Valvoline has approved incentive plans that authorize 21 million shares to be issued, with approximately 16 million remaining available for issuance as of September 30, 2019. The Valvoline incentive plans authorize the grant of stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and other nonvested stock awards. The Compensation Committee of the Board of Directors administers the Valvoline incentive plans and has the authority to determine the individuals to whom awards will be made, the amount of those awards, and other terms and conditions of the awards.

Certain original grants were modified, including the vesting conditions and the number of awards outstanding, in connection with the restructuring activities described in Note 11. Valvoline estimated its pre- and post-modification fair value and updated its expense over the remaining service period for each modified award, as appropriate, which did not result in material adjustments to expense.

In connection with the Distribution on May 12, 2017, outstanding Ashland share-based awards held by Valvoline employees and directors were converted to equivalent share-based awards of Valvoline based on an exchange ratio of Ashland’s fair market value prior to the Distribution in relation to Valvoline’s fair market value post-Distribution. This conversion modified the number of awards outstanding, as well as certain terms and conditions of the original grants relative to performance and market measures. The conversion was treated as a modification for accounting purposes, and accordingly, Valvoline estimated its pre- and post-modification fair value, which resulted in an increase in the incremental fair value of the awards that was not material and is being expensed ratably over the remaining vesting period for each award.


(In millions)	2019		2018		2017 ^(b)
Stock appreciation rights	$	1	$	2	$	3
Nonvested stock awards	8		9		5
Performance awards	1		1		2
Total stock-based compensation expense, pre-tax ^(a)	10		12		10
Tax benefit	(2)		(3)		(4)
Total stock-based compensation expense, net of tax	$	8	$	9	$	6

(a)Includes approximately $1 million in each period presented related to certain awards that are cash-settled and liability-classified; therefore, fair value is remeasured at the end of each reporting period until settlement.

SARs were granted to certain Valvoline employees to provide award holders with the ability to profit from the appreciation in value of a set number of shares of common stock over a period of time by exercising their award and receiving the sum of the increase in shares. SARs were granted at a price equal to the fair market value of the stock on the date of grant and typically vest and become exercisable over a period of one to three years. Unexercised SARs generally lapse ten years after the grant date.


	Number of shares (in thousands)	Weighted average exercise price per share		Weighted average remaining term (in years)	Aggregate intrinsic value (in millions)
SARs outstanding as of September 30, 2018	1,798	$	18.54	6.7 years	$	6
Granted	240	$	20.37
Exercised	(185)	$	17.19		$	1
Forfeited	(38)	$	20.35
SARs outstanding as of September 30, 2019	1,815	$	18.88	6.2 years	$	6
SARs exercisable as of September 30, 2019	1,342	$	18.15	5.4 years	$	5

The aggregate intrinsic value of SARs exercised (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the SAR) was $1 million during fiscal 2019, $2 million during fiscal 2018, and less than $1 million during fiscal 2017. As of September 30, 2019, there was $1 million of total unrecognized compensation cost related to SARs, which is expected to be recognized over a weighted average period of 1.9 years.

Stock-based compensation expense for SARs was computed using the Black-Scholes option-pricing model to estimate the grant date fair value of new or modified awards with the following key assumptions:


	2019			2018			2017
Weighted average grant date fair value per share	$	5.36		$	5.56		$	7.44
Assumptions (weighted average)
Risk-free interest rate ^(a)	2.9		%	2.2		%	1.7		%
Expected dividend yield	1.5		%	0.9		%	0.9		%
Expected volatility ^(b)	26.8		%	23.3		%	22.8		%
Expected term (in years) ^(c)	5.88			5.88			7.45

(a)Based on the U.S. Treasury yield curve in effect at the time of grant or modification for the expected term of the award. The range of risk-free interest rates used for SARs converted at Distribution in fiscal 2017 was 1.1% to 1.9%.

(b)Due to the lack of historical data for Valvoline, expected volatility is based on the average of peer companies’ historical daily equity volatilities with look-back periods commensurate with the expected term. The range of expected volatility used for SARs converted at Distribution in fiscal 2017 was 21.5% to 24.4%.

Nonvested stock awards in the form of Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) were granted to certain Valvoline employees and directors. These awards were granted at a price equal to the fair market value of the underlying common stock on the grant date, generally vest over a one to three-year period, and are subject to forfeiture upon termination of service before the vesting period ends. These awards were primarily granted as RSUs that settle in shares upon vesting, while RSAs result in share issuance at grant, which entitle award holders to voting rights that are restricted until vesting. Dividends on nonvested stock awards are generally granted in the form of additional units or shares of nonvested stock awards, which are subject to vesting and forfeiture provisions.


	Number of shares (in thousands)	Weighted average grant date fair value per share
Unvested shares as of September 30, 2018	1,278	$	23.07
Granted	345	$	20.41
Vested	(443)	$	22.62
Forfeited	(97)	$	21.52
Unvested shares as of September 30, 2019	1,083	$	21.52

The total grant date fair value of shares vested was $10 million, $6 million and less than $1 million for the years ended September 30, 2019, 2018 and 2017, respectively. The weighted average grant date fair value for nonvested stock awards granted in fiscal 2018 and fiscal 2017 was $23.17 and $22.82, respectively. As of September 30, 2019, there was $5 million of total unrecognized compensation costs related to nonvested stock awards, which is expected to be recognized over a weighted average period of 3.2 years. The aggregate intrinsic value of nonvested stock awards as of September 30, 2019 is $24 million.

Performance share units were awarded to certain key Valvoline employees that are tied to overall financial performance relative to selected industry peer groups and/or internal targets. Awards are granted annually, with each award typically covering a three-year performance and vesting period. Each performance share unit is convertible to one share of common stock, and the actual number of shares issuable upon vesting is determined based upon performance compared to market and financial performance targets. Nonvested performance share units generally do not entitle employees to vote or to receive any dividends thereon.


	Number of shares (in thousands)	Weighted average grant date fair value per share
Unvested shares as of September 30, 2018	327	$	22.64
Granted	195	$	21.22
Vested	(66)	$	30.66
Forfeited	(33)	$	21.80
Unvested shares as of September 30, 2019	423	$	22.31

As of September 30, 2019, there was $3 million of unrecognized compensation costs related to nonvested performance share awards, which is expected to be recognized over a weighted average period of approximately 1.8 years. The aggregate intrinsic value of the performance-based nonvested stock awards as of September 30, 2019 is $9 million.

With regard to the performance conditions, the fair value of new or modified awards is equal to the grant date fair market value of Valvoline’s common stock, and compensation cost is recognized over the requisite service period when it is probable that the performance condition will be satisfied. For market conditions, compensation cost is recognized regardless of whether the conditions are satisfied and based on the grant date fair value of new or modified awards using a Monte Carlo simulation valuation model using the following key assumptions:


	2019			2018			2017
Weighted average grant date fair value per share	$	21.22		$	23.82		$	18.44
Assumptions (weighted average)
Risk-free interest rates^(a)	2.8		%	1.7		%	1.2		%
Expected dividend yield	1.3		%	1.0		%	1.0		%
Expected volatility ^(b)	26.8		%	24.2		%	21.0		%
Expected term (in years)	3.0			3.0			1.9

(a)Based on the U.S. Treasury yield curve in effect at the time of grant or modification for the expected term of the award. The range of risk-free interest rates used for performance awards was 1.6% to 1.8% in fiscal 2018 and 0.9% to 1.5% in fiscal 2017 for awards converted at Distribution.

(b)Due to the lack of historical data for Valvoline, expected volatility is based on the average of peer companies’ historical volatilities with look-back periods commensurate with the expected term. The range of expected volatility used for performance awards converted at Distribution in fiscal 2017 was 18.9% to 22.4%.