Share [Abstract]
 
 
Net income
$ 72 
$ 65 
Weighted-average shares used to compute basic EPS (in shares)
205 
205 
Effect of dilutive securities (in shares)
Weighted-average shares used to compute diluted EPS (in shares)
205 
205 
Earnings per share, basic (usd per share)
$ 0.35 
$ 0.32 
Earnings per share, diluted (usd per share)
$ 0.35 
$ 0.32 
Number of non-employee directors
 
Stockholders' Equity (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
0 Months Ended
Dec. 20, 2016
Nov. 15, 2016
Dec. 20, 2016
Ashland
Dec. 31, 2016
Ashland
Class of Stock [Line Items]
 
 
 
 
Quarterly cash dividend declared (usd per share)
 
$ 0.049 
 
 
Dividends paid
$ 10 
 
$ 8 
 
Ashland ownership percentage
 
 
 
83.00% 
Stockholders' Equity - Other Comprehensive Income (Loss) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Before tax
 
 
Unrealized translation loss
$ (9)
$ (5)
Amortization of unrecognized prior service credits included in net income
(3)
Total other comprehensive (loss) income
(12)
(5)
Tax expense
 
 
Unrealized translation loss
Amortization of unrecognized prior service credits included in net income
Total other comprehensive (loss) income
Net of tax
 
 
Unrealized translation loss
(9)
(4)
Amortization of unrecognized prior service credits included in net income
(2)
Other comprehensive loss
$ (11)
$ (4)
Related Party Transactions - Narrative (Details) (USD $)
3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2016
Hedging instrument
Fair value
Foreign currency derivative
Dec. 31, 2016
Ashland
Sep. 30, 2016
Ashland
Dec. 31, 2016
Ashland
Other current assets
Sep. 30, 2016
Ashland
Other current assets
Dec. 31, 2016
Ashland
Accrued expenses and other liabilities
Sep. 30, 2016
Ashland
Accrued expenses and other liabilities
Dec. 31, 2016
Ashland
Other long-term liabilities
Sep. 30, 2016
Ashland
Other long-term liabilities
Related Party Transaction [Line Items]
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable sold by Ashland to the financial institution
 
 
 
$ 11,000,000 
$ 29,000,000 
 
 
 
 
 
 
Notional amount of derivatives
 
 
22,000,000 
 
 
 
 
 
 
 
 
Stock based compensation expense
1,000,000 
3,000,000 
 
 
 
 
 
 
 
 
 
Receivables from related party
 
 
 
 
 
5,000,000 
30,000,000 
 
 
 
 
Obligations to related party
 
 
 
 
73,000,000 
 
 
44,000,000 
2,000,000 
69,000,000 
71,000,000 
General corporate expenses allocated to Valvoline
$ 0 
$ 21,000,000 
 
 
 
 
 
 
 
 
 
Related Party Transactions - Ashland Costs Allocated (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
$ 0 
$ 21 
Ashland |
Information technology
 
 
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
 
Ashland |
Financial and accounting
 
 
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
 
Ashland |
Building services
 
 
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
 
Ashland |
Legal and environmental
 
 
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
 
Ashland |
Human resources
 
 
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
 
Ashland |
Shared services
 
 
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
 
Ashland |
Other general and administrative
 
 
Related Party Transaction [Line Items]
 
 
General corporate expenses allocated to Valvoline
 
$ 6 
Reportable Segment Information - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Dec. 31, 2016
location
Sep. 30, 2016
Segment Reporting Information [Line Items]
 
 
Number of reportable segments
 
Quick Lubes |
Acquisition of Quick-Lube Locations
 
 
Segment Reporting Information [Line Items]
 
 
Number of locations acquired
 
Payments to acquire quick-lube locations
 
$ 4 
Operating Segments |
International
 
 
Segment Reporting Information [Line Items]
 
 
Number of countries where our products are sold
140 
 
Unallocated and Other
 
 
Segment Reporting Information [Line Items]
 
 
Separation costs
$ 6 
 
Reportable Segment Information - Financial Information by Segment (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Segment Reporting Information [Line Items]
 
 
Sales
$ 489 
$ 456 
Operating Income
120 
96 
Gain from actuarial remeasurements
 
Separation costs
Core North America
 
 
Segment Reporting Information [Line Items]
 
 
Sales
237 
241 
Quick Lubes
 
 
Segment Reporting Information [Line Items]
 
 
Sales
127 
100 
International
 
 
Segment Reporting Information [Line Items]
 
 
Sales
125 
115 
Operating Segments
 
 
Segment Reporting Information [Line Items]
 
 
Operating Income
100 
92 
Operating Segments |
Core North America
 
 
Segment Reporting Information [Line Items]
 
 
Operating Income
51 
53 
Operating Segments |
Quick Lubes
 
 
Segment Reporting Information [Line Items]
 
 
Operating Income
29 
23 
Operating Segments |
International
 
 
Segment Reporting Information [Line Items]
 
 
Operating Income
20 
16 
Unallocated and Other
 
 
Segment Reporting Information [Line Items]
 
 
Operating Income
20 
Gain from actuarial remeasurements
 
Separation costs
$ 6 
 
Subsequent Events (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
0 Months Ended
Nov. 15, 2016
Jan. 24, 2017
Subsequent Event
Jan. 31, 2017
Subsequent Event
Time-It Lube
store
Subsequent Event [Line Items]
 
 
 
Number of stores in which business assets are expected to be acquired (store)
 
 
28 
Quarterly cash dividend declared (usd per share)
$ 0.049 
$ 0.049 
 
Consideration for Time-It Lube acquisition
 
 
$ 48