RELATED PARTY TRANSACTIONS

Ashland Transactions

Separation from Ashland

Immediately prior to the Distribution, Ashland owned 170 million shares of Valvoline common stock, which represented approximately 83% of the outstanding shares of Valvoline common stock. Effective upon the Distribution, Ashland no longer held any shares of Valvoline common stock. Refer to Note 1 for further information on the separation from Ashland. Also refer to Note 15 for information regarding the conversion of share-based awards from Ashland to Valvoline at Distribution.

Related party payables

Valvoline had total net obligations due to Ashland of $79 million and $74 million as of September 30, 2018 and 2017, respectively, which were primarily recorded in Other noncurrent liabilities in the Consolidated Balance Sheets. These liabilities generally relate to net obligations due to Ashland under the Tax Matters Agreement as well as reimbursements payable to Ashland for certain other contractual obligations, including those that are intended to transfer to Valvoline as part of the Distribution and those related to transition services. Refer to Note 12 for additional details regarding the Tax Matters Agreement and related obligations.

Transition Services Agreements

Valvoline also entered into a Transition Services Agreement (“TSA”) and Reverse Transition Services Agreement (“RTSA”) as well as certain other arrangements in connection with the separation from Ashland, which provide for certain continued corporate support services provided by Valvoline and Ashland to one another following the IPO. In connection with the IPO, Valvoline began to set up its own corporate functions, and pursuant to the TSA, Ashland provided various corporate support services for Valvoline, including certain accounting, human resources, information technology, office and building, risk, security, tax and treasury services. Pursuant to the RTSA, Valvoline provided Ashland with various corporate support services, including certain human resources, information technology, office and building, security and tax services, as well as certain regulatory compliance services required during the period in which Valvoline remained a majority-owned subsidiary of Ashland. In general, these agreements began following the completion of the IPO and cover a period not expected to exceed 24 months. The charges associated with these services were not material during the years ended September 30, 2018, 2017 and 2016, and the costs are consistent with expenses that Ashland had historically allocated or Valvoline incurred with respect to such services, plus a mark-up of five percent.

Corporate allocations

Prior to the completion of the IPO in fiscal 2016, Valvoline 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, were $79 million for the year ended September 30, 2016 and were included within Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income. Where it was possible to specifically attribute such expenses to activities of Valvoline, amounts were 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 considers the methods used in allocating expenses to be reasonable estimates. Upon completion of the IPO, Valvoline assumed responsibility for the costs of these functions as noted above.

The following table summarizes the centralized and administrative support costs that were allocated to Valvoline from Ashland for the year ended September 30, 2016:



(In millions)
Information technology	$	20
Financial and accounting	12
Building services	11
Legal and environmental	6
Human resources	5
Shared services	2
Stock-based compensation	11
Other general and administrative	12
Total	$	79

Cash management and treasury

For periods prior to the IPO in fiscal 2016, Valvoline participated in Ashland’s centralized treasury and cash management processes. Accordingly, the cash and cash equivalents were held by Ashland at the corporate level and were not attributed to Valvoline. Transactions in periods prior to the IPO 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 Ashland’s net investment on the Consolidated Statement of Stockholders’ Deficit and as a financing activity within the accompanying Consolidated Statements of Cash Flows. In the Consolidated Statement of Stockholders’ Deficit, Ashland’s net investment represents the cumulative net investment by Ashland in Valvoline through the IPO, including net cash transfers to and from Ashland through the Distribution.

All significant transactions between Valvoline and Ashland have been included in the consolidated financial statements. In the periods preceding the IPO and Distribution, Valvoline also participated in certain of Ashland’s treasury activities related to accounts receivable factoring. Refer to Note 6 for additional information.