Acquisitions and Divestitures

12 Months Ended

Sep. 30, 2019

ACQUISITIONS AND DIVESTITURES

Acquisitions

Valvoline acquired 60 service center stores and a lubricant production company during fiscal 2019 for an aggregate purchase price of $78 million. These acquisitions included 31 franchise service center stores in Canada acquired from Oil Changers Inc. on October 31, 2018, five former franchise service centers stores, and 24 service center stores acquired in single and multi-store transactions within the Quick Lubes reportable segment. The Company also acquired an Eastern European lubricant production company, including its manufacturing facility, within the International reportable segment. These acquisitions provide an opportunity to further grow Valvoline's Quick Lubes system within key markets and expand Valvoline’s presence in Eastern Europe, including additional investment in the Company’s regional European supply chain capabilities.

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

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

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

A summary follows of the aggregate cash consideration paid and the total assets acquired and liabilities assumed for the years ended September 30:


(In millions)	2019		2018		2017
Inventories	$	—	$	2	$	1
Other current assets	—		1		—
Property, plant and equipment	19		2		2
Goodwill ^(a)	50		58		60
Intangible assets ^(b)
Reacquired franchise rights ^{(a) (c)}	5		26		6
Customer relationships	6		9		2
Trademarks and trade names	1		27		1
Other	2		—		—



Other noncurrent liabilities	(1)		—		—
Net assets acquired	82		125		72
Bargain purchase gain ^(d)	(4)		—		—
Consideration transferred	$	78	$	125	$	72

(a)During fiscal 2018, the preliminary purchase price allocation for the acquisition of certain former franchise service center stores during fiscal 2017 was adjusted to reduce goodwill and increase reacquired franchise rights by $6 million.

(b)Weighted average amortization period of intangible assets acquired in fiscal 2019 is 10 years.

(c)Prior to the acquisition of former franchise service center stores, Valvoline licensed the right to operate franchised quick lube service centers, including use of the Company’s trademarks and trade name. In connection with these acquisitions, Valvoline reacquired those rights and recognized separate definite-lived reacquired franchise rights intangible assets, which are being amortized on a straight-line basis over the weighted average remaining term of approximately 9 years. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market.

(d)Recorded in Equity and other income, net within the Consolidated Statement of Comprehensive Income.

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

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

Remaining ownership interest in subsidiary

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

Dispositions

Valvoline liquidated one of its subsidiaries in fiscal 2019 and recorded a $1 million gain in Equity and other income, net in the Consolidated Statement of Comprehensive Income. During fiscal 2018, Valvoline completed the liquidation of another subsidiary within the International reportable segment and sold two service center stores to a franchisee within the Quick Lubes reportable segment. These transactions resulted in a net gain of $2 million, which was recognized in Equity and other income, net in the Consolidated Statement of Comprehensive Income during the year ended September 30, 2018.